I have two related comments about this opinion by Judge Gould. One small, one larger.
Both involve the same issue: materiality. To be convicted of wire fraud, your false statement needs to be "material". That's a pretty important element. If you say something that's meaningless, even if it's untrue, that doesn't put you in prison for a couple of decades.
According to the Supreme Court, here's the relevant test for when statements are material: “In general, a false statement is material if it has ‘a
natural tendency to influence, or [is] capable of influencing,
the decision of the decisionmaking body to which it was
Makes sense. To be clear: The false statement doesn't have to be the main thing that the victim relies upon to be tricked. The false statement just has to have "a natural tendency to influence, or [is] capable of influencing," the victim.
Now let's apply it to the present case. One of many in the modern era.
Borrower applies for a mortgage. He submits documents. Some of the statements in those documents are allegedly false.
He wants to say that the statements at issue weren't "material" for a couple of different reasons. First, he says that they weren't material because the lender was super happy -- indeed, wanted -- them to be false. There's a ton of evidence (seriously: a ton) that lenders during the real estate boom didn't care at all that "liar loans" were full of lies since that way they could fund the loans, sell 'em off, and thus profit regardless of the underlying lies. In short, the lender was an active participant in the fraud, knew that the statements were false, didn't care in the slightest (indeed, wanted 'em to be false, since otherwise they couldn't sell the loan), and hence the statements weren't material.
That's a decent defense, in my view. With the added bonus that it happens, in a ton of cases, to be entirely true. If I tell you "Give me your car, I'll give it back to you tomorrow," all the time winking at you, but you know full well that I'm going to rob a bank with that car and actually return the car to you in a week -- with a bundle of cash from the bank robbery "accidentally" left in the back seat -- my view is that, sure, my statement to you was "false", but there was no actionable wire fraud, because my "lie" to you wasn't material: you knew full well it was false but didn't care in the slightest.
In many areas, that was the mortgage industry in the go-go 2000's. Different only in form, not in content.
The Ninth Circuit nonetheless holds that a statement can be material even if the lender was totally in on it. Judge Gould's opinion says: "[T]hat does not mean that lenders can be victimized by intentional fraudulent conduct with impunity merely
because the lenders were negligent, or even because the
lenders intentionally disregarded the information in a loan
application." I agree with the former clause, but the latter seems far more dubious. I understand Judge Gould's intuition that "Two wrongs do not make a right, and a lender’s
negligence, or even intentional disregard, cannot excuse
another’s criminal fraud." But I'm not persuaded that it's in fact fraud if the lender wasn't actually defrauded -- doctrinally, if the lender's in on it, and knows/wants your statements to be false, then those statements aren't material.
Or at least it seems to me. So "negligence" I agree doesn't cut it. But actual fraud by the lender?! That doesn't count either?! That seems a little off. At least to me.
That's related to the second thing. Where Judge Gould's opinion goes, I think, far too broadly; and, on this point, way too broadly.
Judge Gould ends his opinion by saying, essentially, that everything is by definition material. Here's the relevant quote from the final paragraph: "[We] hold, as
a matter of law, that when a lender requests specific
information in its loan applications, false responses to those
specific requests are objectively material for purposes of
So I take out a loan application and, where it asks for my name, I write "Shaun Pat Martin," even though my middle name is actually "Patrick". Or they ask me how long I've lived in my current house, and I write "20 years, 1 month," even though the truth is that it's been 20 years and two months. Let's assume that none of those statements matter in the slightest to the lender: let's say the evidence is undisputed that the lender doesn't even use my middle name when it pulls my credit and other reports (and I gave them my correct social security number anyway), so shortening my middle name couldn't make a whit of difference. Or the missing one month of the 20 years wouldn't at all affect whether the lender would give me a loan -- which, in fact, is totally true.
The Ninth Circuit has now held that I can nonetheless be found guilty of wire fraud and sent to prison for years (if not decades), and that these meaningless statements are nonetheless "material". On the theory that any blank that the lender puts in front of me is necessarily material "as a matter of law". So if the lender asked me my favorite color, and I said "red" when it was really blue, that's fraud too, even though the lender put the question on there purely on a lark.
That just seems crazy to me. As well as in stark conflict to the Supreme Court's express holding that "material" statements are only those that have a natural tendency to (or are capable of) influencing the victim. There's no way that "red" or "Pat" has a natural tendency to influence someone, and if there's evidence -- as there would be in these situations -- that those answers in fact mean nothing to whether or not the lender makes the loan, then I honestly don't understand how these statements can at all be found to be "material" without violating Supreme Court precedent. As well as common sense.
So, look, I understand that Judge Gould adopts his "bright-line" rule -- everything that someone asks is by definition material as a matter of law -- from an analogous case from the First Circuit that may seem to adopt precisely such a test. But, as Judge Gould says, two wrongs don't make a right. This test seems clearly wrong to me. And if the First Circuit adopted it as well, so much the worse. We shouldn't make the same mistake.
That's my view, anyway.