CAAF will hear oral argument in the certified Army case of United States v. Simpson, No. 17-0329/AR (CAAFlog case page), on Wednesday, November 29, 2017, at 9:30 a.m., after the argument in RobinsonThe Judge Advocate General of the Army certified a single issue challenging the Army CCA’s reversal of Simpson’s conviction for larceny:

Whether the Army Court of Criminal Appeals erred by finding a substantial basis in law and fact to question Appellant’s plea in light of the Supreme Court decision in United States v. Shaw, 137 S.Ct. 462 (2016), and the Court of Appeals for the Armed Forces decision in United States v. Cimball-Sharpton, 73 M.J. 299 (C.A.A.F. 2014).

Sergeant (E-5) Simpson, in cahoots with his civilian girlfriend, initiated fraudulent electronic transfers from a corporate bank account used by Credit First National Association (CFNA). The account itself was held by JPMorgan Chase bank, and the frauds were accomplished by using the account’s information for electronic payments for Simpson’s bills.

Simpson’s frauds amounted to over $30,000. He ultimately pleaded guilty to one specification of larceny on divers occasions, and one specification of conspiracy to commit larceny, in violation of Articles 121 and 81, and was sentenced to confinement for two months, reduction to E-4, and a bad-conduct discharge.

On appeal, however, Simpson challenged his pleas on the basis that they identified CFNA as the victim when JPMorgan was the actual victim.

The Manual for Courts-Martial explains that:

Wrongfully engaging in a credit, debit, or electronic transaction to obtain goods or money is an obtaining-type larceny by false pretense. Such use to obtain goods is usually a larceny of those goods from the merchant offering them. Such use to obtain money or a negotiable instrument (e.g., withdrawing cash from an automated teller or a cash advance from a bank) is usually a larceny of money from the entity presenting the money or a negotiable instrument.

MCM, Part IV, ¶ 46.c.(1)(i)(vi). In recent years CAAF applied this understanding and the common law of larceny (on which Article 121 is based) to hold that using someone else’s debit card is larceny from either the financial institution operating the account or the merchants who accept the card, and not a larceny from the card account holder even though the account holder might suffer a consequence from the offense. United States v. Williams, 75 M.J. 129 (C.A.A.F. Feb. 23, 2016) (CAAFlog case page); United States v. Endsley, 74 M.J. 216 (C.A.A.F. Jan 14, 2015) (summ. disp.) (discussed here).

Simpson presents a practically-identical set of facts, except that the case involves electronic account information instead of an actual debit card.

Reviewing Simpson’s convictions and applying this precedent, the Army CCA concluded that “JPMorgan Chase [not CFNA] was the proper victim in this case.” United States v. Simpson, No. 20140126, slip op. at 6 (A. Ct. Crim. App. Mar 1, 2017). The CCA then reversed both of Simpson’s pleas.

While the case was pending at the CCA, the Supreme Court decided United States v. Shaw, 137 S.Ct. 462 (2016). Shaw was convicted of violating 18 U.S.C. §1344(1), which prohibits bank fraud. Coincidentally, Simpson was also charged with violating 18 U.S.C. §1344, but that charged was dropped as part of the plea agreement. Shaw challenged his conviction on the basis that “the statute does not cover schemes to deprive a bank of customer deposits.” 137 S. Ct. at 466. The Court rejected the argument, concluding that “the bank, too, had property rights in [the customer’s] bank account.” Id.

Just comparing the language of 18 U.S.C. §1344 and Article 121 shows they are fundamentally different statutes. Nevertheless, the Army CCA considered whether the reasoning of Shaw applied to the facts of Simpson. It concluded:

[W]e are bound to follow [CAAF’s] view of the law on this issue. While the Supreme Court’s decision in Shaw is persuasive, it interprets a different statute. In the context of Shaw (where appellant was arguing that the bank did not have a possessory interest in the account), the Court’s suggestion that both the customer and the bank have a possessory interest in the account is dicta.

Simpson, No. 20140126, slip op. at 5. The certified issue asks CAAF to determine whether that conclusion is correct.

The Army Government Appellate Division’s brief argues that the Army CCA’s decision “fails to take into account the gravity of the Supreme Court’s ruling [in Shaw].” Gov’t Div. Br. at 6. The Division doesn’t so much argue that CFNA was the true owner of the property at issue in this case, as it argues that ownership is a question of fact that is resolved by a guilty plea inquiry:

The Army Court further noted, “Shaw indicates that both the bank and the customer may have a possessory interest in an account, and that the loss of the right to access funds in an account is ‘sufficient’ to create property in an account.” Id. The critical distinction made by the Army Court, though, is that Shaw treats the question of ownership as one of fact that may be determined by a contractual relationship and litigated at trial. Id. Thus, in a guilty plea a stipulation that one party (in this case CFNA) was the owner of the funds should be enough to prove ownership if not otherwise contradicted by facts during the plea. Id.

Gov’t Div. Br. at 10-11.

The Division also offers the alternative argument that the facts of this case are analogous to those of United States v. Cimball Sharpton, 73 M.J. 299 (C.A.A.F. 2014) (CAAFlog case page), where an Airman misused a Government Purchase Card (GPC) that she was otherwise authorized to use. The analogy is claimed in the fact that:

the CFNA account held at JP Morgan Chase was zero-balanced and not a normal bank account, CFNA paid JP Morgan Chase at the end of each business day in accordance with the contract to reimburse the account for any funds that were spent that day.

Gov’t Div. Br. at 16. I think this argument totally misreads Cimball Sharpton. The underlying act in that case was exceeding authorized use; Cimball Sharpton was authorized to use the card (and encumber the Air Force), but abused that authority for personal gain. Simpson, in contrast, had no authority to initiate the funds transfer from JPMorgan Chase.

Simpson’s brief – like the Government Division’s brief – focuses on who owned the funds transferred as a result of Simpson’s fraud:

as a creditor, depositors have no possessory interest in a bank’s actual funds. Depositors, instead, own debt which the bank recognizes as a liability. Delaware v. New York, 507 U.S. 490, 503-04 (1993). Thus, the status of a depositor/creditor is that of an “owner of intangible personal property.” Id. at 504.

Article 121, UCMJ, does not proscribe the theft of intangible property.

App. Br. at 10-11. Later, Simpson’s brief adds:

To be cognizable under Article 121, UCMJ, “the object of the larceny [must] be tangible and capable of being possessed.” United States v. Mervine, 26 M.J. 482, 483 (C.M.A. 1988). Critically, CFNA’s account is merely a collection of debts from CFNA to JP Morgan until it wire transfers sufficient money to again reach a zero balance. (JA 93). The unauthorized ACH debits drawing money from CFNA’s account merely created additional debt on behalf of CFNA to JP Morgan. See, e.g., Delaware v. New York, 507 U.S. at 503- 04 (holding debts created from a creditor-debtor relationship are intangible property). By design, the money content of the account was often negative, but never positive. Accordingly, any possessory interest by CFNA in a zero balance (or temporary negative balance) was an interest in intangible property.

App. Br. at 16. I think this analysis is more unnecessary than wrong. Simpson caused JPMorgan to transfer funds to others for Simpson’s benefit (to pay Simpson’s bills). Put differently, Simpson tricked his creditors into accepting payment from JPMorgan, and he tricked JPMorgan into paying his creditors. CFNA was affected (as were others, I’d bet), but Simpson’s creditors and JPMorgan were the victims of his larceny by false pretenses.

As for the conspiracy conviction, Simpson’s brief argues that “the military judge did not ensure the appellee understood how the facts applied to the law in his case.” App. Br. at 22. This seems like a stretch, and I think it unlikely that the plea inquiry did not outline the wrongfulness of conspiring to steal (regardless of whether the conspirators know of care about the identity of the true victim). But the inquiry isn’t reproduced in any of the briefs, so it’s hard to know for sure.

The Army Government Appellate Division’s reply brief makes a point worth highlighting:

Appellee contends that because the account was a “zero-balance” account, it was intangible property that could not be stolen from CFNA. (Appellee Br. 16-17). However, Appellee did not raise this issue before the Army Court. Thus, this Court should decline to address Appellee’ s argument as it is beyond the scope of this Court’s Article 67, UCMJ review at this time. Appellee has neither petitioned this Court on this issue nor has the issue been certified for consideration before this Court. However, to the extent that this Court deems there to be any merit to Appellee’ s argument, this Court should remand this case to the Army Court for the parties to brief on the issue.

Reply Br. at 7 (emphasis added). Last month, in my argument preview in BaileyI guaranteed that waiver mania is going to be on our top ten list this year. There the Coast Guard Government Appellate Division argued that a concession at oral argument before the CCA waived an argument at CAAF. The Army Government Division’s brief seems to make the same argument for appellate waiver, suggesting that a party’s incomplete argument at one stage precludes a more-thorough analysis at a later stage.

I doubt CAAF will reject an argument that could help it find the right answer just because the proponent only recently figured it out.

Case Links:
• ACCA opinion
• Appellant’s (Army Gov’t App. Div.) brief
• Appellee’s answer
• Appellant’s reply brief
Blog post: Argument preview

7 Responses to “Argument Preview: A new case about the proper victim of larceny involving electronic transaction, in United States v. Simpson”

  1. tinfoil wars says:

    Do you waive arguments or issues? Even if you can waive an argument … isn’t the zero-balance portion of the DAD answer recounting a fact in the stipulation that supports that Army Court’s decision? Are you precluded from marshaling facts not previously marshaled?

  2. Concerned Defender says:

    Does taking something that is not yours, and clearly not abandoned, really necessitate a specific identification of who actually owned the property?  Modern property ownership can be quite sophisticated.  Who really “owns” my house.  Is it me (I have equity in it), my bank who holds the mortgage, or the insurer who covers it if is hit by a meteor and destroyed?  Who “owns” my porshe in the driveway?  Me (I have equity in it), the bank holding the 1/2 paid auto loan, or the insurer??  
    Someone breaks into my home where I’m also storing property for 7 other people, is it necessary to identify each of those individuals or is it sufficient to say it’s “my property” for the sake of the crime?
    Modern sophisticated instruments – say stealing an inherently not valuable plastic credit card or series of passwords – grant access to potentially significant value.  Who “owns” the worthless piece of plastic that is a credit card?  Who “owns” the funds on a debit card?  The individual, or the bank that covers them in the event of theft?  
    The point is, the measures taken to electronically steal money mean that it wasn’t abandoned, and clearly there’s no mistaking key ownership (e.g. it wasn’t the accused’s property, so that’s the beginning and the end of ownership analysis).  It’s far different than finding a silver coin on the side of a busy road with no hint of any ownership.  That’s abandoned. 
    Seems to me enough to identify it wasn’t the accused’s and it was someone elses’ and there was no permission and no mistake of fact because deliberate steps needed to be taken to bypass security measures which safeguarded it.

  3. Contract Lawyer says:

    A crime?  Definitely not!  There was no victim.  This was free money.  It says the account just paid everything off every day and just “zeroed out.”  The transfers used “idle money,” which wasn’t being used for anything any way.  The bank must have been ok with this practice as they continued to transfer funds to provide the birthday surprises by paying off the bills of all the good boys and girls.  It’s like Robin Hood, but without anyone being robbed in order for all the goodies to be handed out.  Forget the nonsense of this government appeal here, what we need is more financial institutions with “idle money” willing to get on board with this plan.  In case anyone thinks I am wrong, the facts specifically state that the alleged victim was refunded for the funds that were allegedly stolen.  This should not be outlawed, but rather we need to get the good idea fairy to champion this plan and roll this opportunity out at a financial institution near you.  To summarize:  no victim, free money, everyone is made whole, and the accused should be nominated for a Nobel Peace Prize.  Heck, the Military Judge pretty much nominated the accused for a Peace Prize with a sentence that included a bust from E-5 to E-4 and two months confinement, so even the trial judge all but concedes there is nothing to this.  

  4. Zachary D Spilman says:

    That sentence isn’t nothing, Contract Lawyer.

    We know that some of the fraudulent transactions were successfully reversed (CCA’s op. at 4-5). Furthermore it’s likely that Simpson agreed to repay anything not recovered as part of the deal (I base this speculation on the fact that no fine was adjudged). 

    The sentence was adjudged by a general court-martial, so the punitive discharge is a statutory bar to VA benefits. 38 U.S.C. § 5303. That’s a significant deprivation and, depending on Simpson’s prior service (the existence of combat-related medical conditions, for example), it could have an outsized impact on him.

    Simpson’s personal culpability seems to be minimal, as the CCA’s opinion explains that his girlfriend (a term of art in this context, I suspect) discovered the means to accomplish the fraud and:

    [She] would set up a transaction to transfer money from the CFNA account to accounts operated by appellant, other soldiers, and individuals. In most cases, the transfers paid off outstanding debts (such as car payments, credit card bills and utility bills). Ms. Lee would often collect a fifty percent fee from the individual who benefited from the transfer. The parties stipulated that appellant personally benefited to the amount of $30,936.23.  

    Slip op. at 2 (emphasis added). These facts actually suggest that Simpson ended up losing approximately $15,000 (the 50% fee he paid to Lee). Plus, of course, his career, reputation, and dignity. 

  5. (Former) ArmyTC says:

    So I looked at my insurance policy because of Concerned Defender‘s comment about meteors…and it doesn’t cover any damage caused by items that came from outer space. That’s a glaring omission that I had never considered.

  6. Contract Lawyer says:

    Former Army TC – What you need to be sure of is that your policy covers zombie apocalypses.  Do yourself a favor and make sure you are covered.  

  7. Tami a/k/a Princess Leia says:

    Everyone who has a possessory interest in the money raise your hand.  Not you Appellee.  Anyone who had A greater possessory interest in that money is properly A victim and can be charged as such.  I’m with Concerned Defender on this one.  Money is a tangible item, it doesn’t lose it’s tangential nature through electronic transfer.
    Farmer’s probably insures against zombie apocalypses–they know a thing or two because they’ve seen a thing or two.