U.S. v. Huls

• Citation: 841 F.2d 109
• Decision Date: 15 March 1988
• Docket Number: No. 87-3419,87-3419
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. William C. HULS and Marsden W. Miller, Jr., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 109

841 F.2d 109

UNITED STATES of America, Plaintiff-Appellee, v. William C. HULS and Marsden W. Miller, Jr., Defendants-Appellants.

No. 87-3419.

United States Court of Appeals, Fifth Circuit.

March 15, 1988.

Helen Ginger Berrigan, Gravel & Brady, New Orleans, La., Triche, Sternfels & Nail, Risley C. Triche, Napoleonville, La., for Huls.

Thomas B. Rutter, Philadelphia, Pa., John R. Martzell, New Orleans, La., for Miller.

James M. Cole, Dept. of Justice, Washington, D.C., Stanford O. Bardwell, Jr., U.S. Atty., James Stanley Lemelle, R. Raymond Lamonica, Asst. U.S. Attys., Baton Rouge, La., for U.S.

Appeals from the United States District Court for the Middle District of Louisiana.

Before VAN GRAAFEILAND, ^* JOHNSON, and JOLLY, Circuit Judges.

JOHNSON, Circuit Judge:

William C. Huls and Marsden W. Miller, Jr. appeal their convictions for mail fraud and conspiracy to commit mail fraud under 18 U.S.C. Secs. 2, 371, and 1341. The convictions were handed down shortly before the Supreme Court, writing in McNally v. United States, made it clear that mail fraud could not be based on a scheme to deprive citizens of their right to honest government. --- U.S. ----, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987). Because the indictment and jury instructions in the instant case permitted the jury to convict on this now-invalid theory, we reverse.

I. Background

William C. Huls, a prominent figure in the Louisiana oil industry, was a founder and principal owner of the Exploration Company of Louisiana (XCL), along with Marsden W. Miller, Jr. In March 1984, the Governor of Louisiana, Edwin Edwards, appointed Huls Secretary of the Louisiana Department of Natural Resources. The post carried with it membership on the Louisiana Mineral Board, which awards oil and gas leases on state lands. Huls asked the Louisiana Ethics Commission for an advisory opinion on his ties to XCL, submitting information that the Government characterized at trial as distorted and incomplete. In May 1984, the Commission issued an advisory opinion recommending that Huls be barred from participating in any Mineral Board decisions in which XCL would have a "substantial economic interest." La.Rev.Stat. Sec. 42:1102(21). Huls sold his XCL stock to Miller in June 1984, a transaction that the Government later labeled a sham.

In July 1984, the Louisiana Mineral Board awarded a lease to drill oil and gas wells on state lands to a company called TIPCO. Although the bid was in TIPCO's name, TIPCO and XCL had formed a fifty-fifty partnership to submit it. Huls recommended to the Board that it grant the lease, and also successfully argued that TIPCO be relieved of the usual well depth and letter of credit requirements.

At trial the Government presented evidence that throughout this period, Huls continued to collect on an overriding royalty and on working interests in several XCL leases. The Government also showed evidence that XCL had given Huls a Mercedes, paid health insurance premiums, and paid for several airplane trips. Huls had allegedly pledged some of his royalty interests as collateral on an XCL note for over $5,000,000, giving him an interest in XCL's continuing viability. The Government also presented evidence that Huls had an agreement to repurchase on demand a large block of the XCL stock he formerly held.

In November 1986, the United States brought charges against Huls and Miller for mail fraud and conspiracy to commit mail fraud. 18 U.S.C. Secs. 2, 371, 1341. After a three-week trial, the jury found that Huls' sale of his XCL stock had not been a sham. However, the jury convicted Huls and Miller on the charges alleging that they had deceived the Louisiana Mineral Board and the Ethics Commission about the conflicts of interest stemming from Huls' continuing ties with XCL. Huls and Miller were sentenced on June 5, 1987. On June 24, 1987, the Supreme Court decided McNally. 107 S.Ct. 2875. Huls and Miller brought this appeal.

II. Discussion

Huls and Miller argue that the indictment and instructions failed to set forth the elements of mail fraud correctly; that the district court erred in excluding evidence showing that the leases were advantageous to the state; that the jury should not have been allowed to find that Huls concealed a "substantial economic interest" in XCL; and that the district court gave an erroneous Allen charge to the jury. Allen v. United States, 164 U.S. 492, 17 S.Ct. 154, 41 L.Ed. 528 (1896). Because we hold that the convictions must be reversed on the first ground, we will not discuss the remaining grounds.

In McNally, the Supreme Court invalidated the theory, held by this circuit and others, that the "scheme or artifice to defraud" element of mail fraud could be supplied by a scheme threatening "the intangible right of the citizenry to good government." McNally, 107 S.Ct. at 2879; see, e.g., United States v. Bruno, 809 F.2d 1097, 1105 (5th Cir.), cert. denied, --- U.S ----, 107 S.Ct. 2198, 95 L.Ed.2d 853 (1987). The Court examined the legislative history and concluded that Congress enacted the mail fraud statute to protect only property rights, broadly defined. Id. 107 S.Ct. at 2879-81. In Carpenter v. United States, --- U.S. ----, 108 S.Ct. 316, 320-21, 98 L.Ed.2d 275 (1987) the Court clarified McNally by pointing out that property rights can be intangible--like a newspaper's right to exclusive use of the information it uncovers--as well as tangible and that the fraud statutes protect both kinds of property (interpreting an identically worded provision in the wire fraud statute, 18 U.S.C. Sec. 1343). Carpenter, however, reiterated that non-property rights are not covered by the mail and wire fraud statutes: "The Journal, as Winan's employer, was defrauded of much more than its contractual right to his honest and faithful service, an interest too ethereal in itself to fall within the protection of the mail fraud statute ..." Id., 108 S.Ct. at 320.

Subsequent decisions of this and other circuits have carefully hewed the property-nonproperty line drawn by the Supreme Court. In United States v. Richerson, this Court upheld the conviction of an oil company employee who steered business to certain vendors in return for kickbacks. 833 F.2d 1147 (5th Cir.1987). The Court observed that property rights continued to be interpreted broadly and that Richerson had deprived his employer both of the kickbacks (which he had a duty to turn over) and of the fair price the employer could have obtained through honest procurement. Id. at 1156-58. The Court noted that this property deprivation was "the overriding and predominent theory of the Government's case." Id. at 1157.

In United States v. Wellman, the Seventh Circuit affirmed the mail fraud conviction of a defendant who sold chemical transportation tanks by misrepresenting that they met government standards. 830 F.2d 1453 (7th Cir.1987). The court stated that the prosecution met the McNally property requirement by charging that the defendant deprived his victim of the tanks or their price. Id. at 1463. In United States v. Herron, on the other hand, this Court overturned a conviction based on failing to declare money at an international border, 825 F.2d 50 (5th Cir.1987). The Court noted that the indictment did not charge that the defendants evaded taxes, but only that they deprived the United States of information in which the Government had...