Reply Brief — Stamatios Kousisis and Alpha Painting and Construction Co., Inc., Petitioners v. United States

No. 23-909

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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

-----------------------------------------------------------------REPLY BRIEF

-----------------------------------------------------------------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

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES .................................

ii

INTRODUCTION ................................................

1

ARGUMENT ........................................................

2

I.

II.

III.

The Validity Of The Fraudulent-Inducement

Theory Is An Open Question On Which

This Court’s Guidance Is Essential ............

2

The “Benefit of the Bargain” Concept Only

Underscores The Circuit Split And Its

Threat To Neuter Ciminelli .......................

5

This Case Is The Ideal Vehicle, Alone Or

In Combination With Porat ....................... 12

CONCLUSION..................................................... 14

APPENDIX TABLE OF CONTENTS

Trial Transcript, United States District Court

for the Eastern District of Pennsylvania,

United States v. Kousisis, et al., No. 18-CR-130

(Aug. 24, 2018) (excerpt)...................... Supp.App. 1

ii

TABLE OF AUTHORITIES

Page

CASES

Ciminelli v. United States

(21-1170) ............................................. 1, 4, 5, 9-12, 14

Shaw v. United States,

580 U.S. 63 (2016) .....................................................3

United States v. An,

2024 WL 2010017 (E.D.N.Y. May 7, 2024) ...............5

United States v. Binday,

804 F.3d 558 (2d Cir. 2015) ............................... 11, 12

United States v. Bruchhausen,

977 F.2d 464 (9th Cir. 1992) ......................................4

United States v. Bunn,

26 F. App’x 139, 142 (4th Cir. 2001) ..........................8

United States v. Davis,

2017 WL 3328240 (S.D.N.Y. Aug. 3, 2017) ................8

United States v. Fagan,

821 F.2d 1002 (5th Cir. 1987) ..................................11

United States v. Granberry,

908 F.2d 278 (8th Cir. 1990) ....................................11

United States v. Kelerchian,

937 F.3d 895 (7th Cir. 2019) ............................... 4, 11

United States v. Leahy,

464 F.3d 773 (7th Cir. 2006) ......................................8

United States v. Melgen,

967 F.3d 1250 (11th Cir. 2020) ................................10

United States v. Milheiser,

98 F.4th 935 (9th Cir. 2024) .................................. 6, 7

iii

TABLE OF AUTHORITIES—Continued

Page

United States v. Percoco,

13 F.4th 158 (2d Cir. 2021) ................................ 11, 12

United States v. Porat,

76 F.4th 213 (3d Cir. 2023) .............................. 2, 7, 12

United States v. Richter,

796 F.3d 1173 (10th Cir. 2015) ................................11

United States v. Rowe,

56 F.2d 747 (2d Cir. 1932) .........................................3

United States v. Venkata,

2024 WL 86287 (D.D.C. Jan. 3, 2024) .......................5

United States v. Wheeler,

16 F.4th 805 (11th Cir. 2021) ....................................8

Universal Health Services, Inc. v. United States,

579 U.S. 176 (2013) ............................................. 9, 10

STATUTES

18 U.S.C. §371 .............................................................13

1

INTRODUCTION

Less than two years ago, the government told the

Court that deciding the validity of the fraudulentinducement theory is “critically important to us for

[the] kinds of fraud that we prosecute all the time”—

frauds just like this one: a false promise to advance

whatever social policy interests a contracting party

deems important enough to incorporate into a contract

for goods and services. Tr. of Oral Arg., Ciminelli v.

United States (21-1170), at 39. It entreated the Court

to bless the fraudulent-inducement theory because

without it, the government cannot deploy the cudgel of

a property-fraud prosecution against schemes to injure those or other intangible interests without harming traditionally recognized property interests, which

are economic interests. The Court left the question

open.

In a familiar pattern (Pet.3, 32-33), the government now backtracks to avoid losing ground in the circuits that consider fraudulently inducing a commercial

exchange to be property fraud per se. To obscure the

circuit split, it denigrates as mere “terminological distinctions” the outcome-determinative fissures lower

courts continue to spotlight, the substance of which the

government ignores. Nor does it address Petitioners’

point that the only difference between the right-tocontrol theory and the fraudulent-inducement theory

is the order of the clauses used to describe them—even

though the Third Circuit and others built their fraudulent-inducement precedent on right-to-control cases,

at the government’s urging.

2

The government’s tactic for discrediting this case

as a vehicle is even more troubling: it claims Petitioners “overcharged” PennDOT as a result of the

scheme—quoting the “premium” and “kickback” points

the Third Circuit excised from its opinion on rehearing,

after Petitioners pointed out that the “premium” theory contradicted the district court’s findings and the

prosecution’s unwavering trial theory, and that the circuit was the first participant to suggest a “kickback”

theory of the case. Because the Kousisis panel corrected the inaccuracies the government relies on, the

government cites instead the description of Kousisis in

the Porat concurrence, which was issued pre-rehearing

and quotes the vacated opinion. BIO.(I), 11-12 (quoting

United States v. Porat, 76 F.4th 213, 228 n.6 (3d Cir.

2023) (concurrence), Pet. for Cert. pending (No. 23832)); Pet.20 & n.9 (explaining sequence).

In truth this case is an ideal vehicle for delivering

much-needed clarity to lower courts, law enforcement,

and—most importantly—people facing prosecution for

offenses whose outer boundaries remain ambiguous.

ARGUMENT

I.

The Validity Of The Fraudulent-Inducement Theory Is An Open Question On

Which This Court’s Guidance Is Essential.

The circuits are intractably divided at the heart

of the first Question Presented: whether deception to

induce a commercial transaction is property fraud

absent proof that inflicting economic harm was the

3

defendant’s objective. The government’s effort to deny

the circuit split is unavailing.

1. The government begins with the straw-person

it deploys in virtually every fraud case: that because a

scheme is criminal even if it fails, “economic harm” is

irrelevant. BIO.7. It hardly bears stating that even

when proving an inchoate offense, the government

must prove its object—here, that a completed scheme

would harm the victim’s property interests. The diversion is particularly inapt on this record: the government acknowledged below that it charged a completed

scheme, so this rule is not at issue. D.Ct.Dkt.57, at 76

(jointly proposed jury instructions).

2. Next, the government summarizes its proposed answer to Petitioners’ first Question Presented:

it believes the fraudulent-inducement theory is valid

and obviates proof that the scheme contemplated

harming the victim’s property interests. In another familiar argument, it suggests the Court already resolved that issue in Shaw v. United States, 580 U.S. 63,

67 (2016), a bank fraud case that quotes Judge

Learned Hand’s dictum in United States v. Rowe, 56

F.2d 747, 749 (2d Cir. 1932). BIO.8; Pet.3. But Shaw did

not decide the issue. It rejected the defense that a

scheme to steal funds from a customer’s account was

not “bank fraud” because it targeted the individual,

holding that a bank also has a property interest in

an account. Id. 65-67. It quotes Rowe only to observe

that if the government proves a scheme to harm that

property interest, it need not prove in addition that

4

the scheme contemplated “ultimate financial loss.”

Id. 67-68.

3. The lower courts, and the government when

not opposing certiorari, acknowledge that the circuits

are split on the substance of the fraudulent-inducement theory. The Second, Sixth, Ninth, Eleventh, and

D.C. Circuits say that inducement is not enough; they

require proof that the scheme contemplated harm to

property interests. Pet.21-22. The Seventh Circuit “respectfully disagrees,” holding that a scheme to influence how the victim uses its property suffices. United

States v. Kelerchian, 937 F.3d 895, 913-14 (7th Cir.

2019) (disapproving United States v. Bruchhausen, 977

F.2d 464 (9th Cir. 1992)). The Fourth, Fifth, Eighth,

and Tenth Circuits—and now the Third—align with

the Seventh. Pet.22-23.

The government incorrectly attributes “different

outcomes in different cases” to “different facts.”

BIO.10. Kelerchian rejected the holding in Bruchhausen even though both addressed deceit that affected the legality of a sale. Compare 937 F.3d at 913

with 977 F.2d at 468. And as discussed below, even in

the context of contracting preferences the fraudulentinducement theory is outcome-determinative.

Because Ciminelli leaves the government without another ready means for prosecuting schemes

that target intangible interests, the government is

now pressing the point in lower courts nationwide.

Pet.4-5. And because Ciminelli expressly leaves the

fraudulent-inducement question open, some district

5

courts are bypassing circuit precedent to decide it. A

recent addition is United States v. An, 2024 WL

2010017, *8 (E.D.N.Y. May 7, 2024), which emphasizes

that “Ciminelli simply rejected the notion that information itself can be property.” The court deems “persuasive” United States v. Venkata, 2024 WL 86287

(D.D.C. Jan. 3, 2024), accepts the government’s view

of Shaw, and holds that “depriving a victim of information in order to induce the victim to part with traditional property” is property fraud—all without

acknowledging contrary Second Circuit precedent. An,

2024 WL 2010017 *7-*8.

The disarray will deepen until this Court steps in.

II.

The “Benefit of the Bargain” Concept Only

Underscores The Circuit Split And Its

Threat To Neuter Ciminelli.

The government’s Brief in Opposition includes an

Argument section nearly identical to the one it submitted in Porat. That allows it to try to obscure the circuit split by conclusorily invoking the phrase “benefit

of the bargain,”1 which Porat proffered on appeal to

distinguish fraudulent inducement from traditional

property fraud. BIO.10; Porat, 76 F.4th at 220. It does

not address Petitioners’ points about the substance of

the circuit split.

1

For concision Petitioners use “benefit of the bargain” to

encompass its variants, except as to “value” where pertinent

below.

6

1. To be sure, many circuits that reject the fraudulent-inducement theory use “benefit of the bargain”

when distinguishing schemes that are not property

fraud from schemes that are. Recently, for example,

the Ninth Circuit incorporated the phrase into an

opinion reaffirming its longstanding recognition that

property fraud reaches schemes that will, if completed,

deprive the victim of a traditionally recognized form of

property—not schemes that harm other interests,

“even if [the] misrepresentations result in money or

property changing hands.” United States v. Milheiser,

98 F.4th 935, 942-43 (9th Cir. 2024). The “benefit of the

bargain,” in those circuits, is the property interest the

victim expects from the transaction. Id. When the victim of a completed scheme will get the benefit of its

bargain—that is, suffer no harm to a property interest—the scheme is not property fraud.

Other courts use “benefit of the bargain” to approve the fraudulent-inducement theory, as the government points out. BIO.10. But that does not mean

there is no circuit split, as the government contends,

any more than multiple circuits’ use of any given

phrase means they define it the same way.

Indeed, the meaning of “benefit of the bargain” is

so unsettled that two paths to the fraudulent-inducement theory define the phrase differently. The government embraces both. One path accepts that “benefit

of the bargain” describes property interests, and thus

deems it irrelevant: fraudulently inducing a transaction in property suffices, with or without intended

harm to property interests. The government took that

7

approach in Milheiser and the Ninth Circuit rejected

it. 98 F.4th at 945. The government took the same

approach in Porat and the Third Circuit accepted

it, blessing the fraudulent-inducement theory and

discussing a “value” version of “benefit of the bargain” only in the alternative. Porat.Oral.Arg.Tr.

(C.A.3.Dkt.72), at 34-35; 76 F.4th at 219-21.

The same U.S. Attorney’s Office that prosecuted

Porat took a different tack in Kousisis. Here it defined

the phrase to encompass non-economic interests that

influence a victim’s decision about getting or using

property. The Third Circuit endorsed that approach

too, holding that the benefit of the bargain includes

any promise a victim’s contracting decision was “based

on,” and any “material term in a contract.” Pet.App.26.

And it held that depriving the victim of any benefit of

its bargain—even one as intangible as a sovereign’s interest in its affirmative-action program—is equivalent

to depriving it of the affected property, even assuming

the fraud made no difference in “pecuniary value.”

Pet.App.26-27.

That different definitions of “benefit of the bargain” lead some circuits to reject the fraudulentinducement theory and others to endorse it—or, as

the Third Circuit did, to endorse it based on inconsistent rationales—underscores the fracture in the

case law. The fracture is outcome-determinative in

every scheme that targets non-economic interests

only, including schemes to evade minority (or other)

participation requirements while doing the contracted

work at the same price or better. Courts that reject a

8

property-centric definition of “benefit of the bargain”

uphold property-fraud convictions for those schemes—

as in Kousisis. Pet.28; Pet.App.21-22; United States v.

Leahy, 464 F.3d 773, 793-94 (7th Cir. 2006); United

States v. Bunn, 26 F. App’x 139, 142 (4th Cir. 2001).

Courts that limit “benefit of the bargain” to property

interests vacate them. E.g., United States v. Davis,

2017 WL 3328240, *16-*17 (S.D.N.Y. Aug. 3, 2017)(applying Second Circuit doctrine).

The government inadvertently exposes these layers of ambiguity when it contends that the Third Circuit’s quotation of United States v. Wheeler, 16 F.4th

805 (11th Cir. 2021), shows that Kousisis does not implicate the circuit split. BIO.10-11. The quotation actually highlights the inter- and intra-circuit confusion.

Wheeler uses “nature of the bargain” to mean economic

“value,” as Porat does. 16 F.4th at 819-20; 76 F.4th at

219-21. Thus Wheeler held that among various lies the

defendants told investors when pitching a stock, misrepresenting the defendants’ identities and status

would not support a property-fraud conviction—but

falsely claiming, e.g., support from industry heavyhitters addressed “the value of the stock,” and would.

16 F.4th at 819-20. When Kousisis equated a state’s

goal of supporting diverse businesses with investors’

interest in the economic value of stock, it revealed its

error: it thought that “any” misrepresentation that induces a transaction supports a property-fraud prosecution, no matter the interests it targets. Pet.17;

Pet.App.22-23.

9

2. The Court already knows the government

hopes to stretch “benefit of the bargain” to ensure it

may prosecute as property fraud any misrepresentation that affects a decision about property. In Ciminelli

the government argued that the right-to-control doctrine’s only real flaw was tying the “bargain” concept to the property element instead of materiality,

where it yields the fraudulent-inducement theory. Ciminelli.Oral.Arg.Tr.33-37. Allowing materiality to obviate harm to property expands the mail- and wirefraud statutes to protect any interest a victim considers important enough to influence—“material to”—his

decision about property. That is a limitless list—which

includes, the government urges, idiosyncratic “victimspecific considerations that are obviously of special

importance to him.” Ciminelli.Gov’t.Br.18-19; see Porat.BIO.11 (“[T]he taste of any public is not to be

treated with contempt. It is an ultimate fact for the

moment, whatever may be our hopes for a change.” (citation omitted)).

Recognizing that the Court may question whether

Congress authorized federal criminal wire-fraud prosecutions of (and/or civil RICO suits against), say, car

dealerships that sell red cars while insisting they are

blue (Ciminelli.Gov’t.Br.38-39), the government contemporaneously proposed cabining its sweeping theory

with the “demanding” materiality standard “essence of

the bargain,” as defined in the False Claims Act case

Universal Health Services, Inc. v. United States, 579

10

U.S. 176, 193-94 (2013). Ciminelli.Gov’t.Br.18.2 Ironically, that standard would require acquittal in Kousisis—and most procurement fraud cases in which a

contractor falsely promised to advance the customer’s

non-economic goals in the course of performance.

The government insisted in Universal Health that

there is no difference between, on the one hand, a

health-services provider’s false promise to supply personnel qualified to provide health services, and, on the

other, its false promise to buy American-made supplies.

Id. 195-96; see Pet.30-31. The Court disagreed. The

ability to do the contracted work is “central” to a contract; advancing the government’s laudable goal of

supporting domestic manufacturing, while doing the

contracted work, is not. 579 U.S. at 195-96.

The relevance to Kousisis is clear in the government’s rebuttal summation to the trial jury: it

equated Petitioners’ promise to buy supplies from a

legitimate DBE with its promise to buy Americanmade supplies under the Buy America Act, also

written into PennDOT’s contracts—calling both “nonfinancial obligations” unconnected to price or quality,

but “something special” PennDOT wanted in addition.

Pet.Supp.App.2-3;3 C.A.3.App.3434-3435. The Third

Circuit deems that criminal property fraud. Pet.30.

2

Never mind that the government has for years persuaded

the circuits not to apply that demanding standard in criminal

fraud cases. E.g., United States v. Melgen, 967 F.3d 1250, 1259

(11th Cir. 2020).

3

The excerpt is attached here for the Court’s convenience.

11

3. With Kousisis, the Third Circuit joined others

that relieve the government of its concession, in Ciminelli, that the fraudulent-inducement theory requires higher guardrails than a broad interpretation of

“benefit of the bargain” supplies.

But the government’s admission in Ciminelli that

fraudulent inducement is the right-to-control with a

linguistic shift shows why this Court’s prompt examination of the government’s new workhorse is essential. All circuits that endorse the fraudulentinducement theory today came to it from right-to-control precedent. Pet.23-29 (discussing 3d Cir.); Bunn, 26

F. App’x at 142; United States v. Fagan, 821 F.2d 1002,

1010 & n.6 (5th Cir. 1987); Kelerchian, 937 F.3d at 91213; United States v. Granberry, 908 F.2d 278, 280 (8th

Cir. 1990); United States v. Richter, 796 F.3d 1173, 1192

(10th Cir. 2015). All now equate fraud affecting a victim’s decision about transacting in property with a

scheme to injure property rights. Until the Court addresses the validity of that theory, courts in those circuits and others will relegate Ciminelli to a footnote.

Pet.App.20n.63.

Kousisis embodies the problem. The government

invoked right-to-control precedent to defend the

convictions post-trial and through appeal.

D.Ct.Dkt.146 at 33; C.A.3.Reply(Dkt.94).2-3. When

alerting the circuit post-argument to then-new United

States v. Percoco, 13 F.4th 158 (2d Cir. 2021) (rev’d sub

nom. Ciminelli), the government insisted that what

Percoco and United States v. Binday, 804 F.3d 558 (2d

Cir. 2015)(abrogated in Ciminelli), labeled a right-to-

12

control scheme is “precisely what happened” in Kousisis. C.A.3.Dkt.110, at 2. It called the “basis of its bargain” as used in Kousisis “a classic statement of the

loss of control theory.” Id. n.2; Pet.App.24-25.

In that the government was correct. But neither

Percoco nor Binday is good law now—yet Mr. Kousisis

served a lengthy prison term, Alpha was forced out of

business facing a massive forfeiture, and their convictions survive. Many preceded theirs, and many will follow until the Court steps in.

III. This Case Is The Ideal Vehicle, Alone Or In

Combination With Porat.

Content to continue notching fraudulent-inducement convictions for as long as it can, the government

now claims the Court need not scrutinize an issue

the government called “critically important” in November 2022. Ciminelli.Oral.Arg.Tr.39; see Porat.Cert.Reply.11-12. The Court should not be lulled.

And it is unlikely to see another record that presents

the issues as cleanly as this one. Pet.32-33.

Yet the government manufactures a vehicle challenge with inaccuracies the Third Circuit corrected on

rehearing: the new-on-appeal theory that the scheme

increased by $170,000 the $120,000,000 lump-sum

bids. Reply.2, supra. That flatly contradicts the district

court’s factual findings, the government’s trial and

sentencing positions, the rest of its circuit brief, and

its representations to the Porat panel. Pet.12-19;

C.A.3.Reply(Dkt.94).31-34; C.A.3.Reh.Pet.(Dkt.126)58.

13

The remaining references to the pass-through

fee go directly to the Questions Presented: whether

property fraud protects intangible interests, and

whether all “contract rights are property rights”—

such that violating a contractual promise to use

earnings as the counterparty wishes deprives it of

“property.” Pet.App.21; Pet.App.24 (jury instruction);

C.A.3.Appx.3302; C.A.3.Reh.Pet.(Dkt.126).28-29. All

agree that PennDOT paid only a lump-sum per-project

fee, fixed by low-bid before the contractors proposed a

DBE-compliance plan. Pet.10.

The fraudulent-inducement and contract-rights

issues alone are compelling reasons to grant certiorari.

Pet.29-31. But this case is a particularly attractive vehicle for additional reasons. With administrativeagency victims and regulatory underpinnings, it would

allow the Court to address the interaction of 18 U.S.C.

§371’s “defraud” clause with the property-fraud statutes (Pet.6), the relevance of Congress’s choice to leave

enforcement to the states, and agencies’ ability to criminalize new conduct via non-legislative processes (including 1000+-page contracts). The specter of agency

policy choices that may not win legislative support, or

may not survive judicial review, supporting federal

property-fraud prosecutions is grave.

At the same time, any protection a state gets from

the wire-fraud statute is limited to property rights it

holds as any person could. Bringing clarity to the disarray would benefit a wide range of salutary commercial activity. Amici.Br.14-21.

14

After decades in the shadow of the right-to-control

theory, fraudulent inducement theory is already rendering Ciminelli a footnote. Pet.App.20n.63. The

Court’s prompt review is essential.

CONCLUSION

The Court should grant the petition. In the alternative, Petitioners respectfully request that, at a minimum, the Court hold the petition pending the

resolution of the Porat 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

APPENDIX

i

APPENDIX TABLE OF CONTENTS

Page

Trial Transcript, United States District Court

for the Eastern District of Pennsylvania,

United States v. Kousisis, et al., No. 18-CR-130

(Aug. 24, 2018) (excerpt) .........................Supp.App. 1

Supp.App. 1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF PENNSYLVANIA

UNITED STATES OF

AMERICA

vs.

STAMATIOS KOUSISIS,

ET AL.

Defendant

)

)

)

)

)

)

)

18-CR-130

Philadelphia, PA

August 24, 2018

1:42 p.m.

TRIAL – AFTERNOON SESSION

BEFORE THE

HONORABLE WENDY BEETLESTONE

UNITED STATES DISTRICT JUDGE

REBUTTAL ARGUMENT BY MR. SHAPIRO

[20] But, you know, there are non-financial obligations in that contract too. We just talked about them,

one of them the DBE requirement. Ms. Cinquanto

brought up the Buy American. Remember she said

something about they’re buying American? Well,

there’s a classic case of a non-financial obligation. Imagine that you have a Buy American obligation that

requires you to buy American steel, and you go out and

you get steel from, say, China. It’s just as good. It’s

equally as good as the American steel, and you use it

in the bridge.

Now, PennDOT has paid exactly what it always expected to pay. It got certified steel, as it was expecting

to get. The bridge will probably last as long as it ever

would. But [21] that’s not all that PennDOT wanted.

Supp.App. 2

PennDOT wanted something special. It wanted not

just any steel. It wanted the American steel for reasons

that had nothing to do with dollars and cents, for reasons that had to do with its own program, its own desires. And, look, it’s its bridge. It has the right to ask

for what it wants, and when someone says I’m giving

you what you want, they have a right to take them at

their word.

And PennDOT didn’t only want American steel.

They wanted DBEs working on their job. And they got

a promise from these guys that DBEs would be working on their job, and it was a promise that was broke.