Kelly v. United States

THE OBJECT OF THE SCHEME TO DEFRAUD

Petitioner Kelly argues that she and Respondent Baroni cannot be held liable for the charges as brought because their actions did not deprive the Port Authority of any property protected by federal fraud statutes. Brief for Petitioner at 35. At most, Kelly posits, her and Baroni’s actions influenced the regulatory or sovereign power given to the Port Authority by the New York and New Jersey legislatures. Id. at 38. But Kelly argues that this power or right to regulate, under Cleveland v. United States, does not constitute a property right insured through mail and wire fraud statutes—which typically protect only physical property or intangible property. Id. at 38. Further, Kelly contends, the lanes themselves, while indeed existing physically, could not be considered the deprived property interest in this case because Kelly and Baroni never attempted to obtain the lanes and, indeed, the Port Authority retained the lanes at all times. Id. Kelly suggests that the costs associated with adjusting the lanes—such as utilizing extra tollbooth operators and hiring engineers to conduct a study—also fall outside the definition of protected property rights. Id. at 41–42. Kelly explains that because resources used to implement a regulatory decision are derived from the exercise of regulatory power itself, and such derivative expenses cannot be the basis for fraud simply because they “incidentally cause losses.” Id. at 41–42. Kelly further argues that, in this circumstance, the Port Authority received exactly what it paid for because the extra labor costs were used for their intended purpose: the tollbooth operators collected tolls and the engineers conducted a study. Id. at 41. Unnecessary expenses associated with regulatory power, Kelly continues, cannot constitute fraud unless the object of the scheme was indeed to defraud an entity of those expenses. Id.

Respondent United States counters that the object of the scheme might have included some regulatory decision, but the meat of the scheme was “employee time and labor and the use of the bridge itself.” Brief for Respondent, United States at 31. The United States contends that the Port Authority was defrauded of real property when it temporarily lost complete control and “free use” of the George Washington Bridge as the result of Kelly and Baroni’s personal and political actions. Id. at 31–32. Moreover, the United States argues that the Port Authority’s property rights were encumbered because Kelly and Baroni defrauded the Port Authority of its “straightforward ‘economic’ interest” related to how and for what it pays employees. Id. at 31. Indeed, the United States further argues that Kelly and Baroni conscripted real property— resources that the Port Authority might have otherwise put toward some legitimate use—to fake a traffic study that served no purpose other than to act as a cover story for their true motive. Id. at 32. The fact that the Port Authority retained some access to these resources is irrelevant, the United States asserts, because Kelly and Baroni’s actions defrauded the Port Authority of exclusive control of the resources. Id. at 46. As such, the United States contends, the right to control the George Washington Bridge and other resources was more than a mere regulatory interest and, instead, was one rooted in real property, which the federal fraud statutes unquestionably protect. Id.

SCHEME TO DEFRAUD OR ABUSE OF POWER?

Kelly argues that even if some cognizable property interest could be identified, she and Baroni could not have defrauded the Port Authority because Baroni, as the Port Authority’s Deputy Executive Director, had the authority to decide how to use the property. Brief for Petitioner at 45. Kelly explains that the federal fraud statutes require a material deception that induces the decisionmaker to part with the property; thus, the Port Authority could not have been defrauded because Baroni did not induce himself—the relevant decisionmaker—to act through a material misrepresentation. Id. at 44–45. Any lies that Kelly and Baroni might have told, Kelly contends, were to Baroni’s subordinates who lacked the authority to overrule Baroni’s decision. Id. at 48. Thus, while it remains entirely possible that Kelly and Baroni abused their power and potentially even breached a fiduciary duty by acting outside the Port Authority’s best interests, Kelly argues that an employee’s “faithful service” falls outside the scope of federal fraud statutes. Id. at 45.

The United States asserts that Kelly’s argument on appeal disregards the jury’s findings that Baroni did not have the authority to realign the traffic lanes. Brief for Respondent at 33, 35. The United States argues that the jury’s verdict cannot be disturbed if any rational trier of fact could find from the evidence that Kelly and Baroni were guilty. Id. at 35. The United States points to the evidence at trial that demonstrated the lane-realignment would not have occurred had the lie regarding the traffic study not been told. Id. at 36. Further, the United States argues that the Port Authority’s bylaws mandated that certain approval protocol be followed in order to allocate resources to various projects and, additionally, that the bylaws did not confer any such approval power on the Deputy Executive Director. Id. at 39. Additionally, the United States maintains that the fact that trial testimony also demonstrated that Baroni later had the power to return the lanes to the status quo (i.e. undo the damage that he had caused) did not necessarily mandate that the jury ought to have found an overarching authority to make changes. Id. at 38.

THE WHY VERSUS THE WHAT

Kelly argues that the Third Circuit’s ruling should be overturned because lies regarding subjective motive, even if they induce another to act, do not amount to fraud. Brief of Petitioner at 49. Kelly looks to the United States Court of Appeals for the Second and Seventh (and other) Circuits which have held that lies that “merely induce” someone to enter into a transaction do not constitute fraud while lies that concern the “transaction’s essential terms” do constitute fraud. Id. at 50. Stated another away, Kelly suggests that a lie should only constitute fraud if the victim loses the benefits of the bargain. Id. Thus, Kelly continues, what truly matters in the fraud context is not why a public official acts but instead what his or her actions actually entail. Id. at 52. Here, the Port Authority received exactly what it bargained for because the George Washington Bridge was still in commission and the extra employee wages were paid for the work performed. Id. at 53.

The United States admits that the why did play a role in the prosecution of Kelly and Baroni, but the why was used only to explain the motive behind Kelly and Baroni’s actions. Brief of Respondent at 34. Indeed, the United States notes that the trial judge never instructed the jury to consider motive as an element, nor did any evidence from trial suggest that the why played a role in the guilty verdict. Id. In fact, the United States continues, the trial judge went a step further by instructing the jury that it did not need to find that Kelly and Baroni had concealed a subjective political motive. Id. at 33. Here, the United States argues, the lie that the jury found went to the existence of a traffic study, not the subjective intent of Kelly and Baroni. Id. at 32. That type of lie, the United States continues, went to the heart of the bargained-for agreement because the jury found, based on trial testimony, that at the time of the lie Kelly and Baroni did not believe a study was being conducted. Id. at 42. Therefore, the United States notes, the mere fact that the study eventually took place and accidentally produced relevant data is of no consequence because the federal fraud statutes do not require a completed fraud—they only require a scheme to defraud. Id. The United States also disagrees that the Port Authority got what it bargained for; it incurred the costs of paying overtime wages to toll workers which it would not have incurred but for Kelly and Baroni’s conduct. Id. at 44.