Case Name:Shaw v. United States [2017, Supreme]

Court:

Case #:

1. The FACTS of the case: What happened? Who was involved? What were the legal issues?

2. The HOLDING of the court: What was the decision of the court?

3. The REASONING of the court: Why did the court reach its decision?

4. Other (optional): What other significant elements should be included in the summary? Dissent?

Shaw v. United States 137 S. Ct. 462 (2016)

Lawrence Shaw obtained the identifying numbers of a Bank of America account belonging to a bank customer, Stanley Hsu. Shaw used those numbers, as well as other related information, to transfer funds from Hsu's account to other accounts at different financial institutions. Shaw then obtained, from those other accounts, the funds he had transferred from Hsu's Bank of America account.

A federal statute makes it a crime "knowingly [to] execut[e] a scheme . . . to defraud a financial institution." 18 U.S.C. 1344(1). A federally insured bank such as Bank of America would be an example of a financial institution contemplated by this statute. A federal district court convicted Shaw of violating 18 U.S.C. 1344(1). The U.S. Court of Appeals for the Ninth Circuit affirmed his conviction. In his petition for certiorari, Shaw argued that the words "scheme . . . to defraud a financial institution" require the government to prove that the defendant had "a specific intent not only to deceive, but also to cheat, a bank," rather than "a non-bank third party." The U.S. Supreme Court granted review.

Breyer, Justice

Shaw argues that 1344 does not apply to him because he intended to cheat only a bank depositor, not a bank. We do not accept his arguments.

Section 1344 makes it a crime:

knowingly [to] execut[e] a scheme . . .

to defraud a financial institution; or

to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.

Shaw makes several related arguments in favor of his basic claim, namely, that the statute does not cover schemes to deprive a bank of customer deposits.

First, he [argues in his brief] that subsection (1) requires "an intent to wrong a victim bank [a 'financial institution'] in its property rights." He adds that the property he took, money in Hsu's bank account, belonged to Hsu, the bank's customer, and that Hsu is not a "financial institution." Hence, [according to this argument,] Shaw's scheme was one "designed" to obtain only "a bank customer's property," not "a bank's own property."

The basic flaw in this argument lies in the fact that the bank, too, had property rights in Hsu's bank account. When a customer deposits funds, the bank ordinarily becomes the owner of the funds and consequently has the right to use the funds as a source of loans that help the bank earn profits (though the customer retains the right to withdraw funds). Sometimes, the contract between the customer and the bank provides that the customer retains ownership of the funds and the bank merely assumes possession. But even then the bank is entitled to possess the deposited funds against all the world [except for the customer with which the bank contracted]. This right, too, is a property right.

Thus, Shaw's scheme to cheat Hsu was also a scheme to deprive the bank of certain bank property rights. Hence, for purposes of the bank fraud statute, a scheme fraudulently to obtain funds from a bank depositor's account normally is also a scheme fraudulently to obtain property from a "financial institution," at least where, as here, the defendant knew that the bank held the deposits, the funds obtained came from the deposit account, and the defendant misled the bank in order to obtain those funds.

Second, Shaw says he did not intend to cause the bank financial harm. Indeed, the parties appear to agree that, due to standard banking practices in place at the time of the fraud, no bank involved in the scheme ultimately suffered any monetary loss. But the statute, while insisting upon "a scheme to defraud," demands neither a showing of ultimate financial loss nor a showing of intent to cause financial loss. Many years ago Judge Learned Hand pointed out that "[a] man is nonetheless cheated out of his property, when he is induced to part with it by fraud," even if "he gets a quid pro quo of equal value." United States v. Rowe, 56 F.2d 747, 749 (2d Cir. 1932). That is because "[i]t may be impossible to measure his loss by the gross scales available to a court, but he has suffered a wrong; he has lost," for example, "his chance to bargain with the facts before him." Id. See O. Holmes, The Common Law 132 (1881) ("[A] man is liable to an action for deceit if he makes a false representation to another, knowing it to be false, but intending that the other should believe and act upon it"); Neder v. United States, 527 U.S. 1 (1999) (bank fraud statute's definition of fraud reflects the common law).

It is consequently not surprising that, when interpreting the analogous mail fraud statute, we have held it "sufficient" that the victim (here, the bank) be "deprived of its right" to use the property, even if it ultimately did not suffer unreimbursed loss. [Citation omitted.] Lower courts have explained that where cash is taken from a bank "but the bank [is] fully insured[,] [t]he theft [is] complete when the cash [i]s taken; the fact that the bank ha[s] a contract with an insurance company enabling it to shift the loss to that company [is] immaterial." [Citation omitted.] We have found no case from this Court interpreting the bank fraud statute as requiring that the victim bank ultimately suffer financial harm, or that the defendant intend that the victim bank suffer such harm.

Third, Shaw appears to argue that, whatever the true state of property law, he did not know that the bank had a property interest in Hsu's account; hence he could not have intended to cheat the bank of its property. Shaw did know, however, that the bank possessed Hsu's account. He did make false statements to the bank. He did correctly believe that those false statements would lead the bank to release from that account funds that ultimately and wrongfully ended up in Shaw's pocket. And the bank did in fact possess a property interest in the account. These facts are sufficient to show that Shaw knew he was entering into a scheme to defraud the bank even if he was not aware of the niceties of bank-related property law. To require more, i.e., to require actual knowledge of those bank-related property-law niceties, would free (or convict) equally culpable defendants depending upon their property-law expertisean arbitrary result.

We have found no case from this Court requiring legal knowledge of the kind Shaw suggests he lacked. But we have found cases in roughly similar fraud-related contexts where this Court has asked only whether the targeted property was in fact property in the hands of the victim, not whether the defendant knew that the law would characterize the items at issue as "property." See Pasquantino v. United States, 544 U.S. 544 (2005) (Canada's right to uncollected excise taxes on imported liquor counted as "property" for purposes of the wire fraud statute); Carpenter v. United States, 484 U.S. 19 (1987) (a newspaper's interest in the confidentiality of the contents and timing of a news column counted as property for the purposes of the mail and wire fraud statutes). We conclude that the legal ignorance that Shaw claims here is no defense to criminal prosecution for bank fraud.

Fourth, Shaw argues that the bank fraud statute requires the Government to prove more than his simple knowledge that he would likely harm the bank's property interest; in his view, the government must prove that such was his purpose. Shaw adds that his purpose was to take money from Hsu; taking property from the bank was not his purpose.

But the statute itself makes criminal the "knowin[g] execut[ion of] a scheme . . . to defraud." To hold that something other than knowledge is required would assume that Congress intended to distinguish, with respect to states of mind, between (1) the fraudulent scheme, and (2) its fraudulent elements. Why would Congress wish to do so? Shaw refers us to a number of cases involving fraud against the government and points to language in those cases suggesting that the relevant statutes required that the defendant's purpose be to harm the statutorily protected target and not a third party. [However,] crimes of fraud targeting the government [fall within] an area of the law with its own special rules and protections. We have found no relevant authority in the area of mail fraud, wire fraud, financial fraud, or the like supporting Shaw's view.

[Fifth], Shaw asks us to apply the rule of lenity. We have said that the rule applies if "at the end of the process of construing what Congress has expressed," there is "a grievous ambiguity or uncertainty in the statute." [Citations omitted.] The statute is clear enough that we need not rely on the rule of lenity. As we have said, a deposit account at a bank counts as bank property for purposes of subsection (1). The defendant, in circumstances such as those present here, need not know that the deposit account is, as a legal matter, characterized as bank property. Moreover, in those circumstances, the government need not prove that the defendant intended that the bank ultimately suffer monetary loss. Finally, the statute as applied here requires a state of mind equivalent to knowledge, not the purpose.

Judgment of the ninth circuit vacated; case remanded for further proceedings.