Be careful what you wish for, because it might be used against you.

Be careful what you wish for, because it might be used against you. That’s always a useful rule for government and law, and doubly so when minting federal crimes out of disclosure issues. That may be a long-term lesson to be learned the hard way from this morning’s decision in Kousisis v. United States. As I’ve previously explained the background of the case:

A continuing issue in federal fraud prosecutions is when the Justice Department can prosecute people who didn’t defraud anybody out of money or property — the traditional categories of fraud. The issue comes up under the mail- and wire-fraud laws, the “conspiracy to defraud the United States” statute, the bank-fraud statute, and sometimes even in other areas such as insider trading. The Court has regularly and increasingly pushed back against efforts to expand the concept of fraud, while the Justice Department has continued to seek ways to argue that corruption amounts to defrauding government and business of the “honest services” of employees, and that various other sorts of falsehood deprive government and business of things like a right to information. This is not a new debate: the Court has been in a tug of war with creative federal prosecutors since at least Durland v. United States (1896) and Haas v. Henkel (1910) over whether and to what extent broadly worded federal fraud statutes track the traditional elements of common-law fraud. Congress, irritated at being asked to make laws, has done the bare minimum to clarify these various statutes when prodded by restrictive decisions of the Court, passing a revision of the mail-fraud statute in 1909 in response to Durland and adding an “honest services” statute in 1988 in response to McNally v. United States (1987) that does little to explain the concept.

At issue in Kousisis is the regulatory regime under which federal contractors and subcontractors have to detail how a portion of their work on construction jobs will be done by “Disadvantaged Business Enterprises” such as black-owned businesses. The defendants in Kousisis — a painting company and its project manager — won the low bid on a bridge-construction project funded by the Transportation Department, but lied about the extent to which its supposed DBE supplier was really just a pass-through taking a cut for being a DBE but not doing the work. In other words, the DBE was just paid for bringing the right demographics to the job, not for doing the job. This pleases our federal government, and it gets angry when it’s been had. But the defendants were the low bidder, they did the job well, they alone faced the financial risks if they had been required to hire a different DBE, and there was no theory under which the government had lost any money on account of the scheme. Is that fraud?

The case is a doubly interesting one because it not only raises questions about this sort of “pedigree fraud” case; it also collides with the popular progressive shibboleth that racial preferences don’t harm anyone. If that’s true, then how can there be fraud in giving them to the wrong people?

The stakes are higher now than they were last June, when the Court took the case — because the Trump administration is now casting about for legal tools with which to crack down on race-consciousness from the other direction. Where Kousisis is a case about vindicating the federal government’s interest in race-conscious hiring and contracting, Donald Trump and his administration have issued numerous executive orders and agency directives aiming to stamp out race-consciousness and guarantee race-blind hiring, contracting, college admissions, and instruction.

As I noted back in January, one of the mechanisms proposed in an anti-diversity, equity, and inclusion (DEI) Trump executive order was use of the False Claims Act (FCA), which allows for civil lawsuits against false claims made by government contractors — raising issues similar to those in Kousisis about what is and is not a material false statement to the government. On Monday, Deputy Attorney General Todd Blanche issued a memo announcing the Civil Rights Fraud Initiative to use FCA to “pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws” via “racist preferences, mandates . . . and activities” — including university DEI programs. The next logical step would be the even heavier artillery of the federal criminal code.

How are lies about race a federal case? This morning, the Court was unanimous in upholding the conviction in Kousisis, with Justice Amy Coney Barrett writing for the Court’s majority. This was a rare win for federal prosecutors in the fraud area, where the Court across ideological lines has repeatedly pushed back on aggressive efforts to expand the definition of fraud. Barrett’s opinion for the Court declined to make an issue of the disjunctive language of the mail and wire fraud statutes, which prohibit a “scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” (Emphasis added.) The Court’s precedents for decades have declined to treat these two prongs as entirely separate. She noted that mail or wire fraud must involve a defendant who obtains money or property, and does not just defraud the government out of its general regulatory interests as a government. But this case involved a public contract, so there was no question that the defendants schemed to get money from the government; what they didn’t do was cause the government to lose money, because they did the work:

A thing is no less “obtained” simply because something else is simultaneously given in return. An art collector who acquires a rare sculpture can rightfully say that she “obtained” it, notwithstanding the six-figure price tag. And because the meaning of “obtain” does not turn on the value of the exchanged items, the art collector can still say that she “obtained” the sculpture even if it was not objectively worth the price she paid. In short, the wire fraud statute is agnostic about economic loss. [Emphasis in original]

From the Court’s perspective, the presence of economic gain for the defendants meant that overturning their convictions for lack of pecuniary loss to the government would amount to engrafting a new statutory requirement of economic loss, one that would be complicated to formulate and apply and conflict with the statutory aim of punishing fraudulent schemes, whether or not they are actually completed. For example, Barrett noted that the common law would allow PennDOT (the government contracting party) to rescind the contract on grounds of fraud in its inducement, without proof that it suffered an economic loss, simply because it did not get what it bargained for. (As the Court noted, this was different from the common law tort of deceit, which has formed the background for other federal civil fraud actions filed by injured parties). Finally, the Court emphasized that the separate but related issue of whether the lies were material to the contract, a crucial and traditional element of fraud but one that the Kousisis defendants didn’t contest in this case, remains a safeguard in other cases against overbroad definitions of mail and wire fraud.

Concurring opinions filed by Justices Clarence Thomas, Neil Gorsuch, and Sonia Sotomayor all agreed that the lies in this case met the statutory definition of fraud. The concurring justices reached for their own analogies: Gorsuch compared the case to hiring a babysitter who lies about her criminal record but does the job well, while Sotomayor compared it to buying Yankees tickets and getting Mets tickets of equal face value (a deep offense to a native of the Bronx). Only Thomas and Gorsuch expressed any real reservations about this theory of fraud prosecutions. Gorsuch worried that the Court went too far in brushing aside any requirement of injury. Thomas in particular noted that he might have come down differently had the Court been asked to decide the materiality question.

Thomas and Sotomayor engaged in their own side debate over the importance of race-consciousness to the government. Thomas argued that just because a contract says something is a material term, the Court hasn’t always treated it as such in FCA case, and expressed skepticism that racial set-asides are really material in practice, given pervasive fraud in this area:

If the DBE conditions went to the very essence of the parties’ bargain . . . the failure to meet those conditions presumably would have had some impact on the final work product. . . . But, the DBE conditions had no bearing on petitioners’ ability to complete their projects. . . . The DBE provisions appear to have been less important than contract terms going to the quality and timeliness of bridge repair, further indicating that the latter went to the essence of the parties’ bargain while the former did not. . . . [I]f DBE fraud is so prevalent that the Government would have to assume a significant number of its contractors violate contract provisions requiring DBE compliance, that fact could cast further doubt on those provisions’ materiality. Reports of fraud in the Government’s small-business contracting programs have emerged with some regularity, making fraud in these programs a perennial concern for Congress and commentators. . . . It is implausible to think that a reasonable person would attach importance to contract provisions that mandate constitutional violations. [Emphasis in original; quotations and citations omitted.]

For Sotomayor, by contrast, lies about the race of the people doing the work amounted to “lying about the nature of what they were selling.” In her view, the fact that the government made DBE compliance legally important overrode any question of whether it actually mattered as a fact, and there’s no legal defense of “lots of people do it.” Which is sound enough as a legal rule, but it applies equally when the government says that you have to either say truthfully that recipients of federal funds have done away with DEI or they can be prosecuted for mail and wire fraud. Because the Trump administration definitely cares about that.