"Whether the U.S. Court of Appeals for the 2nd Circuit’s “right to control” theory of fraud — which treats the deprivation of complete and accurate information bearing on a person’s economic decision as a species of property fraud — states a valid basis for liability under the federal wire fraud statute."

That's the question presented in Ciminelli v. United States, which SCOTUS will hear tomorrow morning. The government's use fraud statutes is out of control; it has criminalized basic breach of contract cases.  As an example, in a recent case in this district, a group of defendants were sentenced to 18 years (!!) under a right to control theory where the alleged fraud was based on a lie on how the defendants would use the product they purchased.  So Ciminelli is a big one, not just for the Second Circuit.

From SCOTUSblog:

This case has similarities with prior corruption disputes selected by the Supreme Court. It involves millions in New York state funds and thus raises federalism concerns: How much flexibility should states have in governance decisions without federal interference? The bidding process may have been unfair to Ciminelli’s competitors, but did the unfairness merit federal intervention? The harm calculation in this case is also unclear: Did Ciminelli intend to cause any loss to Fort Schuyler? There may have been a stronger case that Ciminelli wanted to cause business losses to his competitors by denying them a chance at the Buffalo Billion. Finally, because this is a criminal case, there is the specter of overcriminalization. Was Ciminelli on notice that he was committing a federal crime as opposed to utilizing sharp business practices to edge out competitors?

Deception in the government contracting process is a legitimate threat, and courts face a challenge in determining which forms of deception are serious enough to merit criminal sanctions. Some level of insincerity is expected — when a contractor makes its “best” offer, there is likely some puffery or gamesmanship involved in the negotiations. On the other hand, collusive price-fixing behavior among the contractors bidding for business is both improper and illegal. When are financial penalties sufficient to deter sketchy contractors, and when does federal prison become important in limiting bad behavior?

In Ciminelli’s case, the main wrongdoing appears to be his “sneaking to the front of the line” in the negotiation process. If the Supreme Court continues its trend of narrowing the scope of federal fraud criminalization, it can do so by eliminating the “right to control” theory of fraud. A decision that narrows or nixes that theory could reduce uncertainty among government contractors. Potential contractors would face a reduced risk of prison time when engaging in pre-negotiation talks with government insiders. Less clear is how much such a narrowing decision would benefit Ciminelli. Because the jury instructions and facts give room for having proven tangible economic harm, it is uncertain how much influence the “right to control” language had upon the jury’s decision to convict.

Hope everyone had a great Thanksgiving.