# Petition for Writ of Certiorari — Sylvanus v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386417_1003%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1952 - **Citation:** 342 U.S. 943 ## Text [ DEC 31 195) Fomen ES IN THE Supreme Court of the United States Ocroser TERM, 1951. No. 507 ALFRED SYLVANUS, ARCADIA NATIONAL INSURANCE COMPANY anv VOYLE CLARK JOHNSON, Petitioners, vs. THE UNITED STATES OF AMERICA, Respondent. PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT AND BRIEF IN SUPPORT THEREOF. Rocrer SHERMAN, Henry F. Tenney, S. AsHLey GuTHRIE, 120 So. La Salle Street, Chicago 3, Illinois, Attorneys for Petitioners. S. AsHiey GuTHRIE, Of Counsel. THE GUNTHORP-WARREN PRINTING COMPANY, INDEX. A. PAGE Petition for Writ of Certiorari to the United States Court of Appeals for the Seventh Circuit ......... 1-21 Summary Statement of Matters Involved............ 2-13 ee ee en eee 2-3 The Basic Question of Federal Law Involved: Is This Prosecution Barred By The McCarran Act Delegating Exclusive Right of Regulation of the Insurance Business to the States, and Providing That No Act of Congress Not Specifically Re- lating to Insurance Shall Invalidate, Impair or Supersede a State Law Exercising That Right? 3-5 ON Wc ss ea aatga wana toa gwbus ek 6 The Insurance Policies and Advertising; the Com- prehensive Nature of the Provisions of the State Law Relating Thereto; and the Supervision by State Authorities Under That Law ........... 8-11 Questions of Federal Law Involved in Determin- . ing the Sufficiency of the Conspiracy Count... .11-13 The Basis on Which the Jurisdiction of This Court et TR Se AS ET ERPS PRUE Wie a WOE A ABs Lo A 13-14 Reasons Relied on for Allowance of the Writ of Cer- hci i aba hie ois Rom ebid RAa ca ON wes ak 17-21 1, The Question of Construction of the McCarran BE bc iaSAK Tes ATED Wiis isaac Lakeaeeks 17-18 2. Conflict Between the Decision in the Instant Case and the Decision of the Court of Appeals for the Eighth Circuit Construing the McCar- WIE TI a asc ko eeies 99 CRE RESETRl cee 18-19 il 3. Question of Construction of the Statute Relat- ing to Conspiracies as to Sufficiency of the Overt Acts Charged and the Application of the Statute of Limitations Thereto............... 4. The Conflict in the Decisions of the Circuit Courts of Appeal With Respect to the Obliga- tion of a Policyholder to-Read His Policy in Order to Determine the Conditions and Limita- RN aN ae haat ticle erin ie BS > bale 20-21 Brief in Support of Petition for Writ of Certiorari. . 22-40 Opinion of the Court of Appeals (incorporated by ref- erence to pages 919 to 936 of the Reeord).......... 22 INNER sin cu ca wawtivtieweecedionses 22-23 I ead whe kicin us en ise se yee'a an 6 oe 24-40 I. The Motion to Dismiss the Indictment Should Have Been Sustained Because This Prosecution Is Barred by the McCarran Act.............. 24-35 A. The Scheme to Defraud, Charged in the In- dictment, Involves Only the Issuance of In- surance Policies and Advertising Matter Subject to Regulations Imposed by State Law; Under the McCarran Act the Mail Fraud Statute Cannot Be Construed to Cover That Scheme, Beeause, if so Con- strued, It Would Invalidate, Impair, or Su- persede the State Law................... 24-27 B. A Conviction Under the Mail Fraud Statute Necessarily Involves an Assumption of Fed- eral Jurisdiction Over the Conduct of an In- surance Business in Illinois, and Thus Ren- ders Ineffective the Regulations Imposed by State Law Relating Thereto............. 28-30 ee C. The McCarran Act Is Not Restricted in Its Operation to Statutes Passed Under the Commerce Clause; by Its Terms, It Excludes from Application of All Acts of Congress (Not Expressly Relating to Insurance) Mat- ters Connected With a State-Reeulated In- ge er ere D. The Question of Federal Law Involved in Construction of the MeCarran Act Has Not Been, But Should Be, Decided by This Court; and the Conflict Between the Deci- sions of the Cireuit Courts of Appeal Should FREE ee S| II. None of the Supposed Overt Acts Set Forth in the Conspiracy Count Is Sufficient to Sustain the Charge of Conspiracy and the Motions to Dis- miss or for Aecquittal on That Count Should eee rere, III. The District Court and the Court of Appeals Should Have Held That It Was the Duty of the Insured to Read His Policy in Order to Ascer- tain the Conditions Contained Therein, and the Jurors Should Have Been Instructed Accord- ES SO er ee Appendices 1, 2 and 3........................... i-XXVii (following p. 40) Appendix 1: Excerpts from Tllinois Insurance Code of 1937 (Ch. ng | AER eater pale a rele ng a eR A a i-vii Appendix 2: Synopsis of Insurance Policies in Suit........ Vill-xiii Appendix 3: We PO sso s Steels Ove veeecKedds ok XiV-XXvii , a D. TaBLe oF AUTHORITIES. ee SS rrr 29 Bowers v. Washington Times Co., 65 Fed. (2) 200.... ERTL ULE ETT CC ere TT ee eee 15, 20, 38, 39 Brady v. U.S., 24 Fed. (2) 399 (404-5) (C. A.8)....... 36 Connecticut Light and Power Co. v. Federal Power Commission, 324 U. S. 515 (528).................. 34 Ex Parte Collett, 337 U. S. 55 (61).................. 32 Fiswick v. U. S., 329 U. S. 211 (216-7).............. 13, 37 Helvering v. City Bank Farmers Tr. Co., 296 U. S. 8&5 oo Ee ery ie Sen RRA SSL ai ie 32 Hendrey v. U. S., 233 Fed. 5 (8) (C. C. A. 6)........ . 30, 36 Jerome v. U. S., 318 Ill. 101 (105).................. 19, 30 Krulewitch v. U. S., 336 U. S. 440 (445-6)............ 37 Mutual Benefit Health and Accident Association v. Blaylock, 87 A. L. R. 679 (Miss.)................. xix North Little Rock Trans. Co. v. Casualty Reciprocal Exchange, 181 Fed. (2) 174 (Cer. Den. 340 U. S. 823) upd LON e eS eee eed Ons uae bee eed bees 5, 14, 18, 19, 34 O’Hara v. U. S., 129 Fed. 551 (C. C. A. 6)........... 29, 30 Panhandle Eastern Pipeline Company v. Public Service Commtenstin, 308 0. BH. G00... onc ccc cccccccccccce 34 Prudential Insurance Co. v. Benjamin, 328 U. 8. 408.. 33 Reilly v. Pinkus, 338 U. S. 269 (276)................. 39 U. S. v. Britton, 108 U. S. 199 (204-5)................ 35 U.S. v. Cohen, 145 Fed. (2) 82 (C. C. A. 2).......... 13 U. S. v. MeLaughlin, 169 Fed. 302 (307), (D. C. D, DUE sa asi aledesinclucsescnvcameuerbcaden te 36 Vv U.S. v. Rosenblum, 176 Fed. (2) 321 (332) (C.C. A.7) 37 U. S. v. Southeastern Underwriters Assn., 322 U. S. WE k4e oe FA CA Wed Shek Re wabheen’ tedoixcasken ates. 19, 31 Worthington v. U. S., 64 Fed. (2) 936 (941) (C. C. Ded ac aus Keenec cxeudacauhiaaked bn tateates el. 28 E. TABLE or STaTUTEs. Petns. Appen- Brief dices Illinois Insurance Code of 1937: ° Sec. 4 (Classes of Insurance)............. i Sec. 132 (Examinations).................. i Sec. 141 (Exclusive Agency Contracts).... ii Sec. 143 (Policy Forms—Life, Accident and SEE hia Sanda ceed dee en ckaieeexdae’ 8,9,26 ii Sec. 149 (Misrepresentation Prohibited). . .9, 26 iii Sec. 254 (Scope of Article)................ ili Sec. 261 (Documents to be Delivered to the EY nt 0655s VAN AC et Cha oka Ka we iii Sec. 267 (Subscription Requirements—Sur- NE a eee es Pog a he ee iv Sec. 268 (Guarantee Fund)............... iv See. 355 (Accident and Health Policies— i GS rcin we scaseh delet « 26 Vv See. 356(1)(d) and (f) (Form and Content Oe Ses 6555 Sas hase ecaGbhs va takacss v See. 357(4) and (5) (Standard Provisions) . vi Sec. 401 (General Powers of Director)..... 27 vi See. 407 (Court Review of Orders and Deci- Pee Be ae ee ee RD Vii Sec. 446 (Penalties)...................0.. 27 vii Sec. 371 (formerly Sec. 88), Title 18, U. S. C. (Conspiring to Commit Offense Against PO Diss Kian sk¥aadidcaevenieus cc 2, 35 i ae Petns, Appen- vi Brief Sees. 1011-5, Title 15, U.S. C. (MeCarran Act) .4, 17-19 22, 25 See. 1254(a), Title 28, U.S. C. (Issuance of Writs INE bead incdiciin ae hy Heebnwiiedviwn 13, 22 See. 1541 (formerly Sec. 388), Title 18, U. S.C. (Using Mails to Promote Frauds)........... 2, 28 Sec. 3282, Title 18 U. S. C. (Statute of Limita- Ne Ree io itek hh ais ac ceudecwe’s 37 See. 3731, Title 18 U. S. C. (Right of Appeal to ET ey Oren i) . dices Supreme Court of the United States Octoser Term, 1951. Reo ALFRED SYLVANUS, ARCADIA NATIONAL INSURANCE COMPANY axnp VOYLE CLARK JOHNSON, Petitioners, vs. THE UNITED STATES OF AMERICA, _ Respondent. PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT. To the Honorable Chief Justice and Associate Justices of the Supreme Court of the United States: Alfred Sylvanus, Areadia National Insurance Company and Voyle Clark Johnson, defendants in the trial court, and Petitioners here, pray that a writ of certiorari be issued by this Court for review of judgments (R. 938-939) entered in this ease on December 1, 1951, by the Court of Appeals for the Seventh Circuit.* *The opinion of the Court of Appeals appears at pp. 919-37 of the Record. Summary STATEMENT or Matters INVOLVED. The Nature of the Case. The judgments of the Court of Appeals, sought to be reviewed, affirm a judgment of the United States District Court for the Northern District of Illinois, Eastern Divi- sion, entered on the verdict of a jury finding the Petitioners guilty: (1) of using the mails to execute a scheme to defraud by issuance of allegedly deceptive accident and sickness insurance policies, and by circulation and publica- tion of allegedly misleading advertising matter relating thereto; and (2) of a conspiracy to commit the same offense. Sylvanus was sentenced to 3 years; the Insurance Company was fined $10,000; and Johnson was sentenced to 18 months. The statutes under which the defendants were convicted are, so far as material, as follows: ‘‘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 pre- tenses, representations, or promises * * * shall for the purpose of executing such scheme or artifice or attempting so to do, place, or cause to be placed, any letter, postal card, package, writing, circular, pamphlet, or advertisement * * * in any post office * * * or authorized depository for mail matter, * * * or shall take or receive any such therefrom * * *- shall be fined not more than $10,000, or imprisoned not more than five years, or both.’ See. 1341 (formerly 338), Title 18, U. S. C. ‘If two or more persons conspire either to com- mit any offense against the United States, cr to defraud the United States in any manner or for any purpose, and one or more of such parties do any act to effect the object of the conspiracy, each of the parties to such conspiracy shall be fined not more than $10,000, or im- prisoned not more than two years, or both.’’ See. 371 (formerly 88), Title 18, U.S. C. a ee ee TN 3 The offense charged has two elements: (1) The existence of a scheme to defraud by issu- ance of the fraudulent policies and advertising matter ; and (2) The use of (or conspiracy to use) the mails to execute the scheme. While the use, or contemplated use, of the mails is what gives the Federal Court jurisdiction, the conviction depends on the existence of the fraudulent scheme which is to be executed by their use—in this case, on an adjudication by the Federal Court that the insurance policies and adver- tising matter are deceptive and misleading, so that their issuance and publication would constitute a fraud. The Basic Question of Federal Law Involved: Is This Prosecution Barred by the McCarran Act Delegating Ex- clusive Right of Regulation of the Insurance Busimess to the States, and Providing That No Act of Congress Not Specifically Relating to Insurance Shall Invalidate, Im- pair or Supersede a State Law Exercising That Right? The insurance policies and advertising matter on which the prosecution is based, were issued and published in the conduct of an insurance business regulated by a statute of Illinois, known as ‘‘The Illinois Insurance Code,’’ the mate- rial provisions of which are set forth in Appendix 1, at- tached hereto. That statute prescribes the form of insur- ance policies to be issued; requires their approval by the State Department of Insurance before issuance; prohibits misleading statements in advertising; and prescribes penal- ties for its violation. The insurar -e policies in suit were specifically approved in form and substance by the State Insurance Department (R. 171-2) and were issued pursuant to state authority. The purpose and effect of the prosecution were thus to 4 convict the defendants, under the Federal statutes relating to mail fraud and conspiracy, for acts done in the conduct of an insurance business wholly regulated by state law. The result was, as we contend, to nullify and to supersede that law and the regulations imposed thereby, insofar as they relate to the insurance policies and advertising matter in suit. By Act passed in 1945, known as ‘*The MeCarran Act” (Sees. 1011-1015, Title 15 U. S. C.), Congress declared that regulation of the insurance business by the states is in the public interest and that ‘‘no act of Congress not specifically relating to the business of insurance’’ shall be construed to invalidate, impair or supersede any law enacted by any state for the purpose of regulating the business of insur- ance.’’ The McCarran Act, so far as material, reads as follows: ‘“‘An Act to express the intent of Congress with reference to the regulation of the business of insurance. [Laws of 79th Congress, 1st Session; Public Law 15.] ‘‘See. 1—Congress declares that the continued regu- lation and taxation by the several States of the busi- ness of insurance is in the public interest, and that silence on the part of Congress shall not be construed to impose any barrier to the regulations or taxation of such business by the several States. [Sec. 1011, Title 15 U. S. C.] See. 2—(a) The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regula- tion or taxation of such business. (b) No act of Congress shall be construed to in- validate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance. * * * [See. 1012, Title 15, ey” ~YT pA I 1 On Ade WSN i A RRA Di HPN ANION M PSNR Ne EBB ASAT ve NES HL 5 The basie question in this case is whether, in view of the McCarran Act, this prosecution under the mail fraud and conspiracy statutes, or a similar prosecution under any Federal statute, not by its terms relating to the conduct of an insurance business, can be maintained—. e., whether or not the MeCarran Act leaves to the states the right to regulate and control the conduct of an insurance business, and excepts from the application of every Federal statute (not expressly relating to insurance) all matters pertain- ing to an insurance business over which the state, by appro- priate legislation, has assumed jurisdiction. This question was raised in the District Court on motion {o dismiss the indictment, which was overruled (R. 25, 27). If the motion to dismiss had prevailed, the Government would have had the right to appeal directly to the Supreme Court (See. 3731, Title 18 U. 8. C.). The defendants have no corresponding right of appeal, but the question of statu- tory construction involved is important and, we submit, should be passed upon by this Court. It relates to the method of regulation of, and the power to regulate, the business of all insurance companies throughout the country that sell insurance policies by mail and by public advttising, rather than by personal solicitation. The decision of this Court is further called for because of the conflict in principle between the decision of the Court of Appeals of the Seventh Cireuit here sought to be re- viewed, and the decision of the Court of Appeals for the Kighth Cireuit in North Little Rock Trans. Co. v. Casualty Reciprocal Exchange, 181 Fed. (2) 174 (Cer. Den. 340 U. S. 823), holding that the McCarran Act barred a suit to enforce the provisions of the Sherman Act (otherwise clearly applicable) for acts done in the conduct of an in- surance business which was regulated by the Arkansas law, and therefore, by virtue of the McCarran Act, subject to exclusive state jurisdiction. ; = The Parties. Arcadia Mutual Casualty Company was organized in 1938 by Petitioner, Alfred Sylvanus, and a group of asso- ciates. Sylvanus had been general agent of Minnesota Mutual Life Insurance Company. His associates were mostly school teachers and had not been theretofore con- nected with the insurance business (R. 159). On October 1, 1945, Arcadia Mutual Casualty Company combined with another company to form Arcadia Life & Casualty Company under Article XVI of the Illinois Insur- - ance Code (R. 399-400). On December 1, 1946, the articles of incorporation of the last-named company were amended and the name was changed to Arcadia National Insurance Company, defendant and Petitioner here (R. 400, 401). Alfred Sylvanus was president of each of the insurance companies mentioned (R. 170). The Company always maintained the required reserves and its financial condition was uniformly approved in the reports of examination of the Illinois Insurance Depart- ment (R. 768, 773, 775-6, 790-1, 807, 825). Petitioner, Voyle Clark Johnson, became connected with the other defendants through execution on February 24, 1944, of the agency contract with Arcadia Mutual Casualty Company, whereby he became agent for sales of the ‘‘Se- curity’’ or limited coverage policy (R. 458-468). Johnson operated his agency under the name of ‘‘United States Insurance Agency.’’ The Alleged Scheme to Defraud. The supposed ‘‘scheme to defraud’’ was alleged (R. 2-3) : to have been to induce prospective policyholders to buy one or the other of two sickness or accident policies, known as the ‘‘Security Policy,’’ offering limited coverage and SUITES SOAS RO iG Wie. Se OT ey REE SL DPT ATI I EME AGEN IOS IN ILS ENS EEN: p * ‘we it i a e EMEC ET 7 the ‘‘American Sentinel Policy,’’ offering comprehensive coverage. The policies are set forth at page 469 of the record and are summarized in Appendix 2, attached. The premium on each policy was $1.00 per month, or $11.00 per year. With two exceptions, all the policies in- volved in this suit were of the Security Policy type. The policies were advertised by circulars and published advertisements, each offering to submit the policy adver- tised for examination. The policies were issued only on application to the Insurance Company by the policyholder. There was no personal solicitation. The device by which it is alleged the fraud was to be completed, comprised two elements: (1) The circulation or publication of advertisements (each asking prospects to send for the policies for ex- amination) which were alleged to emphasize maximum benefits payable but to omit reference to qualifying limitations and exceptions that might reduce the bene- fits or result in denial of claims on the policies; and (2) The issuance of the policies, which (although approved by the State as to both form and substance) were alleged to have been ‘‘cunningly worded’’ and composed ‘‘in an ambiguous manner,’”’ and otherwise to have been arranged and worded so as to mislead the policyholders or prospects to whom they were ten- . dered (R. 8-10, 172). Of the 22 policyholders testifying, only 7 identified any advertising seen before purchase of the policy. The charge of fraud rests primarily, therefore, on the alleged deceptive character of the state-approved policies. There is no contention that claims were not paid in accord- ance with the policy provisions, or that anyone profited by the supposed fraud. The evidence shows that the sup- porters of the enterprise were continually putting money a ELL LOF REE PLAS PIE ING DF ie Be et EPS EOD ION eer pee. - - e . “ _—_—— 8 into it through purchase of guaranty certificates (payable only from earned surplus after reserves for policyholders had been fully provided for) so that the Company should be adequately financed (R. 825). No money was withdrawn to pay those certificates. They were never paid (R. 185). When the conviction of the Petitioners in this case made it impracticable for the defendant Insurance Company to carry on its business, arrangements were made with another company to take over outstanding policy liabilities so that no policyholder would suffer any loss (R. 48). The Insurance Policies and Advertising; the Comprehensive Nature of the Provisions of the State Law Relating Thereto; and the Supervision by State Authorities Under That Law. The material provisions of the Illinois Insuranee Code regulating the conduct of the insurance business in Illinois are set forth in Appendix 1, hereto attached. Section 143, of the Illinois Code, relating to issuance of insurance policies of the class here involved, is as follows (Ch. 73, Il. R. S. Par. 755) : **(1) No company transacting the kind or kinds of business enumerated in Class 1 of section 4 shall issue or deliver in this State a policy or certificate of insur- ance, * * * or use an application blank, in this State until the form and content of such policy, certifi- eate, * * * or application blank has been filed with and approved by the Director. Jt shall be the duty of the Director to withhold approval of any such policy, certificate * * * or application blank fiied with him if it violates any provisions of this Code, contains in- consistent, ambiguous or misleading clauses, or con- tains exceptions and conditions that unreasonably or deceptively affect the risk purported to be assumed in the general coverage of the policy. In all other cases ’ RELA LL OIE EEL OT ET EL TES LOE ICC NRE ENE I A BAS AE Bee stam ee TMD MOR OE Maar a al “= 9 the Director shall give his approval. Failure of the Director to act within thirty days after submission shall constitute approval. * * *” [Italics are ours here and elsewhere unless other- wise stated. | The insurance policies issued in the instant case (R. 469; summarized Appendix 2 attached) which were al- leged to be so ‘‘cunningly worded’’ as to be in them- selves a fraud (R. 8)—and upon which the conviction rests—were all submitted to and approved by the Illinois Insurance Department, as required by the above-quoted section of the state statute (R. 171-2). In fact, the origi- nal Security Policy issued in 1939 was drawn by an inde- pendent actuary from forms in use by other companies, as suggested by the Illinois Department of Insurance (R. 171). Section 149 of the Illinois Insurance Code relating to advertising matter, reads as follows (Ch. 73, Ill. R. S. Par. 761): **(1) Nocompany * * * and no officer, director, agent, clerk or employee thereof * * * or any other person, shall make, issue or circulate * * * any * * * illustration, cireular, or verbal or written statement of any sort misrepresenting the terms of any policy issued or to be issued by it or any other company or the benefits or advantages promised thereby * * *. **(4) Any * * * person who violates any of the provisions of this section * * * shall be required to pay a penalty of not less than one hundred dollars, nor more than one thousand dollars. * * *,’’ All advertising matter circulated or published and here involved was subject to the foregoing statute, and if it was misleading, it was the duty of the state authorities so to find, and to prosecute the offenders for publishing it. That the State Insurance Department was mindful of that duty is evidenced by its letter of November 27, 1940, _ —_— NT NEEL L INE LOGE LEVITON OE NEN IE ETN TN RNR IA LEY a NO SORBELES SO SEI eR N RSE = approving certain samples of advertising matter submitted, and concluding with the admonition that the Department was not ‘‘waiving any of its duties with respect to the en- forcement of the provisions of the Illinois Insurance Code concerning advertising which misrepresents the terms of the policies advertised’’ (R. 764-5). In many instances, the advertising matter thereafter cir- culated and published differed from the samples referred to in the last-mentioned letter from the State Department, in that the advertising did not characterize certain acci- dents for which benefits were payable as ‘‘publiec carrier accidents’’ or refer specifically to minimum as well as to maximum benefits payable. 10 The advertisements did, however, as suggested by the Illinois Insurance Department, refer the reader to the policies advertised for information as to specif~ 'imita- tions, and tendered the policies for examination before their final acceptance. Most of the so-called ‘‘puffing’’ state- ments to which objection was made in the course of the trial were in the circular letters approved (R. 760-764). A detailed review of the advertising matter is not ealled for here. A summary of the advertising with particular reference to the comments thereon in the opinion of the Court of Appeals, is set forth in Appendix 3 attached. Despite close supervision of the business for the entire period up to the return of the indictment, the State De- partment of Insurance made no complaint as to the ad- vertising. From 1941, through 1948, the Illinois Insurance Depart- ment made periodic examinations of the business of the defendant Insurance Company and of its predecessor com- panies, and filed exhaustive reports covering every phase of that business, with extensive comments and suggestions thereon (R. 767-842). AEM PII AAP NO BE GEM RAN Lyla ZOE SE MEY ket LE LEA LON TEE BELO SLIT CLOTS OSB PREIS Petes May — _# a Sewer ort a 11 Notwithstanding the admitted duty of the Department of Insurance to review the advertising matter, there is no adverse comment thereon in any report. The last report, filed on November 22, 1948, after return of this indictment, comments favorably on the Company’s reserves and opera- tions and concludes with the statement that ‘‘policy claims appear to be paid promptly and in accordance with policy provisions’’ (R. 825). It is thus a fair inference that the advertising matter, as well as the insurance policies, was approved by the State authorities. But whether approved or not, the advertising, as well as all other phases of the business, was admittedly subject to state supervision and control. And even if the policies and advertising were mislead- ing and fraudulent, the offense was one for the state authorities to pass on and to punish. Whether or not the Petitioners had issued deceptive policies or advertising and if so, what their punishment should be therefor, were for the state authorities to determine. The fed- eral statute, and the penalty imposed thereby for the fraud committed, could not be substituted for the state statute, and for the penalty imposed thereby, without im- pairing and superseding the state statute. If, as we contend, the McCarran Act should be construed to prohibit that result, then the judgment below cannot stand. Questions of Federal Law Involved in Determining the Sufficiency of the Conspiracy Count. The indictment has 18 counts. The first count charges that the three Petitioners jointly devised a scheme to defraud policyholders, or prospective policyholders by issu- ance of deceptive insurance policies and advertising matter and in execution of the scheme, Petitioners sent or received —— AIK, LIEBE NE EERE EI ASTOR EE IR SM On tes et et ARRON TRS ANS De ARADI ata et Nant me 12 7 through the mails a communication to or from the supposed victim. Each of the next 16 counts adopts the allegations of the first count as to the scheme and alleges a different mailing (R. 2-16). The 18th Count also adopts the first count by reference and charges that the joinder between the parties to devise the scheme is also a conspiracy separately punishable (R. 16-19). The indictment was returned on September 10, 1948. Fifteen so-called overt acts are charged, all of which, ex- cept the last four, were committed more than three years before the return of the indictment. The supposed overt acts referred to (R. 17-19) are thus summarized: (1-2) On October 14, 1938, the incorporation of Arcadia Mutual Casualty Company and election of Sylvanus as director. (3) On October 14, 1940, approval by the State of the Security Policy, Form L-102. (4) On May 1, 1942, opening of insurance com- pany office at 221 North La Salle Street, Chicago. (5) On December 18, 1943, purchase of $1,091 in guaranty fund certificates by defendant Voyle Clark Johnson. (6) On December 18, 1943, purchase of $860 in guaranty fund certificates by defendant Sylvanus. (7-8) On February 24, 1944, execution of agency contract with defendant Johnson and receipt of pre- miums by him thereafter. (9-11) On December 29, 1944, and again on March 29, 1945, and again on April 23, 1945, the purchase by Johnson of guaranty fund certificates, totaling $19,909. (12) On October 1, 1945, incorporation of Arcadia Life and Casualty Company by Sylvanus. (13) On October 1, 1945, election of Sylvanus as a director in that company. PURER MULIS STARE AEE HERI LNB OR CTR TET A Ae dre ee Den ato ute Kaan _-s 13 (14) On January 1, 1947, incorporation of defend- ant Arcadia National Insurance Company. (15) On January 1, 1947, election of Sylvanus as a director in that company. None of the alleged overt acts is sufficient to support a conspiracy charge, because none commits the supposed conspirator to the criminal act alleged to have been con- templated. But if the 3-year statute of limitations applies, none but the last four acts could be considered in any event, and each of them is insufficient to constitute an ‘‘overt act’’. The Court of Appeals held, citing U. S. v. Cohen, 145 Fed. 2d 82 (CCA 2) that the Statute of Limitations did not bar prosecution on the Conspiracy Count, even if there was no allegation of a sufficient overt act occurring within 3 years before the indictment (R. 931). That holding is contrary to the decision of this Court in Fiswick v. U. S., 329 U. S. 211 (216-7). The decision of this question is important because the Judge charged the jury that if a conspiracy was estab- lished and the jury found ‘‘beyond any reasonable doubt that any of the overt acts described in the indictment took place either prior to or during said defendants’ connection with the conspiracy’’ the jury must find the defendants guilty (R. 371). A separate motion was made to dismiss the conspiracy count (R. 155, 269-270) so that the point was properly raised. Tue Basis oN WHICH THE JURISDICTION OF THIS CouRT Rests. The jurisdiction of the Supreme Court of the United States in this case is derived from Section 1254 (a), Title 28, U. S. Code, conferring jurisdiction on this Court to a Se ee 14 issue writs of certiorari to review decisions of the United States Courts of Appeal. The decision sought to be reviewed rests wholly on fed- eral law, and the questions raised are as to the correct con- struction of the federal statutes involved. Statements of the questions presented and of the reasons why writ of certiorari should be issued are set forth in the next two subdivisions of this petition. Tue Questions PRESENTED. 1. The first question presented is whether or not, under a correct construction and application of the McCarran Act (Sec. 1011-1015, Title 15, U. S. C.) this prosecution under the Acts of Congress, relating to mail frauds and con- spiracies (Secs. 1341 and 371, formerly Secs. 338 and 88, Title 18, U. S. C.) can be maintained, in view of the fact that the fraudulent scheme charged involves only the is- suance of insurance policies and the circulation of ad- vertising matter in the conduct of an insurance business regulated by Illinois law. As a corollary, a question is raised as to which of the following conflicting decisions as to construction and appli- cation of the McCarran Act is correct: (a) The decision of the Court of Appeals for the Seventh Cireuit (R. 920-1), in the instant case, hold- ing that the McCarran Act does not remove from purview of a general federal statute (in this case the statute relating to mail fraud and conspiracy) passed pursuant to constitutional authority, acts performed in the conduct of a state-regulated insurance business ; or (b) The contrary decision of the Court of Ap- peals for the Eighth Cireuit in North Little Rock Trans. Co. v. Casualty Reciprocal Exchange, 181 Fed. (2) 174 (Cer. Den. 340 U. 8. 823) holding that the McCarran Act was a bar to a suit to enforce the penal 15 provisions of a general federal statute (in that case the Sherman Act—also passed purusant to constitutional authority) for acts in the conduct of an insurance business that would otherwise have been a violation of that Act. The question as to the construction and application of the McCarran Act was raised in the District Court by mo- tion to strike the indictment (R. 25) and by motions for ac- quittal at the close of the Government’s evidence and at the close of all the evidence (R. 155-7; 269-70); and in the Court of Appeals on appeal from the judgment of convic- tion (R. 876). 2. The second question involved is as to whether or not, under a correct construction of the federal statute, re- lating to conspiracies, (Sec. 371, formerly Sec. 88, Title 18, U. S. C.) and of the applicable statute of limitations (Sec. 3282, Title 15, U. S. C.), the alleged overt acts set forth in the conspiracy count are sufficient to sustain a prosecution under that statute. This question was raised in the District Court on the motion to dismiss the con- spiracy count at the close of the Government’s evidence (R. 155) and at the close of all the evidence (R. 270) on the ground that a conspiracy was not shown. 3. The third question raised is as to which of the fol- lowing conflicting decisions is correct: (a) The decision of the Court of Appeals for the Seventh Circuit in the instant case (R. 936) that it is not the duty of an insured to read his policy in order to ascertain the conditions contained therein, even though the advertising complained of tenders the pol- icy to him for examination before acceptance, and refers to the policy for the specific limitations and conditions affecting the iasurance; or (b) The decision of the Court of Appeals for the District of Columbia in Bowers v. Washington Times Co., 65 Fed. (2) 200, applying a contrary principle in a civil suit to recover the maximum benefit advertised. 16 The question as to the duty of the insured to read his policy and as to the extent to which he was bound by the policy provisions was raised on motions for acquittal at the close of the Government’s evidence and at the close of all the evidence (R. 155-7; 269-70), and also by instrue- tion tendered and refused that it is the duty of the insured to read his policy of insurance, to ascertain the conditions therein contained, and if such policy is unsatisfactory, to object thereto at the time (R. 273). The question was raised in the Court of Appeals on appeal from the judgment of conviction (R. 876-7; 883). LUA LON AID INO OIL AIN POE REET AN ORNL ANS ent Ram AS gta pg se ay OS ACR RAGA ENED INA BERS LEED cb GEE hai AINE ILNE 0 ENSUE By aOR Gi 17 Reasons RELIED ON FoR ALLOWANCE OF THE Writ oF CERTIORARI. We submit that a writ of certiorari should be granted in this case for the following reasons: 1. The Question of Construction of the McCarran Act. The decision of the Court of Appeals rests on a con- struction of the MeCarran Act. The opinion admits that the right to determine what policies may be issued, what advertising may be published and circulated, whether or not the policies or advertising are misleading, and what the punishment shall be if they are misleading, are all exelu- _ sively with the state (R. 920-1). The Court holds, however, that if coupled with the issu- ance of the policies and advertising, there is a use of the mails, the Federal Court may determine independently and without regard to state jurisdiction whether or not the policies and advertising are fraudulent and whether or not the issuer thereof should be punished (R. 921). The reason give by the Court is that Congress has power under the Constitution to regulate the mails, and hence a statute enacted in exercise of that power should not be limited in its operation because of jurisdiction of the state over the subject matter of the fraud (R. 921). The reason stated ignores both the wording and the intent of the McCarran Act. Every valid act of Congress is passed in the exercise of some Constitutional power. If Congress so desires, it may extend that power over the conduct of a state-regu- lated insurance business. But the MeCarran Act declares, that unless Congress, in a statute exercising its consti- SV Oe Oa 9 Re PP ne POL FDL a LI LAN ih et a IN b DADO A ANSE SIDE a Sith 18 tutional power, sets forth that the statute shall apply to the conduct of an insurance business, it will not be extended to that business. The title of the McCarran Act is ‘‘ An act to express the intent of Congress with reference to the regulation of the business of insurance.’’ The inention expressed is that the regulation shall be left wholly to the states, and thus to except from the purview of any federal statute not made expressly applicable to the insurance business, all matters pertaining to the conduct of that business that are subject to state regulation. The statute relating to mail frauds does not, by its terms, apply to the acts performed in the conduct of an insur- ance business, and hence under a literal construction of the McCarran Act, could not be construed to cover those acts. In holding to the contrary, the Court of Appeals held, in effect, that, despite the McCarran Act no one carrying on an insurance business can rely on the state law regulating that business, or on the directives of the state authorities . acting thereunder, for determination of what policies or advertising he may issue or circulate. The question of federal law raised is important and has not been determined by this Court. It is in the public in- terest that it be determined. 2. Conflict Between the Decision in the Instant Case and the Decision of the Court of Appeals for the Eighth Circuit Construing the McCarran Act. The construction of the ‘MeCarran Act in the instant case is based on a principle contrary to that on which the decision was based in North Little Rock Transp. Co. v. Cas- ualty Reciprocal Exchange, 181 Fed. (2) 174. In that case, North Little Rock Transportation Co. sued the Casualty Reciprocal Exchange for triple damages under the Sher- 19 man Act. The defendants had clearly engaged in a com- bination in restraint of interstate commerce within the meaning of the Sherman Act and the principle laid down in U. S. v. Southeastern Underwriters Assn., 322 U. S. 533, holding insurance to be interstate commerce. The defense was that the conduct complained of was reg- ulated by the laws of Arkansas, ‘‘and that because of the Act of March 9, 1945 * * * 15 U. S. C. A. Sees. 1011-1015, known as the McCarran Act, the Sherman Act did not ap- ply to the insurance business so far as it is regulated by the state.’’ In sustaining that defense, the Court said (181 Fed. (2d), at p. 176): ‘‘The purpose of the McCarran Act was to permit the States to continue the regulation of the business of insurance, unhampered, to the extent provided by the Act, by federal legislation relating to interstate commerce.”’ The same principle would apply to ‘‘federal legislation”’ relating to use of the mails. But the Court of Appeals for the Seventh Circuit refused to follow that principle here. There is, therefore, a conflict between the decision of the Circuit Court of Appeals in the instant case and the decision of the Eighth Circuit Court of Appeals in the North Inttle Rock Transportation Co. ease, on substantially the same question of construction of the McCarran Act, and for that reason, this Court should grant the writ. This is another reason for granting a writ of certiorari. As the Court said in Jerome v. U. S., 318 U. S. 101 (102) in stating the reason for granting a writ where the ques- tion was whether the word ‘‘felony’’ as used in Act of Congress applied to a State, as well as to a federal offense: ‘‘We granted a petition for a writ of certiorari be- cause of the importance of the problem in the adminis- tration of justice and because of the diversity of views 20 which have developed as respects the meaning of : felony. ’’ 3. Question of Construction of the Statute Relating to i Conspiracies as to Sufficiency of the Overt Acts Charged — and the Application of the Statute of Limitations Thereto. ~ This question has been fully stated at pages 11-13 and 15, @ ante. We contend that none of the overt acts is sufficient to _ commit the actor to the perpetration of the contemplated crime of using the mails to execute the fraudulent scheme so that he could not withdraw and be innocent. And this is particularly true if only the acts within the three- year period prior to the indictment are considered. In view of the tendency to use the conspiracy statute as a means of charging the same offense a second time, and of relieving the prosecution from the necessity of ad- hering to rules of evidence in proving it, the question raised is important and should be passed upon. 4. The Conflict in the Decisions of the Circuit Courts of Appeals With Respect to the Obligation of a Policyholder to Read His Policy in Order to Determine the Conditions and Limitations Thereof. This question is also stated at pages 15-16, ante. The opinion of the Court of Appeals in the case at bar holds that there is no conflict in principle between this case and Bowers v. Washington Times, 65 Fed. (2) 200, decided by the Court of Appeals for the District of Columbia, be- cause, as the opinion states, the last-mentioned case was a civil case (R. 936). The distinction is not sound because in both cases the question was whether the prospective policyholder can rely on the advertising to the exclusion of the policy, notwith- standing the fact that the advertising refers the reader to the policy for a specific ‘statement of the limitations and conditions attached to payment of the risk. The adver- PN TE EUAN JEN BR Na NN NE HOF RES at Ne 21 tising in the Washington Times case was similar to that most complained of in the instant case, in that it stated the maximum benefit payable without stating the limita- tions and conditions under which the policyholder would receive it, and thus left the policyholder to read the policy itself for determination of what those limitations were. The decision in the Washington Times case that the policy- holder was bound by the policy, at least insofar as it was supplementary to and not in conflict with the advertising (which was true in every instance in the case at bar) was based on a principle exactly contrary to that applied here, where the jury was instructed that a policyholder was not even required to read his policy. The conflict in decisions on this point is an additional reason why this Court should grant this petition for a writ of certiorari. For the reasons above stated Petitioners pray that a writ of certiorari be issued by this Court for review of the judgments entered in this case on December 1, 1951, by the Court of Appeals for the Seventh Circuit. Aurrep Sytvanus, Arcapra Nationau In- SURANCE Company, and VoyLe CLarK JOHNSON, Petitioners, By Rocrer SHerman, Henry F. Tenney, S. Asuiey Guturm, Attorneys for Petitioners. S. Asuitey GuTnrie, Of Counsel. 22 BRIEF IN SUPPORT OF PETITION FOR WRIT OF CERTIORARI. The opinion of the Court of Appeals is not yet reported. It is set forth in full at pages 919 to 937 of the Record. The jurisdiction of this Court is invoked under Section 1254(a), Title 28, United States Code, conferring jurisdic- tion on this Court to issue writs of certiorari to review decisions of the United States Circuit Court of Appeals. The essential points of the case have been sufficiently stated in the foregoing petition for writ of certiorari and in the appendices hereto. SPECIFICATION oF ERRors. We rely here on the following assignment of error: 1. The Court of Appeals erred in sustaining the action of the trial Court in overruling the defendants’ motion to dismiss the indictment, made on the following ground: The conduct of the insurance business in Illinois, is regu- lated exclusively by state law. Under the McCarran Act (Sees. 1011-1015, Title 15, U. S. Code), the laws of Congress on which this prosecution is based, do not apply to the acts alleged in the indictment. (R. 25.) 2. The Court of Appeals erred in sustaining the action of the trial Court in not granting defendants’ motions for acquittal at the end of the Government’s evidencé and at the end of all the evidence. The motions should have been granted because: (a) The evidence did not show that the defendants had any fraudulent or criminal intent. TEER PRER SCR ERNIE ERENT Be ORR R te te A OR OR eae Oot ROSANA SMR ge a5 aah ey aero Sag BE este ent A Re ”