Why it matters: This session, the Supreme Court has undertaken the review of numerous cases that raise thorny issues arising in the white collar context. In our last newsletter, we reported on the Court’s March 30, 2016 decision in Luis v. U.S. which held in a criminal healthcare case that the pretrial restraint by the government of legitimate, untainted assets owned by a defendant that are needed to retain defense counsel of choice violates the Sixth Amendment. In this newsletter we report on the Court’s May 2, 2016 decision in Ocasio v. U.S, which dealt with the issue of what prosecutors need to prove to establish a public corruption conspiracy under the Hobbs Act. In addition, we review the April 27, 2016 oral argument before the Court in McDonnell v. U.S., where the Court is reviewing the question of what constitutes an “official act” for purposes of the federal public corruption statutes in the high-profile case involving Virginia’s former governor. Last, we preview the Court’s grant of certiorari on April 25, 2016 in Shaw v. U.S. to resolve a circuit split regarding the intent prosecutors need to prove to establish a “scheme to defraud a financial institution” under the federal bank fraud statute.
Detailed discussion: Read on for a recap of the recent decision, oral argument and grant of certiorari, respectively, in three criminal cases with white collar implications before the Supreme Court.
Ocasio v. U.S.: On May 2, 2016, in a 5-3 decision, the Supreme Court held in a public corruption context that a defendant may be convicted of conspiring to violate the Hobbs Act (18 U.S.C. § 1951) based on proof that he reached an agreement with the owner of the property in question (i.e., the target of the extortion scheme) to obtain that property under color of official right. For purposes of Ocasio, the relevant language of the Hobbs Act provides in Section 1951(a) that “[w]hoever in any way or degree … affects commerce … by … extortion or … conspires so to do … shall be fined under this title or imprisoned not more than twenty years, or both.” Section 1951(b) defines “extortion” in relevant part to include “the obtaining of property from another, with his consent ... under color of official right.”
First, a brief summary of the underlying facts and procedural history that got us to this point. Petitioner Samuel Ocasio (Ocasio), a former Baltimore police officer, was indicted in 2011 along with nine other police officers and two owners of an auto repair shop for participating in a kickback scheme in which Ocasio and the other officers routed damaged vehicles from accident scenes to the auto repair shop in exchange for payments from the shop owners. The shop owners and most of the other police officers pleaded guilty and accepted plea deals, but Ocasio did not and was convicted after jury trial of directly violating the Hobbs Act by obtaining money from the shop owners under color of official right, and of conspiring with others to violate the Hobbs Act in conjunction with the general federal conspiracy statute found at 18 U. S. C. § 371. Relevant to the case before the Court, Ocasio unsuccessfully argued during both the trial (in connection with jury instructions) and on appeal before the Fourth Circuit that he could not be convicted under the federal conspiracy statute of conspiring to violate the Hobbs Act—and thus his conviction should be vacated—because the definition of “extortion” in Section 1951(b) of the Hobbs Act requires that the property at issue be obtained “from another.” Thus, Ocasio argued, the prosecutors had failed to prove that the conspirators agreed to obtain property “from another,” i.e., someone outside the conspiracy, because the shop owners were part of the conspiracy, and so the payments at issue were simply payments between conspiracy members. The Supreme Court granted Ocasio’s petition for writ of certiorari to decide the issue.
Justice Samuel Alito, writing for the majority, succinctly stated up front that “[w]e reject [Ocasio’s] argument because it is contrary to age-old principles of conspiracy law.” Under those “long-standing principles,” the Court held that “a defendant may be convicted of conspiring to violate the Hobbs Act based on proof that he entered into a conspiracy that had as its objective the obtaining of property from another conspirator with his consent and under color of official right.”
The Court went on to briefly review the “basic” principles of conspiracy law in effect. Noting that the federal conspiracy statute under which Ocasio was convicted—Section 371– makes it a crime to “conspire … to commit any crime against the United States,” the Court cited to established case law precedent to hold that the “conspiracy” element of the statute is met if there is “a joint commitment to an ‘endeavor which, if completed, would satisfy all of the elements of [the underlying substantive] criminal offense.’” Further, the Court said that although the conspirators need to pursue the same criminal objective, “‘a conspirator [need] not agree to commit or facilitate each and every part of the substantive offense’” and that a defendant must merely reach an agreement with the ‘specific intent that the underlying crime be committed’ by some member of the conspiracy.” This is true, the Court said, even if the defendant himself is incapable of committing the substantive offense himself.
The Court concluded that “[t]hese basic principles of conspiracy law resolve this case. In order to establish the existence of a conspiracy to violate the Hobbs Act, the Government has no obligation to demonstrate that each conspirator agreed personally to commit—or was even capable of committing—the substantive offense of Hobbs Act extortion. It is sufficient to prove that the conspirators agreed that the underlying crime be committed by a member of the conspiracy who was capable of committing it. In other words, each conspirator must have specifically intended that some conspirator commit each element of the substantive offense.” Applying these principles to the facts of the case, the Court stated that Ocasio and the shop owners “shared the common purpose” of Ocasio and the other police officers conspiring to commit the underlying Hobbs Act extortion offense, with the police officers satisfying the required element of obtaining property “under color of official right” from “another” (i.e., the shop owners) with their consent. Even though the shop owners, as non-public officials, could not themselves commit the underlying Hobbs Act offense, they could and did conspire with Ocasio and the other police officers to do so.
The Court rejected Ocasio’s argument that it was improperly expanding the reach of the Hobbs Act, in effect “creating a national antibribery law and displacing a carefully crafted network of state and federal statutes.” The Court cited to its 1992 decision in Evans v. United States, another Hobbs Act case involving extortion by a public official, where it held that “Hobbs Act extortion ‘under color of official right’ includes the ‘rough equivalent of what we would now describe as ‘taking a bribe.’” The Court concluded that “[h]aving already held that § 1951 prohibits the ‘rough equivalent’ of bribery, we have no principled basis for precluding the prosecution of conspiracies to commit that same offense.” The Court also rejected Ocasio’s claim that its decision was serving to “dissolve the distinction between extortion and conspiracy to commit extortion,” noting that Ocasio was exaggerating the decision’s reach: “Our interpretation thus does not turn virtually every act of extortion into a conspiracy … Nor does our reading transform every bribe of a public official into a conspiracy to commit extortion.”
Justice Stephen Breyer wrote a separate concurring opinion that questioned whether the Court’s earlier holding in Evans was correctly decided but agreeing that it was still “good law” on which to base the correctly-reached majority opinion in Ocasio. Writing separate dissents were Justice Clarence Thomas (who argued that Evans should be overturned, echoing his dissent in that 1992 case) and Justice Sonya Sotomayor (joined by Chief Justice John Roberts).
McDonnell v. U.S.: In another public corruption case invoking the Hobbs Act as well as the federal “honest services” statute (18 U.S.C. § 1346), on April 27, 2016, the Supreme Court heard oral argument involving the conviction and sentencing to 24 months in prison of the former Virginia governor Robert F. McDonnell (McDonnell). McDonnell was convicted on various counts of public corruption for “gifts” he and his wife accepted from a Virginia businessman (e.g., lavish vacations, golf outings, expensive watches and clothes, “sweetheart” loans, etc.) allegedly in exchange for McDonnell using the governor’s office and his official position and influence to benefit the businessman’s tobacco-derived dietary supplement business. Following the Fourth Circuit’s opinion, which affirmed the district court’s conviction, the Supreme Court granted certiorari on of “[w]hether ‘official action’ under the controlling fraud statutes is limited to exercising actual governmental power, threatening to exercise such power, or pressuring others to exercise such power, and whether the jury must be so instructed; or, if not so limited, whether the Hobbs Act and honest-services fraud statute are unconstitutional.” On a side note, McDonnell’s wife was also convicted for public corruption and sentenced to 12 months in prison, although her case is presently on hold at the Fourth Circuit pending resolution of her husband’s case.
Most of the oral argument was devoted to the issue of what constitutes an “official action.” McDonnell’s attorney Noel J. Francisco began by pointing out that the government’s position—that “official action” encompasses anything within the range of official duties—is overbroad and “wrong.” Francisco argued that, instead, Supreme Court precedent required that “[i]n order to engage in ‘official action,’ an official must either make a government decision or urge someone else to do so. The line is between access to decision makers on the one hand and trying to influence those decisions on the other.”
Francisco further argued that the jury instructions at the trial were fatally flawed because they failed to instruct the jury that it had to first find that McDonnell used his official position to influence the decisions of others before it could find that he took an “official action.” Here, the argument focused specifically on the factual allegation that McDonnell attempted to influence Virginia state university researchers into agreeing to conduct studies of the businessman’s dietary supplement in order to obtain FDA approval. To this, Justice Anthony Kennedy said that “I take it all parties concede that the act of the university official to undertake or not to undertake a research study would be an ‘official action.’" Francisco agreed, but said “the question is: Did the Governor cross the line into influencing officials to undertake that action and was the jury properly instructed?” There ensued a series of hypotheticals proposed by the Justices as to the parameters of what would constitute “influencing the actions of others” in an “official action” context and the language that a proper jury instruction in this regard would include.
Arguing for the government, Deputy Solicitor General Michael R. Dreeben said that McDonnell was wrongfully trying to “carve out” from the concept of “official action” those actions that, while maybe not influencing others to act, still improperly facilitated access to them via phone calls and meetings. To this, Chief Justice Roberts said that “he’s not the only one,” citing to an amicus brief filed by the former White House counsels to Presidents Reagan, both Bushes, Clinton and Obama that said that, if upheld, the decision would “cripple the ability of elected officials to fulfill their role in our representative democracy” (Chief Justice Roberts joked that “[n]ow, I think its extraordinary that those people agree on anything”). There followed a long back and forth between the Justices and Dreeben with hypotheticals attempting to draw a distinction between improper “quid pro quo” or “pay-to-play” official actions and those that are merely a necessary part of representing constituents in the day-to-day business of government, with the Court’s decisions in Skilling and Citizens United being repeatedly invoked by both sides. Here, Justice Breyer perhaps summarized the issue best with his “two serious concerns” with the Court imposing, in the present case after the fact, an overbroad federal definition of “official action”: “One, political figures will not know what they're supposed to do and what they’re not supposed to do, and that’s a general vagueness problem. And the second is, I’d call it a separation of powers problem. The Department of Justice in the Executive Branch becomes the ultimate arbiter of how public officials are behaving in the United States, State, local, and national. And as you describe it, for better or for worse, it puts at risk behavior that is common, particularly when the quid is a lunch or a baseball ticket, throughout this country.”
Francisco finished up by highlighting the pastiche of federal and state anti-bribery laws on the books and his view that the government was overreaching by invoking the federal statutes such as the Hobbs Act in this case, where McDonnell’s conduct was legal under Virginia state law: “The problem here is that we had a State regime that was much less stringent than the Federal regime, and the government wanted to use the open ended Hobbs Act and honest-services statute to fill that gap in what they perceived is the State law. I would respectfully submit that that is an inappropriate use of Federal power.”
We await the Court’s decision in McDonnell with great anticipation and will report back.
Shaw v. U.S.: On April 25, 2016, the Supreme Court granted certiorari in a bank fraud case to review the question presented of whether, under Section 1344(1) of the Bank Fraud Act of 1984 (18 U.S. Code § 1344) (BFA), the words making it a crime “to defraud a financial institution” require prosecutors to prove “an intent only to deceive a bank, as three circuits have held, or of an intent to deceive and cheat a bank, as nine circuits have held, and as petitioner Shaw argued here.” The case is on appeal from the Ninth Circuit, where the appellate court affirmed a district court’s conviction of Lawrence Shaw (Shaw) under Section 1344(1) of the BFA for using PayPal to convince banks that he was another bank customer, Stanley Hsu, and thus had authority to transfer money out of Hsu’s bank accounts and into a PayPal account in Shaw’s control. In his Petition for Writ of Certiorari (Writ), Shaw argued that while it was undisputed in the proceedings below that his scheme was intended to steal Hsu’s money by deceiving the bank that he was Hsu, it was equally undisputed that Shaw did not intend to steal the bank’s money—which intent prosecutors would have had to prove as a prerequisite to liability under Section 1344(1). The Ninth Circuit had rejected this argument, holding that the government need only prove intent to deceive the financial institution, not defraud it out of money, for purposes of Section 1344(1) (upholding the district court’s denial of Shaw’s requested jury instruction that both need be proven).
In his Writ, Shaw said that his case “presents the recurring question left open” by the Court in its 2014 decision in Laughrin v. U.S. That case dealt with the second prong of the BFA, Section 1344(2), which makes it a crime to “obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses …” There, the Court held that Section 1344(2) does not require prosecutors to prove the defendant intended to defraud the financial institution out of money, but Shaw argued in his Writ that in so holding the Court either impliedly held that such a showing is required for Section 1344(1) or, at the very least, left the question open, and the circuits appear to be split on the issue. It is likely that the Court thus granted cert in an attempt to harmonize Section 1344’s two prongs. The Court will hear oral argument in the case when it reconvenes in October.
See here to read the Supreme Court’s 5/2/16 decision in Ocasio v. United States.
See here to read the transcript of the 4/27/16 oral argument before the Supreme Court in McDonnell v. United States.
See here to read the Petition for Writ of Certiorari in Shaw v. United States.