Opinion ID: 799033
Heading Depth: 4
Heading Rank: 2

Heading: Evidence of wire fraud

Text: The crime of wire fraud consists of three elements, each of which must be proven beyond a reasonable doubt: (1) that the defendant devised or willfully participated in a scheme to defraud; (2) that he used or caused to be used an interstate wire communication in furtherance of the scheme; and (3) that he intended to deprive a victim of money or property. United States v. Faulkenberry, 614 F.3d 573, 581 (6th Cir.2010) (internal quotation marks omitted). Gallion attacks the evidence as to the first and second of these elementsthe first by arguing that the evidence was insufficient to support the jury's conclusion that he had the requisite intent to defraud; the second by arguing that the evidence was insufficient to support the jury's conclusion that the wire transfers furthered the scheme to defraud (even assuming that there was such a scheme).
The first element covers the requisite mental state. A defendant must have been part of a scheme to defraud, meaning any plan or course of action by which someone intends to deprive another ... of money or property by means of false and fraudulent pretenses, representations, or promises. Id. (emphasis added) (internal quotation marks omitted). Gallion's argument for why he lacked the intent to defraud is essentially that he and Cunningham had little experience handling complex litigation and simply got in over our heads. He thus attributes most of their unethical behaviorincluding setting up the charitable trust, seeking 49 percent of the settlement in attorney fees, and misrepresenting numerous facts to Judge Bambergerto the misguided advice of Chesley, upon whose expertise Gallion claims to have reasonably relied. And he further attempts to immunize his conduct by pointing to the fact that Judge Bamberger signed off on many of the actions that constituted the alleged scheme to defraud. As Gallion sees the situation, his good faith reliance on Chesley's advice and guidance, as well as Judge Bamberger's approval of all significant aspects of the state court action, negated any alleged criminal intent. But Gallion's interpretation of the evidence is just that: his interpretation. Such a view is bolstered only if one draws all factual inferences in his favor. Viewing the evidence as legally requiredin the light most favorable to the government there is little doubt that the evidence was sufficient to support the jury's conclusion that Gallion intended to defraud his clients out of money that was rightfully theirs. Consider just some of the evidence produced at trial. Testimony revealed that Cunningham and Gallion directed their subordinates to conceal highly important information about the settlement from their clients (including the total amount of the settlement, the number of claimants sharing in it, and the method of allocation) and to offer each claimant substantially less than his or her properly calculated share. Moreover, according to the trial testimony, the lawyers misled some of their clients into believing that there had been a successful renegotiation of their claims with AHP and that a breach of the settlement's confidentiality clause could lead to jail time. These misrepresentations support the conclusion that Cunningham and Gallion participated in a massive scheme to defraud their clients. In addition, an employee of Mills testified that, one day after learning that the KBA had applied to subpoena the lawyers' bank-account records, Gallion ordered her to destroy all documents related to the manner in which the individual clients' claims had been settled. And shortly before the Kentucky Supreme Court's hearing to decide whether to authorize the subpoenas, Cunningham and Gallion transferred approximately $59 million from their personal bank accounts back into the escrow account. These actions clearly indicate that Cunningham and Gallion knew that what they had done was wrong, and further support the conclusion that they had intended to defraud their clients out of millions of dollars. As for Gallion's alternative theory of the evidence, two further points deserve mention here. The first is that the evidence need not exclude every reasonable explanation except that of guilt to sustain a conviction. United States v. Gonzalez, 512 F.3d 285, 294 (6th Cir.2008). So even if Gallion's explanation for his actions was plausible, his convictions for wire fraud would still be supported by sufficient evidence. Second, when viewed in the light most favorable to the government, the evidence severely undermines Gallion's explanation of the pertinent events. Gallion submits that he reasonably relied on Chesley's expertise throughout the settlement and post-settlement processes. But that does not explain why Gallion asked the judge to authorize attorney fees of 49 percent when Gallion had already taken lower retainer-based fees using his clients' calculated (but not actual) recovery amounts. Nor does it explain why he concealed important details of the settlement from his clients or misrepresented other information to them, including the amount of excess funds that would be deposited into the charitable trust. Moreover, Gallion cannot justifiably rely on the rubber stamp orders signed by Judge Bamberger. The judge's own testimony indicates that he was consistently misled about the settlement's details. He was not told that Cunningham, Gallion, and Mills had already received attorney fees according to their retainer agreementsor that they even had retainer agreementswhen he authorized the 49-percent figure; he was not informed that the lawyers were being investigated by the KBA for their handling of the case; and he was told that the clients were aware of and thrilled by the $20-million charitable contribution to establish the Fund. This testimony provides a powerful rebuttal to Gallion's professions of passivity and good-faith reliance on Judge Bamberger's orders. Finally, Gallion contends that his actions immediately after learning of the KBA's investigation were in fact motivated by an unrelated occurrence: the Third Circuit Court of Appeals' approval of the nationwide class-action settlement, which happened around the same time. He claims that the $59 million that he and Cunningham transferred back into the escrow account had been set aside to cover any liability that might arise as a consequence of the Kentucky settlement's indemnity provision. As he testified at trial, he feared that if the nationwide class action fell apart, he (along with Cunningham and Mills) could end up on the hook to AHP for tens of millions of dollars to indemnify it for claims brought by Kentucky plaintiffs who were part of the nationwide class action. The Third Circuit's affirmance of the nationwide class-action settlement apparently allayed these fears. But the Kentucky settlement's indemnification provision, which is contained in the side letter to the settlement agreement, was expressly limited to $7.5 millionan amount that the lawyers had already set aside. Moreover, the $59 million had been transferred from the escrow account into the lawyers' personal accounts, which suggests that they never intended to give any of it back to their clients. Gallion's proffered explanations also fail to explain the lies and misrepresentations that he and the other lawyers made to numerous clients about the details of the settlement. The evidence presented at trial was therefore sufficient for a reasonable juror to conclude that Gallion's explanation for his actions was simply not credible, and that he had formed the intent to defraud beyond a reasonable doubt.
Gallion next argues that even if the evidence were sufficient to support a finding of intent to defraud, it was insufficient to support the conclusion that he used interstate wire communications in furtherance of the alleged scheme. In making this argument, Gallion concedes that he and Cunningham engaged in interstate wire communications when they accepted director fees from the Fund. But he disputes that these communications were made in furtherance of the scheme. Gallion's argument rests on an overly narrow definition of the scheme to defraud that was alleged in this case. According to Gallion, the wire transfers occurred after the fraud was complete because, by that time, the clients had already been deprived of their money. But the fraudulent scheme as alleged by the government was not simply that the lawyers intended to deprive their clients of money; it was that the lawyers intended to deprive their clients of money and then retain that money for themselves. Defined in this manner, the scheme clearly encompassed the wire transfers of settlement funds from the escrow account to the defendants' personal bank accounts, some of which were located outside Kentucky. Similarly, the scheme included the wire transfers of director fees, which were taken from funds rightfully belonging to the clients, to the defendants' bank accounts. See United States v. Warshak, 631 F.3d 266, 311 (6th Cir.2010) (noting in the analogous context of mail fraud that the requirement of mailing in furtherance of the scheme is fairly expansive and includes mailings that are incident to an essential part of the scheme, or a step in the plot (internal quotation marks omitted)). The evidence supporting this element was therefore sufficient to sustain Gallion's wire-fraud convictions.