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SCOTUS: Federal bank fraud statute doesn’t require proof of intent to defraud a bank

Kevin Loughrin v. United States, USSC No. 13-316, 2014 WL 2807180 (June 23, 2014), affirming United States v. Loughrin, 710 F.3d 1111 (10th Cir. 2013); Scotusblog page (includes links to briefs and commentary)

Resolving an issue that split the federal circuit courts, the Supreme Court holds that the section of the federal bank fraud statute that prohibits “knowingly execut[ing] a scheme … to obtain” property owned by, or under the custody of, a bank “by means of false or fraudulent pretenses,” 18 U.S.C. § 1344(2), requires only that the defendant intend to obtain bank property and that this end is accomplished “by means of” a false statement. Nothing in the statute requires proof of intent to defraud or deceive a bank.

Loughrin was charged under § 1344(2) based on a scheme in which he stole checks, forged the account holder’s signature, and used them at Target to buy merchandise, some of which he’d then return for cash. (Slip op. at 1-2). He asked the jury be instructed that they had to find he intended to defraud a financial institution, a request the trial court denied. (Slip op. at 2-3). Relying on the text of § 1344, the Court rejects Loughrin’s argument that he was entitled to that instruction.

Because § 1344(1) explicitly requires intent to defraud a bank, Congress must have meant something different when it created § 1344(2). Loughrin’s interpretation “would make § 1344‘s second clause a mere subset of its first: If, that is, § 1344(2) implicitly required intent to defraud a bank, it would apply only to conduct already falling within § 1344(1).” This “runs afoul of the ‘cardinal principle’ of interpretation that courts ‘must give effect, if possible, to every clause and word of a statute.'” (Slip op. at 5-6 (quoted source omitted)).

The Court dismisses Loughrin’s contention that without an element of intent to defraud a bank§ 1344(2) will apply to every minor fraud in which the victim happens to pay by check, thereby unduly expanding the reach of federal criminal law into an area traditionally left to the states. This argument ignores a significant textual limit on § 1344(2)‘s reach: The criminal must acquire (or attempt to acquire) the bank property “by means of” the misrepresentation. (Slip op. at 11). That language limits § 1344(2)‘s application to cases where the misrepresentation has some real connection to a federally insured bank, and thus to the federal interest necessary for grounding federal criminal jurisdiction.

What does that “by means of” language cover? The Court gives the following guidance:

Section 1344(2)’s “by means of language” is satisfied when, as here, the defendant’s false statement is the mechanism naturally inducing a bank (or custodian of bank property) to part with money in its control. That occurs, most clearly, when a defendant makes a misrepresentation to the bank itself—say, when he attempts to cash, at the teller’s window, a forged or altered check. In that event, the defendant seeks to obtain bank property by means of presenting the forgery directly to a bank employee. But no less is the counterfeit check the “means” of obtaining bank funds when a defendant like Loughrin offers it as payment to a third party like Target. After all, a merchant accepts a check only to pass it along to a bank for payment; and upon receipt from the merchant, that check triggers the disbursement of bank funds just as if presented by the fraudster himself. So in either case, the forged or altered check—i.e., the false statement—serves in the ordinary course as the means (or to use other words, the mechanism or instrumentality) of obtaining bank property. (Slip op. at 12 (footnote omitted)).

This distinguishes cases covered by § 1344(2) from mine-run frauds where the deception is not passed on to the bank. (Slip op. at 11-13). In those situations, even if the bank honors a legitimate check written by the victim to the fraudster in the course of the fraud, the bank’s involvement is “wholly fortuitous—a function of the victim’s paying the fraudster by (valid) check rather than cash.” (Slip op. at 13).

Justices Scalia and Thomas concur, saying they believe the Court should leave for another day any discussion of the limitations of the statute’s “by means of” requirement. (Concur. at 4). Justice Alito also concurs, writing separately to criticize the majority for suggesting (in dicta) that the statute requires a mens rea of purpose, and not simply knowledge.

As our post on the cert grant noted, the Seventh Circuit had adopted the approach now rejected by the Court—that “[a]n essential element of bank fraud is ‘intent to deceive a bank in order to obtain from it money or other property,’” Bressner v. Ambroziak, 379 F.3d 478, 482 (2004) (quoted source omitted). While the Court clearly rejects that line of analysis, its discussion of the “by means of” requirement in the majority and concurring opinions mean the precise limits of that requirement are going to be subject to further development.

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