State v. Schlosser

[This opinion has been published in Ohio Official Reports at 

79 Ohio St.3d 329

.]




           THE STATE OF OHIO, APPELLANT, v. SCHLOSSER, APPELLEE.
                     [Cite as State v. Schlosser, 

1997-Ohio-705

.]
Criminal     law—Racketeer        Influenced      and    Corrupt     Organizations—R.C.
         2923.32(A)(1) plainly indicates a purpose to impose strict liability.
Ohio’s     Racketeer    Influenced     and     Corrupt    Organizations      statute,   R.C.
         2923.32(A)(1), plainly indicates a purpose to impose strict liability.
   (Nos. 96-1389 and 96-1390—Submitted May 21, 1997—Decided August 6,
                                           1997.)
 APPEAL from and CERTIFIED by the Court of Appeals for Montgomery County,
                                 Nos. 14976 and 14968.
                                  __________________
         {¶ 1} In 1991, John D. Schlosser (a.k.a. Michael Schlosser), appellee,
opened a telemarketing operation. Appellee placed ads in the local newspaper
seeking employees, and interviewed and hired applicants. Appellee purported to
represent two catalogue sales companies that sold credit card packages, Family
Consumer Union (“FCU”) and Universal American Credit Card Company
(“UACC”).
         {¶ 2} The appellee provided telemarketers with lists of names and phone
numbers of individuals who had recently been denied a credit card. Telemarketers
working for the appellee used telephone scripts originally sent by FCU or UACC,
but modified to delete any mention of the catalogue sales and to speak only about
the offer of either a Visa or MasterCard. Telemarketers would call individuals
outside Ohio from the list and inform them that they were now eligible for a credit
card. Potential customers were offered an unsecured Visa or MasterCard with a
$5,000 limit, and were also offered either an FCU or UACC credit card. Potential
customers were informed that the credit card would cost them either $149.50 or
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$179, which would be debited from their checking account. In reality, the scripts
provided by FCU and UACC specifically outlined nine criteria which customers
had to meet before FCU or UACC would sponsor the customer for a credit card.
This information, however, was never given to potential customers and
telemarketers were told to stress only the Visa or MasterCard credit cards.
       {¶ 3} A telemarketer would request the potential customer’s name, address,
bank, check number, and “RTN” number from a personal check. After that
exchange, customers were transferred to a “verifier,” who would confirm the
information gathered by the original telemarketer and record the customer’s voice
on tape for the electronic debit of his or her checking account.
       {¶ 4} The appellee instructed his telemarketers to tell customers that the
company was located in Virginia Beach, although it was actually located in
Montgomery County, Ohio. The appellee told employees that they were not set up
to take incoming phone calls because someone might track where they were and
call and complain. Telemarketers also told customers that the company was a fully
licensed and bonded credit services organization, and the company was federally
regulated. However, throughout the course of these transactions, the appellee was
not registered with the Consumer Finance Division of the Ohio Department of
Commerce.
       {¶ 5} After the debit of the customer’s bank account, a check processing
company would take a percentage and then send the remainder of the $149.50 or
$179 to accounts controlled by the appellee. A few of the customers received a
catalogue from the company they thought they were doing business with. However,
none of the customers in this case received a Visa or MasterCard.
       {¶ 6} The appellee was involved in the day-to-day operations of the
business. He owned the building out of which he operated the telemarketing
company. Appellee had reserved approximately one hundred telephone numbers
for the company, which were registered in his name. Other utilities were registered




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in the name of a company of which the appellee was listed as president. Mail at the
building was addressed to appellee. Further, the appellee was responsible for
compensating his employees.
       {¶ 7} The appellee was convicted of eleven counts of failure to register as a
credit services organization in violation of R.C. 4712.02(J), eleven counts of
charging an advance fee for credit services in violation of R.C. 4712.07(A), eleven
counts of engaging in fraudulent acts in the sale of credit services in violation of
R.C. 4712.07(L), and one count of engaging in a pattern of corrupt activity in
violation of R.C. 2923.32(A)(1), Ohio’s RICO statute, with eleven underlying
predicate charges of failure to register as a credit services organization in violation
of R.C. 4712.02(J). These convictions involved eleven separate victims.
       {¶ 8} Prior to jury instructions, the appellee argued that because the RICO
statute specifies no degree of culpability, the trial court should instruct the jury on
recklessness as the applicable culpable mental state. The trial court instructed the
jury, however, that the RICO statute imposes strict liability and thus no culpable
mental state was required.
       {¶ 9} The court of appeals reversed the RICO conviction, finding that the
statute required a finding of recklessness. Finding its judgment to be in conflict
with the Court of Appeals for Preble County in State v. Haddix (1994), 

93 Ohio App.3d 470

, 

638 N.E.2d 1096

, and with the Court of Appeals for Franklin County
in State v. Rice (1995), 

103 Ohio App.3d 388

, 

659 N.E.2d 826

, the court of appeals
entered an order certifying a conflict. This cause is now before this court upon our
determination that a conflict exists. 

76 Ohio St.3d 1475

, 

669 N.E.2d 857

.
                              ___________________
       Mathias H. Heck, Jr., Montgomery County Prosecuting Attorney, and
George A. Katchmer, Assistant Prosecuting Attorney, for appellant.
       David H. Bodiker, Ohio Public Defender, and Hyrum J. Mackay, Assistant
Public Defender, for appellee.




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                                 ___________________
        LUNDBERG STRATTON, J.
        {¶ 10} The issue in this appeal involves the mental state required for a
conviction under Ohio’s Racketeer Influenced and Corrupt Organizations
(“RICO”) statute. In particular, the issue certified to this court by the Court of
Appeals for Montgomery County is, “Is any culpable mental state required for a
violation of R.C. 2923.32(A)(1) and, if so, what culpable mental state is required?”
We hold that Ohio’s RICO statute, R.C. 2923.32(A)(1), plainly indicates a purpose
to impose strict liability.
        {¶ 11} Formerly, legislative silence as to mens rea in a statute defining an
offense was interpreted as an indication of the purpose to impose strict liability.
See, e.g., State v. Lisbon Sales Book Co. (1964), 

176 Ohio St. 482

, 

27 O.O.2d 443

,

200 N.E.2d 590

, paragraph two of the syllabus. However, R.C. 2901.21(B)
modified this rule so that “[w]hen the section defining an offense does not specify
any degree of culpability, and plainly indicates a purpose to impose strict criminal
liability for the conduct described in such section, then culpability is not required
for a person to be guilty of the offense. When the section neither specifies
culpability nor plainly indicates a purpose to impose strict liability, recklessness is
sufficient culpability to commit the offense.” (Emphasis added.) 

Id.

        {¶ 12} R.C. 2923.32(A)(1), Ohio’s RICO statute, provides: “No person
employed by, or associated with, any enterprise shall conduct or participate in,
directly or indirectly, the affairs of the enterprise through a pattern of corrupt
activity or the collection of an unlawful debt.” With the exception of R.C.
2923.32(A)(3),1 which sets forth a “knowingly” mental state, R.C. 2923.32 is silent
as to what culpable mental state a defendant must possess in order to be convicted.


1. R.C. 2923.32(A)(3) refers to “knowingly” receiving and investing proceeds from a pattern of
corrupt activity, presumably to protect innocent investors, banks, etc.




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                                January Term, 1997




       {¶ 13} The appellate court based its decision on its own previous holdings
which found that R.C. 2923.32(A)(1) neither specifies culpability nor plainly
indicates a purpose to impose strict liability. Thus, the court interpreted R.C.
2901.21(B) to require recklessness as the mens rea element for a violation of R.C.
2923.32(A)(1). We find, however, that the plain language of the statute, the
legislative intent and public policy considerations behind the statute, and the
varying culpable mental states necessary for the predicate offenses, unequivocally
indicate a purpose to impose strict liability for the conduct described in the section.
       {¶ 14} In general, R.C. 2923.32 is based on the federal RICO statute,
Section 1962, Title 18, U.S.Code. Thus, a review of the purpose behind the federal
statute is instructive. Congress, in enacting the Organized Crime Control Act of
1970, 

Pub.L. No. 91-452, 84

 Stat. 941 (codified at Section 1961 et seq., Title 18,
U.S.Code) stated:
       “The Congress finds that (1) organized crime in the United States is a highly
sophisticated, diversified, and widespread activity that annually drains billions of
dollars from America’s economy by unlawful conduct and the illegal use of force,
fraud, and corruption; (2) organized crime derives a major portion of its power
through money obtained from such illegal endeavors as syndicated gambling, loan
sharking, the theft and fencing of property, the importation and distribution of
narcotics and other dangerous drugs, and other forms of social exploitation; (3)
this money and power are increasingly used to infiltrate and corrupt legitimate
business and labor unions and to subvert and corrupt our democratic processes; (4)
organized crime activities in the United States weaken the stability of the Nation’s
economic system, harm innocent investors and competing organizations, interfere
with free competition, seriously burden interstate and foreign commerce, threaten
the domestic security, and undermine the general welfare of the Nation and its
citizens; and (5) organized crime continues to grow because of defects in the
evidence-gathering process of the law inhibiting the development of the legally




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admissible evidence necessary to bring criminal and other sanctions or remedies to
bear on the unlawful activities of those engaged in organized crime and because the
sanctions and remedies available to the Government are unnecessarily limited in
scope and impact.
        “It is the purpose of this Act to seek the eradication of organized crime in
the United States by strengthening the legal tools in the evidence-gathering process,
by establishing new penal prohibitions, and by providing enhanced sanctions and
new remedies to deal with the unlawful activities of those engaged in organized
crime.” Organized Crime Control Act of 1970, Statement of Findings and Purpose,

84 Stat. 922

, reprinted in 1970 U.S.Code Cong. & Adm. News at 1073.
        {¶ 15} Interpreting the mens rea requirement of the federal RICO statute,
United States v. Scotto (C.A.2, 1980), 

641 F.2d 47, 55-56

, held that the RICO
statute does not require any specific intent to engage in an unlawful pattern of
racketeering. The United States Supreme Court has also held that it is clearly within
Congressional power to create a strict liability offense which dispenses with any
element of intent. United States v. Dotterweich (1943), 

320 U.S. 277

, 

64 S.Ct. 134

,

88 L.Ed. 48

. Further, the failure to require mens rea, standing alone, does not
violate due process. United States v. Greenbaum (C.A.3, 1943), 

138 F.2d 437

.
        {¶ 16} Looking to Ohio’s statutory history, the Ohio General Assembly
unanimously passed the Ohio RICO Act in 1985. 141 Appendices and General
Index to the Journals of the Senate and House of Representatives (1985) 236. There
is little legislative history regarding the enactment. Senator Eugene Watts, the
statute’s Senate sponsor, described the Ohio RICO Act as “the toughest and most
comprehensive [RICO] Act in the nation” and “state-of-the-art legislation.” 57
Ohio Report No. 117, Gongwer News Serv. (June 18, 1985) 3. These comments
indicate an intent to impose the greatest level of accountability, i.e., strict liability.
        {¶ 17} Offenses under RICO, R.C. 2923.32, are mala prohibita, i.e., the acts
are made unlawful for the good of the public welfare regardless of the state of mind.




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                                 January Term, 1997




Thus, we agree with the Twelfth District’s reasoning in State v. Haddix (1994), 

93 Ohio App.3d 470

, 

638 N.E.2d 1096

, which stated, “Whether a defendant
knowingly, recklessly or otherwise engages in a pattern of corrupt activity, the
effect of his activities on the local and national economy is the same. Requiring
the finding of a specific culpable mental state for a RICO violation obstructs the
purpose of the statute * * *.” 

Id. at 477

, 

638 N.E.2d at 1101

. Given these goals,
we believe that the General Assembly intended to enhance the government’s ability
to quell organized crime by imposing strict liability for such acts.
        {¶ 18} Therefore, we agree with the Haddix court that the legislature
intended strict liability under R.C. 2923.32(A)(1) and (A)(2) offenses. 

Id.,

93 Ohio App.3d at 477

, 

638 N.E.2d at 1100-1101

. Several other appellate courts have also
taken this approach. State v. Rice (1995), 

103 Ohio App.3d 388

, 

659 N.E.2d 826

;
State v. Davis (July 19, 1995), Lorain App. Nos. 94CA005964 and 94CA005970,
unreported, 

1995 WL 434385

; State v. Post (Sept. 20, 1996), Lucas App. No. L-
95-153, unreported, 

1996 WL 532320

.
        {¶ 19} However, merely committing successive or related crimes is not
sufficient to rise to the level of a RICO violation. Both the federal and the Ohio
RICO statutes require an “enterprise.” The federal RICO statute states that an
enterprise “includes any individual, partnership, corporation, association, or other
legal entity, and any union or group of individuals associated in fact although not a
legal entity.” Section 1961(4), Title 18, U.S.Code. In comparison, the Ohio statute
states that an enterprise “includes any individual, sole proprietorship, partnership,
limited partnership, corporation, trust, union, government agency, or other legal
entity, or any organization, association, or group of persons associated in fact
although not a legal entity. ‘Enterprise’ includes illicit as well as licit enterprises.”
R.C. 2923.31(C).
        {¶ 20} The federal statute requires a “pattern of racketeering activity,”
defined as requiring “at least two acts of racketeering activity.” Section 1961(5),




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Title 18, U.S.Code. Federal cases have required that “to convict for conspiracy to
violate RICO the government must prove that the person objectively manifested,
through words or actions, an agreement to participate in the conduct of the affairs
of the enterprise through the commission of two or more predicate crimes.” United
States v. Martino (C.A.5, 1981), 

648 F.2d 367

, 394, citing United States v. Bright
(C.A.5, 1980), 

630 F. 2d 804

, and United States v. Elliott (C.A.5, 1978), 

571 F.2d 880

. The Ohio statute, however, uses the phrase “pattern of corrupt activity,”
defined as meaning “two or more incidents of corrupt activity, whether or not there
has been a prior conviction, that are related to the affairs of the same enterprise, are
not isolated, and are not so closely related to each other and connected in time and
place that they constitute a single event.” R.C. 2923.31(E).
        {¶ 21} Thus, neither statute intended to make a situation such as three
robberies committed by the same person a RICO violation. Instead, while slightly
different in definition, both statutes attempt to prohibit an enterprise. “To obtain
convictions, [the state] had to prove that each defendant was voluntarily connected
to that pattern and performed at least two acts in furtherance of it.” United States
v. Palmeri (C.A.3, 1980), 

630 F.2d 192

, 203.
        {¶ 22} In this case, the appellee was found guilty of one count of violating
R.C. 2923.32(A)(1), RICO, based on one predicate offense: eleven counts of doing
business as a credit services organization without being registered with the Division
of Consumer Finance of the Ohio Department of Commerce in violation of R.C.
4712.02(J). The court of appeals itself concluded that as a predicate offense, R.C.
4712.02(J) “fall[s] into that category of public welfare offenses the purpose of
which is to protect and promote the general welfare of the community, irrespective
of the mental state of the Defendant. Strict liability is appropriate to effect the
purpose of those statutes. The failure to specify any culpable mental state in these
mala prohibita offenses, along with use of the format ‘no person shall * * *’ absent
any reference to culpability, is clearly indicative of a legislative intent to impose




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                                        January Term, 1997




strict liability.” (Emphasis added.) We agree that a statute may provide criminal
liability without mens rea consistent with due process if it is a regulatory measure
in the interest of public safety. See United States v. Freed (1971), 

401 U.S. 601

,

91 S.Ct. 1112

, 

28 L.Ed.2d 356

. The more serious the consequences of violating a
statute are to the public, the more likely it is that the legislature meant to impose
liability without fault. State v. Buehler Food Markets, Inc. (1989), 

50 Ohio App.3d 29, 30

, 

552 N.E.2d 680, 682

.
         {¶ 23} For R.C. 2923.32(A)(1), the court did not define any mental state,
but instructed the jury to find the appellee guilty if he engaged in a pattern of corrupt
activity as defined by the court2             The predicate offense already required strict
liability. It does not make sense to find the appellee guilty of a predicate offense
which involves strict liability, and then find that the appellee had to “recklessly”
engage in a pattern of corrupt activity.                  The pattern of corrupt activity is
demonstrated by the fact that the appellee committed the predicate offense. The
General Assembly has determined that if a defendant has engaged in two or more
acts constituting a predicate offense, he or she is engaging in a pattern of corrupt
activity and may be found guilty of a RICO violation.
         {¶ 24} The RICO statute was designed to impose cumulative liability for
the criminal enterprise.         In this case, the appellee committed systematic acts of
fraud and corruption over the course of four years using a large “enterprise” with a
complex setup. During this period of time, the appellee was not registered with the
state of Ohio as a credit services organization. The appellee’s telemarketing
scheme preyed on potential customers who had recently been denied a credit card.


2. The jury was instructed that before it could find the appellee guilty, it had to “find beyond a
reasonable doubt that between April 16th, 1993, and February 16th, 1994, and in Montgomery
County, Ohio * * *, defendant was employed by or associated with an enterprise that did conduct
or participate in the affairs of the enterprise through a pattern of corrupt activity.” Further, the trial
court instructed that “[t]he law imposes strict liability for the conduct described in the offense of
engaging in a pattern of corrupt activity, and it is not necessary to prove the person acted with a
culpable mental state to be guilty of * * * that offense.”




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                              SUPREME COURT OF OHIO




The appellee guaranteed the potential customers a major credit card in exchange
for $149.50 or $179. The appellee received the money from the victims, but the
victims never received their credit cards. The appellee engaged in a very structured
pattern of corrupt activity. To require a reckless mental state for a conviction under
R.C. 2923.32(A)(1) would cripple RICO’s intended effect to stop such criminal
enterprises.
          {¶ 25} Therefore, we hold that R.C. 2923.32(A)(1) imposes strict liability
for commission of the prohibited acts. The intent of the statute is to impose
additional liability for the pattern of corrupt activity involving the criminal
enterprise. As a strict liability offense, no culpable mental state is required. For
the foregoing reasons, we reverse the judgment of the Court of Appeals for
Montgomery County on the matter certified for our review and reinstate appellee’s
conviction for violation of R.C. 2923.32.
                                                                 Judgment reversed.
          MOYER, C.J., DOUGLAS, RESNICK, F.E. SWEENEY, PFEIFER and COOK, JJ.,
concur.
                                __________________




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