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False Claims Act Statistics, News & Analysis

Escobar: It’s Material to Criminal Lawyers, Too

What does the civil False Claims Act offer to criminal defense practitioners -- turns out, quite a bit, as recent FCA cases have had the potential to reshape the criminal law. Escobar is a case-in-point given that the "new" materiality standard provides ammunition to criminal defendants. Today we discuss two such cases, both related to 18 U.S.C. § 1343 (Wire Fraud).

Raza

In United States v. Raza (“Raza”), defendant loan officers were convicted of wire fraud for preparing and submitting applications to their employer company, SunTrust, that contained false representations about the income and assets of borrowers. The appellants’ brief argued that the district court had used an incorrect materiality instruction, namely that a statement would be considered material if it was capable of influencing a reasonable person, instead of the defendants’ proposed instruction that a statement was material if it was capable of influencing the specific decision-maker to which the statement had been directed. Brief for Defendants-Appellants at *11, *20, Raza, Nos. 16-4247 (L), 16-4259, 16-4261, 16-4264 (4th Cir. June 22, 2016).

In arguing that the district court erred in using the government’s proposed instruction, appellants’ brief relied heavily on Escobar, using the decision’s language to stress one of the brief’s central arguments: that the correct standard to be used is materiality to the actual decision-maker to whom the statements were made, not materiality to a "generic" reasonable person. In its response brief, the government argued that the Supreme Court has recognized that there is “more than one correct definition of materiality” and pointed to prior Fourth Circuit case law endorsing the reasonable person phrasing in the materiality context. Brief for Appellee at *17, Raza, No. 16-4247 (L), (4th Cir. June 22, 2016). The government's argument appears to concede that Escobar has changed the materiality landscape but is trying to limit its application in the criminal law. The appellants have fought back in their reply brief, reinforcing their prior argument that materiality to a reasonable person is irrelevant under Escobar and further arguing that Escobar holds that an entity’s practice of ignoring requirements weighs against a finding of materiality. Reply Brief for Defendants-Appellants at *10- *11, *13- *14, Raza, Nos. 16-4247 (L), 16-4259, 16-4261, 16-4264 (4th Cir. Aug. 29, 2016).

Ding

In another recent case, a defendant has filed a supplemental memorandum of law post-Escobar in support of his previously denied motion for judgment of acquittal. In United States v. Ding (“Ding”), defendants were convicted of five counts of wire fraud based on allegations that the defendants had set up a shell company used to fraudulently obtain research grants. Defendants were acquitted of five counts of wire fraud based on invoices pre-dating the procurement of the research grant. Because the jury had acquitted on five counts based on the same alleged “scheme” as the remaining counts on which they convicted, the defendants argued that the fraudulent scheme itself could not have been the basis for the convictions – meaning the basis must instead have been materiality under Escobar. And because NASA received the value of what was represented on the invoices, the defendant argued that any statements on the invoice were not material to payment. See Supplemental Motion & Memorandum of Law in Support of Motion for Judgment of Acquittal, Ding, No. 15-00035, 2016 WL 3913587 (E.D. Pa. July 12, 2016). The government, in response, has argued that Escobar “does not change anything about proving materiality in a wire fraud case.” See Government’s Response to Defendant Ding’s Supplemental Rule 29 Motion, Ding, No. 15-00035, at *14 (E.D. Pa. July 27, 2016).

These are briefs, not judicial decisions, and it is yet to be seen whether courts will embrace the Escobar standard in criminal cases. But there is strong potential that FCA law will continue to impact criminal cases, as evidenced by the fact that, over the course of this past year, the National Association of Criminal Defense Lawyers (“NACDL”) filed an amicus brief in not only Escobar, but also in another FCA case that is set for oral argument before the Supreme Court next term – State Farm v. Rigsby. Although the Court has declined to hear argument on the collective knowledge issue in Rigsby that was the subject of NACDL’s brief, we predict that the defense bar’s interest in the FCA is likely to continue. Stay tuned for an update as to how these cases are decided.

 



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Authors

Craig D. Margolis

Craig D. Margolis Partner

Kathleen C. Cooperstein

Kathleen C. Cooperstein Associate

Christina J. Ferma

Christina Ferma Associate