UNITED STATES of America, Plaintiff-Appellant, v. Phillip E. GALLOWAY, Defendant-Appellee.
No. 81-1693.
United States Court of Appeals, Seventh Circuit.
Decided Nov. 17, 1981.
Rehearing and Rehearing In Banc Denied Dec. 22, 1981.
664 F.2d 161
Argued Sept. 16, 1981.
In these circumstances, where the defendant attempted to take advantage of a situation that was all his own doing, not the government‘s, I would permit the government, by the only means at its disposal, to attempt to impeach the defendant and to have the court cоnsider whatever favorable inference might be drawn from the government‘s version. Perhaps the government would then have been successful in avoiding the suppression of the defendant‘s oral confession made to DEA agents which in the long run could be the difference between conviction and acquittal.
John A. Franke, U. S. Atty., Madison, Wis., for plaintiff-appellant.
William J. Vaxley, Charles A. Dauphin, Birmingham, Ala., for defendant-appellee.
Before SWYGERT, Senior Circuit Judge, and SPRECHER and CUDAHY, Circuit Judges.
SPRECHER, Circuit Judge.
This case involves the application of the federal mail fraud statute,
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 prоhibited 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 werе 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 thе alteration of the odometer.” Id. at 8. Thus, the court 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
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 cheсks 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 furtheranсe 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, whiсh then transferred title from the dealer to the retail purchaser. These mailings were thus more 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.
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 frаud 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 distriсt 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
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 allеged 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.
III
We conclude that Galloway‘s scheme to defraud falls within the prohibitions of
CUDAHY, Circuit Judge, concurring:
With the mail frаud statute we are writing on anything but a clean slate. Although the present case takes us to what (for now) may be the outer limits, our result, as Judge Sprecher has ably demonstrated, does no real violence to the precedents. I am sensitive to Judge Swygert‘s keenly articulated concern that the connection between Galloway and the mailings is quite attenuated. In my view, however, the link is not so tenuous as to avoid the judicially hypertrophied reach of this far-ranging statute.
SWYGERT, Senior Circuit Judge, dissenting.
I respectfully dissent because I do not believe that the mailings in this case furthered, in any way, the scheme to defraud. In reаching the opposite conclusion, the majority has completely misinterpreted 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), and has failed to distinguish United States v. Maze, 414 U.S. 395, 94 S.Ct. 645, 38 L.Ed.2d 603 (1974), on anything but a superficial basis.
The majority has interpreted Ohrynowicz to hold that where a mailing is a “normal concomitant of a transaction that was essential to the fraudulent scheme, [the mailing] was made for the purpose of executing that scheme.” Maj. op. at 163. Ohrynowicz does not stand for the proposition that every mailing which is a normal concomitant of an essential transaction provides the requisite jurisdictional basis for a mail fraud conviction. Any other interpretation is inconsistent with Maze v. United States, 414 U.S. 395, 94 S.Ct. 645, 38 L.Ed.2d 603 (1974). In Maze, the defendant stole a credit card and used it to charge food and lodging at several motels. The invoices mailed from the motels to the bank which issued the credit card were certainly a normal concomitant of the credit card transaction, yet the Supreme Court affirmed the acquittal of the defendants on the mail fraud charge because these mailings did not further the scheme. Thus determining that a mailing is a normal concomitant of an essential transaction is only the beginning of the inquiry. I agree that the mailings in this appeal are a normal concomitant of the retail sale of the car. Nevertheless, they did not further the scheme. They did not affect the price paid for the car, conceal the alteration of the odometer, cause any benefits to flow to Galloway, or cause any further harm to the retail purchasers of the car.
In Ohrynowicz and United States v. Clark (also cited by the majority), this court found the mailings to be “normal concomitants,” but was also careful to point out how the mailings furthered the scheme. In the instant case, the majority has concluded that the mailings were “more than normal concomitants” without establishing the factual basis for its conclusion.1 According to the majority, the retail sale was an essential transaction, the trаnsfer of title was necessary to complete the retail sale and the mailing was a means of executing the transfer to title. It must be remembered that Galloway had nothing to do with the cars after he delivered them to the Auction. Thus, these mailings were only a convenient means of effecting a transaction to which Galloway was not a party.2 The connection between Galloway and the mailings is too attenuated to fall within the ambit of the mail fraud statute.3 A review of Maze and other cases supports this conclusion.
The majority has narrowed the holding in Maze to one sentence: there is no mail fraud liability where the mailings increased the probability that the fraudulent scheme would be detеcted. Maze does not stand for this proposition. Maze said that the mailings involved did not further a scheme to defraud in a specific fact situation. The fact that the mailings increased the likelihood of detection was only evidence that they did not further the scheme; it was not the crux of the holding. Any other conclusion ignores the fact that many mailings may both further the scheme and increase the likelihood of detection.4 Given this, it must be determined whether the facts in Maze are analogous to the facts in this appeal. I believe that they are. In both cases, the transactions from which the mailings arose were essential to the completion of the scheme. In both cases, thе mailings were a normal concomitant of the essential transaction. In Maze, the mailings were directed to the end of adjusting accounts among the victims of the defendant‘s scheme. In this appeal, the mailings were used to bring about the transfer of title between the victims of Galloway‘s scheme.
In Maze, the scheme did not depend on who bore the loss; here, the success of the scheme did not depend on how the transfer of title was completed. In Maze, whomever ended up with the invoice bore the loss. In this case, whomever ends up with title bears the loss. I fail to see any valid distinction between the facts in this case and in Maze. Despite all these similarities, the majority focuses on the one difference between the two cases and dismisses Maze as precedent. As pointed out above, this solitary distinction was not essential to the holding in Maze.
Kann v. United States, 323 U.S. 88, 65 S.Ct. 148, 89 L.Ed. 88 (1944), is also analogous. In Kann, corporate officers and directors were accused of diverting profits from their own corporation to a dummy corporation. As part of the scheme, the defendants obtained checks payable to them which were cashed or deposited at a bank and then mailed for collection to the drawee bank. The Supreme Court held thаt the fraud was completed at the point at which defendant cashed the checks:
The scheme in each case had reached fruition. The persons intended to receive the money had received it irrevocably. It was immaterial to them, or to any consummation of the scheme, how the bank
which paid or credited the check would collect from the drawee bank. It cannot be said that the mailings in question were for the purpose of executing the scheme, as the statute requires. 323 U.S., at 94, 65 S.Ct. at 151.
As in Kann, Galloway had irrevocably received the money from the fraud. It was immaterial to him how the title to the car was transferred from the dealer to the consumer.
I also find the Parr v. United States, 363 U.S. 370, 80 S.Ct. 1171, 4 L.Ed.2d 1277 (1960), line of cases helpful in determining whether the mailings in this case are sufficiently related to the fraudulent scheme. (Although the majority touches on Parr, it has ignored Parr‘s progeny, United States v. Tarnopol, 561 F.2d 466 (3d Cir. 1977).) In Parr, the Supreme Court held that intrinsically innocent routine mailings required by law did not further a scheme even when they occurred during the course of the scheme. In United States v. Tarnopol, 561 F.2d 466 (3d Cir. 1977), the Third Circuit reasoning from Parr decided that there is no valid distinction to be drawn between those routine mailings which are required by law and those routine mailings, themselves intrinsically innocent, which are regularly employed to carry out a necessary or сonvenient procedure of a legitimate business enterprise. In either case the mailings themselves are not sufficiently closely related to the fraudulent scheme to support a mail fraud prosecution. 561 F.2d at 472. The mailings in this appeal fall within the parameters of this reasoning. The transfer of the automobile titles through the post office was a routine mailing performed by Wisconsin dealers as a service to their customers. The dealers are legitimate business enterprises and the mailings were intrinsically innocent and used to carry out a convenient procedure of the dealership.5
The majority has also advanced the argument that the mailings in issue furthered the scheme because successful title transfer helped ensure Galloway‘s good will among Wisconsin dealers thus facilitating his ability to sell more cars at the Chicago Auction. The mailings, however, did no more to ensure Galloway‘s access to the Chicago Auction than the mailings in Kann, supra, did to ensure the defendants’ access to bank services or the mailings in Maze, supra, did to further the defendant‘s access to the motel market.6
At this point I find it necessary to distinguish 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). Shryock also involved a scheme to roll back odometers but in that case, the roll back and the mailings were caused by a retail dealer. The mailings contained a falsified statement of the odometer reading. The Shryock mailings thus furthered the scheme by helping to cover up the true odometer reading. In the instant case, the mailings
In conclusion, I believe the mailings were not “sufficiently closely related to respondent‘s scheme to bring his conduct within the statute.” United States v. Maze, supra, 414 U.S. at 399, 94 S.Ct. at 648. The mailings did not conceal the fraud, produce profit for Galloway or contribute to the consumer‘s harm. The mailings resulted from a transaction to which Galloway was not a party and they were routine business mailings the purposes of which were immaterial to Galloway.
For the above reasons, I respectfully dissent.
Notes
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, disposе 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 causеs 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.
The majority claims that the mailings were an “integral part” of an essential transaction. Given that the retail sale was an essential transaction, it does not follow that the mailing was an integral pаrt of that transaction. The transfer of title may be an integral part of a retail transaction but this occurs at the Department of Motor Vehicles. The mailing was just a convenient procedure for moving the documents from the dealer to the Department of Motor Vehicles. The mailing itself did not produce the transfer of title. It was simply a normal concomitant of the retail sale.This hypothetical is by no means improbable. In fact, of the thirteen cars with rolled-back odometers, one was sold at the Chicago Auction to a dealer who subsequently sold it to a third dealer. Galloway was not convicted for mail fraud with respect to this automobile. (Only six of the thirteen transactions were included in the indictment.)
Also, if the dealers had sold the cars to out of state consumers, no mailing would have occurred. Where a mail fraud conviction hangs so precariously on the actions of a nondefendant, I believe the courts should view this as evidence of the attenuation between the mailing and the defendant.