Barry Bonds Obstruction Case Splinters the Ninth Circuit

Baseball superstar Barry Bonds hit one final home run in the U.S. Court of Appeals for the Ninth Circuit last week. An eleven-judge panel threw out Bonds’ 2011 conviction on a single count of obstruction of justice. It was a 10-1 blowout, with only one judge believing that Bonds’ conviction should be upheld, but the case produced five different opinions totaling 75 pages. The amount of ink spilled was a bit remarkable, considering this should have been, as one of the judges put it, a “very simple case.”

In 2003 a grand jury in San Francisco was investigating whether Bonds’ trainer, Greg Anderson, and others had supplied illegal steroids to a number of professional athletes. Bonds was subpoenaed to testify in the grand jury and was granted immunity; prosecutors were not looking to charge him, they were interested in the information he had about Anderson. Ultimately, though, prosecutors concluded that Bonds lied in the grand jury and they indicted him on four counts of perjury and one count of obstruction of justice.

After years of pre-trial maneuvering the case went to trial in 2011. The government dismissed one of the perjury counts during the trial. The other three perjury counts resulted in a hung jury and were ultimately dismissed as well. The jury convicted Bonds only on the single obstruction of justice count.

The jury’s guilty verdict was based on what became known as the “celebrity child” response:

Q: Did Greg ever give you anything that required a syringe to inject yourself with?

A:  I’ve only had one doctor touch me. And that’s my only personal doctor. Greg, like I said, we don’t get into each others’ personal lives. We’re friends, but I don’t we don’t sit around and talk baseball, because he knows I don’t want — don’t come to my house talking baseball. If you want to come to my house and talk about fishing, some other stuff, we’ll be good friends. You come around talking about baseball, you go on. I don’t talk about his business. You know what I mean?

Q:  Right.

A:  That’s what keeps our friendship. You know, I am sorry, but that — you know, that — I was a celebrity child, not just in baseball by my own instincts. I became a celebrity child with a famous father. I just don’t get into other people’s business because of my father’s situation, you see. So, I don’t know — I don’t know — I’ve been married to a woman five years, known her 17 years, and I don’t even know what’s in her purse. I have never looked in it in my lifetime. You know, I just — I don’t do that, I just don’t do it, and you know, learned from my father and throughout his career, you don’t get in no one’s business, you can’t — there’s nothing they can say, you can’t say nothing about them. Just leave it alone. You want to keep your friendship, keep your friendship.

The jury convicted Bonds of obstruction of justice based solely on this exchange. The trial judge upheld the conviction, and so did the initial three-judge panel of the Court of Appeals. That prompted the Court to grant further review by the eleven-judge en banc panel.

scales and gavel

The Five Different Opinions

The statute Bonds was convicted of violating, 18 U.S.C. § 1503(a), punishes anyone who “corruptly . . . influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice.” The court’s task was to determine whether a reasonable jury could have found that the “celebrity child” response, standing alone, violated this provision. Most of the judges agreed that the conviction had to be reversed because Bonds’ evasive answer was not “material” to the grand jury’s investigation – but that was where the agreement ended.

1) Chief Judge Kozinski, joined by four other judges, wrote the first opinion. Much of it was devoted to what he claimed are the dangers posed by the “vast” coverage of § 1503. Lawyers, he argued, are at particular risk: “Stretched to its limits, section 1503 poses a significant hazard for everyone involved in our system of justice, because so much of what the adversary process calls for could be construed as obstruction.” Arguing motions, questioning witnesses, or filing pleadings, he said, all could be considered endeavors to influence the due administration of justice and might end up being prosecuted.

The critical limitation on the statute, he argued, comes from the requirement that the obstructive conduct be material – that it had the “natural tendency to influence, or was capable of influencing, the decision of the decision making body.” Although the language of § 1503 (unlike the perjury statute, for example) does not require materiality, Judge Kozinski said Ninth Circuit precedent made materiality an element of the offense. Bonds’ single evasive (but truthful) answer during the course of several hours of testimony could not be considered capable of influencing the decision of the grand jury, and therefore was not material.

2) Judge N.R. Smith wrote the next concurrence, joined by three other judges. Judge Smith argued that the proper standard for materiality was the “nexus” requirement for obstruction cases announced by the Supreme Court in United States v. Aguilar: the conduct must have the “natural and probable effect” of obstructing justice. The “celebrity child” answer failed this nexus requirement because the natural and probable effect of an evasive answer is simply to elicit follow-up questions and clarification, not to obstruct the proceeding.

Judge Smith concluded that evasive or misleading testimony can only amount to obstruction when it completely thwarts the investigation and amounts to a refusal to testify. A single truthful but evasive answer cannot meet this standard.

3) Judge Reinhardt, writing only for himself, added a third concurrence. He disagreed with the unwarranted breadth of Judge Kozinski’s opinion and all of its speculation about the dangers of the statute. On the other hand, he disagreed with Judge Smith that at some point a refusal to testify could amount to obstruction of justice. According to Judge Reinhardt, the proper remedy in such a case would be a prosecution for contempt, not obstruction, and testimony or a refusal to testify alone could not constitute obstruction of justice.

4) Judge Fletcher, also writing only for himself, took a completely different approach. Tracing the history of the statute back to 1831, he argued that the term “corruptly” refers only to obstructing justice through bribery. Because Bonds did not bribe anyone in connection with the grand jury proceeding, his conduct did not violate § 1503.

5) Finally, Judge Rawlinson wrote as the sole dissenter. She argued the jury could have properly found that Bonds intended to obstruct the grand jury’s investigation through his evasive testimony and that the court was improperly second-guessing the jury’s verdict.

Bonds 2

Breaking it Down – What’s the Right Approach?

It’s important to recall that the case before the Court of Appeals was not the case that the prosecutors brought. Much of the Court’s discussion makes it sound as though the prosecutors had indicted Bonds based only on this single evasive answer. In fact Bonds was charged with four counts of perjury and the obstruction of justice count was based on seven different exchanges in the grand jury. But the jury could not agree on the perjury counts and ultimately found that only the single “celebrity child” response constituted obstruction of justice.

To the extent the court’s opinions are seen as admonishing prosecutors for an unduly broad attempted application of § 1503, therefore, that criticism is misplaced. The prosecutors did charge a more substantial case, but were left to defend a verdict that relied only on the single, meandering, non-responsive answer. On appeal the government had to play the hand that the trial jury dealt for them – and it wasn’t a good one.

Judge Kozinski’s opinion, for example, contains a lot of sweeping rhetoric about the potential breadth and dangers of the statute that has nothing to do with the case – or with the real world. The idea that § 1503 makes “everyone who participates in our justice system a potential criminal defendant for conduct that is nothing more than the ordinary tug and pull of litigation” is simply overwrought hyperbole.

White collar crime statutes do tend to be written in broad strokes, because they have to cover a wide range of conduct that may fall within nebulous concepts such as “fraud” or “corruption.” One can always conjure up a parade of horribles that has little or nothing to do with the way the laws are actually enforced. The federal wire fraud statute, for example, would potentially apply to any employee who called in sick in order to go to the ballgame, and yet we don’t see such cases clogging the courts.

The obstruction of justice statute in its current form has been around for more than a hundred years and there has been no epidemic of courtroom advocates being prosecuted based on ordinary, even aggressive, advocacy. Yet Judge Kozinski felt obligated to argue that all lawyers are in danger because the statute potentially “gives prosecutors the immense and unreviewable power to reward friends and punish enemies by prosecuting the latter and giving the former a pass.” This has nothing to do with the facts of the Bonds case or with any existing problem with § 1503 – but it does dovetail nicely with the “bad prosecutor” meme that is so popular among many these days, including Judge Kozinski.

The second flaw in Judge Kozinski’s opinion is that the solution he offers to the statute’s breadth — the requirement of materiality — would do nothing to prevent the prosecutions he purports to fear.  Almost anything done by an advocate in the “ordinary tug and pull of litigation” would have the potential to influence the proceeding and would thus be material.  The reason such cases are not prosecuted is that routine advocacy is not “corrupt” behavior under the statute — and because prosecutors properly exercise their discretion not to bring them.  All of Judge Kozinski’s speculations about the dangers of the statute are therefore irrelevant not only to the case but also to the solution he proposes.

At the same time, Judge Kozinski offered a startling example of his own expansive view of § 1503. Suppose, he suggested, that in response to whether Greg ever gave him anything to inject himself with, Bonds had replied “I’m afraid of needles” rather than by giving his “celebrity child” response. Judge Kozinski suggested such an answer might constitute obstruction, because it implies a negative response.

The Supreme Court made it clear in the leading perjury case of Bronston v. United States that a merely evasive answer cannot be perjury. Perjury requires proof of actual falsity, and if a witness evades it is the duty of the questioner to detect it and pin the witness down. An answer may be non-responsive due to deliberate evasion, but it also may be due to nerves, miscommunication, or a misunderstanding of the question. Stringent proof requirements for perjury are therefore required so that witnesses are not chilled from testifying out of fear that an answer that is less than perfectly responsive might later be charged as perjury.

The Court in Bronston expressly rejected the idea of “perjury by negative implication” – perjury based on an answer that simply implied something that wasn’t true. Judge Kozinski, however, seemed to open the door to the idea of obstruction of justice by negative implication. As I’ve argued elsewhere, if that were the law then all of the safeguards that Bronston put in place to protect testifying witnesses would be out the window because prosecutors unable to prove perjury could simply charge obstruction of justice instead. It’s odd that Judge Kozinski expresses so much concern about the potential breadth of the statute but then offers his own hypothetical that truly would represent a sweeping expansion of the crime of obstruction of justice.

Of the two main opinions, Judge Smith’s has the better analysis. First, I think he’s correct that the proper standard for materiality is the Aguilar “natural and probable effect” test, not Judge Kozinski’s materiality test. Although some have argued, like Judge Kozinski, that there should be a separate materiality requirement for obstruction of justice, it’s not necessary. The “natural and probable effect” nexus requirement subsumes materiality within it, because it’s impossible for conduct to meet the nexus requirement and not be material. Adding a separate requirement of materiality is simply redundant. In fact, the nexus requirement provides greater protection for defendants than materiality: although any conduct that satisfies the nexus requirement will always be material, it’s easy to envision conduct that would be material to an investigation but that is so removed or remote from the investigation that it fails the nexus requirement.

I think Judge Smith is also correct that the “natural and probable effect” of a single, truthful but evasive answer can probably never be to obstruct justice, given the nature of the adversary system. As he argued, the natural and probable effect of such an answer is to inspire more probing and follow-up questions, as indeed happened during Bonds’ grand jury appearance. There’s almost no way that a single evasive answer would thwart the grand jury’s work.

At the same time, I believe Judge Smith is also correct that in certain cases evasion can constitute obstruction of justice. If a witness continually refuses to be pinned down and to answer questions directly they are not merely being evasive, they are essentially refusing to testify. At some point such conduct crosses the line into corrupt behavior that thwarts the investigation and may amount to obstruction.

Because I agree with Judge Smith that sometimes extreme evasion can rise to the level of obstruction, I disagree with Judge Reinhardt’s concurrence.  And Judge Fletcher’s historical analysis was very interesting, but if he’s correct that “corruptly” requires bribery then obstruction of justice would not even apply to classic obstructive behavior such as shredding documents that have been subpoenaed by a grand jury.  I think that ship has sailed.

*  *  *

Whether one focuses on the “natural and probable effect” test or on the requirement of “corrupt” behavior, the outcome is the same: one truthful, meandering, non-response by Bonds could not have had any real impact on the grand jury’s investigation. Once the jury convicted based only on that single exchange, the verdict was doomed.

This case doesn’t have sweeping implications for the law of obstruction of justice or for the adversary system. It didn’t call for a judicial rebuke of the prosecutors or yet another cautionary tale about a criminal justice system run amok. In the end, it’s all about the facts of one case and the basis of the jury’s verdict. And as a factual matter, there’s simply no way that Bonds’ single, truthful answer could have obstructed that grand jury proceeding.

It really should have been a simple case. There’s no reason that Judge Smith’s concise, eight page analysis could not have been the opinion for the entire court. It’s surprising the Ninth Circuit saw the need to take it into extra innings.

Update: on July 21, federal prosecutors announced they would not seek to appeal the Ninth Circuit’s decision to the U.S. Supreme Court, thus bringing the Barry Bonds obstruction of justice case to a close.

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Contempt of Congress

We should probably get the obligatory bad jokes out of the way right up front. As in: “Contempt of Congress: It’s not just a crime, it’s a national attitude!” Or, “Contempt of Congress? Who ISN’T guilty of that?”

Bada-bum. Thank you, I’m here every week.

But seriously folks – the crime of contempt of Congress has been in the news again recently in connection with the dust-up between the U.S. House of Representatives and former Internal Revenue Service official Lois Lerner. The House voted to hold Lerner in contempt in 2014 after she took the Fifth at a hearing investigating an IRS scandal involving alleged targeting of conservative organizations seeking tax-exempt status.

In a different dispute in 2012, the House voted to find Attorney General Eric Holder in contempt for asserting Executive privilege and declining to provide documents related to a botched ATF gun smuggling investigation called Operation Fast and Furious. That citation represented the first time that a sitting Cabinet official had been held in contempt of Congress. Over the years the use and threatened use of this contempt power have led to some high-level political showdowns between Congresses of both parties and Executive branch officials.

The statute that governs contempt of Congress has an interesting history and raises some intriguing questions. It seems to require the local U.S. Attorney to bring before a grand jury any contempt citation that Congress sends to him or her, but that’s not the way the law has operated. Holder was not prosecuted by his own Department of Justice, of course, and the U.S. Attorney for the District of Columbia recently declined to prosecute Lerner.

The truth is, when it comes to the contempt statute there’s little Congress can do to enforce it if the Executive branch declines to prosecute. Votes to hold Executive branch officials in contempt have become largely about political theater rather than actual criminal prosecutions. But if Congress wanted to really get serious about enforcing its contempt power, it may not be quite as powerless as it first appears.

Lois Lerner was found in contempt of Congress

The Lois Lerner Case

Lois G. Lerner is the former Director of the Exempt Organizations division at the Internal Revenue Service. In 2013 the House Committee on Oversight and Government Reform, chaired by Congressman Darrell E. Issa, was investigating allegations that the IRS had acted improperly and with political motives to delay the approval of tax-exempt status applications of certain organizations. In particular, there were allegations that the IRS was screening for groups with “Tea Party,” “Patriot,” or other words in their names that might indicate an affiliation with conservative causes, and singling out those groups for increased scrutiny.

Ms. Lerner was invited to testify at a Committee hearing on May 22, 2013. When her counsel informed the Committee that she would refuse to answer questions based on her Fifth Amendment right not to incriminate herself, Chairman Issa issued a subpoena compelling her to appear. At the hearing, Ms. Lerner made a brief opening statement in which she denied having done anything wrong. She then said she would like to answer the Committee’s questions but that on the advice of her counsel she had decided to assert her Fifth Amendment privilege not to testify.

The Committee later determined that, in its view, Ms. Lerner had waived her Fifth Amendment privilege by making her opening statement. She was brought back before the Committee on March 5, 2014 and informed of the Committee’s ruling, but she continued to assert her Fifth Amendment rights. The full House of Representatives subsequently voted to hold Ms. Lerner in contempt of Congress for refusing to testify. On May 7, 2014, Speaker John Boehner referred the contempt citation to the U.S. Attorney for the District of Columbia.

Contempt of Congress: More than just a national attitude

The Contempt of Congress Statutes

The contempt of Congress statute that applied in the Lerner case, 2 U.S.C. § 192, provides in part:

Every person who having been summoned as a witness by the authority of either House of Congress to give testimony or to produce papers upon any matter under inquiry before either House . . . willfully makes default, or who, having appeared, refuses to answer any question pertinent to the question under inquiry, shall be deemed guilty of a misdemeanor, punishable by a fine of not more than $1,000 nor less than $100 and imprisonment in a common jail for not less than one month nor more than twelve months.

A companion statute, 2 U.S.C. § 194, provides that if a witness has been found in contempt and that finding is duly reported to the Speaker of the House or President of the Senate, “it shall be the duty” of that leader to certify the matter to the United States attorney, “whose duty it shall be to bring the matter before the grand jury for its action.” (emphasis mine)

The controversy surrounding this statute has centered on its apparent mandate that the U.S. attorney bring the matter before a grand jury. The language of the statute highlighted above appears to leave the U.S. attorney no choice in the matter.

At a July 17, 2014 hearing before the Economic Growth, Job Creation, and Regulatory Affairs Subcommittee of the House Oversight and Government Reform Committee, Congressman Issa focused on this language when questioning Deputy Attorney General James Cole about the referral of the Lerner contempt citation and why the U.S. Attorney had not yet acted:

REP. ISSA: [The statute] didn’t say [the U.S. Attorney] can review it and look at it and think about it. It says — we’ve already made our decision. He’s been held in — she’s been held in contempt. It’s a question of when “shall” applies to bringing the case.

MR. COLE: Well “shall” doesn’t say he shall bring a case. That’s not there. The prosecutor retains discretion about whether or not a case should be brought.

REP. ISSA: Let me read this verbatim to you, because apparently only verbatim matters here. “To the appropriate United States attorney” — U.S. attorney in the district — “whose duty it shall be to bring the matter before the grand jury for its action” — shall bring it before the grand jury. There’s no discretion there, is there?

 MR. COLE: I believe that the Office of Legal Counsel, when Ted Olson was in that position, rendered an opinion that said there is discretion, in fact.

On March 31, 2015, Ronald C. Machen Jr., the U.S. Attorney for the District of Columbia, wrote to Speaker Boehner to inform him that the U.S. Attorney’s Office would not be bringing charges against Ms. Lerner. Machen said his office had concluded that Ms. Lerner had not waived her Fifth Amendment rights and therefore had a valid privilege not to testify and an absolute defense to any charge of contempt. He also reported that his office would not be presenting the matter to a grand jury, citing the “Justice Department’s longstanding interpretation of Section 194 as preserving the exercise of prosecutorial discretion in the Executive Branch.”

The Anne Gorsuch Case

The Justice Department interpretation referred to by Messrs. Cole and Machen was issued in 1984 as a result of a dispute that arose early in the first Reagan administration. In 1982 the Democratically-controlled House was investigating whether the Reagan administration was properly administering the Superfund Act, which provided for federal cleanup of hazardous waste sites. As part of that investigation, a subcommittee of the House subpoenaed a wide range of Superfund documents from the Environmental Protection Agency.

The Reagan administration took the position that a number of the requested documents were shielded by executive privilege, and President Reagan instructed the administrator of the EPA, Anne Gorsuch, to withhold the documents. The House voted to cite Gorsuch for contempt, and Speaker Tip O’Neill referred the contempt citation to the U.S. Attorney for the District of Columbia.

The Reagan administration then filed a lawsuit seeking a ruling that its invocation of executive privilege was lawful. Ultimately the two sides negotiated a resolution concerning the production of the documents, and the House voted to withdraw the contempt citation. The U.S. Attorney, who had kept the matter on hold during the pendency of the lawsuit, then presented all of the information (including the withdrawal of the contempt citation) to a grand jury, which not surprisingly voted not to indict Gorsuch.

The incident led to an opinion letter from the Department of Justice’s Office of Legal Counsel, which at the time was headed by well-known conservative attorney Ted Olson. OLC is basically the Department of Justice’s brain trust, tasked with analyzing complex legal issues and providing advice to the Attorney General and Executive Branch agencies. After a thorough discussion of the facts and legal standards, the opinion concluded that Section 194 must be interpreted to allow the U.S. Attorney to retain the discretion to decide whether and how to prosecute a contempt case, despite the language of the statute providing that the U.S. Attorney “shall” present the case to the grand jury. Any other interpretation, the opinion concluded, would raise serious separation of powers concerns.

Separation of Powers and Contempt of Congress

As the OLC opinion pointed out, the duty of the Executive branch, spelled out in Article II of the Constitution, is to ensure that the laws are faithfully executed. Congress passes the laws, but the Executive branch enforces them. When it comes to criminal laws, that responsibility has always included the concept of prosecutorial discretion, deciding whether and how to prosecute a particular case. Congress does not have the power to direct the Executive to prosecute a particular individual, just as it cannot pass a Bill of Attainder, a law singling out a person or group and punishing them without a trial.

What’s more, simply as a practical matter, Congress could not really force a U.S. Attorney present a case to a grand jury or pursue a prosecution. Any such attempted mandate would be easy to evade, even while complying with the technical terms of the statute. For example, consider the language of the current statute that the U.S. Attorney “shall” present the matter to a grand jury.  If Congress voted a contempt resolution and the U.S. Attorney concluded prosecution was not appropriate, the prosecutor could present the case to the grand jury — but urge them not to indict. If the grand jury voted to indict anyway, the prosecutor could refuse to sign the indictment, rendering it invalid. And even if the case were indicted, the prosecutor could move to dismiss it. So despite Chairman Issa’s protestations, the idea that Congress could remove discretion from the hands of the prosecutor and essentially mandate an indictment and prosecution makes little sense, either practically or constitutionally.

Congress is free to send its contempt citations to the Executive, but has no real recourse if the U.S. Attorney decides that prosecution is not appropriate. At least when it comes to disputes with senior Executive branch officials, for Congress to hold a witness in contempt under Section 192 is usually more an act of politics than a serious attempt to result in criminal charges.  But Congress does have other options.

Congress’s Inherent Contempt Power

The contempt of Congress statute is not Congress’s only tool when it comes to contempt. Since the early 1800s, the Supreme Court has recognized that Congress has its own inherent contempt power – the power to hold witnesses in contempt itself and even to lock them up. Although not specifically provided for in the Constitution, the Court has found that this inherent contempt power is essential to Congress’s ability to investigate and legislate effectively.

When the inherent contempt power is invoked, the House or Senate directs the Sergeant-at-Arms to bring the individual before the bar of Congress to be tried. (Trials in Congress are not unheard of, of course; it wasn’t that long ago the Senate held the impeachment trial of President Clinton.) If found guilty of contempt, the witness may be incarcerated until he or she complies with the order in question or until the expiration of the current session of Congress.

The witness would have certain due process rights such as the right to counsel, to be advised of the nature of the charges, and to confront witnesses and compel them to appear. The witness could also resort to the courts, for example by seeking a writ of habeas corpus if wrongfully detained. If the dispute were over something like executive privilege, you’d expect the Executive branch to seek judicial intervention at the outset to head off the proceeding — but even then, at least Congress would get a judicial ruling on the privilege question, rather than being forced to rely simply on the Executive’s own interpretation.

According to a detailed study of Congress’s contempt power by the Congressional Research Service, this inherent contempt power has long been dormant. Congress has not sought to use it since 1935, perhaps because it is too unwieldy and time-consuming or is politically unpalatable. From time to time, partisans on one side or another argue that Congress should dust off this power and start arresting witnesses for contempt on its own rather than relying on the statutory process of a referral to the U.S. Attorney.

There are even periodic rumors that there is a jail cell in the basement of the Capitol building, although apparently this is not the case. The U.S. Capitol police, however, do have holding cells nearby that presumably could be put to use.  (Apparently the last time the inherent contempt power was used to detain a witness, during the Hoover administration, he was held not in jail but at the Willard Hotel in D..C., which actually doesn’t sound that bad…).

prison cell

Not in the basement of the Capitol

In some ways the inherent contempt power would better further the goals of Congress seeking to investigate a particular issue. The witness detained to coerce compliance with a subpoena may ultimately turn over documents or testify in order to purge themselves of contempt and be released. A witness prosecuted for contempt by the U.S. Attorney, on the other hand, may end up with a criminal charge but that still does not get Congress the information it originally sought. The inherent contempt power of Congress, like that of a court, may help it to coerce a recalcitrant witness to comply with its demands.

On Capitol Hill, they sometimes refer to abolishing the filibuster as the “nuclear option” when it comes to breaking Senate gridlock.  Perhaps bringing back the inherent contempt proceeding should be considered the nuclear option when it comes to contempt of Congress.  In the current partisan atmosphere in Washington, the prospect of Congressional committees trying witnesses for contempt and locking them up is a little bit scary. But it is a well-established power that may rear its head again someday.

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Oregon’s First Lady Cylvia Hayes and the Law of Honest Services Fraud

The U.S. Attorney in Oregon is conducting a grand jury investigation of former Governor John Kitzhaber and his fiancé and honorary first lady, Cylvia Hayes. Hayes runs a company that focuses on clean energy and economic development issues. The investigation is focused on allegations that Hayes may have traded on her position as first lady to obtain lucrative contracts from various clean energy groups and then worked with Kitzhaber to further the interests of those groups within the state government. Kitzhaber resigned in February, on the same day that news of the federal grand jury investigation was announced.

Acceptance speech for Oregon's new Governor, John Kitzhaber

The investigation, and questions about Hayes’ role in particular, bring to mind the recently concluded corruption case involving former Virginia Governor Bob McDonnell and first lady Maureen McDonnell. The McDonnells were found guilty of accepting gifts and sweetheart loan deals from businessman Jonnie Williams in exchange for agreeing to promote his products within the state government. And as with the Oregon case, in Virginia many painted the first lady as the principal bad actor in the scheme.

A key charge in the McDonnell case was honest services fraud, a theory commonly used to prosecute bribery. The McDonnells were convicted of acting together to deprive the citizens of Virginia of their right to Bob McDonnell’s honest services by accepting bribes from Williams.

As Governor, there’s no question that McDonnell did owe a duty of honest services to the people of his state. But there was no allegation in the McDonnell indictment that the first lady, Maureen McDonnell, owed her own duty of honest services to Virginians. As far as I’m aware, throughout that case all parties took the position that Maureen McDonnell was not a public official and that her criminal liability was entirely derivative of her husband’s, based on the duty of honest services that only he owed and that she helped him violate. The implication was that if Bob were not involved, Maureen could not have been charged.

That theory worked fine for the Virginia case. The government’s argument was that the McDonnells did conspire together in the bribery scheme, so there was probably no need to consider whether there would be an independent basis for charges against the first lady alone. But now, looking at the facts in the Oregon investigation, that question is worth considering.

Suppose the Oregon investigation revealed that Hayes had secretly agreed to accept money from outside organizations in exchange for personally working within the Oregon government to further their interests – but Kitzhaber knew nothing about it and was not involved in any such deal. Would there be a basis on which to charge Hayes alone with honest services fraud?

I think the answer is yes. Before moving on, though, let me stress that this is a purely hypothetical legal analysis. We don’t know what the grand jury investigation will reveal and I’m in no way suggesting that I think any of the charges discussed below would be appropriate as a factual matter. I’m only interested in whether they would be legally sound.

The Law of Honest Services Fraud 

Honest services fraud is a popular — and controversial — white collar crime. The federal mail and wire fraud statutes prohibit using the mail or any telephone or wireless transmission in furtherance of a “scheme or artifice to defraud.” In a traditional fraud case, such as a Ponzi scheme, the object of the scheme to defraud is to deprive the victims of their money or property. But for decades, federal prosecutors also have utilized another theory of mail and wire fraud, charging defendants with schemes to defraud victims of their intangible right to the fair and honest services of a particular individual.

In an honest services fraud case there is no need to show that the victims suffered any monetary loss. The injury is simply the breach of a duty of honest services. That duty requires people in certain kinds of relationships to act with with honesty and loyalty, free from corruption, deception, and self-interest. A prerequisite for any honest services fraud case, therefore, is a finding that a duty of honest services existed in the relationship in question.

The most common type of honest services fraud case involves political corruption. Public officials are universally considered to owe a duty of honest services to their constituents and the public to exercise the powers of their office honestly and for the benefit of all, and not to use their position to line their own pockets or otherwise engage in corrupt behavior. Honest services fraud is a mainstay charge in cases involving local, state, and federal public corruption.

But the theory is not limited to public officials. Courts have also found a duty of honest services in various private sector relationships that involve fiduciary duties or other special obligations of good faith, honesty and trust. The most common private sector theory has been based on the duty that an employee owes to his or her employer to act in that employer’s best interests. For example, if an employee secretly took bribes from a contractor to steer business to that contractor, the employee could be charged with violating his duty of honest services to his employer. Other private sector relationships that involve a similar relationship of trust and loyalty may also give rise to honest services charges.

Because of its potential breadth and uncertain parameters, the doctrine of honest services fraud has had a tumultuous history. In 1987 the Supreme Court struck down the theory as too vague and amorphous, only to have Congress reinstate it by statute the following year. Finally, in 2010 the Supreme Court ruled in Skilling v. United States that only the core corrupt conduct of bribery and kickbacks amounts to honest services fraud. The Court made it clear, though, that the theory still applies to both the public and private sector (see footnote 45, for example); in fact, Skilling itself was a private sector case involving former Enron executive Jeff Skilling.


 Hayes’ Duty of Honest Services to the People of Oregon

There’s no question that Kitzhaber, as the elected governor, owed a duty of honest services to the people of Oregon, just as Bob McDonnell did to the people of Virginia. If Kitzhaber were found to have engaged in bribery or kickbacks, he could be prosecuted on an honest services fraud theory.

Similarly, if Hayes were conspiring with Kitzhaber in a bribery or kickback scheme, she could be liable for taking part in the scheme to deprive the public of Kitzhaber’s honest services. In that case, her liability would depend on Kitzhaber’s duty. This is the theory under which Maureen McDonnell was prosecuted along with her husband.

But what if Kitzhaber was not involved? Then the question would be whether Hayes owed her own duty of honest services to the people of Oregon.

There is no uniform definition of who qualifies as a state or local “public official” for purposes of honest services fraud. Those who are elected to office or are employed and paid by the government certainly qualify. But the definition likely is not limited to those who are on the government payroll.

If we look to the federal bribery statute for guidance, “public official” is defined to include not only federal government employees and elected officials but also any individual acting “for or on behalf of the United States.” 18 U.S.C. § 201(a)(1). The Supreme Court has held that this encompasses anyone exercising a position of public trust with official federal responsibilities. For example, a private contractor responsible for awarding federal housing grants or a guard at a private correctional facility that contracts to house federal prisoners may be considered a public official under the bribery statute due to the nature of their responsibilities. The same principle should apply at the state level.

The facts suggest that Ms. Hayes should be considered a public official, as one who acted for and on behalf of the state of Oregon. When he was first elected in 2011, Kitzhaber announced that Hayes would serve not only in the role of first lady but also as an advisor to the governor on clean energy and development issues. By all accounts, Hayes played a significant policy role in Kitzhaber’s administration.

The Oregonian newspaper has been reviewing some 94,000 of Hayes’ e-mails that were recently released as part of a public records request. They reveal that Hayes was an active participant in the administration, attending top-level meetings, directing the activities of aides, making use of the governor’s staff, and participating in various state government programs and initiatives. She traveled on state business, and at state expense, to various events where she appeared in an official capacity as first lady.

Significantly, the Oregon Attorney General herself recently determined that Hayes was a public official for purposes of the state’s public records law. That ruling came when the Oregonian requested copies of Hayes’ aforementioned e-mails. Hayes and Kitzhaber resisted that request, arguing that she was a private citizen not covered by the law. The Attorney General disagreed, finding Hayes had “extensive, high-level involvement in the executive branch,” and that she had “a significant amount of authority over government employees.”

Hayes and Kitzhaber themselves have taken somewhat conflicting positions on the question of Hayes’ status. Last summer the governor’s counsel announced that they considered Hayes to be a public official for purposes of the state’s ethics rules, and Hayes apparently has in the past filed financial disclosure paperwork that is required of state officials. On the other hand, when resisting the order to turn over her e-mails and the power of the state ethics commission to investigate her, Hayes and the governor claimed she was a private citizen, not a public official. More recently, though, she argued (unsuccessfully) that the state should pay her attorney’s fees, citing the Attorney General’s finding that she is a public official.

Putting all these facts together, there’s a compelling argument that Hayes should be considered a state public official for purposes of honest services law. She certainly was acting “for or on behalf of” the state in a number of ways. And the finding of the state’s own highest legal official, while not binding for purposes of interpreting a federal law, is certainly entitled to some deference.

This is not to say the same would necessarily be true for every first lady in every case. As my students are tired of hearing me say, everything depends on your facts. It’s possible that a first lady who played a much less active policy role in the administration and performed only ceremonial functions would not be considered a public official. But Hayes, who was so involved that the Oregonian has dubbed her a “deputy governor,” seems to qualify.

But in the end, I don’t think it really matters whether or not Hayes is formally deemed to be a public official. As noted above, honest services fraud can also apply to private sector individuals. The key is the presence of a duty of special trust and confidence that arises from the nature of the relationship between the parties.

All of the same factors described above suggest that Hayes had a duty of honest services to the people of Oregon, even if she is considered a private citizen. Hayes was acting on behalf of the state, speaking in the name of the state, directing the activities of state employees, and working on policy initiatives within the state government. The taxpayers were not paying her a salary, but were supporting her in a number of ways including providing travel, security, staff, and living quarters. It would be strange indeed if the law held that someone who plays such a role within the government assumes no duty to the public to act with honesty and loyalty and free from corruption.

oregon flag

I believe a court would conclude that Cylvia Hayes owed a duty of honest services to the people of Oregon while she was acting as first lady. As a result, if the investigation revealed that she received bribes in connection with her state work, there would be a basis for honest services fraud charges regardless of whether Governor Kitzhaber was involved. This would require evidence of a corrupt deal, or quid pro quo, where Hayes agreed to take particular actions in exchange for contracts or other things of value.  A mere conflict of interest, or appearance of one, would not be enough.

Again, I have no idea whether Hayes committed any crimes and am not suggesting that she did. But anyone who believes that any potential criminal liability for Hayes depends on whether the governor was involved in the scheme is probably mistaken.

Update: On June 16, 2017 federal authorities announced they would be filing no criminal charges against Kitzhaber or Hayes. The investigation is now closed.

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Analyzing the Indictment of Senator Bob Menendez

The last time the Department of Justice indicted a sitting United States Senator, it did not end well. The indictment of Senator Bob Menendez suggests DOJ may have learned some lessons.

Senator Ted Stevens of Alaska was indicted for corruption in 2008. He was found guilty at trial shortly before the November elections, and subsequently lost his re-election bid. Before Stevens was sentenced, however, the new Attorney General Eric Holder decided the charges should be dismissed, following findings of widespread prosecutorial and FBI misconduct during the investigation and trial. The incident left DOJ with a serious black eye.

That bit of history is probably bad news for New Jersey U.S. Senator Robert Menendez, who was indicted last week. After the Stevens debacle, DOJ knows it will be under a microscope throughout this prosecution. One would expect, therefore, that before charging another U.S. Senator prosecutors would be absolutely certain they had all their ducks in a row. The detailed allegations of the indictment suggest that’s exactly what they’ve done.

The indictment of Senator Bob Menendez includes multiple counts of corruption

The Structure of the Menendez/Melgen Indictment

Menendez was charged along with Salomon Melgen, a prominent Florida ophthalmologist and businessman. The indictment contains thirteen corruption-related counts against each of them, along with an additional count of false statements that applies only to Menendez. It charges a long-term bribery scheme: over a period of seven years Melgen allegedly gave Menendez a series of expensive gifts along with hundreds of thousands of dollars in contributions to various campaign organizations and legal defense funds. In return, Menendez is alleged to have taken a variety of steps to use his power as a Senator to benefit Melgen.

Count 1: Conspiracy (both defendants)

As is common in many such cases, the indictment leads off with a conspiracy count (18 U.S.C.§ 371). Conspiracy is often used as a vehicle through which prosecutors lay out an entire criminal scheme and tell the story of their case. By its nature the charge requires the prosecution to describe all of the players, what they agreed to do, and the steps they took to fulfill their agreement. In the 68 page indictment, the first 52 pages are devoted to the conspiracy charge.

Count One alleges that from 2006 to 2013, Menendez and Melgen conspired to commit the crimes of bribery and honest services fraud. It lays out in great detail all of the things of value that Melgen gave Menendez during that time, including multiple flights on private jets, repeated use of a villa at an exclusive Dominican resort, a stay at a luxury hotel in Paris, golf outings, meals, and large contributions to a legal defense fund and various campaign organizations that would benefit Menendez.

In exchange, Menendez is alleged to have performed numerous official acts on Melgen’s behalf. These include influencing immigration visa proceedings for three of Melgen’s girlfriends, pressuring the U.S. State Department to influence the government of the Dominican Republic to honor a large contract held by Melgen to provide x-ray equipment at Dominican ports, and trying to influence officials at the Department of Health and Human Services concerning an administrative action seeking millions of dollars in Medicare overbillings that Melgen owed the federal government.

Count 2: Travel Act (both defendants)

The Travel Act, 18 U.S.C. § 1952, prohibits interstate or foreign travel with the intent to further certain criminal activities, including bribery. This count focuses on a trip Menendez took to Paris in 2010, where Melgen allegedly used his American Express points to pay for Menendez’s hotel room valued at nearly $5,000.00. It charges that Menendez, aided and abetted by Melgen, traveled from the U.S. to France in furtherance of the bribe consisting of the hotel stay.

Counts 3, 5, 7, 9, 11, 13, 15, 17: (Menendez)

Counts 4, 6, 8, 10, 12, 14, 16, 18: (Melgen)

The next sixteen counts charge eight different acts of bribery under 18 U.S.C. § 201. Each pair of counts relates to a specific bribe payment, with the odd-numbered count charging Menendez as the public official receiving the bribe and the following count charging Melgen as the person who paid it. For example, Count 3 charges Menendez with accepting a bribe in the form of a round trip flight to the Dominican Republic on Melgen’s private jet in August of 2010, and Count 4 charges Melgen with providing that same flight as a bribe.

Counts 19-21: (both defendants)

Counts 19 and 20 charge honest services wire fraud (18 U.S.C. §§ 1343 and 1346) and Count 21 charges honest services mail fraud (18 U.S.C. §§ 1341 and 1346). Honest services fraud is essentially an alternative way to charge bribery. All three counts allege that the entire seven-year bribery scheme defrauded the United States and the people of New Jersey of their right to the honest services of Senator Menendez.

Count 22: (Menendez)

Count 22 charges Menendez with False Statements, in violation of 18 U.S.C. § 1001. The Ethics in Government act requires members of Congress to file financial disclosure forms detailing gifts and income that they received during the year. This count alleges that when Menendez filed those annual forms, he failed to disclose the many gifts and benefits that he received from Melgen.

greetings from nj

Analysis of the Case – With Friends Like These . . . .

This is a quintessential white collar case, because the facts of what happened are not really going to be the issue. The defendants cannot deny that the flights took place, that the donations were made, or that Menendez took the actions that he did. The paper trail and evidence on all of those is there and won’t be disputed. What the case boils down to is not what happened but why: what was going on in the defendants’ minds?

Menendez has defiantly proclaimed his innocence and has vowed to fight the charges. He says he is angry that prosecutors “don’t know the different between friendship and corruption.” Whatever gifts he received, Menendez says, were given out of friendship, and not as part of a corrupt relationship seeking his influence. Menendez and Melgen have in fact been friends for more than two decades. They have vacationed together and have attended each other’s family events such as weddings and funerals.

In any bribery case the key is proving corrupt intent, or a quid pro quo: were the official actions taken in exchange for the gifts received? That’s why the defense is focusing on friendship: the fact that Menendez and Melgen are long-time friends potentially provides an alternative explanation for Melgen’s largesse. And if the gifts were truly given simply out of friendship – in other words, there was no understanding that Melgen would get something from Menendez in return – then there was no corrupt intent and no bribery.

There are some parallels here to the recent corruption case involving former Virginia Governor Bob McDonnell. The McDonnells also claimed that the gifts they received from their benefactor Jonnie Williams were given out of friendship. One problem for McDonnell, though, was that he had never met Williams before his 2011 gubernatorial campaign and there was no real evidence that they were in fact close friends. Menendez and Melgen, on the other hand, apparently do have a real friendship that dates back to the early 1990s.

(McDonnell ultimately succeeded in having the Supreme Court overturn his corruption convictions. For a discussion of why that case is unlikely to help Menendez, see my post here.)

But the presence of a friendship does not negate the possibility of corruption – it is not either/or. Friends may engage in criminal conspiracies and corrupt behavior together. In fact, it’s more likely that one would engage in such a scheme with a friend: carrying on and concealing a criminal conspiracy for a number of years requires a certain degree of trust and confidence in the other person. If I were prosecuting the case I’d embrace the fact that the two are close friends, not try to deny it: “Of course they’re good friends, ladies and gentlemen. You wouldn’t trust a complete stranger to keep your secrets the way these two trusted each other.”

The critical question is not whether the two are friends, but whether it was friendship alone, rather than a corrupt quid pro quo, that led to the gifts from Melgen. For a number of reasons, I think the “friendship defense” is unlikely to fly.

Concealment: Although the false statements charge against Menendez is tucked away at the end of the indictment, it will be very important at trial. In the Ethics in Government Act reports covering four different years, Menendez failed to disclose any of the private flights, resort and hotel stays, and other gifts he received from Melgen. If one or two such gifts are left off of the reports you can claim it was just an oversight. When none of the gifts over several years are reported, it looks like deliberate concealment.

False statements charges in a case like this are important not just as a stand-alone charge but for the evidence they provide about intent. People generally seek to conceal behavior when they know they have done something wrong. If these were really just gifts from an old friend, there would be no reason not to disclose them as required. Proving that the defendants took steps to conceal what they were doing goes a long way toward proving corrupt intent.

The conspiracy count also alleges that Menendez took steps to hide from his own staff some of the things he was doing on Melgen’s behalf. Depending on the nature of this evidence, it also could be very important to proving consciousness of guilt by Menendez.

The nature of the gifts: It’s going to be hard for a jury to accept that gifts like these were given just out of friendship. In most people’s experience, even very good friends don’t just give each other repeated free travel on private chartered jets and free luxury vacations.

Where the flights are concerned, it’s not just that Melgen allowed Menendez to tag along when he was already flying to his Dominican Republic villa. Melgen would send his jet (presumably from Florida) to pick up Menendez (and frequently a guest) in New Jersey and fly them to the Dominican Republic even when Melgen was not traveling. If his own jet wasn’t available, Melgen arranged to borrow or charter another private jet for Menendez’s use. On another occasion he just bought Menendez a commercial first-class ticket.

This was not just a wealthy guy occasionally giving a friend a ride.  Melgen seems to have been operating a kind of private jet charter service for Menendez. The extraordinary nature of the gifts and of Melgen’s efforts undermines the argument that this was just out of friendship.

Menendez’s behavior: Another problem for the “friendship defense” will be the nature of some of Menendez’s actions. For example, I expect the incident involving the hotel stay in Paris, which forms the basis of count 2 as well as part of the conspiracy charge, will play a prominent role at trial. According to the indictment, Menendez was planning a trip to Paris in April of 2010 to meet a female friend who would be staying at the Park Hyatt hotel. He asked his staff to look into room rates at the hotel and did some other research to see whether any special rates were available.

Then on March 24, 2010, Menendez e-mailed Melgen and asked him to book Menendez a suite or king room at the Park Hyatt. He specified that the room should feature a “king bed, work area with internet, limestone bath with soaking tub and enclosed rain shower, [and] views of courtyard or streets.” He explained that Melgen could book the room through American Express using his reward points, and that the room should be in Menendez’s name. Melgen proceeded to use nearly 650,000 American Express award points to book a Park Executive Suite for Menendez for three nights, nearly a $5,000 value.

I don’t care how close your friendship is, this does not sound like normal friend behavior. When researching rates for a hotel, when was the last time you stopped and thought “Hey, maybe I’ll just ask my good friend to pay for it for me!” And if a friend did offer to give you a trip as a gift, it’s unlikely that you’d respond with a detailed list of specifications concerning what you want the room to be like, as if ordering off a menu.  This was not a situation where Melgen was joining Menendez in Paris and simply agreed to pick up the tab; he just purchased the room for Menendez’s use, following Menendez’s specifications. Expecting a jury to believe that this behavior indicates mere friendship is, as one of Menendez’s fundraisers might say, “a big ask.”

Timing: The timing of benefits given in exchange for official actions can be important circumstantial evidence of a quid pro quo. There are some compelling details about timing in the indictment. For example, on May 16, 2012, Menendez personally met with an Assistant Secretary of State to argue on Melgen’s behalf concerning his contract dispute with the Dominican Republic. On the same day, Melgen and his family donated a total of $60,000 to a New Jersey Democratic political fund and to Menendez’s legal defense fund. (The $20,000 contribution to the legal defense fund had been solicited by Menendez’s staff on April 30, but was only paid on the day Menendez met with the Assistant Secretary. That’s even more compelling: the quid was only paid once the quo was accomplished.)

On June 1, 2012, Melgen donated $300,000 to a SuperPac and earmarked the money for Menendez’s New Jersey Senate race. Six days later, Menendez met with an HHS official to advocate for Melgen in connection with his Medicare billing dispute. Similarly, at the time of the trip to Paris in 2010, Menendez and his staff had already been working for months on Melgen’s behalf in connection with that same dispute.

Odds and ends : There are a few other details that should concern Menendez. For one, politicians in such cases frequently defend their behavior by claiming they were just doing their job by helping out a constituent. Menendez can’t make that argument, because Melgen lives in Florida, not New Jersey. That eliminates one possible alternative explanation for all of Menendez’s efforts on Melgen’s behalf.

The nature of Melgen’s Medicare dispute is also troubling. HHS found that Melgen’s medical practice had been using vials of medicine designed to treat only a single patient to in fact treat two or three, but then was billing Medicare as if a new vial had been purchased for each patient. In addition to being medically unsound and potentially unsafe for the patients, this resulted in Melgen over-billing Medicare for nearly $9 million in medicine that he never used. Jurors may wonder why Menendez worked so hard for so many years to help a doctor who allegedly was potentially endangering his patients while overbilling the taxpayers for millions of dollars.

But Menendez’s real concern has to be whether Melgen will now take a plea. In a case like this, there will be tremendous pressure on the bribe payer to cut a deal and agree to testify against the public official. Melgen could substantially reduce his own prison exposure by agreeing to plead and cooperate. If he does, that will pretty much be game over for Menendez.

Menendez claims that Melgen is a just friend — a really, really, really good friend. The truest test of that friendship may be whether Melgen stands fast with Menendez to fight the charges or agrees to turn on him and testify to save his own skin.

And when contemplating that possibility, Menendez would do well to recall the immortal words of Harry Truman: “If you want a friend in Washington, get a dog.”

dog flag

Update: This discussion refers to the original indictment. On 9/28/15 the court dismissed counts 9-12 of that indictment for failure to allege a specific quid pro quo. The government returned a superseding, 18-count indictment on 10/6/16 that omits those counts and complies with the court’s ruling. The basic nature of the charges remains the same.

Update 4/15/15:  On April 14 Melgen was indicted in Miami on dozens of counts of Medicare fraud. Some of the charges relate to the over-billing scheme discussed above, where Menendez repeatedly attempted to intercede with HHS officials on Melgen’s behalf. 

Update 4/28/17: Melgen was convicted today in Florida of multiple counts of Medicare fraud.  This will increase the pressure on Melgen to testify against Menendez. Their trial is set for September 2017.

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