What Does the Ninth Circuit’s Holding in Miller Mean for Wire Fraud Prosecutions?

Apr 3, 2020

 

On March 20, 2020, the Ninth Circuit ruled in United States v. Miller, 2020 WL 1317275 (9th Cir.) that wire fraud requires the intent to deceive and to cheat, i.e., to deprive a victim of money or property by means of deception, overruling United States v. Shipsey, 363 F.3d 962 (9th Cir. 2004), United States v. Treadwell, 593 F.3d 990 (9th Cir. 2010) and United States v. Livingston 725 F.3d 1141 (9th Cir. 2013).

Background

In United States v. Miller, the defendant served as the president and financial manager of an online retail company called MWRC. 2020 WL 1317275 at *2. Upon experiencing financial difficulties, the defendant, Miller, began writing himself checks from MWRC’s bank accounts without the knowledge or consent of the company founder, Russell. Id. At some point, Miller falsely told Russell that he had taken $30,000 from the company, when he had actually taken about $130,000. Id. He promised Russell he would not do it again. Id. But Miller continued to write himself company checks, disguising the payments in the ledgers as internal transfers between the company’s two bank accounts. Id. Russell later discovered the check-writing fraud and Miller was indicted for wire fraud and filing false federal tax returns. Id.

At trial, Miller requested a jury instruction stating that to be guilty of wire fraud, he must have intended to “deceive and cheat” MWRC. Id. at *3. The government requested that the court charge the jury that to be guilty of wire fraud, a defendant must have acted with the intent to deceive or cheat. Id. at *4. The trial court rejected Miller’s requested instruction and delivered the 9th Circuit model jury instruction, which states that wire fraud instead requires only the intent to deceive or cheat the victim. Id. 

 

The Ninth Circuit: Wire Fraud Requires an Intent to Deceive and Cheat

The Ninth Circuit astutely observed that, “[a]s thus stated in the alternative, Miller could theoretically have been convicted of deceiving MWRC (as, for example, through the false ledger entries), even if he had no intent to cheat MWRC, that is to ‘deprive [MWRC] of something valuable by the use of deceit or fraud.’” Id.

As a result, the Ninth Circuit concluded that the model instruction was erroneous, holding that:

Like the mail fraud statute from which it is derived, the wire fraud statute, in plain and simple language, criminalizes the use of interstate wires to further, not mere deception, but a scheme or artifice to defraud or obtain money or property, i.e., in every day parlance, to cheat someone out of something valuable. It follows that to be guilty of wire fraud, a defendant must act with the intent not only to make false statements or utilize other forms of deception, but also to deprive a victim of money or property by means of those deceptions. In other words, a defendant must intend to deceive and cheat.

Id. at *4 (emphasis added). The Ninth Circuit noted that this has long been the law of other circuits.

For example, in United States v. Walters, 997 F.2d 1219 (7th Cir. 1993), a sports agent was convicted of mail fraud because he defrauded the NCAA – not by stealing its property, but by inducting college athletes to sign secret representation contracts in violation of the Association’s rules. “In other words, Walters had deceived, but not cheated, his victim,” observed the Court in Miller. 2020 WL 1317275 at *2. The Seventh Circuit reversed Walters’ conviction, holding that the statute requires a “scheme to obtain money or other property from the victim,” and that “[l]osses that occur as byproducts of a deceitful scheme do not satisfy the statutory requirement.” 997 F.2d at 1227.

The Ninth Circuit explained that it had previously upheld the “deceive or cheat” language in Shipsey, Treadwell and Livingston, “[b]ut we think that these holdings are no longer tenable in light of the Supreme Court’s intervening ruling in Shaw v. United States.”. The Ninth Circuit reiterated the Supreme Court’s language that “the scheme must be one to deceive the bank and deprive it of something of value.” Id. The Ninth Circuit decisively resolved that they would “overrule our prior cases on this question and hold that wire fraud requires the intent to deceive and cheat – in other words, to deprive the victim of money or property by means of deception.” Id. (Original emphasis.)

The Miller Court used “cheat” as shorthand for depriving the victim of money or property. See Miller, 2020 WL 1317275 at * 5 (“wire fraud requires the intent to deceive and cheat – in other words, to deprive the victim of money or property by means of deception.”). Therefore, “to be guilty of wire fraud, a defendant must act with the intent not only to make false statements or utilize other forms of deception, but also to deprive a victim of money or property by means of those deceptions.” Id. at *4 (emphasis added).

 

Harmless Error?

The Miller court held that the district court instruction was clearly insufficient in defining one element of the charged crime, but the error did not mandate reversing Miller’s conviction. The Court found that the jury would have convicted Miller even if it had been properly instructed because: (1) his primary defense that he intended to pay back the funds he deceptively obtained from MWRC was not a defense; and (2) his only other defense was that at the time he obtained the funds, he believed them to be loans he was authorized to issue to himself by means of deceptive ledgers entries. 2020 WL 1317275 at *6. The Court noted that “any notion that the jury thought Miller was guilty of deception, but not cheating, because he allegedly had permission to give himself loans from company funds is flatly contradicted by the jury’s conviction on all the tax counts. This is because the jury was expressly instructed that ‘[t]he proceeds of a loan are not taxable income’ and that Miller could not be convicted of filing a false tax return unless he did so ‘willfully.’” Id. The Ninth Circuit resolved that the jury could only have convicted Miller of tax counts if they found beyond a reasonable doubt that “he did not really believe that the funds he took from the company were bona fide loans.” Id.

Conclusion

Miller makes clear that the Ninth Circuit’s model instructions for wire fraud are incomplete because they deny defendants their constitutional right to a jury verdict on each element of the charged offense. As a result of Miller, prosecutions for wire fraud now require the government to demonstrate that the defendant acted with the intent to make false statements or utilize other forms of deception and to deprive the victim of money or property by means of those deceptions.

For white collar practitioners in the Ninth Circuit, this means four things: (1) filing supplemental briefs addressing Miller for any outstanding Rule 33 motions (where a defense instruction on similar grounds was denied); (2) carefully evaluating the government’s evidence to determine if they can satisfy Miller’s conjunctive fraud instruction; (3) requesting a special instruction at trial to conform to Miller; and (4) raising Miller on any pending mail or wire fraud appeal.

Archives

Categories