Not Every Abuse of Power Is a Federal Crime

LOS ANGELES & SAN FRANCISCO

www.dailyjournal.com

MONDAY, MAY 18, 2020

PERSPECTIVE Not every abuse of power is a federal crime

By Matthew E. Sloan, Emily Ludmir Aviad and Matthew J. Tako

n May 7, the U.S. Supreme Court dealt a blow to pros- O ecutors policing public corruption under federal property fraud statutes by unanimously overturning the convictions of two New Jer- sey officials in the much-publicized “Bridgegate” case. See Kelly v. United States, 2020 DJDAR 4429. In overturning the convictions, the Supreme Court held that the defendants, despite demonstrating “deception, corruption, [and an] abuse of power,” did not com- mit wire fraud or federal- program fraud because defendants’ scheme did not aim to obtain money or property. Rather, their actions constituted an exercise of the government’s regulatory

power, albeit for less than pure mo- New York Times News Service tives. Because any misuse of public The George Washington Bridge in Fort Lee, N.J. employee time or labor was merely Jersey, for refusing to endorse Gov. an incidental byproduct, rather than Christie’s 2013 re-election bid. At the an object of such actions, the court time, Christie was considering a Re- held that the government had failed publican presidential run and wanted to prove that defendants’ scheme had to demonstrate large bipartisan sup- illegally deprived the government of port. When Fort Lee’s Democratic money or property, an essential ele- mayor refused to endorse Christie, ment of the charged offenses. the two defendants — Bridget Anne Speaking for a united court, Justice Kelly, Gov. Christie’s former deputy Elena Kagan concluded that “not ev- chief of staff, and William Baroni, ery corrupt act by state or local offi- the former deputy executive director cials is a federal crime.” Kelly is the of the Port Authority — along with Supreme Court’s most recent effort to David Wildstein, another former Port

New York Times News Service rein in federal prosecutors’ attempts to Authority official, retaliated against stretch the reach of criminal statutes in the mayor by severely restricting the Bill Baroni, left, and Bridget Anne Kelly, y, leaving the federal courthouse in order to punish public officials’ abuse morning traffic flow from Fort Lee Newark, N.J. on Nov. 3, 2016. of power. The opinion sends a clear into Manhattan over the George Wash- message that the court will continue ington Bridge. For four days in Sep- to narrowly constrain federal pros- tember 2013, the defendants reduced ecutors’ ability to prosecute corrupt the number of local access lanes from officials in the absence of actual kick- Fort Lee onto the bridge from three to backs, bribery, or strong evidence that one, with the intended effect of caus- an official’s goal was to fraudulently ing severe traffic jams in Fort Lee. As deprive the government of money or Kelly stated in a phone call to Wild- property. stein, the goal was to send a message to the mayor that “life would be more Background difficult for him in the second Christie The Bridgegate scandal grew out of term.” There is no evidence that Gov. a scheme by political appointees of Christie nor any other government New York Times News Service then- New Jersey Gov. Chris Christie officials in New Jersey or New York David Wildstein outside federal court in Newark, N.J., May 1, 2015. to punish the mayor of Fort Lee, New were involved in this scheme. In order to disguise their political The Supreme Court’s defendants’ lane realignment plan was assist struggling businesses and local motives, Baroni, Kelly and Wildstein Unanimous Reversal a “quintessential exercise of regulato- governments, we may see a surge of told the media and local officials that At the Supreme Court, the govern- ry power,” and that regulatory choices federal prosecutions relying on novel the lane changes were part of a traffic ment acknowledged that under both do not constitute government proper- legal theories to combat everything study and directed government engi- fraud provisions, it needed to demon- ty. While the decision to shut down the from price-gouging to securities neers to analyze the ensuing traffic strate that an “object” of the fraud was lanes from Fort Lee was done “for bad fraud, insider trading and public cor- jams. They also hired an additional to obtain the Port Authority’s proper- reasons” and accomplished by “re- ruption. There will undoubtedly be toll booth operator to wait on stand- ty. The government argued that this re- sorting to lies,” it was still ultimately a alarming abuses that come to light by in case the operator assigned to the quirement had been met in two ways: regulatory decision. As the court held and enormous pressure to bring the sole lane for Fort Lee needed to take first, because the defendants sought to in Cleveland v. United States, 531 U. wrongdoers to justice. Kelly sends a a break. The scheme snarled traffic in “commandeer” a portion of the bridge S. 12, 23 (2000), in which the court re- clear message, however, that not ev- Fort Lee, with Baroni and Kelly work- to control the traffic lanes; and second, versed a defendant’s fraud conviction ery abuse of power or act of political ing in concert to ignore all inquiries because the defendants deprived the for influencing Louisiana’s issuance retribution constitutes a federal crime, from the mayor. The situation ended Port Authority of money and property of gaming licenses, a state’s “intangi- and that courts should continue to when the Port Authority’s executive by causing it to compensate the traffic ble rights of allocation, exclusion, and rein in attempts by overly aggressive director discovered the plan and re- engineers and back-up toll collectors control” over a benefit do not “create prosecutors to improperly stretch the versed what he called an “abusive de- needed to execute the lane realloca- a property interest.” bounds of federal criminal law. cision.” Baroni, Kelly and Wildstein tion plan. While the court agreed that improp- More directly, the unanimous deci- all quickly lost their jobs. The Supreme Court rejected both erly taking a public employee’s time sion in Kelly reinforces the Supreme Wildstein pleaded guilty to conspir- of these theories. The court noted that and labor can support a wire fraud Court’s oft-repeated position in de- acy charges and agreed to cooperate, unless a bribe or kickback is involved, or federal-program fraud conviction, cisions such as McNally, and, more while Baroni and Kelly went to trial as required to prove honest services such a taking must be the object of recently, McDonnell v. United States, on a nine-count indictment charging fraud (18 U.S.C. Section 1346), pur- the fraud rather than “an incidental 136 S. Ct. 2355 (2016) (unanimous- them with multiple counts of conspir- suant to Skilling v. United States, 561 byproduct of the scheme.” The court ly vacating the conviction of a former acy and substantive counts of feder- U.S. 358, (2010), the prosecution of cited to cases involving the use of Virginia governor by narrowly con- al-program fraud in violation of 18 wire fraud or federal-program fraud “‘on-the-clock city workers’ to ren- struing the definition of “official act” U.S. C. Section 666; wire fraud in vio- by a public official requires that a ovate” an official’s daughter’s home, under the domestic official bribery lation of 18 U.S.C. Section 1343; and scheme be conducted with the object or using public employees to conduct statute), that federal prosecutions of deprivation of civil rights under color of improperly obtaining money or “gardening work for political contrib- state or local officials must cleave nar- of law, in violation of 18 U.S.C. Sec- property. In reaching this conclusion, utors,” as examples of public employ- rowly to the words of the applicable tion 242. The jury found them guilty the court relied on McNally v. Unit- ee time and labor being the “object” statutes. As the court found in McNal- on all nine counts. ed States, 483 U.S. 350 (1987), in of the fraud. (Citations omitted.) Here, ly, prosecutors must avoid the tempta- On appeal, the 3rd U.S. Circuit which a former Kentucky official was since the labor and time at issue were tion to use federal property fraud stat- Court of Appeals affirmed Baroni’s charged with mail fraud in a self-deal- merely incidental to defendants’ lane utes to “set[] standards of disclosure and Kelly’s convictions on the wire ing scheme that allegedly denied realignment scheme, the convictions and good government for local and fraud and federal-program fraud citizens their “intangible rights” to could not stand. state officials.” 483 U.S. at 360. In- counts but reversed their convictions honest government. In overturning the stead, absent clear evidence of bribes for deprivation of civil rights. See conviction, the court held that fraud Lessons From Bridgegate or kickbacks, or that the object of the United States v. Baroni, 909 F.3d 550 statutes were “limited in scope to the In the aftermath of the COVID-19 scheme was to fraudulently obtain (3d Cir. 2018), rev’d and remanded by protection of property rights,” McNal- crisis and the unprecedented federal government property, the Department 2020 WL 2200833. The federal-pro- ly, 483 U.S. at 360. aid programs that the federal gov- of Justice should leave such policing gram fraud statute bars “obtain[ing] Here, the Supreme Court ruled that ernment has established in order to to state or local prosecutors.  by fraud” the “property” (including money) of a federally funded program Matthew E. Sloan, Emily Ludmir Aviad and Matthew J. Tako are a partner, counsel and associate, respectively, in or entity (like the Port Authority). 18 the Litigation and Government Enforcement Practice in Skadden’s Los Angeles Office. U.S.C. Section 666(a)(1)(A). The federal wire fraud statute makes it a crime to effect, with the use of wires, “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” Id. Sec- tion 1343. Baroni and Kelly argued that their fraud convictions should be overturned because no “property” was actually taken, as required under both fraud statutes, but the 3rd Circuit dis- agreed.