United States v. Maze

Mr. Justice White,

with whom The Chief Justice, Mr. Justice Brennan, and Mr. Justice Blackmun concur, dissenting.

Until today the acts charged in the indictment in this case — knowingly causing four separate sales invoices to be mailed by merchants to the bank that had issued the stolen BankAmericard in furtherance of a scheme to defraud the bank by using the credit card without authorization and by falsely securing credit — -would have been a criminal offense punishable as mail fraud under 18 U. S. C. § 1341 . 1 But no more. By misreading this Court's prior decisions and giving an unambiguous federal criminal statute an unrealistic reading, the majority places beyond the reach of the statute a fraudulent scheme that by law is not consummated until after the mails have been used, that utilizes the mails as a cen *409 tral, necessary instrumentality in its perpetration, and that demands federal investigatory and prosecutorial resources if it is to be effectively checked. Because I cannot subscribe to the majority’s reasoning or the result it reaches, I dissent.

As “part of his scheme and artifice to defraud,” respondent was charged with “obtain[ing] property and services on credit through the use of” an unlawfully possessed BankAmericard and “by means of false and fraudulent pretenses, representations and promises . . . .” App. 5, 6. The property and services were obtained from Citizens Fidelity Bank and Trust Company of Louisville, Kentucky, a BankAmericard licensee, Charles Meredith, the authorized card holder and user, and various persons and business concerns “which had previously entered into agreements with BankAmericard to furnish property and services on credit to the holders of Bank-Amerieards . . . .” Id., at 6 . The indictment also charged that the mails played an indispensable role in respondent’s fraudulent activities:

“It was a further part of his scheme and artifice to defraud that the defendant would and did obtain property and services on credit through the use of [the] BankAmericard ... by charging purchases on credit, well knowing at the time that the bank copies of the sales invoices recording these purchases would be, and were, delivered by mail to Citizens Fidelity Bank and Trust Company, Louisville, Kentucky, according to the directions thereon for posting to the BankAmericard account of Charles L. Meredith, that copies of these sales invoices, together with a bill for the accumulated charges, would subsequently be mailed- in the normal course of business to Charles L. Meredith; and that the delay inherent in this posting and mailing would enable *410 the defendant to continue to make purchases with [the] BankAmericard . . . before his scheme and artifice to defraud could be detected.” Id., at 6-7 .

I

Section 1341 proscribes use of the mails “for the purpose of executing” a fraudulent scheme. The trial court had instructed the jury that it could convict on the four mail fraud counts only if it found, inter alia, that “the mails were in fact used to carry out the scheme and that the use of the mails was reasonably foreseeable. The mail matter need not disclose on its face a fraudulent representation or purpose, but need only be intended to assist in carrying out the scheme to defraud.” App. 37 (emphasis added). Viewing each fraudulent transaction as consummated at the time respondent received goods in exchange for signing the BankAmericard sales drafts, the Court of Appeals held that respondent did not cause the subsequent mailings “for the purpose of executing his fraudulent scheme.” 468 F. 2d 529, 535 (emphasis in original). The court below acknowledged that “the fraud was directed against the card issuer and the card holder,” but it nevertheless concluded that the relevant perspective was respondent’s. “As far as [respondent] was concerned, his transaction was complete when he checked out of each motel; the subsequent billing was merely ‘incidental and collateral to the scheme and not a part of it.’ ” Id., at 534 , quoting Kann v. United States, 323 U. S. 88, 95 (1944).

The majority has uncritically embraced this unnecessarily restrictive approach to construing the statute. Like the Court of Appeals, it has selectively seized upon language in our prior decisions in pursuit of its notion that the fraudulent scheme ended when respondent duped *411 the motels into giving him goods and services on credit. We are told, for example, as in Kann, supra, where the mails were used to deliver checks drawn from a dummy corporation as part of a scheme by corporate officers to defraud their own corporation, that the scheme here “had reached fruition,” that the person “intended to receive the [goods and services] had received it irrevocably,” that it was “immaterial ... to any consummation of the scheme” how the sales invoices were forwarded by the motels to the issuing bank for payment and billing to the card holder, and that the so-called billing process was, as previously noted, “incidental and collateral to the scheme and not a part of it.” 323 U. S., at 94, 95 . “Therefore, only if the mailings were 'a part of the execution of the fraud/ or, as we said in Pereira v. United States, 347 U. S. 1, 8 , were incident to an essential part of the scheme/ do they fall within the ban of the federal mail fraud statute.” Parr v. United States, 363 U. S. 370, 390 (1960).

What the majority overlooks is the salient fact that the fraud in this case — and most others involving unauthorized use of credit cards — was practiced on the card issuer and not on the individual merchants who furnished lodgings and meals to respondent. As the Court of Appeals itself recognized, “[t]he merchants who honored the BankAmericard were likely insulated from loss under their agreements with BankAmericard. See Brandel & Leonard, Bank Charge Cards: New Cash or New Credit, 69 Mich. L. Rev. 1033 , 1040 (1971).” 468 F. 2d, at 534 n. 3. 2 Here, then, the fraud was ulti *412 mately perpetrated upon the credit card issuer and not the merchant. 3 The mails thus became “part of the execution of the fraud . . . Kann v. United States, *413 supra, at 95. Indeed, they were "an essential element” and not merely “incident to an essential part of the scheme . . . Pereira v. United States, 347 U. S. 1, 8 (1954).

Nor had respondent’s plan reached fruition. For his part, he may very well not have schemed beyond obtaining the goods and services under false pretenses with a stolen credit card. But from a legal standpoint of criminal fraud, this was only the first and certainly

“not the last step in the fraudulent scheme. It was a continuing venture. . . . The use of the *414 mails was crucial to the total success of the fraudulent project. We are not justified, in chopping up ... the scheme into segments and isolating one part from the others. That would be warranted if the scheme were to defraud [only the merchants]. But it is plain that these plans had a wider reach and that but for the use of the mails they would not have been finally consummated.” Kann v. United States, supra, at 96 (Douglas, J., dissenting).

Since it was the card-issuing bank that was actually defrauded, the mails were employed “for the purpose of executing [the] scheme . . . .”

II

The mails further contributed to the realization of respondent's fraudulent scheme by creating the delay in detecting the fraud that necessarily results from the time-consuming processing of credit card invoices by mail. See United States v. Chason, 451 F. 2d 301, 303-304 (CA2), cert. denied, 405 U. S. 1016 (1971). During his two-week, $2,000 transcontinental spending spree, respondent took full advantage of this inevitable delay to continue his unlawful activities. If the motel owners had employed an instantaneous identification or verification system, respondent's fraudulent scheme would most likely have been nipped in the bud. But the simple truth of the matter is that they did not. As a direct consequence of the prevailing business practice of mailing invoices to the issuer for subsequent billing to the card holder and the system’s attendant time delays, respondent was able to buy valuable time to postpone detection and thereby execute his scheme.

The majority mysteriously ignores prior decisions that 18 U. S. C. § 1341 reaches “cases where the use of the mails is a means of concealment so that further frauds *415 which are part of the scheme may be perpetrated.” Kann v. United States, supra, at 94—95. See United States v. Hendrickson, 394 F. 2d 807 (CA6 1968), cert. denied, 393 U. S. 1031 (1969); United States v. Riedel, 126 F. 2d 81, 83 (CA7 1942); United States v. Lowe, 115 F. 2d 596, 599 (CA7), cert. denied, 311 U. S. 717 (1940). Moreover, it fails to take appropriate account of our most recent decision construing § 1341. In United States v. Sampson, 371 U. S. 75 (1962), an indictment for mail fraud had been dismissed by the District Court on the ground that the mailings after the money had already been obtained from the victims were not “for the purpose of executing” the scheme to defraud. We reversed.

“We are unable to find anything in either the Kann or the Parr case which suggests that the Court was laying down an automatic rule that a deliberate, planned use of the mails after the victims’ money had been obtained can never be ‘for the purpose of executing’ the defendants’ scheme. Rather the Court found only that under the facts in those cases the schemes had been fully executed before the mails were used. And Court of Appeals decisions rendered both before and after Kann have followed the view that subsequent mailings can in some circumstances provide the basis for an indictment under the mail fraud statutes.” Id., at 80 (footnote omitted).

As previously indicated, the indictment here charged that respondent knew that the delay inherent in the posting and mailing of the credit card invoices would enable him to continue making purchases with the purloined card before his criminal conduct could be detected. Respondent engaged in a criminal enterprise that is by its very nature short-lived. Every time delay in the *416 card holder’s receipt of the forged credit card slips allows the scheme to continue that much longer. For my part, the indictment charged a crime under 18 U. S. C. § 1341 , and the Government established respondent’s guilt beyond a reasonable doubt.

Ill

The majority’s decision has ramifications far beyond the mere reversal of a lone criminal conviction. In this era of the “cashless” society, Americans are increasingly resorting to the use of credit cards in their day-to-day. consumer purchases. Today well over 300 million credit cards are in circulation, and annual charges exceed $60 billion. In 1969 alone, 1.5 million credit cards were lost or stolen, resulting in fraud losses exceeding $100 million. 115 Cong. Rec. 38987 (1969). Current estimates of annual credit card fraud losses are put as high as $200 million. Cleveland, Bank Credit Cards: Issuers, Merchants, and Users, 90 Banking L. J. 719, 729 (1973). Under the result reached by the majority, only those credit card frauds exceeding $5,000 covered by 15 U. S. C. § 1644 will be subject to federal criminal jurisdiction.

Yet this burgeoning criminal activity, as evidenced by the very facts of this case, does not recognize artificial state boundaries. In the future, nationwide credit card fraud schemes will have to be prosecuted in each individual State in which a fraudulent transaction transpired. Here, for example, respondent must now be charged and tried in California, Louisiana, and Florida. This result, never intended by Congress, may precipitate a widespread inability to apprehend and/or prosecute those who would hijack the credit card system.

I dissent.

See, e. g., United States v. Kelly, 467 F. 2d 262 (CA7 1972), cert. denied, 411 U. S. 933 (1973); United States v. Madison, 458 F. 2d 974 (CA2), cert. denied, 409 U. S. 859 (1972); United States v. Chason, 451 F. 2d 301 (CA2 1971), cert. denied, 405 U. S. 1016 (1972); United States v. Kellerman, 431 F. 2d 319 (CA2), cert. denied, 400 U. S. 957 (1970); United States v. Thomas, 429 F. 2d 407 (CA5 1970); United States v. Kelem, 416 F. 2d 346 (CA9 1969), cert. denied, 397 U. S. 952 (1970); Adams v. United States, 312 F. 2d 137 (CA5 1963).

The majority recognizes that prior to this decision at least five courts of appeals had taken a view contrary to that reached by the court below. Ante, at 398 n. 2. The Court of Appeals in this case relied upon United States v. Lynn, 461 F. 2d 759 (CA10 1972), but the indictment in that case did not allege that the plan defrauded the authorized card holder or the credit card issuer.

Almost all of the bant credit card systems presently in operation in this country rely upon a three-way transaction between the card issuer, the cardholder, and a subscribing retailer. This tripartite credit card arrangement basically entails three separate contractual *412 agreements: (1) between the bank issuing the credit card and the individual cardholder; (2) between one of the banks in the system and a local merchant; and (3) between the merchant and the cardholder. See generally Comment, The Tripartite Credit Card Transaction: A Legal Infant, 48 Calif. L. Rev. 459 (1960).

“The most important of the many parties to such a system is the bank which issues the charge cards to the public. The issuer-bank establishes an account on behalf of the person to whom the card is issued, and the two enter into an agreement which governs their relationship. This agreement establishes a line of credit under which the cardholder may incur obligations to the issuer by a cash advance or through a purchase of goods or services from one of the merchant-members.

“These merchants also have an agreement with the banks requiring them to honor all charge cards issued by a member-bank, and enabling them to deposit slips evidencing sales to cardholders in an ordinary checking account at the bank with which he has reached an agreement in return for a discounted credit to that account. These slips are then cleared and forwarded through an interchange system to the member-bank which originally issued the card and from which the cardholder will be billed periodically. The cardholder must then decide whether to make payment in full within a specified period, free of finance charges, or to defer payment and ultimately be charged an extra percentage of the amount billed.” Comment, Bank Credit Cards — Contemporary Problems, 41 Fordham L. Rev. 373 , 374 (1972) (footnote omitted).

Because the legal relationship between the parties is dictated by the terms of their respective agreements, the contract governs the distribution of risk for credit card frauds between the merchant and. the issuer. Under most systems, with certain exceptions for negligence on the part of the merchant if he honors an expired card or one appearing on the current “stop list” or if he makes a sale for an amount in excess of the cardholder’s credit line, the issuer assumes all risks for frauds. Murray, A Legal-Empirical Study of the Unauthorized Use of Credit Cards, 21 U. Miami L. Rev. 811 , 813 (1967); Note, Credit Cards: Distributing Fraud *413 Loss, 77 Yale L. J. 1418, 1420 (1968); Comment, The Tripartite Credit Card Transaction, 48 Calif. L. Rev., at 464-465.

‘‘ ‘As far as the merchant is concerned, he is in the same financial and legal position as if he were receiving certified checks on a bank that does not clear at par, with no risk that the check will be returned or payment stopped, or as if he were receiving cash at a small discount for the bank’s services. This firm bank commitment is what makes the merchant willing to accept a bank card as freely as cash and what makes the bank card as good as cash to its holder (and without the risks of carrying cash).

“ ‘Under these arrangements, the card-issuing bank takes all the credit risk, which is appropriate to the banking function it performs, the cardholder selects the merchant with whom he will deal, and the bank and the cardholder-purchaser expect the merchant to assume the merchandise risk. It is this division and allocation of risks between merchant and bank which permits the bank card to be used as though it were cash with hundreds of thousands of participating merchants throughout the country and abroad.’ ” Cleveland, Bank Credit Cards: Issuers, Merchants, and Users, 90 Banking L. J. 719, 723-724 (1973), quoting Statement of the American Bankers Association, the Consumers Bankers Association, Interbank Card Association, and National BankAmericard, Inc. to the Federal Trade Commission in the matter of Revised Proposed Trade Regulation Rule on Preservation of Consumers’ Claims and Defenses, 4-5 (Mar. 5, 1973).

Section 133 (a) of the Truth in Lending Act limited the cardholder’s liability for the unauthorized use of his credit card to $50. 84 Stat. 1126 , 15 U. S. C. § 1643 (a).