U.S. v. Baldinger, 85-5687

• Decision Date: 01 February 1988
• Docket Number: No. 85-5687,85-5687
• Citation: 838 F.2d 176
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Paul M. BALDINGER, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 176

838 F.2d 176

UNITED STATES of America, Plaintiff-Appellee, v. Paul M. BALDINGER, Defendant-Appellant.

No. 85-5687.

United States Court of Appeals Sixth Circuit.

Argued July 2, 1986.

Decided Feb. 1, 1988.

Thomas H. Dundon (argued) Neal and Harwell, Nashville, Tenn., for defendant-appellant.

Joe B. Brown, U.S. Atty., Nashville, Tenn., Robert J. Washko (argued), for plaintiff-appellee.

Before ENGEL and KENNEDY, Circuit Judges; and CONTIE, ^* Senior Circuit Judge.

ENGEL, Circuit Judge.

This appeal requires us to decide whether letters mailed to customers of appellant's business associate falsely and maliciously stating that his associate was conducting polygraph examinations without a license constituted a "scheme or artifice to defraud" within the mail fraud statute, 18 U.S.C. Sec. 1341.

Paul M. Baldinger appeals his conviction following a jury trial in the United States District Court for the Middle District of Tennessee on twenty counts of mail fraud. Baldinger and Roger Fleming were licensed polygraph examiners engaged in separate practices. For some time, they maintained an amicable business relationship. In 1981, they informally agreed to provide services for each other's clients when one of them was unavailable, and in 1982 they began to share office space. Later in 1982, however, a dispute arose between them when Fleming acquired an account that Baldinger had been pursuing.

In an attempt to get even, Baldinger volunteered in December, 1982, to pay the annual fee for renewing Fleming's polygraph examiner's license. He wrote out a check to the Tennessee Polygraph Examiners Board, and Fleming prepared the envelope. But Baldinger removed the envelope from the outgoing mail and the envelope never reached the Board. In May and June, 1983, Baldinger mailed letters to nineteen of Fleming's clients. The letters stated that Fleming was administering polygraph examinations without a license and advised the clients to avoid further testing until the licensing matter was corrected. Several of the letters to Fleming's clients gave the appearance that they were sent by the Polygraph Examiners Board, while others purported to be sent by "Ronald D. Abernathy, Director."

Baldinger also mailed an anonymous letter to Victor Hartman, a test subject, who had been examined by Fleming in the course of a job application. The test results indicated dishonesty on Hartman's part. The letter to Hartman stated that Fleming was unlicensed and that Hartman could file a complaint with the Polygraph Examiners Board or that he might "wish to bring a law suit against Mr. Fleming ... and collect a considerable settlement in cash for their illegal testing." Baldinger included with the letter a proposed complaint that he drafted.

Baldinger was indicted on twenty counts of mail fraud in violation of 18 U.S.C. Secs. 1341 and 1342. ¹ The indictment alleges that Baldinger "devise[d] a scheme and artifice to defraud Roger Fleming and persons doing business with Fleming of their right to conduct business free of false, fictitious, and fraudulent information concerning the status of Fleming's polygraph license." The indictment characterizes Fleming as "a business associate of the defendant," and the indictment goes on to allege the specific acts described above.

Baldinger moved to dismiss the indictment on the ground that it did not allege a violation of section 1341. The district court denied the motion. A jury found Baldinger guilty on all twenty counts. He was sentenced to three years of imprisonment on Count 1, to be followed by probation for concurrent periods of three years on each of Counts 2 through 20.

After we heard oral argument in this case, the Supreme Court announced its opinion in McNally v. United States, --- U.S. ----, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987). Convinced that McNally could have a major impact on this case, we requested additional briefing. Since that time the Supreme Court has further refined its opinion about the scope of section 1341 in Carpenter v. United States, --- U.S. ----, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987).

The defendants in McNally were Kentucky government officials who were charged with diverting the commissions for the State of Kentucky's workmen's compensation policies from the insurance agency deserving them to certain other agencies, including ones they controlled. They were convicted for violating section 1341 on the theory that they had sought to "defraud the citizens and government of Kentucky of their right to have the Commonwealth's affairs conducted honestly." McNally, 107 S.Ct. at 2875. In reversing the conviction, the Court stated that "those commissions were not the Commonwealth's money ... the premium for insurance would have been paid to some agency." Id. at 2882.

As written, McNally left us with at least some uncertainty whether it might have been intended to limit prosecutions only in cases involving the corruption of public officials. The Court announced that "[t]he mail fraud statute clearly protects property rights, but does not refer to the intangible right of the citizenry to good government." Id. at 2879. However, in some of its language it seemed to take a broader approach, announcing that it "read Sec. 1341 as limited in scope to the protection of property rights." Id. at 2881.

While we are not certain that the last word has yet been spoken, we find at least some clarification in the Supreme Court's decision just issued in Carpenter v. United States, supra. In Carpenter, the Court applied McNally to the case of a financial columnist for the Wall Street Journal and his friends who had profited on the stock market by trading based on the columnist's information before it was published. The Court found that Carpenter and his associates could be convicted under section 1341 because the Wall Street Journal's interest in keeping its stories confidential until publication was a property interest.

Carpenter stands for the narrow principle that McNally was not intended to exclude from the purview of section 1341 fraudulent schemes and artifices merely because the property interest involved was normally defined as an intangible one. Had the Supreme Court conceived that McNally was limited only to the dishonest acts and corruption of public officials, it would, of course, never have felt it necessary in Carpenter to go beyond stating that fact and noting that Carpenter itself only involved a purely private wrongdoing. From this, we are led to conclude that while the Supreme Court recognized both tangible and intangible property interests, they nonetheless 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) through the employment of fraud or other artifice and the use of the public mail. In our view, therefore, McNally rejects that line of cases which predicates criminal liability only upon general acts of dishonesty or illegality unrelated to motives of property gain, whatever its nature. See e.g., United States v. Margiotta, 688 F.2d 108 (2d Cir.1982); United States v. Barta, 635 F.2d 999 (2d Cir.1980).

In its supplemental brief, the government argues that Baldinger's conviction can still be upheld despite the McNally decision. It first claims that defendant's categorization of this case as being one involving intangible rights is not entirely accurate.

This case has always concerned the property rights of the victim Roger Fleming, i.e., the attempt by Baldinger to disparage and to destroy Fleming's good name and "good will" and to obtain such "good will" for his (Baldinger's) use and benefit.

It is beyond dispute and well settled that "good will" is property of an intangible nature and the term "property" includes "good will."

By this argument the government seeks to align itself with the holding in Carpenter that McNally was not intended to prohibit prosecution under section 1341 for appropriating property rights of an intangible nature.

To fit within the newly constricted boundaries of section 1341, the government seeks to show that Baldinger intended to appropriate Fleming's good will. The government stresses that the purpose of Baldinger's scheme was not only to "ruin the good will that Fleming had established and which was the source of his livelihood, but to obtain that source, i.e. Fleming's corporate accounts/clients for himself." We agree that there was some evidence from which the jury could infer that Baldinger's scheme was motivated by hope of economic gain as well as revenge or malice. So much was argued by government counsel in closing arguments to the jury:

And we know from the evidence adduced that one of the main reasons was that Roger Fleming had one of the clients that Mr. Baldinger for some time had wanted to obtain, and that is Southern Hospitality Corporation. That was a corporate account that Mr. Baldinger wanted very, very badly, and he didn't have it. ²

Having set out a factual basis for the conviction on the theory that Baldinger sought to appropriate Fleming's good will, the government next attempts to show that the jury instructions and the indictment were valid under McNally. It notes that the district court's charge to the jury tracked the language of section 1341 by stating: "The words scheme and artifice include any plan or course of action intended to deceive others and to obtain by false or fraudulent pretenses, representations or promises else [sic] money or property...