Opinion ID: 3026413
Heading Depth: 4
Heading Rank: 3

Heading: Legal Validity of Failure to Disclose Theory

Text: Holck and Umbrell next present three arguments that the District Court’s jury instructions concerning the failure-todisclose theory of honest services fraud were legally erroneous. If, as Holck and Umbrell argue, the alternative theory is legally invalid, we must vacate their convictions. See Syme, 276 F.3d at 144. Our review over whether the District Court correctly stated the law is plenary. Armstrong, 438 F.3d at 245. For the reasons discussed below, we conclude that the District Court correctly charged the jury. Holck and Umbrell first argue that the jury instructions were inconsistent with our decision in Panarella. According to Holck and Umbrell, when we held in Panarella that a “public official who conceals a financial interest in violation of state criminal law while taking discretionary action that the official knows will directly benefit that interest commits honest services fraud,” 277 F.3d at 694, we ruled that the discretionary action must benefit the public official himself, and not the person or organization that provided the benefit. They thus argue that the District Court’s instructions, which permitted the jury to convict upon finding that Kemp took “a discretionary official action benefitting the giver of the benefit” (App. at 9644), wrongly stated the law. A complete analysis of Panarella plainly demonstrates the defectiveness of Holck and Umbrell’s position. In Panarella, Loeper, while Majority Leader of the Pennsylvania Senate, worked as a business consultant for a tax collection 38 business. Id. at 681. Loeper failed to disclose his income from the business as required by state law, and spoke and voted against bills that would have harmed that business. Id. We held that this conduct constituted honest services fraud, and emphasized the importance of disclosing conflicts of interest. Id. at 696-97. We explained: Were it easy to detect and prosecute public officials for bribery, the need for public officials to disclose conflicts of interest would be greatly reduced. . . . One reason why federal and state law mandates disclosure of conflicts of interest, however, is that it is often difficult or impossible to know for sure whether a public official has acted on a conflict of interest. The only difference between a public official who accepts a bribe and a public official who receives payments while taking discretionary action that benefits that payor, as Loeper did in this case, is the existence of a quid pro quo whereby the public official and the payor agree that the discretionary action taken by the public official is in exchange for payment. Recognizing the practical difficulties in proving the existence of such a quid pro quo, disclosure laws permit the public to judge for itself whether an official has acted on a conflict of interest. Id. at 697 (emphasis added) (citation omitted). This explanation is consistent with our opinion in Antico, where we emphasized, broadly, the duty of a public official “to disclose material information affecting an official’s impartial decision-making.” 275 F.3d at 264. Accordingly, we reject Holck and Umbrell’s argument that the discretionary action must directly benefit the public official, and hold that honest services fraud encompasses a situation where a public official conceals a financial interest in violation of state criminal law while taking discretionary action that the official knows will directly benefit the individual or organization behind that financial interest. We thus reject Holck and Umbrell’s challenge on this front. Holck and Umbrell next argue that the jury instructions misstated the law because they did not require the jury to find 39 that Holck and Umbrell failed to disclose a financial interest in violation of a state criminal law. However, this argument misapprehends Pennsylvania’s statutory structure. The District Court read to the jury the provisions of 65 Pa. Cons. Stat. § 1103(a)-(c), all of which are felonies. See 65 Pa. Cons. Stat. § 1109(a). Thus, we also reject this claim. Finally, Holck and Umbrell contend that the District Court’s instructions about the species of loans that public officials are required to report were incomplete. They argue that in addition to the proffered instructions, which stated that “a commercially reasonable loan made in the ordinary course of business” is exempt from the reporting requirement,13 the District Court should have informed the jury that “the financial terms of the loan must be below-market or that the loan must be outside the ordinary course of business.” To the extent that the language proposed by Holck and Umbrell adds anything to the District Court’s instruction, we conclude that the District Court was not obligated to include it. Holck and Umbrell’s authority for their position – 4 Pa. Code § 7.153(b)(3) and Executive Order No. 16-92 – concerns gifts that public officials are prohibited from accepting, and are thus inapposite here. The crucial issue is whether Kemp was required to report the loans; whether he was entitled to accept the loans is a different matter altogether. Accordingly, we conclude that the District Court correctly and fully14 instructed the jury about the 13 These instructions were consistent with Pennsylvania law, which requires public officials to report “[t]he name and address of the source and the amount of any gift or gifts valued in the aggregate at $250 or more and the circumstances of each gift,” 65 Pa. Cons. Stat. § 1105(b)(6); in defining “gift,” the statute excludes from the general definition “a commercially reasonable loan made in the ordinary course of business,” §§ 1102, 13A03. 14 The District Court instructed the jury that to determine whether the loans provided by Kemp were gifts that were required to be reported, it should consider “whether defendant Holck and/or defendant Umbrell followed established Commerce Bank 40 governing law concerning loans.