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United States v. Ellis

July 24, 1984

UNITED STATES OF AMERICA, PLAINTIFF-APPELLANT,
v.
JOHN ELLIS, JR., DEFENDANT-APPELLEE; UNITED STATES OF AMERICA, PLAINTIFF-APPELLANT, V. DAN ARTHALONY D/B/A DAN'S AUTO SALES, DEFENDANT-APPELLEE; UNITED STATES OF AMERICA, PLAINTIFF-APPELLANT, V. JAMES PATRICK LEIGH, DEFENDANT-APPELLEE



Appeal from the United States District Court for the Central District of Illinois. Nos. 82-30079, 82-30081, and 82-33087 -- J. Waldo Ackerman, Judge.

Pell and Coffey, Circuit Judges, and Fairchild, Senior Circuit Judge.

Author: Pell

Pell, Circuit Judge.

In these consolidated appeals the Government challenges the district court's entry of a judgment dismissing the cases against the defendants after defendant Arthalony was found guilty by a jury and defendants Leigh and Ellis pleaded guilty. Arthalony and Leigh originally were charged with mail fraud and violating the criminal section of the odometer requirements of the Motor Vehicle Information and Cost Savings Act, 15 U.S.C. § 1990c. The jury found Arthalony not guilty of mail fraud and guilty of violating the Motor Vehicle Act. The Government dismissed the mail fraud charges against Leigh, and Leigh and Ellis pleaded guilty to violating the Motor Vehicle Act. The district court then held that the Government was required to prove that defendants acted with an intent to defraud to establish a violation of the odometer regulations and that no such intent was present under the facts of these cases. The court also found that none of the defendants were "transferors" of automobiles within the meaning of the Act and so were not subject to the odometer requirements.

The charges stemmed from two identical schemes entered into by Arthalony and Ellis and Leigh and Dean Lindsey, who is not involved in this appeal. Arthalony and Lindsey are both automobile dealers operating in Illinois. Illinois law requires that automobiles that have been in a serious accident bear the designation "S.V." on the title to indicate a salvaged vehicle. As the designation "S.V." lowers the price for which an automobile can be sold, both Arthalony and Lindsey wished to launder the "S.V." titles they had to acquire titles without the "S.V." designation. Both men accomplished this by transferring titles of salvaged vehicles to dealers in states that do not require any designation of this title of a salvaged automobile. Arthalony transferred his titles to Ellis in Georgia, while Lindsey cleared his through Leigh in Missouri. Ellis and Leigh obtained new titles without "S.V." on them and returned the titles to Arthalony and Lindsey, who then obtained clean Illinois titles and sold the damages automobiles to unsuspecting purchasers.

Of the four men, only Lindsey was convicted of mail fraud. The downfall of Arthalony, Ellis, and Leigh was their failure to comply with the odometer requirements of the Motor Vehicle Act. The Act requires the Secretary of Transportation to promulgate rules requiring the transferor of an automobile to disclose the actual mileage of the vehicle or whether the actual mileage is unknown. The Secretary has promulgated regulations requiring transferors to provide written odometer statements. 49 C.F.R. § 580.4 (1982). In the course of laundering the titles the defendants did not provide the required odometer statements to each other.

The odometer regulations of the Motor Vehicle Act can be enforced through private civil suits, 15 U.S.C. § 1989, actions for injunctive relief brought by either the Attorney General of the United States or the chief law enforcement officer of the state in which the violation occurred, 15 U.S.C. §§ 1990, 1990a, and through criminal prosecution under 15 U.S.C. § 1990c, which provides that:

Any person who knowingly and willfully commits any act or causes to be done any act that violates any provision of this subchapter or knowingly and willfully omits to do any act or causes to be omitted any act that is required by any such provision shall be fined not more than $50,000 or imprisoned more than a year, or both.

A private, civil suit requires a showing of the defendant's intent to defraud, rather than the criminal "knowingly and willfully" standard. 15 U.S.C. § 1989. The Attorney General may obtain either injunctive relief or a civil penalty of up to $1,000 per violation without any showing of intent. 15 U.S.C. §§ 1990, 1990b. Similarly, the chief law enforcement officer of the state in which the violation occurred may obtain injunctive relief without any showing of intent. 15 U.S.C. § 1990a.

In a published opinion the district court held that a prosecution under section 1990c requires the same intent to defraud as does a civil action under section 1989. United States v. Arthalony, 559 F. Supp. 1385 (C.D. Ill. 1983). The court reasoned that the purpose of the Act, which is to protect purchasers of used automobiles, is best served by requiring an intent to defraud in criminal prosecutions. The court noted that Congress added the criminal sanctions in 1976 to bolster enforcement of the odometer requirements, and that Congress had expressed no intention of penalizing actions not previously reached by the civil enforcement provisions. Finally, the court observed that Jones v. Fenton Ford, 427 F. Supp. 1328 (D.Conn. 1977), supported the proposition that the criminal "knowingly and willfully" standard was greater than the civil intent to defraud standard. The court concluded that, "in order for the Government to prove a knowing and willful violation of the Act, it must prove that the act of omission was done with an intent to defraud either an immediate purchaser or to facilitate a fraud upon a subsequent purchaser in regard to the odometer reading of a vehicle." 559 F. Supp. at 1388. .

Shortly after the district court dismissed the cases against these defendants, the United States Court of Appeals for the Eighth Circuit held that a prosecution under section 1990c does not require proof of an intent to defraud. United States v. Studna, 713 F.2d 416, 418 (8th Cir. 1983). The court noted that "knowingly and willfully" has been interpreted in the context of tax statutes to mean "an intentional violation of a known legal duty," without any requirement of an intent to defraud. Id.

The difference between the district court's analysis and that presented in Studna is that the district court apparently did not consider the meaning of the words "knowingly and willfully." The beginning of any statutory analysis is the language of the statute. In United States v. Illinois Central Railroad Co., 303 U.S. 239, 242, 82 L. Ed. 773, 58 S. Ct. 533 (1938), the Court observed that: "In statutes denouncing offenses involving turpitude, 'willfully' is generally used to mean with evil purpose, criminal intent or the like. But in those denouncing acts not in themselves wrong, the word is often used without any such implication." A long line of cases dealing with offenses that are malum prohibitum have followed Illinois Central Railroad and have found that "knowingly and willfully" means exactly what it says rather than containing a hidden requirement of fraudulent intent. See, e.g., United States v. John Henricks, Inc., 388 F.2d 677, 679 (7th Cir. 1968) (conviction for "knowingly and willfully" violating Department of Transportation regulations does not require proof of criminal intent); Steere Tank Lines, Inc. v. United States, 330 F.2d 719, 722-23 (5th Cir. 1963) (same); United States v. Franklin, 188 F.2d 182, 186 (7th Cir. 1951) (conviction for knowingly and willfully falsely representing oneself to be a United States citizen requires no proof of fraudulent intent); United States v. Indiana Trucking, Inc., 300 F. Supp. 765 (N.D. Ill. 1969) (conviction for knowingly and willfully using false freight bills in violation of ICC regulations does not require proof of fraudulent intent); United States v. Lowther Trucking Co., 229 F. Supp. 812 (N.D. Ala. 1964) (conviction for knowingly and willfully operating motor vehicles in violation of federal regulations does not require criminal intent).

In rejecting the normal understanding of "knowingly and willfully" the district court relied heavily upon the apparent conflict between the civil standard of intent to defraud and the criminal standard. Appellees now argue that allowing criminal prosecutions to succeed without a showing of fraudulent intent, while requiring such a showing for private, civil suits, produces an absurd result, and the district court was therefore justified in reading intent to defraud into the criminal provision. We do not agree that prosecutions with a showing of fraudulent intent are absurd. As the court observed in Studna, violations "performed with innocent motives have the same capacity to mislead purchasers as those done with evil motives." 713 F.2d at 418. . Congress may well have granted the Government broader enforcement powers that it wished to grant private plaintiffs on the reasonable assumption that prosecutors would use more discretion in bringing criminal actions than would litigants seeking monetary awards. If anything, the difference in language between the civil and criminal provisions supports the inference that Congress did not intend to require proof of fraudulent intent in criminal prosecutions. Studna, 713 F.2d at 419.This reading of the enforcement scheme is further supported by the fact that civil actions brought by the Government require no proof of intent, indicating that Congress did not intend to limit enforcement actions to those cases in which fraudulent intent could be established.

The court also supported its result by observing that Jones v. Fenton Ford, 427 F. Supp. 1328 (D. Conn. 1977), supports the proposition that "intent to defraud" under section 1989 is a lesser standard than "knowingly and willfully" under section 1990c. All that Jones stands for is that actual knowledge of the untruth of a statement is not required to prove intent to defraud. The court in Jones observed that "knowingly" does not require actual knowledge, but did not hold that "intent to defraud" is somehow a lesser included standard found within "knowingly and willfully". The two standards are simply different. In this circuit neither "knowingly" nor "willfully" has been defined as including fraudulent intent. See Federal Criminal Jury Instructions for the Seventh Circuit, 6.03, 6.04 (1980); United States v. Cina, 699 ...


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