October 28, 2010
POSNER, Circuit Judge.
This case is before us for the
second time, the Supreme Court having vacated the
judgment, which we had affirmed, and remanded the
case to us for reconsideration. Black v. United States, 130
S. Ct. 2963 (2010).
The defendants—senior executives of Hollinger International—
had been convicted by a jury of three counts of
2 Nos. 07-4080, 08-1030, 08-1072, 08-1106
mail and wire fraud, in violation of 18 U.S.C. §§ 1341 and
1342, and defendant Black had also been convicted of
obstruction of justice, in violation of 18 U.S.C. § 1512(c).
The judge had sentenced Black to a total of 78 months
in prison, Atkinson and Boultbee to 24 and 27 months,
and Kipnis to probation with six months of home detention.
The three fraud counts (which we’ll treat as two, because
two of the three relate to transactions with the
same company, APC) were submitted to the jury under
two theories: that of a scheme of fraudulent appropriation
of money to which Hollinger was legally entitled
(we’ll call this “pecuniary fraud”), and that of a scheme
to deprive Hollinger of the latter’s “intangible right of
honest services,” 18 U.S.C. § 1346, amending sections 1341
and 1342. The first theory required that the defendants
have obtained a pecuniary benefit at the expense of
Hollinger; the second did not; and because the jury returned
a general verdict on the fraud counts, we cannot
be absolutely certain that it found the defendants guilty
of pecuniary fraud as well as, or instead of, honestservices
fraud.
After we affirmed, the Supreme Court held that the
latter form of fraud requires proof that the defendant(s)
received a bribe or kickback, as otherwise section 1346
would be unconstitutionally vague. United States v.
Skilling, 130 S. Ct. 2896, 2931 (2010); see United States v.
Cantrell, 617 F.3d 919, 921 (7th Cir. 2010); United States v.
Urciuoli, 613 F.3d 11, 17-18 (1st Cir. 2010). That was not
proved here and so the defendants could not lawfully
Nos. 07-4080, 08-1030, 08-1072, 08-1106 3
be convicted of honest-services fraud.
But if it is not open to reasonable doubt that a reasonable jury would
have convicted them of pecuniary fraud, the convictions
on the fraud counts will stand. Hedgpeth v. Pulido, 129
S. Ct. 530, 531-32 (2008) (per curiam); see Neder v. United
States, 527 U.S. 1, 15-16 (1999); United States v. L.E. Myers
Co., 562 F.3d 845, 855 (7th Cir. 2009); United States v. Cappas,
29 F.3d 1187, 1192 (7th Cir. 1994); United States v. Jackson,
196 F.3d 383, 386 (2d Cir. 1999). “An instructional error
arising in the context of multiple theories of guilt no
more vitiates all the jury’s findings than does omission
or misstatement of an element of the offense when only
one theory is submitted.” Hedgpeth v. Pulido, supra, 129
S. Ct. at 532 (emphasis in original).
The case would still have to be remanded to the
district court for resentencing unless it was reasonably
certain that the judge would have imposed the same
sentences even if the charge of honest-services fraud
had not been submitted to the jury. Suppose no reasonable
jury would have failed to find pecuniary fraud.
Nevertheless that same jury, having been instructed on
honest-services fraud, might have found the defendants
guilty of honest-services fraud as well. The judge
would then have been incorrectly sentencing the
defendant for two crimes rather than one. She might
think honest-services fraud the more serious crime, or
at least that it made the defendants’ conduct more reprehensible
and so merited heavier overall sentences.
We begin with defendant Black’s argument that the
submission of that charge to the jury contaminated his
conviction of obstruction of justice, and that therefore
4 Nos. 07-4080, 08-1030, 08-1072, 08-1106
he is entitled to a retrial on the obstruction count as well
as on the fraud counts.
He was charged with having
concealed or attempted to conceal documents “with the
intent to impair the [documents’] integrity or availability
for use in an official proceeding,” in violation of
18 U.S.C. § 1512(c)(1). There was compelling evidence
that he knew that the acts that later formed the basis of
the fraud charges against him and his codefendants
were being investigated by a grand jury and by the SEC.
In the midst of these investigations Black with the help
of his secretary and his chauffeur removed 13 boxes
of documents from his office, put them in his car, was
driven home, and helped carry them from the car into
his house.
He later returned the boxes; and copies of the documents
were available to the government before the
boxes were removed; but it was material to the investigation
whether Black had had copies in his office. For
that would mean that he had received them and might
know they were material to the government’s investigation.
Furthermore, the boxes may have contained documents,
of which there were no copies, that he’d removed
before returning the boxes. That is speculation; but the
possibility of such tampering helps to explain why the
obstruction statute does not require proof of obstruction,
as distinct from intent to obstruct, in order to convict.
The usual consequence of an obstruction of justice is not
that a guilty person is acquitted but that the government
expends additional resources to prevent the effort
at obstruction from succeeding, as in our case of United
Nos. 07-4080, 08-1030, 08-1072, 08-1106 5
States v. Wells, 154 F.3d 412, 414-15 (7th Cir. 1998), where
the defendant’s lie about the proceeds of his robbery
sent the police on a wild goose chase. Similarly, concern
that a suspect may be concealing material documents
incites additional investigative efforts by the government.
See United States v. Tankersley, 296 F.3d 620, 623-
24 (7th Cir. 2002).
Thus, as we explained in a portion of our first opinion
not disturbed by the Supreme Court and therefore the
law of the case, the obstruction of justice statute does
not require proof of materiality unless the alleged obstruction
takes the form of a lie that could not be expected
to have any effect on the justice process. United
States v. Buckley, 192 F.3d 708, 710 (7th Cir. 1999). Being
able to deny the materiality of a document is a common
reason for concealment.
So it is enough for conviction
that a document was concealed in order to make
it unavailable in an official proceeding. See, e.g., United
States v. Senffner, 280 F.3d 755, 762 (7th Cir. 2002); United
States v. Philips, 583 F.3d 1261, 1263-64 (10th Cir. 2009);
United States v. Carson, 560 F.3d 566, 584 (6th Cir. 2009);
United States v. Lessner, 498 F.3d 185, 197-98 (3d Cir. 2007).
The evidence that the boxes were removed in order to
conceal documents from the government investigators
was compelling, even though Black’s secretary loyally
testified that Black intended to remove the documents to
a temporary office that she would set up for him in her
home because he had to vacate his office at Hollinger
within ten days. Her testimony was inconsistent with
his having put the boxes in his car (not hers, which was
at the scene) and taken them to his home rather than to
6 Nos. 07-4080, 08-1030, 08-1072, 08-1106
hers. There was also evidence that in removing the
boxes he tried to avoid the surveillance cameras in his
office building—unsuccessfully.
In any event, the sufficiency of the evidence to convict
Black of obstruction is no longer an open question; and
since the jury was separately instructed on obstruction,
the fact that it received an erroneous instruction on
another count would ordinarily be irrelevant. United
States v. Holtzer, 840 F.2d 1343, 1349 (7th Cir. 1988). But
Black argues that had the jury not been told it could
convict him of honest-services fraud, it might well have
acquitted him of obstruction of justice.
He appeals to
cases in which convictions on counts on which the jury
was properly instructed were reversed because a count
that was later dismissed was so inflammatory that it
created a “prejudicial spillover.” E.g., United States v.
Lazarenko, 564 F.3d 1026, 1042-44 (9th Cir. 2009);
United States v. Edwards, 303 F.3d 606, 639-40 (5th Cir.
2002); United States v. Vebeliunas, 76 F.3d 1283, 1293-94 (2d
Cir. 1996). These cases are in superficial tension with
our decision in Holzer and also in United States v. Schwartz,
787 F.2d 257, 264 (7th Cir. 1986), but those are decisions
about misjoinder, and hold that the time to sever
a trial because of a prejudicial spillover from one count
to another is before the trial begins. If a count is submitted
to the jury under an instruction apt to poison
the jury’s consideration of other counts as well, the defendant
may be entitled to a new trial.
But this is not such a case. The theory of honest services
fraud submitted to the jury was esoteric rather
Nos. 07-4080, 08-1030, 08-1072, 08-1106 7
than inflammatory; the evidence of such fraud was a
subset of the evidence of pecuniary fraud; and the evidence
of obstruction of justice was very strong. No reasonable
jury could have acquitted Black of obstruction
if only it had not been instructed on honest-services
fraud. It would still have been the case that Black had
known he was being investigated for fraud and could
not have known that years later the Supreme Court
would invalidate one of the fraud charges. And if he were
clairvoyant, he would have known that the other fraud
charge—pecuniary fraud—would not be invalidated.
At argument Black’s lawyer posed the following
amusing hypothetical in an attempt to use the error in
the fraud instruction to undermine his client’s conviction
for obstruction of justice: Suppose the Justice Department
launches an investigation of a man suspected of
having an affair with Minnie Mouse, and while the
investigation is under way the man burns his Disney
comics.
Although an “official investigation” was pending
(and capable of being obstructed) when he destroyed
the comics, this could not be construed as an obstruction
of justice, because the crime under investigation did not
exist and therefore he could not have acted with the
corrupt intent necessary for guilt of obstruction. Black’s
lawyer hoped by this hypothetical case to persuade us
that the jury would have interpreted his client’s intent
in removing the documents differently had it known
that the honest-services fraud under investigation at
the time was not a crime; it would have been more
willing to credit his innocent explanation for his action
and conclude that he had not acted with corrupt intent.
But Black was not under investigation for an obviously
8 Nos. 07-4080, 08-1030, 08-1072, 08-1106
nonexistent crime, such as carnal knowledge of a fictional
mouse; he was under investigation for conventional
pecuniary fraud as well as honest-services fraud,
and besides it was not obvious at the time of his removing
the documents that honest-services fraud
was a nonexistent crime.
Hundreds of persons must
have been convicted of it before the Supreme Court,
years after Black’s act, narrowed it to cases in which the
defendant receives a bribe or a kickback. Black had
also to fear—and just as acutely—being prosecuted for
pecuniary fraud, as of course he was, and the elements
of that crime are unchanged from when he acted.
So the conviction for obstruction will stand. The two
fraud counts present a stronger case for ordering a new
trial (and for all the defendants, not just Black).
The first of these counts concerns a subsidiary of Hollinger
called APC, which owned a number of small community
newspapers that it was in the process of selling. When it
had only one left—a weekly community newspaper
serving Mammoth Lake, California (population 7,093 in
2000, the year before the fraud)—defendant Kipnis,
Hollinger’s general counsel, prepared and signed on
behalf of APC an agreement to pay the other defendants,
plus another Hollinger executive, a total of $5.5 million
in exchange for their promising not to compete with
APC for three years after they stopped working for
Hollinger. The money was paid. Neither Hollinger’s
audit committee, which was required to approve transactions
between Hollinger’s executives and the company
or its subsidiaries (such as APC) because of the conflict
of interest, nor Hollinger’s board of directors, was informed
of this transaction.
Nos. 07-4080, 08-1030, 08-1072, 08-1106 9
That Black and the others might start a paper in Mammoth
Lake to compete with APC’s tiny newspaper there
was a ridiculous idea; no one would pay them to promise
not to do something they obviously would never want
to do. But they argued that really the $5.5 million represented
management fees owed them, and that they
had characterized the fees as compensation for granting
covenants not to compete in the hope that Canada,
where a substantial percentage of the management fees
had been generated, might not treat the fees as taxable
income.
Although Hollinger is a large, sophisticated,
public corporation, no document was found to indicate
that the $5.5 million expenditure was ever approved by
the corporation or credited to the management-fees
account on Hollinger’s books. The checks were drawn on
APC even though there was evidence that the defendants
had no right to management fees from that entity, and
the checks were backdated to the year in which APC had
sold most of its newspapers, the purpose being—or so the
jury could find—to make the richly compensated covenants
not to compete seem less preposterous.
The evidence was certainly sufficient to prove a pecuniary
fraud, see Cleveland v. United States, 531 U.S. 12, 19-
20 (2000); United States v. Orsburn, 525 F.3d 543, 546
(7th Cir. 2008); United States v. Henningsen, 387 F.3d 585,
589-90 (7th Cir. 2004), and the jury was correctly instructed
on the elements of such a fraud. But it was also
instructed that it could convict the defendants upon
proof that they had schemed to deprive Hollinger and its
shareholders of their right to the defendants’ honest
10 Nos. 07-4080, 08-1030, 08-1072, 08-1106
services.
This instruction did not require the jury to
find that the defendants had taken any money or
property from Hollinger; all it had to find was that in
failing to disclose the recharacterization of the management
fees to the audit committee and the board, they
had failed to render honest services to Hollinger and
had done so in an effort to obtain a private gain. That
was a good instruction before the Supreme Court ruled
that honest-services fraud requires proof of a bribe or
kickback, but no longer; and the question is therefore
whether a reasonable jury might have convicted the
defendants of depriving the company of their honest
services for private gain but not have convicted them
of pecuniary fraud.
That is unlikely, but no stronger assertion is possible.
Although the defendants did not deny having sought a
private gain, they contended that it was intended to be a
gain purely at the expense of the Canadian government,
not at the expense of Hollinger because (they contend)
Hollinger owed them the money; and they were not
accused of defrauding the Canadian government, only of
defrauding Hollinger.
There was plenty of evidence
that Hollinger did not owe them $5.5 million in management
fees, but the evidence was not conclusive,
while all that the jury had to find in order to convict
them of honest-services fraud was their failure to level
with the board and the audit committee, which was
irrefutable.
Had they disclosed that the recharacterization of management
fees would net them a higher after-tax income,
Nos. 07-4080, 08-1030, 08-1072, 08-1106 11
the board might have decided that the addition to their
income warranted a reduction in the size of the fees. “A
man is none the less cheated out of his property, when
he is induced to part with it by fraud, because he gets
a quid pro quo of equal value. It may be impossible to
measure his loss by the gross scales available to a court,
but he has suffered a wrong; he has lost his chance
to bargain with the facts before him.” United States v.
Rowe, 56 F.2d 747, 749 (2d Cir. 1932) (L. Hand, J.); see also
Ranke v. United States, 873 F.2d 1033, 1039-40 (7th Cir.
1989).
The defendants had a duty of candor to the board
in the conflict-of-interest situation in which they found
themselves, and by violating that duty they caused
Hollinger to make false filings with the SEC, and they
did so for their private gain. That was a solid honest services
case before the Supreme Court weighed in, but
not a solid pecuniary-fraud case. The government
did not argue, as it might have done, by analogy to cases
such as United States v. Richman, 944 F.2d 323, 330 (7th
Cir. 1991), and United States v. Gole, 158 F.3d 166, 168
(2d Cir. 1998), that even if the defendants were owed
the fees, they had obtained them fraudulently, as when
an employee who is owed $100 by his employer forges
a check to himself for the amount and thus fraudulently
appropriates money owed him. Cf. Edwards v. State, 181
N.W.2d 383, 387-88 (Wis. 1970); State v. Self, 713 P.2d
142, 144 (Wash. App. 1986).
What we’re calling the second fraud count involves
payments to the defendants (via Hollinger) of $600,000
in connection with Hollinger’s sale to two companies,
Forum and Paxton, which to simplify we’ll treat as one,
12 Nos. 07-4080, 08-1030, 08-1072, 08-1106
of community newspapers; the $600,000 was allegedly
compensation for the defendants’ promising not to compete
with these newspapers after the sale.
The defendants don’t contend that the money represented
management fees owed by Hollinger. The contention
rather is that the money was compensation for bona fide
covenants not to compete. The contention is implausible
because these are small newspapers and the defendants
could have no interest in going into competition with
them as individuals—for the covenants bind them, not
Hollinger or any other company that might want to
enter the community-newspaper business. The owners
of Forum-Paxton testified that they didn’t request such
a covenant.
Their testimony was not only disinterested
but was supported by the clowning note that David
Radler, an executive of Hollinger, wrote to the defendants,
in which he said that Forum-Paxton had “asked
for a 5-year non-compete from Conrad [Black] and me
covering not only the states wherein they purchased
assets but those states that border the said states. This
would leave us only Alaska, Wyoming and Louisiana
for us to continue our activities . . . . I have been assured
there is [sic] suitable accommodations four [sic] our new
headquarters in Casper, Wyoming.”
What makes the contention that the $600,000 was compensation
for covenants not to compete additionally and
decisively unbelievable is that there are no covenants.
The defendants concede that none was prepared, but
attribute the omission to innocent mistake. The concession
fatally undermines their challenge to the convictions
on this count. Either the failure to prepare covenants
Nos. 07-4080, 08-1030, 08-1072, 08-1106 13
was an innocent mistake—in which event the defendants
could no more be convicted by a reasonable jury of honestservices
fraud than of pecuniary fraud, because a
merely careless withholding of services owed a principal
by an agent was never criminal fraud under the honestservices
provision (or any other provision) of the mail
and wire fraud statutes, United States v. Cochran, 109
F.3d 660, 667-68 (10th Cir. 1997); see also United States
v. Sorich, 523 F.3d 702, 707-08 (7th Cir. 2008); United States
v. Bloom, 149 F.3d 649, 654-55 (7th Cir. 1998)—or no covenants
were intended, and the fees were part of the purchase
price of the newspapers, owed to Hollinger and
stolen by the defendants.
No reasonable jury could have acquitted the defendants of pecuniary
fraud on this count but convicted them of honest-services fraud.
The defendants argue that maybe the jury believed
that the absence of the covenants was an innocent
mistake but convicted them because they failed to
disclose the payments to the board. The failure to
disclose is mentioned in passing in the information, but
the evidence at trial, and the closing arguments, focused
on whether the absence of a written covenant was
merely an oversight or instead proof of pecuniary fraud.
The jury acquitted the defendants on two other counts
related to covenants not to compete with Forum-
Paxton.
But in those instances the fees went to Hollinger,
and it is Hollinger that issued covenants not to
compete, not the defendants, and Hollinger was a far
more plausible entrant into Forum-Paxton’s markets
than the defendants, as individuals, were. The only
14 Nos. 07-4080, 08-1030, 08-1072, 08-1106
rational explanation for the split verdict is that the jury
believed that the $600,000 that the defendants received
from Forum-Paxton without covenants not to compete,
unlike the other transactions with that company, was
proceeds of a plain-vanilla pecuniary fraud—and only a
pecuniary fraud.
For had the jury believed that a failure
to disclose the fees for promising not to compete with
the little newspapers was honest-services fraud, it would
have convicted the defendants on all the fraud counts,
because the defendants disclosed those fees neither to
the board nor to the shareholders; and the jury didn’t
do that.
When to this logical point are added the absence of a
written record of a $600,000 transaction, the disinterested
testimony by the newspapers’ buyers that they did not
request covenants not to compete, Radler’s implicit
boast that the covenants were fabrications, and the
absence of an economic reason for them (because the
defendants had no conceivable interest in becoming
individual publishers of small community newspapers),
the evidence of pecuniary fraud is so compelling that
no reasonable jury could have refused to convict the
defendants of it.
To sum up, the convictions on the APC count are reversed,
and the convictions on the Forum-Paxton count
and the obstruction of justice count are affirmed. The
sentences are vacated and the case remanded for
resentencing, as well as for trial, limited however to the
APC count.
But although the defendants are entitled to a new trial
on that count, the entitlement is moot unless the governNos.
07-4080, 08-1030, 08-1072, 08-1106 15
ment decides to retry them. The government may wish
instead, in order to conserve its resources and wind up
this protracted litigation, to dismiss the APC count and
proceed directly to resentencing.
The judge could consider at the resentencing hearing the
evidence that had been presented at the original trial
concerning APC in determining what sentences to impose
on the two counts (the $600,000 fraud involving Forum-Paxton
and, with respect to Black, obstruction of justice as well) of
which the defendants were properly convicted. 18 U.S.C.
§ 3661. “A jury’s verdict of acquittal does not prevent the
sentencing court from considering conduct underlying
the acquitted charge, so long as that conduct has been
proved by a preponderance of the evidence.” United States
v. Watts, 519 U.S. 148, 157 (1997) (per curiam); see also
United States v. Quintero, 618 F.3d 746, 755 (7th Cir.
2010); United States v. Duncan, 400 F.3d 1297, 1304-05 (11th
Cir. 2005). (And there was no acquittal on the APC
count, just an error warranting—barely—a retrial.) But
of course it is for the government to determine, not us,
how to proceed on remand.
Me:
More to come.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment