Argument Preview: A new case about the proper victim of larceny involving electronic transaction, in United States v. Simpson
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 Robinson. The 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 Bailey, I 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.