Ciminelli v. United States: Supreme Court to Address a “Paradigmatic Overextension of Fraud Law” This Term
Ciminelli v. United States and the “Right to Control” Theory of Fraud
The case is Ciminelli v. United States. Cert was granted during the late June “clean-up” conference and oral argument is scheduled for this term. The case involves, in the words of Ciminelli’s counsel - “a paradigmatic overextension of federal fraud law”. And those in the federal criminal defense arena have been keenly aware that the federal government has been aggressively expanding the reach of federal criminal laws since early commerce clause cases.
We all know that in order to be convicted of fraud - you must deprive someone of something. But what if that “something” is not actually a “thing” its an opportunity. That’s right, the feds are taking the position that deprivation of an intangible right is actionable fraud - a scary thought.
The case involves the “right-to-control” theory of property interest and the government argues that a property interest is harmed when a defendant schemes to “deprive the victim of potentially valuable economic information” that is “necessary to make discretionary economic decisions”. United States v. Binday, 804 F.3d 558, 570 (3d Cir. 2015).
To some, this looks like a scheme prosecutors employ to find chargeable conduct when the “victim” is not deprived of tangible property. To others, a commonsense right to ensure that citizens are fair in their dealings. I’m with the former.
The Buffalo Billion
In 2012, the governor of New York initiated a program to invest one billion dollars in upstate development projects. This was known as the Buffalo Billion plan. Ciminelli was awarded a $750 million contract to build a high-tech facility in Buffalo. Investigators later found out that Dr. Alain Kaloyeros, was involved in approving development proposals actually worked to create the Ciminelli proposal and purportedly drafted a more favorable application.
Its not surprising that in our current environment rife with prosecutorial overreach that Ciminelli and others were indicted for wire fraud under 18 U.S.C. 1349 for engaging in a scheme to rig the bidding process. No evidence was introduced at trial that New York was denied a fair price or fair terms. In essence, the government was alleging that it was a federal offense to deny New York its right to fairness in the bidding process.
The trial judge instructed the jury on an expansive “right-to-control” theory of fraud. The Judge informed the jury that Ciminelli could be found guilty of depriving New York of its assets by denying the right-to-control their assets.
Of course, the jury found him guilty.
The Second Circuit Upholds the “Right to Control” Theory of Fraud
The Second Circuit upheld the conviction but did state that there is “a fine line between schemes that do no more than cause their victims to enter into transactions they would otherwise avoid-which do not violate the law-and schemes that depend for their completion on a misrepresentation of an essential element of the bargain-which do”. The Court reasoned that Ciminelli got a “leg up” during the bidding process and that a competitive RFP process was an “essential” term of the ensuing contracts.
To health care fraud practitioners like myself, this sounds a lot like implied false certification theory ala Universal Health Services Inc. vs United States ex rel Escobar.
The Issue Before the Court
The Supreme Court must decide whether the right-to-control theory of wire fraud is valid. Fraud traditionally has required proof of intended harm to a recognized property interest but here the deprivation is of opportunity - not property. Plenty of cases stand for this proposition: McNally v. United States, 483 U.S. 350 (1987), Cleveland v. United States, 531 U.S. 12 (2000).
There is a separate statute on the books that does specifically criminalize the right to the “intangible” - 18 U.S.C. 1346, which criminalizes depriving someone of the intangible right of honest services. But Skilling v. United States, 561 U.S. 358 (2010) tailored that back to only permit the statute to apply to kickbacks and bribes.
The Skilling decision will certainly be a heavy weight in favor of the petitioner on the scales of justice.
This case is certainly one to watch. If the government gets its way and the wire fraud statute can be interpreted so broadly as to permit conviction where someone is deprived of “opportunity” - the wire fraud statute will become more expansive than the honest services fraud statute pre-skilling. Nearly every action that the Government deems dishonest in public or private contracts or negotiations will immediately become criminal acts. Its a bit trite to cry parade of horribles, generally speaking, but the fear is real with this one. Thankfully, with the composition of the court squarely in a limited government posture - my vote is for the Petitioner here.
This is one I’ll be watching closely. Stay tuned for the oral argument recap and opinion analysis.