I spend a lot of time reading court decisions. Many are dull, boring, and filled with citations to prior dull, boring decisions.
But every now and then you come across a truly amusing, interesting opinion. Recently, I read an opinion from a three-judge panel of the Eleventh Circuit Court of Appeals. Early on I knew I’d struck decision gold. The first footnote referenced a verse from Exodus; the second referred to my all-time favorite movie, Casablanca (Warner Brothers 1942).
U.S. v. Albert Takhalov, Isaac Feldman, and Stanislav Pavelenko was a wire-fraud prosecution by the U.S. Justice Department against three owners of clubs that used “B-girls.” For those not steeped in the lingo of 1940s hard-boiled detective film noir, “B-girls” stands for “Bar Girls” — in this case Eastern European women. As Judge Amul Thapar explained in the opinion, the defendants — Mssrs. Takhalov, Feldman, and Pavelenko — had hired the women “to pose as tourists, locate visiting businessmen, and lure them into the defendants’ bars and nightclubs.”
The defendants admitted that “the B-girls concealed their relationship with the clubs to persuade the men to go to the clubs.” But, they contended, it was “a perfectly legitimate business model.”
The government and the defendants disagreed on what happened after the men entered the clubs. According to prosecutors, “once inside the clubs, employees would pour vodka in the men’s beer to get them drunker, misrepresent the prices of drinks, hide menus, cover up prices, and even forge the men’s signatures on credit-card receipts.” It should come as no surprise that vodka was being secretly used to get these men inebriated; after all, even the names of the defendants in this case sound like a Hollywood movie about Russian/Jewish mobsters from Brighton Beach, although the clubs were apparently located in Miami.
The defendants’ story, however, “began and ended with the B-girls.” Yes, they knew that the “B-girls were posing as tourists to get the men to come to the clubs with them.” But from there, the defendants “proceeded to mount what one might call the Casablanca defense, arguing that they were ‘shocked, shocked’ to learn that fraud was taking place within their South-Beach versions of Rick’s Café Américain.” Here Judge Thapar has a footnote to one of the most famous exchanges in movie history:
Rick: How can you close [up my bar]? On what grounds?
Captain Renault: I’m shocked, shocked to find that gambling is going on in here!
Croupier: Your winnings, sir.
As for the “swindling going on inside the clubs — the lying about prices, the forging of signatures, and so on — the defendants said they knew nothing about it.” In fact, the defendants denied that these “allegedly swindled men were truly victims: they knowingly entered the clubs, bought bottles of liquor, and drank them with their female companions.” At the end of the day (or night), they argued, just like cowboys buying overpriced drinks for saloon girls in almost any Western movie or TV shows like Gunsmoke (see Ms. Kitty at the Long Branch Saloon in Dodge City, Kan.), the defendants claimed that “these men got what they paid for — nothing more, nothing less.”
So why did this case end up before a federal appeals court? Because the parties disagreed “about the legal significance of the lies that the B-Girls used to get the men to come into the clubs in the first place.” In the Justice Department’s view, the defendants had violated the federal wire-fraud statute based on those lies alone. But Takhalov, Feldman, and Pavelenko maintained that using “promoters” to persuade men to come into their clubs did not “constitute fraud.”
This is where the court’s reference to Exodus 20:16 comes in. As Judge Thapar wrote for the three-judge panel, the federal wire-fraud statute “does not enact as federal law the Ninth Commandant given to Moses on Sinai” (“Thou shalt not bear false witness against thy neighbor.”). Federal law “forbids only schemes to defraud, not schemes to do other wicked things, e.g., schemes to lie, trick, or otherwise deceive.” Deceiving does not “always involve harming another person; defrauding does.” In other words, in addition to the deception, the government had to show the deception caused an injury to meet the definition of actionable fraud.
Applying that rule, the court gave as an example a young woman asking “a rich businessman to buy her a drink at Bob’s Bar.” The businessman buys her a drink but afterwards she decides to leave. The man got what he bargained for: a drink with the young woman. Does “it change things if the woman is Bob’s sister and he paid her to recruit customers? No; regardless of Bob’s relationship with the woman, the businessman got exactly what he bargained for.” But if “Bob promised to pour the man a glass of Pappy Van Winkle but gave him a slug of Old Crow instead, well, that would be fraud. Why? Because the misrepresentation goes to the value of the bargain.”
Judge Thapar, who was sitting by designation (a “guest” judge, if you will) on the Eleventh Circuit, is a district-court judge in Kentucky, so he certainly knows his bourbon. He supplies two footnotes to explain that Pappy Van Winkle or “Pappy’s” as it is often called, “is a particularly rare bourbon varietal: nearly impossible to find, and nearly impossible to afford when one finds it.” Old Crow, on the other hand, “is not Kentucky’s most-expensive liquor” although it does have a “venerable pedigree — reportedly the go-to drink of Mark Twain, Ulysses S. Grant, Hunter Thomson, and Henry Clay.” The “deluxe” version of Old Crow, he notes, “retails for approximately $15 per bottle.”
So how did the case shake out? Except for a visa violation, all of the convictions were overturned because the trial judge did not instruct the jury that, in addition to luring the businessmen into the club, a conviction was proper only if the jury also found that the businessmen were “cheated out of money or property” by “running up fake bills” or “charging absurd drink prices that the menus nowhere advertised.” After all, Judge Thapar observed, “the average juror is not Mr. Spock;” they needed to be specifically instructed by the judge on this legal issue.
The case was remanded back to the trial judge, so the Justice Department will have to decide whether to retry the case against Iranov, Buljanov, and Kopalsky. Oops, sorry, I meant against Takhalov, Feldman, and Pavelenko. Iranov, Buljanov, and Kopalsky are the three Russian commissars from an earlier movie classic, Ninotchka (MGM 1939, Greta Garbo and Melvyn Douglas).