McNally v. United States
483 U.S. 350 (1987)
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Rule of Law:
The federal mail fraud statute, 18 U.S.C. § 1341, is limited in scope to the protection of money or property rights and does not extend to criminalize schemes that defraud citizens of their intangible right to have the government's affairs conducted honestly.
Facts:
- After the 1974 Kentucky gubernatorial election, Howard P. 'Sonny' Hunt, the state Democratic Party chairman, was given de facto control over selecting the state's insurance agencies.
- In 1975, Hunt and the Wombwell Insurance Company agreed that in exchange for retaining the state's workmen's compensation policy, Wombwell would share its commissions exceeding $50,000 per year with other agencies designated by Hunt.
- James E. Gray, a Kentucky public official, and Hunt established Seton Investments, Inc. for the sole purpose of receiving a share of these commissions.
- Charles J. McNally, a private individual, was the nominal owner and operator of Seton Investments.
- From 1975 to 1979, Wombwell paid approximately $200,000 in commissions to Seton, which were used to benefit Gray and Hunt.
- During this period, Gray held cabinet-level positions with supervisory authority over the state's insurance contracts, and he did not disclose his financial interest in Seton to the state government.
Procedural Posture:
- James Gray and Charles McNally were indicted in the U.S. District Court for the Eastern District of Kentucky on charges of mail fraud and conspiracy.
- Following a trial, the jury convicted Gray and McNally on both counts, based on instructions that defined the scheme as one to defraud Kentucky's citizens of their right to honest government.
- Gray and McNally, as appellants, appealed their convictions to the United States Court of Appeals for the Sixth Circuit.
- The Court of Appeals affirmed the convictions, upholding the validity of the 'intangible rights' theory of mail fraud, with the United States as appellee.
- The United States Supreme Court granted certiorari to review the judgment of the Court of Appeals.
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Issue:
Does the federal mail fraud statute, 18 U.S.C. § 1341, prohibit schemes to defraud citizens of their intangible right to honest and impartial government, or is its scope limited to the protection of money or property rights?
Opinions:
Majority - Justice White
No. The mail fraud statute is limited to the protection of property rights and does not criminalize schemes that deprive citizens of their intangible right to honest government. The original legislative intent behind the statute was to protect people from schemes designed to deprive them of money or property. The language of the statute, particularly the 1909 amendment adding the phrase 'or for obtaining money or property by means of false or fraudulent pretenses,' reinforces this focus on property. The common understanding of the words 'to defraud' involves wronging one in their property rights. Under the rule of lenity, where a criminal statute is ambiguous, it should be interpreted narrowly, and if Congress wishes to criminalize the deprivation of intangible rights, it must do so with clearer language. In this case, the jury was not required to find that the Commonwealth of Kentucky was defrauded of any money or property, as the insurance premiums were not inflated and the commissions did not belong to the state.
Dissenting - Justice Stevens
Yes. The mail fraud statute's prohibition on 'any scheme or artifice to defraud' is broad enough to include schemes to deprive citizens of intangible rights such as honest and impartial government. The plain language of the statute contains independent clauses, and the first, broader clause is not limited by the second clause's reference to 'money or property.' The statute's core purpose is to protect the integrity of the mails from being used as instruments of crime, and it is illogical to assume Congress intended to prohibit petty financial fraud but permit the use of mails for vast public corruption. For decades, federal courts have consistently interpreted the statute to cover intangible rights, and this long-standing, sensible construction should not be abandoned. The term 'defraud' has historically included non-property interests, consistent with the broad interpretation of the term in the analogous conspiracy statute, 18 U.S.C. § 371.
Analysis:
This decision significantly narrowed the scope of the federal mail fraud statute by invalidating the widely used 'intangible rights' theory of prosecution. It established a new, stricter requirement that prosecutors must prove a scheme aimed at acquiring money or property, making it more difficult to prosecute public corruption cases where the primary harm was a breach of public trust rather than a direct financial loss to the government. The ruling created a substantial gap in federal law, prompting a swift legislative response from Congress, which enacted 18 U.S.C. § 1346 the following year to explicitly criminalize schemes to deprive another of the intangible right of honest services.
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