U.S. v. Castor, 76-2068

• Decision Date: 09 August 1977
• Docket Number: No. 76-2068,76-2068
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. Charles G. CASTOR, William T. Robinette, Henry Y. Dein and James A. James, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 379

558 F.2d 379

UNITED STATES of America, Plaintiff-Appellant, v. Charles G. CASTOR, William T. Robinette, Henry Y. Dein and James A. James, Defendants-Appellees.

No. 76-2068.

United States Court of Appeals Seventh Circuit.

Argued Feb. 24, 1977.

Decided July 8, 1977.

Rehearing and Rehearing En Banc Denied Aug. 9, 1977.

Terrance A. Norton, Dept. of Justice, Strike Force, Chicago, Ill., James B. Young, U. S. Atty., Indianapolis, Ind., for plaintiff-appellant.

Philip R. Melangton, Jr., Indianapolis, Ind., Bernard Fensterwald, Jr., Washington, D. C., Donald A. Schabel, F. Boyd Hovde, Indianapolis, Ind., for defendants-appellees.

Before CASTLE, Senior Circuit Judge, and SPRECHER and BAUER, Circuit Judges.

BAUER, Circuit Judge.

The Government appeals, pursuant to 18 U.S.C. § 3731, the district court's dismissal of a mail fraud indictment returned against the defendants. The issues for our decision are whether the indictment alleges a fraudulent scheme within the scope of the mail fraud statute, 18 U.S.C. § 1341, and whether the indictment alleges mailings in furtherance of the alleged scheme. We hold that the indictment charges both elements of the offense and reverse the dismissal.

I.

The indictment charges the defendants with fourteen substantive counts of mail fraud and one count of conspiracy to commit mail fraud in connection with a fraudulent scheme to procure a number of newly available permits to operate retail package liquor stores.

The details of the alleged scheme are as follows: In 1972 forty-five new package liquor store permits became available in Indianapolis, Indiana as a result of an Indiana Court of Appeals ruling that, in applying the statutory limit of one permit for each 5,000 persons or fraction thereof, the population of the Consolidated City of Indianapolis, which includes Indianapolis and several surrounding communities, rather than the population residing within the old city limits, controls the number of permits to be issued. Indiana Alcoholic Beverage Commission v. Baker, 153 Ind.App. 118, 286 N.E.2d 174 (1972).

Approximately 120 applications were filed by persons seeking the new permits. The defendants are charged with fraudulently inducing the Indiana Alcoholic Beverage Commission (IABC) and the Marion County Local Board (MCLB) to issue permits to persons who did not intend to operate package liquor stores and who, upon the issuance of the permits, transferred them to persons and entities of the defendants' choosing.

The indictment names twelve persons whom the defendants allegedly caused to sign and file with the IABC applications for permits, as well as other documents which concealed the defendants' interest in the applications. ¹ Permits were issued to the twelve.

The indictment further states that, after the permits were issued, the defendants caused certain documents containing false representations to be filed with the IABC in order to receive permission to relocate nine of the approved stores. Included were sham leases and papers stating that the named applicants intended to operate liquor stores at the new premises.

The indictment goes on to allege that the defendants, using fraudulent methods and concealing their economic interest in the liquor store permits, induced the IABC to approve transfers of eleven of the permits to corporations under the defendants' control.

Finally, the indictment alleges that, after the transfer of the permits to the defendants' corporations, the defendants sought and received IABC approval to transfer the stock of the corporations to defendant James.

Each of the fourteen mail fraud counts sets forth a separate mailing that allegedly was in furtherance of the scheme. Count I charges a mailing from the IABC to George Rowles, one of the "fronts" who purportedly obtained permits for the defendants, notifying Rowles that the MCLB would hold a hearing on his application.

Counts II through VI charge the mailing of notices by the IABC to five of the "fronts" that the IABC had voted to issue them liquor permits.

Count VII charges the mailing by the IABC to F. Pen Cosby, an attorney retained by defendant Robinette to represent a number of applicants for package liquor store permits, of a list of persons whose permit applications were to be processed by the IABC and the MCLB.

Count VIII charges a later mailing by the IABC to Cosby of a list of persons who had been issued permits by the IABC.

Counts IX through XI, XIII and XIV charge the mailing by the IABC of notices to five of the "fronts" that their applications were incomplete.

Count XII charges a mailing by the IABC to James Griffin regarding his intention to lease property to one of the "fronts."

The district court dismissed the indictment on the grounds (1) that it did not allege a scheme or artifice to defraud within the meaning of the mail fraud statute, and (2) that the mailings alleged to be in furtherance of the scheme were not sufficiently connected to the scheme to support federal criminal jurisdiction.

II. Scheme or Artifice to Defraud

The district court found that the scheme alleged in the indictment did not satisfy the statutory requirement of being a "scheme or artifice to defraud or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises". 18 U.S.C. § 1341. ² The court construed the statute as requiring a fraudulent scheme to have as its object the "obtaining of money or property." It reasoned that the statutory phrase "or for obtaining of money or property by means of false or fraudulent pretenses, representations, or promises" modifies and limits the preceding phrase "any scheme or artifice to defraud," and thus does not describe an independent type of scheme cognizable as an offense.

Applying its construction, the district court found that, as a matter of law, the scheme charged in the indictment could not constitute a scheme under the mail fraud statute because the liquor store permits that were the object of the alleged scheme are clearly not money and are not considered property under Indiana law.

The Government, arguing that the "or" between the two phrases in 18 U.S.C. § 1341 should be read in its ordinary disjunctive sense, contends that the district court's construction is erroneous. Under the Government's construction, the two phrases describe two different types of schemes that are cognizable under the mail fraud statute, the first proscribing schemes "to defraud" generally, and the second proscribing schemes "for obtaining of money or property by means of false . . . pretenses" particularly.

Alternatively, the Government contends that the fraudulent scheme charged in the indictment constituted an offense even under the district court's construction of the mail fraud statute because the permits obtained through the scheme constituted "property" within the meaning of the statute.

We need not consider the Government's alternative argument, for the district court's construction of 18 U.S.C. § 1341 has been previously rejected by this Court in United States v. Isaacs, 493 F.2d 1124, 1149-50 (7th Cir.), cert. denied, 417 U.S. 976, 94 S.Ct. 3183, 41 L.Ed.2d 1146 (1974), and United States v. Joyce, 499 F.2d 9, 22 (7th Cir.), cert. denied, 419 U.S. 1031, 95 S.Ct. 512, 42 L.Ed.2d 306 (1974). In both cases we held that the mail fraud statute is not limited to fraudulent schemes that contemplate the actual loss of money or property. Accord, United States v. Brown, 540 F.2d 364, 374 (8th Cir. 1976); United States v. States, 488 F.2d 761 (8th Cir. 1973), cert. denied, 417 U.S. 909, 94 S.Ct. 2605, 41 L.Ed.2d 212 (1974). ³

Moreover, this interpretation has been consistently followed by this Circuit in a line of cases holding that a scheme to defraud the government or a private party of an employee's honest and faithful services is proscribed by 18 U.S.C. § 1341. United States v. Bush, 522 F.2d 641 (7th Cir. 1975), cert. denied, 424 U.S. 977, 96 S.Ct. 1484, 47 L.Ed.2d 748 (1976); United States v. Keane, 522 F.2d 534 (7th Cir. 1975), cert. denied, 424 U.S. 976, 96 S.Ct. 1481, 47 L.Ed.2d 746 (1976); United States v. Bryza, 522 F.2d 414 (7th Cir. 1975), cert. denied, 426 U.S. 912, 96 S.Ct. 2237, 48 L.Ed.2d 837 (1976); United States v. Barrett, 505 F.2d 1091 (7th Cir.), cert. denied, 421 U.S. 964, 95 S.Ct. 1951, 44 L.Ed.2d 450 (1975); 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). Although the opinions in these cases do not concentrate on the language of 18 U.S.C. § 1341, the cases hold that a mail fraud violation can be asserted "even in the absence of an object susceptible to measurement in terms of money or property," United States v. Bryza, supra at 421.

The defendants attempt to distinguish the above cases by arguing that the mail fraud schemes in those cases caused or could have caused at least potential pecuniary loss to its victims and that no such loss could have occurred here. Defendants contend that, even absent a requirement that the scheme contemplate its victims actually lose money or property, there must be at least a probability of pecuniary injury to the individuals defrauded for the scheme to be cognizable under 18 U.S.C. § 1341. United States v. Dixon, 536 F.2d 1388, 1399-1401 (2d Cir. 1976); United States v. Regent Office Supply Co., 421 F.2d 1174, 1182 (2d Cir. 1970).

We are not persuaded that the prior cases embody any such requirement. Nevertheless, we may assume arguendo that such a requirement exists, for we are convinced that, even if this Court's prior decisions contemplate that the alleged scheme have the probable or potential effect of causing its victims to lose money or property, the potential pecuniary loss resulting from the scheme alleged here is no different in kind from the potential effects attributable to schemes previously found cognizable under the statute.

In United States v. Bush, supra at 648, for...