[00:00:02] Speaker 02:
Yes.

[00:00:02] Speaker 02:
So our final case on calendar is United States versus kale.

[00:00:06] Speaker 02:
Twenty one dash one zero three seven six.

[00:00:09] Speaker 02:
Each side will have 20 minutes.

[00:00:13] Speaker 03:
Thank you, your honor.

[00:00:14] Speaker 03:
Lisa Matthewson from Mr. Kyle.

[00:00:15] Speaker 03:
May I reserve two minutes for rebuttal?

[00:00:21] Speaker 03:
Your honors, the jury was allowed to convict Mr. Kyle for moonlighting as a paid adviser to Netflix vendors.

[00:00:29] Speaker 03:
conflict of interest that violated Netflix policies.

[00:00:34] Speaker 03:
The government's mistaken belief that these allegations tracked the elements of both honest services fraud and property fraud pervades the record.

[00:00:44] Speaker 03:
As it said to the jury in summation, Mr. Kyle was taking cash and accruing stock options from multiple companies he did business with at Netflix, and in doing so, he defrauded Netflix out of money

[00:00:58] Speaker 03:
and deprived his employer of its right to his honest, unconflicted services.

[00:01:06] Speaker 03:
With the court's permission, I'd like to begin with the jury instructions, because the elements of each of these fraud theories provide the framework for understanding how the error, in fact, was incorporated into various portions of the record.

[00:01:21] Speaker 03:
To begin with honest services fraud instructions, Your Honors, we know this jury was confused by them.

[00:01:28] Speaker 03:
And we know that because the jury's very first note asked about the definition of a bribe or kickback.

[00:01:35] Speaker 03:
In fact, the jury's very first note went to the central dispute in the case, which was, in fact, the theory of the defense.

[00:01:43] Speaker 03:
And that was, yes, Mr. Kyle was working with these vendors, and yes, Mr. Kyle was taking some compensation.

[00:01:52] Speaker 03:
The question was, was he being compensated for the advisory services he was providing to them?

[00:01:58] Speaker 00:
Can I ask you just two preliminary questions?

[00:02:00] Speaker 00:
One would be, so we have a special verdict, so if we were to conclude that the instructions were proper as to either the property fraud or the honest services, is that sufficient to affirm this part of the conviction?

[00:02:15] Speaker 03:
It is not, Your Honor, for a number of reasons.

[00:02:18] Speaker 03:
Of course, I'll accept as implicit in Your Honor's question that if the instructions are correct, the Court is also evaluating sufficiency, although candidly, Your Honor,

[00:02:28] Speaker 03:
Even if the court were to approve the instructions, the government's proofs still failed as a matter of sufficiency.

[00:02:34] Speaker 00:
And if we conclude that, at least as to one of these theories, the instructions were okay and this evidence was sufficient, what else would there be?

[00:02:41] Speaker 03:
There's still the constructive amendment problem, Your Honors, which requires retrial.

[00:02:46] Speaker 00:
And we would need to address that no matter what.

[00:02:48] Speaker 03:
I think the court would and it's partially, of course, because these theories were so intertwined as the court certainly sees from the record.

[00:02:57] Speaker 00:
Is there anything else you think we need to address?

[00:03:00] Speaker 03:
Well, I think certainly the money laundering, of course, flows from a vacator of the convictions on fraud.

[00:03:06] Speaker 03:
But just to go back to your Honor's specific question about the special verdict form.

[00:03:11] Speaker 03:
It's significant and I know that this is something the court has noted previously in Milheiser and in Yates.

[00:03:18] Speaker 03:
The government is well aware of the special verdict form.

[00:03:21] Speaker 03:
They invoke the special verdict form in one context only.

[00:03:25] Speaker 03:
They say that the special verdict form closes the door on the duplicity argument that we don't raise.

[00:03:32] Speaker 03:
So the government has never taken the position that a special verdict form would preclude a retrial and certainly on the constructive amendment issue.

[00:03:41] Speaker 02:
And in my view, logically, I'm just not sure why that's so whether the government takes the position or not.

[00:03:48] Speaker 02:
We have to figure this out and I don't quite understand.

[00:03:50] Speaker 02:
I thought usually when there's a constructive amendment claim and the idea is like some additional.

[00:03:57] Speaker 02:
Count was added constructively.

[00:03:59] Speaker 02:
We get rid of the conviction on that count, but not the other counts.

[00:04:05] Speaker 03:
I think the, the constructive amendment you're under requires the retrial.

[00:04:09] Speaker 02:
Well, if you're going to pursue that count still.

[00:04:12] Speaker 02:
But say someone's convicted of four different counts, different crimes.

[00:04:16] Speaker 02:
If one of them was added constructively, you get rid of that one.

[00:04:20] Speaker 02:
If the government wants to retry it, they need a retrial.

[00:04:22] Speaker 02:
But if they want to just stand on the other three convictions, I don't think they had to retry the others.

[00:04:26] Speaker 03:
That may be then, in this case, Your Honor, as something that flows more naturally from the record itself here and the just inextricably intertwined nature

[00:04:37] Speaker 03:
of the proof and the theories here, because the government really was talking at all times about the existence of a conflict.

[00:04:46] Speaker 03:
And it was treating the existence of a conflict and its non-disclosure as sufficient from the pretrial stage all the way through summation and post-trial motions.

[00:04:57] Speaker 00:
If a court were to review the constructive amendment

[00:05:03] Speaker 00:
issue and if a court were to, let's just say hypothetically disagree with you, and if a court were to say at least one of these two theories, either property fraud or honest services, was properly instructed and sufficient, does the court need to go further and address the other theory, honest services or property fraud?

[00:05:24] Speaker 03:
The court certainly always would need to be looking at, well as Your Honor is saying, would have to be looking at sufficiency

[00:05:30] Speaker 03:
It would also have to look at the money laundering, of course, which flows from honest services.

[00:05:35] Speaker 03:
But I think in terms of the remand, the court probably would have discretion to send it back and say, let's let the district judge sort out whether, for example, the theories were so inextricably intertwined that, in fact, a retrial on both is necessary.

[00:05:51] Speaker 03:
But I submit, Your Honors, they- But why would you need a retrial at all?

[00:05:55] Speaker 02:
I think that's what we're both trying to ask, but given the special verdict, it's the same conviction for fraud with two theories under the verdict.

[00:06:03] Speaker 02:
So if one theory still leads to conviction, even if you get rid of the other one, I don't see why you need a retrial.

[00:06:10] Speaker 03:
That would be the taint issue then, Your Honor.

[00:06:12] Speaker 03:
With that hypothetical, that would purely be the taint issue because, and really I do believe that the taint is patent on the record here.

[00:06:20] Speaker 00:
The taint is from the Constructive Amendment?

[00:06:22] Speaker 03:
The taint is from the Constructive Amendment and it's from the submission of an invalid property fraud theory to the jury.

[00:06:28] Speaker 03:
And of course, the way that the honest services instructions went in, that's an invalid theory too.

[00:06:34] Speaker 03:
But hypothetically, if one stands.

[00:06:37] Speaker 03:
But that taint is something that it's... And to Judge Friedland's question, why it's necessary for a fair trial, Your Honor?

[00:06:45] Speaker 03:
Because ultimately, this jury was told things like,

[00:06:48] Speaker 03:
Mr. Kyle was engaged in a shakedown and he was I forget the exact language, but you know kind of like a mob boss who was was shaking down the vendors And then ultimately imposing the cost of his scheme on Netflix there is real prejudice there and because the government was using the same set of allegations on both and treating them as essentially per se and

[00:07:13] Speaker 03:
It would be essential to the fairness of the trial that the remand happened on both given the improper submission of the property fraud why doesn't that argument cut the other way and say if all the evidence was the same there's no constructive amendment because your honor they're so inextricably intertwined And I don't think that all the evidence would be the same I should clarify on that the government's allegations of fact were the same and so there's certainly evidence that came in once they

[00:07:44] Speaker 03:
once they had added at the last minute this property fraud theory, then the government was at least allowed to argue additional things that really the government had previously said were not going to be essential to its proof.

[00:07:59] Speaker 03:
And the defense, of course, was prejudiced in that the defense had no opportunity to develop those facts.

[00:08:05] Speaker 03:
So consider, for example, the government's argument that the court can infer an improper

[00:08:12] Speaker 03:
quid pro quo or the jury quid more to the point from the theory that these vendors were not in fact worth anything to Netflix.

[00:08:24] Speaker 03:
That's something that the government had always said after it had defeated the early motions to dismiss that in fact it didn't have to show that kind of economic harm in order to pursue what it was calling its honest services fraud theory.

[00:08:39] Speaker 03:
So the defense had not had an opportunity to develop that.

[00:08:43] Speaker 03:
Then when it goes to the jury as the theory of essentially stealing from Netflix, which is really not their theory and still isn't their theory, then the defense realized, you know, this is something that probably if we had to rebut that we could have developed.

[00:09:01] Speaker 03:
And it is something that simultaneously then the government, having had this new opportunity with a new property fraud theory in the mix,

[00:09:09] Speaker 03:
The government then was using that to leverage as well on the Honest Services.

[00:09:13] Speaker 00:
Is that not relevant also to the Honest Services theory, even if it wasn't strictly necessary as part of the proof?

[00:09:21] Speaker 03:
Your Honor, the government actually responded to a defense motion in Lemonade.

[00:09:25] Speaker 03:
The defense moved in Lemonade for a ruling permitting it to develop the value of the services provided.

[00:09:31] Speaker 03:
And the government opposed that and said, after the courts and bank opinion in, and I will mangle this, Milano Novick, right?

[00:09:39] Speaker 03:
that's not relevant, it's not an element of proof and in fact that was excluded I believe pre-trial.

[00:09:47] Speaker 03:
So the fact that the defense was prevented from putting that on because the government's position was this isn't part of the case is something that would mean that there is in fact prejudice and prejudice that the government leveraged ultimately to use on both the honest services counts as well as

[00:10:08] Speaker 03:
the property fraud cap.

[00:10:10] Speaker 00:
In a lot of Supreme Court cases in this area, the question has been, is this conduct actually a crime?

[00:10:17] Speaker 00:
Is it a violation of the federal criminal laws?

[00:10:19] Speaker 00:
Here, the challenge is being made to the jury instructions.

[00:10:22] Speaker 00:
So do you contend that any of these theories are actually legally invalid, or they were just wrongly instructed?

[00:10:33] Speaker 00:
There's no amount of instruction.

[00:10:34] Speaker 00:
You can't instruct somebody on something that's not a crime.

[00:10:36] Speaker 03:
Sure.

[00:10:36] Speaker 03:
No, I think that as charged, the honest services fraud theory was legally valid.

[00:10:43] Speaker 03:
Now, the instructions did not track the elements of the honest services fraud theory.

[00:10:48] Speaker 03:
And that is for two reasons, but primary among them is the very one that troubled the jury.

[00:10:54] Speaker 03:
And that is the fact that the instructions defined a bribery kickback as paying a fiduciary for services

[00:11:03] Speaker 03:
And as defense counsel pointed out, that left open the possibility that paying a fiduciary for providing advisory services rather than services in his capacity as an employee would be a ground for conviction.

[00:11:18] Speaker 03:
When the jury came back and asked for there to be a bribery kickback, does the payer need to know, I'm paraphrasing on that latter part, does the payer need to know that it is in

[00:11:29] Speaker 03:
connection with services other than lawful services, the jury was teeing up exactly the confusion, exactly the heart of the theory of defense as well as the key prosecution theory as well.

[00:11:44] Speaker 03:
Then couple that with the court's error on materiality.

[00:11:53] Speaker 03:
Court's decision to instruct on materiality in a way that Sue Espante injected vagueness and that the court also acknowledged was deeply troubling here, Your Honors.

[00:12:05] Speaker 03:
And of course, as the court knows from the briefing, what happened there was initially the government had acknowledged that, yes, Netflix is the only charged victim, and there needs to be, as in the indictment,

[00:12:18] Speaker 03:
a materially false or fraudulent representation, et cetera, et cetera, to Netflix.

[00:12:26] Speaker 03:
I have trouble.

[00:12:26] Speaker 02:
It seems like you're arguing that the jury wouldn't have known that the harm had to be to Netflix.

[00:12:33] Speaker 02:
But it seems like that was clear from the other instructions.

[00:12:36] Speaker 02:
So I have trouble.

[00:12:37] Speaker 02:
I mean, there were instructions that an intent to defraud by depriving Netflix of the right to honest services,

[00:12:45] Speaker 02:
fraudulent pretenses, representations, promises, or omissions are directed at Netflix.

[00:12:50] Speaker 02:
I mean, I don't think the jury was really confused that the victim was Netflix, but it seems like you're trying to say that somehow that was confusing because of this materiality thing.

[00:12:58] Speaker 03:
Not at all, Your Honor.

[00:13:00] Speaker 03:
The jury certainly knew that the victim was Netflix, but the question was what type of harm is inflicted on Netflix?

[00:13:08] Speaker 03:
What, better said, what is necessary to inflict the harm on Netflix?

[00:13:14] Speaker 03:
And in fact, the error on the materiality instruction really had two components to it.

[00:13:20] Speaker 03:
One was it left open the possibility that lying to a vendor in order to get an advising contract with a vendor was a violation of fiduciary duty to Netflix, and therefore that that would be sufficient.

[00:13:36] Speaker 03:
It left open the possibility that in fact the other problem first one.

[00:13:41] Speaker 02:
I think lying to the vendor I mean it seems like you had to have a misrepresentation to Netflix I just don't see that as very plausible that first argument that really the jury was confused that it could really be a Cheating the vendor somehow

[00:13:55] Speaker 03:
Your Honor, the jury was not even required to find a misrepresentation in connection with honest services fraud.

[00:14:01] Speaker 03:
That's the other major problem with this.

[00:14:03] Speaker 03:
The model instruction at the time, and I believe still currently, actually refers to the materiality of an act.

[00:14:11] Speaker 03:
It doesn't say material misrepresentation.

[00:14:14] Speaker 03:
Now, first of all, the court held and banked that a material misrepresentation is an element of an honest services fraud claim.

[00:14:23] Speaker 03:
But secondly, Your Honors, that's how it's charged.

[00:14:26] Speaker 03:
And of course, when the government charges something in a particular way, it has to prove it in that particular way.

[00:14:32] Speaker 03:
So this instruction had two problems.

[00:14:33] Speaker 03:
Nobody actually was required to find a lie to Netflix at all.

[00:14:40] Speaker 03:
But, and worse than that, when the materiality element was tied to act, it essentially directed a verdict because Mr. Kyle's acts

[00:14:52] Speaker 03:
by definition, were acts of Netflix.

[00:14:55] Speaker 03:
He had the authority to find the company.

[00:14:58] Speaker 03:
And likewise, it was essentially a given that Mr. Kyle's acts in providing services, advisory services, would be material to the vendors.

[00:15:07] Speaker 03:
So the other problem, even if, and I don't think that, well, the jury knew what the government was getting at, is the way that the court usually evaluates instructions.

[00:15:16] Speaker 03:
But I think to your Honor's point of, was it clear there had to be a misrepresentation to Netflix?

[00:15:22] Speaker 03:
Not at all, and quite the contrary, because in the context of honest services, the definition was an act must be material.

[00:15:31] Speaker 02:
Did you argue in your brief that the problem with these instructions was that there didn't have to be any misrepresentation?

[00:15:37] Speaker 03:
Oh, yes, Your Honor.

[00:15:38] Speaker 03:
Absolutely.

[00:15:39] Speaker 03:
I'll find it for the court.

[00:15:45] Speaker 03:
The two components are addressed together, that it is in fact the

[00:15:51] Speaker 03:
Misrepresentation it is the absence of the misrepresentation and it is the fact that I am just looking at the Honest services briefing your honor, but I will find it it is in fact the Same point and this is at I'm getting there 55 it begins on page 55 of the AOB and

[00:16:20] Speaker 03:
And it actually continues at some length because there are these two different threads of the error here, Your Honor, and they were mutually reinforcing.

[00:16:29] Speaker 02:
So I thought that this was about material to Netflix and whether it had to be to Netflix.

[00:16:33] Speaker 02:
I didn't understand this to be there was no instruction that you needed a misrepresentation.

[00:16:38] Speaker 02:
Can you show me where that is?

[00:16:40] Speaker 03:
Yes, Your Honor.

[00:16:40] Speaker 03:
So page 56, for example, defense counsel objected that the government's proposed instructions did not require proof that the scheme was carried out

[00:16:50] Speaker 03:
by means of materially false and fraudulent pretenses, representations, and promises or omitted facts.

[00:16:56] Speaker 03:
She pointed out that the indictment expressly charged those means and the court confirmed that 1346 requires them in Milanovich.

[00:17:04] Speaker 03:
And that in fact was an express request by defense counsel to add to the proposed instructions by means of false or fraudulent pretenses, representations,

[00:17:17] Speaker 03:
Promises or omitted facts.

[00:17:19] Speaker 03:
I guess your position is the instruction 35a Was not sufficient it was not your honor for a number of reasons first as the court knows It was really quite disconnected from the honest services fraud instructions.

[00:17:33] Speaker 03:
It came at the very end And was I believe it was 13 transcript pages.

[00:17:38] Speaker 03:
I counted between the end of the honest services fraud instructions, but It has the language that you want it has the language on

[00:17:47] Speaker 03:
on representations or promises.

[00:17:50] Speaker 03:
But here's the problem, Your Honor.

[00:17:51] Speaker 03:
First, it's a definition of intent to defraud.

[00:17:54] Speaker 03:
So it's a mens rea rather than an actus reus.

[00:17:57] Speaker 03:
Second, it doesn't say material.

[00:17:59] Speaker 03:
So there's still no requirement.

[00:18:02] Speaker 03:
This goes to Judge Friedland's question about how these two interconnected pieces reinforce each other.

[00:18:09] Speaker 03:
That definition in the intent to defraud is about just what Mr. Kyle intended.

[00:18:17] Speaker 03:
And it does not require materiality.

[00:18:19] Speaker 03:
So the jury is left then not knowing whether they're at least not required to find that the government has proved the actus reus that it chose to charge, which is that Netflix was deprived of honest services by means of materially false and fraudulent representations to it.

[00:18:41] Speaker 03:
And, of course, is the court.

[00:18:42] Speaker 02:
I know omission would count, too, though, right?

[00:18:43] Speaker 03:
Yes, Your Honor.

[00:18:44] Speaker 03:
And that was, in fact, there's some substantial discussion of that at the charge conference, because the government was taking the position that really they were taking up, again, this fairly absolutist position that simply accepting secret payments would be sufficient to prove honest services fraud, given the nature of the fiduciary relationship,

[00:19:09] Speaker 03:
And defense counsel flushes out correctly that the fiduciary relationship plays in in two ways there.

[00:19:15] Speaker 03:
Number one, of course, there has to be a duty to disclose.

[00:19:18] Speaker 03:
And Mr. Kyle didn't contest his fiduciary relationship, his fiduciary duty.

[00:19:24] Speaker 03:
But what he was saying is duty to disclose, okay, that's at least the predicate for the omission theory.

[00:19:31] Speaker 03:
And then the other component of the instructional error on honest services fraud

[00:19:38] Speaker 03:
or maybe better said the thing that shows us there was no cure in the definition of fiduciary.

[00:19:44] Speaker 03:
As the 11th Circuit had observed in the on-spa case that was cited below and in the briefing now, the definition of fiduciary says, what do fiduciaries owe?

[00:19:55] Speaker 03:
Fiduciaries are supposed to put the employer's best interest above their own, and fiduciaries owe a duty of honesty.

[00:20:04] Speaker 03:
And so essentially, that definition reinforces the idea

[00:20:08] Speaker 03:
that Mr. Kyle, who was not contesting his fiduciary status, having failed to disclose his own self-dealing, per se violated his duty of honest services.

[00:20:23] Speaker 03:
Now, that's something- I think you've taken up your time.

[00:20:25] Speaker 02:
So I'll give you three minutes for rebuttal, but let's hear from the government.

[00:20:28] Speaker 03:
Okay.

[00:20:28] Speaker 03:
Thank you, Your Honor.

[00:20:48] Speaker 01:
Good morning, your honor, and may it please the court.

[00:20:51] Speaker 01:
My name is Ross Mazer, and I represent the United States.

[00:20:58] Speaker 01:
To begin with, Judge Bress's question about harmlessness, I think it is the case that if the court were to affirm on either the honest services or the property fraud theories, then there would be no remedy.

[00:21:14] Speaker 01:
The court would not have to reach the other theory, because both theories

[00:21:18] Speaker 01:
were charged in a single count.

[00:21:20] Speaker 01:
Under the Yates rule, constitutional error occurs only when the jury returns a general verdict that may rest on an invalid theory.

[00:21:29] Speaker 01:
Here, that was not possible because the jury was given a specific unanimity instruction.

[00:21:35] Speaker 01:
And so if the court were to uphold either theory, that would effectively end the inquiry.

[00:21:40] Speaker 00:
And do you think we would need to reach the constructive amendment issue?

[00:21:45] Speaker 01:
As I understand the constructive amendment issue it pertains that anything on fire and we pointed out that we did it to get his girlfriend's attention Thank you both sides and thank you for taking this case pro bono, we really appreciate your assistance.

[00:22:00] Speaker 01:
This case is submitted.

[00:22:01] Speaker 01:
Affirm on on each of the counts I don't think it's necessary, but I'd like to we would have to decide that the honest services theory

[00:22:11] Speaker 02:
Was enough to affirm though before we could say we didn't have to reach the constructive amendment, right?

[00:22:16] Speaker 01:
Yes, your honor.

[00:22:16] Speaker 00:
That's I think that's true Your opposing counsel says well, there's kind of a bleed over of the evidence.

[00:22:21] Speaker 00:
So you really do need to decide it.

[00:22:23] Speaker 00:
What's your response to that?

[00:22:25] Speaker 01:
No that the two theories were clearly just Distinguished in the jury instructions and the government's opening and the government's closing arguments is the proof different like is there some evidence that would have come not have come in and

[00:22:38] Speaker 00:
if the property fraud theory had not been charged?

[00:22:42] Speaker 01:
Not that I'm aware of, Your Honor.

[00:22:43] Speaker 01:
The evidence was exactly the same.

[00:22:47] Speaker 02:
Do you have a response to this motion-eliminate argument that came up about keeping out the evidence of whether there was value of these contracts?

[00:22:56] Speaker 02:
I think that was the suggestion.

[00:22:58] Speaker 02:
I didn't actually remember that from the brief, so maybe you could explain what your view of this motion-eliminate issue is.

[00:23:02] Speaker 01:
Yeah, I'm sorry, Your Honor, but I'm not familiar with exactly which motion Ms.

[00:23:06] Speaker 01:
Matthewson is referring to.

[00:23:07] Speaker 01:
But the issue of whether Netflix suffered an economic loss was litigated throughout the three-year history of this case from the motion to dismiss all the way through trial, which is a substantial portion of the evidence focused on how much money Netflix lost, whether other less expensive alternatives were available to Netflix than the vendor contracts that Netflix offered as a result of the scheme.

[00:23:36] Speaker 01:
So I can't imagine that, and I don't think any evidence was excluded or that any evidence would have been excluded.

[00:23:46] Speaker 01:
But in the event the court feels it needs to address the constructive amendment claim, I'd like to turn to that now if the court wouldn't mind.

[00:23:56] Speaker 02:
That's fine.

[00:23:56] Speaker 01:
Okay.

[00:23:59] Speaker 01:
It is worth noting, I think at the outset, that the defense has not

[00:24:02] Speaker 01:
renewed their challenge to the denial of the motion to dismiss or any raised any freestanding challenge to the sufficiency of the indictment.

[00:24:10] Speaker 01:
So any challenge would have to fall into one of these three categories, constructive amendment, jury instructions, or sufficiency of the evidence.

[00:24:18] Speaker 01:
But there was no constructive amendment here really for three simple reasons.

[00:24:21] Speaker 01:
The first is that the four corners of the indictment alleged a theory of property fraud.

[00:24:28] Speaker 01:
And this is on 2ER608 paragraph 21.

[00:24:32] Speaker 01:
Specifically, the indictment alleged a scheme to deprive Netflix of money it spent on more favorable contracts than it would have paid out absent the scheme to defraud.

[00:24:45] Speaker 01:
The court can stop the inquiry there.

[00:24:46] Speaker 01:
That's the constructive amendment.

[00:24:49] Speaker 01:
But secondly, if the court went further, it's simply not true that the government maintained throughout the trial that the indictment alleged only honest services fraud.

[00:24:58] Speaker 01:
And I point you to the motion to dismiss

[00:25:01] Speaker 01:
This is district court doctor number 23 at pages 1, 2, and 5, and the opposition to the motion that is missed.

[00:25:10] Speaker 01:
This is district court doctor number 30 at pages 6 and 6 to 7.

[00:25:15] Speaker 01:
Both documents were relied upon in the defense briefing, but are not in the excerpts of record.

[00:25:20] Speaker 01:
And in the motion that is missed, the defense argued, one, that there was no property fraud because the vendors paid

[00:25:30] Speaker 01:
Mr. Kyle So the the defense argued against the government's theory of property fraud but in so doing Recognized that the government had alleged that theory in the indictment and then the government responded to that argument in its opposition It's true the government's motion that is missed then went on to attack the honest services fraud as well But it made clear that it was attacking both separate theories and the defense has not renewed that and third just lastly

[00:25:57] Speaker 01:
You know even if the defense were correct that the government made a statement Suggesting that the indictment alleged honest services fraud a constructive amendment analysis doesn't look at the party's subjective intentions as this court recently made clear in Holmes So for those reasons, I think there was there was no constructive amendment Once you address the jury instructions on the honest services that your opposing counsel walked us through

[00:26:28] Speaker 01:
I'd be happy to, Your Honor.

[00:26:33] Speaker 01:
So first, I understand the defense to be arguing that the jury instructions permitted a conviction for accepting compensation for legitimate advisory services.

[00:26:48] Speaker 01:
I think that argument is inconsistent with the requirement in the jury instructions that the jury must find a bribe or a kickback.

[00:26:57] Speaker 01:
It would make no sense for the jury to be required to find a bribe or kickback for what were otherwise legitimate advisory services.

[00:27:04] Speaker 01:
Those would be inconsistent.

[00:27:06] Speaker 01:
The honest services fraud instructions also conveyed that the word services referred to in the instruction referred to the defendant's services as a Netflix fiduciary.

[00:27:18] Speaker 01:
And you can find that in the lengthy definition of, I think, fiduciary as well as bribe or kickback.

[00:27:26] Speaker 01:
The instructions also required a specific intent to defraud Netflix, which would also foreclose the defendant's argument that the instructions permitted a conviction for taking money from the vendors for legitimate advisory services.

[00:27:41] Speaker 01:
And the instruction per the defendant's request stated that undisclosed conflicts of interest are not honest services fraud.

[00:27:51] Speaker 01:
So the jury instructions clearly conveyed that the

[00:27:55] Speaker 01:
the jury in order to convict had to find a violation of Mr. Kyle's fiduciary duty to Netflix in exchange for bribes or kickbacks.

[00:28:08] Speaker 00:
How about the use of false and fraudulent pretenses and representations, the material that's covered by instruction 35A, which your opposing counsel said, well, it's not sufficient because it's a few pages later.

[00:28:23] Speaker 00:
from the primary honest services instruction.

[00:28:30] Speaker 01:
The definition of bribes or kickbacks, Your Honor?

[00:28:33] Speaker 00:
I think it would be the instruction about intent to defraud.

[00:28:45] Speaker 01:
The fourth element of the honest services fraud instruction was that Mr. Kyle acted with a specific intent to defraud

[00:28:53] Speaker 01:
by depriving Netflix of the right to honest services.

[00:28:57] Speaker 01:
So there was no question that the victim was Netflix, that the misrepresentations, the material acts had to be material to Netflix.

[00:29:09] Speaker 01:
And so I think the district court correctly charged the scheme to defraud element, which again is one of the reasons why the instructions did not permit a conviction for just taking

[00:29:21] Speaker 01:
compensation for legitimate advisory services.

[00:29:27] Speaker 00:
On the property fraud, if we can move to that, the argument's made that essentially you can't, you have to charge a mirror image.

[00:29:36] Speaker 00:
You have to basically say that the object of the property fraud, I take it, was to receive money directly from, to take Netflix's loss, to cause a loss to Netflix and to take that loss.

[00:29:50] Speaker 00:
I take it you disagree with that.

[00:29:52] Speaker 01:
I do, Your Honor, yes.

[00:29:55] Speaker 01:
Sure, I would be happy to address that.

[00:29:58] Speaker 01:
First, let me repeat that the defense has not renewed their challenge to the motion that is dismissed, so they have to fit this challenge within their argument as to the jury instructions.

[00:30:10] Speaker 01:
But it is true that the Supreme Court in McNally

[00:30:16] Speaker 01:
Decided to read the mail and wire fraud statutes as a unitary whole even though they contain a disjunction a Scheme to defraud or as or for obtaining money or property but McNally and all of the subsequent cases from Carpenter to Cleveland to Kelly to Seminelli to skilling

[00:30:40] Speaker 01:
read the second clause of the disjunction or for obtaining money or property to limit the first clause in a very specific way that has nothing to do with the obtaining or the mirror image requirement.

[00:30:52] Speaker 01:
What the court said in McNally, this is the key language that got repeated in all of the cases I just mentioned, was that the money or property requirement in the second clause of the disjunction limits the reach of the scheme to defraud element

[00:31:08] Speaker 01:
in the first clause, because at common law, the phrase to defraud meant wronging one in his property rights.

[00:31:17] Speaker 01:
Now, I think the court can draw two conclusions.

[00:31:20] Speaker 01:
One, that the word wronging is synonymous with a deprivation and does not mean the type of personal acquisition or one mirror image gain and loss type of personal acquisition that the defense is arguing.

[00:31:37] Speaker 01:
And second, that the focus in McNally was not about using the word obtaining in the second clause of the disjunction to add anything to this court's holding in Miller that a scheme to defraud is a scheme to deceive and cheat.

[00:31:54] Speaker 01:
By emphasizing money or property, all the court was saying was that the scheme to defraud must have as an object money or property.

[00:32:05] Speaker 00:
interpreting this mirror image language in some of these Supreme Court opinions or maybe it's just one.

[00:32:12] Speaker 00:
Have other circuits agreed with you on this point or would you have other circuits address this?

[00:32:18] Speaker 01:
Yes, Your Honor.

[00:32:19] Speaker 01:
This language came from skilling.

[00:32:21] Speaker 01:
It was to illustrate the general distinction between a property fraud and an honor services fraud type of offense, both the Third Circuit and the Fifth Circuit.

[00:32:35] Speaker 01:
have expressly rejected the idea that Skilling's language about a mirror image somehow imposed a necessary requirement on property fraud.

[00:32:47] Speaker 00:
And is there a reason to think any of this will be considered in the koussisis, I don't know if I'm pronouncing that correctly, but the case that the Supreme Court has now?

[00:32:57] Speaker 01:
I'm not sure if it's koussisis or not, but I'm sure Ms.

[00:33:00] Speaker 01:
Matheson can correct me.

[00:33:02] Speaker 01:
No, I don't believe so.

[00:33:03] Speaker 01:
The salient fact in Koussis was that, at least according to the defense, that the city, PennDOT, did not lose any money.

[00:33:16] Speaker 01:
This was just a pure fraud in the inducement case.

[00:33:20] Speaker 01:
And that was the salient fact.

[00:33:22] Speaker 01:
In this case, the indictment alleged, and the government argued, that Netflix was deprived of the money that it spent on more favorable contracts

[00:33:32] Speaker 01:
then it would have paid out absent the fraud.

[00:33:34] Speaker 01:
This is not a fraud in the inducement case.

[00:33:36] Speaker 02:
Where in the instructions did the jury have to find that?

[00:33:40] Speaker 02:
Is there somewhere in the instructions that the jury had to find that Netflix suffered a monetary loss compared to what would have happened?

[00:33:48] Speaker 01:
The instructions provided that the government had to prove an intent to deceive and cheat.

[00:33:59] Speaker 02:
Right.

[00:33:59] Speaker 02:
So I don't know if that

[00:34:01] Speaker 01:
Mean it seems like what you just said to judge breast to distinguish the Supreme Court case suggested that here the jury Definitely had to find that Netflix lost money is how it is paraphrase I think of what you just said, but I'm not sure that's in the instructions that the jury had to find that But that was the government's theory of the case the jury was instructed on fairly standard property fraud instructions in kusisis the government's theory Was that the the misrepresentation alone

[00:34:30] Speaker 01:
went to a property interest and I believe the jury was instructed in that case on an intangible theory of property.

[00:34:37] Speaker 01:
The defense has not cited and I am not aware of any court to find jury instructions invalid on an intangible right theory where the jury instructions didn't mention anything about intangible rights.

[00:34:53] Speaker 01:
The government did not proceed on that theory and the defense only claim really is that the

[00:34:58] Speaker 01:
The judge should have preemptively instructed the jury that property does not include intangible rights, which would only confuse them, since the government had never injected that theory into the case.

[00:35:11] Speaker 01:
Now, just to finish responding to Judge Bress's questions about distinguishing crucesis, the other reason that... I'm sorry.

[00:35:20] Speaker 02:
Let me just ask a follow-up about that, though.

[00:35:24] Speaker 02:
Honest services theory an intangible theory so there was an intangible theory going on in this case the honest services.

[00:35:32] Speaker 01:
Yes, your honor So I'm not sure it's fair to say that the jury wasn't thinking about intangible services or intangible rights The jury was given two discrete sets of jury instructions of course There's the presumption that the jury will follow them and that the district court added some of the defendant's proposed language defining

[00:35:54] Speaker 01:
And money or property as a money or or a similar economic interest on his service was phrased in a completely different way not a deceive not a specific intent to deceive the property fraud actually had an intangible component component to it whereas here they were kept distinct in the instructions yes your honor and the other difference would be that the koussis implicates a distinction between

[00:36:23] Speaker 01:
asks whether whether an interest is a regulatory interest or is actually a property interest which is a consideration unique to public sector cases and does not apply in in private sector cases one point that the The defendant has raised on the property fraud instructions that they talk about a scheme of plan of for obtaining or money or property, but they don't

[00:36:47] Speaker 00:
say Netflix's money or property, and that maybe the jury would infer it was a scheme to obtain the money or property of the startups.

[00:36:57] Speaker 00:
So how do you address that?

[00:37:01] Speaker 01:
Sure.

[00:37:06] Speaker 01:
I'm sorry, your honor.

[00:37:16] Speaker 01:
I think the instructions make clear that the victim in the case was Netflix.

[00:37:25] Speaker 01:
Multiple instructions refer to Netflix.

[00:37:31] Speaker 01:
Looking at the jury instructions on property fraud, the first element refers to a scheme or plan for obtaining money or property.

[00:37:50] Speaker 01:
The third element scheme, I'm sorry, intent to deceive and cheat.

[00:37:56] Speaker 01:
The definition of a fiduciary refers to the defendant's role as a fiduciary, specifically to Netflix.

[00:38:07] Speaker 00:
The defendant wanted language that said something like, you know, take something of economic value from the victim.

[00:38:14] Speaker 00:
And so that language is not in, you know, the district judge

[00:38:18] Speaker 00:
Decided not to include that but Was it was it error not to include it or did it change the instructions?

[00:38:26] Speaker 01:
No, not at all the district judge gave part of the instruction that a property interest is an economic interest The district court did not give the rest of the instruction much of which because it simply found confusing and Because it would have injected intangible right theories into the government's theory of property fraud which the government had never mentioned

[00:38:46] Speaker 01:
Again, the defense hasn't cited any case holding that the district court erred in not instructing the jury on an intangible theory of property fraud when the government did not allege an intangible property right in its case.

[00:39:13] Speaker 01:
The other thing

[00:39:16] Speaker 01:
The other thing I would say in response to the jury instructions on property fraud is I think the defense is arguing that because there was still a disjunction that that allowed for a conviction on an intangible right theory.

[00:39:29] Speaker 01:
But all of the elements refer to a scheme in the singular.

[00:39:36] Speaker 01:
A scheme to defraud requires specific intent to defraud, which wouldn't make sense if a scheme for obtaining money or property were a second avenue to conviction.

[00:39:45] Speaker 01:
And by analogy, that's why this court in cases like Miller in 2020 and she in 2023, even with respect to an error in the jury instructions, the deceive or cheat error, whereas it was able to easily conclude that that error was harmless because the only reasonable way of reading the jury instructions was as permitting a single path to conviction.

[00:40:10] Speaker 01:
I would also add just that

[00:40:13] Speaker 01:
Although all that is required in this case for the property fraud is for the defendant to devise a scheme to deprive Netflix of money, it was also the case that the defendant had a convoluted way of personally profiting from the scheme.

[00:40:30] Speaker 01:
In addition to approving contracts well beyond what Netflix would have approved,

[00:40:38] Speaker 01:
He got commissions from Vistara and NetEnrich, a percentage of every dollar Netflix lost.

[00:40:44] Speaker 01:
He got stock options from other startups.

[00:40:48] Speaker 01:
And there was a lot of testimony at trial about how valuable a contract with Netflix was to these startups.

[00:40:54] Speaker 01:
And so the benefit to the defendant was fairly direct by steering a contract to startups that otherwise would not have gotten those contracts, would have gotten less favorable contracts, would have gotten shorter term contracts.

[00:41:06] Speaker 01:
The jury could have certainly reasonably inferred that the value of stock options would have immediately and directly increased Thank you counsel, I think we've taken you through your time.

[00:41:17] Speaker 01:
Thank you your honor.

[00:41:19] Speaker 03:
Let's put three minutes on the clock for a bottle Thank you your honors, it's koussis, but he tells me that in Greek.

[00:41:30] Speaker 03:
It's koussis so

[00:41:33] Speaker 03:
Time will tell what happens there.

[00:41:35] Speaker 03:
Let me explain why Chrysostasis is not directly relevant but may be indirectly relevant.

[00:41:39] Speaker 03:
It's not directly relevant because the government has never accused Mr. Kyle of scheming to steal, essentially, from Netflix.

[00:41:49] Speaker 03:
What it has said over and over, and this goes to paragraph 21 of the indictment, is that this was a scheme that imposed costs on Netflix.

[00:41:58] Speaker 03:
It, in fact, resulted in loss to Netflix.

[00:42:01] Speaker 03:
But it was not a scheme

[00:42:03] Speaker 03:
devised for that subjective purpose.

[00:42:06] Speaker 03:
And this court has recognized for decades that, in fact, there is really a difference between consequence and objective.

[00:42:14] Speaker 03:
And it is simply not enough to say that there is an implementation cost, a certain loss, that is imposed on the employer when the defendant has schemed to do something else.

[00:42:26] Speaker 03:
That's what we know from Kelly, for example.

[00:42:29] Speaker 03:
That's why the court's model instructions now say

[00:42:32] Speaker 03:
scheme or artifice to defraud for the purpose of obtaining money or property.

[00:42:37] Speaker 03:
Now they don't parse out the question of is it a third party's money or property or does it have to be the victims, but this court has been saying that since the Lew decision back in 89 that property fraud requires that taking essentially the transfer from victim to defendant.

[00:42:56] Speaker 03:
Here's where crisis is made.

[00:42:57] Speaker 00:
I don't know that we've ever quite said it in that way.

[00:43:00] Speaker 00:
I mean why would it

[00:43:01] Speaker 00:
Why would it matter if you hear the allegations you essentially took money, had Netflix pay money to third parties, those third parties then paid money to the defendant, so why would that, why is that triangulation structured

[00:43:15] Speaker 03:
Any meaningful distinction for two reasons your honor first that it is certainly conceivable So that there could be a scheme where somebody says for example I want to steal from my employer the best way to do this is to get my buddy who owns a dump truck to Jack up his invoices and we're going to pretend that he made ten visits a month instead of only five and then we'll split the money That's a scheme to steal from the employer.

[00:43:41] Speaker 03:
It's not a kickback scheme now the reason

[00:43:44] Speaker 03:
that the distinction really matters is that, well, again, first, just to look at Kelly, there, of course, there was no exchange, there was no transfer from one person to the other.

[00:43:57] Speaker 03:
But there was a different objective by the defendant.

[00:44:01] Speaker 03:
You know, I wanted political retribution, for example, and I'm going to impose the cost of this on my employer.

[00:44:08] Speaker 03:
And the Supreme Court said, no, you need a taking.

[00:44:10] Speaker 03:
You need conversion.

[00:44:12] Speaker 03:
This can take us back to Koussis because, in fact, my colleague here is taking a position that is diametrically opposed to the position the Solicitor General is taking in Koussis.

[00:44:23] Speaker 03:
And I cited in the reply brief the oral argument transcript where the SG points out, the assistant SG points out, this is what McNally was about.

[00:44:32] Speaker 03:
The government focuses on the idea that there was no deprivation proven in McNally.

[00:44:37] Speaker 03:
There was no proof that

[00:44:39] Speaker 03:
the victim there, the Commonwealth of Kentucky, would have paid more or gotten better insurance.

[00:44:44] Speaker 03:
But the next page of McNally talks about the point that a kickback paid by an undeceived third party, that's how Skilling puts it later, is not in fact the employer's money.

[00:44:57] Speaker 03:
It's been paid to the third party.

[00:44:59] Speaker 03:
If the employer roots it back, that is, I'm sorry, if the third party roots it back, that is

[00:45:07] Speaker 03:
getting an undeceived third party's money by a scheme to deprive the employer only of the intangible services.

[00:45:15] Speaker 03:
It's not the taking.

[00:45:17] Speaker 03:
So we know that that's the official position of the Department of Justice.

[00:45:20] Speaker 03:
With the court's permission, I do want to point out, I will clarify on that motion in limine.

[00:45:25] Speaker 03:
It may not have been ruled upon, and of course I don't want to mislead the court.

[00:45:28] Speaker 03:
But regardless, the point stands that the defense had no notice until literally three weeks before trial.

[00:45:34] Speaker 03:
that there was in fact a property fraud theory.

[00:45:38] Speaker 03:
And the government didn't prove what Netflix would have spent otherwise or prove that in fact these items were worthless to Netflix because the government never proved what the alternatives were.

[00:45:54] Speaker 03:
The government said in opening, sorry.

[00:45:55] Speaker 02:
I think I need to cut you off because you're over your rebuttal time unless anyone has further questions.

[00:45:59] Speaker 02:
No, okay.

[00:46:00] Speaker 02:
Thank you both sides for the helpful arguments.

[00:46:03] Speaker 02:
This case is submitted and we are adjourned for the day.

[00:46:29] Speaker 03:
This court for this session stands adjourned.