WASHINGTON– Supreme Court justices appeared split over whether to uphold a federal mail and wire fraud conviction Monday, questioning a Pennsylvania-based construction business’ misrepresentations in using federal funding.
Stamatios “Tom” Kousisis and his company Alpha Painting & Construction Company, Inc. were awarded state money to work on Philadelphia-area projects in 2009, with the understanding he would utilize contributions from disadvantaged business enterprises (DBE’s), as part of a federal program meant to advance diversity.
Kousisis had agreed to buy paint supplies from Markias, Inc., a registered DBE. However, he instead chose to use Markias as a checkpoint, buying the supplies from another, non-DBE company. Kousisis completed the projects, but broke the DBE regulatory requirements, submitting false documentation to make it appear that he was complying with them.
Kousisis and his company were convicted in a district court for charges of wire fraud and conspiracy to commit wire fraud in 2018, which the defendant then appealed. His convictions were upheld in 2023, prompting the defendant to appeal to the high court.
Jeffrey Fisher, on behalf of the petitioner, presented a three-fold argument against the charges, most notably arguing the government’s application of the fraud statutes is too far-reaching.
Fisher asserted that because the government’s argument is about a breach of the Pennsylvania Department of Transportation’s interests and not about money, then it does not satisfy common law requirements for fraud– which holds that a scheme to harm a traditional property interest is proof.
The court’s conservative wing appeared skeptical of applying the fraud statutes more widely, with several of them discussing the implications of upholding the conviction.
“The tricky part for the government is, if there is no injury requirement, then every material misrepresentation that results in no injury to anyone becomes a federal crime,” Justice Neil Gorsuch said.
Many discussions also revolved around the nature of the exchange in the case, and whether Kousisis had provided a service of lesser value than the money he received through his actions.
However, Gorsuch challenged the notion, and the U.S.’ application of “materiality” in the case– a concept which Miriam Baer, Vice Dean and Centennial Professor of Law at Brooklyn Law School, says comes up often. Baer says materiality reflects on whether a misrepresentation “undermines the purpose of the deal.”
Feigin contended that the DBE agreement was essential to the agreement between Pennsylvania’s DOT and Kousisis’s company, something he called the “essence of the bargain” and that materiality should be the grounds for confirming the conviction.
But, Gorsuch said the concept’s application “has never been that high of a bar.”
“You seem to be try to make it a little higher here by really importing, the benefit-of-the-bargain idea with respect to individual items that can sometimes give rise to injury even when you’re given a thing of equal value,” Gorsuch said to deputy solicitor general Eric Feigin, who represented the U.S.
Justice Brett Kavanaugh seemed to push back on another part of the government’s argument– that overturning the conviction would be “highly destabilizing.” When Feigin said he could not provide a specific number of cases of a similar nature prosecuted, Kavanaugh questioned how he could assert an overturned conviction would cause destabilization.
Chief Justice John Roberts and Justice Samuel Alito also sought a response from Feigin on the idea of over-federalization of fraud cases– that many of them should just be decided in lower courts.
“A lot of these things could be dealt with under state law, and you don’t have to federalize every jot and title in a large contract,” Roberts said. “We’ve expressed in many precedents that the federalization of something as simple as nuances of contract law, it’s a very serious matter.”
Justices from the court’s liberal wing, on the other hand, seemed to take special interest in the nuances of misrepresentation in the case, particularly as a tactic Kousisis employed to obtain the contracts.
“You have these folks, your clients, understanding the materiality of this so much so that they concoct a scheme whereby they misrepresent the extent to which they really are relying on such DBE subcontractors,” Justice Ketanji Brown Jackson said to Fisher. “I don’t understand why, given our just classic understanding of fraud being deceit with the object of obtaining money or property, why this doesn’t count.”
However, Fisher held steadfast to his argument on the necessity of monetary or property harm in his responses. He also argued that getting money through misrepresentation does not qualify as fraud based upon previous decisions by federal courts in Arkansas and Kansas.
“There can be extravagant lies and — and whopping tales that are told,” Fisher said to Justice Clarence Thomas. “it can be tempting to want to punish that person, but unless there’s harm to the property interest involved, there’s no case”
Legal experts say a look at the court’s recent history might signal how they’ll rule.
“You start to see the Supreme Court and some other lower courts start to say this statute is too broad, and it’s providing too much discretion to federal prosecutors,” says Miriam Baer, Vice Dean and Centennial Professor of Law at Brooklyn Law School. “It’s kind of criminalizing everything that relates to deception, and not everything that’s deceptive should be falling under the mail and wire fraud statute.
The narrowing of how property and fraud are defined was taking shape in older judgments, such as with Cleveland v. United States (2000), where the court, then only having one current Supreme Court justice in Clarence Thomas, said that state and municipal licenses do not count as property.
Another case of interest is Ciminelli v. United States (2023) according to Todd Haugh, Associate Professor of Business Law and Ethics at Indiana University. In that case, the government decided whether the “right-to-control” theory, which the U.S. government is employing in their argument in Kousisis, is viable grounds for federal fraud charges.
Haugh says the theory as applied means, “because of how [someone] defrauded me, or the fraudulent statements that they made, they have made it so I can’t do the business that I want,” In Ciminelli, the high court ruled against the government by unanimous decision.
Alito seemed to express reservations along the same line.
He said that looking at recent rulings, you’d find “the Court really doesn’t like the federalization of white-collar prosecutions and wants that to be done in state court and is really hostile to this whole enterprise.”
The court will hand down their decision next summer.
