Legal Docket: Fraud and corporate liability

MARY REICHARD, HOST: It’s The World and Everything in It for this 6th day of January, 2025. We’re so glad you’ve joined us today. Good morning! I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher. It’s time for Legal Docket.

Chief Justice John Roberts is defending the independence of the federal courts. He says they’re under threat from several angles: intimidation, disinformation, and the possibility that public officials might defy court orders. Roberts aired his concerns in his annual report on the federal judiciary. (We link to the report in today’s transcript.) In it, Roberts cautions leaders across the political spectrum against openly disregarding court rulings.

REICHARD: But the last several years have brought significant attacks by Democrats on the legitimacy of the court.

Roberts highlighted alarming trends, including a rise in threats against judges. In extreme cases, judges have had to be issued bulletproof vests. The U.S. Marshals Service reported a threefold increase in serious threats compared to a decade ago. More than a thousand serious cases were looked into … but only 50 criminal charges brought.

One shocking example: the armed man who planned to kill Justice Brett Kavanaugh after the leak of the Dobbs opinion.

EICHER: Roberts also criticized elected officials for undermining court rulings. He didn’t name names.

But consider two high-profile examples. First, then-Senate-minority leader Chuck Schumer in 2020:

SCHUMER: I want to tell you, Gorsuch, I want to tell you, Kavanaugh, you have released the whirlwind and you will pay the price.

REICHARD: Another example is President Joe Biden’s multi-billion dollar student loan forgiveness at taxpayer expense. When the high court blocked the move, he said he’d do it anyway.

To be fair, President Donald Trump questioned the ability of a judge with Hispanic ethnicity to be unbiased. But the Democrats have been far more critical of the court.

EICHER: The Chief Justice noted that courts inherently produce winners and losers. He wrote: “It is not in the nature of judicial work to make everyone happy.”

Statistically, Roberts noted modest rises in the federal court workload, although immigration-related criminal cases shot up 30 percent year over year. Bankruptcy courts were busier, with filings rising 16 percent, but that’s below the recent high in 2020.

REICHARD: Now, let’s move on to a couple oral arguments, the first is from last month in Kousisis v. United States. My favorite sort of argument, lots of hypotheticals!

This case involved wire fraud and conspiracy charges against a contractor and his company.

Here are the facts: Stamatios Kousisis, a project manager for Alpha Painting and Construction, was accused of winning state contracts by fraud.

Specifically, that he gamed a Pennsylvania Department of Transportation requirement that subcontractors be disadvantaged business enterprises. The state contends Kousisis used a disadvantaged business enterprise as a mere “passthrough”—meaning, it didn’t actually do any work.

EICHER: The defense didn’t really contest this. It argued that Pennsylvania suffered no financial loss and got exactly what it paid for—fully completed projects.

The lawyer for Kousisis is Jeffrey Fisher, he said what his client did shouldn’t be a federal crime.

But Justice Ketanji Brown Jackson tested the limits of the law of fraud with this relatable hypothetical:

JACKSON: What about the family that says: it's very important to me to have a Christian babysitter. We are devout….This is a characteristic that we're telling everybody this is what we're looking for. And someone comes and they purport to have this characteristic, but they don't ultimately.

FISHER: I think that's egregious behavior, but it's not property fraud if the babysitter is otherwise fully qualified and performs the services. Now there may well be a very serious civil suit….So I'm not saying these things are okay, and I'm not saying the law doesn't provide a remedy. But what I am saying is that this is an age old problem when it comes to fraud.

Justice Samuel Alito offered a hypothetical of his own:

ALITO: I hire somebody to paint the dining room of my house. And when I come back, the dining room has not been painted, but the living room has been painted. And the living room is bigger. And he says, ‘Look, I gave you a bargain, the same price, I painted more, plus the living room really needed it more than the dining room.

FISHER: I think we're still in this difficult situation of there's actually—-your home is your property and so some of the things that are happening to your property, but --but I think -- (fade out)

REICHARD: Fisher pointed out the difference between Alito’s hypothetical and the facts of this case is that the job was finished. All other contract terms were met.

So, no basis to sustain a federal fraud charge.

Maybe something else, but not that.

EICHER: Deputy Solicitor General Eric Feigin, arguing for the government to uphold the fraud convictions, said fraud doesn’t require financial harm. It’s the deceit itself that counts, not the outcome.

Justice Neil Gorsuch countered by refining the babysitting hypothetical.

GORSUCH: What about the babysitter who says: I'm going to…, take the money that you give me for college, and therefore, I hire her. She provides excellent babysitting services and proceeds to blow the money on a trip to Cancun. Now is that mail fraud? I mean, could that be prosecuted as mail fraud because I had some subjective wish that she use it for one purpose rather than another, even without any economic injury to me?

FEIGIN: Well, Your Honor, I don't think some subjective wish counts.

Justice Alito brought a bit of levity in what was already a lively argument in this exchange with Feigin for the government:

ALITO: I'm going to ask you a question that I really would like to ask Mr. Fisher, but I can't ask Mr. Fisher any more argument. So perhaps, if I ask you, he will see fit to address it in -- (Laughter.)

FEIGIN: Well, would you like me to answer it as him or as me? (Laughter.)

ALITO: Whichever you want. (Laughter.) Assuming his persona and answering for him might be --

FEIGIN: That might be fraud, Your Honor. I should run out the door.

The case raises tough legal questions: Do equivalent-value deviations count as fraud? Should subjective disappointment matter?

For Kousisis, the stakes are high. His company faces a $500,000 fine and forfeiture of millions in profits.

Personally, he’s facing nearly six years in prison.

REICHARD: Our final case today stems from a trademark dispute between two companies using the name “Dewberry.”

In 2007, Dewberry Engineers settled with Dewberry Capital, restricting its use of the name.

But a decade later, Dewberry Capital rebranded as “Dewberry Group.” And that prompted a new lawsuit.

The engineers won, receiving more than $40 million in damages.

EICHER: Here’s the twist: Dewberry Group was operating at a loss, so the court ordered its corporate affiliates to pay up.

That raises the key question: Can courts hold affiliates liable for profits they didn’t directly earn?

Justice Jackson seemed open to piercing the corporate veil:

GORSUCH: I guess I don't understand why the answer, the sort of way to handle a situation like this, is just to pierce the veil. I mean, you --you --you say that the defendant is disguising its profits, it's hiding economic realities, it's working with these other companies in a way that they're really operating in the marketplace as almost one entity. Why wouldn't the legally responsible way to deal with this given the way we --you know, the law has developed, to say that, in order to do this, to consider the profits of the other entities to be the profits of the defendant, the court should have pierced the veil in this situation?

CROWN: Justice Jackson, I have four answers.

REICHARD: Nicholas Crown argued for neither party but as friend of the court representing the United States. He pointed out that the law doesn’t allow profits of separate corporations to be included unless explicitly sued.

Crown said he had four points to make, including that the engineers could have sued those affiliates for infringement, but they chose not to.

Chief Justice Roberts, ever the organizer, kept track:

ROBERTS: Counsel, before you go on, how many of your four things did you just get out?

CROWN: Two (laughter)

ROBERTS: Two. All right.

CROWN: I’ve got two more, Mr. Chief Justice.

ROBERTS: I will allow a historically unprecedented exception to allow you to give us (laughter) the other two promptly.

He did but they didn’t amount to much.

What’s most important in the case are major implications for corporate structuring and intellectual property law.

The justices did seem concerned about overreach, but I think the Justices are likely to put some limits on “equitable” remedies.

And that’s this week’s Legal Docket!

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