From the Sidebar - Trial, Litigation and The Practice of Law

By Hayes Hunt and Jeffrey Monhait

Last month, the U.S. Court of Appeals for the D.C. Circuit in United States v. Ring, No. 11-3100 (D.C. Cir. Jan. 25, 2013), upheld a conviction for bribery under the public sector honest-services fraud statute, expanding the definitions of "corrupt payments" and "official action," and thus making it easier for federal prosecutors to secure convictions under this statute. The court, in an opinion by Judge David Tatel, held: (1) implicit quid pro quo is sufficient for a bribery conviction, and no actual agreement by the public official is necessary; (2) there is "official action" when a lawyer in the Justice Department emails a secretary with the Immigration and Naturalization Service requesting expedited review of a visa application; and (3) the trial court did not abuse its discretion under the First Amendment or Federal Rule of Evidence 403 in allowing the jury to draw an adverse inference from a defendant's history of lawful campaign contributions.

The Facts

The defendant, Kevin Ring, worked as a lobbyist for Jack Abramoff. His role included fundraising for campaign contributions and developing and maintaining relationships with public officials to serve the lobbying firm's clients. Although campaign contributions were the primary means of accessing public officials, Ring treated these individuals to dinners, drinks, travel, concerts, sporting events and other forms of entertainment. A 2004 federal investigation of Abramoff ultimately led to the prosecution of Ring. At trial, he was convicted on three counts of honest-services fraud, one count of paying an illegal gratuity, and one count of conspiracy to pay an illegal gratuity, and sentenced to 20 months in prison, the opinion said.

Lawful Lobbying vs. Corrupt Bribery

The court noted that "lobbying has been integral to the American political system since its very inception." It is an enormously influential political machine. As of 2008, there were more than 14,000 registered Washington lobbyists, and lobbying expenditures on Congress and federal agencies exceeded $3 billion. "Lobbyists serve as a line of communication between citizens and their representatives, safeguard minority interests and help to ensure that elected officials have the information necessary to evaluate proposed legislation," the opinion said.

To achieve these ends, lobbyists develop personal relationships with officials, through campaign contributions and events including, for example, dinners, drinks, concerts and sporting events. As long as gifts do not constitute bribery, lobbyists are free to use them to "curry political favor," the opinion said. The line dividing legal lobbying from corrupt bribery is crossed when a gift is tied to a particular act. (See United States v. Sun-Diamond Growers of California, 526 U.S. 398, 405-08 (1999).) In Ring, the court commented that although the "distinction between legal lobbying and criminal conduct may be subtle ... it spells the difference between honest politics and criminal corruption."

The Supreme Court set the scene for Ring in Skilling v. United States, 130 S. Ct. 2896, 2907 (2010), in construing the public sector honest-services fraud statute to cover "only bribery and kickback schemes."

'Implicit' Quid Pro Quo Is Sufficient

Ring challenged the jury instructions underlying his bribery conviction for three flaws in stating: "(1) that an explicit quid pro quo was required; (2) that the official must agree to the exchange; and (3) that, at the very least, a corrupt payment must be offered." The court rejected all three challenges.

Ring claimed McCormick v. United States, 500 U.S. 257 (1991), required an explicit quid pro quo. There, the Supreme Court required an explicit quid pro quo to criminalize campaign contributions under the Hobbs Act. Ring urged the court to extend that holding to other things of value, but the court found that, in addition to the fact that it is unclear what an explicit quid pro quo requirement would look like in practice, campaign contributions are distinguishable from other things of value. In a world where political campaigns are privately funded, public officials must solicit contributions. Free lobster tails and Rolling Stones tickets simply do not serve this same purpose. Thus, there was far less concern about "criminalizing politically necessary activity or chilling constitutionally protected speech" and the court declined to impose an explicit quid pro quo requirement.

Ring also claimed the prosecution was required to prove that the public official accepted the offer. Based on Skilling's conclusion that honest-services fraud covers only bribery and kickbacks, the federal bribery statute, 18 U.S.C. §201(b), provides background for honest-services bribery. The court commented that the bribery statute "defines two separate crimes: the act of offering a bribe and the act of soliciting or accepting a bribe." Because bribery does not require that the official accept the bribe, neither does honest-services bribery. The key to bribery is intent — the intent to affect a quid pro quo, and the intent to influence an official act. Thus, the statute is satisfied by proof beyond a reasonable doubt of "intent to offer or solicit an exchange of official action for personal gain."

Ring's final challenge to the instructions was that they failed to require that the defendant intended to offer a quid pro quo exchange. Both sides agreed this element was necessary, and the court found that the jury was properly instructed as to this element. Instructions must require, and these did, "a specific intent to influence official acts, an intent that the official realize or know that the corrupt exchange is being proposed, and a showing that the gifts were conditioned upon the official act or agreement." The court concluded that the mens rea element, rather than the conduct itself, distinguishes legal lobbying from corrupt bribery. 

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By Hayes Hunt and Brian Kint

On November 5^th  in Edenbridge, U.K., a 30-foot tall model of Lance Armstrong* was burned to celebrate Guy Fawkes’ failed plot to blow up the Parliament.  The giant Armstrong likeness held a Tour de France cup in one hand and a sign in the other which read “For sale, racing bike, no longer required.” Prior to this bonfire, a host of corporations paid Armstrong millions of dollars for an image not an effigy.  Those sponsors have now dropped Armstrong since a USADA investigation – which ultimately led to a lifetime ban – concluded that the cyclist took performance-enhancing drugs during his run of seven consecutive first place finishes in the Tour de France.  The endorsement deals that paid Armstrong an estimated $15 – $20 million in 2012 will pay him nearly zero in 2013.  Yet, Armstrong is likely to retain the earnings he has already made under those endorsement deals.  By thinking through how a particular celebrity’s image serves the needs of the company, companies contemplating endorsement deals can avoid the fate of the companies that put stock in Armstrong and possibly even recover funds should their celebrity endorser similarly breach the endorsement deal.

Arguably, Armstrong’s conduct provides for a cause of action for fraudulent inducement.  Companies choose particular celebrities to endorse particular products because the celebrity projects an image, idea, or concept that the company wants consumers to associate with a product.  In Armstrong’s case, the idea was hard work, perseverance, and overcoming the odds.  Using performance-enhancing drugs is the polar opposite of those ideas and his purchased reputation.  Furthermore, if the allegations are true, Armstrong was aware of his doping at the time he signed his endorsement deals.  Therefore, in a sense, Armstrong induced these companies to buy in to a concept of himself that he knew was false.  Nonetheless, it is unlikely that any endorsement contract was explicitly based upon the ideals Armstrong’s public image conveyed.  In addition, the litigation involved would certainly be expensive, and companies normally are hesitant to expose the exact terms of their endorsement deals through public exposure in the courts.  As a result, the companies involved are unlikely to undertake litigation against Armstrong for fraudulent inducement.   

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By Hayes Hunt and Jonathan Cavalier

While the EEOC's position on the use of criminal background checks adds to the time and cost of implementing a screening policy, there remain many benefits to screening potential candidates, including:

Screening required by law. Some jobs, including those in child care, teaching, health care, law enforcement, finance and government require the screening of candidates for criminal records and disqualification of applicants convicted of certain crimes. Employers in these fields must implement and follow screening policies and make hiring and termination decisions accordingly.

Screening to reduce attrition. Criminal background screening can increase the quality of the applicant pool of the workforce by reducing employee turnover, increasing satisfaction and reducing disciplinary issues. Simply put, recidivism and attrition could be twins.

A safer workplace. Violence in the workplace has increased dramatically in recent years. Background checks can help eliminate potential employees with anger management issues from the applicant pool. Also, theft is always a concern at the office.

Reduction in the risk of negligent hiring liability. Under a theory of negligent hiring, employers can be held responsible for injuries caused by their employees if the employer failed to exercise reasonable care in hiring the employee. Obvious examples include failing to screen out a truck driver with multiple DUIs who then causes an accident; failing to screen out a convicted child molester from a position at a day care center; the hiring of a security guard with prior convictions for assault who then unjustifiably harms a patron; or failure to screen out a convicted stalker who then harasses a co-worker. The risk of negligent hiring liability can be substantially reduced through criminal background screening.

By Hayes Hunt and Jillian Thornton

The amount of political rhetoric on Facebook is staggering.  People are using Facebook to give you a “play-by-play” of what they think about the November presidential election. 

Facebook has recently filed a brief in support of the argument that “liking” something on Facebook should be considered constitutionally protected free speech.  U.S. District Judge Raymond Jackson ruled against plaintiffs in Bland v. Roberts, and held that “liking” a Facebook page does not constitute expressive speech.  In Bland, the plaintiffs were employees of the local Sheriff.  When the Sheriff was up for re-election, he discovered that certain employees were actively supporting his election opponent, in part because at least one of them had “liked” the opponent’s Facebook page.  After the Sheriff won the election, he fired the employees, and they sued him in his individual and official capacity for violating their First Amendment rights to freedom of speech.

The court granted the Sheriff’s motion for summary judgment because, in his opinion, “liking” something on Facebook is not evidence of a “statement of support” and could not be considered an “actual statement” or  “substantive.”  The court’s ruling meant that it was not inappropriate for a government employer to fire a worker for Facebook activity. 

The fired employees disagree by pointing out that “liking” a political candidate on Facebook is a form of verbal expression and/or symbolic expression similar to holding a campaign sign.  They argue that expressing their political opinions through Facebook, and “liking” a candidate expresses a clear, substantive message of support.  Doing so also announces to others that the user supports, approves, or enjoys the content being “liked.”  The ex-employees argue that even if “liking” is not pure speech, it is still constitutionally protected symbolic expression, similar to wearing an armband, refusing to salute the flag, or even burning it, all of which are protected forms of symbolic expression.  “Liking” the candidate would be symbolic expression because the plaintiffs’ clear intent was to convey a “particularized message” of political support, which other Facebook users would understand.

Facebook “likes” and concurred with these arguments, stating that, “Liking a Facebook Page (or other website) is core speech: it is a statement that will be viewed by a small group of Facebook Friends or by a vast community of online users.”

We’ll have to wait for the appellate court to determine whether Facebook’s arguments are “liked.”

by: Hayes Hunt and Jonathan R. Cavalier

Companies now frequently use social media to vet applicants, with some even going so far as to force applicants to permit company employees to access their various social media sites.

With Facebook expected to hit the 1 billion user mark in August and more than half of Americans using at least one social media platform, the importance of social media in business and everyday life will only increase. Lawyers have no choice but to become familiar with the various social media platforms, the issues these platforms create for their companies, and the pitfalls and advantages they present in management and litigation.

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by:  Hayes Hunt and Jonathan Cavalier

Over the past decade, many European countries have passed laws mandating that individuals and employers report criminal conduct.  In the United States, however, individuals are typically not required to report criminal conduct that they have observed.  Likewise, employers have no general duty to report criminal conduct by their employees. 

However, not all situations are created equally, not all crimes are treated the same, and exceptions exist that may require employers to report the criminal actions of their employees.  Consider the following scenario:

 SCENARIO: A Fortune 500 company is committed to developing a family-friendly workplace.  The company has developed industry-leading flex initiatives, benefits for working mothers, and extended pregnancy and child-care leave programs.  The company has won numerous awards and is recognized as one of the best places to work for workers with children.  One of the company’s newest initiatives is an on-site, company-owned daycare center for children of employees.  One daycare staffer notices that a 5-year-old child frequently arrives at the center with suspicious bruising on his arms and legs.  What obligations does the employer have in such a situation?

All 50 states have passed laws regarding the reporting of suspected child abuse.  While some states require anyone who reasonably suspects child abuse to report it most states define certain specific groups of professionals that must report such abuse.  These groups typically include types of jobs that require regular interaction with children, like teachers, doctors, social workers and law enforcement officers.  These laws generally require the reporter to call a designated reporting hotline and provide the suspected abuser’s name and other identifying information.  Some states allow the reporter to remain anonymous.  In most states, a good faith report of suspected child abuse provides immunity for the reporter. 

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By Hayes Hunt and Jonathan Cavalier

Published in The Legal Intelligencer on March 21, 2012

“HALLOWED BY HISTORY, BUT NOT BY REASON” – Second Circuit Stays Judge Jed Rakoff’s Challenges to the S.E.C.’s Policy of Settling Without Admissions of Wrongdoing

On March 15, 2012, a panel of the Second Circuit Court of Appeals granted a stay of the district court litigation brought by the Securities Exchange Commission against Citigroup Global Markets, Inc.  The district court had rejected a settlement and consent judgment agreed upon by the parties in a decision which threatens to disrupt the S.E.C.’s longstanding policy of settling cases without demanding an admission of wrongdoing.   

The decision stems from litigation filed by the S.E.C. against Citigroup alleging the company knew in early 2007 that the bottom was falling out of the market for mortgage-backed securities (in which it was heavily invested) and housed those assets within a new billion-dollar fund, which it positioned as an attractive investment option, rigorously vetted and selected by an independent investment advisor.  By doing so, Citigroup was able to offload much of its toxic mortgage-backed securities at a premium.  By the S.E.C.’s measure, Citigroup netted $160 million in profit while the investors in the fund lost $700 million.

In October 2011, the S.E.C. sued Citigroup for negligence in federal court in the Southern District of New York.  At the same time, the S.E.C. filed suit against an individual Citigroup employee, alleging that Citigroup knew that it would be difficult, if not impossible, to offload the mortgage-backed securities as part of a bundled fund if it disclosed the negative projections for those securities.  While the case against the individual included specific allegations that Citigroup acted with fraudulent intent, the S.E.C. omitted those allegations from its complaint against Citigroup.

At the same time that the S.E.C. filed suit against Citigroup, it submitted to the court a “Consent Judgment,” which was, in effect, a settlement of the S.E.C.’s negligence charges against the company.  Under the terms of the proposed settlement, Citigroup consented to an injunction prohibiting it from future violations of Sections 17(a)(2) and (3)of the Securities Act and was required to implement internal measures to prevent the kind of negligence alleged in the complaint from happening again.  Citigroup also agreed to turn over its $160 million in profit to the S.E.C. (plus $30 million in interest) and to pay a civil fine of $95 million.

In a practice long adhered to by many federal agencies,  the settlement included language that Citigroup was agreeing to the consent judgment “without admitting or denying the allegations of the complaint.”  While the S.E.C. does not permit companies to settle while denying all wrongdoing, it has typically allowed companies to settle without admitting violations. 

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Published in The Legal Intelligencer's General Counsel Section  January 11, 2012

By Hayes Hunt and Brian Kint

It is 7 a.m. You grab a cup of coffee and head out the door to catch the train to your job as in-house counsel. As you take your seat on the train, you pull out your BlackBerry to review your calendar. Meanwhile, in a nondescript parking lot, a group of FBI agents are readying for their day's work as well ... the execution of a search warrant at your company.

The lead agent phones the U.S. attorney's office to go over the details of the warrant one last time, while subordinate agents busily check their weapons and don their trademark blue and yellow warrant jackets. As you are stepping off the train, the agents are stepping out of their black SUVs. When you get to the office, you realize that this will be no ordinary day. The FBI is here, and agents are swarming like locusts throughout the building. Agents are rifling through filing cabinets, firing off a barrage of questions to your employees and hauling what seems like a continuous stream of boxes out the door, while people on the street are taking videos and pictures on their phones and publishing them on Facebook.

Welcome to a government raid.

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By Lauren A. Tulli

Recently, the FDA released guidelines titled the “Special Procedures and Considerations for Park Doctrine Prosecutions” to clarify the mechanism by which enforcement actions can be brought against corporate executives of FDA regulated companies.   Although the guidelines are non-binding, they illustrate the government’s apparent commitment to punish corporate executives as individuals, for violations of the Food Drug and Cosmetic Act (FDCA). 

The threat of criminal enforcement is not new.  In United States v. Park, 421 U.S. 658 (1975), the Supreme Court affirmed a criminal conviction of a company officer for regulatory violations in a food storage facility.   The defendant denied he had any knowledge of the conditions, but the Court held that liability under the enforcement statute (21 U.S.C. § 331(a)) did not require a showing of knowledge or participation in the violation. 

The “responsible corporate officer doctrine,” also known as the Park doctrine following this 1975 case, permits charges against high ranking individuals for violations of the FDCA.  A corporate official may be convicted of a violation without engaging in any wrongdoing or knowledge of the violation, provided that the official had the authority or ability to prevent or correct the violation and failed to do so. 

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Recently, GlaxoSmithKline agreed to pay $750 million to resolve criminal and civil charges brought by the Department of Justice (DOJ).  The case centered on the sale of contaminated products which were manufactured at a factory located in Puerto Rico.  As a result of the settlement, the whistleblower-former employee who provided information to the DOJ stands to be paid $96 million.  In terms of costs, the corporation paid a significant price for poor manufacturing procedures in not only the settlement amount but a drop in stock prices and possibly the confidence of patients and the government.  Similarly, the DOJ paid a king's ransom to a fact witness with credible information.  Everyone paid a premium for information that was valuable.  One thing is certain, the price of that information should have been substantially less at the time it was first provided.  How much and who should pay?   

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