Supreme Court Issues Opinion in Federal Bank Fraud Case

Those you that handle white collar matters in federal court may want to take a look at the Court’s decision yesterday interpreting subsection two of the federal bank fraud statute, 18 U.S.C. § 1344(2). Subsection (2) of § 1344 makes it unlawful to knowingly execute or attempt to execute a scheme or artifice to obtain money, assets or property “owned by, or under the custody or control of, a financial institution by means of false or fraudulent pretenses, representations, or promises.”

In the case before the Court yesterday, the defendant attempted to cash fraudulent checks at Target. The checks he attempted to cash were taken from the mailboxes of various individuals and then altered so that they could be presented at Target by the defendant. Ultimately, Target realized that the some of the checks were fraudulent and after doing so, Target declined to present them to the bank. With respect to the one check that was presented to the bank, the bank itself realized the check was fraudulent and refused to pay the check. For these reasons, the record did not conclusively establish that any bank lost money as a result of the scheme.

The Court granted certiorari to resolve the Circuit split on the following question: Whether § 1344(2) requires the Government to show that a defendant intended to defraud a bank. According to the defendant, this really mattered in his case, because although he acknowledged that his scheme intended to deceive Target, he argued that there was no evidence that he ever intended to deceive a bank.

In its opinion, the Court rejected the argument that subsection two of the bank fraud statute requires the Government to prove that an individual intended to defraud a bank. The Court relied on the plain language of the statute, as well as general cannons of statutory interpretation. Most notably, the Court recognized that subsection one of the statute explicitly requires that an individual act with an intent to defraud a bank and that if one read a similar requirement into subsection two, it would render subsection one superfluous.

After dealing with the language of the statute and canons of statutory construction, the Court turned to the more difficult issue raised on behalf of the defendant. According to Loughrin’s lawyer, if the Court reads subsection two as not requiring an intent to defraud a bank, the statute’s coverage would extend to a vast range of fraudulent schemes, thereby intruding on the historic criminal jurisdiction of the States.

To the Court, the expansion of federal jurisdiction argument had some force and appeal. Indeed, in addressing the argument, the Court noted that it “agree[ed] with “much of what Lougrin argues.” For that reason, the Court stated: “Unless the text requires us to do so, we should not construe §1344(2) as a plenary ban on fraud, contingent only on use of a check (rather than cash). As we have often (and recently) repeated, we will not be quick to assume that Congress has meant to effect a significant change in the sensitive relation between federal and state criminal jurisdiction.”

Ultimately, although it found the expansion of federal jurisdiction argument appealing, the Court rejected Lougrin’s invitation to read subsection two as requiring an intent to defraud a bank. The Court, however, addressed the expansion argument by recognizing “a significant textual limitation on §1344(2)’s reach.” According to the Court, it is not enough for a “fraudster”to obtain money from a bank and in doing so make a false statement. Instead, in the Court’s view, the defendant must also “acquire (or attempt to acquire) bank property by means of the misrepresentation. And in order to satisfy the Court’s “by means of” language, the Government must show that the defendant’s false statement is the mechanism naturally inducing a bank to part with money in its control.

There is no doubt that the “by means” test created by the Court in Loughrin will be the subject of litigation in later cases. For that reason, federal practitioners will be well served by reading Lougrhin, which can be found here. While doing so, do not forget to read Justice Scalia’s concurrence which, as usual, is entertaining. Although Justice Scalia agreed with the result, he did not join the portion of the majority’s opinion involving the “by means” test. Instead, since that issue had not been adequately briefed and argued, Justice Scalia believed that the meaning of “by means” should be left for another day. In his concurrence, though, Justice Scalia challenges the majority’s view of “by means” and his argument provides ammunition for later argument concerning the application of what that phase now means.