BATES v. UNITED STATES
In 1986, Garrit Bates was appointed to serve as the Acme Institute of Technology's treasurer. In 1987, James Jackson, as Acme's president, signed a program participation agreement with the Department of Education that authorized the school to receive student loan checks through the Title IV Guaranteed Student Loan (GSL) program. Under the GSL program, governing regulations required Acme to return a portion of a loan if the student withdrew from Acme before the term ended. In 1987, Jackson and Bates began a practice of not making GSL refunds. Ultimately, in 1994, Bates was indicted on of "knowingly and willfully misapplying" federally insured student loan funds, in violation of 20 USC section 1097(a). The District Court dismissed Bates's indictment because it lacked an allegation of his "intent to injure or defraud the United States." Reinstating the prosecution, the Court of Appeals concluded that section 1097(a) required the Government to prove only that Bates knowingly and willfully misapplied Title IV funds.
Does 20 USC section 1097(a), which makes it a felony "knowingly and willfully" to misapply student loan funds insured under Title IV of the Higher Education Act of 1965, require an allegation and proof that a defendant specifically intended to injure or defraud either the United States as loan guarantor or another?
Legal provision: 20 U.S.C. 1070
No. In a unanimous opinion delivered by Justice Ruth Bader Ginsburg, the Court held that the specific intent to injure or defraud someone, whether the United States or another, is not an element of the misapplication of funds proscribed by section 1097(a). Justice Ginsburg wore for the Court that, "the text of [section 1097(a)] does not include an 'intent to defraud' state of mind requirement, and we ordinarily resist reading words or elements into a statute that do not appear on its face." In contrast, Justice Ginsburg noted that 20 USC section 1097(d), which makes it a felony "knowingly and willfully" to "destroy or conceal any record relating to the provision of assistance under [Title IV] with intent to defraud the United States" contained an "intent to defraud" element.
Argument of C. Richard Oren
Chief Justice Rehnquist: We'll hear argument now in No. 96-7185, Garrit Bates against the United States.
Mr. Oren: Mr. Chief Justice, and may it please the Court:
This case comes before you today as a result of the dismissal of an indictment by the District Court in the Northern District of Indiana in April of 1995, prior to the taking of any evidence in the case.
However, the challenge to the sufficiency of the... of the indictment actually began many months prior to that in an official conference I had with Mr. Bates in my office.
At that time we went over the indictment paragraph by paragraph.
At the end of that process, Mr. Bates thought for a minute; he looked at me, and he said: Yes, but what is it they're telling me I did wrong?
And I said: Well, Mr. Bates, I believe that they're saying that you misapplied Federal student loan funds.
Mr. Bates thought about that for a minute and then he said to me: Yes, I understand that, but what is it specifically they're saying I did that was illegal?
And I went back and I looked at the indictment and I found that I could not really answer that question for him.
I believe that exchange underscores the importance of this Court's standard for judging the sufficiency of an indictment.
That being that all elements of the offense charged must be stated and that the indictment should fairly inform the defendant of the charges against him, as well as be sufficiently specific to stand as a bar to further prosecutions should there be a conviction or an acquittal.
So what I'm asking of this Court is to strictly examine the indictment that was brought before Mr. Bates... that was brought against Mr. Bates.
Unknown Speaker: When you... you say strictly examine, Mr. Oren, are you suggesting some extremely skeptical scrutiny of the language of an indictment?
Mr. Oren: No, not extremely skeptical, Your Honor.
I... I believe I'm using that in the sense that prior to evidence being taken, the only thing we have to look at is the indictment.
If... if there was dismissal after evidence had been taken, then I think that if there was no prejudice shown, then if the indictment was not sufficient, it would still not really--
Unknown Speaker: So here you're saying all we have to look at is the indictment and nothing more than that?
Mr. Oren: --That's... that's correct, Mr. Chief Justice.
The indictment here is set forth in the joint appendix at pages 2 through 12.
It is actually structured in two portions.
The first portion is a series of basic background factual allegations.
And the second portion are 12 specific charging counts, if you will.
Directing the Court's attention to the first, the factual allegations, it provides, first of all, various background information and then some specific allegations of conduct against Mr. Bates... or by Mr. Bates.
As a background information, it... it alleges that a James and Laurenda Jackson owned the Ax... Acme Institute of Technology.
Unknown Speaker: Now... now, Mr.... Mr. Oren, the question presented here in the petition for certiorari is whether intent to injure or defraud the government is an element of the offense of knowingly and willingly... willfully misapplying Federal student loan funds, in violation of the statutory section.
And I... I think the... the government apparently agrees that the indictment does not contain any allegation that it was done with an intent to injure or defraud the United States.
So the question we have before us, as I would understand it, is: Is that an element of... of the offense?
And I don't see why we need to be concerned with the various detailed allegations of the indictment.
Mr. Oren: My reasoning for bringing this to the Court's attention is that the... again, the sufficiency of the indictment depends, I believe, on the actual setting forth of the elements of the offense in the indictment.
Unknown Speaker: Yes, but we're... we're not canvassing the indictment for some shortcoming.
It's a very precise issues that's... that you have presented in the question for certiorari.
Mr. Oren: --Yes, all right.
Assuming, then, that the government is agreeing that there is no factual allegations alleging... of the elements of the... of the offense, as we believe it to be--
Unknown Speaker: Well, there's no agreement on whether it's an element of the offense.
I mean, whether fraudulent intent is an element, is there... there's no agreement?
Mr. Oren: --No, there is not.
It is my understanding that, at least in the courts below, the government has agreed that conversion, or un... unauthorized use of property to the benefit of the defendant or a third party, is an element of the offense.
But where there is no agreement between the government and Mr. Bates is that... whether or not fraudulent intent or criminal intent is an element of the offense of knowingly and willfully misapplying student loan funds.
Unknown Speaker: Well, it doesn't say it's... here's the statute, 1097(a)... it doesn't say
"with intent to defraud the United States. "
Why should we read that into it?
Mr. Oren: Well, this does present an issue of statutory construction, Justice Ginsburg.
I believe that there are four principles that... of statutory construction that would support this reading.
The first of that is... the first principle would be the actual language of the statute itself.
I believe there are indications in there that... of the scienter element.
That being the words of the term "knowingly and willfully", as modifying "misapplies".
Unknown Speaker: Well, he was charged with that... several counts of knowingly and willfully misapplying Federal money, was he not?
Mr. Oren: Yes.
Unknown Speaker: That was the language used.
Mr. Oren: That... that is correct.
Unknown Speaker: And your argument, as I understand it, is that "knowingly and willfully" somehow incorporates a fraudulent intent, even though the statute otherwise, in describing not merely the... in describing not the... the... the offense of misapplication, but a different kind of offense, of obtaining, refers expressly to fraud as one forbidden means of obtaining property.
And... and isn't that the nub of your problem?
The statute refers to fraud elsewhere, but you want us to import the concept of fraud into... into a term which, on its face, has no apparent reference to fraud?
Mr. Oren: I am using the term "fraudulent intent", I believe, as synonymous with or indicative of what would be called specific intent of the common law or illegal purpose.
I think fraudulent intent is actually very descriptive of specific intent when it comes to the use or misuse of money.
So what I am suggesting is that fraudulent intent is specific intent or illegal purpose, and that that is in fact an element of the offense of misapplication of funds.
Unknown Speaker: Well, leaving aside whether you are entitled to or not, didn't you get... didn't the Seventh Circuit take the position that the government would have to prove... under the... the concept of "willfully", that the government would have to prove that the misapplication was made with an understanding of... of... of... that it violated the law?
Wasn't that the Seventh Circuit's definition of "willfully"?
Mr. Oren: The Seventh Circuit, in my estimation, issued an opinion which was slightly confusing.
Because, in one part, they did refer to the burden of the United States to actually prove some knowledge of wrongdoing.
Yet, on the other hand, they said that the offense of willful... of willful... knowingly and willfully misapplying funds did not include the... the element of fraudulent intent.
Unknown Speaker: Yeah, but fraudulent intent, as we normally use the term, is something different from an intent to misuse property with knowledge that the misuse is in fact forbidden by a Federal statute.
Those are two different concepts.
And I don't see any inconsistency between those two aspects of the Circuit opinion.
Why are they inconsistent?
To obtain by fraud, as we normally mean it, is to... is to make a... a misrepresation... misrepresentation of fact to someone as a means of getting that person's property.
Mr. Oren: Yes.
Unknown Speaker: And that's something entirely distinct from committing an act, whatever the act may be, with the knowledge that there is a statute that forbids the act.
And it seems to me that that's the... that's the distinction, certainly, inherent in the Seventh Circuit opinion.
And I don't see why it's a distinction that isn't a perfectly valid one.
Mr. Oren: I would... I... I guess, rely on the Morissette case, where the... this Court held that a knowing conversion of government property included a criminal intent, which would require the government to show that the defendant, Morissette, had knowledge of all the facts, which would have made his conduct a conversion.
And I do not believe that that holding is exactly what was being stated by the Seventh Circuit.
Unknown Speaker: It seems to me that... it seems to me the equivalent of that in the current context would be knowing all the facts that renders the... the action a misapplication.
Wouldn't that be the precise equivalent of what went on in Morissette?
Mr. Oren: Yes.
Unknown Speaker: And... and do you think the... do you think the holding here did not require him to know all of the facts that... that rendered this a misapplication?
Unless I'm mistaken, you're... you're demanding that he know more than the facts that rendered a misapplication.
You're demanding that he not only knew all those facts, but that he also had some... what should I say... criminal motive in the misapplication.
And I thought that's what we're fighting about.
And I don't see that Morissette speaks to that at all.
Mr. Oren: I believe that Morissette speaks to this issue in this way.
Morissette referred to a species... or it referred to every stealing being a conversion, yet not every conversion being a stealing.
What Morissette, I believe, was doing was distinguishing between the tort of conversion as opposed to a criminal conversion.
And in... in... again, in Morissette, they referred to a type of conversion which could occur when the property first came into possession of the defendant in a lawful manner, but was later misused.
And I believe that that type of conversion, that species of conversion, is exactly what misapplication is.
Unknown Speaker: Well, Mor... Morissette was a statute which didn't contain any requirement of intent, wasn't it?
Mr. Oren: I believe that it stated the modifying term of "knowing conversion" in... in the statute.
To that extent, it... it did indicate that there was an element of tent... of intent present.
Unknown Speaker: The words of Morissette are... are these: A knowing conversion requires more than knowledge that the defendant was taking property into his possession.
He must have had knowledge of the facts, though not necessarily of the law, that made the taking a conversion.
Now, if you apply that same text to the present case, I think you'd say... you'd say, knowing misapplication requires more than knowledge that he was applying the property; he must have had knowledge of the facts, though not necessarily the law that made the application a misapplication.
And... and there's no quarrel that that's properly charged, is there?
Mr. Oren: No.
That... I... I believe that would be a proper statement as to the offense of misapplication.
And I don't believe that I was trying to suggest anything more than that in my use of the term "fraudulent intent".
Unknown Speaker: But the... the Seventh Circuit would give you even more than Justice Scalia just suggested that you were entitled to.
Under the Seventh Circuit opinion, you would... you would be entitled to an instruction that the government had to prove that you knew you were violate... your client knew that he was violating the law.
So you're getting more, in fact, than... than... on your... on your own theory, Morissette would give you.
Mr. Oren: I really do not know how to answer that.
I did not read the... the Seventh Circuit opinion in that... in that manner.
Unknown Speaker: What do you do with the... the 1097(d), which states, in so many words, that there must be an intent to defraud the United States, with intent to defraud the United States?
That very language in the same section, in (d), is omitted from (a).
So if it's in (d) and it's not in (a), wouldn't one infer that Congress didn't mean it to be read into (a)?
Mr. Oren: I believe that, first of all, they're talking about two separate types of actions in (a) and in... and in (d).
I think the... and in subsection (d), they're talking about destroying or concealing property with fraudulent intent.
In those words, in normal usage, would not be... destroying and concealing property would not ordinarily have a criminal consequence.
Unknown Speaker: Didn't you win this?
I mean, I... I'm trying to put your argument in a way that, to me, was the strongest.
And maybe you don't mean it this way.
But... but there seem to be two parts.
One, in the "willfully" part... and I take it you won that... that the government is going to show that your client knew that what he was doing was unlawful.
Didn't you win that part?
Mr. Oren: I believe perhaps we did, yes.
Unknown Speaker: All right.
So the government would have to show, whatever your client did, he knew it was unlawful, as far as the lower opinion goes.
Then there seemed to be a second part, what you're calling fraudulent intent, which doesn't have to do with the first part.
Now, in reading the opinion, but not your brief, I thought they were... the words "fraudulent intent" covered two separate things: intent to defraud, which isn't involved here because there isn't a misrepresentation, or intent to injure.
They worked with that second part, "intent to injure or defraud": intent to injure the government or to defraud the government.
And, of course, the government would show intent to injure, in that it would be the known consequence of what your client allegedly did.
He deprived the government of the use of some money.
That injures the government.
I took the Circuit as saying the issue is whether there has to be a specific intent to injure; i.e., do they have to show that your client wanted, in the sense of purpose, to hurt the government?
Mr. Oren: Yes.
Unknown Speaker: Now, if you're going to tell me this argument is not in the case, I'm prepared to forget it.
And I don't want to make an argument for you, but I... I... I want to... when I read the... not necessarily the brief, but the opinion below, I thought maybe you were talking about specific intent to injure the government.
If you're not, if you're talking about specific intent to defraud the government, I agree with Justice Souter; I don't see that it's here.
Mr. Oren: Right.
I believe I was using the term "fraudulent intent" to refer to specific intent and illegal purpose.
As that relates to this indictment, I do not believe that the Seventh Circuit opinion would have provided us with any greater information about what use the government was alleging was the problem with Mr. Bates' conduct.
Unknown Speaker: Do you agree that, if all of the facts in the indictment are established, that there was a misapplication?
Mr. Oren: No, I do not.
I do not agree with that.
I do not believe that the indictment states facts that show a misapplication, nor--
Unknown Speaker: Well, is... is... is that the problem, then, and... and not the precise formulation of the scienter that's required, since we have "knowing and willful"?
Why was there no misapplication, in... in your view?
Mr. Oren: --The indictment does not state any factual allegation of any use of the funds by Mr. Bates.
It does... it states, I believe--
Unknown Speaker: Wait a minute.
Does... does he have to use the funds, if he... if... if one diverts funds from, say, a trust fund... I know that that wasn't what this was... but if one diverts funds for an unauthorized purposes, that's a misapplication, is it not?
Mr. Oren: --Yes.
Unknown Speaker: So it doesn't have to be for his own use.
Mr. Oren: --The allegation is not in the indictment that Mr. Bates did anything with the funds.
Unknown Speaker: But what are the allegations as to Bates' conduct were sufficient to state an offense?
That's not the basis on which the District Court dismissed the indictment and that's not the basis on which the Court of Appeals reversed the District Court.
And that's not presented in your question here.
Mr. Oren: The argument that I have presented consistently from the District Court's opinion was that there were no factual allegations setting forth the elements of the offense.
And if you look at the--
Unknown Speaker: You're... you're limited, Mr. Oren, to... to the question presented here.
And the question presented in your petition is whether intent to injure or defraud the government is an element of the offense of knowingly and willfully misapplying Federal student loan funds, in violation of the statute.
Mr. Oren: --Yes.
I agree that is the question presented.
The reason we got to that point as being the question presented is because there was nothing in the factual allegations to suggest the elements of the crime.
And if you look at the actual charging counts, it states the words of the statute.
And it's our position that the term "misapplies" is intrinsically vague.
Unknown Speaker: Well--
Mr. Oren: And--
Unknown Speaker: --But, now, it does allege that he did knowingly and willfully misapply; there's no doubt about that, right?
Mr. Oren: --That's... that's correct.
But it is intrinsically vague.
Thus, I believe that to meet the standards of actually setting forth the elements, the... the indictment should have stated at least the conceptual elements of the--
Unknown Speaker: But that... that's not the question you've brought here.
The... you know, I don't want to repeat it again.
Mr. Oren: --Yes.
Unknown Speaker: But we granted certiorari on a particular question, and it's not that one.
Do you understand what I mean?
Mr. Oren: Yes.
Yes, I do, Your Honor.
Unknown Speaker: Would it help if I asked what do you think they should have added... maybe that would... in terms of purpose of fraudulent purpose?
What I read is that they say that Mr. Bates was the treasurer; that by March '89, the refund liability had grown to 85,000; that there was a report which said that the institution of which he was the treasurer didn't make the refund to the government, and instead loaned a lot of money to the chief trustee and other institutions.
And in light of that, I take it, he... they charged that the defendant knowingly and willfully mis... misapplied the money, or some of that money.
Now, what, in your opinion... what word should have been added to this indictment that would help, from your point of view?
Mr. Oren: Well, I think, at the very least, that the... the indictment should have stated that it... that the defendant did knowingly and willfully misapply funds, in a certain amount, by converting those funds to his use, with--
Unknown Speaker: By what?
I'm sorry, I didn't hear.
Mr. Oren: --By converting those funds to his use, or the use of a third party, with intent to defraud.
That, I believe, would have made this indictment barely sufficient, so that Mr. Bates would have at least known the essence of the charges against him.
Unknown Speaker: Well, he knew the charge was... was that he knowingly and willfully misapplied.
If I understand your position, he knows that the statute requires you to use the funds for X.
He knowingly and willfully uses the funds for Y, and, according to the Court of Appeals opinion, knowing that that's a violation of the law.
He not only knows that he's using it for Y instead of X, but he knows that that is a violation of the law.
You say that that's not enough, right?
You're saying he must, in... in addition to misapplying it, intend, by the misapplication, to defraud the government?
Mr. Oren: I really did not intend for the... I... fraudulent intent... I did not mean to convey the thought that... that fraudulent intent was specific as against the United States.
That, I believe, was the--
Unknown Speaker: Or to defraud somebody.
Mr. Oren: --To defraud someone.
Unknown Speaker: To defraud... defraud someone.
It's not enough that he knows the statute tells me to use the money for X; I'm going to use it for Y.
And you say he can do that without violating this statute so long as, in ignoring the command to use it for X, he was not trying to defraud anybody.
He's just... he just... I don't know... he thought the statute was silly or inconsequential, so he said, I'm not going to use it for X, I'm going to use it for Y.
And you say that's okay; that... that maybe... maybe they can get that corrected, but it's not a crime.
Mr. Oren: I believe my point was that we are not informed of what the factual misuse is.
Unknown Speaker: No, now you're back to the pleading question--
Mr. Oren: Right.
Unknown Speaker: --that the Chief Justice keeps telling you is not in this case.
It's really not in this case.
I mean, you've got to get back to tell us what you... what it... what it is.
Anyway, they do say what the factual thing is.
They say that it went to the... he used the money for these other people.
He... he gave it to the... he loaned substantial amounts of money to the chief trustee and a non-related profit-making institution.
Mr. Oren: In which paragraph of the indictment?
Unknown Speaker: In... in paragraph 13.
Mr. Oren: That statement, or allegation, does not say anything about Mr. Bates' conduct.
They... there are a lot of allegations in this about other people; that doesn't inform us about Mr. Bates' conduct.
And the reason that I have used the term "fraudulent intent" is that I was using it in the sense that it was used... in the sense that it is a specific intent, an illegal purpose, to distinguish the same type of... of behavior in a misapplication scenario, as was distinguished in Morissette, a... the tort of conversion from the crime of conversion.
I believe this is just a subset of that, and that, at the very least, that element of fraudulent intent should have been set forth in the indictment, inasmuch as that would have--
Unknown Speaker: Well, it really boils down to what does the word "misapply" or "misapplication" mean.
They said "knowingly misapply", and you say, when you say "misapply", it includes a lot of other stuff other than doing the wrong type of thing with the funds... knowing what the right thing was.
But this all turns on what the word "misapply" means, doesn't it?
Mr. Oren: --Yes, it does.
Unknown Speaker: You read a lot into it; they read very little into it.
They wouldn't even read the... as I read their brief, they wouldn't even require you to know that it was a misapplication.
All you have to know is what you did with it.
Which seems a little extreme to me.
Mr. Oren: Yes.
Unknown Speaker: Yes.
Thank you, Mr. Oren.
Mr. Oren: Thank you.
Unknown Speaker: Ms. Blatt, we'll hear from you.
Argument of Lisa Schiavo Blatt
Ms Blatt: Mr. Chief Justice, and may it please the Court:
The decision below is correct, because both the text and structure of Section 1097 compel the conclusion that an intent to injure or defraud is not an element of the misapplication offense.
Unknown Speaker: But would you agree with the... with the Circuit that the misuse has to be knowing, that it's an exercise of control or dominion that's a violation of the law?
Ms Blatt: No... I mean, yes, we disagree.
In our view, the word... all that's required is that the defendant know that his use of the money is unauthorized.
The defendant does not also have to know the source of the prohibition or that using the money in an... in an unauthorized manner was a violation of the law.
Unknown Speaker: If the term "misapply" is not clearly established in the law, then does not that argue in favor of... of interpretation of "willful and knowingly" such as the Circuit gave, knowing that is a violation of the law?
Because "misapply" is... is, I take it, not a well-settled term in... in our jurisprudence... or is it?
I don't know.
Ms Blatt: The Court said in United States v. Britton, in 1883, that misapplication was not a technical or a word at common law; it was a word created by statute.
And in that case, the Court gave it a definition of misapplication to one's use or the use of another of someone else's funds.
And that meant it was a conversion.
Unknown Speaker: These funds did not have to be segregated at... at the time of the conduct here, did they?
They didn't have to be put in a segregated account, did they?
Ms Blatt: That's correct.
Unknown Speaker: Could a third-party creditor have levied on them?
Ms Blatt: I... I don't know the answer to that.
Unknown Speaker: Ms. Blatt, let me... let me just raise the difficulty that I have with... with the government's position that the... the source of the prohibition need not be shown; that the knowledge of specific illegality need not be shown.
The mens rea requirement is knowingly and willingly.
And if... if we exclude from the possible meaning of "willingly" this intent to defraud... and I... I will so assume, what's left for the meaning of "willingly" as... or "willfully"... I'm sorry... as something in addition to "knowingly"?
The... the Circuit, I thought, made a pretty good... good guess at it.
And I realize that our prior cases that have construed it that way have been tax cases, but what else could it plausibly mean?
Ms Blatt: Well, we think here it means what it means in almost every case.
And that is "deliberately".
Which is... which is how the Court construed the words v. Browder.
And the... and so the common understanding of the word "willfully" is intentionally.
Unknown Speaker: What... what is "knowingly", then?
Yeah, that's the... that's the trouble.
--It just repeats "knowingly".
I mean, surely "knowingly" means "intentionally", you know.
Ms Blatt: --Sure.
Let... let me address that in... in several parts.
This Court, in Morissette, said... used the words, both "intentional" and "knowing".
And you could certainly have a knowing act that's not deliberate.
I agree that it would be very difficult to have a deliberate act that's--
Unknown Speaker: Well, you could have a knowing act that is not purposeful, in the sense that the model penal code makes the distinction.
But how can you have a knowing act that is not deliberate?
Ms Blatt: --I... I push you into someone and you knowingly hit that person, but you're not deliberately hitting that person.
Unknown Speaker: It's not voluntary.
Ms Blatt: Right, it's not vol... right--
Unknown Speaker: So that that's--
Ms Blatt: --right.
In our view, the word "willfully" means voluntary, deliberately, in the sense that the act is... is done voluntarily.
Unknown Speaker: --But when you--
Ms Blatt: Which is, again, I think, the way the Court construed it in Browder.
But let me make one other point.
If you construe the word "willfully" to mean a voluntary, intentional violation of a known legal duty, as in Pomponio, I... I still think you have the same problem with the word "knowing".
Because it's hard to have an unknowing, intentional violation of a known legal duty.
Unknown Speaker: The government didn't cross-petition here, did it?
Ms Blatt: No.
Unknown Speaker: So we really don't have to decide--
--whether the Court of Appeals was right in what it said?
Ms Blatt: That's exactly correct.
We just wanted you to know our view.
And... and, in our view, the words "willfully and knowingly" would just require that the defendant know that his use of the funds was unauthorized.
Unknown Speaker: But you... but you... you do seem to say that he had to know that it was unauthorized.
So he has to have some knowledge of the duty, some knowledge of what his duties were.
Isn't that your position?
Ms Blatt: Yes, the defendant must know that the money in... in this case belonged to the... the lender after the student withdrew.
He did not have to know that the source of the... of the prohibition of holding on to the money when it belonged to someone else.
Unknown Speaker: But did he not, un... under your view, have to know that there were regulations out there that required him to use the funds in one way rather than another?
Ms Blatt: No, not in the sense of specific regulations.
It so happens in this case that it is alleged that the defendant was familiar with the Department of Education's regulations.
Unknown Speaker: Well, at page 15 of... of your brief, you say the element requires that the defendant be aware that his use of the funds is unauthorized or wrongful.
Ms Blatt: That's correct.
Unknown Speaker: I... I'm not quite sure how that squares with the answer you just gave Justice Stevens.
Suppose he doesn't know about the regulation?
Ms Blatt: --Right.
Well, he'd have to have some other way of knowing that the use was unauthorized, such as the school's manual required the refunds back to the lender in order to reduce the student's debt.
Unknown Speaker: So there... there's a... a felony if you violate the... the... the provisions in a school's guidebook or manual?
Ms Blatt: There's a felony if you knowingly and intentionally convert money when you know the money truly belonged to someone else.
And that's a... it's definitely... it's a property crime.
It's the crime of conversion.
And all we're saying here is that the defendant's acts must be deliberate and the defendant must know that this money belongs to someone else.
Unknown Speaker: Well, the ordinary person, I guess, knows when he takes somebody else's money and uses it to buy something that the other person doesn't really want him to do, that that's probably a crime... ordinary conversion.
Ms Blatt: Right.
And what this--
Unknown Speaker: And, all right, what about the 40,000 pages of... of rules that govern, in detail, how one is supposed to apply Federal money; anyone who violates any one of those rules is... is guilty of a crime?
Ms Blatt: --No.
I mean, there would have to be two things.
There'd have to be the requisite criminal intent, and there... there would also have to be the conduct of the conversion.
And just a... a technical violation of the rule... for instance, if the defendant miscalculated the amount of the refund, that would be a violation of the regulation, but you wouldn't have the requisite criminal intent.
Unknown Speaker: What do you mean by requisite criminal intent?
I don't understand.
Ms Blatt: That the defendant... that his conduct be deliberate, and the defendant know that the money should have been returned.
Unknown Speaker: For what reason should it have been re... just have some general hunch it should have been returned or must he know why it should have been returned?
Ms Blatt: In this case, and in most cases, the source of the knowledge is going to be the law, because it will be the Department of Education's regulations.
Our point is that the word "willfully" does not have this meaning of requiring knowledge of illegality.
Which is the way the Court of Appeals construed it.
Unknown Speaker: But do you... do you understand this indictment to require the prosecutor in this case to prove that this defendant knew that there were regulations that he'd violated?
Ms Blatt: No.
The indictment just said he had to act willfully.
Which, again, in our view, would mean he had to act deliberately.
Unknown Speaker: But you also said with criminal intent... he could have criminal intent even if he did not know that the regulations prohibited what he did.
Ms Blatt: As long as he has another... some knowledge that his conduct was prohibited.
Unknown Speaker: But the only thing that prohibited the conduct was the regulations.
That's the... that's the source of his duty to do something else.
And you say he does not have to know... he has to know the duty.
How could he know the duty without knowing what the regulations require?
I don't understand.
Ms Blatt: He could have... the source of the duty could not only come from the school's manual, it could come from his boss--
Unknown Speaker: But... but it didn't in this case.
Ms Blatt: --Right.
Unknown Speaker: We're trying a particular case in which it... there was a misapplication, because what he did, did not conform to some regulations.
Ms Blatt: Right.
Unknown Speaker: You agree you must prove that he knew what he did was wrongful.
And the only reason it would be wrongful was that he didn't comply with the regulations.
But you say you don't have to prove he... he knew he was not complying with the regulations.
Ms Blatt: In this--
Unknown Speaker: Your position is inconsistent.
Ms Blatt: --In this case, Justice Stevens, I think the proof would come, and the indictment does allege, that the defendant knew of the legal requirement to pay refunds.
Unknown Speaker: So, then, you are... are agreeing that in this case you must prove that he knew he was violating the regulations?
Ms Blatt: No; I'm saying in this case we can prove that.
I'm not saying that we must prove it.
Unknown Speaker: Well, how else could you prove a knowing misapplication in this case?
Ms Blatt: Oh, in this case, if the defendant had read the manual or if the defendant had a discussion with the financial aid director and the financial aid director said the Department of Education requires this.
He would understand that okay, this money needs to go to a lender.
And he's intentionally engaging in a wrongful act by holding on to it.
Unknown Speaker: But that's because you would have proved that he knew that the regulations required it.
His knowledge may have come through an oral conversation; he doesn't have to read the regulation.
But I... I do think you either have to agree that you have to prove that he knew he was violating a government command or you don't have to prove it.
And I think you've admitted you do have to prove it.
Ms Blatt: No; I... I've admitted we can prove it.
I don't think we do have to prove it.
Unknown Speaker: But what other way could you prove know... knowing misapplication in this particular factual context?
Ms Blatt: If the school's manual set forth... which, in this case, it did... the duty to return money after a student's withdrawal.
You could also have a situation where the person--
Unknown Speaker: Do you think that would be a crime even if the government regulations didn't require it?
Ms Blatt: --No.
That wouldn't be a crime... not because of the intent, you just wouldn't have the crime of conversion.
If the money is in fact not used consistent with its authorized purposes, you would not have a crime to begin with.
Unknown Speaker: Yeah, but, Ms. Blatt, I'd... I'd really like to at least get a... a few of your thoughts on the issue that was actually brought up before us.
And... and if... if no one else thinks it's even worth talking about, I do anyway.
Let's assume... it seems to me it... it's... it's not as cut and dried as... as you make it out.
You... you have a list of words: embezzles, steals, obtains by fraud, false statements or forgery.
And in the midst of those words you have another word thrown in that... that doesn't have as much currency in... in the common law, "misapplies".
Now, it's a rudimentary canon of interpretation... it's called ejusdem generis... that when... when you have a general word that's in a catalog of other words, you give it the same... the same coloration that those other words bear.
That seems very extraordinary to me to find the word "misapplies", as you interpret it, just, you know, well, I know it ought to go in this account, but, you know, I'm going to put it... what... what's the difference, you know.
I'm not... I'm not stealing it.
It won't hurt the government.
I'm just going to put it in this other account.
I know it's the wrong account, but I think it's just as good, you know.
To find that word, as you interpret it, in the middle of these other ones... embezzles, steals, obtains by fraud, false statement or forgery... and then, you know, to have a... a 1-year--a 1-year imprisonment for it.
Why shouldn't I apply the... the... the canon of ejusdem generis and say, yeah, well, I know, you know, it's... it's a strange word, "misapplies"... but if it said "takes", I certainly wouldn't say, if... if you... if you took it without any intent of... of keeping it or anything like that, I... I think it's... it's very plausible that you have to have some wrongful intent in the misapplication, other than you just know you're putting it in the wrong account number.
I put it in account 1001 instead of 1008.
That's not embezzles, obtains by fraud and so forth.
Ms Blatt: Justice Scalia, we interpret the word "misapply" to mean convert.
Which is... in Morissette, this Court construed, in... in connection with similar words, such as "stealing" and "embezzlement".
And the Court said that there are distinctions between those terms.
And there's nothing innocent about using property in a way you're not supposed to use it.
And... and... and as long as you are performing an act that's deliberate and you know that you're use is unauthorized, it should be a crime.
You don't separately need to prove fraudulent or injurious intent.
And, again, not only do we have the... the text of the statute, where fraud is separately prohibited, but we have the words
"with intent to defraud the United States. "
in... in subsection 1097 (d).
And it's... it's those textual features and structural features that make it clear that an intent to defraud or an intent to injure is not an element of the misapplication--
Unknown Speaker: Suppose that... that you have a university where you're a financial officer and you are dealing with lots of money.
And there are probably rules that are... fill dozens of manuals.
And you perhaps know them.
And one day you say, my goodness, I'm going to pay the grounds men and not the professors for a week.
And the reason you're doing it is there's some kind of odd shortage and they're poorer, so you want to pay them.
Is it against the manual rule?
You know it.
You'd never think it was a crime.
Now, on your interpretation of the law, they're guilty.
On that interpretation of the law, looking at your statement of the question, which you thought was a rephrasing of his statement, why wouldn't you read the statute that there would not only have to be knowledge that your conduct was injuring the government, but that you would have to want to injure the government; i.e., you'd have to have a specific intent to injure the government before you would be guilty under such circumstances of a felony?
Now, that's... that's taking your... I don't know that I agree with your interpretation--
Ms Blatt: --Right.
Unknown Speaker: --but assuming that I did agree with your interpretation of 1 of 5,000 accounting manuals that are in a university, shouldn't that person at least have to want to hurt the government, rather than just knowing that the government will be deprived of 10 minutes use of some funds that he put in a different account?
Ms Blatt: We do not think an intent to injure is required.
And even under the common understanding of conversion and embezzlement, the law is quite well... well settled that an intent to replace the money is not a defense.
So you could take your employer's money--
Unknown Speaker: Your view, then, is what Congress intended is to take any person in a university educational institution anywhere, and all they do is have to know that somebody in the organization told them, put the money over here rather than there, they're guilty of a felony?
Ms Blatt: --Well, you still have to have the underlying conversion.
And in the example you gave, I don't--
Unknown Speaker: The underlying conversion, according to you, is to take some government funds and use them in any manner, for however short a period of time, contrary to what your boss told you should be done--
Ms Blatt: --Well, and... and--
Unknown Speaker: --and the regulation supports the boss?
Ms Blatt: --No.
And of course you have to convert it to your own use or the use of another.
Unknown Speaker: Well, the use told about was not necessarily your personal desire.
Ms Blatt: Right.
Unknown Speaker: You desired to put it in account A rather than account B.
Ms Blatt: Well, it still has to be for either your use or the use of a third party.
Unknown Speaker: --I suppose, under Justice Breyer's hypothetical construction, it would be a defense for a person to say, I knew I was taking $40,000 of the government's money, but I didn't intend to hurt them; they have millions back in Washington?
Ms Blatt: Right.
And it's... it's not a defense to--
Unknown Speaker: That suggests that something is wrong somewhere.
Ms Blatt: --No--
Unknown Speaker: --Just another--
Ms Blatt: No.
You can't... I mean, it is... really, it is quite well settled that it's not a defense to either embezzlement or conversion to take money, hoping that the person is not hurt because you're going to give it back.
And here, the school cannot defend on the argument that, well, we didn't intend to hurt the government, because these students are ultimately going to repay the loan; the government is not going to be hurt.
Or we intended to pay the refund some day.
Unknown Speaker: --Well, this wasn't embezzlement, because the funds could be commingled and... and be used, I take it, for other purposes, provided some other funds were adequate, ultimately, to make up the shortfall; isn't that the rule?
Ms Blatt: The... the crime here, Justice Kennedy, is... is on the failure to refund on the 60th day.
And so the... how they spend the money up until the student withdrawal and the amount--
Unknown Speaker: So if... if a thief comes in and... and takes... and takes the money, it's still a violation not to refund it?
Ms Blatt: --Oh, if... if they can't... if it's... if they... if it's not a voluntary act, because someone stole the money--
Unknown Speaker: But I... I thought you said the vi... the violation is not making the refund within 60 days.
Ms Blatt: --With the requisite intent.
And that would have to be both a voluntary act and a knowing act.
And if someone stole other monies--
Unknown Speaker: Well, they don't have the money because they... A, somebody stole it; B, they paid some other account.
Ms Blatt: --Well, the distinction, again... and I think the words "knowingly and willfully" would take care of that and you wouldn't, in any event, need to read intent to defraud into the statute... but the issue would turn on whether the act is voluntary and knowing or if, for some reason, it was beyond the defendant's control.
And... but that would be the... the guiding principles.
And if a defendant is intentionally spending this money that's not theirs and that's not earned until the student finishes the term, and doesn't pay the refund obligation, knowing the money has got to go back to the lender within 60 days, you have a misapplication of Title IV funds.
Unknown Speaker: Suppose they think they're going to get other sums to make up the shortfall, and they just... and they... and they don't, something just happens?
Ms Blatt: They should not have been spending unearned money.
And if they're intentionally spending that unearned money... and... and these schools are fiduciaries with respect to this money as well... if they do not organize their affairs, or intentionally organize their affairs such that money is not available and students withdraw, in our view, the statute would cover it.
But... but... but, again, I mean, the issue is whether an intent to defraud or injure would be required, when there's nothing in the text or the history or the structure of the statute to suggest that it should be read into it.
I don't... in conclusion, if there are no questions.
Chief Justice Rehnquist: Thank you, Ms. Blatt.
The case is submitted.
Unknown Speaker: The honorable court is now adjourned until tomorrow at ten o'clock.
Argument of Justice Ginsburg
Ms Blatt: This case concerns 20 U.S.C. section 1097(a) which declares it a felony to misapply federally insured student loan funds, knowing and willfully.
The question presented is whether Section 1097(a) demanded allegation and proof that the defendant specifically intented to defraud someone, either the United States as loan guarantor or another.
We hold that the government need not prove that the defendant had an intent to defraud the United States or another and affirm the judgment of the Court of Appeals for the Seventh Circuit.
The federally insured student loan program involved in this case works as follows: Banks lend money to students pursuing post secondary education.
The lenders send checks covering tuition directly to the educational institution which credits the bank's loan against the student's tuition debt.
The government guarantees payment of the loan to the students default, if the student withdraws before the end of the term, the school must return to the bank the unused portion of the loan, if the school does not return the money, the student and if she default, the government will be obligated to repay the loan.
Defendant Bates was the chief financial officer of the school that received federally insured loans according to the indictment, Bates repeatedly diverted unused loan funds to the school's owners instead of making refunds to the bank.
For this alleged conduct, he was charged with 12 violations of 1097(a), the indictment alleged that Bates knowingly and willfully misapplied student's loan funds but they it did not alleged in addition that he acted with an intent to injure or defraud the United States.
The District Court held that misapplication on the Section 1097(a) required such an allegation and therefore dismiss the indictment.
The Seventh Circuit reversed.
In conflict with the Eleventh Circuit, the Seventh Circuit held that intent to defraud is not an element of the crime defined in Section 1097(a).
Our decision today dissolves that conflict.
The word "intent to defraud" to not appear in the text of Section 1097(a) but they do appear in the text of a neighboring provision 20 U.S.C. 1097(d) passed at the same time as Section 1097(a).
This Court has said in similar context when Congress includes language in one section and omits it from a closely place section of the same statute courts should not add what Congress omitted.
Bates emphasized is that another statute 18 U.S.C. Section 656 which prohibits the willful misapplication of bank funds, similarly does not now contain an intent to defraud requirement but that statute, as originally written, did contain such as requirement, the requirement was dropped out during the technical revision of the criminal code.
Courts have continued to read and intent to defraud requirement into Section 656, concerned that without it even unauthorized loan, every an authorized loan by a bank officer might be turned into a federal offense.
We assume, without deciding, that Section 656 is correctly read to retain an intent to defraud element but Section 1097(a) is differently situated, Section 1097(a) never contained an intent to defraud a requirement and there is no risk under the Seventh Circuit's contraction that near maladministration or unwise use of funds would fall within Section 1097(a)'s compass.
The decision affirming the Seventh Circuit's judgment is unanimous.