U.S. v. Stewart, 88-1183

• Citation: 872 F.2d 957
• Decision Date: 24 April 1989
• Docket Number: No. 88-1183,88-1183
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. James Leon STEWART, Defendant-Appellant. Robert Preston Fails, Defendant.

Page 957

872 F.2d 957

UNITED STATES of America, Plaintiff-Appellee, v. James Leon STEWART, Defendant-Appellant.

Robert Preston Fails, Defendant.

No. 88-1183.

United States Court of Appeals, Tenth Circuit.

April 24, 1989.

Linda G. Alexander of Niemeyer, Noland & Alexander (John C. Niemeyer and Kenneth D. Upton, Jr., of Niemeyer, Noland & Alexander, with her on the briefs), Oklahoma City, Okl., for defendant-appellant.

H. Lee Schmidt, Asst. U.S. Atty. (William S. Price, U.S. Atty., with him on the brief), Oklahoma City, Okl., for plaintiff-appellee.

Before McKAY and McWILLIAMS, Circuit Judges, and BROWN, ^* Senior District Judge.

BROWN, Senior District Judge.

Appellant James Stewart was convicted by a jury on twenty-nine counts of mail and wire fraud (18 U.S.C. Sec. 1341 and Sec. 1343) as well as one count of conspiracy to defraud (18 U.S.C. Sec. 371). Appellant argues that the trial court committed several errors in the proceedings below. We have examined the record and, having found no error, we affirm the judgment and the convictions.

According to the superseding indictment, the defendant devised a scheme to obtain pharmaceuticals from drug manufacturers at reduced prices by representing that the drugs were being purchased for use in hospitals, when in fact the defendant intended to sell the drugs to various wholesalers. The indictment alleged that the scheme developed as follows: Prior to 1984, Hospital Shared Services, Inc., ("HSSI") was a nonprofit buying group, consisting of a number of hospitals in Oklahoma. HSSI was basically a conduit through which member hospitals ordered and obtained pharmaceuticals from manufacturers. In accordance with industry practice, pharmaceutical manufacturers sold their products to hospitals or their buying groups (such as HSSI) at prices well below the normal price on products sold to wholesalers. The indictment further alleged that the manufacturers would only sell to buying groups at these reduced, or "bid," prices upon a representation that the pharmaceuticals were being obtained for the "own use" of members of the buying group and not for resale to nonmember institutions.

In 1984, the defendant Stewart and his codefendant Robert Fails gained control of HSSI. The defendants then sent letters to several manufacturers, stating that HSSI was a nonprofit shared services group representing thirty-one hospitals. The defendants later represented that pharmaceuticals purchased from the manufacturers were for the "own use" of HSSI's member hospitals. According to the indictment, this was part of the defendants' scheme to defraud the manufacturers by obtaining pharmaceutical products at substantially reduced prices. The defendant ordered quantities of pharmaceuticals far in excess of what was needed by HSSI's member institutions and then sold the surplus pharmaceuticals to wholesale drug companies.

Appellant's first argument is that the mail and wire fraud statutes are unconstitutionally vague. Such a challenge must be examined in light of the facts of the case at hand. United States v. Mazurie, 419 U.S. 544, 95 S.Ct. 710, 42 L.Ed.2d 706 (1975). After examining the record before us, we must reject the claim that these statutes are impermissibly vague.

The mail fraud statute ¹ provides in part:

Whoever, 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,.... for the purpose of executing such scheme or artifice or attempting so to do [uses the mails or causes them to be used], shall be fined not more than $1,000 or imprisoned not more than five years, or both.

(18 U.S.C. Sec. 1341).

The statute clearly prohibits the use of the mails to further any scheme or artifice to defraud. A scheme or artifice to defraud "connotes a plan or pattern of conduct which is intended or is reasonably calculated to deceive persons of ordinary prudence and comprehension." United States v. Taylor, 832 F.2d 1187, 1192 (10th Cir.1987).

The test for impermissible vagueness is whether a person of ordinary intelligence is given fair notice by the statute that his conduct is forbidden. Palmer v. City of Euclid, 402 U.S. 544, 91 S.Ct. 1563, 29 L.Ed.2d 98 (1971); United States v. Stoddart, 574 F.2d 1050, 1053 (10th Cir.1978). We find that a person of ordinary intelligence would have understood that a plan to obtain pharmaceuticals at reduced prices by intentionally misrepresenting the nature and intent of the purchaser constituted a scheme to defraud or to obtain money or property by means of false representations, such as is prohibited by 18 U.S.C. Sec. 1341. It is significant in this regard to note that mail fraud is a specific intent crime. The Supreme Court has long recognized that the constitutionality of a vague statutory standard is closely related to whether that standard incorporates a requirement of mens rea. Colautti v. Franklin, 439 U.S. 379, 395, 99 S.Ct. 675, 685, 58 L.Ed.2d 596, 609 (1978). Although a specific intent requirement does not necessarily validate a criminal statute against all vagueness challenges, it does eliminate the objection that the statute punishes the accused for an offense of which he was unaware. Screws v. United States, 325 U.S. 91, 65 S.Ct. 1031, 89 L.Ed. 1495 (1945). See also United States v. Conner, 752 F.2d 566 (11th Cir.1985), cert. denied, 474 U.S. 821, 106 S.Ct. 72, 88 L.Ed.2d 59.

Appellant's next contention is that the indictment should have been dismissed for failure to allege a criminal offense. The indictment clearly alleged that the defendant devised a scheme to obtain money or property from his intended victim by means of false pretenses, representations or promises, and that he used the U.S. mails for the purpose of executing or furthering the scheme. These and the other allegations in the indictment are sufficient to state an offense under Sec. 1341. See United States v. Murphy, 836 F.2d 248, 254 (6th Cir.1988) ("The predicate for a mail fraud violation is a 'scheme or artifice' to defraud a person or entity of its money or property."). Thus, the trial court properly refused to dismiss the indictment.

Appellant next argues that the trial court erred by failing to give several of his requested instructions. Relying on McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), appellant first contends that he was prejudiced by the trial court's refusal to instruct the jury that the mail and wire fraud statutes did not apply to certain intangible rights. Appellant contends that, at most, the manufacturers named in the indictment were deprived only of an "intangible business expectation."

In McNally, the Supreme Court ruled that Sec. 1341 did not reach schemes to defraud citizens of their intangible right to honest government. Instead, the Court held that Sec. 1341 was limited in scope to the protection of property rights. Id. ²

We find that the present case clearly involved a scheme relating to property rights and is in accord with the rule announced in McNally. The object of the defendant's scheme in this case was to obtain low-priced pharmaceuticals from the manufacturers by means of false representations. Cf. Carpenter v. United States, 484 U.S. 19, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987). ("Here, the object of the scheme was to take.... confidential business information....") Stated otherwise, the effect of the scheme was to deprive the manufacturers of money which they should have received on sales of pharmaceuticals to wholesalers. The government presented extensive testimony establishing that the manufacturers would not have sold the drugs to HSSI at reduced prices if the true facts had been known and that the prices charged to HSSI would have been much higher but for the defendant's scheme. Such a scheme, where the accused intends to gain money or property at the expense of the victim of the scheme, is clearly within the purview of Sec. 1341. Carpenter v. United States, supra; United States v. Shelton, 848 F.2d 1485 (10th Cir.1988).

A reading of the indictment in this case shows that the defendant was charged with devising a scheme "to defraud and obtain property from the pharmaceutical companies named in.... this indictment.... by means of false and fraudulent pretenses...." This was the only scheme alleged in the indictment and was incorporated into each count against the defendant. The indictment contained no allegation that any person or entity was deprived of an intangible right, nor was any evidence presented to that effect. In accordance with the indictment, the trial court instructed the jury that "the fraudulent scheme alleged in the present case is the purchase of pharmaceuticals-medical supplies at nonprofit or 'bid' prices." Thus, the only theory presented to the jury was that the manufacturers were deprived of money or property by the defendant's scheme. Having reviewed the indictment, the evidence, and the instructions to the jury, we conclude that there was no possibility that the jury convicted the defendant without a finding that his scheme was intended to deprive the manufacturers of money or property. United States v. Lance, 848 F.2d 1497, 1501 (10th Cir.1988). See also United States v. Diwan, 864 F.2d 715, 719 (11th Cir.1989); United States v. Folak, 865 F.2d 110, 113 (7th Cir.1988); United States v. Wellman, 830 F.2d 1453, 1462-63 (7th Cir.1987) ("the proof in this case removes any doubt regarding the nature of the scheme."). The defendant was therefore not prejudiced by the trial court's instructions on the scheme to defraud.

Appellant also contends the trial court erred by refusing to instruct the jury on the elements of common law fraud. It is well established, however, that an offense under Sec. 1341, unlike common law fraud, does not require the successful completion of the scheme to defraud. United States v. Curtis, 537 F.2d 1091, 1095 (10th Cir.1976). (The...