CLEVELAND v. UNITED STATES
CLEVELAND v. UNITED STATES
certiorari to the united states court of appeals for the fifth circuit
Louisiana law authorizes the State to award nontransferable, annually renewable licenses to operate video poker machines. License applicants must meet suitability requirements designed to ensure that they have good character and fiscal integrity. The State itself does not run any video poker machinery. In 1992, Fred Goodson and his family formed a limited partnership, Truck Stop Gaming, Ltd. (TSG), to participate in the video poker business in Louisiana. Petitioner Carl W. Cleveland, a lawyer, assisted Goodson in preparing TSGs initial and subsequent video poker license applications, each of which identified Goodsons children as the sole beneficial owners of the partnership. The State approved the initial application, and TSG successfully renewed its license in 1993, 1994, and 1995. In 1996, Cleveland and Goodson were charged with money laundering under 18 U. S. C. §1957 and racketeering and conspiracy under §1962 in connection with a scheme to bribe state legislators to vote in a manner favorable to the video poker industry. Among the predicate acts supporting these charges were four counts of violating the mail fraud statute, §1341, which proscribes use of the mails in furtherance of any scheme or artifice to defraud, or for obtaining … property by means of … fraudulent … representations. The indictment alleged that, because Cleveland and Goodson had tax and financial problems that could have undermined their suitability to receive a video poker license, they fraudulently concealed that they were the true owners of TSG in the license applications they had mailed to the State. Before trial, Cleveland moved to dismiss the mail fraud counts on the ground that the alleged fraud did not deprive the State of property under §1341. The District Court denied the motion, concluding that licenses constitute property even before they are issued. A jury found Cleveland guilty on two mail fraud counts and on other counts predicated on the mail fraud. The Fifth Circuit affirmed the conviction, considering itself bound by an earlier decision holding that Louisiana video poker licenses constitute property in the States hands.
Held: State and municipal licenses in general, and Louisianas video poker licenses in particular, do not rank as property, for purposes of §1341, in the hands of the official licensor. Pp. 514.
(a) Section 1341 is largely limited to the protection of money and property. McNally v. United States , 483 U. S. 350; Carpenter v. United States, 484 U. S 19, 25. The only nonproperty right protected by §1341 is the intangible right of honest services, §1346, a right not implicated by this case. Pp. 57.
(b) Section 1341 does not reach fraud in obtaining a state or municipal license of the kind here involved, for such a license is not property in the government regulators hands. Whatever interests Louisiana might be said to have in its video poker licenses, the statute itself shows that the States core concern is regulatory: It licenses, subject to certain conditions, engagement in pursuits that private actors may not undertake without official authorization. The Government offers two reasons why the State also has a property interest in its video poker licenses. The Court rejects both because they stray from traditional concepts of property. First, the Government stresses that the State receives a substantial sum of money in exchange for each license and continues to receive payments from the licensee as long as the license remains in effect. However, Louisiana receives the lions share of its expected revenue not while the licenses remain in its own hands, but only after they have been issued to licensees. Licenses pre-issuance merely entitle the State to collect a processing fee from applicants. Were such an entitlement sufficient to establish a state property right, then States would have property rights in drivers licenses, medical licenses, and other licenses requiring an upfront feelicenses that the Government concedes are purely regulatory. Tellingly, the Government does not allege that Cleveland defrauded Louisiana of any money to which it was entitled by law. If Cleveland defrauded the State of property, the nature of that property cannot be economic. The Governments second assertionthat the State has significant control over the issuance, renewal, suspension, and revocation of licensesis also unavailing. Far from composing an interest that has long been recognized as property, Carpenter , 484 U. S., at 26, these intangible rights of allocation, exclusion, and control amount to no more and no less than paradigmatic exercises of the States traditional police powers. Pp. 710.
(c) Comparison of the States interest in video poker licenses to a patent holders interest in an unlicensed patent does not aid the Government. Although both involve the right to exclude others, a patent also protects the holders right to use, make, or sell the invention herself. Louisiana does not conduct gaming operations itself, does not hold video poker licenses to reserve that prerogative, does not sell licenses in the ordinary commercial sense, and may not sell its licensing authority. Comparison of the States licensing power to a franchisors right to select its franchisees fares no better. While the latter right typically derives from a franchisors ownership of some product that it may trade or sell in the open market, Louisianas authority to select video poker licensees rests on no similar asset. It rests upon the States sovereign right to exclude applicants deemed unsuitable to run video poker operations. Pp. 1011.
(d) The Governments reading of §1341 invites the Court to approve a sweeping expansion of federal criminal jurisdiction in the absence of a clear statement by Congress. Equating issuance of licenses or permits with deprivation of property would subject to federal mail fraud prosecution a wide range of conduct traditionally regulated by state and local authorities. Unless Congress conveys its purpose clearly, the Court will not read a statute to have significantly changed the federal-state balance in the prosecution of crimes. E.g., Jones v. United States , 529 U. S. 848. Pp. 1112.
(e) Finally, the Government argues that §1341 defines two independent offenses: (1) any scheme or artifice to defraud and (2) any scheme or artifice … for obtaining … property by means of false . . . representations. Proceeding from that argument, the Government asserts that a video poker license is property in the hands of the licensee, hence Cleveland obtain[ed] … property and thereby committed the second offense even if the license is not property in the States hands. But McNally refused to construe the two phrases identifying the proscribed schemes independently. 483 U. S., at 358. Indeed, McNally explained that §1341 had its origin in the desire to protect individual property rights and that any benefit the Government derives from the statute must be limited to the Governments interests as property holder. Id. , at 359, n. 8. Pp. 1214.
182 F. 3d 296, reversed and remanded.
Ginsburg, J., delivered the opinion for a unanimous Court.