## Facts

- Washington State delegated commercial driver’s license (CDL) testing functions to private entities and individuals who administered exams and certified results for the Department of Licensing (DOL).
- Federal prosecutors alleged a bribery scheme that corrupted the CDL testing process and caused CDLs to be issued to unqualified, non-resident applicants.
- Brano Milovanovic, an independent-contractor translator for Bosnian-language written CDL tests, allegedly recruited out-of-state applicants and supplied correct answers during exams in exchange for payment.
- Tony Gene Lamb, an independent-contractor driving-skills examiner, allegedly falsified road-test results in exchange for money and passed applicants referred by Milovanovic.
- Several co-defendants were alleged to have obtained CDLs through false statements and misrepresentations on applications and testing documents.
- The scheme allegedly used the U.S. mail to transmit testing results and related paperwork to the DOL for processing and license issuance.

## Issues

1. Whether honest-services mail fraud under 18 U.S.C. §§ 1341 and 1346 requires proof of a formal fiduciary duty to the victim.
2. Whether a bribery-based indictment alleging breach of a material relationship of trust by independent contractors adequately states an honest-services fraud offense under 18 U.S.C. §§ 2, 1341, 1346, and 1349.
3. Whether proof of economic harm is required to establish honest-services fraud.

## Decision

- The Ninth Circuit (en banc) reversed the district court’s dismissal of the superseding indictment and remanded.
- The court held that honest-services mail fraud does not require a formal fiduciary duty; it is sufficient to allege a material breach of a relationship of trust, producing detriment to the principal, in a bribery or kickback scheme.
- The court held that the superseding indictment adequately alleged a bribery-based scheme breaching a material relationship of trust with the Washington DOL and alleged use of the mails to further the scheme.
- The court held that economic harm is not a required element of honest-services fraud.

## Legal Principles

- After *Skilling*, honest-services fraud under § 1346 is limited to schemes involving bribes or kickbacks.
- For bribery-based honest-services fraud, the relevant duty may arise from a material relationship of trust and delegated authority, not solely from a formal fiduciary status.
- Independent contractors can owe a duty of honest services when entrusted with discretionary functions for a principal and they secretly accept bribes or kickbacks in connection with those functions.
- Honest-services fraud does not require proof of identifiable economic loss; deprivation of the principal’s intangible right to honest services through bribery or kickbacks is sufficient.

## Conclusion

The en banc Ninth Circuit reinstated an honest-services mail-fraud prosecution arising from alleged bribes in Washington’s outsourced CDL testing program, holding that the government need not prove a formal fiduciary duty or economic harm when it alleges a bribery-based breach of a material relationship of trust and use of the mails to further the scheme.


United States v. Milovanovic, 678 F.3d 713 (9th Cir. 2012) (en banc)