U.S. v. Kato

• Decision Date: 20 June 1989
• Docket Number: No. 88-1160,88-1160
• Citation: 878 F.2d 267
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Yasuhiro KATO, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 267

878 F.2d 267

UNITED STATES of America, Plaintiff-Appellee, v. Yasuhiro KATO, Defendant-Appellant.

No. 88-1160.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Jan. 10, 1989.

Decided June 20, 1989.

Brook Hart, Hart & Wolff, Honolulu, Hawaii, for defendant-appellant.

Mark J. Bennett, Asst. U.S. Atty., Honolulu, Hawaii, for plaintiff-appellee.

Appeal from the United States District Court for the District of Hawaii.

Before NORRIS, NOONAN and LEAVY, Circuit Judges.

LEAVY, Circuit Judge:

Kato appeals his convictions for conspiracy against the United States, 18 U.S.C. Sec. 371 (1982), mail fraud, 18 U.S.C. Sec. 1341 (1982), and false statement, 18 U.S.C. Sec. 1001 (1982 & Supp. IV 1986). Kato contends that his conviction for mail fraud, based on allegations that he defrauded the Federal Aviation Administration into issuing

pilot licenses to those unqualified to receive them, is invalid under McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), because the pilot licenses are not property. He also contends that his conspiracy conviction must be reversed because it might have been based on the insufficient ground of an agreement to commit mail fraud by defrauding the FAA into issuing pilot licenses. Finally, Kato contends that his false statement conviction was based on an instruction improper under Pinkerton v. United States, 328 U.S. 640, 66 S.Ct. 1180, 90 L.Ed. 1489 (1946), and must be reversed. We reverse the mail fraud conviction, affirm the conspiracy and false statement convictions, and remand for resentencing.

FACTS

In January 1987, Kato, Charles Rogers, and Coral Hansen were indicted for conspiring to defraud the United States and the FAA, to violate the federal mail fraud statute, and to violate the federal statute against making false statements (Count 1). The indictment also charged the defendants with the substantive offenses of mail fraud (Counts 2-10), and false statements (Counts 11-19).

The following is a summary of the allegations in the indictment. Kato ran the American Flying Academy (AFA), a flight training school in Hawaii. His objective was to bring Japanese citizens to Hawaii to obtain FAA private pilot licenses. Kato recruited Rogers, who was authorized by the FAA to administer FAA written tests taken in his presence, under strict examination conditions, in California. Rogers furnished test papers and answer sheets to Kato in Hawaii. Kato and his agents allowed some applicants to take the test, then reviewed their answers and changed them when necessary. Other students had the answer sheets partially filled out by Kato or his agents; still others simply signed their names and never saw the test papers again. Kato gave the papers to Rogers, who forwarded them to the FAA, where they were graded. Rogers, who was also authorized by the FAA to give flight tests, certified that AFA students passed oral and flight tests given in California, when in fact they had not passed or had not even taken the tests.

Kato recruited Hansen, who was authorized by the FAA to give oral and flight tests. She gave such tests without having the required evidence that the examinee had passed the written test. Hansen also passed a number of students who were unable to read, speak, or understand English, despite her responsibility under FAA regulations to determine that the examinee had facility in English. Hansen passed some students without conducting the required oral and flight tests, and she falsified the dates of flight tests on some certification applications. When Hansen certified that students had passed all examinations, Kato, Hansen, or their agents took the completed certificate applications and the written test scores to the FAA in Honolulu, who then mailed them to FAA headquarters in Oklahoma. Subsequently, the FAA issued unrestricted private pilot licenses to the students.

Before trial, Rogers and Kato moved to dismiss counts one through ten for failure to charge a crime under McNally, 107 S.Ct. 2875, which holds that the mail fraud statute applies only when a victim has been defrauded of money or property. The trial court denied the motion. Codefendants Rogers and Hansen pleaded guilty to conspiracy.

At trial Kato again raised the McNally issue by means of a motion for acquittal after the government had presented its case. The motion was denied. The jury found Kato guilty of all counts charged.

I. Mail Fraud Under McNally

Title 18 U.S.C. Sec. 1341 prohibits use of the mails to fraudulently obtain money or property. In McNally, 107 S.Ct. 2875, the Supreme Court rejected the application of the mail fraud statute to "schemes to defraud citizens of their intangible rights to honest and impartial government," id. at 2879, and held that "the statute is limited in scope to the protection of property rights." Id. Accordingly, the Court held Kato's indictment, filed before McNally was decided, alleged neither denial of the "right to good government" nor that Kato "obtained property" from the FAA. The indictment charged Kato with violating the mail fraud statute by devising a scheme to defraud the United States "into issuing private pilots certificates to those unqualified and/or ineligible to receive them." The jury instructions, after McNally was decided, stated that conviction on the mail fraud count requires a finding that "the defendant made up a plan or scheme to obtain FAA private pilot certificates by means of false promises or statements[.]" The government argues that the indictment, instructions, and post-McNally law support its position that obtaining the certificates constituted mail fraud because the issued and completed certificates are property within the meaning of McNally. We disagree.

                that "any benefit which the Government derives from the statute must be limited to the Government's interests as a propertyholder."    Id. at 2881 n. 8.    Following McNally, the Supreme Court held in Carpenter v. United States, 484 U.S. 19, 108 S.Ct. 316, 320, 98 L.Ed.2d 275 (1987), that section 1341 encompasses intangible property rights, specifically, the Wall Street Journal's right to keep confidential and have exclusive prepublication use of the schedule and contents of its "Heard on the Street" columns
                

Under McNally, "any benefit which the Government derives from the [mail fraud] statute must be limited to the Government's interests as a property-holder." Id. at 2881 n. 8. Here, the government was defrauded into issuing certificates. But for Kato's scheme, the government would retain in its possession a greater number of blank sheets of paper in the form of unissued certificates. We do not understand the government to be arguing that the property right of which it was defrauded was the right to possession of those blank sheets of paper. Accordingly, the only property interest to be evaluated under McNally is the right conveyed by the issued certificates as licenses.

In United States v. Dadanian, 856 F.2d 1391 (9th Cir.1988), we considered the issue of whether a license constitutes property under McNally and concluded that a fraudulent scheme to obtain a license "did not affect [a] city's interests as a property holder." Id. at 1392. The Sixth Circuit, considering the same issue in United States v. Murphy, 836 F.2d 248 (6th Cir.), cert. denied, --- U.S. ----, 109 S.Ct. 307, 102 L.Ed.2d 325 (1988), stated that a fraudulent scheme to obtain a license did not deprive the government of a property right because licenses, while "property" of the recipient once issued, are not property of the government either before or after they are issued. Id. at 253-54. The Sixth Circuit held that the government's right to accurate information with respect to its issuance of licenses constitutes an intangible right not encompassed in the mail fraud statute. Id. at 254. Based on Dadanian and Murphy, we hold that Kato's scheme did not affect the government's interests as a property holder. The conviction must be reversed because the indictment and jury instructions permitted conviction for conduct that does not constitute a violation of 18 U.S.C. Sec. 1341 as defined by McNally.

II. Conspiracy

Kato was convicted under 18 U.S.C. Sec. 371 of conspiracy to defraud the government, to commit mail fraud (18 U.S.C. Sec. 1341), or to make false statements (18 U.S.C. Sec. 1001). As the conspiracy verdict was a general one, it is not known on which of the three alternate grounds the jury relied. Kato contends his conviction must be reversed because the jury might have relied on the mail fraud objective, which is legally insufficient under McNally.

"A conspiracy conviction must be reversed if the trial court instructs the jury that it need find only one of the multiple objects alleged in order to convict of conspiracy in a case in which the reviewing court holds any one of the supporting counts legally insufficient." United States v. Lopez, 803 F.2d 969, 975 (9th Cir.1986), cert. denied, 481 U.S. 1030, 107 S.Ct. 1959, 95 L.Ed.2d 530 (1987). An exception to this Here, the jury was instructed that they could convict Kato of conspiracy if they found that there was an agreement to defraud the United States and the FAA into issuing private pilot certificates to unqualified and/or ineligible persons. This was based on the "conspiracy to defraud the United States, or any agency thereof" language of 18 U.S.C. Sec. 371. This charge was legally sufficient. Conspiracy to defraud the United States under 18 U.S.C. Sec. 371 does not require an agreement to defraud the government of money or property. The "defraud" part of section 371 prohibits any willful impairment of a legitimate function of government, whether or not the improper acts or objective are criminal under another statute. United States v. Tuohey, 867 F.2d 534, 537 (9th Cir.1989), citing Dennis v. United States, 384 U.S. 855, 861, 86 S.Ct. 1840, 16 L.Ed.2d 973 (1966). The mail fraud charge, while not legally...