Update: No Charges To Be Filed Against Former Oregon Governor and First Lady

Federal authorities in Oregon announced Friday they will not be filing any criminal charges against former Oregon Governor John Kitzhaber and former first lady Cylvia Hayes. The investigation led by the U.S. Attorney’s Office in Oregon had been going on for more than two years. Kitzhaber resigned in 2015 in the midst of a scandal involving allegations that Hayes may have traded on her position in his administration to obtain lucrative private consulting contracts.

I wrote about the investigation back in 2015 when it first began. This post discusses the nature of the allegations and what the grand jury might be investigating. This post talks about the law of honest services fraud and whether it might apply to Oregon’s first lady.

After a more than two-year investigation, no criminal charges. That’s sometimes the nature of white collar criminal investigations. With a street crime, such as a homicide, we know a crime has been committed. With white collar, often it takes a lengthy grand jury investigation to determine whether a crime has been committed at all — and sometimes the answer is no.

Like this post? Click here to join the Sidebars mailing list.

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.

Like this post? Click here to join the Sidebars mailing list.

Federal Prosecution of State and Local Corruption: From Sea to Shining Sea

This has been a busy time for the federal prosecution of state and local corruption. In Virginia, federal prosecutors recently convicted former Governor Robert McDonnell and his wife Maureen on multiple felony counts for accepting a series of extravagant gifts from businessman Jonnie Williams in exchange for using the power of the Governor’s office to help promote his company’s products.

In New York, U.S. Attorney Preet Bharara has been on something of a crusade to clean up political corruption in the state legislature in Albany and has brought charges against more than a dozen legislators. This past February Sheldon Silver, the former New York State Assembly Speaker and one of the most powerful politicians in the state, was indicted for taking several million dollars in bribes and kickbacks.

On the opposite coast, Oregon’s governor John Kitzhaber recently resigned amid allegations of a scandal involving his fiancé Cylvia Hayes, who served as Oregon’s honorary first lady. The U.S. Attorney in Oregon is now investigating whether Hayes and Kitzhaber accepted money from companies who hired Hayes in exchange for agreeing to promote the interests of those companies within the state.

And of course the nation’s heartland is not immune. In Illinois, for example, four of the last seven governors have ended up in prison. The latest, former Governor Rod Blagojevich, was convicted in federal court in 2011 for, among other things, trying to cash in on his power to appoint the successor to former U.S. Senator Barack Obama.

Federal prosecution of state and local corruption really took off in the 1970s after Watergate, and raises some interesting issues. When is it appropriate for the federal government to go after state or local government officials, rather than leaving the state to handle its own affairs? After all, the vast majority of criminal prosecutions take place at the state level in the state criminal justice systems, and each state has its own laws against bribery and other corruption. The federal government generally doesn’t prosecute a state’s typical homicides, sex crimes or burglaries – why should corruption be treated differently?

There’s actually a constitutional basis to argue that the federal government should pursue these cases. The Guarantee Clause of the U.S. Constitution, Article 4, Section 4, provides that the “United States shall guarantee to every state in this union a republican form of government.” If “republican form of government” is understood to mean a representative democracy with power derived from the consent of the governed, then federal prosecution of state corruption may fulfill this mandate by removing corrupt state officials who either rose to power illegitimately or are using their powers to the detriment of their citizens. The normal political and legal structures within a state may be fine for handling most crimes, but when it comes to political corruption those structures themselves may be impaired. When that’s the case, there may be a role for the federal government.

Nevertheless, federal prosecutions of state officials can be controversial, particularly when there is a suggestion that the conduct in question was not illegal under their own state law and was simply standard practice or part of their local political culture. In a 1987 case striking down the use of honest services fraud to prosecute state corruption, McNally v. United States, the Supreme Court noted its concern about allowing federal prosecutors to use sweeping white collar statutes to “involve[] the federal government in setting standards of disclosure and good government for local and state officials.” (Congress, apparently not sharing the Court’s concern, reinstated the honest services fraud theory the following year by passing 18 U.S.C. § 1346, and it is still a workhorse in federal prosecutions of state and local corruption – see below.)

This was a common theme in the federal prosecution of former governor McDonnell in Virginia. McDonnell’s defenders protested that under Virginia law it was legal for him to accept many of the gifts that formed the basis of the charges. Virginia is notorious for its lax ethics laws governing public officials, and many believed that McDonnell was unfairly singled out for behavior that was simply “the Virginia way.” Indeed, several former Virginia Attorneys General have filed briefs on McDonnell’s behalf, arguing they would have advised him his conduct was legal and that his federal prosecution is threatening to upend Virginia’s entire political culture.

So when is it appropriate for the federal government to prosecute state or local corruption, and when should the matter be left to the states to handle on their own?

fbi seal

When Should the Feds Step In?

One reason federal intervention in a state corruption case might be appropriate and even welcome is the presence of a real or perceived conflict of interest among state officials. If corruption exists at a high level in the state government, those who would be charged with investigating and prosecuting it – the state attorney general, for example – may be political allies and close friends of the potential targets. If a city or state is run by a well-entrenched corrupt political “machine” (I’m lookin’ at you, Chicago) it may be unrealistic to expect the local authorities to tackle the corruption among their friends and colleagues. Indeed, the prosecuting authorities in the state may themselves be involved in the corruption.

In Virginia, for example, the state Attorney General Ken Cuccinelli was McDonnell’s running mate and close political ally, and ran to succeed him as governor in 2013. It’s asking a lot to expect a politician in that position to take a dispassionate look at possible corruption and bring a case that would not only bring down his political partner but also likely damage his own chances at winning the governor’s office. Particularly given the widespread attitude in Richmond that McDonnell’s conduct was simply the “Virginia way,” there was little reason to expect that the state would prosecute.

In Oregon, the state attorney general had already opened up a criminal investigation of the governor before the federal investigation began. When the U.S. Attorney in Oregon began a federal inquiry, she asked the state attorney general to put her investigation on hold. Once again, the Oregon attorney general is a political ally of the former governor and had routinely advised the governor on legal issues. Even after she opened her investigation there were some voices suggesting it would be difficult for her to investigate Kitzhaber and that an independent prosecutor should be appointed.

Even where state officials might in fact be able to investigate and prosecute impartially, there is still an issue of a perceived conflict of interest. It’s important that the public have confidence that any potential corruption was investigated thoroughly and appropriately. No matter how fair the Oregon attorney general was, for example, if she were to exonerate Kitzhaber there would always be lingering questions based on the appearance of a potential conflict of interest. A federal investigation removes those concerns.

Another factor in favor of federal prosecution can be the resources available to the federal government. A large-scale public corruption investigation demands a great deal of prosecutorial and investigative time and money. Many state prosecutor’s offices could quickly be overwhelmed by the demands of such a case, particularly considering all of the other state matters they are tasked with handling. Federal prosecutors, with the vast investigative and prosecutorial power of the federal government behind them, are simply better equipped to tackle such a large-scale investigation than their state counterparts.

Particular investigative techniques, such as wiretaps or undercover operations, may be especially useful in corruption investigations. Getting the subjects to discuss their plans on tape can be critical to proving criminal intent  – just ask former Illinois Governor (and current inmate) Blagojevich. Again, these types of undercover investigations and surveillance techniques are extremely time and labor intensive and may be beyond the capabilities of state authorities. But for the FBI it’s right in their wheelhouse, and they have the money and personnel to do it.

Prosecutorial resources and expertise are also an issue. Many state and local prosecutors accustomed to dealing with street crimes may have never handled a major public corruption case. Such cases raise complex legal and factual issues concerning things like proof of corrupt intent, not found in more typical state criminal law fare. The U.S. Department of Justice recognized the special nature of political corruption investigations by establishing the Public Integrity Section in 1976, with a staff of attorneys who specialize in such cases and travel the country assisting other federal prosecutors who are handling them. DOJ can bring a degree of prosecutorial firepower and experience to such investigations that is beyond the reach of most states.


The Laws Used to Prosecute State and Local Corruption

Somewhat surprisingly, there are not a lot of federal laws aimed directly at state and local corruption. The principal federal statute covering bribery and gratuities, 18 U.S.C. § 201, applies only to federal public officials. But federal prosecutors have been creative when it comes to putting other federal statutes to work in these cases.

Honest services fraud – perhaps the most popular theory used to prosecute state and local corruption is honest services mail and wire fraud. The mail and wire fraud statutes (18 U.S.C. §§ 1341 and 1343) apply to use of the mail, phone lines, or wireless transmissions in furtherance of any “scheme or artifice to defraud.” The statutes are routinely applied to the more typical schemes to defraud victims of money or property, such as a Ponzi scheme. But prosecutors also use mail and wire fraud to prosecute state and local officials for corruption, on the theory that the corrupt acts defrauded the public of its intangible right to the fair and honest services of their public officials.

Honest services fraud has been used to prosecute many state and local officials over the past few decades. At times it has been applied to schemes that appeared more politically sleazy or unethical than criminally corrupt, which led to controversy about the potential breadth of the theory. But in 2010 in Skilling v. United States the Supreme Court limited the statute, ruling that it only applies to conduct that amounts to bribery or kickbacks. Even with this limitation, though, it remains an important weapon for federal prosecutors attacking state or local corruption. Honest services fraud was one of the primary statutes used in the McDonnell prosecution, as well as in the prosecutions of New York state legislators.

Hobbs Act Extortion – another common theory is extortion under color of official right under the Hobbs Act, 18 U.S.C. § 1951. As I have discussed elsewhere, extortion “under color of official right” has been interpreted by the Supreme Court essentially to be the equivalent of bribery. In the absence of a general federal bribery statute that applies to state and local officials, Hobbs Act extortion is a favorite of federal prosecutors looking at state and local corruption. Along with honest services fraud, Hobbs Act extortion formed the core of the indictment against the McDonnells in Virginia, and the same two statutes also were used in the recent indictment of former New York state Assembly Speaker Sheldon Silver.

Federal Program Bribery – a less commonly used but very powerful law is the federal program bribery statute, 18 U.S.C. § 666. It prohibits theft or bribery by an agent of any organization or state or local government in connection with programs or agencies receiving federal funds. There are certain (and quite modest) minimum dollar requirements involved, but once those are met this statute is a potent anti-bribery tool that can apply not only to state or local government officials but to private individuals as well.

RICO – the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961-1964, is a statutory behemoth primarily aimed at organized crime. Given the breadth of the statute, however, it is possible to apply it to entities such as a governor’s office, charging that state officials or others conducted the affairs of that office through a “pattern of racketeering activity.” Racketeering activity is defined to include a number of state law crimes, including bribery and extortion. Accordingly, a state law bribery scheme affecting a state or local government, while not violating the federal bribery statute, may be brought as a federal prosecution through the vehicle of RICO.

flag map of us

Debate over federal prosecution of state and local officials reflects fundamental tensions about the proper balance of state and federal power that have existed since the founding of the nation. There will always be some, such as Governor McDonnell’s defenders in Virginia, who will argue that the federal government should butt out and allow the states to handle their own affairs. But as discussed above, there are many reasons why federal intervention may be necessary and appropriate — and if recent developments are any indication, federal prosecutors are not hesitating to jump in.

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.

Like this post? Click here to join the Sidebars mailing list.