United States v. Nayak
| Decision Date | 20 October 2014 |
| Docket Number | No. 14–1404.,14–1404. |
| Parties | UNITED STATES of America, Plaintiff–Appellee, v. Raghuveer NAYAK, Defendant–Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Andrianna D. Kastanek, Attorney, Office of the United States Attorney, Chicago, IL, for Plaintiff-Appellee.
Thomas K. McQueen, Attorney, Chicago, IL, for Defendant-Appellant.
Before FLAUM, ROVNER, and HAMILTON, Circuit Judges.
Raghuveer Nayak pled guilty to mail fraud after federal authorities learned that he had been secretly bribing physicians in exchange for referrals to his outpatient surgery
centers. As permitted by his plea agreement, Nayak now appeals, claiming that his indictment was legally insufficient because the government did not allege that his conduct caused or was intended to cause tangible harm to any of the referring physicians' patients. Because actual or intended tangible harm is not an element of the offense of honest-services mail fraud, we affirm.
Nayak owned multiple ambulatory surgery
centers—also known as outpatient surgery centers—including two in Chicago: Rogers Park One–Day Surgery Center and Lakeshore Surgery Center. To attract business, he made under-the-table payments to physicians that referred patients to his centers. These bribes and kickbacks took multiple forms, including cash payments and payments to cover referring physicians' advertising expenses. Nayak instructed at least some of his collaborators not to report these payments on their tax returns.
After learning of the kickback scheme, the government indicted Nayak. It later filed a superseding information charging him with honest-services mail fraud, in violation of 18 U.S.C. §§ 1341 and 1346, and obstruction of the administration of the tax system under 26 U.S.C. § 7212(a). Although both the indictment and the superseding information alleged that Nayak intended “to defraud and to deprive patients of their right to honest services of their physicians” through his scheme, neither alleged that Nayak caused or intended to cause any sort of tangible harm to the patients in the form of higher costs or inferior care. In fact, the government later represented to the district court that the scheme did not cause patients any physical or monetary harm.
In the district court, Nayak filed a motion to dismiss the mail fraud count, contending that the government needed to allege some form of actual or intended harm to the referring physicians' patients1 as an element of the crime. The district court rejected this argument, finding that the case law in this circuit imposes no such requirement. Following the denial of his motion to dismiss, Nayak entered a conditional guilty plea to both counts of the superseding indictment. Pursuant to Federal Rule of Criminal Procedure 11(a)(2), Nayak reserved his right to appeal the district court's denial of his motion to dismiss the mail fraud charge. Exercising that right, he now asks us to hold that tangible harm to a victim is a necessary element of honest-services mail fraud, at least in cases not involving fraud by a public official.
Nayak's appeal challenges the legal sufficiency of the government's indictment and superseding information. In evaluating this claim, we focus on the government's allegations, which we must accept as true. United States v. Moore, 563 F.3d 583, 586 (7th Cir.2009). We review challenges to the sufficiency of an indictment de novo. United States v. Castaldi, 547 F.3d 699, 703 (7th Cir.2008). To be sufficient, an indictment must state each element of the crimes charged, provide the defendant with adequate notice of the nature of the charges so that the accused may prepare a defense, and allow the defendant to raise the judgment as a bar to future prosecutions for the same offense. Id. Nayak argues that the indictment failed to meet the first of these three requirements because it did not allege that the victims of his scheme suffered tangible harm, which he claims is an element of a private mail fraud charge.
The federal mail fraud statute criminalizes the use of the mails in the service of, inter alia, “any scheme or artifice to defraud.” 18 U.S.C. § 1341. Prior to the Supreme Court's decision in McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), lower federal courts frequently interpreted this phrase to include not only schemes that deprived victims of money or property, but also those that deprived them only of their intangible right to honest services. See Skilling v. United States, 561 U.S. 358, 400–01, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010) (). In McNally, however, the Court held that the statute protected only property rights, and thus did not encompass schemes to defraud people of merely intangible rights. 483 U.S. at 360, 107 S.Ct. 2875.
Congress quickly superseded the McNally decision by adding § 1346 to the mail fraud statute, which states that “the term ‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.” 18 U.S.C. § 1346. This statutory language specifically contemplating prosecutions based on the deprivation of intangible rights would seem to present an insurmountable roadblock to Nayak's argument that the government must prove tangible harm in order to convict him. Although a literal reading of the statute would doom his case, Nayak correctly points out that courts have often imposed limiting constructions on § 1346 in order to avoid both absurd results and constitutional issues. See United States v. Sorich, 523 F.3d 702, 707 (7th Cir.2008) (). In United States v. Bloom, 149 F.3d 649 (7th Cir.1998), abrogated in part by Skilling, 561 U.S. at 409, 130 S.Ct. 2896, we acknowledged the need to cabin § 1346 in some way. “Not every breach of every fiduciary duty,” we said, “works a criminal fraud.” Id. at 654 (quoting United States v. George, 477 F.2d 508, 512 (7th Cir.1973) ). Reading § 1346 in light of McNally, the case it superseded, as well as the pre-McNally intangible rights cases that § 1346 reinstated, we drew the line “that separates run of the mill violations of state-law fiduciary duty ... from federal crime” at “[m]isuse of office (more broadly, misuse of position) for private gain.” Id. at 655. Notably, we said nothing about requiring tangible harm to the victim; it was tangible benefit to the defendant that triggered federal criminal liability. See United States v. Fernandez, 282 F.3d 500, 507 (7th Cir.2002) ().
The scope of § 1346 was further limited by the Supreme Court in Skilling, a case which dealt with private corruption. 561 U.S. at 369, 130 S.Ct. 2896. Faced with an argument that § 1346 was unconstitutionally vague, the Court “look[ed] to the doctrine developed in pre-McNally cases” and “pare[d] that body of precedent down to its core: In the main, the pre-McNally cases involved fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who had not been deceived.” Id. at 404, 130 S.Ct. 2896. Accordingly, the Court construed § 1346 to reach “only the bribe-and-kickback core of the pre-McNally case law.” Id. at 409, 130 S.Ct. 2896. It also held that “the violation of a fiduciary duty” was a prerequisite to an honest-services fraud conviction. Id. at 407–08, 130 S.Ct. 2896.
Our specific holding in Bloom did not survive Skilling. Now, “only bribery or kickbacks,” rather than any private gain whatsoever, “can be used to show honest-services fraud.” Ryan v. United States, 688 F.3d 845, 847 (7th Cir.2012). However, our general approach in Bloom, which focused on the defendant's benefit from the fraud rather than any harm to the victim, was vindicated by the Court's favorable discussion of pre-McNally honest-services cases: “the honest-services theory targeted corruption [in which] ... the offender profited [and] the betrayed party suffered no deprivation of money or property.” Skilling, 561 U.S. at 400, 130 S.Ct. 2896.
Returning to this case: Nayak engaged (via the mails) in a bribe-and-kickback scheme to drum up business for his surgery centers. His conduct accordingly appears to fall squarely within the scope of § 1346 as the Court construed it in Skilling. However, Nayak urges us to create yet another judicial limitation on the scope of that section: a requirement that the victims of private honest-services fraud suffer actual or intended tangible harm. Congress, he argues, accidentally painted with a too-broad brush in § 1346 by stating that all schemes to deprive another of the intangible right to honest services are schemes to defraud. According to Nayak, Congress really intended this language to apply only to schemes by public officials; § 1346, therefore, does not apply to him.
To support this argument, Nayak points primarily to an Eighth Circuit case, United States v. Jain, 93 F.3d 436 (8th Cir.1996), where the court indeed made such a distinction between private and public corruption cases, albeit in dicta. The defendant in that case was a doctor who participated in a patient-referral scheme much like Nayak's. Id. at 438–39. The court stated that he could not be convicted of honest-services mail fraud without a showing that his patients suffered tangible harm. Id. at 441–42. Most of the pre-McNally honest-services cases, the court observed, involved only public corruption: bribes and kickbacks involving elected or appointed public officials. Id. at 441. And while the court observed that “[i]t is certainly true that the literal language of § 1346 extends to private sector schemes to defraud another of the right to ‘honest services,’ ” it also felt that “the transition from public to private sector in this context raises troublesome issues.” 93...
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