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In Flores-Figueroa v. United States, No 08-108, in a rare 9-0 shutout, Justice Breyer writing for the Supreme Court addressed and resolved the aggravated identity theft statute as follows:

The question [presented by 18 U. S. C. §1028A(a)(1)] is whether the statute requires the Government to show that the defendant knew that the “means of identification” he or she unlawfully transferred, possessed, or used, in fact, belonged to “another person.” We conclude that it does. . . We conclude that §1028A(a)(1) requires the Government to show that the defendant knew that the means of identification at issue belonged to another person.

Now, the discussion between the ellipses gets pretty dense, and although I am not a student of Justice Breyer's writings consider these lilies:

In ordinary English, where a transitive verb has an object, listeners in most contexts assume that an adverb (such as knowingly) that modifies the transitive verb tells the listener how the subject performed the entire action, including the object as set forth in the sentence. Thus, if a bank official says, “Smith knowingly transferred the funds to his brother’s account,” we would normally understand the bank official’s statement as telling us that Smith knew the account was his brother’s. Nor would it matter if the bank official said “Smith knowingly transferred the funds to the account of his brother.” In either instance, if the bank official later told us that Smith did not know the account belonged to Smith’s brother, we should be surprised.

Of course, a statement that does not use the word “knowingly” may be unclear about just what Smith knows. Suppose Smith mails his bank draft to Tegucigalpa, which (perhaps unbeknownst to Smith) is the capital of Honduras. If the bank official says, “Smith sent a bank draft to the capital of Honduras,” he has expressed next to nothing about Smith’s knowledge of that geographic identity. But if the official were to say, “Smith knowingly sent a bank draft to the capital of Honduras,” then the official has suggested that Smith knows his geography.

Similar examples abound. If a child knowingly takes a toy that belongs to his sibling, we assume that the child not only knows that he is taking something, but that he also knows that what he is taking is a toy and that the toy belongs to his sibling. If we say that someone knowingly ate a sandwich with cheese, we normally assume that the person knew both that he was eating a sandwich and that it contained cheese. Or consider the Government’s own example, “ ‘John knowingly discarded the homework of his sister.’ ” Brief for United States 9. The Government rightly points out that this sentence “does not necessarily”imply that John knew whom the homework belonged to. Ibid. (emphasis added). But that is what the sentence, as ordinarily used, does imply.

Everyone got that? Justice Scalia wrote a concurrence just to throw a few written punches at his colleagues.  He stuck to a more plain English analysis.

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Misrepresentations in fraud cases in the Eleventh Circuit will no longer be tested according to whether a reasonable or ordinarily prudent person would find them material. That is the result of the Eleventh Circuit’s decision yesterday in United States v. Svete, No. 05-13809 (February 2, 2009), in which the appellants sold financial interests in viatical settlements—agreements with “viators” with terminal conditions who sold their life insurance policies for less than the mature value while the viators were still alive, id. at 2. The government alleged that the appellants made false statements and provided literature containing false statements to investors. Id. at 3. The appellants were indicted for mail fraud, and defended that the investors had signed contracts which provided that the investors did not rely on any representations other than those contained in the contracts, and requested the following jury instruction on fraud:

To prove a fraud crime, the government must show that the defendant under consideration intended to devise or participate in a scheme reasonably calculated to deceive persons of ordinary prudence and comprehension. The person of ordinary prudence standard is an objective standard and is not directly related to the gullibility or level of knowledge and experience of any specific person or persons. For purposes of this offense, the government must prove that a reasonable person of average prudence and comprehension would have acted on the representation made by the defendant under consideration.

Id. The district court rejected the instruction, and the appellants were found guilty and appealed. Id. at 4, 5. The Eleventh Circuit discussed the history of the mail fraud statute to conclude that “Congress has never used any language that would limit the coverage of the mail fraud statute to schemes that would deceive only prudent persons.” Id. at 9.

The Court did recognize the Supreme Court’s holding in Neder v. United States, 527 U.S. 1, 119 S. Ct. 1827 (1999), that materiality of falsehood is an element of mail fraud. Id. at 11 (quoting Neder, 527 U.S. at 25). However, the Court observed that all of the authorities which the Supreme Court relied upon in Neder “support the proposition that materiality may be proved without establishing that the misrepresentation was objectively reliable.” Id. at 12. Oddly, however, in contending that a misrepresentation may be fraudulent even if a reasonable or ordinarily prudent person would not regard it as fraudulent, the Court quoted the following section of the Restatement (Second) of Torts that a matter is “material” if:

(a) a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question; or

(b) the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it.”

Id. (quoting Restatement (Second) of Torts § 538, at 80). The Court held that “the purpose of the element of materiality is to ensure that a defendant actually intended to create a scheme to defraud.” Id. at 14. It then proceeded at length to overrule its prior holding in United States v. Brown, 79 F.3d 1550 (11th Cir. 1996) that “mail fraud requires an objective inquiry; a scheme to defraud ‘that is, a violation of the mail fraud statute exists only where a reasonable person ‘would have acted on the misrepresentations: were the misrepresentations reasonably calculated to deceive persons of ordinary prudence and comprehension.’” Brown, at 1558 (emphasis added) (quoting Pelletier v. Zweifel, 921 F.2d 14651498-99 (11th Cir. 1991)); id. at 15-23.

Gillen Withers & Lake LLC are white collar and corporate criminal defense attorneys with an outstanding reputation and track record, handling cases throughout Georgia and the nation. Call our Atlanta, Georgia, office at (404) 842-9700 or our Savannah, Georgia, office at (912) 447-8400.

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The Eleventh Circuit Court of Appeals has held that the United States must be the ultimate target of a conspiracy to defraud under 18 U.S.C. § 371. Jildardo Mendez wanted a Florida commercial drivers license (CDL), but spoke very poor English. Mendez contacted Steven Baez, a member of the Florida Army National Guard, who was illegally selling DA-348E forms, which were Department of the Army Operator Qualification Records which would allow an individual to waive completion of Florida CDL testing. Mendez paid Baez $1,000 for the form and obtained a Class A CDL, but was arrested during a subsequent investigation of Baez, and charged and convicted of conspiracy to defraud the United States in violation of § 371, and unlawful production of a Florida CDL in violation of 18 U.S.C. § 1028.

Mendez appealed, arguing that the evidence was insufficient to support his conviction pursuant to § 371 because there was no evidence that he was aware of any connection between a Florida CDL and the federal government, and the Eleventh Circuit agreed with him and reversed in United States v. Mendez, No. 07-13443, 2008 WL 2117607, *5 (11th Cir. May 21, 2008) (per curiam). The Court observed that § 371, which provides that it is a crime to “conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner of for any purpose…,” contains two clauses. Id. at *2. Under the “any offense” clause, the government does not have to allege that the United States was the intended victim of the conspiracy, however under the “defraud” clause, “‘the government must prove that the United States was the ultimate target of the conspiracy,” whereas under § 371's “any offense…’” Id. at *2 (quoting United States v. Harmas, 974 F.2d 1262 (11th Cir.1992)). The Court then discussed the United States Supreme Court’s decision in Tanner v. United States, 483 U.S. 107 (1987), in which the Supreme Court reversed the defendants’ convictions for conspiracy to defraud under § 371 where the victim of the conspiracy, the federal Rural Electrification Administration, was a private corporation which merely received financial assistance from, and was supervised by, the United States. Id. The Eleventh Circuit held:

Mendez’s § 371 conviction is precisely what the Tanner Court meant to prevent. The facts to which the parties stipulated do not show that Mendez even knew the federal government was in involved in the issuance of Florida CDLs, let alone that the United States was the ultimate intended target of Mendez’s conduct. Accordingly, under Tanner, there was no basis for the district court to find that Mendez was guilty beyond a reasonable doubt of defrauding the United States under 18 U.S.C. § 371.

Id. at *3.

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The Eleventh Circuit Court of Appeals has issued a ruling which confirms one more element which the government must prove, and which the jury must be instructed on, in order to convict a defendant of fraud. In United States v. Brown, 79 F.3d 1550, 1557 (11th Cir. 1996), the Eleventh Circuit held (or re-confirmed) that, in order to prove the crime of mail fraud, in violation of 18 U.S.C. § 1341, “the government must show the defendant intended to create a scheme ‘reasonably calculated to deceive persons of ordinary prudence and comprehension.”’ (Quoting Pelletier v. Zweifel, 921 F.2d 1465, 1498-99 (11th Cir.1991)). Last week, in United States v. Svete, NO. 05-13809, 2008 WL 788407, *7 (11th Cir. March 26, 2008), the holding of Brown was finally applied to Eleventh Circuit Pattern Jury Instruction (Criminal Cases) 50.1, which, as the Court noted, “does not include the reasonable person standard as articulated in Brown…” id.

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