DocketNumber: 02-1443
Citation Numbers: 301 F.3d 541
Judges: Per Curiam
Filed Date: 8/20/2002
Status: Precedential
Modified Date: 1/12/2023
In the United States Court of Appeals For the Seventh Circuit ____________ No. 02-1443 UNITED STATES OF AMERICA, Plaintiff-Appellee, v. MICHAEL TURNER, Defendant-Appellant. ____________ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 00 CR 694—David H. Coar, Judge. ____________ ARGUED JUNE 7, 2002—DECIDED AUGUST 20, 2002 ____________ Before BAUER, POSNER and RIPPLE, Circuit Judges. BAUER, Circuit Judge. Michael Turner embezzled a significant amount of money from his employer, Allstate Insurance Company.1 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 be- 1 Allstate Insurance Company is an Illinois corporation and is a subsidiary of Allstate Corporation, a Delaware corporation and holding company with subsidiaries involved nationally in insur- ance as well as financial services. Allstate Insurance Company has its principal place of business in Northbrook, Illinois. 2 No. 02-1443 half of Allstate. Turner wrote eighteen company checks payable to his own order and deposited the checks in his personal bank account.2 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 that18 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 classify- ing the statute as regulating instrumentalities or things in interstate commerce. Second, Turner avers that nei- ther he nor Allstate Insurance Company are instrumen- talities 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 inter- state commerce. Hence, Turner asserts that Congress can- not 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 in- volved in interstate commerce. For the reasons that fol- low, we find that18 U.S.C. § 1033
does not exceed Con- gress’ power under the Constitution to regulate commerce “among the several States”. U.S. CONST. Art. I, § 8, cl. 3. 2 Turner admitted that he was not authorized to deposit the checks into his account and that by doing so he committed a crime. Turner could have been charged under any number of Illinois statutes relating to theft or deception. See 720 ILCS 5/16-1, 5/17-1. No. 02-1443 3 BACKGROUND Initially, Turner moved to dismiss the indictment, arguing Congress had exceeded its authority under the Commerce Clause by enacting18 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 Com- merce Clause issue. The district court sentenced Turner to five months confinement (recommending the sen- tence 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. ANALYSIS 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 that18 U.S.C. § 1033
(which makes it illegal for employees to embez- zle—among other things—from insurance companies) exceeds Congress’ power under the Commerce Clause, criminalizing a wholly intrastate activity. Turner’s spe- cific argument is that: (1) criminal acts are not encom- passed 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, Con- gress may regulate the channels of interstate commerce. 4 No. 02-1443Id.
Channels refer to the transportation of a commodity or travel in interstate commerce. See, e.g., Heart of At- lanta Motel, Inc. v. United States,379 U.S. 241
, 256 (1964) (interstate travel and places of public accommoda- tion); 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 (Cham- pion v. Ames),188 U.S. 321
(1903) (lottery tickets). Sec- ond, Congress may regulate and protect the instrumen- talities, 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 ac- tivity “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 ex- ceed its authority because it was regulating an instrumen- tality 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 No. 02-1443 5 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) (empha- sis added).3 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 also18 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 insur- ance fraud schemes” that Congress felt were too com- plex and that current laws, state and federal, were inade- quate to deal with the problem. H.R. Rep. No. 103-468 (1994) (emphasis added). Turner inferentially bases his argument on the Mc- Carran-Ferguson Act,15 U.S.C. §§ 1011-1015
, where Congress explicitly allowed the States to continue regulat- ing insurance despite the interstate effects of such regula- tion.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 con- current 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. South- 318 U.S.C. § 1033
was enacted as the Insurance Fraud Preven- tion Act as part of an amendment to the Violent Crime Control and Law Enforcement Act of 1994. Pub. L. No. 103-322,108 Stat. 2115
(1994). To our knowledge, embezzlement from insurance companies is not a violent crime. 6 No. 02-1443 Eastern 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 inter- state commerce, Congress may choose to regulate it, in whole or part, and those activities that affect the business. Although Congress chose the “affects interstate com- merce” 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 general- ly considered vehicles through which interstate com- merce emanates, as banks conduct innumerable transac- tions 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
(find- ing that child support payments regularly travel in inter- state commerce); Nat’l Cas. Co. v. Fed. Trade Comm’n,245 F.2d 883
, 886 (6th Cir. 1957) (noting the McCarran Act gave the FTC the authority to regulate insurance on the grounds that insurance was part of the channels of com- merce). Whether we characterize the business of insurance as affecting interstate commerce or being a channel of commerce, we conclude Congress may regulate the insur- ance industry pursuant to Article I, § 8, clause 3. The question remaining is whether the prohibited activity, embezzlement from insurance companies, is included with- in this grant. Turner asserts that his actions do not touch upon interstate commerce and are outside the scope of Congress’ authority. No. 02-1443 7 B. The Scope of the Interstate Commerce Power During the early years of the infant Republic, Congress enacted little commercial legislation, and the Supreme Court reviewed few such enactments. Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824), marked the first major con- sideration of the scope of the Commerce Clause. In the majority opinion, Chief Justice John Marshall noted that Congress’ commerce power, “like all others [powers] vested in Congress, is complete in itself, may be exercised to its utmost extent, and acknowledges no limitations other than are prescribed by the Constitution.” Id. at 196. This theory underscored the Court’s Commerce Clause jurispru- dence up until the late 1800s. In 1887 and 1890, Congress enacted two important statutes both broad in scope, regulating economic activity. The Interstate Commerce Act and the Sherman Anti- trust Act heralded a new intent by Congress to more thoroughly regulate interstate commerce. The Supreme Court responded by striking down several other acts, finding they reached activities beyond the clause’s scope. See, e.g., United States v. E.C. Knight Co.,156 U.S. 1
, 12 (1895) (finding manufacturing precedes commerce). How- ever, the Court also upheld statutes that regulated inter- state and intrastate commerce when regulating the latter as incidental and required when regulating the former. See, e.g., Shreveport Rate Cases,234 U.S. 342
(1914). As part of the New Deal, Congress enacted a series of sweeping economic regulations which sought to fix hours, control rates and wages, and govern various aspect of the economy in order to engineer a recovery. See, e.g., The National Industrial Recovery Act of 1933,48 Stat. 195
(1933). The Court reacted by striking down the regulations because they exceeded Congress’ power under the Commerce Clause. See, e.g., R.R. Ret. Bd. v. Alton R.R. Co.,295 U.S. 330
(1935); A.L.A. Schechter 8 No. 02-1443 Poultry Corp. v. United States,295 U.S. 495
, 550 (1935); Carter v. Carter Coal Co.,298 U.S. 238
, 304 (1936); see also United States v. Butler,295 U.S. 495
, 548 (1935) (striking down legislation enacted under the taxing and spending power as violating the Tenth Amendment). In 1936, President Franklin Delano Roosevelt won reelection by a large margin, and in 1937, he introduced his “Court Packing” plan. The measure—which would have led to the appointment of an additional justice for any justice who had served ten years and was over seventy—was met with stiff resistance in Congress and failed. The controversy subsided as the makeup of the Court changed by death and resignation, and the Court began upholding New Deal legislation. See, e.g., NLRB v. Jones & Laughlin Steel Corp.,301 U.S. 1
(1937); United States v. Darby,312 U.S. 100
(1941); United States v. Wrightwood Dairy Co.,315 U.S. 110
(1942); Wickard v. Filburn,317 U.S. 111
(1942). These deci- sions “ushered in an era of Commerce Clause jurispru- dence that greatly expanded the previously defined au- thority of Congress under that Clause.” Lopez,514 U.S. at 556
. Not until 1995 did the Court again, in earnest, take up the issue of the limits of Congress’ authority un- der the Commerce Clause. In Lopez, the Supreme Court struck down the Gun-Free School Zones Act because it exceeded Congress’ authority under the Commerce Clause.Id. at 549, 561-67
. Since then, criminals and other litigants have sought to chal- lenge statutes that went unquestioned as constitu- tional prior to Lopez. See United States v. Watts,256 F.3d 630
, 631 (7th Cir. 2001) (noting the defendant pled guilty but “reserved the right to pursue on appeal a line of argument popular with criminal defendants these days: whether Congress exceeded its Commerce Clause power”) (emphasis added). And the subsequent cases of United States v. Morrison,529 U.S. 598
(2000) and Jones No. 02-1443 9 v. United States,529 U.S. 848
(2000), have added to the challenges. Turner challenges the statute at issue citing the Sup- reme Court’s decision in Lopez as primary support (al- though he also cites Morrison and Schechter Poultry).4 Turner’s argument ignores both the narrow applicability of Lopez’s facts to other cases and the careful legal analy- sis engaged in by the Court. Together, Lopez, Morrison, and Jones have defined the outermost reach of the com- merce power, yet, those cases did not signal a turnabout, herald new restrictions on the power and did not over- rule prior definitions of its scope. See Black,125 F.3d at 460-62
(“Although the majority in Lopez intended to draw an outer limit to congressional authority, this does not mean that Lopez represents a retrenchment of al- ready well-established Commerce Clause precedent.”); United States v. Spinello,265 F.3d 150
, 153-54 (3d Cir. 2001); United States v. Kenney,91 F.3d 884
, 887 (7th Cir. 1996) (“But Lopez must also be noted for what it did not do.”); see also United States v. Wall,92 F.3d 1444
, 1447- 48 (6th Cir. 1996) (citing a number of cases upholding federal criminal statutes after Lopez and noting that “[m]ost courts have resisted urgings [by criminal defen- dants] to extend Lopez”). In Lopez, the Court analyzed the regulation at issue under the third category, “substantially affects inter- state commerce”. The Court found that the Gun-Free School Zones Act did not regulate economic activity or 4 Morrison provides little support for Turner’s arguments as it dealt not with a criminal but a civil remedy. Moreover, the Court distinguished a similar criminal provision created under the same act, quoting a court of appeals case upholding the sec- tion as a valid exercise of the Commerce power. Morrison,529 U.S. at
613 n.5 (quoting18 U.S.C. § 2261
(a)(1)). 10 No. 02-1443 commerce no matter how “broadly one might define those terms”. Lopez,514 U.S. at 561, 567
(“The possession of a gun in a local school zone is in no sense an economic activity that might, through repetition elsewhere, substan- tially affect any sort of interstate commerce.”). At the same time, the Court went to great lengths to distin- guish Wickard—a case the majority said was “perhaps the most far reaching example of Commerce Clause authority over intrastate activity”—from the possession of a gun in a school zone.Id. at 560
. Also, the Court indicated that a similar regulation, properly enacted and circum- scribed to reach interstate activity, might pass muster, but the Gun-Free School Zones Act failed because there was no indication and no requirement that either the person or the firearm “have any concrete tie” or have moved in interstate commerce.Id. at 567
. What Lopez did not do was invalidate a federal criminal statute reg- ulating criminal activity that was tied to and affected interstate commerce. See Morrison,529 U.S. at 610-12
(“But a fair reading of Lopez shows that the noneco- nomic, criminal nature of the conduct at issue was central to our decision in that case.”). More importantly, the subsequent case of Jones v. United States, examining a criminal statute, provides ample support for the proposition that Congress’ com- merce power has not suddenly contracted. 529 U.S. at 851. In Jones, the Court examined a federal arson statute that made it a federal crime to “damage or destroy, ‘by means of fire or an explosive, any . . . property used in interstate or foreign commerce or in any activity affect- ing interstate or foreign commerce.’ ” Id. at 850 (quoting18 U.S.C. § 844
(i)) (emphasis added). The question was whether a private residence fell within the definition of “used in” or “affecting” interstate commerce.Id. at 850-51
. The Court focused on those terms, concluding that Con- gress intended only to reach those buildings which were No. 02-1443 11 “used in” or “affected” interstate commerce.Id. at 854-55
. A building used as rental property was “used in” or “af- fected” interstate commerce; however, not a private, personal dwelling which had neither commercial purposes nor was used in any commercial undertaking such as a home office. Russell v. United States,471 U.S. 858
, 859- 62 (1985); Jones,529 U.S. at 855-57
. The salient, overriding inquiry in both Jones and Lopez was the search for a commercial activity that Congress could properly regulate. Jones,529 U.S. at 858-59
; Lopez,514 U.S. at 561-67
. If there is an interstate commercial activity which meets any of the three Lopez categories Congress may regulate that activity and the actions or activities which secondarily affect the primary commercial activity. Hence, Congress may regulate the arson or bombing of any commercial building because the destruc- tion of the building indirectly affects interstate commerce by virtue of the fact that the building was used in inter- state commerce. Russell,471 U.S. at 862
. The business of insurance does affect interstate com- merce. Turner asserts that his activities did not direct- ly affect interstate commerce, therefore, Congress’ pro- hibition of insurance embezzlement is ultra vires. Turner asks us to divide his actions from those engaged in by Allstate. However, we do not look solely at Turner’s crime, as he would have us do; rather, we look to the “class of activities” and determine their “total incidence” on inter- state commerce. Perez,402 U.S. at 153-54
; Maryland v. Wirtz,392 U.S. 183
, 193 (1968); see also18 U.S.C. §§ 1033
(a)(1), (b)(1) (“the business of insurance whose activities affect interstate commerce.”). If embezzlement affects the business of insurance, positively or negatively, then Congress may also regulate that activity as incident to regulating the business of insurance. E.g., Perez,402 U.S. at 150-55
; Wickard,317 U.S. at 125
. Turner’s crime may be local and have only an indirect effect on commerce; 12 No. 02-1443 nevertheless, the activity may be reached by Congress by virtue of the fact that it affects Allstate’s business— which, in turn, affects interstate commerce—or in the ag- gregate, embezzlement may negatively effect and de- stabilize the entire insurance industry. Perez,402 U.S. at 150-56
; Wickard,317 U.S. at 125
; Black,125 F.3d at
460- 61 (holding that “Congress can criminalize [the failure to pay child support] just as it has other impediments to interstate commerce.”). In fact, Congress enacted18 U.S.C. § 1033
for the purpose of preventing the destructive ag- gregate effects of embezzlement by multiple employees, agents, and officers throughout the insurance industry, in order to preclude another crisis akin to the massive savings and loan failures of the 1980s. H.R. REP. NO. 103- 468. If Allstate is a channel of interstate commerce, it is proper to assume that the money Turner embezzled from the company moved in interstate commerce. Turner’s activity therefore impeded the channels of interstate commerce and the statute properly reached his conduct. The limiting principle is that the activity initially regulated must be a commercial enterprise; Congress may then reg- ulate any activity which effects, positively or negatively, that commercial enterprise. Wickard,317 U.S. at 125-28
(“[E]ven if appellee’s activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial effect on interstate commerce, and this irrespective of whether such effect is what might at some earlier time have been defined as ‘direct’ or ‘indirect.’ ”). CONCLUSION Turner argues policy in this court, i.e., that embezzlement and most other criminal acts are best left to the states to regulate and Congress should not go around federaliz- No. 02-1443 13 ing every local criminal act. Whether the statute should have been enacted was a policy decision made by Congress. See Black,125 F.3d at 459
(“Congress has often used this positive power to pass laws that ‘help the States solve problems that defy local solutions.’ ”) (quoting United States v. Sage,92 F.3d 101
, 105 (2d Cir. 1996). And, of course, Turner, like any other citizen, is free to petition the gov- ernment to change the law. But the statute at issue,18 U.S.C. § 1033
, regulates an activity that affects the busi- ness of insurance, which either affects interstate com- merce or is itself a channel of commerce. Congress may therefore regulate the insurance industry and those activities which positively or negatively affect the business as incidental to the larger regulatory scheme. As embezzle- ment negatively affects the insurance industry, Congress may prohibit that conduct through a proper exercise of its Commerce Clause authority. AFFIRMED. A true Copy: Teste: ________________________________ Clerk of the United States Court of Appeals for the Seventh Circuit USCA-97-C-006—8-20-02
United States v. Samuel D. Sage , 92 F.3d 101 ( 1996 )
United States v. Robert Spinello , 265 F.3d 150 ( 2001 )
National Casualty Company v. Federal Trade Commission , 245 F.2d 883 ( 1957 )
United States v. Gerald Black, United States of America v. ... , 125 F.3d 454 ( 1997 )
United States of America, Plaintiff-Appellee/cross-... , 256 F.3d 630 ( 2001 )
United States v. Nathan Wall (95-5007) and Donald Wall (95-... , 92 F.3d 1444 ( 1996 )
United States v. E. C. Knight Co. , 15 S. Ct. 249 ( 1895 )
A. L. A. Schechter Poultry Corp. v. United States , 55 S. Ct. 837 ( 1935 )
Railroad Retirement Board v. Alton Railroad , 55 S. Ct. 758 ( 1935 )
Prudential Insurance v. Benjamin , 66 S. Ct. 1142 ( 1946 )
UNITED STATES of America, Plaintiff-Appellee, v. Arnold ... , 158 F.3d 1370 ( 1998 )
Carter v. Carter Coal Co. , 56 S. Ct. 855 ( 1936 )
Weir v. United States , 92 F.2d 634 ( 1937 )
United States v. John W. Kenney , 91 F.3d 884 ( 1996 )
United States v. Wrightwood Dairy Co. , 62 S. Ct. 523 ( 1942 )
Lottery Case , 23 S. Ct. 321 ( 1903 )
Hodel v. Virginia Surface Mining & Reclamation Assn., Inc. , 101 S. Ct. 2352 ( 1981 )
United States v. Lopez , 115 S. Ct. 1624 ( 1995 )
United States v. Morrison , 120 S. Ct. 1740 ( 2000 )