United States v. Paul Guertin

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 7, 2023 Decided May 16, 2023

No. 22-3011

UNITED STATES OF AMERICA,

APPELLANT

v.

PAUL MICHAEL GUERTIN,

APPELLEE

Consolidated with 22-3013

Appeals from the United States District Court

for the District of Columbia

(No. 1:21-cr-00262-1)

Daniel J. Lenerz, Assistant U.S. Attorney, argued the

cause for appellant/cross-appellee. With him on the briefs were

Chrisellen R. Kolb, Elizabeth H. Danello, and Christopher B.

Brown, Assistant U.S. Attorneys.

Matthew J. Peed, appointed by the court, argued the cause

and filed the briefs for appellee/cross-appellant.

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Before: SRINIVASAN, Chief Judge, RAO, Circuit Judge,

and EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

EDWARDS.

EDWARDS, Senior Circuit Judge: On March 29, 2021, a

grand jury charged Paul Michael Guertin with wire fraud, in

violation of 18 U.S.C. § 1343, and obstructing an official

proceeding, in violation of 18 U.S.C. § 1512(c)(2). Guertin

moved to dismiss the indictment for failure to state an offense.

The District Court granted the motion, United States v. Guertin,

581 F. Supp. 3d 90, 100-01 (2022), and the Government

appealed to contest the dismissal of the section 1343 (wire

fraud) count. The Government does not appeal the dismissal of

the section 1512(c)(2) (obstructing an official proceeding)

count.

Guertin is a former Foreign Service Officer in the

Department of State. During his ten-year tenure, he adjudicated

Chinese visa applications to the United States. The indictment

charges that Guertin violated section 1343 when, during

routine security clearance renewals, he failed to disclose “a

sexual relationship with a foreign national whose visa

application he had adjudicated; certain financial problems

arising out of gambling activity; and an undisclosed loan

agreement with two Chinese nationals collateralized by

Guertin's home.” Guertin, 581 F. Supp. 3d at 91. The

Government argues that the basis for the indictment under

section 1343 was that “Guertin committed actionable fraud

when he lied in order to get the renewed security clearance

necessary for his job.” Appellant’s Br. 12. Therefore, according

to the Government, the District Court erred when it dismissed

the indictment for failure to state a violation of the wire fraud

statute. We disagree. The District Court correctly found that the

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indictment in this case does not state an offense under section

1343. Guertin, 581 F. Supp. 3d at 92.

“The federal wire fraud statute makes it a crime to effect

(with the use of the wires) ‘any scheme or artifice to defraud,

or for obtaining money or property by means of false or

fraudulent pretenses, representations, or promises.’ 18 U.S.C.

§ 1343.” Kelly v. United States, 140 S. Ct. 1565, 1571 (2020).

“Construing that disjunctive language as a unitary whole, [the]

Court has held that ‘the money-or-property requirement of the

latter phrase’ also limits the former.” Id. (quoting McNally v.

United States, 483 U.S. 350, 358 (1987)). The Court has also

made it clear that the wire fraud statute criminalizes only

“schemes to deprive [the victim of] money or property.” Id. In

other words, section 1343 does not criminalize schemes that

merely deprive the victim of the perpetrator’s honest services.

Indeed, the Supreme Court has specifically rejected the

suggestion that the wire fraud statutes encompass “undisclosed

self-dealing,” even in situations when an offending employee

hides personal financial interests. Id. at 1571-72 (citing Skilling

v. United States, 561 U.S. 358, 409 (2010)). As explained

below, because the indictment here fails to allege that Guertin

perpetuated a scheme to deprive the State Department of

anything more than his honest services, it cannot sustain the

wire fraud count.

Before the District Court, Guertin moved to suppress

certain evidence obtained pursuant to a search warrant issued

in this case and requested a hearing pursuant to Franks v.

Delaware, 438 U.S. 154 (1978). Because we affirm the District

Court’s dismissal of the indictment of the section 1343 (wire

fraud) count, Guertin is the prevailing party on the merits. We

therefore dismiss his cross-appeal of the District Court’s denial

of his motion to suppress and request for a Franks hearing.

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I. BACKGROUND

A. Factual Background

As noted above, the grand jury charged Guertin with wire

fraud, in violation of 18 U.S.C. § 1343, and with obstructing an

official proceeding, in violation of 18 U.S.C. § 1512(c)(2). The

indictment states that between 2007 and 2017, Guertin was

employed as a Foreign Service Officer with the United States

Department of State (“State Department”) and served on

multiple assignments abroad, including a posting in Shanghai,

China. While in Shanghai, Guertin acted as a consular officer

and adjudicated applications for United States visas.

The indictment also alleges that, as a condition of his

employment, Guertin was required to maintain a Top Secret

security clearance, which required him to pass background

checks in 2005, 2010, and 2016. According to the indictment,

during routine security clearance renewals, Guertin

impermissibly concealed the following information: the fact

that he sent the details of certain visa applicants to his personal

email so that he could make romantic overtures towards the

applicants, Appendix (“A.”) 13-17; a $225,000 loan agreement

with a Chinese couple collateralized by his house, A. 14-18,

128; and significant gambling debts that he incurred during his

employment, A. 14-17.

The principal claim in the indictment is that “the purpose

of [Guertin’s] scheme” of untruths was to defraud the State

Department and “unlawfully enrich himself by maintaining his

State Department employment and salary despite engaging in

conduct that would jeopardize his suitability for a security

clearance and a position of trust as a Foreign Service Officer.”

A. 15.

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B. Procedural History

On October 15, 2021, Guertin moved to suppress certain

evidence obtained pursuant to a search warrant issued in this

case and requested a Franks hearing to determine whether the

warrant affidavit still supported probable cause when shorn of

the allegedly false statements Guertin identified. The District

Court denied both the motion to suppress and the request for a

Franks hearing.

On October 15, 2021, Guertin also moved to dismiss both

counts of the indictment for failure to state an offense. The

District Court granted Guertin’s motion and dismissed both

counts. It dismissed the section 1343 count because the wire

fraud statute criminalizes schemes to obtain money or property,

18 U.S.C. § 1343, whereas Guertin’s alleged scheme merely

sought to maintain his State Department employment and

salary. The District Court was of the view that:

a scheme to “maintain” something is not synonymous

with a scheme to “obtain” the same thing. The word

“obtain” generally connotes affirmative action to

secure something outside one’s possession. See

Obtain, Black’s Law Dictionary (11th ed. 2019)

(defining the term as to “bring into one’s own

possession; to procure”). The word “maintain,” by

contrast, connotes action to preserve the status quo. See

Maintain, id. (defining the term as “[t]o continue in

possession of (property etc.)”). The upshot is that to

state an offense under the plain meaning of § 1343, the

Government must allege a defendant’s scheme sought

to gain possession of something not previously in his

possession. And by extension, the Indictment’s

allegation that Guertin merely sought to “maintain” his

salary does not suffice.

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Guertin, 581 F. Supp. 3d at 92-93. Additionally, the District

Court determined that applying the wire fraud statute to these

facts would amount to an end-run around the Supreme Court

precedent regarding honest services fraud. Id. at 94-96. Finally,

the District Court dismissed the obstructing an official

proceeding count on the ground that the security clearance

background check was not an “official proceeding” under 18

U.S.C. § 1512(c)(2). Id. at 96-100.

The Government now appeals the dismissal of the wire

fraud count, but not the dismissal of the obstructing an official

proceeding count. Guertin cross-appeals the denial of his

motion to suppress and his request for a Franks hearing.

II. ANALYSIS

A. Standard of Review

We review “de novo the district court’s dismissal of an

indictment based on questions of law.” United States v. Yakou,

428 F.3d 241, 246 (D.C. Cir. 2005). “In reviewing the district

court’s denial of the suppression motion, we review legal

conclusions de novo and factual findings for clear error.”

United States v. Miller, 799 F.3d 1097, 1101 (D.C. Cir. 2015).

We need not establish a standard of review with respect to the

District Court’s denial of Guertin’s request for a Franks

hearing because the result would be the same under either the

clearly erroneous or de novo standard of review. See United

States v. Williams, 827 F.3d 1134, 1146 (D.C. Cir. 2016).

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B. The Insufficiency of the Indictment Under 18 U.S.C.

§ 1343

Under the wire fraud statute, “[w]hoever, having devised or

intending to devise any scheme or artifice to defraud, or for

obtaining money or property by means of false or fraudulent

pretenses, representations, or promises,” causes a wire

transmission in interstate or foreign commerce “for the purpose

of executing such scheme or artifice” shall be subject to

criminal penalties. 18 U.S.C. § 1343. The indictment of Guertin

pursuant to 18 U.S.C. § 1343 cannot stand absent a plausible

allegation that he pursued a deceptive scheme, facilitated by a

wire transmission, to deprive his employer of money or

property. See Kelly, 140 S. Ct. at 1571. The Supreme Court

has made it clear that the statute does not criminalize all acts of

dishonesty that are facilitated by wire transmission. Id. Rather,

“[t]he wire fraud statute . . . prohibits only deceptive ‘schemes

to deprive [the victim of] money or property.’” Id. (emphasis

added) (quoting McNally, 483 U.S. at 356). Thus, the

Government must show not only that the accused engaged in

deception, but that “an object of [his] fraud was property.” Id.

(cleaned up). Even if we assume that Guertin’s untruths were

part of a “scheme,” the indictment here still fails because it

does not plausibly allege that the purpose of Guertin’s scheme

was to deprive the State Department of “money or property,”

as required by section 1343 and Supreme Court case law

construing the statute.

1. Honest Services Fraud

Historically, courts construed the federal fraud statutes to

proscribe “schemes to defraud citizens of their intangible rights

to honest and impartial government.” McNally v. United States,

483 U.S. 350, 355 (1987). If a city official accepted a bribe

from a third party in exchange for awarding that party a city

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contract, this was seen as a breach of honest service. Even if

“the contract terms were the same as any that could have been

negotiated at arm’s length” such that the city “suffer[ed] no

tangible loss,” courts historically reasoned that “actionable

harm lay in the denial of [the city’s] right to the offender's

‘honest services.’” Skilling, 561 U.S. at 400.

However, in McNally, the Supreme Court “stopped the

development of the intangible-rights doctrine in its tracks.” Id.

at 401.

McNally involved a state officer who, in selecting

Kentucky’s insurance agent, arranged to procure a

share of the agent's commissions via kickbacks paid

to companies the official partially controlled. The

prosecutor did not charge that, in the absence of the

alleged scheme, the Commonwealth would have paid

a lower premium or secured better insurance. Instead,

the prosecutor maintained that the kickback scheme

defrauded the citizens and government of Kentucky of

their right to have the Commonwealth's affairs

conducted honestly.

[The Supreme Court] held that the scheme did not

qualify as mail fraud. Rather than construing the

statute in a manner that leaves its outer boundaries

ambiguous and involves the Federal Government in

setting standards of disclosure and good government

for local and state officials, [the Court] read the statute

as limited in scope to the protection of property rights.

Skilling, 561 U.S. at 401-02 (cleaned up). After McNally,

Congress enacted 18 U.S.C. § 1346 to clarify that the phrase

“scheme or artifice to defraud” includes schemes to deprive

another of “the intangible right of honest services.” However,

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the Court cabined section 1346 to schemes involving bribes or

kickbacks. Id. at 408-09. In other words, with the exception of

schemes involving bribes or kickbacks, McNally and its

progeny reject the use of federal fraud statutes to criminalize

alleged schemes that merely deprive the victim of honesty as

such. “The wire fraud statute thus prohibits only deceptive

schemes to deprive the victim of money or property.” Kelly,

140 S. Ct. at 1571 (cleaned up).

Here, the indictment does not plausibly allege that the

object of Guertin’s scheme was to deprive his employer of

“money or property,” as Kelly requires. The indictment alleges

that Guertin’s deceits aimed to maintain his security clearance.

However, this is not tantamount to a scheme to deprive his

employer of “money or property.” Indeed, the Government has

not contested Guertin’s argument that “a security clearance is

intangible property that does not qualify as ‘money or property’

within the meaning of 18 U.S.C. § 1343.” A. 72; see Cleveland

v. United States, 531 U.S. 12, 18 (2000) (no mail fraud where

object of fraud was to obtain gambling license because license

was not property in hands of the state); United States v.

Borrero, 771 F.3d 973, 976 (7th Cir. 2014) (no mail fraud

where object of fraud was to obtain car titles because car title

was not property in hands of the state). The Government thus

hinges its theory on the allegation that Guertin lied to “enrich

himself by maintaining his State Department employment and

salary.” A. 15. Stripped to its core, the Government’s theory is

that whenever an employee lies about a specific, concrete

condition of employment – here, Guertin’s suitability for

security clearance – the employer is defrauded of “money or

property” by paying the employee’s salary. We reject this

theory.

Lower courts applying the principles of McNally and its

progeny have limited the wire fraud statute “only to those

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schemes in which a defendant lies about the nature of the

bargain itself.” United States v. Takhalov, 827 F.3d 1307, 1314

(11th Cir. 2016); see also United States v. Shellef, 507 F.3d 82,

108 (2d Cir. 2007) (drawing distinction “between schemes that

do no more than cause their victims to enter into transactions

they would otherwise avoid—which do not violate the mail or

wire fraud statutes—and schemes that depend for their

completion on a misrepresentation of an essential element of

the bargain—which do violate the mail and wire fraud

statutes”). This makes sense under McNally, Skilling, and

Kelly. If an employee’s untruths do not deprive the employer

of the benefit of its bargain, the employer is not meaningfully

defrauded of “money or property” when it pays the employee

his or her salary. Rather, when the employer receives the

benefit of its bargain, the employee’s lie merely deprives the

employer of honesty as such, which cannot serve as the

predicate for a wire fraud conviction. See United States v.

Yates, 16 F.4th 256, 267 (9th Cir. 2021) (“Permitting the

government to recharacterize schemes to defraud an employer

of one’s honest services—thereby profiting through the receipt

of salary and bonuses—as schemes to deprive the employer of

a property interest in the employee's continued receipt of a

salary would work an impermissible end-run around” McNally

and its progeny. (cleaned up)).

Adopting the Government’s theory would sweep a large

swath of everyday workplace misconduct within the ambit of

the federal fraud statutes. Consider an accountant who lies

about her personal internet use during work hours, or a

manager who conceals a forbidden relationship with a

subordinate, or a social worker who conceals a DUI record.

Limitations on internet use, prohibitions against managers and

subordinates dating, and clean criminal record requirements are

undoubtedly concrete and specific conditions of employment.

Nevertheless, the employees’ deceits in these scenarios do not

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deprive their employers of “money or property” for purposes

of the federal fraud statutes if there is no showing that an honest

employee would have performed better or that the employer

would have paid less for the dishonest employee’s work. See

McNally, 483 U.S. at 360 (no mail fraud for insurance kickback

scheme because “[i]t was not charged that in the absence of the

alleged scheme the Commonwealth would have paid a lower

premium or secured better insurance”); United States v. Frost,

125 F.3d 346, 361 (6th Cir. 1997) (no mail fraud when

contractor concealed conflict of interest because “[t]here is no

evidence in this case that NASA would have had to pay less

money or would have received more services if Congo had

disclosed his conflict of interest”).

If there is no difference between the honest employee and

dishonest employee in terms of performance or pay – that is, if

the employer receives the benefit of its bargain – criminalizing

the lies of a dishonest employee would create an intangible

right to honest services in just the way McNally renounces. And

because deceits of the sort described above are not uncommon

in workplaces across the country, criminalizing them all would

give federal prosecutors carte blanche to set the standards of

disclosure and honesty in employment. Such an expansive

interpretation of the wire fraud statute finds no support in the

text of the provision or any Supreme Court precedent, and

“would raise serious concerns about whether the offense is

defined with sufficient definiteness that ordinary people can

understand what conduct is prohibited and in a manner that

does not encourage arbitrary and discriminatory enforcement.”

Yates, 16 F.4th at 267-68 (cleaned up).

Here, as in McNally and Frost, the indictment does not

claim that in the absence of Guertin’s deceits, the State

Department would have received better work from or paid a

different salary to an honest employee. See, e.g., Frost, 125

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F.3d at 361 (quoting United States v. Mittelstaedt, 31 F.3d

1208, 1217 (2d Cir. 1994) (“To convict, the government had to

establish that the omission caused . . . actual harm . . . of a

pecuniary nature or that the [victim] could have negotiated a

better deal for itself if it had not been deceived.”)). To the

contrary, the record reveals that Guertin received glowing

performance reviews during his tenure with the State

Department. Supplemental Appendix 257-65.

As explained above, the mere allegation that a high

security clearance was a condition of Guertin’s employment is

insufficient to support the indictment under section 1343.

Employers typically have great discretion in establishing

conditions of employment, as they see fit. However, in light of

the Supreme Court’s pronouncements, it surely cannot be said

that an employee’s breach of any important condition of

employment that is facilitated by wire transmission is

tantamount to a “scheme” to defraud the employer of “money

or property” in violation of section 1343. This is not the law.

That Guertin lied about his suitability for his security clearance

“do[es] no more than cause” the State Department to engage in

“transactions [it] would otherwise avoid[,] which do[es] not

violate the mail or wire fraud statutes.” Shellef, 507 F.3d at 108.

Without some plausible allegation claiming that the State

Department did not receive the benefit of the core employment

bargain, the indictment fails to allege a scheme to deprive the

State Department of “money or property.” Therefore, the

indictment cannot be sustained under 18 U.S.C. § 1343.

2. Salary Maintenance Fraud

The District Court, relying on the Ninth Circuit’s decision

in Yates, reasoned that because the wire fraud statute requires

the object of the scheme be to “obtain[]” money or property, 18

U.S.C. § 1343, the allegation that Guertin lied to “maintain” his

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employment and salary cannot sustain a wire fraud conviction.

See A. 134-36. In Yates, the Ninth Circuit distinguished

between “a scheme whose object is to obtain a new or higher

salary” – which can sustain a federal fraud conviction – and “a

scheme whose object is to deceive an employer while

continuing to draw an existing salary” – which cannot sustain

a federal fraud conviction. 16 F.4th at 266. According to the

Yates court, criminalizing a lie to “maintain” an existing job

and salary, as opposed to a lie to “obtain” a new job and salary,

would “let in through the back door the [honest services] theory

that [the Supreme Court] tossed out the front.” Id. at 267

(internal quotation marks omitted).

We need not adopt the Ninth Circuit’s approach to affirm

the District Court in this case. We also prefer to leave this

matter for another day, because it is not clear that salary

maintenance fraud and honest services fraud are always

coextensive. This distinction is not presented here, so there is

no reason for us to overreach in our holding when this case so

clearly involves a situation of alleged honest services fraud.

Regardless of whether Guertin lied to “obtain” future salary or

“maintain” his existing salary, we affirm the District Court’s

dismissal because the indictment fails to allege that the State

Department was deprived of something more than Guertin’s

honesty.

3. Employers Are Not Without Recourse to

Address Honest Services Fraud

As noted above, the Supreme Court has made it clear that

section 1343 is not intended to criminalize all acts of

dishonesty and other misconduct that are facilitated by wire

transmission. However, the unavailability of criminal

prosecution under the wire fraud statute certainly does not

leave employers without recourse. Employees who engage in

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such misdeeds may still be met with adverse employment

consequences, including termination, and even the possibility

of civil litigation. And, as noted above, 18 U.S.C. § 1346

permits the Government to prosecute honest services fraud

when it is part of a scheme involving bribes or kickbacks.

Furthermore, the record in this case indicates that when

Guertin commenced his background investigation, he

completed a Standard Form 86 (“SF-86”) questionnaire. This

is a requirement for any current or prospective Government

employee who is seeking a security clearance. The SF-86

informs the person filling out the form that misrepresentations

may be prosecuted under 18 U.S.C. § 1001, which prohibits

making false statements “in any matter within the jurisdiction

of the executive, legislative, or judicial branch.” Although

Guertin answered “no” to three background questions on his

2016 SF-86 that led to his indictment under section 1343, he

was never charged under section 1001. The Government may

have had good reasons not to pursue a charge against Guertin

under section 1001, and we offer no judgment on this.

However, the Government may not now stretch 18 U.S.C. §

1343 to cover any gap left by its decision not to take action

under 18 U.S.C. § 1001.

The simple point here is that the wire fraud statute, as

interpreted through the lens of Supreme Court precedent, does

not support an indictment on the facts proffered by the

Government in this case.

C. Denial of Motion to Suppress and Franks Hearing

Finally, because we affirm the dismissal of the indictment,

Guertin is the prevailing party in this case. As such, he has no

right to seek review of the District Court’s denial of his motion

to suppress and request for a Franks hearing.

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In rare circumstances, an “appeal may be permitted from

an adverse ruling collateral to the judgment on the merits at the

behest of the party who has prevailed on the merits, so long as

that party retains a stake in the appeal satisfying the

requirements of Art. III.” Deposit Guar. Nat’l Bank v. Roper,

445 U.S. 326, 334 (1980); see also Camreta v. Greene, 563

U.S. 692, 702-03 (2011). In these cases, however, the adverse

collateral ruling affected the prevailing parties’ prospective

conduct, id., whereas a denial of Guertin’s Franks hearing and

motion to suppress does not have any prospective effect on

him. Thus, we adhere to the default rule that “‘[a] party may

not appeal from a judgment or decree in his favor.’” Zukerman

v. USPS, -- F.4th --, 2023 WL 2939950, at *9 (D.C. Cir. 2023)

(quoting Electrical Fittings Corp. v. Thomas & Betts Co., 307

U.S. 241, 242 (1939)).

D. CONCLUSION

For the reasons set forth above, we affirm the District

Court’s dismissal of the indictment. We dismiss Guertin’s

cross-appeal of the District Court’s denial of his motion to

suppress and request for a Franks hearing.

So ordered.