IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA
October 24, 2007
UNITED STATES OF AMERICA
CYRIL H. WECHT
The opinion of the court was delivered by: Arthur J. Schwab United States District Judge
DRAFT October 23, 2007
MEMORANDUM OPINION AND ORDER OF COURT DENYING SUPPLEMENTAL MOTION TO DISMISS (DOC. NO. 540) HONEST SERVICES FRAUD COUNTS 1 THROUGH 32 FOR FAILURE TO ALLEGE MATERIALITY
Defendant has filed a Supplemental Motion to Dismiss Honest Services Fraud Counts 1 Through 32 for Failure to Allege Materiality (doc. no. 540) on the grounds that the Indictment fails to allege any facts in support of a necessary element of the offenses of "honest services" mail and wire fraud, 18 U.S.C. §§ 1341, 1343 and 1346, namely, concealment or misrepresentation of a material fact. Defendant's supplemental motion to dismiss the Indictment relies on Neder v. United States, 527 U.S. 1 (1999) (holding that materiality is an element of a "scheme or artifice to defraud" under the federal mail fraud, wire fraud, and bank fraud statutes which must be included in the trial court's jury instructions, although any error in omitting such instruction is subject to harmless error analysis), and this Court's ruling on September 12, 2006, advising the parties that "materiality, as defined by Neder . . . is an element of honest services fraud under 18 U.S.C. §§ 1341, 1343 and 1346 [and that the] . . . Court's specific instructions on this element of honest services fraud will be set forth in its Final Jury Instructions." September 12, 2006 "Order of Court Granting Defendant's Motion for Reconsideration of the Order of Court at Doc. No. 374." (doc. no. 430).
After careful consideration of defendant's motion and brief in support, the government's response thereto, defendant's reply brief, and this Court's June 29, 2006 Memorandum Opinion and Order of Court Denying Motion to Dismiss (Doc. No. 180), (doc. no. 264), the Court will deny defendant's supplemental motion to dismiss.
Law of the Case
On September 13, 2007, this Court held that the law of the case doctrine limited the scope of the hearing on defendant's supplemental suppression motion, explaining as follows:
The law of the case doctrine applies in the context of pretrial rulings of the same or different judges of coordinate jurisdiction in criminal matters. See generally United States v. O'Keefe, 128 F.3d 885 (5th Cir. 1997) (Under law of the case doctrine and general principles of comity, successor judge in criminal proceeding has same discretion to reconsider order as would first judge, but should not overrule earlier judge's order or judgment merely because later judge might have decided matters differently); United States v. Wheeler, 256 F.2d 745 (3d Cir. 1958) (rulings of previous judge of same court on the defendants' motions to dismiss the indictment, which were identically based, are the "law of the case" and cannot be disturbed); United States v. Baynes, 400 F.Supp. 285, 310 n.3 (E.D.Pa.), aff'd 517 F.2d 1399 (3d Cir. 1975) (Becker, J., holding in criminal proceeding that "the 'law of the case' principle . . . is the law in this circuit. . . . Under this principle, judges of coordinate jurisdiction sitting in the same court and in the same case may not ordinarily overrule the decisions of each other. The most oft advanced rationale of the 'law of the case' principle is one of judicial comity to preserve the orderly functioning of the judicial process.").
As in the civil context, however, this doctrine is discretionary and flexible. Compare United States v. Alexander, 106 F.3d 874 (9th Cir. 1997) (error for district court to reconsider ruling on suppression motion following declaration of mistrial by reason of hung jury where suppression ruling constituted law of the case and no extraordinary circumstances existed to warrant disregard of previous ruling), with United States v. Todd, 920 F.2d 399 (6th Cir. 1990) (not error for court to reconsider suppression rulings made by court of coordinate jurisdiction following mistrial, and to admit evidence previously excluded; "A court may recognize and enforce prior rulings based on this doctrine, but also retains the power to reconsider previously decided issues as they arise in the context of a new trial.").
B. Application of Law of the Case Doctrine
Defendant proffers no new evidence, new law or other extraordinary reasons why this Court should not follow the law of the case, except with regard to those matters that have been "reopened" by the decision of the Court of Appeals and this Court's sua sponte scheduling order. Therefore, the scope of the supplemental suppression hearing is narrow: it is limited to matters involving Orsini's credibility viz a viz defendant's "repeated assertions that Agent Orsini lacks veracity and that his affidavits in support of the search warrants were 'infected with his deliberate and reckless falsehoods . . .'", Wecht, 484 F.3d at 210, and with regard to the execution of the search warrants at Wecht Pathology and Box 20. . . .
September 13, 2007 Memorandum and Order of Court Regarding Pending Motions (Docs. No. 524, 527, 535) Relating to Supplemental Suppression Hearing, at 17-21. (doc. no. 537).
Defendant raised the issue of defective indictment for failure to allege the necessary elements of the "honest services branch" of the mail and wire fraud statutes, or sufficient facts in support of those necessary elements, at great length and from many different angles, in his brief in support of his initial motion to dismiss Indictment (doc. no. 207) at 9-33, including as to the element of materiality,*fn1 and in his reply brief, wherein he specifically raised the issue of Neder materiality. Defendant's Reply Brief to Government's Brief in Opposition to Defendant's Motion to Dismiss at Docket No. 180 (doc. no. 252), at 6, n.7 ("Furthermore, the Third Circuit requires a material violation to sustain a claim for honest services fraud, [United States v. Panarella, 277 F.3d 678, 696 (3d Cir. 2002)], comporting with the Supreme Court's requirement that materiality is an element of mail and wire fraud.").
This Court's June 29, 2006 Memorandum Opinion and Order of Court (doc. no. 264) denied defendant's initial motion to dismiss on his "materiality" challenge and all of the many other grounds, reasoning in part as follows:
When the Court in Panarella "specifically refused to limit the offense to situations in which a public official uses his or her office for personal gain," 277 F.3d at 694, it implicitly but clearly recognized that "situations in which a public official uses his or her office for personal gain" qualify for honest services/ intangible rights fraud status. The question presented on appeal in Panarella was "under what circumstances nondisclosure of a conflict of interest rises to the level of honest services fraud." 277 F.3d at 690. The Court of Appeals answered that question in rejecting Panarella's "argument that an allegation of bribery or other misuse of office is necessary to sustain a conviction for honest services wire fraud. Rather, for the reasons discussed above, we hold that if a public official fails to disclose a financial interest in violation of state criminal law and takes discretionary action that the official knows will directly benefit that interest, then that public official has committed honest services fraud." Id. at 697. However, the Court of Appeals took pains to "emphasize the narrowness of our holding." Id at 698-99. To say that an allegation of bribery or other misuse of office is not necessary to sustain an indictment or conviction for honest services/ intangible rights fraud is certainly not to say that bribery or misuse of office for personal financial gain is prohibited, and Panarella did not say that.
Pre [United States v. McNally, 483 U.S. 350, 360 (1987)], cases consistently recognized that the mail fraud statute "proscribes schemes to defraud citizens of their rights to honest and impartial government . . . , [and that] a public official owes a fiduciary duty to the public, and misuse of his office for personal gain is a fraud." McNally, 483 U.S. at 356. When Congress restored mail fraud to its pre McNally status in enacting section 1346, 18 U.S.C. § 1346, it expressed its intention to criminalize breach of fiduciary duty by misuse of office for personal gain.
As summarized in [United States v. Gordon, 183 Fed. Appx. 202 (3d Cir. 2006)], therefore, the Court of Appeals' trilogy of honest services/ intangible rights cases stands, in part, for the proposition that the government must allege a violation of a "state-created fiduciary duty" arising from state ethics or criminal laws or from some well recognized common law fiduciary duty. Defendant's brief in support of his motion to dismiss appears to argue that the Coroner of Allegheny County has no fiduciary duty to Allegheny County or its citizens; at a minimum, defendant vigorously asserts that the government has not identified any legitimate source of the Coroner's fiduciary duty. This argument is without merit, as the Indictment specifically identifies several state and local ethics and criminal laws as the anchors for the government's honest services/ intangible rights charges, namely, the state and local laws relating to the Coroner of Allegheny County's fiduciary duty to Allegheny County and its citizens. Indictment, ¶¶ 5-11.
From the foregoing list of Pennsylvania and Allegheny County ethics laws, it cannot seriously be maintained that the Coroner of Allegheny County has no fiduciary duty to Allegheny County and its citizens to avoid conflict of interests, as those terms are defined and explained in the Public Official and Employee Ethics Act and the Accountability, Conduct and Ethics Code of Allegheny County, nor that the Coroner is exempt from the provisions of those Codes, nor that the Coroner has not been given fair warning of the type of unethical conduct he must avoid. See Gordon (Delaware and local ethics laws created fiduciary duty, and indictment adequately charged a viable mail fraud offense for misuse of office for personal financial gain and for other personal reasons); Panarella (Pennsylvania Ethics Act, 65 Pa.C.S. § 1101 et seq., provides the anchor upon which a federal prosecution for honest services/ intangible rights mail and wire fraud may be moored); [United States v. Antico, 275 F.3d 245, 261 (3d Cir. 2001)] (Pennsylvania's former Ethics Act, 65 Pa.C.S. § 402, and Philadelphia's local ethics code, provide the anchor upon which a federal prosecution for honest services/ intangible rights mail and wire fraud may be moored).
The Court has carefully reviewed the Indictment, and finds that it adequately alleges defendant's knowing and willful participation in a scheme or artifice to defraud Allegheny County and its citizens, that he had the specific intent to defraud, and that the mails and interstate wire communications were used in furtherance of the scheme.
June 29, 2006, Memorandum Opinion and Order (doc. no. 264) at 16-18, 21 (emphasis in original).
This Court's Memorandum Opinion and Order of June 29, 2006, establishes the law of the case, and defendant proffers no new evidence, new law or other extraordinary reasons why this Court should not follow the law of the case in considering his supplemental motion to dismiss on grounds already raised and litigated.
Rule 7(c)(1) of the Federal Rules of Criminal Procedure provides that an indictment must contain the provision of law that the defendant is alleged to have violated and "a plain, concise and definite written statement of the essential facts constituting the offense charged."
Fed.R.Crim.P. 7(c)(1). Recently, the United States Court of Appeals for the Third Circuit summarized the standards for reviewing an indictment over a claim of defective indictment in failing to charge all of the elements and facts in support of the charged offense:
It is well-established that "[a]n indictment returned by a legally constituted and unbiased grand jury, like an information drawn by the prosecutor, if valid on its face, is enough to call for trial of the charge on the merits. The Fifth Amendment requires nothing more." Costello v. United States, 350 U.S. 359, 363 (1956) (footnote omitted and emphasis added). Indeed, we have previously held that, "for purposes of Rule 12(b)(2) [later superceded by Rule 12(b)(3)(B)], a charging document fails to state an offense if the specific facts alleged in the charging document fall beyond the scope of the relevant criminal statute, as a matter of statutory interpretation." [United States v. Panarella, 277 F.3d 678, 685 (3d Cir. 2002)] (emphasis added); see also United States v. Taylor, 154 F.3d 675, 681 (7th Cir. 1998).
* * * "An indictment is generally deemed sufficient if it: [sic] (1) contains the elements of the offense intended to be charged, (2) sufficiently apprises the defendant of what he must be prepared to meet, and (3) allows the defendant to show with accuracy to what extent he may plead a former acquittal or conviction in the event of a subsequent prosecution." United States v. Rankin, 870 F.2d 109, 112 (3d Cir. 1989) (quotation marks and citations omitted). An indictment must allege more than just the essential elements of the offense. See Panarella, 277 F.3d at 685 ("We are thus constrained to reject the government's contention that an indictment or information charges an offense, for purposes of Rule 12(b)(2) [later superceded by Rule 12(b)(3)(B)], as long as it recites in general terms the essential elements of the offense, even if the specific facts alleged in the charging instrument fail to satisfy those elements."). An indictment fails to state an offense if the specific facts alleged in it "fall beyond the scope of the relevant criminal statute, as a matter of statutory interpretation." Id.
United States v. Vitello, 490 F.3d 314, 320-21 (3d Cir. 2007) (holding that indictment alleged facts sufficient to establish that defendants were agents under statute prohibiting theft from program receiving federal funds, 18 U.S.C. § 666).
Thus, while the indictment must include all of the elements of the crime alleged, United States v. Spinner, 180 F.3d 514 (3d Cir. 1999), as well as specific facts that satisfy all those elements, an indictment that merely recites "in general terms the essential elements of the offense" is not sufficient. Panarella, 277 F.3d at 684-85. A district court may review the facts in the indictment to see whether, as a matter of law, they reflect a proper interpretation of criminal activity under the relevant criminal statute. Id., 277 F.3d at 684-85. In considering a motion to dismiss an indictment, the district court must accept as true all factual allegations set forth in the indictment. United States v. Besmajian, 910 F.2d 1153, 1154 (3d Cir. 1990). The dismissal of an indictment is authorized only if its allegations are not sufficient to charge an offense, but such dismissals may not be based upon arguments related to the insufficiency of the evidence to prove the charges in the indictment. United States v. DeLaurentis, 230 F.3d 659, 660-61 (3d Cir. 2000).
Recently the Court of Appeals for the Third Circuit summarized the elements of honest services mail and wire fraud as follows:
To prove mail fraud, the government must establish "(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). Congress has clarified that "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. Honest services fraud, in turn, typically occurs in either of two situations: "(1) bribery, where a [public official] was paid for a particular decision or action; or (2) failure to disclose a conflict of interest resulting in personal gain." Antico, 275 F.3d at 262-63.
United States v. Kemp, ___ F.3d ___, 2007 WL 2410132, *15 (3d Cir. 2007).
Of course, materiality is an implicit element of honest services fraud under 18 U.S.C. §§1341, 1343 and 1346, but the failure of an indictment to allege materiality as an explicit element is not fatal to the indictment. United States v. White, 2004 WL 2612017, *12 (E.D.Pa. 2004) (rejecting defendant's argument that the grand jury did not allege materiality as an element of wire services fraud and thus, the charges must be dismissed, relying on Neder, district court holds that "the word 'materiality' need not appear in the Indictment" that the Indictment sufficiently alleged facts that are material within the meaning of Neder, and that Neder did not hold that a failure to use the word "materiality" in the indictment was fatal, only that materiality is an element of wire fraud and that the jury should decide the issue upon appropriate instructions from the trial court); United States v. Stewart, 151 F.Supp.2d 572, 584 (E.D.Pa. 2001) ("mail and wire fraud statutes require 'a scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses.' 18 U.S.C. §§ 1341, 1343 [right of the public to honest services was not involved in this case, but section 1346 places right of public to honest services on par with money or property]. They nowhere use the word 'material.' Mirroring the statutes, the superseding indictment stated that [defendant] 'devised and intended to devise a scheme to defraud and to obtain money or property, directly or indirectly, by means of false and fraudulent pretenses and representations.' The word 'fraud' is a 'legal term of art.' . . . At common law, 'the well-settled meaning of 'fraud' required a misrepresentation or concealment of material fact.' Neder, 527 U.S. at 22 . . . . Here, the superseding indictment repeatedly charges that [defendant] made false and fraudulent representations and promises. Because the word 'fraudulent' clearly encompasses the notion of materiality, the superseding indictment cannot be considered deficient."). See also United States v. Klein, 476 F.3d 111, 113 (2d Cir. 2007) (rejecting defendant's claim that indictment was insufficient because it did not explicitly use the word "material" as defined in Neder, reasoning that because materiality can be inferred to be an element of criminal fraud because of the well-understood meaning of "fraud" as a legal term, allegation of materiality also can be inferred from use of the word fraud in the indictment and facts to support the fraudulent scheme. "Moreover, as commonly understood among both lawyers and laypersons, 'fraud' refers to conduct or speech intended to mislead the putative victim into parting with money or property" [right of the public to honest services was not involved in this case, but section 1346 places right of public to honest services on par with money or property]); United States v. Omer, 395 F.3d 1087, 1088-89 (9th Cir. 2005) (indictment's failure to recite essential Neder materiality element of offense of bank fraud, namely that the scheme to defraud misrepresented or concealed material facts, required dismissal of indictment), distinguishing United States v. Woods, 335 F.3d 993, 997-98 (9th Cir. 2003) (proof of a scheme or artifice to defraud does not require the proof of the making of any specific false statement; pursuant to Neder, it is "the materiality of the scheme or artifice that must be alleged; the materiality of a specific statement need not be pleaded; rather, fraudulent nature of the "scheme or artifice to defraud" is "measured by a non-technical standard," and "schemes are condemned which are contrary to public policy or which fail to measure up to the reflection of moral uprightness, of fundamental honesty, fair play and right dealing in the general and business life of members of society."); United States v. Sonneberg, 2003 WL 1798982 (3d Cir. 2003) (upholding conviction for mail and wire fraud on habeas corpus petition; Court of Appeals holds that "duty to disclose is not always a required element of common- law fraud when there has been a material non-disclosure. . . . "[B]oth before and after the Neder decision, duty to disclose is not a required element of the common- law fraud offenses when there have been material non-disclosures."), quoting United States v. Colton, 231 F.3d 890, 898-900 (4th Cir. 2000) ("Supreme Court [in Neder] has recently articulated an outer boundary for the interpretation of the federal fraud statutes," [but nonetheless found that] "at common law, no fiduciary relationship, no statute, no other independent legal duty to disclose is necessary to make active concealment actionable fraud - simple 'good faith' imposes an obligation not to purposefully conceal material facts with intent to deceive."); United States v. Fernandez, 282 F.3d 500 (7th Cir. 2002) (indictment is deemed sufficient "unless it is so defective that it does not, by any reasonable construction, charge an offense for which the defendant is convicted; indictment which alleged that defendants submitted illegitimate bids which rigged the bidding process, defendants prepared false responses to pre-qualification questionnaires, and that defendants' scheme included "false and fraudulent pretenses, representations, and promises and material omissions" intended to cause victim to lose money and property [right of the public to honest services was not involved in this case, but section 1346 places right of public to honest services on par with money or property], such allegations adequately encompassed the Neder element of materiality); United States v. Solomon, 273 F.3d 1108, *2 (5th Cir. 2001) (in determining sufficiency of indictment, the law does not compel "a ritual of words." . . . Though the indictment did not contain the word "materiality," it did allege many specific material omissions and misrepresentations made by [defendant]. In a mail fraud indictment that does not specifically allege materiality, allegations of specific facts may be sufficient to warrant the inference of materiality."); Castro v. United States, 248 F.Supp.2d 1170, 1193 (S.D. Fl. 2003) ("The meaning of the phrase 'scheme or artifice to defraud' in §§ 1341, 1343 and 1344 has therefore been clarified both by § 1346, legislatively, and by Neder, judicially. The phrase includes schemes to defraud another of an intangible right of honest services and must involve either a material false representation of fact or a failure to disclose material information by one who has a duty to disclose it.").
The Court of Appeals in Panarella reiterated that "[h]onest services fraud typically occurs in two scenarios: (1) bribery, where a legislator was paid for a particular decision or action; or (2) failure to disclose a conflict of interest resulting in personal gain." Id. at 690, quoting Antico, 275 F.3d at 262. Like this case, Panarella involved the second scenario, the alleged failure to disclose a conflict of interest resulting in personal gain, and the Court of Appeals in Panarella posed the question "under what circumstances nondisclosure of a conflict of interest rises to the level of honest services fraud."
Answering that question, the Court of Appeals made it clear that the materiality element of honest services fraud is satisfied where the indictment charges the official with taking "discretionary action that he knows directly benefits a financial interest that the official concealed in violation of state criminal law . . ." Id. at 695. Much of what the Court of Appeals stated in Panarella bears repeating herein, as it clarifies the materiality element of mail and wire fraud in the honest services context, as follows:
Rather than limiting honest services fraud to misuse of office for personal gain, we hold that a public official who conceals a financial interest in violation of state criminal law while taking discretionary action that the official knows will directly benefit that interest commits honest services fraud. See United States v. Woodward, 149 F.3d 46, 62 (1st Cir. 1998) ("A public official has an affirmative duty to disclose material information to the public employer. When an official fails to disclose a personal interest in a matter over which she has decision-making power, the public is deprived of its right either to disinterested decision making itself or, as the case may be, to full disclosure as to the official's motivation behind an official act." . . .; see also United States v. Silvano, 812 F.2d 754, 759 (1st Cir. 1987) ("[A]n employee's breach of a fiduciary duty falls within the strictures of the statute when it encompasses the breach of a duty to disclose material information to the employer.").
We acknowledge that in most cases upholding honest services fraud convictions based on concealment of a conflict of interest there was also an allegation of bribery or that the concealed conflict of interest improperly influenced the defendant's performance of his official duties. At least in some cases, however, courts have convicted solely on the basis of the defendant's intentional breach of a duty to disclose, without any allegation or evidence of bribery or other misuse of office. See United States v. Bush, 522 F.2d 641, 646 (7th Cir. 1975) (upholding an honest services conviction even though "[t]here is no concrete evidence of extortion, bribery, [or] kickbacks"); United States v. Espy, 989 F.Supp. 17, 25 (D.D.C. 1997), rev'd in part on other grounds, 145 F.3d 1369 (D.C.Cir. 1998) ("The law in this Circuit does not require allegations that a quid pro quo or selling of office is necessary for the indictment to support charges for honest services fraud."). Moreover, even where evidence of misuse of office in addition to mere nondisclosure exists, courts have explicitly disclaimed any reliance on such evidence in affirming defendants' convictions. See, e.g., United States v. Bronston, 658 F.2d 920, 926 (2d Cir. 1981) ("[T]he concealment by a fiduciary of material information which he is under a duty to disclose to another under circumstances where the non-disclosure could or does result in harm to the other is a violation of the statute. . . . [P]roof that the fiduciary relationship was used or manipulated in some way is unnecessary.").
We believe that our holding - that a public official commits honest services fraud if he takes discretionary action that he knows directly benefits a financial interest that the official concealed in violation of state criminal law -has a sound basis in both doctrine and policy. As a doctrinal matter, a public official's nondisclosure of a financial interest while taking discretionary action that the official knows will directly benefit that interest falls squarely within the classical definition of fraud. "Fraud in its elementary common law sense of deceit . . . includes the deliberate concealment of material information in a setting of fiduciary obligation." United States v. Holzer, 816 F.2d 304, 307 (7th Cir.1987), vacated and remanded for consideration in light of McNally, 484 U.S. 807 (1987); see also United States v. Dial, 757 F.2d 163, 168 (7th Cir.1985) ("Fraud in the common law sense of deceit is committed by deliberately misleading another by words, by acts, or, in some instances -notably where there is a fiduciary relationship, which creates a duty to disclose all material facts - by silence."). As explained below, the facts alleged in the superseding information in this case sufficiently establish that: (1) Loeper had a duty, both under state common law and state criminal law, to disclose material information to the public; (2) Loeper deliberately concealed his income received from Panarella; and (3) this information was material. We thus find that Loeper's conduct falls squarely within the definition of fraud, in its classical sense.
Both at common law and under Pennsylvania criminal law, Loeper had a duty to disclose to the public material information. "A public official is a fiduciary toward the public, . . . and if he deliberately conceals material information from them he is guilty of fraud." Holzer, 816 F.2d at 307; see also United States v. deVegter, 198 F.3d 1324, 1328 (11th Cir. 1999) ("Public officials inherently owe a fiduciary duty to the public. . . ."); United States v. Sawyer, 85 F.3d 713, 733 n. 17 (1st Cir. 1996) ("[T]he obligation to disclose material information inheres in the legislator's general fiduciary duty to the public."). This common law duty to disclose is codified by Pennsylvania statute, which requires public officials to file annual Statements of Financial Interest and criminalizes intentional misrepresentations in these statements. See 65 Pa.C.S.A. §§ 1104(a), 1105 & 1109(b).
By lying about his income, Loeper breached this duty to disclose. The information that Loeper allegedly concealed in this case - his financial relationship with Panarella - was material because at the time Loeper misrepresented the information, he was taking discretionary action that directly benefitted Panarella's business. Cf. Holzer, 816 F.2d at 307 ("The standard of materiality is an objective one; it does not reach every piece of information that a particular litigant might like to have about a judge. A judge need not disclose information that would not make a reasonable person think him incapable of presiding impartially in the case."). In this case, however, Loeper, as a Pennsylvania Senator and in the powerful position of Senate Majority Leader, both spoke and voted against proposed legislation that would have directly harmed Panarella's business. The information that Loeper concealed was therefore material, since knowledge of Loeper's income from Panarella would have been relevant both to Loeper's colleagues in assessing Loeper's comments when deciding how to vote on the bill, and to the electorate in assessing whether Loeper placed his financial self-interest above the public interest.
Moreover, on the facts alleged in the superseding information, Loeper clearly knew that his discretionary action would directly benefit Panarella's business, given Loeper's familiarity with both the nature of the proposed legislation and the nature of Panarella's business.
We thus conclude that because Loeper deliberately concealed a financial interest in violation of Pennsylvania criminal law, while taking discretionary action that he knew directly benefitted that interest, his conduct constituted a scheme to deprive the public of his honest services for purposes of § 1346.
As a matter of policy, we believe this result is justified by the central role of disclosure in a well- functioning representative democracy. Critical to the health of the electoral process is the voters' ability to judge whether their representatives are acting to further their own financial self-interest instead of the public interest. As noted in the margin, the requirement under Pennsylvania law that elected representatives disclose their sources of income serves a purpose analogous to that served by federal laws requiring candidates for federal office to disclose the source of their campaign contributions. Panarella, 247 F.3d at 694-97 (emphasis added).
United States v. Gordon further clarified the state of honest services fraud in the Third Circuit as set forth in Antico, Panarella and Murphy, from which it is seen that the failure to disclose the conflicts of interest prohibited by state and local laws is at the heart of such fraud, and that discretionary decision making that benefits someone other than the defendant is not required to sustain a conviction, or an indictment. See (doc. no. 264), June 29, 2006 Memorandum Opinion and Order of Court Denying Motion to Dismiss (Doc. No. 180), at 10-16, quoting United States v. Gordon, 183 Fed. Appx. 202 (3d Cir. 2006). The essence of honest services fraud is, rather, the "deliberate concealment of material information in a setting of fiduciary obligation . . ." Gordon, 183 Fed.Appx. at 210-11, quoting Panarella, 277 Fed. 3d at 695; see also Antico, 275 F.3d at 262, 264.
Applying those principles (as discussed fully in this Court's previous opinion denying defendant's initial motion to dismiss), the Indictment sufficiently states facts upon which, if proven, the jury could find (with proper instructions) that defendant's concealment or failure to disclose private gain and/or conflicts of interest prohibited by state and local ethics laws, in a setting of fiduciary obligation, was material. In particular, materiality of the honest services scheme or artifice to defraud herein is more than sufficiently alleged in the text of the Indictment by the numerous allegations of substantial amount of private work, performed for the personal financial benefit of defendant, using county employees, county property, and county resources, over a period of numerous years, in violation of state and local laws regarding conflicts of interest, and willful concealment or failure to disclose said conflicts of interest. While this Indictment does not allege bribery or the improper influencing of the performance of an official's duties, it does allege illegal use of government resources, for personal gain, in an amount equal to or in excess of many honest services cases involving typical bribery, extortion and kick-back. The Indictment does not, therefore, "fall beyond the scope of the relevant criminal statute, as a matter of statutory interpretation," Panarella, 277 F.3d at 685, as the mail and wire fraud statutes in the context of honest services fraud have been interpreted by the United States Court of Appeals for the Third Circuit in Gordon, Antico, Panarella and Murphy.
For the foregoing reasons,
Defendant's Supplemental Motion to Dismiss Honest Services Fraud Counts 1 Through 32 for Failure to Allege Materiality (doc. no. 540) is HEREBY DENIED.
SO ORDERED this 24th day of October, 2007