In New York bid-rigging case, justices are dubious of the “right to control” theory of fraud

ARGUMENT ANALYSIS In New York bid-rigging case, justices are dubious of the “right to control” theory of fraud By David Kwok
on Nov 28, 2022 at 5:05 pm Share

The Supreme Court heard oral argument on Monday in the case of Louis Ciminelli, an executive convicted of federal wire fraud in connection with bid-rigging to secure a $750 million New York state contract. The trial court informed a federal jury regarding a “right to control” theory of fraud, and the jury convicted Ciminelli. At argument, Justice Neil Gorsuch remarked at the “radical agreement” among all that the right-to-control theory was flawed, but there was less consensus as to the proper judicial remedy.

In 2012, New York Gov. Andrew Cuomo launched a $1 billion campaign to develop the greater Buffalo area in project “Buffalo Billion.” Ciminelli secretly worked with state insiders to ensure that his firm would be formally selected first to negotiate for Buffalo Billion projects. The negotiations led to the award of a successful $750 million development project. Federal prosecutors charged Ciminelli with wire fraud. Unlike traditional wire fraud charges, in which prosecutors prove how fraudsters deprive victims of their money or property, here prosecutors discussed a “right to control” theory of loss: The state had the right to control its funds and thus to administer a fair and honest bidding process. The prosecutors claimed that Ciminelli deprived the state of potentially valuable information in making the decision to award the $750 million contract. The potentially valuable information was his secret involvement with state insiders.

The justices agreed that the right-to-control theory was a problem. At a minimum, the theory created confusion as to the elements of the fraud. Justice Elena Kagan expressed surprise that prosecutors even raised such a theory at trial, remarking that it seemed more straightforward to discuss the concrete value of the $750 million contract rather than the amorphous value of Ciminelli’s secret information. Deputy Solicitor General Eric Feigin, perhaps in a moment of candor, admitted that the right-to-control theory may have made wire fraud easier to prove against Ciminelli, but he subsequently clarified that the theory may have been easier to explain to a jury given judicial precedent in the 2nd Circuit.

Despite their concerns with the problematic right-to-control theory, the justices did not signal approval of Ciminelli’s conduct. Feigin described Ciminelli’s fraud as an example of “pedigree fraud,” such as a person claiming a veteran’s preference in a government contracting bid when the person is not, in fact, an eligible veteran. Justice Samuel Alito raised a parallel nanny hypothetical: Assume parents contract with an agency to hire a nanny, and the agency agrees to conduct a criminal background check on all of its nannies. The parents hire a nanny and the nanny is decent, but they find out the agency never conducted the criminal background check. Alito asked Michael Dreeben, arguing for Ciminelli, why this deception should not count as wire fraud.

Alito’s question underscores the broader question: What are the appropriate limits to the federal wire fraud statute? Justice Amy Coney Barrett, for example, suggested that the right-to-control theory was confusing because it improperly conflated the elements of materiality and property. Under a clearer analysis, prosecutors would have to prove that Ciminelli deprived his victim of property through material deception. The property was the $750 million contract, and the material deception was the nondisclosure of his use of state insiders to ensure his company could be the first to negotiate. A jury would have to decide if that nondisclosure would constitute a material deception, as opposed to a minor deception that did not justify criminal penalties.

The justices did not appear to coalesce upon a single, unified guideline to restrain the scope of the wire fraud statute. The other remaining issue, also without clear resolution, was the personal outcome for Ciminelli. Justice Ketanji Brown Jackson expressed her concern, asking what would happen if the court, per the government’s request, issued a limited opinion that simply highlighted the problematic right-to-control theory: Would the government seek to uphold Ciminelli’s conviction without retrial? Justice Sonia Sotomayor asked a series of questions digging into the specifics of the jury instructions. How much of a problem was the discussion of right-to-control to the jurors, and should the court be deferential to the jury’s decision to convict Ciminelli despite the confusing right-to-control language?

Posted in Featured, Merits Cases

Cases: Ciminelli v. United States

Recommended Citation: David Kwok, In New York bid-rigging case, justices are dubious of the “right to control” theory of fraud, SCOTUSblog (Nov. 28, 2022, 5:05 PM), https://www.scotusblog.com/2022/11/in-new-york-bid-rigging-case-justices-are-dubious-of-the-right-to-control-theory-of-fraud/