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United States of America v. Nicholas Panarella

July 29, 2011

UNITED STATES OF AMERICA
v.
NICHOLAS PANARELLA, JR.



The opinion of the court was delivered by: McLaughlin, J.

MEMORANDUM

Before the Court is a petition for a writ of error coram nobis filed by Nicholas Panarella, Jr., who seeks to vacate his conviction as an accessory after the fact to an honest services wire fraud scheme. In 2001, Panarella pled guilty to a one-count superseding information, which charged him as an accessory after the fact to honest services wire fraud based on a theory of an undisclosed self-dealing. In Skilling v. United States, the Supreme Court limited the range of conduct prohibited by the honest services statute, and held that 18 U.S.C. § 1346 only criminalizes schemes involving bribes and kickbacks, not undisclosed self-dealing. On the basis of Skilling, Panarella now moves to have his conviction vacated by writ of error coram nobis.

The United States agrees that the theory of honest services fraud stated in the information to which Panarella pled guilty is no longer valid after Skilling. Nonetheless, it opposes coram nobis relief, and contends that Panarella must show "actual innocence" under the remaining theory of honest services fraud that survives Skilling, with which Panarella was not charged.

After a full round of briefing, the Court held oral argument on the motion on January 11, 2011. The Court will now grant the petition for a writ of error coram nobis and will vacate Panarella's conviction.

I. Background

A. Factual History*fn1

Nicholas Panarella, Jr., operated a tax collection

business, known as Municipal Tax Bureau ("MTB"). As part of this business, Panarella entered into contracts with various state and local government bodies in Pennsylvania to collect taxes owed to them. In particular, Panarella derived significant revenue from the enforcement of Pennsylvania's "business privilege tax." Panarella developed expertise and marketing advantages in enforcing this tax against non-resident businesses that operated in a taxing jurisdiction without a physical place of business.

Around July 1993, Panarella entered into a written consulting agreement with F. Joseph Loeper, who served asMajority Leader of the Pennsylvania Senate from 1994 through 2000. Between 1993 and 1997, Panarella paid Loeper, both directly and indirectly, more than $330,000 in consulting fees, which were paid in monthly installments.*fn2

Beginning in 1994, while majority leader of the Pennsylvania State, Loeper took actions that benefitted Panarella's business. For instance, Loeper appeared with Panarella before local governments and attended meetings with Panarella and the Secretaries of two Pennsylvania state agencies, in an effort to obtain state collection contracts. Neither Loeper nor Panarella disclosed their financial relationship to the governments or agencies.

In 1994 and 1995, Loeper spoke and voted against proposed legislation that would have restricted enforcement of the business privilege tax.*fn3 These restrictions, which would have harmed Panarella's business, were ultimately defeated. In addition, Loeper attended various meetings of the MTB Board of Directors throughout 1996, and was nominated to serve on the Audit and Compensation Committees of the MTB Board.

While he was a senator, Loeper failed to disclose his income from Panarella as required by Pennsylvania law. Loeper filed false Statements of Financial Interest with the Pennsylvania Ethics Commission for the calendar years 1993 through 1997. These statements did not disclose Panarella or MTB as a source of income, nor did they disclose Loeper's membership on the MTB Board of Directors.

In August 1997, Loeper gave an interview to a newspaper reporter in which he lied about his sources of income. Loeper stated that he had disclosed all income on his Statements of Financial Interest. Loeper and Panarella then asked a third party, who paid Loeper on Panarella's behalf, to lie to the reporter about the nature of the payments. In addition, Panarella edited the third party's response to a letter from the reporter inquiring into the basis for the third party's payments to Loeper.

B. Procedural History

A grand jury returned a seven-count indictment charging

Panarella with aiding and abetting a mail and wire fraud scheme, in violation of 18 U.S.C. §§ 2, 1341, 1343, 1346. Panarella moved to dismiss the indictment for failure to state a crime, asserting that the theory of the indictment - aiding and abetting Senator Loeper's failure to disclose a conflict of interest - was not cognizable. The Court denied the motion.

The parties then entered into plea discussions. On December 12, 2000, the United States filed a single-count superseding information charging Panarella with violating 18 U.S.C. § 3 by being an accessory after the fact to an honest services wire fraud scheme, in violation of 18 U.S.C. §§ 1343, 1346. The scheme alleged in the superseding information was predicated on a "nondisclosure" or "conflict-of-interest" theory - that is, a scheme to deprive the public of Loeper's honest services by failing to disclose a conflict of interest. Panarella unconditionally pled guilty to the charge in the superseding information, and was sentenced to six months of imprisonment, to be followed by one year of supervised release, and a $20,000 fine.

Panarella then appealed his conviction to the Court of Appeals for the Third Circuit, arguing that the theory of honest services fraud charged in the superseding information was invalid.*fn4 Specifically, Panarella argued that, in the absence of allegations that Panarella bribed Loeper or improperly influenced his actions, Loeper's mere failure to disclose a conflict of interest could not amount to honest services fraud. The ThirdCircuit disagreed, and held that the undisclosed self-dealing theory charged in the information was valid, and did not require allegations of bribery or improper influence. United States v. Panarella, 277 F.3d 678, 691 (3d Cir. 2002). Panarella then served his sentence and paid his fine without incident.

In 2010, the Supreme Court narrowed the scope of the honest services fraud statute, 18 U.S.C. § 1346. In Skilling v. United States, 130 S. Ct. 2896 (2010), the Supreme Court held that § 1346 proscribes only bribery and kickback schemes, which represent the "core" of honest services fraud. Skilling, 130 S. Ct. at 2907. The Court concluded that a broader reading of the honest services fraud statute would raise constitutional vagueness concerns. In so holding, the Court explicitly rejected an undisclosed self-dealing theory of honest services fraud, such as the theory charged in the superseding information in this case, concluding that such a theory was "amorphous" and impermissibly vague. Id. at 2932-33.

On the basis of Skilling, Panarella seeks to have his conviction vacated by writ of error coram nobis. The Court will grant the writ and ...


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