Flying the Too-Friendly Skies: The Investigation of United Airlines

Update July 14, 2016:  Today David Samson, the ex-chairman of the Port Authority, pled guilty to one felony count of bribery. It’s unclear whether he is cooperating in the investigation and whether additional charges might follow.

Jeff Smisek, the CEO of United Airlines, and two other senior United executives resigned abruptly on September 8. Their unexpected departure raises the question whether under Smisek’s leadership the friendly skies crossed the line that separates mere friendship from corruption.

Smisek’s resignation comes in the midst of an ongoing criminal investigation by the United States Attorney’s Office in New Jersey. The investigation began as an inquiry into the so-called “Bridgegate” scandal, where officials in the administration of New Jersey Governor Chris Christie ordered inbound lanes on the George Washington Bridge closed to punish a local politician who refused to support Christie for re-election.

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The Bridgegate investigation soon led to Christie ally David Samson, the then-Chairman of the Port Authority of New York and New Jersey. The Port Authority oversees much of the transportation infrastructure in the two states, including the George Washington Bridge. It also has jurisdiction over all the major airports in the New York City metropolitan area, including Newark’s Liberty International Airport. And that leads us to United Airlines.

Newark was a major hub for Continental Airlines, and after Continental and United merged it became increasingly important to United. In 2011 United was negotiating with the Port Authority for a more favorable lease at the Newark airport, as well as for some major terminal improvements and other facilities upgrades. Exactly what went on between Samson, Smisek, and other officials at United during those negotiations is now apparently a subject of the federal investigation.

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The “Chairman’s Flight”

Samson owns a weekend home near Columbia, South Carolina. During the time United was seeking upgrades and other concessions at the Newark airport, Samson reportedly pushed United to begin offering a nonstop flight between Newark and Columbia, which would make it easier for him to reach his vacation property. United apparently resisted at first because the route would be unprofitable, but then began offering the twice-weekly flight in 2012. Port Authority officials nicknamed it the “Chairman’s flight;” it was cancelled just a few days after Samson resigned in 2014.

Investigators are now focused on the possible connection between the Chairman’s flight and steps taken by the Port Authority to benefit United. The sudden departures of Smisek and the other United executives suggest that the airline’s internal investigation uncovered something serious. This has already amounted to an embarrassing corporate and political scandal – but could it be criminal?

Imagine two extreme (and hypothetical) scenarios: in the first, United Airlines decides to offer the Chairman’s flight hoping that it will please Samson and improve its chances of getting what it wants from the Port Authority. There is no request, demand or pressure from Samson and no agreement with Samson that United will offer the flight, United simply acts on its own.

This would not be a crime. Corporations are free to pursue general policies in an attempt to please local authorities, simply to be seen as a good corporate citizen or even in the more specific hope that it might cause those authorities to look more favorably on issues of interest to the corporation. As long as there is no deal or understanding concerning anything that will be done in return, this kind of corporate ingratiating behavior is not criminal.

On the opposite extreme would be a case where Samson and Smisek (or some other United official) expressly agreed that if United began the Chairman’s flight Samson would act favorably on United’s various requests before the Port Authority. This just as clearly IS corrupt criminal behavior. It describes classic quid pro quo bribery: in exchange for receiving a valuable benefit from United, Samson agrees to exercise the powers of his office on United’s behalf.

Not all bribes consist of Rolex watches or wads of cash in plain brown envelopes. Anything of subjective value to the bribe recipient may potentially form the basis of a bribery charge. Offers of employment, promises of future contracts, even things like companionship or sexual favors, all have been found to be “things of value” that may serve as the quid in a quid pro quo. The flight is not cash going directly into Samson’s pocket, but simply having that route in place is of economic value to him and could support a bribery charge – even if he paid for all the tickets himself.

Or imagine a third scenario: the shakedown. Suppose during negotiations Samson said in effect, “If you want any of this done, you need to give me that flight.” United capitulates and starts offering the flight not as an eager participant in a corrupt deal but because it feels it has no choice. It has to offer the flight just to get the Chairman to move forward on United’s requests and do his job. That sounds more like extortion than bribery. In such a case, Samson might be charged but United would be considered a victim, not a defendant.

Between these various extremes is the vast gray area wherein the truth usually lies. It’s an area filled with nods, winks, implied understandings, suggestions, ambiguity, and circumstantial evidence. Navigating that gray area is what makes white collar crime so interesting, and what makes political corruption cases in particular so challenging. There’s often a fine and potentially blurry line between what’s criminal, what’s merely sleazy, and what’s just politics as usual.

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The Potential Criminal Statutes

We don’t know whether any criminal conduct occurred here or whether anyone will be charged with a crime. But given what we do know, if federal prosecutors are indeed examining potential criminal charges based on United’s relationship with Samson, what statutes might they be considering?

Samson was not a federal public official, so the federal bribery statute, 18 U.S.C. 201, likely would not apply. But when the federal government prosecutes state or local corruption, it has a number of other options.

Federal Program Bribery: 18 U.S.C. 666 – This statute, which applies to theft and bribery affecting programs that receive federal funds, would be a likely choice in a case like this. It applies to bribery of agents of any organization that receives more than $10,000 in federal funds annually, as long as the bribe was in connection with agency business worth $5,000 or more. If those conditions are met, the statute punishes both the agent who received the bribe and the person who paid it.

The Port Authority undoubtedly receives more than $10,000 in federal funds in a year, and the United business at issue was worth far more than $5,000. If the facts revealed a corrupt deal between United officials and Samson to swap the Chairman’s flight for the terminal upgrades and other benefits that United sought, the federal program bribery statute could apply.

Honest Services Fraud: 18 U.S.C. 1341/1343 – honest services mail and wire fraud is another mainstay of federal prosecutions of state and local corruption. In a political corruption case, honest services fraud effectively functions as bribery by another name. When public officials accept bribes in exchange for being influenced in the performance of their duties, the public is deprived of its right to the fair and honest services of those officials.

The people of New York and New Jersey have a right to the honest services of their public officials and to have those officials act in the best interests of the public, free from fraud, corruption, and conflicts of interest. The argument would be that by accepting a bribe from United in the form of the Chairman’s flight and acting to benefit United in exchange, Samson deprived the citizens of NY and NJ of their right to his honest services. United officials who participated in that scheme by agreeing to pay the bribe could also be charged.

Hobbs Act: 18 U.S.C. 1951 – The Hobbs Act might be more likely to come into play if prosecutors find that the facts suggest extortion – the shakedown scenario. The Hobbs Act applies to “extortion under color of official right” by public officials.   In effect, it operates as a one-sided bribery statute. The Supreme Court has held that extortion under color of official right is essentially the equivalent of taking a bribe: the public official accepts something of value to which he or she is not entitled, knowing that it is given in exchange for some exercise of official power.

Under an extortion theory, however, the person who pays is usually considered a victim rather than a willing participant. In a bribery prosecution the person who paid the bribe is at the defense table with the public official; in an extortion prosecution, the person who paid may be the government’s star witness. It’s possible to try to charge the payors in a Hobbs Act case as participating in their own extortion, but it’s an awkward legal theory.

The Hobbs Act therefore might be a more likely choice if the prosecution concludes that United was being shaken down by Samson and was responding largely out of duress and business necessity. In such a case, Samson would be charged but United and its officers likely would not, and Smisek could end up testifying for the prosecution.

RICO: 18 U.S.C. 1961 – If prosecutors really wanted to bring out the big guns, this type of case could potentially result in a prosecution under the Racketeer Influenced and Corrupt Organizations Act (RICO). RICO requires that the defendants conducted the affairs of an “enterprise” through a “pattern of racketeering activity.” The enterprise in this case would be the Port Authority, and prosecutors could charge that Samson (by accepting bribes) and United (by paying them) participated in the conduct of that enterprise’s affairs through a pattern of racketeering activity.

The Hobbs Act, honest services fraud, or even state law bribery all qualify as “racketeering activity.” A “pattern,” however, requires that more than one instance of racketeering activity took place. If offering the Chairman’s flight was a single instance of bribery, there could be a potential issue in proving a pattern. In any event, RICO is a powerful statute primarily aimed at large, ongoing criminal organizations, and may be an inappropriate choice in a case like this.

What do the resignations mean?

So what can we gather from the fact that Smisek and the other executives resigned? Losing the CEO is disruptive for any corporation and suggests that something serious is going on. This is treacherous ground for United: if the Department of Justice found that United executives broke the law, it potentially could charge the corporation itself. The company needs to tread carefully.

One possibility is that DOJ has notified Smisek and the other executives that they are targets of the grand jury investigation and are likely to be indicted. Under such circumstances, United no doubt would demand their resignation.

It’s also possible that United’s own internal investigation revealed a level of misconduct, whether criminal or not, that led the company to demand the resignations. United issued a statement saying that the resignations were a result of the company’s own internal investigation, suggesting they were not directly prompted by any actions from DOJ. If that’s the case, there may be no criminal charges forthcoming at all.

It’s interesting that these events took place just as DOJ issued a new policy memorandum about holding individual officers and employees accountable when investigating corporate misconduct. The memo provides that corporations that want to be considered cooperative may not shield individual employees who commit criminal acts and must assist DOJ in the prosecution of those individuals. It’s possible that United, seeing potential criminal charges coming, decided to clean house and throw out the culpable executives in an attempt to persuade DOJ that the company is being cooperative and should not be charged.

There’s a lot of misconduct that goes on that isn’t criminal. It may be that losing their jobs will be the only sanction that Samson, Smisek, and the others end up facing. We should learn more as the ongoing investigation continues to unfold.

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Welcome to New Jersey: The Gloves Come Off in the Senator Menendez Prosecution

Update 10/9/15: on Thursday Oct. 8 the judge denied the remaining motions to dismiss, including those based on the definition of “official acts.”  On Friday Oct. 9 the defense filed a notice that it is appealing the denial of the motions to dismiss to the Third Circuit.

Update 9/28/15: today the judge granted the defense motion to dismiss four of the bribery counts (two against each defendant) for failure to allege a sufficient quid pro quo.  A number of other motions, including the motions to dismiss based on the speech or debate clause and prosecutorial misconduct, were denied.  A few motions remain outstanding, including those based on the definition of “official acts.”

If anyone thought the courtroom confrontation between federal prosecutors and New Jersey Senator Bob Menendez was going to be some kind of decorous legal debate, that notion should be dispelled by the papers recently filed by both sides.  The case is shaping up as a clash that will have all the quiet gentility of a New Jersey mob war.

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Menendez and his co-defendant Salomon Melgen were indicted last April in New Jersey federal court on multiple counts of bribery and related charges. (You can find my discussion of the indictment here.) The indictment alleges that over a number of years Menendez used the powers of his office to benefit Melgen, and in exchange Melgen gave Menendez a series of valuable gifts and contributions. These included multiple trips on Melgen’s private jet, repeated stays at a luxury villa in the Dominican Republic, a vacation in Paris, and large donations to various campaign funds and a legal defense fund that would benefit Menendez.

The actions Menendez allegedly took for Melgen in return fall into three categories: 1) Menendez worked to help three different girlfriends of Melgen obtain visas to come to the United States; 2) Menendez intervened with State Department officials seeking to have them pressure the Dominican government to move forward on a multi-million dollar contract Melgen held to provide cargo screening services at Dominican ports; and 3) Menendez met with HHS officials and otherwise sought to intervene on Melgen’s behalf in a dispute in which Medicare was seeking to recover millions of dollars in alleged overbillings from Melgen. (That dispute also led to Melgen being indicted for Medicare fraud in a separate case in Florida, shortly after Menendez and Melgen were indicted in the New Jersey case.)

The defense filed its first round of motions on July 20. It was a legal carpet-bombing: a total of fifteen different motions, totaling about 400 pages, with eleven different lawyers appear on the pleadings. But apart from the sheer volume of paper, what’s most notable is the nature of many of the arguments.

The Godfather famously remarked, “It’s not personal, it’s strictly business” – but the defense here has made it personal. The defense lawyers do not merely challenge the legal sufficiency of the charges (although they do plenty of that); they attack the integrity and motives of the prosecutors themselves. Several of the motions are devoted to claims that prosecutors and investigators engaged in deliberate misconduct in order to secure the indictment.

Among the allegations: that prosecutors deliberately misled the grand jury on legal issues; provided false or misleading evidence to the grand jury; improperly brought out inflammatory evidence about various women involved with the defendants; improperly leaked confidential grand jury material; and that prosecutors and investigators badgered, misled, and otherwise mistreated witnesses, including the Senator’s family and staff.

This level of personal attacks on the prosecutors is unusual, but it may be an unfortunate and inevitable legacy of the botched prosecution of former Alaska Senator Ted Stevens. In the wake of that debacle, defense attorneys likely feel they have a better chance of obtaining a sympathetic judicial ear when they allege prosecutorial misconduct in a high-profile corruption case — regardless of whether the allegations have any merit.

Prosecutors hit back hard on August 24. They managed to slay not quite as many trees, requiring only seven consolidated responses to the fifteen defense motions and about 2/3 the number of pages. And they made a number of misconduct allegations of their own: prosecutors claim the defense pleadings contain misleading excerpts of testimony, incomplete quotations, and other mischaracterizations of the facts. It all adds up, the prosecutors argue, to a pattern of deception that could not be simply inadvertent.

On the papers it seems to me that the government has the better of virtually every legal argument. A few highlights:

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Speech or Debate

As expected, a linchpin of Menendez’s arguments is that his actions are shielded by the Constitution’s Speech or Debate clause. As I discussed in this earlier post, the Speech or Debate clause, where it applies, provides Members of Congress with absolute immunity from being prosecuted for their legislative activities. But the clause does not apply to everything a Member does or everything that is part of his or her job; its coverage is limited to “legislative acts.”

Legislative acts include those actions that are integral to the actual process of introducing, debating, and passing legislation. As the Supreme Court has said, the issue is whether it is necessary to inquire into how the Member of Congress spoke, debated, or argued, or into anything else done on the floor or in committee. Acts that take place outside of the halls of Congress also may be protected, but only if they are integrally linked to the legislative process itself.

A legislator’s contacts with members of the Executive branch typically are not considered protected legislative acts. Predictably, Menendez has argued that this case is an exception.  He claims that his actions on the port contract and the Medicare dispute were not simply attempts to intercede on Melgen’s behalf but were in pursuit of a broader legislative policy. For example, he argues that when he met with State Department officials about the port contract he was actually working on the policy issue of ensuring adequate port security in countries that ship to the United States. Similarly, he claims that when he met with HHS officials about Melgen’s billing dispute he was really pursuing broader policy questions about HHS and Medicare reimbursement practices.

As the prosecutors point out, Menendez’s papers wield the word “policy” as though it were some kind of talisman, suggesting that if a Senator’s actions have anything to do with “policy” then they are protected by the Speech or Debate clause. But this is not the law: the Supreme Court decisions on Speech or Debate repeatedly use the term “legislative acts,” not “policy,” to define what is protected — and Menendez’s actions do not appear to be legislative acts.

It would be relatively easy for a corrupt Senator to come up with a “policy” argument concerning any actions taken in exchange for a bribe. For example, a Senator who took a bribe to pressure Pentagon officials to award a contract to a particular company could argue that he was simply working on defense “policy” or on Congressional oversight of defense spending. If this were the standard, it would effectively immunize virtually anything done by members of Congress, allowing them to accept bribes with impunity.

In addition to arguing that the defense has the wrong legal test, the prosecutors also point to a significant amount of evidence – including e-mails, witness statements, and other documents – demonstrating that, as a factual matter, the purpose behind Menendez’s actions was pretty clearly to help out Melgen, not to fulfill some broader legislative or oversight role.

That a Senator can come up after the fact with a “policy” that is somehow related to his actions does not transform those actions into protected legislative acts. Menendez’s attempts to shield his efforts on Melgen’s behalf are unlikely to derail the prosecution. But because issues concerning the Speech or Debate clause may be appealed immediately, regardless of what happens before the trial judge the fight over these questions could easily delay the trial for a year or more.

(As an aside, Menendez does agree that one category of his efforts on Melgen’s behalf – the work to obtain visas for Melgen’s girlfriends — was “pure casework” and thus not protected by the Speech or Debate clause. All of that activity, however, took place outside the statute of limitations, so there is little downside for Menendez in this concession. If he succeeded in having everything about the port contract and Medicare dispute thrown out of the case, he likely could argue that what remained of the prosecution was time-barred and also should be dismissed.)

“Official Acts”

Another key aspect of Menendez’s defense is the claim that any actions he took on Melgen’s behalf were not “official acts” within the meaning of the federal bribery laws. This is a popular defense argument in public corruption cases these days; it’s the centerpiece of the defense in the prosecution involving former Virginia Governor Bob McDonnell and his wife Maureen. (You can find my analyses of the “official act” issue in the McDonnell case here and here. McDonnell will soon be asking the Supreme Court to review his conviction, based largely on this question of whether he performed “official acts.”)

The prosecutors have some fun with Menendez’s claim in their Speech or Debate response. Menendez, they note, has argued that nothing he did was an “official act” within the meaning of the bribery laws. But the Speech or Debate clause protects only those actions integral to the job of a legislator, which would seem by definition to be official acts. By arguing that his efforts on Melgen’s behalf were not “official acts,” therefore, Menendez has essentially conceded that they are not protected by Speech or Debate. He can’t have it both ways.

But in any event, the law is pretty clear that interceding with the Executive branch can be an “official act” subject to the bribery laws. Again, if this were not the case, legislators would be free to accept bribes with impunity in exchange for pressuring Executive branch agencies on behalf of the bribe payor.

As the prosecutors point out, Menendez’s arguments boil down to this: everything a Member of Congress does either: 1) is a legislative act shielded by the Speech or Debate clause; or 2) is not an “official act” and so cannot be charged under the bribery laws. This “heads I win, tails you lose” approach would, as prosecutors put it, provide a “blueprint for immunizing criminal activity on Capitol Hill.”  These claims are unlikely to prevail.

The Prostitution Allegations

Another aspect of the defense pleadings may end up backfiring. One of their arguments is that the entire prosecution is tainted because the case began after allegations surfaced that Menendez and Melgen had procured the services of underage prostitutes in the Dominican Republic.  Menendez argues that these allegations came from political opponents or possibly the Cuban government, and that they are so inflammatory that they fatally tarnish the entire prosecution. The defense also claims that prosecutors asked improper and prejudicial questions in the grand jury about Melgen and Menendez’s girlfriends and other women seen with them.

Although the allegations about underage prostitutes were indeed what initially led prosecutors to look at Melgen and Menendez, those allegations do not form any part of the indictment. But by raising them again in an attempt to make Menendez appear to be a victim, the defense has brought those inflammatory charges back into the case and made them relevant. The prosecutors were forced to respond in order to defend themselves against the allegations of misconduct. Accordingly, in their papers they point out the seriousness of the allegations, that they had a duty to investigate them, and that in fact those allegations “were not so easily disprovable and had some corroboration.”

There’s really no legal basis to dismiss an otherwise valid indictment based on concerns about how the investigation first began. As New Jersey columnist Paul Mulshine has pointed out, by attempting to paint himself as a victim Menendez likely has succeeded only in bringing the allegations about underage prostitutes back into the public eye and lending them additional credence. Of course, having brought them back to light, Menendez will no doubt try to use those same allegations to claim later that an impartial trial jury cannot be found, if the case ever gets to that point.

Prosecutorial Misconduct

As noted above, the defense claims of prosecutorial and investigator misconduct are many and varied. Some of the charges of “misconduct” are a little hard to take seriously. For example, the defense protests that agents interviewed Menendez’s ex-wife while she was still in her pajamas. In response, prosecutors point out that the agents showed up and knocked on her door at the very reasonable hour of 9 a.m. on a Wednesday, and they can hardly be blamed for the fact that she was indeed still in her pajamas at that hour.

The defense also professes outrage that agents interviewed Menendez’s seventy-year old sister, underlining her age in their pleading as though to suggest it is by definition abusive to interview someone so old and frail. Given the age of many United States Senators, one has to wonder what Menendez’s colleagues would think of this claim.

The prosecutors appear to have solid responses to all of Menendez’s arguments about misconduct.  The claims appear to be based on mischaracterizations of the investigation and evidence or misstatements of the law. The defense would like the public and the judge to think this is another Ted Stevens case, but the allegations of misconduct in this case are not likely to go anywhere.

I’m still expecting the government to make Melgen an offer he can’t refuse in exchange for rolling over on Menendez. In the meantime, the motions hearing is set for September 17. There should be plenty of fireworks.

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