Before it was vacated and reversed, Runnels I was openly criticized by other courts of appeals. E.g., United States v. Holzer, 840 F.2d 1343, 1347 (7th Cir. 1988); United States v. Ochs, 842 F.2d 515, 525 (1st Cir. 1988); United States v. Shelton, 848 F.2d 1485, 1491-92 (10th Cir. 1988); see also United States v. Slay, 858 F.2d 1310, 1316 n. 4 (8th Cir. 1988). Only the Fifth Circuit adopted the economic benefit/constructive trust reasoning of Runnels I and continued to apply it even after the reversal in Runnels II to affirm pre- McNally mail fraud convictions predicated on a defendant's receipt of kickbacks which deprived others of substantial, albeit intangible, rights.
Appellants challenge their mail fraud convictions, contending that the Government failed to introduce any evidence of property deprivation as required by McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), and that the jury instructions permitted the convictions without any proof of property deprivation. In support of these arguments, appellants cite a number of post- McNally cases. E.g., United States v. Slay, 858 F.2d 1310 (8th Cir. 1988); United States v. Zauber, 857 F.2d 137 (3rd Cir. 1988), cert. denied, ___ U.S. ___, 109 S.Ct. 1340, 103 L.Ed.2d 810 (1989); United States v. Shelton, 848 F.2d 1485 (10th Cir. 1988); United States v. Ochs, 842 F.2d 515 (1st Cir. 1988). The federal mail fraud statute, 18 U.S.C. § 1341, makes it a crime to use the mails, inter alia, for the purpose of executing or attempting to execute "any scheme or artifice to defraud.
The government and defendants appealed the Court's order granting a new trial. On appeal, the Eighth Circuit rejected the government's argument that the convictions should stand despite the McNally decision and affirmed the Court's order. United States v. Slay, 858 F.2d 1310, 1314-17 (8th Cir. 1988). The Eighth Circuit dismissed defendants' cross-appeal holding that it lacked jurisdiction to consider defendants' argument that the indictment should be dismissed.
See, e.g., Grabinski, 674 F.2d at 678 ("orders denying defendant's motions to dismiss because of alleged vindictive prosecution, denial of a speedy trial, and lack of probable cause are not final and, therefore, are not appealable orders"). In United States v. Slay, 858 F.2d 1310 (8th Cir. 1988), for example, the defendants were tried and convicted, and then granted a new trial in part because of an error in the indictment. The indictment was modified and a new trial set.
Although denominated by defendants as a claim of collateral estoppel, this is actually an attack on the sufficiency of the indictment for which this Court lacks jurisdiction to entertain in an interlocutory appeal. Abney v. United States, 431 U.S. 651, 97 S.Ct. 2034, 2042, 52 L.Ed.2d 651 (1977), United States v. Slay, 858 F.2d 1310, 1313-14 (8th Cir. 1988). Accordingly, this portion of the defendants' appeal must be dismissed, without prejudice to their right to raise the contention in a later appeal if they are convicted.
The question of cause was not a significant issue in these cases because the law before McNally was well established that mail fraud convictions could be premised on the intangible rights theory. See Callanan v. United States, 881 F.2d 229, 231 (6th Cir. 1989) (It was well settled that mail fraud could be based on intangible rights theory); United States v. Ochs, 842 F.2d 515, 521 (1st Cir. 1988) ("It [ McNally] was, without doubt, a departure from the law of every court of appeals — including this one — to consider the issue of intangible rights mail fraud prosecutions."); United States v. Piccolo, 835 F.2d 517, 521 (3rd Cir. 1987) (Aldisert, J., dissenting), cert. denied, sub nom., Piccolo v. United States, 486 U.S. 1032, 108 S.Ct. 2014, 100 L.Ed.2d 602 (1988) ( McNally was "blockbusting"); United States v. Slay, 673 F. Supp. 336, 343 (E.D.Mo. 1987), aff'd, 858 F.2d 1310 (8th Cir. 1988) ( McNally was "a total surprise"); United States v. Doherty, 675 F. Supp. 726, 728 (D.Mass. 1987) aff'd in part, rev'd in part, 867 F.2d 47 (1st Cir. 1989), cert. denied, ___ U.S. ___, 109 S.Ct. 3243, 106 L.Ed.2d 590 (1989) ( McNally was "wholly unexpected explication of the law of mail fraud."). Under these circumstances, the defendant could hardly have been expected to object to the intangible rights theory.
These instructions, along with the jury's conclusion beyond a reasonable doubt that the appellants engaged in the conspiracy with which they were charged, makes it simply impossible to imagine how the jury could have concluded that the scheme was not directed at defrauding the Government of a property interest. Thus, United States v. Slay, 858 F.2d 1310, 1314-17 (8th Cir. 1988), and United States v. Ochs, 842 F.2d 515, 521-24 (1st Cir. 1988), upon which the appellants rely, are not on point; in those cases the defendants could have committed all of the acts alleged and yet not have defrauded anyone of property. The only possible theory upon which the jury could have returned the guilty verdicts in this case is that the appellants participated in a scheme fraudulently to obtain FHA-insured loans, to their financial benefit or the Government's financial loss. Inasmuch as this theory involves fraudulently obtaining a "property interest" under McNally, we conclude that the erroneous instruction did not constitute plain error.
This new section effectively overrules McNally by eliminating the requirement of property loss. Although Little's conviction is not affected by section 1346, its passage ensures that this Circuit's present mail fraud jurisprudence will in the future be the nation's mail fraud jurisprudence. Decisions in other Circuits include the following cases: U.S. v. Ochs, 842 F.2d 515 (1st Cir. 1988) (holding that a breach of fiduciary duty is not sufficient property deprivation to constitute mail fraud); U.S. v. Covino, 837 F.2d 65 (2d Cir. 1988) (depriving state entity of material information is not denial of property to constitute mail fraud); U.S. v. Zauber, 857 F.2d 137 (3rd Cir.), cert. denied sub nom Scotto v. U.S., ___ U.S. ___, 109 S.Ct. 1340, 103 L.Ed.2d 810 (1989) (constructive trust rejected as basis for mail fraud conviction); U.S. v. Holzer, 840 F.2d 1343 (7th Cir. 1988) (rejecting past circuit "intangible rights" precedent in light of McNally); U.S. v. Slay, 858 F.2d 1310 (8th Cir. 1988) (stating that withholding information from a governmental entity is insufficient to uphold a mail fraud conviction); U.S. v. Dadanian, 856 F.2d 1391 (9th Cir. 1988) (failure to supply property element renders indictment invalid); U.S. v. Lance, 848 F.2d 1497 (10th Cir. 1988) (paying kickbacks does not violate the "property" requirement); U.S. v. Conover, 845 F.2d 266 (11th Cir. 1988) (breach of fiduciary duty does not violate the mail fraud statute). Section 1346 provides: "For the purposes of this chapter, the term `scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services."
We held recently that "[i]t is a fundamental rule that where a jury has been instructed that it could rely on any of two or more independent grounds, and one of those grounds is insufficient, `[the] general verdict must be set aside . . ., because that verdict may have rested exclusively on the insufficient ground.'" United States v. Slay, 858 F.2d 1310, 1315 (8th Cir. 1988) (quoting Zant v. Stephens, 462 U.S. 862, 881, 103 S.Ct. 2733, 2745, 77 L.Ed.2d 235 (1983), and Stromberg v. California, 283 U.S. 359, 367-68, 51 S.Ct. 532, 535, 75 L.Ed. 1117 (1931)). The jury was instructed, inter alia, that it could find Kneen guilty of tax evasion and filing fraudulent returns (Counts I and II), if he knowingly claimed an ITC for which he did not qualify due to non-compliance with either the "15% Servicing Expense" or "Prior User" rule.
This court held recently that "[i]t is a fundamental rule that where a jury has been instructed that it could rely on any of two or more independent grounds, and one of those grounds is insufficient, `[the] general verdict must be set aside * * *, because that verdict may have rested exclusively on the insufficient ground.'" United States v. Slay, 858 F.2d 1310, 1314-15 (8th Cir. 1988) (quoting Zant v. Stephens, 462 U.S. 862, 881, 103 S.Ct. 2733, 2745, 77 L.Ed.2d 235 (1983); Stromberg v. California, 283 U.S. 359, 367-68, 51 S.Ct. 532, 535, 75 L.Ed. 1117 (1931)). As we noted earlier, the jury was instructed, inter alia, that it could find Kneen guilty if he knowingly claimed an ITC for which he did not qualify.