Case o' The Week: En Banc Wail from Mail Travail - Eglash and Mail Fraud Elements

“You’ve got mail.”

   (Now go to jail).

United States v. Cory Eglash, No. 14-30132 (9th Cir. Feb. 17, 2016), decision available here.

Players: Decision by Judge Christen, concurrence by Judge Kleinfeld, partial concurrence and partial dissent by Judge Wallace.

Facts: Eglash and his girlfriend, Hayes, ran a coffee shop. Id. at 4. Hayes applied for disability payments: Eglash confirmed he was her caregiver. Id. After Hayes was awarded benefits, Eglash also applied for disability. Id. at 5. 

An investigation revealed Eglash was in fact quite active and very much not disabled (the same was true for Hayes). Id. at 6. 

They were charged and tried for, among other things, mail fraud. Id. One count alleged mail fraud based on a notice of disability award that the SSA sent Hayes. Id. Another count alleged mail fraud based on the summary of statements Eglash made when he talked to the SSA in support of his disability application. Id. 

During trial Eglash move for judgment of acquittal, alleging the government failed to prove the mailings furthered a fraudulent scheme. Id. at 7. The motion was denied: Eglash appealed.

Issue(s): “Eglash claims the district court erred by denying his motion for judgment of acquittal on mail fraud Counts 4 and 6 because the underlying mailings were not shown to further a fraudulent scheme to receive disability benefits.” Id. at 7.

Held: “[T]he notice of disability award marked the last step before Hayes would receive disability benefit payments, the goal of her fraudulent plan with Eglash. Although the Government, not the defendant, mailed the . . . notice of disability award here, each mailing was a contemplated, necessary step in its respective scheme. [T]he notice of award was the golden ring in Eglash’s plot and incident to an essential part of the scheme. We therefore affirm the district court’s judgment on Count 4.” Id. at 9 (quotations and citations omitted) (emphasis added). 

“The summary may have been a predictable consequence of Eglash’s fraudulent application, but the fraud he envisioned was neither dependent upon nor furthered by the Government’s decision to transcribe, in summary form, the fraudulent statements he made when he talked to SSA . . . .Because the underlying mailing was not part of the execution of the scheme as conceived by the perpetrator at the time, . . . and because it did nothing to further the scheme, we reverse Eglash’s mail fraud conviction on Count 6.” Id. at 10 (quotations and citations omitted) (emphasis added).

Of Note: Judge Kleinfeld concedes that upholding the conviction as to the “notice of disability” mailing is required by the Ninth’s decision in Brown, 771 F.3d 1149, 1158 (9th Cir. 2014). Id. at 11 (Kleinfeld, J., concurring). He makes a compelling argument, however, that Brown was wrongly decided, is inconsistent with the Supreme’s fraud decision in Schmuck, and that Brown should go en banc. Id. Judge Kleinfeld asks how a government mailing confirming the success of a scheme can be deemed a mailing executed by the defendant (as required by the mail fraud statute?) Id. at 13. 

Judge Kleinfeld is right – Brown should go en banc.

How to Use: “Eglash was enough of a crook without counts 4 and 6 to make these two counts superfluous. . . . The hardest part of this case to understand is why the government turned an easy and obvious conviction into a difficult appellate case and fractured opinion by overcharging [Eglash].” Id. at 15 (Kleinfeld, J. concurring). 

With no disrespect to Mr. Eglash, Judge Kleinfeld is right -- it makes no sense for an AUSA to hopelessly muddy a record with this charging stretch. Nonetheless, expect government mailings to still show up in mail fraud counts. Preserve your objections: Brown may someday be revisited by the en banc court.

                                               

For Further Reading: How many Supreme Court crim pro decisions swung on Justice Scalia’s vote? Twenty, during the Roberts Court. For a fascinating graphic and article on the stakes for this now-vacant seat, see, Adam Liptak and Quoctrung Bui, Supreme Court Precedents that May be at Risk, available here. 

Image of Uncle Sam stamp from http://thumbs.dreamstime.com/z/uncle-sam-postage-stamp-16101858.jpg

Steven Kalar, Federal Public Defender Northern District of California

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Case o' The Week: One to Watch -- Phillips and Mail Fraud

Trick your company into paying your girlfriend tens of thousands of dollars to pay for an expensive Breguet watch, that you have shipped to yourself from out of state, and you’ve done several things: theft, probably, fraud, certainly, money laundering, maybe.

What you haven’t done, however, is commit mail fraud. United States v. Phillips, 2012 WL 6700220 (9th Cir. Dec. 26, 2012), decision available here.

Players: Decision by Sr. D.J. Rakoff, SD NY, joined by Judges Schroeder and Gould.

Facts: Phillips was the CEO of “MOD” – a high-tech start-up in Seattle. Id. at *1. He also fancied fine watches, and bought a pair from an Arizona company, “Feel Good Watches.” Id. After Feel Good shipped him the watches, Phillips paid for them by forging invoices and convincing MOD to (unknowingly) pay his girlfriend as a “consultant.” Id. at *2-*3. Phillips’ girlfriend then paid Feel Good. Id. Phillips was charged with mail fraud (and other crimes) and was convicted after a jury trial. Id. at *5.

Issue(s): “The [mail fraud] scheme charged . . . was that Phillips ‘devise[d] and intend[ed] to devise a material scheme to defraud MOD and to obtain money from MOD by means of material false and fraudulent pretenses, representations and promises and the concealment of material facts.’ Therefore, the scheme was to defraud MOD and to obtain money from MOD. The only asserted use of the mails was Feel Good Watches's mailing of the first Breguet watch to Phillips. Phillips, citing to United States v. Maze, 414 U.S. 395 (1974), argues that the mailing was not in furtherance of the fraudulent scheme to defraud MOD, and that Phillips ‘simply used the money he obtained from MOD to purchase a watch.’” Id. at *6.

Held: “Here, as in Maze, the success of Phillips's fraudulent scheme did not depend in any way on the use of the mails. The fact that Phillips purchased a watch with $30,000 of fraudulently obtained MOD funds, instead of using the funds for his personal benefit in some other fashion, did not in any way affect the scheme ‘to defraud MOD and to obtain money from MOD,’ as charged in [the mail fraud] Count. The fact that payment eventually was made to a watch dealer and that watch dealer mailed a watch in return was not a part of the scheme to defraud MOD and to obtain money from MOD—it was simply the byproduct of that scheme. Put another way, as a result of Phillips's successful execution of his scheme to defraud, he had sufficient funds to pay for the watch. 

Therefore, even under the demanding plain error standard, Phillips's mail fraud conviction must be reversed.” Id. at *7 (emphasis in original).

Of Note: While Phillips is great on mail fraud, it is less laudable on prosecutorial misconduct. Phillips testified at trial. In closing argument the AUSA argued that Phillips had told “numerous lies” – both to MOD employees and when he testified. Id. at *10. The Ninth tolerates these two categories of references to lies – lies during the fraud, and lies during testimony – explaining that the prosecutor was “commenting on the evidence.” Id. 

The Court emphasizes, though, that the AUSA “did not give his own opinion on defendant’s guilt,” and that the AUSA alleged that Phillips “lied” but didn’t call the defendant a “liar.” Id. “Liar” (the Court assures us) “could have the tendency to overtake the role of the jury as the arbiter of credibility” in a way that “he lied” does not. Id. Verb vs. noun – “lied” vs. “liar”: makes a difference, apparently, when used in closing argument.

How to Use: Mail fraud is a tool frequently abused by the feds in their effort to federalize vanilla state crimes, like theft. In Phillips, Judge Rakoff gives us a brief but valuable description of the lead Supreme Court case on this abuse, United States v. Maze. Id. at *6-*7. Run mail fraud charges through the Phillips test: was the mail just used to buy stuff using the loot of a crime? If so, you’ve got a great mail fraud defense (although you may admittedly have some money laundering problems). See id. at *9 n.9 (discussing the relationship between mail fraud and money laundering theories in Phillips).

                                               

For Further Reading: Phillips got hit with an obstruction of justice enhancement in light of his testimony. Id. at *5. For a wince-inducing article on Phillips’ acceptance of responsibility – or lack thereof – see piece here.

 Thirty-one year old Phillips was sentenced to four years on eight-year guidelines: another example of just and measured sentencing by D. Wa. Judge Coughenour. See, e.g., blog on Ressam here.

Image of Breguet watch from http://www.priceit.in/price-of-watches/breguet-watch-price/

Steven Kalar, Federal Public Defender N.D. Cal. Website at www.ndcalfpd.org

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Case o' The Week: Ninth Fine with Fuzzy Fiduciaries -- Milovanovic and Honest Services Fraud

We in the defense bar are never happy. In a case of first impression, an en banc Court of the Ninth Circuit has added elements to the "honest services" theory of the commonly-used mail fraud statute. 

We like more elements of proof.

The problem? Because these new elements are so broadly defined, the decision will effectively permit the continued expansion of federal criminal juridiction into what are really state-law crimes.  United States v. Milovanovic, (9th Cir. Apr. 24, 2012) (en banc), decision available here.

Players: Decision by Judge Tallman, interesting concurrence by Judge Clifton.

Facts: The State of Washington has tests for non-residents to be licensed to operate trucks. Id. at *2. The defendants allegedly took bribes to help truckers pass the exam. Id. None of the defendants were government employees: one was an independent contractor. Id. 

The district court dismissed the mail fraud indictment, holding that there was no “honest services” fraud because no defendant had an agency or employment relationship with the state. Id. at *3. The district court also held that “identifiable economic harm” was required as an element of mail fraud. Id. at *3. 

A three-judge panel of the Ninth Circuit held that fiduciary duty is not a requirement of honest services fraud. Id. The case went en banc.

Issue(s): 1. Independent Contractors Fiduciaries? “We now consider whether the Supreme Court [in Skilling] intended to require a breach of fiduciary duty as an element of honest services fraud under 18 U.S.C. §§ 1341 and 1346, and, if so, whether the breach of a trust relationship, not arising to a formal fiduciary duty, will suffice . . .  In light of the Supreme Court's decision in Skilling, the parties agree that a breach of fiduciary duty is a required element of honest services fraud under §§ 1341 and 1346. Where they disagree, however, is whether the Supreme Court intended to require a formal, or classic, fiduciary duty or whether the statute also reaches those who assume a comparable duty of loyalty, trust, or confidence. Defendants argue that because [one defendant] was an independent contractor and Milovanovic did not contract with the State directly, there was no recognized fiduciary relationship between them and the State of Washington.” Id. at *5. 

2. Risk of Economic Harm Required? “We address . . . whether, as the district court rules, economic harm is required to establish a cognizable [Mail Fraud] offense.” Id. at *1.

Held: 1. Independent Contractors Fiduciaries? “We hold that a fiduciary relationship is an element of honest services fraud under 18 U.S.C. §§ 1341 and 1346, but that the fiduciary relationship need not be a formal, or classic, fiduciary relationship. Rather, §§ 1341 and 1346 similarly reach those who assume a comparable duty of loyalty, trust, and confidence, the material breach of which, with the intent to defraud, deprives the victim of the intangible right to honest services.” Id. at *11.

 2. Risk of Economic Harm Required? “We further hold that foreseeable risk of economic harm is not a necessary element when evaluating whether a party breached a fiduciary duty in violation of the honest services fraud statutes, §§ 1341 and 1346. We adopt, instead, the materiality test and hold that the Mail Fraud Statute requires fraudulent intent and a showing of materiality.” Id.

Of Note: The Mail Fraud Statute, 18 USC § 1341, is a hoary old law first enacted in 1872. Despite its age, it has undergone considerable litigation and revision in the last twenty years – beginning with the Supreme Court’s 1987 decision in McNally. Judge Tallman begins his analysis in Milovanovic with a helpful explanation of the history of the Mail Fraud statute: it is a good starting point to understand this commonly-charged offense. Id. at *4-*5. 

How to Use: The good news is that the en banc Court has held that the “honest services” theory of Mail Fraud requires, as an element, “a breach of a fiduciary duty.” Id. at *6. The bad news is that the definition of “fiduciary” is “broad” and includes “informal fiduciaries.” Id. 

Whether the defendant charged with Mail Fraud was in fact a “fiduciary” is a jury question. Id. There’s much mischief to be made with this vague term -- make a point of challenging new jury instructions defining “fiduciary.” See id. at *11-*12 (Clifton, J., concurring) (noting ambiguity in the definition of the word, “fiduciary.”)

                                               

For Further Reading: Allow us to “alembicate what has gone before.” See three-judge panel Milovanovic decision here.  You’ll recall that Judge Fernandez wrote a compelling dissent to the three-judge opinion in Milovanovic. See blog here.  

As we noted in the original Milovanovic blog, Judge Ferndandez’s dissents have an interesting habit of evolving into Supreme Court decisions. See, e.g., Printz v. United States, 521 U.S. 898, 928 (1997). 

With luck, the Ninth’s en banc decision in Milovanovic may not be the last word on this important new development in mail fraud law.

 Image, "What is a Fiduciary?" from http://www.pfac-pro.org/ohana/website/index.cfm?p=118001

Steven Kalar, Senior Litigator ND Cal FPD. Website at www.ndcalfpd.org

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