United States v. Phillip E. Galloway

664 F.2d 161, 1981 U.S. App. LEXIS 15942

• Court: Court of Appeals for the Seventh Circuit
• Decided: November 17, 1981
• Docket: 81-1693
• Status: Published

Opinions

SPRECHER, Circuit Judge.

This case involves the application of the federal mail fraud statute, 18 U.S.C. § 1341 (1980), to a scheme to defraud automobile purchasers by “rolling back” automobile odometers. Following a jury verdict of guilty, the trial court directed a verdict for the defendant. Because we find that the jury properly could have found that this scheme falls within the strictures of the federal statute, we reverse the trial court’s ruling.

I

Defendant Galloway is an Alabama wholesaler of used automobiles. On February 11, 1981, an indictment was returned alleging that Galloway had engaged in a scheme to defraud Wisconsin automobile purchasers by altering the odometer readings on used cars and then selling those automobiles to retailers. This indictment relied on the third prohibited act of the mail fraud statute, which makes it a crime to “knowingly [cause matter] to be delivered by mail [in furtherance of a fraudulent scheme],” ¹ and alleged six specific mailings.

The evidence at trial established odometer rollbacks on thirteen automobiles purchased by Wisconsin residents from retail dealers. All these automobiles had been sold to retail dealers by Galloway, primarily through the Greater Chicago Auto Auction, although a few had been sold directly to a dealer whom Galloway had come to know personally. The Wisconsin dealers would ship or drive the automobiles to Wisconsin, where they were eventually sold to retail customers. In order to finalize this purchase, the Wisconsin dealer would apply for title on behalf of the retail purchaser by mailing the required documents to the State Department of Transportation. These title applications constituted the requisite mailings which supported the mail fraud indictment.

The trial court found that the jury had sufficient evidence to find that Galloway had formulated and carried out a scheme to defraud. The evidence showed that the scheme resulted in the automobile dealer, and ultimately the retail customer, paying a higher price for these automobiles than their actual market value.

The trial court also found that the jury had sufficient evidence from which it could find that Galloway “caused” the mailing of title applications by Wisconsin dealers, in that he “could reasonably have foreseen that the mails would be used in the course of transferring physical possession and title of the cars to retail customers.” United States v. Galloway, No. 80-CR-55, slip op. at 3 (W.D.Wis. March 31, 1981).

The court ruled, however, that the jury did not have sufficient evidence from which to find that the use of the mails was “for the purpose of executing” Galloway’s scheme to defraud. Id. The court found that the mailings alleged did nothing to further Galloway’s scheme of obtaining more money for the cars, since the transfer of title accomplished by the mailings would have occurred at whatever price the automobiles were sold. Galloway’s scheme, the court found, “was complete for his purposes when the retail customer agreed to the selling price and took physical possession of the car.” Id. at 4. The mailings, therefore, occurred “chronologically after the scheme had reached fruition; ... [and] did nothing to affect the price paid for the car or to conceal the alteration of the odometer.” Id. at 8. Thus, the cpurt directed a verdict for Galloway following the jury’s guilty verdict.

II

A

The starting point for analysis of a conviction under the mail fraud statute is determining the scope of the alleged scheme. The district court accepted the government’s contention that Galloway’s scheme was an attempt to defraud Wisconsin retail purchasers, who based their decision to purchase the automobiles upon the altered odometers. The evidence at trial indicated that the higher wholesale cost of automobiles resulting from the odometer tampering was reflected in higher prices at the retail level. Thus, the victim of this fraud was the retail customer. Furthermore, retail purchasers were “crucial to defendant’s ability to continue the scheme.” Id. at 6. While Galloway on appeal contends that this is an overly broad reading of the scope of the scheme, we find that the jury had sufficient evidence from which it could conclude, as the court below noted, “that the defendant’s scheme was not complete until the cars had been resold to retail customers in Wisconsin.” Id.

Having determined the scope of the scheme, we turn to an examination of the applicability of the mail fraud statute to the scheme.² This examination demonstrates that the mailing of title documents satisfies the requirements of the statute.

While the statute requires that the mailing occur “for the purpose of executing the scheme” to defraud, Pereira v. United States, 347 U.S. 1, 8, 74 S.Ct. 358, 362, 98 L.Ed. 435 (1954), the courts have given a broad interpretation to this phrase, and have held that mailings “in furtherance” of the scheme meet the statute’s jurisdictional requirement. United States v. Keane, 522 F.2d 534, 544 (7th Cir. 1975), cert. denied, 424 U.S. 976, 96 S.Ct. 1481, 47 L.Ed.2d 746 (1976). Thus, in Ohrynowicz v. United States, 542 F.2d 715 (7th Cir.), cert. denied, 429 U.S. 1027, 97 S.Ct. 650, 50 L.Ed.2d 630 (1976), this court applied the mail fraud statute to a “check-kiting” scheme in which the defendant utilized the temporary, non-personalized checks provided by banks upon opening a new account to defraud several banks. The mailing upon which the mail fraud conviction rested, however, was the mailing to the defendant of personalized checks ordered when the accounts were opened, but never used by the defendant.

The court found that the mailings were “for the purpose of executing” the scheme to defraud. It noted that while the personalized checks were never used, the ordering of such checks “was a normal part” of opening an account, thus “leading to the conclusion that the order was.in furtherance of the fraudulent scheme.” Id. at 718. Ohrynowicz has been interpreted to hold that where a mailing was a “normal concomitant of a transaction that was essential to the fraudulent scheme, [the mailing] was made for the purpose of executing that scheme.” United States v. Clark, 649 F.2d 534 at 542 (7th Cir. 1981); United States v. Lea, 618 F.2d 426, 430 (7th Cir.), cert. denied, 449 U.S. 823, 101 S.Ct. 82, 66 L.Ed.2d 25 (1980).

The application of the court’s holding in Ohrynowicz to the facts in the instant case clearly demonstrates that the requirements of the mail fraud statute are satisfied. Here the final step in the scheme, as found by the district court, was the retail sale of automobiles. This essential transaction was not complete until the title documents were mailed to the responsible state agency, which then transferred title from the dealer to the retail purchaser. These mailings were thus wore than “normal concomitants” of an essential transaction, they were an integral part of that transaction. They were essential to executing the scheme to defraud.³ See also United States v. Kent, 608 F.2d 542, 546 (5th Cir. 1979), cert. denied, 446 U.S. 936, 100 S.Ct. 2153, 64 L.Ed.2d 788 (1980) (“The requisite statutory purpose exists if the alleged scheme’s completion could be found to have been dependent in some way upon information and documents passed through the mails”).

The application of the mail fraud statute to a similar fact situation was upheld by the Fifth Circuit in United States v. Shryock, 537 F.2d 207 (5th Cir.), cert. denied, 429 U.S. 1100, 97 S.Ct. 1123, 51 L.Ed.2d 549 (1976). There, the court upheld a mail fraud conviction stemming from a scheme to alter odometer readings on used automobiles and resell the autos to retail purchasers. At the time of the sale the dealer would hand-deliver title applications and mileage certificates to a local division of the State Motor Vehicle Department, which then mailed these documents to its office in the state capital. Noting that “[t]he transfer of title is a necessary step in the sales transaction which was not actually completed until the title papers passed,” the court found these intra-governmental mailings to have been in furtherance of a scheme to defraud. Id. at 209. While the documents in Shryock included an indication of the odometer reading, this alone did not further the defendant’s scheme, and indeed may have endangered the scheme. See United States v. Maze, 414 U.S. 395, 403, 94 S.Ct. 645, 650, 38 L.Ed.2d 603 (1974) (no mail fraud statute liability where mailings increased the probability that the fraudulent scheme would be detected). Nor does the fact that Shryock involved the direct sale of automobiles to retail purchasers distinguish it from this case. Both schemes had as their ultimate objective a sale to a retail customer. The interposition of a wholesale buyer in this case does not change the role that transfer of title plays in completing the scheme. Thus, Shryock stands for the proposition that where a sale to a retail customer is the final object of a scheme to defraud, mailings of title documents necessary to complete the sale are made “for the purpose of executing” the scheme.⁴

B

Our analysis to this point has not dealt with the continuing nature of Galloway’s scheme. An examination of this aspect of the scheme provides further support for the conclusion that Galloway’s conduct is properly punishable under the mail fraud statute.

Although the district court did not discuss it, a major emphasis of the government, in both the indictment and at trial, was the ongoing character of Galloway’s scheme. Thus, for example, evidence was introduced of odometer rollbacks on automobiles that were not subjects of the indictment, in order to demonstrate that Galloway’s scheme extended beyond individual sales. Furthermore, the amount of profit realized by Galloway on each individual sale could well have caused the jury to conclude that Galloway’s scheme was of the ongoing nature alleged in the indictment.

The ongoing nature of the scheme, therefore, required a continuing access to retail dealers, principally through the Greater Chicago Auto Auction. This access, in turn, depended upon the retailers’ experiences in profitably selling automobiles obtained from Galloway. In order to sell his cars at the auction, it was necessary for Galloway to provide the dealer-purchasers, through the auction, with the necessary title documents. In order for the dealer-purchasers to then sell these cars, it was necessary for them to transfer title by mailing these title documents to the appropriate state agency. Only the experience of successful title transfer, therefore, would induce the dealer to return to the auction and purchase other automobiles from Galloway. Any failure in the title application process would have endangered Galloway’s scheme by discouraging the retail dealer from making further purchases of his automobiles. Furthermore, the evidence at trial suggested that those attending the auction frequently knew and spoke with each other. From this, the jury could conclude that the effect of a failure in the title application process would be to discourage purchases among a host of dealers.⁵

Thus, the title application procedure, from Galloway’s provision of the title documents to their mailing to the state agency,⁶ was an essential step in Galloway’s scheme. The success of this step ensured his continued ability to reap the profits of his odometer tampering.

C

Galloway argues that the Supreme Court’s decision in United States v. Maze, 414 U.S. 395, 94 S.Ct. 645, 38 L.Ed.2d 603 (1974), precludes his liability under the mail fraud statute. The facts in the two cases, however, are readily distinguishable. In Maze the defendant had been convicted on four counts of mail fraud arising from his theft and use of a “Bank Americard” credit card. The alleged violation of the mail fraud statute stemmed from the fact that, in using the card, the defendant “knew that each merchant would cause the sales slips of the purchases to be delivered by mail to the Louisville bank which would in turn mail them to [the cardholder] for payment.” Id. at 397, 94 S.Ct. at 647. The Court found that these facts failed to demonstrate a violation of the mail fraud statute.

The Court emphasized that the statute, although it has been read broadly, nevertheless requires that the requisite mailings be “ ‘for the purpose of executing the scheme.’ ” Id. at 400, 94 S.Ct. at 648, quoting Kann v. United States, 323 U.S. 88, 94, 65 S.Ct. 148, 151, 89 L.Ed. 88 (1944). In Maze, however, the mailings were “directed to the end of adjusting accounts” between the various victims of Maze’s scheme. 414 U.S. at 402, 94 S.Ct. at 649. The Court noted that “there is no indication that the success of this scheme depended in any way on which of his victims ultimately bore the loss.” Id. Indeed, the Court emphasized, these mailings endangered Maze’s scheme, by furthering the likelihood of detection. Id. at 403, 94 S.Ct. at 650. Given this fact, the mailings could not fairly be said to have been in furtherance of the scheme.

Here, on the other hand, the evidence demonstrated that these mailings were necessary to complete the retail sale which was the final object of the scheme, as well as to ensure the ongoing success of the scheme. While it is true, as the trial court noted, that failure to pass title would not necessarily have resulted in discovery of the scheme, it would have endangered its continued success. Certainly the mailings were not counterproductive to the scheme, as were the mailings in Maze.7 In this case, therefore, the mailings may fairly be said to have been for the purpose of executing the scheme to defraud.

Ill

We conclude that Galloway’s scheme to defraud falls within the prohibitions of 18 (1980). Therefore, the district court’s judgment of March 31, 1981, is Reversed, and the cause is Remanded with directions that the district court reinstate the jury verdict of March 13, 1981.

1 . 18 U.S.C. § 1341 (1980) states:

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, or to sell, dispose of, loan, exchange, alter, give away,, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do, 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, or knowingly causes to be delivered by mail according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed,- any such matter or thing, shall be fined not more than $1,000 or imprisoned not more than five years, or both.

2 . In defining the scope of the scheme in this manner, we do not imply that it was not of a continuing nature. As our discussion in Part II-B infra notes, defining the scheme here as ongoing provides further support for application of the mail fraud statute in this case.

3 . The court below distinguished Ohrynowicz, as well as other Seventh Circuit cases applying the mail fraud statute, on the grounds that there the mailings occurred chronologically after the “fruition” of the scheme to defraud. Here, however, the scheme was not in fact completed until a retail sale was made, and the mailings were necessary to complete the sale. The fact that Galloway received his money before these mailings does not change our conclusion, for “a fraudulent scheme may depend on a mailing even after the defrauders have received the sought-after money or documents.” United States v. Kent, 608 F.2d 542, 546 (5th Cir. 1979), cert. denied, 446 U.S. 936, 100 S.Ct. 2153, 64 L.Ed.2d 788 (1980).

4 . Shryock also demonstrates the fallacy in Galloway’s argument that the mailings in this case were “routine business mailings,” and therefore exempt from mail fraud strictures under Parr v. United States, 363 U.S. 370, 80 S.Ct. 1171, 4 L.Ed.2d 1277 (1960), and related cases. The mailings in Shryock were legally required, yet the court found the mail fraud statute to be applicable nevertheless. The mailings in Parr were totally unrelated to, and indeed predated, the scheme. Here, however, as in Shryock, the mailings were inexorably tied to an essential step in the scheme. See United States v. Feinberg, 535 F.2d 1004, 1009 (7th Cir.), cert. denied, 429 U.S. 929, 97 S.Ct. 337, 50 L.Ed.2d 300 (1976).

5 . While the sale of automobiles occurred through the auction, there was, as the court below noted, substantial evidence from which the jury could conclude that problems in the title application process of Galloway’s cars could be traced to him.

6 . As the district court noted, the evidence supported the finding that Galloway caused the mailings at issue, in the sense that he could reasonably have foreseen their occurrence. This, of course, is the only causation required by the mail fraud statute. Pereira v. United States, 347 U.S. 1, 8-9, 74 S.Ct. 358, 362-63, 98 L.Ed. 435 (1954).

7 . Galloway admits this fact by emphasizing that nowhere on the title document is an odometer reading required. Such a requirement, of course, might have made detection of the scheme more likely.