Opinion ID: 503414
Heading Depth: 3
Heading Rank: 2

Heading: The Mail Fraud Statute Proscribes Appellants' Conduct

Text: 108 In the wake of the decision in McNally v. United States, --- U.S. ----, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), appellants contend that the conduct for which they were prosecuted is not encompassed by section 1341. We reject appellants' argument and affirm all the mail fraud convictions. 109 In McNally, state officers required an insurance agency, as a condition of remaining the state's insurance agent, to kickback to entities controlled by those officers a portion of the commissions received from insurance companies doing business with the state. McNally, 107 S.Ct. at 2877. The indictment, inter alia, charged the defendants with participation in a scheme to defraud the citizens of the state of their right to honest and impartial government by virtue of the failure of the state officers to disclose the fact of their financial gain to other persons in state government whose actions could have been affected by the disclosure. Id. at 2882 n. 9. The Court reversed the mail fraud convictions, holding that section 1341 is limited to the protection of property rights and does not protect the intangible right of the citizenry to good government. Id. at 2879. The Court noted that there was no charge that the state itself was defrauded of any property or that it was deprived of control over the expenditure of its funds. Id. at 2882. Furthermore, despite a charge in the indictment that the defendants had obtained property by means of false representations to the insurance agent, the jury was not required to make such a finding. Id. Absent a charge that state law prohibited profiteering by a state officer acting in an official capacity, or that state law required disclosure of such profiteering, the Court was unwilling to conclude that such activity defrauded the state and, therefore, that it is proscribed by federal law. Id. at 2882 n. 9. 110 For the reasons stated in our opinion concerning appellants' motions for release pending appeal, United States v. Perholtz, 836 F.2d 554, 558-60 (D.C.Cir.1988), we conclude that McNally does not require reversal of appellants' convictions in connection with the SBA scheme. We further conclude that the ATAP convictions also must be affirmed. 111 We base our conclusion concerning the ATAP scheme on Carpenter v. United States, --- U.S. ----, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987). There, the Court upheld the convictions for mail and wire fraud of a Wall Street Journal (Journal) reporter and others who traded stock in anticipation of the content of the Journal's Heard on the Street column. Although McNally had foreclosed prosecutions based on intangible rights, it did not limit mail fraud to the deprivation of tangible property. The Journal had a property interest in its confidential business information: the timing and content of its column. 108 S.Ct. at 320. It was immaterial that the appellants had not interfered with the Journal's use of the information; the Journal owned the information, and it had the exclusive right to decide how to use it. Id. at 321. As the reporter obtained the information in the course of his employment, he was bound not to use it in a manner not authorized by the Journal: 112 a person who acquires special knowledge or information by virtue of a confidential or fiduciary relationship with another is not free to exploit that knowledge or information for his own personal benefit but must account to his principal for any profits derived therefrom. 113 Id. (quoting Diamond v. Oreamuno, 24 N.Y.2d 494, 497, 301 N.Y.S.2d 78, 248 N.E.2d 910 (1969)). 114 In this case, Jackson had confidential information concerning the design specifications that the Postal Service would require for the ATAP project. He acquired this information in the course of his employment and was not entitled to use it except in the manner directed by the information's owner (the government). Jackson's theft of property consisted of his appropriation of confidential information belonging to his employer. 115 Without deciding whether a government employee's unauthorized use of confidential information always would constitute a mail fraud violation, we conclude that this case is governed by Carpenter. The Postal Service was acting in its proprietary capacity in undertaking ATAP. It sought to acquire a system for the lowest possible price and used a competitive bidding process to this end. The integrity of competitive bidding, however, depends on all potential bidders receiving the same information at the same time. By appropriating the confidential information concerning the ATAP specifications and leaking it to Perholtz, Jackson skewed the bidding process and directly impinged upon the government's economic interests. 116 Although this case was not presented to the jury under Carpenter's theft of confidential business information rationale, we have little difficulty affirming on this basis. The instructions required the jury to find an enterprise whose purpose was to enrich itself unjustly from the proceeds of government contracts and sub-contracts for computer services and equipment which had been and would be obtained by means of bribery, fraud and circumvention of government contracting procedures. J.A. at 266 (emphasis added). Thus, the factual predicate for the jury's verdict necessarily implies that it found that Jackson stole confidential information in violation of the mail fraud statute as interpreted in Carpenter. Cf. United States v. Jacobs, 475 F.2d 270, 283 (2d Cir.) (upholding conviction on alternate basis because jury necessarily found every element required to support conviction), cert. denied, 414 U.S. 821, 94 S.Ct. 116, 38 L.Ed.2d 53 (1973). 117