Cleveland v. United States - Opinion Announcement

Argument of Speaker

Mr. Speaker: The opinion of the Court in Cleveland against Untied States will be announced by Justice Ginsburg.

Argument of Justice Ginsburg

Mr. Ginsburg: About federal mail fraud and Louisiana licenses to operate video poker machines.

Louisiana permits private operators to run video poker devices upon demonstration of the applicant’s good character and fiscal integrity, conditions on the payment of fees and apportion of net revenues to the State.

In 1992, Carl Cleveland a lawyer helped his client Fred Goodson prepare a video poker license application for a partnerships called Truck Stop Gaming.

The application identified Goodson’s children as the sole owners of the partnership.

Louisiana issued the license and Truck Stop Gaming renewed it in 1993, 1994 and 1995.

In 1996, Cleveland and Goodson were charged with money laundering, racketeering and conspiracy in connection with the scheme to bribe state legislators to caste votes favorable to the video poker industry.

The acts underline these charges included four alleged violations of the federal mail fraud statute, the statute that makes it a crime to use the mails to further, “any scheme to defraud, or for obtaining money, or property by means of fraudulent representations”.

Indictment charged that Cleveland and Goodson had concealed their true ownership of Truck Stop Gaming because their tax and financial problems could have disqualified them from receiving a license.

A jury found Cleveland guilty of mail fraud and the related offenses.

The Fifth Circuit affirmed the conviction recognizing that the mail fraud statute targets depravation of money and property, and holding that video poker licenses qualify as property in the hands of the State.

We reverse that determination.

The licensing statute leaves no doubt that the State’s core concern is regulatory, it permits private actors to pursue activities they may not pursue without official authorization.

Thus, the licensing scheme also generate property held by the State within the mail fraud statutes compass, we think not.

The government emphasizes that the State collects a fee for each license and receives substantial payment from each licensee while the license is in affect.

But Louisiana does not receive the lion’s share of its expected revenue, while the licenses are in its own hands; it receives ongoing revenue only after permits have been issue to licensees.

Licenses' pre-issuance merely entitle the State to collect a processing fee from applicants.

Were this sufficient to establish a property right, then States would have property rights in drivers’ licenses, medical licenses, and other licenses that the Government concedes are purely regulatory.

Tellingly, the Government does not allege that Cleveland deprived Louisiana of any money to which it was entitled by law, in fact Truck Stop Gaming paid the State its proper share of revenue over $1.2 between 1993 and 1995.

The government also contends that Cleveland deprived the State of its right to control the issuance, renewal, and revocation of video poker licenses.

It compares this right to a patent holder’s right to license a patent and to a franchisor's right to select its franchisees.

But unlike a patent holder or franchisor, Louisiana does not sell licenses as a commercial commodity, it cannot sell its licensing authority and it does not hold licenses in order to run video poker machines itself, the licensing scheme in short is in design an operation a paradigmatic police power exercise.

An alternative argument the government presents.

Read the mail fraud statute to define two discreet offenses: one, schemes to defraud and two, schemes for obtaining money or property by fraud.

Because a video poker license is property to the licensee the government argues, Cleveland obtain property and thereby he committed mail fraud.

But in McNally against United States, a 1987 decision, we refused to read the statute to define two discreet offenses.

Adhering to McNally we reaffirm that the object of the fraud must be property in the hands of the victim.

Our opinion is unanimous.