United States v. Kelem, 23165

• Decision Date: 05 November 1969
• Docket Number: No. 23165,23166.,23165
• Citation: 416 F.2d 346
• Parties: UNITED STATES of America, Appellee, v. Robert S. KELEM, Appellant. UNITED STATES of America, Appellee, v. Barnett GARTRELL, Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

416 F.2d 346 (1969)

UNITED STATES of America, Appellee, v. Robert S. KELEM, Appellant.

UNITED STATES of America, Appellee, v. Barnett GARTRELL, Appellant.

Nos. 23165, 23166.

United States Court of Appeals Ninth Circuit.

September 22, 1969.

Rehearing Denied November 5, 1969.

Carl E. Stewart, Los Angeles, Cal. (argued), Barnett Gartrell, in pro. per., for appellants.

Gerald F. Uelmen, Asst. U. S. Atty. (argued), Wm. Matthew Byrne, Jr., U. S. Atty., David R. Nissen, Asst. U. S. Atty., Los Angeles, Cal., for appellee.

Before ELY, CARTER, and HUFSTEDLER, Circuit Judges.

Rehearing Denied in No. 23166 November 5, 1969.

ELY, Circuit Judge:

Following their convictions of several offenses under the mail fraud statute, 18 U.S.C. § 1341, Kelem and Gartrell brought appeals which we have consolidated. They insist that the statute does not proscribe the particular fraud which they practiced.

It is elementary that the jurisdiction of federal courts is defined and limited by the Constitution and congressional action; hence, statutes such as section 1341 should be carefully and strictly construed in order to avoid extension beyond the limits intended by Congress. Healy v. Ratta, 292 U.S. 263, 270, 54 S.Ct. 700, 78 L.Ed. 1248 (1933); Kline v. Burke Constr. Co., 260 U.S. 226, 233-234, 43 S. Ct. 79, 67 L.Ed. 226 (1922). Moreover, such construction is especially appropriate where, as here, the Government urges that we construe a federal criminal statute so that it reaches conduct which the states should appropriately control and which they can control, effectively. Indeed as the Supreme Court has emphasized, section 1341 is not designed to reach all frauds "but only those limited instances in which the use of the mails is a part of the execution of the fraud, leaving all other cases to be dealt with by appropriate state law." Kann v. United States, 323 U.S. 88, 95, 65 S.Ct. 148, 151, 89 L.Ed. 88 (1944); see also Parr v. United States, 363 U.S. 370, 80 S.Ct. 1171, 4 L.Ed.2d 1277 (1962). While fully mindful of the above principles, we have nevertheless concluded that the record herein reveals a fraudulent scheme which would not have been successfully conducted without mailings which the appellants caused, and that, accordingly, we must affirm.

Kelem operated a "Discount Store" where he sold all types of merchandise, including airline tickets at 85% of their face value. Kelem's customers believed that these discounts were made possible through supposed "due bill trades," under which airlines provided transportation in exchange for radio and television advertising. In fact, however, upon learning of a customer's transportation needs, Kelem would request Gartrell or one of his other associates to purchase the ticket. Kelem's associate would obtain the ticket by charging its cost to a credit card issued in the associate's true name. These individuals never paid the bills rendered pursuant to the credit which was extended; hence, they returned significant profits when, according to their arrangement with Kelem, he would, for his unsuspecting customers, purchase the tickets from them at 65% of their face value.

This scheme continued for nearly one year. Kelem, requiring a constant supply of tickets, continuously recruited new "purchasers" to replace associates whose credit cards were confiscated because of large unpaid balances which quickly accrued. The magnitude of the enterprise is evidenced by the fact that approximately $117,000 worth of airline tickets were purchased, on credit, by only six of the participating card holders. One of these, Simon, a co-defendant below, used his Carte Blanche credit card to obtain tickets valued at $22,077.65. Another, one Gould, using a United Airlines credit card, obtained tickets of the full value of $14,065.25. A co-defendant named Sampson used his American Express Company card for credit totaling $11,565.44. Two of Kelem's recruited associates, Weinstein and Payne, used their United Airlines and Diner's Club cards to obtain over $50,000 worth of tickets, and the appellant Gartrell procured more than $20,000 worth of tickets on the strength of credit cards issued to him personally. The ability of the various individuals to amass such large balances before their credit was revoked resulted from collection procedures employed by the victimized companies, A part of this procedure was designed to prevent the excessive misuse of the credit cards. There was a fixed ceiling amount over which no charge could be made without the credit company's authorization being obtained through a telephone call. However, as the record clearly discloses, Kelem and his associates knew of this practice and consequently avoided making purchases of such amounts as to initiate it. They "spread" their purchases among many travel agents to avoid arousing suspicion, and if a ticket for travel between significantly distant points exceeded the ceiling, they would make several separate purchases and then trade the combined tickets for the single trip. Each ticket transaction was recorded on a standard sales invoice on which the selling agent imprinted the purchaser's credit card.

By avoiding the ceiling limit and spreading their purchases, the schemers intended that their charges would be normally processed by the mailing of the invoices, sometime after each ticket purchase, to the airline concerned with the particular ticket. If the ticket was obtained by credit extended on that airline's credit card, there were no more mailings; however, this simple transfer would delay processing of the charge to an account for billing for an average of seven or eight days. If, on the other hand, the tickets were obtained with a credit card issued by one of the credit card companies, the airline, after receiving the invoices from the sales agents, would mail the invoices to the credit card companies for payment, and the ensuing delay would run to a period of between three and eight weeks.

The mail fraud statute is violated if an individual participates in a scheme which "causes" mail to be delivered "for the purpose of executing a fraudulent scheme." 18 U.S.C. § 1341. Here, there is no dispute over the fact that the appellants devised and participated in a scheme to defraud airline and credit card companies. Accordingly, our inquiry is limited to whether the mailings were "caused" by the appellants and if so caused, whether these mailing were "for the purpose of executing the scheme" within the meaning of section 1341.

In Pereira v. United States, 347 U.S. 1, 8-9, 74 S.Ct. 358, 98 L.Ed. 435 (1954), the Supreme Court held that one "causes" a mailing under section 1341 if he does an act with the knowledge that the use of the mails will follow in the ordinary course of business. We, of course, have no power to depart from, or to ignore, that interpretation. Here, as previously explained, the appellants purposely followed a course of conduct designed to invoke the mailing procedures of the credit card companies; therefore, under Pereira, the mailings were "caused" by the appellants.

On the question of whether the evidence supports a determination that the mailings were "for the purpose of executing the scheme," the appellants rely upon Parr v. United States, 363 U.S. 370, 80 S.Ct. 1171, 4 L.Ed.2d 1277 (1960), and Kann v. United States, 323 U.S. 88, 65 S.Ct. 148, 89 L.Ed. 88 (1944). In those two cases, the Supreme Court reversed mail fraud convictions because the mailing had occurred after the object of the fraud had been accomplished. Emphasizing this, the appellants argue that the purpose of their scheme was to obtain airline tickets and that this objective having been accomplished before the mailings occurred, the mailings cannot be held to have been "for the purpose of executing the scheme."

In Parr, a Texas political figure, one Parr, and several co-defendants were charged with having participated in a scheme to milk funds from a local school district. Parr was president of the bank in which the victim's funds were deposited, and his associates controlled the district. The associates caused checks to be issued to themselves under fictitious...