2006 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

3-24-2006

USA v. Leahy

Precedential or Non-Precedential: Precedential

Docket No. 03-4490

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

Nos. 03-4490/4542/4560

 

UNITED STATES OF AMERICA

v.

PAUL J. LEAHY

Appellant in No. 03-4490

 

UNITED STATES OF AMERICA

v.

TIMOTHY SMITH

Appellant in No. 03-4542

 

UNITED STATES OF AMERICA

v.

DANTONE, INC.

Appellant in No. 03-4560

 

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. No. 01-cr-00260-2)

District Judge: Honorable J. Curtis Joyner

 

Argued June 8, 2005
2

Before: FUENTES, VAN ANTWERPEN, and BECKER,

Circuit Judges.

(Filed: March 24, 2006)

 

Robert E. Welsh, Jr. (Argued)

Lisa A. Mathewson

Welsh & Recker, P.C.

2000 Market Street, Suite 2903

Philadelphia, PA 19103

ATTORNEYS FOR APPELLANT PAUL J. LEAHY

Jeffrey M. Miller (Argued)

Nasuti & Miller

Public Ledger Building, Suite 1064

150 South Independence Mall West

Philadelphia, PA 19106

ATTORNEY FOR APPELLANT TIMOTHY SMITH

Ian M. Comisky (Argued)

Matthew D. Lee

Blank Rome LLP

One Logan Square

Philadelphia, PA 19103

ATTORNEYS FOR APPELLANT DANTONE, INC.

Patrick L. Meehan

United States Attorney

Laurie Magid

Deputy United States Attorney for Policy and Appeals

Robert A. Zauzmer (Argued)

Assistant United States Attorney, Senior Appellate Counsel

Mary E. Crawley (Argued)

Assistant United States Attorney

Office of the United States Attorney

615 Chestnut Street

Philadelphia, PA 19106
3

ATTORNEYS FOR APPELLEE UNITED STATES OF

AMERICA

 

 OPINION OF THE COURT

 

FUENTES, Circuit Judge.

I. Introduction

For a period of almost three years, the Defendants,

Dantone, Inc., and its two senior managers Paul Leahy and

Timothy Smith, were retained by several banks to auction

repossessed automobiles at the highest price and reimburse the

proceeds, minus fees and expenses, to the banks. With respect to

at least 311 automobiles, however, the Defendants did not

auction the cars to the highest bidder and remit the proceeds to

the banks as promised. Rather, they kept those cars for their

own inventories, resold them at higher prices, falsely

misrepresented to the banks that they had been auctioned for

less, and pocketed the difference between the false and actual

prices. A jury found Smith, Leahy, and Dantone guilty of

engaging in, and aiding and abetting, bank fraud in violation of

18 U.S.C. § 1344 and 18 U.S.C. § 2.

This matter presents several issues on appeal. First, we

address several contentions that the District Court erroneously

instructed the jury as to the Government’s burden under the bank

fraud statute. Second, we consider whether there was sufficient
1

The fourth issue in this case, the applicability of United

States v. Booker, 125 S.Ct. 738 (2005), to orders of forfeiture and

restitution is addressed in a separate opinion. See United States v.

Leahy, __ F.3d __, 2006 U.S. App. LEXIS 3576 (3d Cir. Feb. 15,

2006). We apply our holding in Leahy in Part V.

4

evidence to sustain the Defendants’ convictions. Third and

finally, we address the scope of the federal bank fraud statute, 18

U.S.C. § 1344, and clarify the intent and loss elements required

to support a conviction under the statute.1

Because we ultimately reject the Defendants’ arguments

with respect to the scope of the bank fraud statute, the District

Court’s jury instructions, and the sufficiency of the evidence, we

will affirm their judgments of conviction. We also decide that,

to the extent that the Defendants contend that the imposition of

their sentences pursuant to the U.S. Sentencing Guidelines (the

“Guidelines” or “U.S.S.G”) are in error after Booker, such issues

are best determined by the District Court in the first instance. 

See United States v. Davis, 407 F.3d 162 (3d Cir. 2005).

Accordingly, we will vacate the Defendants’ sentences

and remand for further proceedings consistent with this opinion. 

Because the forfeiture and restitution orders are inextricably

intertwined with the District Court’s loss findings under the

Guidelines, we will vacate and remand those orders as well.

II. Background
2

The ten banks at issue in this matter are: Meridian Bank,

Continental Bank, Trust Company of New Jersey, National Bank

of Boyertown, National Penn Bank, Midlantic National Bank, Bryn

Mawr Trust Company, the Police and Fire Credit Union, Mellon

Bank, and the DPL Federal Credit Union. The deposits of each of

these banks were insured either by the Federal Deposit Insurance

Corporation or the National Credit Union Administration.

5

A. Facts

On May 15, 2001, a federal grand jury sitting in the

Eastern District of Pennsylvania returned a ten count indictment

charging Defendants Smith, Leahy, and Dantone with bank

fraud, in violation of 18 U.S.C. § 1344, and aiding and abetting,

in violation of 18 U.S.C. § 2 (the “Indictment”). Dantone is a

privately held corporation which owns and operates a public

automobile auction in Conshohocken, Pennsylvania, known as

Carriage Trade Auto Auction (“Carriage Trade”). Dantone’s

sole shareholder and president was Dominic Conicelli, Sr. 

During all times relevant to the Indictment, Smith was the

general manager of Carriage Trade, while Leahy was the

assistant manager or operations manager. 

The Indictment alleged that between approximately 1993

and 1996, Dantone entered into agreements with ten financial

institutions (collectively, “the banks”) to auction automobiles

and remit the full proceeds of the actual sales, minus auction fees

and expenses.2

 Of the ten banks at issue in this case, nine

consigned cars that had been repossessed following the owners’

default on a loan obligation, while the tenth, Continental Bank,
6

consigned repossessed cars as well as cars that had been returned

at the expiration of lease agreements.

Per their agreements, the banks consigned the

automobiles to Carriage Trade to be auctioned to the highest

bidder. Nine of the ten banks established a minimum or floor

price for each car; if the highest auction price fell below the

minimum, the car could not be sold without the bank’s consent. 

The banks typically would set the minimum price based on the

condition of the car and in consultation with the auction’s

employees. The tenth bank, rather than setting minimum bids,

informed Carriage Trade personnel of the amounts owed by the

bank’s customers on the defaulted car loans. Evidence at trial

indicated that it was routine for the banks to face a deficiency

balance on the outstanding loan even after the car had been

auctioned, from which it could be inferred that the amount of the

minimum bid set by the banks was typically lower than the

outstanding loan obligation on the car. For the most part, the

cars were sold “as is.” When Carriage Trade sold automobiles at

auction on behalf of one of the banks, Carriage Trade would

send checks representing the proceeds of the sale, a bill of sale,

and documents showing the expenses incurred by the auction in

selling the automobiles. If the car was one which had been

repossessed by the bank, the money made from the sale of the

car at auction could then be put toward satisfying the outstanding

loan. The banks assumed or were told that the checks received

from the Carriage Trade auction represented the highest bid,
7

minus fees and expenses.

The Indictment alleges that Dantone, Smith and Leahy

defrauded the banks by not actually selling certain automobiles

at an auction to the highest bidder or at the prices the Defendants

represented to the banks. Instead, the Defendants diverted the

cars into Carriage Trade’s inventory, apparently repaired and/or

reconditioned them in limited instances, and then sold them

under the Carriage Trade name at a “second sale” at prices equal

to or higher than the minimum established by the banks. The

Defendants deceived the banks with respect to at least 311 cars,

pocketing the difference between the prices they falsely

represented to the banks and the real prices they obtained for the

cars at the second sale. Typically, the Defendants used two

methods to sell the cars for themselves. Most of the cars were

sold through the Carriage Trade auction to good faith purchasers

who did not know that the Defendants had misappropriated the

cars for their own inventories. The Defendants also sold a

smaller number of cars in a private auction to a select group of

car dealers, who were invited to bid on the cars. The scheme

began to unravel, however, when Edward Stigben, a co-schemer

with the Defendants, was approached by the FBI regarding an

on-going investigation of Carriage Trade; Stigben eventually

received immunity from the Government in exchange for his

testimony at trial regarding the fraudulent scheme.

A 2 1/2 week jury trial began on December 2, 2002. The
8

Government introduced the testimony of bank representatives as

well as employees of Carriage Trade. The Government also

introduced a ledger maintained by Leahy (the “Leahy ledger”)

which detailed the profits realized by Dantone as a result of the

Defendants’ deceptive conduct. In addition, the Government

introduced, for each of the 311 cars, the two sets of documents

that Carriage Trade prepared: the false bill of sale and

accompanying paperwork which the Defendants sent to the bank

along with a check, and the true bill of sale and accompanying

paperwork that was generated when the Defendants sold the cars

for their own benefit.

On December 20, 2002, the jury returned a verdict of

guilty on all counts as to each Defendant.

B. Sentencing

Thereafter, the District Court initiated sentencing

proceedings against the Defendants. Because the Defendants’

conduct involved a fraudulent scheme in violation of 18 U.S.C.

§ 1344, they were sentenced under U.S.S.G. § 2F1.1, the

Guidelines provision applicable to crimes of fraud and deceit. 

Section 2F1.1 provides for a base offense level of six with

enhancements to the offense level based on the amount of loss to

the victim attributable to the fraudulent conduct. At the

Defendants request, the District Court held a four hour

evidentiary hearing to determine the amount of loss to the victim
9

banks for purposes of the Guidelines. The Defendants, relying

on United States v. Dickler, 64 F.3d 818 (3d Cir. 1995), argued

that the loss to the banks was zero, or in the alternative, far less

than the $418,657 amount relied on by the Government. In

particular, the Defendants contended that they had significantly

enhanced the values of the consigned automobiles by

refurbishing them and by extending certain guarantees and perks

such as credit terms to purchasers under the Carriage Trade

name. They argued that any such “improvements” in value to

the cars should not be credited as loss to the banks for purposes

of the Guidelines. At the end of the hearing, the District Court

essentially adopted the Government’s position, finding that the

loss to the banks was $408,970, which was calculated by

subtracting from the total gain to the Defendants – the $418,657

amount representing the difference between the false sales price

and the actual sales price for the 311 cars – the following: (1)

$5,000 for a reimbursement payment that Carriage Trade made

to one of the banks (Midlantic Bank) after the bank discovered a

fraudulent sale and complained to Conicelli; and (2) $4,687 in

repairs and enhancements which the District Court found the

Defendants made to some of the 311 cars. The loss finding of

$408,970 triggered a nine-level enhancement in the offense level

pursuant to U.S.S.G. § 2F1.1.

In addition, the Indictment contained a notice of forfeiture

pursuant to 18 U.S.C. § 982(a)(2) in the amount of $418,657,

which was alleged to be the proceeds of the scheme, i.e., the
10

difference between the false sales prices and the actual sales

prices. During trial, the parties agreed to remove the forfeiture

issue from the jury and have it decided by the District Court. On

February 19, 2003, the Government filed a motion seeking entry

of an order of forfeiture and money judgment. The Defendants

objected, contending that the gain from their fraud was less than

$418,657, based on their physical repairs to the cars as well as

the other sales guarantees that were extended under the Carriage

Trade name. The District Court eventually entered an order of

forfeiture and money judgement in the amount of $418,657,

concluding that the Government had established by a

preponderance of evidence that the sum constituted proceeds that

the Defendants had obtained directly or indirectly as a result of

the offenses for which they were convicted.

In addition to the loss and forfeiture calculations, Smith

and Leahy objected to several sentencing enhancements for their

alleged role in the offense. The District Court, however, found

that Smith and Leahy participated in a fraud that was committed

by five or more participants, within the meaning of U.S.S.G.

§ 3B1.1(a); that Smith was a leader or organizer of the fraud;

and that Leahy was a manger or supervisor of the fraud. 

Accordingly, the District Court applied a four-level enhancement

to Smith’s base offense level, and a three-level enhancement to

Leahy’s base offense level.

Smith was sentenced to a prison term of 46 months; five
3

It appears that, due to a clerical error, the written judgment

for the corporate Defendant Dantone contained several penalties

that can only be levied against an individual. For instance, the

written judgment specified that Dantone could not leave the district

without permission of the probation officer, must support his or her

dependents, and refrain from using drugs or excessive alcohol. The

United States has indicated that it consents to the entry of an order

of this Court striking these provisions. See Gov. Br. at 10 n.1.

However, because we will vacate the sentences and remand for

resentencing, no such order will be necessary, and the District

Court may correct any such error on remand.

11

years of supervised release; a fine of $10,000; a special

assessment of $1,000; restitution, for which he bears joint and

several liability, in the amount of the victim banks’ loss, i.e.,

$408,970; and forfeiture, for which he is jointly and severally

liable, in the amount of the Defendants’ proceeds, i.e., $418,657. 

Leahy was sentenced to a prison term of 37 months; five years of

supervised release; a fine of $5,000; and the same penalties as

Smith regarding special assessment, restitution, and forfeiture. 

The corporate defendant Dantone received five years of

probation; a fine of $800,000; and the same penalties as Leahy

and Smith regarding restitution and forfeiture.3

* * *

In their appeal from their judgments of conviction and

sentence, the Defendants raise several arguments. First, the

Defendants allege that the District Court’s jury instructions were

defective in several critical respects and failed properly to

instruct the jury as to the requisite elements to convict under

§ 1344. Second, they contend that there was insufficient
4

This Court has jurisdiction over a judgment of conviction

and sentence in a criminal case pursuant to 28 U.S.C. § 1291.

12

evidence to sustain a conviction of bank fraud as the

Government failed to proffer any evidence that the banks

suffered any loss or that the Defendants acted with the requisite

intent to defraud the banks, as opposed to the banks’ customers,

the borrowers in whose name the cars were titled. With regard

to their sentences, the Defendants contend that the District Court

erred in calculating the amount of loss suffered by the banks,

which was relied upon by the District Court to calculate the

Defendants’ sentences, including their criminal fines, as well as

the amount of restitution and forfeiture. The Defendants also

contend that the District Court’s imposition of fines, restitution

and forfeiture for conduct arising out of the same underlying

facts violates the Eighth Amendment’s Excessive Fines Clause,

and that the District Court erred in imposing joint and several

liability on the three Defendants for the orders of restitution and

forfeiture. Finally, the Defendants, relying on the Supreme

Court’s decision in Booker, contend that the District Court’s

imposition of forfeiture and restitution violated the Sixth

Amendment.4

We consider each argument in turn.

III. JURY INSTRUCTIONS

The Defendants were convicted of violating the federal bank
13

fraud statute, 18 U.S.C. § 1344, which imposes criminal penalties

upon:

Whoever knowingly executes, or attempts to

execute, a scheme or artifice to 

(1) defraud a financial institution; or

(2) obtain any of the moneys, funds, credits,

assets, securities, or other property owned by,

or under the custody or control of, a financial

institution, by means of false or fraudulent

pretenses, representations or promises. 

The Defendants argue that the District Court: (A) improperly

instructed the jury on the two prongs of the bank fraud statute;

(B) improperly defined a scheme or artifice to defraud; (C) failed

to give Defendants’ requested good faith instruction; (D)

improperly gave a willful blindness instruction; (E) improperly

gave an intangible rights instruction; and (F) improperly gave a coschemers’ liability instruction.

We exercise plenary review in determining “whether the

jury instructions stated the proper legal standard.” United States v.

Coyle, 63 F.3d 1239, 1245 (3d Cir. 1995). We review the refusal

to give a particular instruction or the wording of instructions for

abuse of discretion. Id. Finally, “when we consider jury

instructions we consider the totality of the instructions and not a
5

Although Thomas was decided after the jury reached its

verdict, it is well-established that we will apply the law of the

Court as it exists at the time of appeal. See Virgin Islands v. Civil,

591 F.2d 255, 258 (3d Cir. 1979) (“As a general principle, an

appellate court applies the law as it exists at the time of appeal even

if different than at the time of trial.”).

14

particular sentence or paragraph in isolation.” Id.

A. Bank fraud

The District Court provided a lengthy instruction to the jury

regarding the elements of bank fraud. The Defendants contend that

the bank fraud instruction was in error in at least two material

respects under United States v. Thomas, 315 F.3d 190 (3d Cir.

2002), a case decided only days after the jury reached its verdict in

this matter.5

 First, they contend that the instruction is premised

upon a disjunctive reading of § 1344 in violation of Thomas.

Second, the Defendants contend that the instruction with regard to

§ 1344’s intent requirement was in error. We find both arguments

to be without merit.

In Thomas, we addressed whether the “intent to defraud the

bank” element of § 1344(1) was to be read as applying to § 1344(2)

as well, or whether the two prongs of the bank fraud statute should

be read independently of each other. We concluded that a

“disjunctive reading of the two sections of § 1344 . . . gives the

statute a breadth of scope that extends well beyond what Congress

intended the statute to regulate.” 315 F.3d at 196. Relying on our
6

There is some disagreement among the circuits as to the

proper reading of § 1344. For instance, the Second Circuit

formally reads § 1344 in the disjunctive. See United States v.

Crisci, 273 F.3d 235, 239 (2d Cir. 2001). However, as we noted in

Thomas, to the extent that the Second Circuit implies the intent to

defraud requirement of subsection (1) to cases brought under

subsection (2), there is no meaningful difference in our

interpretation of the statute. See Thomas, 315 F.3d at 198 n.1

(citing United States v. Rodriguez, 140 F.3d 163, 167 n.2 (2d Cir.

1998) (noting that deceptive pattern of conduct designed to deceive

bank was required to prove case under either subsection (1) or

(2))). Accord United States v. Sprick, 233 F.3d 845, 852 (5th Cir.

2000); United States v. Davis, 989 F.2d 244, 246-47 (7th Cir.

1993). However, it appears that the Sixth Circuit has taken a

contrary view, holding that under subsection (2) of § 1344, there is

no requirement that the defendant intended to defraud the bank.

See United States v. Everett, 270 F.3d 986, 991 (6th Cir. 2001).

15

prior decision in United States v. Monostra, 125 F.3d 183 (3d Cir.

1997) (suggesting, but not holding, that the two sections of § 1344

must be read conjunctively), as well as the legislative history of the

bank fraud statute, we concluded that the § 1344 must be read in

the conjunctive, that the intent to defraud the bank element of

§ 1344(1) must apply to § 1344(2) as well. Thomas, 315 F.3d at

196. Accordingly, “there can be no such thing as an independent

violation of subsection (2). To convict at all under the bank fraud

statute, there must be an intent to defraud the bank.” Id., 315 F.3d

at 197. “The sine qua non of a bank fraud violation, no matter

what subdivision of the statute it is pled under, is the intent to

defraud the bank.” Id.6

After reviewing the District Court’s bank fraud instruction

in this matter, we find that the instructions did not rest on an
16

erroneous disjunctive reading of § 1344. The instructions

explained the two prongs of the bank fraud statute as follows:

The bank fraud law provides that whoever

knowingly executes or attempts to execute a scheme

or artifice, one, to defraud a federally chartered or

insured financial institution, or two, to obtain any of

the moneys, funds, credits, assets, security or other

property owned by or under the control or custody of

a financial institution by means of false or fraudulent

pretenses, representations or promises, shall be

guilty of the crime of bank fraud.

. . . 

Members of the jury, the first element is that the

government must prove beyond a reasonable doubt

that there was a scheme or artifice to defraud a 

financial institution, or a scheme or artifice to obtain

any of the money owned by or under the custody or

control of a financial institution by means of false or

fraudulent pretenses, representations or promises.

The phrases, scheme or artifice to defraud, and

scheme or artifice to obtain money, means any

deliberate plan of action or course of conduct by

which someone intends to deceive or cheat another,
17

or by which someone intends to deprive another of

something of value. A scheme or artifice includes a

scheme to deprive another person of tangible, as well

as intangible property rights. 

App. at 2131a-2332a (emphasis added). Although the District

Court did no more than quote the plain language of both prongs of

§ 1344, the Defendants take issue with the highlighted language,

which they contend permitted the jury to convict on a disjunctive

reading of the statute in violation of Thomas. However, the

Defendants read the quoted paragraphs in isolation, ignoring the

District Court’s subsequent instructions with regard to the specific

intent requirement of § 1344. See Coyle, 63 F.3d at 1245 (noting

that the Court will “consider the totality of the instructions and not

a particular sentence or paragraph in isolation”).

In particular, the District Court instructed the jury that:

The second element of bank fraud, which the

government must prove beyond a reasonable doubt,

is that the defendants participated in the scheme to

defraud with the intent to defraud. To act with an

intent to defraud means to act knowingly and with

the purpose to deceive or to cheat. An intent to

defraud is ordinarily accompanied by a desire or a

purpose to bring about gain or benefit to onself or

some other person, or by a desire or a purpose to
7

Our dissenting colleague contends that the “intent to

deceive the bank” instruction was too “isolated” from the

disjunctive reading of the statute, and was not otherwise given

when the jury asked the District Court to repeat the elements of

bank fraud. Dis. Op. at 4. With regard to the former contention,

we note that the District Court instructed the jury that the “intent to

defraud” element of § 1344 was defined as “intent to deceive the

bank in order to obtain from it money or other property.” If

anything, by clearly defining the mens rea element of § 1344 as

part of the charge on intent, the District Court amplified the

requirements of Thomas, rather than isolate it in the instructions,

as the dissent contends. As for the dissent’s latter contention, we

agree that the District Court only stated that “an intent to defraud”

was required. However, in this supplemental charge, the District

Court clearly indicated that it was only “reinstruct[ing] on the

elements of bank fraud.” App. at 2160a. It was not, however,

reinstructing on the definition of these elements. Id. (“If you want

the additional definitions of each of these terms that are used, then

you can go back out and put that on paper and ask for me to do

it.”). In these circumstances, we do not believe that the jury was

misinformed regarding the mens rea element of § 1344, when the

District Court previously clearly defined the “intent to defraud”

element as the “intent to deceive the bank in order to obtain from

it money or other property.”

18

cause some loss to some person. The intent element

of bank fraud is an intent to deceive the bank in

order to obtain from it money or other property.

App. at 2135a (emphasis added). This is in accord with the holding

of Thomas, that “the sine qua non of a bank fraud violation, no

matter what subdivision of the statute it is pled under, is the intent

to defraud the bank.” Thomas, 315 F.3d at 197.7

 In Thomas, we

recognized that “[b]ank fraud may involve a scheme to take a

bank’s own funds, or it may involve a scheme to take funds merely
8

The dissent focuses on the fact that the District Court

defined the mens rea element of § 1344 as an “intent to deceive the

bank in order to obtain from it money or other property,” as

opposed to “an intent to defraud the bank” in the language of

Thomas. Dis. Op. at 6. However, it is well-established that the

“intent to defraud the bank” element of § 1344 may be defined as

“an intent to deceive the bank in order to obtain from it money or

other property.” See United States v. Moran, 312 F.3d 480, 480

(1st Cir. 2002) (quoting United States v. Kenrick, 221 F.3d 19, 30

(1st Cir. 2000) (en banc)); see also United States v. Brandon, 298

F.3d 307, 311 (4th Cir. 2002); United States v. Lamarre, 248 F.3d

642, 649 (7th Cir. 2001); United States v. Hanson, 161 F.3d 896,

900 (5th Cir. 1998).

19

in a bank’s custody” so long as the government established the

requisite intent to defraud. 315 F.3d at 197 (emphasis added).

Here, the District Court did precisely that by properly instructing

the jury that guilt under § 1344 depended on a finding that the

Defendants had the requisite intent to defraud the banks.8

The Defendants’ second argument is that the District Court

erroneously instructed the jury as to the intent or mens rea

requirement of § 1344. In particular, the District Court, while

instructing the jury that an “intent to deceive the bank in order to

obtain from it money or other property” must be shown, also stated

that an “[i]ntent to harm the bank is not required.” App. at 2135a.

Defendants contend that this was in error because conviction under

§ 1344 requires not only proof of an intent to defraud the bank, but

also of an intent to harm the bank. In making this argument,

Defendants once again rely on our decision in Thomas. However,

we do not believe that this case is controlled by Thomas; rather, we

believe it is controlled by our later decision in United States v.
9

The distinction between an intent to defraud a bank versus

the intent to harm or injure a bank is so subtle that it may well seem

trivial. In most contexts, one could understand an intent to defraud

a bank as the equivalent of an intent to harm the bank. For

instance, the mere act of defrauding a bank by passing false

information can be said to harm or injure a bank, as it denies the

bank an opportunity to make an informed business decision.

Nonetheless, in light of the Defendants’ argument and the District

Court’s juxtaposition of the intent to defraud instruction with the

intent to harm instruction, the subtle difference becomes apparent.

Were there a specific intent to harm element, a jury might not

convict a defendant whose intent was to enrich himself or steal

from a third party, yet who lacked any desire to harm or injure the

bank.

20

Khorozian, 333 F.3d 498 (3d Cir. 2003), which makes clear that

Thomas applies to a certain factual context not present here. We

explore both decisions in detail below.9

In Thomas, the defendant was employed as a home health

care aide to an elderly account holder, who authorized Thomas to

complete pre-signed checks, by filling in the amount and name of

the payee, to pay for household necessities and other bills. Over a

nine- month period, Thomas made out several checks to cash or in

her own name allegedly for such purposes as the purchase of

groceries; however, in reality, the defendant pocketed the funds for

her own benefit. Evidence at trial indicated that the only victim of

the defendant’s fraud who suffered a loss was the account holder,

not the bank. On appeal, after holding that an intent to defraud the

bank was a necessary element of bank fraud regardless of what

subsection of § 1344 was pled, we endeavored to “decide the

thorny question of what is meant by the subsection (1) requirement

that the defendant intends to defraud the bank.” Thomas, 315 F.3d
10Thomas does not specify whether the intent to cause loss

element is a general intent or specific intent requirement.

However, given Thomas’s use of the conduct/contemplate

language, we believe that Thomas understood it to be a general

intent requirement, and that § 1344’s only specific intent

requirement is the specific intent to defraud. 315 F.3d at 200

(“[H]arm or loss to the bank must be contemplated by the

wrongdoer to make out a crime of bank fraud.”) (citations omitted).

The “general intent standard typically only requires that a

defendant ‘possessed knowledge with respect to the actus reus of

the crime.’” Auguste v. Ridge, 395 F.3d 123, 145 & n.23 (3d Cir.

2005) (quoting Carter v. United States, 530 U.S. 255, 268 (2000)).

21

at 199. We concluded that, in light of the legislative history that

“Congress sought to proscribe conduct that victimized banks . . . [,]

harm or loss to the bank must be contemplated by the wrongdoer

to make out a crime of bank fraud.” Id. at 200 (quotation and

citations omitted). Thus, under Thomas, conviction under § 1344

requires some proof that the perpetrator of the fraud intended to

cause loss or liability – harm – to the bank. Id. at 199 (holding that

“conduct, reprehensible as it may be, does not fall within the ambit

of the bank fraud statute when the intention of the wrongdoer is not

to defraud or expose to the bank to any loss but solely to defraud

the bank’s customer”). Because the record indicated that there was

no loss to the banks, let alone any intent to cause such a loss, we

reversed the defendant’s conviction for bank fraud. See id. at 202

(“Thomas’s actions, in fact, demonstrate that she never intended to

victimize the banks. Her only victim was [the elderly account

holder].”).10

Subsequent to our decision in Thomas, we decided

Khorozian. In Khorozian, the defendant was charged with bank
22

fraud on account of her attempt to deposit $20 million in

counterfeit checks on behalf of an individual that she did not know.

As part of the fraudulent scheme, the defendant made

misrepresentations to the bank as to the purpose of the deposits as

well as the identity of the person who accompanied her during

visits to the bank. On appeal, we considered whether there was any

evidence of loss or liability to the bank, concluding that such a loss

existed by virtue of the fact that the bank, had it negotiated the

counterfeit checks, would have been exposed to a $20 million loss

under the UCC. Khorozian, 333 F.3d at 505 n.5. The defendant

argued that, because she did not know that the checks were

counterfeit, she had no intent to harm the bank. In response, we

cited with approval the First Circuit’s decision in United States v.

Moran, 312 F.3d 480 (1st Cir. 2002), for the proposition:

“Importantly, Moran held the defendants guilty even though they

did not specifically intend to cause the bank a loss (i.e., they

intended that the loans would be repaid), but rather intended only

to make misrepresentations that made a loss more likely.”

Khorozian, 333 F.3d at 505 (emphasis in original). Accordingly,

“§ 1344’s specific intent requirement is satisfied if an individual

commits an act that could put the bank at risk of loss.” Id. Thus,

Khorozian clarified Thomas’s holding regarding the mens rea

element of § 1344, making clear that intent to cause a loss or

liability, or an intent to harm the bank, is not required. Rather,

loss, or risk of loss, goes to the consequences of the fraudulent

scheme, and it need not be intended to satisfy § 1344’s mens rea

requirement of a specific intent to defraud a bank.
23

Khorozian went on to distinguish Thomas on its facts,

noting that Thomas and other similar cases “involved fraud on a

third party where the bank was merely an ‘unwitting

instrumentality’ in the fraud rather than the ‘target of deception.’”

Khorozian, 333 F.3d at 505 (quoting Thomas, 315 F.3d at 201)).

Accordingly, Khorozian limited Thomas’s requirement of an intent

to cause loss or liability to the bank to those situations where the

bank was merely an “unwitting instrumentality” of the fraud;

however, where the bank is a direct target of the deceptive conduct

or scheme, § 1344 is satisfied by proof of a specific intent to

defraud the bank plus fraudulent conduct (e.g., misrepresentations)

which creates an actual loss or a risk of loss. In other words, where

the fraudulent scheme targets the bank, there is no requirement that

the defendant intended to harm the bank or otherwise intended to

cause loss.

We think the Khorozian rule is eminently sensible where the

bank is the “target of deception.” Id. at 505. The purpose of the

bank fraud statute is to protect the “financial integrity of [banking]

institutions.” See S. Rep. No. 98-225, at 377, reprinted in 1984

U.S.C.C.A.N. 3517. As we noted in Thomas, “Congress enacted

the bank fraud statute to fill gaps existing in federal jurisdiction

over ‘frauds in which the victims are financial institutions that are

federally created, controlled or insured.’” 315 F.3d at 197 (quoting

S. Rep. No. 98-225 at 377, reprinted in 1984 U.S.C.C.A.N. 3517).

In our view, where the bank is the “target of the deception,” it

makes no difference whether the perpetrator had an intent to harm
24

the bank. Indeed, any conduct that causes loss or harm to a bank

is likely to undermine the public’s confidence in the integrity of a

bank, or otherwise adversely affect the bank’s public image,

regardless of whether the loss or harm was so intended. In these

circumstances, imposing an intent to harm requirement where the

bank is the “target of deception” would leave an unnecessary gap

in the reach of the bank fraud statute, which we think would

contradict Congress’ purpose as well as undermine the broad

federal interest in protecting financial institutions. Rather, proof of

a specific intent to defraud the bank is sufficient under Khorozian.

However, where the bank is not the “target of deception,”

but rather merely an “unwitting instrumentality,” there is the

additional concern that § 1344 may be applied in a manner that

reaches conduct that falls well beyond the scope of what the statute

was intended to regulate. As we noted in Thomas, “[t]he deception

of a bank as an incidental part of a scheme primarily intended to

bilk a bank customer does not undermine the integrity of banking.”

315 F.3d at 200. Thus, to ensure that § 1344 was not applied to

conduct falling outside the scope of the bank fraud statute, we

imposed the additional requirement of proof of an “inten[t] to cause

a bank a loss or potential liability.” Id. at 201 (citing United States

v. Laljie, 184 F.3d 180, 191 (2d Cir. 1999)). Accordingly, where

the perpetrator had an intent to victimize the bank by exposing it to

loss or liability, such conduct falls comfortably within the reach of

§ 1344; however, where there is no evidence that the perpetrator

had an intent to victimize the bank, Thomas makes clear that
11There appears to be a disagreement in the circuits as to

whether an “intent to harm” is required under § 1344. For instance,

the First Circuit, sitting en banc in Kenrick, examined the common

law history of fraud and concluded that the “intent element of bank

fraud under either subsection [of § 1344] is an intent to deceive the

bank in order to obtain from it money or other property. ‘Intent to

harm’ is not required.” 221 F.3d at 29; see also id. (noting that

“[a]lthough it may ordinarily accompany a scheme to defraud a

bank, an ultimate ‘purpose of either causing some financial loss to

another or bringing about some financial gain to oneself’ is not the

essence of fraudulent intent. What counts is whether the defendant

intended to deceive the bank in order to obtain from it money or

other property, regardless of the ultimate purpose.”) (internal

citation omitted). In contrast, the Second Circuit has stated that “an

intent to harm” is an essential element of bank fraud, although it

appears that the Second Circuit interprets an “intent to harm” in a

manner that focuses principally on whether the fraudulent conduct

causes loss or a risk of loss. See United States v. Chandler, 98 F.3d

711, 715-16 (2d Cir. 1996) (no plain error where district court

failed to give “intent to harm” instruction; finding that the intent to

deceive is the functional equivalent of the essential finding of

intent to harm, and upholding conviction on grounds that the bank

“was necessarily exposed to a potential loss”); see also United

States v. Chacko, 169 F.3d 140, 148-49 (2d Cir. 1999) (holding

that an intent to harm can be inferred from conduct that “has the

effect of injuring as a necessary result of carrying it out”); Crisci,

273 F.3d at 240 (upholding bank fraud conviction where the

defendant cashed fraudulent checks with forged endorsements,

even though checks never presented to bank, on the grounds that

jury could find that he “intended to harm a bank”; dispositive of the

intent to victimize was the fact that the defendant’s conduct put the

bank at a risk of loss, not any intent to cause that loss.).

25

merely an intent to victimize some third party does not render the

conduct actionable under § 1344.11

We believe this case is clearly controlled by Khorozian.

The Defendants’ fraudulent conduct clearly targeted the banks, not

any third party such as the banks’ customers, the debtors from
26

whom the cars had been repossessed. The Defendants

misrepresented to the banks that they would auction the cars at the

highest price; they diverted the cars to Carriage Trade’s inventory

despite their promises to the contrary; they prepared false bills of

sale that were sent to the banks; and they occasionally overstated

the extent of the physical damage of the cars to the banks in an

effort to justify the low prices. Thus, the banks in this case were

more than incidental victims or mere unwitting instrumentalities as

was the case in Thomas. Rather, like the bank in Khorozian, the

banks here were the direct targets of the misrepresentations and the

fraudulent scheme. Moreover, the Defendants had little, if any,

contact with the banks’ customers.

The dissent disputes our reading of Khorozian, asserting that

it can be read “as being entirely faithful to Thomas.” Dis. Op. at

7-8. However, in our view, the dissent’s reading of Khorozian is

unpersuasive, as it ignores its language and holding. While

Khorozian correctly notes that the specific intent element of § 1344

is the specific intent to defraud the bank, 333 F.3d at 503, nowhere

does the opinion expand the mens rea requirement, as the dissent

suggests, to also require an intent to cause risk of loss. This

reading of Khorozian is borne out by an examination of the First

Circuit’s decision in Moran, upon which Khorozian heavily relied,

which followed the First Circuit’s prior en banc unanimous

decision in Kenrick, which unambiguously concluded that there is

no intent to harm, or intent to cause loss, requirement under § 1344.
12The dissent also contends that by failing to instruct the jury

that an intent “to victimize the bank” was required under § 1344,

the District Court’s instructions permitted the jury to convict under

an erroneous disjunctive reading of the bank fraud statute, and

more specifically, subsection (2), in violation of Thomas. Dis. Op.

at 5-6. We disagree. Thomas held, and Khorozian reaffirmed, that

the “sine qua non of a bank fraud violation, no matter what

subdivision of the statute it is pled under, is the intent to defraud

the bank.” Thomas, 315 F.3d at 197; Khorozian; 333 F.3d at 503.

Here, the District Court clearly instructed the jury that the mens rea

element of § 1344 was the “intent to deceive the bank in order to

obtain from it money or other property.” Given that the jury could

not convict the Defendants without a finding of such an intent,

there was simply no risk that the Defendants were convicted under

a disjunctive reading of the bank fraud statute. Accordingly, the

jury instructions were consistent with Thomas and Khorozian’s

holding that § 1344 must be read in the conjunctive.

27

Moran, 312 F.3d at 488-89 (citing Kenrick, 221 F.3d at 30).12

Applying the foregoing principles to the jury instructions in

this case, we believe that the District Court did not err in

instructing the jury that “[i]ntent to harm the bank is not required.”

The jury instructions, taken as a whole, instructed the jury that an

intent to defraud the banks had to be found before the Defendants

could be convicted of bank fraud. See App. at 2135a (“The intent

element of bank fraud is an intent to deceive the bank in order to

obtain from it money or other property.”). Khorozian requires no

more with respect to the instruction of the jury as to § 1344’s intent

element.

The Defendants allege one final error in the District Court’s

bank fraud instructions. In response to a written question from the
28

jury, the District Court provided a supplemental oral instruction

regarding the elements of bank fraud: “To prove a charge of bank

fraud, the defendant must establish each of the following elements

beyond a reasonable doubt.” See App. at 2160a (emphasis added).

Clearly, this was in error, as the burden of proof was on the

Government. Notably, the Defendants did not raise any objection

to this before the District Court, nor did they raise this error in their

opening briefs to this Court. Nevertheless, it is obvious that the

District Court’s mistaken use of the word “defendant” did not

constitute plain error as it could not have prejudiced the

Defendants. See United States v. Williams, 299 F.3d 250, 257 (3d

Cir. 2002) (no plain error where error does not cause prejudice).

When read in the context of the entire instructions to the jury, there

is no doubt that the jury understood that the burden of proof was on

the Government at all time to prove every element of the crime

charged.

B. The meaning of “fraud”

The District Court instructed the jury, over Defendants’

objection, that the fraud element of a bank fraud conviction is

defined as follows:

Members of the jury, the first element is that the

government must prove beyond a reasonable doubt

that there was a scheme or artifice to defraud a

financial institution, or a scheme or artifice to obtain
29

any of the money owned by or under the custody or

control of a financial institution by means of false or

fraudulent pretenses, representation or promises.

. . .

The term false or fraudulent pretenses,

representations or promises, means a statement or an

assertion which concerns a material or important

fact, or material or important aspect of the matter in

question that was either known to be untrue at the

time that it was made or used, or that it was made or

used with reckless indifference as to whether it was,

in fact, true or false and made or used with the intent

to defraud.

. . .

The fraudulent nature of a scheme is not defined

according to any technical standards. Rather, the

measure of a fraud in any fraud case is whether the

scheme shows a departure from moral uprightness,

fundamental honesty, fair play and candid dealings

in a general light of the community. 

Fraud embraces all of the means which human

ingenuity can devise to gain advantage over another
30

by false representation, suggestions or suppression

of truth or deliberate disregard or omission of truth.

App. at 2132a-2134a (emphasis added). Focusing on the

emphasized sentence above, the Defendants contend that the jury

instruction defining fraud as a deviation from moral uprightness or

fairness was erroneous. In particular, the Defendants contend that

the instruction was too vague, permitting conduct to be

criminalized without sufficient specificity, and failing to ensure

that “ordinary people can understand what conduct is prohibited

and in a manner that does not encourage arbitrary and

discriminatory enforcement.” Kolender v. Lawson, 461 U.S. 352,

357 (1983). Second, the Defendants, citing United States v.

Lanier, contend that the instruction in question was overbroad to

the extent that it reached conduct that is not covered by § 1344,

thereby putting the court in the position of developing common law

crimes. See 520 U.S. 259, 267 n.6 (1997) (noting that courts are

not in the business of creating common law crimes, and that

“[f]ederal crimes are defined by Congress”). Finally, the

Defendants contend that the instruction invited the jury to impose

purportedly objective criteria of morality and fairness to convict

them when, in fact, § 1344 requires proof that a defendant had the

specific intent to defraud.

We have, in the past, defined fraud with reference to the

elastic concepts of morality and fairness when discussing the reach

of the federal fraud statutes. See United States v. Goldblatt, 813
31

F.2d 619, 624 (3d Cir. 1987) (“The term ‘scheme to defraud,’

however, is not capable of precise definition. Fraud instead is

measured in a particular case by determining whether the scheme

demonstrated a departure from fundamental honesty, moral

uprightness, or fair play and candid dealings in the general life of

the community.”); see also United States v. Trapillo, 130 F.3d 547,

550 n.3 (2d Cir. 1997); United States v. Schwartz, 899 F.2d 243,

246-47 (3d Cir. 1990); United States v. Keplinger, 776 F.2d 678,

698 (7th Cir. 1985); United States v. Bohonus, 628 F.2d 1167,

1171 (9th Cir. 1980); United States v. Van Dyke, 605 F.2d 220,

225 (6th Cir. 1979); United States v. Gregory, 253 F.2d 104, 109

(5th Cir. 1958). However, as a tool for construing the scope of the

federal fraud statutes, the formulation of fraud as a departure from

moral uprightness and fairness has come under increasing criticism.

In particular, the ambiguity inherent in concepts such as morality

and fairness has been thought to provide constitutionally

inadequate notice of what conduct is criminal, involve judges in the

creation of common law crimes, and place excessive discretion in

federal prosecutors. See United States v. Panarella, 277 F.3d 678,

698 (3d Cir. 2002) (noting that such formulations of fraud “do little

to allay fears that the federal fraud statutes give inadequate notice

of criminality and delegate to the judiciary impermissible broad

authority to delineate the contours of criminal liability”); Matter of

EDC, Inc., 930 F.2d 1275, 1281 (7th Cir. 1991) (noting that “[s]uch

hyperbole . . . must be taken with a grain of salt. Read literally it

would put federal judges in the business of creating new crimes;

federal criminal law would be the nation’s moral vanguard.”);
32

United States v. Holzer, 816 F.2d 304, 309 (7th Cir. 1987) (noting

that the aforementioned definition of fraud “cannot have been

intended, and must not be taken literally. It is much too broad and,

given the ease of satisfying the mailing requirement [of mail fraud]

would put federal judges in the business of creating what in effect

would be common law crimes, i.e., crimes not defined by statute.”),

judgment vacated on other grounds, 484 U.S. 807 (1987); United

States v. Brown, 79 F.3d 1550, 1556 (11th Cir. 1996).

Defendants correctly note that courts, including this one,

have typically used the morality and fairness formulation of fraud

only as a statement of statutory intent or as a means of defining the

scope of the federal fraud statutes; we have not, however,

examined the proprietary of using such language in jury

instructions. We admit that the concerns we expressed in

Panarella, as well as by other courts, are magnified in the context

of jury instructions, as it is probable that the jury will be swayed by

elastic formulations of morality and fairness in the absence of

sufficient context and guidance from the court. Indeed, had the

highlighted language challenged by the Defendants been given to

the jury in isolation, we would be presented with a very different

matter, as it is plain that not every departure from moral

uprightness and fairness can or will constitute a scheme to defraud

within the meaning of the bank fraud statute.

However, we cannot look at the challenged instruction in

isolation, as the Defendants do. We believe that the instructions,
13The dissent takes issue with our reliance on Khorozian,

noting that the problematic language “moral uprightness” was

missing from the Khorozian charge, and that Khorozian at least

involved a clear instruction on the specific intent element of 18

U.S.C. § 1344. See Dis. Op. at 14-15. As for the latter comment,

we have already noted that the jury in this matter was properly

instructed as to the mens rea element of 18 U.S.C. § 1344. As for

the former, we do not see how the mere inclusion of the phrase

“moral uprightness,” given the context of the entire jury charge,

rendered the instructions erroneous under Khorozian.

33

taken as a whole, properly instructed the jury as to the proof

required to establish a “scheme to defraud” as well as the

appropriate intent to defraud, which we have discussed previously.

The jury could not have convicted the Defendants merely for

failing to adhere to standards of moral uprightness or fundamental

honesty. Indeed, we note that this Court recently affirmed the use

of a very similar jury instruction in Khorozian, with the only

difference being the Khorozian instruction did not contain the

language “moral uprightness.”13 333 F.3d at 508-09 (scheme or

artifice may be found “where there has been a departure from basic

honesty, fair play and candid dealings”); see also United States v.

Frost, 125 F.3d 346, 371-72 (6th Cir. 1997) (upholding use of

similar formulation of fraud in context of detailed jury instruction

which, as a whole, provided that the jury could not convict

defendants merely for not having acted according to fundamental

honesty or moral uprightness”); United States v. Dobson, – F.3d –,

2005 WL 1949935, at *6 (3d Cir. Aug. 16, 2005) (affirming use of

instruction defining scheme to defraud as involving “a departure

from fundamental honesty, moral uprightedness, or fair play and

candid dealings in the general light of the community”). We
34

continue to have concerns regarding the definition of fraud with

reference to such abstract terms as morality and fairness. However,

we do not believe that this matter presented any real risk that the

District Court’s instruction invoking concepts of morality and

fairness, when read with the rest of the instructions, allowed for

conviction solely based on this formulation of fraud. Accordingly,

we find no error.

C. Good faith

The Defendants requested an instruction that if the jury

found the Defendants to have acted in subjective good faith, they

must be found not guilty; the Defendants also requested an

instruction that the Government bore the burden of proving an

absence of good faith beyond a reasonable doubt. The District

Court refused to give the good faith instruction, reasoning that the

court’s instruction as to intent adequately covered the matter and

rendered a good faith instruction unnecessary. We reverse “a

district court’s denial to charge a specific jury instruction only

when the requested instruction was correct, not substantially

covered by the instructions given, and was so consequential that

the refusal to give the instruction was prejudicial to the defendant.”

United States v. Phillips, 959 F.2d 1187, 1191 (3d Cir. 1992).

In United States v. Gross, 961 F.2d 1097 (3d Cir. 1992), we

held, adopting what has become the majority position among the

circuits, that a district court does not abuse its discretion in denying
14The Eighth and Tenth Circuits have held that a district

court abuses its discretion by refusing to give a good faith defense

charge even if the court has already given an instruction on the

elements of the crime. See United States v. Casperson, 773 F.2d

216, 223-24 (8th Cir. 1985); United States v. Hopkins, 744 F.2d

716, 718 (10th Cir. 1984) (en banc). Although the Defendants

request that this Court reconsider Gross, and adopt the position of

the Eighth and Tenth Circuits, we see no sound reasons to do so as

we continue to believe that Gross was correctly decided. In any

event, we note that the Eighth Circuit appears to have moved

towards the majority position. See Willis v. United States, 87 F.3d

1004, 1008 (8th Cir. 1996) (finding good faith instruction not

required, despite defendant’s request, where jury instructions

adequately conveyed specific intent requirement).

35

a good faith instruction where the instructions given already

contain a specific statement of the government’s burden to prove

the elements of a “knowledge” crime. Id. at 1102-03. In this

matter, the District Court’s instructions, taken as a whole,

adequately defined the elements of the crime, including the intent

requirement, thereby making a good faith instruction unnecessary

and redundant. If the jury found that the Defendants had acted in

good faith, it necessarily could not have found that the Defendants

had acted with the requisite scienter. Accordingly, any good faith

instruction would have been unnecessary and duplicative.14

D. Willful blindness

Over the Defendants’ objection, the District Court issued a

willful blindness instruction to the jury:

I further instruct you, members of the jury, that the
36

element of knowledge may be satisfied by inferences

drawn from proof that a defendant deliberately

closed his eyes to what would otherwise have been

obvious to him.

While a showing of negligence or a mistake is not

sufficient to support a finding of willfulness or

knowledge, a finding beyond a reasonable doubt of

a conscious purpose to avoid learning the truth

would permit an inference of knowledge. Stated

another way, members of the jury, a defendant’s

knowledge of a fact may be inferred from a

deliberate or intentional ignorance of, or a willful

blindness to, the existence of a fact. Deliberate

ignorance is not a safe harbor for a defendant’s

culpable conduct. It is entirely up to you, members

of the jury, as to whether you find any deliberate

closing of the eyes, and as to the inferences to be

drawn from such evidence. 

App. at 2135a-2136a. The Defendants do not challenge the legal

adequacy of the instruction as it was worded, but rather the

propriety of giving the instruction in this case. In particular, they

contend that there was no support in the record that any defendant,

or any person who could bind the corporate defendant Dantone,

had deliberately avoided learning about the fraudulent scheme.
37

A willful blindness instruction is often described as

sounding in “deliberate ignorance.” United States v. Wert-Ruiz,

228 F.3d 250, 255 (3d Cir. 2000). “We have upheld a district

court’s willful blindness instruction where the charge made clear

that the defendant himself was subjectively aware of the high

probability of the fact in question, and not merely that a reasonable

man would have been aware of the probability.” Khorozian, 333

F.3d at 508 (quoting United States v. Stewart, 185 F.3d 112, 126

(3d Cir. 1999)). A willful blindness instruction is also proper when

“[t]he jury could have found that [the] defendant deliberately

closed his eyes to what otherwise would have been obvious to

him.” Id. We have noted that it is not inconsistent to give a charge

as to both willful blindness and actual knowledge so long as the

willful blindness charge is supported by sufficient evidence. See

Wert-Ruiz, 228 F.3d at 255 (citation omitted). Accordingly, the

mere fact that the evidence supports a finding of actual knowledge

of a fact in question on the part of the Defendants does not bar the

District Court from also giving a willful blindness charge to the

jury so long as the record supports the provision of such an

instruction.

On the record before us, we believe that there was sufficient

evidence to support the District Court’s willful blindness charge to

the jury. In particular, evidence presented at trial permitted a

finding by the jury that Dominic Conicelli, Sr., the sole shareholder

and president of Dantone, may have been deliberately ignorant to

the deceptive practices that Dantone was engaged in, or that the
38

cars were not being auctioned as promised. For instance, in March

1995, one of the ten banks – Midlantic Bank – discovered that

Carriage Trade had apparently sold one of their automobiles to

Carol Leahy, the Defendant’s sister, for approximately $3,500

more than had been remitted to Midlantic as auction proceeds.

When confronted by Midlantic, Smith fabricated the story that the

car in question had extensive electrical damage in the amount of

$3,000 and had to be towed through auction, thus bringing in a low

price. Later, during a meeting between Midlantic and Conicelli,

Conicelli admitted that Smith had lied regarding the electrical

damage, becoming upset and offering to fire Leahy, yet he

continued to insist that the car in question had been auctioned,

rather than misappropriated by Carriage Trade and sold to Carol

Leahy. While Conicelli’s statement could evidence actual

knowledge, it could also be read as suggesting a high probability

that Conicelli was deliberately ignorant of his employees’

fraudulent scheme, despite having learned facts indicating that the

Midlantic’s repossessed car had not been auctioned as represented

to the bank.

The Government also points to testimony of an FBI special

agent at trial regarding his interview of Conicelli during a search

of the offices of Carriage Trade on March 5, 1996. The FBI agent

testified that, during the interview, he confronted Conicelli with

two sets of documents – the true bill of sale and the false bill of

sale for the Carol Leahy car. When shown the documents,

Conicelli stated that he remembered the car and that he had
39

personally asked the dealer not to take possession of the car

because she had wanted to purchase it. The FBI agent then

proceeded to question Conicelli about other instances where an

automobile consigned to Carriage Trade for auction was in fact

never auctioned, but Conicelli denied having any knowledge of

such transactions. The FBI agent then informed Conicelli that

there may have been at least 150 instances where automobiles had

not been auctioned as represented to the banks but instead sold as

part of Carriage Trade’s inventory. Conicelli responded by

expressing doubts about this and asked to see evidence of such

irregularities. When shown two such examples – bills of sale for

the same car, one false and one true, indicating that Carriage Trade

had sold the cars in a second sale to a buyer for a higher price than

what was reported to the bank – Conicelli reacted with denial and

disbelief, as the FBI agent testified at trial: “He said something to

the effect, I don’t know what the heck – I don’t remember these

cars.” App. at 1566a-67a. Based on Conicelli’s reaction to the

allegations made by the FBI agent, a jury could infer that, despite

his position with Carriage Trade, he was willfully blind to the

scheme his company and his employees were engaged in, despite

substantial documentary evidence of such a fraudulent scheme.

Evidence relating to Leahy also supported a willful

blindness charge. At trial, it was shown that Leahy maintained a

detailed ledger which kept track of the profits of the fraudulent

scheme. Moreover, Kelly Gruver, an immunized former employee

of Carriage Trade who was responsible for preparing and mailing
15Neither the Defendants, nor the Government, discuss the

evidence to support a willful blindness charge against Smith.

Assuming arguendo that the District Court’s provision of a willful

blindness instruction as to Smith was in error, we believe that,

given that the instruction itself contained the proper legal standard,

which the Defendants do not contest, and given the ample evidence

of actual knowledge on the part of all Defendants, as discussed in

Part IV infra, any error in the instructions would have been

harmless. See United States v. Mari, 47 F.3d 782, 785-86 (6th Cir.

1995) (holding that provision of a willful blindness charge that is

not supported by the record but that contains the proper legal

standard is harmless as a matter of law because the jury “will

consider the theory, and then dismiss it for what it is – mere

surplusage, a theory of scienter that is insufficient to support the

40

checks to the banks, testified that between 1993 and 1996, Leahy

would bring her bills of sale already filled out with the names of

the banks as sellers, third parties as buyers, and prices. Leahy told

her to enter the cars into Carriage Trade’s inventory and then send

checks to the banks, as if the cars had been auctioned. Despite this

conduct, counsel for Leahy argued at trial that the Defendant did

not know that the cars were being falsely auctioned, or that any of

his conduct, from maintaining the ledger or his instructions to

Gruver to issue checks to the banks while registering the cars in

Carriage Trade’s inventory, was fraudulent or deceptive. E.g.,

App. at 3180a, 3192a-3196a; see also Reply Br. of Leahy at 3, 8.

In our view, there is sufficient support in the record to justify a

willful blindness charge, as a jury could find that Leahy was aware

of certain facts which indicated that there was a high probability

that Carriage Trade was engaged in a scheme to defraud the banks,

and yet deliberately avoided learning about the fraudulent nature

of the scheme.15
conviction”) (citing Griffin v. United States, 502 U.S. 46 (1991));

United States v. Sasser, 974 F.2d 1544, 1553 (10th Cir. 1992)

(holding “that when sufficient evidence of a defendant’s guilt

exists, the tendering of a ‘willful blindness’ instruction is harmless

beyond a reasonable doubt even when the government does not

introduce evidence to support such a theory”); Mattingly v. United

States, 924 F.2d 785, 792 (8th Cir. 1991) (holding that erroneous

provision of willful blindness charge was harmless where there was

sufficient evidence to support actual knowledge); cf. United States

v. Syme, 276 F.3d 131, 136 (3d Cir. 2002) (citing Griffin).

41

E. Intangible Rights

The District Court instructed the jury that “[a] scheme or

artifice includes a scheme to deprive another person of tangible, as

well as intangible property rights. Intangible property rights means

anything valued or considered to be a source of wealth, including,

for example, the right to honest services.” App. at 2132a-2133a.

Defendants contend that this instruction was in error because there

was no allegation anywhere in the Indictment nor any proof at trial

to support such an instruction. The Government concedes that the

intangible rights charge to the jury was in error, admitting that it

“never suggested to the jury an intangible rights theory; the case

was exclusively presented as a financial fraud.” See Gov’t Br. at

77. 

Defendants argue that they properly objected to the

provision of the intangible rights instruction. However, we

disagree that any such objection was preserved as it is clear from

the record that defense counsel objected to other portions of the

bank fraud charge, such as the proper reading of § 1344, but not as

to the intangible rights charge. See United States v. Jake, 281 F.3d
42

123, 130 (3d Cir. 2002) (“[A]n objection must . . . be sufficiently

precise to allow the trial court to address the concerns raised in the

objection. Thus, counsel must state distinctly the matter to which

that party objects and the grounds of the objection.”) (internal

citation and quotation omitted); see also United States v. Davis,

183 F.3d 231, 252 (3d Cir. 1999). Accordingly, we will apply

plain error review.

To establish plain error, the Defendants bear the burden of

showing that (1) an error was committed; (2) the error was plain,

that is, clear and obvious; and (3) the error affected their substantial

rights. See United States v. Dixon, 308 F.3d 229, 234 (3d Cir.

2002); United States v. Vasquez, 271 F.3d 93, 99 (3d Cir. 2001)

(en banc). Once these elements are established, an appellate court

may exercise its discretion and reverse the forfeited error if “the

error [] seriously affects the fairness, integrity, or public reputation

of judicial proceedings.” Dixon, 308 F.3d at 234 (internal

quotation omitted). We have previously cautioned that “it is a rare

case in which an improper instruction will justify reversal of a

criminal conviction when no objection has been made in the trial

court.” United States v. Gordon, 290 F.3d 539, 545 (3d Cir. 2002)

(internal quotation omitted).

It is clear that the intangible rights instruction was given in

error as the Government did not present any evidence supporting

such an instruction, nor did it allege an “intangible rights” theory.

However, it is also clear that the erroneous instruction did not and
43

could not cause any prejudice to the Defendants or diminish their

rights. See Williams, 299 F.3d at 257 (“An error affects the

substantial rights of a party if it is prejudicial.”). In particular, the

Government’s theory of the case was that the Defendants’ conduct

perpetrated a financial fraud on the banks, resulting in an actual

loss of more than $400,000, the approximate difference between

the false sales price and the actual price, as well as the risk of loss.

Moreover, the District Court properly instructed the jury that both

the scheme to defraud, as well as the intent to defraud, had to be

directed at the banks. Thus, in these circumstances, we do not

believe that a single erroneous jury instruction as to intangible

rights could have been a possible basis for the jury’s verdict. See

United States v. Saks, 964 F.2d 1514, 1522 (5th Cir. 1992) (finding

no plain error where erroneous intangible rights instruction given

to jury because government did not rely on or present evidence in

support of an intangible rights theory); United States v. Perholtz,

836 F.2d 554, 558-59 (D.C. Cir. 1987); cf. United States v. Holley,

23 F.3d 902, 910-11 (5th Cir. 1994).

F. Co-schemers’ liability

The District Court instructed the jury, in accordance with

the Government’s request and over the Defendants’ objection, as

follows: 

I further instruct you, members of the jury, that you

may consider acts knowingly done and statements
44

knowingly made by the defendants [sic] co-schemers

during the existence of the scheme, and in

furtherance of it as evidence pertaining to the

defendants, even though they were done or made in

the absence of and without the knowledge of the

defendants.

This includes acts done or statements made before

the defendants had joined the conspiracy, for a

person who knowingly, voluntarily and intentionally

joins an existing scheme, is responsible for all of the

conduct of the co-schemers from the beginning of the

scheme.

Acts and statements which are made before the

scheme began or after it ended are admissible only

against the person making them, and should not be

considered by you against any other defendant. 

App. at 2142-2143a (emphasis added). The Defendants contend

that the highlighted instruction – permitting the jury to attribute

acts and statements of a co-schemer to a defendant made prior to

the defendant’s entry into the scheme – was in error.

While we have addressed the circumstances in which the

jury may be instructed that the acts and statements of a coconspirator may be attributed to a defendant for purposes of
45

determining guilt of the substantive offense, see United States v.

Lopez, 271 F.3d 472, 480 (3d Cir. 2001) (citing Pinkerton v.

United States, 328 U.S. 640, 647 (1946)), we have apparently not

yet addressed the circumstances in which a co-schemer instruction

may be properly given. We note, however, that the Ninth Circuit

has addressed co-schemers liability in some detail. See, e.g.,

United States v. Lothian, 976 F.2d 1257, 1262-63 (9th Cir. 1992);

United States v. Stapleton, 293 F.3d 1111, 1117 (9th Cir. 2002).

In particular, in a federal mail and wire fraud proceeding, the Ninth

Circuit explained: “Just as acts and statements of co-conspirators

are admissible against other conspirators, so too are the statements

and acts of co-participants in a scheme to defraud admissible

against other participants. We also apply similar principles of

vicarious liability. Like co-conspirators, ‘knowing participants in

the scheme are legally liable’ for their co-schemers use of the mails

or wires.” Stapleton, 293 F.3d at 1117 (quoting Lothian, 976 F.2d

at 1262-63). Nevertheless, under the approach of the Ninth Circuit,

the District Court’s instruction in this case may well have been

erroneous to the extent that it permitted the jury to consider acts

and statements of a co-schemer performed prior to the defendant’s

entry in the scheme. See Stapleton, 293 F.3d at 1117 (“The acts for

which a defendant is vicariously liable must have occurred during

the defendant’s knowing participation or must be an inevitable

consequence of actions taken while the defendant was a knowing

participant.”).

However, assuming arguendo that the Ninth Circuit’s
16For purposes of harmless error review, in Simon, we noted

that erroneous jury instructions which are properly objected to may

be characterized as constitutional or non-constitutional in nature.

For non-constitutional errors, we have held that “unless the

appellate court believes it is highly probable that the error did not

affect the judgment, it should reverse.” Simon, 995 F.2d at 1244

(quotation and citation omitted). By contrast, for constitutional

errors, “the test is whether the evidence is so overwhelming that it

is beyond reasonable doubt that the verdict would have been the

same had the error not been committed.” Id. at 1245 (internal

quotation and citation omitted). Here, we need not decide whether

the co-schemers’ instruction, assuming it was erroneously given,

should be subject to constitutional or non-constitutional review as

we would arrive at the same conclusion under either test. Id.

46

approach is correct, which we need not decide, any error here was

harmless on the facts of this case. Cf. United States v. Simon, 995

F.2d 1236, 1244-45 (3d Cir. 1993).16 Simply put, on the facts of

this case, there was no possibility that the jury could have

attributed the acts or statements of one co-schemer to another

defendant that were made prior to the defendant’s entry into the

scheme to defraud. The Indictment charged that the scheme to

defraud began in at least March 1993. Moreover, Edward Stigben,

a co-schemer with the Defendants, testified at trial that the

Defendants were involved in the scheme to defraud since at least

1991 or 1992. See App. at 447a, 451a. Moreover, the Government

did not present evidence of a scheme to defraud existing prior to

the Defendants’ involvement. Thus, as there was no evidence of

a prior scheme, the jury could not have attributed a co-schemer’s

acts or statements to the Defendants prior to the Defendants’ entry

into the scheme. Accordingly, any error in the District Court’s

instructions was harmless. 
47

IV. SUFFICIENCY OF THE EVIDENCE

The Defendants contend that there was insufficient evidence

to sustain their bank fraud convictions on at least two grounds:

first, that there was no evidence that the banks suffered any loss as

a result of the scheme to defraud and, second, that there was no

evidence that they had any intent to defraud the banks as opposed

to the banks’ customers, the debtors from whom the cars had been

seized. “[A] claim of insufficiency of the evidence places a very

heavy burden on the appellant.” United States v. Dent, 149 F.3d

180, 187 (3d Cir. 1998). We must “view the evidence in the light

most favorable to the government, and will sustain the verdict if

any rational trier of fact could have found the essential elements of

the crime beyond a reasonable doubt.” See id. (citations and

quotations omitted). After reviewing the record in this matter, we

conclude that there was sufficient evidence to sustain the

Defendants’ convictions.

A. Evidence of loss by the banks

As explained above, § 1344 requires that the fraudulent

scheme exposed the bank to some type of loss. E.g., Khorozian,

333 F.3d at 504-05. As an initial matter, we note that the loss or

liability that must be caused by the scheme to defraud can either be

an actual loss by the bank, or it can be a potential loss, what we

termed in Khorozian the “risk of loss.” Id. Nor is a financial loss

the only cognizable injury under the bank fraud statute: we have
48

recognized that exposing a bank to civil liability is sufficient under

the bank fraud statute. See id. at 505 n.5 (noting that the UCC

makes a bank liable to a drawer of a check if it pays on a forged

indorsement). On the record before us, and viewing the evidence

in the light most favorable to the Government, there is sufficient

evidence to support the finding that the Defendants’ conduct

exposed the banks to a risk of loss.

In particular, by not returning the full sale price of the

automobiles to the banks, the Defendants increased the amount of

the deficiencies that the banks had to collect from the banks’

customers indebted on the loans. One banker explained what was

meant by deficiency: “[t]he balance [of the loan to the borrower]

less the proceeds of the sale.” App. at 2896a. Given that the banks

were already dealing with customers who had defaulted on their

loan obligations, a jury could readily infer that the Defendants

conduct made it more likely that the banks would not be able to

collect the full deficiencies.

Testimony at trial indicated that it was normal that after the

auction of an automobile, a deficiency on the outstanding loan

would still remain, and that it was rare for an auction to fetch a

price sufficient to cover the entire loan amount. Chris Mulvihill of

Midlantic Bank explained: “[w]hat would happen is the customer

would have a loan. The loan was generally more than the value of

the car was for. We would sell the car. Whatever we got for the

car, the customer had to pay that difference back.” App. at 1113a.
49

Similarly, Louis Credle of the Police and Fire Federal Credit Union

testified that “[i]f we have to repo the car, then it goes to auction,

and then we have a default balance . . . [.] [T]hat would be

normal.” App. at 233a. Another banker also noted that “on one or

two rare occasions[,] a customer had so much equity in the car

when we sold it, they ended up getting money back, so that doesn’t

happen all the time. But it’s very rare.” App. at 151a.

Because it was routine for the auction to yield a price

insufficient to cover the amount of the outstanding debt, bank

representatives testified that it was critical for the banks to get the

best possible price so as to minimize the amount of the deficiency.

For instance, one banker testified that his bank sent cars to the

auction “to minimize our cost on [those] vehicle[s] so that we could

attain a high value of return and cut our deficiency.” App. at 88a.

Another banker testified that, because each repossessed car was the

subject of a loan, obtaining the highest price at auction meant that

the bank “could eliminate the deficiency balance as much as

possible” and “reduce the loss on that loan.” App. at 2992a.

Similarly, another banker testified that it was important for the

bank to get the highest price possible at auction because lower

prices increased the amount of the deficiency the bank faced, a

balance that could ultimately have to be written off against the

banks’ reserves for loan losses. App. at 2883a, 2896a-97a; see also

App. at 1113a (testimony of bank representative that “we wanted

to sell the cars for the most amount we could in order to reduce the

bank’s losses”). Once the cars had been auctioned, the banks
17We also reject the Defendants’ suggestion that because the

banks retained a legal remedy against the borrowers to collect any

outstanding deficiency, the banks could not be placed at a risk of

loss. The fact that a bank has the ability to pursue a legal remedy

to collect an unpaid deficiency against a debtor does not mean that,

in every instance, it would have done so, as it would have to weigh

the costs of litigating the deficiency claim versus the probability of

a favorable outcome. See United States v. Autorino, 381 F.3d 48,

53 (2d Cir. 2004) (noting that the FDIC’s protection against loss

under the UCC was undermined by the costs of pursuing legal

action).

50

typically looked to the customer for satisfaction of any deficiency

balance. See App. at 2896a (testimony that following the auction,

the bank attempts “to make arrangements for him [the customer] to

pay the deficiency”). However, testimony at trial confirmed the

obvious proposition that the customers from whom the cars had

been repossessed, having failed once to pay their loan obligations,

were unlikely to pay additional money towards satisfying any

remaining deficiency. As one banker noted, it was important to get

the best price because “most of the time [the customers] are not

paying you.” App. at 110a. Viewing the evidence in the light most

favorable to the Government, a jury could readily infer that the

Defendants’ conduct, by increasing the amount of deficiency the

banks had to pursue from their riskiest customers, exposed the

banks to a risk of loss, i.e., the risk that the banks’ customers would

not be able to satisfy the greater deficiency balance.17

Not only did the Defendants’ conduct expose the banks to

the risk of non-payment of a greater deficiency balance, the

Defendants’ conduct threatened to impair the banks’ ability to
51

pursue legal remedies against the deficiency debtors. Article 9 of

the UCC requires a secured creditor to dispose of collateral in a

“commercially reasonable” manner. See 13 Pa. Cons. Stat. § 9504

recodified at 13 Pa. Cons. Stat. § 9610; N.J. Stat. Ann. § 12A:9-

504 recodified at N.J. Stat. Ann. § 12A:9-610. Indeed, bank

representatives testified that selling the automobiles in a

commercially reasonable manner was critical to preserving the

bank’s ability to seek a deficiency judgment in a subsequent

proceeding against the automobile’s owner. E.g., App. at 1113a

(“We also wanted to be able to exercise a commercially reasonable

sale, so that we could recover the deficiency balance for these

cars.”). The banks chose to consign the automobiles to Carriage

Trade for auction precisely because they sought to comply with the

requirements of state law. E.g., App. at 1114a (“We felt that [the

auction was best] because of the fact that there were more bidders

bidding on the car, that we would get a better price. These little

lots that were selling the vehicles generally was a handful of people

bidding on the cars, but literally hundreds of people attended the

auctions. So the idea was to have more action, more people

making bids on the car.”).

However, the Defendants’ conduct deprived the banks of the

opportunity to dispose of their collateral in a “commercially

reasonable” manner, thereby exposing the banks to a risk that they

would be unable to pursue successful deficiency claims against

their debtor customers. For instance, one bank representative noted

that because all they had in their possession were the false bills of
52

sale, which were evidence that the cars were effectively bought by

Carriage Trade for its own inventory at artificially low values, they

would have difficulty in court in establishing a claim for a

deficiency. See App. at 1125a (“We needed this documentation

that the auction provided, as I stated earlier, in order to be able to

collect the rest of the money that the customer may owe. And

certainly if the same auction that the car was auctioned at had

purchased the car, that would create a problem if we went to court

and tried to get that money back.”); App. at 1275a (noting that the

false bills of sale in the banks’ possession “didn’t reduce our

losses” but rather “increased our losses” because “if we had to go

to court ourselves, if were suing someone on a deficiency, we’d

have to have the bill of sale”); App. at 881a (noting that it was

important to demonstrate that the car had been sold for the most

money because it “showed that . . . it [the car] went to an auction

where they [the customer] know you didn’t give the car away, so

to speak”); App. at 1113a-14a (noting that a “commercially

reasonable” sale was important because “we were pursuing the

customer for the rest of the money that was owed” and “we needed

to be able to prove that we did the best job we could in selling the

car”). Thus, the evidence supported a jury finding that the

Defendants’ conduct exposed the banks to a risk of loss in the

sense that the disposition of the collateral could be found to be

commercially unreasonable, thereby impairing the banks’ ability to

collect on any deficiency balances.

Despite the evidence of risk of loss to the banks caused by
18One of the 311 cars was a 1994 Toyota, on which

Midlantic Bank was owed $14,102.49 on the loan by the car’s legal

owner and debtor. The car was improperly sold by Defendants to

Carol Leahy for $18,000, and Carriage Trade still paid $14,184 to

Midlantic Bank, which was greater than the remaining loan

obligation. In other words, Midlantic Bank recovered all of its debt

and was made whole with respect to this automobile. There was,

according to the Defendants, no actual loss suffered by Midlantic

Bank as a result of their conduct. Extrapolating from this example,

the Defendants contend that there was no evidence introduced by

the Government that, with respect to the vast majority of the cars,

the banks suffered any loss.

53

the scheme to defraud, the Defendants insist that the Government

was required to introduce specific evidence as to each of the 311

cars that the banks in fact had a deficiency balance remaining

following Carriage Trade’s remittance of the fraudulent sales price.

In particular, the Defendants contend that because there is no

evidence that the banks suffered any uncollected deficiencies as to

the defaulted borrowers with respect to any of the 311 cars, the jury

could not infer whether a bank was harmed by less than the full

sale price the Defendants returned.18 We reject the Defendants’

argument because it conflates a showing of actual loss with the risk

of loss. Evidence of uncollected deficiencies with respect to each

of the 311 cars goes only to whether the banks suffered an actual

loss, in fact, on the deficiency balance; to the extent that some

banks may have successfully collected the higher deficiency

balances from the borrowers does not negate the fact that the

Defendants’ conduct exposed the banks to a risk of loss, i.e., the

threat of non-payment by the bank’s riskiest customers as well as

the impairment of the banks’ legal remedies to collect on the
19In addition to risk of loss, the Government argues that the

Defendants’ fraudulent scheme exposed the banks to an actual loss

in the amount of $418,657, the total difference pocketed by the

Defendants between the low sale price reported to the banks and

the actual sale price received by Carriage Trade. The Defendants,

however, contend that the $418,657 did not represent the actual

loss to the banks as the money properly belonged to the owners of

the automobiles, not the banks. In particular, the Defendants rely

extensively on Article 9 of the Uniform Commercial Code

(“UCC”) governing secured transactions and as adopted in

Pennsylvania and New Jersey, which rests title of repossessed

automobiles in the individual owners of the cars, not the banks.

Because the banks were not the legal owners of the 311

automobiles in question, the Defendants argue that the $418,657

was money that was taken from the legal owners of the automobile,

and not the banks. However, we need not reach this argument

because we have found sufficient evidence to support a risk of loss

to the banks.

We do note that we are unpersuaded by the Defendants’

criticism of the Government’s statements at trial and in its brief to

this Court that the “[t]he cars did not belong to Carriage Trade,

54

deficiencies. See Khorozian, 333 F.3d at 505 n.6 (“That Hudson

United never actually suffered harm is also immaterial to

Khorozian’s defense. Section 1344 only requires that the bank be

placed at risk of loss.”); Monostra, 125 F.3d 183 at 188 (“As we

have noted in the past, the government need not show that the

banks actually incurred a loss in order to prove a scheme or artifice

to defraud. Exposure to potential loss is sufficient.”). The

evidence of the loan balances with respect to the 311 cars is

irrelevant to showing a risk of loss. The fact that the Defendants’

scheme to defraud may have fortuitously failed to impede the

banks’ ability to collect on some of the deficiencies does not mean

that the scheme did not involve a risk of loss to the banks.19
they belonged to the banks.” E.g., Gov’t Br. at 49. As the

Defendants correctly note, under the UCC as adopted in

Pennsylvania and New Jersey, the banks were not legal title

holders of the cars, but rather priority lien holders. That said, the

Government’s statement that the cars “belonged to the banks,” as

opposed to the cars’ legal owners or Carriage Trade, can hardly be

claimed to be erroneous. Indeed, the banks had lawfully

repossessed the automobiles from individuals who had defaulted on

their loan, and, accordingly, the banks’ interest in the automobiles

was far superior to any interest that the cars’ owners had remaining

after repossession. This is particularly true given that that banks

had the right to dispose of the cars as collateral for their loans

pursuant to “commercially reasonable” procedures. See 13 Pa.

Cons. Stat. § 9504 recodified at 13 Pa. Cons. Stat. § 9610; N.J.

Stat. Ann. § 12A:9-504 recodified at N.J. Stat. Ann. § 12A:9-610.

20To avoid any confusion, we note that our decision not to

discuss whether the banks suffered an actual loss as a result of the

Defendants’ scheme should not be read as suggesting that no such

loss in fact occurred. Because we are vacating the Defendants’

sentences, on remand the District Court will have the opportunity

to determine whether the banks suffered an actual loss, and the

amount of that loss, for purposes of the Guidelines as well as

55

Finally, the Defendants contend that not every bank

representative testified with sufficient clarity that his or her

particular bank was exposed to any risk of loss as a result of the

scheme to defraud. We disagree. Viewing the evidence in the light

most favorable to the Government, there was sufficient evidence

for a jury to infer that each bank faced a comparable risk of loss

from the Defendants’ fraudulent scheme. Certainly, there is no

requirement that each bank representative had to testify using the

magic words “risk of loss” to support a jury’s finding to this effect.

The Government’s evidence, taken as a whole, was sufficient to

support a jury finding of a risk of loss as to each bank.20
restitution. We note that the proof of actual loss for purposes of the

bank fraud conviction is not the same as proof of loss for purposes

of calculating “loss” under the Guidelines or for restitution, a point

which we consider in more detail in Part V.

56

B. Evidence of an intent to defraud the banks

The Defendants contend that there was insufficient evidence

to support a finding that they had an intent to defraud the banks, as

opposed to the banks’ customers, the debtors on the car loans. We

disagree.

Testimony at trial permitted the jury to infer that the

Defendants knew their conduct was fraudulent and deceptive

toward the banks and could cause loss to the banks. For instance,

most of the bank representatives testified that they never gave the

Defendants permission to purchase the cars for their own

inventories, and several bank representatives testified that they

affirmatively prohibited Defendants from purchasing the cars for

themselves. E.g., App. at 1155 (banker testified that he told the

Defendants numerous times “that they weren’t allowed to purchase

the cars”). As one banker explained, the reason why the banks did

not authorize Carriage Trade to purchase the cars for its own

inventory, despite several such requests, was that a direct sale to

Carriage Trade did not involve “competitive bidding” and

“[w]ithout competitive bidding, you really can’t establish a proper

deficiency.” App. at 1262a.

Moreover, evidence at trial indicated that Carriage Trade
57

held itself out as an auction service able to obtain the best prices

for the automobiles in the quickest and most efficient manner. To

a large extent, the banks relied on Carriage Trade to value the cars

for purposes of resale in a manner that would fetch the best price.

As one bank representative testified, “we had no idea of knowing

what the condition [of the cars] was. We never saw the cars. And

. . . we never went to the auction so we had no idea what the cars

looked like. So we put our trust in them informing us of what the

condition was, which was pretty much how they based the value of

the car.” App. at 209a. Another banker testified: “I was pretty

much a layperson. What I know is that these people knew more

than me. I was relying heavily on them. They were in the

business. They were the professionals. They were telling me they

were getting the best prices for the car.” App. at 1194a-95a; see

also App. at 2821a (in opening statement, Government argued: “[i]t

was the defendants who held themselves out as being experts on

putting value on these cars so that they could be sold for the most

money. Then the bank could put that money toward the

outstanding loan.”). From such evidence, a jury could find that the

Defendants knew they were under an obligation to obtain the

highest price for the cars and that failure to do so would violate

their agreements with the banks. Moreover, the Defendants’

argument that they lacked an intent to defraud the banks based on

the fact that they returned to the banks the “minimum floor” price

set by the banks for each of the 311 cars misses the point. The

banks clearly had an expectation, as the Defendants must have

known, that if a car was sold above the minimum floor, the banks,
58

not Carriage Trade, should receive the difference.

The Defendants, however, contend that the Government

argued to the jury that their fraudulent scheme injured not only the

banks but also the banks’ customers, the debtors on the 311 cars.

By arguing that the debtors were the victims of the scheme, the

Defendants argue that the Government violated Thomas, which

requires that the banks be the intended victim of the bank fraud, as

opposed to some third party. However, we have already explained

earlier in Part III.A why Thomas’s “intent to victimize” language

is inapplicable to this case, as Khorozian makes clear that no

“intent to victimize” is required where the bank is the direct target

of the deceptive conduct. In any event, it is well-established that

a bank need not be the sole or immediate victim of the fraud. See

Moran, 312 F.3d at 489 (citation omitted), cited in Khorozian, 333

F.3d at 505; United States v. McNeill, 320 F.3d 1034, 1037 (9th

Cir. 2003); Brandon, 298 F.3d at 311 (citation omitted); Crisci, 273

F.3d at 240. So long as the defendant had an intent to defraud the

bank, and the bank suffered loss or risk of loss as a result of the

deceptive conduct, § 1344 is implicated even if a third party is also

injured as a result of the fraudulent conduct. See also McNeill, 320

F.3d at 1037 (noting that defendant’s deception “was plainly

directed at First Interstate Bank as well as at the IRS, and the

scheme to deceive the bank was essential to McNeill’s overall plan.

Thus, the bank was not merely an unwitting instrumentality of a

scheme to defraud the IRS, it was also a victim of [defendant’s]

deception.”); Crisci, 273 F.3d at 240 (holding that defendant “is not
21We note in passing that we are unpersuaded by the

Defendants’ contention that the Government argued to the jury that

the primary victim of the fraudulent scheme to defraud were the

debtors as opposed to the banks. The Defendants pluck statements

from the record in isolation, without reference to context or the rest

of the record. However, any suggestion that the Government

argued this case on the theory that the borrowers were the victims

of the bank fraud is belied by the extensive record in this case,

which contains many examples of the Government’s theory that the

banks were the targets of the scheme and injured as a result of the

scheme. As just one example, in its closing argument, the

Government clearly argued that the banks were the intended targets

of the deception and the injured party: “this is a very simple

scheme. The defendants sent the banks false bills of sale, phony

documents. They lied to the banks when they said that their [the

banks’] cars had been sold at auction. They dummied up the

paperwork to fake the sales, and then they sent the bank a check for

the low phony purchase price.” App. at 3042a.

59

relieved of criminal liability for bank fraud because his primary

victim was the employer from which he embezzled funds by

submitting fraudulent check requests”). Even if the banks’

customers were harmed as a result of the fraudulent scheme, there

is still ample evidence that the Defendants’ had an intent to defraud

the banks within the meaning of Khorozian.

21

V. SENTENCING ISSUES

The Defendants raise a number of arguments with respect

to their sentences, including the District Court’s application of

several sentencing enhancements under the Guidelines; the District

Court’s calculation of loss for purposes of the Guidelines; and the
22See note 1, supra.

60

District Court’s imposition of forfeiture and restitution orders. The

Defendants also contend that portions of their sentences violate the

Eighth Amendment’s Excessive Fines Clause. Finally, pursuant to

Booker, which was decided while this matter was pending,

Defendants assert that their Sixth Amendment rights were violated

i) by the imposition of their sentences under the Guidelines and ii)

by the District Court’s imposition of forfeiture and restitution based

on figures calculated by the court rather than by the jury or

admitted by the Defendants.

Because the now-advisory Guidelines where mandatory at

the time of sentencing, pursuant to Booker we will vacate the

Defendants’ sentences and remand for further proceedings. See

Davis, 407 F.3d at 165. Our doing so eliminates the Eighth

Amendment Excessive Fines issue, as to which we express no

opinion. What remains is the Defendants’ argument that, under

Booker, Sixth Amendment protections apply to orders of forfeiture

and restitution. Bound by recent Third Circuit precedent,22 we hold

that the Supreme Court’s decision in Booker does not render the

forfeiture and restitution ordered against the Defendants

unconstitutional. Nonetheless, we will vacate the District Court’s

forfeiture and restitution orders so as to allow the District Court to

alter the amounts in the event that there arises an inconsistency

with the District Court’s revised Guidelines loss calculation.

Although we need not consider the Defendants’ calculation of loss

arguments on the merits because we have already resolved to
61

vacate as to this issue, we endeavor below to provide some

guidance on how to calculate loss for purposes of the Guidelines.

* * *

The District Court, over the Defendants’ objections, found

the loss to the victim banks caused by the fraudulent scheme to be

$408,970, that is, $418,657 minus $4,687 for certain repair work

performed on the cars by the Defendants minus $5,000 that

Carriage Trade had paid to Midlantic Bank after its discovery of

the fraud. The Defendants contend that the loss calculation was in

error, particularly on the basis of our decision in United States v.

Dickler, 64 F.3d 818, 824-26 (3d Cir. 1995) (holding that, under

U.S.S.G. § 2F1.1, a victim’s loss should be calculated by

estimation of the actual loss to the victim; “the defendant’s gain

may be used only when it is not feasible to estimate the victim’s

loss and where there is some logical relationship between the

victim’s loss and the defendant’s gain so that the latter can

reasonably serve as a surrogate for the former.”). Because we will

vacate the Defendants’ sentences and remand for resentencing

pursuant to Booker, we will not consider the Defendants’

arguments in the first instance. However, we make certain

observations in light of Dickler that the District Court should

consider on remand.

We note that pursuant to the Federal Rules of Criminal

Procedure, a district court “must – for any disputed portion of the

presentence report or other controverted matter – rule on the
62

dispute or determine that a ruling is unnecessary either because the

matter will not affect sentencing, or because the court will not

consider the matter in sentencing.” Fed. R. Crim. P. 32(d)(i)(3)(B)

(2003). We have also previously noted that “[a] finding on a

disputed fact or a disclaimer of reliance upon a disputed fact must

be expressly made.” United States. v. Electrodyne Sys. Corp., 147

F.3d 250, 255 (3d Cir. 1998); see also United States v. Cherry, 10

F.3d 1003, 1013 (3d Cir. 1993). In this matter, it is clear that there

was a dispute between the asserted loss stated in the presentence

report and relied on by the Government, and the loss amount put

forth by the Defendants. However, having reviewed the District

Court’s oral decision at the loss hearing, we believe that the

District Court has not resolved with sufficient particularity or

specificity the disputes regarding the predicate factual elements for

the loss calculation. For instance, we are unable to determine

whether the District Court reached the $408,970 figure by

calculating the actual loss to the victim banks, or by using the

Defendants’ gain as a surrogate for the banks’ loss. Dickler

requires “some explanation of why an estimate of loss based on”

the Defendants’ data was not feasible. Id. at 827. Moreover, we

are unable to determine whether the District Court considered the

Defendants’ two-market theory, or the basis on which the District

Court rejected the Defendants’ evidence in this regard.

 

Although the Government offers a spirited defense of the

District Court’s loss calculation, contending that the District Court

found the Defendants’ evidence of two markets as lacking in
63

credibility and self-serving, on the record before us, we are not so

sure of the basis of the court’s ruling. For instance, the District

Court stated that it found “the testimony of the witnesses presented

[at the loss hearing], for the most part, lacked some credibility in

relationship to the issues here.” App. at 2385a. Moreover, the

District Court stated that it found the $408,970 amount “to be an

accurate and realistic valuation” of the 311 cars. App. at 2385a.

What aspects of the factual record the court found credible and

incredible is unclear, as is the basis of the District Court’s

conclusion that the loss amount was “accurate and realistic.”

Accordingly, on remand, the District Court has the opportunity to

reevaluate the evidence to arrive at a satisfactory determination of

the banks’ losses. However, lest there be any misunderstanding,

our decision should not be taken as prejudging the evidence or as

compelling a conclusion that the Defendants’ evidence must be

credited, a task for which, in any event, the District Court is best

suited.

VI. CONCLUSION

For the foregoing reasons, we will affirm the judgments of

conviction of the District Court. However, we will vacate the

Defendants’ sentences and remand for further proceedings

consistent with this opinion.

Becker, Circuit Judge, concurring and dissenting.
64

I join fully in Parts II, III.C, III.E, III.F, and V of the

majority opinion. I join in Part III.D to the extent that it holds that

the willful blindness instruction was justified as to Defendant

Leahy and constituted harmless error as to Defendants Smith and

Dantone, although I will note my reservations regarding the use of

that instruction as to Dantone. I join in Part IV except to the extent

that it conflicts with my analysis of the elements of bank fraud, set

forth in detail below. I do not join in Parts III.A and B or in the

judgment because I believe that the majority’s resolution of the

bank fraud and moral uprightness jury charge issues is incorrect.

In particular, I think the majority’s discussion of the elements of

bank fraud is inconsistent with this Court’s decision in United

States v. Thomas, 315 F.3d 190 (3d Cir. 2002), a fair reading of

which compels the conclusion that the jury instructions used here

were erroneous.

I.

The majority finds that the jury instructions used in this case

were consistent with our decision in United States v. Thomas, 315

F.3d 190 (2002), which interpreted the federal bank fraud statute.

I disagree.

A.

The bank fraud statute reads:

Whoever knowingly executes, or attempts to

execute, a scheme or artifice—

(1) to defraud a financial institution; or

(2) to obtain any of the moneys, funds,

credits, assets, securities, or other property
65

owned by, or under the custody or control of,

a financial institution, by means of false or

fraudulent pretenses, representations, or

promises;

shall be fined not more than $ 1,000,000 or

imprisoned not more than 30 years, or both.

18 U.S.C. § 1344. In Thomas, we held that subsection (2) of the

statute cannot serve as an independent basis for conviction. Thus,

a defendant cannot be convicted of bank fraud solely because he

uses false pretenses to obtain money or property that is under the

bank’s custody but does not belong to the bank; rather, he must

also act to “defraud the bank,” thus subjecting him to liability

under subsection (1). While we acknowledged that this

conjunctive reading was in tension with the plain disjunctive

language of the statute, we found that it was necessary to effectuate

to the statute’s purpose “‘to protect the federal government’s

interest as an insurer of financial institutions.’” 315 F.3d at 200

(quoting United States v. Davis, 989 F.2d 244, 247 (7th Cir.

1993)). As Thomas explained, if a defendant takes money that is

under the bank’s custody but does not belong to the bank, and in so

doing does not subject the bank to any risk of losing its own funds,

he has not threatened this interest and therefore has not committed

bank fraud.

The District Court in this case, acting before our decision in

Thomas was issued, instructed the jury that either subsection of the
23Although Thomas was not yet decided when this case went

to trial, defendants nonetheless properly objected to the District

Court’s instruction.

24I recognize the seeming perverseness of reversing a

conviction because the District Court instructed the jury by reading

excerpts from the relevant statute. But Thomas clearly stands for

66

bank fraud statute could serve as a basis for conviction. It stated:23

The bank fraud law provides that whoever

knowingly executes or attempts to execute a scheme

or artifice, one, to defraud a federally chartered or

insured financial institution, or two, to obtain any of

the moneys, funds, credits, assets, security or other

property owned by or under the control or custody of

a financial institution by means of false or fraudulent

pretenses, representations or promises, shall be

guilty of the crime of bank fraud. . . . 

Members of the jury, the first element is that the

government must prove beyond a reasonable doubt

that there was a scheme or artifice to defraud a

financial institution, or a scheme or artifice to obtain

any of the money owned by or under the custody or

control of a financial institution by means of false or

fraudulent pretenses, representations or promises.

(emphasis added). Because the District Court instructed the jury

that it could convict under either subsection of the bank fraud

statute, it committed error under Thomas.

24
the proposition that the bank fraud statute is not to be given its

plain meaning.

25The jury asked, “Can we have the criteria for bank fraud

again, please?” The District Court responded, in pertinent part:

To prove a charge of bank fraud, the defendant [sic]

must establish each of the following elements

beyond a reasonable doubt. First, that the defendants

knowingly executed a scheme or artifice to defraud

a financial institution, or a scheme or artifice to

obtain any of the money owned by or under the

custody or control of a financial institution by means

of false or fraudulent pretenses, representations, or

promises.

Second, that the defendants did so with the intent to

defraud . . . . 

67

The majority does not dispute that the above language,

standing alone, is inconsistent with Thomas. But it argues that the

District Court’s error is saved by a later portion of the charge: “The

intent element of bank fraud is an intent to deceive the bank in

order to obtain from it money or other property.” Maj. Op. at 13-

14. This instruction, the majority argues, precluded the jury from

convicting solely on the basis of subsection (2).

I respectfully disagree. First, the intent instruction was an

isolated one, preceded and succeeded by the disjunctive language

quoted above. Indeed, when the jury later requested that the

District Court repeat the elements of bank fraud, the Court again

instructed the jury that it could convict under either subsection of

the statute and failed to repeat the sentence setting forth the intent

standard.25 Rather, it simply instructed the jury that it could
(emphasis added).

68

convict if it found that the defendants acted “with the intent to

defraud,” not, as we required in Thomas, “with the intent to defraud

the bank.” See 315 F.3d at 197.

Second, the intent instruction simply did not preclude the

jury from convicting solely on the basis of subsection (2). As we

held in Thomas, a defendant who deceives a bank in order to obtain

from it money or property belonging to a third party (but in the

custody of the bank) does not commit bank fraud, unless he also

knowingly subjects the bank itself to a loss or risk of loss. But he

could easily have been convicted under these instructions, which

stated that “[t]he intent element of bank fraud is an intent to

deceive the bank in order to obtain from it money or other

property.”

What these instructions lack is the critical element of bank

fraud identified in Thomas: namely, that the defendant must have

the intent “to victimize the bank,” see 315 F.3d at 198, 200, either

by taking the bank’s own funds or by putting the bank at a risk of

future loss or liability. As we held in Thomas, “Congress sought

to proscribe conduct that ‘victimize[d]’ banks, which suggests that

the bank must be deliberately harmed before the statute is violated.

We believe that, given the legislative intent, harm or loss to the

bank must be contemplated by the wrongdoer to make out a crime

of bank fraud.” Id. at 200. By not requiring such an intent, the

instructions permitted the jury to convict under subsection (2) of

the statute.

As Thomas made clear, “the intent to defraud the bank”
26See 315 F.3d at 195 (“As Thomas admits in her

confession, her crime involved a pattern of activity intended to

deceive others, including acquiring [her victim’s] trust, making

deceptive misrepresentations to her, and some to the bank.”).

Moreover, the goal of her scheme was to obtain money from the

bank, even though the money in question belonged to her elderly

victim.

69

requires more than merely “an intent to deceive the bank in order

to obtain from it money or other property.” See 315 F.3d at 200

(“The Government also suggests that mere ‘deceptive conduct’

toward the bank establishes intent to defraud. We disagree.”).

Indeed, Thomas herself had the “intent to deceive the bank in order

to obtain from it money or other property,”26 but we held that she

did not have the “intent to defraud the bank,” which, again,

requires an intent to “victimize” the bank by exposing it to a loss

or risk of loss. Thus Thomas could have been convicted under

these jury instructions, even though, as we held in that case, she did

not commit the crime of bank fraud. This fact alone should be

sufficient to demonstrate that the jury instructions in this case were

flawed.

B.

The majority makes an additional argument in order to

justify the jury instructions used in this case. According to the

majority, the mens rea requirement set forth in Thomas only

applies to some bank fraud. Other types of bank fraud—such as

that committed by the defendants in this case—are not subject to

Thomas’s mens rea requirement. 

The majority justifies its effort to cabin Thomas by arguing

that a later decision of this Court, United States v. Khorozian, 333
70

F.3d 498 (3d Cir. 2003), created a distinction between those cases

that “involved fraud on a third party where the bank was merely an

‘unwitting instrumentality’ in the fraud” and those in which the

bank was itself the “target of deception.” According to the

majority, only in the former case, where the bank is merely an

“unwitting instrumentality,” do we require “the additional

requirement of proof of an ‘inten[t] to cause a bank a loss or

potential liability.’” Maj. Op. at 19 (alteration in original). The

majority argues that in cases where the bank itself was the “target

of deception,” “proof of a specific intent to defraud the bank plus

fraudulent conduct (e.g., misrepresentations) which creates an

actual loss or a risk of loss.” Maj. Op. at 18. In such cases,

according to the majority, proof of an actual intent to cause the

bank a loss or risk of loss is not required.

The argument is flawed for several reasons. First, it fails on

its own terms. The jury in this case was never required to find that

the conduct of the defendants “exposed the bank to . . . loss.” Maj.

Op. at 36. Thus, even if the majority’s legal standard were correct,

the jury instructions were insufficient.

Second, I do not read Khorozian in the same way as the

majority. In fact, I read Khorozian as being entirely faithful to

Thomas. Khorozian simply stands for the proposition that the

intent to put the bank at a risk of loss is sufficient to violate the

bank fraud statute, even if there was no intent to cause an actual

loss. Indeed, we affirmed the jury instructions in Khorozian

because they “clearly instructed the jurors that they needed to find

specific intent to defraud in order to convict.” 333 F.3d at 508-09.
71

Thus, nothing in Khorozian modified Thomas’s core holding that,

in order to be convicted of bank fraud, a defendant must act with

the intent to defraud the bank.

To be sure, Khorozian found Thomas and other cases to be

“factually distinguishable because [they] involved fraud on a third

party where the bank was merely an ‘unwitting instrumentality’ in

the fraud rather than the ‘target of deception.’” See 333 F.3d at

505. The majority concludes that this statement modified the mens

rea requirement for bank fraud as set forth in Thomas. I disagree.

Again, the key issue in Khorozian was whether the intent to cause

a risk of loss to the bank was sufficient to convict under the bank

fraud statute. The above language from Khorozian simply stands

for the proposition that, in cases in which a bank is that “target of

deception,” it is perfectly reasonable for a jury to infer the requisite

intent absent direct evidence.

It is for this reason that I join the majority’s conclusion that

the evidence in this case was sufficient to support a conviction.

But whether the evidence is sufficient to justify a conviction

(which was the issue in the portion of Khorozian relied on by the

majority) is a very different question from whether the jury

instructions communicated the proper legal standard. The answer

to the latter question is controlled by our decision in Thomas, and

I therefore conclude that the District Court’s instructions were in

error.

Furthermore, the majority’s reading of Khorozian is clearly

foreclosed by Thomas. In Thomas, we held that a bank can be a

“target of deception” and still not be a victim of bank fraud if the
27It was this language from Thomas that Khorozian relied on

in observing that Thomas and other cases were “factually

distinguishable because [they] involved fraud on a third party

where the bank was merely an ‘unwitting instrumentality’ in the

fraud rather than the ‘target of deception.’” 333 F.3d at 505. This

statement from Khorozian appears to rests on an erroneous reading

of the above language from Thomas. At all events, Khorozian did

not change the mens rea requirement for bank fraud, which was

clearly set out in Thomas.

72

defendant does not act with the requisite mens rea. As we stated

in that decision:

[United States v. Laljie, 184 F.3d 180 (2d Cir. 1999)]

illustrates the kind of distinction we make between

schemes which victimize banks by exposing them to

liability or loss, and schemes in which banks, despite

being the target of deception, are mere “unwitting

instrumentalities” to the fraud.27

315 F.3d at 201 (emphasis added). In the same vein, the Court also

stated, “Our holding that the statute is to be read conjunctively does

not end this matter. We must still decide the thorny question of

what is meant by the subsection (1) requirement that the defendant

intends to defraud the bank. . . . The Government also suggests that

mere “deceptive conduct” toward the bank establishes intent to

defraud. We disagree.” 315 F.3d at 199-200.

Again, it is clear that the Thomas Court saw the bank in that

case as a “target of deception,” as the defendant deceived the bank
28For this reason, any suggestion that we can simply ignore

the problematic language in Thomas as dicta is misguided.

29That Thomas held that merely causing a loss or risk of loss

is not sufficient is made clear near the end of the opinion:

Moreover, even were there a colorable case for civil

liability set forth here, it must also be shown that

Thomas intended to victimize the bank. Even a

scheme which does expose a bank to a loss must be

so intended.

315 F.3d at 202.

73

as to the purpose of the checks she sought to cash.28 In fact,

Thomas held that, unless a bank is the target of the scheme, the

defendant cannot be convicted of bank fraud at all. See id. at 198

(“[I]n order to prove bank fraud, a bank must be more than a mere

incidental player. A defendant must have deliberately targeted his

or her scheme at the banking institution.”). So while the majority

today holds that a defendant can be convicted of bank fraud if

either he targets his scheme at the bank or he acts with intent to

cause the bank a loss or risk of loss, Thomas, on which the

majority’s analysis purportedly rests, held that the defendant must

both target his scheme at the bank and intend to cause the bank a

loss or risk of loss.29

Thus, the majority’s statement that Khorozian holds that

“intent to cause risk of loss” is not required, Maj. Op. at 20,

cannot be correct. This view is directly contrary to Thomas’ clear

command: the defendant must intend to cause harm or loss to the

bank. Thomas, 315 F.3d at 200. If the majority’s reading of

Khorozian were correct, then that decision would constitute an
30Indeed, in questioning our assertion that Khorozian can be

read as being faithful to Thomas, Maj. Op. at 20, the majority

comes close to suggesting that Khorozian did overrule Thomas. 

31The majority goes so far as to claim that “it is wellestablished that the ‘intent to defraud the bank’ element of § 1344

may be defined as ‘an intent to deceive the bank in order to obtain

from it money or other property.’” Maj. Op. at 15 n.8. In support

of this supposedly “well-established” principle, the majority does

not cite a single case that is controlling in this Circuit. See id.

(citing United States v. Moran, 312 F.3d 480, 489 (1st Cir. 2002);

United States v. Brandon, 298 F.3d 307, 311 (4th Cir. 2002);

United States v. Lamarre, 248 F.3d 642, 649 (7th Cir. 2001);

United States v. Hanson, 161 F.3d 896, 900 (5th Cir. 1998). What

is “well-established” in this Circuit is our decision in Thomas,

which held that “a defendant must intend to cause a bank a loss or

potential liability, whether by way of ‘statutory law, common law,

or business practice.’” 515 F.3d at 201 (citation omitted). Given

the unusual nature of our holding in Thomas—that a facially

disjunctive statute is to be read in the conjunctive—it is not

74

impermissible attempt to overrule Thomas, and, under Third

Circuit Internal Operating Procedure 9.1, Thomas would remain

the law of this Circuit. See O. Hommel Co. v. Ferro Corp., 659

F.2d 340, 354 (3d Cir. 1981) (holding that, to the extent a later

decision conflicts with an earlier decision, the later decision “must

be deemed without effect.”).30 Thus, if the majority is correct and

Khorozian conflicts with Thomas, then Thomas, not Khorozian,

would prevail. Either way, the jury must find intent to cause the

bank a loss or risk of loss.

The majority’s reliance on United States v. Moran, 312

F.3d 480, 489 (1st Cir. 2002), see Maj. Op. at 17, is also

misplaced. No matter what a different Circuit has held, the

Khorozian panel was bound by our prior decision in Thomas.

31
surprising that other courts would disagree. But the fact of their

disagreement does not render Thomas any less valid. And none of

the cases cited by the majority was decided by a court that reads

§ 1344 in the disjunctive. See United States v. Kenrick, 221 F.3d

19, 30 (1st Cir. 2000) (reading § 1344 in the disjunctive); United

States v. Moede, 48 F.3d 238, 241 n.4 (7th Cir. 1995) (same);

Brandon, 298 F.3d at 311 (same); Hanson, 161 F.3d at 900 (same).

75

Moreover, in Moran, the First Circuit stated that the defendant

acted “with a clear motive to secure a financial windfall at the

bank’s potential expense.” Id. at 491. Thus, Moran does not hold,

as the majority suggests, that a defendant need only intend to make

misrepresentations to the bank. See Maj. Op. at 17 (citing

Khorozian, 333 F.3d at 505). The defendant in Moran did more

than make misrepresentations to the bank: he acted with the intent

to harm the bank by exposing it to a risk of loss.

C.

Finally, this error was not harmless. See Gov’t of Virgin

Islands v. Toto, 529 F.2d 278, 284 (3d Cir. 1976) (holding error

harmless if “it is highly probable that the error did not contribute

to the judgment”). On the record, I cannot find that high

probability. I acknowledge that in Neder v. United States, 527

U.S. 1, 18 (1999), the Supreme Court found it was harmless error

for the jury instructions to have omitted an element of the criminal

offense where the “omitted element is supported by

uncontroverted evidence.” That is not this case here. Indeed, at

several points the government argued to the jury that the real

victims of the defendants’ actions were the banks’ customers.

For these reasons, albeit reluctantly, I would set aside the
76

convictions and remand for a new trial. 

II.

The majority rightly acknowledges the dangers inherent in

using the standard of “moral uprightness and fairness” to define

fraud in a jury instruction. While noting the concerns trenchantly

expressed in United States v. Panarella, 277 F.3d 678 (3d Cir.

2002), the majority nevertheless upholds the charge in this case

because “the instructions, taken as a whole, properly instructed the

jury as to the proof required to establish a ‘scheme to defraud’ as

well as the appropriate intent to defraud. . . . The jury could not

have convicted the defendants merely for failing to adhere to

standards of moral uprightness or fundamental honesty.” Maj. Op.

at 25.

In my view, the standard of “moral uprightness” has no

place in jury instructions defining fraud, as it broadens the federal

fraud statute in a manner that “give[s] inadequate notice of

criminality and delegate[s] to the judiciary impermissibly broad

authority to delineate the contours of criminal liability.”

Panarella, 277 F.3d at 698. Moreover, I am unpersuaded by the

fact that Khorozian, 333 F.3d at 508-09, upheld an instruction

which defined fraud as “a departure from basic honesty, fair play,

and candid dealings.” Khorozian approved of this instruction after

viewing the charge as a whole and determining that the

instructions were clear that specific intent to defraud must be

found to convict.

In affirming the District Court’s reference to moral
32I agree with the majority that the willful blindness

instruction was not erroneous as to Leahy, and that, while in error,

the instruction was harmless as to Smith. See Maj. Op. at 30-31

n.15. My only concern with the majority’s discussion of this point

77

uprightness, the majority cites to United States v. Dobson, 419

F.3d 231 (3d Cir. 2005). See Maj. Op. at 26. In Dobson, a mail

fraud case, the District Court instructed the jury that a scheme to

defraud under 18 U.S.C. § 1341 is defined as “a departure from

fundamental honesty, moral uprightedness, or fair play and candid

dealings in the general light of the community.” Id at 239. We

reversed the defendant’s conviction, finding that the instructions,

taken as a whole, were inadequate. We stated in passing that the

reference to moral uprightness was not itself objectionable, but this

brief mention of moral uprightness provides virtually no support

for the majority’s position because (1) the statement was pure

dicta; (2) the panel was applying plain error analysis; (3) the issue

was not briefed by the litigants; and (4) the panel mentioned the

issue in a passing reference, without any discussion or analysis. 

I disagree that the jury instructions were so innocuous in

this case. We, of course, do not look to portions of the instructions

in isolation, and must consider them in their totality. See United

States v. Coyle, 63 F.3d 1239, 1245 (3d Cir. 1995). In my view,

however, the notion of “moral uprightness”—missing from the

instructions used in Khorozian—was central to the definition of

fraud in the jury instructions in this case, and thus I fail to see how

the remainder of the instructions cures this problem, or how it

could be considered harmless error under the applicable high

probability standard.32
is that the majority concludes that the instruction—which

permitted the jury to infer that the element of knowledge could be

inferred based on proof that “a defendant deliberately closed his

eyes”—was justified primarily by the behavior of an individual

who was not a defendant. The majority approves of the charge

because there was evidence that Dominic Conicelli, Sr., the sole

shareholder and president of Dantone, Inc., was willfully blind to

the conduct of his employees. Conicelli’s knowledge was certainly

relevant to the question whether Dantone’s employees committed

bank fraud “within the scope of their employment” such that the

corporation could also be convicted. But the jury instruction

referred specifically to a “defendant’s knowledge of a fact.” The

jury could reasonably have assumed that the instruction was only

intended to apply to the individual defendants. Thus, to the extent

it was justified based on Conicelli’s conduct, the willful blindness

instruction was unnecessarily vague. Nevertheless, I conclude that

any error resulting from the instruction was harmless. See Maj.

Op. at 30-31 n.15.

78