Divided Atlanta Federal Appeals Court Upholds Florida Mail Fraud and Bribery Conviction: the Latest Saga in the "Honest Services" Debate
Here in Atlanta, the local federal Court of Appeals just affirmed a conviction in a mail fraud and bribery white collar case out of Jacksonville, Florida. The case is but the latest saga in the long-running debate over the contours of "honest services fraud", the species of fraud so often used by federal prosecutors when they go after what they perceive to be "local corruption." In a 2-1 decision, the majority held that the Defendant's convictions should be affirmed, even though one of the two judges in the majority had real problems upholding the lower court's rulings. Judge Hill issued a blistering dissent, perhaps foreshadowing a more full review by the entire court. The case is US. v. Nelson, and can be found here.
Mr. Nelson was the chairman of the board of Jaxport, the entity that basically oversaw the port authority in Jacksonville. The board members worked part-time, were not paid, and were prohibited from voting on any matter in which they had a financial interest.
Mr. Nelson lobbied on behalf of a company named SSI, received payments from SSI, and therefore did not vote on any SSI-related matters that came before the JaxPort board. He did urge staff members to help SSI on certain payment issues, but as noted by the dissent, "The evidence was that no economic harm befell JaxPort as the result of Nelson’s lobbying for SSI". At one point he got an opinion from the City's chief legal officer that he would have no problems in continuing his lobbying on behalf of SSI so long as he did not vote on anything that affected that company. His biggest problem was that he and SSI concealed the payments he received, the money was routed through a couple of other intermediary companies before it got to Nelson. The FBI got wind of the relationship between Nelson and SSI, they tapped their phones, and one morning agents showed up at Mr. Nelson's house for a "talk." He told them that once they arrived on his doorstep he then knew the payments were wrong, but did not say he previously was aware of the wrongfulness of his conduct.
Despite all this, the feds indicted Mr. Nelson for "honest services" mail fraud and federal services bribery. Many of us know the history of the honest services theory, a method of criminalizing what is basically the violation of a fiduciary duty. In the famous Skilling case, the U.S. Supreme Court restricted the honest services theory to "core" cases involving bribery and kickbacks, and seemed to hold that concealing one's financial relationship is not the sort of conduct which can be prosecuted under these laws.
The majority in Nelson used a round-about way of deciding that he was guilty. Although he could lobby on behalf of SSI, and although he did abstain from voting on SSI business, the concealment of his payments from SSI meant that he had the intention to accept a bribe. Judge Hill's dissent seems to be far more on point: "[C]oncealment alone is legally insufficient to prove Nelson had corrupt intent to be bribed. If Nelson had no duty to disclose his financial relationship with SSI, as Skilling says, and the payments were permitted, as he was told, then the jury was not permitted to infer a corrupt intent to be bribed by his concealment. The government’s theory was that – although concealment is not a crime – it was evidence of corrupt intent and this mens rea turned lawful lobbying into unlawful bribery. I disagree. Bribery requires a corrupt agreement to perform an unlawful official act – an actus reus. In this case, Nelson agreed to perform a lawful act. The lobbying was permitted. An agreement to perform a lawful act is called a contract, not bribery."
The case also involved some serious problems with the jury instructions. Again, however, the trial lawyers failed to object, letting the appellate court use the "plain error" standard way of gutting the argument. As I have noted many times before, none of us is perfect, as trial lawyers we all make mistakes, but we also all need to remember to try and object as often as possible to any potential problem with jury instructions.