U.S. v. Lennon, 86-2175

• Decision Date: 31 March 1987
• Docket Number: No. 86-2175,86-2175
• Citation: 814 F.2d 185
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Joseph R. LENNON, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 185

814 F.2d 185

UNITED STATES of America, Plaintiff-Appellee, v. Joseph R. LENNON, Defendant-Appellant.

No. 86-2175.

United States Court of Appeals, Fifth Circuit.

March 31, 1987.

Olney G. Wallis, Michael A. Maness, Houston, Tex., for defendant-appellant.

Henry K. Oncken, U.S. Atty., James R. Gough, Asst. U.S. Atty., Houston, Tex., Stephen P. Learned, Washington, D.C., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before WILLIAMS, JOLLY and DAVIS, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Joseph R. Lennon appeals his conviction for having violated the National Stolen Property Act. 18 U.S.C. Sec. 2314. We affirm.

I.

The facts of this case were fully developed in Lennon's first appeal, United States v. Lennon, 751 F.2d 737 (5th Cir.1985), but we will briefly summarize them here. Joseph R. Lennon was the manager of crude oil supply for Charter International Oil Company (Charter). Lennon controlled Charter's purchases of crude oil, and he directed the company to make periodic purchases from Southwest Petrochem, Inc. (Petrochem), owned by Milton Jones. In return for arranging these purchases, Lennon extracted a kickback from Jones varying in price from $.10 to $.20 per barrel purchased. Lennon instructed Jones to pay the kickback to either H & L Enterprises or Harlen Trading Company, companies owned fifty percent by Lennon and fifty percent by his business partner, James Harrigan. In one instance, Jones paid a kickback to Lennon's sole proprietorship named LATCO. The evidence indicated that the kickbacks totaled $1,193,000.

Lennon was charged in an eight-count indictment with causing the interstate transportation of certain checks knowing that certain proceeds of each check were obtained by fraud in violation of the National Stolen Property Act. 18 U.S.C. Secs. 2314, 2(b). The proof at trial showed that the checks from Charter to Petrochem traveled in interstate commerce while the kickbacks from Jones to Lennon's companies did not. The government's theory focused on the Charter checks themselves, and sought to prove that the amount of each check was inflated by the amount of the kickback Jones would ultimately pay to Lennon's companies.

In 1983, a jury convicted Lennon on all counts in a trial before the Honorable Carl O. Bue, Jr. The court fined Lennon $70,000 and sentenced him to serve four years in prison. We reversed Lennon's conviction because of an erroneous jury instruction, Lennon, 751 F.2d at 743-44, and the case was retried. The district court amended its jury instructions to conform to our previous panel opinion. The jury convicted Lennon and he was given the same sentence. This appeal followed.

II.

The crux of Lennon's defense is that his activities do not fall within the narrow strictures of the National Stolen Property Act. The Act imposes criminal penalties on anyone who:

transports in interstate ... commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud.

18 U.S.C. Sec. 2314 (emphasis added). Lennon argues for a strict interpretation of the statute's requirement that what is transported in interstate commerce be "the same" as what is "taken by fraud."

In the instant case, the items transported in interstate commerce were securities, in the form of checks, that were drawn by Charter and made payable to Petrochem. The amount of each Charter check was fraudulently inflated by Lennon in order to finance the ultimate kickback from Jones to Lennon's companies. ¹ Each Charter check therefore contained both legitimate funds designed to pay for crude oil and fraudulently obtained funds designed to finance kickbacks. Although each Charter check traveled in interstate commerce, only the kickback portion of each Charter check was "taken by fraud"; ² the remainder was legitimately used to purchase crude oil. Lennon therefore argues that the Act does not apply because each Charter check that traveled in interstate commerce was not precisely "the same" as the kickback portion of the check that was "taken by fraud." We refuse to adopt such a narrow interpretation of the Act.

Lennon principally relies on Dowling v. United States, 473 U.S. 207, 215, 105 S.Ct. 3127, 3132, 87 L.Ed.2d 152, 159 (1985), in which the Supreme Court reversed a conviction under Section 2314 for the interstate shipment of bootleg sound recordings and motion pictures whose unauthorized distribution infringed valid copyrights. Dowling's section 2314 conviction rested on his unauthorized use of the copyrights, not on any allegation that he unlawfully possessed their physical embodiment in sound recordings and motion pictures. Id. at 215 n. 7, 105 S.Ct. at 3132 n. 7, 87 L.Ed.2d at 159 n. 7. The Court reversed the conviction because "Congress had no intention to reach copyright infringement when it enacted Sec. 2314." Id. at 226, 105 S.Ct. at 3138, 87 L.Ed.2d at 166.

Lennon cites Dowling for a different proposition. To support his argument that the kickback portion of each Charter check was not "the same" as the checks themselves, Lennon cites the following passage from Dowling:

The courts interpreting Sec. 2314 have never required, of course, that the items stolen and transported remain in entirely unaltered form. Nor does it matter that the item owes a major portion of its value to an intangible component. But these cases and others prosecuted under Sec. 2314 have always involved physical "goods, wares, [or] merchandise" that have themselves been "stolen, converted or taken by fraud." This basic element comports with the commonsense meaning of the statutory language: by requiring that the "goods, wares, [or] merchandise" be "the same" as those "stolen, converted or taken by fraud," the provision seems clearly to contemplate a physical identity between the items unlawfully obtained and those eventually transported, and hence some prior physical taking of the subject goods.

Id. at 216, 105 S.Ct. at 3133, 87 L.Ed.2d at 159-60 (citations omitted) (emphasis added). Lennon argues that his conviction should be reversed because there is no "physical identity" between the checks that traveled in interstate commerce and the kickback portion that was "taken by fraud." We disagree for two reasons.

First, we interpret the Court's admonition that the statute contemplates "a physical identity between the items unlawfully obtained and those eventually transported" as distinguishing intangible rights, such as copyright, from the physical items the statute seeks to regulate, such as goods, wares, merchandise, securities or money. ³ The instant case presents no such question of coverage. On the contrary, the statute expressly reaches "securities," the definition of which indisputably includes the Charter checks at issue.

Second, the Court explicitly refused to address the issue before us: the degree of "sameness" the statute requires between what is transported in interstate commerce and what is "taken by fraud." The Court expressly declined to consider the issue when the government in Dowling offered to show that "the wrongfully obtained tapes which contained the musical material should be considered 'the same' as the phonorecords onto which the sounds were transferred...." Id. at 215 n. 7, 105 S.Ct. at 3132 n. 7, 87 L.Ed.2d at 159 n. 7. Dowling is therefore distinguishable and does not control the instant case.

In the instant case, the jury was entitled to find that the funds that were transported in interstate commerce were "the same" as those that were "taken by fraud." The government introduced extensive evidence that the Charter checks were the source of the kickbacks. The fraud occurred at the time the checks were sent from Charter to Petrochem because that is when Lennon inflated the amount of each Charter check in order to finance the ultimate kickback from Jones to Lennon's companies. The district court properly instructed the jury that one element of the offense was that each Charter check "contained at least $5,000 in funds, which were taken by fraud." The jury was entitled to find that each Charter check not only contained legitimate funds designed to purchase crude oil, but also contained at least $5,000 in fraudulently obtained funds designed to finance kickbacks. The issue therefore reduces to whether the Act's requirement of "sameness" is satisfied even though both legitimate and illegitimate funds traveled interstate while commingled in the form of each check. We hold that it is.

We are persuaded that this case is controlled by United States v. Levy, 579 F.2d 1332, 1336 (5th Cir.1978). The defendant in Levy engaged in a scheme where he took by fraud a check for $160,324 from the Alison Mortgage Company. Id. at 1333-34. The fraudulently obtained check was deposited in a Lafayette, Louisiana bank account, controlled by the defendant. Id. at 1333. The Lafayette bank account contained approximately $27,000 in legitimate funds that were not taken by fraud. ⁴ Id. at 1337. The defendant drew two checks on the account, one for $45,000 and one for $55,000. Id. at 1333. The two checks were then sent across state lines and were deposited in a bank in Beaumont, Texas. Id. The court upheld the section 2314 conviction, reasoning that the two checks that traveled interstate must have contained at least $5,000 in fraudulently obtained funds because there were not enough legitimate funds in the Lafayette bank account to cover either of the interstate checks. Id. at 1336-37. The court explained that there was "no doubt that the two checks sent to Beaumont represented the funds illegally acquired from Alison." Id. at 1337 (emphasis added).

Levy teaches that we may look behind the form of an interstate check in order to scrutinize the funds it represents. The conviction was upheld in Levy because each check that traveled interstate must have represented at least...