United States v. Milovanovic

Under 18 U.S.C. §§1341 and 1346, a fiduciary duty “need not be formal, or classic.” Rather, a material breach of “a comparable duty of loyalty, trust, and confidence, … with the intent to defraud, deprives the victim of the intangible right to honest services.” Foreseeable risk of economic harm is not a necessary element of the Mail Fraud Statute; instead a materiality test is required to evaluate fraudulent intent and a showing of materiality.

The district court dismissed all charges by the federal grand jury for a mail and wire fraud indictment, holding existence of a formal fiduciary duty to the State and resulting economic harm were required. The government alleged that defendants, independent contractors Brano Milovanovic and Tony Lamb, with co-defendants who obtained the fraudulent commercial drivers’ licenses (“CDLs”), accepted bribes to help unqualified, non-resident applicants obtain CDLs using materially false and fraudulent omissions/ misrepresentations on CDL applications attained by: cheating on the exams, false skills certifications (when no such tests were successfully performed,) and by use of false in-state addresses in Spokane, Washington. The Court addressed “(1) whether breach of a fiduciary duty is an element of honest services mail fraud under 18 U.S.C. §§ 1341 and 1346; (2) whether the superseding indictment, charging the defendants with a bribery-based scheme to defraud that breached a material relationship of trust, states an offense for honest services fraud in violation of 18 U.S.C. §§ 2, 1341, 1346, and 1349; and (3) whether, as the district court ruled, economic harm is required to establish a cognizable offense.” After an historical analysis of the statute, the Court held “a fiduciary relationship is an element of honest services fraud under [§§1341 and 1346],” but the relationship “need not be formal, or classic.” Rather, the statute requires “a comparable duty of loyalty, trust, and confidence, the material breach of which, with the intent to defraud, deprives the victim of the intangible right to honest services.” The Court also held in evaluation of whether a party breached a fiduciary duty, thereby violating this statute; foreseeable risk of economic harm is not a necessary element. The Court “adopt[ed], instead, the materiality test and [held] that the Mail Fraud Statute requires fraudulent intent and a showing of materiality.” REVERSED and REMANDED.