# Amicus Curiae Brief — Bates v. United States

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0090%3A8

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1997
- **Citation:** 522 U.S. 23

## Text

No. 96-7185
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1996

GARRIT BATES,
Petitioner,

v.
UNITED STATES OF AMERICA,
Respondent.

ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

BRIEF OF AMICUS CURIAE
THE NATIONAL ASSOCIATION OF CRIMINAL DEFENSE
LAWYERS IN SUPPORT OF PETITIONER

ELLEN YANKIVER SUNI LisA B. KEMLER
Professor of Law (Counsel of Record)
University of Missouri- ZWERLING & KEMLER, P.C.
Kansas City School of Law 108 N. Alfred St.
5100 Rockhill Road P.O. Box 20900
Kansas City, MO 64110 Alexandria, VA 22313
(816) 235-2372 (703) 684-8000
W. BRIAN GADDY Counsel for Amicus Curiae
WYRSCH HOBBS MIRAKIAN National Association of
& Lge, P.C. Criminal Defense Lawyers

1101 Walnut St. 13th FI.
Kansas City, MO 64106

$16) 221-0080

4 ee

i
QUESTION PRESENTED

DID THE INDICTMENT IN THIS CASE PROPERLY
CHARGE A WILLFUL MISAPPLICATION OF FUNDS IN
VIOLATION OF 20 U.S.C. § 1097(a) WHERE IT FAILED
TO ALLEGE THE ESSENTIAL ELEMENT OF INTENT TO
DEFRAUD?

ABLE OF CONTENTS
: TABLE OF AUTHORITIES
QUESTION PRESENTED ......---- +2050 se500 000
TABLE OF AUTHORITIES .........-+5::s000000° iii FEDERAL CASES
INTEREST OF AMICUS CURIAE ......-+++++*+0**° 1 Albernaz v. United States,
a a ne
SUMMARY OF ARGUMENT .........5555s5508 55
Cannon v. University of Chicago,
ARGUMENT: a
ICTMENT CASE PROPERLY
Coe e eee a ee APPLICATION OF FUNDS IN Goodyear Atomic Corp. v. Miller,
VIOLATION OF 20 U.S.C. § 1097(2) IN THAT IT FAILED EE Ee a a
TO ALLEGE THE ESSENTIAL OF INTENT TO i
DEFRAUD. ......cccccccecceecseseneceeeeeseees Liparota v. United S
sAS SETTLED ie euee 10, 11
WHERE, HERE, A TERM
MEANING, CONGRESS IS PRESUMED TO ADOPT betinatetialt
THAT MEANING WHEN IT USES THE TERM: - SINE F350. dvi Jedeleveewwes 9, 10

TO Seals v. United States,
221 F.2d 243 (8th Cir. 1955)

United States v. Britton,
IO,
c.
United States v. Christo,
Y 614 F.2d 486 (Sth Cir. 1980) ................ 11, 12
MISSTEPS. ee cedeeeseeeeesesesoeeovoores 10 United States Vv. Garcia,
3 751 F.2d 1033 (9th Cir. 1985) ..................
CONCLUSION ......---c cece eereeeereereteeees

United States v. Kammer,
1 F.3d 1161 (11th Cir. 1993)

iv

United States v. Logsdon,
132 F. Supp. 3 (W_D. Ky. 1955), affd, 253 F.2d 12
GRRE BE Ba BN bc cc cdcesccccdccesoccccees 7

United States v. Matot,
146 F.2d 197 (2d Cir. 1944)... 0... cee eens s

United States v. Ratzlaf,
SO a vere il

United States v. Schnitzer,
942 F. Supp. 323 (S.D. Tex. 1976) ............. 12

United States v. Vannatia,
189 F. Supp. 937 (D. Haw. 1960) ............... 7

United States v. Wells,

117 S. Ct. 921 (1997), quoting
Nationwide Mutual Insurance Co. v. Darden,
SER ED Nhaee 6.600% 6c ceWee msc ccccc: 5

United States v. X-Citement Video,
Sr eee eee 10

STATE CASES
Louis Pizitz Dry Goods Co. v. Fidelity & Deposit Co. of Ma.,

136 So. 800 (Ala. 1931) .. 2.2... cece e eee ee eeee 9

Maryland Casualty Co. v. Farmers State Bank & Trust Co..,

258 S.W. 584 (Tex. Ct. App. 1924) .............. 9

Roseville Trust Co. v. American Surety Co. of N.Y,

OTST TIT TITT Oe 9

Vv
FEDERAL STATUTES
I 7
| Tae i ii 3, 6,7, 11
Ch. 106, § 55, 13 Stat. 116(1864) ................. 6
ee 1, 2, 5,6,7

Appleman, INSURANCE LAW AND PRACTICE, § 5670 (1981) 8
COUCH ON INSURANCE, § 46:67 (2d ed. 1982) ......... 8
Thomas Morse, Bank Insiders and the Willful Misapplication

Statute: Toward a More Effective Protection
Dealing, 92 Banking L.J. 715, 722 n.19 — = @

No. 96-7185

IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1996

GARRIT BATES,
Petitioner,

v.

UNITED STATES OF AMERICA,
Respondent.
a
ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

BRIEF OF AMICUS CURIAE
THE NATIONAL ASSOCIATION OF CRIMINAL
DEFENSE LAWYERS IN SUPPORT OF PETITIONER

INTEREST OF AMICUS CURIAE'

The National Association of Criminal Defense Lawyers
(“NACDL”) of the District of Columbia is a non-profit

' The parties have consented to the filing of this Brief by the
National Association of Criminal Defense Lawyers. Their letters of consent
have been separately filed with the Clerk of the Court concurrently with the
filing of this Brief.

2

corporation with a membership of more than 8,700 attorneys
and 28,000 affiliate members, including representatives from all
50 states. The American Bar Association recognizes NACDL
as an affiliate organization and awards it full representation in
the House of Delegates.

NACDL was founded in 1958 to promote study and
research in the field of criminal defense law, to disseminate and
advance knowledge of the law in the area of criminal practice;
and to encourage integrity, independence, and expertise of
defense lawyers. Among NACDL’s stated objectives is the
promotion of the proper administration of justice. Thus, the
members of NACDL have a vital interest in insuring that the
integrity of the federal and state systems of criminal justice are

protected.

NACDL’s interests necessarily include cases dealing
with the construction of federal criminal statutes, issues
regarding mens rea, and the effect of these issues on future
prosecutions. Its interests in this case extend to insuring that
the proper scienter requirement in prosecutions pursuant to 20
U.S.C. § 1097(a) is alleged and proved when the government
elects to proceed under that statute.

SUMMARY OF ARGUMENT

NACDL supports the petitioner’s arguments and the
decision of the district court below that dismissed the indictment
for failing to allege intent to defraud as a requisite element of
the offense charged. One of the arguments advanced by the
petitioner in his opening brief is that Congress’s use of the terms
“knowingly” and “willfully” in § 1097 would seemingly require
the greatest degree of mental culpability, which would be intent
to defraud in the context of this particular statute. In addition
to the petitioner’s arguments, NACDL respectfully offers an

3

independent but related reason to show why intent to defraud
is indeed a requisite element of § 1097.

, willful
insurance

in scittion, the intent to defraud element of § 1097 also
awe important purpose of distinguishing
maladministration, accounting errors, or mere technical

For these reasons, intent to defraud is an essential
element of § 1097, and serves the important purpose of
preventing convictions for innocent or unwary conduct. The

4

district court’s determination that the indictment in this matter
fails to allege intent to defraud as a requisite element of the
offense was proper.

5
ARGUMENT

THE INDICTMENT IN THIS CASE DID
NOT PROPERLY CHARGE A WILLFUL
MISAPPLICATION OF FUNDS _IN
VIOLATION OF 20 U.S.C. § 1097(a) IN
THAT IT FAILED TO ALLEGE THE
ESSENTIAL ELEMENT OF INTENT TO
DEFRAUD.

It is well settled that an indictment must allege all
essential elements of the crime charged. Intent to defraud is an
essential element of the offense of willful misapplication, the
offense charged in the instant case. The indictment in this case
wholly failed to allege that Defendant Garrit Bates acted with
intent to defraud. That failure rendered the indictment
insufficient as a matter of law. The district court’s decision to
dismiss the indictment on this ground was proper.

A. WHERE, AS HERE, A TERM HAS SETTLED
MEANING, CONGRESS IS PRESUMED TO
ADOPT THAT MEANING WHEN IT USES
THE TERM.

It is axiomatic that where Congress uses a term that “has
accumulated settled meaning under . . . the common law,” this
Court will “presume that Congress incorporate[d] the common-
law meaning of the term” unless the statute otherwise dictates.
United States v. Wells, 117 S. Ct. 921, 927 (1997), quoting
Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322 (1992).
In enacting 20 U.S.C. § 1097(a), Congress criminalized the
willful misapplication of higher education assistance funds.
Although Congress did not, in express words, include a
requirement that such misapplication be accompanied by an
intent to defraud, such a requirement is clearly found in the

6

settled meaning of the term “willful misapplication” that is used
in § 1097. Accordingly, this element must be charged, and
failure of the Government to include the “intent to defraud”
element in the indictment in this case mandates reversal.

B. WILLFUL MISAPPLICATION HAS
HISTORICALLY REQUIRED AN INTENT TO
DEFRAUD, WHETHER OR NOT SUCH
INTENT IS EXPRESSLY SPECIFIED ON THE
FACE OF THE STATUTE.

When Congress chose to criminalize willful
misapplication of higher education assistance funds in 20 U.S.C.
§ 1097, it was not writing on a clean slate. Willful
misapplication has been the subject of criminal sanctions since
at least 1864, when the term first appeared in the Act of June 3,
1864 as part of the National Bank Act, which provided criminal
penalties for embezzlement or willful misapplication of banking
association finds. See Ch. 106, § 55, 13 Stat. 116 (1864). See
also Thomas Morse, Bank Insiders and the Willful
Misapplication Statute: Toward a More Effective Protection
from Self Dealing, 92 BANKING L.J. 715, 722 n.19 (1975). At
that time, the statute contained an explicit requirement of an
intent to defraud.

While the presence of such an explicit requirement in the
1864 statute might be viewed as an indication that intent to

defraud is not subsumed or embedded in willful misapplication

itself, any thought along those lines was clearly dispelled by the
revision of the statute in 1948. Pursuant to a major revision of

federal criminal law that year, the statute, previously codified at
12 U.S.C. § 592, was rewritten and moved to its current
location in 18 U.S.C. § 656. At that time, the explicit
requirement of intent to defraud was dropped from the statutory
terms. Any contention that this change in statutory language

7 “i Wi
a
was inadvertent or unintentional is belied by the Revisor’s Not
accompanying the revision, which explicitly indicate the
“revised section, without changing in any way the meaning or
substance of existing law, clarifies, condenses, and combines
related provisions largely rewritten in matters of style.”
eaniniaindioniaisinaieenamiaoens In this
revision, Congress retained the offense of willful misapplication
of bank funds, but removed any explicit reference to intent to
defraud in the text of the statute. Courts interpreting this
Congressional revision shortly after it occurred uniformly
concluded that the Revisor’s Notes meant what they said - - -
that proof of willful misapplication still requires a showing of
intent to defraud, despite the absence of such language in the
statute itself. See, e.g., Seals v. United States, 221 F.2d 243,
245 (8th Cir. 1955); United States v. Vannatia, 189 F. Supp.
937, 939 (D. Haw. 1960). As expressed by the judge in United
States v. Logsdon, 132 F. Supp. 3, 5 (W.D. Ky. 1955), aff'd
253 F.2d 12 (6th Cir. 1958), “the words ‘with intent . . . to
injure or defraud’ were undoubtedly omitted from the revised
section as being redundant. Their omission does not change or
detract from the former meaning of the statute.”

? The Revisor’s Notes indicate that the original section contained
more than 500 words and was “verbose, diffuse, redundant, and complicated.”
The changes were designed to maintain the same meaning while doing away
with excess words. It is clear that “intent to defraud” was viewed as such an
excess.

> See also United States v. Garcia, 751 F.2d 1033, 1036 (9th Cir.
1985), reaching the same conclusion, that willful misapplication requires an
intent to defraud, with regard to a statute that criminalizes a willful
misapplication of CETA funds. The court there stated: “The only reason
Congress could have considered the explicit requirement of a purpose to injure
or defraud redundant was that Congress understood the term ‘willful

misapplication’ to include such an intent by implication.” Jd.

This after-the-fact judicial interpretation is not only
consistent with the contemporaneous Revisor’s Notes, it also
reflects the teaching of one of the best judicial minds of the time
shortly prior to the legislative change. Notable is the opinion of
Judge Learned Hand, writing for the Second Circuit in United
States v. Matot, 146 F.2d 197 (2d Cir. 1944), just four years
before the statutory change from § 592 to § 656. In Matot,
Judge Hand, in commenting on the presence of the “intent to
defraud” language in § 592, stated his belief that “that
construction is unnecessary, for ‘willful misapplication’ of
money presupposes a fraudulent intent... .” Jd. at 198.

Not only do prior and contemporaneous interpretations
of § 656 strongly suggest that intent to defraud is an essential
component of willful misapplication, subsequent judicial
interpretation does so as well. As noted by the author of a
comprehensive article on § 656 written in 1975, five years
before the enactment of the criminal penalties at issue in this
case, “further cases appear to have particularized the intent
contemplated by the term [willful misapplication] so that today
the required willfulness has become exclusively an intent to
injure or defraud .. ..” Morse, 92 BANKING L.J., supra, at 726
and cases cited (footnote omitted).

This consistent interpretation of “willful misapplication”
in criminal statutes to include the element of intent to defraud
mirrors a long line of authority in the area of insurance guaranty
contracts, the other significant area where the term “willful
misapplication” is found. As recognized by both major treatises
in insurance law, it is generally held that willful misapplication
requires that the acts of conversion “be done with a dishonest
or fraudulent intent.” Appleman, INSURANCE LAW AND
PRACTICE, § 5670 (1981); COUCH ON INSURANCE, § 46:67 (2d
ed. 1982). The cases relied on by these treatises to support the
implication of an intent to defraud within the meaning of willful

9

misapplication date from shortly after the turn of the century
through the late 1930's. See, e.g., Louis Pizitz Dry Goods Co.
v. Fidelity & Deposit Co. of Md., 136 So. 800, 801-02 (Ala.
1931); Roseville Trust Co. v. American Sur. Co. of N.Y., 103 A.
182, 183 (N_J. 1918); Maryland Casualty Co. v. Farmers’ State
Bank & Trust Co., 258 S.W. 584, 586 (Tex. Ct. App. 1924).
These cases were presumptively known to Congress at the time
of both its revision of § 656 and its subsequent enactment of
§ 1097. See Goodyear Atomic Corp. v. Miller, 486 U.S. 174,

184-85 (1988); Cannon v. University of Chicago, 441 U.S.
677, 698-99 (1979).

The conclusion is thus inescapable that, in using the term
“willful misapplication” to criminalize improper use of higher
education assistance funds in § 1097, Congress was
misapplication must be accompanied by an intent to defraud. It
is inconceivable that Congress would have used a term with
such a long, consistent history of interpretation unless it
intended that interpretation to be followed with regard to
§ 1097. As this Court said in Morissette v. United States, 342
U.S. 246, 250 (1952):

[W]here Congress borrows terms of
art in which are accumulated the
legal tradition and meaning of
centuries of practice, it presumably
knows and adopts the cluster of
ideas that were attached to each
borrowed word in the body of
learning from which it was taken and
the meaning its use will convey to
the judicial mind unless otherwise
instructed. In such case, absence of
contrary direction may be taken as

10

definitions, not as a departure from
them.

Morissette was decided before the enactment of § 1097, and
Congress is presumed to have been aware of that decision at the
time it enacted this statute. Albernaz v. United States, 450 U.S.
333, 341-42 (1981).

Congress’ use of the term “willful . . . misapplication”
in § 1097 inchides within its clearly understood meaning and
interpretation the requirement of an intent to defraud. Such
intent was not alleged in the indictment in this case.
Accordingly, that indictment was defective and should property
be dismissed.

C. USING THE SETTLED MEANING OF
WILLFUL MISAPPLICATION IN § 1097
SERVES THE IMPORTANT PURPOSE,
FREQUENTLY RECOGNIZED BY
CONGRESS AND THIS COURT, OF
PREVENTING CONVICTION FOR
INNOCENT MISSTEPS.

It is a basic and well accepted principle that “an injury
can amount to a crime only when inflicted by intention.”
Morissette, 342 U.S. at 250. The requirement of mens rea in
criminal statutes serves to assure that a “broad range of
apparently innocent conduct” is not subjected to criminal
sanction. Liparota v. United States, 471 U.S. 419, 426 (1985).
Just as courts will apply a mens rea term where necessary to
ensure the appropriate level of scienter consistent with

ional intent, Morissette, 342 U.S. at 250; United States
v. X-Citement Video, 115 S. Ct. 464, 468 (1994), so too must

scienter requirements be taken seriously where spelled out in the

11

statute itself. This is especially true where statutes such as
§ 1097 are involved. As this Court noted in addressing willful
misapplication under § 656, where maladministration rather than
true misapplication is involved, no criminal sanctions are
appropriate. United States v. Britton, 107 U.S. 655, 666-67
(1883). In statutes where the risk of prosecuting innocent
missteps is great, Liparosa, 471 U.S. at 426; where the conduct
involved is, as here, not so “obviously ‘evil’ or inherently
‘bad,”” United States v. Ratzlaf, 510 U.S. 135, 146 (1994),
where, as here, failure to rigorously apply the stated mental
element can lead to felony sanctions for simple business
misjudgment, courts must take special care to ensure that a
stated mens rea requirement is given full effect.

That concern is particularly acute with regard to § 1097,
as illustrated by both United States v. Kammer, | F.3d 1161
(11th Cir. 1993), and the indictment in this case. In both
Kammer and here, much of what was alleged against the
defendant relates to an alleged failure to adequately comply with
civil regulations. Unless willful misapplication is understood to
require an intent to defraud, there will be substantial risk that
defendants will be criminally sanctioned for mere violations of
technical regulations.

The use by the government of a violation of a civil
regulation to obtain or “bootstrap” a conviction under a criminal
courts of appeals. Most notably, the Fifth Circuit has held that
the introduction of evidence involving a violation of a civil
banking statute in a criminal prosecution under 18 U.S.C. § 656
was wholly improper and impermissibly infected the very
purpose of the criminal trial, which was to determine the
elements of criminal misapplication under § 656. United States
v. Christo, 614 F.2d 486, 492 (Sth Cir. 1980). The Fifth Circuit
noted that evidence of the civil violation improperly shifted the

12

jury’s focus away from the elements of the criminal statute and
may have invited it not only to infer criminal intent, but to
convict the defendant based solely on the violation of civil law.
Id. It is well established that violations of civil regulations alone
cannot amount to a criminal offense. United States v. Schnitzer,
942 F. Supp. 323, 329 (S.D. Tex. 1976).

The grave concerns raised when there is an interplay
between civil regulations and a criminal offense are heightened
if intent to defraud is not a requisite element of the criminal
offense. Without requiring intent to defraud, the chances that
a jury may convict an innocent person for maladministration,
accounting errors, or the mere violation of civil regulations are
enhanced. These concerns are present in this case due to the
fact that the indictment refers to the civil regulations governing
refunds of student loans. The only way to avoid the untoward
result of obtaining a conviction based on a violation of a civil
regulation or for poor business judgment is recognition of the
requirement of intent to defraud within the meaning of willful
misapplication. Intent to defraud serves the purpose of
separating purely innocent conduct, such as maladministration
or the violation of technical civil regulations, from conduct that
is appropriately considered criminal.

13

CONCLUSION

For the foregoing reasons, the decision of the Seventh
Circuit Court of Appeals should be vacated and reversed and
the district court’s decision that dismissed the indictment for
failure to allege a requisite element should be affirmed.

Respectfully submitted,

Lisa KEMLER
(Counsel of Record)
ZWERLING & KEMLER, P.C.
108 N. Alfred St.

P.O. Box 20900

Alexandria, VA 22314
(703) 684-8000

PROFESSOR ELLEN YANKIVER SUNI
University of Missouri- Kansas City
School of Law

$100 Rockhill Rd.

Kansas City, MO 64110

(816) 235-2372

W. BRIAN GADDY
WYRSCH HOBBS MIRAKIAN
& LEE, P.C.

1101 Walnut St., 13th FI.
Kansas City, MO 64106
(816) 221-0080
Counsel for Amicus Curiae
National Association of

Criminal Defense Lawyers
April 24, 1997

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0090%3A8. Public record. Not legal advice.