Amicus Curiae Brief — Cleveland v. United States

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= JUN 0 1 200

No. 99-804 :

In The es

Supreme Court of the United States

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CARL W. CLEVELAND,

Petitioner,

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UNITED STATES,

Respondent. .

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On Writ Of Certiorari To The

United States Court Of Appeals

For The Fifth Circuit

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BRIEF AMICUS CURIAE OF THE CHAMBER

OF COMMERCE OF THE UNITED STATES

IN SUPPORT OF NEITHER PARTY

*

Rosin S. ConraD CarTER G. PHILLIPS

National Chamber RICHARD D. BERNSTEIN*

Litigation Center, Inc. JoserH S. MILLER

1615 H Street, N.W. SipLey & AUSTIN

Washington, D.C. 20062 1722 Eye Street, N.W.

(202) 463-5337 Washington, D.C. 20006

(202) 736-8000

Of Counsel

Counsel for Amicus Curiae

*Counsel of Record

June 1, 2000

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED

Amicus curiae will address the following question:

Whether, prior to its issuance, a standard business

license —- one without a profit-sharing arrangement

between the government and the licensee —- is the govern-

ment’s property?

TABLE OF CONTENTS

Page

QUESTION PRESENTED. ..............0.0c0cc0s00

TABLE OF AUTHORITIES .....................0: iii

INTEREST OF AMICUS CURIAE ...........-..605. 1

INTRODUCTION. .......ccccccccececccencseselases 2

SUMMARY OF ARGUMENT...............0c00000. 5

ARGUMENT ......ce ee 6

I. AN UNISSUED STANDARD BUSINESS LICENSE

IS NOT GOVERNMENT PROPERTY............. 7

Il. TREATING UNISSUED STANDARD BUSINESS

LICENSES AS PROPERTY UNDER THE MAIL

FRAUD STATUTE WOULD BRING ABOUT

TROUBLING RESULTS IN OTHER AREAS OF

Per Se 17

iii

TABLE OF AUTHORITIES

Page

CASES

Carpenter v. United States, 484 U.S. 19 (1987).......... 6

Chicago, Burlington & Quincy Ry. Co. v. Illinois ex

rel. Grimwood, 200 U.S. 561 (1906)..............6.. 11

Dent v. West Virginia, 129 U.S. 114 (1889)..... 14, 15, 16

Dolan v. City of Tigard, 512 U.S. 374 (1994) ...17, 18, 19

Gundling v. City of Chicago, 177 U.S. 183 (1900)...15, 16

Hawker v. New York, 170 U.S. 189 (1898)............. 15

Hughes Aircraft Co. v. United States ex rel. Schumer,

a gos Re Be. re nr ere er ree 1

Jones v. United States, 68 U.S.L.W. 4422 (U.S. May

MI ik wd wna h seve sae eka nes wie sewnnesses 19

Kaiser Aetna v. United States, 444 U.S. 164 (1979)..... 19

Lucas v. South Carolina Coastal Council, 505 U.S.

a eeieds Rdiwehh eee ee eee ce ewen 1

McNally v. United States, 483 U.S. 350 (1987) ......... 6

Mutual Loan Co. v. Martell, 222 U.S. 225 (1911)...... 11

Nollan v. California Coastal Commission, 483 U.S.

BE ere Pr eri rr Teer ry ree 17, 18, 19

Semiconductor Energy Laboratory Co. v. Samsung

Electronics Co., 204 F.3d 1368 (Fed. Cir. 2000)...20, 21

Sheriock ¥. Alling, 93 US. 99 (1676). ..... 2... cece ene. 14

Smith v. Alabama, 124 U.S. 465 (1888)......... 13, 14, 15

iv

TABLE OF AUTHORITIES - Continued

Toulabi v. United States, 875 F.2d 122 (7th Cir. 1989) . .3, 12

United States v. Granberry, 908 F.2d 278 (8th Cir.

PR 53 for CEL RDE RS SS AR a eens 3

United States v. Kato, 878 F.2d 267 (9th Cir. 1989)..... 3

United States v. Martinez, 905 F.2d 709 (3rd Cir.

erg Peer rere a erer Ee erey re ree 3, 10

United States v. Northern Pacific Ry. Co., 256 U.S. 51

{| SERRE ern pes Seem gnaG LOR rep mean Mn amN Cae m ROR tor /e 10

United States v. Paccione, 949 F.2d 1183 (2d Cir.

CURR RSs nbd cue Red eee eka ts Dene eee ks 2

United States v. Salvatore, 110 F.3d 1131 (5th Cir.

SOOU Rava de deck k red eres an Sonate Fe eas ee 4

United States v. Schwartz, 924 F.2d 410 (2d Cir.

PERS 505 io abe cee deh Cok eee ase 12

United States v. Shotts, 145 F.3d 1289 (11th Cir.

PUM SA ccd eer e aces ieee ue eee eae 3

STATUTES

Be See IE hws ce wh oe eek Cone oe ead ka 9

RO teria ee he Pee ee eee Ape Neen 4,6

ee. 1g Ye reer esa, 20

Fs RR re mney erm DN ery G 20

RO Mii Kd Reh CN Aa Ee eae ee 20

ek Rees. Te rE £5 dd 1k wb SOA ne Se ees 22

SS 254 cane kha boxe hxwnsedansaucaes 22

v

TABLE OF AUTHORITIES - Continued

Page

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ee |) err Tre herr er rey rer rr ct 23

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OS BAAD 6a kiki oan bes access chaiesescenan 9

G7 <ZEBT TANNA). ini vin ccc Soe as ce en cans 8

Ein... & Peer rrrervrr err eT. Terre 7, 8

§ 47-2851.2(a)(1) G& (2)... 0. cece ceca scccces 8

ye ae.) By a eer eres oor 8

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Bee) eS + | errr ert err Te reer 8

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Bie ner rr errr er errr ry rT 8

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§ 47-2853.17(a)(1) Ge (2)... 2. cece ccccceees 9

§ 47-2853.17(c)(2) & (5), (d)......- eee eee 9

2 gy): errrcerer prec res ey 9

SCHOLARLY AUTHORITIES

| John T. Boese, Civil False Claims and Qui Tam

Actions Cl OG. DD. 6 ack vcs cuein nec be chia eTa eK 22

Guido Calabresi, The Cost of Accidents (1970)........ 12

Guido Calabresi & Douglas Melamed, Property

Rules, Liability Rules, and Inalienability: One View

of the Cathedral, 85 Harv. L. Rev. 1089 (1972)...... 18

INTEREST OF AMICUS CURIAE

Amicus curiae, the Chamber of Commerce of the

United States of America (“the Chamber”), is the world’s

largest business federation.! The Chamber has a substan-

tial membership in each of the 50 States, and through its

federation of members represents more than 3,000,000

businesses and professional organizations of every size

and in every sector of the economy. More than 95% of the

Chamber’s members are small businesses with 100 or

fewer employees, and virtually all of the nation’s largest

companies are also members of the Chamber. The Cham-

ber thus serves as a principal voice of American business.

Among its activities, the Chamber represents the

interests of its members in matters that are before the

various branches of government, including the judiciary.

The Chamber has thus participated as amicus curiae in

numerous cases before this Court, including cases such as

Lucas v. South Carolina Coastal Council, 505 U.S. 1003

(1992), and Hughes Aircraft Co. v. United States ex rel.

Schumer, 520 U.S. 939 (1997), that raised questions

addressing government regulation or government

remedies for alleged fraud.

1 Pursuant to Rule 37.6 of the Rules of this Court, amicus

states that no counsel for a party authored this brief in whole or

in part, and that no person or entity other than amicus, its

members or its counsel made any monetary contribution to the

preparation or submission of this brief. Pursuant to Rule 37.3 of

the Rules of this Court, the parties have consented to the filing

of this brief, and their consent letters have been filed with the

Clerk of the Court.

In this case, the United States Court of Appeals for

the Fifth Circuit upheld convictions for, among other

things, federal mail fraud. The convictions arose out of

alleged misrepresentations by Petitioner and others in an

application for (and renewals of) a Louisiana state video

poker machine operator’s license. Cert. Pet. at 2-7; Opp.

at 2-5. The Chamber takes no position on the merits of

this specific case. However, given the central role that

standard business licenses play in the ongoing commer-

cial activities of its members, and the breathtaking expan-

sion of criminal and civil liability that would result from

an overly broad decision here, the Chamber is vitally

interested in assisting the Court to reach an informed and

appropriate resolution of the question addressed in this

brief.

INTRODUCTION

The Chamber’s members and their employees

together apply for hundreds of thousands of local, state,

and federal licenses and permits every year. These stan-

dard business licenses, without the benefit of which the

Chamber’s members cannot lawfully carry on many of

their commercial activities, pertain to matters as varied as

commodity-specific sales and service permits (e.g., selling

or serving food), vehicle operator’s licenses, construction

or other realty development permits, and professional

licenses for fields such as accounting, architecture, engi-

neering, insurance brokerage, investment advice, law,

medicine, plumbing, securities brokerage, and taxi driv-

ing, among others. See, e.g., D.C. Code Ann., tit. 47, ch. 28

ee

(1997 & Supp. 2000) (establishing comprehensive “Gen-

eral License Law” for the District of Columbia). It is thus

no exaggeration to say that the standard business license

~ of which the foregoing are but a few examples — touches

virtually every aspect of contemporary American com-

mercial life. Such standard business licenses typically

have application fees that are set roughly to approximate

the cost of administering the licensing regime, and such

licenses usually do not initiate an ongoing profit-sharing

~ relationship with the licensing authority. At least in the

lower federal courts, the Government has consistently

argued — with only limited success — for an interpretation

of what constitutes government property that would

reach unissued standard business licenses. See, ¢.g.,

United States v. Martinez, 905 F.2d 709 (3rd Cir. 1990)

(unissued medical license held to be government prop-

erty).?

The federal mail fraud conviction at issue in this case

stems from Petitioner’s application for a Louisiana video

poker machine operator’s license, as well as renewals of

that license. Cert. Pet. at 2-7; Opp. at 2-5. Louisiana’s state

video poker machine operator’s licensing system has

some features that the Government argued in its Cer-

tiorari Opposition distinguish video poker licenses from

2 The Government has made the same argument in other

cases without success. See, e.g., United States v. Paccione, 949 F.2d

1183 (2d Cir. 1991) (waste transporter permit); Toulabi v. United

States, 875 F.2d 122 (7th Cir. 1989) (taxi driver’s license); United

States v. Granberry, 908 F.2d 278 (8th Cir. 1990) (school bus

operator’s license); United States v. Kato, 878 F.2d 267 (9th Cir.

1989) (pilot’s license); United States v. Shotts, 145 F.3d 1289 (11th

Cir. 1998) (bail bond license).

the many standard licenses for which businesses and

professionals routinely apply. Specifically, “the [Louisi-

ana] Video Poker Act requires the licensees to pay a

significant, up-front fee for their licenses and also to

deposit 22.5% of their net revenues into the state treasury

as a franchise fee.” United States v. Salvatore, 110 F.3d

1131, 1141-42 (5th Cir. 1997) (affirming mail fraud convic-

tions predicated on misrepresentations made to obtain

Louisiana video poker operator’s license); Opp. at 7-8.

The Fifth Circuit has twice held — in the case at bar, and in

its earlier decision in Salvatore — that an unissued video

poker operator’s license in the hands of the State is

property for purposes of the federal mail fraud statute.

The narrow question before this Court is whether an

as-yet unissued Louisiana state video poker machine

operator’s license constitutes the property of the State of

Louisiana for purposes of the federal mail fraud statute,

18 U.S.C. § 1341 (1994). As was stated above, the Cham-

ber takes no view on the merits of this specific question.

The Chamber does urge, however, that the Court make

clear that an unissued standard business license is not the

issuing authority’s property under the federal mail fraud

statute. Alternatively, the Cour? should make clear that

this case does not present — and therefore that the Court

does not address - the more general question whether an

unissued standard business license constitutes property

for purposes of the federal mail fraud statute.

¢

SUMMARY OF ARGUMENT

A standard business license is not property when it

has not yet been issued by a licensing authority. When

government — be it local, state, or federal.- issues a

license pursuant to an established administrative regime,

it exercises the power to regulate, not the powers of a

property owner. The regulatory nature of standard licens-

ing regimes is plain, both as a matter of simple logic and

under this Court’s case law upholding a variety of state

law licensing regimes as valid exercises of the States’

respective police powers.

It is equally clear that, if an unissued standard busi-

ness license were held to be an issuing authority’s prop-

erty for federal mail fraud purposes, a number of

profoundly troubling results would follow. For example,

this conclusion would seem to require fundamental

reconsideration of this Court’s regulatory takings juris-

prudence. This is so because an issuing authority should

be able set the price for an as-yet unissued realty devel-

opment permit - which, under this hypothesis, is

assumed to be the issuing authority’s property - as high

(or as low) as it likes, including requiring the surrender

of a public easement across a private party’s real estate.

In addition, the conclusion that an unissued license is

government property would spark an explosion of crimi-

nal and civil liability under federal and state RICO and

qui tam statutes, at the same time upsetting whatever

administrative enforcement mechanism the pertinent leg-

islature may have crafted to respond to potentially falsi-

fied license applications. This Court should not lightly

conclude that Congress, by criminalizing mail fraud,

intended to undermine regulatory takings law or expand

powerful judicial remedies in derogation of license-speci-

fic administrative remedies.

+

ARGUMENT

The federal mail fraud statute is “limited in scope to

the protection of property rights.” McNally v. United

States, 483 U.S. 350, 360 (1987).> To sustain a conviction

for federal mail fraud, then, the Government must prove

that the defendant defrauded another of something that

qualifies as “property” under the statute. See, e.g., Car-

penter v. United States, 484 U.S. 19, 26 (1987) (upholding

federal mail and wire fraud convictions where “[t]he

Journal had a property right in keeping confidential and

making exclusive use, prior to publication, of the sched-

ule and contents of the ‘Heard’ column”). Indeed, as the

Court observed in McNally, the mail fraud statute “had

its origin in the desire to protect individual property

rights, and any benefit which the Government derives

from the statute must be limited to the Government's

interests as property holder.” McNally, 483 U.S. at 359 n.8

(emphasis added). Because a standard business license is”

3 The federal mail fraud statute provides, in relevant part,

that “[wJhoever, 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, . . . for the purpose of executing

such scheme or artifice or attempting so to do, 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 . . . shall be fined under this title or imprisoned not more

than five years, or both.” 18 U.S.C. § 1341 (1994).

not the issuing authority’s property before an applicant

obtains it, a falsehood submitted to that licensing author-

ity through the mails is not mail fraud.

I. AN UNISSUED STANDARD BUSINESS LICENSE

IS NOT GOVERNMENT PROPERTY.

Local, state, and federal authorities have established

myriad licensing and permitting regimes. These licensing

and permitting regimes touch virtually every aspect of

contemporary American commercial life, from the licens-

ing of the professions (such as law and medicine) to

setting conditions on the marketing of basic goods and

services (such as selling and serving food). In order to

obtain one of these standard business licenses, an appli-

cant typically pays a fee that roughly approximates the

proportionate cost of the regulatory program, and pro-

vides information demonstrating that he or she (or it)

satisfies the government’s criteria for obtaining the

license.

For example, Chapter 28 of Title 47 of the District of

Columbia Code sets forth a comprehensive “General

License Law” for businesses operating in the District of

Columbia. See D.C. Code Ann., tit. 47, ch. 28 (1997 &

Supp. 2000). Under this General License Law, “[n]o per-

son shall engage in or carry on any business in the

District of Columbia without having first obtained a mas-

ter business license and any necessary endorsements,”

which vary by the specific business at issue.4 D.C. Code

4 “Business” is defined broadly under this scheme as “any

trade, profession, or activity which provides, or holds itself out

Ann. § 47-2851.2 (Supp. 2000). The licensing system is

administered by a Business License Center within the

D.C. Department of Consumer & Regulatory Affairs. See

D.C. Code Ann. §§ 47-2851.5, -2851.7 (Supp. 2000). The

Business License Center “collect[s] a fee of $25 for each

master business license it issues, plus $5 for each

endorsement added to the master business license.” D.C.

Code Ann. § 47-2851.8(a)(1) (Supp. 2000). This fee is

“deposited in the Master License Fund,” D.C. Code Ann.

§ 47-2851.8(a)(2) (Supp. 2000), which Fund pays “[t]he

entire cost of the master business licensing system,” D.C.

Code Ann. § 47-2851.13(b) (Supp. 2000).5

The licensing requirements vary according to the par-

ticular business at issue. “An applicant for licensure as a

certified public accountant,” for example, must “establish

to the satisfaction of the Board of Accountancy that,”

among other things, she “[i]s of good moral character”

and .“[h]as passed a written examination in accounting

and auditing and such related subjects as the Board shall

to provide, goods or services to the general public or to any

portion of the general public, for hire or compensation, and

which pays, or is subject to the payment of, taxes on earnings, or

fees in lieu of taxes, to the District of Columbia, or which

qualifies for tax-exempt status under District law.” D.C. Code

Ann. § 47-2851.1(1)(A) (Supp. 2000). Moreover, the general

requirement that all District businesses be licensed has only two

narrow exceptions, one for businesses that are affiliated with a

District-licensed business but maintain no business address in

the District, and the other for specific businesses “whose annual

gross receipts are $2,000 or less in any calendar year.” D.C. Code

Ann. § 47-2851.2(a)(1) & (2) (Supp. 2000).

5 Renewal fees are treated in like manner. See D.C. Code

Ann. §§ 47-2851.8(b), -2851.13(b) (Supp. 2000).

determine to be appropriate.”© D.C. Code Ann.

§ 47-2853.42 (Supp. 2000). Importantly, all the District’s

licensing boards are expressly empowered to discipline a

licensee who “[k]nowingly provides false or misleading

information on or in support of an application or renewal

application,” as well as one who “[f]raudulently or

deceptively obtains, or attempts to obtain, a license or

certificate, or to register, for another person.” D.C. Code

Ann. § 47-2853.17(a)(1) & (2) (Supp. 2000). Possible penal-

ties include revocation of the license, a “civil fine not to

exceed $5,000 for each violation,” and prosecution for

criminal violations.” D.C. Code Ann. § 47-2853.17(c)(2) &

(5), (d) (Supp. 2000).

As even this brief foray into District of Columbia

business licensing makes clear, conducting a business in

many localities entails applying for (and, from time to

time, renewing) a standard business license of one kind

or another. Under the Government's construction of the

mail fraud statute, making a false statement on an appli-

cation for such a license that is sent through the mails is

6 The Board of Accountancy is itself established by the

General License Law. See D.C. Code Ann. § 47-2853.6(b) (Supp.

2000).

7 Under the District’s general criminal code, it is unlawful

to “willfully make[ ] a false statement that is in fact material, in

writing, directly or indirectly, to any instrumentality of the

District of Columbia government, under circumstances in which

the statement could reasonably be expected to be relied upon as

true,” so long as “the writing indicates that the making of a false

statement is punishable by criminal penalties.” D.C. Code Ann.

§ 22-2514(a) (1996 & Supp. 2000). This is analogous to the

prohibition against making false statements to the Government

of the United States set forth in 18 U.S.C. § 1001 (1994).

10

federal mail fraud because the unissued license is the

issuing authority’s property. Thus, for example, in United

States v. Martinez, 905 F.2d 709 (3rd Cir. 1990), the Gov-

ernment successfully prosecuted as federal mail fraud a

scheme for obtaining a Pennsylvania state medical license

that included submitting fraudulent documents (e.g.,

transcripts, a medical degree, etc.) through the mails. See

id. at 710-11 (describing the scheme). This construction of

the mail fraud statute is fundamentally flawed, however,

because an unissued standard business license is not an

issuing authority’s “property” within the meaning of the

statute - a conclusion compelled by the very nature of

standard business licensing regimes and this Court’s

cases upholding such regimes as proper exercises of the

police power.

1. To be sure, governments both own property and

routinely exercise the power to dispose of that property.

The United States, for example, once owned large tracts

of land in what are now the Western States and, in order

to promote the growth of the railroads, granted that land

to railroad companies for them to develop. See, e.g.,

United States v. Northern Pacific Ry. Co., 256 U.S. 51, 52-53

(1921) (discussing one such set of grants to the Northern

Pacific Railway Company). Similarly, the United States

regularly disburses from the Treasury funds that it owns,

sending the funds to designated recipients as diverse as

taxpayers who are owed an income tax refund and gov-

ernment contractors who are owed for goods sold to the

United States. State and local governments likewise own

land and improvements (e.g., school grounds and build-

ings) and hold and disburse general revenue funds.

When governments engage in commercial or proprietary

11

activities, they exercise the powers of a property owner

and are in many respects indistinguishable from other

property owners.

Governments also exercise a different power that

many other property owners lack — namely, the power to

regulate conduct in the interests of public safety and

welfare, or the “police power.” “[T]he police power of a

state embraces regulations designed to promote the pub-

lic convenience or the general prosperity, as well as regu-

lations designed to promote the public health, the public

morals, or the public safety.” Chicago, Burlington & Quincy

Ry. Co. v. Illinois ex rel. Grimwood, 200 U.S. 561, 591 (1906).

Indeed, “the police power is but another name for the

power of government.” Mutual Loan Co. v. Martell, 222

U.S. 225, 233 (1911).

When a government issues standard business

licenses pursuant to its own licensing regime, it clearly

exercises its police power, not the powers it has by virtue

of owning property. This fact is evident when one con-

siders that a licensing regime, no less than a correspon-

dingly framed general prohibition, serves directly to limit

and regulate private conduct. For example, a munici-

pality could decide to regulate the provision of taxi ser-

vices by making it a crime to drive a taxi without a

specified level of knowledge about the streets in the

municipality.® The regulation would be enforced by pros-

ecuting taxi drivers who were stopped because they

8 A legislature could accomplish equally its regulatory

goals through a general prohibition (e.g., “you shall not practice

accountancy without adequate skill”) or through a licensing

regime (e.g., “you shall not practice accountancy without a

license, which requires adequate skill”). No one would claim

12

appeared to be lost, or who were reported by passengers

to lack the requisite knowledge. Alternatively, the munic-

ipality could decide to achieve the same regulatory objec-

tive (i.e., limiting taxi drivers to those who are

knowledgeable about local streets) by requiring would-be

drivers to obtain a taxi driver’s license that is conditioned

on the successful completion of a local geography test.

See Toulabi v. United States, 875 F.2d 122, 123 (7th Cir.

1989) (“To be a taxi driver in Chicago, a person must pay

a fee of $50 and answer correctly 20 out of 25 questions

on a test of local geography.”).

In this hypothetical, the licensing method may be

more effective at producing knowledgeable taxi drivers

than the prohibition method. The crucial point here, how-

ever, is that in both methods the municipality acts as a

regulator, not an owner disposing of his or her property.

See id. at 125 (holding that an unissued taxi driver’s

license is not property for purposes of the federal mail

fraud statute); see also United States v. Schwartz, 924 F.2d

410, 417 (2d Cir. 1991) (“The government’s interest in

issuing its licenses ancillary to its regulatory program is

no different than its interest in propounding and enforc-

ing its other regulations with broad based applications

that a general prohibition is a form of government property. Cf.

Guido Calabresi, The Cost of Accidents 113-14 (1970)

(“[P]rohibition and restriction . . . are really the same thing on

different levels of generality. I speak of prohibiting an activity

(banning the sale of firecrackers or all driving), or alternatively

of restricting it (allowing firecrackers only in limited

circumstances or barring driving at speeds of over 80 miles per

hour). When we restrict an activity, we are simply prohibiting

one of its subcategories.”).

13

that do not include the issuance of licenses. Whether it

chooses to use licenses or blanket rules, the government's

purpose is to control the private use of private prop-

erty.”).

2. This Court has repeatedly held, in cases sustain-

ing state and local licensing regimes against various con-

stitutional attacks, that the creation of a licensing regime

is an exercise of the police power. These cases thus con-

firm that the decision whether to issue a particular

license to a given applicant is a regulatory and adminis-

trative act, not a disposition of property.

The earliest of these decisions, Smith v. Alabama, 124

U.S. 465 (1888), involved a Commerce Clause challenge to

a then-new Alabama train engineer licensing law. The

statute made it “unlawful for the engineer of any railroad

train in [Alabama] to drive or operate or engineer any

train of cars .. . without first undergoing an examination

and obtaining a license.” Id. at 468. Operating a train

without a license was made a misdemeanor. Id. at 470.

The license fee was $5. Id. at 469. Smith, an engineer

arrested for operating a train without a license, id. at 466,

attacked the statute as a vidlation of the Commerce

Clause, id. at 473. This Court rejected Smith’s theory,

concluding that the licensing law was “within the scope

of the admitted power reserved to the State to regulate the

relative rights and duties of persons being and acting

within its territorial jurisdiction.” Id. at 482 (emphasis

added).

Importantly, in turning aside Smith’s challenge, the

Court emphasized that the licensing law was the same

14

sort of state regulatory action as the Indiana state wrong-

ful death statute it upheld against a Commerce Clause

attack in Sherlock v. Alling, 93 U.S. 99, 103 (1876) (conclud-

ing that Indiana’s wrongful death statute “only declares a

general principle respecting the liability of all persons

within the jurisdiction of the State for torts resulting in

the death of parties injured”). See Smith, 124 U.S. at

474-77 (analogizing licensing law to wrongful death stat-

ute at issue in Sherlock). According to the Court, “[t]he

power to punish for the offence after it is committed

certainly includes the power to provide penalties

directed, as are those in the statute in question, against

those acts of omission which, if performed, would pre-

vent the commission of the larger offence.” Id. at 481. The

licensing provisions were thus upheld as “parts of that

body of the local law which, as we have already seen,

properly governs the relation between carriers of pas-

sengers and merchandise and the public who employ

them.” Id. at 480.

A year later, in Dent v. West Virginia, 129 U.S. 114

(1889), the Court rejected a Due Process challenge to West

Virginia’s medical licensing law. The challenged statute

“require[d] every practitioner of medicine in [West Vir-

ginia] to obtain a certificate from the State Board of

Health” permitting him to practice. Id. at 115. Practicing

medicine without this certificate was made a misde-

meanor. Id. at 117. Dent, who was fined for practicing

without a license, attacked the statute as a deprivation of

“his vested right in relation to the practice of medicine”

without due process. Id. at 118, 121-22. This Court upheld

the constitutionality of the medical licensing law as a

15

routine and valid exercise of the police power. According

to the Court in Dent,

[t]he power of the State to provide for the gen-

eral welfare of its people authorizes it to pre-

scribe all such regulations as, in its judgment,

will secure or tend to secure them against the

consequences of ignorance and incapacity as

well as of deception and fraud. As one means to

this end it has been the practice of different

States, from time immemorial, to exact in many

pursuits a certain degree of skill and learning

upon which the community may confidently

rely, their possession being generally ascer-

tained upon an examination of parties by com-

petent persons, or inferred from a certificate to

them in the form of a diploma or license from an

institution established for instruction on the

subjects, scientific and otherwise, with which -

such pursuits have to deal. The nature and

extent of the qualifications required must

depend primarily upon the judgment of the

States as to their necessity.

Id. at 122; see also Hawker v. New York, 170 U.S. 189,

192-93 (1898) (“No precise limits have been placed upon

the police power of a State, and yet it is clear that legisla-

tion which simply defines the qualifications of one who

attempts to practise medicine is a proper exercise of that

power.”). In Dent, as in Smith, the Court recognized that

when a government issues a standard business license, it

engages in a fundamentally regulatory act.

Finally, in Gundling v. City of Chicago, 177 U.S. 183

(1900), this Court upheld a conviction under a Chicago

city ordinance “forbidding the sale of cigarettes by any

person without a license.” Id. Like the unlicensed doctor

16

in Dent, the unlicensed cigarette seller in Gundling chal-

lenged the ordinance as, among other things, an uncon-

stitutional deprivation of his property rights without due

process. Id. at 185-86. This Court upheld the licensing

scheme for cigarette sales. According to the Court,

“(whether dealing in and selling cigarettes is that kind of

a business which ought to be licensed is, we think, con-

sidering the character of the article to be sold, a question

for the state, and through it, for the city, to determine for

itself.” Id. at 187. Indeed, such a licensing scheme for

regulating product sales was an unexceptional exercise of

the police power:

ee

Regulations respecting the pursuit of a law-

ful trade or business are of very frequent occur-

rence in the various cities of the country, and

what such regulations shall be and to what par-

ticular trade, business, or occupation they shall

apply are questions for the state to determine,

and their determination comes within the

proper exercise of the police power by the

state. ...

Id. at 188; see also id. at 189 (licensing cigarette sales

served a “regulating . . . function”).

The governmental business licensing requirements

that were already “very frequent” a century ago are,

today, virtually universal. And, just as they were a cen-

tury ago, governmental decisions whether to issue a stan-

dard business license to a given applicant are regulatory

acts, not dispositions of government property.

17

Il. TREATING UNISSUED STANDARD BUSINESS

LICENSES AS PROPERTY UNDER THE MAIL

FRAUD STATUTE WOULD BRING ABOUT

TROUBLING RESULTS IN OTHER AREAS OF

LAW.

The question whether the United States can pros-

ecute for federal mail fraud one who sends a falsehood

through the mail to obtain a standard business license (be

it local, state, or federal) might initially be viewed strictly

as a matter affecting federal criminal law. But the effects

of answering that question affirmatively - i.e., by ruling

that unissued licenses are government property — could

extend far beyond the confines of the criminal law. Three

illustrations drawn from diverse areas of law - one

involving this Court’s Takings Clause jurisprudence, the

others involving powerful civil remedies — will suffice to

demonstrate the havoc that could well result from con-

cluding that unissued licenses are the government's prop-

erty.

1. Treating an as-yet-unissued license as if it were

the issuing authority’s property would draw key features

of this Court’s regulatory takings jurisprudence into

serious doubt. To see that this is so, one need only con-

sider the Court’s decisions in Nollan v. California Coastal

Commission, 483 U.S. 825 (1987), and Dolan v. City of

Tigard, 512 U.S. 374 (1994), from the state permitting

authority’s new vantage as the property owner of the

unissued real estate development permit.

In both Nollan and Dolan, the government authority

that was charged with issuing the relevant real estate

development permit had decided to condition the grant

18

of the permit on the would-be permittee’s agreement to

an easement. See Nollan, 483 U.S. at 828 (permit would be

granted “subject to the condition that they allow the

public an easement to pass across a portion of their

property”); Dolan, 512 U.S. at 380 (“the Commission

required that petitioner dedicate . . . an additional 15-foot

strip of land adjacent to the floodplain as a pedestrian/

bicycle pathway”). In both cases, this Court concluded

that the government, by extracting these easements, had

taken the permittee’s property. See Nollan, 483 U.S. at

841-42; Dolan, 512 U.S. at 396. This conclusion cannot be

squared, however, with the Government’s current posi-

tion that unissued permits and licenses are government

property.

According to the Government’s approach, the unis-

sued permits at issue in Nollan and Dolan would be the

property of the governmental authorities that had the

power to issue them. If unissued permits or licenses are

the government’s property, however, it should be able to

charge the would-be permittees whatever price it deems

fit under the circumstances — including the price of grant-

ing the general public an easement over private realty.

Indeed, the power to name one’s selling price - any

selling price at all — is the very essence of a property

interest: “An entitlement is protected by a property rule

to the extent that someone who wishes to remove the

entitlement from its holder must buy it from him in a

voluntary transaction in which the value of the entitle-

ment is agreed upon by the seller.” Guido Calabresi &

Douglas Melamed, Property Rules, Liability Rules, and

Inalienability: One View of the Cathedral, 85 Harv. L. Rev.

1089, 1092 (1972) (emphasis added). In more traditional

ae Se ess oe _————

19

parlance, the power to set one’s selling price is one aspect

of the owner’s right to exclude others, “one of the most

essential sticks in the bundle of rights that are commonly

characterized as property.” Kaiser Aetna v. United States,

444 U.S. 164, 176 (1979). Under the Government’s reason-

ing in this case, the permitting authorities in Nollan and

Dolan did not take anything; rather, they simply priced

the unissued permits that they owned at a level which

included the surrender of a public easement.

In short, the Government’s approach means that

Nollan and Dolan were wrongly decided. Indeed, if one

adopts the Government’s conclusion that an unissued

permit or license is the issuing authority’s property, the

government's refusal to issue a permit or license would

always be an exercise of its right to refuse to transfer

ownership of its own property and thus could never be a

taking.

2. Treating an as-yet unissued license as if it were

the issuing authority’s property would also nullify exis-

ting locally-crafted, specifically-limited remedies (such as

those discussed in connection with the District of Colum-

bia’s General License Law, supra at 7-8), in favor of not

only much harsher federal criminal penalties,? but also in

° This Court has, of course, “cautioned . . . that ‘unless

Congress conveys its purpose clearly, it will not be deemed to

have significantly changed the federal-state balance’ in the

prosecution of crimes.” Jones v. United Stctes, 68 U.S.L.W. 4422,

4425 (U.S. May 22, 2000) (quoting United States v. Bass, 404 U.S.

336, 349 (1971)), see also id. (Stevens & Thomas, JJ., concurring)

(same). The mail fraud statute contains no such clear statement

of purpose to up-end the existing federal-state balance

regarding local prosecution for violations of local standard

business licensing regimes.

20

favor of broad federal and state civil anti-racketeering

and qui tam remedies designed for problems far removed

from arguable misstatements in applications for standard

business licenses. Congress surely did not intend to

expose business license applicants to these types of civil

lawsuits.

Consider, first, RICO. The federal RICO statutes

criminalize, among other things, engaging in “a pattern

of racketeering activity.” 18 U.S.C. § 1962(c) (1994). The

RICO regime also provides private parties a cause of

action against racketeers: “Any person injured in his

business or property by reason of a violation of section

1962 of this chapter may sue therefor . . . and shall

recover threefold the damages he sustains and the cost of

the suit.” 18 U.S.C. § 1964(c) (1994). A ” ‘pattern of rack-

eteering activity’ requires at least two acts of racketeering

activity,” and an act of federal mai! fraud is within the

definition of “racketeering activity.” 18 U.S.C. § 1961(1) &

(5) (1994). As a result, a party who is injured in his

business or property by another party’s two acts of mail

fraud could seek to sue in federal court for treble dam-

ages. Assuming, for example, that obtaining two

renewals of a standard business license by submitting

false information through the mails constitutes federal

mail fraud, that licensee is thus also liable under federal

RICO to those he injures in their business or property.

Many states have their own parallel RICO laws.

The foregoing scenario is not mere sport. In Semicon-

ductor Energy Laboratory Co. v. Samsung Electronics Co., 204

F.3d 1368 (Fed. Cir. 2000), decided just three months ago,

the United States Court of Appeals for the Federal Circuit

21

confronted just such a claim for RICO liability. In Sam-

sung, the accused infringer successfully defended against

patent infringement liability by proving that the patent

was unenforceable due to the patentee’s inequitable con-

duct before the United States Patent & Trademark Office

(“PTO”) during the patent prosecution process. Id. at

1373-78 (affirming district court’s conclusion that patent

was unenforceable due to inequitable conduct). The

accused infringer had also, however, brought counter-

claims under the federal and state RICO statutes. Id. at

1378. The accused infringer’s theory of RICO liability was

that the patentee had committed two or more acts of mail

fraud, and thus racketeering activity, by submitting false

information to the PTO through the mails. Id. at 1379. The

unissued patent was, according to the accused infringer,

property for purposes of the mail fraud statute. Id. at

1380. The Federal Circuit rejected the federal and state

RICO claims, concluding “that inequitable conduct before

the PTO cannot qualify as an act of mail fraud or wire

fraud for purposes of the predicate act requirement.” Id.

Central to this conclusion was the Federal Circuit's rejec-

tion of the notion that an unissued patent is property:

[T]he PTO has not been defrauded of property.

Although that ‘a patent is property, protected

against appropriation both by individuals and

by government, has long been settled,’ an appli-

cation that has not yet matured into a patent

cannot properly be deemed government prop-

erty.

Id. (quoting Hartford-Empire Co. v. United States, 323 U.S.

386, 415 (1945)). Of course, under the Government's the-

ory of the mail fraud statute in this case, Samsung was

22

apparently wrongly decided, and RICO liability for ineq-

uitable conduct before the PTO should obtain.

Consider, as well, qui tam suits under the False

Claims Act, 31 U.S.C. §§ 3729-3733 (1994), and state anal-

ogs thereof.!° In a qui tam suit, a private party brings an

action on behalf of the government to redress an injury to

the government, e.g., a fraudulent claim for government

property. See generally John T. Boese, Civil False Claims

and Qui Tam Actions § 1.01[A], 1-6 - 1-11 (2c ed. 2000)

(reviewing early history of federal qui tam statute). Speci-

fically, under the False Claims Act, one who “knowingly

presents, or causes to be presented, to an officer or

employee of the United States Government .. . a false or

fraudulent claim” is “liable to the United States Govern-

ment for a civil penalty,” as well as “3 times the amount

of damages which the Government sustains because of

the” false claim.!! 31 U.S.C. § 3729(a) (1994). A “claim” is

defined broadly under this statute as “includ[ing] any

request or demand, whether under a contract or other-

wise, for money or property,” so long as “the United

States Government provides any portion of the money or

property which is requested or demanded.” 31 U.S.C.

§ 3729(c) (1994).

10 A number of States have False Claims Act-like statutes

that create qui tam causes of action. See, e.g., John T. Boese, Civil

False Claims and Qui Tam Actions § 6.01[A], [B] & [D], -at 6-4 -

6-14, 6-25 — 6-26 (2d ed. 2000) (reviewing details of California,

Florida, and Illinois analogs to the False Claims Act).

11 In addition to seeking penalties (and damages, if they

exist), a clever plaintiff might also try to concoct a common law

claim for restitution of alleged ill-gotten gains, e.g., all profits

earned by a business with a wrongly obtained license or permit.

23

Given the expansive definition of a “claim” in the

False Claims Act, a falsified application for a standard

business license from the United States could - if that

unissued standard business license constitutes govern-

ment property - give rise to False Claims Act liability.

Moreover, under the gui tam provision in the False Claims

Act, “[a] person may bring a civil action for a violation of

section 3729 for the person and for the United States

Government.” 31 U.S.C. § 3730(b)(1) (1994). Such private

party suits are made attractive by the False Claims Act’s

bounty provisions, according to which the private party

who initiates the suit receives anywhere from 10% to 30%

of the proceeds of the action, as well as expenses, fees,

and costs. 31 U.S.C. § 3730(d) (1994). Federal and state qui

tam statutes, no less so than federal and state RICO

statutes, would no doubt become powerful weapons of

civil liability should unissued standard business licenses

come to be viewed as the issuing authority’s property.

The point is that Congress surely did not intend to

launch the mail fraud, wire fraud, RICO, and qui tam

statutes as weapons to be used in disputes about the

issuance of standard business licenses. Nor is it any

answer to say that only those who deliberately falsify

license applications need fear such an expansion of lia-

bility. Even honest parties who apply for standard busi-

ness licenses will be faced with, at a minimum, the costs

of defending nuisance suits brought by private plaintiffs

clever enough to frame RICO and qui tam complaints that,

although meritless, can withstand a motion to dismiss

and serve as a basis for burdensome discovery. The fact

that the Government's treating unissued business licenses

as government property for purposes of the federal mail

24

fraud statute entails exposing licensees to massive RICO

and qui tam lawsuits demonstrates the absurdity of such a

construction of the mail fraud statute.

¢

CONCLUSION

For the foregoing reasons, in deciding this case the

Court should make clear that an unissued standard busi-

ness license does not constitute government property for

purposes of the federal mail fraud statute, or expressly

refrain from addressing that question.

Respectfully submitted,

Rosin S. CONRAD Carter G. PHILLIPS

National Chamber RicHARD D. BERNSTEIN*

Litigation Center, Inc. JoserpH S. MILLER

1615 H Street, N.W. Sipcey & AUSTIN

Washington, D.C. 20062 1722 Eye Street, N.W.

(202) 463-5337 Washington, D.C. 20006

(202) 736-8000

Of Counsel

Counsel for Amicus Curiae

“Counsel of Record

June 1, 2000