US v. Johns, Crim. No. 87-376.

• Decision Date: 28 March 1988
• Docket Number: Crim. No. 87-376.
• Citation: 688 F. Supp. 1017
• Parties: UNITED STATES of America v. H. William JOHNS.
• Court: U.S. District Court — Eastern District of Pennsylvania

688 F. Supp. 1017

UNITED STATES of America v. H. William JOHNS.

Crim. No. 87-376.

United States District Court, E.D. Pennsylvania.

March 28, 1988.

Edward Borden, Philadelphia, Pa., for plaintiff.

William B. Carr, Asst. U.S. Atty., Philadelphia, Pa., for defendant.

MEMORANDUM AND ORDER

DITTER, District Judge.

Defendant is charged with thirty-eight counts of mail fraud,¹ nine counts of the use of interstate facilities in aid of commercial bribery ("Travel Act")², and nine counts of interstate transportation of securities taken by fraud.³ Defendant filed three pre-trial motions⁴ that implicate, to varying degrees, the Supreme Court's recent decision invalidating an intangible rights theory of prosecution under the mail fraud statute, McNally v. United States, ___ U.S. ___, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987). See also Carpenter v. United States, ___ U.S. ___, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987). Defendant also moves to dismiss the indictment or for other relief for violation of Federal Rule of Criminal Procedure 6(e)(2). For the reasons that follow, I will deny the motions.

Between May, 1977 and November, 1984, defendant was employed as the director of packaging, equipment, and supplies procurement for Acme Markets, Inc. In this position, he was responsible for the purchase of non-resale items used by Acme. The indictment charges that defendant used this position to procure payments and kickbacks from vendors and brokers who sold these items to Acme. In furtherance of his scheme to defraud, defendant failed to disclose his conflict of interest to Acme, fraudulently represented to Acme on a conflict of interest questionnaire that he did not have financial arrangements with vendors doing business with Acme, and fraudulently represented to several vendors that he did not have a financial interest in several companies to which the vendors made payments.

Paragraph 10 of the indictment contains the mail fraud theories, charging that defendant devised and intended to devise a scheme to:

(a) defraud Acme of the salary it paid to him and other benefits it provided to him in reliance upon and in exchange for his loyal, faithful and honest services, free from conflict of interest;

(b) obtain money and property from Acme and certain brokers and vendors doing business with Acme, by means of false and fraudulent pretenses, representations and promises; and

(c) defraud Acme of the secret money and property obtained by him in the performance of his duties as an Acme employee.

In a bill of particulars, the government stated that these theories also support the charges of interstate transportation of securities taken by fraud, counts forty-eight through fifty-six.

I. McNally Motions

A. Motion to Strike Paragraphs 10(a) & 10(c)

Defendant moves to strike paragraph 10(a) on the ground that it charges an "intangible rights" mail fraud theory invalidated by McNally.⁵ He also argues that 10(c) should be stricken as surplusage because the alleged "money or property" taken by fraud is the same under paragraphs 10(b) and 10(c).

Section 1341 prohibits the use of the mails in furtherance of "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises...." 18 U.S.C. § 1341. In McNally, the Supreme Court overturned the long standing position taken by the courts of appeals and held that a scheme to defraud must deprive someone of money or property. The deprivation of "intangible rights" to faithful services or honest government is not sufficient. See also United States v. Piccolo, 835 F.2d 517 (3d Cir.1987). More recently, the Supreme Court has held that intangible property rights such as the right to confidential business information are protected by section 1341. Carpenter, supra.

In McNally, defendants Gray and Hunt exercised authority over the selection of workmen's compensation insurance for the state of Kentucky. Defendants awarded the insurance to Wombwell Insurance Company. In exchange, Wombwell agreed to pay a portion of its commissions to insurance companies selected by defendants, some of which defendants operated or controlled. The Supreme Court reversed the convictions for mail fraud holding that, based on the indictment and the trial court's instructions, the jury was permitted to return a guilty verdict without finding that the scheme deprived anyone of money or property. In reaching this conclusion, the Court relied on the following: (1) the amount of premiums paid by the state was fixed and could not be changed by the state or defendants; (2) the state had to pay the premiums to some agency; (3) the jury was not charged that the state was deprived of control over how its money was spent; and (4) the jury was not charged that defendants obtained money from Wombwell by means of false representations. McNally, 107 S.Ct. at 2881-82.

Here, paragraph 10(a) charges that Acme was deprived of money and property, i.e., the salary and benefits paid to defendant in reliance on his faithful services free from conflict of interest. Such a theory was posited by Justice Stevens dissenting opinion in McNally without comment from the majority. McNally, 107 S.Ct. at 2890 n. 10 (Stevens, J., dissenting). See also United States v. Fagan, 821 F.2d 1002 (5th Cir.1987), cert. denied, ___ U.S. ___, 108 S.Ct. 697, 98 L.Ed.2d 649 (1988). In McNally, the indictment did not charge nor was the jury instructed to find that the state was deprived of the salary paid to defendant Gray⁶ or that there was any deprivation of money or property. The same is true for the appellate decisions subsequent to McNally that have invalidated mail fraud convictions based on the absence of a "money or property" element in the indictment and instructions to the jury. See, e.g., United States v. Covino, 837 F.2d 65 (2d Cir.1988); United States v. Murphy, 836 F.2d 248 (6th Cir.1988). Defendant argues that in each of these cases, it was implicit that defendants received a salary or some compensation; therefore, since the convictions were overturned salary must not satisfy the "money or property" element. An indictment, however, is only sufficient if it contains all the elements of the offense charged. United States v. Bailey, 444 U.S. 394, 414, 100 S.Ct. 624, 636, 62 L.Ed.2d 575 (1980). Where an indictment fails to charge an essential element of a crime or, if charged, the jury is nevertheless not instructed that it must find this element, a conviction cannot stand. See, e.g., United States v. Scanzello, 832 F.2d 18, 22-23 (3d Cir.1987). Consequently, the decisions reversing mail fraud convictions post-McNally on the basis of the indictment and jury instructions do not affect this case since the indictment charges that Acme was deprived of the salary paid to defendant.

I conclude that the salary and benefits paid to defendant may satisfy the "money or property" requirement of section 1341. Defendant has not offered nor can I find any reason why a scheme to defraud an employer of the salary paid to an employee cannot satisfy section 1341. Such an interpretation would fly in the face of the Supreme Court's expansive interpretation of "money or property." See Carpenter, supra.

In addition, a recent decision by the Second Circuit, Ingber v. Enzor, 841 F.2d 450 (2d Cir.1988), supports my conclusion. There, a jury was charged that defendant was guilty of mail fraud if he:

devised a scheme or artifice for the purpose of defrauding the citizens of the town of Fallsburg of an intangible right, namely, the right to a fair and impartial electoral process, free from the casting of false, forged or fraudulent ballots, or that he devised a scheme for the purpose of obtaining money or property,— specifically, the salary-powers and privileges of the Office of Supervisor of the town of Fallsburg....

Id., at 451 (emphasis added). After finding that the jury had reached a general verdict without reaching special verdicts on each separate theory, the second circuit affirmed the grant of defendant's habeas corpus petition since he may have been convicted on an improper intangible rights theory. Implicitly, the court recognized that the second theory, deprivation of a salary, satisfied section 1341 and would have been sufficient had the jury specifically found defendant had a scheme to obtain his salary by fraud.

Because an indictment, valid on its face and returned by a legal grand jury, is entitled to a presumption of validity, United States v. Ismaili, 828 F.2d 153 (3d Cir. 1987), cert. denied, ___ U.S. ___, 108 S.Ct. 1110, 99 L.Ed.2d 271 and because paragraph 10(a) charges all the elements of a mail fraud violation, I will not strike paragraph 10(a).

Defendant also argues that paragraphs 10(b) and 10(c) describe the same crime because the "money or property" element is the same for both. Paragraph 10(b), however, alleges a scheme to obtain money and property by false pretenses while paragraph 10(c) charges a scheme to defraud Acme of "secret money and property" obtained during the course of his employment. The mail fraud statute makes both schemes to defraud and schemes to obtain money by false pretenses illegal and separates them by the disjunctive "or" signifying separate and distinct theories. See McNally, 107 S.Ct. at 2880. Moreover, in its memorandum, the government explained that paragraph 10(b) refers to the scheme to obtain the kickbacks while paragraph 10(c) refers to the scheme not to disclose to Acme and to retain the payments that Acme parted with based on the representation that defendant was not receiving payments from the vendors. While paragraph 10(c) necessarily requires that defendant received payments under the theory set forth in paragraph 10(b), these theories are distinct and I will not strike paragraph 10(c).⁷

B. Motion to Dismiss Counts 1 through 38 and 48 through 56 for Refusal to Present Exculpatory Evidence to the Grand Jury

In June, 1985, an assistant United...