Cleveland, Carl v. U.S. (11/07/2000)

By: Anna Marie Johsnon, Medill News Service

Questions presented

Can the alleged false statements or omissions in applications for state gambling licenses be the basis for federal mail or wire fraud charges, on the theory that the license that has not yet been issued constitutes state ""property"" of which the state is deprived when it issues the license?

Brief

Lagniappe. It's a Louisiana tradition.

Louisiana attorney Carl Cleveland is in prison for what boils down to lagniappe, Cleveland getting a little something extra--video poker licenses for a truck stop--through mail fraud.

In 1992, Cleveland and Fred Goodson financed and formed Truck Stop Gaming, Ltd., in Slidell, La. Goodson was giving the business to his two adult children, Alex and Maria. He made the kids limited partners, each owning 49 percent. TSG was listed as the general partner, owning the remaining 2 percent. Fred Goodson took over as TSG's manager.

However, in 1996, ownership changed hands and Maria Goodson knowingly sold 4.99 percent to former Louisiana State Senator Benjamin Rayburn, according to the government. The government alleged that the major transfer was from Goodson's kids to Cleveland and Fred Goodson.

The government alleged that they became the primary owners of the truck stop and concealed the ownership transfer from state police in order to renew video poker licenses for the truck stop. The process to gain approval for a video poker license is extremely lengthy and complicated. Once approval is granted, any change requires re-approval. The transfer to Sen. Rayburn, Goodson and Cleveland was concealed and therefore, the licenses were renewed illegally.

The government's suspicion was aroused by accident. In an unrelated investigation, the FBI was monitoring former Louisiana State Senator Larry Bankston. Bankston was involved in a scheme to extort money from a Choctaw tribe casino in Jena, La. in exchange for overlooking some state regulatory violations. In a recorded phone call, Bankston and Goodson had a suspicious discussion, mentioning the ownership of TSG. That suspicion led to FBI surveillance of Goodson.

In May 1997, Goodson and Cleveland were convicted in federal court of RICO, RICO conspiracy, mail fraud, money laundering, and interstate communication in aid of state bribery. Cleveland was also convicted of tax conspiracy. Sen. Bankston was convicted of aiding and abetting racketeering and Sen. Rayburn was acquitted.

Five months later, Cleveland began his sentence while his appeal pended.

Before the 5th Circuit Court of Appeals, Cleveland claimed, among other things, that a Louisiana video poker license is not property for the purposes of mail fraud. Cleveland also asserted that he was unaware that he was supposed to report ownership changes to state police.

A unanimous 5th Circuit Court panel ruled his claim ""devoid of merit"" and concluded that none of the issues raised warranted reversal. The court held that licenses were considered property based on precedent set in U.S. v. Salvatore.

The appeals court ruled against Cleveland on the other issues he raised. The claims included the FBI's use and alleged abuse of surveillance. The law states that one is only to monitor conversations specific to the issue in question. In the conversation that played such a major role in the Cleveland case, TSG came up only after 20 minutes of small talk. Cleveland alleged that the surveillance should have been terminated when TSG did not come up. The court again ruled against Cleveland, saying the FBI's attempt to minimize surveillance was reasonable.

On March 20, 2000, the U.S. Supreme Court granted certiorari in the case, and limited review to question 1 in Cleveland's petition.

On Nov. 7, 2000, the Court issued a unanimous opinion, agreeing with Cleveland and reversing.

The opinion written by Justice Ruth Bader Ginsburg concluded that state and municipal licenses, including Louisiana's video poker licenses do not constitute ""property"" for the purposes of the federal mail fraud statutes.

Any other reading, the Court said would invite a sweeping expansion of federal criminal jurisdiction in the absence of a clear statement by Congress to do so. Unless Congress conveys its purpose clearly, theCourt will not read a statute to have significantly changed thefederal-state balance in the prosecution of crimes, the Court reasoned.