U.S. v. Henry

• Citation: 29 F.3d 112
• Decision Date: 12 July 1994
• Docket Number: No. 93-7267,93-7267
• Parties: UNITED STATES of America, Appellant, v. Thomas HENRY; Mowry Mike.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 112

29 F.3d 112

UNITED STATES of America, Appellant, v. Thomas HENRY; Mowry Mike.

No. 93-7267.

United States Court of Appeals Third Circuit.

Argued Dec. 7, 1993.

Decided July 12, 1994.

Wayne P. Samuelson, U.S. Atty., Martin C. Carlson (Argued), Asst. U.S. Atty., Harrisburg, PA, for appellant.

Paul J. Killion, Killion & Metz, Harrisburg, PA, for appellee Thomas Henry.

James J. Ross (Argued), Bowers & Ross, Ambridge, PA, for appellee Mowry Mike.

Before: BECKER and NYGAARD, Circuit Judges and WEIS, Senior Circuit Judge.

OPINION OF THE COURT

NYGAARD, Circuit Judge.

The government appeals the district court's dismissal of a twenty-one count indictment charging Thomas Henry and Mowry Mike with conspiracy, bank fraud, and wire fraud in connection with an alleged bid-rigging scheme. For the following reasons, we will affirm the dismissal of the indictment.

I.

Between 1986 and 1988, Thomas Henry was the Comptroller of the Delaware River Joint Toll Bridge Commission (the "Commission"). The Commission, a bi-state agency, operates and maintains twenty-one bridges spanning the Delaware River between New Jersey and Pennsylvania. Among these bridges are seven toll bridges that generate more than ten million dollars in revenue annually.

The Commission is governed by ten Commissioners, five of whom are appointed by the Governor of New Jersey and confirmed by the New Jersey Senate and five of whom represent Pennsylvania's Governor, Treasurer, Auditor General and Transportation Secretary. Mowry Mike, Pennsylvania's Executive Deputy Auditor General, served as Auditor General Donald Bailey's representative on the Commission between 1986 and 1988. Mike also was a political operative and campaign fund-raiser for Bailey during his unsuccessful runs in 1986 for the Democratic nomination for the United States Senate and in 1988 for re-election as Auditor General.

The charges in the indictment were based on Henry's and Mike's alleged corruption of the process by which banks were chosen to be the depositories of the Commission's toll bridge revenues. The Commission invested the money in short-term certificates of deposit at banks selected through competitive bidding. As the Commission's Comptroller, Henry was responsible for this process and, according to the indictment, had "a fiduciary obligation to deal with Commission funds and other public money in a forthright and honest fashion." He would notify interested banks that the Commission had money it wished to deposit and that they could submit confidential bids to him in writing or by telephone by a certain deadline. After the deadline passed, the funds would be deposited with the bank meeting the Commission's financial requirements that offered the highest interest rate on the certificates of deposit.

According to the indictment, on ten occasions Henry disclosed bid information to Mike and another individual in the Auditor General's office, who in turn disclosed it to a representative of one bank, Bank A. Bank A was thus allegedly able to narrowly outbid the other banks by offering a slightly higher rate of interest and, as a result, received deposits of $34,278,000 in Commission funds. In return, representatives of Bank A allegedly afforded Mike expedited handling on a $50,000 car loan and contributed more than $10,000 to various political campaigns, including Auditor General Bailey's Senate campaign, in which Mike was involved.

Count one of the indictment charged Henry and Mike with conspiracy to violate the federal mail, wire and bank fraud statutes, in violation of 18 U.S.C. Sec. 371. Counts two through twenty-one charged ten counts of bank fraud in violation of 18 U.S.C. Sec. 1344, and ten counts of wire fraud in violation of 18 U.S.C. Sec. 1343, for each occasion on which the bidding information allegedly was compromised. ¹ The indictment asserted that in rigging the bids, "Henry violate[d] his fiduciary duty and Commission custom, practices and policies" and "Henry, Mike and their [unindicted] co-conspirators defrauded the other banks bidding for these public funds of money and property, in that [they] denied these other bidding banks a fair and honest opportunity to receive this public money" or "a fair and honest opportunity to bid on" it.

The district court dismissed all of these counts, finding that the scheme alleged in the indictment, although unethical, did not involve a deprivation of property as required by McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), and therefore could not constitute mail, wire or bank fraud. The district court had jurisdiction under 18 U.S.C. Sec. 3231, and we have jurisdiction under 28 U.S.C. Sec. 1291 and 18 U.S.C. Sec. 3731. Our review of the district court's dismissal of the indictment on the grounds of legal insufficiency is plenary.

II.

In McNally, the Supreme Court held that the federal mail fraud statute did not prohibit a scheme to defraud a state and its citizens of the intangible right to honest government, but rather only proscribed schemes to defraud their victims of money or property. Shortly thereafter, in Carpenter v. United States, 484 U.S. 19, 25, 108 S.Ct. 316, 320, 98 L.Ed.2d 275 (1987), the Court indicated that the mail and wire fraud statutes likewise do not reach schemes to defraud an employer of its intangible right to its employee's honest services. Carpenter made clear, however, that although a property right is required under McNally, it need not be a tangible one. The statutes cover schemes to defraud another of intangible property, such as confidential business information. Id. at 25-26, 108 S.Ct. at 320-21.

In response to McNally, Congress extended the fraud statutes' sweep to schemes to defraud the intangible right of honest services, see 18 U.S.C. Sec. 1364, but that extension does not apply to this case. It did not become effective until November 18, 1988, well after the bid-rigging alleged in the indictment ceased, and it is not retroactive. See Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1417 n. 4 (3d Cir.), cert. denied, 501 U.S. 1222, 111 S.Ct. 2839, 115 L.Ed.2d 1007 (1991). Therefore, to state an offense under the federal fraud statutes, the indictment against Henry and Mike must allege a scheme that meets McNally 's standards. ²

Initially, we see an intangible rights problem with the indictment's allegations involving Henry's derelictions of his duties to the public and the Commission. Under McNally and Carpenter, a government official's breach of his or her obligations to the public or an employee's breach of his or her obligations to an employer cannot violate the fraud statutes. See Carpenter, 484 U.S. at 25, 108 S.Ct. at 320; McNally, 483 U.S. at 355, 107 S.Ct. at 2879. These theories, however, were not the only ones relied upon in the indictment. Indeed, the indictment's focus was not on the Commission or the public, but on the competing banks: its fraud claims were grounded on the allegation that Henry's and Mike's scheme defrauded these banks of a fair opportunity to bid to receive the Commission's funds. ³ The government now argues that Henry's and Mike's scheme also defrauded the Commission of its confidential business information and the right to control how its money was invested, but these theories were not advanced in the indictment and cannot save it on appeal. ⁴ See United States v. Zauber, 857 F.2d 137, 143 (3d Cir.1988), cert. denied, 489 U.S. 1066, 109 S.Ct. 1340, 103 L.Ed.2d 810 (1989). The question, then, is whether a fair bidding opportunity is a property right of the competing banks. If it is, the presence of any intangible rights allegations will not invalidate the indictment. See United States v. Asher, 854 F.2d 1483, 1494 (3d Cir.1988), cert. denied, 488 U.S. 1029, 109 S.Ct. 836, 102 L.Ed.2d 969 (1989).

We note that once the Commission's deposits actually were awarded to one of the bidding banks, they legally would be considered the property of that bank. It is a fundamental principle of banking law that money deposited with a bank becomes the bank's property and the bank may use it as its own. In re Erie Forge & Steel Corp., 456 F.2d 801, 804 (3d Cir.1972) (citing Prudential Trust Company's Assignment, 223 Pa. 409, 413, 72 A. 798, 799 (1909)); Lebanon Iron Co. v. Donnelly & Co., 29 F.2d 411, 412 (E.D.Pa.1928). Here, however, the money had not yet been deposited, and there is no way of knowing to which, if any, of the bidding banks it would have gone. Even in a fair process, Bank A might still have won the deposits. The issue, therefore, is whether the competing banks' interest in having a fair opportunity to bid for something that would become their property if and when it were received is in itself property. We conclude that it is not.

In holding that the Wall Street Journal was deprived of property in violation of the mail and wire fraud statutes when one of its reporters disclosed the timing and contents of his column before it was published, the Carpenter Court emphasized that the law had long treated confidential business information as " 'a species of property to which the corporation has the exclusive right and benefit, and which a court of equity will protect through the injunctive process or other appropriate remedy.' " See Carpenter, 484 U.S. at 26, 108 S.Ct. at 320-21. Thus, to determine whether a particular interest is property for purposes of the fraud statutes, we look to whether the law traditionally has recognized and enforced it as a property right. See United States v. Evans, 844 F.2d 36, 41 (2d Cir.1988) ("That the right at issue ... has not been treated as a property right in other contexts and that there are many basic differences between it and common-law property are relevant considerations in determining whether the right is property under the federal fraud statutes.").

The competing banks' interest in a fair bidding opportunity does not meet this test. Clearly, each bidding bank's...