Opinion ID: 6446
Heading Depth: 2
Heading Rank: 1

Heading: The Reference to Intangible Rights in the Bank Fraud Charge

Text: 21 The third count of the Government's indictment charged the appellants with violating the federal bank fraud statute, 18 U.S.C. Sec. 1344. This statute criminalizes the execution or the attempted execution of a scheme or artifice-- 22 (1) to defraud a financial institution; or 23 (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. 24 In its instructions to the jury on this count, the district court defined a scheme to defraud to be any scheme to deprive another of money, property, or of the intangible right to honest services by means of false or fraudulent pretenses, representations, or promises. (emphasis supplied). Noting that the phrase intangible right to honest services does not appear in the bank fraud statute, both appellants contend that the district court's use of this phrase in the jury charge allowed convictions for conduct not within the scope of the law. The appellants claim that this error ipso facto requires reversal of both their bank fraud and conspiracy convictions. We do not agree. 25 The appellants's argument is rooted in McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987). In that case, the Supreme Court held that the federal mail fraud statute, 18 U.S.C. Sec. 1341, 6 did not apply to schemes to deprive citizens of their intangible right to honest government services, but was instead limited to the protection of money and property rights. In 1988, Congress legislatively overruled McNally by enacting 18 U.S.C. Sec. 1346 and defining a scheme to defraud to include a scheme to deprive another of the intangible right of honest services. However, this statute does not--indeed, cannot--apply retroactively. United States v. Loney, 959 F.2d 1332, 1335 n. 6 (5th Cir.1992). The appellants contend that the Supreme Court's reading of the mail fraud statute applies to the bank fraud statute. The appellants thus reason that a scheme that took place before the enactment of Sec. 1346 and that only deprived a financial institution of the intangible right to honest services is not covered by the bank fraud statute. The appellants therefore claim that since the offenses with which they were charged occurred before the enactment of Sec. 1346, the reference to intangible rights in the trial court's instructions was erroneous and requires reversal of their bank fraud convictions. 26 At first glance, it appears as though our first task is to decide whether the Supreme Court's interpretation of the mail fraud statute in McNally applies to the bank fraud statute. However, in Saks we held that, even assuming that McNally 's interpretation of the mail fraud statute applies to the bank fraud statute, the inclusion of the intangible rights language in a court's jury charge on a bank fraud count is harmless beyond a reasonable doubt in cases in which the  ' bottom line of the scheme or artifice [charged] had the inevitable result of effecting monetary or property losses.'  Saks, 964 F.2d at 1521 (quoting United States v. Asher, 854 F.2d 1483, 1494 (3d Cir.1988), cert. denied, 488 U.S. 1029, 109 S.Ct. 836, 102 L.Ed.2d 969 (1989)). As we observed in Saks, this formulation of the approach to such cases is a specific application of the general principle that  '[a]n erroneous instruction on an element of the offense can be harmless beyond a reasonable doubt, if, given the factual circumstances of the case, the jury could not have found the defendant guilty without making the proper factual finding as to that element.'  Id. (quoting United States v. Doherty, 867 F.2d 47, 58 (1st Cir.), cert. denied, 492 U.S. 918, 109 S.Ct. 3243, 106 L.Ed.2d 590 (1989)). 27 Thus, if the inevitable result of Holley and Haass's scheme was to defraud Peoples of money or property interests, then we will find the alleged error in the jury charge to be harmless beyond a reasonable doubt and affirm the appellants's convictions for bank fraud. We are persuaded that, as in Saks, the jury could not have found that the scheme proved at trial deprived Peoples of the intangible right to honest services without there being implicit in that finding a finding that the scheme defrauded the institution of money or property interests. The appellants were engaged in a scheme to defraud Peoples by causing that institution to make loans to Brannon and Jones without inquiring into the collateral for the loans. This scheme had the inevitable, inescapable, and unavoidable result of exposing Peoples to at least a risk of loss. Such conduct is sufficient to support a conviction under Sec. 1344. See, e.g., Barakett, 994 F.2d at 1111 & n. 15. Therefore, the jury could not have concluded that the appellants intended to defraud Peoples of its intangible right to honest services without also finding that Holley and Haass knowingly exposed the institution to a risk of financial loss. Though the appellants may have deprived Peoples of its right to honest services, any such deprivation was incidental to the appellants's scheme to fraudulently extend loans to Brannon and Jones. The conclusion we reached in Saks is equally applicable here: The jury's guilty verdict on the bank fraud count reflects a reasoned judgment that [the defendants] participated in the scheme with full knowledge not only that [they] were acting dishonestly, but also that the scheme had financial consequences. Saks, 964 F.2d at 1522 (emphasis in original). 28 The appellants contend that Saks is distinguishable because the defendants in that case failed to object to the jury charge and therefore could only argue that the trial court's inclusion of the intangible right language was plain error. The appellants observe that, since they objected to the district court's jury charge, we are not limited to such a deferential standard of review. However, we do not believe that this distinction is meaningful in this case. Although there may have been an error in the jury charge, Saks and the cases upon which it relied convince us that any error inherent in the inclusion of the intangible rights language in the jury charge is harmless beyond a reasonable doubt. Id. at 1521; Doherty, 867 F.2d at 57-58. 29 We cannot end our discussion of this issue without making one final observation. At oral argument, the Government conceded that it believed that the inclusion of the intangible rights language in the jury charge was erroneous. Although we have found any such error to be harmless in this case, we cannot disguise our dismay that the Government would knowingly propose a jury instruction that it thought to be wrong. The Government has a special duty to follow the law. 30