Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca2-15-00499/USCOURTS-ca2-15-00499-0/pdf.json

Nature of Suit Code: 430
Nature of Suit: Banks and Banking
Cause of Action: 

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15-496-cv(L), 15-499-cv(Con)

United States ex rel. O’Donnell v. Countrywide Home Loans, Inc.

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

______________ 

August Term 2015

(Argued: December 16, 2015 Decided: May 23, 2016) 

Docket Nos. 15-496, 15-499

 

UNITED STATES EX REL. EDWARD O’DONNELL,

Plaintiff-Appellee,

- v. -

COUNTRYWIDE HOME LOANS, INC.,

COUNTRYWIDE BANK, FSB,

BANK OF AMERICA, N.A., and REBECCA MAIRONE,

Defendants-Appellants,

COUNTRYWIDE FINANCIAL CORP.

and BANK OF AMERICA CORP.,

Defendants.*

______________

 

* The Clerk of Court is respectfully directed to amend the caption as set 

forth above.

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Before:

RAGGI, WESLEY, and DRONEY, Circuit Judges.

_________________

Appeal from a judgment entered by the United States 

District Court for the Southern District of New York (Rakoff, J.).

A jury found Defendants-Appellants liable under the Financial 

Institutions Reform, Recovery, and Enforcement Act of 1989 for 

mail or wire fraud affecting a federally insured financial 

institution, arising from the sale of mortgages to governmentsponsored entities. At the penalty stage, the District Court 

imposed penalties exceeding $1.2 billion. On appeal, 

Defendants-Appellants argue, inter alia, that the proof at trial is 

insufficient under the mail and wire fraud statutes as a matter of 

law. We agree and accordingly REVERSE the judgment of the 

District Court.

_________________

KANNON K. SHANMUGAM, Williams & Connolly LLP, 

Washington, DC (Brendan V. Sullivan, Jr., Enu A. Mainigi, Craig 

D. Singer, Williams & Connolly LLP, Washington, DC; Richard 

M. Strassberg, William J. Harrington, Goodwin Procter LLP, 

New York, NY, on the brief), for Defendants-Appellants Countrywide 

Home Loans, Inc., Countrywide Bank, FSB, and Bank of America, 

N.A.

E. JOSHUA ROSENKRANZ, Orrick, Herrington & Sutcliffe 

LLP, New York, NY (Robert M. Loeb, Kelsi Brown Corkran, 

Orrick, Herrington & Sutcliffe LLP, Washington, DC; Marc L. 

Mukasey, Michael C. Hefter, Ryan M. Philp, Seth M. Cohen, 

Bracewell & Giuliani LLP, New York, NY, on the brief), for 

Defendant-Appellant Rebecca Mairone.

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PIERRE G. ARMAND, Assistant United States Attorney

(Joseph N. Cordaro, Carina H. Schoenberger, Benjamin H. 

Torrance, Assistant United States Attorneys, on the brief), for

Preet Bharara, United States Attorney for the Southern District of 

New York, New York, NY, for Plaintiff-Appellee.

Seth P. Waxman, Daniel Aguilar, Sina Kian, Wilmer 

Cutler Pickering Hale and Dorr LLP, Washington, DC; Noah A. 

Levine, Alan E. Schoenfeld, Wilmer Cutler Pickering Hale and 

Dorr LLP, New York, NY, for Amici Curiae The Clearing House 

Association, L.L.C., American Bankers Association, Financial Services 

Roundtable, and Chamber of Commerce of the United States of 

America.

Dennis M. Kelleher, Better Markets, Inc., Washington, DC,

for Amicus Curiae Better Markets, Inc.

_________________

WESLEY, Circuit Judge:

When can a breach of contract also support a claim for 

fraud? This question—long an issue in common-law courts—

comes before us in the context of a judgment in the United States 

District Court for the Southern District of New York (Rakoff, J.), 

imposing civil penalties exceeding $1.2 billion on DefendantsAppellants Countrywide Home Loans, Inc.; Countrywide Bank, 

FSB; Bank of America, N.A. (collectively, “Countrywide”); and 

Rebecca Mairone (together with Countrywide, “Defendants”) 

under the Financial Institutions Reform, Recovery, and 

Enforcement Act of 1989 (“FIRREA”), 12 U.S.C. § 1833a. As the 

necessary predicate for these penalties, the Government alleged 

that Defendants violated the federal mail and wire fraud statutes 

by selling poor-quality mortgages to government-sponsored 

entities. On appeal, Defendants argue that the evidence at trial

shows at most an intentional breach of contract—i.e., that they 

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sold mortgages that they knew were not of the quality promised 

in their contracts—and is insufficient as a matter of law to find

fraud. We agree, concluding that the trial evidence fails to 

demonstrate the contemporaneous fraudulent intent necessary 

to prove a scheme to defraud through contractual promises.

Accordingly, we reverse with instructions to enter judgment in 

favor of Defendants. 

BACKGROUND

This case arises in the context of the post-financial-crisis 

restructuring of the Full Spectrum Lending Division (“FSL”) of 

Countrywide Home Loans. Prior to the events at issue in this 

case, FSL had been the subprime lending division of 

Countrywide; after the collapse of the subprime market in 2007, 

Countrywide undertook a transformation of FSL into a prime 

origination division with the goal of selling prime loans1 to two 

government-sponsored enterprises (“GSEs”): the Federal 

National Mortgage Association (“Fannie Mae”) and the Federal 

Home Loan Mortgage Corporation (“Freddie Mac”). The overall 

reorganization of FSL was referred to as “Central Fulfillment,” 

one component of which was a loan origination process2 called 

the “High Speed Swim Lane” or “HSSL,” introduced in August 

2007 and expanded in October 2007. Rebecca Mairone, the only 

 

1 The terms “prime” and “subprime” refer to mortgage loans with 

relatively lower and higher credit risks, respectively. See Pension Ben. 

Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. Ret. Plan v. Morgan 

Stanley Inv. Mgmt. Inc., 712 F.3d 705, 715 (2d Cir. 2013).

2 A loan origination process refers to a “work flow”—i.e., a series of 

operational steps taken to evaluate a particular loan application for 

approval. It is distinct from loan origination guidelines—i.e., the 

criteria for approving a particular loan.

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named individual defendant, was the Chief Operating Officer of 

FSL during 2007 and 2008 and was responsible for overseeing 

FSL’s reorganization, including the implementation of HSSL.

This case originated in February 2012 as a qui tam suit 

under the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq., 

commenced by Edward O’Donnell, a former employee of 

Countrywide. Subsequently, the Government intervened, added

claims under section 951 of FIRREA, 12 U.S.C. § 1833a—which 

imposes civil penalties for violations of the federal mail and wire 

fraud statutes that “affect[] a federally insured financial 

institution”—and named Countrywide Home Loans, Inc., 

Countrywide Financial Corp., Countrywide Bank, FSB, Bank of 

America Corp., Bank of America, N.A., and Mairone as 

defendants. As a result of a later motion to dismiss and amended 

complaint, the FCA claims, Bank of America Corp., and 

Countrywide Financial Corp. were removed from the case, 

leaving only FIRREA claims against the remaining defendants. It 

is on these claims and against these defendants that the case 

ultimately went to trial.

At trial, the Government presented the following 

evidence relevant to our consideration here.3 Pursuant to 

contracts with Fannie Mae, Countrywide as the seller of 

mortgages represented that, “as of the date [of] transfer,” the 

mortgages sold would be an “Acceptable Investment.” J.A. 5905, 

 

3 As discussed infra note 9, on this appeal we draw all inferences in 

favor of the Government, do not make credibility determinations or 

weigh the evidence, and disregard all evidence favoring Defendants 

that the jury was not required to believe. See Reeves v. Sanderson 

Plumbing Prods., Inc., 530 U.S. 133, 149–51 (2000).

Case 15-499, Document 152-1, 05/23/2016, 1777503, Page5 of 31
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5908, 5935, 5938.4 Similarly, Freddie Mac’s selling guide5

contained a representation by the seller—again, Countrywide—

that “all Mortgages sold to Freddie Mac have the characteristics 

of an investment quality mortgage.” J.A. 6368;6 see also J.A. 6366 

(representing quality “[a]s of” the date the loans were delivered 

to Freddie Mac). The Government adduced no evidence and 

made no claim that Countrywide had fraudulent intent during 

the negotiation or execution of these contracts.

 

4 The contracts define “Acceptable Investment” as one for which the 

lender (i.e., Countrywide) knows “of nothing . . . that can reasonably 

be expected to cause private institutional investors to regard the 

mortgage as an unacceptable investment; cause the mortgage to 

become delinquent; or adversely affect the mortgage’s value or 

marketability.” J.A. 5908.

5 Although the specific Countrywide–Freddie Mac contract 

incorporating the selling guide does not appear in the record on 

appeal, there was trial testimony that Countrywide’s contract 

obligated it to make the representations contained within Freddie 

Mac’s selling guide. J.A. 2976–77.

6 The selling guide defines an “investment quality” mortgage as one 

“that is made to a Borrower from whom repayment of the debt can be 

expected, is adequately secured by real property and is originated in 

accordance with the requirements of the Purchase Documents.” J.A. 

6368. This definition is similar to the one contained in Countrywide’s 

Technical Manual: “An investment quality loan is one that is made to a 

borrower from whom timely repayment of the debt can be expected, is 

adequately secured by real property, and is originated in accordance 

with Countrywide’s Technical Manual (CTM) and Loan Program 

Guides (LPGs).” J.A. 5959. Although slightly varying terms are used, 

no party argues there is any substantive difference between the 

representations; accordingly, we will refer to them all as “investmentquality representations.”

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The Government’s theory is that Countrywide sold loans 

under these purchase agreements to the GSEs, knowing that the 

loans were not investment quality and thus intending to defraud 

them. To support this argument, the Government presented 

extensive evidence of quality problems in the loans approved 

through the HSSL program. See J.A. 1839–41, 1848–49, 1863–66, 

2220–25, 2228–30, 3313–20, 4437–44, 5650, 5988, 5998. The 

Government also identified three FSL officers (the “Key 

Individuals”) as to whom they alleged fraudulent intent: 

Mairone; Greg Lumsden, President of FSL; and Cliff Kitashima, 

Chief Credit Officer of FSL. J.A. 3516; see also J.A. 5220. To 

demonstrate the requisite intent, the Government presented 

evidence that the Key Individuals were informed of the poor 

quality of HSSL loans by FSL employees and internal quality 

control reports and nonetheless sold them to the GSEs. See J.A. 

1890–900, 2237–43, 2250–53, 2255–62, 3416–18, 3364–70, 3486–91, 

6063–66, 6716–22, 7002–05, 7019–22, 7178.7

With respect to the Key Individuals, the Government also 

presented evidence that at least Kitashima and Mairone knew of 

the investment-quality representations made in the contractual 

 

7 On appeal, Defendants also challenge the exclusion of certain defense 

witnesses, arguing that the District Court inconsistently applied its 

determination that only testimony from witnesses that was relevant to 

the Key Individuals’ intent would be admitted. However, they do not 

argue that the testimony of the Government’s witnesses should have 

been excluded, merely that they should have been given an 

opportunity to rebut that testimony with comparable witnesses.

Because on sufficiency review we must disregard any evidence 

contesting the Government’s proof in any event, see, e.g., Reeves, 530 

U.S. at 150–51, and because we answer the sufficiency question in 

Defendants’ favor, resolving Defendants’ evidentiary arguments is not 

necessary for our decision here.

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documents between Countrywide and the GSEs. See J.A. 3800–

01, 4324. The Government presented no evidence that any of the 

Key Individuals were involved in the negotiation or execution of

these contracts, nor did it present evidence that any of them 

communicated with either GSE regarding the loans sold; in fact, 

Defendants elicited testimony from GSE witnesses to the 

contrary. See J.A. 2764–65, 3041; see also J.A. 3800–01, 4304–05.8

The Government’s case rested upon facts showing that the Key 

Individuals knew of the pre-existing contractual representations, 

knew that the loans originated through HSSL were not 

consistent with those representations, and nonetheless sold 

HSSL loans to the GSEs pursuant to those contracts. For 

example, in its closing argument, the Government summarized 

as follows:

And now that all the evidence has come in, 

this case still comes down to a few simple 

facts. First, the Hustle loans were bad.

Second, the defendants knew the Hustle 

loans were bad. And third, the defendants 

passed the Hustle loans off as good loans 

anyway to cheat Fannie and Freddie out of

money.

J.A. 5009; see also J.A. 5006–07, 5020, 5041, 5049, 5147–48, 5153.

 

8 Although we construe all evidence in favor of the Government, we 

must also review the record as a whole and credit “uncontradicted and 

unimpeached” evidence put forth by the moving party, “at least to the 

extent that that evidence comes from disinterested witnesses.” Reeves, 

530 U.S. at 150–51; accord Cameron v. City of New York, 598 F.3d 50, 59–

60 (2d Cir. 2010). The Government has not disputed—either at trial or 

on appeal—this characterization of the Key Individuals’ interactions 

with the GSEs.

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After closing arguments, the jury was charged as to the 

elements of federal mail and wire fraud. In particular, the jury 

was instructed that it had to find a scheme to defraud, which 

was defined as “a plan or design to obtain money or property by 

means of one or more false or misleading statements of a 

material fact.” J.A. 5219. The District Court defined a false 

statement as “an outright lie” and a misleading statement as

“true as far as it goes but creat[ing] a false impression by 

omitting information necessary to correct the false impression.”

J.A. 5219. The jury was charged that the Government’s theory 

was that “the defendants devised a scheme to induce [the GSEs] 

to purchase mortgage loans originated through [HSSL] by 

misrepresenting that the loans were of higher quality than they 

actually were,” and was further charged that “the fact that some 

of these alleged misrepresentations may have constituted 

breaches of the contracts . . . is neither here nor there.” J.A. 5219–

20. Second, the jury was charged that it needed to find that “the 

defendant you are considering participated at some point in the 

scheme knowingly and with a specific intent to defraud”—that 

is, “act[ed] consciously and deliberately . . . [with] knowledge 

that that defendant was participating in a fraudulent scheme” 

and “purposely intended to deceive and harm [the GSEs] by 

seeking to sell them mortgage loans . . . through false or 

misleading representations.” J.A. 5220. The jury was also 

charged that, as to Countrywide, it could only find fraudulent 

intent if “at least one of [the Key Individuals] participated in 

such a fraudulent scheme with such intent.” Id.

After deliberation, the jury returned a general verdict in 

favor of the Government, whereupon the District Court imposed 

civil penalties of $1 million against Mairone individually and 

$1.27 billion against Countrywide. See 12 U.S.C. § 1833a(b)(1), 

(b)(3)(A).

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DISCUSSION

The provision of FIRREA under which Defendants were 

found liable provides for civil penalties against “[w]hoever” 

violates or conspires to violate, inter alia, the federal mail or wire 

fraud statutes, see 18 U.S.C. §§ 1341, 1343, in a manner “affecting

a federally insured financial institution.” 12 U.S.C. § 1833a(a), 

(c)(2).9 Defendants inform us that this suit is the first in the 

federal courts of appeals to consider the validity of a FIRREA 

action brought against a financial institution for so-called “selfaffecting” conduct. Much of the parties’ and amici’s briefing

concerns the validity of such an action. Ultimately, however, we 

need not reach the issue, because Defendants have persuaded us 

to reverse with another argument: the Government has failed to 

prove the necessary FIRREA prerequisite—i.e., a violation of (or 

conspiracy to violate) § 1341 or § 1343.10

 

9 Our interpretation of the federal statutes in question is de novo.

Auburn Hous. Auth. v. Martinez, 277 F.3d 138, 143 (2d Cir. 2002).

Following our articulation of the legal standards, however, we draw 

all evidentiary inferences in favor of the Government and do not make 

credibility determinations or weigh the evidence. See Stampf v. Long 

Island R.R., 761 F.3d 192, 197–98 (2d Cir. 2014). Considering the 

evidence in this manner, we determine de novo whether judgment as a 

matter of law is warranted—i.e., whether “‘a reasonable jury would 

not have a legally sufficient evidentiary basis to find for the [nonmovant] on that issue.’” Cameron, 598 F.3d at 59 (alteration in original) 

(quoting Fed. R. Civ. P. 50(a)(1)). Because the proper interpretation of 

the contracts at issue is a question of law, we review them de novo as 

well. See Magi XXI, Inc. v. Stato della Città del Vaticano, 714 F.3d 714, 720 

(2d Cir. 2013).

10 Our conclusion here thus renders immaterial the other grounds for 

appeal put forth by Defendants, including challenges to the District 

Court’s evidentiary rulings and penalty calculations. As for 

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A simple hypothetical presents the central issue in this 

case. Imagine that two parties—A and B—execute a contract, in 

which A agrees to provide widgets periodically to B during the 

five-year term of the agreement. A represents that each delivery 

of widgets, “as of” the date of delivery, complies with a set of 

standards identified as “widget specifications” in the contract.

At the time of contracting, A intends to fulfill the bargain and 

provide conforming widgets. Later, after several successful and 

conforming deliveries to B, A’s production process experiences 

difficulties, and the quality of A’s widgets falls below the 

specified standards. Despite knowing the widgets are subpar, A

decides to ship these nonconforming widgets to B without 

saying anything about their quality. When these widgets begin 

to break down, B complains, alleging that A has not only 

breached its agreement but also has committed a fraud. B’s fraud 

theory is that A knowingly and intentionally provided 

substandard widgets in violation of the contractual promise—a 

promise A made at the time of contract execution about the 

quality of widgets at the time of future delivery. Is A’s willful but 

silent noncompliance a fraud—a knowingly false statement, 

made with intent to defraud—or is it simply an intentional 

breach of contract?

This question, not an unusual one at common law, poses a 

novel issue in the context of the federal fraud statutes before us.

Supreme Court precedent instructs us to apply the common-law 

understanding of fraud principles to these statutes, absent 

inconsistency with their text. Once we do so, however, the trial 

record reveals a basic deficiency in proof under the statutes, and 

 

Defendants’ request for judicial reassignment following any remand, 

we need not consider that request, as our remand will require only 

entry of a new judgment.

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accordingly, we conclude the evidence is insufficient to sustain 

the jury’s verdict.

I. The Common Law’s Treatment of Fraud Claims Based 

Upon Breaches of Contract

On appeal, Defendants argue—as they did in the District 

Court—that the conduct alleged and proven by the Government 

is, at most, a series of intentional breaches of contract. The 

common law, they contend, does not recognize such conduct as 

fraud, and as a result, the federal statutes do not either.

Specifically, Defendants argue that—because the only 

representations involved in this case are contained within 

contracts—to demonstrate fraud, rather than simple breach of 

contract, under the common law and federal statutes, the 

Government had to prove that Defendants never intended to 

perform those contracts—i.e., at the time of contract execution, 

Defendants knew and intended that they would not perform

their future obligations thereunder.

In both pre- and post-trial decisions, the District Court 

concluded that the federal fraud statutes do not incorporate the 

common-law principle that actions brought in fraud cannot be 

premised solely upon evidence of contractual breaches—or, in 

the alternative, that the scheme alleged here fell into one of the 

recognized exceptions to this principle for actions premised on 

contractual breaches that nonetheless can sustain an action for 

fraud. See United States ex rel. O’Donnell v. Countrywide Fin. Corp.

(Countrywide II), 83 F. Supp. 3d 528, 533–34 (S.D.N.Y. 2015);

United States ex rel. O’Donnell v. Countrywide Fin. Corp. 

(Countrywide I), 961 F. Supp. 2d 598, 607–08 (S.D.N.Y. 2013).

However, the law compels a different analysis that would not 

permit a reasonable jury to find a § 1341 or § 1343 violation on 

the facts of this case.

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The federal mail and wire fraud statutes, in relevant part,

impose criminal penalties on “[w]hoever, 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” uses the mail, 18 U.S.C. 

§ 1341, or wires, id. § 1343, for such purposes. Thus, the essential 

elements of these federal fraud crimes are “‘(1) a scheme to 

defraud, (2) money or property as the object of the scheme, and 

(3) use of the mails or wires to further the scheme.’” United States 

v. Binday, 804 F.3d 558, 569 (2d Cir. 2015) (quoting Fountain v. 

United States, 357 F.3d 250, 255 (2d Cir. 2004)). “The gravamen of 

the offense is the scheme to defraud, and any ‘mailing that is 

incident to an essential part of the scheme satisfies the mailing 

element,’ even if the mailing itself ‘contain[s] no false 

information.’” Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 

647 (2008) (alteration in original) (citation omitted) (quoting 

Schmuck v. United States, 489 U.S. 705, 712, 715 (1989)). The exact 

contours of what kinds of conduct constitute a “scheme to 

defraud” have been the subject of some judicial discussion.

It is well established that statutes employing common-law 

terms are presumed, “unless the statute otherwise dictates, . . . to 

incorporate the established meaning of these terms.” Nationwide 

Mut. Ins. Co. v. Darden, 503 U.S. 318, 322 (1992) (internal 

quotation marks omitted); accord United States v. Castleman, 134 S. 

Ct. 1405, 1410 (2014). The Supreme Court has expressly applied 

this rule to the term “scheme to defraud,” holding that the 

statutes require proof—as at common law—that the 

misrepresentations were material, notwithstanding the fact that 

a solely “natural reading of the full text” would omit such an 

element. Neder v. United States, 527 U.S. 1, 21, 25 (1999) (internal 

quotation marks omitted). The Court rejected certain 

requirements of common-law fraud (i.e., reliance and damages) 

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as clearly “inconsistent” and “incompatible” with “the language 

of the fraud statutes,” which prohibit “the ‘scheme to defraud,’

rather than the completed fraud.” Id. at 25. By contrast, the Court 

incorporated the common-law requirement of materiality into 

the statutes because it was neither inconsistent nor incompatible.

Id. Thus, our task here is to determine whether the common-law 

principles on which Defendants rely are incompatible with the 

language of the federal statutes.

As we summarized above, Defendants rely on the 

common-law rule that parties cannot allege or prove fraud solely 

on the basis of a contractual breach—i.e., the common law

requires more than simply “proof that a promise was made and 

that it was not fulfilled” to sustain a fraud claim, Tenzer v. 

Superscope, Inc., 39 Cal. 3d 18, 30 (1985); see also United States v. 

D’Amato, 39 F.3d 1249, 1261 n.8 (2d Cir. 1994). By contrast, the 

Government argues that any contractual relationship between 

the defendant and an alleged fraud victim is “irrelevant,” citing 

as examples decisions in which this Court and others recognized 

a fraud claim where the parties were engaged in a contractual 

relationship. Gov’t Br. 43–44. These cases are distinguishable, 

however, in that none recognize a contract breach, by itself, to 

constitute fraud. Rather, in each, the defendants made 

affirmative fraudulent misrepresentations to their contractual 

counterparties in the course of performance or to feign 

performance under the contract. See, e.g., United States v. Naiman, 

211 F.3d 40, 44, 49 (2d Cir. 2000) (submitting false certifications 

of compliance required by contracts with the government).

Durland v. United States, 161 U.S. 306 (1896), relied upon 

by the District Court, is also inapt because it dispensed with a 

completely different common-law rule—that promises of future 

performance could never constitute fraudulent 

misrepresentations—on the basis of statutory language clearly 

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designed to reach both fraudulent statements as to the present 

and fraudulent promises as to the future. See id. at 313–14. As the 

Supreme Court more recently clarified, Durland did not disturb 

what fraud at common law requires the Government to prove, 

except to the extent it is inconsistent with the statutory language.

See Neder, 527 U.S. at 24. Thus, Durland has little application to 

the question posed by this case: what is required to prove a 

scheme to defraud when alleged misrepresentations concerning 

future performance are contained within a contract?

In some sense, both the Government and Defendants are 

correct: the common law does not permit a fraud claim based 

solely on contractual breach; at the same time, a contractual 

relationship between the parties does not wholly remove a 

party’s conduct from the scope of fraud. What fraud in these 

instances turns on, however, is when the representations were 

made and the intent of the promisor at that time. As explained

below, where allegedly fraudulent misrepresentations are 

promises made in a contract, a party claiming fraud must prove

fraudulent intent at the time of contract execution; evidence of a 

subsequent, willful breach cannot sustain the claim. Far from 

being “arcane limitations,” Countrywide I, 961 F. Supp. 2d at 607, 

these principles fall squarely within the core meaning of 

common-law fraud that neither the federal statutes nor Durland 

disrupted. See Neder, 527 U.S. at 24 (“[Durland] did not hold, as 

the Government argues, that the [mail fraud] statute 

encompasses more than common-law fraud.”).

It is emphatically the case—and has been for more than a 

century—that a representation is fraudulent only if made with 

the contemporaneous intent to defraud—i.e., the statement was 

knowingly or recklessly false and made with the intent to induce 

harmful reliance. While on the New York Court of Appeals, 

then–Chief Judge Benjamin Cardozo wrote that “[a] 

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representation even though knowingly false does not constitute 

ground for an action of deceit unless made with the intent to be 

communicated to the persons or class of persons who act upon it 

to their prejudice.” Ultramares Corp. v. Touche, 255 N.Y. 170, 187 

(1931) (emphasis added); see also RESTATEMENT (FIRST) OF TORTS

§§ 526, 531 (1938). Even earlier, the highest common-law courts 

in the country routinely espoused the view that any party 

wishing to claim fraud must prove that the representation was 

actually made with contemporaneous fraudulent intent:

The representation upon which [a fraud 

claim] is based must be shown not only to 

have been false and material, but that the 

defendant when he made it knew that it was 

false, or not knowing whether it was true or 

false and not caring what the fact might be, 

made it recklessly, paying no heed to the 

injury which might ensue.

Kountze v. Kennedy, 147 N.Y. 124, 129 (1895) (emphasis added)).

There can be no question at this date that, in 

an action of deceit, the scienter must not only 

be alleged, but proved, and the jury must be 

satisfied that the defendant made a 

statement knowing it to be false, or with 

such conscious ignorance of its truth as to be 

equivalent to a falsehood. This is the general 

rule, and it has been declared with notable 

emphasis in several recent cases in this state.

Griswold v. Gebbie, 126 Pa. 353, 363 (1889); see also, e.g., Shackett v. 

Bickford, 74 N.H. 57 (1906); Nw. S.S. Co. v. Dexter Horton & Co., 29 

Wash. 565, 568–69 (1902).

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Of course, “fraudulent intent is rarely susceptible of direct 

proof, and must instead be established by legitimate inferences 

from circumstantial evidence.” United States v. Sullivan, 406 F.2d 

180, 186 (2d Cir. 1969). Nonetheless, where the relevant 

representation is made within a contract, the common law rejects 

any attempt to prove fraud based on inferences arising solely 

from the breach of a contractual promise:

[T]hat proof that a promise was made and 

that it was not fulfilled is sufficient to prove 

fraud . . . is not, and has never been, a 

correct statement of the law.

Tenzer, 39 Cal. 3d at 30. This rule exists because, at common law, 

a post-agreement intent to breach the contract is not actionable 

as fraud:

[I]f the promises or representations were 

made in good faith at the time of the 

contract, and the defendant subsequently 

changed its mind, and failed or refused to 

perform the promises, then such conduct of 

the company, originally or subsequently, 

would not constitute such fraud, in legal 

acceptation, as would justify the rescission 

of the contract or the cancellation of the 

deed.

Chi., Tex. & Mex. Cent. Ry. Co. v. Titterington, 84 Tex. 218, 224 

(1892); see also, e.g., Hoyle v. Bagby, 253 N.C. 778, 781 (1961); 

Citation Co. Realtors, Inc. v. Lyon, 610 P.2d 788, 790–91 (Okla. 

1980); Lloyd v. Smith, 150 Va. 132, 145–46 (1928). This principle 

has been applied in the context of fraud not only by our Court 

but by our sister circuits as well. See D’Amato, 39 F.3d at 1261 n.8; 

Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994); Mills v. Polar 

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Molecular Corp., 12 F.3d 1170, 1176 (2d Cir. 1993); DiRose v. PK 

Mgmt. Corp., 691 F.2d 628, 632–33 (2d Cir. 1982); see also Corley v. 

Rosewood Care Ctr., Inc. of Peoria, 388 F.3d 990, 1007 (7th Cir. 

2004); McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d 

786, 791–92 (1st Cir. 1990); Lissmann v. Hartford Fire Ins. Co., 848 

F.2d 50, 53 (4th Cir. 1988); United States v. Kreimer, 609 F.2d 126, 

128 (5th Cir. 1980). This prohibition is more than, as the 

Government attempts to characterize it, “the uncontroversial 

view that breach of a contract, without further evidence of 

fraudulent intent, does not establish a fraud claim,” Gov’t Br. 49 

n.7. Instead, as certain of our sister circuits have convincingly 

explained, this principle exists because, at its core, fraud requires 

proof of deception, which is absent from ordinary breach of 

contract. See McEvoy Travel Bureau, 904 F.2d at 791–92; Kreimer, 

609 F.2d at 128; see also Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 

1406, 1417 (3d Cir. 1991).

Accordingly, the common law requires proof—other than 

the fact of breach—that, at the time a contractual promise was 

made, the promisor had no intent ever to perform the obligation:

It is the preconceived design of the buyer, 

formed at or before the purchase, not to pay for 

the thing bought, that constitutes the 

fraudulent concealment which renders the 

sale voidable, and not an intent formed after 

the purchase. If the purchaser forms the 

intent not to pay for the goods after he has 

received them and the title has passed, it is a 

mere intended breach of contract, and not 

such a fraud as to authorize a rescission of 

the sale. . . . This intent never to pay for the 

goods has sometimes been treated as a 

fraudulent representation, and sometimes as 

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a fraudulent concealment, but in either event 

it must precede the sale. The distinction is 

between an intent not to pay according to 

the terms of the contract and an intent to 

obtain goods under color of a formal sale, 

upon a sham promise to pay, but with the 

design of never paying for them. The former 

is a mere intent to break a contract; the 

latter, an intent to defraud.

Starr v. Stevenson, 60 N.W. 217, 218 (Iowa 1894) (emphases 

added) (citations omitted); accord Titterington, 84 Tex. at 223–24.

To constitute the fraud, there must be a 

preconceived design never to pay for the 

goods. A mere intent not to pay for the 

goods when the debt becomes due, is not 

enough; that falls short of the idea. A design 

not to pay according to the contract is not 

equivalent to an intention never to pay for 

the goods, and does not amount to an 

intention to defraud the seller outright, 

although it may be evidence of such a 

contemplated fraud.

Burrill v. Stevens, 73 Me. 395, 399–400 (1882). More recently, our 

sister circuit expressed the principle succinctly:

Fraud requires much more than simply not 

following through on contractual or other 

promises. It requires a showing of deception 

at the time the promise is made. A

subsequent breach, although consistent with 

deceptive intent[,] is not in and of itself 

evidence of such an intent.

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Corley, 388 F.3d at 1007.

As already observed, our Court has consistently applied 

this principle: “A breach of contract does not amount to mail 

fraud. Failure to comply with a contractual obligation is only 

fraudulent when the promisor never intended to honor the 

contract.” D’Amato, 39 F.3d at 1261 n.8 (emphasis added)); see 

also Murray v. Xerox Corp., 811 F.2d 118, 122 (2d Cir. 1987) 

(holding that “a showing of fraudulent intent fails as a matter of 

law” where no evidence demonstrates the promisor “did not 

intend to comply with his promise from its inception”); Ford v. 

C.E. Wilson & Co., 129 F.2d 614, 617 (2d Cir. 1942) (A. Hand, J.) 

(rejecting common-law fraud claim where there was no evidence 

of intent not to perform at the time the contract was entered

(citing, inter alia, In re Levi & Picard, 148 F. 654 (S.D.N.Y. 1906); 

Starr, 60 N.W. 217; Burrill, 73 Me. 395)). The alternate approach—

proving intent only as to the act of breaching the promise, 

instead of making the promise—contravenes the fundamental 

common-law requirement of contemporaneity between 

representation and fraudulent intent.

More than thirty years ago, our Court discussed the 

interaction between fraud and contractual promises in Thyssen, 

Inc. v. S.S. Fortune Star, 777 F.2d 57 (2d Cir. 1985) (Friendly, J.).

That case concerned whether a “deviation” constituted an 

“independent, willful tort in addition to being a breach of 

contract” for purposes of awarding punitive damages. Id. at 63.

A “deviation” is a term of art in admiralty law, originally 

meaning “a departure from the agreed course of the voyage”; it

“amount[ed] to a breach of warranty or condition precedent” 

and thus was considered “‘no more than a breach of the contract 

of carriage,’” albeit “‘ipso facto a more serious breach than if it 

had occurred on land.’” Id. at 63–64 (quoting Farr v. Hain S.S. Co., 

121 F.2d 940, 944 (2d Cir. 1941) (L. Hand, J.)). Notwithstanding 

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the gravity—and obvious materiality—of such a breach, Judge 

Friendly, writing for the Court, concluded that even the 

intentional and willful deviation at issue could not constitute 

fraud absent “an element essential to fraud, namely, an intention 

not to perform the promise when made.” Id. at 65.11 In doing so, 

he explained why common law courts do not consider even 

serious, intentional, or malicious contractual breaches to be 

tortious—notably, he relied on Justice Holmes’s articulation of

the common law’s view of contracts as “simply a set of 

alternative promises either to perform or to pay damages for 

nonperformance,” and on the common law’s tolerance for, even 

encouragement of, so-called “‘efficient breaches’” that increase 

overall wealth. Id. at 63 (citing, inter alia, OLIVER WENDELL 

HOLMES, THE COMMON LAW 235–36 (Mark DeWolfe Howe ed. 

1963); RESTATEMENT (SECOND) OF CONTRACTS ch. 16, reporter’s 

note (1981)); see also Mills, 12 F.3d at 1176 (“A contract may be 

breached for legitimate business reasons. Contractual breach, in 

and of itself, does not bespeak fraud, and generally does not give 

rise to tort damages.” (citation omitted)).

Although Thyssen concerned the availability of punitive 

damages, not the application of the federal fraud statutes, the 

prerequisite question was whether a breach of contract—

acknowledged to be intentional and willful at the time of 

breach—could be tortious as a fraud at common law. Id. at 60, 63.

The distinctions Judge Friendly identified in Thyssen were not, as 

the Government argues, merely “rooted in the desire not to 

 

11 The relevant “promise,” in the context of a deviation, was the 

warranty contained in the contract of carriage. See Thyssen, 777 F.2d at 

63–64. Judge Friendly concluded that the case “clearly lacked” 

evidence of an intent not to perform this promise when the contract 

was entered. Id. at 65.

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inappropriately expand the scope of civil remedies under 

contract law,” Gov’t Br. 49. To the contrary, the decision not to 

expand civil contract remedies appears rooted in the nature of 

contracts and torts at common law—particularly, the nature of 

fraud as deceptive, see, e.g., McEvoy Travel Bureau, 904 F.2d at 

791–92—and the common law’s reason for treating them 

differently. In essence, the Government’s theory would convert 

every intentional or willful breach of contract in which the mails 

or wires were used into criminal fraud, notwithstanding the lack 

of proof that the promisor intended to deceive the promisee into

entering the contractual relationship.12 The reasons identified by 

Judge Friendly in Thyssen counsel with persuasive force against 

 

12 As we noted above, deception is the core of fraud and the key 

distinction between fraud and a contractual breach. See, e.g., Kehr 

Packages, 926 F.2d at 1417; McEvoy Travel Bureau, 904 F.2d at 791–92; 

Kreimer, 609 F.2d at 128. The cases cited by the Government all involve 

deceptive conduct that was employed in a contractual relationship to 

hide breaches of contract or nonperformance. See, e.g., Naiman, 211 

F.3d at 49 (issuing false certifications required by contracts and 

misrepresenting included information); United States v. Frank, 156 F.3d 

332, 334–36 (2d Cir. 1998) (falsifying billing records for contractual 

services); First Bank of the Ams. v. Motor Car Funding, 257 A.D.2d 287,

289, 291–92 (N.Y. 1st Dep’t 1999) (misrepresenting the characteristics 

of loans on loan tapes to mask noncompliance with representations 

and warranties). In all of these cases, the purported fraudulent 

statements or conduct were made outside the four corners of the 

contract, albeit related to performance thereunder. The law of these 

cases is perfectly consistent with our holding today that fraudulent 

intent must be found at the time of the allegedly fraudulent conduct, 

and the results are consistent because, as we explain infra Part II, the 

Government only proved representations wholly within the contract.

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such a dramatic expansion of fraud liability in circumstances like 

the case before us.13

In sum, a contractual promise can only support a claim 

for fraud upon proof of fraudulent intent not to perform the 

promise at the time of contract execution. Absent such proof, a

subsequent breach of that promise—even where willful and 

intentional—cannot in itself transform the promise into a fraud.

Far from being an arcane limitation, the principle of 

contemporaneous intent is, like materiality, one without which 

“the common law could not have conceived of ‘fraud.’” Neder,

527 U.S. at 22.

Although Neder does not require that a common-law 

principle promote the interests of the federal statute but instead 

presumes the common-law meaning is incorporated unless 

inconsistent, see id. at 25, we note that the contemporaneity 

principle does, in fact, promote those interests. Unlike fraud at 

common law, the federal statutes require neither reliance by nor 

injury to the alleged victim. Compare, e.g., Small v. Lorillard 

Tobacco Co., 94 N.Y.2d 43, 57 (1999) (injury); Jones v. Title Guar. & 

Tr. Co., 277 N.Y. 415, 419 (1938) (reliance), with Neder, 527 U.S. at 

24–25. So, unlike the common law, the statutes punish “the 

scheme, not its success.” United States v. Helmsley, 941 F.2d 71, 94 

(2d Cir. 1991). What gives a scheme its fraudulent nature is, as 

Durland explained, “the intent and purpose.” 161 U.S. at 313.

Thus, what matters in federal fraud cases is not reliance or injury 

but the scheme designed to induce reliance on a known 

 

13 Justice Holmes’s theory of alternative promises seems particularly 

persuasive where, as here, the parties have a contractually determined 

remedy—repurchase—in place for breached obligations. In essence, 

the parties bargained precisely in an alternative fashion to provide 

investment-quality loans or to repurchase defective loans sold.

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misrepresentation. See D’Amato, 39 F.3d at 1256–57; United States 

v. Regent Office Supply Co., 421 F.2d 1174, 1180–81 (2d Cir. 1970).

Accordingly, we deem the common law’s 

contemporaneous fraudulent intent principle incorporated into 

the federal mail and wire fraud statutes. Applying these 

principles to a fraud claim based on the breach of a contractual 

promise, we conclude that the proper time for identifying 

fraudulent intent is contemporaneous with the making of the 

promise, not when a victim relies on the promise or is injured by 

it. Only if a contractual promise is made with no intent ever to 

perform it can the promise itself constitute a fraudulent 

misrepresentation.

II. The Evidence Was Insufficient as a Matter of Law to 

Prove Fraud

Having described the proof that the federal fraud statutes 

require, we conclude the Government’s proof at trial failed to 

meet its burden. The only representations alleged to be false 

were guarantees of future quality made in contracts as to which 

no proof of contemporaneous fraudulent intent was introduced 

at trial. The Government did not prove—in fact, did not attempt 

to prove—that at the time the contracts were executed 

Countrywide never intended to perform its promise of 

investment quality. Nor did it prove that Countrywide made 

any later misrepresentations—i.e., ones not contained in the 

contracts—as to which fraudulent intent could be found.

Although the Government was not always clear as to 

what theory of fraud applied in this case, see, e.g., J.A. 4861–64, 

the record shows that the jury was charged only as to a theory of 

fraud through an affirmative misstatement, i.e., a statement that 

was either “an outright lie” or partially true but “omitt[ed] 

information necessary to correct [a] false impression.” J.A. 5219.

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Thus, we review the proof at trial only by reference to this 

charged theory, see Yates v. Evatt, 500 U.S. 391, 409 (1991), and we 

do not address whether other situations, such as silence without 

any affirmative statement while under a duty to disclose material 

information, can constitute fraud under the federal statutes, 

particularly in the context of a breach of contract, cf. United States 

v. Gallant, 537 F.3d 1202, 1228 (10th Cir. 2008) (nondisclosure is 

actionable under the federal fraud statutes where there is a duty 

to speak); United States v. Altman, 48 F.3d 96, 102 (2d Cir. 1995) 

(failure to disclose material information while in a fiduciary 

relationship constituted a scheme to defraud).14

Both to the jury and to this Court, the Government 

identified provisions in the contracts between Countrywide and 

the GSEs—and only those provisions—as the representations 

underlying its fraud claim, despite acknowledging that the 

contracts’ execution pre-dated the alleged scheme to defraud. See 

Gov’t Br. 43 (arguing that “the government’s claims of mail and 

wire fraud were valid despite the preexisting contracts between 

the Bank and the GSEs”). In summation, the Government argued 

that these representations were the “lies” and 

“misrepresentations” that formed “the kernel of the case here.”

J.A. 5147; see also id. at 5041, 5153–54. Before this court, the 

Government contends that this proof was sufficient because “no 

case cited by defendants holds that fraudulent intent must have 

existed at the time of contracting, when the alleged fraud 

(inducing the other party to the contract to take action through a 

 

14 While the case law reaffirms that fraudulent intent must accompany 

silence to constitute fraud, see Sanchez v. Triple-S Mgmt., Corp., 492 F.3d 

1, 10 (1st Cir. 2007) (citing cases in six circuits); Altman, 48 F.3d at 102, 

we need not decide here how fraud through silence in the context of a 

contractual relationship would operate.

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scheme to defraud) occurred later.” Gov’t Br. 44. Of course, 

freestanding “bad faith” or intent to defraud without 

accompanying conduct is not actionable under the federal fraud 

statutes; instead, the statutes apply to “everything designed to 

defraud by representations as to the past or present, or suggestions 

and promises as to the future.” Durland, 161 U.S. at 313 (emphases 

added); see also Starr, 60 N.W. at 218 (“Fraud never consists in 

intention, unless it be accompanied by some act.”). Thus, on the 

affirmative misrepresentation theory charged to the jury, the 

Government needed to show false or misleading statements

made with fraudulent intent.

Critically, the Government presented no proof at trial that 

any quality guarantee was made with fraudulent intent at the 

time of contract execution. Nor did it offer evidence of any other

representations, suggestions, or promises—separate from and 

post-dating execution of the initial contracts—that were made 

with fraudulent intent to induce the GSEs to purchase loans. In 

fact, at oral argument before this Court, counsel for the 

Government identified no representations or statements other 

than those contained in the contracts and instead argued that the 

contractual representations were “made” not at contract 

execution but at the point of sale.15

 

15 See Oral Argument at 1:37:00, United States v. Mairone, Nos. 15-496-

cv(L), 15-499-cv(Con) (argued Dec. 16, 2015) (Mr. Armand, arguing 

misrepresentations were made “continuously” after contract execution 

at each point of sale); id. at 1:42:40 (Mr. Armand, arguing that fraud 

occurred in the performance of the contract); see also id. at 1:39:40 (Mr. 

Armand, answering in the negative Judge RAGGI’s question whether 

there were any representations that would not support a breach of 

contract claim).

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The plain language of the contracts does not admit this 

characterization.16 In the relevant contractual provisions, 

Countrywide “makes” or “warrants and represents” certain 

statements (i.e., present-tense acts), including that the future 

transferred loan will be investment quality “as of” the transfer or 

delivery date. J.A. 5905, 5935, 6366, 6368; see also id. at 5908, 5938.

The use of a present-tense verb in a contract indicates that the 

parties intend the act—here, the making of the representation—

to occur at the time of contract execution, not in the future. See 

VKK Corp. v. Nat’l Football League, 244 F.3d 114, 130 (2d Cir. 2001); 

Aspex Eyewear, Inc. v. Altair Eyewear, Inc., 361 F. Supp. 2d 210, 215 

(S.D.N.Y. 2005); Fed. Home Loan Mortg. Corp. v. Kopf, No. CV 90-

2375 (RR), 1991 WL 427816, at *2 (E.D.N.Y. Jan. 30, 1991) (Raggi, 

J.); Ellington v. EMI Music, Inc., 24 N.Y.3d 239, 246–47 (2014); see 

also Rubenstein v. Mueller, 19 N.Y.2d 228, 232 (1967) (holding a 

present-tense clause in a will indicated a present intention).

 

16 We conduct the same inquiry when reviewing motions for judgment 

as a matter of law as we do reviewing motions for summary judgment.

See Reeves, 530 U.S. at 150 (“[T]he standard for granting summary 

judgment ‘mirrors’ the standard for judgment as a matter of law, such 

that ‘the inquiry under each is the same.’” (quoting Anderson v. Liberty 

Lobby, Inc., 477 U.S. 242, 250–51 (1986))). When interpreting contractual 

language, we “accord that language its plain meaning giving due 

consideration to the surrounding circumstances and apparent purpose 

which the parties sought to accomplish,” and “[o]nly where the 

language is unambiguous” may we construe it as a matter of law.

Palmieri v. Allstate Ins. Co., 445 F.3d 179, 187 (2d Cir. 2006) (Sotomayor, 

J.) (internal quotation marks omitted). “The mere assertion of an 

ambiguity does not suffice to make an issue of fact. Ambiguity resides 

in a writing when—after it is viewed objectively—more than one 

meaning may reasonably be ascribed to the language used.” Id.

(internal quotation marks omitted).

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Similarly, the phrase “as of” is “used to indicate a time or date at 

which something begins or ends.” As of, Webster’s New Third 

International Dictionary, Unabridged, http://unabridged.

merriam-webster.com; see also As of, Oxford English Dictionary 

Online, www.oed.com (“[A]s things stood on (a date); (orig. 

U.S.) (in formal dating) reckoning from; from, after.”). As these 

definitions indicate, “as of” describes the timing of a state of 

affairs, and a state of affairs—i.e., the investment-quality status 

of particular loans—is precisely what is being represented in the 

contracts at issue.

Accordingly, the only reasonable interpretation of the 

contracts is that the date contained in the “as of” clause identifies

the moment at which the promised fact will exist—i.e., when the 

representation becomes effective. Where a party makes a 

contractual representation of quality that is effective as of a 

future date rather than the time of contract execution, the date of 

future effectiveness determines the date of performance (and, 

thus, breach), see Deutsche Bank Nat’l Tr. Co. v. Quicken Loans Inc., 

810 F.3d 861, 866 (2d Cir. 2015), but the promisor’s intent to 

perform on that promise is fixed as of contract execution, see Sabo 

v. Delman, 3 N.Y.2d 155, 160 (1957) (concluding that a party’s 

intent with respect to representations of future acts is a “material 

existing fact” at the time of contract execution upon which a 

fraud claim may lie).17 The Government urges us to read the 

 

17 Not all representations of fact are made with a future effectiveness 

date. For example, the warranty in ABB Industries Systems, Inc. v. Prime 

Technology, Inc., 120 F.3d 351, 360 (2d Cir. 1997), promised “in the landsale contract” that a piece of real property was in compliance with 

state and federal environmental laws as of the date of sale. In such a 

case, a party’s intent to perform and its performance (or breach) are 

simultaneous—both take place at contract execution.

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relevant contract provisions as, in essence, promises at execution 

to make future representations as to quality. The language of the

provisions, however, constitutes a present promise, made at the 

time of execution, to provide investment-quality loans at the 

future delivery date. The plain and objective meaning of the 

contract simply does not support the Government’s contention 

that Countrywide actually made these representations—rather 

than merely set their performance date—at the time of the 

subsequent sales of loans. Thus, to the extent its fraud claim is 

based on these contractual representations of quality, it 

necessarily fails for lack of proof that, at the time of contract

execution, Defendants had no intent ever to honor these 

representations.

Because we conclude that the contracts unambiguously 

make the representations at the time of contract execution, 

extrinsic evidence—such as witness testimony—cannot vary that 

meaning. See Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 

425, 428 (2d Cir. 1992). Thus, we examine the other evidence 

presented at trial solely for the purpose of determining whether 

the jury had a sufficient basis for concluding that other, 

noncontractual fraudulent misrepresentations occurred to 

induce the sale of HSSL loans.18

The testimony of the GSE employees, as well as former 

Countrywide employees, focused on the meaning and 

 

18 As we noted above, the jury was not charged as to—and therefore 

could not have found—liability as a result of fraudulent silence.

Accordingly, the Government had to prove some affirmative 

statement—either wholly false or partially true but misleading—as to 

which the requisite scienter was present. See also supra note 12

(discussing the Government’s reliance on cases involving fraudulent 

conduct separate from contractual promises).

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importance of the contractual representations but did not 

identify any promise, statement, or representation outside of the 

contract made to induce loan sales or to mask nonperformance.

For example, an employee of Freddie Mac testified that he 

understood the contractual representation to mean that “the 

information that they’re presenting to us at time of sale is 

accurate,” which describes the timing of the representation’s 

content, not the underlying promise itself. J.A. 2974. Other

testimony from Fannie Mae and former Countrywide employees

emphasized the importance of these representations to the GSEs’

business models and their applicability to each loan sold—

ostensibly to prove the materiality of the misrepresentations, 

which was hotly contested at trial. No witness identified 

additional promises or statements that could serve as the “false 

or misleading statements” the jury was charged to find. J.A.

5219. Nor, as we have noted, does the Government identify any 

on appeal, relying solely—as it did at trial—on the contracts

themselves. Accordingly, we conclude that any finding by the 

jury that a post-execution representation occurred to induce the 

sale would be premised on a legally erroneous reading of the 

contracts or “the result of sheer surmise and conjecture.” Stampf, 

761 F.3d at 197 (internal quotation marks omitted).19

 

19 Where, as we conclude here, the only misrepresentations alleged and 

proven are wholly contained within the contract, there is no factual 

basis to find, as the District Court did, that the exception in New York 

common law for “collateral misrepresentations” applies. See, e.g., 

Torchlight Loan Servs., LLC v. Column Fin., Inc., No. 11 Civ. 7426(RWS), 

2012 WL 3065929, at *9–10 (S.D.N.Y. July 25, 2012); Varo, Inc. v. Alvis 

PLC, 261 A.D.2d 262, 265 (N.Y. 1st Dep’t 1999). We therefore need not 

determine whether this exception or others at New York common law, 

see Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 

19–20 (2d Cir. 1996), are incorporated into the federal statutes. We note 

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In sum, the Government has never argued—much less 

proved at trial—that the contractual representations at issue 

were executed with contemporaneous intent never to perform, 

and the trial record contains no evidence that the three Key 

Individuals—or anyone else—had such fraudulent intent in the 

contract negotiation or execution. Instead, the Government’s 

proof shows only post-contractual intentional breach of the 

representations. Accordingly, the jury had no legally sufficient 

basis on which to conclude that the misrepresentations alleged

were made with contemporaneous fraudulent intent. Because we 

construe the federal mail and wire fraud statutes to require such 

proof, consistent with the common law, the Government has not 

proven the prerequisite violation necessary to sustain an award 

of penalties under FIRREA.

CONCLUSION

For the reasons stated above, we REVERSE the judgment 

of the District Court and REMAND the case with instructions to 

enter judgment for Defendants.

 

that the two cases from our Circuit on which the Government relies—

Frank and Naiman—present fact patterns similar to those in cases 

falling within the “collateral misrepresentations” exception. However, 

neither Frank nor Naiman confronted an argument based on the 

fraud/contract distinction that Defendants make here: Frank concerned 

challenges to the jury instructions and sufficiency of the evidence on 

the intent to cause harm, see 156 F.3d at 335–37, and Naiman concerned 

sufficiency challenges as to materiality and intent to cause harm, see 

211 F.3d at 49. Accordingly, while Frank and Naiman are certainly 

consistent with a theory of fraud through “collateral 

misrepresentations,” we cannot say they have expressly approved the 

exception.

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