Opinion ID: 3013312
Heading Depth: 1
Heading Rank: 2

Heading: The Margiotta Mail Fraud Theory

Text: The indictment charged Murphy with four counts of mail fraud pursuant to 18 U.S.C. §§ 1341 and 1346. To recapitulate, each count alleged three theories of how Murphy defrauded Passaic County: Theory One charged him with defrauding the County of money and property; Theory Two alleged a scheme to defraud the County of the honest services of its County Administrator; and Theory 11 Three accused Murphy of violating his duty to provide the County with his own honest services. As we have already noted, Murphy contends that Theory Three stretched the mail fraud statute beyond its reasonable bounds and improperly relied on the oft-criticized holding of United States v. Margiotta, 688 F.2d 108 (2d Cir. 1982), which sustained the conviction of a county chairman under similar facts. Murphy does not dispute the legal viability of the Government’s other two theories, which we find legally sufficient for the reasons discussed infra.
The Government contended at oral argument, and in supplemental briefing, that according to United States v. Asher, 854 F.2d 1483 (3d Cir. 1988), we should affirm the mail fraud convictions even if we determine that Theory Three, which relied on Margiotta, was not legally viable. In Asher, the jury returned a general verdict convicting the defendant of mail fraud, and thus did not specify whether it followed the prosecutor’s monetary-loss or deprivation of honest services theory. After the conviction, the Supreme Court ruled in McNally v. United States, 483 U.S. 350 (1987), that honest services fraud was not a legally viable theory of prosecution under § 1341. Despite not knowing whether the jury relied on the now-impermissible honest services fraud theory, we sustained the defendant’s conviction in Asher because we were “unable to hypothesize a set of circumstances under which this jury . . . could not have found a fraudulent scheme that consisted solely of depriving the citizens of their right to honest government that did not also involve tangible losses. . . .” 854 F.2d at 1495-96. The jury in this case also returned a general verdict, and thus did not specify which of the Government’s theories of mail fraud the jury believed Murphy had violated. In the Government’s submission, even if we find the Margiotta theory of mail fraud not legally viable, we must sustain Murphy’s mail fraud conviction because, as in Asher, there is no way that the jury could have found that Murphy deprived Passaic County of its right to his honest services without also finding that he devised a fraudulent scheme to 12 deprive the County of money, i.e., the payments to the Panel. We need not evaluate the merits of the Government’s contention, however, because the Supreme Court’s opinion in Griffin v. United States, 502 U.S. 46 (1991), and our interpretation of Griffin in United States v. Syme, 276 F.3d 131 (3d Cir. 2002), undermine Asher. In Griffin, the Court articulated a “clear line” distinguishing general verdicts that could have relied on a factually insufficient theory from those that might have been based on a legally invalid theory. 502 U.S. at 59. The former would be sustained, but the latter would merit reversal as the Court explained: Jurors are not generally equipped to determine whether a particular theory of conviction submitted to them is contrary to law — whether, for example, the action in question is protected by the Constitution, is time barred, or fails to come within the statutory definition of the crime. When, therefore, jurors have been left the option of relying upon a legally inadequate theory, there is no reason to think that their own intelligence and expertise will save them from error. Quite the opposite is true, however, when they have been left the option of relying upon a factually inadequate theory, since jurors are well equipped to analyze the evidence. Id. In Syme, we examined Griffin and the Court’s prior decisions concerning whether general verdicts consisting of an unconstitutional, legally invalid, or factually inadequate theory could be sustained. We concluded that “under Griffin, if one of two or more alternative theories supporting a count of conviction is either (1) unconstitutional, or (2) legally invalid, then the reviewing court should vacate the jury verdict and remand for a new trial without the invalid or unconstitutional theory.” 276 F.3d at 144. We are therefore satisfied that current precedent dictates that, should we find one of the Government’s theories of mail fraud legally invalid, we must reverse Murphy’s conviction on the mail fraud counts and remand for a new trial because the jury returned a general verdict. 13
Charge We turn to the merits of Murphy’s contention that the Government’s third theory of mail fraud, relying on Margiotta, is legally invalid. The mail fraud statute, 18 U.S.C. §§ 1341 and 1346, provides in relevant part: § 1341: Whoever, having devised or intending to devise any scheme or artifice to defraud . . . places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service . . . shall be fined under this title or imprisoned not more than 20 years, or both. § 1346: For the purposes of [18 U.S.C. § 1341, et seq.], the term “scheme or artifice to defraud” includes a scheme or artifice to deprive another of the intangible right of honest services. We have interpreted this statute so that to prove mail fraud, “the evidence must establish beyond a reasonable doubt (1) the defendant’s knowing and willful participation in a scheme or artifice to defraud, (2) with the specific intent to defraud, and (3) the use of the mails . . . in furtherance of the scheme.” United States v. Antico, 275 F.3d 245, 261 (3d Cir. 2001). In Antico, we reviewed the history of the mail fraud statute and its application to “honest services” fraud, which is also sometimes referred to as the “intangible rights” doctrine. Id. at 262 n.16. Until 1987, many courts applied “scheme or artifice to defraud” in 18 U.S.C. § 1341 broadly and extended it to schemes that defrauded citizens of their right to honest government services. The Supreme Court rejected this construction in McNally, supra, when it held that the mail and wire fraud acts did not prohibit conduct that defrauded citizens of their intangible right to honest services, but only of money or property. 483 U.S. at 359. That decision was informed by the Court’s application of the rule of statutory construction that “when there are two rational readings of a criminal statute, one harsher than 14 the other, we are to choose the harsher only when Congress has spoken in clear and definite language.” Id. at 359-60. Unhappy with this holding and in response to the Court’s desire for a clear legislative voice, Congress enacted 18 U.S.C. § 1346, which sought to restore the mail fraud jurisprudence to its status pre-McNally. Antico, 275 F.3d at 262 n.18; see also Cleveland v. United States, 531 U.S. 12, 20 (stating that “Congress amended the law specifically to cover one of the ‘intangible rights’ that lower courts had protected under § 1341 prior to McNally: ‘the intangible right of honest services’ ”). Recognizing “Congress’ clear intent in enacting § 1346,” this court held in Antico that § 1346 “includes the prosecution of state and local officials and public employees for depriving the citizens they serve of their right to honest services.” 275 F.3d at 262. The prosecution of a private party official is, however, a horse of another color. The only case cited by either party that applied such an interpretation of the mail fraud statute is Margiotta.3 In that case, the Court of Appeals for the Second Circuit upheld the conviction of Joseph Margiotta, the Chairman of the Republican Committee of Nassau County and the Town of Hempstead, New York. Like Murphy, Margiotta wielded significant political influence and used this power to construct a contracts-forpayments scheme far more extensive than that with which Murphy was charged. 688 F.2d at 113-14. Margiotta was indicted for, inter alia, one count of mail fraud, alleging that he defrauded the citizens of either (1) the right to the honest services of their government officials or (2) “the right 3. Aside from Margiotta, the Government can only muster a citation to the Supreme Court’s opinion in McNally for the general proposition that a county chairman may act like a public official and owe a fiduciary duty to the government. This citation to McNally is unhelpful, however, since the Court only assumed the facts as the government presented them for the purposes of that case, and then went on to reverse the conviction anyway. 483 U.S. at 352, 361. No other court has expressly followed Margiotta, thus it remains the Government’s sole direct authority. Indeed, it is questionable whether Margiotta is even good law any longer in the Second Circuit since that Court has expressly foreclosed the use of pre-McNally cases when construing the meaning of § 1346. See United States v. Sancho, 157 F.3d 918, 921-22 (2d Cir. 1998). 15 to Margiotta’s honest and faithful participation in the governmental affairs of the Town, County, and State.” Id. at 114. On appeal, a divided panel of the Second Circuit rejected Margiotta’s argument that an alleged deprivation of an intangible right to one’s honest services under the mail fraud statute could exist only when the defendant owed a fiduciary duty to the victim based on a formal legal relationship. 688 F.2d at 121-22. In the political context, Margiotta had contended that the statute should only reach public officials, who owe a fiduciary duty to their constituents, and not party officials, who only owe a fiduciary duty to their employer, the political party. Initially, the panel recognized the pitfall in finding a private actor equivalent to a public official for the purposes of criminal liability and noted: On the one hand, it is essential to avoid the Scylla of a rule which permits a finding of fiduciary duty on the basis of mere influence or minimum participation in the processes of government. Such a rule would threaten to criminalize a wide range of conduct, from lobbying to political party activities, as to which the public has no right to disinterested service. On the other hand, the harm to the public arising from the sale of public office and other fraudulent schemes leads us to steer a course away from the Charybdis of a rule which bars on all occasions, as a matter of law, a holding that one who does not hold office owes a fiduciary duty to the general citizenry even if he in fact is conducting the business of government. Id. at 122. Despite these concerns, the panel approved a gestalt approach that allowed the jury to derive a fiduciary duty on the part of Margiotta based on (1) a general reliance test, which looked at whether others relied on Margiotta “because of a special relationship in the government,” and (2) a de-facto control test that examined whether Margiotta was “in fact mak[ing] governmental decisions.” Id. at 122. The Court defended these tests by claiming that they “recognize the important distinction between party business 16 and government affairs, permitting a public official to act in accordance with partisan preferences or even whim, up to the point at which he dominates government.” Id. Although the panel recognized that there might be federalism problems in using a federal criminal statute to prosecute local political actors, it girded its holding by citing New York state cases that supported the broad proposition that political party officials might owe a fiduciary duty to the citizenry under state law. Id. at 12425. Even so, the panel abjured a narrow holding that “absent a showing of a violation of New York statute or a duty imposed by New York law, a defendant may not be found guilty” of mail fraud because the statute was enacted to “prohibit the use of mails for promoting schemes contrary to federal public policy.” Id. at 125. In other words, although it found some state law that supported the holding, the panel clearly rejected the contention that the prosecution must prove that the defendant violated a state law in order to sustain his mail fraud conviction. Id. After approving this mail fraud theory, the Second Circuit panel looked at the sufficiency of the evidence. It found that the district court had correctly instructed the jury that “in order to decide that Margiotta had breached his fiduciary duty, it had to find that Margiotta had concealed from those in Government who rely on his participation material information concerning his entry into a corrupt agreement to influence him in the performance of his governmental functions.” Id. at 127 (quotations omitted). Further, the panel noted that “an affirmative duty to disclose could reasonably be inferred from the de facto employer-employee relationship Margiotta enjoyed with the municipal government.” Id. at 128. Finding ample evidence that the jury could infer both a fiduciary duty and a breach thereof, the Court affirmed the conviction of Margiotta on the mail fraud count. Id. The District Court in the case at bar relied extensively and exclusively on Margiotta in its charge to the jury on the Government’s Theory Three of mail fraud. The Court’s reliance is evidenced, for example, in the charge to the jury, which read in relevant part: 17 In order to find the defendant guilty of defrauding Passaic County and its citizens of their right to his own honest services you must find that the defendant Murphy had a fiduciary duty and that he violated that duty by failing to disclose material information. An individual may have such a fiduciary duty even if he is technically not an employee of the particular local government—here, Passaic County. An individual who knowingly undertakes the business of governing a particular jurisdiction owes a duty of loyalty to the citizens just as does one who formally holds public office. An affirmative duty to disclose can reasonably be inferred from what is essentially an employer-employee relationship. Thus, you may find that the defendant Murphy had a fiduciary duty to Passaic County and its citizens, if you find that the work done by [the] defendant was in substantial part the business of Passaic-County [sic] government, rather than being solely party business, and that the performance of that work was intended by him and relied on by others in Passaic County government as part of the business of government in order to carry forward its affairs as a whole. In determining whether the defendant had a fiduciary duty, among other things, you should consider whether the defendant regularly participated in the selection of persons for public positions, regularly participated in the selection of vendors for Passaic County business, or otherwise regularly participated in running Passaic County business. If you find that defendant Murphy essentially served as a fiduciary for Passaic County, then he had a duty to disclose material information to those in Passaic County government who relied on him. Essentially, the charge stated that if Murphy knowingly undertook governmental functions and others relied on him, then he could have a fiduciary duty that he breached by not notifying Passaic County of the arrangement to award contracts to CMSI in return for payments to the Panel. 18
Legally Viable?