Opinion ID: 793720
Heading Depth: 3
Heading Rank: 1

Heading: The intangible rights theory can apply in a private commercial setting.

Text: 12 In the original indictment, the government charged Defendant with mail and wire fraud in violation of 18 U.S.C. §§ 1341 and 1343, respectively. Section 1341 provides in part: 13 Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises . . ., places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined under this title or imprisoned not more than 20 years, or both. Section 1343 states, as relevant: 14 Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both. 15 Both sections codify a direct theory of fraud in which the object of the fraudulent scheme is to obtain money or other tangible property. 16 The superseding indictment added a reference to 18 U.S.C. § 1346 in each of the seven fraud counts. Section 1346 states: 17 For the purposes of this chapter, the term scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services. 18 Section 1346 thus codifies an intangible rights theory of fraud. Under this theory, the object of the fraudulent scheme is the victim's intangible right to receive honest services. 19 The government charged Defendant under both fraud theories in the alternative. The jury returned a general verdict of guilty on all seven fraud counts. Neither party requested a special verdict form, so the jury did not specify the theory of fraud on which it relied, nor did it specify whether it reached unanimity on either or both of the two theories. 20 Defendant argues that the intangible rights theory of fraud does not apply to private individuals. Therefore, he argues, in the absence of a special verdict confirming that the jury found him guilty of violating 18 U.S.C. §§ 1341 and 1343 through direct fraud, his fraud convictions must be vacated under the principles announced in Yates v. United States, 354 U.S. 298, 312, 77 S.Ct. 1064, 1 L.Ed.2d 1356 (1957), overruled in part on other grounds by Burks v. United States, 437 U.S. 1, 98 S.Ct. 2141, 57 L.Ed.2d 1 (1978). 21 Yates involved a single-count federal indictment against the defendants, which charged them with conspiracy (1) to advocate and teach the duty and necessity of overthrowing the Government of the United States by force and violence, and (2) to organize, as the Communist Party of the United States, a society of persons who so advocate and teach. Id. at 300, 77 S.Ct. 1064. The Court held that the term organized in this context referred to the initial formation of the party. Id. at 310-11, 77 S.Ct. 1064. This holding rendered the organizing object of the conspiracy charge legally insufficient on statute of limitations grounds. Id. at 312, 77 S.Ct. 1064. The Supreme Court then applied the rule of Stromberg v. California, 283 U.S. 359, 367-68, 51 S.Ct. 532, 75 L.Ed. 1117 (1931), and held: In these circumstances we think the proper rule to be applied is that which requires a verdict to be set aside in cases where the verdict is supportable on one ground, but not on another, and it is impossible to tell which ground the jury selected. Yates, 354 U.S. at 312, 77 S.Ct. 1064. 22 In Griffin v. United States, 502 U.S. 46, 55, 112 S.Ct. 466, 116 L.Ed.2d 371 (1991), the Court noted: 23 Yates, however, was the first and only case of ours to apply Stromberg to a general verdict in which one of the possible bases of conviction did not violate any provision of the Constitution but was simply legally inadequate (because of a statutory time bar). As we have described, that was an unexplained extension, explicitly invoking neither the Due Process Clause (which is an unlikely basis) nor our supervisory powers over the procedures employed in a federal prosecution. 24 Despite that negative commentary, Griffin did not provide the Court with an opportunity to reevaluate Yates. Thus, Yates remains the controlling rule. See United States v. Fulbright, 105 F.3d 443, 451 (9th Cir.1997) (Where a jury returns a general verdict that is potentially based on a theory that was legally impermissible or unconstitutional, the conviction cannot be sustained because jurors, as non-lawyers, cannot be expected to eliminate the legally impermissible option.). We must, therefore, decide whether 18 U.S.C. § 1346 provides a legally sufficient ground for the fraud counts. We review de novo the district court's holding. United States v. Frega, 179 F.3d 793, 802 n. 6 (9th Cir. 1999). 25 The intangible rights theory has been a subject of controversy in the history of the federal mail and wire fraud statutes. Before 1987, this circuit, among others, interpreted §§ 1341 and 1343 to proscribe two categories of fraudulent schemes. United States v. Bohonus, 628 F.2d 1167, 1171 (9th Cir.1980). The first included schemes to deprive others of tangible property interests, and the second included schemes to deprive others of intangible rights. Id. 26 In 1987, the Supreme Court decided McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987). McNally effectively limited the scope of the fraud statutes by holding that §§ 1341 and 1343 protect[] property rights, but do[] not refer to the intangible right of the citizenry to good government. Id. at 356, 107 S.Ct. 2875. Defendant argues that § 1346 is exclusively a public corruption statute that cannot be used to prosecute private individuals for acts of fraud. We disagree. 27 We look, first, at the text of the statute as the best guide to congressional intent. City of Edmonds v. Wash. State Bldg. Code Council, 18 F.3d 802, 804 (9th Cir.1994). Neither the words of § 1346 nor its context suggests the public-corruption-only limitation for which Defendant argues. Section 1346 refers, without limitation, to the intangible right of honest services, and sections 1341 and 1343 contain no special reference to public corruption. 28 We consider, next, our pre- McNally cases because, by overruling McNally, Congress restored the pre- McNally landscape. See Frega, 179 F.3d at 803 (observing it is clear that Congress reacted, at the Court's invitation, to overrule McNally ). In our pre- McNally cases, we applied the intangible rights theory of fraud to both public officials and private citizens. See, e.g., United States v. Louderman, 576 F.2d 1383, 1387 (9th Cir.1978) (affirming the convictions of two private citizens under § 1343 on the ground that the defendants' actions deprived targeted individuals of their right to privacy and of a service for which they were paying); see also Bohonus, 628 F.2d at 1172 (applying the mail fraud statute against a private insurance manager and holding that a scheme to defraud an employer of loyal service is prohibited under § 1341 provided the mails were used in the furtherance of the scheme and specific intent ... is shown). 29 Although we have not addressed directly whether the intangible rights theory should still apply to private defendants after the passage of § 1346, other circuits have done so and have found such application appropriate. For example, the Second Circuit in United States v. Rybicki, 354 F.3d 124, 127 (2d Cir.2003) (en banc), upheld the mail fraud and wire fraud convictions of two private lawyers who were giving illegal payments to insurance claims adjusters with the intent of inducing the adjusters to expedite the settlement of certain claims. The court defined scheme or artifice to deprive another of the intangible right to honest services in relation to private actors as a 30 scheme or artifice to use the mails or wires to enable an officer or employee of a private entity (or a person in a relationship that gives rise to a duty of loyalty comparable to that owed by employees to employers) purporting to act for and in the interests of his or her employer (or of the other person to whom the duty of loyalty is owed) secretly to act in his or her or the defendant's own interests instead, accompanied by a material misrepresentation made or omission of information disclosed to the employer or other person. 31 Id. at 141-42 (footnote omitted). 32 The Sixth Circuit, in United States v. Frost, 125 F.3d 346, 366 (6th Cir.1997), held that private individuals, such as [the defendants who were university professors], may commit mail fraud by breaching a fiduciary duty and thereby depriving the person or entity to which the duty is owed of the intangible right to the honest services of that individual. Frost, therefore, refused to reinstate the Sixth Circuit's pre- McNally decision of United States v. Gray, 790 F.2d 1290 (6th Cir.1986) (per curiam), rev'd by McNally, 483 U.S. 350, 107 S.Ct. 2875, which had limited the intangible rights theory to the prosecution of public officials. See also United States v. Vinyard, 266 F.3d 320, 326 (4th Cir. 2001) (affirming the mail fraud conviction of a private attorney and holding that, [a]lthough the honest services theory of mail fraud is directed primarily at the deterrence and punishment of corruption among public officials, the courts have consistently recognized the statute's province to encompass dishonest acts perpetrated in private commercial settings); United States v. deVegter, 198 F.3d 1324, 1330 (11th Cir.1999) (holding that the § 1346 theory applies to private-sector defendants but that such cases must involve a breach of fiduciary duty and reasonably foreseeable economic harm); United States v. Sun-Diamond Growers of Cal., 138 F.3d 961, 973 (D.C.Cir.1998) (holding that the § 1346 theory can support the conviction of a private defendant where there [is] a failure to disclose something which in the knowledge or contemplation of the employee poses an independent business risk to the employer (internal quotation marks and alteration omitted)). We follow our sister circuits and hold that the intangible rights theory of fraud, as codified by § 1346, can apply to private individuals as well as to public figures. 33 The next step in the inquiry, then, is whether Defendant is the type of private individual who falls within the scope of the statute's provisions. The text of § 1346 reaches, without express limitation, a scheme or artifice to deprive another of the intangible right of honest services. (Emphasis added.) The undifferentiated term another has led a number of circuits to question whether Congress really meant to give § 1346 unlimited breadth. See Rybicki, 354 F.3d at 135 & n. 7 (surveying circuit courts' treatments of the issue). At a minimum, we and other circuits have recognized the viability of the intangible rights theory when the private defendant stands in a fiduciary or trust relationship with the victim of the fraud. Because Defendant had such a relationship with his victim, we need not and do not decide whether Congress intended another to reach even further. See Or.Rev. Stat. § 127.045 (providing that an attorney-in-fact or agent [under a power of attorney] must use the property of the principal for the benefit of the principal). 34 In Bohonus, we recognized that the intangible rights theory of fraud most often is applied to cases involving bribery of public officials. The requisite `scheme or artifice to defraud' is found in the deprivation of the public's right to honest and faithful government. When a public official is bribed, he is paid for making a decision while purporting to be exercising his independent discretion. The fraud element is therefore satisfied. Bohonus, 628 F.2d at 1171. We held, though, that the same rationale that governs the public official/constituent relationship also applies in the employee/ employer context. [D]epriving an employer of one's honest services and of its right to have its business conducted honestly can constitute a `scheme to defraud' under § 1341. Id. at 1172. 35 Although the facts of Bohonus did not require us to decide what other classes of private individuals are subject to prosecution under the intangible rights theory of mail and wire fraud, the opinion suggests that other fiduciary relationships would qualify. See id. (noting that a breach of a fiduciary duty, ... standing alone, [does not] show a § 1341 violation; there must be a recognizable scheme formed with intent to defraud). As the Second Circuit explained in Rybicki: Although the bulk of the pre- McNally honest-services cases involved employees, we see no reason the principle they establish would not apply to other persons who assume a legal duty of loyalty comparable to that owed by an officer or employee to a private entity. Rybicki, 354 F.3d at 142 n. 17 (citing precedent from the Second, Eighth, and Tenth Circuits in which the intangible rights theory was applied to various fiduciary relationships). 36 Stubbs employed Defendant as a fiduciary, and Defendant therefore undertook the high duties of honesty and loyalty to him. Specifically, Stubbs hired and relied on Defendant as a financial advisor and estate planner. He entrusted Defendant with large sums of money and signed a durable power of attorney naming Defendant as his agent. In these circumstances, the § 1346 theory underlying the charges against Defendant was legally valid. Because Defendant was a fiduciary, we have no occasion to decide whether the intangible right of honest services in § 1346 applies to persons who are not fiduciaries. 37 2. Because both theories of the prosecution were legally valid, no error resulted from the use of a general verdict. 38 Whether the prosecution fulfilled its burden to prove that Defendant was guilty under the intangible rights theory is a separate question, and one that we need not reach. `[W]hen a jury returns a guilty verdict on an indictment charging several acts in the conjunctive . . ., the verdict stands if the evidence is sufficient with respect to any one of the acts charged.' Griffin, 502 U.S. at 56-57, 112 S.Ct. 466 (alteration in original) (quoting Turner v. United States, 396 U.S. 398, 420, 90 S.Ct. 642, 24 L.Ed.2d 610 (1970)). 39 The government charged Defendant with direct mail and wire fraud under 18 U.S.C. §§ 1341 and 1343, respectively. The government charged Defendant under § 1346 only as an alternative theory based on the same underlying conduct. 40 The elements of direct mail and wire fraud are (1) engaging in a scheme or artifice to defraud and (2) using or causing the use of the mails or wires in order to further the fraudulent scheme or artifice. United States v. Manion, 339 F.3d 1153, 1156 (9th Cir.2003) (per curiam). Here, Defendant used his position as Stubbs' financial planner to induce Stubbs to award a power of attorney over those assets to Defendant. Defendant used that power of attorney to create a joint bank account in the names of Stubbs and himself, without Stubbs' knowledge. Without informing Stubbs, Defendant transferred Stubbs' assets to the joint bank account and then caused the mails or wires to be used to move the money into Defendant's own accounts in Belize and in Louisiana. That evidence supports Defendant's convictions under §§ 1341 and 1343 for direct fraud. Therefore, we affirm his mail fraud and wire fraud convictions.