Court Opinion

ID: 9524073
Source: CourtListenerOpinion
Date Created: 2023-08-07 02:49:51.130168+00
Date Added: 2024-06-11T13:08:49.357045
License: Public Domain

SUNDBY, J.
(dissenting). Each defendant is subject to fines of $90,000 and imprisonment for ninety years. Such severe sanctions may not be imposed on innocent but negligent defendants. See State v. Collova, 79 Wis. 2d 473, 486, 255 N.W.2d 581, 587-88 (1977). I dissent.
Defendants were convicted of racketeering for issuing promissory notes through misrepresentation and fraud, in violation of § 551.41(2) and (3), Stats. For purposes of deciding whether the trial court correctly instructed the jury, we must assume that any misrepresentations or omissions defendants made to induce purchasers to accept the notes were innocent, although negligent. We propose to hold that the trial court correctly instructed the jury that it could find defendants guilty even though they acted innocently. This cannot be the law.
Over defendants' objection, the trial court instructed the jury:
*151Wilful... means only that the defendant knowingly committed the act charged. Wilful does not mean that the defendant had an intent to defraud or that the defendant had knowledge that the law was being violated.
I understand and accept that I may be guilty of a crime if I injure someone by my criminal negligence. Section 939.25(1), Stats., provides: " '[C]riminal negligence' means ordinary negligence to a high degree, consisting of conduct which the actor should realize creates a substantial and unreasonable risk of death or great bodily harm to another." There is nothing unconstitutional about punishing negligent conduct which the actor should realize creates a substantial and unreasonable risk of death or great bodily harm to another. See State v. Barman, 183 Wis. 2d 180, 196-200, 515 N.W.2d 493, 501-02 (Ct. App. 1994). The key to constitutionality of reckless behavior statutes is that the actor "should realize" that his or her conduct is unlawful. However, we propose to allow the jury to find the defendants in this case guilty of crimes because their conduct, viewed retrospectively, may have been negligent.
Section 551.58(1), Stats., provides in part: "Any person who wilfully1 violates any provision of this chapter . . . may be fined not more than $5,000 or imprisoned not more than 5 years or both." (Emphasis added.) Defendants were convicted of eighteen predicate acts.
Section 551.41, Stats., provides in part:
*152It is unlawful for any person, in connection with the offer, sale or purchase of any security in this state, directly or indirectly:
(2) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading; or
(3) To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.
" '[Wilful]'... is a 'word of many meanings,' and 'its construction [is] often . . . influenced by its context.'" Ratzlaf v. United States, 114 S. Ct. 655, 659 (1994) (quoting Spies v. United States, 317 U.S. 492, 497 (1943)).
The seminal case in Wisconsin construing the word "wilful" is State v. Preston, 34 Wis. 675, 683-85 (1874). According to the Wisconsin Supreme Court, Preston continues to be "a leading authority on the nuances of the word, 'wilful.' " Department of Transp. v. Transportation Comm'n, 111 Wis. 2d 80, 88-89, 330 N.W.2d 159, 163 (1983). Preston points out that "the word is pregnant with ambiguity, and that its meaning varies in accordance with its context." Id. In Preston, the court said:
The word [wilfully], as used to denote the intent with which an act is done, is undoubtedly susceptible of different shades of meaning or degrees of intensity according to the context and evident purpose of the writer. It is sometimes so modified and reduced as to mean little more than plain intentionally, or designedly. Such is not, however, its ordinary signification when used in criminal law *153and penal statutes. It is there most frequently understood, not in so mild a sense, but as conveying the idea of legal malice in greater or less degree, that is, as implying an evil intent without justifiable excuse.
34 Wis. at 683-84 (emphasis added). The court said that the "fullest and most satisfactory discussion" it had found of the word "[wilfully]" was in United States v. Three Railroad Cars, 1 Abbott's U.S. Rep. 196, where the court, in differentiating between the words "knowingly," "[wilfully]" and "maliciously," as used in criminal and penal statutes, said:
The first of these words does not, in common parlance, or in legal construction, necessarily and per se imply a wicked purpose or perverse disposition, or indeed any evil or improper motive, intent or feeling; but the second is ordinarily used in a bad sense to express something of that kind, or to characterize an act done wantonly, or one which a man of reasonable knowledge and ability must know to be contrary to his duty.
34 Wis. at 685.
Sections 551.41 and 551.58, STATS., are set in the context of subch. IV of ch. 551, entitled "Fraudulent Practices." While the title of a subchapter or subdivision of a statute is not part of the law, it may be indicative of legislative intent. See Pulsfus Poultry Farms, Inc. v. Town of Leeds, 149 Wis. 2d 797, 805-06, 440 N.W.2d 329, 333 (1989). Plainly, the purpose of subch. IV is to proscribe fraudulent practices. "A statement ... is 'fraudulent' if it was falsely made . . . with the intent to deceive." Black's Law Dictionary 662 (6th ed. 1990) (emphasis added).
*154Where a statute makes fraud unlawful, the Criminal Jury Instruction requires "scienter," or knowledge that the act is unlawful. See WlS J I — CRIMINAL 1850 (welfare fraud: making false representations); WlS J I — Criminal 1852 (welfare fraud: failure to report income or assets); WlS J I — CRIMINAL 1854 (welfare fraud: failure to notify authorities of change of facts); and WlS J I — CRIMINAL 1862 (food stamp fraud: misstating facts). Even where the statute does not use the term "wilful" or "intentional" or "knowingly," the Criminal Jury Instructions Committee has concluded that a statute which proscribes fraud requires that the State prove an intent to violate the law. See WlS J I — Criminal 1852, Comment 4; Wis J I — Criminal 1854, Comment 3.
The majority relies on State v. Temby, 108 Wis. 2d 521, 528-30, 322 N.W.2d 522, 526-27 (Ct. App. 1982), where we stated that intent to defraud is not an element of a violation of §§ 551.41 and 551.58, Stats. However, that statement is gratis dictum. We are bound by our holding in the later case of State v. Swift, 173 Wis. 2d 870, 878, 496 N.W.2d 713, 716 (Ct. App. 1993), where we held:
One element of the offense of theft by securities fraud is that the defendant knowingly made false representations with the intent to defraud. See Wis JI — Criminal 1453. Section 551.41, STATS., makes it unlawful to defraud a person in connection with the sale of any security by making untrue statements of material fact or omitting a material fact.
The majority rejects our holding in Swift because the issue of scienter was not briefed. The clear reason is that it never occurred to the State that a defendant could innocently defraud another. I have found no case in Wisconsin criminal jurisprudence in which "wilful" *155has been construed to permit the conviction of a defendant who had no knowledge that his or her act was unlawful and had no intent to commit an unlawful act.
In Temby, the court in announcing its gratis dictum erroneously relied on Aaron v. Securities and Exchange Comm'n, 446 U.S. 680 (1980), which was not a criminal action but a civil enforcement action. The Aaron Court construed § 17(a) of the Securities Act of 1933, which is virtually identical to § 551.41, STATS. It concluded that Congress required scienter to find a violation of § 17(a)(1) [§ 551.41(1)] because it used the words "device," "scheme," and "artifice." 446 U.S. at 695-96. The Court concluded, however, that Congress did not intend to require scienter to find a violation of § 17(a)(2) or 17(a)(3) [§ 551.41(2) and (3) ]. 446 U.S. at 696-97. Aaron is therefore persuasive in construing § 551.59, Stats., which provides for civil enforcement of § 551.41, but not in construing § 551.58, STATS.
The legislative history of the Securities Act of 1933 clearly shows that Congress understood that scienter would be required to convict a person of a criminal offense of making a false representation in a securities transaction. When questioned about civil liability, one of the drafters of the 1933 Act stated: "Criminal liability is based only on knowingly making a false statement. But civil liability exists even in the case of an innocent mistake. . . ." Statement of Judge Alexander Holtzoff, then Special Assistant to the Attorney General, Securities Act, Hearings on 875, Senate Committee on Banking and Currency, 73d Congress, 1st Sess., 207 (1933), quoted in Aaron, 446 U.S. at 716 n.7 (Blackmun, J., concurring in part and dissenting in part) (emphasis added).
I suggest we be guided not only by Swift, where the court considered the law self-evident, but by Ratzlaf. *156The Ratzlaf Court did not construe securities law but a distant cousin, the Bank Secrecy Act (31 U.S.C. §§ 5311-5322). The Act requires banks and other financial institutions to report to the Secretary of the Treasury cash transactions exceeding $10,000, and prohibits a person from "wilfully" evading the reporting requirement by breaking up a single transaction into smaller transactions. Ratzlaf was indicted by a grand jury for structuring a $100,000 cash payment to a Nevada casino through a series of cashier's checks, each of which was for less than $10,000. He was convicted after the district court instructed the jury that the Government did not have to prove that Ratzlaf knew he was violating the anti-structuring law. 114 S. Ct. at 657. The Supreme Court reversed, concluding that because the Act proscribed "wilful" conduct, the Government had to prove that Ratzlaf acted with knowledge that his act was unlawful.
Ratzlaf establishes that where a statute proscribes "wilful" conduct, the Government must prove not only that the defendant knew what he was doing but knew that his or her act was unlawful. The Court noted that federal courts had consistently construed "wilfulness" as used in related statutes to require a purpose to disobey the law. Id. at 656. Wisconsin appellate courts have consistently construed "wilful" to require guilty intent. See, e.g., Collova, 79 Wis. 2d at 486, 255 N.W.2d at 587-88.
The Ratzlaf Court found it unnecessary to resort to legislative history because the statutory text was clear. 114 S. Ct. at 662. However, if it had found that the word "wilful" was ambiguous, the Court would have resolved any doubts in favor of the defendant, under the rule that "lenity principles 'demand resolution of ambiguities in criminal statutes in favor of the defendant.'" Id. *157at 662-63 (quoting Hughey v. United States, 495 U.S. 411, 422 (1990)). Wisconsin follows the same rule. See State v. Frey, 178 Wis. 2d 729, 745, 505 N.W.2d 786, 792-93 (Ct. App. 1993).
A properly instructed jury may have found that defendants made false representations as to material facts and concealed material facts from those to whom they transferred securities, knowing that their acts violated § 551.41(2) and (3), Stats. The jury was not permitted to decide whether defendants were charlatans or merely optimists. The jury was instructed that they were not to find whether defendants committed an unlawful act but simply whether they did the act. Under that incorrect instruction, defendants had no defense. However, the jury could have found that defendants, in good faith, believed that Farm Loan Services could redeem its unsecured notes upon maturity, even though the company had financial problems.
It is clear from Ratzlaf and Department of Transp. v. Transportation Comm'n that the legislative body may choose to regulate an industry or activity by imposing both civil and penal sanctions. In the latter case, the court construed the statute regulating finance companies, auto dealers, adjustment companies and collection agencies. The State charged an automobile dealership, its president and its sales manager with violating a statute which made unlawful the wilful failure to perform a written agreement with a buyer. 111 Wis. 2d at 83, 330 N.W.2d at 160. Doucas Oldsmobile discovered an error in its agreement to sell an automobile. The buyer refused to pay the increased price which Doucas insisted on. The parties agreed that the omission was a good-faith mistake. Id. at 85, 330 N.W.2d at 161. The transportation commission sought to enjoin Doucas Oldsmobile from future violations of *158the statute. Doucas argued that the statute required a finding that its acts were made with evil intent, malice or without justifiable excuse. Id. at 87, 330 N.W.2d at 162. The court held that because this was a regulatory, non-penal statute, strict construction was inappropriate. Id. at 92, 330 N.W.2d at 164. However, the court made clear that if the statute had been penal, it would have construed "wilful" strictly, thereby requiring an evil or malicious intent. Id. at 90, 330 N.W.2d at 163. Department of Transp. v. Transportation Comm'n is especially instructive because the court construed the principal case relied on by defendants — State v. Col-lova — in the context of regulatory statutes not greatly dissimilar from those involved in this case. In Collova, the court held that defendant could not be convicted of operating a motor vehicle after revocation without proof that the operator knew that his driver's license might have been revoked or suspended. Department of Transp., 111 Wis. 2d at 101, 330 N.W.2d at 168 (citing Collova, 79 Wis. 2d at 487, 255 N.W.2d at 588). The court pointed out that in Collova the sanctions were relatively severe while the penalties for violating the automobile dealership regulations were, by comparison, nominal. Id. The court concluded: "No element of malicious or evil intent is required by either the statute itself or the rationale utilized in Collova which compels the element of mens rea in respect to offenses which carry substantial and mandatory penal sanctions." Id. at 102, 330 N.W.2d at 169.
The Collova court expressed succinctly my view of this case: "To inflict substantial punishment on a person who is innocent of any intentional or negligent wrongdoing offends the sense of justice and is ineffective." 79 Wis. 2d at 486, 255 N.W.2d at 588. The majority concludes that the Collova rationale does not *159apply because any person who makes an untrue statement of a material fact or omits to state a material fact "is not innocent of wrongdoing." Majority op. at 138. This is a tragic misstatement not only of the law but of human experience. I may in good faith tell my wife I will be home for dinner at 6:30 p.m. but miss the 5:55 bus. My statement was untrue but I do not believe my wife would find me guilty of wrongdoing. In Reda v. Sincaban, 145 Wis. 2d 266, 426 N.W.2d 100 (Ct. App. 1988), a real estate agent innocently misrepresented the size of a lot. We refused to allow the real estate agent to incorporate intentional deceit into his strict responsibility for his misrepresentation. Id. at 271, 426 N.W.2d at 103. We said that as between innocent parties, the person having the means of determining the pertinent facts is strictly responsible for his or her representations, irrespective of knowledge or negligence. Id. at 269, 426 N.W.2d at 102. The securities laws make defendants strictly responsible for their misrepresentations in a civil action. However, to make them liable for criminal penalties of $90,000 and ninety years' imprisonment offends my sense of justice.
The maj ority invades the province of the j ury when it concludes that defendants are cheaters and "should, without more, have guilty knowledge." Majority op. at 139.1 agree with the majority that a cheater is engaged in wrongdoing. However, a "cheater" is a swindler: "[A] person who acts dishonestly, deceives, or defrauds: He is a cheat and a liar." The Random House Dictionary of THE English Language 351 (2d ed. 1987). Typical synonyms are: "swindler, trickster, sharper, dodger, charlatan, fraud, fake, phony, mountebank." Id. In this case, the State presents a strong case of guilty knowledge. It is tempting to conclude: "Oh well, the jury would probably have found defendants guilty anyway." *160The next case may, however, be different. The jury instruction which the trial court gave will become the law as to the meaning of "wilful." Numerous jury instructions will have to be rewritten to reflect that the word "wilful" as used in criminal statutes no longer requires that defendant have knowledge that he or she was violating the law. The consequences of our decision are frightening. I therefore dissent.

In some of the statutes cited and in some of the decisions, "wilful" is spelled "willful." I will use "wilful" throughout.