Law School Case Brief
United States v. Milovanovic - 678 F.3d 713 (9th Cir. 2012)
The U.S. Supreme Court, in an attempt to salvage the honest services doctrine, has limited its scope to pre-McNally applications, which contain the vast majority of the honest-services cases involving offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes. Embedded in the Court's holding that § 1346 criminalizes only the bribe-and-kickback core of the pre-McNally case law is the implication that a breach of a fiduciary duty is an element of honest services fraud. Justice Scalia's characterization of the Skilling holding, which he framed as "the intangible right of honest services" means the right not to have one's fiduciaries accept bribes or kickbacks, is premised on the Court's holding that a breach of fiduciary duty is a requisite element of honest services fraud. This interpretation is further evidenced by the manner in which the majority responded to Justice Scalia's concurrence. By observing that the existence of a fiduciary relationship, under any definition of that term, was usually beyond dispute in bribe and kickback cases, the majority similarly declared that a breach of fiduciary duty is required. Consequently, the United States Court of Appeals for the Ninth Circuit holds that a breach of a fiduciary duty is an element of honest services fraud under 18 U.S.C.S. §§ 1341 and 1346.
Defendants Brano Milovanovic (Milovanovic), Tony Lamb (Lamb), Ismail Hot (Hot), Muhamed Kovacic (Kovacic), Elvedin Bilanovic (Bilanovic), and Aleksandar Djordjevic (Djordjevic) were charged with conspiracy and with devising a scheme and artifice to defraud and deceive the Washington State Department of Licensing (DOL). The government alleged that defendants solicited and were paid bribes to help unqualified, non-resident applicants obtain commercial drivers' licenses (CDLs) through materially false and fraudulent misrepresentations and omissions on CDL applications achieved by cheating on the exams, by false certifications that skills tests were completed successfully when no such tests were successfully performed, and by use of in-state addresses in Spokane, Washington, when the applicants actually resided out of state. A federal grand jury returned an indictment for mail and wire fraud on a theory of honest services fraud. The district court held that the existence of a formal fiduciary duty to the State and resulting economic harm were required, and the court dismissed all charges. The United States brought an appeal to reinstate the case.
Is a breach of a fiduciary duty an element of honest services fraud under 18 U.S.C.S. §§ 1341 and 1346?
The Court of Appeals for the Ninth Circuit held that a fiduciary relationship was an element of honest services fraud under 18 U.S.C.S. §§ 1341 and 1346, but that the fiduciary relationship did not need to be a formal, or classic, fiduciary relationship. Rather, the statutes similarly reached those who assumed a comparable duty of loyalty, trust, and confidence, the material breach of which, with the intent to defraud, deprived the victim of the intangible right to honest services. Further, foreseeable risk of economic harm was not a necessary element when evaluating whether a party breached such a fiduciary duty. Instead, the mail fraud statute required fraudulent intent and a showing of materiality. The superseding indictment properly stated an offense for honest services fraud. The appellate court reversed and remanded the case to the district court.
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