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United States v. Spanier

United States District Court, S.D. California

April 7, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
JEFFREY SPANIER, Defendant.

          ORDER DENYING MOTION FOR NEW TRIAL

          HON. ROGER T. BENITEZ UNITED STATES DISTRICT JUDGE.

         “Half the Truth is often a great Lie.”[1] Defendant was convicted of mail and wire fraud among other things, based not on his complete silence but upon spoken half-truths along with omissions of other facts. These other facts were necessary to make his limited statements not fraudulent.

         Now Defendant moves for a new trial.[2][3] Defendant argues, yet again, “that the government cannot premise fraud liability on alleged omissions unless there was a duty to disclose the information in question.” Def. Mem. In Support (filed 1/5/17) at 1. He argues that United States v. Shields, 844 F.3d 819 (9th Cir. 2106), makes it clear that this Court erred during his trial by omitting a jury instruction on the point. He argues, “Shields squarely held that ‘it was error to not instruct the jury that it must find a relationship creating a duty to disclose before it could conclude that a material non-disclosure supports a wire fraud charge.'” The Government disagrees.

         Shields, 844 F.3d at 823 (citation omitted).

         The first reason is the fact that the Ninth Circuit Court of Appeals has already approved of this Court's use of the model jury instructions for Spanier's trial. See United States v. Spanier, 637 Fed. App'x. 998, 1000-01 (9th Cir. Jan. 21, 2016) (“[W]e reject his challenge to the district court's jury instructions. The district court acted well within its discretion in using the model jury instructions, and Spanier has cited no persuasive authority holding otherwise.”) (citation omitted). Due to the “law of the case” doctrine, “a court is ordinarily precluded from reexamining an issue previously decided by the same court, or a higher court, in the same case.” Richardson v. United States, 841 F.2d 993, 996 (9th Cir. 1988) (citations omitted). There is an exception which allows reexamination. Reexamination is permitted if “controlling authority has made a contrary decision of law applicable to such issues.” Id. at 996 (citation omitted). The law of the case controls here because Shields is not a contrary decision, as discussed next.

         The second reason no new trial is warranted is that Shields is an omissions case while Defendant's is a half-truths case. An omissions case is where the defendant does not speak about the fraud at all (he omits everything). In an omissions case a defendant may commit fraud by mere silence, but only if an independent duty to speak exists. An independent duty can arise from a special relationship. The special relationship may be formal or informal. “[T]he relationship creating a duty to disclose may be a formal fiduciary relationship, or an ‘informal, ' ‘trusting relationship in which one party acts for the benefit of another and induces the trusting party to relax the care and vigilance which it would ordinarily exercise.'” Shields, 844 F.3d at 823 (citation omitted).

         In contrast to an omissions case, in a half-truths case the duty to disclose arises from the truth already half-spoken. As the U.S. Supreme Court points out, “common law fraud has long encompassed certain misrepresentations by omission.” Universal Health Services, Inc. v. United States, 136 S.Ct. 1989, 1999 (2016) (deciding that the federal False Claims Act incorporates the well-settled meaning of the common law understanding of fraud). It can also include half-truths. Claims submitted to the government for payment that are based on half-truths are included within the common law understanding of fraud - without the requirement of a special relationship. “They fall squarely within the rule that half-truths - representations that state the truth only so far as it goes, while omitting critical qualifying information - can be actionable misrepresentations.” Id. at 2000 & n.3 (noting that the rule that half-truths can be fraudulent recurs throughout the common law).

         Consequently, Defendant is incorrect in arguing that Shields applies to his case. And he is incorrect in arguing that it is plain error to have not instructed Defendant's jury that it had to find a special relationship. Shields applies in an omissions case. Defendant was convicted of telling fraudulent half-truths.

         Of course, even in the absence of a special relationship or a special duty to disclose, a half-truth may be fraudulent. For example, the Ninth Circuit has also observed, “‘[a] broker cannot affirmatively tell a misleading half-truth about a material fact to a potential investor because the duty to disclose in these circumstances arises from the telling of a half-truth, independent of any responsibilities arising from a truth relationship.'” United States v. Lloyd, 807 F.3d 1128, 1153 (9th Cir. 2015) (quoting United States v. Laurienti, 611 F.3d 530, 541 (9th Cir. 2010)) (emphasis added); see also United States v. Harder, 116 F.Supp.3d 1197, 1206 (D. Ore. 2015) (“Omissions of material fact and half-truths may be used to establish a scheme to defraud. Moreover, deceitful statements of half-truths or the concealment of material facts is actual fraud violative of the mail fraud statute. The deception need not be premised upon verbalized words alone. The arrangement of the words, or the circumstances in which they are used may convey the false and deceptive appearance.”) (citations and internal quotations omitted).

         Shields is an omissions case, not a half-truths case, as is evident from the cases it relies on. Chief among these is Chiarella v. United States, 445 U.S. 222 (1980). Chiarella is an omissions case. The Court explained, “[t]his case concerns the legal effect of the petitioner's silence.” Id. at 226. Chiarella was a financial printer by trade. In the course of his work he came upon information from which he could deduce the names of companies that would be takeover targets. He then bought and sold shares without disclosing that he was acting on insider information. In this context where Chiarella said nothing, the Court held that there can be no fraud absent a duty to speak. Id. at 235. Chiarella had not told a half-truth; he had said nothing at all.

         Deceitful half-truths, on the other hand, have been around since the time of Benjamin Franklin and since at least 1967 have been found by the Ninth Circuit to violate the mail fraud statute. See Lustiger v. United States, 386 F.2d 132, 138 (9th Cir. 1967), cert. denied, 88 S.Ct. 1042 (1968) (“Moreover, deceitful statements of half truths or the concealment of material facts is actual fraud violative of the mail fraud statute.”); see also Coplin v. United States, 88 F.2d 652, 672 (9th Cir. 1937) (finding half-truth amounted to criminal securities fraud where defendants solicited victim to purchase stock by calling attention to its rising price without advising victim of the fact that the defendants themselves were causing the price to rise). In Lustiger the defendant mailed letters and brochures to prospective buyers of undeveloped land in Arizona. Lustiger, 386 F.2d at 135. He called it Lake Mead City. In the effort to sell, Lustiger made many half-truths about the prospective lots for sale. For example, his advertising materials had photographs of Lake Mead and other smaller lakes and ponds, a “favorite swimming hole, ” and announced “Plenty of Water.” Id. at 136. While it was literally true that Lake Mead was only five miles from the boundary, Lustiger did not say that by road it was between 15 and 40 miles from his Lake Mead City lots. Id. He did not say that the swimming hole was a dirt stock water tank with two feet of mud on the bottom. Id. at 136-37. And he did not say that the only source of water for lot purchasers was a well 28 miles distant from some of the lots. Id. at 137. In another example, the sales brochure said half-truthfully that all Lake Mead City lots are within the franchised area of Citizen's Utilities Company. It left out, however, that then-existing electric and telephone lines were between 21 miles and 38 miles away. Id.

         Based on these and other half-truths, the Ninth Circuit affirmed Lustiger's convictions for mail fraud. Id. (“The evidence is overwhelming that Lustiger's advertising materials were in some respects false and, apart from falsity, were, when considered as a whole, fraudulently deceptive and misleading, exhibiting an intent and purpose to defraud.”). There was no need for a jury to find the existence of a formal or informal special relationship giving rise to a duty to speak the whole truth.

         Lustiger's vitality was recognized more recently in United States v. Wood, 335 F.3d 993 (9th Cir. 2003). Wood reiterated that in Lustiger, “[w]e explained that ‘deceitful statements of half truths or the concealment of material facts is actual fraud violative of the mail fraud statute.'” Id. at 998. Universal Health Services found the False Claims Act incorporates the common law understanding of fraud and its concept of fraudulent half-truths. Universal Health Services, 136 S.Ct. at 1999. Likewise, Wood found that the mail and wire fraud statutes incorporate the common law understanding of fraud and fraudulent half-truths and that Lustiger comports with that understanding. Wood, 335 F.3d at 999 (“Additionally, Lustiger comports with the common-law meaning of fraud, which was to be incorporated into the mail and wire fraud statutes as much as possible.”).

         The point is that the jury instructions given in Defendant's trial were correct. Instructions 15, 16, and 18 are based on the model jury instructions previously approved for this case by the Ninth Circuit. They correctly state the law for a half-truths case. Different instructions describing the law for an omissions case were given in the first trial but were not necessary and would have unnecessarily ...


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