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9th Circuit: Independent Contractors within Ambit of ‘Honest Services’ Law On Tuesday, the San Francisco-based U.S. Court of Appeals for the 9th Circuit ruled that being a state or federal employee is not a perquisite to being prosecuted for depriving the government of ‘honest services’. Adopting a broad interpretation of the hones-services fraud statute, the court found that the federal criminal law applies to anyone in a fiduciary relationship with the victim regardless of the ‘employment’ status of the perpetrator.
04/25/12
Later, a three-judge appeals court reversed the ruling of the district court and reinstated the charges holding
In the case of USA v. Milovanovic et al, U.S. Court of
that for honest-services fraud to occur, a fiduciary
Appeals for the 9th Circuit, No. 08-30381, the appeals
relationship was not necessary.
court, after a full review of its earlier judgment, held , “A fiduciary duty for the purposes of the Mail Fraud
The case was reviewed by a full 9th Circuit on Tuesday
Statute is not limited to a formal ‘fiduciary’ relationship
and the court held that breach of a fiduciary duty was
well-known in the law, but also extends to a trusting
necessary for prosecution under honest-services fraud.
relationship in which one party acts for the benefit of
However, based upon the Supreme Court decision
another and induces the trusting party to relax the care
against the former Enron CEO, the court adopted a
and vigilance which it would ordinarily exercise.”
broader interpretation of the term ‘fiduciary’ and held that the broader interpretation covered the acts of
The case arose when one Brano Milovanovic and five
Milovanovic and his fellows.
others were charged for devising a fraudulent scheme to mislead the Washington State Department of
The court also cited United States v. Lupton (7th
Licensing and cause commercial drivers’ licenses to be
Circuit) where the honest-services law was applied to
awarded to unqualified applicants. Milovanovic was an
an independent real estate brokers hired by the state
independent contractor providing translation services
to sell public buildings.
for government agencies, and he allegedly accepted bribes for helping Bosnian applicants to cheat in written
Concurring separately, Judge Richard Clifton opined
tests. Milovanovic was also charged with bribing Tony
that the majority was complicating things by focusing
Lamb, and independent tester to falsify the results of
too much on the term ‘fiduciary’ and its meanings, and
driving tests.
should focus on the breach of a simple relationship of trust instead.
The indictment was tossed by the district court in 2008 on the ground that independent contractors owed no fiduciary duty to the state and could not be prosecuted under the law related to honest-services fraud.
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