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United States v. Turner

August 20, 2002


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 00 CR 694--David H. Coar, Judge.

Before Bauer, Posner and Ripple, Circuit Judges.

The opinion of the court was delivered by: Bauer, Circuit Judge


Michael Turner embezzled a significant amount of money from his employer, Allstate Insurance Company. *fn1 Turner was a field claims adjuster for Allstate, and he worked out of his home in suburban Northeast Illinois. As part of his duties as an adjuster, Turner was authorized to write settlement checks on behalf of Allstate. Turner wrote eighteen company checks payable to his own order and deposited the checks in his personal bank account. *fn2 The government indicted Turner on five counts of embezzlement, and the other thirteen uncharged checks were considered during sentencing.

In this appeal Michael Turner argues that 18 U.S.C. § 1033 is unconstitutional as Congress has exceeded its authority to legislate under the Commerce Clause. First, Turner asserts that the district court erred in classifying the statute as regulating instrumentalities or things in interstate commerce. Second, Turner avers that neither he nor Allstate Insurance Company are instrumentalities or things in interstate commerce and that his actions were wholly intrastate. Finally, Turner argues that, in the alternative, his activity is only tangentially related to and did not have a substantial affect on interstate commerce. Hence, Turner asserts that Congress cannot regulate embezzlement in a small locality any more than it can regulate shoplifting in Northbrook, Illinois. He asserts that there must be limits on Congress' power because nearly every individual's day-to-day mundane commercial activities, such as shopping at the local grocery store, may, in some way, affect a company which is involved in interstate commerce. For the reasons that follow, we find that 18 U.S.C. § 1033 does not exceed Congress' power under the Constitution to regulate commerce "among the several States". U.S. CONST. Art. I, § 8, cl. 3.


Initially, Turner moved to dismiss the indictment, arguing Congress had exceeded its authority under the Commerce Clause by enacting 18 U.S.C. § 1033(b)(1)(A). The district court denied the motion, and Turner decided to plead guilty, reserving the right to appeal the Commerce Clause issue. The district court sentenced Turner to five months confinement (recommending the sentence be served in a half-way house), and three years supervised release (with the first five months to be served in home confinement). Turner remains out on bond, pending the resolution of this appeal.


We review the determination of a federal statute's constitutionality de novo. United States v. Black, 125 F.3d 454, 458 (7th Cir. 1997). Tuner asserts that 18 U.S.C. § 1033 (which makes it illegal for employees to embezzle--among other things--from insurance companies) exceeds Congress' power under the Commerce Clause, criminalizing a wholly intrastate activity. Turner's specific argument is that: (1) criminal acts are not encompassed within the Commerce Clause power, and (2) even though insurance affects interstate commerce, his conduct, which merely affected the insurance company, did not directly affect interstate commerce and cannot be regulated.

A. The Power to Regulate Interstate Commerce

The Court has enunciated three broad categories of activities that Congress may regulate using the power delegated to it in the Commerce Clause. E.g., United States v. Lopez, 514 U.S. 549, 558-59 (1995). First, Congress may regulate the channels of interstate commerce. Id. Channels refer to the transportation of a commodity or travel in interstate commerce. See, e.g., Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 256 (1964) (interstate travel and places of public accommodation); United States v. Darby, 312 U.S. 100, 114 (1941) (shipment of manufactured goods); Caminetti v. United States, 242 U.S. 470, 489-91 (1917) (women and girls transported for "immoral" purposes); Lottery Case (Champion v. Ames), 188 U.S. 321 (1903) (lottery tickets). Second, Congress may regulate and protect the instrumentalities, persons, or things in interstate commerce "even though the threat may come only from intrastate activities". Lopez, 514 U.S. at 558-59. Instrumentalities, persons, or things in interstate commerce include railroads, aircraft, and trucks. See, e.g., Mitchell v. H. B. Zachry Co., 362 U.S. 310, 323 (1960) (describing railroads, truck companies and airlines as instrumentalities of interstate commerce); Shreveport Rate Cases, 234 U.S. 342 (1914) (railroad shipping rates). Third, Congress may regulate activities having a substantial relation to or substantial affect on interstate commerce. Lopez, 514 U.S. at 558-59. An activity "substantially affects interstate commerce" either directly or when considered with other similar activities in the aggregate. See, e.g., Hodel v. Virginia Surface Mining & Reclamation Assn., Inc., 452 U.S. 264, 276-80 (1981) (coal mining); Perez v. United States, 402 U.S. 146, 156 (1971) (loan sharking); Wickard v. Filburn, 317 U.S. 111, 125-29 (1942) (growing of wheat on a local farm solely for personal consumption).

As the district court found that Congress did not exceed its authority because it was regulating an instrumentality or thing in interstate commerce, we must first determine whether this conclusion is correct. The statute at issue, 18 U.S.C. § 1033, provides, in relevant part: "Whoever--acting as, or being an officer, director, agent, or employee of, any person engaged in the business of insurance whose activities affect interstate commerce . . . willfully embezzles, abstracts, purloins, or misappropriates any of the moneys, funds, premiums, credits, or other property of such person so engaged shall be punished as provided in paragraph (2)." 18 U.S.C. § 1033(b)(1) (emphasis added). *fn3 The statute repeatedly refers to "the business of insurance whose activities affect interstate commerce." 18 U.S.C. §§ 1033(a)(1), (b)(1)(A), (c)(1), (d), (e)(1)(B); see also 18 U.S.C. § 1033(f)(3) (defining "interstate commerce" as used in the statute). Furthermore, the report from the House Judiciary Committee, to whom the bill was referred, also indicates that Congress enacted the law relying upon the third category of authority. The stated purpose of the law was to deal with "interstate insurance fraud schemes" that Congress felt were too complex and that current laws, state and federal, were inadequate to deal with the problem. H.R. Rep. No. 103-468 (1994) (emphasis added).

Turner inferentially bases his argument on the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015, where Congress explicitly allowed the States to continue regulating insurance despite the interstate effects of such regulation. 15 U.S.C. § 1012(b); Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 417-19 (1946). Turner's argument is that insurance and criminal acts such as embezzlement are the province of the States to regulate. Despite the concurrent jurisdictional grant in McCarran-Ferguson and, thereby, the recognition that insurance has intrastate and interstate effects, the business of insurance can and does affect interstate commerce. See United States v. SouthEastern Underwriters Ass'n, 322 U.S. 533, 552-53 (1944); United States v. Robertson, 158 F.3d 1370, 1371 (9th Cir. 1998). As the business of insurance does affect interstate commerce, Congress may choose to regulate it, in whole or part, and those activities that affect the business.

Although Congress chose the "affects interstate commerce" rationale to support this legislation (and we agree that insurance does affect interstate commerce) that does not mean insurance may not also be a channel from which interstate commerce flows. Banks are generally considered vehicles through which interstate commerce emanates, as banks conduct innumerable transactions with persons, companies, and banks in other states and countries. E.g., United States v. Watts, 256 F.3d 630, 634 (7th Cir. 2001); Weir v. United States, 92 F.2d 634, 636 (7th Cir. 1937). Similarly, when a person purchases insurance from a company, the company holds the money in a pool with the money of other insured persons, and later the company pays claimants. Hence, insurance companies provide a vehicle through which premiums from the insured and payments to claimants flow in interstate commerce. Cf. Black, 125 F.3d at 460-62 (finding that child support payments regularly ...

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