Thursday, September 30, 2010

NACDL's 6th Annual Defending the White Collar Case Seminar – “Where Do We Go From Here? Honest Services Fraud and Public Corruption,” Thursday, September 30, 2010

Guest Blogger: Steven P. Ragland, Keker & Van Nest LLP (San Francisco, CA)

Moderator: Abbe David Lowell

Panelists: Miguel A. Estrada, Ross Garber, Hon. Barbara M. G. Lynn and Timothy O’Toole

The future of honest services fraud—that immensely nebulous charge—was addressed by an afternoon panel comprised of Miguel Estrada, Ross Garber, Hon. Barbara Lynn, Jack Smith (N.D. Tex.), and Tim O’Toole.  Abbe Lowell moderated. 

The context was set by a complex hypothetical involving government contracts and an amorphous “benefit” without a concrete quid pro quo.  In other words, the perfect scenario for a charge-of-last resort.  Now that the United States Supreme Court has limited the reach of honest services fraud charges with the recent Skilling opinion, the future of honest services/public corruption charges is unclear.  The Court said that bribery and anti-kickback charges are certainly viable in the post-Skilling world, but undisclosed conflicts of interest may no longer be sufficient to state a federal crime.  Indictments alleging mushy, apparent benefits short of a concrete quid pro quo, therefore, are vulnerable to challenge. 

Here, the hypothetical is one of those mushy cases.  The target of the investigation, Reynolds, is a U.S. Congressman and former Texas state legislator.  Since the Texas legislature is a part-time gig, Reynolds was employed by Dallas Dynamics when in the State house.  Dallas Dynamics is a recipient of state contracts.  Reynolds’ compensation from Dallas included a bonus based on business he generated.  One year, the state Comptroller, Brown, awarded a contract to Dallas Dynamics after Reynolds introduced Brown to Dallas Dynamics’ CEO, Cowen.  As a result of this contract, Reynolds received a $1.5 million bonus.  Brown’s office also got increased appropriations thanks to help from legislator Reynolds.  Reynolds and Cowen agreed to pay his bonus out over the course of 8 years.  As a result, there was no discernible spike in Reynolds’ income.  Reynolds reported his income from Dallas Dynamics, but did not particularize the salary and bonus amounts or reveal that part of his compensation was based on bringing in business.  Dallas Dynamics hired Reynolds’ son soon after receiving the government contract.  Finally, after becoming a U.S. Congressman, Reynolds could no longer earn new income from outside work, but he did disclose the remaining years of amounts owed to him by Dallas Dynamics in the same way as he did while in the state house.

A key preliminary issue identified was the need for separate representation for Reynolds, for Cowen, for Brown, and possibly for the son too.  This issue of ensuring no conflict in representation is a theme that has run through several of the panels today.  The broad consensus is that the more separate lawyers, the better.  Even if individuals sign conflict waivers, the better practice is to provide separate counsel.  From a judicial perspective, conflicts are not only problems for the immediate case, but down the road in case one of the targets is convicted and later raises the conflict issue as a habeas petition.  The possibility of collateral attacks and ineffective assistance claims make separate representation all the more important and prudent. 

Adding to the need for more lawyers in the hypothetical investigation, entities such as the Comptroller’s Office and the Texas legislature will likely receive investigative subpoenas.  Because these agencies and entities need to protect themselves against allegations of spoliation or even obstruction, separate, independent counsel is very important. 

This led to a discussion of joint-defense agreements, whether they should be written or oral, and whether the prosecutor could challenge a joint defense agreement under the theory that it is tantamount to a joint representation conflict?  It’s probably unlikely that a court would declare a joint defense agreement null and void.  But, if someone in the joint defense pleads out, there may be judicial oversight, requiring, for example, notice to the other members if one person is going to start talking to the government.

Going back to the hypothetical, is a case viable if it alleges that as a state senator, Reynolds failed to disclose properly his true benefit from Dallas Dynamics because the bonus payment was not separately disclosed?  Reynolds appears to have gotten an improper benefit by introducing Brown to Cowen and the business-generation bonus was hidden. 

Now, after Skilling (and Black) limited the breadth/application of the honest services statute, it is much more difficult to bring a viable indictment under that theory case because there is no evidence of an explicit agreement.

Post-Skilling, do you have to allege there was a quid pro quo?  Unclear.  If the theory is bribery, probably so.  But, if you make this hypothetical into a kickback case, you may be able to allege that Reynolds got a kickback in the form of his bonus by using his public office to arrange the contract.  By creative pleading, such as using section 371 (conspiracy) and section 666 (bribery), an indictment might survive even without an allegation of a concrete quid pro quo.  If it does not allege an actual bribery or kickback, such allegations are vulnerable to a bill of particulars and a mere failure-to-disclosure scenario is probably no longer enough.  Additionally, the line between illegitimate “gratuity” and legitimate, e.g., campaign contributions is very hard to draw. 

But ultimately, how big is the gap that Skilling left?  The consensus is that some creative pleading of conspiracy, bribery/kickback charges can probably survive initial motions to dismiss.  There may be proof issues, particularly at the Rule 29 stage, but such charges are probably sufficient in the first instance.

Finally, Congress is now looking at how to fill the “gap” left by the Skilling case—trying to find a way to make the mushy case that the Supreme Court kicked out again subject to prosecution.   Senator Leahy’s current gap-filling measure criminalizes the failure to disclose a benefit that was “in whole or in part” motivated by a private interest. 

My ultimate take from the discussion is that while the narrowing of honest services charges is indeed a boon to defense lawyers and the accused, and should impose upon prosecutors a higher bar to charging public corruption cases, the ultimate fallout is unclear.  There are plenty of arrows left in the government’s quiver and Congress seems eager to simply provide more ammo.  Time will tell, but a cynic (e.g., a criminal defense lawyer) would guess that the victory—as important and monumental as it was—may prove academic for all but a handful of individuals…and ultimately short-lived.

(spr)

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