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United States v. Perez

decided: May 1, 1970.

UNITED STATES OF AMERICA, APPELLEE,
v.
ALCIDES PEREZ, APPELLANT



Waterman, Hays and Feinberg, Circuit Judges. Hays, Circuit Judge (dissenting).

Author: Feinberg

FEINBERG, Circuit Judge.

Alcides Perez appeals from a judgment of the United States District Court for the Eastern District of New York, George Rosling, J., entered on a jury verdict convicting him of five counts of using extortionate means to collect or attempt to collect extensions of credit. 18 U.S.C. §§ 891, 894. Although appellant claims various errors in his trial, his major argument on appeal is that Congress did not have the power to pass the statute under which appellant was convicted, either under the Commerce Clause or the Bankruptcy Clause of the Constitution. We hold that the trial was proper and the evidence sufficient, and that Congress has the power to prohibit extortionate credit transactions.

The facts underlying appellant's conviction may be stated briefly. The victim of appellant's brutal collection methods was Alexis Miranda, a 26-year-old married butcher with three children, who was attempting to open his own butcher shop. Unable to obtain operating capital by a loan through such legitimate channels as the Chase Manhattan Bank and the Small Business Administration, Miranda made the mistake of borrowing some $3,000 from Perez. From the record, the rate of interest was somewhat vague but it was obviously large enough to perpetuate the indebtedness forever. Miranda initially had to make repayments at a rate of $105 per week; Perez subsequently raised that to $130 a week, then to $205 and finally to $330. Miranda indicated that in all he paid some $6,500, but after many months of repayment he was still some $6,700 in debt. Miranda also testified that, when he had difficulty in paying these sums, Perez threatened him with hospitalization, harm to his family, the attention of persons higher in the moneylending chain, as well as an ominous "or else," if repayments should not be promptly forthcoming. Miranda hovered on the brink of insolvency, doubtless in large part because of the high payments to Perez, and was able to pay Perez only by obtaining meat on short-term credit, and then delaying his payments to suppliers. Finally driven to the wall, Miranda abandoned his business and fled to Puerto Rico, leaving his debts, legitimate and illegitimate, behind. On Miranda's return, appellant found him and again hounded him for further payment until appellant was arrested.

I.

Appellant's principal contention is that the statute under which he was convicted is unconstitutional in prohibiting all extortionate credit transactions, without requiring a showing in a particular case of effect on interstate commerce, or connection with the Bankruptcy Act. The statute was enacted as Title II of the Consumer Credit Protection Act of 1968 and amended Title 18 of the United States Code by adding Chapter 42, sections 891-96, which deal with "Extortionate Credit Transactions." According to the legislative history, the statute was a far-reaching attempt to control "the vicious billion dollar a year loan-sharking racket," 114 Cong.Rec. 14384 (1968), and "a deliberate legislative attack on the economic foundations of organized crime." Conf.Rep.No. 1397, 90th Cong., 2d Sess. (1968), U.S.Code Cong. & Adm.News, p. 2029. Section 891 defines "extortionate extension of credit" as one characterized by an understanding of both the creditor and debtor that delay in, or failure to make, repayment "could result in the use of violence or other criminal means to cause harm to the person * * *." 18 U.S.C. § 891. Section 892(a) provides the heavy penalty of imprisonment for not more than 20 years or a fine of not more than $10,000, or both, for any person making such an "extortionate extension of credit." Subsection (b) of the same section provides various indicia of whether an extension of credit is extortionate, including an excessive interest rate, the inability of the creditor to legally enforce the debt, and the reasonable belief of the debtor that the creditor has used extortionate means to collect debts in the past. Section 893 prohibits the "financing" of extortionate extensions of credit, an obvious attempt "to make possible the prosecution of the upper levels of the criminal hierarchy." Conf.Rep.No. 1397, supra, U.S.Code Cong. & Adm.News at p. 2027. Finally, section 894(a) -- the section involved here -- punishes the actual collection or attempt to collect any extension of credit by "extortionate means." Section 894(a) (1) places the same heavy penalties used in section 892 on anyone who

(a) * * * knowingly participates in any way, or conspires to do so, in the use of any extortionate means.

(1) to collect or attempt to collect any extension of credit * * *.

"Extortionate means" is defined in section 891(7) as

any means which involves the use, or an express or implicit threat of use, of violence or other criminal means to cause harm to the person, reputation, or property of any person.

It is clear from the above that the statute is a comprehensive federal attack on loan-sharking. Whatever may be the desirability of such national action, the question before us is whether Congress acted constitutionally.

II.

We turn now to a consideration of the power of Congress under the Commerce Clause of the Constitution, which in Article I, section 8 authorizes Congress to regulate "Commerce * * * among the several States." As we understand appellant's argument, he concedes that Congress would indeed have power to reach the activities of Perez if it were shown that some instrumentality of commerce were used either to effect the threats or to repay the loan, or that the loan itself was in, or affected, interstate commerce, or was connected in some specific way therewith. According to appellant, however, Congress cannot regulate (at least by simple criminal prohibition) a wholly intrastate individual transaction without some proof in the criminal prosecution that the transaction is thus connected with interstate commerce; since that was not done here, the conviction cannot stand. While appellant's position has force, we cannot agree that congressional power is so limited.

We will concede at the outset that almost all federal criminal statutes are so drafted that the connection with federal interests -- the federal jurisdictional peg -- must be proved in each case because such connection is incorporated into the definition of the offense. See, e.g., The Hobbs Act, 18 U.S.C. § 1951 (obstructing or affecting interstate commerce or movements of commodities in commerce by robbery or extortion).*fn1 But this hardly resolves the question whether such a mode of drafting is constitutionally required. We assume that all would agree that the reach of federal power under the Commerce Clause is not now niggardly construed and that statutes relying upon that clause frequently apply to intrastate activity. This is made clear by the series of decisions described in United States v. Darby, 312 U.S. 100, 61 S. Ct. 451, 85 L. Ed. 609 (1941), and Wickard v. Filburn, 317 U.S. 111, 63 S. Ct. 82, 87 L. Ed. 122 (1942), and culminating in Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 85 S. Ct. 348, 13 L. Ed. 2d 258 (1964); Katzenbach v. McClung, 379 U.S. 294, 85 S. Ct. 377, 13 L. Ed. 2d 290 (1964); and Maryland v. Wirtz, 392 U.S. 183, 192, 88 S. Ct. 2017, 20 L. Ed. 2d 1020 (1968). In addition, these decisions support the proposition that individual proof of effect on interstate commerce is not required in each case, so long as Congress has made a rational overall determination.

In United States v. Darby, supra, 312 U.S. at 118, 61 S. Ct. at 459, the formulation put forward by Justice Stone was whether the regulation of intrastate activity was an "appropriate means to the attainment of a legitimate end, the exercise of the granted power of Congress to regulate interstate commerce." This demands an evaluation, not of the effect of a particular item of intrastate activity on interstate commerce, but of the effect of intrastate activity, as a whole, on interstate commerce. A similar approach was apparent in Wickard v. Filburn, supra, 317 U.S. at 127-128, 63 S. Ct. at 90, where the Court said:

That appellee's own contribution to the demand for wheat may be trivial by itself is not enough to remove him from the scope of federal regulation where, as here, his contribution, taken together with that of many others similarly situated is far from trivial.

The point was made even clearer by the decisions in Atlanta Motel, McClung and Maryland. In the first, the Court considered the constitutionality of Title II of the Civil Rights Act of 1964. Section 201(c) thereof, 42 U.S.C. § 2000a(c), conclusively declares, with exceptions not here important, that any motel "which provides lodging to transient guests" affects commerce per se. See Atlanta Motel, 379 U.S. at 247, 85 S. Ct. 348. To establish coverage under the Act in an individual case, there is no need to show that any particular guests are engaged in interstate travel; the congressional presumption of effect on interstate commerce is conclusive. In testing the constitutionality of the statute as applied to the Atlanta Motel, the Court did not look to proof of individual connection between the motel and interstate commerce. Instead it examined the basis of legislative action on the evidence available to Congress, pointing out, id. at 258, 85 S. Ct. at 358:

The only questions are: (1) whether Congress had a rational basis for finding that racial discrimination by motels affected commerce, and (2) if it had such a basis, whether the means it selected to eliminate that evil are reasonable and appropriate.

In Katzenbach v. McClung, supra, the Court again considered Title II of the Civil Rights Act, this time in its application to a restaurant as to which Congress did require, unlike motels, that a particular connection with interstate commerce be shown in the individual case; i.e., "a substantial portion of the food" served by the restaurant "has moved in commerce." However, appellants claimed that since the restaurant served only intrastate patrons, this was not enough to justify regulation under the Commerce Clause. As the Court put it, 379 U.S. at 303, 85 S. Ct. at 383, appellants

object to the omission of a provision for a case-by-case determination -- judicial or administrative -- that racial discrimination in a ...


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