Supreme Court Limits Criminal Fraud to Deprivation of 'Traditional Property Interests'

Alerts / May 15, 2023
Key Takeaways
  • The U.S. Supreme Court unanimously overturned the U.S. Court of Appeals for the Second Circuit’s right-to-control theory as a basis to sustain criminal fraud charges.
  • Rather than protecting a victim’s “potentially valuable economic information” that is “necessary to make discretionary economic decisions,” the Supreme Court reinforced that federal fraud statutes protect only traditional property rights, which do not include information necessary to make informed economic decisions.
  • After decades of relying on the right-to-control theory to convict and imprison defendants of fraud, the government finally admitted that theory was contrary to the statutory language. And the Supreme Court unanimously agreed.
  • Considered in combination with another decision issued the same day,[1] the Supreme Court has made prosecuting public corruption more difficult and continued to narrow the applicability of criminal fraud statutes.

As discussed in our alert following the oral argument in this case,[2] in Ciminelli v. United States, a construction company executive named Louis Ciminelli appealed his wire fraud conviction in connection with bid rigging during then-New York Gov. Andrew Cuomo’s Buffalo Billion initiative that aimed to invest $1 billion in development projects in upstate New York.[3] Ciminelli paid a lobbyist with ties to the Cuomo administration tens of thousands of dollars each year to help obtain state-funded jobs through the nonprofit administering the initiative.[4] Ciminelli, the lobbyist, and another insider manipulated the bidding process to ensure that Ciminelli’s company would be a “preferred developer” to secure a marquee $750 million project.[5]

The government’s wire fraud charges against Ciminelli were based on the right-to-control theory, that is, that Ciminelli and his co-conspirators deprived the nonprofit administering the bidding process of its right to control its assets.[6] At the end of Ciminelli’s trial, the District Court instructed the jury that the requisite harm could be established if the nonprofit was “deprived of potentially valuable economic information that it would consider valuable in deciding how to use its assets.”[7]

Ciminelli was convicted, and he appealed on the basis that the right to control one’s assets is not “property” for purposes of the wire fraud statute.[8] The government defended the conviction only on the right-to-control theory, and the Second Circuit affirmed the conviction, holding that by rigging the bidding process to favor Ciminelli’s company, Ciminelli and his co-conspirators deprived the nonprofit of “potentially valuable economic information.”[9]

Justice Thomas’ Opinion

At oral argument before the Supreme Court, the justices seemed to coalesce around the conclusion that the right-to-control theory was invalid.[10] So it is no surprise that the decision of the court, written by Justice Clarence Thomas, was unanimous, reversing the Second Circuit.

The Court began with an analysis of the criminal fraud statutes, particularly 18 U.S.C. § 1343, the wire fraud statute applied to Ciminelli.[11] Citing Supreme Court precedent, Justice Thomas emphasized that the “money or property” requirement in section 1343 – i.e., a “scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises” – was limited by the “common understanding” of the words “to defraud” when the statute was enacted.[12] That is, it referenced “wronging one in his property rights.”[13] Thus, the federal fraud statutes “protect property rights only,” and money or property must be “an object of the[ ] fraud.”[14]

The text, structure and history of federal fraud statutes undermined the viability of the right-to-control theory. Justice Thomas wrote that the fact that Congress later criminalized honest services fraud to protect “the intangible right of honest services” distinguished the other federal fraud statutes, reflecting “reverberating silence” about other “intangible interests” under those statutes.[15] By its text, the wire fraud statute is “‘limited in scope to the protection of property rights.’ ... The so-called ‘right to control’ is not an interest that had ‘long been recognized as property’ when the wire fraud statute was enacted.”[16] Indeed, when the Second Circuit first recognized the right-to-control theory in 1991, Justice Thomas pointed out, it cited no authority establishing “potentially valuable economic information” as a traditionally recognized property interest.[17]

Justice Thomas also pointed out the slippery slope of the right-to-control theory, namely that “[b]ecause the theory treats mere information as the protected interest, almost any deceptive act could be criminal.”[18] This, too, marked an expansion of federal criminal jurisdiction without statutory authorization into areas typically covered by state contract and tort law. As the Supreme Court previously directed, “[a]bsent [a] clear statement by Congress,” courts should not read federal fraud statutes “to place under federal superintendence a vast array of conduct traditionally policed by the States.”[19] Justice Thomas concluded that the right-to-control theory “thus criminalizes traditionally civil matters and federalizes traditionally state matters.”[20]

The Supreme Court refused to affirm Ciminelli’s convictions on alternative grounds because doing so would make the Court improperly “assume not only the function of a court of first view, but also of a jury.”[21] Instead, it reversed the judgment of the Second Circuit and remanded.[22]

Justice Alito’s Concurrence

Justice Samuel Alito joined in the judgment and wrote a short concurrence to note that he “d[id] not understand the Court’s opinion to address fact-specific issues on remedy outside the question presented” regarding whether the right-to-control theory supports liability under the wire fraud statute.[23] Among those “fact-specific issues” that were not addressed were questions about the applicability of harmless error and about the government’s ability to retry Ciminelli under a different theory.[24] Those issues would remain for remand.

  1. As we have previously written, the Supreme Court continues to narrow federal criminal fraud statutes. And that trend continued here, cutting off the right-to-control theory across all circuits.
  2. With a continuing emphasis on traditional property interests in federal criminal fraud statutes, market participants dealing with more “intrinsic” rights are less at risk of prosecution.
  3. In combination with the simultaneously issued decision in Percoco, the Supreme Court’s decision in Ciminelli shows that the government has overreached in some of its public corruption cases. Criminal defendants caught up in these types of cases may be emboldened to attack the statutory bases of their charges and/or convictions.
  4. Frustratingly, as Justice Thomas pointed out, the government had been “relying upon the right-to-control theory for decades, including in this very case.”[25] While the government had finally admitted before the Court that the right-to-control theory was unmoored from the statutory text,[26] it took many years of trials, convictions and appeals to get to this point. It is possible that defendants convicted under the right-to-control theory will have a basis to seek post-conviction relief on the basis of this decision.

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[1] Percoco v. United States, No. 21-1158, 598 U.S. ---, --- S. Ct. ---, 2023 WL 3356527 (May 11, 2023).

[3] Ciminelli v. United States, No 21-1170, 598 U.S. ---, --- S. Ct. ---, 2023 WL 3356526, at *2 (May 11, 2023).

[4] Id. at *3.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Id.; see United States v. Percoco, 13 F.4th 158, 170 (2d Cir. 2021).

[11] Ciminelli, 598 U.S. ---, 2023 WL 3356526, at *4.

[12] Id. (quoting Cleveland v. United States, 531 U.S. 12, 19 (2000)).

[13] Id. (quoting Cleveland, 531 U.S. at 19).

[14] Id. (quoting Cleveland, 531 U.S. at 19, and Kelly v. United States, 590 U.S. ---, 140 S. Ct. 1565, 1574 (2020)).

[15] Id. at *5 (quoting Cleveland, 531 U.S. at 19-20 and United States v. Sadler, 750 F.3d 585, 591 (6th Cir. 2014)).

[16] Id. at *4 (quoting McNally v. United States, 483 U.S. 350, 360 (1987) and Carpenter v. United States, 484 U.S. 19, 26 (1987)).

[17] Id. (citing United States v. Wallach, 93 F.2d, 445, 462-63 (2d Cir. 1991)).

[18] Id. at *5.

[19] Id. (quoting Cleveland, 531 U.S. at 27).

[20] Id.

[21] Id. (citing McCormick v. United States, 500 U.S. 257 (1991) and Chiarella v. United States, 445 U.S. 222, 236 (1980)).

[22] Id. at *6.

[23] Id. (Alito, J., concurring).

[24] Id. (Alito, J., concurring).

[25] Id. at *4 (Thomas, J.).

[26] Brief of Respondent United States, No. 21-1170 (U.S. Oct. 12, 2022), at 12 (conceding that as to the Second Circuit’s right-to-control theory, “without further limitation, that conception could lead to overbroad results that would expand property fraud beyond its definition at common law and as Congress would have understood it”).

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