What do a horse named Charlie, a painting of Grover Cleveland, $1 million worth of coal, and hiring a babysitter have in common? All were the subject of hypothetical scenarios raised during the December 9, 2024, oral argument in Kousisis v. United States. The question before the Court is whether conspiring to commit wire fraud, a violation of 18 U.S.C. § 1343, requires proof of harm to a property interest in the form of financial loss.

The U.S. Department of Transportation gives money to state agencies for transportation projects, requiring those states to set participation goals for disadvantaged business enterprises (DBEs). The Pennsylvania Department of Transportation (PDOT) awarded Petitioners two DBE-inclusive contracts for Philadelphia-area construction projects. Both contracts were conditioned on subcontracting specified percentages to businesses certified as “socially and economically disadvantaged.” Petitioners represented that a DBE would supply the paint for both contracts, which is what their billing indicated. In reality, the DBE was a pass-through for a non-DBE company for which the DBE charged a 2.25 percent markup.

The federal government charged Petitioners with conspiracy to commit wire fraud, wire fraud, and causing a false statement to a federal agency based on their misrepresentations to PDOT regarding the use of the DBE. A jury convicted Petitioners on all counts except two wire fraud counts, and the Third Circuit affirmed. While the Third Circuit acknowledged that the wire fraud statute extends only to property rights, it rejected Petitioners’ theory that the government was not deprived of property because Petitioners fully performed the contracts.

Petitioners maintained that the text of the wire fraud statute requires proof of a scheme to harm a property interest that the government’s fraudulent inducement theory cannot satisfy. The government’s position was that requiring proof of loss to establish wire fraud was anti-textual, would bar the government from prosecuting classic fraud, and, in any event, was established here by the DBE’s 2.25 percent markup.

Most of the questioning at oral argument involved hypotheticals to test the limits of each side’s proposed rule. Both sides seemed to agree there was harm where buyers contracted for a unique good, like “a horse named Charlie” or a “painting of [their] grandfather,” but received a different horse or a painting of Grover Cleveland, even if the replacement was of equal value.

Justice Kagan suggested that buyers would be similarly harmed if they contracted to buy $1 million of gold but got $1 million of coal. When Petitioners’ counsel disagreed because the goods replaced were the same value and the buyer could sell the coal and buy gold, Justice Kagan indicated that Petitioners’ rule created an artificial distinction.

Several hypotheticals involved hiring a babysitter. Justice Jackson asked whether it was fraud where a family wanted to hire a Christian babysitter if the babysitter held herself out as a Christian but was not. Petitioners opined it was not fraud if the babysitter was qualified and performed the services requested. Justice Gorsuch asked whether it was fraud if the babysitter promised to use her earnings for college and provided excellent services but used the money for a trip to Mexico instead. Petitioners said that was not fraud, either.

While this case has implications for the government’s ability to prosecute certain white-collar crimes under the federal wire and mail fraud statutes, the argument had some notes of levity, including Justice Alito’s request that the government’s counsel respond to a question, which Justice Alito noted was probably better directed to Petitioners’ counsel. When the government’s counsel asked whether he should respond as “him or me,” the Justice said, “whichever you want.” To which the government’s counsel quipped: “That might be fraud, Your Honor.”

Stay tuned for Dykema’s update after the Court issues its opinion, which is expected later this term.  

For more information, please contact Chantel Febus, James Azadian, Susan Feibus, or Ryan VanOver.