United States v. Al Hedaithy ( 2004 )

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
12-16-2004
USA v. Al Hedaithy
Precedential or Non-Precedential: Precedential
Docket No. 03-1566
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004
Recommended Citation
"USA v. Al Hedaithy" (2004). 2004 Decisions. Paper 16.
http://digitalcommons.law.villanova.edu/thirdcircuit_2004/16
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2004 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
PRECEDENTIAL
IN THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 03-1566
UNITED STATES OF AMERICA
v.
HANY AL HEDAITHY,
Appellant
On Appeal From the United States
District Court For the District of New Jersey
(D.C. Crim. Action No. 02-cr-00379)
District Judge: Hon. Joseph E. Irenas
NO. 03-1885
UNITED STATES OF AMERICA
v.
RIYADH AL-AIBAN
Appellant
On Appeal From the United States
District Court For the District of New Jersey
(D.C. Crim. Action No. 02-cr-00371-1)
District Judge: Hon. Joseph A. Greenaway, Jr.
Argued June 29, 2004
BEFORE: AMBRO, ALDISERT and
STAPLETON, Circuit Judges
(Opinion Filed: December 16, 2004)
2
Donald C. Randolph (Argued)
Randolph & Associates
1717 4th Street - 3rd Floor
Santa Monica, CA 90401
Attorney for Appellant
Hany Al Hedaithy
Steven G. Sanders (Argued)
Arseneault, Fassett & Mariano
560 Main Street
Chatham, NJ 07928
Attorney for Appellant
Riyadh Al-Aiban
George S. Leone (Argued)
Office of the United States Attorney
970 Broad Street - Room 700
Newark, NJ 07102
and
Glenn J. Moramarco
Office of the United States Attorney
Camden Federal Building & Courthouse
401 Market Street - 4th Floor
P.O. Box 2098
Camden, NJ 08101
Attorneys for Appellee
3
OPINION OF THE COURT
STAPLETON, Circuit Judge:
Defendant Riyadh Al-Aiban appeals his conviction,
following an unconditional guilty plea, of conspiracy to commit
mail fraud in violation 18 U.S.C. §§ 371 and 1341. Defendant
Hany Al Hedaithy appeals his conviction, following a bench
trial on stipulated facts, for conspiracy to commit mail fraud in
violation of 18 U.S.C. §§ 371 and 1341, and mail fraud in
violation of 18 U.S.C. §§ 1341 and 2. Al-Aiban and Al
Hedaithy (collectively, “Defendants”) are two of approximately
sixty foreign nationals of Arab and/or Middle Eastern descent
who were charged in the United States District Court for the
District of New Jersey for allegedly participating in a scheme by
which imposters were paid to sit for the Test of English as a
Foreign Language (“TOEFL”), a standardized test administered
by the Educational Testing Service (“ETS”). The purpose of the
scheme was allegedly to create the false appearance that
Defendants, among others, had taken and achieved an
acceptable score on the TOEFL exam so that they could remain
eligible to live in the United States under a student visa.
Both Defendants challenge the sufficiency of their
respective superseding indictments, arguing that the conduct
alleged therein does not fall within the proscription of the mail
fraud statute. Additionally, Al Hedaithy argues that the
4
evidence presented at his bench trial was not sufficient to
support his conviction, and he also challenges the District
Court’s denial of his motion for discovery with respect to a
claim that he was selectively prosecuted by the Government on
account of his race or ethnicity. As a threshold matter, we must
also decide whether Al-Aiban’s guilty plea resulted in a waiver
of his right to challenge the sufficiency of his superseding
indictment. For the reasons that follow, we will affirm the
convictions of each Defendant.
I.
“For purposes of determining the sufficiency of the
superseding [indictments], we assume the truth of the following
facts alleged in the superseding [indictments].” United States v.
Panarella, 277 F.3d 678, 681 (3d Cir. 2002). ETS is in the
business of designing and administering certain standardized
tests. One of those tests, TOEFL, is commonly used by
educational institutions in the United States when considering a
student for admission to its academic program. Certain schools
require foreign students, as a condition of admission, to achieve
a minimum score on the TOEFL exam in order to demonstrate
proficiency in the English language. Full-time enrollment at a
federally approved school, college, or university is, in turn, a
requirement for foreign nationals to obtain a student visa and
thus reside legally in the United States.
According to the Government, ETS possesses, and
attempts to maintain, goodwill that it has accumulated based
upon the integrity of its TOEFL product. ETS has also
endeavored to keep its TOEFL exam exclusive, secure, and
confidential. It owns registered trademarks in the terms
5
“Educational Testing Service,” “ETS,” and “TOEFL.” It uses
these trademarks on its TOEFL examinations and the score
reports that it generates for each applicant who takes TOEFL.
ETS also owns copyrights in the TOEFL examination itself and
in the questions used on each exam. Furthermore, the company
restricts access to, and use of, its copyrighted TOEFL exam and
questions, its trademarked score reports, and its test
administration and scoring services.
When an applicant applies to take the TOEFL exam and
pays the required fee, he is provided with an appointment
number. The applicant must then appear at a designated test
center, provide proof of identity, provide the appointment
number, and sign a confidentiality statement. Pursuant to the
confidentiality statement, the applicant promises to preserve the
confidentiality of the examination. By signing the statement, the
applicant also certifies that he is the same person whose name
and address was used in completing the application. The
applicant must then have his photograph taken in order to ensure
that someone else did not take the exam for the applicant. The
photograph subsequently appears on the applicant’s score report.
Applicants who do not comply with the conditions set by ETS
are not permitted to sit for the exam.
Once the TOEFL exam is completed, the exam results are
wired from the test center to a company in Baltimore, Maryland,
which in turn transmits the results by wire to ETS for
processing. ETS then mails each score report to the location
designated by the applicant.
In 1999, the Government became aware of a scheme in
which Defendants, both Saudi Arabian nationals, and numerous
other foreign nationals of Arab and/or Middle Eastern descent,
paid an imposter to take and pass the TOEFL exam for them.
6
The purpose of the scheme was to create the false appearance
that Defendants themselves had taken and achieved an
acceptable score on the TOEFL exam. In furtherance of this
scheme, each Defendant applied to take the exam, and then paid
money to an imposter to appear at the designated test center and
falsely identify himself as the respective Defendant. The
imposter then signed the confidentiality statement, had his
photograph taken, sat for the TOEFL exam using the respective
Defendant’s name, and directed that his exam results be mailed
to a California address under the control of one Mahmoud Firas.
ETS then processed the exam, and the results were mailed to the
pre-designated location in California. There, Firas or one of his
associates substituted each Defendant’s photograph in place of
the imposter’s photograph. This doctored score report was then
sent to legitimate educational institutions in a phony envelope
bearing ETS’s trademark.
On May 9, 2002, a federal grand jury returned a one-
count indictment charging Al-Aiban with conspiring to commit
mail fraud in violation of 18 U .S.C. §§ 371 and 1341. That
same day, Al Hedaithy was charged in a two-count indictment
with conspiring to commit mail fraud in violation of 18 U.S.C.
§§ 371 and 1341, and mail fraud in violation of 18 U.S.C. §§
1341 and 2. Each indictment described the subject of the
Defendant’s alleged fraud as ETS’s “property interest in
maintaining the integrity of the testing process.” Subsequently,
a federal court dismissed a similarly-worded indictment, holding
that the integrity of the testing process was not a property
interest covered by the mail fraud statute. See United States v.
Alkaabi, 223 F. Supp. 2d 583, 589-90 (D.N.J. 2002).
The Government thereafter filed superseding indictments
against Al-Aiban and Al Hedaithy, in which it attempted to
7
describe ETS’s property interest in greater detail. Al-Aiban was
again charged with one-count of conspiring to commit mail
fraud in violation of 18 U.S.C. §§ 371 and 1341, and Al
Hedaithy was charged with two counts – conspiring to commit
mail fraud in violation of 18 U.S.C. §§ 371 and 1341, and mail
fraud in violation of 18 U.S.C. §§ 1341 and 2. Both superseding
indictments were identical in their description of ETS’s property
interest:
ETS had property interests in its TOEFL product,
including (i) materials bearing its trademarks,
such as the TOEFL exam and score report, (ii) its
copyrighted materials, such as the TOEFL exam
and its questions, (iii) the ETS-specified test
administration and scoring services for the
TOEFL exam, and (iv) the value of ETS’s
goodwill, which is an asset of ETS and is based in
part on maintaining the integrity of the testing
process.
Each superseding indictment further alleged that:
As part of this conspiracy, the Conspirators
defrauded ETS of the property described [above].
They did so by obtaining access to and use of
ETS’s trademarked materials, copyrighted
materials, and services, by obtaining ETS’s
official score report, and by obtaining the benefit
of, and undermining, ETS’s goodwill and the
value of its trademark and copyright.
8
Defendants’ individual cases then proceeded along
significantly different paths. Al-Aiban entered into a plea
agreement with the Government, pursuant to which he agreed to
enter a guilty plea and waive his right to appeal the conviction.1
After accepting Al-Aiban’s guilty plea, the District Court
determined that the final adjusted offense-level was four, and
sentenced him to pay a $2,500 fine. This conviction rendered
him ineligible to remain in the United States, see 8 U.S.C. §
1227(a)(2)(A)(i), and ineligible to return to the United States for
at least five years. 8 U.S.C. § 1182. Al-Aiban voluntarily
departed the United States following his conviction. He has
filed a timely notice of appeal.
Al Hedaithy, on the other hand, challenged both the
superseding indictment and the conduct of the prosecution. He
filed a motion to dismiss his superseding indictment pursuant to
Fed. R. Crim. P 12(b)(2), claiming that it failed to allege
conduct that violated the mail fraud statute. Al Hedaithy’s
motion also claimed that the Government’s attempted expansion
1
The relevant provision of Al-Aiban’s plea agreement stated:
Riyadh Al-Aiban knows that he has, and
voluntarily waives, the right to file any appeal,
any collateral attack, or any other writ or motion
after sentencing, including but not limited to an
appeal under 18 U.S.C. § 3742 or a motion under
28 U.S.C. § 2255, which challenges the
sentencing court’s determination or imposition of
the offense level, if the total offense level
determined by the court is equal to or less than
four.
9
of the scope of the federal mail fraud statute in this case
constituted a violation of his right to due process. The District
Court denied the motion. The Court reasoned that the
requirements of the mail fraud statute were satisfied because Al
Hedaithy obtained from ETS a certificate that he had passed the
TOEFL and ETS was thereby deprived of some value of its
goodwill.
Thereafter, Al Hedaithy filed a motion requesting
discovery in order to support a claim that he, and other
defendants in related cases, were being selectively prosecuted as
a result of their race or ethnicity. In support of this motion, he
provided the District Court with several news articles indicating
that thousands of people cheat on the TOEFL exam each year.
He further submitted materials suggesting that prior to his case,
the Government had never sought to prosecute exam takers for
alleged cheating. Moreover, Al Hedaithy pointed out that all of
the approximately sixty individuals charged for participating in
the alleged scheme were persons from Arab and/or Middle
Eastern countries. Finally, he presented evidence that the
Government’s expressed intent in these cases was to prosecute
the participants as part of the war on terrorism.
The District Court held a hearing on Al Hedaithy’s
discovery motion, at which it assumed that discovery would
show that Al Hedaithy was being prosecuted specifically
because he was from an Arab and/or Middle Eastern country. 2
2
The District Court stated:
I find that[] [the sufficiency of the evidence to
order discovery is] a very hard standard to
articulate, even after reading the cases, exactly
10
The Court, however, held that such a motivation would not be
unconstitutional under the equal protection component of the
Fifth Amendment.
In conducting an equal protection analysis, the District
Court first addressed the appropriate level of scrutiny that
should be used. The Court noted that, because there has been no
great history of discrimination in the United States against the
Middle Eastern population, the level of scrutiny should be
rational basis, “but at most would fall into the intermediate level
of scrutiny.” The Court therefore applied rational basis review,
and concluded that a decision to target Middle Eastern and Arab
people for prosecution survived such scrutiny. In reaching this
conclusion, the District Court reasoned that:
I don’t think I can ignore the reality of what
happened on 9/11, or who perpetrated on 9/11,
and the pockets of deep and abiding hatred of the
United States. . . . I think the Government’s in a
what the quantum of evidence is. That is so – so
I’m not making my decision based on some
analysis of the quantum of the evidence put
forward by the defendant as to selective – I’m
assuming that there is some form of selective
prosecution going on, you know, in the sense that
of the one percent, or whatever it is, that cheat on
the exam, they’re not uniformly nailing every one
and charging them with mail fraud. And they
have focused at least for the moment on people of
Middle Eastern or Arab descent.
11
sense first duty in a way is to protect its own
citizens from harm. And I can’t say that this is an
unconstitutional way of doing it.
Accordingly, the District Court denied Al Hedaithy’s motion for
discovery. At the conclusion of the hearing, Al Hedaithy made
an oral motion to dismiss the superseding indictment based on
selective prosecution, and that motion was also denied.
Thereafter, Al Hedaithy’s case was tried before the
District Court, as the finder of fact, based upon stipulated facts.
After the close of evidence, Al Hedaithy was convicted of mail
fraud and conspiracy to commit mail fraud under the
superseding indictment, and was sentenced to one year
probation and a $750 fine.3 Al Hedaithy has filed a timely
notice of appeal. 4
II.
Al-Aiban contends that our decision in Panarella, 277
F.3d at 685, requires that he be afforded an opportunity,
pursuant to Rule 12(b)(3)(B) of the Federal Rules of Criminal
Procedure,5 to challenge the sufficiency of the superseding
3
As with Al-Aiban, the conviction rendered Al Hedaithy
ineligible to remain in the United States, and ineligible to return
to the United States for at least five years. Al Hedaithy has also
voluntarily departed the United States.
4
The District Court exercised jurisdiction in these two
criminal cases pursuant to 18 U.S.C. § 3231. This Court has
appellate jurisdiction pursuant to 28 U.S.C. § 1291.
5
Fed. R. Crim. P. 12(b)(3)(B) provides:
The following must be raised before trial: . . . a
motion alleging a defect in the indictment or
12
indictment despite his unconditional guilty plea. The
Government concedes that Panarella directly supports Al-
Aiban’s right to appeal, but argues that our decision in that case
was overruled by the Supreme Court in United States v. Cotton,
535 U.S. 625 (2002). According to the Government, Panarella
is therefore no longer controlling and Al-Aiban’s guilty plea
served as a waiver of his right to appeal. We reject the
Government’s interpretation of Cotton and hold that Panarella
obligates us to reach the merits of Al-Aiban’s appeal.
In Panarella, we expressly held that “Rule 12(b)(2)6 and
our cases applying this Rule permit a defendant who enters an
unconditional guilty plea to argue on appeal that the specific
facts alleged in the charging document do not amount to a
criminal offense.” 277 F.3d at 680. As in our case, the
defendant in Panarella agreed to enter an unconditional plea of
information – but at any time while the case is
pending, the court may hear a claim that the
indictment or information fails to invoke the
court’s jurisdiction or to state an offense.
6
Panarella applied Fed. R. Crim. P. 12(b)(2), which was the
predecessor to Rule 12(b)(3)(B). The textual differences
between the two versions of the rule represent alterations in
form only, and “[n]o change in practice [was] intended.” See
Fed. R. Crim. P. 12(b)(3)(B) advisory committee note. The text
of the rule relied upon in Panarella provided that:
The following must be raised prior to trial: . . .
Defenses and objections based on defects in the
indictment or information (other than that it fails
to show jurisdiction in the court or to charge an
offense which objections shall be noticed by the
court at any time during the pendency of the
proceedings).
Fed. R. Crim. P. 12(b)(2) (2001).
13
guilty. Despite the plea, the defendant subsequently appealed
his conviction challenging the sufficiency of the superseding
information. In arguing that he was entitled to raise the
sufficiency of the information for the first time on appeal, the
defendant presented two arguments. First, he claimed that the
issue was a jurisdictional matter that could be raised at any time.
Second, he argued that the plain text of Rule 12(b)(2), together
with our previous interpretation of that rule, required the
Panarella Court to reach the merits of his appeal
notwithstanding the unconditional guilty plea. We agreed with
the defendant’s second argument and therefore declined to
address his jurisdictional argument.
In addressing Rule 12(b)(2), we noted that we had
already held squarely that the rule “applies equally to both
objections raised before a District Court and objections raised
for the first time before a Court of Appeals,” id. (citing Gov. of
the Virgin Islands v. Pemberton, 813 F.2d 626, 631 (3d Cir.
1987)), and that it applies “even where a defendant has entered
an unconditional guilty plea.” Id. at 683 (citing United States v.
Cefaratti, 221 F.3d 502, 507 (3d Cir. 2000); United States v.
Spinner, 180 F3d. 514, 516 (3d Cir. 1999)). We also declined
the Government’s invitation to apply Rule 12(b)(2) narrowly to
cover only those cases in which the charging instrument
completely neglected to mention an element of the offense.
Instead, we felt compelled by our previous decisions to hold that
for purposes of Rule 12(b)(2), a charging
document fails to state an offense if the specific
facts alleged in the charging document fall
beyond the scope of the relevant criminal statute,
as a matter of statutory interpretation. Therefore,
notwithstanding [the defendant’s] unconditional
guilty plea, Rule 12(b)(2) permits [him] to argue
for the first time on appeal that the specific facts
alleged in the superseding information do not
14
amount to honest services wire fraud.
Id.7
In Cotton, a superseding indictment charged defendants
with a conspiracy to distribute, and to possess with intent to
distribute, a “detectable amount” of cocaine and cocaine base in
violation of 21 U.S.C. §§ 846 and 841(a)(1). 535 U.S. at 627-
28. The indictment did not, however, allege any drug quantities
that would result in enhanced penalties under § 841(b). At trial,
the jury was instructed, in accordance with the superseding
indictment, that the amount of narcotics involved was not
important and the defendants could be convicted as long as it
found that a defendant conspired to distribute, or possessed with
intent to distribute, the narcotics listed. Based on this
instruction, the defendants were convicted. At sentencing, the
District Court did not sentence the defendants under §
841(b)(1)(C) (which provided for imprisonment of not more
than 20 years for drug offenses involving a “detectable amount”
of cocaine or cocaine base), but instead made a finding that the
defendants’ conspiracy involved more than 50 grams of cocaine
base, which implicated the enhanced penalties of §
841(b)(1)(A). Id. at 628. The District Court accordingly
sentenced the defendants under the enhanced penalties, and the
defendants did not object to the fact that their sentences were
based on drug quantities not alleged in the indictment.
On appeal to the Fourth Circuit Court of Appeals, the
defendants argued that their sentences were invalid under
7
We nevertheless opined that this holding was unwise and
urged the Judicial Conference Advisory Committee on Criminal
Rules to consider amending Rule 12(b)(2). Panarella, 277 F.3d
at 688.
15
Apprendi v. New Jersey, 530 U.S. 466 (2000).8 Because the
Apprendi argument had not been raised in the District Court, the
Fourth Circuit reviewed this challenge for plain error, but
nonetheless vacated the defendants’ sentences. It reasoned that
“‘because an indictment setting forth all the essential elements
of an offense is both mandatory and jurisdictional, . . . a court is
without jurisdiction to . . . impose a sentence for an offense not
charged in the indictment.’” Id. at 629 (quoting 261 F.3d at
404-05). The Supreme Court rejected this reasoning and
reversed the Fourth Circuit’s decision.
According to the Supreme Court, the omission of drug
quantity from the indictment was not a “jurisdictional” defect.
The Court acknowledged that “defects in subject-matter
jurisdiction require correction regardless of whether the error
was raised in the district court,” but nonetheless concluded that
“defects in an indictment do not deprive a court of its power to
adjudicate a case.” Id. at 630. Noting that it was “[f]reed from
the view that indictment omissions deprive a court of
jurisdiction,” id. at 631, the Court proceeded to apply a plain
error analysis under Fed. R. Crim. P. 52(b) and United States v.
Olano, 507 U.S. 725, 731 (1993). Although the Court
concluded that the District Court’s error in imposing an
enhanced sentence was plain, it declined to address whether the
defendants’ substantial rights were affected because “the error
did not seriously affect the fairness, integrity, or public
reputation of judicial proceedings.” Id. at 632-33. This was
because, according to the Court, the evidence presented to the
jury that the conspiracy involved more than 50 grams of cocaine
base was overwhelming and essentially uncontroverted.
The Government interprets Cotton as holding that a
defendant who fails to challenge the sufficiency of his
indictment in the District Court cannot argue for the first time on
8
Apprendi was decided while the defendants’ appeal was
pending. 535 U.S. at 628.
16
appeal that the indictment fails to state an offense, unless plain
error review is satisfied. Such an interpretation sweeps too
broadly. Cotton did not hold that a defendant can never argue
for the first time on appeal that his indictment failed to state an
offense. Rather, the Supreme Court’s express holding was that
“defects in an indictment do not deprive a court of its power to
adjudicate a case.” 535 U.S. at 630. In other words, the Court
held that indictment defects are not “jurisdictional.” Id. at 631.
This holding, does not conflict with Panarella.
As noted above, the defendant in Panarella pursued a
jurisdictional argument much like the one rejected in Cotton.
We expressly declined to address that argument, however,
noting that the authority relied on by the defendant as was
“murky.”9 We instead based our holding on the language of
9
In particular, we stated:
Apart from Rule 12(b)(2), the source of law on
which Panarella’s “jurisdictional” argument rests
remains murky; it is unclear to us whether the
argument relies on the Fifth Amendment’s Grand
Jury Clause, putative statutory or Article III limits
on federal courts’ subject matter jurisdiction, or
some rule of federal common law. Indeed, we are
unsure whether use of the term “jurisdictional” to
refer to challenges to the sufficiency of an
indictment is anything more than simply a label
used to announce the conclusion that a particular
defense survives a guilty plea. See Peter Westen,
Away from Waiver: A Rationale for the Forfeiture
of Constitutional Rights in Criminal Procedure,
75 Mich. L. Rev. 1214, 1232 n.36 (1977)
(“[O]nce we have explained why a certain
category of defenses survives a plea of guilty, we
may find it useful to describe the category as
‘jurisdictional’ defenses. But calling a defense
17
Rule 12(b)(2), which we treated as independent of any
jurisdictional ground. See id. at 631 (“Because we hold that
Rule 12(b)(2) requires us to entertain this appeal
notwithstanding Panarella’s unconditional guilty plea, we need
not reach Panarella’s alternative ‘jurisdictional’ argument for
why this appeal survives his guilty plea.”). Accordingly, the
basis of our holding in Panarella was neither addressed nor
rejected in Cotton.
The Government nonetheless insists that the defendants
in Cotton raised an argument based on Rule 12(b)(2) and that
the Supreme Court rejected it. In support of this contention, the
Government suggests that the defendants argued in their briefing
to the Supreme Court that Rule 12(b)(2) allowed them to bring
their challenge to the indictment at any time, but the Court
implicitly rejected the defendants’ reliance on Rule 12(b)(2) by
instead applying the plain error analysis of Rule 52(b). The
Government’s reasoning is in error.
Clearly, Cotton made no mention of Rule 12(b)(2), even
though the rule was cited in the defendants’ briefing. This was
not surprising, however, given the manner in which the
defendants in Cotton relied upon the Rule. Contrary to the
Government’s suggestion, the defendants never raised the
argument that we accepted in Panarella. Rather, Rule 12(b)(2)
was raised in the Cotton briefing merely as support for the
uncontroversial proposition that a jurisdictional defect is one
that may be raised at any time. See Supreme Court Brief for
Respondents at 10, 20, No. 01-687, 2002 WL 463382 (2002).
‘jurisdictional’ is a conclusion, not an
explanation: it does nothing to explain why the
defense should be deemed to survive a guilty
plea.” (internal citation omitted)).
277 F.3d at 682 n.1. Our assessment of Panarella’s
jurisdictional argument was apparently prescient given the
Supreme Court’s rejection of this argument in Cotton.
18
Given that the defendants in Cotton never attempted to rely upon
Rule 12(b)(2) as an independent ground for challenging a
defective indictment, we do not construe Cotton as having
rejected our holding in Panarella that such a ground exists.
Accordingly, Panarella dictates that Al-Aiban must be
permitted, in accordance with Rule 12(b)(3)(B), to challenge for
the first time on appeal the sufficiency of his superseding
indictment. It is to that issue we now turn.
III.
“‘In order to be valid, an indictment must allege that the
defendant performed acts which, if proven, constituted a
violation of the law that he or she is charged with violating.’”
United States v. Zauber, 857 F.2d 137, 144 (3d Cir. 1988)
(quoting United States v. Gimbel, 830 F.2d 621, 624 (7th Cir.
1987)). Defendants’ primary argument on appeal is that the
facts alleged in the superseding indictments, as a matter of law,
do not constitute a conspiracy to violate, or a violation of, the
federal mail fraud statute, 18 U.S.C. § 1341. The question
presented is whether these superseding indictments adequately
alleged that Defendants engaged in a scheme to defraud ETS of
a traditionally recognized property interest. We will first review
the applicable law, and then address the Government’s argument
that the superseding indictments sufficiently allege mail fraud
violations under well-established theories of mail fraud liability.
We will next address several arguments advanced by Defendants
for the proposition that the superseding indictments do not
implicate the mail fraud statute. Finally, we conclude that the
superseding indictments sufficiently alleged mail fraud
violations.10
10
The question of whether the superseding indictments
alleged facts that are within the ambit of the mail fraud statute
is a question of statutory interpretation subject to plenary
19
A.
The federal mail fraud statute, 18 U.S.C. §1341 provides,
in relevant part:
Whoever, having devised or intending to devise
any scheme or artifice to defraud, or for obtaining
money or property by means of false or fraudulent
pretenses, representations, or promises, . . . for the
purpose of executing such scheme or artifice or
attempting so to do, [uses the mails or causes
them to be used], shall be fined under this title or
imprisoned not more than 20 years, or both.
“To prove mail or wire fraud, the evidence must establish
beyond a reasonable doubt (1) the defendant’s knowing and
willful participation in a scheme or artifice to defraud, (2) with
the specific intent to defraud, and (3) the use of the mails or
interstate wire communications in furtherance of the scheme.”
United States v. Antico, 275 F.3d 245, 261 (3d Cir. 2001) (citing
United States v. Clapps, 732 F.2d 1148, 1152 (3d Cir.1984)). A
sufficient charging document must therefore allege the
foregoing three elements.11 Additionally, the object of the
alleged scheme or artifice to defraud must be a traditionally
recognized property right. United States v. Henry, 29 F.3d 112,
115 (3d Cir. 1994) (“[T]o determine whether a particular interest
is property for purposes of the fraud statutes, we look to whether
the law traditionally has recognized and enforced it as a property
right.”). This rule is embodied in a trilogy of Supreme Court
review. See Panarella, 277 F.3d at 685.
11
It is undisputed in this case that the superseding indictments
adequately allege use of the mails as the predicate for
application of § 1341.
20
cases that, each party agrees, governs the outcome of this
appeal: McNally v. United States, 483 U.S. 350 (1987),
Carpenter v. United States, 484 U.S. 19 (1987), and, most
recently, Cleveland v. United States, 531 U.S. 12 (2000). We
agree that these three decisions must frame our analysis, and we
review each in turn.
1.
In McNally, the defendants were charged with, and
convicted of, violating § 1341 by devising a scheme to defraud
the Commonwealth of Kentucky’s citizens and government of
their “intangible right” to have the Commonwealth’s affairs
conducted honestly. 483 U.S. at 352. The Supreme Court was
asked to determine whether the deprivation of “honest services”
fell within the scope of the mail fraud statute. In addressing this
issue, the Court was required to review the legislative history of
the statute. The Court noted that that the original statute,
enacted in 1872, referred solely to “any scheme or artifice to
defraud.” Id. at 356. The sparse legislative history of that
enactment “indicate[d] that the original impetus behind the mail
fraud statute was to protect the people from schemes to deprive
them of their money or property.” Id. The Court also noted that
Congress subsequently amended the mail fraud statute in 1909,
“add[ing] the words ‘or for obtaining money or property by
means of false or fraudulent pretenses, representations, or
promises’ after the original phrase ‘any scheme or artifice to
defraud.’” Id. at 357.
Because the two phrases identifying the
proscribed schemes appear in the disjunctive [i.e.,
“any scheme . . . to defraud, or for obtaining
money or property”], it is arguable that they are to
be construed independently and that the money-
or-property requirement of the latter phrase does
21
not limit schemes to defraud to those aimed at
causing deprivation of money or property.
Id. at 358. In fact, according to the Court, that is exactly the
approach taken by the several courts that interpreted “schemes
to defraud” as including those schemes designed to deprive
victims of things other than money or property, such as “honest
services.” Id. The Supreme Court, however, rejected such an
approach.
The Court recognized that it had long ago held that “the
words ‘to defraud’ commonly refer ‘to wrongdoing one in his
property rights by dishonest methods or schemes,’ and usually
signify the deprivation of something of value by trick, deceit,
chicane, or overreaching.’” Id. (quoting Hammerschmidt v.
United States, 265 U.S. 182, 188 (1924)). Congress’ 1909
amendment of the statute, the Court held, did not alter this
understanding of the words “to defraud.” Rather, “adding the
second phrase simply made it unmistakable that the statute
reached false promises and misrepresentations as to the future
as well as other frauds involving money or property.” Id. at 359.
Accordingly, the Supreme Court decided that § 1341 must be
read “as limited in scope to the protection of property rights.”
Id. at 360.12 As such, the Court held that a scheme to deprive
12
In reaching this holding, the Court noted that it was
applying the rule that:
When there are two rational readings of a criminal
statute, one harsher than the other, we are to
choose the harsher only when Congress has
spoken in clear and definite language. . . . As the
Court said in a mail fraud case years ago: “There
are no constructive offenses; and before one can
be punished, it must be shown that his case is
plainly within the statute.” Fasulo v. United
States, 272 U.S. 620, 629, 47 S. Ct. 200, 202, 71
22
the Commonwealth of Kentucky of “honest services” was not
within the scope of § 1341 and therefore reversed the
defendants’ convictions. Id. at 361.13
2.
The Supreme Court next addressed the mail fraud statute
in Carpenter, in which the defendant was alleged to have
violated that statute by defrauding the Wall Street Journal (the
“Journal”) of “confidential business information.” 484 U.S. at
24. One of the defendants, a reporter for the newspaper, wrote
a regular column discussing selected stocks and giving positive
and negative information about those stocks. The Journal’s
policy was that before the publication of each column, its
contents were the Journal’s confidential information. Id. at 23.
Despite that policy, the defendant entered into a scheme by
L. Ed. 443 (1926). Rather than construe the
statute in a manner that leaves its outer
boundaries ambiguous and involves the Federal
Government in setting standards of disclosure and
good government for local and state officials, we
read § 1341 as limited in scope to the protection
of property rights. If Congress desires to go
further, it must speak more clearly than it has.
483 U.S. at 360.
13
It should be noted that Congress responded to McNally by
enacting 18 U.S.C. § 1346. In doing so, Congress brought
within § 1341 the proscription against “schemes or artifices to
deprive another of the intangible right of honest services.” 18
U.S. C. § 1346. Also in response to McNally, Congress
amended § 1341 to add a proscription against counterfeiting.
Neither of these modifications, however, are relevant in this
case.
23
which he gave employees of a brokerage firm advance
information as to the timing and contents of the column. Those
brokers then traded on the prepublication information.
After the scheme was revealed, the reporter and the
brokers were charged with violations of the securities laws and
the mail and wire fraud statutes. The issue addressed by the
Supreme Court was whether the contents of the Journal column,
which were fraudulently misappropriated by the reporter,
constituted “money or property” under the mail and wire fraud
statutes in light of McNally.14 In affirming the defendant’s
conviction, the Court noted that this was not a case like
McNally. According to the Court, the Journal, as the
defendant’s employer,
was defrauded of much more than its contractual
right to his honest and faithful service, an interest
too ethereal in itself to fall within the protection
of the mail fraud statute, which “had its origin in
the desire to protect individual property rights.”
McNally, supra, at 359, n.8, 107 S. Ct., at 2881,
n.8. Here, the object of the scheme was to take
the Journal’s confidential business information –
the publication schedule and contents of the
“Heard” column – and its intangible nature does
not make it any less “property” protected by the
mail and wire fraud statutes. McNally did not
limit the scope of § 1341 to tangible as
distinguished from intangible property rights.
Id. at 25. The Court reasoned that “confidential business
14
The Court noted that “[t]he mail and wire fraud statutes
share the same language in relevant part, and accordingly we
apply the same analysis to both sets of offenses here.” 484 U.S.
at 25 n.6.
24
information has long been recognized as property,” and the
Journal “had a property right in keeping confidential and making
exclusive use, prior to publication, of the schedule and contents
of [its] column.” Id. at 26 (citations omitted).
Additionally, the Court rejected the defendant’s argument
that a scheme to defraud required a monetary loss. Rather, the
Court held, “it is sufficient that the Journal has been deprived of
its right to exclusive use of the information, for exclusivity is an
important aspect of confidential business information and most
private property for that matter.” Id. at 26-27.
The Court also rejected the defendant’s argument that his
conduct amounted to no more than a violation of workplace
rules and did not constitute fraudulent activity. Contrary to the
defendant’s assertion, the Court concluded that he had clearly
“defrauded” the Journal under the “common understanding” of
that word, as previously set forth in McNally: “wrongdoing one
in his property rights by dishonest methods or schemes.” Id. at
27. Embezzlement, the Court noted, falls under this definition.
Accordingly, the Court “ha[d] little trouble in holding that the
conspiracy here to trade on the Journal’s confidential
information is not outside the reach of the mail and wire fraud
statutes.” Id. at 28.
3.
Finally, in Cleveland, the defendant was charged and
convicted of violating the mail fraud statute by making false
statements in applying to the Louisiana State Police for a license
to operate video poker machines. 531 U.S. at 15. The question
addressed by the Supreme Court was whether the Louisiana
video poker license qualified as “property” within the scope of
§ 1341. In deciding this issue, the Court held that “[i]t does not
suffice . . . that the object of the fraud may become property in
the recipient’s hands; for purposes of the mail fraud statute, the
thing obtained must be property in the hands of the victim.” Id.
25
at 15. Accordingly, the Supreme Court went on to consider
“whether a government regulator parts with ‘property’ when it
issues a license.” Id. at 20. In analyzing this issue, the Court
first noted that Louisiana’s “core concern” in issuing licenses
was regulatory, and, as such, Louisiana law established a typical
regulatory program for issuing video poker licenses. Id. at 20-
21. The function of this regulatory scheme, according to the
Court, resembled other licensing schemes that have long been
characterized as the exercise of state police powers.
The Court rejected the assertion that Louisiana had a
property interest in its licenses merely because of the substantial
sums of money it receives in exchange for each license. The
Court acknowledged that Louisiana had a substantial economic
stake in the video poker industry, but also noted that the lion’s
share of fees received by the state with respect to the licenses is
received only after the license is issued; not pre-issuance.
Moreover, the Court reasoned that: “[w]ere an entitlement of
this order sufficient to establish a state property right, one could
scarcely avoid the conclusion that States have property rights in
any license or permit requiring an upfront fee, including drivers’
licenses, medical licenses, and fishing and hunting licenses.” Id.
at 22.
The Court also rejected the assertion that the licenses
were property because of the state’s significant control over the
issuance, renewal, suspension, and revocation of the licenses.
According to the Court, “Louisiana’s right to choose the persons
to whom it issues video poker licenses” was not a an interest
long recognized as property. Id. at 23. Rather, such “intangible
rights of allocation, exclusion, and control amount to no more
and no less than Louisiana’s sovereign power to regulate. . . .
Even when tied to an expected stream of revenue, the State’s
right of control does not create a property interest any more than
a law licensing liquor sales in a State that levies a sales tax on
liquor. Such regulations are paradigmatic exercises of the
States’ traditional police powers.” Id.
26
The Court further rejected the Government’s assertion
that Louisiana’s licensing power was no different than a
franchisor’s right to select its franchisees. The crucial
difference between these two rights, the Court stated, is that “a
franchisor’s right to select its franchisees typically derives from
its ownership of a trademark, brand name, business strategy, or
other product that it may trade or sell in the open market.” Id.
at 24. Louisiana’s authority, on the other hand, rested not upon
any such asset but upon the state’s “sovereign right to exclude
applicants deemed unsuitable to run video poker operations.”
Id.
Because the Court concluded that the video poker license
at issue was not property in the hands of the State of Louisiana,
it held that the defendant’s conduct did not fall within the scope
of the mail fraud statute, and therefore reversed the defendant’s
conviction.
B.
According to the Government, the superseding
indictments advance theories of mail fraud liability that comport
with the Supreme Court’s decisions in McNally, Carpenter, and
Cleveland. The Government argues, inter alia, that the
superseding indictments properly allege that ETS was defrauded
of at least two traditionally recognized property interests: (1) its
confidential business information, and (2) its tangible score
reports. We address each of these theories below.15
15
The Government also advances theories of mail fraud
liability based upon the allegation that ETS was defrauded out
of its goodwill, its test administration and scoring services, and
its TOEFL product as a whole. Because we agree that the
superseding indictments sufficiently allege mail fraud violations
with respect to ETS’s confidential business information and
score reports, we need not address any additional theories upon
27
1.
As noted above, the superseding indictments alleged that
ETS possesses a property interest in the materials bearing its
trademarks and its copyrighted materials, “such as the TOEFL
exam and its questions.” 16 The superseding indictments
sufficiently alleged, according to the Government, that the
TOEFL exam and its questions constituted the confidential
business information of ETS. The Government contends that
this case is like Carpenter inasmuch as the superseding
indictments allege that the Defendants’ scheme required the
hired test-takers to make a misrepresentation to ETS in order to
gain access to, and sit for, the TOEFL exam. We agree with the
Government’s analysis.
“‘Confidential information acquired or compiled by a
corporation in the course and conduct of its business is a species
of property to which the corporation has the exclusive right and
benefit.’” Carpenter, 484 U.S. at 320 (quoting 3 W. Fletcher,
Cyclopedia of Law of Private Corporations § 857.1, at 260 (rev.
ed. 1986)). Such information includes trade secrets, see id.
(citing Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001-04
(1984)), which are defined as “‘any formula, pattern, device or
compilation of information which is used in one’s business, and
which the superseding indictments may be advanced.
16
We note that Defendants devote extensive discussion to
their contention that ETS’s trademarks and copyrights are not
property interests cognizable under the mail fraud statute. We
do not address this argument because, as our discussion
indicates, it has no relevance here. The superseding indictments
do not allege that ETS was defrauded of its trademarks and
copyrights, but rather the materials bearing those trademarks,
and the materials protected by copyright. The dispositive
question is whether those materials themselves are property.
28
which gives him an opportunity to obtain an advantage over
competitors who do not know or use it.’” Ruckelshaus, 467 U.S.
at 1001 (quoting Restatement (Second) of Torts § 757, cmt. b).
In our case, ETS’s TOEFL exam satisfies this definition.
According to the indictments, ETS is in the business of
preparing and administering the TOEFL exam. The
examination provided ETS with a competitive advantage over
others in the business of test administration insofar as
performance on the exam, according to the indictments, was the
yardstick by which educational institutions measured English
proficiency in their admissions processes. The indictments also
indicate that ETS therefore goes to great lengths to protect the
confidentiality and exclusivity of its exam. No person is
permitted access to sit for the TOEFL exam unless he pays a fee,
promises to preserve the confidentiality of the exam, and
represents to ETS that he is the person whose name and address
were used in applying to sit for the exam. The facts alleged in
the superseding indictment are therefore sufficient to conclude
that the TOEFL exam and its questions were confidential
business information. The only question remaining with respect
to this theory of mail fraud liability is whether Defendants
engaged in a scheme “to defraud” ETS of such property.
As we set forth above, McNally held that “the words ‘to
defraud’ commonly refer ‘to wrongdoing one in his property
rights by dishonest methods or schemes,’ and usually signify the
deprivation of something of value by trick, deceit, chicane, or
overreaching.’” 483 U.S. at 358 (quoting Hammerschmidt, 265
U.S. at 188). In accordance with McNally, we consider whether
the superseding indictments allege that Defendants engaged in
a scheme to deprive ETS of a property right in its confidential
business information, and whether that deprivation was
accomplished through dishonest means.
Carpenter dictates that ETS “had a property right in
keeping confidential and making exclusive use” of its
confidential business information. 484 U.S. at 26. Carpenter
29
further instructs that the Government need not allege that ETS
suffered a monetary loss. Id. (“Petitioners cannot successfully
contend . . . that a scheme to defraud requires a monetary loss,
such as giving the information to a competitor.”).17 Rather, for
purposes of showing a mail fraud violation, it is sufficient to
allege that ETS “has been deprived of its right to exclusive use
of the [confidential business] information.” Id. at 26-27. Such
deprivation was clearly set forth in the superseding indictments.
According to the indictments, ETS assiduously protected
the exclusivity of its TOEFL exam, allowing access only to
those persons who agreed to keep the exam confidential and
who provided a representation as to their identity. Defendants’
alleged scheme, however, required hired test-takers to gain
access to ETS’s TOEFL exam on terms other than those
prescribed by ETS. The indictments allege that ETS would not
have allowed the hired test-takers to sit for the exam had it
known that they were not actually the Defendants, and had it
known that they did not actually agree to preserve the exam’s
confidentiality. Accordingly, it was sufficiently alleged that
ETS was deprived of a recognized property interest: the “right
to decide how to use” its confidential business information, i.e.,
the TOEFL exam.
Finally, the scheme alleged in the superseding
indictments required hired test-takers to falsely identify
themselves as each Defendant, thereby misrepresenting to ETS
their true identities. The scheme further required the hired test-
takers to sign ETS’s confidentiality statement in the name of
each Defendant, giving ETS the false impression that the
signatories had agreed to preserve the confidentiality of the
TOEFL exam. We therefore have little trouble concluding that
17
Accordingly, insofar as Defendants contend that the
Government was required to allege that ETS “lost” its
confidential business information, we reject those contentions
as foreclosed by Carpenter.
30
the superseding indictments sufficiently alleged that the
deprivation of ETS’s property right was accomplished through
deceit, trickery, chicanery, or other fraudulent means.
Defendants insist, however, that the theory of mail fraud
liability that was adopted in Carpenter is not applicable here.
They contend that the alleged scheme did not interfere with any
effort by ETS to keep its test confidential. To the contrary,
Defendants argue, the hired test-takers received the same test
materials at the same time as everyone else who paid ETS’s fee,
and like everyone else they returned those materials to ETS at
the end of the designated time. According to Defendants, after
the alleged scheme was completed, ETS had exactly the same
interests in the TOEFL exam as it had before, and ETS was free
to continue to use the exam. These arguments are unconvincing.
Contrary to Defendants’ claims, the superseding
indictments clearly alleged that the Defendants’ scheme
interfered with ETS’s efforts to keep its test confidential. Here,
the hired test-takers were not otherwise entitled to gain access
to the TOEFL exam. As noted above, their misrepresentations
deprived ETS of the ability to choose which individuals would
be permitted such access. Moreover, the fact that the hired test-
takers received the same test materials at the same time as
everyone else is irrelevant to the confidentiality of the test.
Defendants appear to suggest that the TOEFL exam was no
longer confidential business information once all test-takers
received it. That suggestion, however, misconstrues the facts
alleged in the indictments. According to the superseding
indictments, ETS requires each person who sits for the TOEFL
exam, in accordance with the confidentiality statement, to
undertake a continuing obligation to keep the exam confidential.
The hired test-takers, however, did not sign the confidentiality
statement in their own names and were therefore not bound by
the same obligations that legitimate test-takers agreed to. After
the alleged scheme was complete, therefore, the TOEFL exam
was no longer confidential vis-á-vis the hired test-takers.
31
Accordingly, we reject the contention that ETS would have
exactly the same interests in its TOEFL exam as it had before
the alleged scheme was complete.
2.
The Government also contends that the superseding
indictments clearly alleged that ETS was defrauded of tangible
property. As we noted above, the indictments alleged that ETS
possesses a property interest in the “materials bearing its
trademarks, such as the TOEFL . . . score report.” The same
misrepresentations that the hired test-takers made in order to
gain access to the TOEFL exam, the Government claims, were
also used to fraudulently obtain tangible documents from ETS.
In accordance with the alleged scheme, these documents bore
the name of each Defendant, but in fact reflected both the
photograph of, and the exam score achieved by, the hired test-
taker. Defendants do not dispute that the scheme alleged in the
indictments involved obtaining the TOEFL score reports
through misrepresentations. Rather, they contend that these
documents cannot be considered property cognizable under the
mail fraud statute. While Defendants’ argument merits some
discussion, we conclude that it is ultimately unavailing.
As Defendants suggest, Cleveland dictates that, in order
to be cognizable under the mail fraud statute, the score reports
must be considered property in the hands of ETS. Defendants
insist, however, that a score report does not exist except to be
given to the test-taker, that ETS cannot use it for any other
purpose, and that ETS cannot sell one person’s score report to
any other person. Rather, according to Defendants, it is nothing
more than the embodiment of the services that ETS provides,
and that the paper and ink used to create a score report does not
make it property. Defendants also argue that, because Cleveland
clearly holds that a such a score report would not be property if
it was issued by a governmental entity, to hold that ETS’s score
32
report is property in the hands of ETS would create a serious
anomaly whereby the Defendants’ alleged scheme would not be
considered mail fraud if it related to a state licensing
examination, such as a bar exam or a medical licensing exam,
but would be considered mail fraud with respect to the TOEFL
exam, the Scholastic Aptitude Test, the Law School Admissions
Test, or any other privately administered standardized test.
As to Defendants’ first contention – that the score reports
are not property in the hands of ETS – we disagree. ETS is
alleged to be in the business of administering the TOEFL exam
and issuing score reports. While it is true that the score reports
represent the end result of the services provided by ETS, they
are nonetheless tangible items produced by ETS, and ETS
reserves the right to convey these items only to those individuals
who meet its prescribed conditions. We do not think it credible
for Defendants to contend that tangible items, held in the
physical possession of a private entity, are not property. To the
extent that Defendants pursue this argument, we construe it as
a contention that the mail fraud statute does not apply to
property with de minimus value.
In support of a de minimus exception to the mail fraud
statute, Defendants cite to United States v. Schwartz, 924 F.2d
410, 417-18 (2d Cir. 1991) and United States v. Granberry, 908
F.2d 278, 280 (8th Cir. 1990). Both Schwartz and Granberry
addressed the question of whether unissued licenses were
property in the hands of a governmental entity for purposes of
the federal fraud statutes. Correctly foretelling the outcome in
Cleveland, both Courts held that such unissued licenses were not
property. Schwartz and Granberry also addressed the
Government’s argument that the licenses were nonetheless
property by virtue of the paper they were printed on. In
rejecting this argument, the Second Circuit stated:
This proposition is patently absurd. In the present
instance, the [governmental entity] was not in the
33
paper and ink business, it is a regulatory agency
with the power to grant or withhold a license.
The paper licenses given appellants were merely
the expression of its regulatory imprimatur, and
they had no other effect as “property” beyond
their role as representatives of this regulatory
grant. . . . Further, the value of the paper, ink and
seal at issue is plainly inconsequential and – as
McNally held that “to defraud” meant depriving
individuals or the government of something of
value – must be deemed de minimis as a matter of
law.
Schwartz, 924 F.2d at 418 (citations omitted). Granberry
rejected a similar argument, stating:
A governmental permit may in some sense be
property in the hands of the person who receives
it, but licensing authorities have no property
interest in licenses or permits, and allegations that
they were obtained by fraud are not sufficient to
state an offense under Section 1341. The physical
piece of paper that represents the permit is
tangible enough, but it is simply negligible – de
minimis as a matter of law and insignificant as a
matter of fact, apart from the legal entitlement it
represents.
908 F.2d at 280 (citation omitted).
Schwartz and Granberry are, of course, both
distinguishable from the case before us in that ETS is not a
governmental licensing entity. Accordingly, the primary
rationale for holding that the licenses in those cases were not
property within the meaning of the federal fraud statutes is not
34
applicable here. It is thus certainly possible to attribute
Schwartz’s and Granberry’s rejection of the Government’s
attempts to salvage its indictments, by arguing that the licenses
were property due to their tangibility, to the Courts’ conclusion
that the unissued licenses were not property in any case.
Nevertheless, it is also possible to read Schwartz and Granberry
as recognizing a de minimus exception to the mail fraud statute
regardless of whether the victim is a governmental licensing
entity. Even if we read Schwartz and Granberry in the manner
suggested by Defendants, however, we must reject their
arguments because our recognition of a generally applicable de
minimus exception would conflict with a prior decision of this
Court.
In United States v. Martinez, 905 F.2d 709, 715 (3d Cir.
1990), we took the position that unissued governmental licenses
were property within the meaning of the mail fraud statute.
Although this holding was later overruled by the Supreme Court
in Cleveland, at least some of the rationale for our decision in
Martinez lives on. The defendant in that case presented several
arguments in support of his contention that a medical license
issued by the Commonwealth of Pennsylvania was not property
within the meaning of the mail fraud statute. One of these
arguments was that “someone who fraudulently acquires
property that has great value once acquired[] has not violated the
mail fraud statute if the item acquired had no, or negligible,
value in the hands of the victim.” Id. at 713. Whereas Schwartz
and Granberry may be read to have accepted this argument, we
found no support for it:
Nothing in the statutory language supports [the
defendant’s] theory. The statute, which
proscribes “obtaining money or property,” is
broad enough to cover a scheme to defraud a
victim of something that takes on value only in
the hands of the acquirer as well as a scheme to
35
defraud a victim of property valuable to the victim
but valueless to the acquirer.
Martinez points to the language in McNally that
“the original impetus behind the mail fraud statute
was to protect the people from schemes to deprive
them of their money or property.” 483 U.S. at
356, 107 S. Ct. at 2879. Arguably, taken out of
context, this could signify that the statute applies
only when the victim has been deprived of a
valuable property right. However, the Court was
clearly not focusing on the technical argument
made here by Martinez but only on the issue
presented in that case – whether property includes
the ethereal right to honest government.
Id. We also found it significant that, in Carpenter, the Supreme
Court held that no allegation of a monetary loss to the victim
was required, but that the deprivation of a property interest alone
was sufficient to constitute a mail fraud violation. Accordingly,
we rejected the general proposition that the mail fraud statute is
not implicated if the property defrauded has no value in the
hands of the victim.18
Our analysis of this issue in Martinez survives the
Supreme Court’s decision in Cleveland. In Cleveland, the
Supreme Court held that Louisiana’s unissued video poker
license was not “property” in the first instance because it was
merely representative of the state’s sovereign power to regulate.
531 U.S. at 21. In Martinez, however, we assumed (albeit
18
We went on to reason in Martinez, however, that, even if
we accepted the defendant’s construction of the mail fraud
statute, we would nonetheless conclude that the medical licenses
at issue did have value in the hands of the Commonwealth. 905
F.2d at 713.
36
incorrectly) that an unissued license was “property” in the hands
of the Commonwealth, and held that the license was not stripped
of its status as “property” merely because it had negligible value
in the hands of the Commonwealth. Thus, in our case, where we
have no doubt that tangible pieces of paper held in the
possession of a private entity are “property,” Martinez dictates
that these items are no less “property” simply because they have
negligible value.
The D.C. Circuit Court of Appeals’ decision in United
States v. DeFries, 43 F.3d 707, 707-08 (D.C. Cir. 1995), is also
persuasive on this issue. In DeFries, several union officials
were charged with mail fraud for the alleged theft, alteration,
and destruction of ballots in a 1988 union merger referendum.
The District Court dismissed the indictment on the ground that
the theft of ballots did not constitute significant enough
deprivations and thus, under McNally, were not cognizable
under § 1341. In defending that dismissal on appeal, the
defendants conceded that the ballots were the tangible property
of the union, but argued that they were of such de minimus value
– worth no more than the paper or ink used in their printing –
that they failed to meet some threshold standard of significance
implicit in the mail fraud statute. Responding to this argument,
the D.C. Circuit stated:
It is difficult to see where the defendants find this
de minimis exception. The mail fraud statute
speaks only of “money or property” generally, not
of property above a certain value. McNally
incidentally quotes language from a 1924 case
suggesting that the words “‘to defraud’ . . .
usually signify the deprivation of something of
value by trick, deceit, chicane or overreaching,”
483 U.S. at 358, 107 S. Ct. at 2881 (emphasis
added) (quoting Hammerschmidt v. U nited States,
265 U.S. 182, 188, 44 S. Ct. 511, 512, 68 L. Ed.
37968 (1924)), but it does so simply to demonstrate
that the mail fraud statute protects only traditional
forms of property; there is no suggestion that once
the subject of a fraud is determined to be property,
it must additionally meet some threshold of value.
Id. at 709. Accordingly, the Court expressed significant doubts
regarding the de minimus exception recognized in Schwartz and
Granberry. Nonetheless, the Court concluded that it need not
decide the issue because the ballots in question had more than
de minimus value:
Here the tangible property taken was not only
substantially greater in scale than the single sheets
of paper at issue in the two de minimis cases, but
was also the sole physical embodiment of
valuable information about member preferences,
information that was costly to produce and would
be at least as costly to recreate. That this
information was of more than de minimis value to
the union is made clear by the organization’s
willingness to commit substantial resources to
gathering it: as detailed in the indictment, the
merger election involved the printing, national
distribution, collection, and processing of
thousands of official ballots at significant union
expense. Cf. Carpenter, 484 U.S. at 26, 108 S.
Ct. at 320-21 (noting that efforts spent to generate
and compile business information support the
claim of a property interest in that information).
The defendants’ alleged theft, alteration, and
destruction of some of those ballots invalidated
the entire enterprise and undid the union’s
investment. Indeed, even if it were actually
proven at trial that the defendants tampered with
38
fewer ballots than necessary to turn the election,
the theft would nevertheless undermine the
election’s credibility – and thus the value of the
union’s entire investment in the process – if
accompanied by evidence of a risk of broader
wrongdoing.
Id. at 710. The D.C. Circuit also went on to address the
defendants’ argument that the ballots merely represent the
union’s interest in democratic self-governance, which was found
inadequate in McNally. The Court rejected this argument,
reasoning that it confused means and ends: “[a] piece of
property does not lose its status as such, nor is its value any less
substantial, simply because it is held for ends that are abstract
and that thereby seem non-property-like.” Id. at 710-11.
Accordingly, the Court reinstated the indictment, finding that the
referendum ballots and the information that they embodied
indeed constituted property under § 1341.
We are confronted with circumstances nearly identical to
DeFries, and we find the D.C. Circuit’s analysis persuasive.
Here, even assuming the existence of a de minimus exception
under the mail fraud statute, the superseding indictments
sufficiently allege that the score reports obtained under
Defendants’ scheme were valuable. Like the ballots in DeFries,
ETS’s score reports are the sole physical embodiment of
substantial and valuable services that ETS provides. Moreover,
even though the Defendants’ scheme allegedly defrauded ETS
of only approximately sixty score reports, the fraud allegedly
perpetrated on ETS (like the theft of union ballots in DeFries)
undermined its credibility, “and thus the value of [its] entire
investment in the process.” Id. Insofar as the superseding
indictments allege that ETS has developed substantial goodwill
due to the integrity of its TOEFL testing process, we conclude
that such goodwill makes ETS’s score reports valuable,
exceeding any potential de minimus threshold that may be
39
required by the mail fraud statute.
As to Defendants’ second contention – that finding ETS’s
score report to constitute property would lead to a result
inconsistent with Cleveland – such an argument misunderstands
the fundamental basis of the Supreme Court’s reasoning in that
case. As we explained above, the result in Cleveland was based
upon the conclusion that the issuance of government licenses is
an exercise of a state’s police powers to regulate. Because the
issuance of such a license is a component of the state’s
regulatory scheme, the license was held not to be “property” in
the hands of the regulator. Such reasoning is wholly
inapplicable in this case. Here, ETS is a private business that
provides a service and reports test results in pursuit of a profit-
seeking endeavor. Unlike a state, ETS has no sovereign power
to regulate.
Moreover, the Court in Cleveland made several
observations in reaching its holding that are crucial to our
analysis. Significantly, the Court rejected the Government’s
argument that Louisiana’s licensing power was akin to a
franchisor’s right to select franchisees. The Court noted that “a
franchisor’s right to select its franchisees typically derives from
its ownership of a trademark, brand name, business strategy, or
other product that it may trade or sell in the open market.” 531
U.S. at 24. Louisiana’s licensing authority, the Court noted,
does not rest on any similar asset, but rather upon its sovereign
right to exclude applicants it deems unsuitable. Unlike the State
of Louisiana, ETS’s power to issue score reports, which are
relied upon by educational institutions, rests squarely on its
ownership of the “ETS” trademark and the copyrights to its
various examinations. Unlike a sovereign state, ETS can sell its
“licensing authority” to others. We therefore conclude that our
decision in this case is not at all inconsistent with the Supreme
Court’s holding in Cleveland.
Our conclusion that this case differs significantly from
Cleveland is well illustrated by the Sixth Circuit’s decision in
40
United States v. Frost, 125 F.3d 346 (6th Cir. 1997). In that
case, the Court held that the University of Tennessee has a
property interest in its unissued diplomas under the mail fraud
statute, notwithstanding the fact that governmental entities do
not have a property interest in their unissued licenses:
In general, the concept of “property” refers to a
“bundle of rights” which includes the rights to
possess, use, exclude, profit, and dispose. See
Brotherton v. Cleveland, 923 F.2d 477, 481 (6th
Cir. 1991). Although we have recognized that a
degree is a property interest of the graduate, see
Crook v. Baker, 813 F.2d 88, 98-99 (6th Cir.
1987), we also have held that the government
does not have a property right in a license which
it has not issued yet for the purposes of the mail
fraud statute. See Murphy, 836 F.2d at 253-54;
see also United States v. Kato, 878 F.2d 267, 269
(9th Cir. 1989) (under mail fraud statute, unissued
pilot license is not property of government); but
see United States v. Salvatore, 110 F.3d 1131,
1139-43 (5th Cir.1997) (unissued video poker
license is property of government for purposes of
mail fraud). We believe that an unissued
university degree differs from an unissued
regulatory license. Ultimately, a university is a
business: in return for tuition money and scholarly
effort, it agrees to provide an education and a
degree. The number of degrees which a
university may award is finite, and the decision to
award a degree is in part a business decision.
Awarding degrees to inept students, or to students
who have not earned them, will decrease the value
of degrees in general. More specifically, it will
hurt the reputation of the school and thereby
41
impair its ability to attract other students willing
to pay tuition, as well as its ability to raise money.
The University of Tennessee therefore has a
property right in its unissued degrees[.]
Id. at 367. We see no principled distinction between the
unissued diplomas in Frost and ETS’s score reports in this case.
In accordance with the foregoing, we hold that the
superseding indictments sufficiently alleged that Defendants
engaged in a scheme to defraud ETS of traditionally recognized
property interests in its confidential business information and
TOEFL score reports.19
C.
In holding that the superseding indictments sufficiently
allege mail fraud violations, we must also consider three
additional arguments advanced by Defendants. First, they argue
that, in order to sufficiently state a violation, a mail fraud charge
must include an allegation that their scheme was designed to
actually “obtain” the victim’s property. 20 Second, and relatedly,
Defendants suggest that our Court in United States v. Zauber,
19
Because the Government’s theories of property rights in
this case are consistent with traditional concepts of property, we
need not address Defendants’ arguments with respect to the rule
of lenity. See Cleveland, 531 U.S. at 24.
20
We note, however, that this argument would only implicate
our analysis of the Government’s theory of mail fraud liability
with respect to the deprivation of ETS’s confidential business
information. As for ETS’s score reports, however, Defendants’
argument is inapposite because the superseding indictments
clearly allege that the Defendants’s scheme was designed to
obtain the TOEFL score reports.
42
857 F.2d 137 (3d Cir. 1988), and the Supreme Court in
Cleveland, have categorically rejected the contention that the
“right to control” one’s property is itself a property interest.
Third, they insist that ETS could not have been defrauded of any
property because Defendants fully paid the fee required by ETS
to sit for the TOEFL exam and receive a score report. We
address each of these arguments in turn.
1.
We reject Defendants’ first argument, primarily because
it is inconsistent with the Supreme Court’s decision in
Carpenter. Although the defendants in Carpenter clearly
“obtained” the Journal’s confidential business information, this
was not the conduct, according to the Court, that constituted the
mail fraud violation. Rather, the conduct on which the Court
focused was the act of fraudulently depriving the Journal of the
exclusive use of its information.
Furthermore, Defendants’ argument misconstrues the
language of other relevant decisions. For example, they rely
upon the Supreme Court’s statement in Cleveland that “[i]t does
not suffice, we clarify, that the object of the fraud may become
property in the recipient’s hands; for purposes of the mail fraud
statute, the thing obtained must be property in the hands of the
victim.” 531 U.S. at 15. The context in which this statement
was written, however, clarifies that the Court was not setting out
a requirement that a mail fraud scheme must be designed to
“obtain” property. Rather, this language reflects the Court’s
conclusion that a victim has been defrauded of “property,”
within the meaning of the mail fraud statute, only if that which
the victim was defrauded of is something that constitutes
“property” in the hands of the victim.
Defendants also insist that their interpretation of the mail
fraud statute is supported by the Supreme Court’s holdings, in
McNally and Cleveland, that § 1341’s second clause – “or for
43
obtaining money or property by means of false or fraudulent
promises” – “simply modifies” the first clause – “any scheme or
artifice to defraud.” McNally, 483 U.S. at 359; Cleveland, 531
U.S. at 26. Defendants construe this language as meaning that
any violation of the mail fraud statute must involve a scheme for
obtaining the victim’s property. We do not read McNally or
Cleveland as providing any such requirement. In McNally, the
language relied upon by Defendants was used by the Court in
rejecting the Government’s argument that the first clause of §
1341 could be read alone without reference to the second clause.
In Cleveland, this language was used by the Court in rejecting
the Government’s argument that the second clause could be read
alone without reference to the first clause. In neither case,
however, did the Court hold that a mail fraud violation requires
that the second clause of § 1341 be satisfied.
We explained the interaction between the first and second
clauses of § 1341 in United States v. Thomas, 315 F.3d 190 (3d
Cir. 2002), in which we stated that “Congress intended the
second dependent clause of the mail fraud statute to broaden the
scope of the first clause. The mail fraud statute was thus
intended to cover ‘any scheme or artifice to defraud [one of his
money or property],’ including any ‘[scheme] for obtaining
money or property by means of false or fraudulent . . .
promises.’” Id. at 198 (quoting McNally, 483 U.S. at 351)
(second alteration in original). Under Defendants’ interpretation
of § 1341, however, the statute would cover “any scheme or
artifice to defraud [one of his money or property],” but limited
to any “[scheme] for obtaining money or property.” Such an
interpretation contravenes our holding in Thomas and we must
therefore reject it.21
21
Accordingly, we reject Defendants’ reliance upon Scheidler
v. National Organization of Women, Inc., 537 U.S. 393 (2003),
as unavailing. They argue that Scheidler reinforces their
proposition that a loss of control over one’s property is not a
44
2.
With respect to Defendants’ second argument, we do not
find that our decision in Zauber is inconsistent with our analysis
of this case. In Zauber, 857 F.2d at 140-41, the administrators
of an employee pension fund were charged with mail and wire
fraud for causing the pension fund to invest money in an entity
whose principals then paid kickbacks to the administrators. In
support of its indictment, the Government argued, inter alia, that
sufficient deprivation to satisfy the mail fraud statute.
In Scheidler, the National Organization of Women
(“NOW”) sued abortion protesters under the Racketeer
Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.
§§ 1962(a), (c), and (d), for “engaging in a nationwide
conspiracy to shut down abortion clinics through ‘a pattern of
racketeering activity’ that included acts of extortion in violation
of the Hobbs Act, § 1951.” NOW argued that the defendants
violated the Hobbs Act by depriving abortion clinics of the right
to control what medical services they offered to women. The
Supreme Court rejected that argument. It found undisputed that
the defendants had “interfered with, disrupted, and in some
instances completely deprived [abortion clinics] of their ability
to exercise their property rights.” 537 U.S. at 404. The Court
held, however, that such conduct did not violate the Hobbs Act
because the defendants did not actually “obtain” or “acquire” the
clinics’ property. Id. at 405.
We do not find Scheidler applicable to this case because
of a crucial distinction between the Hobbs Act and the mail
fraud statute. Unlike the mail fraud statute, the Hobbs Act
expressly requires the Government to prove that the defendant
“obtain[ed] property from another.” 18 U.S.C. § 1951(b)(2)
(defining the term “extortion”). As we discuss above, however,
a mail fraud violation may be sufficiently found where the
defendant has merely deprived another of a property right.
45
the pension fund suffered an actual loss of money or property
because the pension fund was deprived of control over its
money. Our Court, focusing on a footnote in McNally, reasoned
that the footnote “suggests . . . that such a theory is too
amorphous to constitute a violation of the mail fraud statute as
it is currently written.” Id. at 147. Defendants argue that if the
pension fund’s loss of control over its money did not constitute
a mail fraud violation in Zauber, then ETS’s loss of control over
who may take the TOEFL exam and receive a score report also
cannot constitute a mail fraud violation.
There is a crucial distinction, however, between the loss
of control we addressed in Zauber and ETS’s deprivation in this
case. In Zauber, the defendants were officers of the pension
fund whom we recognized had the power and authority to invest
the fund’s money. The purported loss of control that we
addressed in that case was the defendants’ assertion of control
over the pension fund’s money that the pension fund itself might
not otherwise have made. See id. at 146. Here, however, the
asserted deprivation is not merely that ETS would have chosen
to control its property in a manner different from Defendants.
Rather, the deprivation in this case is identical to that asserted in
Carpenter, i.e., the deprivation of ETS’s right to exclusive use
of its property.
Remarkably, Defendants also contend that the Supreme
Court rejected the “loss of control” theory in Cleveland. As
noted above, the Court indeed held that Louisiana’s right to
control its issuance of state licenses was not a property right
recognized under the mail fraud statute. That holding, however,
was expressly premised on the fact that such control
“amount[ed] no more and no less than Louisiana’s sovereign
power to regulate.” 531 U.S. at 23. There is no suggestion in
Cleveland, especially given the Court’s holding in Carpenter,
that the Court’s reasoning with respect to the State of Louisiana
could be extended to the property interests of private entities.
We therefore reject Defendants’ reliance on Cleveland.
46
3.
Defendants also attribute significance to the fact that ETS
was fully paid for access to the TOEFL exam and receipt of the
score report. They cite to Cleveland for the proposition that
since ETS was paid in full, it could not have been deprived of
any money or property. This reference to Cleveland, however,
is misleading. As noted above, the Court in Cleveland rejected
the Government’s argument that Louisiana’s video poker license
constituted property merely because of the state’s large
economic stake in the industry. 531 U.S. at 22. After rejecting
that argument, the Court stated:
Tellingly, as to the character of Louisiana’s stake
in its video poker licenses, the Government
nowhere alleges that Cleveland defrauded the
State of any money to which the State was entitled
by law. Indeed, there is no dispute that TSG paid
the State of Louisiana its proper share of revenue,
which totaled more than $1.2 million, between
1993 and 1995. If Cleveland defrauded the State
of “property,” the nature of that property cannot
be economic.
Id. This text, does not, contrary to Defendants’ argument,
suggest that a person has not been defrauded out of property so
long as that property is fully paid for. Rather, we read this
quoted text as referring to the uncontroversial proposition that,
if the object of which the victim was alleged to have been
defrauded was fully paid for, then the victim could not have
been defrauded of any money. That does not end the inquiry,
however, as to whether the victim was defrauded of the object
itself.
Moreover, Carpenter makes clear that a financial loss is
not a required element under the mail fraud statute. As our
47
discussion above indicates, the Supreme Court expressly
rejected the argument that a scheme to defraud requires a
monetary loss. 484 U.S. at 27. Rather, the Court found it
sufficient that the Journal was defrauded of the right to
exclusive use of its confidential business information.
The flaw in Defendants’ argument is well-illustrated by
the Second Circuit’s decision in United States v. Schwartz, 924
F.2d 410, 421 (2d Cir. 1991). In that case, Litton Industries
agreed to sell night vision equipment to the defendant, but
conditioned the sale on a promise that the defendant would not
violate the U.S. export law by reselling the equipment to
undocumented foreign customers. The defendant agreed to the
condition, paid for the equipment in full, received it, and then
broke his promise. The defendant was then charged and
convicted of wire fraud. On appeal, he argued that he had not
defrauded Litton of the equipment because it suffered no
economic harm. The Second Circuit rejected this argument,
stating:
[T]he fact that Litton was paid for its night vision
goggles does not mean that Litton received all it
bargained for. In fact, it did not. Litton insisted
its product not be exported from the country
illegally and defendants’ conduct deprived Litton
of the right to define the terms for the sale of its
property in that way, and cost it, as well, good
will because equipment Litton, a government
contractor, sold was exported illegally. The fact
that Litton never suffered – and that defendants
never intended it – any pecuniary harm does not
make the fraud statutes inapplicable. The record
sufficiently demonstrates that Litton sold its
products to appellants only because of their deceit
and misrepresentations, which were offered as
consideration for Litton to contract with them.
48
Hence, appellants’ convictions for wire fraud
against Litton should be affirmed.
Id. at 421; see also Walker v. Galt, 171 F.2d 613, 614 (5th Cir.
1948) (“‘The vendor has the right to select the person to whom
he will sell . . . . [F]raud may be predicated upon
misrepresentations as to the identity of the purchaser . . . .’”).
We agree with the Second Circuit’s analysis. Accordingly, the
only conclusion we draw from the fact that ETS was paid in full
is that ETS was not defrauded of any money. This fact,
however, bears no relevance to whether ETS was otherwise
defrauded of its property.
IV.
Al Hedaithy’s second primary argument on appeal
challenges the sufficiency of the evidence upon which his
conviction is based. We apply a “particularly deferential”
standard of review with respect to a challenge to the sufficiency
of evidence supporting a guilty verdict. United States v.
Cothran, 286 F.3d 173, 175 (3d Cir. 2002) (quoting United
States v. Dent, 149 F.3d 180, 187 (3d Cir. 1998)). The verdict
must be sustained if there is substantial evidence to support it.
Burks v. United States, 437 U.S. 1, 17 (1978); United States v.
Beckett, 208 F.3d 140, 151 (3d Cir. 2000). If “after viewing the
evidence in the light most favorable to the prosecution, any
rational trier of fact could have found the essential elements of
the crime beyond a reasonable doubt,” this Court will sustain the
verdict. Jackson v. Virginia, 443 U.S. 307, 319 (1979); see
Cothran, 286 F.3d at 175. We do not re-weigh the evidence
presented at trial or reassess the credibility of the witnesses,
Glasser v. United States, 315 U.S. 60, 80 (1942); Cothran, 286
F.3d at 175, and we will overturn a guilty verdict “only if no
reasonable juror could accept the evidence as sufficient to
support the conclusion of the defendant’s guilt beyond a
49
reasonable doubt.” United States v. Coleman, 811 F.2d 804, 807
(3d Cir. 1987).
Prior to his bench trial, Al Hedaithy stipulated to the facts
alleged in his superseding indictment. Because we hold that the
facts alleged in the indictment were sufficient to state a mail
fraud violation, we must also conclude that the District Court’s
guilty verdict was based on sufficient evidence.
Al Hedaithy’s arguments to the contrary are premised on
suppositions that we have rejected above. For example, he
argues that the Government presented no evidence that the
alleged scheme was designed to obtain any property from ETS.
As we have explained, however, the mail fraud statute does not
require that a scheme be designed to obtain any property from
the victim; rather it is sufficient that the scheme is designed to
fraudulently deprive the victim of property or an interest in
property. We therefore conclude that Al Hedaithy’s argument
is inapplicable with respect to ETS’s confidential business
information. We also believe his argument is inapplicable with
respect to ETS’s score reports because Al Hedaithy stipulated
that the scheme was designed to obtain the TOEFL score
reports.
Al Hedaithy also argues that the Government presented
no evidence that he obtained from ETS, or deprived ETS of, it
copyrights, trademarks, or goodwill. As noted above, however,
such evidence was not necessary in order to sustain his
conviction. Instead, the Government has sufficiently alleged,
and the stipulations sufficiently support, theories of mail fraud
liability based upon the deprivation of ETS’s confidential
business information and TOEFL score reports.
We agree with the Government that Al Hedaithy, in
advancing this sufficiency of the evidence challenge, has merely
restated his legal challenge to the sufficiency of his superseding
indictment. We rejected those arguments above and we
similarly reject them here.
50
V.
Finally, Al Hedaithy argues that the District Court erred
in denying his motion for discovery to pursue a selective-
prosecution claim.22 The District Court’s denial of discovery is
reviewed for abuse of discretion. See United States v. Berrigan,
482 F2d 171, 181 (3d Cir. 1973). “An abuse of discretion exists
where the district court’s decision rests upon a clearly erroneous
finding of fact, an errant conclusion of law, or an improper
application of law to fact.” International Union, United Auto.,
Aerospace and Agr. Implement Workers of America, UAW v.
Mack Trucks, Inc., 820 F.2d 91, 95 (3d Cir. 1987).
As we have noted above, the District Court assumed,
without deciding, that Al Hedaithy had presented sufficient
evidence to warrant discovery and such discovery would show
that Al Hedaithy and approximately sixty related defendants
were prosecuted selectively because they were of Arab and/or
Middle Eastern descent. The Court concluded, however, that
such a selective prosecution would survive an equal protection
analysis. The District Court applied rational basis review, and
concluded that “in making a prosecutorial decision to target
Middle Eastern and Arab people for prosecution, I can’t say is
an irrational exercise of prosecutorial discretion.” Accordingly,
the District Court concluded that Al Hedaithy would not prevail
on his selective-prosecution claim even assuming his discovery
motion was granted. The Court therefore denied the motion.
The District Court erred in its belief that further equal
protection analysis was required after assuming that discovery
would reveal that the decision to prosecute Al Hedaithy was
22
According to the Supreme Court, “[a] selective-prosecution
claim is not a defense on the merits to the criminal charge itself,
but an independent assertion that the prosecutor has brought the
charge for reasons forbidden by the Constitution.” United States
v. Armstrong, 517 U.S. 456, 463 (1996).
51
based upon his race or ethnicity. According to the Supreme
Court, a prosecutor’s discretion to enforce the law, though
broad, is nonetheless constrained by the equal protection
component of the Due Process Clause of the Fifth Amendment.
United States v. Armstrong, 517 U.S. 456, 464 (1996) (citing
Bolling v. Sharpe, 347 U. S. 497, 500 (1954)). In accordance
with this constraint, the Supreme Court has held that “the
decision whether to prosecute may not be based on ‘an
unjustifiable standard such as race, religion, or other arbitrary
classification.’” Id. (quoting Oyler v. Boles, 368 U. S. 448, 456
(1962)). This holding indicates that an equal protection analysis
is already incorporated into the Court’s selective-prosecution
jurisprudence, and, more importantly, that a prosecutorial
decision made on the basis of race is per se unjustifiable.
Accordingly, once a defendant adequately shows that the
prosecutor’s decision was based upon his race, the defendant has
succeeded on his selective-prosecution claim and he is entitled
to a proper remedy.23 The District Court was therefore not
entitled to assume, without deciding, that discovery would show
Al Hedaithy was prosecuted on the basis of his Arab and/or
Middle Eastern descent, without also holding that he had
prevailed on his selective-prosecution claim.
For these reasons, we conclude that the District Court
abused its discretion. This conclusion, however, does not end
our analysis. The Government contends that, despite the District
Court’s error, its ultimate decision to deny discovery was
correct. It insists that Al Hedaithy failed to satisfy the threshold
showing necessary to entitle him to discovery on his selective-
23
The precise nature and scope of that remedy, however, has
not yet been delineated. See Armstrong, 517 U.S. at 461 n.2
(“We have never determined whether dismissal of the
indictment, or some other sanction, is the proper remedy if a
court determines that a defendant has been the victim of
prosecution on the basis of his race.”).
52
prosecution claim. According to the Government, it would have
been error for the District Court to grant Al Hedaithy’s
discovery motion, and we should therefore affirm the Court’s
denial.
The record before us contains Al Hediathy’s motion for
discovery, as well as the documents that Al Hedaithy offered in
support of his motion. Accordingly, we may independently
review whether he was entitled to discovery. After conducting
such a review, we agree with the Government that Al Hedaithy
failed in any case to satisfy the substantial evidentiary threshold
necessary to obtain discovery on his selective prosecution claim,
and he therefore suffered no prejudice as a result of the District
Court’s abuse of discretion.
In Armstrong, the Supreme Court explained that in order
to succeed in a selective-prosecution claim, “[t]he claimant must
demonstrate that the federal prosecutorial policy ‘had a
discriminatory effect and that it was motivated by a
discriminatory purpose.’” 517 U.S. at 465 (quoting Wayte, 470
U.S. at 608). To complement this “rigorous standard” for
proving a selective-prosecution claim, the Supreme Court
requires “a correspondingly rigorous standard for discovery in
aid of such a claim.” Id. at 468. The required threshold to
obtain discovery is “‘some evidence tending to show the
existence of the essential elements of the defense,’
discriminatory effect and discriminatory intent.” Id. (quoting
United States v. Berrios, 501 F.2d 1207, 1211 (2d Cir. 1974)).
With respect to the first essential element –
discriminatory effect – the Supreme Court requires the claimant
to make a “credible showing” that “similarly situated individuals
of a different race were not prosecuted.” Id. at 465, 470. In
Armstrong, the defendant, in furtherance of his selective-
prosecution claim, supported his discovery motion with an
affidavit from a paralegal in the Federal Public Defender’s
Office, as well as an accompanying study, indicating that “in
every one of the [twenty-four] [21 U.S.C.] § 841 and § 846
53
cases closed by the office during 1991, the defendant was
black.” Id. at 459. The Supreme Court held that this study and
affidavit did not meet the threshold standard of “some evidence”
because these materials “failed to identify individuals who were
not black and could have been prosecuted for the offenses for
which respondents were charged, but were not prosecuted.” Id.
at 470.
In a subsequent decision, United States v. Bass, 536 U.S.
862, 863 (2002) (per curiam), the Court reiterated that a
defendant must make a “credible showing” that similarly
situated individuals of a different race were treated differently.
In Bass, the evidence presented to support the discriminatory
effect element were “nationwide statistics demonstrating that
‘[t]he United States charges blacks with a death-eligible offense
more than twice as often as it charges whites’ and that the
United States enters into plea bargains more frequently with
whites than it does with blacks.” Id. In concluding that this was
not sufficient “credible evidence,” the Court stated:
Even assuming that the Armstrong requirement
can be satisfied by a nationwide showing (as
opposed to a showing regarding the record of the
decisionmakers in respondent’s case), raw
statistics regarding overall charges say nothing
about charges brought against similarly situated
defendants. . . . Under Armstrong, therefore,
because respondent failed to submit relevant
evidence that similarly situated persons were
treated differently, he was not entitled to
discovery.
Id. at 863-64.
Applying the standard set forth by the Supreme Court in
Armstrong and Bass to this case, we conclude that Al Hedaithy
54
did not present sufficient credible evidence of discriminatory
effect. The evidence that he did present was in the form of
numerous newspaper articles.24 According to Al Hedaithy, these
24
These newspaper articles included: (1) an article quoting
the director of test security at ETS as stating that, of the 800,000
people who sit for the TOEFL exam each year, less than 1% are
found to have cheated, see William Branigin, Testing Probe
Turns to Terrorist Links, Wash. Post, May 28, 2002, at B05; (2)
an article stating that “three times in the past 10 years, Chinese
students were disqualified en masse from [TOEFL], and the
Graduate Record Exam, or GRE,” Daniel Walfish, A School for
Scandal, Far Eastern Economic Review, Nov. 16, 2000, at 78;
(3) an article quoting a university administrator noting that
“cheating on the TOEFL is ‘fairly common,’ but has never in his
memory resulted in criminal charges,” Susan Greene, 5 Arrested
in Scam to Pass Exams, Denver Post, May 8, 2002; (4) an article
reporting that NBA basketball player Jayson Williams had
arranged for someone else to take his SATs, see Shaun Assael,
ad Blood, ESPN The Magazine, Aug. 2002; and (5) two articles
reporting that several expert test takers had orchestrated a
scheme to take the TOEFL on the East Coast, report the results
to confederates who encoded them on pencils, and then sold the
encoded pencils to customers who took the test later that day on
the West Coast. The articles stated the Government brought
charges against the expert test takers, but they did not indicate
the customers were prosecuted. See Fiona Havers, Testing
Fraud Exposed: GRE, GMAT, TOEFL Cheating Scam
Uncovered, Yale Herald, Oct. 31 1996; Rose Kim, Man
Arrested in Test Cheating Scheme, Newsday, Oct. 29, 1996, at
A27.
Al Hedaithy’s Supplemental Appendix also contains two
additional newspaper articles that were published after the
District Court’s denial of his discovery motion. While our Court
may normally take judicial notice of newspaper articles, see
55
articles demonstrate that at least several thousand people cheat
on the TOEFL exam each year, yet, with the exception of Al
Hedaithy and the approximately sixty related Arab and/or
Middle Eastern defendants who participated in the relevant
scheme, the Government has never before prosecuted such
cheaters for any offense. The defect in Al Hedaithy’s proffer is
that none of this evidence indicates that similarly situated
persons were treated differently. Demonstrating that thousands
of other people have also cheated on the TOEFL exam does
nothing to identify persons who are similarly situated. It is not
possible to tell, from the evidence presented by Al Hedaithy,
whether the thousands of people who cheat on the TOEFL exam
each year are involved in widespread conspiracies, or have paid
someone else to take the exam for them. Al Hedaithy, who paid
an imposter to take the TOEFL exam so that he could obtain
admission to an educational institution and remain eligible to
reside legally in the United States, is not similarly situated with
a hypothetical individual who cheats by merely copying his
neighbor’s answers. Nor is Al Hedaithy similarly situated with
one who has not engaged in a scheme involving approximately
sixty other foreign nationals attempting through fraud to
maintain their residency in the United States. In short, Al
Hedaithy presented no evidence indicating that the Government
has ever uncovered a similar mail fraud scheme involving
persons who were not Arab and/or Middle Eastern, but did not
prosecute them. Accordingly, we conclude that Al Hedaithy did
not present sufficient “credible evidence” of discriminatory
Ieradi v. Mylan Laboratories, Inc., 230 F.3d 594, 598 n.2 (3d
Cir. 2000), the issue before us is not whether these articles exist
or whether they contain reliable information. Rather, we must
determine whether the evidence actually presented to the District
Court was sufficient to order discovery. Accordingly, we do not
consider these extra-record materials.
56
effect.25 He was therefore not entitled to discovery on his
selective-prosecution claim.
Because Al Hedaithy was not otherwise entitled to
discovery, we will not reverse the District Court’s denial of his
discovery motion.
VI.
For the foregoing reasons, the judgments of the District
Court will be affirmed.
25
We therefore need not address the discriminatory motive
element.
57