Anti-Corruption & Compliance Blog

On May 7, 2020, the United States Supreme Court issued a decision in Kelly v. United States, reversing the convictions of Bridget Anne Kelly and William Baroni, two appointees of former New Jersey Governor Chris Christie, involved in the “Bridgegate” scandal. As Deputy Chief of Staff and Port Authority Executive Director, respectively, Kelly and Baroni engaged in a scheme to halt traffic flow to Fort Lee, New Jersey by realigning two of three lanes on the George Washington Bridge under the guise of a “traffic study” in an effort to “punish” Fort Lee’s mayor for refusing to back Governor Christie’s reelection campaign. Kelly and Baroni’s efforts at political retribution resulted in four-days of gridlock and their subsequent convictions for wire fraud, fraud on a federally-funded program or entity, and conspiracy to commit each.

In its unanimous opinion, the Court conceded that the evidence undoubtedly showed the defendants’ “deception, corruption, and abuse of power,” but explained that “not every corrupt act by state or local officials is a federal crime” and that prosecutors may not use the federal wire fraud and federal-program fraud statutes to impose “standards of disclosure and good government for state and local officials.” Harkening back to its 1987 decision in McNally v. United States, the Court held that both federal statutes required the government to prove that the specific object of the defendants’ fraud was money or property, which it failed to do. According to the Court, the reallocation of lanes was an abuse of regulatory power, but not a taking of government property, and the reallocation of government personnel incidentally caused by the scheme was not the object of the fraud. The Court therefore held that the defendants could not have violated the federal-program fraud or wire fraud laws and overturned their convictions.

This case follows in line of others demonstrating the Supreme Court’s resistance in the use of federal fraud statutes as a means to combat public corruption, including the following examples:

• McDonnell v. United States (2016): holding that arranging meetings, making calls, and hosting events, on their own, do not constitute “official acts” under the federal bribery statutes, and thus overturning the convictions a former governor and his wife for honest services fraud predicated on the governor providing commercially-beneficial introductions to key state employees in exchange for over $175,000 in loans and gifts;
• Skilling v. United States (2010): confining the federal honest services fraud statutes to only conduct involving bribery or kickback schemes; and
• Cleveland v. United States (2000): holding that the allocation of state and municipal licenses does not qualify as misused “property” under the federal mail fraud statute.

The Department of Justice has historically relied on the federal fraud statutes for a wide range of matters such as insider trading, Medicare overbilling, foreign bribery, and even recently in the college admissions scandal. These cases, however, demonstrate the Supreme Court’s demand for more exacting standards, particularly in public corruption cases. In any event, the Kelly holding will sharpen the focus in future federal statutory fraud cases to the issue of whether obtaining money or property was the specific purpose or a mere byproduct of the fraud.