United States v. Paul Guertin ( 2023 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 7, 2023 Decided May 16, 2023
No. 22-3011
UNITED STATES OF AMERICA,
APPELLANT
v.
PAUL MICHAEL GUERTIN,
APPELLEE
Consolidated with 22-3013
Appeals from the United States District Court
for the District of Columbia
(No. 1:21-cr-00262-1)
Daniel J. Lenerz, Assistant U.S. Attorney, argued the
cause for appellant/cross-appellee. With him on the briefs were
Chrisellen R. Kolb, Elizabeth H. Danello, and Christopher B.
Brown, Assistant U.S. Attorneys.
Matthew J. Peed, appointed by the court, argued the cause
and filed the briefs for appellee/cross-appellant.
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Before: SRINIVASAN, Chief Judge, RAO, Circuit Judge,
and EDWARDS, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
EDWARDS.
EDWARDS, Senior Circuit Judge: On March 29, 2021, a
grand jury charged Paul Michael Guertin with wire fraud, in
violation of 18 U.S.C. § 1343, and obstructing an official
proceeding, in violation of 18 U.S.C. § 1512(c)(2). Guertin
moved to dismiss the indictment for failure to state an offense.
The District Court granted the motion, United States v. Guertin,
581 F. Supp. 3d 90, 100-01 (2022), and the Government
appealed to contest the dismissal of the section 1343 (wire
fraud) count. The Government does not appeal the dismissal of
the section 1512(c)(2) (obstructing an official proceeding)
count.
Guertin is a former Foreign Service Officer in the
Department of State. During his ten-year tenure, he adjudicated
Chinese visa applications to the United States. The indictment
charges that Guertin violated section 1343 when, during
routine security clearance renewals, he failed to disclose “a
sexual relationship with a foreign national whose visa
application he had adjudicated; certain financial problems
arising out of gambling activity; and an undisclosed loan
agreement with two Chinese nationals collateralized by
Guertin's home.” Guertin, 581 F. Supp. 3d at 91. The
Government argues that the basis for the indictment under
section 1343 was that “Guertin committed actionable fraud
when he lied in order to get the renewed security clearance
necessary for his job.” Appellant’s Br. 12. Therefore, according
to the Government, the District Court erred when it dismissed
the indictment for failure to state a violation of the wire fraud
statute. We disagree. The District Court correctly found that the
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indictment in this case does not state an offense under section
1343. Guertin, 581 F. Supp. 3d at 92.
“The federal wire fraud statute makes it a crime to effect
(with the use of the wires) ‘any scheme or artifice to defraud,
or for obtaining money or property by means of false or
fraudulent pretenses, representations, or promises.’ 18 U.S.C.
§ 1343.” Kelly v. United States, 140 S. Ct. 1565, 1571 (2020).
“Construing that disjunctive language as a unitary whole, [the]
Court has held that ‘the money-or-property requirement of the
latter phrase’ also limits the former.” Id. (quoting McNally v.
United States, 483 U.S. 350, 358 (1987)). The Court has also
made it clear that the wire fraud statute criminalizes only
“schemes to deprive [the victim of] money or property.” Id. In
other words, section 1343 does not criminalize schemes that
merely deprive the victim of the perpetrator’s honest services.
Indeed, the Supreme Court has specifically rejected the
suggestion that the wire fraud statutes encompass “undisclosed
self-dealing,” even in situations when an offending employee
hides personal financial interests. Id. at 1571-72 (citing Skilling
v. United States, 561 U.S. 358, 409 (2010)). As explained
below, because the indictment here fails to allege that Guertin
perpetuated a scheme to deprive the State Department of
anything more than his honest services, it cannot sustain the
wire fraud count.
Before the District Court, Guertin moved to suppress
certain evidence obtained pursuant to a search warrant issued
in this case and requested a hearing pursuant to Franks v.
Delaware, 438 U.S. 154 (1978). Because we affirm the District
Court’s dismissal of the indictment of the section 1343 (wire
fraud) count, Guertin is the prevailing party on the merits. We
therefore dismiss his cross-appeal of the District Court’s denial
of his motion to suppress and request for a Franks hearing.
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I. BACKGROUND
A. Factual Background
As noted above, the grand jury charged Guertin with wire
fraud, in violation of 18 U.S.C. § 1343, and with obstructing an
official proceeding, in violation of 18 U.S.C. § 1512(c)(2). The
indictment states that between 2007 and 2017, Guertin was
employed as a Foreign Service Officer with the United States
Department of State (“State Department”) and served on
multiple assignments abroad, including a posting in Shanghai,
China. While in Shanghai, Guertin acted as a consular officer
and adjudicated applications for United States visas.
The indictment also alleges that, as a condition of his
employment, Guertin was required to maintain a Top Secret
security clearance, which required him to pass background
checks in 2005, 2010, and 2016. According to the indictment,
during routine security clearance renewals, Guertin
impermissibly concealed the following information: the fact
that he sent the details of certain visa applicants to his personal
email so that he could make romantic overtures towards the
applicants, Appendix (“A.”) 13-17; a $225,000 loan agreement
with a Chinese couple collateralized by his house, A. 14-18,
128; and significant gambling debts that he incurred during his
employment, A. 14-17.
The principal claim in the indictment is that “the purpose
of [Guertin’s] scheme” of untruths was to defraud the State
Department and “unlawfully enrich himself by maintaining his
State Department employment and salary despite engaging in
conduct that would jeopardize his suitability for a security
clearance and a position of trust as a Foreign Service Officer.”
A. 15.
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B. Procedural History
On October 15, 2021, Guertin moved to suppress certain
evidence obtained pursuant to a search warrant issued in this
case and requested a Franks hearing to determine whether the
warrant affidavit still supported probable cause when shorn of
the allegedly false statements Guertin identified. The District
Court denied both the motion to suppress and the request for a
Franks hearing.
On October 15, 2021, Guertin also moved to dismiss both
counts of the indictment for failure to state an offense. The
District Court granted Guertin’s motion and dismissed both
counts. It dismissed the section 1343 count because the wire
fraud statute criminalizes schemes to obtain money or property,
18 U.S.C. § 1343, whereas Guertin’s alleged scheme merely
sought to maintain his State Department employment and
salary. The District Court was of the view that:
a scheme to “maintain” something is not synonymous
with a scheme to “obtain” the same thing. The word
“obtain” generally connotes affirmative action to
secure something outside one’s possession. See
Obtain, Black’s Law Dictionary (11th ed. 2019)
(defining the term as to “bring into one’s own
possession; to procure”). The word “maintain,” by
contrast, connotes action to preserve the status quo. See
Maintain, id. (defining the term as “[t]o continue in
possession of (property etc.)”). The upshot is that to
state an offense under the plain meaning of § 1343, the
Government must allege a defendant’s scheme sought
to gain possession of something not previously in his
possession. And by extension, the Indictment’s
allegation that Guertin merely sought to “maintain” his
salary does not suffice.
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Guertin, 581 F. Supp. 3d at 92-93. Additionally, the District
Court determined that applying the wire fraud statute to these
facts would amount to an end-run around the Supreme Court
precedent regarding honest services fraud. Id. at 94-96. Finally,
the District Court dismissed the obstructing an official
proceeding count on the ground that the security clearance
background check was not an “official proceeding” under 18
U.S.C. § 1512(c)(2). Id. at 96-100.
The Government now appeals the dismissal of the wire
fraud count, but not the dismissal of the obstructing an official
proceeding count. Guertin cross-appeals the denial of his
motion to suppress and his request for a Franks hearing.
II. ANALYSIS
A. Standard of Review
We review “de novo the district court’s dismissal of an
indictment based on questions of law.” United States v. Yakou,
428 F.3d 241, 246 (D.C. Cir. 2005). “In reviewing the district
court’s denial of the suppression motion, we review legal
conclusions de novo and factual findings for clear error.”
United States v. Miller, 799 F.3d 1097, 1101 (D.C. Cir. 2015).
We need not establish a standard of review with respect to the
District Court’s denial of Guertin’s request for a Franks
hearing because the result would be the same under either the
clearly erroneous or de novo standard of review. See United
States v. Williams, 827 F.3d 1134, 1146 (D.C. Cir. 2016).
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B. The Insufficiency of the Indictment Under 18 U.S.C.
§ 1343Under the wire fraud statute, “[w]hoever, 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,” causes a wire
transmission in interstate or foreign commerce “for the purpose
of executing such scheme or artifice” shall be subject to
criminal penalties. 18 U.S.C. § 1343. The indictment of Guertin
pursuant to 18 U.S.C. § 1343 cannot stand absent a plausible
allegation that he pursued a deceptive scheme, facilitated by a
wire transmission, to deprive his employer of money or
property. See Kelly, 140 S. Ct. at 1571. The Supreme Court
has made it clear that the statute does not criminalize all acts of
dishonesty that are facilitated by wire transmission. Id. Rather,
“[t]he wire fraud statute . . . prohibits only deceptive ‘schemes
to deprive [the victim of] money or property.’” Id. (emphasis
added) (quoting McNally, 483 U.S. at 356). Thus, the
Government must show not only that the accused engaged in
deception, but that “an object of [his] fraud was property.” Id.(cleaned up). Even if we assume that Guertin’s untruths were
part of a “scheme,” the indictment here still fails because it
does not plausibly allege that the purpose of Guertin’s scheme
was to deprive the State Department of “money or property,”
as required by section 1343 and Supreme Court case law
construing the statute.
1. Honest Services Fraud
Historically, courts construed the federal fraud statutes to
proscribe “schemes to defraud citizens of their intangible rights
to honest and impartial government.” McNally v. United States,
483 U.S. 350, 355 (1987). If a city official accepted a bribe
from a third party in exchange for awarding that party a city
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contract, this was seen as a breach of honest service. Even if
“the contract terms were the same as any that could have been
negotiated at arm’s length” such that the city “suffer[ed] no
tangible loss,” courts historically reasoned that “actionable
harm lay in the denial of [the city’s] right to the offender's
‘honest services.’” Skilling, 561 U.S. at 400.
However, in McNally, the Supreme Court “stopped the
development of the intangible-rights doctrine in its tracks.” Id.
at 401.
McNally involved a state officer who, in selecting
Kentucky’s insurance agent, arranged to procure a
share of the agent's commissions via kickbacks paid
to companies the official partially controlled. The
prosecutor did not charge that, in the absence of the
alleged scheme, the Commonwealth would have paid
a lower premium or secured better insurance. Instead,
the prosecutor maintained that the kickback scheme
defrauded the citizens and government of Kentucky of
their right to have the Commonwealth's affairs
conducted honestly.
[The Supreme Court] held that the scheme did not
qualify as mail fraud. Rather than construing 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, [the Court] read the statute
as limited in scope to the protection of property rights.
Skilling, 561 U.S. at 401-02 (cleaned up). After McNally,
Congress enacted 18 U.S.C. § 1346 to clarify that the phrase
“scheme or artifice to defraud” includes schemes to deprive
another of “the intangible right of honest services.” However,
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the Court cabined section 1346 to schemes involving bribes or
kickbacks. Id. at 408-09. In other words, with the exception of
schemes involving bribes or kickbacks, McNally and its
progeny reject the use of federal fraud statutes to criminalize
alleged schemes that merely deprive the victim of honesty as
such. “The wire fraud statute thus prohibits only deceptive
schemes to deprive the victim of money or property.” Kelly,
140 S. Ct. at 1571 (cleaned up).
Here, the indictment does not plausibly allege that the
object of Guertin’s scheme was to deprive his employer of
“money or property,” as Kelly requires. The indictment alleges
that Guertin’s deceits aimed to maintain his security clearance.
However, this is not tantamount to a scheme to deprive his
employer of “money or property.” Indeed, the Government has
not contested Guertin’s argument that “a security clearance is
intangible property that does not qualify as ‘money or property’
within the meaning of 18 U.S.C. § 1343.” A. 72; see Cleveland
v. United States, 531 U.S. 12, 18 (2000) (no mail fraud where
object of fraud was to obtain gambling license because license
was not property in hands of the state); United States v.
Borrero, 771 F.3d 973, 976 (7th Cir. 2014) (no mail fraud
where object of fraud was to obtain car titles because car title
was not property in hands of the state). The Government thus
hinges its theory on the allegation that Guertin lied to “enrich
himself by maintaining his State Department employment and
salary.” A. 15. Stripped to its core, the Government’s theory is
that whenever an employee lies about a specific, concrete
condition of employment – here, Guertin’s suitability for
security clearance – the employer is defrauded of “money or
property” by paying the employee’s salary. We reject this
theory.
Lower courts applying the principles of McNally and its
progeny have limited the wire fraud statute “only to those
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schemes in which a defendant lies about the nature of the
bargain itself.” United States v. Takhalov, 827 F.3d 1307, 1314
(11th Cir. 2016); see also United States v. Shellef, 507 F.3d 82,
108 (2d Cir. 2007) (drawing distinction “between schemes that
do no more than cause their victims to enter into transactions
they would otherwise avoid—which do not violate the mail or
wire fraud statutes—and schemes that depend for their
completion on a misrepresentation of an essential element of
the bargain—which do violate the mail and wire fraud
statutes”). This makes sense under McNally, Skilling, and
Kelly. If an employee’s untruths do not deprive the employer
of the benefit of its bargain, the employer is not meaningfully
defrauded of “money or property” when it pays the employee
his or her salary. Rather, when the employer receives the
benefit of its bargain, the employee’s lie merely deprives the
employer of honesty as such, which cannot serve as the
predicate for a wire fraud conviction. See United States v.
Yates, 16 F.4th 256, 267 (9th Cir. 2021) (“Permitting the
government to recharacterize schemes to defraud an employer
of one’s honest services—thereby profiting through the receipt
of salary and bonuses—as schemes to deprive the employer of
a property interest in the employee's continued receipt of a
salary would work an impermissible end-run around” McNally
and its progeny. (cleaned up)).
Adopting the Government’s theory would sweep a large
swath of everyday workplace misconduct within the ambit of
the federal fraud statutes. Consider an accountant who lies
about her personal internet use during work hours, or a
manager who conceals a forbidden relationship with a
subordinate, or a social worker who conceals a DUI record.
Limitations on internet use, prohibitions against managers and
subordinates dating, and clean criminal record requirements are
undoubtedly concrete and specific conditions of employment.
Nevertheless, the employees’ deceits in these scenarios do not
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deprive their employers of “money or property” for purposes
of the federal fraud statutes if there is no showing that an honest
employee would have performed better or that the employer
would have paid less for the dishonest employee’s work. See
McNally, 483 U.S. at 360 (no mail fraud for insurance kickback
scheme because “[i]t was not charged that in the absence of the
alleged scheme the Commonwealth would have paid a lower
premium or secured better insurance”); United States v. Frost,
125 F.3d 346, 361 (6th Cir. 1997) (no mail fraud when
contractor concealed conflict of interest because “[t]here is no
evidence in this case that NASA would have had to pay less
money or would have received more services if Congo had
disclosed his conflict of interest”).
If there is no difference between the honest employee and
dishonest employee in terms of performance or pay – that is, if
the employer receives the benefit of its bargain – criminalizing
the lies of a dishonest employee would create an intangible
right to honest services in just the way McNally renounces. And
because deceits of the sort described above are not uncommon
in workplaces across the country, criminalizing them all would
give federal prosecutors carte blanche to set the standards of
disclosure and honesty in employment. Such an expansive
interpretation of the wire fraud statute finds no support in the
text of the provision or any Supreme Court precedent, and
“would raise serious concerns about whether the offense is
defined with sufficient definiteness that ordinary people can
understand what conduct is prohibited and in a manner that
does not encourage arbitrary and discriminatory enforcement.”
Yates, 16 F.4th at 267-68 (cleaned up).
Here, as in McNally and Frost, the indictment does not
claim that in the absence of Guertin’s deceits, the State
Department would have received better work from or paid a
different salary to an honest employee. See, e.g., Frost, 125
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F.3d at 361 (quoting United States v. Mittelstaedt, 31 F.3d
1208, 1217 (2d Cir. 1994) (“To convict, the government had to
establish that the omission caused . . . actual harm . . . of a
pecuniary nature or that the [victim] could have negotiated a
better deal for itself if it had not been deceived.”)). To the
contrary, the record reveals that Guertin received glowing
performance reviews during his tenure with the State
Department. Supplemental Appendix 257-65.
As explained above, the mere allegation that a high
security clearance was a condition of Guertin’s employment is
insufficient to support the indictment under section 1343.
Employers typically have great discretion in establishing
conditions of employment, as they see fit. However, in light of
the Supreme Court’s pronouncements, it surely cannot be said
that an employee’s breach of any important condition of
employment that is facilitated by wire transmission is
tantamount to a “scheme” to defraud the employer of “money
or property” in violation of section 1343. This is not the law.
That Guertin lied about his suitability for his security clearance
“do[es] no more than cause” the State Department to engage in
“transactions [it] would otherwise avoid[,] which do[es] not
violate the mail or wire fraud statutes.” Shellef, 507 F.3d at 108.
Without some plausible allegation claiming that the State
Department did not receive the benefit of the core employment
bargain, the indictment fails to allege a scheme to deprive the
State Department of “money or property.” Therefore, the
indictment cannot be sustained under 18 U.S.C. § 1343.
2. Salary Maintenance Fraud
The District Court, relying on the Ninth Circuit’s decision
in Yates, reasoned that because the wire fraud statute requires
the object of the scheme be to “obtain[]” money or property, 18
U.S.C. § 1343, the allegation that Guertin lied to “maintain” his
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employment and salary cannot sustain a wire fraud conviction.
See A. 134-36. In Yates, the Ninth Circuit distinguished
between “a scheme whose object is to obtain a new or higher
salary” – which can sustain a federal fraud conviction – and “a
scheme whose object is to deceive an employer while
continuing to draw an existing salary” – which cannot sustain
a federal fraud conviction. 16 F.4th at 266. According to the
Yates court, criminalizing a lie to “maintain” an existing job
and salary, as opposed to a lie to “obtain” a new job and salary,
would “let in through the back door the [honest services] theory
that [the Supreme Court] tossed out the front.” Id. at 267
(internal quotation marks omitted).
We need not adopt the Ninth Circuit’s approach to affirm
the District Court in this case. We also prefer to leave this
matter for another day, because it is not clear that salary
maintenance fraud and honest services fraud are always
coextensive. This distinction is not presented here, so there is
no reason for us to overreach in our holding when this case so
clearly involves a situation of alleged honest services fraud.
Regardless of whether Guertin lied to “obtain” future salary or
“maintain” his existing salary, we affirm the District Court’s
dismissal because the indictment fails to allege that the State
Department was deprived of something more than Guertin’s
honesty.
3. Employers Are Not Without Recourse to
Address Honest Services Fraud
As noted above, the Supreme Court has made it clear that
section 1343 is not intended to criminalize all acts of
dishonesty and other misconduct that are facilitated by wire
transmission. However, the unavailability of criminal
prosecution under the wire fraud statute certainly does not
leave employers without recourse. Employees who engage in
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such misdeeds may still be met with adverse employment
consequences, including termination, and even the possibility
of civil litigation. And, as noted above, 18 U.S.C. § 1346permits the Government to prosecute honest services fraud
when it is part of a scheme involving bribes or kickbacks.
Furthermore, the record in this case indicates that when
Guertin commenced his background investigation, he
completed a Standard Form 86 (“SF-86”) questionnaire. This
is a requirement for any current or prospective Government
employee who is seeking a security clearance. The SF-86
informs the person filling out the form that misrepresentations
may be prosecuted under 18 U.S.C. § 1001, which prohibits
making false statements “in any matter within the jurisdiction
of the executive, legislative, or judicial branch.” Although
Guertin answered “no” to three background questions on his
2016 SF-86 that led to his indictment under section 1343, he
was never charged under section 1001. The Government may
have had good reasons not to pursue a charge against Guertin
under section 1001, and we offer no judgment on this.
However, the Government may not now stretch 18 U.S.C. §
1343 to cover any gap left by its decision not to take action
under 18 U.S.C. § 1001.
The simple point here is that the wire fraud statute, as
interpreted through the lens of Supreme Court precedent, does
not support an indictment on the facts proffered by the
Government in this case.
C. Denial of Motion to Suppress and Franks Hearing
Finally, because we affirm the dismissal of the indictment,
Guertin is the prevailing party in this case. As such, he has no
right to seek review of the District Court’s denial of his motion
to suppress and request for a Franks hearing.
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In rare circumstances, an “appeal may be permitted from
an adverse ruling collateral to the judgment on the merits at the
behest of the party who has prevailed on the merits, so long as
that party retains a stake in the appeal satisfying the
requirements of Art. III.” Deposit Guar. Nat’l Bank v. Roper,
445 U.S. 326, 334 (1980); see also Camreta v. Greene, 563
U.S. 692, 702-03 (2011). In these cases, however, the adverse
collateral ruling affected the prevailing parties’ prospective
conduct, id., whereas a denial of Guertin’s Franks hearing and
motion to suppress does not have any prospective effect on
him. Thus, we adhere to the default rule that “‘[a] party may
not appeal from a judgment or decree in his favor.’” Zukerman
v. USPS, -- F.4th --, 2023 WL 2939950, at *9 (D.C. Cir. 2023)
(quoting Electrical Fittings Corp. v. Thomas & Betts Co., 307
U.S. 241, 242 (1939)).
D. CONCLUSION
For the reasons set forth above, we affirm the District
Court’s dismissal of the indictment. We dismiss Guertin’s
cross-appeal of the District Court’s denial of his motion to
suppress and request for a Franks hearing.
So ordered.