Monday, May 11, 2020

More on Defraud Conspiracy as Requiring Object to Obtain Money or Property (5/11/20)

On 5/11/20 at 10:00 pm EDT, I revised this post, where appropriate, to use conspiracy lingo -- object rather than intent.  I have made some other, principally editorial changes, as well (principally adding a new JAT Comment #2 and moving the later comments up one number).

I recently posted on the Supreme Court’s opinion in Kelly v. United States, 590 U.S. ___, ___ S.Ct. ___ (5/7/20), here, and potential implications for the defraud/Klein conspiracy.  Supreme Court Reverses Bridgegate Convictions, Holding that Fraud Means Fraud; Implications for Defraud/Klein Conspiracy? (Federal Tax Crimes Blog 5/7/20), here.  Briefly, my concern  expressed in that blog and previously expressed (perhaps ad nauseum) was that the term defraud in the defraud/Klein conspiracy under the conspiracy statute, 18 USC § 371, is interpreted to permit conviction in the absence of an object to commit fraud (meaning obtaining something of value by fraudulent means).  I discuss that anomaly in the criminal law in the blog and in substantially more detail in the article I link in the blog.  Today, I want to follow through that discussion with an arguably related consideration from a nontax case earlier this year.

In United States v. Miller, 953 F.3d 1095 (9th Cir. 2020), here.  To start the discussion, I offer this from the summary preceding the opinion (the footnote indicates that the summary is prepared by the staff and not part of the opinion, but I think it useful for purposes of this blog; bold-face supplied by JAT):
Overruling prior decisions of this court in light of the Supreme Court's intervening decision in Shaw v. United States, 137 S. Ct. 462, 196 L. Ed. 2d 372 (2016), the panel held that wire fraud under 18 U.S.C. § 1343 requires the intent to deceive and cheat — in other words, to deprive the victim of money or property by means of deception — and that the jury charge instructing that wire fraud requires the intent to "deceive or cheat" was therefore erroneous. The panel nevertheless held that the erroneous instruction was harmless.
The wire fraud statute in relevant part (18 USC § 1343) describes the person criminally liable:
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, transmits or causes to be transmitted by means of wire [etc.]”
As written, the use of "or" seems to be disjunctive but, if the word defraud is interpreted to require an intent to obtain money or property by fraud, the two seem to be parallel (perhaps one or the other redundant).

The issue then was further set up (p. 1100):
At trial, Miller requested a jury instruction stating that, to be guilty of wire fraud, he must have intended to "deceive and cheat" MWRC. The trial court, however, delivered the Ninth Circuit's model jury instruction, which states that wire fraud instead requires only the intent to "deceive or cheat" (emphasis supplied) the victim. As his first issue on this appeal, Miller argues that this jury instruction misstated the law.
The Ninth Circuit (per the opinion drafted by USDJ Jed S. Rakoff (SDNY) sitting by designation, see comment #4 below) states in pertinent part (pp. 1101-1103, footnotes omitted):
Like the mail fraud statute from which it is derived, the wire fraud statute, in plain and simple language, criminalizes the use of interstate wires to further, not mere deception, but a scheme or artifice to defraud or obtain money or property, i.e., in every day parlance, to cheat someone out of something valuable. It follows that to be guilty of wire fraud, a defendant must act with the intent not only to make false statements or utilize other forms of deception, but also to deprive a victim of money or property by means of those deceptions. In other words, a defendant must intend to deceive and cheat. 
This has long been the law of several other circuits. [discussion of other cases omitted] 
* * * * 
The Ninth Circuit, on the other hand, employs the "deceive or cheat" language in its model jury instruction on wire fraud, Manual of Modern Criminal Jury Instructions for the District Courts of the Ninth Circuit § 8.124 (2019), and this court has upheld this instruction on at least three occasions in the past. United States v. Shipsey, 363 F.3d 962, 967 (9th Cir. 2004); United States v. Treadwell, 593 F.3d 990, 998-99 (9th Cir. 2010); see United States v. Livingston, 725 F.3d 1141, 1148 (9th Cir. 2013). Nor is this the only circuit that uses the "deceive or cheat" language. See Treadwell, 593 F.3d at 999 (citing the model instructions of the Third, Fifth, Sixth, Tenth, and Eleventh Circuits as support for the "deceive or cheat" formulation). 
But we think that these holdings are no longer tenable in light of the Supreme Court's intervening ruling in Shaw v. United States, 137 S. Ct. 462, 196 L. Ed. 2d 372 (2016). Indeed, another panel of this court has already acknowledged as much in a non-precedential memorandum disposition. United States v. George, 713 F. App'x 704, 705 (9th Cir. 2018). In Shaw, the Supreme Court considered a jury instruction defining "scheme to defraud" for the purpose of the bank fraud statute as "any deliberate plan of action or course of conduct by which someone intends to deceive, cheat, or deprive a financial institution of something of value." Id. at 469. The Court cast serious doubt on the accuracy of this instruction on the ground that "the scheme must be one to deceive the bank and deprive it of something of value." Id. We think that this  [*1103]  language and reasoning clearly control here. Although the wording of Shaw's instruction was not identical to Miller's, both arguably allowed a jury to convict "if it found no more than that [the defendant's] scheme was one to deceive the [victim] but not to 'deprive' the [victim] of anything of value." Id. In light of Shaw, we therefore overrule our prior cases on this question and hold that wire fraud requires the intent to deceive and cheat — in other words, to deprive the victim of money or property by means of deception.
In other words, the prior Ninth Circuit authority (reflected in the model jury instructions) erred by stating that mere deceit without intent to deprive of property (actual fraud) was sufficient.

Yet, moving to the defraud/Klein conspiracy, that is precisely what the Supreme Court said in Hammerschmidt v. United States, 265 U.S. 182, 188 (1924):
To conspire to defraud the United States means primarily to cheat the Government out of property or money, but it also means to interfere with or  obstruct one of its lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest. It is not necessary that the Government shall be subjected to property or pecuniary loss by the fraud, but only that its legitimate official action and purpose shall be defeated by misrepresentation, chicane or the overreaching of those charged with carrying out the governmental intention.
Just as in Miller addressed wire fraud, Judge Kozinski asked in the context of the defraud/Klein conspiracy (United States v. Caldwell, 989 F.2d 1056, 1058 (9th Cir. 1993) “whether conspiring to make the government's job harder is, without more, a federal crime.”  Judge Kozinski answered that question no in the context of the case, but there is some space between the Caldwell holding and reading the defraud/Klein conspiracy to require a fraud object (intent to obtain money or property).  It is in that space that the Hammerschmidt reading and application to the defraud/Klein conspiracy has some potential for great mischief as identified by Judge Kozinski in Caldwell.  And, it is in that space that, I think, practitioners should be alert to make a frontal attack on Hammerschmidt in an appropriate case.  (Maybe one’s shot at a Supreme Court argument?)

Other JAT comments:

1.  I doubt that reining in the defraud/Klein conspiracy to require actual fraud will seriously impair the IRS's and DOJ's criminal enforcement agenda.  The goal of that agenda is to obtain sufficient convictions for tax crimes generally with incarceration to send a message that the IRS and DOJ are on the watch to protect the interests of all taxpayers in the U.S. by calling out those that cheat.  Per the Sentencing Guidelines, a tax loss will be required for the tax criminal to be sentenced to incarceration (at least in any material amount), particularly is as usual there is a plea.  The tax loss is the tax the taxpayer sought to evade.  So the Government must be able to prove, at least by a preponderance, that the taxpayer intended to evade -- to defraud, i.e., cheat the IRS (and people of the country) out of the tax due.  All the more limited reading of the defraud/Klein conspiracy would do is to impose in the criminal case for the Government to make that showing, at least of object to cheat, beyond a reasonable doubt.  While the difference in burdens is significant, I don't think it would make a material impact on the criminal enforcement as a strategy to undergird the tax system.

2.  Section 7212(a), tax obstruction, is the type of statute the Government needs if it wants to criminalize mere attempts to interfere with tax administration where there is not object to cheat the IRS out of money or property.  Indeed, the conspiracy statute could be deployed in such a case where there are multiple actors, simply by charging the conspiracy as an offense conspiracy to violated § 7212(a).  So, other than the salutary alignment of the word "defraud" with its use in other criminal code contexts, nothing would really be lost in terms of criminal tax enforcement.  And, where the Government wants to prove an object beyond mere interference but to evade or commit some other specific offense, the Government can charge that as an offense conspiracy.

3.  This is another reminder, as we sometimes see, that the Circuit Court’s pattern or model jury instructions are not always correct, and practitioners must be alert to spot the problems.  It is best to convince the trial judge to avoid the problems by modifying the pattern instructions or using different instructions.  The district judge has discretion to do so, provided that the instructions given are fair statements of the law.  And, if the district judge does not modify the arguably erroneous instruction, the argument may be made on appeal and the defendant can avoid the error but no reversible error determination.

4.  The opinion was written by district judge Jed Rakoff (Wikipedia here), a giant in the law, who was designated to sit on the Ninth Circuit panel.  I have mentioned Judge Rakoff often on this blog (see here).

As an aside, just recently I refer readers to a discussion of inter-circuit and intra-circuit assignments for Circuit Court panels. See William Yeatman, Ninth Circuit Review-Reviewed: Whither the Bend of Law’s Arc in CA9? (Notice and Comment 5/9/20), here (I was previously unaware of the process and its history; very informative).

And, to return to Judge Rakoff, Wikipedia says (footnotes omitted):
Visiting judicial service Throughout his judicial career, Rakoff has sat regularly by designation on the Second Circuit Court of Appeals. In addition, since 2011, Rakoff has regularly sat by designation on the Ninth Circuit Court of Appeals, as well as occasionally on the Third Circuit Court of Appeals.

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