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 “intangible 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, Congress enacted 18 U.S.C. § 1346, which specifies that for purposes 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, “Congress restored the preMcNally landscape.” Williams, 441 F.3d at 722; accord, United States v. Sorich, 523 F.3d 702, 707 (7th Cir.2008), cert. de*414nied, — 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 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, however, 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 statute encompass far too much activity.1 In my view, when Congress acted, it necessarily adopted the limitations the courts had created when they used the phrase.2 As we have said, “[wjithout some kind of limiting principle, honest services wire fraud could potentially make relatively innocuous conduct 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) (expressing 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); 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 wrongdoing 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 honest 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 employees). In fact, employees do owe a kind of fiduciary duty to their employers. See United *415States 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 principal, 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 forward. 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. Nevertheless, 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 comparable 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 fiduciary duty, or at least something very like one.

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 recognized 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 Congress intended “another” to reach even further.

I, too, would eschew saying more than is needed for the decision of this case. Still and all, we are called upon to alembicate 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 satisfied 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 applicants.

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 wrongdoing. No more. Thus, again, unless Lamb had a *416duty of honest services, the Indictment must fall as to Milovanovie also.

The Indictment comes closest in its allegations about Lamb, but not close enough. It points out that Lamb is certified 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 minimum requirements. As a result, the Indictment must, as the district court indicated, fall.4

I hold no brief for the facinorous behavior alleged against Milovanovie 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 suffice to raise Milovanovie and Lamb from the status of miscreants to the status of federal defendants.

Thus, I respectfully dissent.

. 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 (1875); 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.”).

. 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”).

. 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).

. 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 Milovanovie 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.”