The Supreme Court has recently been focusing on the scope of the federal fraud statutes. And the most recent decision in that line is its decision in Kousisis v. United States. Joining me to talk about the Court’s decision in that case is my colleague, Matteo Godi. So, Matteo, tell us a little bit about the statutory background in this area.
Kannon Shanmugam: Welcome to “Court Briefs,” a podcast from Paul, Weiss. I’m your host, Kannon Shanmugam, the chair of the firm’s Supreme Court and Appellate Litigation Practice and co-chair of our Litigation Department. In this podcast, we discuss Supreme Court decisions of interest to the business community.
The Supreme Court has recently been focusing on the scope of the federal fraud statutes. And the most recent decision in that line is its decision in Kousisis v. United States. Joining me to talk about the Court’s decision in that case is my colleague, Matteo Godi. So, Matteo, tell us a little bit about the statutory background in this area.
Matteo Godi: Sure, Kannon. The federal wire fraud statute requires the government to show that someone both engaged in deception, and that they did so for the purpose of obtaining money or property. Historically, courts have disagreed about whether the statute requires the defendant to intend to cause some economic loss to the victim, or whether it’s enough to show that the victim was deceived into transferring that money or property, even if they received equivalent value in return. That was the question that was teed up in Kousisis.
Kannon Shanmugam: Tell us a little bit about the facts of this case.
Matteo Godi: Mr. Kousisis and the company that he managed secured a series of government contracts for big renovation projects in Philadelphia. He represented that his company would obtain supplies from a certified disadvantaged business, which was a precondition for those government contracts, but that was, in fact, false. The business, the disadvantaged business, was just a pass-through entity. Still, despite that deception, the projects were completed as promised, and they resulted in over $20 million in gross profits.
Kannon Shanmugam: And in the wake of the deception, Mr. Kousisis was charged with wire fraud in federal court. What happened in the lower courts?
Matteo Godi: The jury ultimately convicted Mr. Kousisis, and he moved for judgement of acquittal, arguing that the state government got what it paid for. They got a renovation, and everything was done smoothly, so there was no intent to cause economic harm, and therefore no scheme to defraud within the meaning of the wire fraud statute. But the district court denied the motion for judgement of acquittal, and the Third Circuit affirmed.
Kannon Shanmugam: Mr. Kousisis then sought and obtained Supreme Court review, and many observers thought that this was a difficult and potentially close case, but in the end, the Court issued a unanimous decision. What did the Court say?
Matteo Godi: The Court ultimately agreed with the Third Circuit and rejected the idea that wire fraud requires any intent to leave the victim worse off financially. Justice Barrett, for the majority, first started from the text of the statute and the reference to obtaining money or property. She noted how economic loss is not a concept that appears in the text of the statute, so it seems to be enough for the defendant to induce the transfer of money or property, to obtain something through deception.
Mr. Kousisis had argued that fraud and similar concepts at common law required something more, that pecuniary loss was needed. But the Court disagreed. It ultimately reached the conclusion that the common law does not establish a generally applicable rule that all fraud plaintiffs must plead and prove economic loss. That is true, economic loss is required for the tort of deceit, for example, but it isn’t for claims for rescission of contracts, or criminal prosecutions for false pretenses.
And, therefore, because there was no one common law rule, the Court held that the requirement could not simply be assumed or presumed into the statute. Still, Justice Barrett emphasized that the wire fraud statute requires materiality and that money or property and not some intangible right to control or information—you know, some injury—be at the core of and be the object of the fraud. And so there are other meaningful constraints that were not at issue in this case.
Kannon Shanmugam: Although the Court’s decision was unanimous, there were a number of concurring opinions. What did those Justices say?
Matteo Godi: Justice Thomas wrote one of the concurrences, and he focused on the issue of materiality. The parties could not agree on the appropriate test for materiality, and Justice Thomas did not believe that under the correct test, the statements were material. But Mr. Kousisis had not contested the issue of materiality below, and therefore Justice Thomas ultimately concurred in the judgment.
Justice Gorsuch, joined by Justice Sotomayor, wrote to express concern that the majority’s rule could dilute the historical requirement that fraud causes some injury understood in terms of economic harm. But again, he and Justice Sotomayor believed that requirement was satisfied in this case.
Kannon Shanmugam: So a recurring theme on our show is that Supreme Court cases are often as much about what the Court does not decide, as it is about what the court does decide. Is that true here?
Matteo Godi: It is. So, the Court obviously resolved a long-standing circuit split over whether economic loss is required, and notably, it changed the law in the Second Circuit where a lot of these wire fraud cases are litigated. But at the same time, by noting that materiality can play a meaningful role in certain cases, and yet not reaching the issue, the Court leaves open whether materiality, in fact, has meaningful bite, and therefore whether it could prevent convictions such as Mr. Kousisis’ conviction, or whether it would be, in fact, insufficient. We’ll need to wait for another case to see the exact contours of materiality in this context.
Kannon Shanmugam: Yes, it seems almost certain that there’s going to be further litigation on the scope of the materiality element, and it’ll be interesting to see where the law goes in that regard. But in the meantime, Matteo, thank you for summarizing the Court’s decision in Kousisis, and if you have any questions about the decision, please feel free to reach out, either to Matteo or to me. We hope you enjoyed today’s episode.
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