U.S. v. Cronic, No. 88-2939

• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)
• Writing for the Court: Before ANDERSON, TACHA, Circuit Judges, and WINDER; STEPHEN H. ANDERSON
• Citation: 900 F.2d 1511
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Harrison P. CRONIC, Defendant-Appellant.
• Docket Number: No. 88-2939
• Decision Date: 11 April 1990

Page 1511

900 F.2d 1511 UNITED STATES of America, Plaintiff-Appellee,
v.
Harrison P. CRONIC, Defendant-Appellant. No. 88-2939. United States Court of Appeals,
Tenth Circuit. April 11, 1990.

Page 1512

John E. Green, First Asst. U.S. Atty. (William S. Price, U.S. Atty., with him on the brief), Oklahoma City, Okl., for plaintiff-appellee.

Gary Peterson, Oklahoma City, Okl., for defendant-appellant.

Before ANDERSON, TACHA, Circuit Judges, and WINDER, District Judge. ^*

STEPHEN H. ANDERSON, Circuit Judge.

Harrison P. Cronic appeals his conviction on eleven counts of mail fraud, 18 U.S.C. Sec. 1341, based on charges arising out of a check kiting scheme. ¹ Although couched in terms of sufficiency of the evidence, Cronic's main contention on appeal is, essentially, that an unembellished check kiting scheme is not a crime under that portion of the mail fraud statute which criminalizes schemes to obtain money by means of false or fraudulent pretenses, representations or promises. In view of Williams v. United States, 458 U.S. 279, 102 S.Ct. 3088, 73 L.Ed.2d 767 (1982) we reluctantly agree. Because the jury instructions limited the jury's consideration of the evidence to that portion of the statute, and because the government failed to prove any false pretense, representation or promise, we are obliged to reverse Cronic's conviction.

BACKGROUND

The facts are not complicated. Cronic ran two check kiting schemes over a period of about six months in 1975. ² The largest one covered about three and one-half months. It involved hundreds of checks, totaling millions of dollars, and, when the scheme collapsed, it left the Norman Bank of Commerce, Norman, Oklahoma, almost five hundred thousand dollars short. Cronic ran the kite between accounts of his company, Skyproof Manufacturing Co., at the Metropolitan Bank in Tampa, Florida, and the Norman Bank of Commerce. Checks in excess of Skyproof's balance were drawn on its account at the Metropolitan Bank, sent from Tampa to Norman, Oklahoma, and deposited in Skyproof's account at the Norman Bank. The process was then reversed with checks on the Skyproof account at the Norman Bank sent to Tampa for deposit in the Skyproof account at Metropolitan. The checks were made out to Skyproof itself. The transfers and deposits were worked out between a Skyproof employee in Tampa and Wylie C. Merritt, Jr., Skyproof's accountant, and an employee in Norman, Oklahoma. The actual operating income from Skyproof's business was deposited in an entirely separate bank. R.Vol. XI at 57.

The logistics were all-important to keep the kite up. Bank processing time, through a clearing house in Chicago, took three days each way. Cronic's assistant in Tampa made daily calls to the bank to ascertain Skyproof account balances.

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Cronic drew up and maintained a chart to keep track of checks in the processing cycle, and timed the deposit of additional checks so as to discourage detection of his scheme by either bank. His assistant in Tampa testified:

"A. Well, usually we'd call the bank in the morning and find out what the balance was. And then we would sit on the floor and decide how many checks we were going to make out, what the amounts were going to be, and we would just call Oklahoma and tell the girl in the office after we had hired her or tell [our accountant] what to put on the checks.

Q. And was there any deadline or time that you would make these deposits to cover these checks?

A. Well, we knew that every three days those checks would hit. I mean, every day we were making deposits to cover checks that were written three days earlier."

R.Vol. VIII at 211-12, R.Vol. XI at 18.

Cronic drew checks on the accounts to pay business and personal expenses, and to buy a bottling plant in Paris, Texas, among other things. During October, 1975, the Metropolitan Bank in Tampa apparently studied its records relating to the Skyproof account and concluded that the account was being used in a check kiting scheme. Metropolitan Bank thereafter dishonored all Skyproof checks drawn on that bank as drawn on uncollected funds. On October 15, 1975, at the direction of Cronic, the Metropolitan Bank closed Skyproof's accounts and subsequently transferred the remaining collected funds in those accounts to the Norman Bank of Commerce in Oklahoma. Representatives of the Norman Bank of Commerce met with Cronic and Merritt on October 12, 1975, to discuss the sizeable overdraft in his account. At that meeting, Cronic stated that he had authorized the Metropolitan Bank to transfer all collected funds to the Norman Bank of Commerce. He told the bankers that he did not know what was wrong, but assured them that his company had sufficient assets to repay any overdraft, thereby avoiding any loss to the bank. No further checks were drawn on or paid from the Norman Commerce Bank account.

On November 28, 1975, Skyproof signed a promissory note to the Norman Bank of Commerce in the amount of $484,915.76, the amount of the claimed overdraft. The bank thereafter exercised its legal remedies under the promissory note to collect the unpaid amount. Eventually, a significant portion of the unpaid balance, plus interest and attorneys' fees, was collected by judicial sale of a Skyproof subsidiary's bottling plant which resulted in a payment of $504,000 to the bank.

DISCUSSION

The mail fraud statute criminalizes, among other things, "any 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. Sec. 1341. Although largely overlapping, a scheme to defraud, and a scheme to obtain money by means of false or fraudulent pretenses, representations, or promises, are separate offenses. See United States v. Bonnett, 877 F.2d 1450, 1454 (10th Cir.1989) ("The mail and wire fraud statutes make the same distinction as Sec. 1344 between schemes to defraud and schemes to obtain property by false or fraudulent pretenses, representations, and promises."); United States v. Rafsky, 803 F.2d 105, 107-08 (3d Cir.1986), cert. denied, 480 U.S. 931, 107 S.Ct. 1568, 94 L.Ed.2d 760 (1987); United States v. Clausen, 792 F.2d 102 (8th Cir.), cert. denied, 479 U.S. 858, 107 S.Ct. 202, 93 L.Ed.2d 133 (1986); United States v. Frankel, 721 F.2d 917, 920-21 (3d Cir.1983); United States v. Scott, 701 F.2d 1340, 1343-44 (11th Cir.), cert. denied, 464 U.S. 856, 104 S.Ct. 175, 78 L.Ed.2d 158 (1983); United States v. Margiotta, 688 F.2d 108, 121 (2d Cir.1982), cert. denied, 461 U.S. 913, 103 S.Ct. 1891, 77 L.Ed.2d 282 (1983); United States v. Halbert, 640 F.2d 1000, 1007 (9th Cir.1981).

The offense of a scheme to defraud focuses on the intended end result, not on whether a false representation was necessary to effect the result. Schemes to defraud, therefore, may come within the scope of the statute even absent an affirmative

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misrepresentation. See United States v. Rafsky, 803 F.2d at 108; United States v. Frankel, 721 F.2d at 921; Kaufmann v. United States, 282 F. 776, 779 (3d Cir.), cert. denied, 260 U.S. 735, 43 S.Ct. 96, 67 L.Ed. 488 (1922) ("If a scheme is devised with the intention of defrauding, and the mails are used in executing it, it makes no difference that there is not a misrepresentation of a single existing fact.").

A scheme to obtain money by means of false or fraudulent pretenses, representations, or promises, on the other hand, focuses on the means by which money was obtained. False or fraudulent pretenses, representations or promises are an essential element of the crime. See United States v. Bonnett, 877 F.2d at 1453-54.

The indictment against Cronic charged both a scheme to defraud and a scheme to obtain money by false or fraudulent pretenses, representations or promises. Cronic concedes that point. Brief of Appellant at 15. In part, the indictment charged that Cronic--

"devised and intended to devise a scheme and artifice to defraud and to obtain money from banks in Oklahoma and Florida by inducing said banks in the names of 'Skyproof Manufacturing, Inc.' and Wylie C. Merritt, Jr., to pay out substantial sums of cash, furnish deposit credits and to obligate the said banks to pay out cash or furnish deposit credits for a series of insufficient funds checks.... The scheme and artifice ... was also to obtain money by means of the following false and fraudulent pretenses, representations and promises ...: That by the continuous issuance of insufficient funds checks on Skyproof Manufacturing, Inc., and Wylie C. Merritt, Jr., or by 'floating' the series of insufficient funds checks between the said banks, they thereby created false or inflated balances in the various bank accounts of Skyproof Manufacturing, Inc., ... well knowing at the time of issuance that there were not sufficient funds on deposit to cover said checks."

R.Vol. I, Tab 11/1/88 at 6-7.

If the jury...