Not-So-Honest Services Lead Court to Reinstate License Fraud Case

The Ninth Circuit Court of Appeals reinstated honest services fraud charges on Tuesday against six men involved in an illegal truck drivers license scheme, reports The Associated Press.

The en banc opinion touched on whether breach of fiduciary duty is an element of honest services mail fraud, whether the defendants were properly indicted for honest services fraud, and whether the government is required to establish economic harm to prove an honest services charge.

The defendants were charged with conspiracy and devising a scheme and artifice to defraud and deceive the Washington State Department of Licensing (DOL). The government alleged that defendants solicited and paid bribes to help unqualified, non-resident applicants obtain truck drivers’ licenses through materially false and fraudulent misrepresentations and omissions on applications.

The defendants allegedly facilitated cheating on the exams, made false certifications that skills tests were completed successfully when no such tests were successfully performed, and used in-state addresses in Spokane, Wash. on applications, when the applicants actually resided out of state.

Two of the defendants, Brano Milovanovic and Tony Lamb, were DOL contractors; they both reportedly helped the other four defendants cheat the system to get their truck drivers licenses. The government claims that the newly-minted truckers paid the contractors $2,500 for their help. All six were busted, and indicted.

The defendants challenged the sufficiency of the indictment in the district court, and won. U.S. District Court Judge Edward Shea granted the defendants’ joint motion to dismiss the charges on grounds they did not work for the state and so the state was not economically harmed by the scheme, according to the AP. The Ninth Circuit Court of Appeals, however, disagreed.

In 2010, the U.S. Supreme Court noted in Skilling v. U.S., (former Enron CEO Jeffrey Skilling’s honest services appeal), that “the ‘vast majority’ of the honest-services cases involved offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes.”

In light of Skilling, the Ninth Circuit had to determine whether the Supreme Court intended to require a breach of fiduciary duty as an element of honest services fraud, and, if so, whether the breach of a trust relationship, not arising to a formal fiduciary duty, should suffice.

The Ninth Circuit Court of Appeals concluded that breach of fiduciary duty is required for honest services fraud, that it does not require a formal fiduciary duty, and that a trust relationship — such as the contractor relationship in this case — is sufficient to support an honest services charge. “There is no question that were Milovanovic and Lamb employees of the State of Washington, they would be subject to prosecution for theft of honest services … We see no reason why Milovanovic and Lamb should be treated differently simply because the terms of their contracts label them independent contractors.”

Do you agree that the breach of a trust relationship is enough to support an honest services fraud case? Is the Ninth Circuit inviting Supreme Court review?

Related Resources:

• U.S. v. Milovanovic (FindLaw’s CaseLaw)
• SCOTUS Rejects Latest Jeffrey Skilling Appeal (FindLaw’s Fifth Circuit Blog)
• Rod Blagojevich Reindicted: No Honest Services Fraud Charge (FindLaw’s Blotter)