Court Opinion

ID: 2664949
Source: CourtListenerOpinion
Date Created: 2014-04-04 06:54:41.214737+00
Date Added: 2024-06-11T13:23:02.782691
License: Public Domain

UNITED STATES DISTRICT COURT
                             FOR THE DISTRICT OF COLUMBIA

                                                     )
UNITED STATES OF AMERICA,                            )
                                                     )
               Plaintiff,                            )
                                                     )
               v.                                    )        No. 05-CR-411 (ESH)
                                                     )
MICHAEL P.S. SCANLON,                                )
                                                     )
               Defendant.                            )
                                                     )

                            MEMORANDUM OPINION AND ORDER

       In November 2005, defendant Michael Scanlon (“Scanlon” or “defendant”) pled guilty to

a one-count information charging conspiracy with three objects: bribery in violation of 18

U.S.C. § 201; property mail and wire fraud in violation of 18 U.S.C. §§ 1341 and 1343; and

honest-services mail and wire fraud in violation of 18 U.S.C. §§ 1341, 1343, and 1346.

       Before the Court is defendant’s motion to modify or amend his plea agreement based on

United States v. Skilling, 130 S. Ct. 2896 (2010). Specifically, Scanlon argues that the honest-

services charges to which he plead guilty can no longer be constitutionally maintained against his

conduct. If correct, this conclusion would have material consequences for Scanlon’s sentencing

offense level and restitution. Based on the arguments of counsel at a hearing on November 23,

and for the reasons set forth below, the Court denies his motion.

                                             FACTS

       Scanlon pled guilty to conspiring with Jack Abramoff to defraud certain of Abramoff’s

Native American Indian Tribe clients (“Tribes”) of their right to Abramoff’s honest services.

(Plea Agreement ¶ 3.) The scheme involved Abramoff taking advantage of his relationship of

trust and confidence with his clients in order to convince them to hire Scanlon. (Factual Basis
¶ 6.) Scanlon would then secretly kick back to Abramoff approximately fifty percent of his

company’s net profits gained from these clients. (Id.) With respect to one of the clients,

Abramoff misrepresented to the tribe that he would perform lobbying work “pro bono,” when in

fact he received the fifty-percent kickback from Scanlon under their arrangement. (Id.)

       Under the government’s theory of fiduciary duty, tribal clients who had hired Abramoff

more than once were, by virtue of such repeat hiring, relying upon an ongoing relationship of

trust and loyalty with Abramoff, giving rise to his fiduciary duty to provide them with his honest

services.1 Throughout this scheme, “Scanlon believed that [Abramoff] had a duty to act in the

best interest of his clients in these matters and that [Abramoff]’s clients did in fact trust and rely

upon [Abramoff].” (Id.) He also “knew that [Abramoff] promoted himself as having knowledge

superior to his clients regarding lobbyist and grass roots activity and [Abramoff] encouraged his

clients to trust his judgment in these matters.” (Id.)

                                             ANALYSIS

       In United States v. Skilling, the Supreme Court addressed a challenge to the

constitutionality of the honest-services fraud statute, 18 U.S.C. § 1346, on the grounds that the

statute was impermissibly vague. Declining Skilling’s invitation to void the statute in its

entirety, the majority instead held that the statute could only be constitutionally applied to those

cases that formed the “core” of honest-services fraud prior to the Supreme Court’s ruling in

McNally v. United States, 483 U.S. 350 (1987), namely bribery or kickback schemes. In doing

so, the Court rejected both the government’s argument that § 1346 could also permissibly

1
  Scanlon’s Information, Plea, and Factual Basis were carefully calibrated to deliberately identify
only certain fees paid to Abramoff in connection with tribal clients who had hired Abramoff
more than once and only the fees paid in connection with those successive hirings (and not the
initial ones) as the basis for the honest-services fraud charges. (See, e.g., Information ¶¶ 8-18;
Factual Basis ¶¶ 6-8; Plea Agreement ¶ 5.)
                                                   2
proscribe “undisclosed self-dealing” cases as well as the opinion of Justice Scalia that the statute

be struck down in its entirety.

       The question before the Court is what effect, if any, Skilling has on Scanlon’s plea. The

government contends that defendant’s plea is unaffected by Skilling because it sets forth a classic

kickback scheme. Scanlon, however, argues that Skilling reached a narrower holding, approving

only “the prosecution of certain types of kickback cases,” of which he claims his case is not one.

(Defendant’s Motion [“Def.’s Mot.”] at 2-3.) As explained below, Scanlon’s interpretation of

Skilling is erroneous.

       Scanlon’s primary argument depends on his interpretation of scattered passages from the

majority’s opinion in Skilling. Seizing on this language, Scanlon argues that Skilling divided

kickback cases into two heretofore unknown categories: “kickback cases within the ‘core’ of

‘pre-McNally case law’” (id. at 10 (emphasis omitted)), which according to Scanlon are still

encompassed by § 1346, and kickback cases that fall outside this “core,” which according to

Scanlon were invalidated under Skilling.

       Scanlon appears to define the scope of so-called “non-core” kickback schemes under two

alternative theories. First, Scanlon seizes on language from a single footnote in Skilling to argue

for the existence of what he terms the “literal core of pre-McNally case law,” which involved

fraud relating only to public official-public, employee-employer, and union official-union

member relationships. (Id. at 3.) “Beyond these three examples,” Scanlon argues, “the Skilling

Court provided no further elucidation of this ‘core’ concept.” (Id.)

       Scanlon reads too much into this footnote. Skilling made clear (and the parties agree) that

bribery and kickback schemes under § 1346 must involve a breach of fiduciary duty, as this duty

establishes the right to one’s honest services out of which the victim of § 1346 is defrauded.

                                                 3
See, e.g., Skilling, 130 S. Ct. at 2930 (“The ‘vast majority’ of the honest-services cases involved

offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes.”

(emphasis added)). In addressing Justice Scalia’s concern that the Courts of Appeals pre-

McNally did not uniformly agree as to the source and scope of fiduciary duties, the Skilling

majority argued that this fact would have little impact on bribery and kickback cases. Id. at 2390

n.41. The Skilling majority cited several pre-McNally bribery and kickback cases involving

public official-public, employee-employer, and union official-union member relationships as

examples in support of its argument that the existence of a fiduciary relationship was “usually

beyond dispute” in such cases. Id. This is altogether different, however, from stating that the

application of § 1346 is limited to only those cases where the scope and source of the fiduciary

duty was beyond dispute.

       Moreover, even if, as Scanlon claims, the majority of pre-McNally bribery or kickbacks

cases involved one of these three relationships, this does not mean that these examples represent

an exhaustive list of the fiduciary relationships that can support an honest-services fraud

prosecution, to the exclusion of other fiduciary relationships such as attorney-client, doctor-

patient, or stockbroker-customer. Indeed, the Second Circuit acknowledged this point explicitly

in United States v. Rybicki, 354 F.3d 124 (2d Cir. 2003), a decision cited approvingly by the

Skilling Court. See 130 S. Ct. at 2929. After taking stock of the pre-McNally case law, the

Rybicki court noted that “[a]lthough the bulk of the [private-sector] pre-McNally honest-services

cases involved employees, we see no reason the principle they establish would not apply to other

persons who assume a legal duty of loyalty comparable to that owed by an officer or employee to

a private entity.” 354 F.3d at 142 n.17. See also United States v. Drury, 687 F.2d 63 (5th Cir.

                                                 4
1982) (affirming pre-McNally honest-services fraud conviction of attorney who engaged in

kickback scheme with physician).

       Simply because defendant has found a set of common traits among the pre-McNally cases

does not mean that this is the only way to conceptualize this body of case law, and at no point

did Skilling hold that these three fiduciary relationships marked the outer boundaries of § 1346.

See, e.g., United States v. Lupton, 620 F.3d 790 (7th Cir. 2010) (affirming post-Skilling

conviction under § 1346 of real-estate broker who defrauded client of right of honest services).

       Perhaps cognizant of this fact, defendant proposes a an alternative, even more novel

definition of so-called “core” kickback cases, which he terms the “analytical core.” (Def.’s Mot.

at 6.) Extrapolating from the three examples that he claims form the “literal core” of kickback

cases, Scanlon argues that a kickback scheme falls outside the “analytic core” if an individual’s

duty to provide another with his honest services “depended upon the circumstances,” or was “not

constant, but variable.” (Id.) Under this theory, honest-services fraud can be charged under §

1346 only where the fiduciary duties in question were “fixed and constant.” (Id.) Unfortunately

for Scanlon, at no point does Skilling draw such a distinction between “fixed and constant”

fiduciary duties and those that are “variable” or “depend upon the circumstances,” let alone hold

that only the former fall within the ambit of § 1346.

       But Scanlon misinterprets Skilling at an even more fundamental level. Scanlon’s

argument hinges on his interpretation of a single line from the majority’s opinion in Skilling:

“To preserve the statute without transgressing constitutional limitations, we now hold that § 1346

criminalizes only the bribe-and-kickback core of the pre-McNally case law.” Skilling, 130 S. Ct.

at 2931. Scanlon’s interpretation of this sentence is flawed, and this flaw dooms his entire

analysis.

                                                 5
       Scanlon erroneously interprets the phrase “only the bribe-and-kickback core of the pre-

McNally case law” as if it instead reads: “only bribe-and-kickback cases within the core of pre-

McNally case law.” Indeed, his motion rewords the language from Skilling in precisely this

manner. (See Def.’s Mot. at 10.) If Skilling had in fact used such language throughout its

opinion, then perhaps Scanlon’s argument would be meritorious, as it would suggest that some

kickback cases fall “within the core of pre-McNally case law” whereas others do not.

       The Skilling majority, however, did not use this wording. It used the term “core” not, as

Scanlon would have it, to distinguish “core bribe-and-kickback” cases from “non-core bribe-and-

kickback cases,” but rather to distinguish bribery and kickback cases (which themselves

constitute the “core” of pre-McNally case law) from cases involving mere undisclosed self-

dealing.2 See, e.g., Skilling, 130 S. Ct. at 2905 (“In the main, the pre-McNally cases involved

fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by

a third party who had not been deceived.”); id. at 2929 (“While the honest-services cases

preceding McNally dominantly and consistently applied the fraud statute to bribery and kickback

schemes -- schemes that were the basis of most honest-services prosecutions -- there was

considerable disarray over the statute's application to conduct outside that core category.”

(emphasis added)); id. at 2930 (“Although some applications of the pre-McNally honest-services

doctrine occasioned disagreement among the Courts of Appeals, these cases do not cloud the

doctrine's solid core: The ‘vast majority’ of the honest-services cases involved offenders who, in

violation of a fiduciary duty, participated in bribery or kickback schemes.”); id. at 2931 n.44

(“Given that the Courts of Appeals uniformly recognized bribery and kickback schemes as

2
 As defendant conceded at oral argument, this conclusion is fatal to his argument. (See 11/23/10
Tr. (“MR. BRAGA: If you analyze it that way, we lose, I must concede we lose if that's the
analysis.”).)
                                                 6
honest-services fraud before McNally, and that these schemes composed the lion's share of

honest-services cases, limiting § 1346 to these heartland applications is surely ‘fairly possible.’”

(citations omitted) (emphasis added)); id at 2931 (“[T]here is no doubt that Congress intended §

1346 to reach at least bribes and kickbacks.” (emphasis in original)). Even if the precise passage

quoted by Scanlon might, in a vacuum, support more than one interpretation, the decision as a

whole simply does not support the argument that Skilling intended for § 1346 to reach some

kickback schemes but not others.

       Finally, Scanlon argues that the facts of this case implicate constitutional questions

similar to those at issue in Skilling. Because the fiduciary duties that Abramoff breached were

“ill-defined,” “elastic,” and “innovative” rather than “fixed,” Scanlon argues that constitutional

“fair notice” concerns are implicated. (See Def.’s Mot. at 6-8.) In this regard, Scanlon’s

arguments mirror those of Justice Scalia, who repeatedly expressed similar concerns regarding

the “indeterminate” source and scope of the fiduciary obligation requirement and argued that the

majority’s pruning of the § 1346 to encompass only bribery and kickback schemes did not solve

this indeterminacy. See Skilling, 130 S. Ct. at 2937 n.1 (Scalia, J., dissenting) (arguing that while

the Courts of Appeals pre-McNally “may have consistently found unlawful the acceptance of a

bribe or kickback by one or another sort of fiduciary . . . they have not consistently described (as

the statute does not) any test for who is a fiduciary”). Justice Scalia’s position, however, did not

carry the day. While the Court in Skilling could have chosen to limit the application of § 1346 to

those bribery and kickback cases where the source and scope of the fiduciary duty was “fixed

and definite,” it did not do so, “perceive[ing] no significant risk” that vagueness concerns would

“stretch[] [the honest-services statute] out of shape.” Skilling, 130 S. Ct. at 2933.

                                                  7
        In any event, even if this Court were to impose limitations on the scope of § 1346 beyond

those described in Skilling, such a rule would little effect in this case, as it is abundantly clear, as

Scanlon admitted as part of his plea, that Abramoff had a fiduciary duty to provide his clients

with his honest services. The existence of a fiduciary duty depends on the relationship between

the parties, and requires that the parties have “extended their relationship beyond the limits of . . .

contractual obligations to a relationship founded upon trust and confidence.” Paul v. Judicial

Watch, Inc., 543 F. Supp. 2d 1, 6 (D.D.C. 2008) (citation omitted); Church of Scientology Int’l v.

Eli Lilly & Co., 848 F. Supp. 1018, 1028 (D.D.C. 1994) (“The Restatement (Second) of Torts

notes that a fiduciary relation exists when one party ‘is under a duty to act for or give advice for

the benefit of another upon matters within the scope of the relation.’” (citation omitted)).

        Here, it is undisputed both that Abramoff had just such a duty to his clients and that

Scanlon was aware of this fact:

                Scanlon knew that [Abramoff] promoted himself has having
                knowledge superior to his clients regarding lobbyist and grass
                roots activity and [Abramoff] encouraged his clients to trust his
                judgement in these matters. Scanlon believed that [Abramoff] had
                a duty to act in the best interest of his clients in these matters.
                Scanlon believed that [Abramoff]’s clients did in fact trust and rely
                upon [Abramoff].

(Factual Basis ¶ 6.)

        Looking beyond this admission, the Court finds support for the existence of a fiduciary

relationship between Abramoff and his clients in both the facts and the law. The District of

Columbia Rules of Professional Conduct in effect at the time prohibited representation if the

“lawyer’s professional judgment on behalf of the client will be or reasonably may be adversely

affected by the lawyer’s responsibilities to or interests in a third party or the lawyer’s own

financial, business, property, or personal interests.” D.C. Rules of Prof’l Conduct R. 1.7(b)(4).

Although Abramoff was not himself a licensed attorney, he informed his clients that he worked
                                                   8
for the law firm Greenberg Traurig LLP, and his written agreements with the Tribes appeared on

firm stationary. In one of these letter agreements, Abramoff explicitly stated that the D.C. Rules

of Professional Conduct would apply to the representation of the Tribes, and at no point did

Abramoff disclaim applicability of the Rules. (Opp. Exs. A-C.) In addition, the D.C. Circuit has

held that an attorney in the District of Columbia who accepted funds under a lobbying contract

had fiduciary duties as an agent of his client. Rwanda v. Johnson, 409 F.3d 368, 370-73 (D.C.

Cir. 2005). Although the lobbyist discussed in Rwanda was an attorney, the Court there located

his fiduciary duty to his client not in the attorney-client relationship, but rather under the more

general notion that agents owe a fiduciary duty to deal in their principle’s interest and put the

principle’s interest above their own. Id. at 372.

       In sum, the Court finds no merit in the argument that Abramoff’s fiduciary duty to his

clients was so far removed from the paradigmatic examples of fiduciary duties that somehow

defendant did not have “fair notice” that his conduct was criminal. Indeed, Scanlon’s kickback

scheme relied upon the trust and confidence placed in Abramoff by his clients, as it allowed

Abramoff to use his role as “professional advisor” to discourage his clients “from seeking

competitive pricing and proposals from grass roots and public relations vendors other than

[Scanlon’s company.]” (Factual Basis ¶ 7.) Having depended upon a relationship of trust and

confidence in order to defraud Abramoff’s clients, Scanlon cannot now claim surprise when that

relationship forms the basis of the government’s charges against him. See Skilling, 130 S. Ct. at

2933 (“As to fair notice, . . . it has always been as plain as a pikestaff that bribes and kickbacks

constitute honest-services fraud, and the statute’s mens rea requirement further blunts any notice

concern.” (internal citations and quotation marks omitted)). “A criminal defendant who

                                                    9
participated in a bribery or kickback scheme, in short, cannot tenably complain about

prosecution under § 1346 on vagueness grounds.” Id. at 2934.

                                        CONCLUSION

       For the foregoing reasons, defendant’s motion to modify or amend his plea agreement

[Dkt. #47] is DENIED.

       SO ORDERED.

                                                               /s/
                                                    ELLEN SEGAL HUVELLE
                                                    United States District Judge

Date: November 30, 2010

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