BOWNES, Circuit Judge.
Paul Ochs, Jr. and Richard M. Dray were convicted in February 1987 of conspiracy to commit mail fraud in violation of 18 U.S.C. §§ 371 and 1341. According to the indictment, Ochs and Dray conspired during 1984 to obtain a building permit from the City of Boston for a fraudulently low fee by deliberately underestimating the cost of renovation at a commercial building in downtown Boston. The indictment charged that, to facilitate this scheme, Dray, an attorney, double billed the building owner for certain legal fees and then split the windfall with Ochs, the construction project manager, and with the city official who approved the building permit. At the government's request, the district court instructed the jury that Ochs and Dray could be convicted for conspiring to deprive the city of its intangible right to the honest and faithful services of its employee, even if no financial harm to the city were involved. On appeal, the principal argument advanced by Ochs and Dray is that this instruction was plainly erroneous under McNally v. United States, 483 U.S. 350, 107 S. Ct. 2875, 97 L. Ed. 2d 292 (1987)--decided after the convictions in this case--and that their convictions must therefore be reversed. Although conceding that McNally applies to this case and that the instruction in question was erroneous under McNally, the government argues that the convictions should be affirmed because the erroneous instruction was harmless surplusage. We reverse and remand for a new trial.
The centerpiece of this case is the former S.S. Kresge Building (the building), a six-story structure located at the corner of Washington Street and Temple Place in downtown Boston. In early 1984, Berwind Realty Service, a Philadelphia-based company, purchased an option to buy the building from a group of investors including Ochs. Berwind established a Massachusetts limited partnership, Temple Place Associates (TPA), to develop the property and TPA purchased the property in February 1984. Ochs and another investor formed a corporation which was hired by TPA to oversee the construction on TPA's behalf. TPA also hired Mirabassi Associates (Mirabassi) as general construction manager. Mirabassi had earlier been retained by Ochs and his fellow investors to evaluate the structural soundness of the building.
In order to carry out the major renovation contemplated at the building, it was necessary to obtain a building permit from the city's Department of Inspectional Services. The fee for such a permit is based on the cost of construction and, when the relevant events involved here occurred in 1984, the permit rate was seven dollars per thousand for the first hundred thousand dollars of construction costs, and ten dollars per thousand thereafter. To facilitate this fee system, each application for a permit had to contain an estimated cost of construction, which was then reviewed by the department for reasonableness.
Three building permits for work at the building were obtained on behalf of TPA, only the last of which is the subject of the criminal charges in this case. The first two permits, of comparatively modest size, were for exploratory work at the building and for demolition prior to construction. Applications for those permits were prepared and filed by Edwin Walkey, an engineer at Mirabassi. Walkey also worked at preparing the application for the general construction permit, but was informed by Ochs that the filing of that application would be handled by Dray. Dray had previously been retained by TPA for his legal services. The eventual application prepared by Walkey contained an estimated construction cost of $2,425,000, which was based on the total anticipated cost of the project minus certain nonconstruction costs. Walkey had Ochs sign this application as TPA's representative and obtained a check from Mirabassi for $23,950, the appropriate building permit application fee for a $2,425,000 project. Walkey then contacted Dray to inform him that the application was ready to be filed.
Meanwhile, Dray was taking some steps of his own regarding TPA's building permit. According to Douglas Robinson, Boston's Chief Building Inspector at the time,1 Dray met with Robinson some time in May of 1984 to discuss a building permit for the building. Dray told Robinson that the anticipated cost of construction was between two and two and one-half million dollars; Robinson responded "that that sounded like a high estimated cost just for interior demolition." Dray and Robinson then discussed "lowballing," or lowering the estimated cost of the project, and then splitting the amount that could be saved in permit fees. Dray reportedly told Robinson that, before finalizing such a deal, he would have to discuss the idea with a "neighbor" of his who was connected with the project. Dray's "neighbor" reference was apparently to Ochs, who, like Dray, resided in Milton, Massachusetts.
Consistent with his discussion with Robinson, Dray informed Walkey that the estimated cost in the application prepared by Walkey was too high. At Dray's direction, Walkey prepared a new application with an estimated cost of $1,200,000 and, as with the previous application, had Ochs sign it for TPA. Beyond the change in estimated cost, the amended application also contained an additional notation not found in the previous one: "Tenant improvements within building to be filed under separate application(s)." Walkey did not know how the $1,200,000 figure was calculated nor was he aware at the time of the language change. Dray also had Walkey return the $23,950 check to Mirabassi and have a new check for $11,750, the appropriate application fee for a $1,200,000 project, issued.
Armed with the new application and check, Dray returned to Robinson's office to procure Robinson's approval. According to Robinson, Dray announced that he had secured the cooperation of "this person"--again, presumably Ochs--and that "this person" would receive two-thirds of the savings while Dray and Robinson would split the remaining third. Robinson thereafter initialled the application, supplying the necessary approval, and Dray filed it. Robinson testified that, approximately one or two months later, he met with Dray at a lounge near City Hall and was handed an envelope containing $400-600. Robinson understood that he was eventually to receive more money, but, despite Dray's promises, no additional payments were forthcoming.
For the services he rendered in helping to procure a building permit, Dray submitted two bills on the same day, May 29, 1984. A bill for $1,687.50, representing thirteen and one-half hours of work at $125 per hour, was submitted by Dray to Ochs, who forwarded it to TPA. Another bill for $5,975, representing an unspecified number of hours, was submitted to Mirabassi. Both bills were paid in full and the proceeds deposited into Dray's checking account.2 The same day that Dray deposited the $5,975 check, July 3, 1984, he wrote a personal check to Ochs for $3,000. Ochs deposited that check into his own account. On July 9, 1984, approximately the date that Robinson recalls receiving his payment from Dray, Dray wrote himself a check for $600 and cashed it at a bank near City Hall.
On October 10, 1986, Ochs and Dray were indicted by a federal grand jury. The indictment alleged generally that the two had engaged in a scheme to lowball the estimated construction costs in applying for a building permit, double bill for Dray's services, and split the resulting illicit profits between themselves and Robinson. It contained six counts, one charging conspiracy to commit mail fraud3 and five charging substantive mail fraud.4 At trial, the district court directed verdicts for the defendants on three of the substantive counts and the jury acquitted on the two remaining substantive counts.5 Our review is thus limited to Count One, the conspiracy count.
In setting out the conspiracy count, paragraph fourteen of the indictment described three separate frauds. Ochs and Dray allegedly conspired to defraud:
(a) The City of Boston and its citizens of approximately $12,000 in additional permit fees which should have been paid the City in connection with the issuance of the building permit for the 477-481 Washington Street project;
(b) The City of Boston and its citizens of their right to have the affairs of the City conducted honestly, impartially, and free from corruption, fraud, and undue favoritism; and
(c) The firms of Mirabassi and Associates and Temple Place Associates who were double billed for the same purported legal services performed by DRAY in connection with his filing of the building permit application for the 477-481 Washington Street project.
The independent nature of the intangible rights fraud described in subparagraph (b) was emphasized in the district court's charge to the jury. The relevant instruction provided:
With respect to that portion of the scheme which alleges that the City of Boston and its citizens were defrauded of their right to the honest and faithful services of its employees, you do not have to find that the City actually lost money because of the scheme. It is sufficient if you find that the scheme did defraud or deprive the public of an intangible political or civil right, such as the right to honest government and to the honest and faithful services of government employees free from conflicting interests. Hence, if you find as a result of the scheme the public was deprived or defrauded of the right to the honest and faithful services of Douglas Robinson as an employee of the City's Inspectional Services Department, then it is irrelevant under this branch of the scheme alleged whether the City, in fact, lost any money as a result of the scheme to defraud.
On February 27, 1987, the jury found both Ochs and Dray guilty on Count One. Post-trial motions for acquittal were denied by the district court in an opinion dated May 5, 1987. On May 11, Ochs and Dray were sentenced to respective prison terms of twelve and twenty-seven months. Both were also fined $6,100 and ordered to make restitution to the City of Boston in a like amount. On June 24, 1987, after notices of appeal had been filed in this case, the Supreme Court decided McNally v. United States, 483 U.S. 350, 107 S. Ct. 2875, 97 L. Ed. 2d 292 (1987).
II. STANDARD OF REVIEW
The government and defendants agree that, in our direct review of the convictions entered below, we are bound by McNally, even though it was decided after the completion of proceedings in the district court. There can be no doubt that McNally applies.6 "In disposing of cases before us it is our repsonsibility to make such disposition as justice may require. 'And in determining what justice does require, the Court is bound to consider any change, either in fact or in law, which has supervened since the judgment was entered.'" Ashcraft v. Tennessee, 322 U.S. 143, 156, 88 L. Ed. 1192, 64 S. Ct. 921 (1944) (quoting Patterson v. Alabama, 294 U.S. 600, 607, 79 L. Ed. 1082, 55 S. Ct. 575 (1935)); see United States v. Byers, 239 U.S. App. D.C. 1, 740 F.2d 1104, 1115-16 n. 11 (D.C.Cir. 1984); Pendergrast v. United States, 135 U.S. App. D.C. 20, 416 F.2d 776, 780-81 (D.C.Cir.), cert. denied, 395 U.S. 926, 23 L. Ed. 2d 243, 89 S. Ct. 1782 (1969); see also Griffith v. Kentucky, 479 U.S. 314, 107 S. Ct. 708, 716, 93 L. Ed. 2d 649 (1987) ("[A] new rule for the conduct of criminal prosecutions is to be applied retroactively to all cases, state or federal, pending on direct review or not yet final, with no exception for cases in which the new rule constitutes a 'clear break' with the past."); Hamling v. United States, 418 U.S. 87, 102, 41 L. Ed. 2d 590, 94 S. Ct. 2887 (1974) ("Our prior decisions establish a general rule that a change in the law occurring after a relevant event in a case will be given effect while the case is on direct review."). The remaining question, over which the parties disagree, is the standard by which we should determine whether the district court's instruction constitutes reversible error.
Although McNally casts doubt on only one of the three frauds alleged in the conspiracy count, the general rule is "that a general verdict must be set aside if the jury was instructed that it could rely on any of two or more independent grounds, and one of those grounds is insufficient, because the verdict may have rested exclusively on the insufficient ground." Zant v. Stephens, 462 U.S. 862, 881, 77 L. Ed. 2d 235, 103 S. Ct. 2733 (1983); accord Yates v. United States, 354 U.S. 298, 312, 1 L. Ed. 2d 1356, 77 S. Ct. 1064 (1957); Stromberg v. California, 283 U.S. 359, 367-68, 75 L. Ed. 1117, 51 S. Ct. 532 (1931); United States v. Norton, 808 F.2d 908, 911 (1st Cir. 1987). An exception to this rule has emerged only in cases where uncertainty as to the ground upon which the jury relied can be eliminated. This can be done in two situations: where a verdict based on any ground would mean that the jury found every element necessary to support a conviction on the sufficient ground, see, e.g., United States v. Jacobs, 475 F.2d 270, 283-84 (2d Cir.), cert. denied, 414 U.S. 821, 94 S. Ct. 116, 38 L. Ed. 2d 53 (1973); or where extrinsic factors in the record make it clear that, although the jury could have relied on an insufficient ground, it did not, in fact, do so. See, e.g., United States v. Alexander, 748 F.2d 185, 189-90 (4th Cir. 1984), cert. denied, 472 U.S. 1027, 87 L. Ed. 2d 632, 105 S. Ct. 3501 (1985).
Not surprisingly, the government urges that this case falls within the Jacobs/Alexander exception. The government further asserts that in applying the exception, we are bound by the plain error standard of Federal Rule of Criminal Procedure 52(b) because no objection to the intangible rights instruction was made at trial. Ochs and Dray, on the other hand, assert that this case is governed by the general rule of Zant v. Stephens. Ochs and Dray urge that the harmless error beyond a reasonable doubt standard of Chapman v. California, 386 U.S. 18, 17 L. Ed. 2d 705, 87 S. Ct. 824 (1967), is the correct standard of review.
We recognize that there seems to exist a confusion in the federal courts over the proper standard to apply in a case such as this where a controlling Supreme Court precedent is handed down after conviction. Post-McNally courts have split on the issue. Compare United States v. Richerson, 833 F.2d 1147, 1157 (5th Cir. 1987) (applying plain error standard) with United States v. Doherty, 675 F. Supp. 726, 732-36 (D.Mass. 1987) (applying harmless error beyond a reasonable doubt standard).7 But we do not think that a prolonged analysis of whether a plain error or harmless error standard applies here would be fruitful. Without deciding the point, we, like the Third Circuit in the recent case of United States v. Piccolo, "are satisfied that if . . . the jury instructions allowed conviction for conduct outside the proscription of the mail fraud statute, such instructions would constitute both plain error and a defect affecting [Ochs's and Dray's] due process rights." 835 F.2d 517, 519 (3d Cir. 1987).
III. THE EFFECT OF McNALLY v. UNITED STATES
The Supreme Court's decision in McNally v. United States, 483 U.S. 350, 107 S. Ct. 2875, 97 L. Ed. 2d 292 (1987), has been variously described as "blockbusting," as "a total suprise" and as a "wholly unexpected explication of the law of mail fraud." United States v. Piccolo, 835 F.2d 517, 521 (3d Cir. 1987) (Aldisert, J., dissenting) ("blockbusting"); United States v. Slay, 673 F. Supp. 336, 343 (E.D.Mo. 1987) ("a total surprise"); United States v. Doherty, 675 F. Supp. 726, 728 (D.Mass. 1987) ("wholly unexpected explication of the law of mail fraud"). It was, without a doubt, a departure from the law of every court of appeals--including this one--to consider the issue of intangible rights mail fraud prosecutions. See, e.g., United States v. Silvano, 812 F.2d 754 (1st Cir. 1987); McNally, 107 S. Ct. at 2882-83 & ns.1-3 (Steven, J., dissenting) (collecting cases). McNally has thus called into question numerous jury instructions delivered in accordance with the prior governing law. This is one such case.
The alleged fraud in McNally was a scheme run by three individuals active in Democratic Party politics in Kentucky during the 1970's: Gray, Hunt, and McNally. Gray was a member of the then Democratic governor's cabinet and Hunt was state Democratic Party chairman. Through his party position, Hunt maintained de facto control over the selection of insurance companies from which the state purchased its policies. Hunt arranged a deal with an insurance company whereby, in return for being selected as an agent for securing a workmen's compensation policy, the company agreed to share commissions with entities identified by Hunt. One such entity was Seton Investments, Inc., a company set up by Hunt, Gray and McNally solely for collecting commissions. Over four years, some $200,000 in commissions was paid by the insurance company to Seton. Additional commissions were paid to a second agency, and then passed on to McNally.
On account of this scheme, Hunt was charged with and plead guilty to tax and mail fraud. Gray and McNally, petitioners before the Supreme Court, were criminally indicted for mail fraud and conspiracy to commit mail and tax fraud. As Justice White described it, the mail fraud count of the indictment
alleged that petitioners had devised a scheme (1) to defraud the citizens and government of Kentucky of their right to have the Commonwealth's affairs conducted honestly, and (2) to obtain, directly and indirectly, money and other things of value by means of false pretenses and the concealment of material facts. The conspiracy count alleged that petitioners had (1) conspired to violate the mail fraud statute through the scheme just described and (2) conspired to defraud the United States by obstructing the collection of federal taxes.
After informing the jury of the charges in the indictment, the District Court instructed that the scheme to defraud the citizens of Kentucky and to obtain money by false or fraudulent pretenses and concealment could be made out by either of two sets of findings: (1) that Hunt had de facto control over the award of the workmen's compensation insurance contract . . .; that he directed payments of commissions from this contract to Seton, an entity in which he had an ownership interest, without disclosing that interest to persons in state government whose actions or deliberations could have been affected by the disclosure; and that petitioners, or either of them, aided and abetted Hunt in that scheme; or (2) that Gray, in either of his appointed positions, had supervisory authority regarding the Commonwealth's workmen's compensation insurance at a time when Seton received commissions; that Gray had an ownership interest in Seton and did not disclose that interest to persons in state government whose actions or deliberations could have been affected by that disclosure; and that McNally aided and abetted Gray (the latter finding going only to McNally's guilt).
1. Robinson testified at trial under a grant of immunity. He had previously pleaded guilty to an indictment for perjury in connection with his testimony before a grand jury investigating corruption at the Department of Inspectional Services. In return for his plea and his cooperation in the ongoing investigation, the government agreed not to bring any further charges against Robinson. Since the agreement, Robinson has admitted that, as a city official, he occasionally received money from private parties in return for expediting permits and for approving deliberately underestimated costs.
2. A third bill for $30,000, representing services between May 1984 and March 1985, was submitted to TPA on March 27, 1985. As with the bill to Mirabassi, the text accompanying the bill did not set forth the particular number of hours worked. The bill did describe a number of tasks undertaken by Dray, the majority of which was said to have occurred after the building permit episode. The bill also included, for the third time, "submission of application to Department for building permit."
3. The federal conspiracy statute, 18 U.S.C. § 371, provides in pertinent part: If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined not more than $10,000 or imprisoned not more than five years, or both.
4. The mail fraud statute, 18 U.S.C. § 1341, provides in pertinent part: Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, . . . for the purpose of executing such scheme or artifice or attempting to do so, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined not more than $1,000 or imprisoned not more than five years, or both.
5. The directed verdicts were explicitly based on insufficient evidence of mailing, while the reason for the jury's acquittals is necessarily less clear. On appeal, the government, apparently conceding that its evidence of mailing was weak, ascribes that as the cause. Ochs and Dray, on the other hand, urge that the acquittals represent the jury's rejection of the government's double billing theory. Finding that this type of speculation is not relevant to the issues presented on appeal, we do not attempt to divine the reason for the jury's acquittals.
6. We note in passing that McNally has unleashed a wave of collateral attacks on old mail fraud convictions based on intangible rights instructions, which are now wending their way through the federal courts. In the collateral attack context, courts have had to wrestle with the issue of whether McNally should be applied retroactively to convictions which became final before McNally, and have reached divergent conclusions. Compare United States v. Mandel, 672 F. Supp. 864, 874-75 (D.Md. 1987) (applying McNally retroactively) and Ingber v. Enzor, 664 F. Supp. 814, 822-24 (S.D.N.Y. 1987) (same) with United States v. Gill, 673 F. Supp. 275, 279-82 (N.D.Ill. 1987) (refusing section 2255 relief in light of McNally) and United States v. Callanan, 671 F. Supp. 487 (E.D.Mich. 1987) (refusing to apply McNally retroactively). Because this case involves a direct appeal rather than a collateral attack, retroactivity is not an issue.
7. The government and the defendants have also drawn our attention to the standard applied in Hamling v. United States, 418 U.S. 87, 108, 41 L. Ed. 2d 590, 94 S. Ct. 2887 (1974), where it was said: "in the unusual posture of this case, in which petitioners agree that the challenged instruction was proper at the time it was given by the District Court, but now seek to claim the benefit of a change in the law which casts doubt on the correctness of portions of it, we hold that reversal is required only where there is a probability that the [new jury instruction] would have materially affected the deliberations of the jury." Hamling, however, is not controlling here because the instruction in this case was not "proper" at the time it was given. Although sanctioned by numerous courts of appeals, intangible rights instructions have never been approved by the Supreme Court and, indeed, the gist of McNally is that the mail fraud statute does not and never has extended to violations of purely intangible political or civil rights.
8. The government contends that, if the jury believed none of these theories, there was no evidence left on which to base a guilty verdict. Because we reject the government's argument on other grounds, we do not address this latter contention.
9. In its brief and at oral argument, the government quoted this and other similar statements by defense counsel. The government's point in doing so was to attempt to show that defendants actually concur in its current claim that the alleged violation of intangible rights was not a separate charge in this case, but was simply part of a single overarching theory focusing on monetary loss. However, in view of the fact that the district court overruled this objection and, indeed, formulated a charge almost identical to the one requested by the government, we fail to see how these comments work in the government's favor.
10. This aspect of McNally is further supported by two post-McNally cases considered by the Court. See Holzer v. United States, 484 U.S. 807, 108 S. Ct. 53, 98 L. Ed. 2d 18 (1987); McMahan v. United States, 483 U.S. 1015, 107 S. Ct. 3254, 97 L. Ed. 2d 754 (1987). Both Holzer and McMahan involved fiduciaries who accepted illicit payments in violation of their duties and who were convicted of mail fraud under an intangible rights theory. See United States v. Holzer, 816 F.2d 304 (7th Cir.), vacated, 484 U.S. 807, 108 S. Ct. 53, 98 L. Ed. 2d 18 (1987); United States v. Price, 788 F.2d 234 (4th Cir. 1986), vacated sub nom. McMahan v. United States, 483 U.S. 1015, 107 S. Ct. 3254, 97 L. Ed. 2d 754 (1987). In each case, the Supreme Court vacated in light of McNally.
11. Even if, through judicial interpretation, the secret profits theory could be made consistent with the substantive holding of McNally, it would not warrant a different result here, because that was not the theory of criminal liability put to the jury. The government in McNally also asserted on appeal that, despite the jury instruction, the defendants had in fact "obtained property by means of false representations." 107 S. Ct. at 2882. But, said the Court, "there was nothing in the jury charge that required such a finding. We hold, therefore, that the jury instruction permitted a conviction for conduct not within the reach of § 1341." Id ; see also Runnels, 833 F.2d at 1194-95 (Guy, J., dissenting) (arguing that the court should not affirm on the basis of a legal theory not raised at trial). In view of our preceding discussion of the jury charge in this case, a similar result is mandated here.
12. Ironically, were we to accept the government's substantive argument, outlined above, that the intangible rights violation was not separate from the other alleged schemes, we could not so easily conclude that the indictment survives McNally under the test set out in Miller. See Miller, 471 U.S. at 136 ("part of indictment unnecessary to and independent from the allegations of the offense proved" may be treated as harmless surplusage) (emphasis added).
13. Three principle pieces of nonhearsay evidence were offered by the government on this issue: (1) the difference in estimated costs on the two permit applications, (2) Ochs's presentation of Dray's two bills for legal services, and (3) the receipt by Ochs of a $3,000 check from Dray.