Opinion ID: 670510
Heading Depth: 1
Heading Rank: 2

Heading: THE MEANING OF 18 U.S.C. Sec. 545

Text: 12 The jury convicted Menon of 137 counts of violating the first paragraph of 18 U.S.C. Sec. 545. As we have noted supra at 552 n. 2, this paragraph makes it illegal to knowingly and willfully, with intent to defraud the United States, ... make[ ] out or pass[ ], or attempt to pass through the customhouse any false, forged, or fraudulent invoice. The jury concluded that Menon, in his position as President of Flag, violated this provision by writing invoices that misrepresented the name of the seafood exporter from which Flag had bought the seafood it was importing. Menon contends that the district court misread Sec. 545, because an intent to defraud the United States by passing false invoices through the customhouse requires 1) an intent to defeat the customs laws and 2) an intent to deprive the United States of revenue. 13 Menon's argument that Sec. 545 requires an intent to deprive the United States of revenue would place a new gloss on a 45-year-old statutory provision that has been interpreted to the contrary by two courts of appeals, see United States v. Borello, 766 F.2d 46, 51 (2d Cir.1985); United States v. McKee, 220 F.2d 266, 269 (2d Cir.1955); United States v. Kurfess, 426 F.2d 1017, 1019 (7th Cir.1970), cert. denied, 400 U.S. 830, 91 S.Ct. 60, 27 L.Ed.2d 60 (1970). Moreover, because Menon failed to argue in the district court that Sec. 545 requires an intent to deprive the government of revenue, we review Menon's contention on appeal for plain error. See Fed.R.Crim.P. 52(b). 14 Rule 52(b) provides that plain errors or defects affecting substantial rights may be noticed although they were not brought to the attention of the court. We find plain error sparingly, solely in those circumstances in which a miscarriage of justice would otherwise result. United States v. Frady, 456 U.S. 152, 163 n. 14, 102 S.Ct. 1584, 1592 n. 14, 71 L.Ed.2d 816 (1982). See also Government of Virgin Islands v. Smith, 949 F.2d 677, 681 (3d Cir.1991). We 15 look on a case-by-case basis to such factors as the obviousness of the error, the significance of the interest protected by the rule that was violated, the seriousness of the error in the particular case, and the reputation of judicial proceedings if the error stands uncorrected--all with an eye toward avoiding manifest injustice. 16 United States v. Thame, 846 F.2d 200, 205 (3d Cir.1988). Here, because the challenge to the construction of the statute goes to the existence vel non of criminal responsibility, we think that the error, if such it was, would affect [Menon's] due process rights and would constitute plain error. United States v. Cusumano, 943 F.2d 305, 309 (3d Cir.1991). 17 In a very similar case, in which the plaintiff argued that the district court had improperly instructed the jury that the mail fraud statute did not require an intent to deprive another of money or property, we indicated that if the district court had given such an improper instruction, it would have constituted plain error. See United States v. Piccolo, 835 F.2d 517, 519 (3d Cir.1987), cert. denied, 486 U.S. 1032, 108 S.Ct. 2014, 100 L.Ed.2d 602 (1988). As in that case, we think that, assuming Menon's interpretation of the statute is correct, the district court's failure to instruct the jury that Sec. 545 requires an intent to deprive the government of money or property constituted manifest injustice and thus constituted plain error. And, despite the contrary decisions of two courts of appeals, we hold that Menon's interpretation of Sec. 545 is correct. 4 18 While the meaning of defraud the United States generally extends beyond defrauding the government of revenue, the history of Sec. 545 demonstrates that Congress did not intend such a broad reading here. We first note that until recently, the Supreme Court generally interpreted defraud to extend to actions preventing the government from carrying out its lawful functions even when the government did not lose any revenue. This interpretation took root in Hammerschmidt v. United States which analyzed the statutory predecessor of 18 U.S.C. Sec. 37, a statute making it illegal to conspire to ... defraud the United States in any manner or for any purpose. See 265 U.S. 182, 185, 44 S.Ct. 511, 511, 68 L.Ed. 968 (1924) (interpreting Comp.St. Sec. 10201). In Hammerschmidt, the Supreme Court concluded that 19 [t]o conspire to defraud the United States means primarily to cheat the Government out of property or money, but it also means to interfere with or obstruct one of its lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest. It is not necessary that the Government shall be subjected to property or pecuniary loss by the fraud, but only that its legitimate official action and purpose shall be defeated by misrepresentation, chicane, or the overreaching of those charged with carrying out the governmental intention. Id. at 188, 44 S.Ct. at 512. 5 20 Recently, however, the Supreme Court has significantly narrowed the category of statutes in which the meaning of defraud extends beyond a deprivation of property rights. In McNally v. United States, 483 U.S. 350, 359, 107 S.Ct. 2875, 2881, 97 L.Ed.2d 292 (1987), the Court interpreted the mail fraud statute, which made it illegal to defraud or to obtain[ ] money by means of false or fraudulent pretenses, to require a finding that the defendant intended to deprive others of property or money. 18 U.S.C. Sec. 1341. 6 In so doing, the Court rejected a long line of court of appeals decisions that had interpreted the statute as proscribing schemes by government officials to defraud citizens of their intangible rights to honest and impartial government. United States v. Asher, 854 F.2d 1483, 1488 (3d Cir.1988) (emphasis in original). In justifying its decision, the Court quoted Hammerschmidt, 265 U.S. at 188, 44 S.Ct. at 512, for the proposition that, the words to defraud 'commonly refer to wronging one in his property rights by dishonest methods or schemes.'  McNally, 483 U.S. at 359, 107 S.Ct. at 2881. The Court concluded that this common understanding combined with the rule of lenity meant that the mail fraud statute required an intent to deprive someone of money or property. See id. 21 The Court distinguished the actual ruling of Hammerschmidt on the basis that the mail fraud statute aimed to prevent fraud against any member of the public, while the statute discussed in Hammerschmidt aimed to protect the United States against fraud. A statute that has for its  'object the protection and welfare of the government alone'  aims to prevent fraud in a broader sense than deprivation of property rights, but a statute aiming to prevent fraud against members of the public is likely using fraud in its usual, narrower sense. Id. at 358, 107 S.Ct. at 2881 n. 8 (quoting Curley v. United States, 130 F. 1, 7 (1st Cir.1904)). 7 22 Another case distinguishing Hammerschmidt is United States v. Cohn, 270 U.S. 339, 343, 46 S.Ct. 251, 252, 70 L.Ed. 616 (1926). There the Supreme Court was faced with interpreting the meaning of Section 35 of the Penal Code, 40 Stat. 1015 (1918), which provided that actions for the purpose of obtaining or aiding to obtain the payment or approval of' any 'claim upon or against the United States ... for the purpose and with the intent of cheating and swindling or defrauding the Government of the United States' ... shall be punishable. The Court construed Section 35 as requiring the defendant to cheat the government out of property or money. The Court distinguished Hammerschmidt on the grounds that the term defraud within Section 35 is used in connection with the words 'cheating or swindling,' indicating that it is to be construed in the manner in which those words are ordinarily used, as relating to the fraudulent causing of pecuniary or property loss. Id. at 346-47, 46 S.Ct. at 253. 23 The message we derive from this potpourri of Supreme Court cases is twofold. First, the meaning of defraud must be interpreted in the context of the particular statute that uses the term. In each case in which the Court has evaluated the meaning of defraud, it has determined the intent of Congress based on the purpose of the particular statute and on the surrounding statutory language. Second, an intent to defraud generally requires an intent to deprive someone of property or money but does not generally require such an intent in the context of statutes making it illegal to defraud the United States. It seems appropriate therefore to construe Sec. 545 as prohibiting acts that prevent the United States from carrying out its statutory duties unless there is countervailing evidence on the meaning of the statute. 24 Here, strong countervailing evidence exists. Menon points out that Sec. 1593 of title 19 (U.S.C. 1940 ed.), the predecessor statute to 18 U.S.C. Sec. 545, required that the defendant intended to defraud the revenues of the United States (emphasis added). Although Congress left out the language the revenues when it recodified the Federal Criminal Code in 1948, Menon contends that Congress made it clear that it did not not intend to make any substantive change in the statute by making this deletion. Thus, he concludes that the concept defraud the revenues is still a part of the statute. 25 As support for his view that Congress intended no substantive change, Menon cites the House Report which states that, [r]evision [of the Criminal Code], as distinguished from codification, mean[s] the substitution of plain language for awkward terms, reconciliation of conflicting laws, omission of superseded sections, and consolidation of similar provisions. H.R.Rep. No. 304, 80th Cong., 1st Sess. (1947), reprinted in 18 U.S.C.A. 439, 440. The House Report does not indicate that substantive changes were included as part of the revision. See id. The House Report concludes that, [t]he reviser's notes are keyed to sections of this bill and explain in detail every change made in text, id. at 448, and W.W. Barron, chief reviser of the code, testified to the House Committee on Revision of the Laws that [e]very substantive change, no matter how minor, is fully explained [in the reviser's notes]. Id. at 460 (emphasis added). 8 Because the reviser's notes for Sec. 545 say only that [c]hanges were made in phraseology, H.R.Rep. No. 304, 80th Cong., 1st Sess. at A46, and do not specify that any substantive changes were intended, Menon concludes that the current statute, like its predecessor, requires that the defendant have intended to deprive the United States of revenues to which it was entitled. 9 26 We agree. Although we might ordinarily discount legislative history, we are unwilling to do so where that history consists of committee reports and statements by the chief reviser and where the statutory change we are interpreting occurred in the context of codification of the entire criminal code. In that context, Congress was unlikely to have been able to carefully consider every change made to prior statutes. We think it was reasonable for Congress to rely on representations made to it by the chief reviser, among others, that all substantive changes were explicitly set forth in the revisers' notes and for Congress to indicate that it intended no other substantive changes. Absent a compelling need, we should not read as substantive a change initiated by the revisers and probably not considered by Congress. 27 At a minimum, we think that the legislative history makes the meaning of defraud the United States in Sec. 545 ambiguous given that, as we have seen, the meaning of defraud varies from statute to statute. As the Court did in McNally, we rely on the rule of lenity to hold that because the meaning of defraud is ambiguous in the context of Sec. 545, that section requires an intent to cause a deprivation of property or money. As Menon points out, and the government does not deny, the government made no showing that he had such an intent. Thus, we must reverse his conviction on Counts 1-15, 17-31, and 33-139.