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

No. 23-909

IN THE

STAMATIOS KOUSISIS AND ALPHA PAINTING

& CONSTRUCTION CO., INC.,

Petitioners,

v.

UNITED STATES OF AMERICA,

Respondent.

On Writ of Certiorari

to the United States Court of Appeals

for the Third Circuit

REPLY BRIEF FOR PETITIONERS

Easha Anand

Jeffrey L. Fisher

Pamela S. Karlan

STANFORD LAW SCHOOL

SUPREME COURT

LITIGATION CLINIC

559 Nathan Abbott Way

Stanford, CA 94305

Lisa A. Mathewson

Jenya Godina

Rachel A. Chung

O’MELVENY & MEYERS LLP

1625 Eye St. NW

Washington, DC 20006

Jason Zarrow

O’MELVENY & MEYERS LLP

400 S. Hope St., 17th Floor

Los Angeles, CA 90071

Counsel of Record

MATHEWSON LAW LLC

1617 John F. Kennedy

Blvd., Suite 2027

Philadelphia, PA 19103

(215) 399-9592

lam@mathewson-law.com

TABLE OF CONTENTS

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

REPLY BRIEF FOR PETITIONERS .......................... 1

ARGUMENT ................................................................ 2

I.

Petitioners’ convictions depend on the

fraudulent inducement theory of property

fraud ...................................................................... 2

II. The government’s inducement theory is

invalid .................................................................... 5

A. The inducement theory flouts the text

and history of the property fraud

statutes ........................................................... 5

1.

The statutes require a scheme to

“defraud” the victim ................................. 5

2.

Obtaining property through deceit

does not alone establish a scheme

to “defraud” ............................................... 6

B. The inducement theory flouts established

limitations on the property fraud

statutes ......................................................... 16

C. The inducement theory would have

unacceptable consequences ......................... 17

CONCLUSION ........................................................... 23

ii

TABLE OF AUTHORITIES

Page(s)

Cases

Adarand Constructors, Inc. v. Pena,

515 U.S. 200 (1995)................................................ 4

Allen v. Hartfield,

76 Ill. 358 (1875) .................................................. 14

Bargie v. United States,

30 F. Cas. 958 (C.C.D.D.C. 1861) ........................ 11

Carpenter v. United States,

484 U.S. 19 (1987).............................................. 7, 8

Chiarella v. United States,

445 U.S. 222 (1980)................................................ 3

Ciminelli v. United States,

598 U.S. 306 (2023)

.......................... 1, 2, 5, 8, 10, 11, 12, 15, 16, 17, 21

Cleveland v. United States,

531 U.S. 12 (2000)................................................ 16

Commonwealth v. Coe,

115 Mass. 481 (1874) ........................................... 10

Commonwealth v. Ferguson,

121 S.W. 967 (Ky. 1909) ...................................... 10

Dubin v. United States,

599 U.S. 110 (2023)........................................ 17, 18

Durland v. United States,

161 U.S. 306 (1896)............................................ 6, 7

Hammerschmidt v. United States,

265 U.S. 182 (1924)................................................ 7

iii

Janes v. Trustees of Mercer University,

17 Ga. 515 (1855) ................................................... 9

Junius Const. Co. v. Cohen,

178 N.E. 672 (N.Y. 1931) ..................................... 19

Kelly v. United States,

509 U.S. 391 (2020).................................... 5, 14, 16

Loughrin v. United States,

573 U.S. 351 (2014)................................................ 8

Marinello v. United States,

584 U.S. 1 (2018).................................................. 17

McCormick v. United States,

500 U.S. 257 (1991)................................................ 3

McNally v. United States,

483 U.S. 350 (1987).......................................... 5, 16

Morgan v. State,

42 Ark. 131 (1883) ......................................... 13, 15

Neder v. United States,

527 U.S. 1 (1999)............................................ 18, 21

Panama Tel. Co. v. India Rubber Co.

(1875) 10 LR Ch. App. 515 .................................. 14

Pasley v. Freeman

(1789) 100 Eng. Rep. 450 (KB) .......................... 8, 9

Pereira v. United States,

347 U.S. 1 (1954).................................................... 7

Perrin v. United States,

444 U.S. 37 (1979).................................................. 9

Phillips v. Conklin,

58 N.Y. 682 (1874) ................................................. 9

iv

Regina v. Kenrick

(1843) 114 Eng. Rep. 1166 (QB) .......................... 10

Richmond v. J.A. Croson Co.,

488 U.S. 469 (1989)................................................ 4

In re Rudebeck,

163 P. 930 (Wash. 1917) ...................................... 10

Shaw v. United States,

580 U.S. 63 (2016).................................................. 8

Skilling v. United States,

561 U.S. 358 (2010).................................. 12, 16, 17

Smith v. Arizona,

602 U.S. 779 (2024)................................................ 6

Smith v. Kay

(1859) 11 Eng. Rep. 299....................................... 13

State v. Mills,

17 Me. 211 (1840)................................................. 15

State v. Palmer,

32 P. 29 (Kan. 1893) ...................................... 12, 13

State v. Switser,

22 A. 724 (Vt. 1891) ....................................... 10, 11

Stuart v. Lester,

1 N.Y.S. 699 (N.Y. Gen. Term 1888) ..................... 9

United States v. Comyns,

248 U.S. 349 (1919)................................................ 7

United States v. Davis,

2017 WL 3328240 (S.D.N.Y. 2017) ....................... 3

United States v. Henningsen,

387 F.3d 585 (7th Cir. 2004) ............................... 22

v

United States v. New South Farm & Home Co.,

241 U.S. 64 (1916).................................................. 7

United States v. Raza,

876 F.3d 604 (4th Cir. 2017) ............................... 19

United States v. Rowe,

56 F.2d 747 (2d Cir. 1932) ............................. 14, 15

United States v. Rush,

196 F. 579 (E.D. Wash. 1912).............................. 13

United States v. Sampson,

371 U.S. 75 (1962).................................................. 7

United States v. Starr,

816 F.2d 94 (2d Cir. 1987) ................................... 12

Universal Health Servs., Inc. v. United States,

579 U.S. 176 (2016).................................. 18, 19, 20

Van Buren v. United States,

593 U.S. 374 (2021).............................................. 17

Wisc. Central, Ltd. v. United States,

585 U.S. 274 (2018)................................................ 9

Statutes, regulations, and rules

False Claims Act, 31 U.S.C. § 3729 et seq. ............... 19

18 U.S.C. § 371 ............................................................. 1

18 U.S.C. § 1001 ........................................................... 1

18 U.S.C. § 1341 ........................................................... 5

18 U.S.C. § 1343 ........................................................... 5

49 C.F.R. § 26.13(b) .................................................... 20

Sup. Ct. R. 15.2............................................................. 4

vi

Other Authorities

Bigelow, Melville M., The Law of Fraud (1877) ....... 14

Brill, Hascal R., Cyclopedia of Criminal Law

(1923) .................................................................... 14

Byrne, Francis J., False Pretenses and Cheats

in The American and English Encylopedia

of Law (2d ed. 1899) (D.S. Garland & L.P.

McGehee, eds.) ..................................................... 11

McClain, Emlin, A Treatise on the Criminal

Law as Now Administered in the United

States (1897) ........................................................ 14

McCleary, Glenn A., Damage As Requisite to

Recission for Misrepresentation, 36 Mich.

L. Rev. 1 (1937) ...................................................... 9

Restatement (Second) of Torts (1977) ....................... 18

Story, Joseph, Commentaries on Equity

Jurisprudence (10th ed. 1870) ............................ 18

REPLY BRIEF FOR PETITIONERS

Using deception to induce another party to enter

into a transaction can give rise to contract, consumerprotection, or false-advertising claims. See Ciminelli v.

United States, 598 U.S. 306, 315-16 (2023). In serious

cases, misrepresentations of that sort can also subject

someone to state criminal charges or (when federal

interests are implicated) up to five years in federal

prison. See Petr. Br. 12-13 (discussing 18 U.S.C.

§§ 371 and 1001); U.S. Br. 45. The question in this

case is whether such a misrepresentation can also

subject someone to twenty years in federal prison

under the mail and wire fraud statutes, even where

the scheme did not contemplate harm to any

traditional property interest.

The government says yes. It does not dispute that

this “fraudulent inducement” theory would transform

decades of this Court’s jurisprudence limiting the

reach of property fraud into a series of cases about

nothing more than the wording used to frame

allegations in otherwise legitimate prosecutions. See

Petr. Br. 29-33. And if that were not startling enough,

every hour of every day in this country, countless

individuals use all sorts of untruths and harmless fibs

to induce others to transact with them. The

government’s theory would expose all such people to

property fraud charges—from homebuyers who

persuade owners to sell to them over other prospective

buyers, to employees who tell white lies to skip a day

of work. Id. 41-43.

For these reasons and others below, this Court

should reject the government’s latest attempt to

stretch the property fraud statutes beyond

recognition. The government is obviously correct when

2

it says money is property. U.S. Br. 14. And where the

government can show that a victim was tricked into

parting with money in exchange for something of

lesser pecuniary value than the defendant promised

(or for nothing at all), there may well be grounds for

convicting. But there is a reason why the government

never before Ciminelli claimed in this Court that facts

like the ones here constitute “classic” property fraud

as well. U.S. Br. 12. Text, structure, history, and

precedent make clear that the property fraud statutes

require not just an inducement to part with property

but also a scheme to harm a “traditional property

interest[].” Ciminelli, 598 U.S. at 309. And no such

harm occurs where, as here, an entity pays money for

something and receives the full economic value of the

purchase.

ARGUMENT

Because the government’s brief attempts to

muddy the record, we first clarify that petitioners’

convictions depend on the fraudulent inducement

theory. We then turn to the issue at hand: whether

that theory, which would allow a conviction for

property fraud absent a scheme to harm a traditional

property interest, is valid. It is not.

I.

Petitioners’

convictions

depend

on

the

fraudulent inducement theory of property fraud.

The government maintained at trial that

petitioners won the contracts here through a deceptive

inducement—namely, a promise to purchase supplies

from a DBE. That promise was “non-financial” in

nature; it “had nothing to do with dollars and cents.”

J.A. 96 (government’s closing argument); see Petr. Br.

7-8. Rather, PennDOT wanted DBE participation

3

simply “for its own program, its own desires.” J.A. 96.

Yet even though PennDOT “received the repairs it

paid for” with unquestioned workmanship, the Third

Circuit upheld petitioners’ convictions on the theory

that “obtaining” PennDOT’s money partly through the

inducement of DBE participation was itself a scheme

to defraud. Pet. App. 18, 29.

The government, however, now suggests that

petitioners’ scheme caused PennDOT to suffer an

economic loss. U.S. Br. 6, 47-48. It is too late, though,

to shift prosecutorial theories away from its nonfinancial inducement rationale. In any event, neither

of the government’s new arguments has merit.

1. The government recycles the contention from

its brief in opposition that petitioners charged

PennDOT an extra $170,000 to cover the 2.25% fee it

paid Markias. U.S. Br. 48; see also BIO 11-12. This

Court implicitly rejected this contention when

granting certiorari, and it has no more force now. The

government never advanced any surcharge theory at

trial, and this Court “cannot affirm a criminal

conviction on the basis of a theory not presented to the

jury.” Chiarella v. United States, 445 U.S. 222, 236

(1980); see also McCormick v. United States, 500 U.S.

257, 270 n.8 (1991).

Anyhow, the government’s assertion (Br. 6, 48)

that PennDOT “paid” the 2.25% fee is simply false.

PennDOT accepted lump-sum bids from groups

including petitioners, leaving the contractors to cover

their own internal costs. See Cert. Reply 12-13; Petr.

Br. 4. There is no evidence that PennDOT would have

paid less if petitioners had not bothered with Markias

at all. Compare United States v. Davis, 2017 WL

3328240, at *18 (S.D.N.Y. 2017) (“impossible” to

4

identify any “pecuniary harm” where defendants

submitted “lump-sum” bids, and payments to DBEs

“would have come out of Defendants’ pockets”).

2. The government also asserts that PennDOT

was “willing to pay more” for petitioners to use a DBE

subcontractor for the supplies at issue here, such that

petitioners misrepresented “the monetary value of

their services.” U.S. Br. 47. This argument is waived

twice over. The government never mentioned it in its

brief in opposition. See Sup. Ct. Rule 15.2. Nor did the

government present it at trial. Instead, the

government summarized the evidence as follows: “We

do not know whether PennDOT would have been

willing to pay more to receive the same repairs with

legitimate DBE participation.” U.S. CA3 Br. 90

(emphasis added). That is because the government’s

trial theory was that any additional cost of using a

DBE would have reduced petitioners’ profits, which

assumes no change to the winning lump-sum contract

price. See, e.g., CA3 J.A. 3170.

Besides, the only evidence the government cites

for its new argument is a single contractor’s comment

that he once re-bid a project at a higher price after

including more DBE participation. J.A. 79 (testimony

of William Fetters of Buckley & Company). This

comment hardly shows that DBE participation “costs

more” as a general matter (U.S. Br. 47), much less that

it raises bids as a general matter, or that PennDOT

would have paid more for such participation here.

After all, a governmental entity cannot pay more for a

product or service for no other reason than the race or

sex of the business owner. See Adarand Constructors,

Inc. v. Pena, 515 U.S. 200 (1995); Richmond v. J.A.

Croson Co., 488 U.S. 469 (1989).

5

II. The government’s inducement theory is invalid.

The property fraud statutes require a scheme to

harm a “traditional property interest[].” Ciminelli, 598

U.S. at 309. Because the inducement theory allows for

conviction absent monetary or any other property

harm, it is invalid.

A. The inducement theory flouts the text and

history of the property fraud statutes.

1. The statutes require

“defraud” the victim.

a

scheme

to

The property fraud statutes prohibit “a scheme or

artifice to defraud, or for obtaining money or

property.” 18 U.S.C. §§ 1341, 1343. The government

recognizes that this Court has long construed this

ostensibly “disjunctive language” as a “unitary whole.”

U.S. Br. 13-14 (quoting Kelly v. United States, 509

U.S. 391, 398 (2020)). The government, however,

begins its defense of its inducement theory by arguing

that “obtain[ing]” money or other property is sufficient

to establish a scheme covered by the property fraud

statutes. U.S. Br. 20-21.

This argument focuses on the wrong clause of the

statutes. This Court has long read the statutes’

clauses jointly to require the prosecution to always

prove a scheme to “defraud” the victim of the money or

property obtained. See Petr. Br. 16 (citing McNally v.

United States, 483 U.S. 350, 359 (1987)). The

government does not ask the Court to reconsider this

precedent. Consequently, the only real question here

is whether a scheme that contemplates no harm to any

traditional property interest is one to “defraud.”

6

2. Obtaining property through deceit does

not alone establish a scheme to

“defraud.”

The government appears at times to argue that a

scheme to “defraud” does not require any

contemplated harm to a traditional property interest.

See U.S. Br. 13-20 (resisting an “additional

requirement” of harm). At other times, the

government appears to accept that an injury

requirement exists but suggests that any scheme to

induce someone to hand over money or property

through deceit automatically harms a traditional

property interest. See U.S. Br. 27, 37-38. We honestly

do not know which argument the government is

making. But either way, the government is wrong.1

a. The statutes contain a harm requirement. The

property fraud statutes cannot be violated without a

scheme to harm a traditional property interest.

i. This Court’s precedent demonstrates that the

ordinary legal meaning of “defraud” requires scheming

to harm a traditional property interest. See Petr. Br.

17-19.

Pushing back, the government first attempts to

distinguish Durland v. United States, 161 U.S. 306

(1896). There, the Court explained that a scheme “to

defraud” is a scheme to “cheat” the victim out of

1

Whatever exactly the government is arguing, it does not

defend the Third Circuit’s suggestion that all contract rights are

“property,” such that breach of any material contract term can

support a property fraud conviction. See Petr. Br. 15 n.4.

Accordingly, reversal is required if for no other reason than that

the jury instructions permitted conviction on this basis. Pet. App.

24-25; cf. Smith v. Arizona, 602 U.S. 779, 792 n.3 (2024).

7

property. 161 U.S. at 313 (citation omitted). The

government notes that the defendant there made

“misrepresentations about future earnings” to induce

the victim to purchase fake bonds. U.S. Br. 22.

Exactly. The lies about promised payouts tricked the

victims into buying bonds with no economic value. Or,

to use this Court’s language defining property fraud in

another case, the defendant’s scheme inflicted

“pecuniary or property injury.” Hammerschmidt v.

United States, 265 U.S. 182, 189 (1924).

The government next cites a batch of cases (Br. 2223) purportedly demonstrating that a property fraud

scheme need not contemplate harm to a traditional

property interest. These cases demonstrate no such

thing. Taking money in exchange for “valuable

services” that the defendant will never perform inflicts

a monetary loss. See United States v. Sampson, 371

U.S. 75, 78 (1962); see also United States v. Comyns,

248 U.S. 349, 353 (1919) (similar). Procuring a loan for

a business and hotel that never existed does the same.

Pereira v. United States, 347 U.S. 1, 4-5 (1954). Selling

farm plots worth less than promised does too. United

States v. New South Farm & Home Co., 241 U.S. 64,

72 (1916).

Cases involving non-monetary harm are no help

to the government either. See U.S. Br. 23-26. The

property fraud statutes can be violated by harming

traditional property interests in non-monetary ways,

see Petr. Br. 35, such as depriving a victim of the right

to exclude others from her land. The victim in

Carpenter v. United States, 484 U.S. 19 (1987), was

similarly deprived of “exclusive use” (and thus the

commercial

value)

of

“confidential

business

information” that was its “stock-in-trade.” Id. at 26-27

8

(citations omitted). That is a form of traditionally

recognized property harm. Id. The schemes in Shaw v.

United States, 580 U.S. 63, 66-67 (2016), and Loughrin

v. United States, 573 U.S. 351, 354 (2014), also

contemplated harm to traditional property interests:

the banks’ property interests as owners or bailees in

the funds. See Petr. Br. 35, 37.

The government’s only response is that depriving

the banks in Shaw and Loughrin of the right to “use”

their funds is analogous to what happened here. U.S.

Br. 26. Not so. The defendant in Shaw stole money

from the bank, preventing it from using the funds to

earn profits or make loans. 580 U.S. at 66. Had the

scheme in Loughrin succeeded, the same would have

occurred. 573 U.S. at 364. PennDOT, by contrast,

received the full economic benefit of its money; it used

the funds to repair bridges but simply did so without

complete information. That does not establish harm to

a property interest. See Ciminelli, 598 U.S. at 314-15.

ii. Relevant historical authorities confirm that the

word “defraud” requires a scheme to harm a

traditional property interest.

Deceit. The tort of deceit was the historic core of

fraud. Petr. Br. 19-20. And the government admits

that, in an action for deceit at common law, plaintiffs

could not prevail without showing a “pecuniary loss.”

U.S. Br. 37. Yet the government claims that this is “a

rule about remedy—not about what constitutes fraud.”

Id. Wrong. A claim for deceit without an allegation of

harm to a traditional property interest would have

been dismissed for failure to state “a cause of action.”

Pasley v. Freeman (1789) 100 Eng. Rep. 450, 453 (KB)

(Buller, J.); see also id. at 457 (Kenyon, C.J.) (“not

9

actionable”). The case would never reach the remedy

stage.

Rescission. Pertinent rescission jurisprudence

supports petitioners too. When the mail fraud statute

was enacted in 1872, rescission was unavailable

absent a showing of harm to a traditional property

interest. See Petr. Br. 22. The government cites two

cases decided around that time, but neither of them

contradicts the clear rule that existed then.2

Faced with that clear rule, the government

instead points to authority “as of 1952” to argue that

rescission did not require any showing of harm. U.S.

Br. 29. It is true that rescission law by that time had

no harm requirement, having started to move away

from it in Stuart v. Lester, 1 N.Y.S. 699 (N.Y. Gen.

Term 1888). See Glenn A. McCleary, Damage As

Requisite to Recission for Misrepresentation, 36 Mich.

L. Rev. 1, 24-25 (1937). But statutory terms are

interpreted according to their meaning when

“Congress enacted the statute.” Wisc. Central, Ltd. v.

United States, 585 U.S. 274, 277 (2018) (quoting

Perrin v. United States, 444 U.S. 37, 42 (1979)). As

just noted, the mail fraud statute was enacted in 1872,

sixteen years before Stuart. And when the wire fraud

statute was enacted decades later, Congress used, in

relevant part, the same words. Consequently, this

Court has interpreted the wire fraud statute in pari

2

Phillips v. Conklin, 58 N.Y. 682 (1874), held merely that

damages were not required for “avoidance of a contract on the

ground of mistake”; it did not involve rescission on the ground of

fraud. Id. at 683 (emphasis added). And in Janes v. Trustees of

Mercer University, 17 Ga. 515 (1855), the plaintiff donated funds

to support an educational program that was subsequently

abolished; he was thus “deprived of his money.” Id. at 519-20.

10

materia with the mail fraud statute, looking to the

history and meaning of the latter when deciding cases

about the former. See, e.g., Ciminelli, 598 U.S. at 312

n.2; Petr Br. 16.

False Pretenses. Contrary to the government’s

contention, the offense of false pretenses required

more than simply showing a misrepresentation and

that “money was obtained.” U.S. Br. 30 (citation

omitted). The prosecution also had to show a scheme

to harm a traditional property interest.

The government first points to Regina v. Kenrick

(1843) 114 Eng. Rep. 1166 (QB), where the defendant

was convicted for deceit in selling certain horses to a

buyer. The government suggests the agreed price may

have been fair. U.S. Br. 30. But the defendant’s

misrepresentations were “to the great damage” of the

victim. Kenrick, 114 Eng. Rep. at 1167. The defendant

promised horses that were “quiet to ride and drive” but

provided horses that were “vicious,” and therefore less

valuable. Id.

The government also cites several cases that state

or apply the principle that the offense of false

pretenses could “not be purged by subsequent

restoration or repayment.” Commonwealth v. Coe, 115

Mass. 481, 502-03 (1874); see also U.S. Br. 31-32

(citing In re Rudebeck, 163 P. 930, 934 (Wash. 1917);

Commonwealth v. Ferguson, 121 S.W. 967, 968 (Ky.

1909); State v. Switser, 22 A. 724, 725 (Vt. 1891)). But

as explained, that principle is fully consistent with

requiring a scheme to harm a traditional property

interest; the principle just underscores that harm is

assessed when the scheme is executed, not later. See

Petr. Br. 35.

11

In Switser, for example, the defendant lied about

having promises from others to guarantee a loan that

he procured. The court held merely that it did not

matter whether any of those other people—even if

later asked to cover the debt—would have done so. See

Switser, 22 A. at 725. If the victim had known the

defendant had no guarantees, he would have charged

more for the loan.

The government’s remaining case, Bargie v.

United States, 30 F. Cas. 958 (C.C.D.D.C. 1861),

simply holds that conviction is warranted where harm

is contemplated but the defendant’s scheme fails. “It is

enough” that the scheme, if completed, would have

harmed a traditional property interest. Id. at 959.

Again, petitioners agree. See Petr. Br. 24. And the

language the government quotes from the Byrne

treatise—saying “it is not necessary that an actual loss

or injury should be sustained”—says the same thing.

See U.S. Br. 33 (citing Francis J. Byrne, False

Pretenses and Cheats § II(7), in 12 The American and

English Encyclopedia of Law 835 (2d ed. 1899) (D.S.

Garland & L.P. McGehee, eds.)).

b. The harm requirement is not met by fraudulent

inducement. The government also errs in alternatively

suggesting that obtaining the victim’s property

through deceit necessarily supplies the requisite harm

to property. U.S. Br. 27, 38.

i. For one thing, this argument just repackages the

right to control theory. That theory posited that

depriving someone of “valuable economic information

necessary to make discretionary economic decisions”—

that is, decisions whether to part with property—

constituted property fraud. Ciminelli, 598 U.S. at 310.

That is no different from saying that an individual

12

commits property fraud whenever he uses deceit to

“induce[] the victim to part with money or property.”

U.S. Br. 27. Either way, the government is arguing

that “us[ing] falsehoods to induce a victim to enter into

a transaction” always constitutes property fraud. BIO

9. Yet in Ciminelli, the Court unanimously held that

casting the property fraud net this widely “expands

federal jurisdiction without statutory authorization,”

making “a federal crime of an almost limitless variety

of deceptive actions traditionally left to state contract

and tort law.” 598 U.S. at 315-16.

Even before Ciminelli, the Court implicitly

rejected the argument that obtaining the victim’s

money through deceit necessarily supplies the

requisite harm to property. In Skilling v. United

States, 561 U.S. 358, 400 (2010), the Court cited

United States v. Starr, 816 F.2d 94 (2d Cir. 1987), as

properly conceptualizing property fraud’s harm

requirement. And in Starr, the Second Circuit

explained that the requirement was not satisfied

where purchasers, though deceived into spending

their money, “received the service for which they had

paid” and lost out only on an interest in a “use to which

the money [they spent] would be put.” Id. at 99-100.

ii. History confirms what this Court has already

held. State v. Palmer, 32 P. 29 (Kan. 1893), explained

that “the mere obtaining of money under false

pretenses does not alone constitute a crime.” Id. at 30;

see also Petr. Br. 23. The government responds that

the collateral put up by the defendant there was

“genuine.” U.S. Br. 33-34. But that only reinforces

petitioners’ point. The genuineness of the defendant’s

collateral meant that the lender was never at risk of

suffering any pecuniary loss, even though the

13

defendant deceptively induced the victim to loan her

money. Palmer, 32 P. at 30.

Other decisions are in accord. In Morgan v. State,

42 Ark. 131 (1883), the court overturned a conviction

for false pretenses where a customer was induced into

booking a stay in a hotel based on a representation

that his friend had recently stayed there. Id. at 13334. According to the court, “[n]o injury was alleged”

even though the customer paid thirty dollars for the

room. Id. at 139. The key was that he was not cheated

“out of any property or thing of value,” only of

“sentimental gratification.” Id.

Likewise, in United States v. Rush, 196 F. 579

(E.D. Wash. 1912), the court threw out an indictment

for impersonating a federal employee to sell books

“with intent to defraud.” Id. at 580. Drawing on state

false-pretense cases, the court held that someone is

not defrauded “when he gets out of a transaction just

what he bargained for simply because his vendor

misrepresented the character or capacity in which he

acted in making the sale.” Id. at 581 (citation omitted).

This holding is also flatly inconsistent with the

government’s position.

Nor does any other authority the government cites

aid its cause. In Smith v. Kay (1859) 11 Eng. Rep. 299,

the defendant persuaded the victim to issue securities

without providing the “valuable consideration”

promised. Id. at 309. The resulting pecuniary harm

was so obvious that the appellate court focused only on

“one thing”: whether the defendant’s deceit “really led”

the victim to issue the securities. Id. at 310. The

government’s suggestion (Br. 40) that the court

treated the defendant’s misrepresentation alone as

14

sufficient for rescission simply plucks two snippets of

language out of context.

Finally, neither of the cases the government

references in the Bigelow treatise supports the notion

that the “damage” the common law required for fraud

was nothing more than obtaining money pursuant to

a misrepresentation. U.S. Br. 39 (citing Melville M.

Bigelow, The Law of Fraud, ch. XI, § 3, at 403-04). In

Allen v. Hartfield, 76 Ill. 358 (1875), the defendant

paid for horses with notes promising future payment

rather than the money required by the contract. See

id. at 361. Even if the notes were for the amount

promised, the riskiness and delay of future payment

made them worth less than the same amount in cash.

In the second case, a cable company was “deprived” of

its engineer’s “services.” Panama Tel. Co. v. India

Rubber Co. (1875) 10 L.R. Ch. App. 515, 533. And an

employer’s right to an employee’s services is a classic

property right. See Kelly, 590 U.S. at 401-02.

iii. That leaves the government’s reliance (Br. 25)

on a few statements, including Judge Hand’s dictum

in United States v. Rowe, 56 F.2d 747 (2d Cir. 1932),

that victims who are induced by a misrepresentation

to part with their property are defrauded even if they

receive “a quid pro quo of equal value” in return. Id. at

749; see also U.S. Br. 32-33 (citing 2 Hascal R. Brill,

Cyclopedia of Criminal Law § 1271, at 1932 (1923); 1

Emlin McClain, A Treatise on the Criminal Law as

Now Administered in the United States § 680, at 686

(1897)).

As petitioners have explained, Judge Hand’s

dictum rests upon the subsequently repudiated rightto-control theory. See Petr. Br. 36-37. Judge Hand

stated that a victim in the situation he posited “los[es]

15

his chance to bargain with the facts before him.” Rowe,

56 F.2d at 749. Yet Ciminelli holds that such a loss is

“unconnected to traditional property rights.” 598 U.S.

at 312.

In any event, the dictum has no application here.

This is not a case where someone delivered something

different from what was promised (say, apples instead

of oranges). This is not even a case involving an item

with unique qualities, such as a specified plot of land,

painting, or horse. In those settings, failing to deliver

as promised might constitute property fraud even if

the alternative thing the defendant delivered had

equal market value. For example, in State v. Mills, 17

Me. 211 (1840), the horse named Charley that the

defendant promised to sell (but replaced with a

different horse) had particular qualities that

“rendered it desirable for the party injured to become

the owner of him.” Id. at 218. Accordingly, while being

careful to stress that it was not “lay[ing] down any

general rule,” the court upheld a conviction for false

pretenses. Id.

But this case is not at all like Mills. PennDOT

received exactly “the repairs it paid for,” not

something else. Pet. App. 18. Petitioners simply

frustrated PennDOT’s non-financial interest in DBE

participation. See supra at 2-4. Put another way, this

case is not Mills but Morgan, where the defendant

delivered the very hotel room he promised, and he

simply lied about an aspect of the room having no

economic value. See supra at 13. There, as here, no

property fraud occurred.

16

B. The inducement theory flouts established

limitations on the property fraud statutes.

The government largely ignores petitioners’

explanations of why its inducement theory

contravenes precedent limiting the reach of the

property fraud statutes. See Petr. Br. 24-29.

Because the inducement theory captures schemes

“to obtain money,” the government asserts that the

theory comports with the principle that schemes to

thwart “regulatory” interests do not constitute

property fraud. U.S. Br. 14-15; see Kelly, 590 U.S. at

400. But, as petitioners have explained, any time a

government contract requires abiding by a federal or

state regulation, the theory would allow the

government to prosecute any regulatory violation as

property fraud. See Petr. Br. 25. That would enable

end-runs around the limitations established in Kelly

and Cleveland v. United States, 531 U.S. 12 (2000).

The government does not deny this. See U.S. Br. 44.

Nor does the government dispute that the

inducement theory would allow prosecutors to

repackage the sort of “intangible rights” indictments

that McNally prohibited, merely by adjusting the

language of their allegations. Instead, the government

just asserts that McNally does not “foreclose[]” such

maneuvers. U.S. Br. 46. That is quite striking. The

Court’s landmark decision represents a fundamental

limitation on “the reach” of the property fraud

statutes. McNally, 483 U.S. at 361. It should not be

reduced to a historical footnote identifying nothing

more than a pleading error. See Petr. Br. 31-32.

The inducement theory would likewise neuter

Ciminelli and Skilling. The government concedes that,

under

the

inducement

theory,

“it

could

have

17

prosecuted the bid-rigging scheme” in Ciminelli. U.S.

Br. 46-47. And the government never denies that the

inducement theory could be used to prosecute the

conflict-of-interest schemes that Skilling walled off.

See Pet. Br. 32-33. Those cases forbidding

prosecutions “without statutory authorization,”

Ciminelli, 598 U.S. at 315, should not be so easily

evaded.

C. The inducement theory

unacceptable consequences.

would

have

The government suggests that rejecting the

inducement theory would harm prosecutorial

interests. U.S. Br. 41-43. But in reality, adopting the

theory would produce intolerable consequences.

1. The inducement theory would sweep in a wide

array of ordinary conduct, criminalizing any

transaction in which money or property changes

hands in part because of a misrepresentation. The

government responds to this massive problem with

several arguments, but none is persuasive.

a. The government starts by asserting that

petitioners point to mere “hypotheticals.” U.S. Br. 4445. But prosecutions along the lines petitioners posit

have been, and continue to be, brought. See Petr. Br.

41-42 (citing cases).

Even with respect to hypotheticals, this Court has

time and again refused to construe opaque language

in federal criminal statutes to have a “staggering

breadth” that criminalizes vast amounts of ordinary

conduct. Dubin v. United States, 599 U.S. 110, 129

(2023); see also, e.g., Marinello v. United States, 584

U.S. 1, 9-11 (2018); Van Buren v. United States, 593

U.S. 374, 393-94 (2021). All the more so where, as

18

here, state law already regulates much of that

conduct. See Petr. Br. 39. Prosecutorial discretion is

no answer to this problem. As this Court has

repeatedly declared, it “cannot construe a criminal

statute on the assumption that the Government will

use it responsibly.” Dubin, 599 U.S. at 131 (citation

omitted).

b. The government also argues that its theory’s

breathtaking consequences are cabined by the

property fraud statutes’ materiality requirement.

According to the government, that requirement

requires proof that a deceptive inducement went to the

“essence of the bargain”—a test the government

suggests will weed out ordinary conduct that ought to

be beyond the reach of the property fraud statutes.

U.S. Br. 43-45. This argument fails for two reasons.

First, the “essence of the bargain” test is not the

standard for materiality that applies under the

relevant statutes. Neder v. United States, 527 U.S. 1

(1999), holds that the property fraud statutes

incorporate the traditional materiality test in the

Restatement of Torts. Id. at 22-23. And the

Restatement makes clear that facts that serve

“important and persuasive inducements to enter into

the transaction” can be “material” but still “not go to

its essence.” Restatement (Second) of Torts § 551(2)(e),

cmt. j (1977) (emphasis added). The two inquiries are

different.

The

government

nevertheless

insists

that

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

U.S. 176 (2016), and a treatise by Justice Story

support importing the “essence” test here. U.S. Br. 4445 (citing 1 Joseph Story, Commentaries on Equity

Jurisprudence § 195, at 197 (10th ed. 1870)). But

19

Universal Health concerned qui tam actions under a

different statute, the False Claims Act, and the Court

emphasized that the FCA “is not ‘an all-purpose

antifraud statute.’” 579 U.S. at 194 (citation omitted).

The property fraud statutes, by contrast, cover fraud

in all sorts of settings—not just government contracts

or even contracts at all. Accordingly, lower courts have

rejected attempts to supplant Neder’s test for

materiality with an “essence of the bargain” test,

explaining that it would “stretch Universal Health too

far.” See, e.g., United States v. Raza, 876 F.3d 604, 620

(4th Cir. 2017) (citation omitted).

The Story treatise is similarly unavailing for the

government. That treatise comments that a

misrepresentation that an estate contained a

“valuable mine” could support an allegation of fraud

because “the representation would go to the essence of

the contract.” Story, supra, § 195, at 197. This passage

indicates simply that “essence of the contract” was

sufficient to establish materiality. The treatise never

says such a showing was necessary. To the contrary,

the treatise states that a misrepresentation is

material whenever it provides “an inducement or

motive” to enter the transaction. Id.

Second, the “essence of the bargain” test puts the

government in a double-bind.

For one thing, the test, if applied correctly, would

not cover petitioners’ conduct. The case that Universal

Health cites for the test characterizes “essence” as

something whose absence would “destroy the value” of

the entire bargain. Junius Const. Co. v. Cohen, 178

N.E. 672, 674 (N.Y. 1931). Yet here, petitioners’ failure

to use a DBE subcontractor did not destroy the value

of the transaction. As the Third Circuit recognized,

20

petitioners “delivered the requested work, and the

quality of the workmanship and materials is

uncontested.” Pet. App. 29. And by the prosecution’s

own telling, the contractual requirement to use goodfaith efforts to subcontract with a DBE was akin to the

contract’s “Buy American” provision. J.A. 96. That is

precisely the kind of obligation Universal Health

makes clear does not go to the “essence” of a

government contract. See 579 U.S. at 195-96.

The government responds that the DBE

requirement here was one of only “17 warranties” in

the contract and the only one that was expressly

labeled “material.” U.S. Br. 17-18.3 But the “essence of

the bargain” test does not turn on such formalities.

Otherwise, a government bureaucrat drafting a

contract could make breaching any regulatory or other

non-economic interest into wire fraud. See Universal

Health, 579 U.S. at 194. Indeed, the only reason the

contract here explicitly denotes DBE participation as

“material” is because a federal regulation—49 C.F.R.

§ 26.13(b)—requires it. Obviously that provision is not

more important to PennDOT than myriad other

provisions of the 1100-page contract.4

3

The government also suggests that “PennDOT risked legal

sanction if it did not administer its DBE program in accordance

with [federal] regulations.” U.S. Br. 18. Yet PennDOT faced no

“legal risk,” id., here. Once a contract includes the DBE provision,

a state agency “cannot be penalized” if, unbeknownst to the

agency, the contractor breaches the promise to try to use DBE

subcontractors. J.A. 11.

4

The difficulty of satisfying the “essence of the bargain”

test—as opposed to Neder’s test for materiality—is presumably

why line prosecutors continue to resist the test even when made

21

On the other side of the bind, if the “essence of the

bargain” test were watered down to meet the

government’s needs here, then it would do nothing to

tame the sweeping consequences of the government’s

theory. While emphasizing the “rigor[]” of the

“essence” test elsewhere in its brief (Br. 17, 44), the

government also suggests that the test covers any fact

to which “a reasonable man would attach importance”

or that someone “knows or has reason to know” would

be regarded as important by the person with whom he

is dealing. U.S. Br. 17-18 (citation omitted).

Under this test, there is no way to brush aside the

examples of overbreadth in petitioners’ opening brief.

The

government

says

that

the

ordinary

misrepresentations petitioners describe would satisfy

its “essence” test only in “idiosyncratic[]”

circumstances. U.S. Br. 44. Hardly. To take but a

couple of examples: It’s easy to imagine a couple

choosing to sell their home to one buyer over another

because of the buyer’s purported plans in future years.

See Petr. Br. 42-43. Employees also often hold onto

their jobs—and thus continue to obtain money from

their employers—by lying about why they missed

work (a concocted family emergency, for instance,

when they really went to the beach), or put workissued devices to personal use. See id. 41. The list goes

on and on. See id. 40-43, 48.

What’s more, a fuzzy “essence” test would give the

government enormous power in plea negotiations.

Even where defendants might have a chance at

aware of the Solicitor General’s briefs in Ciminelli and this case.

See U.S. Reply Concerning Fraud Jury Instruction at 6-7, United

States v. Mokbel, No. H-4-21-cr-103-S4 (S.D. Tex. Oct. 13, 2024)

(ECF No. 310); Petr. Br. 45 n.9; U.S. Br. 44 n.*.

22

acquittal under a faithful application of the “essence”

test, few would take the chance when facing up to

twenty years in prison.

2. The government counters that forbidding

property fraud prosecutions where schemes

contemplated no harm to any traditional property

interest would bar prosecutions in settings such as

charitable donations and false advertising. U.S. Br.

42-43. This is incorrect.

The government has long prosecuted donor fraud

cases without resort to the fraudulent inducement

theory. See, e.g., United States v. Henningsen, 387

F.3d 585, 590-91 (7th Cir. 2004). When someone

obtains a charitable donation under false pretenses,

the donor gets nothing at all for parting with his

money. In cases like petitioners’, by contrast, the

person who pays money bargains to get something in

exchange: the property the counterparty agrees to

deliver.

Or take a buyer’s desire to purchase products that

are “union-made.” U.S. Br. 42. The government can

prosecute a seller who falsely represents its products

are union-made if it demonstrates that the unionmade product has a higher market price (as many do)

and the defendant charged that higher price.

Additionally, even where a union-made product

doesn’t have a higher market price, falsely claiming

the product was union-made might constitute property

fraud where—unlike this case—the parties agreed

that the victim was paying a quantified premium for

that attribute. In that circumstance, obtaining that

premium via deceit could be tantamount to giving the

victim an item with a lower market value than

promised.

23

Other scenarios the government imagines might

fall outside the property fraud statutes. But if so, other

legal tools are readily available to address any

misdeeds. For example, private individuals can always

bring actions for breach of contract or for consumerprotection violations. Other civil and criminal

remedies also exist in the context of government

contracting and the like. See Petr. Br. 25-26. But the

wallop of the property fraud statutes is unavailable

when a scheme contemplated no harm to any

traditional property interest. This Court should reject

the government’s latest attempt to argue otherwise.

CONCLUSION

For the foregoing reasons, the judgment of the

court of appeals should be reversed.

Respectfully submitted,

Easha Anand

Jeffrey L. Fisher

Pamela S. Karlan

STANFORD LAW SCHOOL

SUPREME COURT

LITIGATION CLINIC

559 Nathan Abbott Way

Stanford, CA 94305

Lisa A. Mathewson

Jenya Godina

Rachel A. Chung

O’MELVENY & MEYERS LLP

1625 Eye St. NW

Washington, DC 20006

Jason Zarrow

O’MELVENY & MEYERS LLP

400 S. Hope St., 17th Floor

Los Angeles, CA 90071

November 1, 2024

Counsel of Record

MATHEWSON LAW LLC

1617 John F. Kennedy

Blvd., Suite 2027

Philadelphia, PA 19103

(215) 399-9592

lam@mathewson-law.com