Justices Uphold PennDOT Contractor’s Wire Fraud Convictions (2)

The US Supreme Court left in place a state contractor’s wire fraud convictions in a Thursday ruling, rejecting arguments challenging the government’s “fraudulent inducement” theory.

The government doesn’t need to prove that a defendant who uses falsehoods to induce someone to enter into a transaction intended or caused economic harm, the court held in an opinion by Justice Amy Coney Barrett.

The decision reverses a trend stretching back to 1987 where the justices had pruned back the avenues available to federal prosecutions of white collar crime, invalidating some fraud theories that relied on intangible property interests.

The statute at issue here doesn’t mention economic loss, let alone require it, the high court said. And common law didn’t—contrary to the petitioners’ view—establish a general rule requiring economic loss in all fraud cases, it said.

The court reiterated that materiality is an element of and therefore a limit on the federal fraud statutes, but it didn’t reach the parties’ dispute over what the proper standard is for materiality under the federal wire fraud statute.

Petitioners Stamatios Kousisis and his company Alpha Painting & Construction Co. argued that the fraudulent-inducement theory was a repackaged version of the rejected right-to-control theory of fraud, saying it permits a fraud conviction based solely on the interference with regulatory interests.

The court disagreed. The right-to-control theory was problematic because it treated information as the protected interest; the fraudulent inducement theory doesn’t.

It also rejected the argument that that the fraudulent-inducement theory could turn every intentional misrepresentation to induce someone to transact in property into property fraud. The “demanding” materiality requirement “substantially narrows the universe of actionable misrepresentations,” the court said.

Chief Justice John G. Roberts Jr. and Justices Clarence Thomas, Samuel A. Alito Jr., Elena Kagan, Brett M. Kavanaugh, and Ketanji Brown Jackson joined the majority opinion.

Thomas filed a concurring opinion to say that while the court was leaving the question of materiality for another day, he was skeptical the misrepresentations here were material.

The government argued that a misrepresentation is material when it goes “to the very essence of the bargain,” citing the materiality standard used in the False Claims Act context. Without expressing a definitive view, Thomas said the standard provided, at a minimum, a useful baseline for evaluating the DBE’s provision’s materiality.

Justice Sonia Sotomayor filed an opinion concurring in the judgment. And Justice Neil M. Gorsuch filed an opinion concurring in part and concurring in the judgment.

Kousisis and Alpha challenged their wire fraud convictions on the grounds that using falsehoods to induce a victim to enter into a transaction isn’t fraud so long as the victim receives the full economic value of the deal.

They were accused of conspiring to defraud the US Department of Transportation and the Pennsylvania Department of Transportation “to obtain money and property from them” by falsely claiming that a subcontractor qualified as a small business majority owned by “socially and economically disadvantaged” individuals. The US requires states that receive federal transportation funding to set DBE participation goals, and the relevant provision of PennDOT’s contract with Alpha had stated explicitly that failure to comply would constitute a material breach.

Kousisis’s argument largely relied on a long line of Supreme Court cases consistently rejecting expansive readings of the federal fraud statutes. The first was United States v. McNally , decided in 1987, which said that the federal mail fraud statute was limited in scope to the protection of tangible property interests. More recently, the court decided Ciminelli v. United States, invalidating the “right-to-control” theory of fraud. There, the court sided with the defendant accused of bid-rigging after agreeing that potentially valuable economic information needed to make discretionary economic decisions isn’t a traditional property interest for purposes of the federal fraud statutes.

Kousisis and Alpha are represented by Lisa Mathewson of Philadelphia, O’Melveny & Myers LLP, and Stanford Law School Supreme Court Litigation Clinic.

The case is Kousisis v. United States, U.S., No. 23-909, 5/22/25.