Cleveland v. United States
531 U.S. 12, 121 S.Ct. 365, 148 L.Ed.2d 221 (2000)
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Rule of Law:
The federal mail fraud statute, 18 U.S.C. § 1341, is limited to the protection of property rights, and a state or municipal license does not constitute 'property' in the hands of the government licensor before it is issued.
Facts:
- Louisiana law requires businesses to obtain a state-issued license to operate video poker machines.
- Carl W. Cleveland, a lawyer, assisted Truck Stop Gaming, Ltd. (TSG) in preparing its application for a Louisiana video poker license.
- The application required the disclosure of all beneficial owners of the business.
- TSG's application, prepared by Cleveland, fraudulently concealed the ownership interests of Cleveland and his partner, Fred Goodson, by listing Goodson's children as the sole owners.
- Cleveland and Goodson concealed their ownership because they had tax and financial problems that would likely have rendered them unsuitable to receive a license under state law.
- Relying on the false application, the State of Louisiana issued TSG a video poker license in 1992 and subsequently renewed it three times.
- Throughout this period, TSG paid the State of Louisiana all required fees and its proper share of revenue, amounting to over $1.2 million.
Procedural Posture:
- The federal government indicted Carl W. Cleveland in the U.S. District Court for the Eastern District of Louisiana for mail fraud, money laundering, and racketeering.
- Cleveland filed a pre-trial motion to dismiss the mail fraud counts, arguing that a state license is not 'property' under § 1341; the District Court denied the motion.
- A jury convicted Cleveland on two counts of mail fraud and on the related money laundering and racketeering counts.
- Cleveland, as appellant, appealed his conviction to the U.S. Court of Appeals for the Fifth Circuit.
- The Fifth Circuit, as the intermediate appellate court, affirmed the conviction, holding it was bound by its prior precedent that such licenses are property.
- The U.S. Supreme Court granted certiorari to resolve a conflict among the circuit courts on this issue.
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Issue:
Does the federal mail fraud statute, which criminalizes the use of mails for 'any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses,' apply to a scheme to make false statements on an application to obtain a state video poker license?
Opinions:
Majority - Justice Ginsburg
No. The federal mail fraud statute does not apply because a state's interest in an unissued video poker license is not 'property' in the hands of the state. The Court reasoned that § 1341 is limited in scope to the protection of property rights, and for the statute to apply, the object of the fraud must be property in the hands of the victim, not just the recipient. Louisiana's primary interest in the licensing scheme is regulatory and an exercise of its sovereign police powers, not a proprietary one. The state's right to control who receives a license, collect fees, and regulate the industry are aspects of its governing authority, not cognizable property rights. To hold otherwise would result in a sweeping expansion of federal criminal jurisdiction over matters traditionally policed by state and local authorities, a change Congress has not clearly mandated. The Court reaffirmed its holding in McNally v. United States that the statute protects the government's interest only as a property holder, not as a sovereign regulator.
Analysis:
This decision significantly constrains the application of the federal mail fraud statute by narrowly defining 'property' in the context of government licensing. It clarifies the rule from McNally, establishing that the victim of the fraud—here, the government—must be deprived of a cognizable property right, not merely have its regulatory functions subverted. This ruling reinforces principles of federalism by preventing federal prosecutors from using the mail fraud statute to police a vast array of state and local administrative and licensing matters that do not involve a direct loss of government money or property. It forces prosecutors to rely on more specific statutes or state laws to address such fraudulent conduct.
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