New Jersey may be the home of The Boss and Bon Jovi, but the Garden State is notorious for another reason: its history of political corruption. Maybe that’s why people weren’t surprised when then-governor Chris Christie’s administration was thrust into the national spotlight for a scandal involving toll lanes and petty political rivalries. The ensuing scandal, known as “Bridgegate,” toppled Christie’s career and resulted in the criminal convictions of several Christie staffers. However, those convictions were recently overturned by a unanimous court in Kelly v. United States. So, how did this happen and what does it mean for future federal fraud cases? Keep reading to find out.
During his re-election bid, Chris Christie, former New Jersey governor, courted Democrats and Republicans for support. When the mayor of Fort Lee, Mark Sokolich, refused to support Christie, Christie’s staff ordered the closure of several lanes of traffic during rush hour. The affected lanes? Those leading from Fort Lee. While Christie’s staff claimed that the closure was for a “traffic study,” it quickly became apparent that this closure was for a different purpose: revenge. The officials – William Baron, David Wildstein, and Bridget Anne Kelly – were then charged with “wire fraud and fraud on a federally funded program or entity,” in violation of 18 U.S.C. §§ 1343, 666(a)(1)(A). Kelly v. United States, 140 S. Ct. 1565, 1568 (2020). After a lengthy jury trial, the defendants were convicted of wire and federal program fraud. The Third Circuit subsequently affirmed these convictions.
The Government Failed to Prove Property Fraud
On appeal, the defendants argued that they didn’t commit property fraud. In turn, the government argued that the officials committed property fraud because they sought to “commandeer” access lanes and divert the wage labor of Port Authority employees. Id. The Supreme Court addressed these arguments, describing Baroni and Kelly’s actions as “allocating lanes as between different groups of drivers.” Id. at 1573. In doing so, “Baroni and Kelly exercised the regulatory rights of ‘allocation, exclusion, and control’—deciding that drivers from Fort Lee should get two fewer lanes while drivers from nearby highways should get two more.” Id. Even though they did so “for bad reasons… what they did was alter a regulatory decision about the toll plaza’s use—in effect, about which drivers had a ‘license’ to use which lanes… that run-of-the-mine exercise of regulatory power cannot count as the taking of property.” Id. The Court continued, explaining that “[a] government’s right to its employees’ time and labor, by contrast, can undergird a property fraud prosecution” when that property is the object of the scheme. Id. But, in this case, the employees’ labor and time was “only an incidental byproduct of the scheme.” Id.
In an unanimous opinion, Justice Kagan clarified that the wire fraud and federal-program fraud statutes prohibit deceptive schemes to deprive the victim of property. Therefore, “under either provision, the Government had to show not only that Baroni and Kelly engaged in deception, but that an object of their fraud was property.” Id. at 1571 (internal quotations and citations omitted). In this case, the defendants did not intend to deprive the victim of property, so the object of the scheme couldn’t be to obtain property. Because the federal wire and federally-funded program statutes “target fraudulent schemes for obtaining property” – and this was not a scheme to obtain property – the convictions were overturned. Id. at 1568.
Honest Services Fraud is Limited to Schemes Involving Bribes or Kickbacks
The Court briefly addressed schemes to defraud others of their intangible rights to honest services, noting that the Court’s 2010 decision in Skilling v. United States adopted a limiting construction that confined honest services fraud to schemes involving kickbacks or bribes. Kelly, 140 S. Ct. at 1571. However, because Kelly did not include any allegations of a bribery or kickback scheme, honest services fraud was not applicable. Id.
The Supreme Court’s decision in Kelly stands for the proposition that “deception, corruption, [and] abuse of power” do not automatically trigger criminal liability under the federal fraud statutes. Id. at 1568. Ultimately, this case, along with several other recently decided federal cases, potentially represents a judicial system more skeptical of the broad application of federal criminal fraud statutes to remedy corrupt or unethical conduct.