U.S. v. Schwab
| Decision Date | 06 March 2000 |
| Docket Number | No. 99-CR-171-J.,99-CR-171-J. |
| Citation | 88 F.Supp.2d 1275 |
| Parties | UNITED STATES of America, Plaintiff, v. Marvin G. SCHWAB, Daniel A. Schwab, and Vance S. Schwab, Defendants. |
| Court | U.S. District Court — District of Wyoming |
Robert B. Carroll, Cheyenne, WY, for Marvin G. Schwab, defendant.
G. Kevin Keller, Cheyenne, WY, Lowell H. Becraft, Jr, Huntsville, AL, for Daniel A. Schwab, defendant.
James K. Lubing, Jackson, WY, for David W. Horsley, Jr, defendant.
Ronald L. Brown, Fort Collins, CO, for Vance S. Schwab, defendant.
ORDER DENYING MOTION TO STRIKE SURPLUSAGE AND TO DISMISS INDICTMENT ON THE BASIS OF FAILURE TO PLEAD ESSENTIAL ELEMENT; ORDER DENYING VANCE SCHWAB'S MOTIONS TO DISMISS FOR LACK OF FIDUCIARY RESPONSIBILITY
The defendant Marvin Schwab's Motion to Strike Surplusage [Tabs 55 and 56], which has been joined by all defendants, the government's response in opposition to the motion [Tab 97], the motions to dismiss for lack of fiduciary responsibility filed by defendant Vance Schwab [Tabs 60 and 61] the government's responses in opposition to Vance Schwab's motions [Tabs 89 and 91] came before the Court for hearing and argument on February 11, 2000. After considering the parties' written submissions and the arguments of counsel, the Court has determined that the defendants' motions should be DENIED for the reasons stated below.
The defendants argue in this motion that the Indictment fails to allege an essential element of the offense, i.e., that the defendants obtained money or property by fraud. They seek to have the Indictment dismissed because it fails to allege the essential fraud element of the offense.
Vance Schwab argues as well that the counts against him fail for lack of fiduciary responsibility because he was an independent contractor who owed no fiduciary responsibilities to the insurance companies. Because the allegations of fraud are based on non-disclosure to the insurance companies, in the absence of a fiduciary relationship between the defendant and the insurance company no duty to disclose arises, no fiduciary obligation exists, and the claims for fraud fail.
Defendants cite authority they contend supports the proposition that an indictment charging a § 2314 violation which does not allege specifically "unlawful and fraudulent intent" is void and must be dismissed.
Defendants contend that the indictment attempts to plead the fraud element through the following allegations: (1) the indictment alleges [¶ 31] that the defendants committed fraud upon the victim insurance companies by failing to disclose certain matters to them; (2) the indictment alleges that the victim insurance companies expected that policies sold by the defendants would be continued at the first and subsequent anniversaries, but when the policies were not continued, the companies were defrauded.
Defendants argue that Wyoming law is relevant in the case. Under Wyoming law, "the elements of a claim for relief for fraud are a false representation made by the defendant which is relied upon by the plaintiff to his damage, the asserted false representation must be made to induce action, and the plaintiff must reasonably believe the representation to be true." Duffy v. Brown, 708 P.2d 433, 437 (Wyo. 1985). The indictment does not allege that defendants made false representations. Rather, the indictment alleges the defendants failed to make disclosures required of them by law. Defendants argue that a comparable state law indictment for fraud alleging non-disclosure could not be maintained under Wyoming law.
They also argue that no Wyoming statute or insurance department regulations would have required the defendants to make disclosures to the insurance companies and that the applicable contracts of the defendants with the insurance companies did not require such disclosures. The agency contracts between defendants and the insurance companies stated the defendants were independent contractors. The defendants are agents of the insured, not the insurer. No duty to disclose information to the companies exists under applicable law, in the defendants' views.
Section 2314 at issue here relates to whether the defendants took the property by fraud. Supreme Court cases define fraud as "the telling of an untruth, knowing it to be an untruth, with intent to induce a man to alter his condition, and his altering his condition in consequence whereby he sustains damage." Ming v. Woolfolk, 116 U.S. 599, 602-03, 6 S.Ct. 489, 29 L.Ed. 740 (1886). Fraud may not be presumed and the representations made must be in regard to a material fact, false and acted upon by the other party in ignorance of its falsity with a reasonable belief that it was true. Non-disclosures are fraudulent only if a fiduciary or trust relationship exists between the parties, citing Chiarella v. United States, 445 U.S. 222 235, 100 S.Ct. 1108, 1118, 63 L.Ed.2d 348 (1980), Dirks v. S.E.C., 463 U.S. 646, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983); and Central Bank of Denver N.A. v. First Interstate Bank of Denver, Inc., 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994). This rule is followed in the Tenth Circuit. Windon Third Oil and Gas v. F.D.I.C., 805 F.2d 342, 347 (10th Cir.1986); Farlow v. Peat, Marwick, Mitchell & Co., 956 F.2d 982, 988 (10th Cir.1992); Jensen v. Kimble, 1 F.3d 1073, 1078 (10th Cir. 1993); and Connett v. Justus Enterprises of Kansas, 68 F.3d 382, 385 (10th Cir. 1995); and cases cited from other circuits.
The indictment does not allege a fiduciary relationship between the defendants and the insurance companies. "Persuasive authority" is cited demonstrating that insurance agents like these do not have any fiduciary relationship with insurance companies. Dodd Ins. Services v. Royal Ins. Co. of America, 935 F.2d 1152, 1157 (10th Cir.1991). Because there was no fiduciary relationship between the defendants and the insurance companies, the non-disclosures or material omissions at issue in the case cannot form the basis for any allegations of fraud and must be stricken from the indictment.
The indictment also alleges that the defendants did not disclose that the prospective policy holder intended to reduce or cancel the policy at the end of the first year of the life of the policy. The companies expected the policies sold by the defendants to continue to be in force after the first year. Because they expected premium payments beyond the first year but did not receive them, the indictment asserts the companies were defrauded.
Defendants contend that even if the defendants had represented that the policy purchasers would continue the policies in the future, even if that representation was wrong, that would not amount to fraud under Wyoming law. Bushnell v. Elkins, 34 Wyo. 495, 245 P. 304, 307 (1926), is cited for the proposition that a representation which is promissory in nature and which relates to the future or which depends upon contingencies which may or may not happen cannot furnish the foundation for a claim of fraud or deceit. The defendants claim the same result should obtain under federal law. Sawyer v. Prickett, 86 U.S. (19 Wall.) 146, 150, 22 L.Ed. 105 (1873), held that a promissory statement is not ordinarily the subject either of an indictment or of an action. The same rule obtains in the Tenth Circuit. The appellate court in United States v. Stanolind Crude Oil Purchasing Co., 113 F.2d 194, 201 (10th Cir. 1940) held See also Haque Travel Agency v. Travel Agents International, 808 F.Supp. 569, 572 (E.D.Mich.1992).
The defendants claim the indictment makes no allegations about what the defendants actually represented to the insurance companies. The insurance companies merely expected that premiums would be paid in the future, even though the policies contained no contractual provision requiring policy owners to make any payments other than the initial one. The defendants contend that "at most, the indictment alleges some possibly sharp practices committed by the defendants, but such practices are not criminal." Not all conduct that strikes a court as sharp dealing or unethical conduct is a scheme or artifice to defraud.
The government responds by noting that the defendants are charged with violations of federal criminal statutes and argues that the defendants' reliance upon state law is misplaced. It also disputes that the cases cited stand for the proposition that nondisclosure of material facts cannot be actionable as criminal fraud in federal court.
The government argues "fraud is a false representation of a matter of fact, whether by words or by conduct, by false and misleading allegations, or by concealment of that which should have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury." United States v. Smith, 13 F.3d 1421, 1425 (10th Cir.1994). A false or fraudulent representation, within the meaning of 18 U.S.C. § 2314, may be made by statements of half truths or the concealment of material facts as well as by affirmative statements or acts. United States v. O'Boyle, 680 F.2d 34, 36 (6th Cir.1982).
The government states that the relationship of the defendants with the three insurance companies did impose upon them a duty to disclose to the companies material information concerning the policies they sold for the companies. Defendant cites to Wyoming law concerning the duties owed by agent to the principal. The Wyoming Supreme Court defines an agency as "a fiduciary relation which results from the manifestation of...
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