Cleveland v. United States

PETITIONER: Cleveland
RESPONDENT: United States
LOCATION: Medical University of South Carolina

DOCKET NO.: 99-804
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Fifth Circuit

CITATION: 531 US 12 (2000)
ARGUED: Oct 10, 2000
DECIDED: Nov 07, 2000

ADVOCATES:
Michael R. Dreeben - Department of Justice, argued the cause for the respondent
Paul Mogin - Argued the cause for the petitioner

Facts of the case

Louisiana law authorizes the State to award nontransferable, annually renewable licenses to operate video poker machines. In 1992, Fred Goodson and his family formed Truck Stop Gaming, Ltd. (TSG), a video poker business. Carl Cleveland, a lawyer, assisted Goodson in preparing TSG's video poker license applications, each of which identified Goodson's children as the sole beneficial owners of the partnership. From 1992 through 1995, TSG successfully renewed its license. In 1996, Cleveland and Goodson were charged with money laundering under federal law, along with racketeering and conspiracy in connection with a scheme to bribe state legislators to vote in a manner favorable to the video poker industry. Acts supporting these charges came from federal mail fraud charges, defined as "any scheme or artifice to defraud, or for obtaining...property by means of...fraudulent...representations." The indictment alleged that Cleveland and Goodson fraudulently concealed that they were the true owners of TSG in the license applications they had mailed to the State because they had tax and financial problems that could have undermined their ability to receive a video poker license. Before trial, Cleveland moved to dismiss the mail fraud counts on the ground that the alleged fraud did not deprive the State of "property." The District Court denied the motion, concluding that licenses constitute property even before they are issued. A jury found Cleveland guilty. The Court of Appeals affirmed.

Question

Do state video poker licenses qualify as property for purposes of the federal mail fraud statute?

Media for Cleveland v. United States

Audio Transcription for Oral Argument - October 10, 2000 in Cleveland v. United States

Audio Transcription for Opinion Announcement - November 07, 2000 in Cleveland v. United States

William H. Rehnquist:

The opinion of the Court in Cleveland against Untied States will be announced by Justice Ginsburg.

Ruth Bader Ginsburg:

About federal mail fraud and Louisiana licenses to operate video poker machines.

Louisiana permits private operators to run video poker devices upon demonstration of the applicant’s good character and fiscal integrity, conditions on the payment of fees and apportion of net revenues to the State.

In 1992, Carl Cleveland a lawyer helped his client Fred Goodson prepare a video poker license application for a partnerships called Truck Stop Gaming.

The application identified Goodson’s children as the sole owners of the partnership.

Louisiana issued the license and Truck Stop Gaming renewed it in 1993, 1994 and 1995.

In 1996, Cleveland and Goodson were charged with money laundering, racketeering and conspiracy in connection with the scheme to bribe state legislators to caste votes favorable to the video poker industry.

The acts underline these charges included four alleged violations of the federal mail fraud statute, the statute that makes it a crime to use the mails to further, “any scheme to defraud, or for obtaining money, or property by means of fraudulent representations”.

Indictment charged that Cleveland and Goodson had concealed their true ownership of Truck Stop Gaming because their tax and financial problems could have disqualified them from receiving a license.

A jury found Cleveland guilty of mail fraud and the related offenses.

The Fifth Circuit affirmed the conviction recognizing that the mail fraud statute targets depravation of money and property, and holding that video poker licenses qualify as property in the hands of the State.

We reverse that determination.

The licensing statute leaves no doubt that the State’s core concern is regulatory, it permits private actors to pursue activities they may not pursue without official authorization.

Thus, the licensing scheme also generate property held by the State within the mail fraud statutes compass, we think not.

The government emphasizes that the State collects a fee for each license and receives substantial payment from each licensee while the license is in affect.

But Louisiana does not receive the lion’s share of its expected revenue, while the licenses are in its own hands; it receives ongoing revenue only after permits have been issue to licensees.

Licenses' pre-issuance merely entitle the State to collect a processing fee from applicants.

Were this sufficient to establish a property right, then States would have property rights in drivers’ licenses, medical licenses, and other licenses that the Government concedes are purely regulatory.

Tellingly, the Government does not allege that Cleveland deprived Louisiana of any money to which it was entitled by law, in fact Truck Stop Gaming paid the State its proper share of revenue over $1.2 between 1993 and 1995.

The government also contends that Cleveland deprived the State of its right to control the issuance, renewal, and revocation of video poker licenses.

It compares this right to a patent holder’s right to license a patent and to a franchisor's right to select its franchisees.

But unlike a patent holder or franchisor, Louisiana does not sell licenses as a commercial commodity, it cannot sell its licensing authority and it does not hold licenses in order to run video poker machines itself, the licensing scheme in short is in design an operation a paradigmatic police power exercise.

An alternative argument the government presents.

Read the mail fraud statute to define two discreet offenses: one, schemes to defraud and two, schemes for obtaining money or property by fraud.

Because a video poker license is property to the licensee the government argues, Cleveland obtain property and thereby he committed mail fraud.

But in McNally against United States, a 1987 decision, we refused to read the statute to define two discreet offenses.

Adhering to McNally we reaffirm that the object of the fraud must be property in the hands of the victim.

Our opinion is unanimous.