Petition for Writ of Certiorari — Stamatios Kousisis and Alpha Painting and Construction Co., Inc., Petitioners v. United States
Supreme Court briefFeb 20, 2024
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In The
Supreme Court of the United States
---------------------------------♦--------------------------------STAMATIOS KOUSISIS and
ALPHA PAINTING & CONSTRUCTION CO., INC.,
Petitioners,
v.
UNITED STATES OF AMERICA,
Respondent.
---------------------------------♦--------------------------------On Petition For A Writ Of Certiorari
To The United States Court Of Appeals
For The Third Circuit
---------------------------------♦--------------------------------PETITION FOR A WRIT OF CERTIORARI
---------------------------------♦--------------------------------LISA A. MATHEWSON
MATHEWSON LAW LLC
123 South Broad Street,
Suite 1320
Philadelphia, PA 19109
215-399-9592
lam@mathewson-law.com
Attorney for Petitioners
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i
QUESTIONS PRESENTED
The circuits are split 6-5 on the validity of the fraudulent inducement theory of mail and wire fraud. The
Questions Presented are:
Whether deception to induce a commercial exchange
can constitute mail or wire fraud, even if inflicting economic harm on the alleged victim was not the object of
the scheme.
Whether a sovereign’s statutory, regulatory, or policy
interest is a property interest when compliance is a
material term of payment for goods or services.
Whether all contract rights are “property.”
ii
LIST OF PARTIES
Petitioners are Stamatios Kousisis and Alpha
Painting & Construction Co., Inc., defendant-appellants
below. Additional defendants in the district court who
were not parties in the court of appeals and are not
parties here were Emanouel Frangos and Liberty
Maintenance, Inc.
Respondent is the United States of America, appellee below.
CORPORATE DISCLOSURE STATEMENT
Alpha Painting & Construction Co., Inc. does not
have a parent company and no stock is publicly owned.
RELATED PROCEEDINGS
United States v. Kousisis, No. 19-2679 and United
States v. Alpha Painting & Construction Co., Inc., No.
19-3774 (consolidated), U.S. Court of Appeals for the
Third Circuit, Judgment entered September 22, 2023.
United States v. Kousisis, Alpha Painting & Construction Co., Inc., et al., No. 18-cr-130 (U.S. District
Court for the Eastern District of Pennsylvania), Judgments entered November 8, 2019 and November 15, 2019.
United States v. Emanouel Frangos, Liberty Maintenance, Inc., No. 19-2482, U.S. Court of Appeals for the
Third Circuit, Judgment entered July 20, 2020, unrelated appeal from same district court proceeding (No.
18-cr-130).
iii
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED ................................
i
LIST OF PARTIES ..............................................
ii
CORPORATE DISCLOSURE STATEMENT ......
ii
RELATED PROCEEDINGS ................................
ii
TABLE OF AUTHORITIES .................................
vi
PETITION FOR A WRIT OF CERTIORARI .......
1
OPINIONS BELOW.............................................
1
JURISDICTION ...................................................
1
STATUTORY PROVISIONS INVOLVED ...........
2
INTRODUCTION ................................................
3
STATEMENT OF THE CASE..............................
7
A.
Factual Background ..................................
7
1. The Disadvantaged Business Enterprise
Program ...............................................
7
2. The Philadelphia Bridge Projects .......
9
B.
District Court Proceedings ........................ 13
C.
Third Circuit Proceedings ......................... 15
REASONS FOR GRANTING THE PETITION .... 21
I.
The Circuits Are Divided On Whether Deception To Induce A Fair Commercial Exchange Is Property Fraud .......................... 21
A. The Second, Sixth, Ninth, Eleventh,
and D.C. Circuits reject the fraudulent
inducement theory ............................... 21
iv
TABLE OF CONTENTS—Continued
Page
B. On the other hand, the Fourth, Fifth,
Seventh, Eighth, and Tenth Circuits endorse the theory, and the Third Circuit
now joins them....................................... 22
II.
The Third Circuit’s Path To Endorsing The
Fraudulent Inducement Theory Shows
Why The Theory Is Wrong ......................... 23
III.
The Fraudulent Inducement Theory Has
Grave Implications, As Does The Corollary
That All Contractual Interests Are Property ............................................................. 29
IV.
This Case Is The Ideal Vehicle For Review ........................................................... 32
CONCLUSION..................................................... 33
APPENDIX
Opinion, United States Court of Appeals for the
Third Circuit (Sep. 22, 2023) ........................... App. 1
Opinion, United States Court of Appeals for the
Third Circuit (Sep. 27, 2023) ......................... App. 42
Judgment, United States District Court for the
Eastern District of Pennsylvania (Nov. 15,
2019) ............................................................... App. 54
Judgment, United States District Court for the
Eastern District of Pennsylvania (Nov. 8,
2019) ............................................................... App. 63
v
TABLE OF CONTENTS—Continued
Page
Memorandum Opinion, United States District
Court for the Eastern District of Pennsylvania
(Jun. 17, 2019) ................................................ App. 76
Order, United States District Court for the
Eastern District of Pennsylvania (Jun. 17,
2019) ............................................................. App. 130
Transcript Excerpts, United States District
Court for the Eastern District of Pennsylvania
(Nov. 6, 2019) ................................................ App. 132
Transcript Excerpts, United States District
Court for the Eastern District of Pennsylvania
(Aug. 24, 2018) .............................................. App. 153
vi
TABLE OF AUTHORITIES
Page
CASES
Adarand Constructors, Inc. v. Pena, 515 U.S. 200
(1995) .........................................................................8
Board of Regents v. Roth, 408 U.S. 564 (1972) ...........31
Ciminelli v. United States, 598 U.S. 306 (2023) ...... 3, 4,
............................................ 6, 7, 19-21, 23, 24, 26, 29
Haas v. Henkel, 216 U.S. 462 (1910)....................... 6, 27
Hammerschmidt v. United States, 265 U.S. 182
(1924) .........................................................................3
Kelly v. United States, 140 S. Ct. 1565 (2020)..... 16, 24,
..................................................................... 26, 27, 29
Lochner v. New York, 198 U.S. 45 (1905) ................ 6, 28
McNally v. United States, 483 U.S. 350 (1987) ....... 3, 6,
..................................................................... 24, 26, 29
Shaw v. United States, 580 U.S. 63 (2016) ............. 4, 16
Skilling v. United States, 561 U.S. 358 (2010) .... 3, 18, 29
Thorne v. Pep Boys, Inc., 980 F.3d 879 (3d Cir.
2020) ........................................................................31
United States v. Baroni, 2016 WL 3388302
(D.N.J. June 13, 2016) .............................................27
United States v. Baroni, 909 F.3d 550 (3d Cir.
2018) ........................................................................27
United States v. Bruchhausen, 977 F.2d 464 (9th
Cir. 1992) .................................................................22
United States v. Bunn, 26 F. App’x 139 (4th Cir.
2001) ........................................................................22
vii
TABLE OF AUTHORITIES—Continued
Page
United States v. Fagan, 821 F.2d 1002 (5th Cir.
1987) ........................................................................23
United States v. Goldblatt, 813 F.2d 619 (3d Cir.
1987) ........................................................................24
United States v. Granberry, 908 F.2d 278 (8th
Cir. 1990) ........................................................... 22, 28
United States v. Guertin, 67 F.4th 445 (D.C. Cir.
2023) ........................................................................22
United States v. Hedaithy, 392 F.3d 580 (3d Cir.
2004) .............................................................24-26, 28
United States v. Kousisis, 66 F.4th 406 (3d Cir.),
vacated and modified on reh’g ........... 1, 17-21, 23, 28
United States v. Leahy, 445 F.3d 634 (3d Cir.
2006) ........................................................................23
United States v. Leahy, 464 F.3d 773 (7th Cir.
2006) .................................................................. 22, 28
United States v. Miller, 2023 WL 7346276 (N.D.
Cal. Nov. 6, 2023) ................................................... 4, 5
United States v. Percoco, 13 F.4th 158 (2d Cir.
2021), rev’d ..............................................................19
United States v. Porat, 76 F.4th 213 (3d Cir.
2023) ....................................................... 18-21, 23-26
United States v. Regent Office Supply Co., 421
F.2d 1174 (2d Cir. 1970) ..........................................21
United States v. Richter, 796 F.3d 1173 (10th Cir.
2015) ........................................................................22
viii
TABLE OF AUTHORITIES—Continued
Page
United States v. Rowe, 56 F.2d 747 (2d Cir. 1932)
................................................................. 4, 16, 21, 32
United States v. Sadler, 750 F.3d 585 (6th Cir.
2014) ........................................................................22
United States v. Schwartz, 924 F.2d 410 (2d Cir.
1991) .................................................................. 24, 25
United States v. Shellef, 507 F.3d 82 (2d Cir.
2007) ........................................................................22
United States v. Takhalov, 827 F.3d 1307 (11th
Cir. 2016) .................................................................22
United States v. Tulio, 263 F. App’x 258 (3d Cir.
2008) ...................................................... 14, 15, 22, 28
United States v. Venkata, 2024 WL 86287
(D.D.C. Jan. 3, 2024)..................................................4
Universal Health Services, Inc. v. United States,
579 U.S. 176 (2016) .................................................30
Walker v. Galt, 171 F.2d 613 (5th Cir. 1948) ........ 23, 25
STATUTES
18 U.S.C. §371 ...............................................................6
18 U.S.C. §1001 ...........................................................13
18 U.S.C. §1343 ....................................................... 2, 13
18 U.S.C. §1346 .............................................................3
18 U.S.C. §1349 ....................................................... 2, 13
ix
TABLE OF AUTHORITIES—Continued
Page
28 U.S.C. §1254(1) .........................................................1
42 U.S.C. §1983 ...........................................................31
REGULATIONS AND RULES
49 C.F.R. §26.41 ............................................................8
49 C.F.R. §26.47(a) ........................................................8
49 C.F.R. §26.51 ............................................................8
49 C.F.R. §26.53 ...................................................... 8, 13
49 C.F.R. §26.53(b) .................................................. 8-10
49 C.F.R. §26.53(d) ......................................................10
49 C.F.R. §26.55(c) ........................................................9
64 Fed. Reg. 5096-5108 (Feb. 2, 1999) ..........................8
Sup. Ct. R. 13.1 .............................................................1
Sup. Ct. R. 13.3 .............................................................1
Sup. Ct. R. 13.5 .............................................................1
OTHER AUTHORITIES
U.S. Sentencing Guidelines, Section 2B1.1 ................15
1
PETITION FOR A WRIT OF CERTIORARI
Stamatios Kousisis and Alpha Painting & Construction Co., Inc. respectfully petition for a writ of certiorari to review the judgment of the United States
Court of Appeals for the Third Circuit in this case.
---------------------------------♦---------------------------------
OPINIONS BELOW
The Third Circuit’s opinion (Pet.App.1-41) is published at 82 F.4th 230 (3d Cir. 2023).
An earlier version of the Third Circuit’s opinion,
superseded on rehearing, was published at 66 F.4th
406 (3d Cir. 2023).
---------------------------------♦---------------------------------
JURISDICTION
The opinion and judgment of the court of appeals
were entered on September 22, 2023. App.1-41. Pursuant to this Court’s Rules 13.1 and 13.3, a petition for
certiorari was initially due by December 20, 2023. By
orders dated December 12, 2023 and January 18, 2024,
under Dkt. 23A538, Justice Alito extended the time for
filing a petition for a writ of certiorari until February
19, 2024. This petition is timely filed on or before the
extended due date. Rules 13.1, 13.3, 13.5.
Petitioner invokes this Court’s jurisdiction under
28 U.S.C. §1254(1).
---------------------------------♦---------------------------------
2
STATUTORY PROVISIONS INVOLVED
The federal wire fraud statute provides in pertinent part:
Whoever, 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, transmits or causes to be transmitted by means of wire, radio, or television
communication in interstate or foreign commerce, any writings, signs, signals, pictures,
or sounds for the purpose of executing such
scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or
both.
18 U.S.C. §1343.
The federal wire fraud conspiracy statute, 18
U.S.C. §1349, subjects “any person who . . . conspires to
commit” that offense to the same penalties.
---------------------------------♦---------------------------------
3
INTRODUCTION
Even before briefing was complete in Ciminelli v.
United States, 598 U.S. 306 (2023), the government
was urging the Court to neuter it. The “fraudulent inducement” theory it asked the Court to bless there is
even more sweeping than the right-to-control theory
Ciminelli invalidated.
The pattern is familiar. Each time the Court has
reeled interpretations of the mail and wire fraud statutes back to their proper limits, the government has
shifted course to evade those limits. The Court declared 100 years ago that the mail fraud statute criminalizes schemes for “wronging one in his property
rights.” Hammerschmidt v. United States, 265 U.S. 182,
188 (1924). Yet over decades prosecutors and lower
courts eroded that rule, applying the mail and wire
fraud statutes to a wide variety of schemes targeting
intangible rights. When the Court put a stop to that in
McNally v. United States, 483 U.S. 350 (1987), the government responded with the right-to-control theory,
which criminalizes “almost any deceptive act.” Ciminelli, 598 U.S. at 315. The theory gave the government a multi-tool it could use when unable to prove
either an intent to harm the victim’s economic interests—the hallmark of traditionally recognized “property”—or the single intangible-rights theory Congress
resurrected with 18 U.S.C. §1346. Ciminelli, 598 U.S.
at 315-16; see Skilling v. United States, 561 U.S. 358,
402-04 (2010).
4
The government’s repudiation of the right-to-control theory in Ciminelli did not herald a new day of
prosecutorial fidelity to statutory text, structure, and
history, however. The government had waiting in the
wings the fraudulent inducement theory: approved by
five circuits (now six), disapproved by five others, and
awaiting only (the government hoped) this Court’s imprimatur.
The theory is framed by Judge Learned Hand’s famous dictum: “a man is none the less cheated out of his
property, when he is induced to part with it by fraud,
because he gets a quid pro quo of equal value. . . . [H]e
has suffered a wrong; he has lost the chance to bargain
with the facts before him.” United States v. Rowe, 56
F.2d 747, 749 (2d Cir. 1932). Though the Second Circuit
later repudiated Rowe, this Court quoted it with approval in Shaw v. United States, 580 U.S. 63, 67 (2016),
a bank fraud case. Whether deception affecting a victim’s decision about who should get its property deprives the victim of the property itself is the heart of
the circuit split.
The government jumped the gun in Ciminelli. See
598 U.S. at 316-17. But it is vitally important that the
Court step in. Even in circuits that have rejected the
theory, the government and lower courts are already
emphasizing what Ciminelli left open to contend that
all fraudulent schemes “to obtain” property are property fraud, even if the completed scheme would harm
intangible interests alone. E.g., United States v. Venkata, 2024 WL 86287, at *6-*7, *10 (D.D.C. Jan. 3,
2024); United States v. Miller, 2023 WL 7346276, at
5
*3-*4 (N.D. Cal. Nov. 6, 2023). This case is an ideal vehicle for resolving the issue.
Petitioner Alpha Painting and Construction Co.,
Inc. (“Alpha”) is an industrial painting company; Petitioner Stamatios Kousisis was its project manager.
Alpha and its business partners won two federally
funded bridge repair contracts for the Pennsylvania
Department of Transportation (“PennDOT”). They were
the lowest bidders by millions, and undisputedly did
high-quality work.
How they lowered their bids while doing quality
work was the problem. The government contended that
they evaded regulatory and contractual Disadvantaged Business Enterprise participation goals to lower
their costs, saving PennDOT money on work it needed
while depriving it of “the worthy purpose of ” the DBE
program. C.A.3App.1375; C.A.3Gov’t.Br.28, 41, 81-82.
As the government told the jury in summation, the alleged fraud “had nothing to do with dollars and cents,”
but rather “had to do with [PennDOT’s] own program,
its own desires” to create economic opportunities for
DBEs. C.A.3App.3434-3435.
Yet the government also insisted that “obtaining”
PennDOT’s money with false promises of compliance
was property fraud, because PennDOT may have
chosen a different bidder—and higher price—had it
known the truth. The Third Circuit agreed (e.g.,
Pet.App.18-20, 25), raising to six the number of circuits
endorsing the fraudulent inducement theory and
eleven the circuits that have weighed in.
6
The validity of the theory is squarely and cleanly
presented here, on a record that underscores what it
puts at stake. The fraudulent inducement theory equates
a scheme to impair or impede executive branch policy
goals and regulatory requirements with a scheme to
fleece a contracting agency of “property.” That erases
Congress’s careful distinction between the mail and
wire fraud statutes—which protect property interests
a government holds as an individual could—and the
“defraud” clause of 18 U.S.C. §371—which protects intangible interests a government holds as a sovereign
“administering itself in the interests of the public.” See
McNally, 483 U.S. at 358 n.8 (citing, e.g., Haas v. Henkel, 216 U.S. 462, 480 (1910)).
The Third Circuit’s attempt to use the common
law to defend that analysis only broadens the disarray
its ruling threatens. Both resurrecting and misunderstanding the Lochner-era1 doctrine that made the freedom of contract a “property right,” it declares instead
that every right protected by contract is “property.”
Pet.App.26, 28. The implications are vast, and not limited to criminal law.
The government has already told the Court it considers these issues “important.” At oral argument in
Ciminelli it explained that it needs the fraudulent inducement theory to criminalize “what [it] might call
‘pedigree fraud,’ where . . . someone lies about their eligibility for a veterans’ preference in contracting.” Tr.
of Nov. 28, 2022 Oral Arg., Ciminelli (No. 21-1170), at
1
Lochner v. New York, 198 U.S. 45 (1905).
7
31-32. What the government means by “pedigree
fraud” is what the Third Circuit described here as
“schem[ing] to have PennDOT pay them millions of
dollars that they were clearly not entitled to given
their material breach of the contracts.” Pet.App.21-22.
Defining property fraud to include all deceptive
“schemes to get money” (or another form of property)
leaves its outer bounds ambiguous. Most fraud is about
getting something from someone. The question remains whether the scheme would “deprive [the victim]
of traditional property interests” or only of other, intangible interests. Ciminelli, 598 U.S. at 309. The
fraudulent inducement theory makes “obtaining by
fraud” enough. The Court’s prompt intervention is essential to address whether that comports with Ciminelli, its predecessors, and the federalism and due
process principles that underlie them. This case is an
ideal vehicle in which to do so.
---------------------------------♦---------------------------------
STATEMENT OF THE CASE
A. Factual Background
1. The Disadvantaged Business Enterprise
Program
The U.S. Department of Transportation (“USDOT”)
created its Disadvantaged Business Enterprise (“DBE”)
program to help small businesses owned by members
of historically disadvantaged groups compete in the marketplace for federally funded contracts. C.A.3App.260261. USDOT revamped the program in the late 1990s,
8
increasing flexibility for funding recipients and contractors in response to this Court’s ruling that strict
scrutiny applies “when government allocate[s] its resources” in a race-conscious way. Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 226 (1995); 64 Fed. Reg.
5096-08 (Feb. 2, 1999). The changes also responded to
Congress’s desire to free state and local funding recipients from burdensome federal mandates, and its resistance to funding set-asides, quotas, and other
entitlements. 64 Fed.Reg. 5102, 5107-08.
With flexibility the watchword, USDOT now sets
an “aspirational” goal that 10% of its infrastructure
spending benefit DBEs—but allows recipient agencies
to set their own goals based on local conditions, and
requires only “good faith efforts” to achieve them. 49
C.F.R. §§26.41, 26.47(a); C.A.3App.263. Likewise,
though recipients may incorporate DBE participation
goals into USDOT-funded contracts, they may not require contractors to meet a goal—but only to make
good-faith efforts to do so. 49 C.F.R. §26.51;
C.A.3App.276. An agency must waive a participation
goal if the winning low bidder will fall short despite
those efforts, either at the bid stage or while work is
underway. 49 C.F.R. §26.53; see 64 Fed. Reg. 5099-00
(discussing intent to preserve low-bid system).
An agency using a DBE participation goal sets a
single goal for each contract, publicized when the
agency solicits bids. 49 C.F.R. §26.53(b); C.A.3App.763.
The agency may require bidders to include their plan
for meeting the goal in their bids, or—as PennDOT
chose here—require the low bidder (the apparent
9
winner) to submit that information after the agency
has accepted its lump-sum bid price but before the contract is awarded. Id. §26.53(b)(3).
Contracts with participation goals are not “set
aside” for a subset of bidders. A non-DBE prime contractor that wins a contract may meet a participation
goal by spending money with one or more DBEs—so
long as the DBE performs a “commercially useful
function” and is not a mere “pass-through.” 49 C.F.R.
§26.55(c); C.A.3App.276-277, 805, 2256-2257. While
work is underway the prime contractor reports qualifying DBE spending to the agency, which tracks progress via “DBE credits,” a “running tally” of progress
toward the goal. C.A.3App.277-278.
2. The Philadelphia Bridge Projects
PennDOT was the recipient agency on two major
bridge construction projects awarded in 2009 and 2010
(together, “the Philadelphia Projects”). It set DBE participation goals, announced with the bidding opportunities, for both. C.A.3App.754, 763. Petitioner Alpha
formed a joint venture (“the ALJV”) that was part of
bidding groups led by a company called Buckley (the
“Buckley ventures”) for the Philadelphia Projects.2 On
both Philadelphia Projects Buckley submitted a lumpsum bid that was the lowest PennDOT received by far,
by $5 million on one and $7 million on the other.
2
The ALJV consisted of Alpha and Liberty Maintenance
(“Liberty”), whose project manager was Emanouel Frangos.
C.A.3App.907-908, 3871, 3875.
10
PennDOT declared Buckley the presumptive winner
(“apparent low bidder”) on that basis. C.A.3App.856,
858-859.
When PennDOT did so, it locked its cost for the
contracted services to the amount of Buckley’s lumpsum bid, which did not detail anticipated costs. PennDOT would not pay less if it later chose to accept a
shortfall in DBE participation. And if DBE compliance
(or anything else) cost the Buckley ventures more than
the contractors had anticipated, the contractors—not
PennDOT—would bear the cost. E.g., C.A.3App.757758, 1368-1369; see 49 C.F.R. §26.53(b)(2)(vi), (d).
Once declared “apparent low bidder” Buckley had
seven days to show it could fulfill the voluminous contractual requirements—nearly 1000 pages worth, with
DBE compliance one of countless statutory, regulatory,
technical, and ethical obligations—before the contract
would be awarded. C.A.3App.763-764, 839, 843-844; 49
C.F.R. §26.53(b)(3)(i)(B). Only then did Buckley identify for PennDOT the DBEs (six on each project) the coventurers would do business with, and the amounts of
anticipated spending with each. C.A.3App.763-764,
776, 842-843, 989-992. That detail did not bind the
Buckley ventures to spending the predicted amounts
with the identified DBEs, however. Even during performance, a prime contractor may change its participation plan; e.g., a shortfall in predicted spending with
one DBE may be made up with another—if the shortfall is not excused entirely. C.A.3App.805, 2256-2257.
11
Buckley’s planned DBE spending included the
ALJV’s purchase of painting supplies from a PennDOT-certified DBE supplier called Markias, Inc. But
Markias was a mere pass-through for the ALJV’s purchases from non-DBE suppliers, paid a 2.25% markup
on each supplier invoice. C.A.3App.2020-2024. Because
the ALJV’s spending with Markias did not qualify and
the Buckley ventures did not compensate for the
shortfall by spending more with another DBE, Buckley
inaccurately reported that it would, and did, meet participation goals.
Markias’s 2.25% markup totaled $170,000 for both
projects. C.A.3App.1429-1430. The Buckley ventures’
bids totaled approximately $120 million. C.A.3App.38713978. Many factors influence a lump-sum bid, but on
balance a bidder attempts to predict costs, build in its
hoped-for profit, and divine the right balance of protecting against unforeseen costs while minimizing the
risk of being underbid. C.A.3App.2387-2389. Buckley
considered estimates from its co-venturers and subcontractors when formulating its bid, and pushed
them to trim their numbers further to reduce the risk
of being underbid. Kousisis and his counterpart at
Liberty, Frangos, arrived at the “guesstimate” the
ALJV gave Buckley by talking with colleagues, exchanging numbers, and “work[ing] out the difference.”
They “considered” a wide range of factors, estimated
costs among them and Markias’s 2.25% fee among
those. C.A.3App.2387-2389, 2451-2457.
PennDOT paid Buckley on a “percent-to-completion” basis. That required the contractors to cover
12
expenses (like buying supplies) with funds on hand so
they could do the work that would earn the next chunk
of the fixed contract price. C.A.3App.840-841. PennDOT did not cover costs, nor did it earmark funds for
payment to DBEs—or to anyone other than Buckley.
At the eventual trial, all parties agreed that complying with DBE participation requirements is more
expensive than doing the same job without complying,
even accounting for a pass-through fee.3 The prosecution theory was that the defendants evaded DBE requirements so they could win the jobs with bids that
were “lower artificially,” giving PennDOT “the benefit
of the lower bid” while depriving it of genuine DBE participation.4 C.A.3App.1375 (USDOT agent testimony).
Compliance, the government told the jury, would have
“cost more than just 2.25%.” C.A.3App.179; accord
C.A.3App.182, 2258-2260; D.Ct.Dkt.195 (Gov’t Sentencing Mem.) at 17-18.
PennDOT would have had options had Buckley
disclosed, once declared the “apparent low bidder,” that
its DBE participation plan would fall short. PennDOT
could have accepted reduced participation at the same
price; required the Buckley ventures to make additional DBE commitments at their own expense (and
take less profit); accepted the next-lowest bid and paid
millions more for the “same work”; or re-bid the job
3
DBEs are small businesses by definition.
The government alleged a completed scheme that deprived
USDOT and PennDOT of property. The black-letter-law doctrine
that a scheme is criminal even if it fails was never at issue.
4
13
with participation requirements intact—anticipating
higher bids. C.A.3Gov’t.Br. 7-8, 41-42 n.13, 90; see 49
C.F.R. §26.53(a)(2)-(d); C.A.3App.894-895, 2258-2260.
The government candidly admitted it is impossible to
know what PennDOT would have chosen had it known
the truth. C.A.3Gov’t.Br. 90.
All parties agreed that the ALJV and its business
partners delivered high-quality construction for millions less than their competitors, fulfilling all contract
terms save one: the DBE participation requirement.
See Pet.App.29.
B. District Court Proceedings
A grand jury indicted Petitioners Alpha and Kousisis, and Liberty and Frangos, on April 3, 2018. All
four were charged with wire fraud and wire fraud conspiracy (18 U.S.C. §§1343, 1349) and associated false
statements (18 U.S.C. §1001). The indictment alleged
that they conspired to defraud USDOT and PennDOT,
“and to obtain money and property from them,” by misrepresenting that Markias would, and did, perform a
specified sum of “qualifying DBE work.” C.A.3App.9598 (¶¶28-29, 36, 39, 42). The “money” alleged to be wrongfully obtained was the face value of the contracts. The
“property” was “DBE credit.” Id. at C.A.3App.93-101;
accord C.A.3App.3252 (government summation).
All four defendants went to trial. Kousisis and
Frangos both testified. Having acknowledged that the
scheme contemplated PennDOT paying less than it
otherwise would have for high-quality work and
14
materials, in summation the government argued that
the defendants violated a contractual “non-financial
obligation,” causing PennDOT harm that “had nothing
to do with dollars and cents” but “had to do with its
own program, its own desires.” C.A.3App.3434-3435.
The government even admitted that recognized “forms
of property” would not reach the prosecution theory—
and asked the court to “define property for the jury
so they’re not confused,” because “[w]e’re not talking
about a concrete thing that somebody can hold in their
hand or even real estate or other forms of property or
even intellectual property.” C.A.3App.3227-3228; see
D.Ct.Dkt.146 at 32 (arguing that “non-economic purpose” of DBE program is agencies’ “property”).
Though the court declined to give the government’s instruction, it agreed that a novel instruction
was warranted and wrote its own, “taken directly out
of ” a not-precedential Third Circuit opinion, United
States v. Tulio, 263 F. App’x 258 (3d Cir. 2008), “that
deals with the definition of property.” C.A.3App.3237.
As discussed below (at Section II.), Tulio adopts a
“fraudulent inducement” theory of property fraud, and
also deems all rights protected by contract “property
rights.” The defense objected repeatedly, though unsuccessfully, that the resulting instruction permitted
conviction on those legally invalid theories. E.g.,
C.A.3App.3241, 3305, 3494; see Pet.App.154-156 (final
instruction).
The verdicts were mixed. The jury convicted Petitioners of wire fraud conspiracy, three counts of substantive wire fraud, and false statements, but acquitted on
15
two substantive wire fraud counts. Pet.App.54-55, 6364. It acquitted Frangos and Liberty on five counts of
substantive wire fraud and hung on all other counts,
which were eventually dismissed. D.Ct.Dkt.101, 236.
The district court denied Petitioners’ post-trial motions, again following Tulio. Pet.App.106-110.
Sentencing brought to the fore that the completed
scheme inflicted no economic harm on PennDOT. Restitution was zero. Pet.App.151. The district court expressly found that the scheme caused PennDOT to
pay millions of dollars less for high-quality work.
C.A.3App.3632, 3721. And it identified no property interest the scheme injured. To the contrary, it called the
sovereign interest in fostering economic opportunities
for DBEs “precisely what the government lost due to”
the scheme. C.A.3App.3718-3719. It then attempted to
“translate[ ]” into dollars the “value the government attributes to building connections with DBEs,” and
called that “loss” under Section 2B1.1 of the U.S. Sentencing Guidelines. C.A.3App.3721.
The court sentenced Mr. Kousisis principally to 70
months’ imprisonment. Pet.App.64. It ordered Alpha
to forfeit 100% of its profits on the Philadelphia Projects, $10,906,55300, and imposed a $500,000 fine.
Pet.App.58, 61.
C. Third Circuit Proceedings
On appeal Petitioners claimed that the evidence
was insufficient to prove property fraud as this Court’s
precedent (and Third Circuit precedent at the time)
16
defines it, and that the jury instructions permitted
conviction on the invalid theories the government argued. Chiefly, they argued that (1) a deceptive
scheme to steer the victim’s spending to someone
who would not have gotten it honestly, but that contemplates no economic harm, deprives the victim only
of honest dealings and accurate information; (2) a sovereign’s regulatory and policy interests are not property; and (3) writing an intangible right into a contract
does not make it property. They also addressed the inapplicability, and invalidity, of the right-to-control theory, because the government had raised it post-trial.
In response the government expressly endorsed a
“fraudulent inducement” theory—citing Seventh and
Eighth Circuit cases adopting it, and framing the argument with Judge Learned Hand’s 1932 Rowe dictum. C.A.3Gov’t.Br. 24-25 (quoting Rowe, 56 F.2d at
749, and citing Shaw, 137 S. Ct. at 467). It invoked the
“right-to-control” theory in the alternative, complete
with the “commandeering fraud” this Court rejected in
Kelly v. United States, 140 S. Ct. 1565, 1573 (2020).
C.A.3Gov’t.Br. 49-53. And in a scant ten sentences contradicted by the rest of its brief—and by the record—
the government floated a new factual theory that was
uncharged, never submitted to the jury, and the opposite of its trial theory: that the scheme increased Buckley’s lump-sum bids, which totaled approximately
$120,000,000, by the $170,000 paid to Markias. Id. 4243
The Third Circuit heard argument on August 18,
2021, but did not issue an opinion for another twenty
17
months, on April 21, 2023.5 The panel acknowledged
that a completed wire fraud scheme must harm the
victim economically, but held that a victim “loses”
the money it pays a defendant who used material deception to influence the victim’s choice of whom to pay.6
United States v. Kousisis, 66 F.4th 406, 415-17 (3d Cir.),
vacated and modified on reh’g; Pet.App.14-21. Therefore, it explained, a scheme “to obtain” PennDOT’s
funds by fraud is property fraud. 66 F.4th at 416;
Pet.App.18-19.
The panel also held that all interests protected by
contract are “property.” Noting the amici’s concerns
that that holding would criminalize essentially every
purposeful breach of contract,7 the panel said those
concerns are with “the text of the statute and the Supreme Court’s interpretation of it”—because Congress
criminalized “any” scheme to defraud, and a contrary
holding would read “any” out of the statute. Id. at 418;
Pet.App.23.
It then backstopped that theory with two new
ones, which it may have understood as one (the opinion
5
One member of the panel, Judge Joseph A. Greenaway, Jr.,
announced in early February 2023 that he would retire from the
bench effective June 15, 2023.
6
The panel also took pains to counter an illusory argument
for “net economic loss,” which the defendants never advanced below and expressly, and repeatedly, disclaimed on appeal. See 66
F.4th at 417-18, 419 n.80; Pet.App.21-23, 25 n.81.
7
Amici were the Americans for Prosperity Foundation, the
Cato Institute, the National Association of Criminal Defense
Lawyers, and the Due Process Institute. See C.A.3Dkt.52 (amicus
brief ).
18
is unclear). Entirely on its own it decided Markias’s
2.25% markup was a “kickback”—a category it expanded to include payments forward to third-parties
for improper purposes. Then, misunderstanding Skilling v. United States, 561 U.S. 358 (2010), to hold that
bribes and kickbacks supply the required harm to
“property,” it explained “there was clearly a kickback
here and thus economic harm sufficient to sustain wire
fraud convictions.” Id. 414-15, 417.
The panel also endorsed the government’s new-onappeal theory that the scheme caused PennDOT to pay
a “premium”—which assumed that had the ALJV not
planned to pay Markias $170,000, Buckley would have
reduced its lump-sum bid to give that 0.1% savings to
PennDOT (instead of taking more profit or adding legitimate DBE spending to meet the goal). Id. 418 &
n.69. But it also emphasized that the “premium” was
unnecessary to its holding, because “[e]ven without the
premium, Appellants’ primary fraudulent objective to
obtain PennDOT’s funds remains.” Id. A few weeks
later the government reverted to its trial theory, telling
a different Third Circuit panel, in United States v. Porat,8 that Kousisis held that “taking people’s money
through fraudulent representations” suffices, because
“an honest contractor” would have charged PennDOT
8
No. 22-1560 (3d Cir.); Pet. for Cert. filed Jan. 31, 2024, No.
23-832 (U.S.). Petitioners respectfully note that the Court may
wish to consider, and grant, the Porat and Kousisis petitions
together. If the Court grants Porat’s petition, they respectfully request that it hold their petition pending the resolution of
Porat.
19
more. Tr. of May 18, 2023 Oral Arg., Porat, C.A.3Dkt.72,
at 72-73.
This Court decided Ciminelli on May 11, 2023,
several weeks after the initial Kousisis opinion and
one week before argument in Porat. Kousisis and Alpha’s petition for rehearing en banc (filed after both)
pointed out that the panel had endorsed a fraudulent
inducement theory that is even broader than the rightto-control theory, without adversary briefing or argument on Ciminelli; indeed, given the twenty months
between argument and decision, Kousisis was argued
even before the circuit opinion in Ciminelli (decided
Sept. 8, 2021 sub nom. United States v. Percoco, 13
F.4th 158 (2d Cir. 2021)). It also pointed out the panel’s
grave misunderstanding of “kickbacks” as a species of
property fraud, and this Court’s most recent reminder
that appellate courts may not uphold convictions on
theories neither charged nor argued below (Ciminelli,
598 U.S. at 317).
The Kousisis rehearing petition was pending when
the Third Circuit decided Porat, which endorses the
same “lying to get money” fraudulent inducement theory. United States v. Porat, 76 F.4th 213, 219 (3d Cir.
2023). Judge Cheryl Ann Krause concurred separately
in Porat, rejecting that theory. Cognizant that Kousisis
bound the Porat panel, however, she read Kousisis to
say that the “premium” theory was necessary to its
holding—because if a “fraudulent objective to obtain
[PennDOT’s] funds” sufficed, Ciminelli would “obviously” have “abrogated that conclusion just weeks
later.” Id. 228 & n.6.
20
Any hope of aligning Kousisis with Ciminelli vanished when the two remaining members of the Kousisis
panel (see n.5) granted panel rehearing in part and issued a revised opinion with no further briefing.
C.A.3Dkt.130; Pet.App.1-41.9 Their revisions properly
excised all references to a “kickback” or “premium”—
though one orphaned reference to Markias’s passthrough fee now suggests a post-payment right to control how the ALJV used the money it earned on the
contract (Pet.App.21), and the other uses the conclusory phrase “nature of the bargain” to equate PennDOT’s interest in DBE participation with investors’
interest in the economic value of stock (Pet.App.22).
The only other substantive change is the addition of a
footnote dispensing with Ciminelli:
We are likewise unpersuaded that anything
in our holding today contravenes the Supreme
Court’s recent decision in Ciminelli. There,
the Court explained that “[t]he right to valuable economic information needed to make
discretionary economic decisions” (i.e., the
“right-to-control theory”) cannot sustain a
wire fraud conviction, as such rights are not
rooted in traditional property interests. Id. at
316. But again, the basis of the wire fraud conviction here is not PennDOT’s frustrated interest in DBE participation. Rather, it is the
9
The circuit denied rehearing en banc. C.A.3Dkt.130. A reconstituted three-judge panel issued a separate opinion addressing forfeiture alone a few days later. Pet.App.42-53. References to
Kousisis in the Porat concurrence were not updated with the revised opinion.
21
actual money paid as a result of Appellants’
fraudulent scheme.
Pet.App.20 n.63. In other words, under Kousisis (and
Porat), a fraudulent objective “to obtain” funds suffices.
The footnote captures succinctly how the fraudulent inducement theory neutered Ciminelli in the
Third Circuit before this Court even issued its opinion—and will continue to do so there and elsewhere,
until the Court clarifies its position on it.
---------------------------------♦---------------------------------
REASONS FOR GRANTING THE PETITION
I.
The Circuits Are Divided On Whether Deception To Induce A Fair Commercial Exchange Is Property Fraud.
A. The Second, Sixth, Ninth, Eleventh,
and D.C. Circuits reject the fraudulent
inducement theory.
Judge Hand’s dictum in Rowe remains the foundation of the theory. Yet the Second Circuit itself repudiated that reading of Rowe more than fifty years
ago, in United States v. Regent Office Supply Co., 421
F.2d 1174, 1181 (2d Cir. 1970)—precisely because mere
fraudulent inducement is untethered to an intent to
harm the victim’s property interests. The Second Circuit now uses the “essential element of the bargain” to
capture the intended economic harm that characterizes property fraud: even if the victim would have
avoided a transaction had it known the truth, a deceptive scheme is not property fraud if “the alleged victims
22
received exactly what they paid for.” United States v.
Shellef, 507 F.3d 82, 102 (2d Cir. 2007).
Four other circuits align with the Second in rejecting the fraudulent inducement theory. See United
States v. Sadler, 750 F.3d 585 (6th Cir. 2014) (Sutton,
J.) (“paying the going rate for a product does not square
with the conventional understanding of ‘deprive’ ”);
United States v. Bruchhausen, 977 F.2d 464 (9th Cir.
1992); United States v. Takhalov, 827 F.3d 1307, 1310
(11th Cir. 2016); United States v. Guertin, 67 F.4th 445,
451 (D.C. Cir. 2023) (employee’s lies that induce employer to pay salary, but “do not deprive the employer
of the benefit of its bargain,” do not defraud employer
of money paid).
B. On the other hand, the Fourth, Fifth,
Seventh, Eighth, and Tenth Circuits endorse the theory, and the Third Circuit
now joins them.
The Seventh and Eighth Circuits’ opinions in
United States v. Leahy, 464 F.3d 773 (7th Cir. 2006),
and United States v. Granberry, 908 F.2d 278 (8th Cir.
1990), underlie the not-precedential Third Circuit
opinion in Tulio, which supplied the framework for
the district court and circuit rulings here. The government’s Third Circuit brief relied heavily on Leahy,
Granberry, and United States v. Richter, 796 F.3d
1173, 1192 (10th Cir. 2015); it also quoted United
States v. Bunn, 26 F. App’x 139, 142-43 (4th Cir. 2001)
23
(not-precedential) (“The Government’s evidence established that Appellants obtained money to which they
were otherwise not entitled by falsely representing
that subcontract work would be performed by DBEs.
Nothing more is required.”). C.A.3Gov’t.Br. 25-50, 6163.
The government invoked Fifth Circuit fraudulent
inducement precedent in the form of a case in equity,
Walker v. Galt, 171 F.2d 613, 614 (5th Cir. 1948), which
as discussed below underpins Third Circuit precedent in this lineage. C.A.3Gov’t.Br.31, 50, 51. See also
United States v. Fagan, 821 F.2d 1002 (5th Cir. 1987).
The circuit split has deepened with the Third Circuit’s decisions in Kousisis and Porat. Only this Court’s
intervention will resolve it.
II.
The Third Circuit’s Path To Endorsing The
Fraudulent Inducement Theory Shows Why
The Theory Is Wrong.
Following the path that led the Third Circuit here
exposes the circuit’s openness to treating intangible interests as “property,” and reveals the fraudulent inducement theory as a facile linguistic shift that
neuters Ciminelli.
1. By its own account the Third Circuit has a
long history of “defin[ing] fraud with reference to the
elastic concepts of morality and fairness when discussing the reach of the federal fraud statutes.” United
States v. Leahy, 445 F.3d 634, 649-50 (3d Cir. 2006)
24
(acknowledging criticism but declining to reverse
when jury instructed over objection on “deviation from
moral uprightness”) (citing, e.g., United States v. Goldblatt, 813 F.2d 619, 624 (3d Cir. 1987)). In that vein, it
adopted a version of the right-to-control theory in
United States v. Hedaithy, 392 F.3d 580, 604 (3d Cir.
2004).
Though the circuit still considers Hedaithy good
law even post-Ciminelli (see Porat, 76 F.4th at 222), its
flaws include insisting—long after McNally—on reading the mail and wire fraud statutes disjunctively. It
maintains that property fraud reaches schemes to “obtain” property without “depriving” the victim of it,10
and schemes that “deprive” the victim of property
without a corresponding “obtaining” (but see Kelly, 140
S. Ct. at 1573). 392 F.3d at 598-99, 601-03.
The Hedaithy defendants were college students
who paid imposters to take a standardized test in their
names. They were convicted of mail fraud, with the Educational Testing Service (“ETS”) the victim. 392 F.3d
at 582. Among other issues, Hedaithy weighed the argument that ETS was not deprived of money or property because the defendants paid its testing fees in full.
Id. 603.
The Third Circuit responded by endorsing the Second Circuit’s right-to-control opinion in United States
v. Schwartz, 924 F.2d 410 (2d Cir. 1991). Schwartz
10
Only if “taken out of context,” Hedaithy says, could McNally
be read to limit property fraud to schemes to “deprive[ ] the victim
of a valuable property right.” Id. 598.
25
held that purchasing equipment at full price, while
falsely promising to meet the seller’s express condition that subsequent resales comply with U.S. law, was
wire fraud because the seller had not “received all it
bargained for”; it was deprived of “the right to define
the terms of the sale of its property.” Id. 421 (describing false promises as “consideration . . . to contract”);
Hedaithy, 392 F.3d at 604. To bolster the point the
Third Circuit quoted a 1949 Fifth Circuit opinion holding that in equity, “fraud” that permits rescission occurs when a vendor “is deceived as to the purchaser’s
identity and thus induced to enter into a contract with
one to whom he did not intend to sell.” Walker, 171 F.2d
at 614, quoted in part at 392 F.3d 604.
Walker actually emphasized that the “identity” of
the purchaser—the notorious proprietor of a “floating
house of prostitution”—would “hurt sales” of the rest
of the plaintiff ’s subdivided land were he permitted to
purchase a piece of it. 171 F.2d at 614. But when the
Third Circuit imported malleable civil and equitable
concepts like “benefit of the bargain” into its criminal
property fraud jurisprudence, it left behind the common law requirement of harm to economic interests.
That is what allowed it to say here that PennDOT’s interest in supporting DBEs was part of the
very “nature of the bargain” (Pet.App.22), and in Porat
that business school students’ interest in a prestigious
U.S. News ranking was part of their “bargain” (76 F.4th
at 220-21). Without an anchor in traditional property
interests, the “benefit of the bargain” is an “important
enough” standard that encompasses intangible
26
interests and leaves the boundaries of mail and wire
fraud to the eye of the beholder. See Ciminelli, 598 U.S.
at 315-16; McNally, 483 U.S. at 360.
2. Hedaithy also gave the Second Circuit’s rightto-control theory a linguistic tweak—with enormous
consequences. Instead of calling the right to control
property “property,” Hedaithy says that when deception caused a property-holder to make a transaction he
otherwise would have avoided—i.e., interfered with his
right to control his property—“the victim was defrauded of the [property] itself.” Id. 604.
If the right-to-control theory is valid, as Hedaithy
assumed, these formulations are logically equivalent.
Whether (on the one hand) the right to control property is itself “property,” or (on the other) depriving a
victim of the right to control his property deprives him
of that property, neither the facts nor the outcome will
vary. But with the right-to-control theory properly jettisoned, the question becomes whether that linguistic
shift suffices to allow the prosecution as mail and wire
fraud of the same conduct.
It does not. In fact, the Third Circuit’s version of
the right-to-control theory is fraudulent inducement:
when deception influences a victim’s decision about
how to use its assets, the victim is deprived of those
assets—which are “property.” Hedaithy, 392 F.3d at
604; see Pet.App.18-19; Porat, 76 F.4th at 219 (victims
“depriv[ed] of tuition money”).11 And when “deception
11
Notably, the jury in the case that became Kelly was instructed with this formulation:
27
affecting property” is equivalent to “deception injuring
property rights,” the intent to defraud the victim of
property drops out of the statute.
It cannot be that simply rearranging clauses wipes
out this Court’s jurisprudence from Haas v. Henkel forward, restoring the government’s ability to prosecute a
wide variety of deceptive schemes that target a victim’s intangible interests alone. Granted, courts that
endorse the fraudulent inducement theory would disagree with the premise—e.g., “the basis of the wire
fraud conviction here . . . is the actual money [PennDOT] paid as a result of ” the scheme. Pet.App.20 n.63.
But that is simple ipse dixit.
An organization is deprived of money or property when the organization is deprived of the
right to control that money or property. And one
way the organization is deprived of the right to control
that money and property is when the organization receives false or fraudulent statements that affect its
ability to make discretionary economic decisions about
what to do with that money or property.
United States v. Baroni, 909 F.3d 550, 560, 563 (3d Cir. 2018)
(emphasis added), rev’d sub nom. Kelly, supra. The government
cited Second Circuit and other right-to-control cases to support
the instruction, and the district court cited them when declining
to dismiss the indictment. United States v. Baroni, 2016 WL
3388302, at *8 (D.N.J. June 13, 2016). The Third Circuit called
“this traditional concept of property” another basis for affirming.
909 F.3d at 567. The government advocated it to this Court—
which unanimously reversed. Brief for the United States, Kelly,
No. 18-1059 (U.S.), at, e.g., 31-32, 36, 44, 46; Kelly, 140 S. Ct. at
1573.
28
3. The Third Circuit applied the fraudulent
inducement theory to DBE fraud in the not-precedential
Tulio opinion that became the foundation of Kousisis.
Tulio addressed seven issues in four pages. 263 F.
App’x at 260-64. In two extraordinary paragraphs, it
endorsed the fraudulent inducement cases Leahy,
supra (7th Cir.) and Granberry, supra (8th Cir.) and
aligned Hedaithy with them; declared a sovereign interest in DBE compliance a “fundamental basis of [a
contracting agency’s] bargain”; and used Lochner-era
precedent to deem every contractual promise a “property right”—which allowed it to say the agency was
“deprived of its contract rights” (i.e., property) to have
its contractor spend a portion of its earnings to bring a
DBE onto the job, when instead the contractor paid the
DBE a pass-through fee and pocketed the extra funds
it would have spent on DBE compliance. Id. 261-62.
And all of this required reaffirming Hedaithy’s disjunctive reading of the fraud statutes, so as to uphold a conviction for “depriving” a victim of something no one
else can “obtain”—like the “benefit of its bargain” or
“contract rights.” Id. 262.12
12
A third Tulio paragraph declared that the agency was deprived of “money” because it “paid for services—construction done
by a certified DBE—it did not receive.” 263 F. App’x at 262. This
too was part of the Kousisis jury instruction (Pet.App.154-155),
though another Third Circuit case had already repudiated it. The
circuit opinion appears to subsume it into the idea that PennDOT
paid “the full contract price” but was “partially deprived of the
benefit of its bargain.” 82 F.4th at 243; see id. 244 (acknowledging
that “Appellants delivered the requested work”).
29
The Third Circuit opinion here is the culmination
of this line of precedent. It disregards statutory text,
structure, and history, and neuters Ciminelli with a
facile linguistic shift. The Court should not let that
stand.
III. The Fraudulent Inducement Theory Has
Grave Implications, As Does The Corollary
That All Contractual Interests Are Property.
The implications of the fraudulent inducement
theory are grave. It reads out of mail and wire fraud
its foundational limitation to schemes to “fleece” a
victim; i.e., to “wrong[ ] one in his property rights.”
McNally, 483 U.S. at 356, 358. It discards Congress’s
century-plus-old distinction between schemes to injure property rights and schemes to injure intangible
rights—and Congress’s careful selection of certain intangible rights, but not others, for protection with
other statutes.
In so doing it will read those other statutes out of
the U.S. Code. Under the fraudulent inducement theory, a deceptive scheme to obtain a contract by paying
bribes and kickbacks—or by concealing a conflicting financial interest—is property fraud. But see Skilling,
561 U.S. at 402-04. Congress’s longstanding distinction
between interests a government holds as a property
owner, and its “intangible rights of allocation, exclusion, and control—its prerogatives over who should get
a benefit and who should not” (Kelly, 140 S. Ct. at 1572)
will collapse as well.
30
Other disarray in the statutory scheme will follow. In every circuit that approves the fraudulent
inducement theory, it is easier for the government to
prove criminal mail or wire fraud than it is to prove a
civil False Claims Act violation. This Court explained
in Universal Health Services, Inc. v. United States, 579
U.S. 176, 194 (2016), that “a misrepresentation cannot
be deemed material merely because the Government
designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of
payment”—because that rule would make it “an allpurpose antifraud statute,” which it is not. Yet criminal
fraudulent inducement cases land in the same place:
“inducement” is materiality, and a misrepresentation
that induces a payment fleeces the government of that
payment.
The implications of the Third Circuit’s corollary
ruling that every interest protected by contract is
“property” are equally dizzying. The Court noted in
Universal Health Services that treating contract provisions as controlling would mean the government owes
nothing to a contracted health-services provider whose
“use of foreign staplers” violates a contractual promise
to comply with the Buy American Act. Id. 195-96. It hypothesized a contracting agency that writes into its
contracts a promise to “comply with the entire U.S.
Code and Code of Federal Regulations.” Id. 196.
PennDOT’s contracts require that and more:
compliance with all federal, state, and local laws,
down to local “decrees”; maintaining the “highest
standards of integrity,” including disclosing conflicting
31
financial interests; having an effective policy to prevent
and correct sexual harassment. C.A.3App.3870-3878;
C.A.3DigitalAppx.3879-4975. The Third Circuit’s
analysis makes the 1000-pages of terms and conditions
PennDOT imposes on contractors a property interest
of the United States and Commonwealth of Pennsylvania, enforceable with the weight of federal criminal
statutes because “the contracts were awarded based
on the representation that” the defendants would
honor them, and “included compliance . . . as an explicit term of the agreement.” Pet.App.109.
The implications transcend criminal law. The
Court has long recognized that treating every interest
protected by contract as “property” would federalize all
public contract law—because every state breach of contract would give the counterparty a procedural due process claim under 42 U.S.C. §1983. See, e.g., Board of
Regents v. Roth, 408 U.S. 564, 575 (1972). Consumer classaction plaintiffs would have Article III standing to sue
manufacturers and retailers for regulatory noncompliance that violates a term of sale, because the mere
breach of the contractual promise would “deprive” the
consumer of property and cause her to “lose” the money
the promises induced her to spend. But cf. Thorne v.
Pep Boys, Inc., 980 F.3d 879, 886, 889-93 (3d Cir. 2020).
The list could continue. The disarray the fraudulent inducement theory will create is another reason to
grant the Petition.
32
IV. This Case Is The Ideal Vehicle For Review.
The confounding factors that often cloud the circuits’ analyses of these issues are not present here.
Often, for example, regulatory or contractual noncompliance lowers product quality or imposes additional
costs on the purchaser. That is not at issue. Nor is the
record clouded with a factual dispute about the economic effect of the deception; all parties agreed it
saved PennDOT money. Nor is the distinction between
schemes that were not completed but would have
caused economic harm had they been, and schemes
that threatened no economic harm at all, a factor. That
too has caused confusion in the courts below—indeed,
it is the source of the confusion in Rowe. It will not
cause confusion here.
Finally, there is (of course) no dispute that Petitioners “obtained” PennDOT’s funds. That gives the
Court an opportunity to clarify an essential point that
continues to bedevil the circuits: the assumption that
proving the defendant “obtained” the victim’s property
obviates—or supplies—proof that the transaction “deprived” the victim of property. That assumption is what
allowed the Third Circuit to conclude that a scheme
that caused PennDOT to pay millions of dollars less for
the same high-quality work wronged it in its property
rights.
This case embodies the pattern reflected in the
Court’s mail and wire fraud jurisprudence: no sooner
does it repudiate one government expansion of the
statutes but the government hatches another, and
33
many lower courts accede. This time the government
laid the groundwork in advance. The Court should respond with alacrity to reinforce—yet again—the narrow bounds of text, structure, and history in the mail
and wire fraud statutes.
---------------------------------♦---------------------------------
CONCLUSION
The Court should grant the petition.
Respectfully submitted,
LISA A. MATHEWSON
MATHEWSON LAW LLC
123 South Broad Street,
Suite 1320
Philadelphia, PA 19109
215-399-9592
lam@mathewson-law.com
Attorney for Petitioners
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