FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
v. No. 08-30381
BRANO MILOVANOVIC; TONY GENE D.C. No.
2:08-cr-00010-EFS
LAMB; ISMAIL HOT; MUHAMED
KOVACIC; ELVEDIN BILANOVIC; OPINION
ALEKSANDAR DJORDJEVIC,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of Washington
Edward F. Shea, District Judge, Presiding
Argued and Submitted
November 3, 2009—Seattle, Washington
Filed December 3, 2010
Before: Ferdinand F. Fernandez, Andrew J. Kleinfeld, and
Richard R. Clifton, Circuit Judges.
Opinion by Judge Kleinfeld;
Dissent by Judge Fernandez
19221
UNITED STATES v. MILOVANOVIC 19223
COUNSEL
James A. McDevitt, United States Attorney, and Timothy M.
Durkin, Assistant United States Attorney, United States Attor-
ney’s Office, Spokane, Washington, for the appellant.
19224 UNITED STATES v. MILOVANOVIC
Robert R. Fisher, Spokane, Washington, for appellee Brano
Milovanovic.
Joseph Nappi, Jr., Spokane, Washington, for appellee Tony
Gene Lam.
Frank L. Cikutovich, (briefed), Spoken, Washington, for
appellee Ismail Hot.
Dan B. Johnson, (briefed), Spokane, Washington, for appellee
Muhamed Kovacic.
Curran C. Dempsey, (briefed), Spokane, Washington, for
appellee Elvedin Bilanovic.
Gerald R. Smith, (briefed), Spokane, Washington, for Alek-
sandar Djordjevic.
OPINION
KLEINFELD, Circuit Judge:
We address “honest services” mail fraud.
I. Facts
The district court dismissed the indictment before trial, so
we describe the facts as though the indictment had been
proved, which of course is not the case. The question is
whether the charges, if proved, would amount to the crime
charged.
According to the indictment, defendants Milovanovic and
Lamb corrupted issuance of commercial drivers’ licenses in
the State of Washington. The other four defendants, Hot,
Kovacic, Bilanovic, and Djordjevic, took advantage of the
UNITED STATES v. MILOVANOVIC 19225
corrupt scheme to defraud the State of Washington into issu-
ing them the undeserved licenses. A person has to be a Wash-
ington resident and pass a written test and a driving test to
lawfully obtain a Washington commercial drivers’ license.1
Milovanovic and Lamb and their clients allegedly arranged to
get commercial drivers’ licenses by cheating on the tests and
falsifying residency, in exchange for bribes.
Milovanovic worked as a certified Bosnian translator for a
firm that the state government used. He contacted Bosnian
speakers in other states, and told them that if they came to
Spokane and paid him personally $2,500, he could get them
Washington commercial drivers’ licenses. When the out-of-
state Bosnians came, Milovanovic enabled them to cheat on
the written test by giving them the answers as they took it.
Then Milovanovic bribed Lamb, who worked for a firm the
state government hired to administer the driving test, $200 to
$500 per person to falsify that test result too. The applicants
would bring the falsified forms and the State license fee to the
State Department of Licensing for a temporary permit, which
would be turned into a permanent permit when Lamb mailed
or faxed in his falsified log. The licenses were then mailed by
a third contractor to the applicants at the false Washington
address Milovanovic had supplied.
Lamb and the firm for which Milovanovic worked both had
contracts with the state saying that they were independent
contractors, not employees and not agents. The state was not
deprived of its fee, and did not lose a nickel on account of the
1
Wash. Rev. Code § 46.25.060(1)(a) (2006). See also 49 U.S.C.
§§ 31305, 31308; 49 C.F.R. § 383.23. Federal regulations allow a state to
authorize a third party to administer the driving skill portion of the test as
long as the tests “are the same as those which would otherwise be given
by the State.” 49 C.F.R. § 383.75(a). The third party must also enter into
an agreement with the State allowing it and the federal government to con-
duct audits and inspections to ensure the tests are conducted in accordance
with the state’s requirements. Wash. Rev. Code § 46.25.060(1)(b) (2006);
Wash. Admin. Code § 308-100-140 (2006).
19226 UNITED STATES v. MILOVANOVIC
dishonest test and residency certifications. There was no
paperwork saying that any fiduciary duty pertained.
The superseding indictment charges mail fraud and con-
spiracy to commit mail fraud by Milovanovic, Lamb, and four
of their customers under 18 U.S.C. §§ 1341, 1346, and 2. The
district court dismissed the indictment on the ground that the
mail fraud statute required a fiduciary relationship, and indi-
cated that the jury would be instructed that the crime required
economic harm to the victim. The United States appeals.
II. Analysis
We review de novo both a district court’s dismissal of an
indictment based on its interpretation of a federal statute2 and
the sufficiency of an indictment.3
The briefs4 focus on an unsettled question in the Ninth Cir-
cuit: whether “honest services” fraud under the mail fraud
statute can be committed only by a “fiduciary.” The “honest
services” portion of the mail fraud statute says that, for the
purposes of the mail fraud statute, “the term ‘scheme or arti-
fice to defraud’ includes a scheme or artifice to deprive
another of the intangible right of honest services.”5 Defen-
dants argue that even though we have not said so, we implied
in United States v. Williams6 that a fiduciary relationship is a
sine qua non of “honest services” mail fraud. We have not so
held, and, in Williams, expressly declared that we did not
have to reach the question: “we need not and do not decide
2
United States v. Marks, 379 F.3d 1114, 1116 (9th Cir. 2004).
3
United States v. O’Donnell, 608 F.3d 546, 555 (9th Cir. 2010).
4
The parties were ordered to submit supplemental briefs addressing the
effect of Skilling v. United States, 130 S. Ct. 2896 (2010), and Black v.
United States, 130 S. Ct. 2963 (2010).
5
18 U.S.C. § 1346.
6
441 F.3d 716 (9th Cir. 2006).
UNITED STATES v. MILOVANOVIC 19227
whether Congress intended ‘another’ to reach” persons who
were not fiduciaries.7 It remains open.
The parties present arguments whether Milovanovic and
Lamb were fiduciaries of the State of Washington, even
though the question remains open whether this matters. The
government argues that Milovanovic and Lamb were fidu-
ciaries, and Defendants argue that they were not. Some of the
arguments are of no help at all, such as pointing out that
Lamb and Milovanovic were independent contractors, not
government employees. It is elementary that an independent
contractor may be a fiduciary, as when a testator appoints the
trust department of a bank as trustee, or when a client retains
a lawyer to represent him. The relevant citations are inconclu-
sive, merely lending themselves to colorable arguments on
both sides of the proposition.8
The inconclusiveness of the arguments and citations points
to the inutility of deciding fiduciary status as a step along the
way to evaluating a mail fraud indictment. Requiring “fidu-
ciary status” merely gives a deceptive patina of limitation to
a highly manipulable pigeonholing. Justice Scalia’s concur-
rence in Skilling points out “the indefiniteness of the fiduciary
duty,” and thus its weakness as a limiting category.9 “The
Courts of Appeals may have consistently found unlawful the
acceptance of a bribe or kickback by one or another sort of
fiduciary, but they have not consistently described (as the stat-
ute does not) any test for who is a fiduciary.”10 Deciding
7
Id. at 723.
8
Appellant cites State Police Ass’n of Mass. v. C.I.R., 125 F.3d 1 (1st
Cir. 1997) and Burien Motors, Inc. v. Balch, 513 P.2d 582 (Wash. Ct.
App. 1973). Appellees cite United States v. Handakas, 286 F.3d 92 (2d
Cir. 2002) overruled in part by United States v. Rybicki, 354 F.3d 124 (2d
Cir. 2003) and Hanson v. Blackwell Motor Co., 143 Wash. 547 (1927).
9
Skilling v. United States, 130 S. Ct. 2896, 2937 (2010) (Scalia, J., con-
curring).
10
Id. at 2937 n.1.
19228 UNITED STATES v. MILOVANOVIC
whether Milovanovic and Lamb were fiduciaries would be
difficult because they were plainly used as agents to adminis-
ter the state’s commercial drivers’ license tests, yet the con-
tracts state that they were not agents. For purposes of this
decision, we take the state contracts at their word, and assume
without deciding that Milovanovic and Lamb were not agents
and were not fiduciaries.
[1] The Supreme Court has not spoken on whether a fidu-
ciary duty is a sine qua non of “honest services” mail fraud.
Our sister circuits have given varying and conflicting
answers, so no decision we make can avoid a circuit split.11
11
See, e.g., United States v. Rybicki, 354 F.3d 124, 155 (2d Cir. 2003)
(Raggi, J., concurring) (“While a particular relationship may shed light on
whether one person owes another honest services, the language of § 1346
indicates that the critical factor is the type of service at issue, not the rela-
tionship of the parties.”); United States v. Ervasti, 201 F.3d 1029, 1037
(8th Cir. 2000) (“We reject the Ervastis’ contention that § 1346 requires
the breach of a fiduciary duty. . . . [T]he breach of a fiduciary duty is not
a necessary element of § 1346. Certainly nothing in . . . the language of
either § 1341 or § 1346 suggests the contrary.”); United States v. Sancho,
157 F.3d 918, 920-21 (2d Cir. 1998) (“Sancho contends that criminal lia-
bility . . . for a scheme to deprive another of honest services requires the
existence of a ‘genuine fiduciary relationship’ to the entity being
defrauded . . . . There is no such requirement.”), overruled in part on other
grounds by United States v. Rybicki, 354 F.3d 124 (2d Cir. 2003). But see,
e.g., United States v. McGeehan, 584 F.3d 560, 568 (3d Cir. 2009) (noting
prior Third Circuit caselaw which endorsed the limiting principle “that
state law must provide the specific honest services owed by the defendant
in a fiduciary relationship” (quotation omitted)), vacated ___ F.3d ___,
2010 WL 4196042 (3d Cir. Oct. 26, 2010); United States v. Browne, 505
F.3d 1229, 1265 (11th Cir. 2007) (“[T]o prove ‘honest services’ mail
fraud, the Government must show that the accused intentionally partici-
pated in a scheme or artifice to deprive the persons or entity to which the
defendant owed a fiduciary duty of the intangible right of honest services,
and used the United States mails to carry out that scheme or artifice.”);
United States v. Brown, 459 F.3d 509, 519 (5th Cir. 2006) (“Honest ser-
vices are services owed to an employer under state law, including fidu-
ciary duties defined by the employer-employee relationship.” (quotations
omitted)); United States v. Frost, 125 F.3d 346, 366 (6th Cir. 1997) (“We
therefore hold that private individuals, such as Frost and Turner, may
commit mail fraud by breaching a fiduciary duty and thereby depriving the
person or entity to which the duty is owed of the intangible right to the
honest services of that individual.”).
UNITED STATES v. MILOVANOVIC 19229
[2] Congress promulgated the “honest services” statute in
response to the Supreme Court’s decision in McNally v.
United States.12 McNally held that the scope of the mail fraud
statute was limited to schemes to defraud individuals out of
property or money. Congress responded by enacting 18
U.S.C. § 1346.13 Section 1346 provided that for purposes of
the mail fraud statute, 18 U.S.C. § 1341, “ ‘scheme or artifice
to defraud’ includes a scheme or artifice to deprive another of
the intangible right of honest services.” Putting the two stat-
utes together “whoever having devised or intending to devise
a scheme or artifice to defraud” by “depriv[ing] another of the
intangible right of honest services,” using the mails, commits
mail fraud.
[3] As always, we begin our analysis of the mail fraud and
“honest service” statutes with the text.14 The text of the mail
fraud statute appears to rule out limiting “honest services”
fraud to fiduciaries. Congress provided that “whoever” perpe-
trates a fraudulent scheme using the mails commits the crime
of mail fraud.15 The perpetrator category “whoever” literally
means anyone, whether fiduciary or not.
12
483 U.S. 350 (1987).
13
Pub. L. No. 100-690, 102 Stat. 4181.
14
United States v. Monday, 614 F.3d 983, 985 (9th Cir. 2010).
15
18 U.S.C. § 1341. That section provides:
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, or
to sell, dispose of, loan, exchange, alter, give away, distribute,
supply, or furnish or procure for unlawful use any counterfeit or
spurious coin, obligation, security, or other article, or anything
represented to be or intimated or held out to be such counterfeit
or spurious article, for the purpose of executing such scheme or
artifice or attempting so to do, places in any post office or autho-
rized depository for mail matter, any matter or thing whatever to
be sent or delivered by the Postal Service, or deposits or causes
to be deposited any matter or thing whatever to be sent or deliv-
ered by any private or commercial interstate carrier, or takes or
19230 UNITED STATES v. MILOVANOVIC
[4] A purposiveness analysis, considering the social harm
the statute addresses, likewise suggests no limitation to fidu-
ciaries. The purpose evident from the face of the statute is
prevention and punishment of fraud. Several types of fraud
expressly listed, such as selling counterfeit items, do not
require a fiduciary relationship. Traditional mail frauds, such
as soliciting money for items that are not what they are adver-
tised to be, or collecting remittances by mail and not sending
the goods ordered, require no fiduciary relationship.16 Fraud
generally means deception, the use of misrepresentation to
obtain something of value or deprive another of something of
value.17 Plenty of traditional fraud is committed in arms-
receives therefrom, any such matter or thing, or knowingly
causes to be delivered by mail or such carrier according to the
direction thereon, or at the place at which it is directed to be
delivered by the person to whom it is addressed, any such matter
or thing, shall be fined under this title or imprisoned not more
than 20 years, or both. If the violation occurs in relation to, or
involving any benefit authorized, transported, transmitted, trans-
ferred, disbursed, or paid in connection with, a presidentially
declared major disaster or emergency (as those terms are defined
in section 102 of the Robert T. Stafford Disaster Relief and
Emergency Assistance Act (42 U.S.C. § 5122)), or affects a
financial institution, such person shall be fined not more than
$1,000,000 or imprisoned not more than 30 years, or both.
Id. (emphasis added).
16
See United States v. Benny, 786 F.2d 1410, 1418 (9th Cir.) (“Proof of
an affirmative, material misrepresentation supports a conviction of mail
fraud without any additional proof of a fiduciary duty.”), cert. denied, 479
U.S. 1017 (1986).
17
Conard v. Nicoll, 29 U.S. (1 Pet.) 291, 296 (1830) (“[I]t may be safely
laid down, that, to constitute actual fraud between two or more persons to
the prejudice of a third, contrivance and design, to injure such third per-
son, by depriving him of some right or otherwise impairing it, must be
shown.”). See also Am. Jur. 2d Fraud § 1 (“ ‘Fraud,’ . . . embraces all of
the multifarious means that human ingenuity can devise and that are
resorted to by one individual to gain advantage over another by false sug-
gestions or by suppression of truth. In fact, the fertility of people’s inven-
UNITED STATES v. MILOVANOVIC 19231
length relationships. If a merchant purports to sell a pound of
coffee, but uses false weights to put only fifteen ounces in the
bag, he commits fraud despite the arms-length, nonfiduciary
relationship. A fiduciary relationship would give him addi-
tional duties beyond the honesty required of any seller. He
would have to not only provide sixteen ounces in a pound, but
also advise if the shop down the street was selling better cof-
fee cheaper (a corporate director renting space to the corpora-
tion would have to disclose availability of better, cheaper
space to the board because of his fiduciary duty18). “Many
forms of conduct permissible in a workaday world for those
acting at arm’s length, are forbidden to those bound by fidu-
ciary ties. A trustee is held to something stricter than the mor-
als of the market place. Not honesty alone, but the punctilio
of an honor the most sensitive, is then the standard of behav-
ior.”19
[5] Nor do the kinds of honest services fraud to which the
statute is limited by Skilling—bribes and kickbacks—imply a
fiduciary limitation. One could bribe a blogger to recommend
a bistro, or kick back ten percent to a merchant who recom-
mended a particular electrician to customers, without either of
them having a fiduciary relationship. One does not have to be
a fiduciary to take bribes or kickbacks.
tion in devising new schemes of fraud is so great that courts have always
declined to define the term, reserving to themselves the liberty to deal with
fraud in whatever form it may present itself.” (citations omitted)); 1 J.
Story, Equity Jurisprudence § 186, 189-90 (1870) (defining fraud as “ap-
plied to every artifice made use of by one person for the purpose of
deceiving another,” or as “any cunning, deception, or artifice used to cir-
cumvent cheat, or deceive another.”).
18
See, e.g., Puritan Med. Ctr., Inc. v. Cashman, 413 Mass. 167 (1992).
The great securities regulation scholar, Louis Loss, used to joke that a
partner who took a CLE on fiduciary duties realized that when a customer
who meant to give him $20 accidentally gave him two $20 bills stuck
together, he could no longer just pocket the extra $20, but had a duty to
disclose the extra $20 to his partner.
19
Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928) (Cardozo, J.).
19232 UNITED STATES v. MILOVANOVIC
The cases suggest a legitimate and important purpose in
trying to find some sort of limitation on federal mail fraud, so
that prosecutors cannot convict whoever may be on the wrong
end of political shotguns. Some of the policy concerns are
arguable and unsupported by the text. For example, some of
the cases suggest that it is no business of the federal govern-
ment that some state or local governments are corrupt.20
Maybe so. Or maybe it is the federal government’s business,
because corruption may not be curable within the very gov-
ernments that are corrupt.21 Still, once fraud is broadened to
deprivation of services, almost anyone can be charged with
not doing all that they ought to have done in performing their
jobs, and if broadened that far, the notion of bribes may
broaden commensurately so that limitations on prosecutors
run amuck become illusory.22 Is “sneak out to the ball game
with me, I already have an extra ticket you can use” a bribe
by the offeror and a deprivation of honest services by the
employee who accepts?
20
United States v. Rybicki, 354 F.3d 124, 164-65 (2d Cir. 2003) (Jacobs,
J., dissenting) (“[T]he majority opinion invites federal prosecutors to
police honesty in the corridors of state government by invoking section
1346 against state employees for their acts of ‘honest services’ fraud. This
construction of section 1346 undoubtedly ‘leaves its outer boundaries
ambiguous and involves the Federal Government in setting standards of
disclosure and good government for local and state officials.’ ” (quotation
omitted)).
21
See generally Norman Abrams & Sara Sun Beale, Federal Criminal
Law and its Enforcement 151 (2d ed. 1993) (“It has been suggested that
the federal government has an obligation under the Republican govern-
ment clause of the constitution to ensure that states are free of public cor-
ruption, Adam H. Kurland, The Guarantee Clause as a Basis for Federal
Prosecutions of State and Local Officials, 62 S. Cal. L. Rev. 369 (1989),
and that authority was cited in the Congressional debates that led to the
enactment of Section 1346. 134 Cong. Rec. H11251 (daily ed. Oct. 21,
1988) (comments of Rep. Conyers introducing legislation to overrule
McNally).”).
22
The mail fraud statute has been described by one well-known former
federal prosecutor as “our Stradivarius, our Colt 45, our Louisville Slug-
ger, our Cuisinart—and our true love.” Jed S. Rakoff, The Federal Mail
Fraud Statute (Part I), 18 Duquesne L. Rev. 771, 771 (1980).
UNITED STATES v. MILOVANOVIC 19233
Judge Raggi’s concurrence in the Second Circuit en banc
decision United States v. Rybicki23 suggests a sound textual
basis for giving some content to the statute so that it distin-
guishes between corruption and mere nonfeasance. Her limi-
tation makes textual sense, and is not merely picked out of the
air, or based on some policy not set out or implied by the stat-
ute. We analyze the statute as she does.
[6] The key is, as it should be, reading the words of Sec-
tion 1346. This post-McNally restoration of “honest services”
fraud says “scheme or artifice to deprive another of the intan-
gible right of honest services.” Both “whoever” and “honest”
matter. This language does not limit “whoever” in Section
1341 to fiduciaries or any other subset of “whoever.” “While
a particular relationship may shed light on whether one person
owes another honest services, the language of § 1346 indi-
cates that the critical factor is the type of service at issue, not
the relationship of the parties.”24
The words of Section 1346 taken together with Section
1341 imply five limitations. First, there must be a legally
enforceable right to have another provide honest services,25
because without that right, there could be no deprivation of
the right. Second, not any deprivation of services provides a
predicate for fraud, only deprivation of services the value of
which depends on their being performed honestly.26 The stat-
ute says “honest services,” not just “services,” and every word
should be accorded meaning.27 Dishonest deprivation of ser-
vices differ from deprivation of honesty in providing services.
The statute criminalizes the latter, not the former. Suppose an
employee in charge of purchasing office supplies, bribed by
23
354 F.3d 124 (2d Cir. 2003).
24
United States v. Rybicki, 354 F.3d 124, 155 (2d Cir. 2003) (Raggi, J.,
concurring).
25
Id. at 153.
26
Id.
27
2A Sutherland Statutory Construction § 46:6 (7th ed. 2010).
19234 UNITED STATES v. MILOVANOVIC
a free ticket, sneaks off to the ball game leaving his suit jacket
on the chair and having his coworker tell his boss if she
inquires that he is in the men’s room. He has dishonestly
deprived his employer of services in exchange for a bribe, but
has not deprived his employer of honesty in the performance
of his tasks, as he would if in return for the ticket he steered
the employer’s business to the provider of the ticket instead
of a cheaper, better supplier.
Third, the defendant must intend to defraud, because Sec-
tion 1341 says “having devised or intending to devise any
scheme or artifice to defraud.” That the victim may not get all
the services it should is insufficient if the specific intent to
defraud is absent.28 Fourth, the scheme must use fraud, that is
misrepresentation or concealment of a material fact. And fifth,
the mails must be used to further the scheme.
[7] The statute does not say that the fraud must be intended
to deprive the victim of money or property. At common law,
in the civil context, fraud requires damages, ordinarily a mon-
etary loss, but criminal fraud has always been broader in its
reach.29 Ordinarily, fraud against private victims will have that
intent, but fraud against the government often will not. For
example, in this case, a commercial drivers’ license, though
it has considerable economic value to the holder, has no mon-
etary value to the government beyond the fee the government
28
See United States v. Kincaid-Chauncey, 556 F.3d 923, 941 (9th Cir.
2009) (“The specific intent requirement for honest services fraud survives
McNally by virtue of § 1346 and is necessary to distinguish legal conduct
from honest services fraud.” (citation omitted)).
29
See Ellen S. Podgor, Criminal Fraud, 48 Am. U. L. Rev. 729, 730 n.5
(1999) (discussing fraud in the civil context); id. at 736-47 (discussing the
scope and development of criminal fraud); see also Mark Zingale, Note,
Fashioning a Victim Standard in Mail and Wire Fraud: Ordinarily Pru-
dent Person or Monumentally Credulous Gull, 99 Colum. L. Rev. 795,
817-18 (1999) (discussing often confused differences between civil and
criminal fraud); Steven Fasman, Note, Proper Application of Civil RICO
to Patent Fraud, 96 Yale L. J. 1323, 1327 (1987) (discussing civil fraud).
UNITED STATES v. MILOVANOVIC 19235
receives when it issues the license, a fee that was paid in this
case. What the government seeks, by honest enforcement of
the testing requirements, is not money, but safety. The gov-
ernment uses the commercial drivers’ license exams to protect
its citizens from having to drive their little compact cars
alongside big rigs driven by people who have not demon-
strated their ability to drive safely. It would make no sense,
in terms of the purpose of the fraud statutes or the commercial
drivers’ license statutes and regulations, to treat as fraud only
those schemes that deprived the government of its license
issuance fees, yet not of the purpose of the testing, assuring
that the drivers honestly passed the tests. All sorts of govern-
ment services that have to be performed honestly do not
involve the financial interest of government—for example, a
bribe to a policeman to let a criminal go.30 The gravamen of
the harm prohibited by the statute is dishonesty in providing
services where the victim, the government in this case, was
entitled to have the services performed honestly.
III. Conclusion
[8] Honest services mail fraud does not require proof of a
fiduciary relationship. Nor does it require damages to the
money or property of the victim. It is, however, subject to the
limitations set out above. The district court thus erred in dis-
missing the indictment.
REVERSED and REMANDED.
30
See, e.g., United States v. Boots, 80 F.3d 580 (1st Cir. 1996) (uphold-
ing honest services wire fraud conviction for scheme to bribe a police
chief to defraud citizens of his honest services), overruled in part by Pasq-
uantino v. United States, 544 U.S. 349, 354 (2005).
19236 UNITED STATES v. MILOVANOVIC
FERNANDEZ, Circuit Judge, dissenting:
Like the majority, I must start with the mail fraud statute
itself, which imposes criminal penalties upon those who use
the mails in the execution of “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. § 1341.
Before the Supreme Court’s decision in McNally v. United
States, 483 U.S. 350, 107 S. Ct. 2875, 97 L. Ed. 2d 292
(1987), we held that § 1341 proscribed schemes to defraud
another not only of money and property, but also of “intangi-
ble rights,” including the right to loyal or honest services. See
United States v. Bohonus, 628 F.2d 1167, 1171-72 (9th Cir.
1980); see also United States v. Williams, 441 F.3d 716,
723-24 (9th Cir. 2006). In McNally, 483 U.S. at 360, 107 S.
Ct. at 2881-82, the Court held that the mail fraud statute did
not extend to honest services fraud. The following year, Con-
gress enacted 18 U.S.C. § 1346, which specifies that for pur-
poses of the mail fraud statute, “the term ‘scheme or artifice
to defraud’ includes a scheme or artifice to deprive another of
the intangible right of honest services.” In so doing, “Con-
gress restored the pre-McNally landscape.” Williams, 441
F.3d at 722; accord, United States v. Sorich, 523 F.3d 702,
707 (7th Cir. 2008), cert. denied, ___ U.S. ___, ___, 129 S.
Ct. 1308, 1308, 173 L. Ed. 2d 645 (2009); United States v.
Rybicki, 354 F.3d 124, 136-37 (2d Cir. 2003) (en banc). Thus,
the fact that a case preceded, rather than succeeded, McNally
will not affect my analysis.
The district court’s dismissal of the Indictment was based
upon its determination that for honest services fraud the
Indictment had to plead and the government must prove that
at least one of the Defendants had a fiduciary duty to the
Washington State Department of Licensing (“DOL”). As the
majority points out, § 1346 does not expressly contain that
restriction, and I recognize that, in general, where a statute is
UNITED STATES v. MILOVANOVIC 19237
sufficiently clear we look no farther than its own language.
See Hartford Underwriters Ins. Co. v. Union Planters Bank,
N.A., 530 U.S. 1, 6, 120 S. Ct. 1942, 1947, 147 L. Ed. 2d 1
(2000); Burton v. Stevedoring Servs. of Am., 196 F.3d 1070,
1072 (9th Cir. 1999); City of Edmonds v. Wash. State Bldg.
Code Council, 18 F.3d 802, 804 (9th Cir. 1994). Here, how-
ever, honest services is not an unambiguous phrase, and when
attempting to give content to that concept, the courts have
always been concerned lest the net cast by the mail fraud stat-
ute encompass far too much activity.1 In my view, when Con-
gress acted, it necessarily adopted the limitations the courts
had created when they used the phrase.2 As we have said,
“[w]ithout some kind of limiting principle, honest services
wire fraud could potentially make relatively innocuous con-
duct subject to criminal sanctions.” United States v. Kincaid-
Chauncey, 556 F.3d 923, 940 (9th Cir. 2009); see also United
States v. Handakas, 286 F.3d 92, 107 (2d Cir. 2002) (express-
ing need to avoid making a § 1346 case out of all breaches of
contract or false tax returns), overruled on other grounds by
Rybicki, 354 F.3d at 144; Sorich, 523 F.3d at 707 (stating that
courts have “felt the need to find limiting principles”); United
States v. Cochran, 109 F.3d 660, 667 (10th Cir. 1997) (stating
not every breach of contract or misstatement is enough);
1
Over 125 years ago the Supreme Court noted that “[i]t 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. Reese, 92 U.S. 214, 221, 23 L. Ed. 563 (1876); see also United States
v. Rrapi, 175 F.3d 742, 755-56 (9th Cir. 1999) (Thomas, J., concurring
and dissenting) (“A creative interpretation . . . would not afford sufficient
notice of the criminal activity to survive constitutional muster.”).
2
Of course, it is presumed that “legislatures act with case law in mind.”
Abuelhawa v. United States, ___ U.S. ___, ___, 129 S. Ct. 2102, 2106,
173 L. Ed. 2d 982 (2009) ; Williams v. Taylor, 529 U.S. 362, 379-80 &
n.12, 120 S. Ct. 1495, 1506 & n.12, 146 L. Ed. 2d 389 (2000); cf. NLRB
v. Amax Coal Co., 453 U.S. 322, 329, 101 S. Ct. 2789, 2794, 69 L. Ed.
2d 672 (1981) (in general, courts “must infer” that when “Congress uses
terms that have accumulated settled meaning under . . . common law” it
“means to incorporate [that] established meaning”).
19238 UNITED STATES v. MILOVANOVIC
United States v. Sawyer, 85 F.3d 713, 728 (1st Cir. 1996)
(stating that not “every transgression of state governmental
obligations” is enough).
As it is, courts have applied the honest services concept to
the paradigm case of bribing of or other dishonest wrongdo-
ing by high public officials. See United States v. Urciuoli, 513
F.3d 290, 294 (1st Cir. 2008); Bohonus, 628 F.2d at 1171.
They have also applied it to employees in general because
employees can be said to owe their employers loyal and hon-
est services. See Rybicki, 354 F.3d at 141-42; Bohonus, 628
F.2d at 1172; see also United States v. Alkins, 925 F.2d 541,
545-48 (2d Cir. 1991) (fraud against state by its own employ-
ees). In fact, employees do owe a kind of fiduciary duty to
their employers. See United States v. Frost, 125 F.3d 346,
366-67 (6th Cir. 1997); see also Sorich, 523 F.3d at 707.
Moreover, those who stand in an apparent agency relationship
with another can be said to owe a duty of loyalty to their prin-
cipal, and, thus, be subject to the mail fraud statute. See
United States v. Ervasti, 201 F.3d 1029, 1036 (8th Cir. 2000).
The above cases fall into a pattern requiring a fiduciary
duty before an honest services mail fraud case can go for-
ward. Some cases have reached further. For example, in one
case a consultant who was retained to perform a due diligence
investigation regarding a four hundred million dollar letter of
credit was said to owe an intangible duty of honest services
sufficient to come within the reach of the statute without
regard to whether he was a true fiduciary. See United States
v. Sancho, 157 F.3d 918, 920-22 (2d Cir. 1998) (per curiam),
overruled on other grounds by Rybicki, 354 F.3d at 144. Nev-
ertheless, in an en banc case from the same Circuit, the court
stated that even if most of the cases involved employees, it
saw “no reason the principle they establish would not apply
to other persons who assume a legal duty of loyalty compara-
ble to that owed by an officer or employee to a private entity.”
Rybicki, 354 F.3d at 142 n.17. That duty, of course, is a fidu-
ciary duty, or at least something very like one.
UNITED STATES v. MILOVANOVIC 19239
This court has been rather circumspect about the possible
full reach of § 1346. As we said in Williams, 441 F.3d at 723:
At a minimum, we and other circuits have recog-
nized the viability of the “intangible rights” theory
when the private defendant stands in a fiduciary or
trust relationship with the victim of the fraud.
Because Defendant had such a relationship with his
victim, we need not and do not decide whether Con-
gress intended “another” to reach even further.
I, too, would eschew saying more than is needed for the deci-
sion of this case. Still and all, we are called upon to alembi-
cate what has gone before, without suggesting that no new
considerations could arise in the future. When I do that, I am
satisfied that in order to spell out an honest services fraud
case the indictment must plead sufficient facts to give notice
that a defendant has a heightened duty (for example, as an
official, or employee, or agent, or trustee, or fiduciary) rather
than a mere contractual duty toward the alleged victim, and
has violated (or attempted to violate) that heightened duty by
use of a fraudulent scheme of some sort.3 I hasten to add that
the mere fact that a contract contains performance or other
specifications does not itself give rise to a heightened duty.
When all of these principles are applied to this case, I am sat-
isfied that the Indictment at hand is insufficient.
First, as pled, it is apparent that the applicants themselves
had no honest services duty to DOL, and unless either Lamb
or Milovanovic did, the Indictment must fall as to the appli-
cants.
3
As the Supreme Court recently pointed out, before the enactment of
§ 1346, “[t]he ‘vast majority’ of the honest-services cases involved
offenders who, in violation of a fiduciary duty, participated in bribery or
kickback schemes.” Skilling v. United States, ___ U.S. ___, ___, 130 S.
Ct. 2896, 2930, 177 L. Ed. 2d 619 (2010).
19240 UNITED STATES v. MILOVANOVIC
Second, as pled, Milovanovic had no honest services duty
to DOL. No contractual duty whatsoever is even spelled out.
The Indictment does allege that he is bilingual and that an
applicant “was entitled to have an interpreter of his or her
choosing” to translate for him during the written driver’s
license examination. It then goes on to describe
Milovanovic’s central part in the scheme and alleged wrong-
doing. No more. Thus, again, unless Lamb had a duty of hon-
est services, the Indictment must fall as to Milovanovic also.
The Indictment comes closest in its allegations about
Lamb, but not close enough. It points out that Lamb is certi-
fied to give driving skills tests, but he is not a DOL employee.
He does have a contract with DOL pursuant to which he gives
the tests and reports the results. However, it is not alleged that
he is an agent of DOL, nor is it even alleged that he is paid
by DOL for his performance pursuant to the contract. Again,
the scheme and his activities are spelled out. Again, I fail to
see any allegations that subtend a heightened duty toward
DOL applicable to Lamb.
Thus, while I am aware of the fact that an indictment need
only spell out the elements of the alleged offense and give
notice, this Indictment falls short of meeting even those mini-
mum requirements. As a result, the Indictment must, as the
district court indicated, fall.4
4
The separate evidence submitted by the government does not help it.
But for waiver of the issue, I would not even refer to it. See Boyce Motor
Lines v. United States, 342 U.S. 337, 343 n.16, 72 S. Ct. 329, 332 n.16,
96 L. Ed. 367 (1952); United States v. Boren, 278 F.3d 911, 914 (9th Cir.
2002); United States v. Buckley, 689 F.2d 893, 897 (9th Cir. 1982). In any
event, that evidence makes it even more clear that Lamb and Milovanovic
are independent contractors — Lamb with DOL, Milovanovic with a third
party. For example, the contract with Lamb says “The parties intend that
an Independent Contractor relationship will be created by this Contract.
The Contractor performing under this Contract is not an employee or
agent of DOL.”
UNITED STATES v. MILOVANOVIC 19241
I hold no brief for the facinorous behavior alleged against
Milovanovic and Lamb. However, I am also unable to say that
the Indictment sufficiently pleads the crime of honest services
mail fraud. 18 U.S.C. §§ 1341, 1346. That is because it fails
to allege the kind of heightened duty to DOL that would suf-
fice to raise Milovanovic and Lamb from the status of miscre-
ants to the status of federal defendants.
Thus, I respectfully dissent.