McNally v. United States

483 U.S. 350, 107 S. Ct. 2875, 97 L. Ed. 2d 292, 1987 U.S. LEXIS 2878, 55 U.S.L.W. 5011

Opinions

Justice White

delivered the opinion of the Court.

This action involves the prosecution of petitioner Gray, a former public official of the Commonwealth of Kentucky, and petitioner McNally, a private individual, for alleged violation of the federal mail fraud statute, 18 U. S. C. § 1341.¹ The prosecution’s principal theory of the case, which was accepted by the courts below, was that petitioners’ participation in a self-dealing patronage scheme defrauded the citizens and government of Kentucky of certain “intangible rights,” such as the right to have the Commonwealth’s affairs conducted honestly. We must consider whether the jury charge permitted a conviction for conduct not within the scope of the mail fraud statute.

We accept for the sake of argument the Government’s view of the evidence, as follows. Petitioners and a third individual, Howard P. “Sonny” Hunt, were politically active in the Democratic Party in the Commonwealth of Kentucky during the 1970’s. After Democrat Julian Carroll was elected Governor of Kentucky in 1974, Hunt was made chairman of the state Democratic Party and given de facto control over selecting the insurance agencies from which the Commonwealth would purchase its policies. In 1975, the Wombwell Insurance Company of Lexington, Kentucky (Wombwell), which since 1971 had acted as the Commonwealth’s agent for securing a workmen’s compensation policy, agreed with Hunt that in exchange for a continued agency relationship it would share any resulting commissions in excess of $50,000 a year with other insurance agencies specified by him. The commissions in question were paid to Wombwell by the large insurance companies from which it secured coverage for the Commonwealth.

From 1975 to 1979, Wombwell tunneled $851,000 in commissions to 21 separate insurance agencies designated by Hunt. Among the recipients of these payments was Seton Investments, Inc. (Seton), a company controlled by Hunt and petitioner Gray and nominally owned and operated by petitioner McNally.

Gray served as Secretary of Public Protection and Regulation from 1976 to 1978 and also as Secretary of the Governor’s Cabinet from 1977 to 1979. Prior to his 1976 appointment, he and Hunt established Seton for the sole purpose of sharing in the commissions distributed by Wombwell. Wombwell paid some $200,000 to Seton between 1975 and 1979, and the money was used to benefit Gray and Hunt. Pursuant to Hunt’s direction, Wombwell also made excess commission payments to the Snodgrass Insurance Agency, which in turn gave the money to McNally.

On account of the foregoing activities, Hunt was charged with and pleaded guilty to mail and tax fraud and was sentenced to three years’ imprisonment. Petitioners were charged with one count of conspiracy and seven counts of mail fraud, six of which were dismissed before trial.² The remaining mail fraud count was based on the mailing of a commission check to Wombwell by the insurance company from which it had secured coverage for the State. This count alleged that petitioners had devised a scheme (1) to defraud the citizens and government of Kentucky of their right to have the Commonwealth’s affairs conducted honestly, and (2) to obtain, directly and indirectly, money and other things of value by means of false pretenses and the concealment of material facts.³ The conspiracy count alleged that petitioners had (1) conspired to violate the mail fraud statute through the scheme just described and (2) conspired to defraud the United States by obstructing the collection of federal taxes.

After informing the jury of the charges in the indictment,⁴ the District Court instructed that the scheme to defraud the citizens of Kentucky and to obtain money by false pretenses and concealment could be made out by either of two sets of findings: (1) that Hunt had de facto control over the award of the workmen’s compensation insurance contract to Womb-well from 1975 to 1979; that he directed payments of commissions from this contract to Seton, an entity in which he had an ownership interest, without disclosing that interest to persons in state government whose actions or deliberations could have been affected by the disclosure; and that petitioners, or either of them, aided and abetted Hunt in that scheme; or (2) that Gray, in either of his appointed positions, had supervisory authority regarding the Commonwealth’s workmen’s compensation insurance at a time when Seton received commissions; that Gray had an ownership interest in Seton and did not disclose that interest to persons in state government whose actions or deliberations could have been affected by that disclosure; and that McNally aided and abetted Gray (the latter finding going only to McNally’s guilt).

The jury convicted petitioners on both the mail fraud and conspiracy counts, and the Court of Appeals affirmed the convictions. 790 F. 2d 1290 (CA6 1986). In affirming the substantive mail fraud conviction, the court relied on a line of decisions from the Courts of Appeals holding that the mail fraud statute proscribes schemes to defraud citizens of their intangible rights to honest and impartial government. See, e. g., United States v. Mandel, 591 F. 2d 1347 (CA4 1979), aff’d in relevant part, 602 F. 2d 653 (en banc), cert. denied, 445 U. S. 961 (1980). Under these cases, a public official owes a fiduciary duty to the public, and misuse of his office for private gain is a fraud. Also, an individual without formal office may be held to be a public fiduciary if others rely on him “‘because of a special relationship in the government’ ” and he in fact makes governmental decisions. 790 F. 2d, at 1296 (quoting United States v. Margiotta, 688 F. 2d 108, 122 (CA2 1982), cert. denied, 461 U. S. 913 (1983)). The Court of Appeals held that Hunt was such a fiduciary because he “substantially participated in governmental affairs and exercised significant, if not exclusive, control over awarding the workmen’s compensation insurance contract to Wombwell and the payment of monetary kickbacks to Seton.” 790 F. 2d, at 1296.

We granted certiorari, 479 U. S. 1005 (1986), and now reverse.

The mail fraud statute clearly protects property rights, but does not refer to the intangible right of the citizenry to good government. As first enacted in 1872, as part of a recodification of the postal laws, the statute contained a general proscription against using the mails to initiate correspondence in furtherance of “any scheme or artifice to defraud.” The sponsor of the recodification stated, in apparent reference to the antifraud provision, that measures were needed “to prevent the frauds which are mostly gotten up in the large cities ... by thieves, forgers, and rapscallions generally, for the purpose of deceiving and fleecing the innocent people in the country.”⁵ Insofar as the sparse legislative history reveals anything, it indicates that the original impetus behind the mail fraud statute was to protect the people from schemes to deprive them of their money or property.

Durland v. United States, 161 U. S. 306 (1896), the first case in which this Court construed the meaning of the phrase “any scheme or artifice to defraud,” held that the phrase is to be interpreted broadly insofar as property rights are concerned, but did not indicate that the statute had a more extensive reach. The Court rejected the argument that “the statute reaches only such cases as, at common law, would come within the definition of ‘false pretences/ in order to make out which there must be a misrepresentation as to some existing fact and not a mere promise as to the future.” Id., at 312. Instead, it construed the statute to “includ[e] everything designed to defraud by representations as to the past or present, or suggestions and promises as to the future.” Id., at 313. Accordingly, the defendant’s use of the mails to sell bonds which he did not intend to honor was within the statute. The Court explained that “[i]t was with the purpose of protecting the public against all such intentional efforts to despoil, and to prevent the post office from being used to carry them into effect, that this statute was passed . . . .” Id., at 314.

Congress codified the holding of Durland in 1909, and in doing so gave further indication that the statute’s purpose is protecting property rights.⁶ The amendment added the words “or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises” after the original phrase “any scheme or artifice to defraud.” Act of Mar. 4, 1909, ch. 321, § 215, 35 Stat. 1130.⁷ The new language is based on the statement in Durland, that the statute reaches “everything designed to defraud by representations as to the past or present, or suggestions and promises as to the future.” 161 U. S., at 313. However, instead of the phrase “everything designed to defraud” Congress used the words “[any scheme or artifice] for obtaining money or property.”

After 1909, therefore, the mail fraud statute criminalized schemes or artifices “to defraud” or “for obtaining money or property by means of false or fraudulent pretenses, representation, or promises . . . .” Because the two phrases identifying the proscribed schemes appear in the disjunctive, it is arguable that they are to be construed independently and that the money-or-property requirement of the latter phrase does not limit schemes to defraud to those aimed at causing deprivation of money or property. This is the approach that has been taken by each of the Courts of Appeals that has addressed the issue: schemes to defraud include those designed to deprive individuals, the people, or the government of intangible rights, such as the right to have public officials perform their duties honestly. See, e. g., United States v. Clapps, 732 F. 2d 1148, 1152 (CA3 1984); United States v. States, 488 F. 2d 761, 764 (CA8 1973).

As the Court long ago stated, however, the words “to defraud” commonly refer “to wronging one in his property rights by dishonest methods or schemes,” and “usually signify the deprivation of something of value by trick, deceit, chicane or overreaching.” Hammerschmidt v. United States, 265 U. S. 182, 188 (1924).⁸ The codification of the holding in Durland in 1909 does not indicate that Congress was departing from this common understanding. As we see it, adding the second phrase simply made it unmistakable that the statute reached false promises and misrepresentations as to the future as well as other frauds involving money or property.

We believe that Congress’ intent in passing the mail fraud statute was to prevent the use of the mails in furtherance of such schemes. The Court has often stated that when there are two rational readings of a criminal statute, one harsher than the other, we are to choose the harsher only when Congress has spoken in clear and definite language. United States v. Bass, 404 U. S. 336, 347 (1971); United States v. Universal C. I. T. Credit Corp., 344 U. S. 218, 221-222 (1952). See also Rewis v. United States, 401 U. S. 808, 812 (1971). As the Court said in a mail fraud case years ago: “There are no constructive offenses; and before one can be punished, it must be shown that his case is plainly within the statute.” Fasulo v. United States, 272 U. S. 620, 629 (1926). Rather than construe the statute in a manner that leaves its outer boundaries ambiguous and involves the Federal Government in setting standards of disclosure and good government for local and state officials, we read § 1341 as limited in scope to the protection of property rights. If Congress desires to go further, it must speak more clearly than it has.

For purposes of this action, we assume that Hunt, as well as Gray, was a state officer. The issue is thus whether a state officer violates the mail fraud statute if he chooses an insurance agent to provide insurance for the State but specifies that the agent must share its commissions with other named insurance agencies, in one of which the officer has an ownership interest and hence profits when his agency receives part of the commissions. We note that as the action comes to us, there was no charge and the jury was not required to find that the Commonwealth itself was defrauded of any money or property. It was not charged that in the absence of the alleged scheme the Commonwealth would have paid a lower premium or secured better insurance. Hunt and Gray received part of the commissions but those commissions were not the Commonwealth’s money. Nor was the jury charged that to convict it must find that the Commonwealth was deprived of control over how its money was spent. Indeed, the premium for insurance would have been paid to some agency, and what Hunt and Gray did was to assert control that the Commonwealth might not otherwise have made over the commissions paid by the insurance company to its agent.⁹ Although the Government now relies in part on the assertion that petitioners obtained property by means of false representations to Wombwell, Brief'for United States 20-21, n. 17, there was nothing in the jury charge that required such a finding. We hold, therefore, that the jury instruction on the substantive mail fraud count permitted a conviction for conduct not within the reach of § 1341.

The Government concedes that if petitioners’ substantive mail fraud convictions are reversed their conspiracy convictions should also be reversed. Id., at 36, n. 28.

The judgment of the Court of Appeals is reversed, and the case is remanded for proceedings consistent with this opinion.

It is so ordered.

1 Section 1341 provides in pertinent 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.”

2 The six counts dismissed were based on the mailing of Seton’s tax returns. The Court of Appeals held that mailings required by law cannot be made the basis for liability under § 1341 unless the documents are themselves false, see Parr v. United States, 363 U. S. 370 (1960), and that the six counts were properly dismissed since the indictment did not allege that Seton’s tax returns were false. The Government has not sought review of this holding.

3 The mail fraud count also alleged that petitioners’ fraudulent scheme had the purpose of defrauding the citizens and government of Kentucky of their right to be made aware of all relevant facts when selecting an insurance agent to write the Commonwealth’s workmen’s compensation insurance policy. The District Court did not instruct on this purpose, holding that it was subsumed in the purpose to deny the right to honest government.

4 The instruction summarized the charges as follows:

“Count 4 of the Indictment charges in part that the defendants devised a scheme or artifice to:

“(a)(1) defraud the citizens of the Commonwealth of Kentucky and its governmental departments, agencies, officials and employees of their right to have the Commonwealth’s business and its affairs conducted honestly, impartially, free from corruption, bias, dishonesty, deceit, official misconduct, and fraud; and,

“(2) obtain (directly and indirectly) money and other things of value, by means of false and fraudulent pretenses, representations, and promises, and the concealment of facts.

“And for the purpose of executing the aforesaid scheme, the defendants, James E. Gray and Charles J. McNally, and Howard P. ‘Sonny’ Hunt, Jr., and others, did place and cause to be placed in a post office or authorized deposit for mail matter, matters and things to be sent and delivered by the Postal Service, and did take and receive and cause to be taken and received therefrom such matters and things and did knowingly cause to be delivered thereon and at the place at which it was directed to be delivered by the person to whom it was addressed, matters and things.

“(b) Defraud the United States by impeding, impairing, and obstructing and defeating the lawful governmental functions of the Internal Revenue Service of the Treasury Department of the United States of America in the ascertainment, computation, assessment and collection of federal taxes.” Brief for United States 9-10, n. 8.

The Government concedes that it was error for the District Court to include the instruction on tax fraud in the substantive mail fraud instruction, see id., at 11, n. 9, but the effect of that error is not now at issue.

5 Cong. Globe, 41st Cong., 3d Sess., 35 (1870) (remarks of Rep. Farnsworth). These remarks were made during the debate on H. R. 2295, the recodification legislation introduced during the 41st Congress. Representative Farnsworth proceeded to describe a scheme whereby the mail was used to solicit the purchase by greedy and unwary persons of counterfeit bills, which were never delivered.

The recodification bill was not passed by the 41st Congress, but was reintroduced and passed by the 42d Congress with the antifraud section intact. Act of June 8, 1872, ch. 335, §§ 149 and 301, 17 Stat. 302 and 323.

6 Prior to Durland Congress had amended the statute to add language expressly reaching schemes of the period, many of the same nature as those mentioned by Representative Farnsworth in 1870, see n. 5, supra, dealing or pretending to deal in counterfeit currency under such names as “green coin” or “green cigars.” Act of Mar. 2, 1889, ch. 393, § 1, 25 Stat. 873. The addition of this language appears to have been nothing more than a reconfirmation of the statute’s original purpose in the face of some disagreement among the lower federal courts as to whether the statute should be broadly or narrowly read. See Rakoff, The Federal Mail Fraud Statute, 18 Duquesne L. Rev. 771, 790-799, 808-809 (1980). Some of the language added in 1889 was removed in 1948 in an amendment (Act of June 25, 1948, ch. 645, § 1341, 62 Stat. 763) designed to remove surplus-age without changing the meaning of the statute. See H. R. Rep. No. 304, 80th Cong., 1st Sess., A100 (1947). Post-1948 amendments to the statute have been technical in nature. The last substantive amendment of the statute, then, was the codification of the holding of Durland, and other changes not relevant here, in 1909.

7 The new language was suggested in the Report of the Commission to Revise and Codify the Criminal and Penal Laws of the United States, which cited Durland in the margin of its Report. See S. Doc. No. 68, 57th Cong., 1st Sess., pt. 2, 63, 64 (1901). The sponsor of the 1909 legislation did not address the significance of the new language, stating that it was self-explanatory. 42 Cong. Rec. 1026 (1908) (remarks of Sen. Heyburn).

8 Hammerschmidt concerned the scope of the predecessor of 18 U. S. C. § 371, which makes criminal any conspiracy “to defraud the United States, or any agency thereof in any manner or for any purpose.” Hammerschmidt indicates, in regard to that statute, that while “[t]o conspire to defraud the United States means primarily to cheat the Government out of property or money, ... it also means to interfere with or obstruct one of its lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest.” 265 U. S., at 188. Other cases have held that § 371 reaches conspiracies other than those directed at property interests. See, e. g., Haas v. Henkel, 216 U. S. 462, 480 (1910) (predecessor of § 371 reaches conspiracy to defraud the Government by bribing a Government official to make an advance disclosure of a cotton crop report); Glasser v. United States, 315 U. S. 60 (1942) (predecessor of § 371 reaches conspiracy to defraud the United States by bribing a United States attorney). However, we believe that this broad construction of § 371 is based on a consideration not applicable to the mail fraud statute.

In Curley v. United States, 130 F. 1 (CA1 1904), cited with approval in Haas v. Henkel, supra, the court stated: “Quite likely the word ‘defraud,’ as ordinarily used in the common law, and as used in English statutes and in the statutes of our states, enacted with the object of protecting property and property rights of communities and individuals, as well as of municipal governments, which exist largely for the purpose of administering local financial affairs, has reference to frauds relating to money and property.” 130 F., at 6-7. The court concluded, however, that “[a] statute which. . . has for its object the protection of the individual property rights of the members of the civic body, is one thing; a statute which has for its object the protection and welfare of the government alone, which exists for the purpose of administering itself in the interests of the public, [is] quite another.” Id., at 7. Section 371 is a statute aimed at protecting the Federal Government alone; however, the mail fraud statute, as we have indicated, had its origin in the desire to protect individual property rights, and any benefit which the Government derives from the statute must be limited to the Government’s interests as property holder.

9 Justice Stevens would affirm the convictions even though it was not charged that requiring the Wombwell agency to share commissions violated state law. We should assume that it did not. For the same reason we should assume that it was not illegal under state law for Hunt and Gray to own one of the agencies sharing in the commissions and hence to profit from the arrangement, whether or not they disclosed it to others in the state government. It is worth observing as well that it was not alleged that the mail fraud statute would have been violated had Hunt and Gray reported to state officials the fact of their financial gain. The violation asserted is the failure to disclose their financial interest, even if state law did not require it, to other persons in the state government whose actions could have been affected by the disclosure. It was in this way that the indictment charged that the people of Kentucky had been deprived of their right to have the Commonwealth’s affairs conducted honestly.

It may well be that Congress could criminalize using the mails to further a state officer’s efforts to profit from governmental decisions he is empowered to make or over which he has some supervisory authority, even if there is no state law proscribing his profiteering or even if state law expressly authorized it. But if state law expressly permitted or did not forbid a state officer such as Gray to have an ownership interest in an insurance agency handling the State’s insurance, it would take a much clearer indication than the mail fraud statute evidences to convince us that having and concealing such an interest defrauds the State and is forbidden under federal law.