Neder v. United States

1999-06-10

Headline: Judge’s omission of a fraud element can be harmless; Court rules juries must decide “materiality” for mail, wire, and bank fraud, changing how fraud and tax trials are reviewed on appeal.

Holding: The Court held that omitting an element from the jury charge is subject to Chapman harmless-error review and that "materiality" is an element of federal mail, wire, and bank fraud statutes.

Real World Impact:

Makes juries decide materiality in many fraud trials.
Allows courts to keep convictions if an omitted element was uncontested and harmless.
Remands remaining fraud counts for appellate harmlessness review.

Topics: fraud trials, tax fraud, jury rights, mail and wire fraud, criminal appeals

Summary

Background

An attorney and real estate developer in Jacksonville, Florida, Ellis E. Neder, was accused of multiple schemes to defraud lenders and of filing false tax returns. Prosecutors said Neder used shell companies, inflated appraisals, and false invoices to obtain more than $40 million in loans and failed to report over $5 million as income. He was charged with mail, wire, and bank fraud (18 U.S.C. §§ 1341, 1343, 1344) and two counts of filing a false tax return (26 U.S.C. § 7206(1)). At trial the judge told the jury not to decide “materiality” for the tax counts and did not include materiality in the mail, wire, and bank fraud instructions; the jury convicted Neder and he was sentenced to 147 months and large restitution.

Reasoning

The Court addressed two questions: whether a judge’s failure to submit an element to the jury can be reviewed under the Chapman harmless-error test (asking whether the error “did not contribute to the verdict”), and whether “materiality” is an element of the federal mail, wire, and bank fraud statutes. The Court held that omission of an element is subject to harmless-error review. Applying Chapman, it found the tax-count error harmless here because Neder’s failure to report over $5 million was uncontested and overwhelming. The Court also held that the term “defraud” carries its common-law meaning, so materiality is an element of mail, wire, and bank fraud.

Real world impact

Going forward, juries (not judges) must decide materiality in many fraud prosecutions, but appellate courts may uphold convictions when the omitted element was uncontested and harmless beyond a reasonable doubt. The Court affirmed the tax-count convictions as harmless, reversed other counts, and remanded the remaining fraud counts for further harmless-error review.

Dissents or concurrances

Justice Stevens joined Parts I and III but disagreed with the Court’s harmless-error reasoning. Justice Scalia (joined by two Justices) argued that denying a jury determination can never be harmless and would have reversed.