Monday, January 21, 2013

Identity Theft, Ambiguity and Corporations

As Wikipedia explains, identity theft “is a form of stealing someone's identity in which someone pretends to be someone else by assuming that person's identity, typically in order to access resources or obtain credit and other benefits in that person's name.”  As Wikipedia also notes, Congress created two federal identity theft crimes, which are codified at 18 U.S. Code § 1028 and 18 U.S. Code § 1028A. 

The scope of those statutes was at issue in U.S. v. Hilton, __ F.3d __, 2012 WL 6200742 (U.S. Court of Appeals for the 4th Circuit 2012).  Jacqueline, Tamatha and Jimmy Hilton were convicted of identity theft in violation of §§ 1028 and 1028A.  U.S. v. Hilton, supra.  After the trial judge sentenced Tamatha to 65 months in prison, Jimmy to “pay restitution in the amount of $655,876.04”, the appealed. U.S. v. Hilton, supra. 

According to the opinion, the charges against the Hiltons arose from a scheme in which

[they] defrauded [The Woodsmiths Company, a small North Carolina furniture manufacturer] of about $655,000, by stealing and cashing checks written to Woodsmiths by its customers. Tamatha . . .was Woodsmiths' office manager and bookkeeper. . . . [She] possessed the only keys to Woodsmiths' post office box and was responsible for retrieving the company mail. Tamatha . . . [sent] company invoices to customers, requesting that they mail either initial or final payment for their furniture orders to the company address. When the checks arrived at the company's post office box, Tamatha removed [them] and . . . gave them to her husband . . . Jimmy Hilton. . . . Tamatha stole approximately 168 checks in the aggregate amount of about $655,000.

In January 2007, before the charged thefts began, Jacqueline Hilton, Jimmy's former wife, opened a bank account at SunTrust Bank in her name . . ., falsely purporting to be the owner of a business called Woodsmiths Furniture Company. The managers of . . . Woodsmiths, had no knowledge of Jacqueline's actions.

Jacqueline also purchased a custom, pre-printed stamp at an office supply store bearing the words: `Pay to the order of Suntrust Bank 053100465. For deposit only Woodsmiths 1000036388063.’

Jacqueline . . . opened the bank account at Jimmy's request, and was paid one thousand dollars per month for maintaining [it]. . . .
  Jimmy endorsed the stolen checks with the pre-printed stamp and completed corresponding deposit slips, while Jacqueline deposited the checks into the account. Other than the deposit of $150 required to open the account, the only deposits made to the SunTrust account were the 168 checks taken from Woodsmiths' post office box. . . .

Jacqueline and Jimmy wrote, and Jacqueline signed, more than 200 checks drawn on the account. . . . [Investigators] traced the withdrawn funds to the defendants, including nearly $250,000 in cash withdrawals obtained by Jimmy and Jacqueline, as well as payments made to various businesses owned and operated by Jimmy. . . .

Tamatha sent customers falsified invoices indicating their checks had been credited to their furniture orders, when in fact the checks had been stolen and deposited in the SunTrust account. Tamatha also altered the company's accounting records, and provided misleading information to her supervisors when questioned about accounting discrepancies.

As Woodsmiths continued to lose money from the thefts, the company attempted to collect what appeared to be outstanding balances for furniture that already had been shipped. The owner of Woodsmiths discovered the fraud when a customer produced a copy of a cancelled check, which had been sent as payment for a furniture order but was intercepted and deposited into the SunTrust account. In early 2008, as a result of the financial loss stemming from the fraud, Woodsmiths `laid off’ all its employees. At the time of trial, Woodsmiths' owner was the company's only full-time employee, and he was able to hire workers only on a week-to-week basis for limited hours of work.

U.S. v. Hilton, supra.

(One of the appeal briefs notes that Tamatha was “the company's Quickbooks administrator and was responsible for invoicing customers, recording bills on Woodsmiths' accounts payable, and posting other transactions.” Brief of the U.S., U.S. v. Hilton, 2012 WL 1274218.  It also notes that it “was necessary for Tamatha  . . . to use her access to Quickbooks . . . to cover up her theft of customer checks payable to Woodsmiths, particularly the deposit checks (without which Woodsmiths could not order supplies and begin the manufacturing process).”  Brief of the U.S., U.S. v. Hilton, supra.)

The Hiltons made several arguments on appeal, but we are only concerned with one of them.  Jimmy and Jacqueline appealed their convictions for identity theft and aggravated identity theft, arguing that

the conduct charged, namely, the use of the stamp bearing Woodsmiths' name in endorsing the stolen checks, did not constitute a violation of the identity theft statutes, because the language of those statutes does not encompass . . . stealing the identity of a corporation. . . .

[They] observe that the statutory language refers only to use of a means of identification of another `person,’ and such `means of identification’ are defined only with reference to the identification of a `specific individual.’ Therefore, they contend that the class of protected victims identified in the identity theft statutes is limited to natural persons and, accordingly, the identity theft convictions should be vacated.

U.S. v. Hilton, supra.

The prosecution argued, in response, that corporations are included within the

corporations are included within purposes are served equally by protecting corporations and individuals from identity theft. The government further maintains that because the consequences of identity theft may be devastating to corporations, as evidenced by the facts in this case, it is reasonable to conclude that Congress intended to protect corporate victims, in addition to natural persons. 

U.S. v. Hilton, supra.

The Court of Appeals began its analysis of the arguments by noting that the issue raised by the parties presented an issue of statutory interpretation, which it reviewed de novo,

mindful of the special considerations governing the interpretation of criminal statutes. See U.S. v. Childress, 104 F.3d 47, 51 (U.S. Court of Appeals for the 4th Circuit 1996).  Criminal statutes `are to be strictly construed and should not be interpreted to extend criminal liability beyond that which Congress has ‘plainly and unmistakenly’ proscribed. U.S. v. Childress, supra.

In light of the serious consequences flowing from a criminal conviction, the rule of strict construction rests on the principle that `no [person] shall be held criminally responsible for conduct which he could not reasonably understand to be proscribed.’ U.S. v. Lanier, 520 U.S. 259 (1997). . . .  [A[lthough `[t]he simple existence of some statutory ambiguity is not sufficient’ to trigger automatic resolution of the ambiguity in favor of a defendant, U.S. v. Helem,186 F.3d 449 (U.S. Court of Appeals for the 4th Circuit 1999), `we will construe [a] criminal statute strictly and avoid interpretations not clearly warranted by the text.’ WEC Carolina Energy Solutions LLC v. Miller, 687 F.3d 199 (U.S. Court of Appeals for the 4th Circuit 2012).

U.S. v. Hilton, supra.

The court then addressed the substantive provisions of the statutes at issue, noting that

[t]he first statute before us, 18 U.S. Code § 1028(a)(7), prohibits the knowing transfer, possession, or use, without lawful authority, of `a means of identification of another person with the intent to commit, or to aid or abet, or in connection with, any unlawful activity that constitutes a violation of [f]ederal law, or that constitutes a felony under any applicable [s]tate or local law.’  18 U.S. Code § 1028(a)(7) (emphasis added). The second identity theft statute that we consider, 18 U.S. Code § 1028A, proscribes the same conduct in connection with certain enumerated felonies, including mail fraud, and provides for enhanced penalties.

U.S. v. Hilton, supra.

The Court of Appeals then explained that while the

substantive prohibitions of both statutes apply to the identity of `person[s],’ the term `means of identification’ found in both statutes is defined in § 1028(d)(7) as `any name or number that may be used, alone or in conjunction with any other information, to identify a specific individual’. . . .

Thus, we must determine whether the phrase `means of identification of another person,’ as used in the identity theft statutes, encompasses the unauthorized use of the identification of corporations, when the term    means of identification’ is defined by statute as referring to the identity of `specific individual[s].

U.S. v. Hilton, supra (emphasis added).

The court noted that the identity theft statutes at issue in this case do not define the

terms `person’ or `individual.’ However, the Dictionary Act, 1 U.S Code § 1, which defines terms used in the United States Code `unless the context indicates otherwise,’ specifies that the word `person’ includes `corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals.’ Accordingly, under the Dictionary Act, corporations generally are considered `persons’ when a statute fails to indicate otherwise. However, the Dictionary Act does not define the word `individual.’

The Dictionary Act further complicates this inquiry by treating the word `individual’ as a subset of the term `person.’ By making this distinction with regard to these two words, the Dictionary Act suggests that the two words are not synonymous. Thus, aware of the general definitions contained in the Dictionary Act, Congress drafted the identity theft statutes by using the term `person,’ which includes corporations, but also by using the word `individual,’ which may or may not include corporations.

U.S. v. Hilton, supra.

The court also found that the context of the identity theft statutes does not indicate whether the

term `individual’ includes corporations. Although some of the examples of `means of identification’ enumerated in § 1028(d)(7), such as employer and tax identification numbers, could apply to corporations, this does not resolve the ambiguity in the statute because all the listed means of identification could apply to natural persons as well as to corporations.

U.S. v. Hilton, supra.

While the Court of Appeals “recognize[d] that the identity theft statutes have been interpreted broadly in other contexts to protect victims and to deter such thefts”, it found that while “the effects of identity theft may be financially devastating to corporations, we cannot discern any evidence from the text of the statute indicating that Congress intended to protect corporate victims as well as natural persons.”  U.S. v. Hilton, supra. 

It explained that given the statutory ambiguity resulting from Congress’ use of both the term

`individual’ and the term `person’ when referring to victims of identity theft, and in the absence of any particular context illuminating the use of these terms in the statutes, we are left to speculate regarding the class of victims Congress intended to protect. In such a circumstance, the rule of lenity requires that, `[w]hen a choice has to be made between two readings of what conduct Congress has made a crime, it is appropriate, before we choose the harsher alternative, to require that Congress should have spoken in language that is clear and definite.’ WEC Carolina Energy Solutions, supra.

The rule of lenity is based on two substantial considerations. First, the rule recognizes that `a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed.’ Yi v. Fed. Bureau of Prisons, 412 F.3d 526, 535 (U.S. Court of Appeals for the 4th Circuit 2005). . . .  Second, the rule acknowledges that Congress, rather than the judiciary, is the proper institution to define criminal conduct.  Yi v. Fed. Bureau of Prisons, supra.

Here, nothing in the text, structure, articulated purpose, or legislative history of the identity theft statutes compels the conclusion that Congress intended to make the theft of a corporation's identity a crime under §§ 1028(a)(7) or 1028A. Accordingly, we are left with a grievous ambiguity or uncertainty in the statute[s],’ and we decline to speculate regarding Congress' intent. Barber v. Thomas,130 S.Ct. 2499 (2010). Instead, faced with the choice of two plausibly valid interpretations, `we yield to the rule of lenity.’  WEC Carolina Energy Solutions, supra.

U.S. v. Hilton, supra.

The Court of Appeals therefore reversed “Jimmy's and Jacqueline's convictions for identity theft and aggravated identity theft” and remanded the case for resentencing.   U.S. v. Hilton, supra.

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