Opinion ID: 2812600
Heading Depth: 3
Heading Rank: 1

Heading: Specific Intent to Defraud (Instruction 17)

Text: Counts 1-22 of the superseding indictment charged Mr. Kalu with mail fraud.10 Mr. Kalu argues the district court plainly erred by failing to instruct the jury that specific intent to defraud is an element of mail fraud under 18 U.S.C. § 1341. The statute states in relevant part: Whoever, having devised or intending to devise any scheme or artifice . . . for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, . . . for the purpose of executing such scheme or artifice or attempting so to do, 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 . . . shall be fined under this title or imprisoned not more than 20 years, or both. 18 U.S.C. § 1341. The superseding indictment charged Mr. Kalu under this statute, alleging he “devised and intended to devise a scheme to obtain money by means of false and fraudulent pretenses and representations,” and as part of this scheme, “made false and fraudulent representations to foreign nationals, the State of Colorado, the government of the United States, and others in order to obtain money, and aided and abetted the same.” 10 Mr. Kalu was also charged with aiding and abetting mail fraud under 18 U.S.C. § 2. -11- ROA, Vol. 1 at 92. In support of the charge, it detailed a number of specific representations and acts Mr. Kalu made to advance his scheme. The jury instructions for Counts 1-22, however, did not contain the element of intent to defraud. Instruction 17, the elemental jury instruction pertaining to § 1341, stated: [t]o prove each of Counts 1-22, the Government must establish, beyond a reasonable doubt, all of the following four elements: 1. That Mr. Kalu knowingly participated in a scheme or plan to obtain money or property from another person through false representations, as that scheme is described in the Superseding Indictment; 2. That Mr. Kalu knew that the representations that were being made as part of the scheme were false; 3. That the false representations were material; and 4. That Mr. Kalu knew or could have reasonably anticipated that a person would use the mails or an interstate private or commercial carrier to transmit documents relating to the scheme, as set forth in the Superseding Indictment. ROA, Vol. 1 at 485. Mr. Kalu argues the Government was required to prove he acted with the specific intent to defraud. See United States v. Taylor, 832 F.2d 1187, 1192 (10th Cir. 1987); United States v. Gamble, 737 F.2d 853, 856 (10th Cir. 1984). He contends intent is an element of mail fraud whether a defendant is charged with devising a scheme to defraud or a scheme to obtain money by false pretenses. See United States v. Haber, 251 F.3d 881, 887 (10th Cir. 2001); Tenth Circuit Pattern Jury Instruction No. 2.56. The Government argues the jury instructions were not erroneous. The Tenth Circuit indicated in United States v. Cronic, 900 F.2d 1511, 1513 (10th Cir. 1990), that -12- § 1341 establishes two separate if overlapping offenses: a scheme to defraud and a scheme to obtain money by means of false or fraudulent pretenses, representations, or promises. The Government contends only the former includes the element of intent to defraud. Because Mr. Kalu was charged with only the latter, it argues a jury instruction regarding intent to defraud was unnecessary. a. The district court erred by failing to instruct on intent to defraud Mr. Kalu correctly recognizes that intent to defraud is an element of § 1341. The district court erred by failing to instruct the jury on this element. The underlying premise of the Government’s argument—that § 1341 contains two separate offenses with distinct elements—is incorrect. The Supreme Court has clarified since this court decided Cronic that § 1341 contains a single offense and does not separately prohibit a “scheme or artifice to defraud” and a scheme or artifice “for obtaining money or property by means of false or fraudulent pretenses.” See Loughrin v. United States, 134 S. Ct. 2384, 2391 (2014); Cleveland v. United States, 531 U.S. 12, 2526 (2000).11 Our more recent decisions also recognize that § 1341 contains a single 11 Because Tenth Circuit case law previously construed § 1341 to contain two independent offenses, we wish to explain how that construction has been undermined by Supreme Court decisions elaborating upon McNally v. United States, 483 U.S. 350, 35658 (1987) (superseded by statute on other grounds). McNally examined the history of § 1341 and explained that “adding the second phrase simply made it unmistakable that the statute reached false promises and misrepresentations to the future as well as other frauds involving money or property.” Id. at 359. In Cleveland, the Supreme Court rejected the argument “that § 1341, as amended in 1909, defines two independent offenses: (1) ‘any scheme or artifice to defraud’ and Continued . . . -13- offense, and reiterate that intent to defraud is a necessary element of mail fraud. See United States v. Zar, No. 13-1111, Slip Op. at 22 (10th Cir. 2015) (observing “Cleveland . . . effectively overruled Cronic”). ______________________________________ Cont. (2) ‘any scheme or artifice . . . for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.’” 531 U.S. at 25-26. The Cleveland Court invoked McNally, observing that “[w]ere the Government correct that the second phrase of § 1341 defines a separate offense, the statute would appear to arm federal prosecutors with power to police false statements in an enormous range of submissions to state and local authorities.” Id. at 26. It “declin[ed] to attribute to § 1341 a purpose so encompassing where Congress has not made such a design clear.” Id. Last year in Loughrin, the Court more strongly emphasized that “despite the word ‘or,’ McNally understood [§ 1341] as setting forth just one offense—using the mails to advance a scheme to defraud.” 134 S. Ct. at 2391. The Loughrin Court acknowledged that, in 1984, “every Court of Appeals to have addressed the issue had concluded that the two relevant phrases of the mail fraud law must be read ‘in the disjunctive’ and ‘construed independently,’” but underscored that “McNally disagreed, eschewing the most natural reading of the text in favor of evidence it found in the drafting history of the statute’s money-or-property clause.” Id. It stressed that the McNally Court examined both phrases in § 1341 and established “the back clarified that the front included certain conduct, rather than doing independent work.” Id. In light of Cleveland and Loughrin, our previous precedent indicating § 1341 contains two separate offenses appears untenable. The Government relies on that precedent to suggest that intent to defraud is only necessary when proving a scheme to defraud and not necessary when proving a scheme for obtaining money or property by means of false or fraudulent pretenses, representations, or promises. Although this court did indicate in Cronic that § 1341 contained two offenses after the Supreme Court decided McNally—perhaps assuming McNally resolved only the question of how courts should define “scheme or artifice to defraud”—the Court’s subsequent decisions in Cleveland and Loughrin underscore that McNally stands for the principle that § 1341 contains only a single offense. Construed as a single offense, it is clear that intent to defraud is an element of mail fraud under § 1341. See United States v. Zar, No. 13-1111, Slip Op. at 22 (10th Cir. 2015); United States v. Welch, 327 F.3d 1081, 1104 (10th Cir. 2003). -14- In post-Cleveland decisions, we have consistently indicated that specific intent to defraud is an element of a § 1341 offense. See United States v. Welch, 327 F.3d 1081, 1104 (10th Cir. 2003) (“The elements of federal mail fraud as defined in 18 U.S.C. § 1341 are (1) a scheme or artifice to defraud or obtain property by means of false or fraudulent pretenses, representations, or promises, (2) an intent to defraud, and (3) use of the mails to execute the scheme.”); see also United States v. Porter, 745 F.3d 1035, 1050 (10th Cir. 2014) (reiterating elements set forth in Welch); United States v. Schuler, 458 F.3d 1148, 1152 (10th Cir. 2006) (same). Even when our decisions construed § 1341 to contain two offenses, they required specific intent to defraud for each of them. See, e.g., United States v. Deters, 184 F.3d 1253, 1257 (10th Cir. 1999) (“The essential elements of fraud under 18 U.S.C. § 1341 are (1) the devising of a scheme either to (a) defraud or (b) obtain money through false or fraudulent pretenses, representations, or promises; (2) a specific intent to defraud; and (3) the use of the United States mails to execute the scheme.”); see also Haber, 251 F.3d at 887 (same); United States v. Gigot, 147 F.3d 1193, 1196 n.2 (10th Cir. 1998) (same); United States v. Kennedy, 64 F.3d 1465, 1475 (10th Cir. 1995) (same). The list of these essential elements indicates specific intent to defraud applies to all § 1341 violations. -15- The Government does not cite any authority that affirmatively indicates specific intent to defraud is not a requirement of an “obtaining money or property” offense.12 We conclude proof of intent to defraud is required for a scheme to obtain money or property, and the district court erred in failing to include this element in Instruction 17. b. The error was plain Having identified error, we determine the error was plain. We measure plain error at the time of appeal. See United States v. Cordery, 656 F.3d 1103, 1107 (10th Cir. 2011). The Supreme Court’s construction of § 1341 was established long before the appeal was filed, see, e.g., Cleveland, 531 U.S. at 25-26 (construing the relevant statute in 2000), and our own case law identifying intent as an element of a § 1341 offense similarly predated the appeal, see, e.g., Welch, 327 F.3d 1104 (listing the elements for the relevant statute in 2003). Although the Government now argues otherwise, its briefing to the district court indicated it too understood intent to defraud is an element of § 1341, and observed “a separate good faith instruction is unnecessary where a district court properly instructs the jury on the element of intent to defraud,” ROA, Vol. 1 at 381-82, and “the 12 Our case law identifies “an intent to defraud” as the second element of a § 1341 offense. See Porter, 745 F.3d at 1050; Schuler, 458 F.3d at 1152; Welch, 327 F.3d at 1104. Our pattern jury instructions describe this second element as “specific intent to [defraud] [obtain money or property by false or fraudulent pretenses, representations or promises].” Tenth Circuit Pattern Jury Instruction 2.56. We note the instructions define the intent requirements synonymously, specifying that “an ‘intent to [defraud] [obtain money or property by means of false or fraudulent pretenses, representations, or promises]’ means an intent to deceive or cheat someone.” Tenth Circuit Pattern Jury Instruction 2.56. All § 1341 offenses require an intent to defraud. -16- United States’ proposed instruction for the element of mail fraud includes the mens rea element of intent to defraud,” ROA, Vol. 1 at 383. We consider the error plain, and therefore conclude Mr. Kalu has satisfied the second step of plain error review. c. The erroneous instruction does not warrant reversal Having demonstrated plain error, Mr. Kalu must also show the error “affects substantial rights” and “seriously affects the fairness, integrity or public reputation of judicial proceedings.” Bedford, 536 F.3d at 1153 (quotations omitted). Mr. Kalu’s primary defense was that he acted in good faith because he trusted the legal advice of counsel and relied upon AU to honor its contractual obligations toward the nurses. He contends the district court rendered that defense irrelevant by not requiring the jury to find intent to defraud, and that this constituted reversible error. These arguments are unavailing. Mr. Kalu has not shown the error affected his substantial rights. “Satisfying the third prong of plain-error review—that the error affects substantial rights—‘usually means that the error must have affected the outcome of the district court proceedings.’” United States v. Gonzalez-Huerta, 403 F.3d 727, 732-33 (10th Cir. 2005) (en banc) (quoting United States v. Cotton, 535 U.S. 625, 632 (2002)). “To meet this burden, the appellant must show ‘a reasonable probability that, but for the error claimed, the result of the proceeding would have been different.’” Id. at 733 (quoting United States v. Dominguez Benitez, 542 U.S. 74, 82 (2004)). No such probability exists in this case. -17- The Tenth Circuit has repeatedly noted that, because fraudulent intent is difficult to prove with direct evidence, it may be inferred from circumstantial evidence considered in its totality. See Porter, 745 F.3d 1054; Schuler, 458 F.3d at 1152; Welch, 327 F.3d at 1105; United States v. Trammell, 133 F.3d 1343, 1352 (10th Cir. 1998); United States v. Prows, 118 F.3d 686, 692 (10th Cir. 1997); Taylor, 832 F.2d at 1192-93.13 “Intent may be inferred from evidence that the defendant attempted to conceal activity. Intent to defraud may be inferred from the defendant’s misrepresentations, knowledge of a false statement as well as whether the defendant profited or converted money to his own use.” Prows, 118 F.3d at 692 (quoting Kathleen Flavin & Kathleen Corrigan, Eleventh Survey of White Collar Crime: Mail Fraud and Wire Fraud, 33 Am. Crim. L. Rev. 861, 869-70 (1996) (citations and internal punctuation omitted)). Here, the record amply demonstrates Mr. Kalu misrepresented the details of the nurses’ employment and salaries to the nurses and to immigration officials, knew the statements he was making were false, and profited from the scheme. Emails from Mr. Kalu indicated he would repay visa, attorney, and transportation fees to the foreign nationals, and testimony at trial indicated he did not. The foreign nationals testified Mr. Kalu misled them about who their employer would be, what they would do, and how much they would be paid. The foreign nationals testified Mr. Kalu was not merely a 13 We note the principle does not relieve the Government of its burden to show intent, it merely allows the Government to satisfy the burden using inferential evidence. -18- middleman, but the primary or only person with whom they interacted who represented AU. Although Mr. Kalu attempts to blame advice of counsel, the Government presented testimonial and documentary evidence of Mr. Kalu’s misrepresentations to Ms. Perez and the government regarding AU, the program for the nurses, and what the foreign nationals would do and how they would be paid. Because this evidence fully demonstrated intent for the purposes of a fraud conviction, Mr. Kalu has not shown a reasonable probability that, but for the error, the outcome of the trial would have been different. Beyond the evidence, the jury was instructed on the question of Mr. Kalu’s knowledge and found Mr. Kalu knew the representations were false and that Mr. Kalu did not act in good faith. On appeal, Mr. Kalu himself acknowledges his false statements were established at trial. See Aplt. Br. at 22 (“[T]he jury concluded that Mr. Kalu either was directly responsible for, or aided and abetted, the making of false statements.”). Because Mr. Kalu does not and cannot demonstrate he satisfies the third step of plain error review, we affirm the district court.14