White Collar Alert

Today, the Second Circuit Court of Appeals vacated the conviction of Sheldon Silver, the former Speaker of the New York State Assembly, concluding that the court’s jury instructions regarding the “official act” element of honest services fraud and Hobbs Act extortion were erroneous in light of the Supreme Court’s decision in McDonnell v. United States, 136 S. Ct. 2355 (2016).

Silver was indicted in February 2015 for engaging in two alleged criminal schemes that abused his official position by exchanging official actions for bribes and kickbacks in the form of referral fees from law firms, and a further charge of money laundering the proceeds of these schemes.  The first scheme involved favors by Silver for a doctor in exchange for referral of mesothelioma patients to Silver’s law firm.  The second scheme involved favors for two real estate developers who hired a law firm that paid Silver referral fees.

The court first swept aside Silver’s challenge to the sufficiency of the evidence.  It rejected Silver’s challenges to Hobbs Act extortion that there was no evidence that he deprived anyone of property and to honest services fraud that his conduct was “undisclosed self-dealing rather than the required “bribes or kickbacks.”  Silver, slip op. at 23-24.  The court also entered the fray of a circuit split regarding whether the government needs to trace criminally derived proceeds when they have been co-mingled with “clean” funds and held that it did not.  Id. at 25-26.

The Court then turned to the jury instructions in light of McDonnell, which was decided after Silver’s trial and conviction.  McDonnell held that “an ‘official act’ is a decision or action on a ‘question, matter, cause, suit, proceeding, or controversy.’”  McDonnell, 136 S. Ct. at 2371.  The “question, matter, cause, suit, or controversy must involve a formal exercise of governmental power that is similar in nature to a lawsuit before a court, a determination before an agency, or a hearing before a committee.”  Id. at 2371.   Then, “to qualify as an ‘official act’ the public official must make a decision or take an action on that ‘question, matter, cause, suit, proceeding, or controversy,’ or agree to do so.”  Id.

The Second Circuit found that the district court’s instruction that an official act encompassed “any action taken or to be taken under color of authority” was overbroad.  Silver, slip op. at 33.  Having found it in error, the court engaged in an harmless error analysis and found that it was not harmless error and determined that it “cannot conclude, beyond a reasonable doubt, that a rational jury would have found Silver guilty if it had been properly instructed on the definition of official act.”  Id. at 36.

Notably, although it found that that one of the “official acts” alleged – obtaining an Assembly resolution honoring the physician who referred patients to Silver’s law firm – “clearly remains an ‘official act’ under McDonnell,” the court held that it was not clear that a rational jury would have found Silver guilty based on the resolution alone:  “a rational jury could thus conclude that, although certainly ‘official,’ the prolific and perfunctory nature of these resolutions make them de minimis quos unworthy of a quid.”  Id. at 41.  With respect to the real estate scheme, it similarly found that even if some of actions – certain votes – remained official actions after McDonnell, “a rational jury might not view these acts as part of a quo exchanged for the Developers tax certiorari business.”  Id. at 44-45.  Finally, the court distinguished its findings on sufficiency of the evidence with whether it was “clear beyond a reasonable doubt that a properly instructed jury would have convicted.”

The reaction from the United States Attorney’s Office for the Southern District of New York was swift:  “Although this decision puts on hold the justice that New Yorkers got upon Silver’s conviction, we look forward to presenting to another jury the evidence of decades-long corruption by one of the most powerful politicians in New York State history.”  The former United States Attorney for the Southern District of New York, Preet Bharara, who led this high-profile prosecution, tweeted:  “The evidence was strong.  The Supreme Court changed the law.  I expect Sheldon Silver to be retried and re-convicted.”

Regardless of what happens with Sheldon Silver upon retrial, the Second Circuit’s opinion, on top of the Supreme Court’s unanimous decision in McDonnell, nonetheless sends perhaps more than just a cautionary tale to prosecutors about overreaching in political corruption cases.  There indeed is a line between what is an improper quid pro quo and acts that constitute constituent services that we expect our elected officials to perform.  The Second Circuit, citing McDonnell, noted the constitutional concerns of accepting a broad “official act” definition:

• Those concerns included the criminalization of virtually all actions taken on behalf of constituents, subjecting public officials to prosecution without fair notice due to the vagueness of the Government’s definition, and setting standard of good government for local and state official [stet] in contravention of federalism principles.

Silver, slip op. at 31.  The Second Circuit’s decision takes an additional step defining that line in the wake of the Supreme Court’s McDonnell decision.