On May 7, 2020, the U.S. Supreme Court unanimously overturned a ruling from the United States Court of Appeals for the Third Circuit that upheld the convictions of two former New Jersey officials who were part of the 2013 “Bridgegate” scandal to realign lanes to the George Washington Bridge (“GWB”). Kelly v. United States, No. 18-1059, 588 U.S. __, 2020 WL 2200833 (2020). Writing for a unanimous court, Justice Kagan wrote that while the conduct at issue may have constituted an abuse of power, it did not amount to a violation of either the federal wire fraud statute or a violation of the federal program fraud statute because the object of the scheme was the implementation of a regulatory object, rather than to obtain money or property.
As established through trial testimony, during former Governor Chris Christie’s 2013 reelection campaign, his Deputy Chief of Staff, Bridget Anne Kelly, actively solicited Democratic mayors for their endorsements. But when Fort Lee mayor Mark Sokolich (“Sokolich”) refused to endorse the former Governor’s campaign, Kelly, William Baroni—the former Port Authority Deputy Director for New York and New Jersey—(together the “Defendants”), and another Port Authority official allegedly devised a plan to punish Sokolich.
Historically, three of the twelve toll lanes on the GWB from New Jersey to New York have been reserved as “Special Access Lanes” for traffic coming from Fort Lee, New Jersey. Under the guise of a “traffic study,” Defendants, unannounced, reserved only one Special Access Lane for Fort Lee for a period of four days, causing complete gridlock.
On April 23, 2015, Defendants were indicted by a Grand Jury and charged with wire fraud, fraud on a federally funded program or entity (the Port Authority), and conspiracy to commit each of those crimes. Because there was no suggestion of any bribery or kickbacks, Defendants were not indicted on a theory of “honest services” fraud, but rather on the theory that their scheme had deprived the Port Authority of its money or property. After a six-week trial, the jury found Defendants guilty on all counts, and the trial court sentenced Baroni and Kelly to 24 and 18 months imprisonment, respectively. The Third Circuit affirmed Defendants’ convictions, rejecting their contention that there was insufficient evidence to support the crimes. United States v. Baroni, 909 F.3d 550 (3d Cir 2018). The Third Circuit recognized that the primary object of the scheme was to implement regulatory action, but reasoned that there was sufficient evidence to conclude that implementing that action had deprived the Port Authority of money or property—specifically, its money in the form of public employee labor. On June 28, 2019, the Supreme Court granted certiorari.
The Supreme Court overruled the Third Circuit’s decision, holding that depriving the Port Authority of money in the form of public employee labor was insufficient to establish the requisite element under the federal fraud statutes at issue. The Court ruled that “[t]he realignment of the toll lanes was an exercise of regulatory power – something this court has already held fails to meet the statutes’ property requirement,” and that “the employees’ labor was just the incidental cost of that regulation rather than itself an object of the officials’ scheme.”
The Court emphasized that if it held otherwise and affirmed the fraud convictions, the federal government would be able to “use the criminal law to enforce (its view of) integrity in broad swaths of state and local policymaking.” The Court reprimanded Defendants, stating that they “jeopardized the safety of the town’s residents” for no reason other than “political payback.” However, the Court noted, “not every corrupt act by state or local officials is a federal crime,” and noted that that certain abuses must be rectified at the ballot box. This decision represents another example of the Supreme Court pushing back against attempts to use fraud laws to combat government corruption that does not involve kickbacks or bribes, see, e.g., McCormick v. United States, 500 U.S. 257 (1991) (holding that Hobbs Act convictions require a quid pro quo when involving campaign contributions); Skilling v. U.S., 561 U.S. 358 (2010) (requiring that bribery and/or kickbacks were necessary to establish honest services fraud), and is a reminder that even some of the most scandalous of government abuses are not necessarily criminal. It may also help white-collar defendants more generally to the extent that prosecutors seek to use the fraud statutes to prosecute schemes that do not involve obtaining money or property.
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