Court Opinion

ID: 9489562
Source: CourtListenerOpinion
Date Created: 2023-08-05 13:18:59.72304+00
Date Added: 2024-06-11T17:53:36.121951
License: Public Domain

FERGUSON, Circuit Judge,
dissenting:
This case is a political corruption case. There is no question that public financing laws have been violated. The issue here, however, is whether various insurance companies have been defrauded.
For many years Clayton Jackson was a preeminent corporate lobbyist in Sacramento, California. Alan Robbins was a State Senator and the Chairman of the Senate Insurance Committee. These two men had a long-running corrupt relationship — Robbins traded legislative assistance to Jackson’s insurance company clients in return for substantial campaign contributions. The contributions to Robbins from the insurance companies became so large that Jackson worried that other members of the Senate Insurance Committee might expect similarly large contributions. In order to solve this problem, Jackson asked Robbins to find a way that the insurance companies could continue to funnel money to Robbins without Robbins having to report the contributions under the finance disclosure laws. Robbins then went to Carpenter, who agreed that Jackson would make recommendations to the insurance companies to contribute to Senator Paul Carpenter. Then Carpenter would funnel the money to Robbins. Carpenter, however, was no longer a member of the State Senate.
There is no question that the citizens of California have been the victims of fraud. But the issue is whether or not the insurance companies were. In considering this one must recognize the relationship between the insurance companies, Jackson, and Robbins; that the insurance companies’ favorite donee was Robbins; and that he was the most influential politician in California on issues affecting insurance companies. In the context of this political scandal, the jury had to determine whether Paul Carpenter was guilty of participating in a scheme to defraud the insurance companies.
*778Our Constitution requires that a jury find the defendant guilty of every element of the crime charged. In the present case, the jury was instructed on the elements of mail fraud, which included the following definition of materiality:
The concealment of material facts may also constitute fraud under the statute. The fraudulent representation or statement must relate to a material fact or matter. A material fact is one which would reasonably be expected to be of concern to a reasonable and prudent person in relying upon the representation or statement in making the decision.
(emphasis added). Here, the instruction on the definition of materiality was so inadequate that the jury could not have possibly considered the materiality requirement of the crime of mail fraud.
In all fraud cases (civil and criminal) only one kind of misrepresentation matters — a material misrepresentation. Restatement (Second) of Torts § 538 (1977); BMW of North America, Inc. v. Gore, — U.S. -, -, 116 S.Ct. 1589, 1600-01, 134 L.Ed.2d 809 (1996); Field v. Mans, — U.S. -, -, 116 S.Ct. 437, 442-43, 133 L.Ed.2d 351 (1995); United States v. Benny, 786 F.2d 1410, 1418 (9th Cir. 1986), cert. denied, 479 U.S. 1017, 107 S.Ct. 668, 93 L.Ed.2d 720 (1986). Quite simply, not all lies support liability.
In United States v. Halbert, 712 F.2d 388 (9th Cir.1983), cert. denied, 465 U.S. 1005, 104 S.Ct. 997, 79 L.Ed.2d 230 (1984), a mail fraud case, the following rule for materiality was established:
The test for determining the materiality of the false statement, representation or promise is whether it is made to induce action or reliance by another. In other words, does it have a natural tendency to influence or is it capable of influencing another’s decisions?
Id. at 390. Similarly, in Kungys v. United States, 485 U.S. 759, 770, 108 S.Ct. 1537, 1546, 99 L.Ed.2d 839 (1988), the Court acknowledged that the uniform definition of materiality was “a concealment or misrepresentation [that] has a natural tendency to influence, or was capable of influencing, the decision of the decision making body to which it was addressed.”
The term “material” has been defined in many legal contexts. In the arena of securities fraud, this court has stated: “The test for materiality is whether there is a substantial likelihood that a reasonable investor would consider the fact important in making an investment decision.” Vaughn v. Teledyne, Inc., 628 F.2d 1214, 1221 (9th Cir.1980); see also Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 1472, 31 L.Ed.2d 741 (1972). In other securities cases, we have articulated the definition as: “A fact is material if its existence or non-existence is a matter to which a reasonable person would attach importance in determining his choice of action in the transaction.” Toombs v. Leone, 777 F.2d 465, 469 (9th Cir.1985). Similarly, in bankruptcy fraud cases:
A statement [is] materially false if it includes information which is “substantially inaccurate” and is of the type that would affect the creditor’s decision making process. To except a debt from discharge, the creditor must show not only that the statements are inaccurate, but also that they contain important and substantial untruths.
Candland v. Insurance Company of North America (In re Candland), 90 F.3d 1466 (9th Cir.1996) (emphasis added).
Jury instructions must meet constitutional requirements because the Fifth and Sixth Amendments require criminal convictions to rest upon a jury determination that the defendant is guilty of every element of the crime charged. Sullivan v. Louisiana, 508 U.S. 275, 277-78, 113 S.Ct. 2078, 2080-81, 124 L.Ed.2d 182 (1993). “[T]he Due Process Clause protects the accused against conviction except upon proof beyond a reasonable doubt of every fact necessary to constitute the crime with which he is charged.” In re Winship, 397 U.S. 358, 364, 90 S.Ct. 1068, 1072-73, 25 L.Ed.2d 368 (1970) (emphasis added). Furthermore, a jury instruction which misdescribes an element of the crime “deprives the jury of its factfinding role” and is constitutionally infirm. Carella v. Califor*779nia, 491 U.S. 263, 270, 109 S.Ct. 2419, 2423, 106 L.Ed.2d 218 (1989) (Scalia, J., concurring), cited in Roy v. Gomez, 81 F.3d 863, 867 n. 4 (9th Cir.1996).
In United States v. Gaudin, — U.S. -, 115 S.Ct. 2310, 132 L.Ed.2d 444 (1995), the Supreme Court upheld the Ninth Circuit’s reversal of the defendant’s conviction for making false statements on loan documents. The Court concluded that materiality is a matter for the jury to decide because it is an essential element of the crime. Id. at -, 115 S.Ct. at 2320. In Gaudin, the Court stated:
The Constitution gives a criminal defendant the right to demand that a jury find him guilty of all the elements of the crime with which he is charged; one of the elements in the present case is materiality; respondent therefore had a right to have the jury decide materiality.
Id. at -, 115 S.Ct. at 2314.
In the present case, the jury instruction on materiality is constitutionally infirm. It reduces the requirement of materiality to trivia. In every financial transaction every statement made by one party is “of concern” to the other party. The concern may be insignificant or it may be important and substantial. The majority holds that the “of concern” language in the instruction was adequate. However, all of the cases defining materiality insist that the statement or concealment be of such importance that it has a natural tendency to influence or is capable of influencing the making of a decision. The persistent theme in these definitions is that a material fact is one which is important in the decision making process of the person who was defrauded.
The failure to properly define materiality is particularly pernicious in this case. The government alleges that the conspiracy was to deceive the “unsuspecting” insurance companies to make contributions to Carpenter when the money actually went to the benefit of Robbins. However, at the trial no insurance company executives testified that they did not want contributions to go to Robbins. They could not because at the same time as they were making donations to Carpenter for the benefit of Robbins, they continued to make donations directly to Robbins. So how could the insurance companies be defrauded by these transactions when they always favored giving money to Robbins, even to the extent that Robbins and Jackson worried that they might give him too much? A reasonable jury after being instructed that materiality meant merely “concern” would have to find the defendant guflty — despite the fact that the money ended up in the hands of the one person who could and did provide legislative assistance to the insurance companies. Although the insurance executives probably were concerned that their contributions were not given directly to Robbins, that concern simply is not sufficient to create fraud. However, the jury was instructed that it was enough.
But perhaps the most disturbing aspect of this case is that by sustaining a conviction based on a jury instruction that completely eviscerates the materiality requirement, the true nature of this political corruption scheme is distorted. The actors in this corrupt scheme were not only Paul Carpenter, Clayton Jackson, and Senator Alan Robbins; but also the insurance companies, who have been made out to be the victims. The record is clear that the insurance companies wanted the influence of Senator Alan Robbins, the Chairman of the Senate Insurance Committee. Jackson provided the mechanism for the insurance companies to win that influence with Senator Robbins. Jackson would send a “list of recommendations for political contributions” to the insurance executives. The list contained names and suggested amounts. The insurance executives sent their checks to Jackson and never asked where their money was going or why they should make donations to the listed politicians. The fact that the insurance companies chose to remain ignorant does not make them innocent victims of fraud; instead, it is evidence of their complicity in a political corruption scheme. There is little doubt that they would be concerned about the structure of how their money got to Robbins. But they were not defrauded. It was one way to get more money to their favorite politician.
This brings us back to “materiality.” What statement or act by Carpenter or Jackson was a material misrepresentation or *780omission? What could be material to insurance executives who apparently wanted to remain ignorant? What information would have affected the insurance executives’ decision in making a political contribution? Only if the insurance executives are completely innocent victims could there have been a misrepresentation or omission of material facts. A more palatable explanation of the political corruption scheme is that there wasn’t any information that would have made a difference in the insurance executives’ decision to make political contributions because the insurance executives were only concerned, about whether their interests were protected at the State Capitol.
Many things may be “of concern,” but not “material.” The defendant in this case was denied his constitutional right to have the jury make a finding on every element of the crime because the jury instruction on the element of materiality was so deficient that it amounted to no instruction at all. Thus, even if the instruction is reviewed for plain error, the conviction should be reversed. See United States v. Shortman, 91 F.3d 80 (9th Cir.1996) (reviewing for plain error and reversing conviction for involuntary manslaughter based on erroneous jury instruction which described the standard of care as “without due caution” instead of “gross negligence”).
Finally, the adoption by this court of the rule that materiality in mail fraud cases means merely “concern” will have a profound impact upon all such eases tried in this circuit. I can picture the smiles on the faces of those who pursue 10b-5 cases and the horror in the faces of Wall Street executives. See Securities Act of 1934, 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. The world of commercial transactions will be turned on its head because all that is now needed to sue for fraud is that one who is a participant in a transaction merely have a “concern.” No longer must the lie be substantial enough to influence someone, it is enough if it caused just a little concern.
I, therefore, dissent.