1 BENJAMIN L.

COLEMAN
BENJAMIN L. COLEMAN LAW PC
2 1350 Columbia Street, Suite 600
San Diego, California 92101
3 Telephone No. (619) 865-5106
Email: [email protected]
4
MICHAEL F. PHILLIPS
5 PHILLIPS & BORDALLO
410 West O’Brien Drive
6 Hagatna, GU 96910-5044
Telephone No. (671) 477-2223
7 Email: [email protected]

8 Counsel for Defendant Mark S. Smith

9 IN THE UNITED STATES DISTRICT COURT

10 FOR THE TERRITORY OF GUAM
11 UNITED STATES OF AMERICA, ) Criminal Case No. 17-00020
)
12 Plaintiff, )
)
13 v. )
) SUPPLEMENTAL REPLY BRIEF
14 MARK S. SMITH, )
)
15 Defendant. )
)
16 )
17 COMES NOW, defendant Mark S. Smith, by and through undersigned
18 counsel, and respectfully submits this Supplemental Reply Brief pursuant to the Court’s

19 June 3, 2022 and July 12, 2022 orders.

20 Respectfully submitted,
21 s/Benjamin L. Coleman, s/Michael F. Phillips
22 Dated: July 15, 2022 BENJAMIN L. COLEMAN
MICHAEL F. PHILLIPS
23
Counsel for Defendant Mark S. Smith
24

25

26

27

28

Case 1:17-cr-00020 Document 668 Filed 07/15/22 Page 1 of 10

 1 TABLE OF CONTENTS
2 Table of authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii

3 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

4 Argument.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

5 I. The Court should grant Rule 29 relief on the remaining counts because the
government has conceded through judicial admissions that the counts are based
6 on the same defective property fraud theory, and its concession is well taken.. . . . . . . . . . 1

7 II. At the very least, the Court should grant a new trial on the remaining counts. . . . . . . . 5

8 III. The Court should conditionally grant a new trial on all counts under Rule 29(d).. . . . 6

9 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Case 1:17-cr-00020 Document 668i Filed 07/15/22 Page 2 of 10

 1 TABLE OF AUTHORITIES
2 CASES
3 Kelly v. United States,
140 S. Ct. 1565 (2020). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4
Ruan v. United States,
5 142 S. Ct. 2370 (2022). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,7
6 State v. Talley,
466 A.2d 78 (N.J. 1983). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7
United States v. Baker,
8 928 F.3d 291 (3d Cir. 2019). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
9 United States v. Collins,
464 F.2d 1163 (9th Cir. 1972). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,5
10
United States v. Dowl,th
11 619 F.3d 494 (5 Cir. 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
12 United States v. Faust,
850 F.2d 575 (9th Cir. 1988). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
13
United States v. Herrera-Martinez,
14 525 F.3d 60 (1st Cir. 2008). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
15 United States v. Hill,
835 F.2d 759 (10th Cir. 1987). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
16
United States v. Long, th
17 706 F.2d 1044 (9 Cir. 1983). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
18 United States v. Sadler,
750 F.3d 585 (6th Cir. 2014). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
19
United States v. Yates,th
20 16 F.4th 256 (9 Cir. 2021).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,5
21 STATUTES
22 18 U.S.C. § 641. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

23 18 U.S.C. § 666. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

24 RULES
25 Fed. R. Crim. P. 29. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

26 MISCELLANEOUS
27 Model Penal Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

28

Case 1:17-cr-00020 Document 668ii Filed 07/15/22 Page 3 of 10

 1 INTRODUCTION
2 Defendant Mark S. Smith respectfully submits this reply brief to address arguments
3 made by the government in its supplemental opposition to his Fed. R. Crim. P. 29 motion

4 on the remaining counts (Doc. 662). As set forth below, the Court should grant judgments

5 of acquittal on the 18 U.S.C. § 641 charge in Count 28 and the derivative money

6 laundering counts. The Court should also grant a new trial on all counts.

7 ARGUMENT
8 I. The Court should grant Rule 29 relief on the remaining counts because the
government has conceded through judicial admissions that the counts are based on
9 the same defective property fraud theory, and its concession is well taken.

10 Section 641 sets forth four types of theft offenses through the use of four verbs:
11 “embezzles,” “steals,” “purloins,” and “converts.” 18 U.S.C. § 641. Consistent with its

12 trial presentation, see Tr. 3137 (Dec. 3, 2021); Tr. 3487 (Dec. 6, 2021), the government’s

13 original opposition to Mr. Smith’s Rule 29 motion only asserted that he violated § 641 by

14 stealing the HAP funds through property fraud. See Doc. 639.1 In a mere footnote that

15 does not cite any published cases, the government claims that Mr. Smith has “cherry-

16 pick[ed]” parts of the original Rule 29 opposition and contends it should not be held to the

17 admissions in that briefing because it disagrees with the Court’s order granting acquittals

18 on the wire fraud charges. Doc. 662 (p.4 n.2).

19 Mr. Smith did not “cherry-pick;” he merely quoted the only references that the
20 government made to the § 641 charge when discussing the principal Rule 29 issue, and

21 those references clearly asserted that the § 641 charge was based on the same property

22 fraud theory underlying the wire fraud counts. By failing to cite any other parts of its Rule

23

24
1
The government has never relied on an “embezzles” or “purloins” theory and
does not even do so in its supplemental brief. The government did not rely on a “converts”
25
theory at trial, nor does it really argue such a theory now, but Mr. Smith will address
26 conversion later in the text. The government’s current brief makes a cursory assertion that Mr.
Smith “misappropriated” the funds. Doc. 662 (p.4, n.1). No language in § 641 sets forth a
27
“misappropriation” offense, Count 28 did not allege “misappropriation,” the jury instructions
28 did not include a purported “misappropriation” offense, and the government cites no authority
sustaining a § 641 conviction based on a vague “misappropriation” theory of liability.

Case 1:17-cr-00020 Document 668 Filed 07/15/22 Page 4 of 10

 1 29 opposition, the government apparently acknowledges that it did not make any

2 arguments contending that the § 641 count could independently stand if its theory of

3 property fraud was defective. In short, the government has made a binding judicial

4 admission, and its “buyer’s remorse” argument should not go very far. If parties can make

5 admissions in briefs but then later withdraw them any time they receive an unfavorable

6 ruling, there would essentially be no such thing as a judicial admission. While this Court

7 should grant the Rule 29 motion on the remaining counts for this reason alone, Mr. Smith

8 will nevertheless address the government’s new arguments.

9 The Supreme Court’s opinion in Kelly v. United States, 140 S. Ct. 1565 (2020)
10 controls the disposition of the § 641 count, and the government’s response to Kelly

11 basically amounts to rhetoric without any real legal substance. The government simply

12 asserts that the “analogy from Kelly to the question before the Court is strained at best” but

13 cites no authority to support its position. Doc. 662 (p.5-6). The government does not even

14 provide a single citation to refute that § 641 and 18 U.S.C. § 666, the statute at issue in

15 Kelly, are “closely related,” nor does it cite any authority to support its position that they

16 should be interpreted differently. Ironically, one of the cases cited by the government

17 explains that similar theft statutes in Chapter 31 of Title 18 should be construed

18 consistently. See United States v. Baker, 928 F.3d 291, 298 (3d Cir. 2019). Both § 641

19 and § 666, which is entitled “Theft,” use similar terms, including “steals,” and should be

20 interpreted similarly.

21 In Kelly, the Supreme Court did not sustain the § 666 conviction under a “steals”
22 theory, although the statute clearly includes that form of “theft.” Instead, the Court stated

23 that § 666, like the property fraud statutes, targets “obtaining property[,]” Kelly, 140 S. Ct.

24 at 1568, and the government does not dispute that § 641 does the same. Furthermore, the

25 Supreme Court explained that “regulatory” interests do not satisfy the “property

26 requirement” in § 666, id. at 1568-69, and there is no reason why a different rule should

27 apply to § 641. Thus, the Supreme Court has rejected the government’s contention,

28 unsupported by a citation to any authority, that property for purposes of § 641 includes

Case 1:17-cr-00020 Document 6682 Filed 07/15/22 Page 5 of 10

 1 “regulatory concerns.” Doc. 662 (p.11). Both § 641 and § 666 address “government

2 property,” and therefore it would “make very little sense” (using the government’s

3 terminology) for regulatory interests to establish liability under § 641 but not under § 666.

4 Id. In short, Kelly controls the fate of Count 28.

5 Just like the property fraud statutes, it has long been established that at least a
6 potential “property loss” is required to prove a § 641 violation. See United States v. Long,

7 706 F.2d 1044, 1048 (9th Cir. 1983) (“under § 641 an essential element of the crime” is that

8 the government “suffered a property loss”); United States v. Collins, 464 F.2d 1163, 1165

9 (9th Cir. 1972). Even the precedent cited by the government recognized as much. See

10 United States v. Faust, 850 F.2d 575, 579-80 (9th Cir. 1988). There was clearly a potential

11 property loss in Faust, as the defendant embezzled a $100,000 check (as mentioned, the

12 government does not assert an embezzlement theory here) and ultimately the government

13 lost $22 million. Id. at 578. The government did not contend in Faust, nor did the Ninth

14 Circuit find, that regulatory interests can constitute loss for purposes of § 641.

15 The government also cites United States v. Herrera-Martinez, 525 F.3d 60 (1st Cir.
16 2008), which acknowledged the Ninth Circuit’s precedent requiring potential property loss

17 to establish liability under § 641. Id. at 64 n.4; see also United States v. Dowl, 619 F.3d

18 494, 502 (5th Cir. 2010) (also cited by the government and emphasizing a loss of

19 “economic value”). Like Faust, the government suffered a property loss in Herrera-

20 Martinez, and it never argued that § 641 included regulatory interests. Here, unlike

21 Herrera-Martinez, financially eligible renters received the housing that was paid for.

22 Thus, Mr. Smith did not “steal” the government’s money. See United States v. Sadler, 750

23 F.3d 585, 590 (6th Cir. 2014) (“Stealing the pills would be one thing; paying full price for

24 them is another.”). Indeed, the government has still failed to demonstrate a property loss,

25 and that is why it has urged this Court to expand § 641's reach to regulatory interests.2

26

27 2
The government states that the jury instructions for Count 28 have never been
28 objected to and required a deprivation of the “use or benefit” of money or property. Doc. 662
(p.7-9). Mr. Smith has objected to the jury instructions for Count 28, and some of those

Case 1:17-cr-00020 Document 6683 Filed 07/15/22 Page 6 of 10

 1 Although the government previously maintained that its theory of theft for
2 purposes of § 641 was property fraud, see Doc. 639, the government now seeks to steer

3 clear of the word “fraud” and instead claims that its theory was “theft by deception.” Doc.

4 662 (p.7-8). But “theft by deception,” like fraud, does not “include falsity as to matters

5 having no pecuniary significance . . . .” Model Penal Code § 223.3. Even the authority

6 cited by the government recognizes as much. See State v. Talley, 466 A.2d 78, 79 n.1 (N.J.

7 1983) (cited at p.7 of Doc. 662). In other words, changing the label from “property fraud”

8 to “theft by deception” does not do the necessary work, and certainly not in the context of

9 § 641, which has long required property loss. Just as the property fraud statutes do not

10 proscribe mere deception, see United States v. Yates, 16 F.4th 256, 265 (9th Cir. 2021), the

11 government must prove theft by deception, not mere deception, meaning the government

12 must prove that the deception had pecuniary significance. Just as it failed to do so for

13 purposes of the wire fraud statutes, it failed to do so for purposes of § 641.

14 Finally, the government also makes a passing mention of conversion but does not
15 explain how it proved such a theory with any detail or supporting authority. Doc. 662

16 (p.7). The Court should not entertain the undeveloped argument given the government’s

17 prior judicial admissions, its failure to argue a conversion theory at trial or even mention

18 the word “converts” when arguing the § 641 count during summations, see Tr. 3487 (Dec.

19 6, 2021), and its lack of explanation in its current brief. In any event, there is a good

20 reason why the government has never really asserted a “converts” theory – it is inconsistent

21 with its “steals” theory and is without merit. “The distinction between stealing and

22 conversion turns on how possession is obtained. One who gains possession of property by

23 wrongfully taking it from another steals. One who comes into possession of property by

24

25 objections are discussed later in this brief. Furthermore, the instructions for Count 28 could
have more clearly explained the pecuniary loss requirement, as the disjunctive “use or benefit”
26 language is vague. In any event, the claim here is based on the sufficiency of the evidence,

27 not the adequacy of the jury instructions, and the evidence of property loss was insufficient
because the government was not deprived of the use and benefit of its money, as it received
28 the use and benefit of the rental properties that it paid for.

Case 1:17-cr-00020 Document 6684 Filed 07/15/22 Page 7 of 10

 1 lawful means, but afterwards wrongfully exercises dominion over that property against the

2 rights of the true owner, commits conversion.” United States v. Hill, 835 F.2d 759, 764

3 (10th Cir. 1987) (citations omitted). Thus, the “concepts of stealing and conversion are

4 mutually exclusive.” Id. The government chose a “steals” theory rather than a conversion

5 theory at trial, and it continues to do so in its current brief, contending that Mr. Smith

6 wrongfully obtained possession of the funds. Doc. 662 (p.7-8). And even if a conversion

7 theory somehow is applicable and still on the table, it also includes the same property loss

8 requirement, which the government has failed to prove. See Collins, 464 F.2d at 1164-65

9 (conversion charge under § 641). Thus, the government’s passing mention of the term

10 “convert” is really besides the point.

11 For all of these reasons, the Court should grant Mr. Smith’s Rule 29 motion as to
12 Count 28. The government concedes that if the Court grants the Rule 29 motion on Count

13 28, then it must also grant the motion as to the money laundering counts. See Doc. 662

14 (p.11). Accordingly, this Court should grant the Rule 29 motion as to all counts.

15 II. At the very least, the Court should grant a new trial on the remaining counts.

16 The government does not really respond to Mr. Smith’s request for a new trial and
17 simply maintains that its theory of liability has not changed. Doc. 662 (p.12). However,

18 the government did not argue “conversion,” for example, at trial; it only argued that Mr.

19 Smith “stole” the money by fraud. See Tr. 3137 (Dec. 3, 2021); Tr. 3487 (Dec. 6, 2021).

20 Thus, if this Court somehow sustains the § 641 conviction on a conversion theory – which,

21 as explained above, it clearly shouldn’t – then Mr. Smith is at least entitled to a new trial

22 on the remaining counts because the theory that permeated the government’s presentation

23 at trial was a defective “steals” theory based on property fraud. Given the general verdict,

24 this Court has no way of knowing whether the jury unanimously found purported

25 conversion. See Yates, 16 F. 4th at 265, 269. The government does not even really dispute

26 this authority. For this reason, and based on all of the other arguments Mr. Smith has made

27 for a new trial, including the ones below, this Court should grant a new trial on the

28 remaining counts.

Case 1:17-cr-00020 Document 6685 Filed 07/15/22 Page 8 of 10

 1 III. The Court should conditionally grant a new trial on all counts under Rule 29(d).

2 The government agrees that, if judgments of acquittal are entered, the Court should
3 conditionally rule on Mr. Smith’s new trial motion under Rule 29(d). Doc. 662 (p.12).

4 Mr. Smith therefore calls the Court’s attention to a Supreme Court opinion decided after he

5 submitted his supplemental brief, Ruan v. United States, 142 S. Ct. 2370 (2022), which

6 held that jury instructions on the requisite mens rea in an analogous context were erroneous

7 and is relevant to his claim that the mens rea instructions for wire fraud and § 641,

8 including Instructions Nos. 19 and 20, were flawed.

9 Like all of the authority previously cited by Mr. Smith, Ruan again emphasized
10 that especially in the context of administrative regulations, like the conflict-of-interest

11 regulation involved here, a defendant must know that his conduct violated the regulation in

12 order to separate wrongful from innocent acts. See Ruan, at Part IIA.3 The Supreme Court

13 explained that “regulatory language” is often “‘ambiguous,’ written in ‘generalities,

14 susceptible to more precise definition and open to varying constructions.’ The conduct

15 prohibited by such language . . . is thus ‘often difficult to distinguish from the gray zone of

16 socially acceptable conduct.’ A strong scienter requirement helps to diminish the risk of

17 ‘overdeterrence,’ i.e., punishing acceptable and beneficial conduct that lies close to, but on

18 the permissible side of, the criminal line.” Id. (citations omitted).

19 The Supreme Court also (once again) rejected an argument similar to the one made
20 by the government here that Mr. Smith’s own belief as to whether he had a conflict under

21 the regulation should not control and instead the standard should be what he believed HUD

22 would conclude. The Court explained: “[T]he Government argues that requiring it to

23 prove that a doctor knowingly or intentionally acted not as authorized will allow bad-apple

24 doctors to escape liability by claiming idiosyncratic views about their prescibing authority.

25 This kind of argument, however, can be made in many cases imposing scienter

26 requirements, and we have often rejected it on bases similar to those we have set forth in

27

28 3
Page numbers for Ruan, decided June 27, 2022, are not yet available.

Case 1:17-cr-00020 Document 6686 Filed 07/15/22 Page 9 of 10

 1 Part II of this opinion.” Ruan, at Part III (citations omitted). The Court continued: “We

2 do the same here. The Government, of course, can prove knowledge of a lack of

3 authorization through circumstantial evidence. And the regulation defining the scope of a

4 doctor’s prescribing authority does so by reference to objective criteria such as ‘legitimate

5 medical purpose’ and ‘usual course’ of ‘professional practice.’ As we have said before,

6 ‘the more unreasonable’ a defendant’s ‘asserted beliefs or misunderstandings are,’

7 especially as measured against objective criteria, ‘the more likely the jury will find that the

8 Government has carried its burden of proving knowledge.’ But the government must still

9 carry this burden.” Id. (citations omitted).

10 In sum, Ruan is yet another Supreme Court case demonstrating that the
11 government’s view of the requisite mens rea, as was reflected in the jury instructions, is

12 erroneous. For this reason, and the several others argued in Mr. Smith’s prior briefs, a new

13 trial should be ordered on all counts.

14 CONCLUSION
15 For the foregoing reasons, the Court should enter an Order granting judgments of
16 acquittal on the remaining counts. Alternatively, it should grant a new trial on the

17 remaining counts. The Court should also conditionally grant a new trial on all counts.

18

19 RESPECTFULLY SUBMITTED this 15th day of July, 2022.

20
By: s/Benjamin L. Coleman
21 BENJAMIN L. COLEMAN
22 s/Michael Phillips
MICHAEL PHILLIPS
23
Counsel for Defendant Mark S. Smith
24

25

26

27

28

Case 1:17-cr-00020 Document 6687 Filed 07/15/22 Page 10 of 10