U.S. v. Loney

• Decision Date: 23 April 1992
• Docket Number: No. 91-1340,91-1340
• Citation: 959 F.2d 1332
• Parties: 35 Fed. R. Evid. Serv. 764 UNITED STATES of America, Plaintiff-Appellee, v. Andrew J. LONEY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1332

959 F.2d 1332

35 Fed. R. Evid. Serv. 764

UNITED STATES of America, Plaintiff-Appellee, v. Andrew J. LONEY, Defendant-Appellant.

No. 91-1340.

United States Court of Appeals, Fifth Circuit.

April 23, 1992.

Timothy W. Crooks, Asst. Federal Public Defender, Ira R. Kirkendoll, Federal Public Defender, Ft. Worth, Tex., for defendant-appellant.

J. Michael Worley, Asst. U.S. Atty., Marvin Collins, U.S. Atty., Ft. Worth, Tex., for plaintiff-appellee.

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

Before WISDOM, JONES and SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Andrew Loney participated in a scheme with an employee of American Airlines to add bogus mileage to frequent flyer accounts and to issue award coupons based upon that mileage. He now challenges his conviction of six counts of wire fraud and one count of conspiracy to commit wire fraud. Finding no error, we affirm.

I.

This case involves American Airlines's frequent flyer program, the AAdvantage ^TM program. ¹ Members of the program receive credit for miles traveled on American Airlines, and they may use that credit to obtain awards, including coupons that can be exchanged for free or reduced-fare tickets on American and certain other airlines. Sonja Jefferson was employed as an AAdvantage customer service representative; her duties included making mileage credit entries to AAdvantage members' accounts via her computer terminal. Jefferson devised a scheme to add thousands of unearned miles to the accounts of friends and relatives, enabling them to receive flight coupons based upon the bogus mileage.

Jefferson's and Loney's families had been longtime friends. At the request of Loney, Jefferson located dormant accounts and replaced the names and addresses on those accounts with names and addresses supplied by Loney. She then would add large numbers of miles to these accounts and issue coupons for airline tickets, based upon the bogus mileage, to the names provided by Loney. In a kickback arrangement, Loney sold the coupons to the persons in whose name they had been issued and remitted part of the money to Jefferson. Another American Airlines employee uncovered the scheme when a customer, whose account had been altered, complained.

Loney was charged with twelve counts of wire fraud and aiding and abetting wire fraud, in violation of 18 U.S.C. §§ 2 and 1343, and one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 371. ² He was convicted on six of the substantive wire fraud counts and on the conspiracy count. Loney filed a motion for new trial and, at the district court's suggestion, a proffer of evidence. The court denied the motion without an evidentiary hearing.

II.

The federal wire fraud statute punishes "[w]hoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises," uses interstate communication "for the purpose of executing such scheme or artifice." Section 1343. ³ Loney contends that there is insufficient evidence to sustain his conviction on the six substantive wire fraud counts. Although he phrases his argument as a sufficiency-of-the-evidence challenge, the crux of his contention is that he could not be convicted of wire fraud as a matter of law because he did not defraud American Airlines of any "property" as required by the statute. We review this issue of law de novo. United States v. Siciliano, 953 F.2d 939, 942 (5th Cir.1992).

A.

Loney's focus on property stems from McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987). There, the defendants were convicted of mail fraud ⁴ for their involvement in a scheme in which one defendant, a public official, ⁵ used his influence to channel state insurance business to an insurance agency that then shared the commissions generated with other insurance agencies, including one in which the defendants had an undisclosed interest. The prosecution's principal theory was that the defendants participated "in a self-dealing patronage scheme [that] defrauded the citizens and government of Kentucky of certain 'intangible rights,' such as the right to have the Commonwealth's affairs conducted honestly." Id. at 352, 107 S.Ct. at 2877.

After surveying the legislative history and purpose behind the fraud statute, the McNally Court concluded that it did not cover deprivations of the right to honest governmental services but instead was "limited in scope to the protection of property rights." Id. at 360, 107 S.Ct. at 2882. ⁶ The Court thus reversed the defendants' convictions on the ground that the jury "was not required to find that the Commonwealth itself was defrauded of any money or property." Id.

Loney argues that award coupons are not "property" for purposes of the federal wire fraud statute, citing TransWorld Airlines v. American Coupon Exch., 913 F.2d 676 (9th Cir.1990) (TWA ). There, the court concluded that frequent flyer award coupons represent "contract rights" instead of "property rights." Id. at 686-88. TWA is distinguishable, however, in that the court was characterizing award coupons for purposes of the "public policy against restraints on alienation of property." Id. at 685. The case involved a restriction that TWA had placed on the use of award coupons that prohibited the frequent flyer member from assigning awards to anyone other than a relative or legal dependent. ⁷ The court upheld the restriction as a valid restraint on the assignability of a contract, noting that "the public policy against restraints on the alienation of property is no impediment to the enforcement of TWA's" restriction. Id. at 686.

The court went on to note, however, that airline tickets could be construed as "property" for other purposes There is, to be sure, language in some cases that tends to support the argument that tickets are 'property,' but we believe most of these passing references have occurred in circumstances where 'property' was equated with 'things of value.' ... [T]he same principle would seem to underlie those decisions holding tickets to be 'property' embraced by theft statutes....

Id. at 688 (emphasis added) (citations omitted).

This "things of value" definition was utilized by the McNally Court, which suggested that the words "to defraud" in the federal fraud statutes "commonly refer 'to wronging one in his property rights by dishonest methods or schemes,' and 'usually signify the deprivation of something of value by trick, deceit, chicane or overreaching.' " 483 U.S. at 358, 107 S.Ct. at 2881 (citing Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S.Ct. 511, 512, 68 L.Ed. 968 (1924)) (emphasis added). There is no question that a flight award coupon is "something of value," for it can be used to obtain free flight tickets. ⁸ Moreover, we construe "property" in a broad sense for purposes of the federal fraud statutes. McNally, 483 U.S. at 356, 107 S.Ct. at 2879. Consequently, the rule of lenity does not apply. We therefore reject Loney's argument that award coupons are not "property" under McNally. ⁹

B.

But even if we assume arguendo that award coupons are not property, Loney's conviction still stands. His scheme was designed to defraud American of its lawful revenues, which is actionable under the statute. See United States v. Patterson, 528 F.2d 1037, 1041 (5th Cir.) (citing Scott v. United States, 448 F.2d 581 (5th Cir.1971), cert. denied, 405 U.S. 921, 92 S.Ct. 955, 30 L.Ed.2d 791 (1972)), cert. denied, 429 U.S. 942, 97 S.Ct. 361, 50 L.Ed.2d 313 (1976). ¹⁰ Indeed, the statute criminalizes deprivations of "money or property," not just property. ¹¹

The scheme in this case is quite similar to that involved in Patterson. There, the defendant devised a plan to defraud the telephone companies of their lawful revenues by marketing "blue boxes," which enable a person to bypass the regular electronic circuitry used for recording calls. Thus the "blue boxes" allow persons to make calls without being charged for them. The defendant in Patterson was caught when he attempted to sell one of the devices to a phone company employee who was posing as a booking agent for a musical group.

The Patterson defendant devised a way to get something--phone calls--for nothing. Similarly, Loney devised a way to get award coupons based upon bogus mileage. And like the Patterson defendant, Loney wanted to make money on the scheme. Thus, he sold the coupons to others, remitting some of the money to Jefferson and keeping some for himself. That money should have gone to American Airlines. ¹²

Loney appears to anticipate these arguments, for he maintains that the government failed to show that American Airlines actually suffered financial loss. ¹³ But such a showing is not necessary. A wire fraud offense requires proof of (1) a scheme to defraud and (2) the use of, or causing the use of, wire communications in furtherance of the scheme. United States v. St. Gelais, 952 F.2d 90, 95 (5th Cir.1992); United States v. Shively, 927 F.2d 804, 813 (5th Cir.), cert. denied, --- U.S. ----, 111 S.Ct. 2806, 115 L.Ed.2d 979 (1991). In addition, the government must prove a specific intent to defraud, which requires a showing that the defendant intended for some harm to result from his deceit. St. Gelais, 952 F.2d at 95. The government does not need to prove that the harm actually came about, however.

As the Second Circuit has noted, "[i]t need not be shown that the intended victim of the fraud was actually harmed; it is enough to show defendants contemplated doing actual harm, that is, something more than merely deceiving the victim." United States v. Schwartz, 924 F.2d 410, 420 (2d Cir.1991). See also Patterson, 528 F.2d at 1041 ("[t]here is no necessity for the government to prove actual financial loss"). ¹⁴ Indeed, the plain language of the statute does not criminalize causing actual harm to the...