Ciminelli v. United States

Issues 

Are schemes that deprive a person of information regarding an economic decision punishable under the federal wire fraud statute?

Oral argument: 
November 28, 2022

This case asks the Supreme Court to decide whether the “right to control” theory of fraud creates a cause of action under the federal wire fraud statute. Under the “right to control” theory, the federal wire fraud statute may be used to punish schemes which intend to deprive a victim of valuable information regarding an economic decision. Ciminelli claims that the “right to control” theory improperly expands rights considered in the fraud statutes and improperly eases the government’s burden of proof. United States maintains that the “right to control” is properly limited to specifically target information deprivation schemes with tangible economic harms and that Ciminelli’s conviction holds even without the “right to control” theory. This case has significant implications for the construction industry, concerns of overcriminalization, and the limit of federal jurisdiction.

Questions as Framed for the Court by the Parties 

Whether the US. Court of Appeals for the 2nd Circuit’s “right to control” theory of fraud ­­– which treats the deprivation of complete and accurate information bearing on a person’s economic decision as a species of property fraud – states a valid basis for liability under the federal wire fraud statute.

Facts 

In 2012, Andrew Cuomo, New York Governor at the time, launched the “Buffalo Billion” initiative to develop the Buffalo area with $1 billion in taxpayer funds. United States v. Percoco at 165. Alain Kaloyeros, the head of the College of Nanoscale Science and Engineering (“CNSE”), hired Todd Howe, a consultant and lobbyist with connections to the Cuomo administration. Id. Through Howe, Kaloyeros became in charge of developing proposals for projects under the Buffalo Billion initiative. Id.

Howe had two construction-company clients: LPCiminelli, owned by Louis Ciminelli, and COR Development Company, owned by Steven Aiello and Joseph Gerardi. Id. In 2013, Kaloyeros and Howe began conspiring to deliver the Buffalo Billion contracts to Howe’s clients. Id.

While Kaloyeros had substantial control over the initiative, Fort Schuyler Management Corporation (“FS”), a nonprofit corporation, was in charge of project selection. Id. The FS Board would announce the need for the project to interested parties through a request-for-proposal (“RFP”) process and then evaluate the parties through a bidding process. Id. at 166.

Kaloyeros and Howe used two methods to avoid FS’s ordinary bidding process. Id. First, Kaloyeros proposed the issuance of two RFPs, which designated the successful bidders as the “preferred developer” for the region, giving the preferred developer the opportunity to negotiate with FS before FS had even designated a specific project. Id. Second, Kaloyeros and Howe drafted these RFPs to advantage LPCiminelli and COR development. Id. Howe worked with Aiello, Gerardi, and Ciminelli to create a list of qualifications for preferred developers that match the characteristics of these two companies. Id.

The parties communicated in private even during a “blackout period,” where communications between interested contractors and issuers of RFPs were only allowed in open forums. Id. at 167. Kaloyeros, in response to public scrutiny, modified one of the RFP qualifications, claiming that the prior qualification was a “typographical error.” Id. Simultaneously, Kaloyeros assured LPCiminelli that it would win the contract, but also allowed LPCiminelli to choose the second preferred developer. Id.

Although Kaloyeros did not evaluate the bids, he did not disclose his relationship with the companies. Id. COR Development was the only bidder for Syracuse RFP, and McGuire Development Company, the bidder that Ciminelli favored, and LPCiminelli became the preferred developers. Id. Kaloyeros awarded COR Development two construction projects each worth $15 million and $90 million. Id. at 168. Kaloyeros awarded LPCiminelli a $750 million construction project. Id.

In 2017, Kaloyeros, Aiello, Gerardi, and Ciminelli were indicted for conspiracy to commit wire fraud. Id. In 2018, Ciminelli was found guilty of 1) conspiracy to commit wire fraud through a scheme to rig the bidding processes for the Buffalo RFPs, in violation of 18 U.S.C. § 1349 and 2) wire fraud through rigging the bidding process for the projects in Buffalo, in violation of 18 U.S.C. § 1343 and 18 U.S.C. § 1342. Id. The United States District Court for the Southern District of New York sentenced Ciminelli to 28 months of imprisonment. Id. at 169.

Ciminelli and other convicted defendants appealed the decision in consolidation to the United States Court of Appeals for the Second Circuit. Id. The defendants challenged the sufficiency of the evidence to support the convictions of wire fraud under a “right to control” theory. Id. The Second Circuit affirmed the district court’s judgment in its entirety Id. at 170–172.

On February 18, 2022, Ciminelli filed a petition for a writ of certiorari. The United States Supreme Court granted certiorari on June 30, 2022.

Analysis 

THE WIRE FRAUD STATUTE AND “RIGHT TO CONTROL” AS A PROPERTY INTEREST

Ciminelli posits that the Second Circuit erroneously expanded the definition of property in 18 U.S.C. § 1343 (“the wire fraud statute”) to include a “right to control,” the right to an informed economic decision. Brief for Petitioner, Ciminelli at 13­–15. Ciminelli contends that “property” in the wire fraud statue must be interpreted consistent with the meaning of “property” at the time of the statute’s amendment. Id. at 26. Therefore, Ciminelli claims that the wire fraud statue only protects the traditional common law concept of property rights: the right to exclude, use, and dispose. Id. at 21–23. Ciminelli maintains that the “right to control” cannot be found within the common law rights to exclude, use, and dispose because a property owner can still exercise those common law rights despite lacking information. Id.

Ciminelli rejects the Second Circuit’s attempt to base the “right to control” upon the modern “bundle of rights” concept of property—the idea that property can be various combinations of rights. Id. at 24. Ciminelli argues the “bundle of rights” concept cannot be applied to the wire fraud statute because the concept was nonexistent at the time of amendment. Id. at 26. Ciminelli opposes adopting the “bundle of rights” concept into the statute because it is difficult to gauge what combination of rights would constitute property, which would make the statute inoperably vague. Id. at 27.

Furthermore, Ciminelli contends that Congress has purposefully only recognized one intangible right, the right of honest services in 18 U.S.C. § 1346 (“honest services statute”), when enacting the fraud statutes. Id. at 35. Ciminelli highlights that the Supreme Court has ruled that the honest services statute is limited to bribery and kickback cases and does not extend to scenarios of “undisclosed self-dealing” despite conflicts of interest. Id. at 36. Ciminelli argues that the “right to control” theory would allow prosecutors to use the wire fraud statute to reach violations of the right of honest service and would improperly punish conduct—undisclosed self-dealing with conflicts of interest—that the Supreme Court has protected from the honest services statute. Id. at 36–37.

The United States respond that the “right to control” is a property interest because the “right to control” is encompassed in a property right acknowledged by Supreme Court precedent, the property owner’s right to freely control his or her property. Brief for Respondent, United States at 25. The United States adds that whether the “right to control” is property is not highly relevant because the “right to control” is not the only form of property involved in case. Id. at 26. The United States contends that cases which use the “right to control” theory typically already involve a transaction of property, so the wire fraud statute’s property element is already satisfied. Id. at 28.

The United States concedes that acknowledging a “right to control” as property could excessively expand property rights. Id. at 25–26. However, the United States argues that the Second Circuit has mitigated that concern by requiring “right to control” arguments to prove a risk of “tangible economic harm.” Id. at 26. The United States posits that requiring this extra element prohibits the “right to control” theory from punishing innocent transaction-inducing behavior like a salesman concealing his identity to complete a sale more smoothly. Id. at 28. The United States also notes that other restraints exist like the general restriction against opinions being considered material misrepresentations and the common law fraud doctrine incorporated in the statute. Id. at 44–45.

The United States asserts that the Supreme Court did not prohibit bribery and kickback cases from being prosecuted under a property theory of fraud like the wire fraud statute. Id. at 46. The United States denies that the “right to control” theory will allow the wire fraud statute to reach a broad range of nondisclosed self-dealings involving conflicts of interest. Id. The United States emphasizes that the nondisclosure would still have to satisfy wire fraud statute elements so it would have to be material, naturally induce the scheme, and be fraudulent. Id. at 47.

REDUCING THE GOVERNMENT’S BURDEN

Ciminelli claims that the “right to control” theory makes it easier for the prosecution to prove wire fraud cases, giving the government a lighter burden of proof. Brief for Ciminelli at 38. Ciminelli argues the “right to control” effectively combines the three elements of wire fraud: fraudulent intent, requirement of intended harm, and materiality. Id. Ciminelli states that according to the “right to control” theory, all three elements are proven if the government just proves deception. Id. Ciminelli reasons that it is impossible to unintentionally deprive someone else of information and the “right of control” recognizes deprivation of information as a serious harm; therefore, all three elements would be satisfied. Id. at 39–40.

Ciminelli criticizes the Second Circuit’s attempts to separate the wire fraud statute elements under the “right of control” theory. Id. at 40. For example, Ciminelli disputes the Second Circuit’s holding that materiality is about what can influence a person and fraudulent intent is about whether a tangible harm can arise. Id. Ciminelli counters that the distinction between materiality and fraudulent intent is useless because deprivation of information, which influences decisions, is a tangible harm under the “right to control” theory. Id.

The United States argues that Ciminelli mistakenly states that the “right of control” considers information as property and the deprivation of information as a harm. Brief for United States at 28. The United States claims the Second Circuit has clarified that that the “right of control” theory must show that depriving information caused a cognizable economic harm. Id. The United States concludes that simply showing deception or any form of information deprivation would not suffice to satisfy all wire fraud elements. Id. at 27.

The United States maintains that the “right to control” theory does not function to satisfy the harm or property element of the wire fraud statute. Id. at 26. The United States contends that the “right to control” theory functions to identify schemes which depend on a misrepresentation. Id. at 26–27. The United States adds that the “right to control” theory also functions to prove the materiality element of the wire fraud statute. Id. at 30. Therefore, the United States asserts that the “right to control” theory is appropriately limited and will not reduce the government’s burden under the wire fraud statute. Id. at 23–24.

REVERSING CIMINELLI’S CONVICTION

Ciminelli argues that his conviction should be reversed if the “right to control” theory is found invalid. Brief for Ciminelli at 49–50. Ciminelli maintains that his conviction was solely based upon the “right to control” theory. Id. at 49. Ciminelli notes that he was blocked from presenting evidence about his fee or services because such evidence was irrelevant under the “right to control” theory. Id. at 50. Therefore, Ciminelli concludes that, if the “right to control” theory is invalid, the United States has ultimately failed to meet their burden of proof and Ciminelli’s conviction should be reversed. Id.

The United States contends that existing evidence is sufficient to uphold Ciminelli’s wire fraud conviction even if the “right of control” theory is invalid. Brief for United States at 31. The United States emphasizes that Ciminelli did not challenge the jury instructions but rather whether evidence was sufficient to convict Ciminelli of wire fraud. Id. The United States claims that the evidence plainly shows Ciminelli engaged in a scheme to obtain a nearly billion-dollar contract, made material misrepresentations to secure the contract, and had intent to defraud. Id. at 32.

Discussion 

OVERCRIMINALIZATION AND FEDERAL JURISDICTION

The National Association of Criminal Defense Lawyers (“Criminal Defense Lawyers”), in support of Ciminelli, asserts that because there is no limit to a “right to control” theory, it can criminalize almost every deception. Brief of Amicus Curiae The National Association of Criminal Defense Lawyers ("Criminal Defense Lawyers"), in Support of Petitioner at 3. Criminal Defense Lawyers further argue that the limitless theory expands the federal criminal jurisdiction and encroaches on the state police power. Id. at 4. Criminal Defense Lawyers add that such overcriminalization also weakens the separation of powers because instead of the legislature, prosecutors extend the law to punish conduct that is unenumerated in the statute. Id. at 6–7. Law Professors, in support of Ciminelli, add that federal overreach also unnecessarily subjects defendants to harsher punishments than remedies available under the state law. Brief Amici Curiae of Law Professors, in Support of Petitioner at 19–20.

The United States counters that Ciminelli is seeking to impose atextual and ahistorical limits on the fraud statutes. Brief for Respondent, United States at 43. The United States argues that traditional common law property-fraud doctrine is already limited by a number of principles such as a materiality standard, which requires the deception to be related to the “essence” of the bargain. Id. at 43–44. The United States also points out that Congress presumably intended to read the common law definition of fraud into the federal fraud statutes, and thus common law doctrines further limit the fraud statutes. Id. at 44. The United States also responds that the “right to control” theory does not unreasonably expand the federal jurisdiction over fraud cases because the Second Circuit required tangible economic harm and here, Ciminelli’s conduct was illegal under long-standing fraud doctrine. Id. at 45–46.

GOVERNMENT POWER AND EFFECTS ON THE CONSTRUCTION INDUSTRY

The Associated General Contractors of America, Inc. (“Contractors”) posit that the “right to control” theory has a chilling effect on “valuable informal informational exchange” because the “right to control” theory allows conviction based on the deprivation of potentially valuable information. Brief of Amicus Curiae of Associated General Contractors of America, Inc., in Support of Petitioner at 8. Contractors emphasize that pre-RFP discussions between public procurement agents and industry members promote “tangible economic interests.” Id. at 7–8. Contractors further maintain that engaging in such pre-RFP informal discussions is a longstanding practice used to formulate comprehensive RFP and advance the state’s interest. Id. at 9–10. Contractors argue that a lack of such discussions will result in uncertainty and confusion in the industry. Id. at 23. Criminal Defense Lawyers add that the “right to control” theory is a violation of due process, because individuals do not get fair notice of what constitutes prohibited conduct, and retrospective judgment of such conduct leads to “arbitrary and discriminatory enforcement.” Brief of Amicus Curiae Criminal Defense Lawyers at 4.

The United States points out that the ruling of this case will be limited because this case involves repetitive affirmative misrepresentations in writings, and misrepresentation was an essential part of the contract process. Brief for Respondent, United States at 46. Thus, the United States maintains, this case will not lead to the excessive expansion of the government's power, and the application of the “right to control” theory will be limited. Id. The United States also points out that the application of the “right to control” theory is not overbroad because the cases this theory applies are factually distinguishable from other fraud cases such as honest-services fraud. Id. at 47. The United States also argues that the statutory language imposes a “textual limitation” on the property-fraud prosecution. Id. at 47–48. The United States maintains that concerns about arbitrary enforcement and the effect of the overreaching statute will be better addressed in a different case that barely satisfies the elements of property fraud because Ciminelli’s conduct satisfied all elements of property fraud. Id. at 48.

Conclusion 

Written by:

Andrew Kim

Jade Lee

Edited by:

Jennifer Seidman

Acknowledgments 

Additional Resources