Arguments before the full 11th U.S. Circuit Court of Appeals on Tuesday spanned more than a century as judges and lawyers discussed a 1872 fraud law and those pesky e-mails offering millions to the recipients who respond with their bank account numbers.
The case before a rare en banc court was not about putative Nigerian princes but recognized investment products called viaticals, in which a terminally ill patient sells the proceeds from his life insurance policy to an investor essentially betting the patient will die quickly.
The case could land before the U.S. Supreme Court, said Philadelphia-area appellate lawyer Peter Goldberger, who argued the case for the defendants. The issue already has divided federal appeals courts, and the Department of Justice signaled the case's importance by sending its top criminal appeals lawyer from Washington to argue before the 11th Circuit.
At issue in the case is whether a prosecutor seeking to convict under the federal mail fraud statute has to prove that the fraudulent scheme would deceive a reasonably cautious person.
According to the opinion of the original three-judge 11th Circuit panel, defendants David W. Svete and Ron Girardot incorporated multiple entities for the purpose of finding investors for viaticals.
At a 2005 jury trial in Pensacola, Fla., according to the opinion, federal prosecutors put on evidence that the defendants had misrepresented to investors the risks of the investments and the life expectancies of the patients, known as viators.
The defendants say in briefs that the contracts signed by all investors fully and accurately disclosed the terms and risks of investment. They say that many of the investors dealt with independent agents not employed by the viatical company Svete formed in 1997 and that most of these investors never met with or spoke to Svete.
The jury convicted Svete and Girardot on fraud and conspiracy charges. Northern District of Florida Judge M. Casey Rodgers sentenced Svete to more than 16 years in prison and gave Girardot just over a 5-year term. Both men also were ordered to pay more than $100 million in restitution, and Svete was ordered to pay a $21 million forfeiture.
Last March, a three-judge panel consisting of 11th Circuit Judge Joel F. Dubina, Senior Judge Phyllis A. Kravitch and U.S. District Judge L. Scott Coogler of the Northern District of Alabama reversed the mail fraud convictions.
The panel said it overturned the convictions because the trial court judge, when instructing jurors, should have gone beyond the 11th Circuit pattern jury instructions. Those instructions do not include in their definition of "scheme to defraud" a requirement that the scheme be "reasonably calculated to deceive persons of ordinary prudence and comprehension."
That requirement was set forth in a 1996 criminal fraud decision by the 11th Circuit, United States v. Brown, 79 F.3d 1550, written by now-Chief Judge J.L. Edmondson and joined by Kravitch and a visiting district court judge.
Prosecutors say the full court should overrule the 1996 panel decision.
On Tuesday, Kravitch did not speak up during the arguments, but Edmondson was an active master of ceremonies.
The chief judge began by noting the courtroom has a new, more sensitive sound system, directing counsel to disregard any "whispers you're not supposed to hear."
Judge R. Lanier Anderson complained that defense attorney Goldberger was mumbling or speaking too quickly, and at one point Judge Stanley Marcus raised his hand so Goldberger would know he was the judge asking a question; but if anything the change appeared to be an improvement from the standpoint of those in the galley.
The defendants argue that the mail fraud statute must be interpreted with the understanding that when Congress enacted the statute in 1872 and amended it in 1909, common law fraud was understood to cover only schemes designed to cheat a person of reasonable prudence.
Several judges suggested to Goldberger, who is Svete's lawyer but spoke for both defendants, that recent U.S. Supreme Court decisions had provided additional direction on the subject. Marcus asked how the mail fraud statute's reference to "any" scheme to defraud could comport with Goldberger's argument.
"It's hard to imagine a more broadly written or unlimited kind of statute than that," said Marcus.
Once a set of facts fits the definition of scheme or artifice to defraud, replied Goldberger, the statute is broad.
But, asked Judge William H. Pryor Jr., "how are the careless and the naïve and the gullible protected by your argument?"
If a change in the law is needed to give more protection to victims, replied Goldberger, the answer is "legislative reform."
The problem with the defendants' argument, replied Deputy Solicitor General Michael R. Dreeben, is that "frauds work best when they are targeted at people who are not prudent."
But Judge Rosemary Barkett wondered what test the government would employ to exclude "puffing" from the definition of fraud.
Puffing is different, replied Dreeben, encompassing "generalized opinions" such as a manufacturer's claim that its soap will get people the cleanest. Dreeben suggested there may have been some puffing at play in the facts underlying the 1996 Brown decision, which reversed the fraud convictions of former executives for a real estate development company that marketed Florida homes at inflated prices as "safe investments."
As he is wont to do, the author of that opinion telegraphed his view of Tuesday's case. "I think this is a harmless error case," Edmondson told Dreeben, "and I think the government should argue it that way."
Dreeben explained that to say that it's harmless error -- meaning the defendants would have been convicted even if their requested instruction had been given to the jury -- "is to say that it's error." But he seized the opportunity say that the government wanted an affirmance of the convictions -- even if harmless error is the rationale.
"That's a new position, isn't it?" Pryor needled the government's lawyer.
On rebuttal, Goldberger said the government had forfeited a harmless error argument -- and prudently so. "The evidence was not overwhelming," Goldberger maintained. "We have a written contracts case. ... This is not a suit where anyone was told 'don't read the contract.'"
Judge Edward E. Carnes asked Goldberger about those mass e-mail solicitations: Does the federal mail fraud statute prohibit the sorts of schemes where the schemers know that only imprudent people will bite?
Goldberger suggested that it does not, saying "the 19th Century statute" doesn't cover all contemporary problems.
But those e-mails that begin, "somebody died in my country," Barkett continued -- "Is that a crime?"
That's a question for a jury, Goldberger replied.
The case argued Tuesday is United States v. Svete, No. 05-13809.
Also set to be considered by the en banc court this week -- without the benefit of oral argument -- was a bankruptcy case out of Atlanta. At issue is whether certain statutory requirements for filing an involuntary bankruptcy petition must be met for a bankruptcy court to have subject matter jurisdiction, meaning arguments that the requirements have not been met cannot be waived but instead can be brought up late in the litigation. That's a question that has divided federal courts of appeals.
That case is Trusted Net Media Holdings v. The Morrison Agency, No. 07-13429.
