Oregon Governor John Kitzhaber: What the Federal Grand Jury Investigation Means

A political scandal is roiling the Pacific Northwest. Oregon’s Democratic Governor John Kitzhaber resigned last week, just months after winning reelection. On the same day he announced his resignation, news broke that a federal grand jury has subpoenaed a vast number of documents from the Oregon government. The question now is whether the improprieties that cost the governor his job will also result in federal criminal charges.

Acceptance speech for Oregon's new Governor, John Kitzhaber

The controversy involves the activities of Kitzhaber and his fiancé, Cylvia Hayes. Hayes and Kitzhaber have been together for years, although they were only recently engaged. When he took office in 2011, Kitzhaber announced that Hayes would assume the role and responsibilities of first lady. She lived with Kitzhaber in the governor’s mansion, referred to herself as Oregon’s first lady, and was widely treated as such.

Hayes also runs a company, 3E Strategies, that focuses on clean energy, environmental, and economic development issues. In addition to her first lady role, Kitzhaber named Hayes an unpaid policy advisor to the governor on those same issues.

The central allegation is that Hayes traded on her close relationship with the governor and status as first lady to obtain lucrative contracts for her company from various clean energy and environmental interest organizations, and then worked to support their agendas within the governor’s office.  There are also suggestions that the governor himself may have been involved to various degrees.

For example, Hayes allegedly received $118,000 from one clean energy group while at the same time advising the governor on issues favored by that group. She apparently received $25,000 from another non-profit while organizing meetings with state officials and urging them to adopt a government standards program promoted by the non-profit. Kitzhaber reportedly urged state employees to hire an expert favored by that group (and by Hayes) to implement that same program. Kitzhaber’s most recent budget apparently allocates funds for yet another organization working on climate issues that also paid Hayes in the past.

These and other allegations led to an escalating series of investigations. Last November the Oregon Government Ethics Commission opened an inquiry. Then in early February the state Attorney General began a criminal investigation and the Ethics Commission investigation was placed on hold. Less than a week later came the news that the Oregon U.S. Attorney’s Office and the FBI have launched a federal criminal probe, and Kitzhaber announced his resignation.

oregon flag

What the Federal Grand Jury Investigation Means – and What it Doesn’t 

There’s certainly plenty here that fails the smell test, but that’s often true in politics. A political scandal is one thing, but a federal criminal case is quite another. Before discussing what a federal grand jury might consider in a case like this, a few important caveats:

1) The existence of a grand jury investigation does not mean that any federal laws have been violated. A federal grand jury may investigate simply to satisfy itself that a crime has not been committed. This is particularly true when it comes to public corruption cases, which often involve the gray area between politics as usual and criminal misconduct. Unlike cases involving violent crime or drugs, for example, in a public corruption investigation it often is not clear at the outset that any crime has been committed. The purpose of the grand jury inquiry is to figure out what happened and whether there is probable cause a crime was committed. So although it is certainly not good news for Kitzhaber and Hayes that a federal grand jury is investigating their conduct, it is by no means a foregone conclusion that any charges will result.

2) There’s nothing inherently criminal about companies retaining Ms. Hayes because of her close relationship with the governor. If I were Kitzhaber’s college roommate and best friend and worked as a lobbyist in Oregon, businesses and organizations would want to hire me because of my perceived access to the governor and I would gladly accept their business. That sort of thing happens all the time. This case is simply more titillating – and potentially legally complicated – due to the nature of their relationship and her unusual status as “honorary” first lady.

3) Simply because groups who had contracts with Ms. Hayes succeeded in having their interests furthered in the Oregon government does not mean anything criminal occurred. A coincidence of interests and actions does not establish corruption. Again, this happens all the time: an organization spends money on lobbyists, letter-writing campaigns, and campaign contributions to encourage a politician to take a particular action, and the politician ultimately does. Depending on the facts this may appear unseemly, but for the most part that’s just politics.

This is particularly true here because Kitzhaber campaigned on many of these same issues and has long been a supporter of clean energy and other pro-environmental policies. The fact that he may have taken some actions supported by Ms. Hayes’ clients is not surprising. It would be a far different case, and far more suspicious, if the governor had reversed course on some particular policy or abandoned a long-held position because it conflicted with the interests of those who hired his fiancé.

4) The federal grand jury will consider only potential federal criminal violations. In most public corruption cases there are multiple possible remedies and avenues of punishment for any potential misconduct. Kitzhaber and Hayes may have violated Oregon state laws, or ethics or financial disclosure regulations, and if so the state Attorney General or the Ethics Commission may still pursue any appropriate administrative, civil or criminal remedies. And in most corruption cases there is always the sanction of the ballot box or public opinion, which has already severely punished Kitzhaber by ending his career.

 Decorative Scales of Justice in the library

What are the Potential Federal Crimes?

If federal prosecutors are investigating potential corruption, the most likely charges they would consider are honest services fraud and Hobbs Act extortion under color of official right. The same charges formed the heart of the recent case involving former Virginia governor Bob McDonnell and his wife. Honest services fraud and extortion under color of official right are essentially bribery by another name. Federal prosecutors use them to charge state and local corruption because the federal bribery statute generally applies only to federal officials.

In such a case, the government would be required to prove that a public official agreed to be influenced in the exercise of his or her official powers in exchange for receiving something of value to which he or she was not entitled. The essence of bribery is the quid pro quo, or this for that: in exchange for the benefit, the public official agrees to act in a certain way.

As applied to Kitzhaber, prosecutors will investigate whether he agreed to undertake some official action – sponsoring legislation, awarding a government grant or contract, hiring a particular individual, etc. – in exchange for something of value that he received. It’s not enough to show simply that he took actions favored by groups that were also paying Hayes. There must be an agreement by Kitzhaber that he would be influenced in exchange for some benefit to him.  If there were, that could form the basis for either honest services fraud or Hobbs Act charges.

There are other potential allegations floating around as well. Apparently the state was inadvertently preserving back-up copies of Kitzhaber’s e-mails from a personal account, and there are claims that he recently sought (unsuccessfully) to have a state employee delete them. There are also claims that Hayes did not report all of her consulting income on her taxes. Such allegations could potentially lead to obstruction of justice or tax charges.

 The Legal Status of Cylvia Hayes

As a sitting governor, Kitzhaber clearly was a public official subject to public corruption laws. An interesting twist in this case involves the legal ramifications of Ms. Hayes’ status as honorary first lady. She reportedly played an active and powerful role in Kitzhaber’s administration, attending staff meetings, making speeches, going on trade missions, giving orders to members of the governor’s staff, and even maintaining a desk in the governor’s office. On the other hand, she drew no state salary, did not receive state employee benefits, and did not have a government e-mail address.

The governor and his office have not been entirely consistent concerning Ms. Hayes’ status. At one point last summer the governor’s general counsel told the press they considered Ms. Hayes to be a public official for purposes of the state’s ethics and conflict of interest laws. She has at times filled out financial disclosure and other paperwork required of public employees.

More recently, however, when the state ethics commission began its investigation and requested copies of Hayes’ e-mails, she and the governor resisted by arguing that she was a private individual and the commission had no jurisdiction over her. The state Attorney General’s office recently disagreed, ruling that Hayes is a public official for purposes of the state records law and that the e-mails must be produced. Hayes has announced she will fight that decision in court.

Regardless of her status under the state records law, it’s unclear whether Hayes would be considered a public official for purposes of federal corruption statutes. The office of a first lady is considered largely ceremonial. Ms. Hayes may have had the power to attend a meeting, make a speech, or argue in favor of a particular position, but in the end she didn’t really have the ability to create policy, hand out government grants, or otherwise exercise real official decision-making power. It’s possible, though, that she would still be considered a public official, as someone who acted for and on behalf of the people of Oregon in an official capacity.

But this is where conspiracy law comes in. Mrs. McDonnell was charged with the same public corruption offenses as her husband not because she was a public official, but because they conspired together to use the power of the governor’s office to enrich themselves. A similar theory could be applied in the Oregon case, if the facts support it: the evidence would need to establish that Kitzhaber and Hayes, working together, agreed with the groups paying Hayes that Kitzhaber would take certain actions as Governor in exchange for the payments.  In that case, regardless of Hayes’ own status, both would be liable based upon Kitzhaber’s status as a public official.

This could require further investigation into the financial relationship between Kitzhaber and Hayes. If they kept all of their finances separate, it becomes more difficult for prosecutors to allege that a payment to Hayes amounted to a thing of value given to Kitzhaber. On the other hand, if they pool at least some of their resources as do most married couples, it is easier to establish that a benefit to one was also a benefit to the other.

Another possibility is that Hayes alone had a corrupt deal with various groups to further their interests in the state government in exchange for the payments,  but Kitzhaber had no knowledge of the agreement and there was no  conspiracy. A novel legal question then would the be whether Hayes, as honorary first lady, owed a duty of honest services to the citizens of Oregon not to exploit her position for private financial gain. If she did, honest services fraud against Hayes alone would be a viable charge even if she is not considered a public official, because honest services fraud also applies to private sector individuals who accept bribes in violation of a special duty of trust and confidence.

Possible Outcomes 

The federal investigation could conclude a number of different ways. First, of course, the grand jury could decide that no criminal charges are appropriate. As noted above, this would still leave state authorities free to pursue any appropriate state civil or criminal penalties.

If there were an indictment, it could involve both Kitzhaber and Hayes acting together as co-conspirators, as in the Bob and Maureen McDonnell case. Such a case could also potentially involve defendants from one or more of Ms. Hayes’ clients, if the allegation is that they were bribing Hayes and the governor.  Or, as was the case in Virginia, those who paid the bribes could end up testifying for the government after being immunized or pleading guilty themselves. Depending on how the facts unfold, there could also be a case against Hayes alone or (perhaps more unlikely) against Kitzhaber alone.

There’s a lot of smoke here – enough to cause a sitting governor to resign – but is there a federal criminal fire? That’s what the grand jury will determine, and it is just getting started. Stay tuned.

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

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