Opinion ID: 513267
Heading Depth: 2
Heading Rank: 2

Heading: Mail Fraud Claims

Text: 37 We turn next to defendants' challenges to their mail fraud convictions. Each defendant was convicted of two counts of mail fraud. The basis of each mail fraud count was a payment check mailed from Hyman to Paxson Electric.
38 First, defendants mount a challenge based on McNally v. United States, --- U.S. ----, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987). The federal mail fraud statute makes it illegal to use the mails to execute a scheme to defraud a person or entity of money or property. 18 U.S.C. Sec. 1341. 11 In McNally, the Supreme Court held that the mail fraud statute did not apply to schemes to defraud citizens of their intangible right to honest government. 12 Subsequently, in Carpenter v. United States, --- U.S. ----, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987), the Supreme Court clarified that the mail fraud statute did apply to schemes to defraud a victim of intangible property rights. See United States v. Italiano, 837 F.2d 1480 (11th Cir.1988) (extensive discussion of McNally and Carpenter and the ramifications of these cases on the application of the mail fraud statute). 39 The rule of law we discern from McNally and Carpenter is that the only fraudulent schemes exempt from the mail fraud statute are those involving intangible, non-property, non-monetary rights (hereinafter McNally-type intangible rights). Put another way, McNally and Carpenter teach that the mail fraud statute applies to any fraudulent scheme involving a monetary or property interest, whether that interest is tangible or intangible. See United States v. Asher, 854 F.2d 1483 (3d Cir.1988) (Essentially, therefore, where rights are involved whose violation would lead to no concrete economic harm, and where those rights are the only rights involved in the case, McNally 's proscriptions would prevent upholding conviction on appeal. Where, on the other hand, a violation of the rights involved would result in depriving another of something of value, and the indictment, the proofs and the instructions are based on that fact, then the presence of intangible rights language will not prove fatal on appeal.); United States v. Wellman, 830 F.2d 1453, 1462 (7th Cir.1987) (McNally addressed rights whose violation would ordinarily result in no concrete economic (or to use Justice Stevens' term, 'monetary') harm.); United States v. Baldinger, 838 F.2d 176, 179 (6th Cir.1988) (From McNally and Carpenter, the Sixth Circuit concluded that the Supreme Court clearly intended to exclude from the reach of the mail fraud statute claims which did not involve a direct intention to deprive another of a recognized and traditional property right (tangible or intangible)....). 40 Defendants contend that a scheme to defraud the EPA and Dekalb County of their right to free and open competition falls within the bounds of McNally; hence, they assert their mail fraud convictions are infirm. In the plethora of post-McNally cases addressing challenges to pre-McNally mail fraud convictions, the courts uniformly have looked to the wording of the indictment and the jury instructions to determine if the convictions can stand. If the indictment and jury instructions were phrased in such a way that the jury could have convicted the defendant of scheming to defraud the victim of a McNally-type intangible right, the courts have reversed the convictions. 13 Conversely, if the jury necessarily must have concluded that the defendant schemed to defraud the victim of a non-McNally type of right (i.e. a monetary or property right, whether tangible or intangible), then the convictions stand, even if the indictment charged and the jury was instructed on McNally-type intangible rights in addition to non-McNally rights. 14 See United States v. Ochs, 842 F.2d 515, 522-24 (1st Cir.1988) and United States v. Asher, 854 F.2d 1483 (3d Cir.1988) (summarizing leading post-McNally mail fraud cases). 41 The defendants' McNally claim only can succeed if the jury could have convicted them of scheming to defraud the EPA and Dekalb County of their right to open competition and if this intangible right to open competition falls within the scope of McNally. 15 Based on the indictment and the jury instructions, we conclude that the jury must have convicted the defendants of scheming to defraud the victims of money, thus we reject their McNally claim. 16 42
The indictment charged that: 43 23. Beginning in or about August 1979 and continuing thereafter until at least January 1985, the exact dates being unknown to the Grand Jury, the defendants and co-conspirators devised and intended to devise a scheme and artifice to defraud the County and the United States of America, through its agency, the EPA, of: 44
45 (b) their right to free and open competition for the bidding on the electrical construction portion of the Snapfinger Creek project, such bidding to be conducted honestly, fairly and free from craft, trickery, deceit, corruption, dishonesty and fraud. 46 24. It was part of the aforesaid scheme and artifice to defraud that the defendants, and others, known and unknown to the Grand Jury, would and did submit collusive, artificially high and rigged bids in order to induce the general contractor selected to build the Snapfinger Creek project to award the subcontract for the electrical construction portion of the project to defendant Paxson Electric. 17 47 The plain language of the indictment charges the defendants with scheming to defraud the EPA and Dekalb County of money. While it also charges that the defendants schemed to defraud the victims of their right to open competition, the indictment is not worded in a way that would allow the jury to choose between the two theories. Rather, to convict the defendants in accordance with the indictment, the jury must have concluded that there was a scheme to defraud the victims of money and the right to open competition. See United States v. Perholtz, 836 F.2d 554, 559 (D.C.Cir.1988) (holding indictment was sufficient under McNally where it alleged defendants created a kickback scheme to defraud the victim of its  'lawful right to conduct business and affairs free from kickbacks ...'  and also--not alternatively--one 'to obtain money and property....'  (quoting indictment) (emphasis in original)); United States v. Eckhardt, 843 F.2d 989, 996-97 (7th Cir.1988) (mail fraud conviction entered pursuant to plea agreement upheld where the indictment alleged a scheme to defraud the victim of intangible rights and to obtain money and property by false and fraudulent pretenses.). 48 In McNally, the indictment charged that defendants schemed to defraud the government and citizens of Kentucky of their right to have the Commonwealth's affairs conducted honestly.... --- U.S. at ---- n. 4, 107 S.Ct. at 2878 n. 4. The indictment also charged that the defendants schemed to obtain (directly and indirectly) money ... but did not allege that they schemed to defraud the victims of money. Thus, the McNally indictment was substantially different from the one in this case. 49
50 The jury instructions also withstand a McNally challenge. We note that in reviewing the sufficiency of the jury instructions, we must examine the charge as a whole rather than isolating and examining the deficiencies of individual instructions. Italiano, 837 F.2d at 1487; United States v. Gordon, 817 F.2d 1538, 1542 (11th Cir.1987), vacated in part and rev'd in part, 836 F.2d 1312 (11th Cir.1988). Our review of the instructions as a whole convinces us that a reasonable jury must have concluded that the purpose of the scheme was to defraud the victims of money. The jury was instructed that to convict the defendants of mail fraud, the government had to prove beyond a reasonable doubt that, among other things, the defendant knowingly and willfully devised a scheme to defraud.... (R. 24-3326). The judge instructed that a scheme includes any plan or course of action intended to deceive others and to obtain by false or fraudulent pretenses money or property from the person so deceived. Id. (emphasis added). This is directly contrary to McNally, where the court stated that there was no charge and the jury was not required to find that the Commonwealth itself was defrauded on any money or property. --- U.S. at ----, 107 S.Ct. at 2882. 51 Of equal importance is that the jury was not instructed on the intangible rights theory. No instruction was given that the scheme to defraud could include the right to open competition. This aspect of the scheme was implicit in the instruction that the government had to prove a scheme to defraud substantially the same as the one alleged ... in the indictment. (R. 24-3327). As discussed above, however, the scheme alleged in the indictment was one to defraud the victims of money and the right to open competition. Thus, the implicit reference to the right to open competition is not in violation of McNally. See Perholtz, 836 F.2d at 558 (where the indictment charged a scheme to defraud the government of money and its right to conduct its business free from kickbacks and the jury was instructed that to convict it had find a scheme substantially the same as the one alleged in the indictment, there was no McNally violation even though the judge explicitly charged the jury that the scheme to defraud included the deprivation of McNally-type intangible rights); United States v. Piccolo, 835 F.2d 517, 520 (3d Cir.1987) (defendant's McNally claim rejected where the jury was charged that to convict it must find that defendant schemed to defraud the victim  'of its right to the honest, faithful and loyal services of its employee, ... and further, to defraud [victims] of money.'  (emphasis in original)), cert. denied, --- U.S. ----, 108 S.Ct. 2014, 100 L.Ed.2d 602 (1988); United States v. Asher, 854 F.2d 1483 (3d Cir.1988) (although jury instructions made reference to a scheme to defraud of both tangible rights and McNally-type intangible rights, convictions affirmed where court was unable to hypothesize a set of circumstances under which this jury could have found [defendant] guilty of depriving the citizens of the Commonwealth of their right to honest government ... without also having found that [defendant] was involved in a scheme, the sole purpose of which was to ensure that CTA obtained a no-bid ... contract at a substantially greater cost to the Commonwealth than a contract obtained through traditional competitive bidding.). 52 The defendants contend that the jury instructions are invalid under McNally because they do not expressly limit the fraudulent scheme to the deprivation of money and do not expressly exclude a scheme based on the deprivation of the right to open competition. For example, the defendants argue that the charge defining the scheme, quoted above, is defective because it does not absolutely limit a mail fraud scheme to the deprivation of property but rather explains that a scheme includes a deprivation of tangible rights. Two other circuits have addressed McNally challenges to identical jury instructions defining scheme. The Tenth Circuit agreed with the defendants, concluding that [a]lthough the above definition of 'scheme' states that it includes any plan by which the victim loses money or property, use of the open-ended word 'includes' does not require the jury to find such a loss. United States v. Shelton, 848 F.2d 1485, 1496 (10th Cir.1988) (en banc) (emphasis in original). 53 The Sixth Circuit reached the opposite conclusion. It explained that the instruction defining scheme was acceptable because [t]he clear emphasis on deprivation of money or property, combined with the absence of any instruction that the jury was free to convict Horton on the basis of the deprivation of Chrysler's intangible right to conduct its business in an honest manner compels the conclusion that McNally does not control the disposition of the present case. United States v. Horton, 847 F.2d 313, 320 (6th Cir.1988). Under the facts of this case, we agree with the Sixth Circuit that the definition of scheme, although somewhat open-ended, does not require a reversal of the mail fraud convictions. As in Horton, the jury here was not instructed on any intangible right theory. Moreover, it is clear to us that the focus of the jury charge, read as a whole, was on the deprivation of money and property, not on the deprivation of the right to free and open competition. Finally, in this case, the only mention of the open competition theory was in the indictment, and there it was clear that there must be a scheme to defraud of both money and open competition. 54 For these reasons, we reject defendants' claim to the extent it is based on McNally.
55 In reviewing a defendant's challenge to the sufficiency of the evidence supporting his conviction, we must uphold the jury's verdict if, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979). In addition, we must make all reasonable inferences in support of the jury's verdict. United States v. Hewes, 729 F.2d 1302, 1320 (11th Cir.1984), cert. denied sub nom., Caldwell v. United States, 469 U.S. 1110, 105 S.Ct. 790, 83 L.Ed.2d 78 (1985). 56
57 The defendants challenge the sufficiency of the government's proof with respect to several aspects of the mail fraud convictions. 18 First, they contend there was insufficient evidence that the EPA and Dekalb County actually were overcharged because of the collusive bids. Defendants argue that there was no evidence that the bid price or profits were unreasonably high and thus no evidence of a scheme to defraud the EPA and Dekalb County of money. We conclude that there was sufficient evidence of a scheme to defraud the victims of money. 19 58 In her memorandum opinion, Judge Evans cited the following as evidence of overcharge. First, Trepte testified that he agreed to raise Fischbach and Moore's bid $500,000 in exchange for Paxson Electric's promise to forgive an $89,000 debt Fischbach allegedly owed to Paxson Electric. Trepte also testified that Paxson Electric never collected the $89,000 debt. R10-240-41. Second, there was testimony that Dynalectric received 50% of Paxson Electric's Snapfinger profits (approximately $880,000) in exchange for doing virtually no work on the Snapfinger project other than periodic site inspections. Third, Edward Baylin, the manager of Dynalectric's Atlanta office who prepared the materials cost estimate for Dynalectric's bid testified that he could not figure out how Dynalectric's actual bid of $5.3 million was derived when the highest price he could come up with, using realistic (or somewhat higher) prices, was $4.7 million. R.11-444-452. There also was testimony that the profit level (approx. 40% of the contract price) was unusually high relative to comparable projects. We conclude that a rational jury could conclude from this evidence, viewing all inferences favorably to the government, that the collusive bidding resulted in overcharges on the Snapfinger contract. 59
Dekalb County 60 The defendants contend that even if there was sufficient evidence to establish that they overcharged Hyman, the general contractor, there is insufficient evidence to show that Hyman passed along these overcharges to the alleged victims of the scheme, the EPA and Dekalb County. Defendants rely primarily on the fact that Hyman had a negotiated lump sum contract, rather than a cost-plus contract, with the EPA and Dekalb County. However, the government presented testimony from a Hyman employee who worked on the Snapfinger bid indicating that Hyman's bid price was a direct function of the various subcontract prices obtained from allegedly competitive bids from the subcontractors. We believe that a rational jury could infer from this testimony that at least some of the overcharge was passed on to the EPA and Dekalb County. 20 61
62 actually succeed 63 The district court charged the jury that to convict the defendants of mail fraud, the jury did not have to find that the scheme to defraud actually succeeded. 21 We hold that the substance of this charge was correct: conviction under the federal mail fraud statute only requires the government to prove a scheme to defraud; the success or failure of the scheme is irrelevant. Our conclusion is supported by the language of the statute and by the cases interpreting it. The mail fraud statute itself addresses the use of the mails to further a scheme to defraud a victim of money or property. McNally, --- U.S. at ----, 107 S.Ct. at 2881. The statutory language does not set forth a requirement that the scheme to defraud actually must succeed in defrauding its victim of money or property. 64 In addition, both pre- and post-McNally cases confirm our conclusion that Judge Evans correctly instructed the jury that the success of the scheme was irrelevant. See, e.g., United States v. Keane, 852 F.2d 199 (7th Cir.1988) ([I]t may well be that none of this cost the City or anyone else one red cent.... But the mail fraud statute proscribes fraudulent schemes; it does not confine penalties to those whose schemes succeed in raking off cash, a point no less valid today than when emphasized on direct appeal [thirteen years ago].); Ward v. United States, 845 F.2d 1459, 1462 (7th Cir.1988) ([T]he mail fraud statute punishes the scheme to defraud, and does not require that the intended victim actually have been defrauded....); United States v. Baldinger, 838 F.2d 176, 180 (6th Cir.1988) (mail fraud statute reaches schemes whose goal is  'the transfer of something of economic value to the defendant.' Comment, The Intangible Rights Doctrine and Political--Corruption Prosecutions Under the Mail Fraud Statute, 47 U.Chi.L.Rev. 562, 566 (1980)); United States v. Asher, 854 F.2d 1483 (3d Cir.1988) (mail fraud convictions affirmed where scheme would have defrauded victim of money had it succeeded ); United States v. Ochs, 842 F.2d 515, 523 (1st Cir.1988) (noting that post-McNally cases in which convictions were affirmed were those in which the jury was in fact explicitly required to find that the fraudulent scheme was also intended to cause monetary harm. (emphasis added)); United States v. Dial, 757 F.2d 163, 179 (7th Cir.) (mail fraud statute punishes the scheme to defraud rather than the completed fraud itself.), cert. denied, 474 U.S. 838, 106 S.Ct. 116, 88 L.Ed.2d 95 (1985). 65 Convictions in pre-McNally mail fraud cases involving bid rigging withstood sufficiency of evidence challenges absent an explicit showing that the victim actually lost money. For example, in United States v. Washita Construction Co., 789 F.2d 809, 818 (10th Cir.1986), 66 [t]he evidence adduced at trial indicated that the conspirators arranged to win highway contracts without submitting competitive bids. The scheme devised by the conspirators circumvented the state and federal competitive bidding procedures and allowed the contractors to virtually predetermine who would be awarded a contract. By arranging for complimentary bids to be submitted, the conspirators deceitfully created the illusion of competitive bidding and concealed their illegal collusion. 67 Significantly, the court did not indicate that any evidence of actual overcharge was adduced at trial, yet sustained the mail fraud convictions in the face of a sufficiency of evidence challenge. See also United States v. Young Bros., Inc., 728 F.2d 682, 689 (5th Cir.) (to withstand sufficiency challenge to mail fraud convictions, the government was required to show that the mailings (relating to the billing and payment of the $10,001) were 'in furtherance' of the bidrigging scheme.), cert. denied, 469 U.S. 881, 105 S.Ct. 246, 83 L.Ed.2d 184 (1984). 22
68 The defendants' remaining challenges to their mail fraud convictions warrant little discussion. They contend that there was an insufficient causal connection between the use of the mails and their participation in the bidding scheme. They point out that the two mailings which are the basis for the mail fraud counts occurred in 1984 and 1985, after Dynalectric received its final payment pursuant to the joint venture agreement in 1983 and well after the rigged bids were submitted in 1979. However, as we concluded in our discussion of the statute of limitations issue, the payments from Hyman to Paxson Electric were important aspects of the conspiracy. Thus, the payments which were mailed in 1984 and 1985 clearly were integral to the scheme to defraud. See United States v. Young Bros., Inc., 728 F.2d at 689 (court sustained mail fraud conviction in bid rigging context where defendant claimed that the mailings were not sufficiently closely related to the scheme to defraud; the court reasoned that mailing a payoff to a coconspirator after the rigged bids were submitted was sufficient because it reasonably can be inferred that [the defendant] would not have agreed to the scheme on behalf of his company without being paid.); United States v. Rodgers, 624 F.2d at 1310 (mail fraud conviction upheld where victim mailed to defendants the final payment of a contract obtained by rigged bids; the court concluded that [t]he scheme would have been meaningless, incomplete, and futile without final award and payment which were accomplished through the mail. Clearly, the mails were used 'in furtherance' of the scheme.). 69 Dynalectric's claim that there was insufficient evidence that it caused the mails to be used is without merit. Paxson Electric, through its affiliate CCC Electric, caused the mails to be used by requisitioning the two payments from Hyman. Evidence was presented at trial that in the ordinary course of business, the general contractor (Hyman) mails the subcontractor its contract payments following the receipt and approval of the subcontractor's payment requisition. Thus, we conclude that Paxson Electric reasonably could have anticipated that the mails would be used in the ordinary course of business to facilitate the transfer of contract payments to it (via CCC Electric) from Hyman pursuant to CCC Electric's requisition for payment. United States v. Rodgers, 624 F.2d at 1310 n. 17. Moreover, because Dynalectric was a knowing participant in the scheme to defraud, the actions of coconspirator Paxson Electric which caused the mails to be used in furtherance of the scheme are sufficient to make Dynalectric legally liable for the use of the mails. United States v. Hewes, 729 F.2d at 1322 n. 24. As we explained in Hewes, [t]he mere fact that [defendant's] role in the scheme may have ended prior to the time the [mailings] occurred does not shield him from criminal liability. Id. at 1324.