Opposition Brief — Panarella v. United States

PP AAR NE Ie Ot ene

NICHOLAS PANARELLA, JR., PETITIONER —

v.

-UNITED STATES OF AMERICA

oN PETITION FOR-A WRIT OF CERTIORARI

THE UNITED STATES COURT OF APPEALS

_ FOR THE THIRD CIRCUIT

BEST AVAILAB

QUESTION PRESENTED

Whether a public official defrauds the public of his

honest services, in violation of 18 U.S.C. 13438 and 1346,

when he conceals a financial interest in violation of

state criminal law and then takes discretionary action

that he knows will directly benefit that interest.

TABLE OF CONTENTS

Page

IT ct ilaiacinctendackdulepobatinichiinainiaetepispic cies ate a ]

RII assis ca scettanipteiessndeiahama otha ]

TINT shiddibicadiasatihinlectiieiniibadleblic leila ol De Sot ]

I si etiiatechcalibiediiiiibs lacerations i 5 a 7

CREAT ene ea = ae eT ae a Te 16

TABLE OF AUTHORITIES

Cases:

Colten v. Kentucky, 407 U.S. 104 (1972) coocccccccccccccccee- 15

McNally v. United States, 483 U.S. 350 | 14

Muscarello v. United States, 524 U.S. 125 i. es 15

Neder v. United States, 527 U.S.1(1999) 2.0.0.0... 9

Staples v. United States, 511 U.S. 600 (1994) ................... 15

United States v. Antico, 275 F.3d 245 (3d Cir.

__ ESAS Ss ees aD eee eee ae 13

United States v. Bloom, 149 F.3d 649 (7th Cir.

SUT ines sesethhcliasehlaiaidiiliesdeaiaienicepntabinasiiuearaenaecs nen sets. 5,8, 10

United States v. Brumley, 116 F.3d 728 (5th Cir.),

cert. denied, 522 U.S. 1028 (1997) coecccccccccccccccccccoesee. 8, 11, 13, 14

United States v. Bryan, 58 F.3d 983 (4th Cir.

SuarTITET sesasibaieesiencenphaiaicitniaieidebastabiebainihenadnsitesientnsuntsaenns 8,9, 15

United States v. Castro, 89 F.3d 1443 (11th Cir.

1996), cert. denied, 519 U.S. 1118 (1997) ceocecccccccccoco----. 14, 16

United States v. Cochran, 109 F.3d 660 (10th Cir.

ERE ener *

United States v. Cotton, 122 S. Ct. 1781 SRST 7

United States v. DeF ries, 129 F.3d 1293 (D.C. Cir.

STL an aa nT EEO 9

United States v. Devegter, 198 F.3d 1324 (11th Cir.

1999), cert. denied, 530 U.S. 1264 (2000) ........................... 9

United States v. Frega, 179 F.3d 793 (9th Cir. 1999),

cert. denied, 528 U.S. 1191 (2000) oooc..eeccccccccccccscscesecsceseeoee. 16

(IIT)

IV

Cases—Continued: Page

United States v. Frost, 125 F.3d 346 (6th Cir. 1997),

cert. demsed, SBS U SS. BIO CUGBS) caccccsccccoccccccscssccccsesasccsencenes 9,12

United States v. Gray, 96 F.3d 769 (5th Cir. 1996),

cert. denied, 520 U SS. 1129 (1907) ................<s00ssesccccrssessesse00 16

United States v. Handakas, 286 F.3d 92 (2d Cir.

TINS EARN ee a ASN oe Plier Se Re TOURS Ope AE RST LINNEY BO OU 15

United States v. ‘Holz er, 816 F.2d 304 (7th Cir.

1987), cert. denied, 486 U.S. 1035 (1988) oo... 15-

United States v. Lanier, 520 U.S. 259 (1997) oe. 14

United States v. Lopez-Lukis, 102 F.3d 1164 (11th

A IRR ene SESE RDA PRO ne nen ae ee 10

United States v. McDonough, 56 F.3d 381 (2d Cir.

STITT sieenilecscirsteiotesinicomiaien acids einteeiinaadid dalam a ih pialdaad a nanitin 14

United States v. O'Hagan, 521 U.S. 642 (1997) «0... 8,14

United States v. Olano, 507 U.S. 725 (1998) «0... 7

United States v. Paradies, 98 F.3d 1266 (11th Cir.

1996), cert. denied, 522 U.S. 1014 (1997) 16

United States v. Rybicki, 287 F.3d 257 (2d Cir.

ERE LEE VI REE DEE CRO 11, 12, 15, 16

United States v. Sawyer, 239 F.3d 31 (1st Cir.

BINED eressesasesqnseinnnennnereansnanniennnennninningunashenndansnannssinassnnanincnvens 8, 9,14

United States v. Szur, 289 F.3d 200 (2d Cir

SSTTITIE sabiealnicieclasanth dcaccsbaaladenea cede ebicmiatnneiditebaticha shane atanividieliadianaihtia 16

United States v. Waymer, 55 F.3d 564 (11th Cir.

1995), cert. denied, 517 U.S. 1119 (1996) 0... eee 16

United States v. Wells, 519 U.S. 482 (1997) ...... 15

United States v. Woodward, 149 F.3d 46 (1st Cir.

1998), cert. denied, 525 U.S. 1138 (1999) uo... eee eee 15

Statutes and rule:

I i ta 13

Se Se ED cestnssenhisicaitncisnidctscehanitiviasennaiviititisiiidbanmmiiainiiaianss 13

Say PAs TE Niccirieth inadsnciesevaparahceiash alli eclceeitiibncdeidinaiibeldsagae

V

Statutes and rule—Continued: Page

BF Bes BO kicks nectchiseeine ne ne. 23

Pe Mee SE Makineicadicaatakedie twat ceed eae: passim

Be Raids SE ssn iscsitikibeideactlinamaiien eae eens rere 13

65 Pa. Cons. Stat. Ann. (West 2000):

© ROD niesisicasiseathnadhoah ete ae ee 11

SIN scisiisisacsnncxcmeaceenbienn cnn eo neti 11

© SP - ciniainssnncaisiand gaan ae aaa ea 13

BD RUUIROD .icicasirnacndnccssantiesiasiadaneiiea a aaa en ere eae 1]

Tex. Penal Code Ann. § 36.08(e) (West 1994) cooccccccccccccccecee. 11

Jn the Supreme Court of the Gnited States

No. 01-1736

NICHOLAS PANARELLA, JR.. PETITIONER

v’.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINION BELOW

The opinion of the court of appeals (Pet. App. 1-48) is

reported at 277 F.3d 678.

JURISDICTION

The judgment of the court of appeals was entered on

January 11, 2002. A petition for rehearing was denied

on February 25, 2002. The petition for a writ of certio-

rari was filed on May 24, 2002. The jurisdiction of this

Court is invoked under 28 U.S.C. 1254(1).

STATEMENT

Following a plea of guilty in the United States

District Court for the Eastern District of Pennsylvania,

petitioner was convicted of being an accessory after the

(1)

bo

fact, in violation of 18 U.S.C. 3, to wire fraud in violation

of 18 U.S.C. 1343 and 1346. Pet. App. 49. The court of

appeals affirmed petitioner’s conviction. /d. at 1-48.

1. Between 1993 and 1997, petitioner paid the then-

majority leader of the Pennsylvania Senate, Senator F.

Joseph Loeper, Jr., more than $330,000 for consulting

services that Loeper allegedly performed for peti-

tioner’s tax collection business. Petitioner and Loeper

concealed their business relationship while Loeper

undertook legislative action that directly benefitted

their business interests. Pet. App. 4-6; Superseding

Information paras. 5-9.

More specifically, in 1993, petitioner and Loeper

entered into an agreement under which petitioner paid

Loeper a monthly consulting fee. Superseding Informa-

tion para. 5. Loeper failed to disclose the payments on

state disclosure forms that were intended to inform

Pennsylvania voters of possible biases held by their

legislative representatives. /d. at paras. 7, 31-32. Peti-

tioner directed third persons to pay Loeper’s consulting

fees, and did not report his payments to Loeper on

federal tax forms. Jd. at paras. 26-29. Loeper also lied

to a Philadelphia Inquirer reporter in August 1997 con-

cerning the nature of his business relationship with

petitioner, 27d. at para. 33, and both Loeper and peti-

tioner asked third parties to confirm Loeper’s mis-

representations to the reporter, id. at paras. 34-38.

During that time, Loeper engaged in legislative

action beneficial to petitioner’s business. Superseding

Information paras. 9, 24-25. Petitioner specialized in

collecting Pennsylvania’s “business privilege tax” for

local governments. /d. at paras. 1-2, 21-22. Petitioner’s

tax collection techniques eventually became contro-

versial, and state legislative proposals in 1994 and 1995

sought to prohibit them. /d. at paras. 23-25. When the

proposed legislation came before the Pennsylvania

Senate, Loeper outspokenly opposed it and introduced

an amendment to strike the provisions aimed at elimi-

nating petitioner’s collection techniques. Jbid. At the

time Loeper was taking legislative action that bene-

fitted petitioner’s business, petitioner owed Loeper

over $37,000. Within days of Loeper’s actions on the

Senate floor, he received hidden payments—including a

secret $5000 cash payment—at petitioner’s direction.

Gov't C.A. Br. 12.

Loeper also promoted petitioner’s efforts to obtain

no-bid state tax collection work. For example, at

- Loeper’s request, the chief of a state agency from which

petitioner hoped to obtain no-bid contracts attended a

meeting in Loeper’s office with Loeper and petitioner.

At the meeting, Loeper vouched for petitioner’s abili-

ties without disclosing their business relationship.

Superseding Information para. 30; Gov’t C.A. Br. 13.

2. The grand jury returned a seven-count indictment

charging petitioner with aiding and abetting a mail and

wire fraud scheme in violation of 18 U.S.C. 2, 1341 (mail

fraud), 1343 (wire fraud), and 1346 (honest services

fraud).' Pet. App. 6. Petitioner moved to dismiss the

indictment for failure to state a crime, but the district

court denied the motion. Jbid. On December 12, 2000,

the government filed a single-count superseding infor-

mation charging petitioner with violating 18 U.S.C. 3 by

being an accessory after the fact to a wire fraud scheme

in violation of 18 U.S.C. 1343 and 1346.’ Superseding

1 Section 1346 provides that, as used in the mail, wire, and bank

fraud statutes, “the term ‘scheme or artifice to defraud’ includes a

scheme or artifice to deprive another of the intangible right of

honest services.” 18 U.S.C. 1346.

? Section 3 provides in relevant part:

Information para. 39. Petitioner pleaded guilty to the

charge in the superseding information without object-

ing to the information or reserving the right to chal-

lenge its sufficiency on appeal. Pet. App. 6. The

district court sentenced petitioner to six months of

imprisonment, to be followed by one year of supervised

release, and a $20,000 fine. Jd. at 7.

3. The court of appeals affirmed petitioner’s con-

viction. Pet. App. 1-48. The court first held that

Federal Rule of Criminal Procedure 12(b)(2) permitted

petitioner to challenge the sufficiency of the informa-

tion on appeal despite his unconditional guilty plea.

Pet. App. 7-23. The court then rejected petitioner’s

challenge to the information and his related argument

that his guilty plea lacked an adequate factual basis. Jd.

at 23-48.

The court explained that petitioner “appears to con-

cede that, on the facts alleged in the superseding infor-

mation, if Loeper is guilty of committing honest serv-

ices wire fraud in violation of §§ 1343 and 1346, then

[petitioner] is guilty of being an accessory after the fact

under 18 U.S.C. § 3. Thus, although Loeper is not a

defendant in this case, the critical question is whether

the facts alleged in the superseding information

establish that Loeper committed honest services wire

fraud.” Pet. App. 23. Petitioner contended that the

facts alleged in the information were insufficient absent

“an additional allegation that Loeper’s discretionary

action was influenced by [petitioner’s] payments.” Id.

Whoever, knowing that an offense against the United States

has been committed, receives, relieves, comforts or assists the

offender in order to hinder or prevent his apprehension, trial

or punishment, is an accessory after the fact.

18 US.C. 3.

~ 6

at 27. The court rejected that contention and held that

“where a public official takes discretionary action that

the official: knows will directly benefit a financial

interest that the official has concealed in violation of a

state criminal law, that official has deprived the public

of his honest services.” Jbid.

In so holding, the court rejected petitioner’s reliance

upon United States v. Bloom, 149 F.3d 649 (1998), in

which the Seventh Circuit reversed the honest services

fraud conviction of a Chicago alderman who, in his

independent capacity as a private attorney, allegedly

deprived Chicago of tax revenues by advising a client to

use a proxy to bid at a tax scavenger sale at which the

client’s property was being auctioned.* The court ex-

plained that Bloom did not assist petitioner because the

charges in Bloom did not involve any actions taken in

the defendant’s official capacity whereas “Loeper took

discretionary action in his official capacity that directly

benefitted an unlawfully concealed financial interest.”

Pet. App. 28.

The court went on to reject petitioner’s suggestion

that it adopt the Bloom court’s limiting principle for

Section 1346 liability under which “{a]n employee de-

prives his employer of his honest services only if he

misuses his position (or the information he obtained

from it) for personal gain.” Pet. App. 28 (quoting

Bloom, 149 F.3d at 656-657). Noting that whether the

misuse of office for personal gain includes or excludes

the conduct at issue in this case was subject to dispute,

the court reasoned that such a limiting principle would

add little clarity to the scope of Section 1346 liability

3 As the Seventh Circuit noted, “[a]ldermanic positions in

Chicago are part-time jobs * * * [and,] [iJn his private life,

[defendant] is a lawyer.” Bloom, 149 F.3d at 650.

and would risk being both under- and over-inclusive.

Id. at 28-30. The court also observed that the result in

Bloom would have been the same under the analysis

that the court adopted in this case. Jd. at 32.

The court expressly refrained from deciding whether

a violation of state law is always necessary for non-

disclosure of a conflict of interest to constitute honest

services fraud. Pet. App. 31; see zd. at 44n.9. The court

reasoned, however, that the federalism and state auton-

omy concerns sometimes raised by honest services

cases are significantly muted here because Loeper’s

conduct did violate state criminal law. See id. at 33-34.

The court also noted that a public official’s non-dis-

closure of a financial interest in violation of state law

while taking discretionary action that directly benefits

that interest falls squarely within the classical de-

finition of fraud, because it involves the deliberate

concealment of material information in violation of a

duty to disclose. Jd. at 37-39. In addition, the court

observed, its holding was supported as a matter of

policy because disclosure is critical to “the- voters’

ability to judge whether their representatives are

acting to further their own financial self-interest

instead of the public interest,” id. at 39, a con-

clusion affirmed by Pennsylvania’s decision to back up

its disclosure requirement with criminal penalties, zd.

at 40.

Finally, the court of appeals rejected petitioner’s rule

of lenity argument that he and Loeper had inadequate

notice that Loeper’s actions were criminal. Pet. App.

41-43. The court noted that it did not strain the lan-

guage of Section 1346 to conclude that a public official

who lies about his income sources while taking action

that directly benefits an income source that he has

concealed “deprives [the public] of the intangible right

=

of honest services.” Jd. at 42. The court also noted that

petitioner and Loeper had “unambiguous notice that

Loeper’s nondisclosure was criminal” under Penn-

sylvania law, and that the fact that petitioner and

Loeper endeavored to conceal Loeper’s misrepresenta-

tions undermined any plausible claim of inadequate

notice. /d. at 43.

ARGUMENT

1. Petitioner contends (Pet. 9-18) that this Court

should grant certiorari to resolve a conflict among the

courts of appeals over the appropriate scope of honest

services fraud under 18 U.S.C. 1346. Petitioner, how-

ever, overstates the differences among the courts of

appeals on the scope of Section 1346 and fails to identify

any decision of another court of appeals that conflicts

with the decision in this case. This Court’s review is

therefore not warranted.‘

Petitioner contends that divergences in circuit

authority concerning the interpretation of Section 1346

“have subjected state and local officials and * * *

private individuals * * * to unprecedented and

unpredictable criminal prosecutions based largely on

4 Even if there were a conflict on the scope of honest services

fraud that was presented by the facts of this case, the case would

be a poor vehicle to resolve that conflict. Petitioner did not chal-

lenge the sufficiency of the information before the district court, so

any review by this Court would be at most for plain error. See

United States v. Cotton, 122 S. Ct. 1781, 1785 (2002); United States

v. Olano, 507 U.S. 725, 731 (1993). Petitioner has not shown plain

error because he has not contended that he would not have pleaded

guilty if the superseding information contained the additional

allegations that he contends were necessary. See id. at 735-736

(reversal for plain error appropriate only when error “affect({s]

substantial rights” and “seriously affect[s] the fairness, integrity

or public reputation of judicial proceedings.”).

8

the predilections of federal prosecutors.” Pet. 9. He

similarly asserts that “an individual may be convicted of

honest services mail or wire fraud in one circuit based

on conduct that would require an acquittal or dismissal

of an indictment in another.” Pet. 17. He fails to

support those assertions, however, with any cases that

have reached conflicting results on comparable facts.

Even more fundamentally, he fails to identify any

disagreement among the courts of appeals that this case

presents an opportunity to resolve.

For example, as petitioner notes (Pet. 13), the Fifth

Circuit appears to require that the government prove

that the defendant violated a duty “rooted in state law.”

United States v. Brumley, 116 F.3d 728, 734 (en banc),

cert. denied, 522 U.S. 1028 (1997). Other courts of

appeals have stated that a violation of state law is not

always a necessary element of honest services fraud.

See United States v. Sawyer, 239 F.3d 31, 41-42 (1st

Cir. 2001); United States v. Bryan, 58 F.3d 933, 940-941

(4th Cir. 1995), abrogated on othér grounds by United

States v. O’Hagan, 521 U.S. 642 (1997); see also United

States v. Bloom, 149 F.3d 649, 654 (7th Cir. 1998)

(declining to adopt requirement that defendant have

violated “some other rule of law”). This case, however,

does not present an opportunity for the Court to re-

solve any disagreement on that question. The court of

appeals expressly refrained from deciding the issue, see

Pet. App. 31, 44 n.9, and Loeper’s conduct violated state

law, so petitioner would not benefit even from the ap-

proach more favorable to defendants.”

° Relying upon United States v. Cochran, 109 F.3d 660, 667-668

& n.3 (10th Cir. 1997), petitioner suggests that some but not all

circuits require a showing of materiality to support a conviction for

honest services fraud. It is well settled, however, that proof of

Aa ASA NE ae BLA ara te mos

9

Petitioner does not point to any case in which a court

of appeals has rejected the holding of the court of

appeals here—that a public official commits honest

services fraud when he conceals a financial interest in

violation of state criminal law and then takes dis-

cretionary action that he knows will directly benefit

that interest. In fact, the case law from other circuits

that have discussed the issue suggests that they would

reach the same result as the court of appeals here. See

Sawyer, 239 F.3d at 40 (stating that a public official

commits honest services fraud if he “fail[s] to disclose a

conflict of interest, resulting in personal gain”); United

States v. Devegter, 198 F.3d 1324, 1328 (11th Cir. 1999)

(“benefitting from an undisclosed conflict of interest

will support the conviction of a public official for de-

priving his or her constituents of the official’s honest

Services”), cert. denied, 530 U.S. 1264 (2000); United

States v. DeF ries, 129 F.3d 1293, 1306 (D.C. Cir. 1997)

(“misrepresentation or intentional non-disclosure—two

inherently dishonest acts—converted the employee’s

breach of duty into a deprivation of his honest serv-

ices”); United States v. Frost, 125 F.3d 346, 369 (6th Cir.

1997) (upholding honest services fraud conviction of a

private citizen based on non-disclosure of a conflict of

interest that created a reasonably foreseeable risk of

economic harm and implying that risk of harm may not

be required in a case against a public official because

“conflicts of interest may harm the public merely by

giving the illusion of unfairness”), cert. denied, 525 U.S.

810 (1998); Bryan, 58 F.3d at 942 (citing with approval

materiality is required under all three statutes (mail, wire, and

bank fraud) that could form the basis for a conviction for honest

services fraud. See Neder v. United States, 527 U.S. 1, 25 (1999).

10

cases finding violations based on failure to disclose

conflicts of interests).

Petitioner incorrectly asserts (Pet. 17) that his case

“likely would” have been decided differently in the

Seventh Circuit under Bloom. As the court of appeals

explained (Pet. App. 28), Bloom does not assist peti-

tioner because the charges that were reversed in that

case were based on actions that the defendant under-

took in his private, non-official capacity. Bloom did not

involve the situation confronting the court of appeals

here—one in which a public officer acting in his official

capacity violated his disclosure obligations under state

law while simultaneously taking legislative action that

benefitted his concealed financial interests.

Moreover, Loeper’s conduct satisfies the test arti-

culated in Bloom for when a public official violates

Section 1346. The court stated in Bloom that a public

official would violate Section 1346 if he “misused his

office for private gain.” See 149 F.3d at 655. Here, the

government charged that Loeper actively pursued

legislative ends directly benefitting his and petitioner’s

business interests while he concealed those interests in

violation of a state law disclosure requirement. Super-

seding Information paras. 5-38. That conduct consti-

tuted the misuse of Loeper’s office for his private gain.

See United States v. Lopez-Lukis, 102 F.3d 1164, 1169

(11th Cir. 1997) (suggesting that “a political official uses

his office for personal gain” when he “personally bene-

fits from an undisclosed conflict of interest.”). Thus,

although the information does not in terms allege that

Loeper “misused his office for private gain,” the facts it

alleges establish that Loeper did just that, and the

information satisfies the standard articulated in Bloom.

Petitioner likewise asserts that his case “might well”

have been decided differently by the Fifth Circuit

1]

under Brumley, “because the superseding information

contained no explicit allegation of state law violation

and, to the extent it did, the state statute at issue

primarily prohibits the appearance of impropriety or

corruption.” Pet. 17. Contrary to petitioner’s asser-

tion, the superseding information did contain express

allegations of Loeper’s violations of Pennsylvania state

law. Superseding Information paras. 31-32. Moreover,

the Pennsylvania law at issue does not prohibit the

“appearance of impropriety” but requires state legis-

lators to disclose their financial interests, including

their outside sources of income. See 65 Pa. Cons. Stat.

Ann. §§ 1104(a), 1105, 1109(b) (West 2000).

There is no conflict between the decision in this case

and the decision in Brumley, which upheld the con-

viction under Section 1346 of a state adjudicative officer

who accepted payments from attorneys who practiced

before him and acted in his official capacity on behalf of

those attorneys. Although the Brumley court stated in

dicta that “a violation of state law that prohibits only

appearances of corruption will not alone support a

violation of §§ 1343 and 1346,” 116 F.3d at 734, as noted,

the state disclosure law here is not a prohibition of

appearances of corruption. And the court upheld the

conviction in Brumley based on a state law that

prohibited the same kind of conduct that occurred

here—a public official’s acceptance of a benefit from a

person interested in a matter on which the official took

action in performing his job. See id. at 736 (discussing

Tex. Penal Code Ann. § 36.08(e) (West 1994)).

Petitioner also contends that his conviction would

have been reversed under the Second Circuit’s decision

in United States v. Rybicki, 287 F.3d 257 (2002), be-

cause “it was not reasonably foreseeable that [peti-

tioner’s and Loeper’s] purported scheme would [have]

12

depriv(ed] the ‘victim’ of any economic benefit.” Pet.

17. Even if there were a conflict between the decision

in this case and Rybicki, that conflict would not warrant

this Court’s review at this time because the Second

Circuit recently voted to rehear Rybicki en banc to con-

sider whether Section 1346 is unconstitutionally vague

on its face. 7/3/02 Order, United States v. Rybicki, Nos.

00-1043, 00-1044, 00-1052, 00-1055.

There is, however, no conflict between this case and

Rybicki. The court in Rybicki affirmed the convictions

in that case, just as the court of appeals did here.

Moreover, FRybicki did not involve a breach of a duty by

a public official acting in his official capacity, but rather

an allegation of honest services fraud in the private

sector. The Second Circuit might well not require a

showing that economic harm is reasonably foreseeable

in a case involving honest services fraud by a govern-

ment official. See Frost, 125 F.3d at 368-369 (adopting

requirement of reasonably foreseeable risk of economic

harm in a private sector case but suggesting that risk of

harm may not be required in a case against a public

official because “conflicts of interest may harm the

public merely by giving the illusion of unfairness”). In

any event, the fraudulent scheme in this case entailed

the risk of economic harm because it involved a state

legislator’s failure to disclose his economic interest in

tax legislation on which he took vocal and instrumental

official action.®

6 Petitioner suggests that economic harm was not a foreseeable

result because Pennsylvania voters received an economic benefit

from Loeper’s actions. The Rybicki court expressly rejected the

similar argument that the government could not demonstrate

economic harm because kickbacks to insurance adjusters did not

result in claim settlements that were outside of the “reasonable

range.” 287 F.3d at 267. The court explained that the argument

13

2. Petitioner argues (Pet. 19-22) that the decision of

the court of appeals violates principles of federalism

because it ties the existence of honest services fraud to

the presence of a violation of state law. The premise of

petitioner’s argument is mistaken, however, because

the court of appeals expressly refrained from deciding

whether a violation of state law is required to establish

honest services fraud. See Pet. App. 31, 44 n.9. More-

over, as the court of appeals noted, the presence of a

state law violation reduces rather than increases any

potential federalism concerns that may be presented by

honest services fraud. See id. at 33, 44. See also

Brumley, 116 F.3d at 735.

Petitioner contends (Pet. 20-21) that reliance on state

law trenches on federalism because the federal offense

of honest services fraud may involve penalties that: are

significantly harsher than the penalties that would be

imposed based solely on the violation of state law. But

the six-month term of imprisonment imposed on peti-

tioner for aiding Loeper’s violation of Section 1346 was

not out of step with the one-year maximum prison term

that Pennsylvania provides for violations of the dis-

closure laws. See 65 Pa. Cons. Stat. Ann. 1109 (West

2000). In any event, as the court of appeals explained,

such disparities in punishment can occur whenever

federal criminal law defines predicate offenses by re-

ference to state law, which is not an infrequent occur-

rence. See Pet. App. 33 (citing 16 U.S.C. 3372(a)(2),

3373(d) and 18 U.S.C. 1955).

The courts of appeals have uniformly rejected feder-

alism challenges to Section 1346: See, e.g., United

conflates reasonably foreseeable harm with actual or intended

harm, neither of which is required to sustain an honest services

fraud conviction. [bid.

14

States v. Antico, 275 F.3d 245, 262 n.18 (3d Cir. 2001);

United States v. Sawyer, 239 F.3d 31, 43 n.13 (1st Cir.

2001); Brumley, 116 F.3d at 735; United States v.

Castro, 89 F.3d 1448, 1456 (11th Cir. 1996), cert. denied,

519 U.S. 1118 (1997). There is no reason for this Court

to review petitioner’s federalism challenge here.

3. a. Petitioner also contends (Pet. 18-19, 22-23) that

the court of appeals’ interpretation of Section 1346

violates due process because it does not givé defendants

fair notice of the actions proscribed by the statute.

That contention lacks merit.

Due process requires only that “the statute, either

standing alone or as construed, made it reasonably clear

at the relevant time that the defendant’s conduct was

criminal.” United States v. Lanier, 520 U.S. 259, 267

(1997). As described above, there was ample precedent

from other circuits indicating that a public official who

personally benefits from an undisclosed conflict of

interest violates Section 1346. See p. 9, supra (citing

cases). That interpretation of the statute is, as the

court of appeals explained (Pet. App. 37-38), consistent

with the classical definition of fraud, which includes the

deliberate concealment of material information in a

setting of fiduciary obligation. See, e.g., United States

v. O'Hagan, 521 U.S. 642, 654-655 (1997). And it is con-

sistent with the scope of honest services fraud before

this Court’s decision in McNally v. United States, 483

U.S. 350 (1987), which Congress sought to overturn

when it enacted Section 1346. See Pet. App. 36 (citing

pre-McNally cases). Moreover, as the court of appeals

noted, both petitioner and Loeper had “unambiguous

notice that Loeper’s nondisclosure was criminal” under

Pennsylvania law. /d. at 43. In addition, Loeper, with

petitioner’s assistance, engaged in extensive efforts to

hide his activities—action that evidences that peti- |

15

tioner and Loeper knew Loeper’s actions were im-

proper. See United States v. Woodward, 149 F.3d 46,

62-63 (1st Cir. 1998), cert. denied, 525 U.S. 1138 (1999):

Bryan, 58 F.3d at 942-943; United States v. Mc-

Donough, 56 F.3d 381, 389-390 (2d Cir. 1995); United

States v. Holzer, 816 F.2d 304, 309 (7th Cir. 1987), cert.

denied, 486 U.S. 1035 (1988).’

b. Relying upon United States v. Handakas, 286

F.3d 92 (2d Cir. 2002), petitioner argues (Pet. 27-30)

that Section 1346 would have been unconstitutionally

vague as applied to Loeper. Handakas, however, does

not assist petitioner. As noted above, the Second Cir-

cuit has recently ordered the en banc rehearing of

United States v. Rybicki, 287 F.3d 257 (2002), to con-

sider whether Section 1346 is unconstitutionally vague

on its face. 7/3/02 Order, United States v. Rybicki,

supra. In the rehearing order, the court expressly

ordered the parties to address Handakas. Accordingly,

’ Petitioner’s contention (Pet. 26) that the court of appeals’

interpretation of Section 1346 contravenes the rule of lenity fails

for similar reasons. The rule of lenity “applies only if, after seizing

everything from which aid can be derived, [the court] can make no

more than a guess as to what Congress intended.” United States v.

Wells, 519 U.S. 482, 499 (1997) (citations and internal quotation

marks omitted). The rule of lenity is not applicable here because,

as explained in the text above, petitioner has not shown that

“there is a grievous ambiguity or uncertainty in the statute.” Mus-

carello v. United States, 524 U.S. 125, 138-139 (1998) (quoting

Staples v. United States, 511 U.S. 600, 619 n.17 (1994) (internal

quotation marks omitted)). Cf. Colten v. Kentucky, 407 U.S. 104,

110 (1972) (due process requirements are not “designed to convert

into a constitutional dilemma the practical difficulties in drawing

criminal statutes both general enough to take into account a

variety of human conduct and sufficiently specific to provide fair

warning that certain kinds of conduct are prohibited.”).

16

the Second Circuit’s position on the vagueness of

Section 1346 has yet to be fully articulated.

Moreover, Handakas is the only case in which a court

of appeals has sustained a vagueness challenge to Sec-

tion 1346, and the court did so in a context that bears no

similarity to the facts of this case. The court in

Handakas held that Section 1346 was unconstitution-

ally vague as applied to a private defendant’s breach of

his contractual obligations to a local government cor-

poration. This case, in contrast, involves a public

official’s deceptive breach of his fiduciary duty and

simultaneous violation of state criminal law.

Outside of the narrow circumstances involved in

Handakas, the courts of appeals (including the Second

Circuit) have uniformly rejected claims that Section

1346 is void for vagueness. See United States v. Szur,

289 F.3d 200, 209 n.5 (2d Cir. 2002); Rybicki, 287 F.3d at

264; United States v. Frega, 179 F.3d 793, 803 (9th Cir.

1999), cert. denied, 528 U.S. 1191 (2000); United States

v. Gray, 96 F.3d 769, 776-777 (5th Cir. 1996), cert.

denied, 520 U.S. 1129 (1997); United States v. Paradies,

98 F.3d 1266, 1282-1283 (11th Cir. 1996), cert. denied,

522 U.S. 1014 (1997); Castro, 89 F.3d at 1455; United

States v. Waymer, 55 F.3d 564, 568-569 (11th Cir. 1995),

cert. denied, 517 U.S. 1119 (1996).

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

THEODORE B. OLSON

Solicitor General

MICHAEL CHERTOFF

Assistant Attorney General

JOHN A. DRENNAN

Attorney

JULY 2002

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