U.S. v. Lance, 88-1019

• Decision Date: 07 June 1988
• Docket Number: No. 88-1019,88-1019
• Citation: 848 F.2d 1497
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Bird LANCE, Jr., Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1497

848 F.2d 1497

UNITED STATES of America, Plaintiff-Appellee, v. Bird LANCE, Jr., Defendant-Appellant.

No. 88-1019.

United States Court of Appeals Tenth Circuit.

June 7, 1988.

Charles Gaunce of Stipe, Gossett, Stipe, Harper, Estes, McCune & Parks, Oklahoma City, Okl., for defendant-appellant.

Roger Hilfiger, U.S. Atty., Muskogee, Okl., for plaintiff-appellee.

Before HOLLOWAY, Chief Judge, McKAY, LOGAN, SEYMOUR, MOORE, ANDERSON, TACHA, and BALDOCK, Circuit Judges.

SEYMOUR, Circuit Judge.

Bird Lance, a former county commissioner, was indicted and convicted on charges that he defrauded county citizens of their intangible right to honest government by taking kickbacks in connection with county purchases in violation of the mail fraud statute, 18 U.S.C. Sec. 1341 (1982). We affirmed his conviction in an unpublished order. United States v. Lance, No. 82-1843 (10th Cir. Feb. 29, 1984). He brought this action under 28 U.S.C. Sec. 2255 (1982), asserting that his mail fraud convictions are invalid in light of the Supreme Court's decision in McNally v. United States, --- U.S. ----, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987). The district court ruled that McNally should not be given retroactive effect in the context of a section 2255 proceeding, and denied relief.

We recently considered en banc the effect of McNally in collateral challenges to mail fraud convictions based on substantially similar schemes to defraud. See United States v. Shelton, 848 F.2d 1485, (10th Cir.1988) (consolidated with United States v. James ). Our decision there is substantially dispositive of the issues raised in this appeal. For the reasons set out below, we reverse on the retroactivity issue, and we grant relief in part. ¹

I.

In McNally, the defendants were charged with committing mail fraud by participating in a scheme whereby they gave state insurance business to an insurance agency that agreed to split the resulting commissions with them. "The prosecution's principal theory of the case ... 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." McNally, 107 S.Ct. at 2877. The Supreme Court observed that the case before it was one of 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." Id. at 2879. The Court, however, construed the statute to reach only frauds involving money or property. Id. at 2881. Because the jury instructions in McNally permitted a guilty verdict based solely on loss of the right to honest government, and did not require the jury to find that the victims of the fraud had lost money or property, the Court reversed the convictions. In Carpenter v. United States, --- U.S. ----, 108 S.Ct. 316, 320, 98 L.Ed.2d 275 (1987), the Court reiterated its holding that the right to "honest and faithful service [is] an interest too ethereal in itself to fall within the protection of the mail fraud statute."

Lance was charged with implementing his scheme to defraud county citizens in three ways: 1) by receiving kickbacks from suppliers from whom he purchased equipment for the county; 2) by engaging in "split deals" with suppliers, whereby he and a supplier billed the county for nonexistent goods and split the purchase price; and 3) by receiving kickbacks from a supplier from whom he purchased county equipment through lease-purchase agreements. Lance's convictions became final before the Supreme Court decided McNally, and he did not raise the McNally issue at trial or in his direct appeal. Lance maintains that McNally invalidates his convictions, and that the district court erred in refusing to apply that decision retroactively.

II.

In Shelton, we concluded that McNally applies retroactively in a section 2255 proceeding. Shelton, at 1490. Further, in considering the cause and prejudice standard applied in United States v. Frady, 456 U.S. 152, 167-68, 102 S.Ct. 1584, 1594, 71 L.Ed.2d 816 (1982), to defaulted claims raised in a section 2255 motion, we concluded that a federal habeas petitioner has cause for failing to raise the McNally issue earlier. Shelton, at 1490. Those holdings are equally applicable here.

We also considered in Shelton whether the defendants there had established actual prejudice resulting from the erroneous theory of mail fraud underlying their convictions. In so doing, we examined the indictment, the instructions, and the evidence at trial in light of the ruling of McNally. Our analysis there resolves some of the issues presented in this appeal and aids in our consideration of others.

Lance was convicted on sixty counts of mail fraud, ² which can be divided into two groups for purposes of assessing the validity of his convictions: counts that allege split deals, ³ and counts that allege only kickbacks. ⁴

A. Split Deal Counts

We begin, as we did in Shelton, with the sufficiency of the indictment. Count one of the indictment provides:

"1. During the period commencing on or about July 8, 1971, and continuing thereafter to on or about March 2, 1981, BIRD LANCE, JR., the defendant herein, while serving as County Commissioner of Murray County, Oklahoma, devised and intended to devise a scheme to defraud the citizens of Murray County by depriving the citizens of that County of their right to have Murray County's business conducted openly, honestly, and impartially, free from corruption and undue influence.

"The scheme to defraud the citizens of Murray County was in substance as follows:

"2. As part of the scheme to defraud, BIRD LANCE, JR., in his official capacity as County Commissioner of Murray County, did place orders and purchase road and bridge building and maintenance materials and supplies for Murray County from various vendors, and in particular, Ernest Leslie Irwin, d/b/a either Independent Industries, Incorporated, or Machinery Parts and Service; Tommy L. Craft, d/b/a T.L. Craft Road and Bridge Materials; Billy J. Klutts, d/b/a Okie Equipment Company; and James E. Palmer, d/b/a United Industrial Sales, Incorporated, in exchange for which the defendant did receive from these sellers of road and bridge building and maintenance supplies, cash kickbacks.

"3. It was a further part of the scheme to defraud that the defendant BIRD LANCE, JR., in his official capacity as County Commissioner of Murray County, knowingly did place orders with various vendors, and, in particular, Ernest Leslie Irwin, Guy Moore, Jr., and Billy J. Klutts, for road and bridge building and maintenance material and supplies which were not actually to be delivered to the County in exchange for which Ernest Leslie Irwin, Guy Moore, Jr., and Billy J. Klutts did pay to the defendant BIRD LANCE, JR., in cash, a sum of money representing approximately 50 percent of the billed value of the fictitious and nonexistent goods which were represented to have been sold to the County.

"4. That on or about June 29, 1977, in the Eastern Judicial District of Oklahoma, BIRD LANCE, JR., the defendant herein, for the purpose of executing the aforesaid scheme to defraud, and attempting to do so, did cause to be placed in an authorized mail depository, to be sent and delivered by the U.S. Postal Service, from Murray County, Oklahoma, located in the Eastern Judicial District of Oklahoma to Okie Equipment Company, Meeker, Oklahoma, and [sic] envelope containing County Warrant Number 752, in the amount of $403.59, all in violation of Title 18, United States Code, Sections 1341 and 2."

Rec., vol. I, tab 1, at 1-2 (emphasis added).

The first group of counts consists of those that incorporate count one by reference and charge Lance with additional transactions, identified only by vendor, date, warrant (check) number, and amount, involving vendors Billy J. Klutts, d/b/a Okie Equipment Company, and Ernest Irwin, d/b/a either Independent Industries or Machinery Parts and Service. Significantly, Klutts and Irwin are included in paragraph three of count one, which alleges the receipt of money as a result of billing the county for nonexistent goods. As we stated in Shelton,

"[t]his allegation of 'split deals' or 'fifty-fifty splits' charges fraudulent conduct that necessarily deprived county citizens of money or property by asserting that the county paid for items it never actually received. Although the mere allegation of receiving a kickback is not sufficient to state a mail fraud violation under McNally, here the count alleging split deals was expressly incorporated by reference into every mail fraud count. As a result, while all the mail fraud counts could be read as charging only kickbacks, they could also all be read as charging that each transaction involved a split deal."

At 1495. These counts are substantially similar to the indictment under which Fred A. Shelton was convicted. Id. at 1495. As we held in Shelton, id. at 1495, the counts state a crime under McNally.

Next, McNally requires us to consider whether the jury instructions properly required the jury to find that the victim of the scheme was itself deprived of money or property. See 107 S.Ct. at 2882. The instructions given here mirror word-for-word the ones at issue in Shelton. ⁵ See Shelton at 1495-96. In accordance with our analysis there, id. at 1496, we hold that the instructions are defective because they do not mandate the requisite finding of pecuniary loss by the victim.

Notwithstanding our conclusion that such instructions are inadequate under McNally, the record establishes that Lance suffered no resulting prejudice on those counts where split deals were actually proven. Some alleged deprivations of intangible rights are, by the very nature of the fraud involved, necessarily inextricably intertwined with the victim's loss of money or property. See, e.g., United...