U.S. v. Milovanovic

• Decision Date: 03 December 2010
• Docket Number: No. 08-30381,08-30381
• Citation: 627 F.3d 405
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. Brano MILOVANOVIC; Tony Gene Lamb; Ismail Hot; Muhamed Kovacic; Elvedin Bilanovic; Aleksandar Djordjevic, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

627 F.3d 405

UNITED STATES of America, Plaintiff-Appellant,

v.Brano MILOVANOVIC; Tony Gene Lamb; Ismail Hot; Muhamed Kovacic; Elvedin Bilanovic; Aleksandar Djordjevic, Defendants-Appellees.

No. 08-30381.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted Nov. 3, 2009.

Filed Dec. 3, 2010.

James A. McDevitt, United States Attorney, Timothy M. Durkin and Joseph H. Harrington, Assistant United States Attorneys, United States Attorney's Office, Spokane, WA, for the appellant.

Robert R. Fisher, Spokane, WA, for appellee Brano Milovanovic.

Joseph Nappi, Jr., Spokane, WA, for appellee Tony Gene Lam.

Frank L. Cikutovich, (briefed), Spoken, WA, for appellee Ismail Hot.

Dan B. Johnson, (briefed), Spokane, WA, for appellee Muhamed Kovacic.

Curran C. Dempsey, (briefed), Spokane, WA, for appellee Elvedin Bilanovic.

Gerald R. Smith, (briefed), Spokane, WA, for Aleksandar Djordjevic.

Appeal from the United States District Court for the Eastern District of Washington, Edward F. Shea, District Judge, Presiding. D.C. No. 2:08-cr-00010-EFS.

Before: FERDINAND F. FERNANDEZ, ANDREW J. KLEINFELD, and RICHARD R. CLIFTON, Circuit Judges.

Opinion by Judge KLEINFELD; Dissent by Judge FERNANDEZ.

OPINION

KLEINFELD, Circuit Judge:

We address "honest services" mail fraud.

I. Facts

The district court dismissed the indictment before trial, so we describe the facts as though the indictment had been proved, which of course is not the case. The question is whether the charges, if proved, would amount to the crime charged.

According to the indictment, defendants Milovanovic and Lamb corrupted issuance of commercial drivers' licenses in the State of Washington. The other four defendants, Hot, Kovacic, Bilanovic, and Djordjevic, took advantage of the corrupt scheme to defraud the State of Washington into issuing them the undeserved licenses. A person has to be a Washington resident and pass a written test and a driving test to lawfully obtain a Washington commercial drivers' license.¹ Milovanovic and Lamb and their clients allegedly arranged to get commercial drivers' licenses by cheating on the tests and falsifying residency, in exchange for bribes.

Milovanovic worked as a certified Bosnian translator for a firm that the state government used. He contacted Bosnian speakers in other states, and told them that if they came to Spokane and paid him personally $2,500, he could get them Washington commercial drivers' licenses. When the out-of-state Bosnians came, Milovanovic enabled them to cheat on the written test by giving them the answers as they took it. Then Milovanovic bribed Lamb, who worked for a firm the state government hired to administer the driving test, $200 to $500 per person to falsify that test result too. The applicants would bring the falsified forms and the State license fee to the State Department of Licensing for a temporary permit, which would be turned into a permanent permit when Lamb mailed or faxed in his falsified log. The licenses were then mailed by a third contractor to the applicants at the false Washington address Milovanovic had supplied.

Lamb and the firm for which Milovanovic worked both had contracts with the state saying that they were independent contractors, not employees and not agents. The state was not deprived of its fee, and did not lose a nickel on account of the dishonest test and residency certifications. There was no paperwork saying that any fiduciary duty pertained.

The superseding indictment charges mail fraud and conspiracy to commit mail fraud by Milovanovic, Lamb, and four of their customers under 18 U.S.C. §§ 1341, 1346, and 2. The district court dismissed the indictment on the ground that the mail fraud statute required a fiduciary relationship, and indicated that the jury would be instructed that the crime required economic harm to the victim. The United States appeals.

II. Analysis

We review de novo both a district court's dismissal of an indictmentbased on its interpretation of a federal statute ² and the sufficiency of an indictment.³

The briefs ⁴ focus on an unsettled question in the Ninth Circuit: whether "honest services" fraud under the mail fraud statute can be committed only by a "fiduciary." The "honest services" portion of the mail fraud statute says that, for the purposes of the mail fraud statute, "the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services." ⁵ Defendants argue that even though we have not said so, we implied in United States v. Williams⁶ that a fiduciary relationship is a sine qua non of "honest services" mail fraud. We have not so held, and, in Williams, expressly declared that we did not have to reach the question: "we need not and do not decide whether Congress intended 'another' to reach" persons who were not fiduciaries.⁷ It remains open.

The parties present arguments whether Milovanovic and Lamb were fiduciaries of the State of Washington, even though the question remains open whether this matters. The government argues that Milovanovic and Lamb were fiduciaries, and Defendants argue that they were not. Some of the arguments are of no help at all, such as pointing out that Lamb and Milovanovic were independent contractors, not government employees. It is elementary that an independent contractor may be a fiduciary, as when a testator appoints the trust department of a bank as trustee, or when a client retains a lawyer to represent him. The relevant citations are inconclusive, merely lending themselves to colorable arguments on both sides of the proposition.⁸

The inconclusiveness of the arguments and citations points to the inutility of deciding fiduciary status as a step along the way to evaluating a mail fraud indictment. Requiring "fiduciary status" merely gives a deceptive patina of limitation to a highly manipulable pigeonholing. Justice Scalia's concurrence in Skilling points out "the indefiniteness of the fiduciary duty," and thus its weakness as a limiting category.⁹ "The Courts of Appeals may have consistently found unlawful the acceptance of a bribe or kickback by one or another sort of fiduciary, but they have not consistently described (as the statute does not) any test for who is a fiduciary." ¹⁰ Deciding whether Milovanovic and Lamb were fiduciaries would be difficult because they were plainly used as agents to administer the state's commercial drivers' license tests, yet thecontracts state that they were not agents. For purposes of this decision, we take the state contracts at their word, and assume without deciding that Milovanovic and Lamb were not agents and were not fiduciaries.

The Supreme Court has not spoken on whether a fiduciary duty is a sine qua non of "honest services" mail fraud. Our sister circuits have given varying and conflicting answers, so no decision we make can avoid a circuit split. ¹¹

Congress promulgated the "honest services" statute in response to the Supreme Court's decision in McNally v. United States.¹² McNally held that the scope of the mail fraud statute was limited to schemes to defraud individuals out of property or money. Congress responded by enacting 18 U.S.C. § 1346.¹³ Section 1346 provided that for purposes of the mail fraud statute, 18 U.S.C. § 1341, " 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services." Putting the two statutes together "whoever having devised or intending to devise a scheme or artifice to defraud" by "depriv[ing] another of the intangible right of honest services," using the mails, commits mail fraud.

As always, we begin our analysis of the mail fraud and "honest service" statutes with the text.¹⁴ The text of the mail fraud statute appears to rule out limiting "honest services" fraud to fiduciaries. Congress provided that "whoever" perpetrates a fraudulent scheme using the mails commits the crime of mail fraud.¹⁵ The perpetratorcategory "whoever" literally means anyone, whether fiduciary or not.

A purposiveness analysis, considering the social harm the statute addresses, likewise suggests no limitation to fiduciaries. The purpose evident from the face of the statute is prevention and punishment of fraud. Several types of fraud expressly listed, such as selling counterfeit items, do not require a fiduciary relationship. Traditional mail frauds, such as soliciting money for items that are not what they are advertised to be, or collecting remittances by mail and not sending the goods ordered, require no fiduciary relationship.¹⁶ Fraud generally means deception, the use of misrepresentation to obtain something of value or deprive another of something of value.¹⁷ Plenty of traditional fraud is committed in arms-length relationships. If a merchant purports to sell a pound of coffee, but uses false weights to put only fifteen ounces in the bag, he commits fraud despite the arms-length, nonfiduciary relationship. A fiduciary relationship would give him additional duties beyond the honesty required of any seller. He would have to not only provide sixteen ounces in a pound, but also advise if the shop down the street was selling better coffee cheaper (a corporate director renting space to the corporation would have to disclose availability of better, cheaper space to theboard because of his fiduciary duty ¹⁸). "Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior." ¹⁹

Nor do the kinds of honest services fraud to which the statute is limited by Skilling-bribes and kickbacks-imply a fiduciary limitation. One could bribe a blogger to recommend a bistro, or kick back ten percent to a merchant who recommended a particular electrician to customers, without either of them having a fiduciary...