Nancy and Lester Sadler ran pain clinics that sometimes serviced more than 100 patients a day–and that didn't even include the fake ones. They were convicted of several crimes and the Sixth Circuit affirmed all but one of the counts of conviction last week. Nancy Sadler's wire fraud conviction was vacated, however. According to the Court, "the government showed that Nancy lied to pharmaceutical distributors when she ordered pills for the clinic by using a fake name on her drug orders and by falsely telling the distributors that the drugs were being used to serve 'indigent' patients." But this did not "deprive" the distributors of their property, because Nancy paid full price. "[P]aying the going rate for a product does not square with the conventional understanding of 'deprive.'" The government argued that the distributors would not have sent the pills had Nancy told them the truth. The Sixth Circuit dubbed this a "right to accurate information" and noted that the federal mail and wire fraud statutes no longer cover this kind of intangible right in the post-McNally era. Congress' statutory fix of McNally only covers the intangible right of honest services, "which protects citizens from public-official corruption." Of course 18 U.S.C. Section 1346 does more than that, even after Skilling, as it also covers certain private deprivations of honest services. But the conduct at issue in Sadler did not involve Nancy's "honest services" to the pharmaceutical distributors. She provided no services to them–she simply fibbed, but paid full price. Here is the opinion in United States v. Nancy Sadler.
Tag: mail fraud
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The Third Circuit in United States v. Wright held that the Skilling decision requires an new trial in this case on the honest services fraud convictions and that "prejudicial spillover tainted their traditional fraud convictions." The court stated:
"An honest services fraud prosecution for bribery after Skilling thus requires the factfinder to determine two things. First, it must conclude that the payor provided a benefit to a public official intending that he will thereby take favorable official acts that he would not otherwise take. Second, it must conclude that the official accepted those benefits with the intent to take official acts to benefit the payor."
The court also stated that, "[i]n light of Skilling, the jury should have been instructed on the bribery theory but not the conflict-of-interest theory."
The defense counsel on this case were Lisa A. Mathewson, Peter Goldberger, Ellen Brotman, and William A. DeStefano.
(esp)
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In an otherwise unremarkable bank and mail fraud affirmance, the Fifth Circuit reminds us that losses cannot be included as relevant conduct unless they are bottomed on criminal and/or fraudulent behavior. The appellant in U.S. v. Bernegger (loss must be criminally derived to count as relevant conduct), obtained two grants of $250K each from the State of Mississippi, which secured a first lien on the underlying collateral. Appellant later pledged the same collateral to other entities, but there was literally no evidence indicating that the original grants were procured through fraud. Nevertheless, the probation officer included the grants in the PSR's loss calculation and the trial court accepted the figure. The Fifth Circut also reiterates that "bare assertions" in a PSR are not, standing alone, evidence. This particular error did not affect appellant's Guidelines range, but did result in a reduced restitution award. The panel consisted of Judges Wiener. Clement, and Elrod. Opinion by the Dutchman.
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Former Governor George Ryan brought a collateral attack, pursuant to 28 U.S.C. s 2255, following the Supreme Court's decision in Skilling. He argued among other things "that the jury instructions were defective because they permitted the jury to convict him on an honest-services theory without finding a bribe or a kickback." The district court, however, found his errors harmless. Interestingly the prosecutor conceded that despite Ryan not filing his 2255 motion within the one year time period, "2255(f)(3) restarts the time when a 'right has been newly recognized by the Supreme Court and made retroactively applicable to cases on collateral review,'" and Ryan met this standard. Did the government want this case heard because they want to find the contours of what is encompassed within Skilling?
The Seventh Circuit issued its opinion in which it states that "[c]ollateral review is not just a rerun of the direct appeal, in which a defendant can use hindsight to craft better arguments." They go on to stress the limits of collateral review. The court states that Ryan's "current argument that the jury instructions were defective because they did not track Skilling is novel." But they also state that "[i]f Ryan's lawyers had done what Skilling's lawyers did, the controlling decision today might be Ryan rather than Skilling. The bottom line is that the court holds that "[o]n the record at trial, a jury could have convicted Ryan of mail fraud using the legal standard set by Skilling."
Commentary: 1) Even white collar cases are seeing the problems created by limits to collateral attacks. 2) Skilling is certainly not like McNally was to mail fraud cases when the Court issued it in 1987.
(esp)
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Ameet Sachdev, Chicago Tribune, Black headed back to prison; wife collapses in court
(esp)
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The appeal of former New York State Senate majority leader Joseph L. Bruno, argued last week before the United States Court of Appeals for the Second Circuit, has raised some interesting double jeopardy issues which may or may not be addressed by the court. Bruno was convicted of honest services fraud under 18 U.S.C. 1346 based on an undisclosed self-dealing theory. After Bruno’s conviction and while his case was on appeal, the Supreme Court in United States v. Skilling rejected the undisclosed self-dealing theory under Section 1346 and limited the statute’s application to cases involving bribery or kickbacks (thereby making the statute virtually superfluous since such conduct is usually covered by other statutes). On appeal in Bruno, the government, conceding reversal was required because the court’s instructions to the jury were flawed under Skilling, nonetheless argued that it should be given a second shot at Bruno, this time with a superseding indictment more specifically alleging bribery.
Generally, an appeal of a criminal trial marred by instructions proper under prevailing law at the time given (as they apparently were here) but later found defective by a higher court in that or another case results in a retrial with proper instructions. One underlying justification is that the prosecution cannot be expected to anticipate changes in the law and should be able to rely on current law. This case is somewhat different, however. Here, the government could not, or certainly should not, have failed to realize that the theory it chose to pursue was constitutionally questionable on vagueness and overbreadth grounds. The theory of prosecution had been questioned by courts, scholars, and lawyers and was about to be considered by the Supreme Court pursuant to a grant of certiorari. The government nonetheless chose to go forward on this theory, most likely because it was easier to prove factually, rather than a bribery charge that was less assailable legally but probably more difficult to prove. This case thus appears to be a classic example of a prosecutor deciding to seek the instant gratification of a conviction at trial and not to worry about the appeal until later.
Last week, in Davis v. United States, the Supreme Court held in a search and seizure case that evidence should not be excluded if the evidence was seized pursuant to police procedures compliant with then-binding legal precedent even though that precedent was subsequently overruled. Following that line of reasoning, a court may well rule that there should not be a double jeopardy bar to retrial if the prosecutor’s conduct was compliant with binding legal precedent that was subsequently overruled. A different approach seems appropriate, however, when the law the prosecutor relied on was, as here, up in the air. Indeed, Justice Sotomayor, concurring in Davis, made such a distinction, stating that she would have ruled differently if the law the police relied on was unsettled. It will be interesting to see how the Second Circuit, if it reaches this issue, will decide it.
(Goldman)
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As noted here (KTUU.com, Weyhrauch Gets Fine, Probation in Corruption Case Plea) and also Becky Bohrer, Anchorage Daily News (AP),Weyrauch Gets Suspended Jail Sentence, $1,000 Fine , the Weyhrauch case is finally being resolved. But lets look at what is happening here –
Weyhrauch was initially charged with an individual named Kott, who is now awaiting a ruling on whether his case will be dismissed for discovery violations. Perhaps we have a preview of the reasoning of the Ninth Circuit Court of Appeals by the decision last week in the Kohring case that found that the government had failed to provide Brady material to the defense. (see here, here, and here).
Weyhrauch's case went to the Supreme Court as one of three cases being examined as part of the "honest services" doctrine that prosecutors stretched to a point that the Court decided to place new limits upon — requiring a showing of "bribery and kickbacks." In its ruling in Skilling, the Court did not directly address the question raised in the Weyhrauch case as to whether you needed a violation of state law for a mail fraud charge that uses honest services. Rather the Court reframed the question with a new test of "bribery or kickbacks." (see also here)
Now Weyhrauch is back in court pleading to the charge noted in the articles above. In dismissing the federal case against him he filed a non-opposition to the motion to dismiss as follows:
"Weyhrauch non-opps the motion to dismiss for two reasons. First, this was a very weak case from the beginning and all the evidence the government ever really had was that Weyhrauch had participated in, aided, or abetted a lobbyist engaging as a lobbyist without being registered. See, attached Exhibit 1, Information and Plea Agreement. Now that Weyhrauch has pled to that crime in state court, there are no longer facts to support a federal indictment. Second, Weyhrauch believes there is evidence to support dismissal of the indictment because of "misconduct before the grand jury which returned the indictment against Weyhrauch." (reference to a letter filed under seal), which is filed under seal because it refers to grand jury testimony and other grand jury proceedings. If the standard is that dismissal is appropriate when the ends of justice are served, then this case qualifies by any measure."
The more important question is: Did the ends of justice warrant the federal government using the mail fraud statute to bring this alleged state case in the first place?
(esp)
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This panel was moderated by Professor Julie O'Sullivan of Georgetown Law School.
It started with Denis J. McInerney, Chief of the Fraud Section of the Criminal Division of the Department of Justice, who gave the history of the mail fraud statute from its inception up to the Court's decision in Skilling.
The second panelist was Martha Boersch of Jones Day. She spoke about the 110 cases that have been examined post-Skilling. Some circuits have said a fiduciary duty is required – but not all circuits have held this. Another big issue is whether the government has to prove a quid pro quo – she noted the split in some court cases on this issue. There is also uncertainty as to what a quid pro quo would be in this context. Does the government have to prove a contemplated economic harm? There are likely to be future cases on the definition of honest services coming from instructions given in mail fraud cases.
The third speaker wasFrank Razzano, Pepper Hamilton,who spoke about five open questions: 1) Does it require a fiduciary duty? (He said you should make sure that there is a breach on the part of the payor); 2) Is legislation necessary to address this issue or is there a way around this for prosecutors; (He spoke about the case of U.S. v. Jain here- how you can use a pecuniary theory of mail fraud; 3) Does Skilling limit the stream of benefits theory? 4) He noted that you need to analyze the intent of the payor and payee carefully 5) Gratuities – does honest services fraud include this, or is it limited to bribery? He looked at some of the cases where these issues had arisen.
Finally Professor Julie O'Sullivan talked about congressional acts that have been introduced since Skilling.
(esp)(blogging from San Diego)
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According to the 8th Circuit Court in the case of United States v. Redzic, the answer to this question is "yes." The defendant was convicted of mail fraud, wire fraud, bribery, and conspiracy. The mail fraud and wire fraud charges were premised upon sections 1341 and 1343, not 1346. The defendant notes on appeal that he had been indicted, that the government's argument at trial, and that the jury instructions at trial all pertained to a defrauding of property under 1341 and 1343. The problem was that the property in this case happened to be licenses and as previously held in the Cleveland case, regulatory licenses are not property for purposes of mail fraud. So the government's response is – well then let's call this honest services. But there appears to be one problem in doing that - they failed to charge the case this way.
The 8th Circuit holds "[w]hile we believe it would have been preferable in Redzic's case for the indictment to have included the term 'honest services,' its omission was not fatal."
To put this all in context – this opinion is a post-Skilling remand. And yes, the 5th Cicuit held in United States v. Griffin, 324 F.3d 330 (2003):
There is no doubt that the district court erred by instructing the jury that a scheme to defraud includes "a scheme to deprive another of the intangible right to honest services" because the indictment did not contain a reference to 18 U.S.C. § 1346 or its language. And, that error was obvious. Furthermore, we can not permit the district court to second guess "what was in the mind[ ] of the grand jury at the time [it] returned the indictment." Russell,369 U.S. at 770, 82 S.Ct. 1038. To do so would violate the Appellants' Fifth Amendment right to indictment by a grand jury and undermine the public's faith in the integrity of our judicial proceedings.
I wonder what Justice Scalia will think about the 8th Circuit's decision in Redzic?
(esp) (with a hat tip to Dane Ball)
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According to a DOJ Press Release, "a federal jury in Washington convicted Kevin A. Ring, a former lobbyist who worked with Jack A. Abramoff, on five counts related to a scheme to corrupt public officials by providing a stream of things of value." The Press Release states that:
"The jury found Ring guilty on one count of conspiring to corrupt congressional and executive branch officials by providing things of value to them and their staff in order to induce or reward those who took official actions benefitting Ring and his clients. In addition, Ring was convicted of one count of paying a gratuity to a public official and three counts of honest services wire fraud for engaging in a scheme to deprive U.S. citizens of their right to the honest services of certain public officials. The jury acquitted Ring on three counts of honest services fraud. A previous federal jury failed to reach a verdict in the case and the court declared a mistrial."
Interestingly, this verdict comes on the heels of a response by Assistant AG Lanny Breuer to a question by Senator Patrick Leahy, where Breuer claims that there is a need to revise the honest services statute post Skilling. The Court's decision in the Skilling case had limited honest services to "bribery and kickbacks." Breuer's first answer to a question posed to him tells of two cases where honest services premised on self-dealing was charged – but in both instances he says that it was in addition to bribery charges. If bribery was present in these two cases, then why should Congress revise the mail fraud statute? DOJ fails to present a specific need for this legislation.
Breuer then proceeds to state that "without a legislative fix, it will be more difficult and, in some instances, impossible to prosecute federal officials, as well as state and local officials for significant corrupt conduct." See letter –Download Breuer_Answers But he can provide no cases and his reasoning for not using existing statutes like section 208 is because this statute is not a predicate for a RICO charge, while mail fraud does serve this function. Is Assistant AG Breuer telling us that he can't circumvent the limits of RICO without this mail fraud fix? Is he saying that Congress should extend a statute so that he can get around congressional intent in the RICO statute? It's also, he says, because he needs honest services as a predicate for Title III wiretaps. Here again is he saying that he can't circumvent the limits of Title III wiretaps without having a loose mail fraud statute that allows DOJ to use and abuse their discretion.
With a conviction in the Ring case, it is hoped that the Senate will look closely at the rationale offered by DOJ for needing to expand the honest services provisions of the mail fraud statute. It is also hoped that DOJ will think twice about allowing the possible use of mail fraud to circumvent the existing RICO and wiretap mandates. It is a sad day when prosecutors ask for more power in a statute so that they can use it to circumvent existing laws.
(esp)
MattBray.net 