by Richard Resch

The Supreme Court of the United States (“SCOTUS”) held that the “right-to-control” theory of liability, which imposes liability for depriving the victim of “potentially valuable economic information … necessary to make discretionary economic decisions,” is not a valid basis for liability under the federal wire fraud statutes because SCOTUS has previously held that the wire fraud statutes criminalize only schemes to deprive victims of “traditional property interests.”
Cleveland v. United States, 531 U.S. 12 (2000).

This case stems from former New York Governor Andrew Cuomo’s “Buffalo Billion” initiative, which sought to invest $1 billion in development projects in upstate New York. It was administered by a nonprofit called Fort Schuyler Management Corporation (“Fort Schuyler”). Investigations into the project uncovered a scheme in which Louis Ciminelli’s construction company LPCiminelli was virtually guaranteed to be awarded lucrative development projects, including the $750 million Riverbend project in Buffalo. The scheme included the drafting of request for proposals in a manner that designated certain unique aspects of LPCiminelli as qualifications for “preferred-developer status.” 

Upon discovery of the scheme, Ciminelli and several others were indicted by a federal grand jury on numerous counts, including wire fraud in violation of 18 U.S.C. § 1343 and conspiracy to commit wire fraud in violation of § 1349.

Throughout all stages of the prosecution and appeal, the Government relied solely upon the “right-to-control” theory of liability sanctioned by the U.S. Court of Appeals for the Second Circuit. See Cleveland v. United States, 13 F.4th 158 (2d Cir. 2021). Under that theory, wire fraud can be established by showing that “the defendant schemed to deprive a victim of potentially valuable economic information necessary to make discretionary economic decisions,” the Court explained. 

Consistent with that theory, the trial court instructed the jury that “property” under § 1343 “includes intangible interests such as the right to control the use of one’s assets.” Consequently, the jury could find that Ciminelli harmed Fort Schuyler’s right to control its assets if it was “deprived of potentially valuable economic information that it would consider valuable in deciding how to use its assets,” the trial court told the jury.

The jury convicted Ciminelli of wire fraud and conspiracy to commit wire fraud. The trial court sentenced him to 28 months in prison followed by two years of supervised release. He timely appealed, arguing that “property” for purposes of the wire fraud statutes does not include the right-to-control one’s assets. The Second Circuit affirmed the convictions based on its “right-to-control” precedents, holding that the scheme “deprived Fort Schuyler of potentially valuable economic information.”   

SCOTUS granted certiorari to answer the question of whether the “right-to-control” theory is a valid basis of liability for wire fraud under § 1343. The Court held that it is not.

The Court began its analysis by examining § 1343, which criminalizes schemes “to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” The statute requires the Government to prove (1) the defendant “engaged in deception” and (2) that money or property was “an object of [the] fraud,” the Court explained. Kelly v. United States, 140 S. Ct. 1565 (2020).

The Court observed that despite the reference to “money or property” in the statute, lower courts had for decades “interpreted the mail and wire fraud statutes to protect intangible interests unconnected to traditional property rights.” See Skilling v. United States, 561 U.S. 358 (2010) (recounting how “the Courts of Appeals, one after another, interpreted the term ‘scheme or artifice to defraud’ to include deprivations not only of money or property, but also of intangible rights”). However, in McNally v. United States, 483 U.S. 350 (1987), SCOTUS put a stop to the growing trend among lower federal courts of permitting federal fraud convictions based on harms to intangible interests not connected to property, rather than traditional property rights. After McNally dispensed with intangible interests as a basis for fraud convictions, Congress amended the fraud statutes to expressly include a single intangible right – that of honest services. Cleveland.

The Court recounted that the right-to-control theory arose after McNally and holds that since “a defining feature of most property is the right to control the asset in question … the property interests protected by the wire fraud statute include the interest of a victim in controlling his or her own assets.” United States v. Lebedev, 932 F.3d 40 (2d Cir. 2019). As a result, the wire fraud statute is violated when a defendant’s scheme “denies the victim the right to control its assets by depriving it of information necessary to make discretionary economic decisions.” United States v. Binday, 804 F.3d 558 (2d Cir. 2015).  

Turning to the present case, the Court stated that the right-to-control was not an interest traditionally recognized as property when the fraud statute was enacted. Carpenter v. United States, 484 U.S. 19 (1987). In fact, when the Second Circuit first recognized the theory in 1991, it was unable to cite a single authority to support its position that “potentially valuable economic information” constitutes a traditionally recognized property interest, according to the Court. See United States v. Wallach, 935 F.2d 445 (2d Cir. 1991). 

In addition, the theory is not consistent with the structure and history of the federal fraud statutes, the Court stated, explaining that after McNally rejected the principle that intangible rights could serve as a basis for fraud convictions, Congress revived “only the intangible right of honest services.” Cleveland.

Finally, the right-to-control theory inappropriately expands federal jurisdiction. The Court explained that because the theory treats information itself as the protected interest virtually any deceptive behavior could be criminal. See, e.g., United States v. Viloski, 557 Fed. Appx. 28 (2d Cir. 2014) (affirming right to control conviction based on an employee’s undisclosed conflict of interest). The Court declared that the “theory thus criminalizes traditionally civil matters and federalizes traditionally state matters.”  

The Court clarified in no uncertain terms that only traditional property interests are covered by the wire fraud statutes and that the “right to valuable economic information” is not a traditional property interest. Thus, the Court held that the right-to-control theory “cannot form the basis for a conviction under the federal fraud statutes.”

Accordingly, the Court reversed the judgment of the Court of Appeals and remanded the case for further proceedings consistent with its opinion. See: Ciminelli v. United States, 2023 U.S. LEXIS 1888 (2023).

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