- The U.S. Supreme Court reversed the federal fraud convictions of two New Jersey officials who had engineered massive traffic gridlock on the George Washington Bridge in "Bridgegate."
- The court determined that obtaining money or property was not the object of the fraudulent schemes charged and that a state's action in modifying traffic flow (even if deceitful) does not create a property right.
- The justices also found that the costs of employees' time in Bridgegate were incidental, and they reaffirmed the principles in McNally and McDonnell restricting federal prosecution of local corruption.
In a stinging rebuke to government prosecutors, the U.S. Supreme Court unanimously reversed the federal fraud convictions of two New Jersey officials - Bridget Anne Kelly and William Baroni - who in brazen acts of political retribution engineered massive traffic gridlock on the George Washington Bridge, causing public safety and additional pedestrian issues in the neighboring New Jersey town of Fort Lee. In Kelly v. United States, 590 U.S. __ (2020), the court ruled that because the object of the "Bridgegate" scheme was not to obtain money or property - a key element of the wire fraud and federal-program fraud crimes charged - the convictions could not stand.
While condemning the officials' wrongdoing - "deception, corruption, abuse of power" - the court made clear that the government had misconstrued the officials' rejiggering of bridge access and snarling of traffic as implicating property rights rather than the state's intangible rights of "allocation, exclusion and control."1 In short, the court held that not all evidence of wrongdoing - "deception, corruption, abuse of power" - constitutes a crime, much less a violation of the federal property fraud statutes.2 The decision is but the latest in a series of judicial rulings that have reined in attempts by federal prosecutors to "set standards of disclosure and good government for local and state officials."3
Kelly v. United States
The case arises from abusive and corrupt official acts that targeted the mayor of Fort Lee, the New Jersey town abutting the George Washington Bridge, for declining to support the re-election bid of then-New Jersey Gov. Chris Christie. As a consequence of the rebuffed overtures for political support, a political payback was hatched. The plan was carried out by Kelly, Christie's deputy chief of staff, and Baroni, whom Christie had appointed as a deputy executive director of the Port Authority of New York and New Jersey, which manages bridges and other bistate transportation facilities. The scheme to realign lanes accessing the bridge was carried out in September 2013. In essence, the number of lanes that provided local access to the bridge was reduced from the standard three to just one, to "creat[e] a traffic jam that would punish" the mayor and "send him a message" for refusing to support the governor's re-election.4 The reduction to a single access lane required the Port Authority to arrange and pay for a standby worker to relieve the sole toll collector when a break was necessary. Kelly summed up the political machinations in what Justice Elena Kagan characterized as "an admirably concise email"5 message: "Time for some traffic problems in Fort Lee."6
What ensued was four days of upheaval and standstill for local traffic and Fort Lee residents, extending well beyond rush hour. There were additional harmful consequences, including delays for an ambulance to reach a heart attack victim, school buses idling for hours and difficulty for the police in responding to a report of a missing child.7 The scheme began without public notice on the first day of school, which is traditionally a heavy traffic day. When later pressed for an explanation for the lane shifting and its consequences, Kelly and Baroni offered as a pretext a traffic study they concocted - deceptions that were subsequently exposed. Bridgegate lasted for four days until the Port Authority executive director learned of the plot and shut it down, terming the conduct an "abusive decision."8
Kelly and Baroni were prosecuted by the U.S. Attorney's Office for the District of New Jersey and convicted of wire fraud, federal-program fraud and conspiracy to commit both crimes. Their convictions were affirmed by the U.S. Court of Appeals for the Third Circuit, and then the Supreme Court granted certiorari.
Supreme Court: Obtaining Money or Property Was Not Their Objective
The essence of the court's ruling is that, notwithstanding the evidence of the widespread wrongdoing, the convictions could not stand because the objective was not to obtain money or property - a critical element of wire fraud and federal-program fraud. In so ruling, the court emphasized decades-old precedent (McNally) that the federal fraud laws are "limited in scope to the protection of property rights," do not "criminaliz[e] all acts of dishonesty by state and local officials" and do not encompass an unfettered right to redress defrauded citizens "of their intangible rights to honest and impartial government."9 Judicial guidance was offered: Non-federal corruption schemes might be better left to local authorities to handle, and, in any event, the schemes do not violate federal fraud laws unless they are intended to obtain money or property. To underscore the point, the opinion cited a relevant New Jersey statute that "prohibited the unauthorized exercise of official functions."10
Obtaining Property and State Regulatory Power
The government contended that the scheme sought to obtain money or property of the Port Authority in two ways. Both arguments were swiftly rejected. First, the government argued that Baroni and Kelly sought to "commandeer" a section of the bridge by "taking control" of its "physical lanes."11 As the court noted, the defendants did not physically remove the lanes or convert them to private use. Therefore, no property was obtained. Rather, the scheme's alteration of bridge access for different groups of motorists constituted a regulatory decision and implicated the state's "sovereign power." As a result, the conduct constituted an exercise of New Jersey's intangible rights of "allocation, exclusion, and control"12 - state prerogatives that do "not create a property interest."13 Justice Kagan, who authored the unanimous opinion, likened the state's allocating traffic lanes to issuing gaming licenses, and cited the court's decision in Cleveland in asserting that the "traditional police powers" - not the role of a property holder - were at issue in this case.14 Accordingly, the standard regulatory exercise of deciding who can use which lanes could not be construed as an act of obtaining property.
The government also argued that the compensation for the traffic engineers and backup personnel required to pull off the scheme constituted a monetary loss to the Port Authority. The court quickly dismissed that claim, asserting that schemes involving a change in regulation routinely require employee labor but do not necessarily mean the labor was the object, even if it was foreseen. The court distinguished cases in which government employees were assigned to perform personal services for others, including a home renovation for an official's daughter and gardening for political contributors that were clear objects of the scheme to defraud.15 The expenses incurred in shuffling lanes to the bridge had to "play more than some bit part in a scheme"; the court viewed the added costs merely as an "incidental byproduct."16
Conclusion: A Reaffirmation of Rulings Restricting Federal Prosecution of Local Corruption and State Regulatory Matters - and A Warning
In halting the prosecutions of deceptive regulatory actions in Kelly, the court again stood firm and warned against "a sweeping expansion of federal criminal jurisdiction."17 Reaffirming the holding of McNally nearly 40 years ago, the court warned: property fraud statutes may not be used to "set standards of disclosure and good government for local and state officials" and government prosecutors should not be trolling state and local policymaking for evidence of decisions that, in the prosecutors' view, lack integrity.18 In a pointed rebuke, the court also admonished prosecutors not to attempt an "end-run" around Cleveland's proscriptions against criminalizing regulatory decisions. The court was specifically concerned that if the government continued to leverage incidental costs to bolster a prosecution, the "ballooning of federal power would follow."19
The Kelly opinion is the most recent in a line of Supreme Court and Second Circuit rulings that rein in overreaching federal prosecutions of alleged local corruption and state regulatory decisions. In addition to McNally, in 2016, in McDonnell v. United States,20 the Supreme Court unanimously vacated the corruption convictions of the former Virginia governor. The court ruled that prosecutors had improperly inflated the definition of "official act" to encompass lawful acts such as arranging meetings and discussions with state officials, even in the absence of a decision or action in the matter. In Silver v. United States, the Second Circuit remanded for a new corruption trial, applying the McDonnell standard that an "official act" must be specific, focused and encompass an act or decision involving a formal exercise of power.21
Finally, the court in Kelly made clear that the conduct at issue was fully condemnable - an "abuse of power," as Kelly's own lawyer characterized it; "political payback" and a scheme fraught with deception that "jeopardized the safety of the town's residents."22 However, as the court aptly concluded, "not every corrupt act by state or local official is a federal crime."23 It remains to be seen whether government prosecutors will look at local official acts with the same perspective and abide the court's admonitions.
1 Kelly v. United States et al., 590 U.S. ___ (2020), at 2, 9.
2 Id., at 2.
3 Id. at 12, citing McNally v. United States, 483 U.S. 350, 360 (1987)
4 Id. at 4; App. at 254.
5 Id. at 3.
6 Id.; App. 917 (trial exhibit).
8 Id. at 6; App. at 963.
9 Id. at 7, citing McNally v. United States, 483 U.S. 350, 355 (1987). The court further pointed out that even with a post-McNally legislative supplement - 18 U.S. C. Section 1346 - proscribing fraudulent schemes that "deprive[d] another of the intangible right of honest services" irrespective of whether a victim's property was sought, the court limited the statute to bribe and kickback cases, Id., citing Skilling v. United States, 561 U.S. 358, 405, 410 (2010).
10 Id. at 7.
11 Id. at 8., Tr.
12 Id. at 9, citing Cleveland v. United States, 531 U.S. 12, 23-24 (2000).
14 Notwithstanding Supreme Court decisions addressing the issue, at least one federal appellate court has extended the scope of "property" in the context of regulatory agency's decision-making. In United States v. Blaszczak, No. 18-2811, 2019 WL 7289753 (2d Cir. Dec. 30, 2019), the U.S. Court of Appeals for the Second Circuit ruled that preannouncement information at the Centers for Medicare & Medicaid Services (on rule rates and timing) constituted both "property" and a "thing of value," under the wire fraud/securities fraud and conversion statutes of Title 18. See previous Holland & Knight alert, "Second Circuit Paves Easier Route to Prosecute Disclosure of Agency Information, Insider Trading," Feb. 5, 2020.
15 Id. at 10.
17 Id.at 12, citing Cleveland v. United States, 531 U.S. 12, 24 (200).
18 Id. at 12
19 Id. at 12.
20 McDonnell v. United States 136 S.Ct. 2355 (2016). John Brownlee, chair of Holland & Knight's National White Collar Defense and Investigations Team, represented former Virginia Gov. Bob McDonnell during the investigation, trial and appeal of the matter.
21 United States v. Silver, 948 F.2d 538, 552-53 (2d Cir. 2020).
22 Kelly, supra, at 13.
Originally published 21 May 2020
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