United States: Supreme Court Preview: The Supreme Court Poised To Address Key Federal Wire Fraud Issue

In the 2022-2023 term, the Supreme Court will address the definition of "property" under the federal wire fraud statute, which prohibits a person from "obtaining money or property by means of false pretenses." 18 U.S.C. § 1343. The definition of "property" for the purposes of this statute has been much debated—need "property" be economic in nature? Must it be tangible? Can one's admission to a university constitute "property"? Now, the Supreme Court may answer some of these questions in Ciminelli v. United States (Docket No. 21-1170).¹

Mr. Ciminelli was convicted of wire fraud in connection with a bid-rigging scheme in the "Buffalo Billion" program, an economic development initiative in Buffalo, New York. The program was facilitated by Fort Schuyler, a nonprofit entity affiliated with the SUNY system, which issued requests for proposals ("RFPs") to solicit and accept bids for each project. The government argued that Mr. Ciminelli and others rigged this process by secretly tailoring certain RFPs to favor their companies on projects worth $750 million.

To demonstrate that this bid-rigging scheme constituted wire fraud, the government relied on the "right-to-control" theory of property. This theory of property—embraced by the U.S. Court of Appeals for the Second Circuit and certain other circuits—protects not only tangible property, but also certain "intangible" property rights. Among those is the right of an entity to control the use of its assets. See United States v. Finazzo, 850 F.3d 94 (2d Cir. 2017). Withholding information or reporting inaccurate information that could affect an entity's economic decisions may jeopardize this right. Id. Thus, under the "right-to-control" theory, a person may be guilty of wire fraud if they have deprived another individual or entity of the ability to make an informed economic decision. In Ciminelli, following this framework, the government argued that the bid-rigging scheme deprived Fort Schuyler of economic information necessary to make its bid determinations. The jury accepted the argument and convicted Mr. Ciminelli of wire fraud, among other charges.

The Second Circuit affirmed the conviction, applying a broad interpretation of the "right-to-control" theory of property. United States v. Percoco, 13 F.4th 158, 172 (2d Cir. 2021).² The Second Circuit acknowledged that "[t]he right-to-control theory requires proof that 'misrepresentations or non-disclosures can or do result in tangible economic harm,'" id. at 170 (quoting Finazzo, 850 F.3d at 111), but it stated that the deprivation of "information necessary to make discretionary economic decisions" constitutes such "cognizable harm," id. Consequently, the court held that the government was not required to show that the victim (Fort Schuyler) would have selected a different bid but for Mr. Ciminelli's representations; it was enough to show that these misrepresentations "affected the victim's calculus" or exposed Fort Schuyler to "unexpected economic risk." See id. Such a broad conception of "property" arguably brings any lie or misrepresentation in connection with an economic decision—from entering into a contract to hiring a new employee—into the realm of federal wire fraud.

Mr. Ciminelli petitioned the Supreme Court to review the definition of "property" under the federal wire fraud statute. He now challenges the "right-to-control" theory altogether, citing instead the approaches of the U.S. Courts of Appeals for the Sixth and Ninth Circuits, see, e.g., United States v. Yates, 16 F.4th 256, 265 (9th Cir. 2021) (rejecting "accurate-information theory" of fraud, noting that "[r]ecognizing accurate information as property would transform all deception into fraud"); United States v. Sadler, 750 F.3d 585, 591 (6th Cir. 2014) (rejecting "ethereal right to accurate information" as traditional property right). Mr. Ciminelli argues that "property" must be rooted in traditional, economic concepts of property, rather than intangible notions of decision-making.

The Supreme Court has recently demonstrated some preference for a narrow interpretation of the federal wire fraud statute. In the 2020 "Bridgegate" case, Kelly v. United States, a jury convicted two governor's aides of wire fraud in connection with their actions to close lanes on the George Washington Bridge in response to a mayor refusing to endorse the governor. The Supreme Court unanimously overturned these convictions, explaining that wire fraud must have, as its object, the deprivation of property (or money). Incidental deprivation of property does not suffice. In "Bridgegate," the object of the fraud was political retribution, not economic harm, and so the convictions could not stand.

In agreeing to hear Ciminelli (and perhaps related cases), the Supreme Court is poised to again resolve issues related to the breadth of the term "property" in the wire fraud statute. If the recent past is any guide, the Court may continue to rein in lower courts applying broad approaches to the statute, imposing additional evidentiary requirements on the government or even rejecting the "right-to-control" theory altogether.

Footnotes

1. Ciminelli was tried along with three others: Aiello, Kaloyeros, and Percoco. Aiello and Kaloyeros have also petitioned the Supreme Court for certiorari on the question of what constitutes "property" under the wire fraud statute (Aiello v. United States and Kaloyeros v. United States), and their petitions remain pending. Percoco petitioned the Supreme Court for cert as well, and the Court granted the petition and will review the case this term (Percoco v. United States, Docket No. 21-1158). Percoco was convicted of "honest services" fraud, a form of wire fraud established by separate statute which criminalizes conduct that "deprive[s] another of the intangible right of honest services." 18 U.S.C. § 1346. Courts have interpreted honest services fraud to require the existence and breach of a "fiduciary duty." See, e.g., United States v. Halloran, 821 F.3d 321, 337 (2d Cir. 2016) (citing Skilling v. United States, 561 U.S. 358 (2010)). Although it has been widely acknowledged that public officials owe a fiduciary duty to the public, see Skilling, 561 U.S. at 407 n.41, Percoco's petition presents the question of the degree to which private citizens may owe a fiduciary duty to the public.

2. The Second Circuit addressed all four defendants—Ciminelli, Percoco, Aiello, and Kaloyeros—in one opinion in which it affirmed all four convictions. Percoco, 13 F.4th at 163.

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