Symposium: Kelly v. United States: There is no political exception to fraud

Frank Bowman is the Floyd R. Gibson Missouri Endowed Professor of Law at the University of Missouri Law School and Visiting Professor at Georgetown Law Center.

My concerns with Kelly v. United States are two. First, the Supreme Court should not have granted certiorari. It seems to have done so because it accepted the petitioner’s artfully distorted characterization of the facts and legal issues. Second, now that the case is before the court, it could too easily be a vehicle for further unfortunate limitations on the government’s power to prosecute government corruption in the vein of Skilling v. United States and McDonnell v. United States.

Space permits me to address only the first concern, which requires close scrutiny of the facts.

William Baroni was deputy executive director of the Port Authority of New York and New Jersey. Bridget Kelly was an aide to New Jersey Governor Chris Christie. Both were political intimates of Christie and personally involved in helping promote his 2013 re-election bid.

Part of Christie’s re-election strategy was to secure endorsements from local officials. One such official was Mark Sokolich, mayor of Fort Lee, a New Jersey borough on the Hudson waterfront straddling all the highways to the massive George Washington Bridge. When Sokolich declined to provide the sought-after endorsement, Christie’s aides decided to punish him.

By longstanding policy, during morning rush hour Port Authority police reserved three of the 12 toll lanes leading to the bridge for local traffic from Fort Lee. Eliminating or reducing the number of Fort Lee lanes would cause huge traffic jams in the town and equally huge political headaches for the mayor. So in August 2013, Kelly emailed David Wildstein, Baroni’s chief of staff: “Time for some traffic problems in Fort Lee.”

Recognizing that neither Port Authority traffic officials nor Baroni’s superior, Port Authority Executive Director Patrick Foye, would ever agree to a lane closure to punish Christie’s political opponents, Wildstein and Baroni concocted a lie. Wildstein told the Port Authority traffic engineer and other managers that “New Jersey” was trying to decide whether to close or reduce the number of lanes allocated to Fort Lee, and the closure was for the purpose of a “traffic study” to produce data to inform that decision. Relying on this lie, Port Authority officials crafted a plan that cut Fort Lee’s three lanes to one, arranged for overtime staffing of the single remaining toll booth allotted to Fort Lee and assigned staff to collect data for the supposed traffic study.

Baroni and Wildstein triggered the lane closures without advance warning. When the predictable massive traffic jams came to Foye’s attention, he immediately ordered reinstatement of Fort Lee’s lanes.

The main charges in the indictment of Kelly and Baroni were wire fraud, federal program fraud and conspiracy to commit those crimes.

In plain language, a defendant commits wire fraud if he devises a plan to deprive the victim of property by telling a lie about a “material” fact, that is, a lie of the kind that a reasonable person in the victim’s position might rely on in deciding to acquiesce in the scheme and part with the property. The scheme need not contemplate that the defendant gain money or property, only that the victim be deprived of it. It can sometimes be tricky to identify the victim, to decide whether the scheme sought “property” and to figure out whether the lie was “material.” But in Kelly, all those points are clear.

The victim was the Port Authority of New York and New Jersey. Baroni was an official of that agency and Kelly was an official of one of the states that shared in funding and managing it. But neither of them was the agency, nor did either of them have plenary authority to order the disposition of its resources. Kelly was not in the Port Authority chain of command at all. Baroni was, but he was subordinate to Foye (who stopped the lane closure over Baroni’s objection as soon as he found out about it).

Even over nonpolitical, subordinate agency employees, Baroni’s power was not absolute. Some restrictions on his authority were narrowly legal. He could not, for example, order that the agency pay him money in excess of his salary and benefits, or that agency personnel be diverted to work on Christie’s vacation home, because these actions would violate civil or criminal law. But some constraints on his authority were organizational, pragmatic if you will. If he ordered agency personnel to perform acts that were unethical or contrary to agency policy (like causing traffic jams to punish the governor’s enemies), they would probably not comply.

The reach of Baroni’s authority is important because Kelly argues that there can be no fraud if the defendant had the unconstrained right to order the disposition of organizational assets or resources. To the extent this proposition has any validity, it is nothing more than an application of the basic logic of the fraud statutes. Fraud requires that the defendant tell a lie for the purpose of deceiving the victim into parting with property. If the defendant’s position in an organization allows her to deprive the organization of property without telling a lie upon which someone else in the organization will rely in deciding whether to part with that property, there may be a crime, but it will not be fraud. A bank president who privately diverts bank money to her personal accounts may have committed bank theft, but she does not commit bank fraud.

In this case, precisely because neither Baroni nor Kelly had plenary authority to order closure of the Fort Lee access lanes or expenditure of the funds required to accomplish it, they had to tell lies to the Port Authority officials who had direct operational control over those matters. The trial evidence was plain that, without the lies about a “traffic study,” those officials would not have agreed to the defendants’ request. This is the very definition of a “material” false representation.

The defendants also argue that the Port Authority was not deprived of “property.” But the law is clear that property includes intangible things of value, particularly the economic value of labor. As the U.S. Court of Appeals for the 3rd Circuit put it, “To execute their scheme, [defendants] conscripted fourteen Port Authority employees to do sham work in pursuit of no legitimate Port Authority claim.” All of this had a quantifiable monetary cost, which the government proved at trial.

Nonetheless, the defendants convinced the Supreme Court to grant certiorari. They did so by claiming that the 3rd Circuit held that “the fraud here … was concealment of political motives for an otherwise legitimate official act.” And thus that, “All that separates a routine decision by a public official from a federal felony … is a jury finding that her public-policy justification for the decision was not really and truly her subjective reason for making it.”

This is bunk.

The 3rd Circuit held that it was not basing its ruling on the defendants’ motives in telling the traffic study lie, but on the lie itself. More importantly, the defendants’ lie was not about motive, but about historical facts and about the purposes for which government resources were being commandeered.

There had never been any discussion among New Jersey officials of permanently shutting the Fort Lee access lanes. No one, not even the defendants, had contemplated such a policy change. No one had decided that data would be required to inform the decision. And no one had authorized a study to collect that data. The defendants’ assertions to the traffic engineer that these things had happened were simply lies about whether past events had occurred.

Likewise, when the defendants said that the data collected in the “traffic study” would be used in future policymaking, they lied about the purpose for which government resources were being diverted. That is a crime. If I requisition a car from the government motor pool by claiming that I will use it to travel to a government meeting, when in fact I intend to use it to go to a lover’s tryst, I am misstating the purpose to which I will put the car. My lustful motive for making that misstatement is irrelevant to the question of whether I have committed fraud.

Kelly is plainly appealing to the court’s longstanding concern that the government may use fraud statutes to criminalize ordinary politics. Whatever the merits of that general worry, Kelly’s position seems to be that there is a political exception to ordinary fraud law. She contends that, even if a defendant deprives the government of property by telling lies about historical events or the purposes for which the property is to be used, there is no crime so as long the defendant’s motive is to gain political advantage. That surely cannot and should not be the law.

One can hope that, after full briefing and argument, the justices will gain a clearer appreciation of the facts and issues in the case, or at least see that the doctrine the petitioners are pressing upon them has no obvious limiting principle.