United States Court of Appeals,
For the Fifth Circuit
No. 95-50533
United States of America
Plaintiff-Appellee
VERSUS
Kevin GRAY, Gary THOMAS, and Troy DRUMMOND
Defendants-Appellants
Appeal from the United States District Court
for the Western District of Texas
September 18, 1996
Before DUHÉ, DENNIS, Circuit Judges, and DUVAL,1 District
Judge.
DUVAL, District Judge:
PROCEDURAL BACKGROUND
By grand jury indictment, Appellants Kevin Gray (hereinafter
"Gray"), Gary Thomas (hereinafter "Thomas") and Troy Drummond
(hereinafter "Drummond") (hereinafter collectively "appellants")
and others were charged with conspiracy to commit mail and wire
fraud, and with various counts of mail and wire fraud in violation
1
District Judge of the Eastern District of Louisiana, sitting by
designation.
of 18 U.S.C. §§ 2, 3712, 13413, 13434 and 13465. All three were
convicted of the conspiracy charge; Gray was convicted of two
counts of wire fraud (Counts 13 & 14); Thomas was convicted of
three counts of wire fraud (Counts 6, 7, & 8); and Drummond was
convicted of four counts (Counts 2, 3, 4, & 5). Each filed timely
motions for judgment of acquittal which were denied by the District
Court. Each was sentenced to three years of probation and 50 hours
community service; Thomas received a $1500 fine while Gray and
Drummond received a $1000 fine. Each now appeals.
Specifically, Gray, Thomas and Drummond challenge the
2
18 U.S.C. § 371 provides:
If two or more persons conspire either to commit any offense against
the United States, or to defraud the United States, or any agency thereof in any
manner or for any purpose, and one or more of such persons do any act to effect the
object of the conspiracy, each shall be fined under this title or imprisoned not
more than five years, or both.
3
18 U.S.C. § 1341, in pertinent part, provides:
Whoever, having devised or intending to devise any scheme or artifice
to defraud, or for obtaining money or property by means of false or
fraudulent pretenses, representations, or promises...places in any post
office or authorized depository for mail matter, any matter or thing
whatever to be sent or delivered by the Postal Service...or knowingly
causes [such matter or thing] to be delivered by mail...shall be fined
under this title or imprisoned not more than five years, or both....
4
18 U.S.C. § 1343 provides:
Whoever, having devised or intending to devise any scheme or artifice
to defraud, or for obtaining money or property by means of false or
fraudulent pretenses, representation, or promises, transmits or causes
to be transmitted by means of wire, radio or television communication
in interstate or foreign commerce, any writings, signs, signals,
pictures, or sounds for the purpose of executing such scheme or
artifice, shall be fined under this titled or imprisoned not more than
five years, or both. If the violation affects a financial institution,
such person shall be fined not more that $1,000,000 or imprisoned not
more that 30 years, or both.
5
18 U.S.C. § 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.
2
sufficiency of the evidence supporting their conspiracy, mail fraud
and wire fraud convictions. All argue that the scheme was merely
a breach of fiduciary duty but not mail or wire fraud. Appellants,
Gray and Thomas also challenge portions of the jury charges read to
the jury. Furthermore, Gray and Thomas contend that § 1346 is
unconstitutionally vague as it is applied to them.
FACTUAL BACKGROUND
The indictment charged members of the mens' basketball
coaching staff at Baylor University, and others, with executing a
fraudulent scheme to establish academic eligibility for five
transfer students to play basketball at Baylor during the 1993-94
academic year. In its simplest terms, the coaches helped the five
players, recruited from two-year colleges, to obtain the credits
required for eligibility and possibly scholarships by providing
these students with written course work or answers to
correspondence exams, which were then sent to the sponsoring
schools as the students' work.6
Gray and Thomas were assistant mens' basketball coaches in
1993. Drummond was an assistant basketball coach at Westark
Community College in Ft. Smith, Arkansas in early, 1993.
6
The following scenario is an illustrative example of appellants'
scheme:
A McLennan Community College student, Shannon Brantley, who lacked
approximately 22 hours toward a degree, enrolled in a correspondence
program at Southeastern Assemblies of God. The evidence at trial
indicated that Gray completed Brantley's final exam in Earth Science
and that appellant, Drummond, provided Brantley with the answers to the
final exam in Algebra. The successful completion of these two courses
enabled Brantley to enroll at Baylor. This scheme, however, was
unbeknownst to Southeastern Assemblies of God and Baylor at the time
Brantley received his degree and transferred to Baylor and began
playing basketball in the fall of 1993.
3
Thereafter, in August, 1993, Drummond was hired by Baylor as the
"restricted earnings coach."
Baylor University was a member of the Southwest Conference and
Division 1A of the NCAA. The NCAA regulations fix academic
eligibility requirements for student athletes transferring from
two-year colleges to four-year Division 1A schools like Baylor.
Failure to comply with the NCAA's rules could result in the
imposition of sanctions.
Five students were focused upon during the trial of this
matter. Those students were Jerome Lambert, Marcus Thompson,
Shannon Brantley, Jason Ervin and Tyrone Davis. The specific facts
surrounding the coaches efforts on behalf of these students is not
disputed and thus, not germane to the legal analysis.
ANALYSIS
I
The defendants contend that insufficient evidence supports
their convictions for conspiracy, mail fraud and wire fraud. It is
fundamental that we, as an appellate court, owe great deference to
a jury verdict. Therefore, in assessing a challenge to the
sufficiency of the evidence, we will consider the evidence in the
light most favorable to the verdict and will afford the government
the benefit of all reasonable inferences and credibility choices.
United States v. Walters, 87 F.3d 663, 667 (5th Cir. 1996) (citing
United States v. Ayala, 887 F.2d 62, 67 (5th Cir.1989)). The
evidence is sufficient if a rational trier of fact could have found
the essential elements of the offense beyond a reasonable doubt
4
based upon the evidence presented at trial. Walters, 87 F.3d at
667.
To prove conspiracy pursuant to 18 U.S.C. § 371, the
government must prove: (1) an agreement between two or more
persons, (2) to commit a crime, and (3) an overt act committed by
one of the conspirators in furtherance of the agreement. United
States v. Mackay, 33 F.3d 489 (5th Cir. 1994). That statute
further requires the government to prove that a conspiracy existed,
that the defendant knew of the conspiracy and that he knowingly and
voluntarily joined it. Id.
To prove mail fraud pursuant to 18 U.S.C. § 1341, the
government must prove: (1) a scheme to defraud, (2) which involves
the use of the mails, (3) for the purpose of executing the scheme.
United States v. Nguyen, 28 F.3d 477, 481 (5th Cir. 1994); United
States v. Pazos, 24 F.3d 660, 665 (5th Cir. 1994).
To prove wire fraud pursuant to 18 U.S.C. § 1343, the
government must prove (1) a scheme to defraud and (2) the use of,
or causing the use of, wire communications in furtherance of the
scheme. United States v. Loney, 959 F.2d 1332, 1337 (5th Cir.
1992).
The indictment alleged and the jury was charged that Gray,
Thomas and Drummond could have committed fraud under either of two
theories: (1) they deprived victims of property, and (2) they
deprived victims of the right to honest services. The victims of
the scheme alleged in the indictment included Baylor, Westark
Community College and others.
5
Gray, Thomas and Drummond make a number of arguments in
support of their contention that sufficient evidence does not
support their convictions for conspiracy, mail fraud and wire
fraud. They argue first that the mail and wire fraud statutes do
not encompass the type of property deprivation at issue, i.e.
scholarships and degrees, in this case relying on United States v.
Walters, 997 F.2d 1219 (7th Cir. 1993). Second, Gray, Thomas and
Drummond advance the argument that the government seeks to
criminalize mere deceit alleging that they lacked the intent to
either harm the victims or to obtain personal benefit relying on
United States v. Ballard, 663 F.2d 534 (5th Cir. 1981), modified,
680 F.2d 352 (5th Cir. 1982, Unit B).7 We address these
separately.
A
Gray, Thomas and Drummond first argue that the mail and wire
fraud statutes do not encompass the type of property deprivation at
issue in this case. Specifically, appellants urge that the
granting of scholarships and degrees was simply an incidental
property loss not amounting to fraud relying on Walters, 997 F.2d
1219 (7th Cir. 1993). This challenge lacks merit.
7
Appellants also rely on United States v. Lemire, 720 F.2d 1327 (D.C.
Cir. 1983), cert. denied, 467 U.S. 1226 (1984) (failure to disclose conflict of
interest not sufficient to maintain conviction based on breach of fiduciary duty),
United States v. Starr, 816 F.2d 94 (2d Cir. 1987) (mail fraud conviction reversed
where alleged victims got exactly what they bargained for and did not feel cheated);
United States v. Regent Office Supply, 421 F.2d 1174 (2d Cir. 1970) (reversed mail
fraud convictions holding that mere proof of false statement was not criminal
violation); United States v. Schwartz, 924 F.2d 410 (2d Cir. 1991); United States
v. Lew, 875 F.2d 1327 (D.C. Cir. 1983) (conviction reversed because no evidence that
Lew made false representations to alleged victims but instead to others), cert.
denied, 467 U.S. 1226 (1984).
6
Walters, an agent, signed 58 college football players to
contracts while they were still playing pursuant to the NCAA rules.
These contracts violated NCAA rules. Id. at 1221. After
completing college, many of these players reneged on their
agreements with Walters. Id. Thereafter, Walters and others were
indicted for mail fraud. The fraud alleged: causing the
universities to pay scholarship funds to athletes who had become
ineligible as a result of the agency contracts. After finding that
the "scheme or artifice to defraud" clause and the "obtaining money
or property" clause of 18 U.S.C. § 1343 contemplate a transfer of
some kind, the court reversed the convictions holding that losses
that occur only as byproducts of a deceitful scheme do not satisfy
the statutory requirement. Id. at 1225.
Walters is distinguishable from the instant case. Indeed, the
conduct in Walters occurred prior to the enactment of 18 U.S.C. §
1346.8 Thus, Walters holding that 18 U.S.C. § 1343 contemplates
"a transfer of some kind" is inapplicable to the acts alleged in
the instant case since they occurred after the enactment of
18 U.S.C. § 1346.
As with any question of statutory meaning, we begin with the
language of the statute. Brumley, 79 F.3d at 1434-35 (citing
8
In 1988, Congress enacted § 1346 allegedly attempting to override the
Supreme Court's decision in McNally v. United States, 107 S. Ct. 2875 (1987).
McNally held that the mail fraud statute did not criminalize schemes to defraud
citizens of their rights to honest government. Id. at 2881. Congress' purpose in
enacting § 1346 as expressed by Representative Conyers and the Senate Judiciary
Committee and cited, though not favorably, by this circuit in United States v.
Brumley, 79 F.3d 1430 (5th Cir. 1996) was to restore the mail fraud statute to its
pre-McNally position by allowing mail fraud convictions to be predicated on
deprivations of honest services. See United States v. Martinez, 905 F.2d 709, 715
(3d Cir. 1990).
7
Kellogg v. United States, (In re West Texas Marketing Corp.), 54
F.3d 1194, 1200 (5th Cir.), cert. denied, U.S. , 116 S. Ct.
523, 133 L.Ed.2d 430 (1995)). In determining a statute's plain
meaning, we assume that absent any contrary definition, "Congress
intends the words in its enactments to carry their ordinary,
contemporary, common meaning." Brumley, 79 F.3d at 1435 (citing
Pioneer Investment Services v. Brunswick Associates, 507 U.S. 380,
388, 113 S. Ct. 1489, 1495, 123 L.Ed.2d 74 (1993) (internal
quotation marks omitted)). As the Supreme Court has stated:
"There is, of course, no more persuasive evidence of the purpose of
a statute that the words by which the legislature undertook to give
expression to its wishes." Id. (citing Griffin v. Oceanic
Contractors, Inc., 458 U.S. 564, 571, 102 S. Ct. 3245, 3250, 73
L.Ed.2d 973 (1982) (internal quotation marks omitted)).
The statute in question, 18 U.S.C. § 1343, in pertinent part,
provides:
Whoever, having devised or intending to devise any scheme or
artifice to defraud, or for obtaining money or property by
means of false or fraudulent pretenses... for the purpose of
executing such scheme or artifice, shall be fined under this
titled or imprisoned not more than five years, or both....
Nothing in the term "scheme or artifice to defraud" mandates
"a transfer of some kind" as defined in 18 U.S.C. § 1346 which
states that:
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.
Therefore, Walters holding that 18 U.S.C. § 1343 contemplates
a "transfer of some kind" is inapplicable to situations occurring
8
after the enactment of 18 U.S.C. § 1346. Indeed, it is uncontested
that appellants actions occurred after the enactment of 18 U.S.C.
§ 1346. Further, it is clear that appellants devised and executed
a scheme to deprive Baylor of its intangible right of the honest
services of its employees. Accordingly, appellants reliance on
Walters is misplaced.
B
Gray, Thomas and Drummond next argue that these convictions
improperly criminalize mere deceit because they lacked the
requisite intent to either harm the victims or to obtain personal
benefit relying on Ballard. Appellants properly look to pre-
McNally precedent, Ballard, in deciding this case alleging mail and
wire fraud. However, appellants misconstrue the Ballard decision.
Essentially, appellants argue that their scheme was not
intended to harm Baylor but rather to help Baylor by ensuring a
successful basketball team.
This argument lacks merit in light of the "honest services
amendment" to the mail and wire fraud statutes, 18 U.S.C. § 1346,
which allows the government to predicate a fraud prosecution on a
"scheme or artifice to deprive another of the intangible right of
honest services." In Ballard, a pre-McNally case, this Court held
that a breach of fiduciary duty of honesty or loyalty
involving a violation of the duty to disclose could only
result in criminal mail fraud where the information withheld
from the employer was material and that, where the employer
was in the private sector, information should be deemed
material if the employee had reason to believe the information
would lead a reasonable employer to change its business
conduct.
Ballard, 680 F.2d at 353.
9
In Ballard, several people were prosecuted for conspiracy and
mail fraud based on a "daisy-chain" scheme to sell oil to the
Florida Power Company ("FPC") through a chain of buyers and
sellers, each of whom took the maximum profits authorized by law.
Granlund, a consultant under contract with FPC, masterminded the
scheme and received a commission on each sale. The defendants were
all convicted of mail fraud charges predicated on an alleged scheme
to deprive certain oil companies of the employees' honest and
faithful services.
This Court found that "a breach of fiduciary duty can
constitute illegal fraud ... only when there is some detriment to
the employer." Ballard, 663 F.2d at 540. This Court went on to
find that the detriment can be a deprivation of an employee's
faithful and honest services if a violation of the employee's duty
to disclose material information is involved. Thus, the Court
focused its inquiry on the duty to disclose and materiality.
Materiality exists whenever "an employee has reason to believe the
information would lead a reasonable employer to change its business
conduct." Id.
In reversing certain of the convictions, this Court found that
the withheld information, i.e. the daisy-chain scheme and
Granlund's profits, was not material because the employer-oil
companies were receiving the maximum profit allowed by law. In
affirming Granlund's conviction, however, the Court found that
Granlund's failure to disclose the scheme and his profits to FPC
was material as FPC might have been able to purchase the oil at a
10
lower price. Thus, Granlund's failure to disclose was material and
thus, his actions were within the scope of the mail fraud statute.
In the instant case, the information withheld, i.e. the
"coaches' cheating scheme", was material because Baylor did not get
the quality student it expected. Further, appellants failure to
disclose the scheme to Baylor was material as Baylor might have
been able to recruit other qualified, eligible students to play
basketball. Instead, once the scheme was suspected, Baylor was
forced to institute a costly investigation and the players under
suspicion were withheld from competition. It is quite reasonable
to believe that Baylor would have changed its business conduct had
it known of the "cheating scheme." Accordingly, appellants
challenge lacks merit.
II
Gray and Thomas further contend that portions of the jury
instructions were erroneous. We review objected to instructions
for abuse of discretion and will reverse a conviction only if the
instructions fail to correctly state the law. United States v.
Coleman, 997 F.2d 1101, 1105 (5th Cir. 1993); United States v.
Townsend, 31 F.3d 262, 270 (5th Cir. 1994), cert. denied, 115 S.
Ct. 773 (1995). On the other hand, we review unobjected-to jury
instructions for plain error. Fed.R.Crim.P. 52(b); see also United
States v. Ramirez, 810 F.2d 1338, 1344 (5th Cir. 1987). Plain
error is that error "so obvious that our failure to notice it would
seriously affect the fairness, integrity, or public reputation of
judicial proceedings and result in a miscarriage of justice.
11
Ramirez, 810 F.2d at 1344 (citations omitted). Appellants
challenges to the jury charges lack merit.
Over objection, the district court submitted an instruction to
the jury which stated that "[w]here an employee breaches a duty to
his employer by concealing material information which he has a duty
to disclose and where such non-disclosure may result in harm to the
employer, the act constitutes a scheme to defraud within the
purview of the statute...." This definition of materiality of
nondisclosed information given by the Court substantially tracks
the language of Ballard and thus, correctly states the law.
Accordingly, appellants challenge lacks merit.
The unobjected-to instruction at issue states:
An employee assisting ineligible students to obtain
scholarships from his employer may constitute a scheme to
defraud within the scope of the mail fraud and wire fraud
statutes, if that is done with the requisite intent to
defraud.
Gray and Thomas contend that this charge improperly "singled
out" one part of the government's case, i.e., deprivation of
property, and, thus, is not sufficient to sustain a mail fraud
conviction in light of the trial court's statements during
sentencing. Indeed, the trial judge stated that
the convictions can only stand as convictions of the scheme or
artifice of depriving Baylor of the defendants' honest
services, and any losses suffered by Baylor are not relevant
to the application of the sentencing guidelines....
The government, however, correctly points out that the indictment
alleges that the scheme charged included an intent to defraud
Baylor of property in the form of scholarships in addition to
charging a scheme or artifice to defraud of honest services.
12
Thus, the trial judge's statements during sentencing cannot
restrict the indictment and the evidence adduced at trial.
Further, the charge at issue does not improperly "single out"
one portion of the government's case. Indeed, the charge, in
pertinent part, actually states that
An employee assisting ineligible students to obtain
scholarships from his employer may constitute a scheme to
defraud within the scope of the mail fraud and wire fraud
statutes, if that is done with the requisite intent to
defraud.
Now the object of a fraudulent scheme need not be the
deprivation of a tangible interest. Artifices designed to
deprive another of the right of honest services also may
violate the statute.
Thus, the unobjected-to charge, when read in context, clearly
states that the object of the scheme can either be tangible
property or the intangible right to honest services. Because we
find that 18 U.S.C. § 1346 is constitutional9 and we find
sufficient evidence supporting appellants' convictions, this charge
does not constitute plain error.10
III
Gray and Thomas next contend that 18 U.S.C. § 1346 is
unconstitutionally vague as applied to them in this case.
Specifically, Gray and Thomas argue that the term "honest services"
9
See Part III.
10
However, even if the charge did "single out" property deprivation, the
evidence adduced at trial indicated that Baylor's successful basketball team would
enure to the coaches benefit. Indeed, Drummond actually received a coaching
position at Baylor as a result of his recruiting efforts. Further, even if
appellants intended no personal, tangible benefit, "intent to defraud" is defined
in the charge, in pertinent part, as "caus[ing] some loss to some person." Clearly,
appellants scheme to defraud caused a loss to Baylor. Accordingly, the unobjected-
to charge does not constitute plain error.
13
gives too much discretion to law enforcement. The "void-for-
vagueness" doctrine requires that a penal statute define the
criminal offense with sufficient definiteness that ordinary people
can understand what conduct is prohibited and in a manner that does
not encourage arbitrary and discriminatory enforcement. Posters
'N' Things, LTD. v. U.S., 114 S. Ct. 1747, 1754 (1994) (citations
omitted). The Supreme Court has repeatedly held, however, that
"vagueness challenges to statutes which do not involve First
Amendment freedoms must be examined in light of the facts of the
case at hand." United States v. Mazurie, 419 U.S. 544, 550 (1975);
see also Chapman v. United States, 500 U.S. 453, 467 (1991).
The constitutionality of 18 U.S.C. § 1346 has been addressed
by at least two circuits. In United States v. Waymer, 55 F.3d 564
(11th Cir. 1995), the Eleventh Circuit held that the statute was
not vague or overly broad. In so holding, the Court found that the
requirement that the defendant act willfully and with a specific
intent to defraud provided the necessary specificity for limited
prosecutions. The Court further stated that if the evidence proved
the requisite intent then the statute was relieved of the objection
that the prosecutor had unlimited discretion. Id. at 568.
The statute was also upheld in United States v. Bryan, 58 F.3d
933 (4th Cir. 1995). The Bryan court noted that this type of
vagueness challenge was generally rejected in pre-McNally cases.
Id. at 941, n. 3.
Evaluating 18 U.S.C. § 1346 in light of the instant case, Gray
and Thomas clearly acted willfully and with the intent to defraud
14
Baylor of their honest services. Indeed, Gray and Thomas completed
a qualifying test for off-campus recruiting certifying their
knowledge and compliance with the NCAA rules. Further, the
testimony at trial indicated that a coach was required to notify
Baylor officials of any rule violation. We conclude therefore that
Gray and Thomas fail to demonstrate that 18 U.S.C. § 1346 is
unconstitutionally vague as applied to them.
IV
For the reasons we have stated in this opinion, the
defendants' convictions and sentences are AFFIRMED.
15