Monday, December 06, 2010

U.S. v. Milovanovic et al., No. 08-30381 (12-3-10) (Kleinfeld with Clifton; dissent by Fernandez). This appeal asks whether "honest services" fraud under the mail fraud statute requires a fiduciary relationship and economic harm to the victim. The majority answers "no." The case comes up on a dismissal of the indictment that alleged that the defendants, acting as state contracted certified interpreters for those taking commercial trucking license tests in Washington, cheated and bribed. The 9th crafts a five-part test (taken from Judge Raggi's concurrence in U.S. v. Rybicki, 354 F.3d 124 (2d Cir. 2003)) to test whether there is a special relationship between the person and the owner to whom the honest services should be rendered. The test looks to see if: (1) there is a legally enforceable right to have another provide honest services; (2) the deprivation of services requires them to be performed honestly (the example used is an employee sneaks off to a ballgame with a vendor, but the services are not questioned); (3) the defendant must intend to defraud; (4) the scheme must use fraud; and (5) the mail must be used to further the scheme. Using this test, honest services mail fraud does not require proof of a fiduciary relationship. The interpreters had a contractual relationship with the state that depended on honesty to protect important interests. The cheating and bribery undermined the expectation of the victim state, and placed at risk the licensing procedure. Moreover, the statute does not require damages to the money or property of the victim. Dissenting, Fernandez says that the indictment fails to plead sufficient facts to establish a responsibility to owe honest services, and hence no crime.

There is a split among the circuits on this. It calls for cert.

Addendum: This being a Fernandez opinion, it is typically sesquipedalian (given to or characterized by the use of long words). Examples include "facinorous" (extremely wicked) and "alembicat" (anything that refines or distills). Although such words can give one pause, especially as one looks them up, they do increase one's vocabulary stockpile when one needs that perfect description (even if no one else understands it). For instance, although not a synonym, one suggested alternative for "facinorous" to describe opponents is "dasypygal." Dasypygal means "having hairy buttocks." See

U.S. v. Bush, No. 09-30131 (12-3-10) (M. Smith with Thomas and Ezra, D.J., D. Hi). This is a fraud/Ponzi scheme where the defendant ended up with a 30-year sentence. The facts are the usual sordid greedy ones, promised investment returns with no risk (300% annually!), and the unusual ones, such as starting a resort in Baja named Cabo San Quintin (really) and employing for legal work an unlicensed and self proclaimed "ecclesiastical lawyer" who started an ethereal legal entity known as a "corporate soul." While the defendant portrayed himself as living an ascetic life, and acting as a mere conduit for charity, he purchased a huge estate of 20 acres and a house over 8,000 sq feet, with a golf course, basketball and tennis courts, and a fishing pond. There was a private masseuse, secretaries and assistants paid handsomely in cash, and off-shore accounts. Suites at Mariners and Seahawks games were leased. This ended badly, very badly (almost $40 million was invested). The defendant fled to (where else?) Paris and then to Poland. He was extradited and endured a two week trial on a wide range of fraud and money laundering charges.

On his appeal, he argued two issues. First, that U.S. v. Santos, 553 US 507 (2008) applied to transactional money laundering, and as such he could not be convicted for money-laundering the profits back into the criminal enterprise. Second, he argued error in not giving an "advice of counsel" instruction. On the Santos theory, the 9th does apply that analysis to 18 U.S.C. 1957 (transactional money laundering). However, his money laundering activities did not merge into the fraud as they did in Santos. That is, in Santos, the illegal lottery paid proceeds to winners, and was not money laundering. The decision, a plurality, distinguishes between proceeds that are needed to run the scheme, and profits that are taken out, and used elsewhere. Here, proceeds were distributed to several banks and not just used in the Ponzi scheme. Some funds were shuffled to avoid government detention, and sent overseas for other purposes. This case is a good overview of Santos and money-laundering precedents. As for the legal advice, the 9th found no basis for it. One lawyer was "up to his eyeballs" in fraud and the defendant did not rely on legal advice. Besides, the court gave a good-faith instruction.


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