Source: http://federaltaxcrimes.blogspot.com/2016/07/good-eleventh-circuit-analysis-on.html
Timestamp: 2019-04-20 15:06:43+00:00

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In the government's view, the jury could convict the defendants of wire fraud based on those lies alone. The defendants argued just the opposite—that "just because they have [used promoters to persuade men to come back to the respective establishments] does not constitute fraud with regard to the wire fraud or conspiracy to commit these frauds."
At the close of evidence, the defendants asked for a jury instruction to support this theory. Specifically, they asked the court to instruct the jury that "[f]ailure to disclose the financial arrangement between the B-girls and the Bar, in and of itself, is not sufficient to convict a defendant of any offense[.]" The court denied that theory-of-the-defense instruction, however, because the court did [*6] not believe it was "an accurate statement of the law."
During closing argument, the government argued exactly what the defendants had expected it would argue: that the B-girls' concealment of their bar-affiliation to the men were material misrepresentations sufficient to constitute fraud. ("The first lie was by the girls to get them to come to the clubs by not telling them that they work for the clubs and got a percentage and this was material. This was important because, as even the defendant's own witness told you, had they known that these women worked for the clubs they likely wouldn't have even gone.")]. When defense counsel stood up to make their closing arguments, they did so in front of a jury that had just heard that the B-girls' lies were material and had never received an instruction to the contrary. Perhaps for this reason, defense counsel focused their efforts elsewhere, arguing that there was not enough evidence to connect the defendants to the other fraudulent activities at the clubs. Specifically, the defendants argued that they were not involved in the alleged fraud that took place within the clubs, and that they did not believe they were doing anything illegal. Following closing arguments, the jury convicted the defendants on several counts, including multiple counts of wire fraud and money laundering. This appeal followed.
The law in question here is the wire-fraud statute, which makes criminal any "scheme or artifice to defraud." 18 U.S.C. § 1343. The statute itself, however, does not explain what constitutes such a scheme or artifice. United States v. Bradley, 644 F.3d 1213, 1240 (11th Cir. 2011). Thus, the meaning of the phrase "scheme to defraud" has been "judicially defined." United States v. Pendergraft, 297 F.3d 1198, 1208 (11th Cir. 2002). And that definition is a broad one, "broad[er] . . . than the common law definition of fraud." Id. It is a "reflection of moral uprightness, of fundamental honesty, fair play and right dealing in the general and business life of members of society." Gregory v. United States, 253 F.2d 104, 109 (5th Cir. 1958).
"[D]espite its breadth," however, "the judicial definition" of a "scheme to defraud" has some limits. Bradley, 644 F.3d at 1240. The most important limit is obvious from the statute itself: the scheme must be a scheme to defraud rather than to do something other than defraud. For Congress could have made criminal any "scheme" simpliciter, but chose not to do so. The first question presented in this case, then, is what the word "defraud" means.
To answer that question, we turn first to the dictionaries. For "[t]he ordinary-meaning rule is the most fundamental semantic rule of interpretation." Antonin Scalia & Bryan A. Garner, Reading Law 69 (2012). And "to determine the common usage or ordinary meaning of a term, [we] often turn to dictionary definitions for guidance." CBS Inc. v. PrimeTime 24 Joint Venture, 245 F.3d 1217, 1223 (11th Cir. 2001); see also Stein v. Paradigm Mirasol, LLC, 586 F.3d 849, 854 (11th Cir. 2009) (noting that "[a] term that is undefined in a statute carries its ordinary meaning" and turning first to the dictionary to determine that meaning). Black's defines the word "defraud" as "[t]o cause injury or loss to (a person or organization) by deceit." Black's Law Dictionary 516 (10th ed. 2014.). Webster's says much the same. Webster's Third New International Dictionary 593 (2002) (defining the word "defraud" as "to take or withhold from (one) some possession, right, or interest by calculated misstatement or perversion of truth, trickery, or other deception").
These definitions make clear that there is a difference between deceiving and defrauding: to defraud, one must intend to use deception to cause some injury; but one can deceive without intending to harm at all. See Black's at 492 (defining the word "deception" as "[t]he act of deliberately causing someone to believe that something is true when the actor knows it to be false"); Webster's at 585 (defining the word "deception" as "the act of deceiving, cheating, hoodwinking, misleading, or deluding"). Thus, deceiving is a necessary condition of defrauding but not a sufficient one. Put another way, one who defrauds always deceives, but one can deceive without defrauding.
For this reason, the law in the Eleventh Circuit makes clear that a defendant "schemes to defraud" only if he schemes to "depriv[e] [someone] of something of value by trick, deceit, chicane, or overreaching." Bradley, 644 F.3d at 1240. But if a defendant does not intend to harm the victim—"to obtain, by deceptive means, something to which [the defendant] is not entitled"—then he has not intended to defraud the victim. Id.
From that conclusion, a corollary follows: a schemer who tricks someone to enter into a transaction has not "schemed to defraud" so long as he does not intend to harm the person he intends to trick. And this is so even if the transaction would not have occurred but for the trick. For if there is no intent to harm, there can only be a scheme to deceive, but not one to defraud.
Consider the following two scenarios. In the first, a man wants to exchange a dollar into four quarters without going to the bank. He calls his neighbor on his cell phone and says that his child is very ill. His neighbor runs over, and when she arrives he asks her to make change for him. She agrees; the quarters pass to the man; the dollar passes to the woman; and they part ways. She later learns that the child was just fine all along. The second scenario is identical to the first, except that instead of giving the woman a true dollar, he gives her a counterfeit one.
The first scenario is not wire fraud; the second one is. n4 Although the transaction would not have occurred but-for the lie in the first scenario—the woman would have remained home except for the phony sickness—the man nevertheless did not intend to "depriv[e] [the woman] of something of value by trick, deceit, [and so on]." Bradley, 644 F.3d at 1240. But in the second scenario he did intend to do so.
n4 This assumes, of course, that the man's cell-phone signal travels across state lines, thus constituting a "wire, radio, or television communication in interstate or foreign commerce." 18 U.S.C. § 1343.
More specifically, the difference between the scenarios is that, in the first scenario, the man did not lie about the nature of the bargain: he promised to give the woman a true dollar in exchange for the quarters, and he did just that. In the second, he lied about the nature of the bargain: he promised to give her a true dollar but gave her a fake one instead.
Now imagine another, more common scenario: a young woman asks a rich businessman to buy her a drink at Bob's Bar. The businessman buys the drink, and afterwards the young woman decides to leave. Did the man get what he bargained for? Yes. He received his drink, and he had the opportunity to buy a young woman a drink. Does it change things if the woman is Bob's sister and he paid her to recruit customers? No; regardless of Bob's relationship with the woman, the businessman got exactly what he bargained for. If, on the other hand, Bob promised to pour the man a glass of Pappy Van Winkle n5 but gave him a slug of Old Crow n6 instead, well, that would be fraud. Why? Because the misrepresentation goes to the value of the bargain.
n5 "Pappy's," as it is often called, is a particularly rare bourbon varietal: nearly impossible to find, and nearly impossible to afford when one finds it.
n6 Although Old Crow has a venerable pedigree—reportedly the go-to drink of Mark Twain, Ulysses S. Grant, Hunter Thompson, and Henry Clay—it is not Kentucky's most-expensive liquor. Its "deluxe" version, "Old Crow Reserve," retails for approximately $15 per bottle.
Thus, a "scheme to defraud," as that phrase is used in the wire-fraud statute, refers only to those schemes in which a defendant lies about the nature of the bargain itself. That lie can take two primary forms: the defendant might lie about the price (e.g., if he promises that a good costs $10 when it in fact costs $20) or he might lie about the characteristics of the good (e.g., if he promises that a gemstone is a diamond when it is in fact a cubic zirconium). In each case, the defendant has lied about the nature of the bargain and thus in both cases the defendant has committed wire fraud. But if a defendant lies about something else—e.g., if he says that he is the long-lost cousin of a prospective buyer—then he has not lied about the nature of the bargain, has not "schemed to defraud," and cannot be convicted of wire fraud on the basis of that lie alone.
The Second Circuit has interpreted the wire-fraud statute in precisely this way. Their cases have "drawn a fine line between schemes that do no more than cause their victims to enter into transactions that they would otherwise avoid—which do not violate the mail or wire fraud statutes—and schemes that depend for their completion on a misrepresentation of an essential element of the bargain—which do violate the mail and wire fraud statutes." United States v. Shellef, 507 F.3d 82, 108 (2d Cir. 2007); see also United States v. Starr, 816 F.2d 94, 98 (2d Cir. 1987) ("Misrepresentations amounting only to a deceit are insufficient to maintain a mail or wire fraud prosecution. Instead, the deceit must be coupled with a contemplated harm to the victim [that] affect[s] the very nature of the bargain itself. Such harm is apparent where there exists a discrepancy between benefits reasonably anticipated because of the misleading representations and the actual benefits which the defendant delivered, or intended to deliver.") (internal quotation marks omitted); United States v. Regent Office Supply Co., 421 F.2d 1174, 1182 (2d Cir. 1970) ("[W]e conclude that the defendants intended to deceive their customers but they did not intend to defraud them, because the falsity of their representations was not shown to be capable of affecting the customer's understanding of the bargain nor of influencing his assessment of the value of the bargain to him, and thus no injury was shown to flow from the deception.").
Moreover, the Second Circuit's interpretation of the wire-fraud statute is not a parochial interpretation of an ambiguous provision of federal law. Their interpretation follows as a matter of logic from Congress's decision to use the phrase "scheme to defraud" rather than "scheme" or "scheme to deceive." We therefore adopt that interpretation as our own. A jury cannot convict a defendant of wire fraud, then, based on "misrepresentations amounting only to a deceit." Shellef, 507 F.3d at 108. Thus, even if a defendant lies, and even if the victim made a purchase because of that lie, a wire-fraud case must end in an acquittal if the jury nevertheless believes that the alleged victims "received exactly what they paid for." Id.
Here, the defendants asked the district court to instruct the jury that "[f]ailure to disclose the financial arrangement between the B-girls and the Bar, in and of itself, is not sufficient to convict a defendant of any offense[.]" R. 921 at 1; see also R. 1152 at 285 ("So [Pavlenko's] theory of defense is just because [the defendants used the B-girls to lure men into the clubs without disclosing their financial arrangement] does not constitute fraud with regard to the wire fraud or conspiracy to commit these frauds."). If the jury believed that the defendants had deceived the victims only about the B-girls' pay arrangement, then the jury would likewise believe that the defendants' misrepresentations "amount[ed] only to deceit" and that the victims "received exactly what they paid for." Shellef, 507 F.3d at 108. Thus, "failure to disclose the financial arrangement between the B-girls and the Bar" was not "in and of itself" sufficient to convict the defendants of wire fraud. The defendants' requested instruction therefore seems like a correct statement of the law.
The government responds in a few ways. First, it argues that the Second Circuit cases have not "been applied in this Circuit." United States Br. at 43. True, but neither have we rejected the Second Circuit's interpretation; we simply have never considered the question they answered. And the "law" at issue is the proper interpretation of the federal statute itself, not some common-law creature unique to the Second Circuit. After all, the defendants' argument is not that the Eleventh Circuit is bound by the opinions of the Second Circuit. The argument is that the Second Circuit's interpretation of the statute is the right interpretation. Thus, the defendants argue, their proposed jury instruction was a correct statement of "the law," i.e., the statute. We have already explained why we agree.
Second, the government argues that the proposed instruction "was incorrect legally, because it proposed to tell the jury that [the] defendants' conduct was outside the reach of the wire fraud statute." United States Br. at 54. No, it did not. It proposed only to tell the jury what portion of the defendants' conduct could be criminal under the statute and what portion could not.
Third, the government argues that "Pavlenko's instruction was incorrect in its portrayal of the charges" because the government "never described the [defendants'] scheme" as one "to have attractive women induce patrons to purchase and consume alcoholic beverages under the illusion that the patron may later persuade the women to have sexual relations." United States Br. at 55. Fair enough. But the question at hand is a purely legal one: whether the defendants' proposed instruction was a correct statement of the law. And the government's characterization of the defendants' scheme has no bearing on the answer to that question.
Finally, the government argues that the instruction "was incorrect in its depiction of the facts" because "[t]he evidence showed convincingly that the conspirators . . . intoxicated patrons without their knowledge or knowing consent, forcing liquor onto patrons, adulterating beverages, and physically pouring it down victims' throats in some instances." United States Br. at 55-56. Again, fair enough. But, again, totally irrelevant. What "the evidence showed"—even "showed convincingly"—simply has no bearing on whether the defendants' proposed instruction was a correct statement of the law.
In sum, the defendants asked the district court to tell the jurors that they could convict only if they found that the defendants had schemed to lie about the quality or price of the goods sold to the [*19] victims. And § 1343, which we interpret de novo, requires the jury to make just such a finding before convicting a defendant of wire fraud. Thus, the proposed instruction was a correct statement of the law.
The panel then does conclude that the trial judge abused his discretion in refusing the requested instruction.
We consider whether conspiring to make the government's job harder is, without more, a federal crime.

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