Opinion ID: 330025
Heading Depth: 1
Heading Rank: 1

Heading: did the defendant's conduct amount to an offense under the mail fraud statute?

Text: 20 Defendant asserts that the mail fraud statute has no real application to the facts of this case; and, further, that no judicial authority has ever gone this far in extending the mail fraud statute. We agree that defendant Bush's conduct was not the typical scenario found in a mail fraud case. However, we remain convinced that the government did meet the mandate of the statute by demonstrating that Bush engaged in a scheme to defraud the mayor and the citizens of Chicago and that he used the mails in the furtherance of that scheme, and furthermore, that Bush had a specific intent to engage in the fraud. 21 In recent years in this Circuit and across the country it has become well established that the mail fraud statute is violated when some or all of the following factors are present: a duty to disclose an interest with a concomitant failure to do so; an attempt to cover-up through false pretenses; a taking of money or property or rights of another through the use of kickbacks, extortion, bribery, tax evasion, perjury, or a violation of some state or federal statute; a use of the United States mails. See United States v. Proctor & Gamble Co., 47 F.Supp. 676 (D.Mass.1942); United States v. Faser, 303 F.Supp. 380 (E.D.La.1969); United States v. George, 477 F.2d 508 (7th Cir.), Cert. denied 414 U.S. 827, 94 S.Ct. 49, 38 L.Ed.2d 61 (1973); United States v. Isaacs, 493 F.2d 1124 (7th Cir.), Cert. denied 417 U.S. 976, 94 S.Ct. 3184, 41 L.Ed.2d 1146 (1974); United States v. Barrett, 505 F.2d 1091 (7th Cir.), Cert. denied --- U.S. ---, 95 S.Ct. 1951, 44 L.Ed.2d 450 (1975); United States v. Bryza, 522 F.2d 414 (7th Cir., decided August 25, 1975). What makes this case so difficult is perhaps the subtlety of the scheme in which Bush was engaged. There is no concrete evidence of extortion, bribery, kickbacks, or a violation of any criminal law 6 other than the mail fraud statute. The totality of Bush's actions show that he did violate federal law and throughout the years he was engaged in a conscious effort to hide his activities. 22 Because of the multifaceted nature of the transactions the indictment was couched in language which charged that Bush engaged in a scheme to both defraud and to obtain money under false pretenses. Reduced to its essentials the indictment alleged that Bush defrauded the citizens of Chicago, the mayor, and the employees and officials of the city out of (1) their right to Bush's loyal and faithful services in his official capacity, (2) their right to have the city's business conducted honestly and impartially, and (3) their right to be aware of all pertinent facts when analyzing, negotiating, entering into and renewing contracts with persons and companies seeking to do business with the city; and, that as a result of this scheme, Bush obtained money and property in violation of § 1341 because through fraudulent pretenses he was able to collect his salary from the city and his profits from DAAI at the same time. We think the record amply demonstrates that Bush committed the acts alleged in the indictment. The result is that this case presents a hybrid situation linking some of the pure business fraud aspects of United States v. George, supra, with the use of public office for profit considerations of United States v. Isaacs, supra and United States v. Barrett, supra. The government and the defendant are locked in dispute over whether these precedents apply. A review of the cases does not indicate any previous factual situation which is squarely on point. United States v. George, supra, is perhaps the decision that is most apropos to the Bush case. 23 In George three defendants were indicted for mail fraud violations arising from a scheme in which Yonan, a buyer for Zenith Radio Corporation, received kickbacks from Greensphan, a supplier, through middle man George. The indictment charged that the scheme deprived Zenith of its lawful money and property and of the honest and faithful performance of its employee Yonan's duties. 24 Similarly in this case the indictment charged that one of the objects of the scheme was to deprive the City of Chicago, its mayor, officials and employees of the opportunity to bargain with all relevant facts in their possession. George fully recognized that such an allegation was sufficient to state an offense under § 1341: 25 Not only did Yonan secretly profit from his agency, but also he deprived Zenith of material knowledge that Greensphan would accept less profit. There was a very real and tangible harm to Zenith in losing the discount or losing the opportunity to bargain with a most relevant fact before it. 26 However, the defendant correctly points out that the George case involved more than a mere breach of a fiduciary duty or mere nondisclosure of a business interest. Critical factors cited were the employee's participation in the scheme in his employment capacity, and/or the existence of a duty to disclose imposed by statutory or similar law and a breach of such duty. Defendant reminds us of the warning in the George opinion that: 27 We need not accept the Government's far-ranging argument that anytime an agent secretly profits from his agency he has committed a criminal fraud. Not every breach of every fiduciary duty works a criminal fraud. 28 But we think that Bush did more than breach his fiduciary duty; he materially misrepresented his interests. 29 Bush was not making his recommendation merely as a disinterested public servant. His ownership of DAAI was material to the city officials' evaluation of Bush's opinion of the company which he was recommending. Moreover, as the trial judge observed in ruling on Bush's motion to dismiss the indictment, Bush's statement that the company was 'reputable' without disclosing that it was the device by which the Mayor's Press Secretary secretly derived profits from a city contract was itself a material misrepresentation. 30 The information that Bush owned DAAI and would receive profits as a result of DAAI's city contract was information material to those city officials who were to evaluate and recommend a proposed contract and to those in the City Council who were to award a contract. That information was material to a decision as to whether to award the contract to DAAI and, if so, at what price. Assuming that the city would have been willing to do business with a company owned by Bush, the fact that Bush would be receiving profits as a result of the contract was material to the question of what percentage of DAAI's profits should be turned over to the city. 31 Bush was not responsible for awarding the O'Hare advertising contract, but he used his official position within the mayor's inner circle to exert the substantial influence which he had on those who were responsible for negotiating the contract. He did so without advising them that he was vitally interested in the contract or that his sole responsibility under the terms of the contract was to promote it. After the contract was awarded, Bush took steps to insure that the proceeds of the venture could not be traced to him, misrepresented his interest to assist in assuring that the contract would be renewed and filed false documents to continue his employment. 32 Bush's breach of fiduciary duty is important, however, in considering whether he deprived the city of his honest and faithful services. We believe that the mayor, the city, and most importantly, the citizens were deprived of those services. However, this alone could never be considered a crime under the mail fraud statute. It is only when his failure to provide honest and faithful services is combined with his material misrepresentations to the mayor and John Duba and his active concealment that an illegal fraud occurs which is cognizable under § 1341. 33 Much was said at trial about the fact that the city did not lose money on the contract and that it was one of the best in the country. However, that argument is not convincing. First of all, if the city had known of Bush's interest it might have been able to obtain a better contract. Secondly, the mail fraud statute seeks to prohibit fraudulent conduct regardless of ultimate loss or damage to the victims of the crime. United States v. Reicin, 497 F.2d 563 (7th Cir.), Cert. denied 419 U.S. 996, 95 S.Ct. 309, 42 L.Ed.2d 269 (1974). Since 1961 Bush made a profit of over $200,000 from his hidden interest in the airport advertising contract. If the citizens of Chicago and other public officials had known of Bush's interest they could have rightfully negotiated an advertising contract which might have earned those profits for the city. The net result was that Bush, through his scheme, made a deal with the city by which the city profited. The deal may have been a good one for the city; the problem is that Bush deprived the city and its officials of making a better deal, of the best deal possible, in order that he might share in the profits. In United States v. Barrett, supra, this Court discussed this problem and viewed its prior opinion in United States v. George, supra, as controlling, stating that: 34 Despite the facts that the kickbacks did not 'come out of Zenith's pockets,' that the purchasing agent did not request any preferential treatment for the supplier, that the supplier was not given any preferential treatment beyond receiving the cabinet business, that the supplier's prices to Zenith were fair and reasonable and within Zenith's general guidelines for its suppliers' prices, that Zenith was never shown to be dissatisfied with the cabinet suppliers' products or prices, and that the purchasing agent insisted on efficiency and quality from the supplier, nevertheless this court affirmed the conviction of the purchasing agent, supplier, and the third party under the mail fraud statute. 35 We need not express any opinion here on whether the mail fraud statute can be violated unless the victim(s) suffer some form of pecuniary injury, because we believe that the city in this case did suffer pecuniary injury. 36 In his argument that the mail fraud statute has no application to the facts of this case, defendant Bush also contends that the government totally failed to prove that Earl Bush had the requisite intent to commit criminal fraud. Mail fraud, like all other crimes arising out of deceit or deception, requires a specific criminal intent. The mail fraud statute proscribes any scheme utilizing the mails that is reasonably calculated to deceive persons of ordinary prudence and comprehension. Blachly v. United States, 380 F.2d 665, 671 (5th Cir. 1965). See also United States v. Shavin, 287 F.2d 647, 650 (7th Cir. 1961), Cert. denied 375 U.S. 944, 84 S.Ct. 349, 11 L.Ed.2d 273 (1963); Silverman v. United States, 213 F.2d 405, 407 (5th Cir., Cert. denied 348 U.S. 828, 75 S.Ct. 46, 99 L.Ed. 653 (1954). Did Bush have the requisite intent to deceive persons of ordinary prudence and comprehension? We think he did. In fact there is evidence in the record that the mayor and members of the City Council were deceived. Indeed, Bush's course of conduct contained active steps to deceive. At trial explanations were offered for Bush's misrepresentations, his failure to disclose his interest in DAAI, his falsification of his statements of economic interest filed with the mayor, his use of multiple nominees, conduits for payments, and a numbered trust account to hide his ownership. The jury could have considered all these actions as weighing heavily against the defendant and thus found the exculpatory evidence to be pale in comparison. It is reasonable to conclude that Bush had the necessary criminal intent from the totality of his actions. 37