Ciminelli v. U.S. and Percoco v. U.S.: Supreme Court limits federal wire fraud prosecutions
In Ciminelli v. United States, the Court held that a “right to control” theory based on taking “potentially valuable economic information” “necessary to make discretionary economic decisions” cannot support liability for wire fraud, because this is not a traditional property interest.Ciminelli v. U.S. and Percoco v. U.S.: Supreme Court limits federal wire fraud prosecutions
By Greg Mermelstein, Deputy Director & General Counsel, Missouri Public Defender
The U.S. Supreme Court recently limited the scope of federal wire fraud prosecutions in two cases decided May 13.
In Ciminelli v. United States, the Court held that a “right to control” theory based on taking “potentially valuable economic information” “necessary to make discretionary economic decisions” cannot support liability for wire fraud, because this is not a traditional property interest.
And in Percoco v. United States, the Court held that a private citizen could not be convicted of “honest services fraud” under a standard of having a “special relationship” with the government or because the citizen “dominated or controlled” government business, because these standards were too vague.
The federal wire fraud statute, 18 U.S.C. Sec. 1343, 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.”
Louis Ciminelli owned a construction company in New York. He paid a lobbyist $100,000 to $180,000 each year to help him obtain state funds. The lobbyist, working with a member of a state board, devised a scheme whereby the board established request for proposals that uniquely favored Ciminelli and effectively guaranteed Ciminelli would be selected for state contracts.
Ciminelli was indicted for wire fraud under a “right to control” theory, whereby the Government can establish wire fraud by showing the defendant schemed to deprive a victim of potentially valuable economic information necessary to make discretionary economic decisions.
Ciminelli challenged the “right to control” theory on grounds that the right to control one's assets is not “property” for purposes of the wire fraud statute.
The District Court and Second Circuit rejected this argument.
But the Supreme Court reversed, in a unanimous opinion.
“We have consistently understood the ‘money or property' requirement to limit limit the ‘scheme or artifice to defraud' element because the common understanding of the words ‘to defraud' when the statute was enacted referred to wrongdoing one in his property rights”, the Court said.
“The right-to-control theory cannot be squared with the text of the federal wire fraud statues, which are limited in scope to the protection of property rights”, the Court said.
“We have consistently rejected such federal fraud theories that stray from traditional concepts of property”, the Court said.
The right-to-control theory “vastly expands federal jurisdiction without statutory authorization” and makes a federal crime out of “an almost limitless variety of deceptive actions traditionally left to state contract and tort law”, the Court said.
Courts should “not read the mail and wire fraud statutes to place under federal superintendence a vast array of conduct traditionally policed by the States”, the Court concluded.
Joseph Percoco was a top aide to former New York Governor Andrew Cuomo. Percoco served in government from 2011 to 2016, except for a brief time in 2014 when he managed the Governor's reelection campaign.
The events for which Percoco was charged occurred during his 2014 time as a private citizen.
In 2014, a state agency informed a real estate developer that he needed to enter into a certain labor agreement if the developer wished to receive state funding.
The developer reached out to Percoco and paid him $35,000 to lobby the Governor's Office to get the labor agreement requirement rescinded. The state agency then rescinded the requirement.
Percoco was charged with “honest services fraud” under the federal wire fraud statute. The “honest services fraud” theory holds that the government and, by extension, the public have a right to receive honest services.
Percoco moved to dismiss on grounds that a private citizen cannot be convicted of honest services fraud because the private citizen owes no duty of honest services to the public.
The District Court rejected that argument. It instructed the jury to convict if Percoco had a “special relationship” with the government, and “dominated and controlled” government business.
After conviction, Percoco appealed. The Second Circuit affirmed.
But the Supreme Court held this standard for honest services fraud was too vague, in an opinion joined by seven justices, with two others concurring.
The Court first rejected Percoco's argument that a private citizen can never be convicted of honest services fraud. “Without becoming a government employee, individuals not formally employed by a government entity may enter into agreements that make them actual agents of the government” and give them a fiduciary duty to the government, the Court said.
But the right of honest services codified in 18 U.S.C. Sec. 1346 “plainly does not extend a duty to the public to all private persons”, the Court said.
The jury instructions submitted in this case do not comport with the due process concerns underlying the vagueness doctrine, the Court held.
“From time immemorial, there have been eminence grises, individuals who lacked any formal government position but nevertheless exercised very strong influence over government decisions”, the Court said.
The jury instructions here “could also be used to charge particularly well-connected and effective lobbyists”, the Court said.
“The public has no right to disinterested service from lobbyists and political party officials” but the jury instructions here imply that “the public does hold such a right whenever such persons' clout exceeds some ill-defined threshold,” the Court said.
The instructions did not define the right of honest services “with sufficient definiteness that ordinary people can understand what conduct is prohibited or in a manner that does not encourage arbitrary and discriminatory enforcement”, the Court concluded.
Justice Gorsuch, joined by Justice Thomas, would have gone further.
The instructions are not only “too vague”, Gorsuch said. “The problem runs much 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”, Gorsuch said. “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,” he said.