Kelly v. United States

Issues 

Does a public official defraud the government of property interests by presenting a made-up public policy-based justification rather than the real reason for an official decision?

Oral argument: 

In 2010, two public officials, Bridget Anne Kelly and William E. Baroni, Jr., reallocated two toll lanes on the George Washington Bridge’s upper level to punish Fort Lee’s mayor for refusing to endorse then-New Jersey governor Chris Christie’s re-election campaign. Despite disguising this corrupt act as a traffic study, Kelly and Baroni were indicted for and convicted of wire fraud, defrauding a federally funded entity, and conspiracy to defraud. Petitioner Kelly and Respondent Baroni now argue that the Port Authority was never deprived of a legally-protected property right and that fraud cannot have occurred because the alleged victim received exactly what was bargained for, even though the public officials lied about their true intentions. Respondent United States contends that the Port Authority was deprived of a property right because Kelly and Baroni’s traffic-study lie encumbered the Port Authority’s exclusive free use of the George Washington Bridge and because neither Kelly nor Baroni had the authority to make such drastic changes. The outcome of this case has implications on future politics and whether political corruption should be prosecuted as a federal crime.

Questions as Framed for the Court by the Parties 

Whether a public official “defraud[s]” the government of its property by advancing a “public policy reason” for an official decision that is not her subjective “real reason” for making the decision.

Facts 

The George Washington Bridge (“GWB”), operated by the Port Authority of New York and New Jersey (“Port Authority”), connects Fort Lee, New Jersey, and New York City. Kelly v. United States, at 5. The bridge’s upper level has twelve toll lanes that funnel traffic into Manhattan. Id. at 5. Around the time of the events in the underlying action, during the morning commute, three of the twelve lanes were reserved as “Special Access Lanes” for local traffic coming from Fort Lee. Id. The other nine toll lanes, the “Main Line,” channeled traffic from I-80 and I-95. Id. This system existed for many years, stemming from a political compromise between a former New Jersey governor and Fort Lee mayor. Id.

In 2010, then-New Jersey governor Chris Christie appointed William E. Baroni, Jr. as the Deputy Executive Director of the Port Authority. Id. at 4. Later that year, David Wildstein was appointed as the Port Authority’s Director of Interstate Capital Projects, effectively serving as Baroni’s chief of staff. Id. at 4–5. At this time, Bridget Anne Kelly was the Deputy Chief of Staff for New Jersey’s Office of Intergovernmental Affairs (“IGA”). Id. at 6. Wildstein was Kelly’s contact at the Port Authority. Brief for Petitioner, Bridget Anne Kelly at 11.

About a year later, IGA officials, including Kelly, were gathering endorsements for Governor Christie’s 2013 campaign, and bestowed Fort Lee’s mayor, Mark Sokolich, with gifts to receive his support. Kelly at 6–7. However, Mayor Sokolich ultimately refused to support Governor Christie’s campaign. Id. at 7. IGA officials, including Kelly, were disappointed; and, Kelly then directed Wildstein to reallocate some of the “Special Access Lanes” to cause traffic problems in Fort Lee in order to punish Mayor Sokolich for refusing to endorse Governor Christie. Id. at 8.

On Friday, September 6, 2013, Wildstein ordered the reallocation of two of the Special Access Lanes to the Main Line to take effect just three days later, on the first day of school in Fort Lee. Id. Wildstein told Port Authority employees that the lane reallocation was part of a traffic study to determine whether Fort Lee actually needed three lanes during the morning commute considering its residents accounted for just five percent of total bridge traffic. Id. at 8–9; Brief for Petitioner at 8. As part of the closure, the Port Authority incurred $5,524 in costs. Brief for Petitioner at 9. Announcing this decision on such short notice was contrary to Port Authority protocol, and because Fort Lee commuters only had access to one toll lane, a massive gridlock backed up into Fort Lee, paralyzing the city. Kelly at 11. The lane-realignment stayed in effect for four days. Id. at 12.

Kelly and Baroni were each indicted for wire fraud under 18 U.S.C. § 1343, defrauding a federally funded entity under 18 U.S.C. § 666(a), and conspiracy to commit the same. Id. at 4. Kelly and Baroni were also charged with civil rights violations. Id. At trial, the United States District Court for the District of New Jersey (the “District Court”) denied Kelly and Baroni’s motions to dismiss, and the jury found them guilty on all counts. Id. at 14. Kelly and Baroni subsequently moved for judgments of acquittal and a new trial, but the trial judge denied the motions and sentenced Kelly and Baroni to 18 months and 24 months in prison, respectively. Id.

On appeal, the United States Court of Appeals for the Third Circuit (the “Third Circuit”) affirmed Kelly and Baroni’s convictions for wire fraud because they deprived the Port Authority of property (at a minimum, money in the form of employee labor), and affirmed their convictions for defrauding a federally funded entity because they obtained, by fraud, agency property worth at least $5,000. Id. at 17, 38. But, the Third Circuit reversed and vacated Kelly and Baroni’s civil rights convictions, believing they had insufficient notice that their actions would violate civil rights. Id. at 76. The United States Supreme Court granted Kelly certiorari on June 28, 2019.

Analysis 

THE OBJECT OF THE SCHEME TO DEFRAUD

Petitioner Kelly argues that she and Respondent Baroni cannot be held liable for the charges as brought because their actions did not deprive the Port Authority of any property protected by federal fraud statutes. Brief for Petitioner at 35. At most, Kelly posits, her and Baroni’s actions influenced the regulatory or sovereign power given to the Port Authority by the New York and New Jersey legislatures. Id. at 38. But Kelly argues that this power or right to regulate, under Cleveland v. United States, does not constitute a property right insured through mail and wire fraud statutes—which typically protect only physical property or intangible property. Id. at 38. Further, Kelly contends, the lanes themselves, while indeed existing physically, could not be considered the deprived property interest in this case because Kelly and Baroni never attempted to obtain the lanes and, indeed, the Port Authority retained the lanes at all times. Id. Kelly suggests that the costs associated with adjusting the lanes—such as utilizing extra tollbooth operators and hiring engineers to conduct a study—also fall outside the definition of protected property rights. Id. at 41–42. Kelly explains that because resources used to implement a regulatory decision are derived from the exercise of regulatory power itself, and such derivative expenses cannot be the basis for fraud simply because they “incidentally cause losses.” Id. at 41–42. Kelly further argues that, in this circumstance, the Port Authority received exactly what it paid for because the extra labor costs were used for their intended purpose: the tollbooth operators collected tolls and the engineers conducted a study. Id. at 41. Unnecessary expenses associated with regulatory power, Kelly continues, cannot constitute fraud unless the object of the scheme was indeed to defraud an entity of those expenses. Id.

Respondent United States counters that the object of the scheme might have included some regulatory decision, but the meat of the scheme was “employee time and labor and the use of the bridge itself.” Brief for Respondent, United States at 31. The United States contends that the Port Authority was defrauded of real property when it temporarily lost complete control and “free use” of the George Washington Bridge as the result of Kelly and Baroni’s personal and political actions. Id. at 31–32. Moreover, the United States argues that the Port Authority’s property rights were encumbered because Kelly and Baroni defrauded the Port Authority of its “straightforward ‘economic’ interest” related to how and for what it pays employees. Id. at 31. Indeed, the United States further argues that Kelly and Baroni conscripted real property— resources that the Port Authority might have otherwise put toward some legitimate use—to fake a traffic study that served no purpose other than to act as a cover story for their true motive. Id. at 32. The fact that the Port Authority retained some access to these resources is irrelevant, the United States asserts, because Kelly and Baroni’s actions defrauded the Port Authority of exclusive control of the resources. Id. at 46. As such, the United States contends, the right to control the George Washington Bridge and other resources was more than a mere regulatory interest and, instead, was one rooted in real property, which the federal fraud statutes unquestionably protect. Id.

SCHEME TO DEFRAUD OR ABUSE OF POWER?

Kelly argues that even if some cognizable property interest could be identified, she and Baroni could not have defrauded the Port Authority because Baroni, as the Port Authority’s Deputy Executive Director, had the authority to decide how to use the property. Brief for Petitioner at 45. Kelly explains that the federal fraud statutes require a material deception that induces the decisionmaker to part with the property; thus, the Port Authority could not have been defrauded because Baroni did not induce himself—the relevant decisionmaker—to act through a material misrepresentation. Id. at 44–45. Any lies that Kelly and Baroni might have told, Kelly contends, were to Baroni’s subordinates who lacked the authority to overrule Baroni’s decision. Id. at 48. Thus, while it remains entirely possible that Kelly and Baroni abused their power and potentially even breached a fiduciary duty by acting outside the Port Authority’s best interests, Kelly argues that an employee’s “faithful service” falls outside the scope of federal fraud statutes. Id. at 45.

The United States asserts that Kelly’s argument on appeal disregards the jury’s findings that Baroni did not have the authority to realign the traffic lanes. Brief for Respondent at 33, 35. The United States argues that the jury’s verdict cannot be disturbed if any rational trier of fact could find from the evidence that Kelly and Baroni were guilty. Id. at 35. The United States points to the evidence at trial that demonstrated the lane-realignment would not have occurred had the lie regarding the traffic study not been told. Id. at 36. Further, the United States argues that the Port Authority’s bylaws mandated that certain approval protocol be followed in order to allocate resources to various projects and, additionally, that the bylaws did not confer any such approval power on the Deputy Executive Director. Id. at 39. Additionally, the United States maintains that the fact that trial testimony also demonstrated that Baroni later had the power to return the lanes to the status quo (i.e. undo the damage that he had caused) did not necessarily mandate that the jury ought to have found an overarching authority to make changes. Id. at 38.

THE WHY VERSUS THE WHAT

Kelly argues that the Third Circuit’s ruling should be overturned because lies regarding subjective motive, even if they induce another to act, do not amount to fraud. Brief of Petitioner at 49. Kelly looks to the United States Court of Appeals for the Second and Seventh (and other) Circuits which have held that lies that “merely induce” someone to enter into a transaction do not constitute fraud while lies that concern the “transaction’s essential terms” do constitute fraud. Id. at 50. Stated another away, Kelly suggests that a lie should only constitute fraud if the victim loses the benefits of the bargain. Id. Thus, Kelly continues, what truly matters in the fraud context is not why a public official acts but instead what his or her actions actually entail. Id. at 52. Here, the Port Authority received exactly what it bargained for because the George Washington Bridge was still in commission and the extra employee wages were paid for the work performed. Id. at 53.

The United States admits that the why did play a role in the prosecution of Kelly and Baroni, but the why was used only to explain the motive behind Kelly and Baroni’s actions. Brief of Respondent at 34. Indeed, the United States notes that the trial judge never instructed the jury to consider motive as an element, nor did any evidence from trial suggest that the why played a role in the guilty verdict. Id. In fact, the United States continues, the trial judge went a step further by instructing the jury that it did not need to find that Kelly and Baroni had concealed a subjective political motive. Id. at 33. Here, the United States argues, the lie that the jury found went to the existence of a traffic study, not the subjective intent of Kelly and Baroni. Id. at 32. That type of lie, the United States continues, went to the heart of the bargained-for agreement because the jury found, based on trial testimony, that at the time of the lie Kelly and Baroni did not believe a study was being conducted. Id. at 42. Therefore, the United States notes, the mere fact that the study eventually took place and accidentally produced relevant data is of no consequence because the federal fraud statutes do not require a completed fraud—they only require a scheme to defraud. Id. The United States also disagrees that the Port Authority got what it bargained for; it incurred the costs of paying overtime wages to toll workers which it would not have incurred but for Kelly and Baroni’s conduct. Id. at 44.

Discussion 

EFFECT ON FUTURE POLITICS

In support of Kelly, the National Association of Criminal Defense Lawyers (“NACDL”) argues that the Third Circuit’s expansive definition of property would have a chilling effect on future politics because it would permit the prosecution of almost every government official for routine political conduct. Brief of Amicus Curiae NACDL, in Support of Petitioner at 9. The NACDL argues that because every political decision involves some collateral cost to the government (e.g. employee wages), every deceptive political decision, even for an otherwise lawful act, is now a criminal act under the wire fraud statute. Id. Kelly emphasizes the chilling effect of an expansive definition of “property,” stating that imposing criminal liability based on an official’s subjective motives would “essentially paralyze the government” because it is what public officials “do every day of the week.” Brief for Petitioner at 22. With criminal liability so easily possible, the NACDL warns that individuals will be dissuaded from joining the public service. Brief of NACDL at 12. In addition to opening up routine political decisions to criminal liability, the NACDL adds that the government’s definition of property makes every political decision “susceptible to partisan exploitation.” Id. at 13.

Respondent the United States believes that affirming Kelly’s convictions will have no impact on routine political conduct. Brief of Respondent at 47. The United States argues that some of the “routine political conduct” implicated by this case, such as convincing constituents to vote for an appropriation, does not involve property. Id. at 48. But even if it involves property, the United States continues that Kelly’s actions are dissimilar because Baroni did not have the power to make the “official decision” to reallocate the lanes and had to lie in order to obtain the authority. Id. at 48–49. The United States maintains that had Baroni had the official power, concealing his political motives for the lane reallocation would not have been property fraud. Id. at 47.

POLITICAL VERSUS CRIMINAL PROCESSES

The NACDL argues that for years the Supreme Court has resisted expanding the definition of property to bring political and regulatory functions into the criminal arena, and prosecuting politicians for their alleged motives unwinds that policy. Brief of NACDL at 3. The NACDL contends that, even if the definition of property were to be expanded, it would be an administrative nightmare to actually discern a politician’s true political motives. Id. at 12. The NACDL contends that it would be unclear whether the improper motive would need to be the exclusive motive or simply the primary motive, and if it were the primary motive that mattered, then to what extent. Id. The NACDL highlights that these hard questions would be compounded by the difficulty in creating reliable, consistent standards that could actually discern an individual’s true motive. Id. In agreeing with this argument, Kelly adds that even in civil cases, the Supreme Court has resisted rules that would allow juries to punish government officials for their alleged true motives. Brief of Petitioner at 21.

In support of the United States, Senator Sheldon Whitehouse (“Whitehouse”) argues that the jury, through the criminal justice system, should be determining whether government officials have committed fraud. Brief of Amicus Curiae Senator Sheldon Whitehouse, in Support of Respondent at 9. Whitehouse argues that the Founders envisioned a jury holding political figures accountable for corruption. Id. at 6. However, Whitehouse highlights how the Supreme Court has spent years limiting the types of political-fraud cases presented to the jury. Id. at 12. According to Whitehouse, prosecutors have thus pursued fewer criminal-fraud convictions, and by continuing to remove the decision from the jury, political corruption has flourished. Id. at 14. Additionally, while public voting is another method to combat political fraud, Whitehouse contends that elections are inefficient at removing corruption. Id. at 15. Therefore, Whitehouse concludes that accountability through juries and the criminal justice system is society’s best way to curtail political corruption. Id. at 18.

Acknowledgments 

Additional Resources