United States District Court, N.D. Illinois, Eastern Division
September 21, 2004.
UNITED STATES OF AMERICA, Plaintiff,
JAMES M. DUFF, PATRICIA GREEN DUFF, WILLIAM E. STRATTON, JOHN J. LEAHY, EDWARD WISNIEWSKI, STARLING ALEXANDER, AND TERRENCE DOLAN, Defendants.
The opinion of the court was delivered by: ELAINE E. BUCKLO, District Judge
MEMORANDUM OPINION AND ORDER
Defendants James M. Duff, William E. Stratton, Patricia Green
Duff, and Terrence Dolan move to dismiss counts 2-15 and 24-30 of
the second superseding indictment (the "indictment").
The indictment charges defendants with conspiracy,
racketeering, mail fraud, wire fraud, and money laundering. The
motion is addressed only to the mail fraud and money laundering
charges. The indictment charges that defendants conspired among
themselves and with others, both named and unnamed, to defraud
the City of Chicago (the City) by falsely representing that
certain entities, which were in fact owned and managed by Mr.
Duff, were qualified as Minority-Owned Businesses ("MBE's") or
Women-Owned Businesses ("WBE's") under Chapter 2-92-420 et seq.
of the amended Municipal Code of the City of Chicago. The
Municipal Code's provisions are designed to provide set-asides
for MBE's and WBE's in connection with large contracts let by the
City for competitive bidding. In order to qualify for the set-asides, businesses must
be at least 51% owned and controlled by one or more minorities or
For purposes of the motion to dismiss, the well-pleaded
allegations of the indictment must be taken as true. United
States v. Yaskas, 166 F.3d 873, 880 (7th Cir. 1999).
The charging allegations are numerous and specific. Using the
charges that involve just two of the Duff businesses as examples,
the allegations may be summarized as follows. Windy City
Maintenance, Inc. was certified as a WBE in 1991 on the basis of
a sworn affidavit and certain other statements made by Patricia
Green Duff to the effect that she was the real owner and
controlled the operations of Windy City Maintenance. In fact, Ms.
Green Duff, who is the mother of James M. Duff, was not the real
owner of the business; it was owned and controlled by Mr. Duff.
In 1994, Remedial Environmental Manpower, Inc. (REM), was
qualified by the City as an MBE on the basis of a sworn affidavit
and other statements of Mr. Stratton, an African-American, who
claimed that he was the real owner and controlled the operations
of REM. In fact, Mr. Duff, not Mr. Stratton, owned and controlled
REM. Similar allegations are made with respect to the other
The indictment charges the pattern of deceit did not end with
the initial qualification of the entities; on-going compliance requirements of the Municipal Code were flouted by similar
deceptions made in subsequent years. As a result, the entities
specifically mentioned above, together with other Duff-owned and
controlled businesses, obtained direct contracts and
sub-contracts worth more than 100 million dollars and generated
payments and distributions for the benefit of the named
defendants and other relatives and associates of Mr. Duff
aggregating more than nine million dollars.
Counts 2-15 allege the facts summarized above and the use of
the mails in connection with the scheme described. Mail fraud is
established as a federal crime by 18 U.S.C. § 1341, which
provides in relevant part:
(W)hoever, 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, . . . for the purpose of executing such
scheme . . ., places in any . . . authorized
depository for mail matter, any matter or thing
whatever to be sent or delivered by the Postal
Service, . . . or takes or receives therefrom, any
such matter or thing, . . . shall be fined under this
title or imprisoned not more than 20 years, or
both. . . .
In McNally v. United States, 483 U.S. 350
(1987), the Supreme
Court held that the "scheme or artifice to defraud" and
"obtaining money or property" clauses of § 1341 were to be construed conjunctively
rather than disjunctively. McNally further held that § 1341
does not reach the intangible rights of the citizenry to good
government. McNally, 483 U.S. at 356.
Defendants' principal argument is that because the City's only
interest in the set-aside program's qualification provisions is
purely regulatory and cannot be deemed "property," no offense has
been stated. They insist that under McNally and subsequent
cases the "property" obtained by scheme or artifice to defraud
must have an economic or pecuniary value.
McNally involved a scheme by which state officials were
alleged to have defrauded the Commonwealth of Virginia when they
failed to advise other Commonwealth officers that they had
pressured the primary broker for the Virginia workmen's
compensation insurance program into splitting commissions on
insurance with an entity the defendants owned. However, no moneys
of the state were involved, because the premiums were actually
paid by private parties. McNally, 483 U.S. at 360. The
possibility that a different result would obtain in a case where
the victim had been deprived of exercising control over how its
money should be spent was expressly recognized. Justice White,
writing for the majority, held that loss of money or property was
an essential element of a violation of § 1341, but noted
specifically that Nor was the jury charged that to convict it must find
that the Commonwealth was deprived of control over
how its money was spent.
McNally, 483 U.S. at 360. A few months after the decision in
McNally, in Carpenter v. United States, 484 U.S. 19, 25
(1987), a unanimous Court held that McNally did not dictate
reversal of mail fraud convictions arising from a scheme by a
Wall Street Journal reporter to deprive his employer of its
property right to exclusive use of information it had collected
prior to public disclosure. The Court expressly rejected the
argument that § 1341 could only be applied to schemes involving
the deprivation of tangible property.
Cleveland v. United States, 531 U.S. 12, 19 et seq. (2000), on
which Defendants also rely, is distinguishable from the case at
bar. In Cleveland, the defendants had obtained by fraud a
license to operate video poker machines. The Court held that such
a license was not "property" in the government regulator's hands,
and that, "Such regulations are paradigmatic exercises of the
States' traditional police powers." 531 U.S. at 23. It
distinguished the regulatory interest of a state from "an
interest that `has long been recognized as property.'"
531 U.S. at 23. The defendants in Carpenter were not alleged to have
deprived the State of the power to control how its money was
spent, but merely to have lied in obtaining a license. In the
present case, the defendants' conduct deprived the City of the
power to control how its money should be spent. Under the minority set-asides established in the
Ordinance, the City made it unmistakably clear how it wanted its
money spent, and defendants' conduct, if true, thwarted the
City's legislative intent. By allegedly falsely representing the
identity of owners and management in Duff family businesses,
defendants are accused of causing over a hundred million dollars
in City money to go to businesses that were neither MBE's or
Defendants' attempt to distinguish other cases cited by the
government is unavailing. United States v. Shyres, 898 F.2d 647
(8th Cir.), cert. denied, 498 U.S. 821 (1990), followed
McNally in holding that the right to control spending is a
property right within the purview of § 1341. Shyres,
898 F.2d at 652. The purported distinction of United States v. Fagan,
821 F.2d 1002, (5th Cir. 1987), cert. denied, 484 U.S. 1005
(1988), on the ground that it was decided before McNally and
did not take into consideration McNally's "property" requirement,
is also incorrect. The Fagan opinion was prepared prior to the
release of the McNally opinion, but the Fifth Circuit took
pains to demonstrate, prior to its publication, that it was
consistent with McNally. Fagan, 821 F.2d at 1010-11 n.
Defendants also argue that the City suffered no actual loss,
because the indictment does not charge that the Duff-owned
companies gave less than full value in providing their services.
They characterize United States v. Granberry, 908 F.2d 278
(9th Cir. 1990) as "not helpful" to the government and argue
further that "Granberry provides no authority for the Court
here" (Defendants' Reply Memorandum 7 n. 4). In Granberry, the
defendant had obtained employment with a Missouri school district
as a school bus driver by deliberately concealing his prior
conviction for murder. The indictment alleged that this deception
caused the State and the School District to be deprived of ten
separate types of money or property, all in violation of § 1341.
The Eighth Circuit held that the types of property described in
charges B 1-3 of the Granberry indictment, which all involved
either the State's processing of employment applications or the
control of distribution of school bus driving permits did not constitute
"property" within the meaning of § 1341 but were strictly
regulatory in nature. However, the Eighth Circuit found that Item
(A) (1), "Money from the Normandy School District in the form of
wages" fell "within the narrowest reading of the ["property"
clause] of the statute." Granberry, 908 F.2d at 279-280. Other
items which the court held were essentially the school district's
"property" within the meaning of the Act were the following: the
exclusive control of the distribution of a limited number of
school bus driving jobs, the exclusive control of how its money
is spent, the exclusive control of who the school district
hired, and the school district's control over the persons and
type of persons with whom it decided to enter employment
The Granberry defendant also argued that the school district
did not lose any money, since it sought and hired a competent
driver. The Eighth Circuit disagreed, holding
What the School District wanted was a competent
school-bus driver who was truthful and had not been
convicted of a felony, and this is not what it got.
The School District has been deprived of money in the
very elementary sense that its money had gone to a
person who would not have received it if all the
facts had been known.
Granberry, 908 F.2d at 280. Thus, Granberry not only follows
McNally in holding the right to control how one's money is
spent is a property right cognizable under § 1341, it also
rejects the notion that one may avoid the sweep of the Section by
showing that the victim received market value for its money.
The assertion that the businesses owned and controlled by Mr.
Duff performed satisfactorily under the contracts obtained by
them through fraud is not a defense to the indictment. Ranke v.
United States, 873 F.2d 1033, 1038 (7th Cir. 1989).
Defendants contend that the sub-contracts between the
Duff-owned businesses they allegedly falsely represented as
qualified for set-asides and Waste Management do not support the
§ 1341 charge of Count Two. Here, they again read McNally
incorrectly, arguing that since the City made no direct payments
to a Duff-owned business under the sub-contracts, the City has
not sustained the monetary or pecuniary loss, which they say
McNally requires. As I have already noted, however, under
McNally pecuniary injury or loss is not an essential element of
a § 1341 offense.
Further, using innocent third parties to effect a scheme to
defraud does not shield the perpetrator from criminal penalties.
Defendants argue that cases relied upon by the government for
this proposition arose under the statute generally governing
conspiracy against the government (18 U.S.C. § 371) which has a
broader sweep than § 1341 (See, e.g., United States v. Barker Steel Co.,
985 F.2d 1123 (1st Cir. 1993)), but this purported distinction
does not make the cases any less persuasive on the issue of third
Defendants ask that Counts Nine Through Fifteen be dismissed on
the ground that all of the mailings of checks from the City
described in those counts were to third party general contractors
Waste Management, Tishman or APMG; that none was a use of the
mails to further a scheme, and that the mailings would have
occurred regardless of defendants' conduct.
The defendants' alleged scheme was a continuing one that lasted
through the 1990's. The core element of the scheme was the
masquerade of Duff-owned and controlled businesses as MBE's and
WBE's, which allowed those entities to gain, fraudulently, large
fees as sub-contractors of the general contractors to which the
checks were mailed. Under § 1341, a mailing will be considered in
furtherance of a scheme to defraud if it is incidental to an
essential part of the scheme. United States v. Fernandez,
282 F.3d 500, 507 (7th Cir. 2002). If the City had not mailed
checks to the prime contractors, defendants' entities would have
gained nothing from their alleged fraudulently obtained status as
qualified sub-contractors. See United States v. Dacri,
827 F.Supp. 550, 555 (E.D. Wis. 1993). V.
Defendants' final argument is that where counts alleging
"specified unlawful activity" are dismissed, money-laundering
charges related to the proceeds of such activity must also be
dismissed. On this basis alone, defendants assert, counts 24-30
of the indictment cannot stand Since I decline to dismiss any of
the prior counts of the indictment on which the money-laundering
charges are based, this argument is moot.
For the foregoing reasons, I deny the defendants' motion to
dismiss in its entirety.