United States v. Michael Devegter and Richard Poirier, Jr.
198 F.3d 1324 (2000)
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Rule of Law:
In a prosecution for private sector honest services fraud under 18 U.S.C. § 1346, the government must allege facts showing an intent to breach a duty of loyalty and that the defendant reasonably should have foreseen economic harm to the victim. An indictment sufficiently alleges this duty if it describes a relationship of dominance, trust, and de facto control, even without explicitly using the term 'fiduciary duty'.
Facts:
- In 1992, Fulton County, Georgia, decided to refund municipal bonds and sought to hire an underwriter for the process.
- The County retained Stephens, Inc., an investment banking firm, to provide a professional and independent recommendation for the best underwriter.
- Michael deVegter, a vice president at Stephens, was the financial advisor responsible for the Fulton County relationship.
- Richard Poirier, a partner at the investment banking firm Lazard Freres & Co., wanted his firm to secure the underwriting contract.
- Through an intermediary, Poirier offered to pay deVegter in exchange for deVegter's assistance in ensuring Lazard Freres won the contract, and deVegter accepted the offer.
- deVegter then manipulated the selection process by giving Poirier advance copies of the Request for Proposals, incorporating his suggestions, sharing a competitor's proposal with him, and ordering a subordinate to alter the rankings to place Lazard Freres first.
- Based on Stephens' final recommendation, which ranked Lazard Freres as the best choice, Fulton County awarded the contract to Lazard Freres.
- deVegter never disclosed to Fulton County his financial arrangement with Poirier.
- After the deal was complete, Poirier paid deVegter $41,936 for his actions.
Procedural Posture:
- The U.S. Government indicted Michael deVegter and Richard Poirier, Jr. on charges of conspiracy to commit wire fraud, wire fraud, and honest services fraud in a U.S. District Court.
- The Appellees, deVegter and Poirier, filed a motion to dismiss the indictment.
- The district court granted the motion in part, dismissing the honest services fraud counts (§ 1346) on the grounds that the indictment failed to allege the defendants breached a 'clear fiduciary duty.'
- The Government (appellant) appealed the district court's partial dismissal to the U.S. Court of Appeals for the Eleventh Circuit, where deVegter and Poirier were the appellees.
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Issue:
Does an indictment for private sector honest services fraud under 18 U.S.C. § 1346 sufficiently state an offense when it alleges facts that imply a relationship of trust and de facto control, without explicitly using the term 'fiduciary duty'?
Opinions:
Majority - Black, Circuit Judge
Yes, an indictment for private sector honest services fraud under 18 U.S.C. § 1346 sufficiently states an offense under these circumstances. To allege private sector honest services fraud, the government must show the defendant intended to breach a duty of loyalty and that economic harm was a reasonably foreseeable result. While public officials inherently owe a duty to the public, such a duty in the private sector must be established by the nature of the relationship. Here, the indictment sufficiently alleged such a relationship even without using the word 'fiduciary.' The allegations that Fulton County hired deVegter for 'independent advice' and 'relied upon' his 'independent recommendation' describe a relationship where deVegter held a position of dominance, trust, and de facto control. This relationship gave rise to a duty of honest services. The breach of this duty through bribery and manipulation created a reasonably foreseeable risk of economic harm, as it ensured the best underwriter might not be selected. Therefore, the factual allegations were sufficient to charge the offense.
Analysis:
This decision clarifies the pleading standards for private sector 'honest services' fraud prosecutions within the Eleventh Circuit. It establishes that the existence of a duty of loyalty is determined by the substance of the relationship, not by formal labels in an indictment. By focusing on factors like reliance, de facto control, and dominance, the court broadens the scope of relationships that can give rise to an honest services fraud charge. This lowers the bar for prosecutors to bring charges against private actors who betray a position of trust, making it clear that a formal 'fiduciary' title is not a prerequisite for liability.
