Opinion ID: 199023
Heading Depth: 1
Heading Rank: 2

Heading: jury instructions on bank fraud

Text: 20 Kenrick and Ober argue that the district court erred by failing to instruct the jury that they could not be convicted of bank fraud unless they intended to harm WCB. 2 Because they failed to raise this objection before the district court, we review for plain error. See United States v. Robbio, 186 F.3d 37, 42 (1st Cir. 1999); Fed. R. Crim. P. 52(b). 21 The defendants were convicted of violating 18 U.S.C. § 1344, which provides: 22 Whoever knowingly executes, or attempts to execute, a scheme or artifice-- 23 (1) to defraud a financial institution; or 24 (2) to 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; 25 shall be [subject to a specified maximum fine and term of imprisonment]. 3 26 The defendants object to a portion of the district court's instruction defining a scheme to defraud: 27 A scheme to defraud is ordinarily accompanied by a desire or a purpose to bring about some gain or benefit to one's self [sic] or some other person or by a desire or purpose to cause some loss to some other person. Here, there is not alleged--effectively, there hasn't been any evidence offered--that there was an intent to cause a loss to some other person. Here, we're dealing with allegations that there was to be some benefit to Mr. Ober, to Mr. Kenrick, or to people that Mr. Kenrick was concerned about. 28 The court also separately defined intent to defraud: To act with intent to defraud means to act wilfully with a specific intent to deceive or cheat or for the purpose of either causing some financial gain to another or one's self [sic]. 29 The panel that first considered this case agreed with the defendants that intent to defraud necessarily includes an intent to harm the bank, and that the district court erred by omitting this requirement from its jury instructions. The panel further held that there was no plain error. After further consideration of the intent issue, the en banc court, including the panel members, arrives at a different conclusion about the meaning of intent to defraud. We now hold, for the reasons set forth below, that the intent necessary for a bank fraud conviction is an intent to deceive the bank in order to obtain from it money or other property. 30 The panel addressed the intent question in the terms that the defendants posed it--whether evidence of an intent to deceive a bank and to enrich oneself or another person would support a bank fraud conviction without evidence of an intent to harm the bank. The panel's answer that proof of intent to harm was required was based on precedents from other circuits and an interpretation of the opinion of the Supreme Court in McNally v. United States, 483 U.S. 350 (1987), a case in which the Supreme Court held that the mail fraud statute does not reach honest services fraud. 4 By its terms, however, McNally does not require proof of intent to harm as an element of bank fraud, and there are no Supreme Court precedents that define the intent necessary for a bank fraud conviction. There is also no consensus among the circuits on the issue. Moreover, the intent to harm formulation of the panel contained an ambiguity that could not be dispelled easily. 5 31 In arriving at our formulation of the intent necessary for a bank fraud conviction, we begin with the language of the bank fraud statute. Because neither the indictment nor the jury instructions specified the subsection of § 1344 under which Kenrick and Ober were charged, we must examine both subsections. Section 1344(2) specifies an intent requirement. It prescribes a punishment for whoever knowingly executes, or attempts to execute, a scheme or artifice... to obtain any of the monies, 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. 6 This language boils down to a prohibition on schemes to obtain money or other property from a bank by specified means of deception. The particular means of deception chosen are not essential to the intent element, which can therefore be defined as an intent to deceive a bank in order to obtain from it money or other property. Nothing in the language of § 1344(2) indicates that intent to harm is required. 32 The statutory text does not fully dispose of the intent question, however, because the specific language of § 1344(2) cannot dictate the intent element of the general to defraud language of § 1344(1). On the face of the statute, § 1344(2) provides an alternative to, not a definition of, a scheme or artifice to defraud in violation of § 1344(1). Nothing in the text of the statute requires that the intent element of § 1344(1) be defined in the same way as the intent element of § 1344(2) or, for that matter, that they be defined differently.Moreover, the Supreme Court said recently in Neder v. United States, 527 U.S. 1, 20 (1999), that none of the fraud statutes defines the phrase'scheme or artifice to defraud.' Yet Neder provides clear guidance on how to discern the elements of the scheme to defraud proscribed in § 1344(1). 33 The Neder Court addressed the question of whether materiality is an element of a scheme to defraud under the mail, wire, and bank fraud statutes. Because the statutes do not define the elements of a scheme to defraud, the Court followed the well-established rule of construction that Congress intends to incorporate the well-settled meaning of the common-law terms it uses. Id. at 21, 23. The use of the word defraud raises a presumption that Congress intended to incorporate the common-law meaning of the term 'fraud' in the mail fraud, wire fraud, and bank fraud statutes. Id. at 23 n.7. Since the statutory text does not rebut the presumption that Congress intended to incorporate the common-law materiality element, the Court held that materiality of falsehood is an element of the federal mail fraud, wire fraud, and bank fraud statutes. Id. at 25. 34 Neder thus requires that we look to the common-law meaning of fraud in examining the intent element of a scheme or artifice to defraud in violation of § 1344(1). The intent element of common-law civil fraud is well established. According to the Restatement, which the Neder Court relied on for its definition of materiality, see 527 U.S. at 22 n.5 (quoting Restatement (Second) of Torts § 538 (1976)), One who fraudulently makes a misrepresentation... for the purpose of inducing another to act or to refrain from action in reliance upon it, is subject to liability to the other in deceit.... Restatement (Second) of Torts § 525 (1976); see also W. Page Keeton et al., Prosser & Keeton on the Law of Torts, § 105, at 728 (5th ed. 1984) ([a]n intention to induce the plaintiff to act or refrain from action in reliance upon the misrepresentation is an element of tort of deceit). Commentary roughly contemporary with the Congress that enacted the mail fraud statute in 1872 gives a similar definition of the intent element. It is said that a man is liable to an action for deceit if he makes a false representation to another, knowing it to be false, but intending that the other should believe and act upon it.... Oliver Wendell Holmes, Jr., The Common Law 132 (1881); see also 2 Charles G. Addison, A Treatise on the Law of Torts § 1174, at 398 (H.G. Wood ed., 1881) ([I]f a falsehood be knowingly told, with an intention that another person should believe it to be true, and act upon it,... the party telling the falsehood is responsible in damages in an action for deceit....). 35 Common-law fraud thus requires an intent to induce action by the plaintiff in reliance on the defendant's misrepresentation. Commentators of the nineteenth and twentieth centuries agree that common-law fraud has no additional intent to harm requirement. See Prosser, supra, § 107, at 741 (it is well settled that intent to accomplish an ultimate purpose, as to benefit the speaker, or to cause harm to the one addressed, is of no importance except to punitive damages); 2 Addison, supra, § 1174, at 404 ([I]t is not necessary to prove that the false representation was made from a corrupt motive of gain to the defendant, or a wicked motive of injury to the plaintiff....). 36 The common-law element of intent to induce action by the plaintiff in reliance on the defendant's misrepresentation translates directly into the criminal bank fraud context, where a guilty defendant intends to induce the bank to act--i.e., to part with money or other property--in reliance on his deceit or misrepresentation. 7 Referring to an intent to induce reliance is potentially confusing to a jury, however, because it may erroneously suggest that actual reliance by the bank is also an element of the crime, as it is an element of common-law civil fraud. The Supreme Court has said that the common-law elements of justifiable reliance and damages plainly have no place in the federal fraud statutes. Neder, 527 U.S. at 25. This potential for confusion is avoided by speaking simply of an intent to deceive the bank in order to obtain from it money or other property. We see no substantive difference between an intent to induce a bank to part with money in reliance on deceit or misrepresentation and an intent to deceive a bank in order to obtain from it money or other property. 37 The latter formulation is consistent with the text of § 1344(2). It is also similar to language we have used in several cases. We have said, quoting an oft-cited Third Circuit case, that a bank fraud scheme must be intended to deceive others in order to obtain something of value, such as money, from the institution to be deceived. United States v. Brandon, 17 F.3d 409, 424 (1st Cir. 1994) (quoting United States v. Goldblatt, 813 F.2d 619, 624 (3d Cir. 1987)); 8 accord United States v. Colon-Munoz, 192 F.3d 210, 221 (1st Cir. 1999); United States v. Blasini-Lluberas, 169 F.3d 57, 65 (1st Cir. 1999). Furthermore, this formulation plainly comports with McNally's requirement that a scheme to defraud be directed at wronging one in his property rights by dishonest methods or schemes. 483 U.S. at 358. We hold, therefore, that the intent element of bank fraud under either subsection is an intent to deceive the bank in order to obtain from it money or other property. 9 Intent to harm is not required. 38 Applying our holding to the jury charge in this case, we conclude that the instructions read as a whole, see United States v. Robbio, 186 F.3d 37, 42 (1st Cir. 1999), adequately conveyed the essence of the intent element. The district court told the jurors that [t]he term 'defraud' means to deprive another of something of value by means of deception or cheating. Given that instruction and the facts of this case, we are confident that the jury could not have found Kenrick and Ober guilty of bank fraud without finding that they intended to deceive WCB in order to obtain money from it. There was no plain error in the court's jury instructions. 39 We do not mean to imply, however, that the court's instruction or the pattern bank fraud instruction on which it was apparently based, see 1st Cir. Pattern Crim. Jury Instr. 4.14, is perfect. Although it may ordinarily accompan[y] 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, id., 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.