US v. Little, Crim. A. No. CRE 87-105-D.

• Decision Date: 25 April 1988
• Docket Number: Crim. A. No. CRE 87-105-D.
• Citation: 687 F. Supp. 1042
• Parties: UNITED STATES of America v. Bobby R. LITTLE and North Mississippi Supply Company, Inc.
• Court: U.S. District Court — Northern District of Mississippi

687 F. Supp. 1042

UNITED STATES of America v. Bobby R. LITTLE and North Mississippi Supply Company, Inc.

Crim. A. No. CRE 87-105-D.

United States District Court, N.D. Mississippi.

April 25, 1988.

Robert Q. Whitwell, U.S. Atty., John R. Hailman, Asst. U.S. Atty., Oxford, Miss., for plaintiff.

Orma R. Smith, Jr., Corinth, Miss., J.P. Coleman, Ackerman, Miss., for defendants.

MEMORANDUM OPINION

DAVIDSON, District Judge.

This cause is presently before the court on the defendants' motion to dismiss the voluminous 310-count indictment in this case. Having reviewed the parties' memoranda and supporting authorities, the court finds that the motion should be denied.

I. BACKGROUND

This case involves yet another in the series of indictments arising from the Federal Bureau of Investigations' recent undercover operation in Mississippi, known as OPERATION PRETENSE. The numerous recent indictments and convictions have been well documented in the local media and will not be recounted by the court. This case, however, has an interesting "twist" when compared to its several past and concurrent counterparts: the defendants in this case are a private citizen, Bobby R. Little ("Little"), and the corporation of which Little is president and chief executive officer, North Mississippi Supply Company, Inc. ("NMSC"). The 310-count indictment against Little and NMSC alleges illegal activity over a protracted period of time from approximately 1982 through 1987. The charges made out in the indictment relate to alleged violations of the federal mail fraud statute, 18 U.S.C. § 1341, the federal conspiracy statute, 18 U.S.C. § 371, and the relatively new federal gratuity or bribery statute, 18 U.S.C. § 666.

The defendants attack each and every one of the 310 counts of the indictment, contending either that the counts do not allege acts which violate the federal statute involved or challenging the validity of the statute under which the charge is made. The court addresses individually the principal charges of the indictment.

II. SECTION 1341 CHARGES

A. Application of McNally and Its Progeny

The defendants' challenge to the mail fraud counts (Counts 1-298) in the indictment are tied primarily to the Supreme Court's decision last term in the case of McNally v. United States, 483 U.S. ___, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987). The court's decision in McNally has been interpreted by some as severely limiting the application of Section 1341. The question the court addresses here is whether McNally may be read as prohibiting application of Section 1341 to the acts charged against the defendants in this cause.

The relevant portions of Section 1341 read as follows:

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 to do so, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or takes or receives therefrom, any such matter or thing ... shall be fined not more than $1,000 or imprisoned not more than five years, or both.

Prior to the Supreme Court's decision in McNally, the mail fraud statute had been interpreted broadly by the courts to include even schemes to defraud the citizenry of their intangible right to an honest government. McNally, supra, 483 U.S. at ___, 107 S.Ct. at 2880, 97 L.Ed.2d at 301 (citing United States v. Clapps, 732 F.2d 1148 (3rd Cir.1984) and United States v. States, 488 F.2d 761 (8th Cir.1973), cert. denied, 417 U.S. 909, 94 S.Ct. 2605, 41 L.Ed.2d 212 (1974)). The Fifth Circuit clearly explained the situation which existed prior to McNally in the recent case of United States v. Herron, 825 F.2d 50 (5th Cir.1987):

Before McNally, numerous cases construing the mail fraud and wire fraud statutes recognized two distinct types of fraud. One category included schemes which intend the deprivation of tangible economic interests, i.e., money or property. citations omitted The other category concerned schemes to deprive an individual or entity of intangible rights or interests, otherwise known as "fiduciary fraud" or "intangible rights fraud." citations omitted Strictly speaking, "intangible rights fraud" required a fiduciary relationship between the "schemer" and the party or entity defrauded; without a fiduciary obligation, there was no fraud in depriving another of an intangible benefit.

Id. at 54.

In McNally, the Supreme Court took a closer look at the "scheme or artifice to defraud" language of Section 1341, holding that Section 1341 is "limited in scope to the protection of property rights." Id. at ___, 107 S.Ct. at 2881, 97 L.Ed.2d at 302. This ruling effectively did away with the previous line of cases permitting a Section 1341 conviction for violation of such "intangible" rights as the right to an honest government. See United States v. Runnels, 833 F.2d 1183, 1186 (6th Cir.1987); United States v. Herron, 825 F.2d 50, 55 n. 6 (5th Cir.1987).

Although some might have thought that McNally represented a significant limitation on the scope of indictable offenses under Section 1341, the court clarified the ambit of McNally in a decision handed down this term. Justice White, who wrote for a seven-member majority court in McNally, also delivered the unanimous opinion of the eight-justice court in Carpenter v. United States, 484 U.S. ___, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987), in which the court clearly stated that "McNally did not limit the scope of Section 1341 to tangible as distinguished from intangible property rights." Id. at ___, 108 S.Ct. at 320, 98 L.Ed.2d at 283.

In Carpenter, the court considered the fraudulent use of confidential information by a columnist of the Wall Street Journal. The court concluded: "The Journal's business information that it intended to be kept confidential was its property...." Id. at ___, 108 S.Ct. at 321, 322, 98 L.Ed.2d at 285.

In the present case, the defendants argue that they are protected from liability by the ruling in McNally, inasmuch as defendants urge that they did not defraud the counties cited in the indictment of any tangible or intangible property interests. As the defendants state their position, Pontotoc County and Monroe County received everything for which they paid, including the substantial amounts of culvert pipe, bridge timbers, and grader blades set forth in the indictment. Since the counties were deprived of neither tangible nor intangible property, defendants assert, there can be no Section 1341 conviction against them.

The government counters defendants' argument by stating that the defendants paid many thousands of dollars in cash, in secret, on a continuing and regular basis, to seven different county supervisors from Pontotoc County and Monroe County, Mississippi. Over a period of several years, in one instance stretching from 1982 through 1987, the government alleges, defendants paid kickbacks to these supervisors of approximately five percent (5%) on almost every culvert pipe, grader blade, or bridge timber contract awarded to NMSC.¹ Had it not been for this kickback scheme, the government argues, the counties might have obtained culvert pipe, bridge timber, and grader blades at a lower cost and would have obtained the cash the defendants paid to the supervisors. Thus, the government concludes, the counties were in fact deprived of tangible property as required under the McNally case.

The defendants' argument that the money they used to pay the alleged kickbacks to supervisors was "their own money" begs the question before this court. The alternative argument could easily be made, as it is by the government, that the money in question was not Little's or NMSC's until such time as the counties paid the money over to them. After the money was paid over by the counties, Little, acting on behalf of NMSC, paid the alleged illegal gratuities to the county supervisors. Of course, Little and NMSC make the well-reasoned argument that the monies paid over were their personal funds, not the funds paid to them by the respective counties. The court is of the opinion that this contention may be better evaluated once the court has heard the relevant proof as to the origin of the monies paid over by Little to the county supervisors. On this motion to dismiss, the court could do little more than render an advisory opinion indicating which party has made the better argument on this issue. Such conjecture is to be avoided in favor of complete development of the facts at trial.

Even if defendants are able to prove at trial that they paid the alleged kickbacks out of their personal funds, the court is of the opinion that the Section 1341 counts of the indictment would not necessarily fail based on that fact alone. In addition to the cash allegedly paid over by the defendants in this case, the government suggests that the scheme involved here also deprived the counties involved of another actual, albeit intangible, property interest: namely, the information that the supervisors were being paid to award contracts to the defendants. Cf. 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); Ingber v. Enzor, 664 F.Supp. 814 (S.D.N.Y.1987), aff'd, 841 F.2d 450 (2nd Cir.1988).

In Fagan, the first post-McNally ruling of the Fifth Circuit on Section 1341, the Court of Appeals held that information related to a kickback scheme between an employee, Riley, and Fagan, operator of a boat leasing company utilized by Riley's employer, Texoma Production Company, had some economic value to Texoma and supported Fagan's conviction under Section 1341. Id. at 1008-1009. As the Fifth Circuit noted:

We believe that there is sufficient evidence that the scheme here was one to deprive Texoma of its property rights, viz:

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