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May 11, 2023

SCOTUS unanimously reverses two federal fraud convictions based on novel theories

The Supreme Court this morning handed down two notable wins for federal fraud defendants, rejecting two theories of federal prosecution endorced by lower court in Ciminelli v. US, No. 21-1170 (S. Ct. May 11, 2023) (available here) and Percoco v. US, No. 21-1158 (S. Ct. May 11, 2023) (available here). Here is how the opinion for the Court in Ciminelli authored by Justice Thomas gets started:

In this case, we must decide whether the Second Circuit’s longstanding “right to control” theory of fraud describes a valid basis for liability under the federal wire fraud statute, which criminalizes the use of interstate wires for “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” 18 U.S.C. § 1343.  Under the right-to-control theory, a defendant is guilty of wire fraud if he schemes to deprive the victim of “potentially valuable economic information” “necessary to make discretionary economic decisions.” United States v. Percoco, 13 F.4th 158, 170 (CA2 2021) (internal quotation marks omitted). Petitioner Louis Ciminelli was charged with, tried for, and convicted of wire fraud under this theory. And the Second Circuit affirmed his convictions on that same basis.

We have held, however, that the federal fraud statutes criminalize only schemes to deprive people of traditional property interests. Cleveland v. United States, 531 U.S. 12, 24 (2000). Because “potentially valuable economic in-formation” “necessary to make discretionary economic decisions” is not a traditional property interest, we now hold that the right-to-control theory is not a valid basis for liability under §1343. Accordingly, we reverse the Second Circuit’s judgment.

Here is how the opinion for the Court in Percoco authored by Justice Alito gets started:

In this case, we consider whether a private citizen with influence over government decision-making can be convicted for wire fraud on the theory that he or she deprived the public of its “intangible right of honest services.” 18 U.S.C. §§ 1343, 1346. Petitioner Joseph Percoco was charged with conspiring to commit honest-services wire fraud during a period of time that included an eight-month interval between two stints as a top aide to the Governor of New York. Percoco was convicted of this offense based on instructions that required the jury to determine whether he had a “special relationship” with the government and had “dominated and controlled” government business. 2 App. 511. We conclude that this is not the proper test for determining whether a private person may be convicted of honest-services fraud, and we therefore reverse and remand for further proceedings.

Though federal criminal law and white-collar folks are going to want to review these (relatively shourt) opinions closely, everyone should take the time to check out Justice Gorsuch's concurrence in Percoco. It was joined by Justice Thomas and here are some brief highlights from its start and closing:

The Court holds that the jury instructions in this case were “too vague.” Ante, at 10.  I agree.  But to my mind, the problem runs deeper than that because no set of instructions could have made things any better.  To this day, no one knows what “honest-services fraud” encompasses.  And the Constitution’s promise of due process does not tolerate that kind of uncertainty in our laws—especially when criminal sanctions loom. “Vague laws” impermissibly “hand off the legislature’s responsibility for defining criminal behavior to unelected prosecutors and judges, and they leave people with no sure way to know what consequences will attach to their conduct.”  United States v. Davis, 588 U.S. ___, ___ (2019) (slip op., at 1)....

The difficulty here stems from the statute and the lower court decisions that inspired it.  I have no doubt that if all nine Justices put our heads together, we could rewrite § 1346 to provide fair notice and minimize the risk of uneven enforcement.  I have no doubt, too, that we could find a hook for any such rule somewhere in the morass of pre-McNally lower-court case law.  Maybe, too, that is the path we are on, effectively writing this law bit by bit in decisions spanning decades with the help of prosecutors and lower courts who present us with one option after another.  But that is not a path the Constitution tolerates.  Under our system of separated powers, the Legislative Branch must do the hard work of writing federal criminal laws.  Congress cannot give the Judiciary uncut marble with instructions to chip away all that does not resemble David.  See United States v. Reese, 92 U.S. 214, 221 (1876) (“It would certainly be dangerous if the legislature could set a net large enough to catch all possible offenders, and leave it to the courts to step inside and say who could be rightfully detained, and who should be set at large”); United States v. Wiltberger, 5 Wheat. 76, 95 (1820) (Marshall, C. J.) (“It is the legislature, not the Court, which is to define a crime, and ordain its punishment”).

Doubtless, Congress had high and worthy intentions when it enacted § 1346.  But it must do more than invoke an aspirational phrase and leave it to prosecutors and judges to make things up as they go along.  The Legislature must identify the conduct it wishes to prohibit.  And its prohibition must be knowable in advance — not a lesson to be learned by individuals only when the prosecutor comes calling or the judge debuts a novel charging instruction. Perhaps Congress will someday set things right by revising §1346 to provide the clarity it desperately needs.  Until then, this Court should decline further invitations to invent rather than interpret this law.

May 11, 2023 at 10:39 AM | Permalink


The most important punishment remains: They were exposed. I wonder how their kids feel knowing that their parents believed they couldn't get in without a bribe.

Posted by: Bill Otis | May 11, 2023 11:12:18 AM

For sure, the problem with Alito is that he never votes for the defendant........oh.........wait.........

Posted by: Bill Otis | May 11, 2023 11:15:01 AM

I hope the defendants whose convictions were reversed and vacated by the Supreme Court can recover Hyde Amendment attorney's fees, per 18 U.S. Code section 3006A. The DOJ shouldn't be able to get away with these illegal and expansive theories of prosecution, which cost defendants hundreds of thousands of dollar of attorneys' fees to defend. Interestingly, almost all of the Orders awarding Hyde Amendment attorneys' fees are unpublished and cannot be used as precedents.

Posted by: Jim Gormley | May 11, 2023 1:01:50 PM

For clarification, the issue with Justice Alito is whether he ever votes for the defendant when other Justices do not. federalist came up with one such case over Justice Alito's 17 years in the Court (Maples v. Thomas). Do you know of any others?

Posted by: Doug B | May 11, 2023 1:45:29 PM

Well, of course there is Giles v. California, Padilla v. Kentucky, Birchfield v. North Dakota, Ramirez v. Collier, Flowers v. Mississippi, & In Re Troy Anthony Davis. But I think he has only dissented in favor of a criminal defendant once in his whole SCOTUS career; the case eludes me at the moment. And I don't believe he has ever cast a decisive vote in favor of a criminal defendant, despite myriad opportunities to do so.

Posted by: Jacob Berlove | May 11, 2023 4:15:37 PM

Also Hemphill v. New York

Posted by: Jacob Berlove | May 11, 2023 4:25:40 PM

A very helpful list, Jacob, that is a useful reminder that every couple years Justice Alito is not quite as anti-defendant as Justice Thomas and a few others.

Posted by: Doug B | May 11, 2023 7:02:28 PM

I think it's well nigh indisputable that Justice Alito sides with the criminal defendant the least often of any current Justice. That doesn't mean he *never* does, but he's the least likely to do so.

Posted by: Marc Shepherd | May 12, 2023 10:25:36 PM

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