US Supreme Court Briefs

Nos. 99-804 and 99-939


In the Supreme Court of the United States


CARL W. CLEVELAND, PETITIONER

v.

UNITED STATES OF AMERICA



FRED H. GOODSON, PETITIONER

v.

UNITED STATES OF AMERICA



ON PETITIONS FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT



BRIEF FOR THE UNITED STATES IN OPPOSITION



SETH P. WAXMAN
Solicitor General
Counsel of Record
JAMES K. ROBINSON
Assistant Attorney General
JOEL M. GERSHOWITZ
Attorney
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217





QUESTIONS PRESENTED

1. Whether video poker licenses issued by the State of Louisiana constitute"property" within the meaning of the mail fraud statute, 18 U.S.C.1341.

2. Whether the district court committed plain error in failing to instructthe jury on the materiality element of a mail fraud offense.





In the Supreme Court of the United States


No. 99-804

CARL W. CLEVELAND, PETITIONER

v.

UNITED STATES OF AMERICA



No. 99-939

FRED H. GOODSON, PETITIONER

v.

UNITED STATES OF AMERICA



ON PETITIONS FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT



BRIEF FOR THE UNITED STATES IN OPPOSITION





OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1a-44a1) is reported at 182F.3d 296. The opinion of the district court (Pet. App. 52a-86a) is reportedat 951 F. Supp. 1249.




JURISDICTION

The judgment of the court of appeals was entered on July 21, 1999. The petitionfor rehearing was denied on September 2, 1999. The petition for a writ ofcertiorari in No. 99-804 was filed on November 9, 1999. The petition fora writ of certiorari in No. 99-939 was filed on December 1, 1999. The jurisdictionof this Court is invoked under 28 U.S.C. 1254(1).




STATEMENT

After a jury trial in the United States District Court for the Eastern Districtof Louisiana, petitioners Cleveland and Goodson were convicted of conductingthe affairs of an enterprise through a pattern of racketeering activity,in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO),18 U.S.C. 1962(c); conspiring to commit that offense, in violation of 18U.S.C. 1962(d); and two counts of mail fraud, in violation of 18 U.S.C.1341. In addition, petitioner Cleveland was convicted of four counts ofmoney laundering, in violation of 18 U.S.C. 1956; tax conspiracy, in violationof 18 U.S.C. 371; and filing a false tax return, in violation of 26 U.S.C.7206(2). Petitioner Goodson was convicted of five counts of money launderingand three counts of the use of interstate communications in aid of statebribery, in violation of 18 U.S.C. 1952. Each petitioner was sentenced to121 months' imprisonment. In addition, the district court ordered the forfeitureof their interests in two business entities. The court of appeals affirmed.Pet. App. 1a-44a.

1. The evidence at trial showed that, in early 1992, petitioner Fred Goodsonand his family formed TSG, Ltd., and its corporate partner, TSG, Inc., inorder to participate in the video poker business at their truck stop inSlidell, Louisiana. With the assistance of petitioner Carl Cleveland andpetitioner Goodson's law firm, Cleveland, Barrios, Kingsdorf & Casteix,the Goodsons prepared and submitted to the Louisiana State Police applicationsfor a gaming license for TSG, Ltd. The applications required partnershipsseeking gaming licenses to identify their partners; to submit personal financialstatements for all partners; to affirm that the listed partners were thesole beneficial owners; and to affirm that no partner had an arrangementto hold his interest as "an agent, nominee or otherwise," or apresent intention to transfer any interest in the partnership at a futuretime. Pet. App. 2a-3a.
The initial application submitted on behalf of TSG, Ltd., identified Mariaand Alex Goodson, Fred Goodson's adult children, as the limited partnersand TSG, Inc., as the general partner. The application listed no other personsor entities as having any ownership interest in TSG, Ltd. TSG, Ltd. submittedrenewal applications in 1993, 1994, and 1995 that also listed no additionalownership interests. In fact, at all times the true owners of the companywere petitioners Goodson and Cleveland. The two concealed their ownershipinterest from state regulators in order to avoid the probing inquiry ofthe State's suitability assessment. Pet. App. 5a-6a.

2. The mail fraud statute, 18 U.S.C. 1341, makes it a crime to use the mailin connection with "any scheme or artifice to defraud, or for obtainingmoney or property by means of false or fraudulent pretenses, representations,or promises." The mail fraud counts of the indictment charged thatthe defendants had devised a scheme to deprive the State of Louisiana andits citizens of "property" by "fraudulently obtaining andrenewing, through the submission of false and incomplete information, statelicenses to operate video poker sites." Pet. App. 74a.
Before trial, petitioner Cleveland adopted a motion filed by his co-defendant,petitioner Goodson, to dismiss the mail fraud counts on the ground thatstate licenses to operate video poker sites do not constitute "property"within the meaning of Section 1341. Petitioners argued, among other things,that such licenses do not become property until they are issued, becausethey have no value to the State. Accordingly, in petitioners' view, an attemptto acquire a state license through false representations does not implicateany state property interest. The district court rejected that contention.Pet. App. 73a-86a.

3. On appeal, petitioners renewed their contention that state licenses donot constitute property for purposes of the mail fraud statute. Relyingon United States v. Salvatore, 110 F.3d 1131 (5th Cir.), cert. denied, 522U.S. 981 (1997), the court of appeals affirmed the ruling of the districtcourt. See Pet. App. 19a. In Salvatore, the court, applying McNally v. UnitedStates, 483 U.S. 350 (1987), and Carpenter v. United States, 484 U.S. 19(1987), reasoned that "in considering whether video poker licensesconstitute property under the mail fraud statute, we must determine whetherLouisiana has an interest in the licenses as a property holder." 110F.3d at 1139. The court held that Louisiana had more than just a regulatoryinterest in the video poker licenses, thereby justifying application ofthe mail fraud statute. Ibid.
The Salvatore court first reasoned that the concept of property involvesa legal "bundle of rights," including the rights to "possess,use, and dispose" of a particular article. 110 F.3d at 1140. As appliedto licenses, the court found that that "bundle" includes the rightto control their issuance. The court also concluded that Louisiana had "zealouslysought to protect its right to control the [video poker] licenses"at issue here. Ibid. The court went on to reject a distinction between issuedand unissued licenses, finding that unissued video poker licenses had valueto the State. Id. at 1141. The court further determined that the State hasa property, and not merely a regulatory, interest in the video poker licenses,because the State had "a direct and significant [continuing] financialstake * * * as issuer of the licenses" in the video poker industry.Id. at 1142.
The court of appeals concluded that the Louisiana statutory scheme, by expresslystating a limitation on the property interests of licensees, evinces anintent that the State is to maintain its control and ownership of videopoker licenses. 110 F.3d at 1142 (discussing La. Rev. Stat. Ann § 27:301(D)(West Supp. 1997)). Similarly, after applying traditional property law concepts,the court found that the licenses constituted property. Id. at 1142-1143.

4. Following oral argument on petitioners' appeal, petitioners sought leaveto file a supplemental brief in light of this Court's intervening decisionin Neder v. United States, 119 S. Ct. 1827 (1999), which held that the materialityof the falsehoods used in a scheme to defraud is an element of a mail fraudoffense, id. at 1841. Petitioners argued that the district court committedplain error in failing to give a materiality instruction. The governmentopposed petitioners' motion, arguing that supplemental briefing was unnecessarybecause the issue had been waived, the district court had in any event includedmateriality language in the jury charge, and the defendants in fact hadargued materiality to the jury. The court of appeals denied the motion anddid not address the issue in its opinion issued eight days later.




ARGUMENT

1. Petitioner Cleveland contends (Pet. 9-21) that the video poker licensesdo not constitute "property" within the meaning of the mail fraudstatute, 18 U.S.C. 1341. Petitioner Goodson (99-939 Pet. 11) adopts petitionerCleveland's argument.2 The courts below correctly rejected that contention,and it does not warrant further review.

a. In Carpenter v. United States, 484 U.S. 19 (1987), the court affirmedthe wire fraud conviction of a Wall Street Journal columnist who had tradedstock before publication of his newspaper column based on his knowledgeof what the column would say. The Court made clear that the intangible natureof the misappropriated confidential information did not make the informationany less a form of "property" within the mail fraud statute. Id.at 25-27. The Court explained that the Journal had been deprived of itsproperty right to make exclusive use of its confidential information, eventhough the defendants had not totally deprived the Journal of its possessionof the information or its ability to publish it. Id. at 26-27.
Here, the State of Louisiana had a property interest in the unissued videopoker licenses similar to the Wall Street Journal's interest in maintainingthe confidentiality of its business information. In Carpenter, the Courtheld that the Journal's exclusive right to control its confidential informationwas a property interest. 484 U.S. at 26. By the same token, in this case,"what the [State] (and derivatively its people) lost was the rightto keep its [video poker] licenses to itself and to bestow them on personswho had fairly earned them." United States v. Martinez, 905 F.2d 709,714 (3d Cir.), cert. denied, 498 U.S. 1017 (1990). The State also lost theright to control who handled a substantial, continuing source of earningsunder the licenses. The court of appeals thus correctly found that the licenseshad continuing value to the State.

b. Petitioner Cleveland contends (Pet. 10-13) that the instant decisionconflicts with holdings of other courts of appeals that particular licenses,especially unissued licenses, did not constitute property under the mailfraud statute. Although the Fifth Circuit in Salvatore criticized reasoningin some of those cases that an unissued license cannot be property eventhough an issued license can be, 110 F.3d at 1140-1141, it ultimately explainedthat "video poker licenses are different than other types of licenses,"id. at 1142 n.2, because of the "character of the licenses themselves,"id. at 1141. Because of the distinct characteristics of Louisiana's videopoker license, the holding here is distinguishable from decisions of othercourts of appeals that have reversed mail fraud convictions on the groundthat various types of licenses were not property. See, e.g., United Statesv. Schwartz, 924 F.2d 410, 417-418 (2d Cir. 1991) (arms export license);United States v. Granberry, 908 F.2d 278, 280 (8th Cir. 1990) (school busoperator's permit), cert. denied, 500 U.S. 921 (1991); United States v.Kato, 878 F.2d 267, 268-269 (9th Cir. 1989) (private pilot's license); Toulabiv. United States, 875 F.2d 122, 125 (7th Cir. 1989) (taxi driver's license);United States v. Dadanian, 856 F.2d 1391, 1392 (9th Cir. 1988) (gamblinglicense); United States v. Murphy, 836 F.2d 248, 254 (6th Cir.) (bingo license),cert. denied, 488 U.S. 924 (1988).
As the Salvatore court explained, those cases rest on the theory that, inthe manner in which particular licenses operated in the States that hadissued them, the licenses did not represent property to the issuing governments.Rather, under the reasoning of those cases, "the issuance of a licenseis nothing more than a physical manifestation of the government's intentto regulate." 110 F.3d at 1141. The Salvatore court "agree[d],as an initial matter, that the right to regulate a particular industry doesnot a fortiori give the regulator a property interest in licenses signifyingthe government's regulation." Ibid. With respect to video poker licenses,however, the State "has a direct and significant financial stake inits role as issuer of the licenses" because it receives an "up-frontfee" for the license and a significant percentage of net revenues asa franchise fee. Id. at 1142. The Salvatore court noted that Louisiana fullyexpected to receive continuing funds from the video poker license (22.5%of the licensee's net revenues), such that the license "evinces theState's intent to participate in the industry." Ibid. The entitlementto control the sources of future revenue gave the State a continuing propertyinterest in the license.
The cases on which petitioner Cleveland (Pet. 11-13) relies involve licensesthat lack that revenue-producing feature. See United States v. Shotts, 145F.3d 1289, 1294-1295 (11th Cir. 1998) (no indication of continuing governmentfinancial stake in bail bond license), cert. denied, 119 S. Ct. 1111 (1999);United States v. Paccione, 949 F.2d 1183, 1186-1187 (2d Cir. 1991) (samefor medical waste dumping permit), cert. denied, 505 U.S. 1220 (1992); Granberry,908 F.2d at 280 (same for bus license); Kato, 879 F.2d at 269 (same forpilot's license); Toulabi, 875 F.2d at 126 (same for taxi driver license);Dadanian, 856 F.2d at 1392 (same for poker club license); Murphy, 836 F.2dat 250-254 (same for bingo license). Accordingly, none of those cases conflictswith the holding that Louisiana video poker licenses represent a governmentproperty right protected by the mail fraud statute.3

2. Relying on Neder v. United States, 119 S. Ct. 1827 (1999), petitionerscontend (Pet. 21-25; 99-939 Pet. 10-11) that the district court committedplain error in failing to instruct the jury that a falsehood charged ina mail fraud offense must be found to be material.4 The court of appealscorrectly declined to address that claim, since petitioners sought to raiseit for the first time in a supplemental brief filed eight days before thecourt issued its decision. It is well settled that a defendant waives appellateconsideration of an issue raised for the first time in a reply or latersupplemental brief. See, e.g., Dunham v. Kisak, 192 F.3d 1104, 1110 (7thCir. 1999); United States v. Universal Mgmt. Servs., Inc., 191 F.3d 750,759 (6th Cir. 1999); Orsini v. Wallace, 913 F.2d 474, 476 n.2 (8th Cir.1990), cert. denied, 498 U.S. 1128 (1991). Petitioners are not relievedfrom their waiver because Neder was decided after oral argument in the courtof appeals. At the time the petitioners filed their initial brief on appeal,there was a clear-cut conflict in the circuits on whether the materialityof a charged falsehood is an element of mail or wire fraud. Compare, e.g.,United States v. Slaughter, 128 F.3d 623, 629 (8th Cir. 1997); United Statesv. Cochran, 109 F.3d 660, 667 n.3 (10th Cir. 1997) (materiality not an element),with United States v. Rodriguez, 140 F.3d 163, 167 (2d Cir. 1998); UnitedStates v. DeSantis, 134 F.3d 760, 764 (6th Cir. 1998) (materiality is anelement). Indeed, contrary to petitioner Cleveland's contention (Pet. 21),the issue was an open one in the Fifth Circuit. See United States v. Moser,123 F.3d 813, 825-827 (5th Cir.), cert. denied, 522 U.S. 1035 (1997). Inlight of that waiver, petitioners have not properly preserved that issuefor consideration by this Court.5
In any event, petitioners' claim is without merit because the district courtdid give an adequate materiality instruction in connection with the mailfraud counts. The theory of the government's case was that, in documentsfiled with the State, petitioners concealed their ownership interests inTSG, Ltd., and other information to avoid the State's suitability assessment.The court instructed the jury that, in order to constitute a scheme to defraud,an omission must be "reasonably calculated to deceive persons of ordinaryprudence and comprehension" and that it must "conceal[] a materialfact." R. App. 4407 (emphasis added). The jury was thus instructedthat it could find petitioners guilty of mail fraud based only on concealmentof material information.




CONCLUSION

The petitions for a writ of certiorari should be denied.

Respectfully submitted.

SETH P. WAXMAN
Solicitor General
JAMES K. ROBINSON
Assistant Attorney General
JOEL M. GERSHOWITZ
Attorney



FEBRUARY 2000




1 References to "Pet." and "Pet. App." are to No. 99-804unless otherwise specified.

2 The court of appeals stated that "Maria Goodson and Attorney Clevelandassert that a Louisiana video poker license is not 'property' for purposesof the mail fraud statute." Pet. App. 19a. Petitioner Fred Goodsonunsuccessfully requested that the court of appeals modify its decision toreflect that he too had raised the property/license issue on appeal fromthe district court judgment. The government opposed that motion on the groundthat petitioner Goodson had not properly developed that argument under FederalRule of Appellate Procedure 28(i) and had improperly attempted to adoptpetitioner Cleveland's argument. The court of appeals denied petitionerGoodson's motion and did not modify its decision. Thus, in the court below,petitioner Goodson waived his opportunity to contend that the district courthad erred in rejecting petitioner Cleveland's argument that Louisiana videopoker licenses are not "property" within the ambit of the mailfraud offense.

3 We note that the petition for a writ of certiorari in Salvatore, whichthis Court denied, 522 U.S. 981 (1997), raised precisely the same claimthat petitioners raise here. The only decision cited by petitioners thatwas decided since this Court denied certiorari in Salvatore is United Statesv. Shotts, 145 F.3d 1289 (11th Cir. 1998), cert. denied, 119 S. Ct. 1111(1999), and that case is readily distinguishable for the reasons given inthe text.

4 Petitioners invoke the plain error standard of review in light of theirfailure to request a materiality instruction at trial. See Pet. 25 n.20;99-939 Pet. 10 n.5.

5 Petitioner Cleveland cites (Pet. 22) several cases in which this Courthas granted the petition for certiorari, vacated the decision below, andremanded for further consideration in light of intervening authority. Ineach of those cases, however, the intervening authority had a crucial bearingon an issue timely raised on direct appeal and addressed by the appellatecourt.

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