United States District Court, S.D. California
ORDER DENYING MOTION FOR NEW TRIAL
ROGER T. BENITEZ UNITED STATES DISTRICT JUDGE.
the Truth is often a great Lie.” 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.
Defendant moves for a new trial. 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
844 F.3d at 823 (citation omitted).
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.
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
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).
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.
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
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.
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.
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.
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.”).
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 ...