Nally v. United States Gray v. United States, Nos. 86-234

• Court: United States Supreme Court
• Writing for the Court: WHITE, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BRENNAN, MARSHALL, BLACKMUN, POWELL, and SCALIA, JJ., joined. STEVENS, J., filed a dissenting opinion, in all but Part IV of which O'CONNOR
• Citation: 107 S.Ct. 2875,483 U.S. 350,97 L.Ed.2d 292
• Parties: Charles J. McNALLY, Petitioner, v. UNITED STATES. James E. GRAY, Petitioner, v. UNITED STATES
• Docket Number: Nos. 86-234,86-286
• Decision Date: 24 June 1987

483 U.S. 350 107 S.Ct. 2875 97 L.Ed.2d 292 Charles J. McNALLY, Petitioner,

v.

UNITED STATES. James E. GRAY, Petitioner, v. UNITED STATES.

Nos. 86-234, 86-286. Argued April 22, 1987. Decided June 24, 1987. Syllabus

The federal mail fraud statute, 18 U.S.C. § 1341, prohibits the use of the mails to execute "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises." Petitioners Gray, a former Kentucky official, and McNally, a private individual, along with one Howard Hunt, the former chairman of the Commonwealth's Democratic Party, were charged with violating §1341 by devising a scheme to defraud the Commonwealth's citizens and government of their "intangible right" to have the Commonwealth's affairs conducted honestly, and to obtain money by means of false pretenses and the concealment of material facts. After informing the jury of the charges, the District Court instructed the jury that the defendants' alleged scheme could be made out either by finding: (1) that Hunt had de facto control over the award of the Commonwealth's workmen's compensation insurance contract; that he obtained commission payments from the company awarded this contract which were mailed to a company he owned and controlled with petitioners, without disclosing his ownership interest to commonwealth officials; and that petitioners aided in the scheme; or (2) that Gray had supervisory authority over the insurance when his company received payments; that he did not disclose his interest in the company to commonwealth officials; and that McNally aided and abetted him. The jury convicted petitioners, and the Court of Appeals affirmed, relying on a line of decisions holding that § 1341 proscribes schemes to defraud citizens of their intangible rights to honest and impartial government.

Held: The jury charge permitted a conviction for conduct not within the reach of § 1341. Pp. 356-361.

(a) The language and legislative history of § 1341 demonstrate that it is limited in scope to the protection of money or property rights, and does not extend to the intangible right of the citizenry to good government. The argument that, because the statutory phrases "to defraud" and "for obtaining money or property by means of false or fraudulent pretenses, representations, or promises" appear in the disjunctive, they should be construed independently so that "a scheme or artifice to de-

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fraud" may include a scheme designed to deprive parties of intangible rights is not persuasive. The words "to defraud" commonly refer to wronging one in his property rights by dishonest methods, and there is nothing to indicate that Congress meant to depart from this common understanding when it enacted § 1341 in its present form. Rather, the statute was amended to include the second phrase simply to make it clear that it reaches false promises and misrepresentations as to the future as well as other frauds involving money or property. Pp. 356-360.

(b) A state officer does not violate § 1341 if he chooses an insurance agency to provide the State's insurance but specifies that the agency must share its commissions with another agency in which the officer has an ownership interest and hence profits from the commissions. Here, there was no charge and the jury was not required to find that the Commonwealth itself was defrauded of any money or property or would have paid a lower premium or secured better insurance in the absence of the alleged scheme. In fact, the commissions Hunt and Gray received were not the Commonwealth's money. Nor was the jury charged that to convict it must find that the Commonwealth was deprived of control over how its money was spent. Indeed, it would have paid the insurance premium to some agency, and Hunt and Gray simply asserted control that the Commonwealth might not otherwise have made over the payment of insurance commissions. Moreover, although the Government relies in part on the assertion that petitioners obtained property by means of false representations to the company awarded the insurance contract, there was nothing in the charge that required such a finding. Pp. 360-361.

790 F.2d 1290 (CA 6 1986), reversed and remanded.

WHITE, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BRENNAN, MARSHALL, BLACKMUN, POWELL, and SCALIA, JJ., joined. STEVENS, J., filed a dissenting opinion, in all but Part IV of which O'CONNOR, J., joined, post, p. 362.

Carter G. Phillips, Washington, D.C., for petitioners.

Donald B. Ayer, Sacramento, Cal., for respondents.

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Justice WHITE delivered the opinion of the Court.

This action involves the prosecution of petitioner Gray, a former public official of the Commonwealth of Kentucky, and petitioner McNally, a private individual, for alleged violation of the federal mail fraud statute, 18 U.S.C. § 1341.¹ The prosecution's principal theory of the case, which was accepted by the courts below, was that petitioners' participation in a self-dealing patronage scheme defrauded the citizens and government of Kentucky of certain "intangible rights," such as the right to have the Commonwealth's affairs conducted honestly. We must consider whether the jury charge permitted a conviction for conduct not within the scope of the mail fraud statute.

We accept for the sake of argument the Government's view of the evidence, as follows. Petitioners and a third individual, Howard P. "Sonny" Hunt, were politically active in the Democratic Party in the Commonwealth of Kentucky during the 1970's. After Democrat Julian Carroll was elected Governor of Kentucky in 1974, Hunt was made chairman of the state Democratic Party and given de facto control over selecting the insurance agencies from which the Commonwealth would purchase its policies. In 1975, the Wombwell Insurance Company of Lexington, Kentucky (Wombwell), which since 1971 had acted as the Commonwealth's agent for securing a workmen's compensation policy, agreed with Hunt that in exchange for a continued agency relationship it would share any resulting commissions in excess of $50,000 a year with other insurance agencies specified by him. The commissions in question were paid to Wombwell by the large in-

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surance companies from which it secured coverage for the Commonwealth.

From 1975 to 1979, Wombwell funneled $851,000 in commissions to 21 separate insurance agencies designated by Hunt. Among the recipients of these payments was Seton Investments, Inc. (Seton), a company controlled by Hunt and petitioner Gray and nominally owned and operated by petitioner McNally.

Gray served as Secretary of Public Protection and Regulation from 1976 to 1978 and also as Secretary of the Governor's Cabinet from 1977 to 1979. Prior to his 1976 appointment, he and Hunt established Seton for the sole purpose of sharing in the commissions distributed by Wombwell. Wombwell paid some $200,000 to Seton between 1975 and 1979, and the money was used to benefit Gray and Hunt. Pursuant to Hunt's direction, Wombwell also made excess commission payments to the Snodgrass Insurance Agency, which in turn gave the money to McNally.

On account of the foregoing activities, Hunt was charged with and pleaded guilty to mail and tax fraud and was sentenced to three years' imprisonment. Petitioners were charged with one count of conspiracy and seven counts of mail fraud, six of which were dismissed before trial.² The remaining mail fraud count was based on the mailing of a commission check to Wombwell by the insurance company from which it had secured coverage for the State. This count alleged that petitioners had devised a scheme (1) to defraud the citizens and government of Kentucky of their right to have the Commonwealth's affairs conducted honestly, and (2) to obtain, directly and indirectly, money and other things

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of value by means of false pretenses and the concealment of material facts.³ The conspiracy count alleged that petitioners had (1) conspired to violate the mail fraud statute through the scheme just described and (2) conspired to defraud the United States by obstructing the collection of federal taxes.

After informing the jury of the charges in the indictment,⁴ the District Court instructed that the scheme to defraud the

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citizens of Kentucky and to obtain money by false pretenses and concealment could be made out by either of two sets of findings: (1) that Hunt had de facto control over the award of the workmen's compensation insurance contract to Wombwell from 1975 to 1979; that he directed payments of commissions from this contract to Seton, an entity in which he had an ownership interest, without disclosing that interest to persons in state government whose actions or deliberations could have been affected by the disclosure; and that petitioners, or either of them, aided and abetted Hunt in that scheme; or (2) that Gray, in either of his appointed positions, had supervisory authority regarding the Commonwealth's workmen's compensation insurance at a time when Seton received commissions; that Gray had an ownership interest in Seton and did not disclose that interest to persons in state government whose actions or deliberations could have been affected by that disclosure; and that McNally aided and abetted Gray (the latter finding going only to McNally's guilt).

The jury convicted petitioners on both the mail fraud and conspiracy counts, and the Court of Appeals affirmed the convictions. 790 F.2d 1290 (CA6 1986). In affirming the substantive mail fraud conviction, the court relied on a line of decisions from the Courts of Appeals holding that the mail fraud statute proscribes schemes to defraud citizens of their intangible rights to honest and impartial government. See, e.g., United States v. Mandel, 591 F.2d 1347 (CA4 1979), aff'd in relevant part, 602 F.2d 653 (en banc), cert. denied, 445 U.S. 961, 100 S.Ct....