U.S. v. Runnels

• Citation: 833 F.2d 1183
• Decision Date: 19 October 1987
• Docket Number: 86-1923,Nos. 86-1922,s. 86-1922
• Parties: 126 L.R.R.M. (BNA) 2789, 56 USLW 2255, 107 Lab.Cas. P 10,228, 24 Fed. R. Evid. Serv. 107 UNITED STATES of America, Plaintiff-Appellee, v. Frank RUNNELS (86-1923) and Arnold Shapero (86-1922), Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 1183

833 F.2d 1183

126 L.R.R.M. (BNA) 2789, 56 USLW 2255,

107 Lab.Cas. P 10,228,

24 Fed. R. Evid. Serv. 107

UNITED STATES of America, Plaintiff-Appellee, v. Frank RUNNELS (86-1923) and Arnold Shapero (86-1922),

Defendants-Appellants.

Nos. 86-1922, 86-1923.

United States Court of Appeals, Sixth Circuit.

Argued May 8, 1987.

Decided Oct. 19, 1987.

Neil H. Fink (argued), Detroit, Mich., William J. Weinstein (argued), Southfield, Mich., for defendants-appellants.

Keith E. Corbett (argued), Asst. U.S. Atty., Detroit, Mich., for plaintiff-appellee.

Before GUY and BOGGS, Circuit Judges, and EDWARDS, Senior Circuit Judge.

BOGGS, Circuit Judge.

Frank Runnels (Runnels), former president of Local 22 of the United Automobile Workers (UAW) and Arnold Shapero (Shapero), an attorney, appeal their convictions for mail fraud and conspiracy to commit mail fraud. Runnels was charged with committing mail fraud by obtaining money through false and fraudulent pretenses and by depriving the members of Local 22 of his fair and honest services. Shapero was charged with conspiring to commit mail fraud by bribing Runnels and by defrauding the members of Local 22 of their intangible right to fair and honest union representation. The doctrine that mail fraud could include deprivation of "intangible rights" was struck down by the Supreme Court after the convictions of Runnels and Shapero. However, as we hold that the jury necessarily found that Runnels, in breaching his fiduciary duty to Local 22 by taking a bribe, violated 18 U.S.C. Sec. 1341 by depriving Local 22 of an economic benefit which properly belonged to it, we affirm these convictions.

I

In May or June of 1979, Andrew Schlesinger (Schlesinger) arranged for Shapero to pay Runnels $10,000 immediately and $1,700 per month thereafter in return for referring workers' compensation cases to Shapero's law firm. An attorney from Shapero's firm would attend retirees' meetings, at which Runnels would discuss retirees' rights in general and workers' compensation in specific, and refer the members to the attorney. After prospective clients were signed up at retirees' meetings, workers' compensation claims were mailed to Lansing, Michigan. As part of the agreement, Schlesinger was placed on the firm's payroll. However, in June 1980, Shapero told Schlesinger that the arrangement had changed and that Schlesinger was to stay away from Runnels and Local 22, but would continue to draw a salary. At trial, Shapero testified that Runnels caused this change, in the belief that Schlesinger was not conveying the full $1,700 per month. Runnels asked for $2,000 per month in cash, to be paid directly to him.

According to Shapero, Runnels missed a number of retirees' meetings due to illness in 1980-1981, causing a drop in the number of applicants for workers' compensation. Shapero told Runnels that he would receive his $2,000 only for those months when he addressed the retirees' meeting. In 1983, Runnels left Local 22 to become a UAW regional director, at which point the payments stopped.

In January 1986, Runnels was charged with violating 18 U.S.C. Sec. 371 (conspiracy) and 18 U.S.C. Sec. 1341 (mail fraud). Following a jury trial, he was found guilty. He appeals that verdict.

Shapero was charged with conspiracy to commit mail fraud, in violation of 18 U.S.C. Sec. 371 and Sec. 1341. He pled guilty pursuant to a plea agreement under Rule 11, Fed.R.Crim.P., which provided for a maximum eighteen month prison term. As part of the agreement, Shapero cooperated with the government and testified at Runnels's trial.

Shapero moved to set aside his plea, on the grounds that the information failed to state a cause of action, and that the factual basis of the guilty plea was insufficient. The district court denied his motion and sentenced Shapero to eighteen months of imprisonment with all but the first six months suspended, and two years of probation.

II

The relevant portion of 18 U.S.C. Sec. 1341 bans "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations or promises...." The Supreme Court has stated that "[t]he elements of the offense of mail fraud under 18 U.S.C. ... Sec. 1341 are (1) a scheme to defraud, and (2) the mailing of a letter, etc., for the purpose of executing the scheme." Pereira v. United States, 347 U.S. 1, 8, 74 S.Ct. 358, 362, 98 L.Ed. 435 (1954). See also United States v. Street, 529 F.2d 226, 228 (6th Cir.1976).

The mail fraud statute has been applied to a range of circumstances. For instance, the scheme need not have been actually successful in order for a mail fraud violation to have occurred. See, e.g., Erwin v. United States, 242 F.2d 336 (6th Cir.1957); Gridley v. United States, 44 F.2d 716 (6th Cir.1930), cert. denied, 283 U.S. 827, 51 S.Ct. 351, 75 L.Ed. 1441 (1931). Criminal liability for false pretenses, which the mail fraud statute was intended to reach, was consistently predicated upon the defendant's taking or attempted taking of some economic benefit from the scheme's victim, during the period of the mail fraud statute's enactment and amendment, 1870 to 1909. See 35 C.J.S. False Pretenses Secs. 6, 26 (1960), and cases cited therein. Decisions permitting convictions despite the absence of economic loss still required that the defendant deprive the victim of some economic benefit. See generally, Comment, The Intangible-Rights Doctrine and Political-Corruption Prosecutions Under the Federal Mail Fraud Statute, 47 U.Chi.L.Rev. 562, 572-78 (1980), and cases listed at 572-78.

Thus, cases decided under 18 U.S.C. Sec. 1341 prior to 1973 involved some transfer or planned transfer of economic value to the defrauder from the victim. See Parr v. United States, 363 U.S. 370, 80 S.Ct. 1171, 4 L.Ed.2d 1277 (1960); United States v. Beitscher, 467 F.2d 269 (10th Cir.1972); United States v. Randle, 39 F.Supp. 759, 760 (W.D.La.1941). After 1973, courts began to permit conviction of corrupt politicians, without finding a direct transfer of economic value to the politician from the populace, by finding that the citizens had been defrauded of their intangible right to fair and honest government. ¹ See United States v. Mandel, 591 F.2d 1347, 1359-60, on reh'g, 602 F.2d 653 (4th Cir.1979), cert denied, 445 U.S. 961, 100 S.Ct. 1647, 64 L.Ed.2d 236 (1980); United States v. Keane, 522 F.2d 534 (7th Cir.1975), cert. denied, 424 U.S. 976, 96 S.Ct. 1481, 47 L.Ed.2d 746 (1976). Courts have also applied the intangible rights doctrine in corporate and labor cases. See United States v. Barta, 635 F.2d 999, 1005-07 (2d Cir.1980), cert. denied, 450 U.S. 998, 101 S.Ct. 1703, 68 L.Ed.2d 199 (1981) (corporate); United States v. Bohonus, 628 F.2d 1167 (9th Cir.), cert. denied, 447 U.S. 928, 100 S.Ct. 3026, 65 L.Ed.2d 1122 (1980) (same); United States v. Price, 788 F.2d 234 (4th Cir.1986), vacated, --- U.S. ----, 107 S.Ct. 3254, 97 L.Ed.2d 754 (1987) (in light of McNally v. United States, 483 U.S. ----, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987)) (labor); United States v. Local 560, 780 F.2d 267 (3d Cir.1985),cert. denied, --- U.S. ----, 106 S.Ct. 2247, 90 L.Ed.2d 693 (1986) (same); United States v. Boffa, 688 F.2d 919 (3d Cir.1982), cert. denied, 460 U.S. 1022, 103 S.Ct. 1272, 75 L.Ed.2d 494 (1983) (same).

The Supreme Court has recently held, in McNally v. United States, 483 U.S. ----, 107 S.Ct. 2875, 2881, 97 L.Ed.2d 292 (1987), that Sec. 1341 only proscribes conduct which transgresses property rights, not conduct which transgresses intangible rights.

III

The intangible rights doctrine retains no vitality after McNally. However, an alternative rationale, based on the fraud that occurs when a fiduciary breaches his duty by appropriating an economic benefit that properly should be the principal's, leads us to permit Runnels's sentence for violating Sec. 1341 to stand.

Runnels had a fiduciary duty to Local 22 and its members. The existence of the fiduciary duties of union officials is well established. ² See United States v. Boffa, 688 F.2d at 930 ("There is little doubt that union officials owe union members a fiduciary duty [under Sec. 501(a) of the Labor Management Disclosure Act, 29 U.S.C. Sec. 501(a) ]."); Morrissey v. Curran, 650 F.2d 1267, 1275 (2d Cir.1981) ("The fiduciary standards for union officers impose liability upon them when they approve their receipt of excessive benefits, significantly above a fair range of reasonableness."); Farrington v. Benjamin, 468 F.Supp. 343, 350 (E.D.Mich.1979) ("Section 501(a) confers fiduciary status on union officers who deal with property and funds of the union."); United States v. Hoffa, 205 F.Supp. 710 (S.D.Fla.1962), cert. denied sub nom. Hoffa v. Lieb, 371 U.S. 892, 83 S.Ct. 188, 9 L.Ed.2d 125 (1962) (by implication). Inasmuch as Sec. 501(a) of the Labor Management Disclosure Act of 1959, 29 U.S.C. Sec. 501(a), places a fiduciary duty on union officials to "account to the organization for any profit received ... in whatever capacity in connection with transactions conducted by him ... on behalf of the organization," it is clear that Runnels violated his fiduciary duty by failing to turn over to Local 22 or use for its benefit the payments he received from Shapero. ³

In the vast majority of those intangible rights doctrine cases that involve fiduciaries, the defendant has derived some economic benefit, such as accepting a bribe or kickback. See United States v. Curry, 681 F.2d 406 (5th Cir.1982) (diversion of money donated to political organization for personal expenses); United States v. Bohonus, 628 F.2d 1167 (9th Cir.), cert. denied, 447 U.S. 928, 100 S.Ct. 3026, 65 L.Ed.2d 1122 (1980) (kickback from insurance premiums); United States v. Mandel, 591 F.2d 1347, 1360, on reh'g, 602 F.2d 653 (4th Cir.1979), cert. denied, 445 U.S. 961, 100 S.Ct. 1647, 64 L.Ed.2d 236 (1980) (clothing, diamond bracelet, and assignment of land interest); United States v. Bush, 522 F.2d 641, 651 (...