The Impact of Justice Scalia’s Death on the Bob McDonnell Case

Justice Scalia’s death could end up spelling prison time for Bob McDonnell.

Scalia’s unexpected death over the weekend is a watershed in the legal community. Whether they agreed with him or not, few would deny that Scalia was a towering intellectual force on the Supreme Court for the past three decades. He was an aggressive and witty questioner from the bench, who almost single-handedly made Supreme Court oral arguments a lot more interesting. His elegantly-written and sometimes caustic opinions were eminently readable and could send many of us scurrying off to Google obscure terms such as “jiggery-pokery.” He had a tremendous impact on the Court and on the law.

But — this being Washington — Scalia’s body was not yet cold before people moved past the tributes and started debating the political and legal implications of his demise. President Obama and Senate Republicans promptly squared off over whether Obama should appoint a successor and whether the Senate would act on the nomination if he did.

There was also a good deal of commentary about how Scalia’s absence from the Court might affect the outcome of major cases pending in areas such as affirmative action, abortion, the Affordable Care Act, and the President’s powers on immigration and climate change. The loss of a single Justice can have a great impact because it opens up the possibility of a 4-4 tie. When that occurs, it is as though the Supreme Court case never happened. The lower court opinion stands and the Supreme Court’s decision has no value as precedent.

For former Virginia Governor Bob McDonnell, that’s a worrisome prospect. McDonnell and his wife Maureen were convicted on multiple counts of corruption back in September 2014. Prosecutors charged that the Governor and his wife agreed to use the power of his office to benefit a businessman, Jonnie Williams, by promoting his dietary supplement product within the state government. In exchange, Williams gave the McDonnells secret gifts and no-paperwork “loans” that totaled about $170,000. Following their convictions, Bob McDonnell was sentenced to two years in prison and Maureen was sentenced to one year and one day.

A panel of the U.S. Court of Appeals for the Fourth Circuit unanimously affirmed McDonnell’s conviction, and the full court declined to re-hear the case. But this past January, in a move that surprised at least some observers, the Supreme Court agreed to hear McDonnell’s appeal. The case likely will be argued in April and decided near the end of the Court’s term in June. (Maureen’s appeal in the Fourth Circuit is on hold pending the outcome of Bob’s case; the legal issues are virtually identical and whatever happens in his case will almost certainly determine the outcome of hers.)

A 4-4 Supreme Court tie in McDonnell’s case would mean the Fourth Circuit opinion upholding his convictions would stand – and that would mean the former Governor, and almost certainly his wife, would soon be heading to prison.

The McDonnell case, like all others currently pending, now faces this possibility of an equally-divided Court.  But when it comes to McDonnell, Justice Scalia was not simply one of nine Justices. If I had to pick the one Justice on the Supreme Court most likely to be sympathetic to McDonnell’s arguments, it would have been Justice Scalia. Whether in the majority or in dissent, it’s a safe bet Scalia would have had something to say about McDonnell’s case – and it’s almost certain it would have been good for McDonnell.


Justice Scalia – A Likely Champion for Bob McDonnell

Justice Scalia was a leading voice on the Court in the area of white collar crime. He wrote the majority opinion in a number of important cases and powerful dissents in others. Consistent with his overall judicial philosophy, when it came to white collar crimes he typically argued for a strict interpretation of the statutory language and objected to any judicial “glosses” or expansive interpretations that arguably went beyond the literal words of the statute.

McDonnell’s “big picture” argument to the Supreme Court is that the government’s interpretation of federal corruption laws is too broad and potentially criminalizes a great deal of protected political activity. Justice Scalia’s overall approach to the law suggests he would have been sympathetic to this claim.

But even beyond issues of general judicial philosophy, Justice Scalia had previously staked out strong positions on the particular statutes McDonnell was convicted of violating — positions that would have directly supported McDonnell’s legal theories:

Official acts: From day one, a centerpiece of McDonnell’s legal defense has been the definition of “official acts” contained in the federal bribery and gratuities statute, 18 U.S.C. § 201. That statute defines an official act as “any decision or action on any question, matter, cause, suit, proceeding, or controversy” that may be pending or may be brought before the public official. McDonnell claims that favors he did for Williams, such as introducing him to other government officials or suggesting to state researchers that they study Williams’ product, were not “decisions” or “actions” on matters pending before McDonnell that would fall within this definition. Accordingly, he says, they cannot form the basis of a bribery conviction.

McDonnell was not charged with violating § 201, which generally applies only to federal officials. But he and his supporters have claimed that the language of § 201 governs all federal corruption laws, including those he was convicted of violating: the Hobbs Act and honest services fraud. I think this is wrong, for reasons that I’ve detailed in earlier posts here and here. But the claim remains the heart of McDonnell’s defense and is central to his Supreme Court appeal.

In support of their interpretation of the term “official act,” McDonnell and his supporters rely primarily on the Supreme Court’s 1999 decision in United States v. Sun-Diamond, which involved the appeal of Sun-Diamond’s conviction for paying gratuities to Secretary of Agriculture Mike Espy. In the course of its opinion, the Court discussed the definition of “official act” and pointed out that it was deliberately narrow. The Court noted that some routine political events, such as the President hosting a winning sports team at a White House reception, would not be “official acts” under this definition because they would not involve decisions or actions on matters pending before the President.

Sun-Diamond was not a bribery case and its discussion of “official acts” was not central to the Court’s decision.   Nevertheless, McDonnell and many other public corruption defendants routinely cite this portion of the Court’s opinion to argue that their conduct in a bribery case did not amount to official acts and thus cannot be punished.

And who was the author of the Sun-Diamond opinion? Justice Scalia. He also famously remarked in that same opinion that in an area as complex as public corruption, where there are many different statutes and regulations concerning the intersection of law and politics, “a statute . . . that can linguistically be interpreted to be either a meat axe or a scalpel should reasonably be taken to be the latter.” (He did know how to turn a phrase.)

Scalia’s view that the federal bribery statute must be narrowly construed would be directly in line with McDonnell’s position. McDonnell claims his conviction threatens all routine political interactions and that if it stands a politician could not attend a fundraiser (or host a team at the White House) without fearing a potential prosecution. He argues that fundamental First Amendment rights of political association and expression forbid this, and that the federal corruption statutes must be more narrowly tailored.

With his claim that all federal corruption laws should be interpreted by using a scalpel that would carve out a safe zone for his own actions, Governor McDonnell almost certainly would have found a sympathetic audience in Justice Scalia.

Honest Services Fraud: One of the two principal corruption statutes under which McDonnell was convicted is honest services wire fraud. In an honest services fraud case, a politician is charged with defrauding his constituents of their right to his fair and honest services by using his public office to line his own pockets.

In an important 2010 case, Skilling v. United States (involving the conviction of former Enron CEO Jeff Skilling), the Supreme Court addressed Skilling’s argument that the term “honest services” was so vague and amorphous that it rendered the statute unconstitutional. The majority disagreed. The Court held that honest services fraud should be limited to cases involving bribery or kickbacks, and that so construed the law was sufficiently clear. Because Skilling’s conduct involved neither bribery nor kickbacks, his convictions for honest services fraud were reversed.

Justice Scalia (joined by Justices Thomas and Kennedy) wrote an opinion agreeing with the final outcome but not with the analysis. Scalia agreed with Skilling that the phrase “honest services” is hopelessly unclear. He criticized the majority’s decision, arguing that narrowing the law to only bribery and kickbacks “requires not interpretation but invention.” Justice Scalia wrote that he would reverse Skilling’s convictions on the ground that the honest services law was unconstitutionally vague.

Bob McDonnell is arguing that honest services fraud requires proof of “official action” that goes beyond anything he did for Williams. But as an alternative, McDonnell claims that if honest services fraud is construed to apply to his conduct, then that law is unconstitutionally vague.

As noted above, Justice Scalia likely would have agreed with McDonnell about the need for a narrow concept of “official action” in a bribery case. But beyond that, Scalia had already written an opinion agreeing with McDonnell’s fallback argument that the honest services statute is so amorphous that it violates the constitution.

Justice Scalia was a long-standing and ardent critic of the honest services law. There’s little doubt he would have been solidly in McDonnell’s camp when it came to the challenges to McDonnell’s honest services fraud convictions.

Hobbs Act: The other corruption offense of which McDonnell was convicted was Hobbs Act extortion. As I wrote in an earlier post here, this is a somewhat unusual corruption law. The Hobbs Act applies to more traditional extortion by force or violence, but also to extortion “under color of official right.”

In the landmark 1992 case of Evans v. United States, the Supreme Court held that Hobbs Act extortion under color of official right requires only that a public official accept something of value knowing that it is being given in exchange for some exercise of official power. At common law, the Court said, extortion under color of official right “was the rough equivalent of what we would now describe as ‘taking a bribe.’”

Justice Thomas dissented in Evans – in an opinion joined by Justice Scalia. He argued that extortion and bribery are distinct crimes and that the majority’s opinion obliterated that distinction. Extortion under color of official right, he claimed, could not be committed by simply passively accepting a bribe; the public official had to induce or demand the payment under the wrongful pretense that he was entitled to it by virtue of his office.

Justice Thomas also argued that the Court’s interpretation of the Hobbs Act improperly opened up for federal prosecution a wide array of corruption crimes that traditionally had been prosecuted by the states. This federalism argument – that the federal government should not lightly assume jurisdiction over possible state and local corruption offenses – is also one of McDonnell’s claims, and is one to which Justice Scalia would have been sympathetic.

Last fall I attended the Supreme Court oral arguments in another Hobbs Act corruption case, Ocasio v. United States. Although it was not directly at issue in that case, I recall Justice Scalia, within the first few minutes, expressing his skepticism about the proposition that the Hobbs Act applies to routine state law bribery. When counsel noted that this was the holding of Evans, Scalia replied, to laughter, “I dissented, I assume.”

When it comes to the second pillar of McDonnell’s corruption convictions – Hobbs Act extortion – Scalia again was on record disagreeing with the prosecution’s legal theory. He almost certainly would have sided with McDonnell in his challenges to the Hobbs Act charges.

bob and maureen

Of course, there’s no way to know for certain what impact Justice Scalia’s absence will have on the final outcome in McDonnell’s case. It may be that McDonnell was going to lose anyway – it only takes four Justices to grant certiorari, but it takes five to reverse. Or it may be that he is destined to win or lose by a wider margin, where Scalia’s vote would not have tipped the balance.

But a 5-4 decision in McDonnell’s favor seemed like a real possibility. If that had happened, one of those almost certainly voting in the majority – and very possibly writing the opinion – would have been Justice Scalia. If that was destined to be the outcome, Scalia’s death means there will now be a 4-4 tie – which means the McDonnells will likely be going to prison.

The Supreme Court has lost one of its strongest, most consistent, and most articulate conservative legal voices. But the McDonnells have lost their most likely champion among the Justices. The impact on the outcome of their cases could be profound.

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The Ongoing Legal Saga of Martin Shkreli

When we last checked in on former pharmaceutical executive Martin Shkreli, he had just been indicted for securities fraud and related charges. Shkreli – a/k/a the “pharma bro” and “most hated man in America” – is best known for purchasing the rights to an anti-cancer drug called Daraprim and promptly raising the price by 5,000%. His defiant attitude in the face of the resulting outcry, along with his insult-laden Twitter feed, only heightened his notoriety.


Pharma Bro Martin Shkreli

But Shkreli’s indictment last December had nothing to do with extortionate drug prices. The charges are based on Shkreli’s earlier conduct at two different hedge funds and at a company he founded called Retrophin. Shkreli allegedly defrauded his hedge fund investors by lying to them about their investments, and then defrauded Retrophin by wrongfully using company assets to settle claims from those hedge fund investors. An attorney who worked as Retrophin’s outside counsel, Evan Greebel, was charged with Shkreli in one count of conspiracy. (You can read a more detailed analysis of the indictment in my earlier post here.)

The criminal proceeding against Shkreli and Greebel is still in the early stages, but there have been a couple of interesting related developments in the past couple of weeks.


Congressional Testimony – or Lack Thereof

Shkreli was subpoenaed to testify last Thursday, February 4, before the House Committee on Oversight and Government Reform. The committee was holding a hearing about skyrocketing drug prices, and the incident where Shkreli raised the price of Daraprim by 5,000% was Exhibit One.

Shkreli’s attorney made it clear in advance of the hearing that Shkreli would invoke his Fifth Amendment right against self-incrimination. That was no surprise. Even though the hearing was not specifically about Shkreli’s criminal case, there would be too much risk that something he said might end up facilitating his own prosecution. Almost any lawyer would likely give him the same advice.

Shkreli’s lawyer asked that his client be excused from attending the hearing, since he was not going to be able to answer questions. But Congress insisted that he appear, threatening him with additional criminal sanctions if he ignored the subpoena. And so, in a familiar Washington theater production, Shkreli sat before the committee, with his attorney in the “I am not a potted plant” seat directly behind him, and repeatedly invoked his right to remain silent in response to every question.

This type of scene unfortunately plays out quite regularly on Capitol Hill. In most legal proceedings, if a witness is going to take the Fifth it is relatively rare for him to be called to the stand. There may be a hearing before a judge to determine whether the assertion of privilege is valid, but if it is, the witness generally will not be forced to appear simply to assert the privilege over and over. For one thing, it’s a waste of everyone’s time if the witness is not going to answer. But more important, it is grossly unfair: repeatedly forcing a witness to assert his right to remain silent can’t help but lead to the impression he is hiding something and must have done something wrong. What should be a constitutional shield is turned into a bludgeon wielded to suggest the witness must be guilty of something – if not, why not answer the questions?

But Congress routinely compels witnesses to appear even when it is perfectly clear they are going to take the Fifth. Then they pepper the witness with speeches masquerading as questions, forcing the witness repeatedly to invoke his or her right to remain silent.

This is a tawdry business. Perhaps the reason it continues is that some Members of Congress are less concerned about actually getting answers and more concerned with trying to create a good video clip that will get replayed on cable news or social media. And indeed Shkreli’s brief appearance was a made-for-TV event, carried live on CNBC and elsewhere.

Shkreli didn’t do his image any good at the hearing. He smirked, rolled his eyes, and generally seemed annoyed that he had to be there. After he was finally excused, he sent out a Tweet calling the Members of Congress “imbeciles.”

But if Shkreli didn’t exactly cover himself in glory, neither did the Members of the committee. I’m no apologist for the pharma bro, but this practice of publicly pillorying a witness who is simply asserting his basic constitutional rights is pretty disgraceful.

Congress may be one of the few things in this country currently held in lower esteem than Shkreli. The spectacle before the House committee last week will do nothing to boost the approval ratings of either.

Attorney-Client Privilege – or Lack Thereof

In another development, we learned a couple of weeks ago that back in December U.S. District Judge Jack Weinstein ruled the grand jury investigating Shkreli could have access to emails that Shkreli and his former company had claimed were protected by attorney-client privilege.

One aspect of the fraud charged in Shkreli’s indictment relates to Retrophin, the pharmaceutical company he founded in 2011 and took public in 2012. The indictment charges that Shkreli defrauded Retrophin by using its assets to pay off debts that Shkreli incurred while running his hedge funds.

While acting as CEO of Retrophin and engaging in the alleged fraud, Shkreli had email exchanges with his outside counsel (and now co-defendant) Evan Greebel. Greebel, who is now a partner with Kaye Scholer LLP, was employed at the law firm of Katten Muchin Rosenman LLP at the time.

The grand jury subpoenaed documents from Retrophin, including copies of emails between Shkreli and Greebel. Retrophin produced the emails but redacted many of them, based on a claim by Shkreli’s attorney that the documents were protected by the attorney-client privilege.

Normally, of course, communications between attorney and client would be privileged and would not need to be produced. But the privilege is subject to something called the crime-fraud exception: if the client communicates with the attorney in furtherance of a crime or fraud, the law will not protect those communications.

The exception applies only if the communications are used to further an ongoing or future crime or fraud. If a client communicates with a lawyer about past criminal conduct, that of course is fully protected. Indeed, such communications are at the very heart of the privilege in the criminal context.

But a client will not be allowed to use an attorney’s services to help him commit a crime and then turn around and try to protect the very communications with counsel that made the crime possible. In other words, clients are not allowed to convert the shield of the attorney-client privilege into a sword that affirmatively helps them engage in criminal activity.

The crime-fraud exception can apply even when the attorney doesn’t know about the criminal conduct. I recall one case where I was arguing as a prosecutor that the crime-fraud exception applied to certain communications between a major corporation and its lawyers. Some of those communications were with a very distinguished former DOJ official who was now a partner at the firm. The firm brought him into the courtroom during the hearing to sit in the front row and glower at the judge, while the corporation’s lawyers expressed outrage at the suggestion that this gray-haired pillar of the bar might have been involved in any criminal activity.

It was all for show, of course — more theater —  because the attorney does not need to be involved. The client may be lying to his own counsel, just as he is to the victims of his fraud. If the attorney was deceived by the client and was assisting in the crime or fraud unwittingly, the privilege may still be overridden. The focus is on what the client intended, not on the intent or knowledge of the attorney.

In this case, of course, the government has done more than simply allege the attorney was involved – it has indicted the attorney, Greebel, as a co-defendant. Although it’s not legally required, that the attorney has been charged as a co-conspirator in committing the alleged fraud certainly bolsters the government’s argument for the crime-fraud exception.

The burden is on the government to establish that the exception applies. In support of its claim, the government submitted a 47-page affidavit from an FBI agent involved in the investigation. The affidavit alleges that the emails in question directly relate to fraudulent activities carried out by the co-defendants, including the backdating of documents to deceive the SEC and the creation of other phony documents used to defraud Retrophin.

In a December 3 order that was just recently unsealed, Judge Weinstein agreed with the government that the emails were not privileged. He noted first that to the extent the communications between Shkreli and Greebel related to Retrophin’s business, the privilege belonged to the company, not to Shkreli, and the company had already waived any privilege claims. But even if there were a personal attorney-client relationship, the judge ruled, “exchanges in redacted emails between the attorney [Greebel] and employee [Shkreli] were part of a scheme, conspiracy or fraudulent attempt to commit a securities fraud. The attorney-client relationship and privilege, if any, is voided by the criminal conduct.”

Accordingly, the unredacted emails were produced to the grand jury, were referenced in the indictment, and will undoubtedly play a major role at trial. There’s a reason prosecutors often say that “email” is short for “evidence mail” – it is frequently a rich source of incriminating information.

The fact that Shkreli was unable to shield his communications with his alleged co-conspirator attorney is not particularly surprising, but it nevertheless has to be considered a blow to the defense.

And in other news, Shkreli recently replaced his legal team with a celebrity lawyer who previously defended rappers Jay Z and Sean “Diddy” Combs. It appears this is only going to get weirder. Stay tuned.

Update: On August 4, 2017, a jury found Shkreli guilty of one count of conspiracy and two counts of securities fraud.

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