United States v. Hager

• Decision Date: 05 January 2018
• Docket Number: No. 16-51330,16-51330
• Citation: 879 F.3d 550
• Parties: UNITED STATES of America, Plaintiff-Appellee v. Sean James HAGER, Defendant-Appellant
• Court: U.S. Court of Appeals — Fifth Circuit

879 F.3d 550

UNITED STATES of America, Plaintiff-Appellee

v.Sean James HAGER, Defendant-Appellant

No. 16-51330

United States Court of Appeals, Fifth Circuit.

Filed January 5, 2018

Joseph H. Gay, Jr., Assistant U.S. Attorney, Elizabeth Berenguer, Assistant U.S. Attorney, U.S. Attorney's Office, Western District of Texas, San Antonio, TX, for Plaintiff-Appellee

John Torrey Hunter, Goldstein, Goldstein & Hilley, San Antonio, TX, for Defendant-Appellant

Before DENNIS, CLEMENT, and GRAVES, Circuit Judges.

PER CURIAM:

Defendant Sean Hager was a long-time salesperson for Velocity Electronics ("Velocity"), a computer parts distributor in Austin, Texas. From 2008 to 2012, he misused Velocity’s confidential information to perpetrate a scheme that netted him $1.16 million. Hager was charged and convicted of mail, wire, and tax fraud, as well as money laundering. He raises numerous legal issues on appeal, but none is persuasive.

We affirm his conviction on all charges.

I.

Velocity is essentially a middle-man broker: it buys computer parts on the open market from suppliers and then resells them at a 20% markup to clients based on their specific needs. Velocity uses an in-house proprietary software system ("VIS") to store and organize crucial business information, including its suppliers, clients, inventory, and past sales. The VIS aggregates and analyzes information about pricing—both the prices at which it purchases products, and the prices at which it sells products. The software generates pricing trends that can be organized by client and product, and it sets purchasing and selling price quotes that ensure a 20% profit margin. This quote establishes a "fail point," meaning employees cannot enter price quotes resulting in a lower margin unless a manager manually overrides the software.

Velocity considers the information contained within the VIS to be confidential and makes this clear to its employees: employees sign multiple confidentiality agreements upon hiring; the employee manual expressly designates information contained in the VIS as confidential; and the importance of keeping the information confidential is "discussed frequently." The confidentiality of its profit margin is particularly important because the release of this information would severely compromise its negotiations with clients.

Hager was a well-respected Velocity employee. He was the salesman responsible for Dell, one of the company’s most important clients. But Hager came to believe that Velocity did not have his "long-term interests at heart." In 2008, he decided to take advantage of his access to the company’s confidential information for personal gain. Hager formed a company called Echt Electronics ("Echt") in his wife’s name. He used Echt to buy parts he knew Velocity needed because he was aware of which parts Dell was ordering. He would then sell those parts to himself as a Velocity salesperson at a price that he knew—thanks again to his access to VIS data—would meet Velocity’s 20% profit margin. He thereby avoided triggering any "fail points" that would require managerial override. Velocity then sold the parts purchased from Echt to Dell. Hager employed this scheme for four years. During that time, Velocity purchased about $2.7 million in parts from Echt, and Hager made a profit of about $1.16 million from the fraud.

While the scheme was ongoing, Hager lied to Velocity to prevent being caught. He told other Velocity employees, for example, that Echt was run by two fictional Asian people named "Tim" and "Mary," who would only do business with him and did not want to communicate with anyone else. But Hager’s cover was poor: his scheme was discovered in 2012 when a fellow employee ran an internet search on Echt and discovered that the company was listed under Hager’s wife’s name and that its registered address was Hager’s home. Hager left Velocity soon thereafter.

Over the course of his Echt scheme, Hager filed three federal tax returns—for 2008, 2009, and 2010. Hager hired a tax preparer to help file the returns. The tax preparer testified at Hager’s trial that Hager did not inform her of his income from Echt when she prepared his returns.

Hager was indicted on two counts of mail fraud, two counts of wire fraud, one count of engaging in monetary transactions in property derived from specified unlawful activity, and three counts of aiding and assisting the preparation of false tax returns. After an eight-day trial, the jury found Hager guilty on all counts. He was sentenced to 42 months’ imprisonment for the fraud and money laundering counts and 36 months’ imprisonment for the tax counts, all to run concurrently.

II.

The focus of Hager’s appeal contests his mail and wire fraud charges. He raises two legal challenges: First, he argues that the applicable provisions of the mail and wire fraud statutes, 18 U.S.C. §§ 1341 and 1343, no longer protect confidential business information after the Supreme Court’s opinion in Skilling v. United States , 561 U.S. 358, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010). Second, he argues that, even if they still protect confidential business information, they only protect a narrow subset—namely, trade secrets as defined by state law. Relying on these arguments, Hager contends that the mail and wire fraud counts of the indictment failed to allege an offense, and, in the alternative, that the evidence was legally insufficient to support his conviction on those counts. But, as explained below, the charges are supported by binding Supreme Court precedent, Carpenter v. United States , 484 U.S. 19, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987), and his conviction under these charges was adequately supported by record evidence.

This court "review[s] de novo questions of statutory interpretation, as well as whether an indictment sufficiently alleges the elements of an offense." United States v. Kay , 359 F.3d 738, 742 (5th Cir. 2004) (internal quotation marks and footnote omitted). Our review of the sufficiency of the evidence to support a criminal conviction is, by contrast, highly deferential. "[T]he relevant question is whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Jackson v. Virginia , 443 U.S. 307, 319, 99 S.Ct. 2781, 61 L.Ed.2d 560 (1979).

To sufficiently allege a violation of the mail and wire fraud statutes, an indictment must charge the defendant with "devis[ing] or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses." 18 U.S.C. §§ 1341, 1343. Hager’s indictment alleged that he had defrauded Velocity "by depriving it of the exclusive use of its confidential and proprietary business information"—specifically, information stored on the VIS regarding the company’s relationship with Dell.

The wire and mail fraud charges here are directly supported by the Supreme Court’s Carpenter opinion. In Carpenter , a business reporter for the Wall Street Journal was charged with mail and wire fraud under §§ 1341 and 1343 for divulging the contents of his regular column to stockbrokers before it was published. 484 U.S. at 22–23, 108 S.Ct. 316. Challenging the charge, he contended that the Journal’s interest in the column was an "intangible right" not covered by the statute. Id. at 25, 108 S.Ct. 316 (quoting McNally v. United States , 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), superseded by 18 U.S.C. § 1346 ).

Rejecting this argument, the Court found that the content of the defendant’s column (prior to its publication) was the Journal’s confidential business information, which "ha[d] long been recognized as property." Id. at 26, 108 S.Ct. 316 (citing Ruckelshaus v. Monsanto Co. , 467 U.S. 986, 1001–04, 104 S.Ct. 2862, 81 L.Ed.2d 815 (1984) ). The information at issue was "acquired or compiled [by the Journal] in the course and conduct of its business," which gave the Journal "the exclusive right and benefit" to use or withhold the information as it chose. Id. (quoting 3 W. Fletcher, Cyclopedia of Law of Private Corporations § 857.1, p. 260 (rev. ed. 1986)). Notably, the fact that the information had an "intangible nature" did not "make [the information] any less ‘property’ protected by" §§ 1341 and 1343. Id. at 25, 108 S.Ct. 316.

Carpenter applies directly here. Hager deprived Velocity of the exclusive use of its confidential business information when he misused the information regarding its clients and pricing for his personal enrichment. The information was stored, aggregated, and analyzed by the VIS, Velocity’s proprietary, in-house software. The information is crucial for Velocity’s business: It allows Velocity to track pricing trends both for suppliers and for buyers, and offers employees guidelines regarding proper pricing. It also allows Velocity to maintain a specific profit margin, which is itself confidential. Moreover, Velocity has made its desire to keep this information private known to all of its employees, requiring them to sign numerous confidentiality agreements. The information qualifies as confidential business information creating a property right that is protected by the mail and wire fraud statutes. Hager’s misuse of that information violated Velocity’s "exclusive right and benefit" to it. See Id. at 26, 108 S.Ct. 316. In short, the mail and wire fraud counts of the indictment were proper. And, as the foregoing demonstrates, a rational trier of fact could have convicted him on those counts.

Hager’s two legal challenges seek to block our application of Carpenter . First, Hager argues that Carpenter ’s conclusion that "confidential business information" is protected under §§ 1341 and 1343 was severely curtailed by the Supreme Court in Skilling . This argument fails because the two cases concern entirely different interests. Whereas Carpenter sought to apply the mail and wire fraud statutes to property...