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Another look at proof of bank fraud

Less than two years after trying to sort out the proof federal prosecutors must offer to get convictions for bank fraud, the Supreme Court on Monday decided to try again even though few lower-court judges have yet applied the Justices’ prior ruling.  The Court granted review of the new case, Shaw v. United States, despite the government’s argument that very little was at stake.  The Court also took on a case about court review of orders to provide restitution to victims of crime.

Both cases will be heard and decided in the next Term starting in October.  So far, with Monday’s orders included, the Justices have put on the new Term’s docket only ten cases, including five that are being carried over from the current Term.  The pace of grants has fallen off since the Court wound up with eight members, after the death of Justice Antonin Scalia in February.

The new bank fraud case is a sequel to the Court’s ruling in June 2014, seeking to sort out the links between two parts of the federal law against bank fraud.  Only one of those was at issue then, and the other is the only one at issue in the new case, but the Court has felt obliged to try to read them together, finding considerable overlap between them.

The law makes it a crime to carry out a scheme, first, that involves fraud against a financial institution, and second, that involves gaining money, credit or other property held or controlled by a financial institution.  (Technically, those are the first and second sections of 18 U.S.C. § 1344.)

In its 2014 decision in Loughrin v. United States, the Court focused primarily on the second section.  It concluded that a conviction under that provision does not require proof of an intent to commit fraud against a financial institution, nor does it require proof that the fraud caused a loss for that institution.   In reaching that result, the Court indicated it was seeking to harmonize the two sections.

So far, according to the Justice Department, only one federal court of appeals — in the Ninth Circuit — has interpreted the impact of that decision on the other provision in the bank fraud law.  The Justices on Monday agreed to review that court of appeals decision in the new Shaw case.   The Ninth Circuit concluded that there is no need for proof that a scheme was carried out with an intent to expose a bank to a loss or risk of loss.   It upheld the fraud conviction of a Californian, Lawrence Eugene Shaw, and his sentence to fifty-seven months in prison.

Citing a conflict among lower courts, Shaw’s attorneys asked the Court to rule that, under the first section of the law, prosecutors were required to prove an intent to deceive a bank, as well as an attempt to cheat it out of some of its funds.  Shaw’s complex financial maneuverings, his lawyers contended, were designed only to divert to himself the bank account of a businessman who had left the country to live in Taiwan.  The bank itself had any losses covered by others, the petition noted.

Shaw’s case, the petition said, raised an issue on which all of the federal appeals courts had now taken a position and had split widely, with the majority ruling as Shaw would prefer.  The Justice Department urged the Justices to deny review, contending that only the Ninth Circuit had confronted the proof needed under the fraud law’s first section, using the Loughrin approach, and that the split among appeals courts on that question actually predated the Loughrin ruling.

The Court granted review, refusing the government’s request to pass up the question.

In the other newly granted case, Manrique v. United States, the Court also accepted review over the federal government’s objection.  The case involves a Florida man, Marvelo Manrique, convicted of possessing a movie showing an adult male sexually assaulting a young child.

Besides sentencing the man to six years in prison and a life term of supervision, a federal judge ruled that an award of restitution had to be made to the child.  The amount of that obligation was not set at the time, but was put off for a later hearing.  Manrique then filed a formal notice that he was appealing the sentence.

Later, the judge ordered restitution of $4,500.  Manrique did not file a new notice that he was appealing, but relied on the earlier notice.   The U.S. Court of Appeals for the Eleventh Circuit ruled that it had no authority to rule on the second appeal as to the restitution order, because of the failure to file a new appeal notice.

His petition asked the Supreme Court to decide that his initial notice that he was appealing on restitution should have been sufficient to put the issue validly before the court of appeals.  He argued that the lower courts are split on the issue.  The Justice Department opposed review by the Justices, conceding that there was some disagreement among lower courts but that the Eleventh Circuit’s ruling was the correct one.

Besides its grant of review of the two new cases, the Court turned aside — as it has several times before — an attempt to persuade the Court to overrule its 1985 precedent requiring those who seek to challenge government seizures of their private property in federal court to first use all the remedies they could have in state court before taking their case to a federal court.  That precedent is Williamson County v. Hamilton Bank.  The new case challenging that precedent was Arrigoni Enterprises v. Durham.

Justice Clarence Thomas, joined by Justice Anthony M. Kennedy, dissented from the denial of review, arguing that the 1985 precedent cannot be squared with the “Takings Clause” in the Constitution’s Fifth Amendment.   The dissenters noted that several Justices in the past have called for reopening the issue.

[Disclosure: Kevin Russell of Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, was among the counsel to the petitioner in Loughrin v. United States. The author of this post, however, is not affiliated with the firm.]


Recommended Citation: Lyle Denniston, Another look at proof of bank fraud, SCOTUSblog (Apr. 25, 2016, 12:14 PM),