On Monday November 28, 2022, the U.S. Supreme Court heard oral arguments on Ciminelli v. United States. The Court will decide whether the “right-to-control” theory of fraud used by the Second Circuit is a valid basis for property fraud liability under the federal wire fraud statute. Courts and prosecutors have used the right-to-control theory to punish schemes which intend to deprive a victim of valuable information regarding an economic decision. Among other things, the ruling has implications for the expanding scope of federal fraud statutes as applied to undisclosed self-dealing and conflicts of interest. In oral arguments, the Court’s candid disapproval of the right-to-control theory sent a strong signal that this avenue under federal criminal laws for prosecuting “informational deprivation” in dealings may be about to close.
Factual and Procedural Background
The case stems from the 2012 “Buffalo Billion” initiative launched by former New York Governor Andrew Cuomo. The aim of the initiative was to develop the greater Buffalo area through the investment of $1 billion in taxpayer funds. Alain Kaloyeros had a key role in developing proposals for projects under the initiative and strategically used his position to circumvent the request-for-proposal (“RFP”) process and award contracts to certain developers of his choosing. Louis Ciminelli was one such developer who owned a prominent construction company in upstate New York. Kaloyeros and Ciminelli worked to draft the RFP to include qualifications and attributes that matched Ciminelli’s company so as to favor them. Kaloyeros then steered the process to designate “preferred” developers and grant them the first opportunity to negotiate for specific projects. Ciminelli’s company received preferred bidder status and was ultimately awarded a $750 million construction project.
In 2018, Ciminelli was tried and convicted for committing federal wire fraud. On appeal, the Second Circuit affirmed the conviction on a “right-to-control” theory of wire fraud that allows for conviction on “a showing that the defendant, through the withholding or inaccurate reporting of information that could impact economic decisions, deprived some person or entity of potentially valuable economic information.” On June 30, 2022, the Supreme Court took the case to determine the validity of the right-to-control theory for the federal mail and wire fraud statutes.
“Right-to-control” Theory of Property
Federal wire and mail fraud statutes prohibit engaging in a scheme to “obtain [the victim’s] money or property.” In the right-to-control theory, the “property” at issue is the “potentially valuable economic information” that the defendant deprived the victim of through intentional withholding or inaccurate reporting. The Second Circuit additionally requires proof of “tangible harm” to obtain a conviction on the theory.
In his petition for certiorari, Ciminelli argued the Second Circuit’s use of the right-to-control theory expanded the definition of “property” in the wire fraud statute to include the intangible “right to control” (or the right to an informed decision). He argued that this would expand the conception of property rights at the time 18 U.S.C. § 1343 was enacted and go against Court precedent limiting the property rights at issue. As Ciminelli argued, “purely informational deprivation” was not criminalized by Congress and “allow[s] the government to prosecute a variety of kinds of things through the guise of calling them property fraud.”
Ciminelli further argued that the right-to-control theory reduces the government’s burden by combining three elements of wire fraud: fraudulent intent, intended harm, and materiality. Under this theory, all three elements could be met by the government proving deception, leading to a fear of over-criminalization and vagueness in the statutes.
Supreme Court Oral Argument
In their briefs and at oral argument, the government readily conceded that conceiving of “right-to-control” as property “could lead to overbroad results that would expand property fraud beyond the definition at common law and as Congress would have understood it.” Thus, in short order, Justice Gorsuch noted “we’re all in radical agreement” about the need to abandon the right-to-control theory.
However, the government defended the judgment on other grounds. They argued that in application, the right-to-control theory had been properly limited to target information deprivation schemes that have tangible economic harms. The government acknowledged that the language of some of the Second Circuit’s right-to-control cases was overbroad and imprecise. But it argued that, since the Second Circuit required that the “informational deprivation” must have caused a cognizable harm and Ciminelli’s conduct was illegal under long-standing fraud doctrine, in application the court had not unreasonably expand the federal jurisdiction over fraud cases and Ciminelli’s conviction should still stand.
Several justices expressed skepticism that the government’s reconceptualization of the right-to-control theory was within the scope of the question presented and signaled an intent to abandon the right-to-control theory.
Notably, Justices Kagan and Kavanaugh were concerned that the right-to-control theory is an “easier way” for courts or prosecutors to prove property fraud to a jury. Ciminelli argued that one of the ways the right-to-control theory extends the federal fraud statutes is that it “comes into play only when the government cannotprove traditional property fraud” by collapsing the elements of wire fraud (fraudulent intent, intended harm to property, and materiality) into solely proof of an economic deception. Justice Kavanaugh expressed “that’s very problematic” that “it’s easier to convict people under this incorrect articulation of the theory.”
With apparent agreement on the right-to-control theory early in the argument, the remaining issue was whether Ciminelli’s conviction should stand. As Justice Barrett noted, the government’s remaining interests were 1) salvaging the conviction in this case; and 2) making sure whatever the Court says about the right-to-control doesn’t harm the government’s long-term interest in prosecuting cases that might come around the edges of it.
Ciminelli’s counsel Michael Dreeben argued, citing Chiarella v. United States, 445 U.S. 222 (1980), that if the Court finds the right-to-control theory invalid, they must reverse Ciminelli’s conviction since the Court cannot affirm a criminal conviction on the basis of a theory not presented to the jury.
Justice Jackson was most engaged on this point. She challenged the government for initially charging the right-to-control assets as the property interest, yet before the Court abandoning this position to assert that the “jury’s findings map on to the traditional elements of property fraud as they have always been understood.” As Dreeben argued, “I don’t see how the government can maintain simultaneously that the right to control theory is invalid and that somehow this case gets to be retried under its new legal theory.” Similarly, Justice Gorsuch added, “[w]hy should the government have yet another chance to start all over again at this stage?”
Justices Gorsuch and Jackson’s comments suggested they were leaning toward reversing Ciminelli’s conviction altogether while others, including Justices Barrett and Alito, seemed more open to a remand to the Second Circuit.
In the end, the Court may dispose of this case narrowly. Justice Barrett keenly identified what the Court’s opinion will likely find: “the right-to-control theory is invalid because the right to control one’s assets … [is] not a traditional property interest, or that it conflates the materiality and intent to defraud [elements], period,” and remand the case back to the Second Circuit to “figure that out.” However, the government made a “modest request” that the Court include an additional sentence to protect existing decisions that do not solely rely on the right-to-control theory: “we are not expressing any view as to whether … the Second Circuit has identified cases that do meet the traditional elements of property fraud as traditionally understood.”
The government’s use of the theory has placed a wide range of behavior within the purview of the federal mail and wire fraud statutes. The potential ruling by the Court that the right-to-control theory is invalid will limit the government’s ability to criminalize conduct under this broad theory and will resolve a circuit split on the issue.