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DiLacqua v. City of Philadelphia

Commonwealth Court of Pennsylvania

January 7, 2014

Rosemary DiLacqua
City of Philadelphia, Board of Pensions and Retirement, Appellant

Argued: December 11, 2013




Appellant, City of Philadelphia Board of Pensions and Retirement, appeals from the decision of the Court of Common Pleas of Philadelphia County reversing the Board's decision, to forfeit the pension of Appellee, Rosemary DiLacqua. DiLacqua pled guilty to one count of honest services mail fraud, 18 U.S.C. §§ 1341 and 1346, which the Board found to be substantially the same as the Pennsylvania crime of theft by deception, 18 Pa. C.S. § 3922. For the reasons set forth below, we affirm.

Appellee was employed as a full-time police officer with the City of Philadelphia from 1984 to 2009. Concurrently, from 2000 to 2008, Appellee served as the President of the Board of Directors of the Philadelphia Academy Charter School (Charter School). This was an unpaid volunteer position at the school where Appellee's autistic son was a student. As board president, Appellee was responsible for overseeing the Charter School's operations, including approving major expenditures and employee salaries. While serving on the Charter School's board, Appellee entered into three financial arrangements with the founder of the school, Brian Gardiner. Appellee accepted a $15, 000 loan from Gardiner in March 2002 to pay for legal representation for her husband and a gift of approximately $10, 000 from him in August 2007 to assist in paying her daughter's college tuition. Appellee also solicited a $9000 loan from Gardiner in January 2005 issued directly to her sister. Appellee failed to disclose those financial arrangements to the board of the Charter School.

During this same period of time, Appellee approved expenditures, bonuses and salary increases to the benefit of Gardiner and Kevin O'Shea, the CEO of the Charter School. For example, O'Shea was hired in 2002 as director of operations at a salary of $60, 000. By May 2008, O'Shea, a high school graduate with no prior school administration experience, had been promoted to CEO and earned in excess of $200, 000 per year. As a member of the Charter School Board, Appellee voted to approve O'Shea's promotions and salary increases. In May 2006, Appellee signed a contract on behalf of the Charter School which provided that Gardiner would be paid $94, 000 annually for 10 years with a three percent increase each year in exchange for 90 days of consulting services per year. In September 2007, Appellee signed an addendum to Gardiner's consulting contract, which extended the term of the contract through 2026 and increased the yearly salary adjustment to the greater of 10% or a cost of living increase. On January 8, 2008, Appellee sent a letter to the Charter School's outside accounting firm that affirmed that there were no material transactions that had not been recorded in the accounting records underlying the financial statements and that she was not aware of any fraud or suspected fraud at the Charter School. In April 2008, Appellee signed a memorandum, which O'Shea had drafted and backdated to October 2007, to make it appear that the entire Charter School Board had approved O'Shea's last raise.

The Charter School underwent a federal investigation into the activities of Gardiner and O'Shea, as well as other individuals associated with it. Appellee's acceptance of the gifts/loans and solicitation of the loan to her sister were uncovered during the federal investigation. In July of 2009, the United States filed a criminal information charging Appellee with "honest services" mail fraud, in violation of 18 U.S.C. § 1341 ("Frauds and Swindles") and 18 U.S.C. § 1346 (Definition of "Scheme or Artifice to Defraud") for failing to report the loans and payments on her annual state financial interest form pursuant to Sections 1104(a), 1105 and 1109(b) of the State Ethics Act, 65 Pa. C.S. §§ 1104(a), 1105, and 1109(b), and for failure to disclose these matters to the Charter School Board. Specifically, Appellee was charged with causing a letter from the Charter School to be delivered by United States mail to an outside auditing firm stating that "there were no material transactions that had not been properly recorded in the accounting records underlying the financial statements and that [Appellee] was not aware of any fraud or suspected fraud at [the Charter School]."[1]

On July 21, 2009, Appellee entered a guilty plea in the District Court for the Eastern District of Pennsylvania to Count IV of the criminal information which alleged Appellee's actions were in violation of 18 U.S.C. §§ 1341 and 1346. See Reproduced Record (R.R) at 24a; R.R. at 192a. Both the United States and the court acknowledged that Appellee was not part of Gardiner's and O'Shea's fraud[2] and that she did not consider the payments to be bribes. The court specifically stated that Appellee's actions did not constitute a quid pro quo. Appellee did not plead guilty to theft or bribery. Appellee was sentenced on December 15, 2009, to one year and one day of incarceration, a $10, 000 fine and $100 special assessment. Restitution was not ordered.

Appellee voluntarily terminated her employment with the City of Philadelphia as a police and prosecution detective effective June 19, 2009, as required by her June 2004 election to participate in the City's Deferred Retirement Option Plan (DROP) program. Upon separation, Appellee received her DROP payments. On June 20, 2009, Appellee began receiving retirement benefits based on her more than twenty years of credited service with the City of Philadelphia. On March 3, 2010, the Pension Board received notification that Appellee had pled guilty to the federal crime of honest services mail fraud. The Pension Board voted to disqualify Appellee from receipt of further pension benefits on March 18, 2010, pursuant to the Public Employee Pension Forfeiture Act[3] (Forfeiture Act) and the Philadelphia Public Employees Retirement Code, Phila. Code § 22-1302 (Philadelphia Retirement Code).

Appellee appealed the termination of benefits and the Pension Board held a hearing on December 8, 2010. The Pension Board denied Appellee's appeal on April 28, 2011. The Pension Board concluded that Appellee's position as board president at the Charter School met the definition of "public official" under both the Forfeiture Act and the Public Official and Employee Ethics Act. The Pension Board found that Appellee "accepted cash and gifts in exchange for favors that were in her power to grant as a result of her position with the [Charter School]." Pension Board's Opinion at 9. The Pension Board determined that the federal crime of honest services fraud is substantially the same as the Pennsylvania crime of theft by deception. The Pension Board concluded that Appellee's actions met the criteria of "a bribe for performance, or affecting the performance of, or the non-performance of [her] official duties, as described in § 22-1302(1)(a)(.2) of the [Philadelphia Retirement] Code." Id. at 10. The Pension Board also concluded that Appellee's actions constituted graft or corruption in connection with her official employment, theft, embezzlement, willful misapplication, or other illegal taking of funds or property of the City, and malfeasance in office under §§ 22-1302(1)(a)(.3), (.4) and (.5) of the Philadelphia Retirement Code.

DiLacqua appealed to the court of common pleas. Common pleas held a hearing on February 7, 2012, at which the Court reversed the Board's decision to disqualify and terminate Appellee's pension benefits. Common pleas relied upon the June 24, 2010, United States Supreme Court decision in Skilling v. United States, 130 S.Ct. 2896 (2010), which held that a conviction for honest services mail fraud based solely on a failure to disclose a conflict of interest was unconstitutional. In its opinion in support of its decision pursuant to Appellate Rule 1925(a), Pa. R.A.P. 1925(a), common pleas stated that "[c]onsidering that Appellee pled guilty to and was convicted under a now unconstitutional theory of honest services mail fraud, [the Pension Board] erred in determining that Appellee was disqualified from her pension under the [Philadelphia] Retirement Code." Common Pleas' Opinion at 12. Common pleas stated that the Pension Board erred in considering conflict of interest honest services mail fraud in its analysis of whether or not Appellee's actions fell under the Forfeiture Act and the Philadelphia Retirement Code, and rejected the Pension Board's allegation that DiLacqua's appeal amounted to a collateral attack of her criminal conviction. Common pleas held that the Pension Board's decision to terminate Appellee's benefits based upon a conviction for a crime later deemed unconstitutional was both a violation of Appellee's constitutional rights and an error of law, as the decision in Skilling had rendered DiLacqua's conviction void and "nonexistent."

The Pension Board appealed to this Court, arguing that common pleas erred when it ruled that Appellee's criminal conviction did not exist. The Pension Board also asserts that Appellee was disqualified from receiving benefits under the Forfeiture Act because honest services mail fraud is substantially the same as theft by deception, and under the pension disqualification provisions of the Philadelphia Retirement Code, §22-1302 (.3)-(.5).

Under the Forfeiture Act, any public employee or public official who has been convicted of any of the crimes enumerated in Section 2 of the Act, 43 P.S. § 1312, or any federal crime which is substantially the same as[4] one of the enumerated crimes, forfeits her pension. Section 2 of the Forfeiture Act enumerates the state crimes related to public office or public employment, including crimes "relating to theft by deception" under Section 3922 of the Crimes Code, 18 Pa. C.S. § 3922. "Public official" and "public employee" are defined as "[a]ny person who is elected or appointed to any public office or employment…or who is acting or who has acted in behalf of the Commonwealth or a political subdivision or any agency thereof …." 43 P.S. § 1312. Section 3(b) of the Forfeiture Act provides that, "[i]f a verdict of not guilty is rendered or the indictment or criminal information finally dismissed, then the public official … shall be reinstated as a member of the pension fund or system and shall be entitled to all ...

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