Third Circuit Holds Stream-of-Benefits Honest Services Fraud Theory Still Valid after Skilling
Marina Drapey | Bloomberg Law
Stream-of-benefits bribery is still a viable theory or prosecution for honest services mail and wire fraud after the U.S. Supreme Court’s decision in Skilling v. United States, 130 S. Ct. 2896 (2010), said the United States Court of Appeals for the Third Circuit. The court affirmed the convictions of former New Jersey State Senator Wayne Bryant and a former dean of the School of Osteopathic Medicine (SOM) at the University of Medicine and Dentistry of New Jersey (UMDNJ) of honest services fraud and bribery.
Low-Show Job in Exchange for Influence
R. Michael Gallagher was the dean of the SOM. In 2002, the SOM was in trouble financially and in danger of being consolidated with other schools, which would have meant for Gallagher the loss of his position as dean. Gallagher became interested in becoming more active in the “political arena” in order to secure additional government funding for the school and ward off consolidation. According to the court, witness testimony showed that around the same time, Bryant was looking for a part-time (low-show) job at the UMDNJ.
The court explained that Gallagher created a new position of Program Support Coordinator at the SOM, which would require three days of work per week and involve improving the SOM’s relations with local governments and community organizations. The position was publicly posted and Bryant interviewed for it, though a witness testified that the interview was a sham and Bryant’s hiring had been pre-determined. According to the court, evidence also showed that Bryant worked only one day a week instead of three, and focused almost exclusively on using his influence to obtain government funding for the SOM, even though it was not part of his job description. Over the approximately three years that Bryant worked at the SOM, he secured millions of dollars in financial support for the school and its programs.
In 2007, Bryant and Gallagher were indicted for mail and wire honest services fraud, under 18 U.S.C. §§ 1341, 1343 and 1346, in connection with the SOM scheme and other misconduct. The defendants were convicted in November 2008 and appealed, arguing inter alia that the evidence of honest services fraud was insufficient and jury instructions on the fraud counts were defective.
Evidence of Honest Services Fraud Sufficient
The court reviewed the evidence de novo in the light most favorable to the prosecution and concluded that it was sufficient to support the defendants’ honest services fraud convictions. The court explained that in order to show bribery underlying honest services fraud, the government had to prove that the defendants intended to enter into a scheme where a public official was influenced to exercise his official authority in exchange for things of value. The quid pro quo required a showing of specific intent to offer something of value in exchange for the official act. The court observed, however, that each corrupt payment did not have to be tied to a corresponding official act. Rather, the quid pro quo could take the form of a “stream of benefits,” where the pubic official’s services were retained on an “as needed” basis.
The court concluded that based on the evidence presented at trial, a reasonable juror could find beyond a reasonable doubt that Bryant and Gallagher agreed that Bryant would collect the SOM salary in exchange for his official influence in increasing state funding for the school. The court noted witness testimony regarding the SOM’s financial woes and risk of consolidation, as well as Bryant’s approaching Gallagher about a job around the same time. The court also noted Bryant’s reduced work schedule and focus on obtaining financing for the school, which was not part of his official responsibilities at the SOM. The court concluded that based on the timing of Bryant’s official acts that led to grants of funding, the jury could infer that Bryant intended to accept a stream of benefits during his tenure at the SOM in exchange for taking official acts on behalf of the institution.
The court held that the government presented sufficient evidence of a quid pro quo bribery scheme to defraud the citizens of the State of New Jersey of Bryant’s honest services, including circumstantial evidence of intent, to sustain the defendants’ honest services fraud convictions.
Stream-of-Benefits Remains a Viable Honest Services Fraud Theory
The court rejected the defendants’ challenges to honest services fraud jury instructions. The defendants argued that the district court erred in failing to instruct the jury that it could find the defendants guilty only if Gallagher’s alleged bribes were intended to induce Bryant to take official action that he was not already planning to take irrespective of the payments. However, the court found that the district court sufficiently instructed the jury that “an intent to influence was required for a finding of guilt.” Bryant at 22.
The court also found unpersuasive the defendants’ contention that the stream-of-benefits theory of bribery was indistinguishable from the conflict-of-interest theory expressly invalidated by the Supreme Court in Skilling. The court saw nothing in Skilling to undermine the viability of the stream-of-benefits theory of bribery, which the court has repeatedly endorsed. “Indeed, Skilling did not eliminate from the definition of honest services fraud any particular type of bribery, but simply eliminated honest services fraud theories that go beyond bribery and kickbacks.” Id. at 23.
The defendants’ challenge to the “dual purpose” test, whereby the jury was allowed to find that financial benefits to a defendant were a bribe, even if they were paid, in part, for legitimate work, also failed. The court held that the defendants’ interpretation found no support in Skilling and, if adopted, would lead to untenable results, where the payor could bribe a public official in exchange for unlawful influence with impunity, provided that he also had some additional hope of receiving legitimate work in return. “We shall not stretch Skilling in this way,” the court said, and affirmed the defendants’ honest services fraud convictions. See id. at 24.
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