The opinion of the court was delivered by: DITTER
Defendant is charged with thirty-eight counts of mail fraud,
nine counts of the use of interstate facilities in aid of commercial bribery ("Travel Act"),
and nine counts of interstate transportation of securities taken by fraud.
Defendant filed three pre-trial motions
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, 483 U.S. 350, 107 S. Ct. 2875, 97 L. Ed. 2d 292 (1987). See also Carpenter v. United States, 484 U.S. 19, 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:
(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.
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, 484 U.S. 1005, 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 Gray
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, 62 L. Ed. 2d 575, 100 S. Ct. 624 (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 ...