United States v. McKay

• Decision Date: 18 July 1942
• Docket Number: No. 25950.,25950.
• Citation: 45 F. Supp. 1007
• Parties: UNITED STATES v. McKAY et al.
• Court: U.S. District Court — Western District of Michigan

45 F. Supp. 1007

UNITED STATES v. McKAY et al.

No. 25950.

District Court, E. D. Michigan, S. D.

July 18, 1942.

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Louis B. Schwartz and Alfred B. Teton, Attys., Department of Justice, both of Washington, D. C., for the United States.

Eugene L. Garey, of New York City, for defendant Frank D. McKay.

E. J. Marshall and John B. McMahon, both of Toledo, Ohio, for defendants Stranahan, Harris & Co. Inc., and Robert S. Mikesell.

Harry N. Deyo, of Detroit, Mich., for defendant Stewart P. Blasier.

MILLER, District Judge.

This indictment, consisting of seven counts, charges the defendants Frank D. McKay, Stewart P. Blasier, Robert S. Mikesell and Stranahan, Harris & Company, Inc., with violations of Section 215 of the Criminal Code, 18 U.S.C.A. § 338, commonly referred to as the Mail Fraud Statute. The defendants have filed demurrers to each count of the indictment, pleas in abatement and motions for a bill of particulars.

The indictment alleges in substance that McKay was an influential and well-known political figure in the State of Michigan and was secretly employed by Stranahan, Harris and Company, a dealer in municipal bonds and other securities, to use his political influence in promoting the interests of that company; that Mikesell was vice-president of Stranahan, Harris and Company; that Blasier was employed by the corporation in charge of sales of bonds in Michigan and was an intimate business and personal friend of McKay; that on and after May 12, 1938, the City Commission of Grand Rapids, Michigan, had under consideration a proposal to construct an extension of the city water works system with the aid of a grant from the Public Works Administration; that the city's share of the cost of this project, amounting to approximately $2,255,000 was to be raised by the sale of bonds which would be sold at public sale after notice by publication as required by law; that between January 1, 1938, and December 31, 1938, the defendants did devise a scheme and artifice to defraud and for obtaining money by means of false pretenses from the City of Grand Rapids and its citizens and taxpayers, which scheme and artifice is then described by the indictment substantially as follows. The defendants would induce the city of Grand Rapids to sell the bonds to Stranahan, Harris and Company under such circumstances and conditions as would deprive the City of the highest and best bid and unjustly enrich the defendants at the expense of the city, its citizens and taxpayers; that the sale would be made under the false pretense of a public sale but would in fact be a private sale; that the defendants caused to be prepared and published a notice of the bond sale which contained false statements and provided for unreasonable terms which would prevent bidding by anyone other than Stranahan, Harris and Company; that the defendants would discourage other dealers from bidding at the sale by making certain false representations, all of which would enable Stranahan, Harris and Company to purchase bonds at $1,010 per $1,000 bond, when the true and reasonable value of each such bond was $1,150; that following public protest and refusal of the Public Debt Commission of the State of Michigan to approve said notice a second notice of bond sale to be held on August 22, 1938, was published about August 13, 1938; that Stranahan, Harris and Company secretly formed a joint account with Paine, Webber and Company and B. J. Van Ingen & Company, dealers in securities, by which the defendants would cause two bids to be filed at the sale on August 22, 1938, namely, a high bid in the name of B. J. Van Ingen and Company without disclosing the interest or participation of the other two companies, and a lower bid in the name of Stranahan, Harris and Company and Paine, Webber and Company without disclosing the interest of B. J. Van Ingen and Company; that should any bid be higher than the bid of Stranahan, Harris and Company and Paine, Webber and Company but lower than the bid of B. J. Van Ingen and Company the defendants would buy the bonds on the B. J. Van Ingen and Company bid, but if the bid of Stranahan, Harris and Company and Paine, Webber & Company should be next highest to the Van Ingen bid the defendants would secure the withdrawal of the high bid of B. J. Van Ingen and Company and purchase the bonds on the bid of Stranahan, Harris and Company and Paine, Webber and Company; that the defendants would falsely represent to the City of Grand Rapids that the Van Ingen bid was a bona fide and unconditional bid whereas in truth it was not a bona fide and unconditional bid, but was conditioned upon the bid of Stranahan, Harris and Company and Paine, Webber and Company not being the second high bid; that the defendants by means of false representations would cause the City of Grand Rapids to return to Van Ingen and Company its good faith deposit of $22,550 and would fraudulently deprive the City of Grand Rapids of the benefit of the difference between the high bid and the second high bid amounting to approximately $20,000; that the defendants having so purchased the bonds would resell them to the public at a profit which was unlawfully and corruptly increased beyond a normal and legitimate profit by the means of the scheme alleged, and that the profits so obtained would be apportioned among the defendants. Each of the counts then alleges a particular use of the mails by the defendants for the purpose of executing the scheme charged.

Demurrers to the Indictment.

In support of the demurrers the defendants contend that the allegations contained in the indictment do not show any violation of Section 215 of the Criminal Code. They urge upon the Court that the words in the statute "Whoever, having devised or intending to devise any scheme or artifice to defraud" are to be construed in their common-law sense, which means the exclusion of any scheme except one to perpetrate a common-law fraud; that in order for a common-law fraud to exist there must be either a misrepresentation of fact knowingly made, or a failure to disclose a material fact when a duty existed to do so, neither of which situations exist in the present case; that any misrepresentations made must be made to the victim, pointing out that in the present case any misrepresentations if made were made to parties other than the victims. They further point out that the defendants did not and could not cause the notice of bond sale to be prepared and published, as such acts were the result of independent action on the part of the city officials who are presumed to know the law and to have correctly performed their duty; that the terms inserted in the notice were not illegal; that the motive on the part of the defendants to make a profit does not make the scheme a fraudulent one; that the withdrawal of the high offer to buy the bonds before it was accepted was the exercise of a legal right available to any offeror negotiating for a contract; and that any participation by them in a joint bid with others, even without disclosure to the city to whom they owed no duty, was a proper and common practice and in no way illegal or fraudulent. They have filed an exhaustive brief in support of this position which is very ingenious in its presentment of the questions involved and its treatment of them.

Defendants' main reliance is upon the proposition that "any scheme or artifice to defraud" is restricted to a scheme containing the essential elements of common law fraud, which do not exist in the present case. Particular reliance is placed upon the decision in Fasulo v. United States, 272 U.S. 620, 47 S.Ct. 200, 71 L.Ed. 443, which in effect repudiates the rule previously laid down by the Circuit Court of Appeals for the 6th Circuit in Horman v. United States, 116 F. 350. But it is not necessary to rely upon the decision in Horman v. United States or to depart from the decision in Fasulo v. United States in order to hold the indictment valid. The net result of those two decisions is merely that regardless of how broad an interpretation is put upon the words "to defraud" they do not include threats and coercion through fear or force. It is true that in both the Fasulo case and in Hammerschmidt v. United States, 265 U.S. 182, 44 S.Ct. 511, 68 L.Ed. 968, referred to in the Fasulo opinion, there is dictum to the effect that the words "to defraud" as used in the statute mean deceit or fraud as known to the law or as generally understood, but it is evident in both opinions that the words were used more in connection with the ruling that the phrase did not include threats or coercion rather than in attempting to define exactly what it did include. In the Fasulo case 272 U.S. 620, 47 S.Ct. 202, 71 L.Ed. 443 the opinion states: "A comprehensive definition of `scheme or artifice to defraud' need not be undertaken. The phrase is a broad one and extends to a great variety of transactions. But broad as are the words `to defraud,' they do not include threat and coercion through fear or force." The Hammerschmidt opinion 265 U.S. 182, 44 S.Ct. 512, 68 L.Ed. 968 treats the question in the following words: "It is true that the words `to defraud' as used in some statutes have been given a wide meaning, wider than their ordinary scope. They usually signify the deprivation of something of value by trick, deceit, chicane, or overreaching. They do not extend to theft by violence. They refer rather to wronging one in his property rights by dishonest methods or schemes. One would not class robbery or burglary among frauds." It will be noticed that both opinions admit that the phrase "to defraud" is a broad one and very wide in its scope. Such a construction of the statute, which is wider than the common law idea of fraud, is justified by the use of the alternative in the statute which refers to "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses." As...