Federal Appellate Court Restricts Federal Mail Fraud Statute
Ellen Podgor over at the White Collar Crime Prof Blog recently pointed out a significant decision out of the Ninth Circuit involving the federal mail fraud statute which could be helpful to those of us that handle white collar cases in federal court. Specifically, in United States v. Phillips, Judge Rackoff, writing for the panel and sitting by designation as a visiting judge, reversed the defendant's mail fraud conviction, concluding that the Government failed to prove that the mail system was used for the purpose of executing the scheme at issue.
The facts in Phillips were relatively unremarkable. In essence, Phillips executed a scheme in which he improperly used company funds to purchase a $10,000 watch for himself. After he paid for the watch, the jeweler mailed the watch to Phillips. In prosecuting him for mail fraud, the Government attempted to use the mailing of the watch to Phillips to satisfy the mailing requirement of the federal mail fraud statute. After he was convicted at trial, Phillips appealed and argued that the mailing of the watch was not in furtherance of the fraudulent scheme to defraud his company, and that he was instead simply using the money he obtained from his company to purchase a watch.
Judge Rackoff and the panel agreed, relying on the Supreme Court's 1974 decision in United States v. Maze. In Maze, the Court reversed the defendant's mail fraud conviction because the success of the defendant’s scheme did not depend in any way on the mailings at issue. According to Judge Rackoff and the rest of the panel, the facts presented in Phillips justified the same result as the Court reached in Maze.
In Phillips, as in Maze, the success of Phillips’s fraudulent scheme did not depend in any way on the use of the mails. According to the Ninth Circuit: "The fact that Phillips purchased a watch with $30,000 of fraudulently obtained [company] funds, instead of using the funds for his personal benefit in some other fashion, did not in any way affect the scheme “to defraud [the company] and to obtain money from [the company] . . . .”" In other words, the "fact that payment eventually was made to a watch dealer and that watch dealer mailed a watch in return was not a part of the scheme to defraud [the company] and to obtain money from [the company] – it was simply the byproduct of that scheme. For this reason, the Ninth Circuit reversed Phillips's conviction on the mail fraud charge.
As professor Podgor points out, Judge Rackoff is no stranger to the federal mail fraud statute. Indeed, over twenty-five years ago, he published a law review article entitled "Federal Mail Fraud (Part I)." Congress enacted the federal mail fraud statute in 1872. And what is amazing to me, however, is that to this day, uncertainty still exists regarding the breadth and meaning of the statute, particularly in the area of honest services fraud. It is great to see Judge Rackoff and the Ninth Circuit apply the Supreme Court's decision in Maze and limit the statute in a meaningful way in Phillips's case. The opinion in Phillips can be found here.