Opinion ID: 8414535
Heading Depth: 3
Heading Rank: 2

Heading: Scope of the “Right to Control”

Text: Finazzo also argues that the “right to control” jury instructions permitted him to be convicted without causing or intending to cause cognizable harm under the mail and wire fraud statutes, because the instructions erroneously described the “money or property” element. 15 In relevant part, the district court instructed the jury that: [I]n order to prove a scheme to defraud, the government must prove that the alleged scheme contemplated depriving another of money or property. Property' includes intangible interests such as the right to control the use of one’s assets. This interest is injured when a victim is deprived of potentially valuable economic information it would consider valuable in deciding how to use its assets. [[Image here]] To act with “intent to defraud” means to act knowingly and with the specific intent to deceive, for the purpose of causing some financial or property loss to another. Finazzo App’x at 97-98. These instructions are consistent with our prior decisions and therefore not erroneous. In United States v. Wallach, 935 F.2d 445 (2d Cir. 1991), we first addressed the extent of the “right to control” aspect of mail fraud. Id. at 462-63. We explained that “application of the [right to control] theory is predicated on a showing that some person or entity has been deprived of potentially valuable economic information.” Id. “Thus, the withholding or inaccurate reporting of information that could impact on economic decisions can provide the basis for a mail fraud prosecution.” Id. at 463. We considered the “right to control” further in United States v. Mittelstaedt, 31 F.3d 1208 (2d Cir. 1994). In Mittelstaedt, the defendant served as a consulting engineer for two Long Island communities. Id. at 1210. He used his position to influence the town planning boards with respect to real estate projects in which he had an undisclosed interest. Id. at 1211. He was charged with mail fraud, and the district court instructed the jury that “the right to material information concerning the expenditure of public monies[ ] is a property right, intangible though it is, and it is included in the mail fraud statute.” Id. at 1216. The defendant contended that the district court erred in refusing to give a proposed charge that the undisclosed information must have “placed the Village at an[ ] economic disadvantage ... [in other words,] ... such hidden interest [must have] caused the Village to purchase the property at a higher cost than it would have otherwise paid.” Id. at 1216-17 (internal quotation marks omitted). The Government contended that it did not matter whether the towns would have suffered economic loss if the scheme had been successful “because the loss of the ‘right to control’ the expenditure of public funds, through the loss of the ability to make a fully informed decision, is sufficient to constitute mail fraud.” Id. at 1217. We disagreed with the Government and ruled that “[wjhere an individual standing in a fiduciary relation to another conceals material information that the fiduciary is legally obliged to disclose, that non-disclosure does not give rise to mail fraud liability unless the omission can or does result in some tangible harm.” 16 Id. To give rise to liability, “the information withheld either must be of some independent value or must bear on the ultimate value of the transaction.” Id. Thus, “lack of information that might have an impact on the decision regarding where government money is spent, without more, is not a tangible harm and therefore does not constitute a deprivation of section 1341 ‘property.’ ” Id. Rather, “[t]o convict, the government had to establish that the omission caused (or was intended to cause) actual harm to the village of a pecuniary nature or that the village could haVe negotiated a better deal for itself if it had not been deceived.” Id. Therefore, we concluded that the jury instructions were erroneous because they could have supported a conviction for a mere breach of fiduciary duty that did not cause tangible harm. Id. at 1218. In subsequent cases, we further examined jury instructions describing the scope of the “right to control” property under the mail and wire fraud statutes. For example, in United States v. Dinome, 86 F.3d 277 (2d Cir. 1996), the defendant was charged with mail and wire fraud in connection with falsely stating his income to a bank to obtain a mortgage. Id. at 278-79. The district court instructed the jury that: “Under the mail fraud statute, the definition of property includes intangible property interests such as the right to control the use of one’s own assets. This interest is injured when a person is deprived of information he would consider valuable in deciding how to use his assets.” Id. at 284. Notably, we stated that that instruction “might be deemed facially at odds with the Mittelstaedt formulation that ‘lack of information that might have,an impact on the decision regarding where [the defrauded party’s] money is spent, without more, is not a tangible harm and therefore does not constitute a deprivation of section 1341 “property.” ’ ” Id. (quoting Mittelstaedt, 31 F.3d at 1217). Nevertheless, we upheld the jury instructions because, under the facts of that case, we did not believe the instructions prejudiced the defendant since the information withheld from the bank “sig-2 nificantly diminished the ultímate value of the [mortgage] transaction to the bank.” 17 Id. (internal quotation marks omitted). In a summary order, United States v. Viloski, 557 Fed.Appx. 28 (2d Cir. 2014) (summary order), we more recently reviewed the requirements to support a conviction under the “right to control” theory of mail and wire fraud. In Viloski, the defendant acted as a broker and consultant for development projects of Dick’s Sporting Goods, and passed on portions of his consulting fee to a Dick’s employee as kickbacks for directing the business from Dick’s to the defendant. Id. at 31. On appeal, the defendant argued that the indictment charging him with fraud did not adequately allege a violation of the right to control assets. Id. at 32-33. The indictment alleged that the object of the defendant’s scheme was “to obtain money and property, and to deprive Dick’s of potentially valuable information that could impact on its economic decisions.” Id. at 33 (internal quotation marks omitted). We rejected the defendant’s argument, explaining that “[t]he deprivation of information that affects economic decisions is precisely the type of situation in which we have approved [the right to control] theory.” Id. The defendant also challenged the district court’s jury instructions on the “right to control.” The district court instructed the jury that it could find deprivation of property “if [it found] beyond a reasonable doubt that an employee or officer of Dick’s either failed to disclose or inaccurately reported economically material information that the officer or employee had reason to believe would have caused Dick’s to change its business conduct.” Id. at 34 (internal quotation marks omitted). We upheld that instruction, ruling that “[t]he requirement that the information be economically material avoids the Mittelsta[e]dt problem of deprivation of information that could not lead to tangible harm.” Id. We also held that there was sufficient evidence to satisfy the tangible-harm requirement: “[T]he deprivation of information regarding ... kickbacks was material and potentially could result in tangible harm because Dick’s could have negotiated better deals for itself.” Id. In United States v. Binday, 804 F.3d 558 (2d Cir. 2015), the defendants fraudulently applied for life insurance policies on “straw insureds” by claiming that the policies were being obtained for legitimate estate-planning purposes, but instead sold the policies to investors. Id. at 564-67. The jury instructions stated that “the loss of the right to control money or property constitutes deprivation of money or property only when the scheme, if it were to succeed, would result in economic harm to the victim.” Id. at 581. The instruction further clarified: “If all the government proves is that under the scheme the insurance companies would enter into transactions that they otherwise would not have entered into, without proving that the ostensible victims would thereby have suffered some economic harm, then the government will not have met its burden of proof.” Id. The defendants claimed that the jury instructions permitted conviction on a “right to control” theory absent a showing of cognizable harm. Id. at 581-82. We had no difficulty rejecting that argument, reasoning that the charge “directly explained” that conviction required the government to prove cognizable harm to the insurers through deprivation of information that was of economic consequence. Id. at 570, 582. The common thread of these decisions is that misrepresentations or nondisclosure of information cannot support a conviction under the “right to control” theory unless those misrepresentations or non-disclosures can or do result in tangible economic harm. This economic harm can be manifested directly — such as by increasing the price the victim paid for a good — or indirectly — such as by providing the victim with lower-quality goods than it otherwise could have received. See Mittelstaedt, 31 F.3d at 1217 (“[T]he government had to establish that the omission caused (or was intended to cause) actual harm to the [victim] of a pecuniary nature or that the [victim] could have negotiated a better deal for itself if it had not been deceived.”); United States v. Schwartz, 924 F.2d 410, 420-21 (2d Cir. 1991) (affirming wire fraud convictions for misrepresentations to seller that night-vision goggles would not be used illegally, even though the seller suffered no direct pecuniary harm, in part because the use of the night-vision goggles to violate arms export laws cost the seller “good will”). However, not every non-disclosure or misrepresentation that could affect someone’s decision of how to use his or her assets is sufficient to support a mail or wire fraud conviction. See Mittelstaedt, 31 F.3d at 1217. The fraudulent scheme must implicate tangible economic harm. 18 We are satisfied that the district court’s jury instructions adequately conveyed the scope of the “right to control” theory. The district court informed the jury that the “right to control” one’s assets is injured “when a victim is deprived of potentially valuable economic information it would consider valuable in deciding how to use its assets.” Finazzo App’x at 98. Depriving a victim of “potentially valuable” information necessarily creates a risk of tangible economic harm. See Black’s Law Dictionary 1784 (10th ed. 2014) (defining “valuable” as “[w]orth a good price” or “having financial or market value”); Merriam-Webster’s Collegiate Dictionary 1305 (10th ed. 1997) (defining “valuable” as “having monetary value”). Therefore, by requiring the jury to find that Aéropostale was deprived of “potentially valuable economic information,” the jury instructions adequately conveyed the requirement that the deprivation of the right to control assets must be capable of creating tangible economic harm. Moreover, we have repeatedly used the phrase “potentially valuable economic information” to describe the scope of the “right to control” theory. In WaMach, we stated that “application of the [right to control] theory is predicated on a showing that some person or entity has been deprived of potentially valuable economic information.” 935 F.2d at 462-63. We used this same language again in United States v. D’Amato, 39 F.3d 1249, 1257 (2d Cir. 1994) (“Th[e] [right to control] theory is predicated on a showing that some person or entity has been deprived of potentially valuable economic information.” (quoting Wallach, 935 F.2d at 462-63) (internal quotation marks omitted)), and in Dinome, 86 F.3d at 283 (“This right to control theory is predicated on a showing that some person or entity has been deprived of potentially valuable economic information.” (quoting D'Amato, 39 F.3d at 1257) (internal quotation marks omitted)); see also United States v. Tagliaferri, 648 Fed.Appx. 99, 103 (2d Cir. 2016) (summary order); Viloski, 557 Fed.Appx. at 32-33; United States v. Levis, 488 Fed.Appx. 481, 485 (2d Cir. 2012) (summary order). Most recently, in Binday, we used this language in describing in detail the scope of the “right to control” theory. 804 F.3d at 570. We explained that “[i]t is not sufficient ... to show merely that the victim would not have entered into a discretionary economic transaction but for the defendant’s misrepresentations.” Id. “The ‘right to control one’s assets’ does not render every transaction induced by deceit actionable under the mail and wire fraud statutes. Rather, the deceit must deprive the victim ‘of potentially valuable economic information.’ ” Id. Furthermore, the jury instructions in this case closely track the jury instructions in Viloski — which we upheld — far more than they track the jury instructions in Dinome — with which we had more difficulty. In Dinome, the jury instructions stated that the “right to control” is injured when a person is deprived of “information he would consider valuable in deciding how to use his assets.” Dinome, 86 F.3d at 280. We concluded that that instruction might have vitiated Mittelstaedt’s tangible-harm requirement. Id. at 284. In contrast, the jury instructions in Viloski required that Dick’s Sporting Goods be deprived of “economically material information that the officer or employee had reason to believe would have caused Dick’s to change its business conduct.” 557 Fed.Appx. at 34 (emphasis omitted). We specifically stated that the “requirement that the information be economically material” rendered the jury instruction proper under Mittelstaedt. Id. Similarly, requiring that a victim be deprived of “potentially valuable economic information” — rather than merely “information,” as in Dinome — distinguishes this case from Dinome, especially where the added language is so frequently used by this Court to describe the “right to control” theory’s tangible-harm requirement. 19 For the foregoing reasons, we hold that the district. court’s jury instructions adequately conveyed the scope of the “right to control” theory. 20