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PEREZ v. UNITED STATES
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
Argued March 22, 1971
Decided April 26, 1971
Petitioner was convicted of "loan sharking" activities, i. e., unlawfully using extortionate means in collecting and attempting to collect an extension of credit, in violation of Title II of the Consumer Credit Protection Act, and his conviction was affirmed on appeal. He challenges the constitutionality of the statute on the ground that Congress has no power to control the local activity of loan sharking. Held: Title II of the Consumer Credit Protection Act is within Congress' power under the Commerce Clause to control activities affecting interstate commerce and Congress' findings are adequate to support its conclusion that loan sharks who use extortionate means to collect payments on loans are in a class largely controlled by organized crime with a substantially adverse effect on interstate commerce. Pp. 149-157.
426 F.2d 1073, affirmed.
DOUGLAS, J., delivered the opinion of the Court, in which BURGER, C. J., and BLACK, HARLAN, BRENNAN, WHITE, MARSHALL, and BLACKMUN, JJ., joined. STEWART, J., filed a dissenting opinion, post, p. 157.
Albert J. Krieger argued the cause for petitioner. With him on the briefs was Joel M. Finkelstein.
Solicitor General Griswold argued the cause for the United States. With him on the brief were Assistant Attorney General Wilson, Beatrice Rosenberg, and Marshall Tamor Golding.
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
The question in this case is whether Title II of the Consumer Credit Protection Act, 82 Stat. 159, 18 U.S.C. 891 et seq. (1964 ed., Supp. V), as construed and applied to petitioner, is a permissible exercise by Congress of its powers under the Commerce Clause of the Constitution. [402 U.S. 146, 147] Petitioner's conviction after trial by jury and his sentence were affirmed by the Court of Appeals, one judge dissenting. 426 F.2d 1073. We granted the petition for a writ of certiorari because of the importance of the question presented. 400 U.S. 915 . We affirm that judgment.
Petitioner is one of the species commonly known as "loan sharks" which Congress found are in large part under the control of "organized crime." 1 "Extortionate credit transactions" are defined as those characterized by the use or threat of the use of "violence or other criminal means" in enforcement. 2 There was ample evidence showing petitioner was a "loan shark" who used the threat of violence as a method of collection. He loaned [402 U.S. 146, 148] money to one Miranda, owner of a new butcher shop, making a $1,000 advance to be repaid in installments of $105 per week for 14 weeks. After paying at this rate for six or eight weeks, petitioner increased the weekly payment to $130. In two months Miranda asked for an additional loan of $2,000 which was made, the agreement being that Miranda was to pay $205 a week. In a few weeks petitioner increased the weekly payment to $330. When Miranda objected, petitioner told him about a customer who refused to pay and ended up in a hospital. So Miranda paid. In a few months petitioner increased his demands to $500 weekly which Miranda paid, only to be advised that at the end of the week petitioner would need $1,000. Miranda made that payment by not paying his suppliers; but, faced with a $1,000 payment the next week, he sold his butcher shop. Petitioner pursued Miranda, first making threats to Miranda's wife and then telling Miranda he could have him castrated. When Miranda did not make more payments, petitioner said he was turning over his collections to people who would not be nice but who would put him in the hospital if he did not pay. Negotiations went on, Miranda finally saying he could only pay $25 a week. Petitioner said that was not enough, that Miranda should steal or sell drugs if necessary to get the money to pay the loan, and that if he went to jail it would be better than going to a hospital with a broken back or legs. He added, "I could have sent you to the hospital, you and your family, any moment I want with my people."
Petitioner's arrest followed. Miranda, his wife, and an employee gave the evidence against petitioner who did [402 U.S. 146, 149] not testify or call any witnesses. Petitioner's attack was on the constitutionality of the Act, starting with a motion to dismiss the indictment.
The constitutional question is a substantial one.
Two "loan shark" amendments to the bill that became this Act were proposed in the House - one by Congressman Poff of Virginia, 114 Cong. Rec. 1605-1606 and another one by Congressman McDade of Pennsylvania. Id., at 1609-1610.
The House debates include a long article from the New York Times Magazine for January 28, 1968, on the connection between the "loan shark" and organized crime. Id., at 1428-1431. The gruesome and stirring episodes related have the following as a prelude:
Chief Justice Marshall in Gibbons v. Ogden, 9 Wheat. 1, 195, said:
Wickard v. Filburn, 317 U.S. 111 , soon followed in which a unanimous Court held that wheat grown wholly for home consumption was constitutionally within the scope of federal regulation of wheat production because, though never marketed interstate, it supplied the need of the grower which otherwise would be satisfied by his purchases in the open market. 3 We said:
It was the "class of activities" test which we employed in Atlanta Motel v. United States, 379 U.S. 241 , to sustain an Act of Congress requiring hotel or motel accommodations for Negro guests. The Act declared that " `any inn, hotel, motel, or other establishment which provides lodging to transient guests' affects commerce per se." Id., at 247. That exercise of power under the Commerce Clause was sustained.
Where the class of activities is regulated and that class is within the reach of federal power, the courts have no power "to excise, as trivial, individual instances" of the class. Maryland v. Wirtz, 392 U.S. 183, 193 .
Extortionate credit transactions, though purely intrastate, may in the judgment of Congress affect interstate commerce. In an analogous situation, Mr. Justice Holmes, speaking for a unanimous Court, said: "[W]hen it is necessary in order to prevent an evil to make the law embrace more than the precise thing to be prevented it may do so." Westfall v. United States, 274 U.S. 256, 259 . In that case an officer of a state bank which was a member of the Federal Reserve System [402 U.S. 146, 155] issued a fraudulent certificate of deposit and paid it from the funds of the state bank. It was argued that there was no loss to the Reserve Bank. Mr. Justice Holmes replied, "But every fraud like the one before us weakens the member bank and therefore weakens the System." Id., at 259. In the setting of the present case there is a tie-in between local loan sharks and interstate crime.
The findings by Congress are quite adequate on that ground. The McDade Amendment in the House, as already noted, was the one ultimately adopted. As stated by Congressman McDade it grew out of a "profound study of organized crime, its ramifications and its implications" undertaken by some 22 Congressmen in 1966-1967. 114 Cong. Rec. 14391. The results of that study were included in a report, The Urban Poor and Organized Crime, submitted to the House on August 29, 1967, which revealed that "organized crime takes over $350 million a year from America's poor through loan-sharking alone." See 113 Cong. Rec. 24460-24464. Congressman McDade also relied on The Challenge of Crime in a Free Society, A Report by the President's Commission on Law Enforcement and Administration of Justice (February 1967) which stated that loan sharking was "the second largest source of revenue for organized crime," id., at 189, and is one way by which the underworld obtains control of legitimate businesses. Id., at 190.
The Congress also knew about New York's Report, An Investigation of the Loan Shark Racket (1965). See 114 Cong. Rec. 1428-1431. That report shows the loan shark racket is controlled by organized criminal syndicates, either directly or in partnership with independent operators; that in most instances the racket is organized into three echelons, with the top underworld "bosses" providing the money to their principal "lieutenants," [402 U.S. 146, 156] who in turn distribute the money to the "operators" who make the actual individual loans; that loan sharks serve as a source of funds to bookmakers, narcotics dealers, and other racketeers; that victims of the racket include all classes, rich and poor, businessmen and laborers; that the victims are often coerced into the commission of criminal acts in order to repay their loans; that through loan sharking the organized underworld has obtained control of legitimate businesses, including securities brokerages and banks which are then exploited; and that "[e]ven where extortionate credit transactions are purely intrastate in character, they nevertheless directly affect interstate and foreign commerce." 5
Shortly before the Conference bill was adopted by Congress a Senate Committee had held hearings on loan sharking and that testimony was made available to members of the House. See 114 Cong. Rec. 14390.
The essence of all these reports and hearings was summarized and embodied in formal congressional findings. They supplied Congress with the knowledge that the loan shark racket provides organized crime with its second most lucrative source of revenue, exacts millions from the pockets of people, coerces its victims into the commission of crimes against property, and causes the takeover by racketeers of legitimate businesses. See generally 114 Cong. Rec. 14391, 14392, 14395, 14396.
We have mentioned in detail the economic, financial, and social setting of the problem as revealed to Congress. We do so not to infer that Congress need make particularized findings in order to legislate. We relate the history of the Act in detail to answer the impassioned plea of petitioner that all that is involved in loan [402 U.S. 146, 157] sharking is a traditionally local activity. It appears, instead, that loan sharking in its national setting is one way organized interstate crime holds its guns to the heads of the poor and the rich alike and syphons funds from numerous localities to finance its national operations.
[ Footnote 2 ] Section 891 of 18 U.S.C. (1964 ed., Supp. V) provides in part:
[ Footnote 3 ] That decision has been followed: Beckman v. Mall, 317 U.S. 597 ; Bender v. Wickard, 319 U.S. 731 ; United States v. Haley, 358 U.S. 644 ; United States v. Ohio, 385 U.S. 9 .
[ Footnote 4 ] See n. 2, supra.
[ Footnote 5 ] See n. 1, supra.
MR. JUSTICE STEWART, dissenting.
Congress surely has power under the Commerce Clause to enact criminal laws to protect the instrumentalities of interstate commerce, to prohibit the misuse of the channels or facilities of interstate commerce, and to prohibit or regulate those intrastate activities that have a demonstrably substantial effect on interstate commerce. But under the statute before us a man can be convicted without any proof of interstate movement, of the use of the facilities of interstate commerce, or of facts showing that his conduct affected interstate commerce. I think the Framers of the Constitution never intended that the National Government might define as a crime and prosecute such wholly local activity through the enactment of federal criminal laws.
In order to sustain this law we would, in my view, have to be able at the least to say that Congress could rationally have concluded that loan sharking is an activity with interstate attributes that distinguish it in some substantial respect from other local crime. But it is not enough to say that loan sharking is a national problem, for all crime is a national problem. It is not enough to say that some loan sharking has interstate characteristics, for any crime may have an interstate setting. And the circumstance that loan sharking has an adverse impact on interstate business is not a distinguishing attribute, for interstate business suffers from [402 U.S. 146, 158] almost all criminal activity, be it shoplifting or violence in the streets.
Because I am unable to discern any rational distinction between loan sharking and other local crime, I cannot escape the conclusion that this statute was beyond the power of Congress to enact. The definition and prosecution of local, intrastate crime are reserved to the States under the Ninth and Tenth Amendments. [402 U.S. 146, 159]