U.S. v. Murphy, 01-3757.

• Decision Date: 19 March 2003
• Docket Number: No. 01-3757.,01-3757.
• Parties: UNITED STATES of America v. Peter A. MURPHY, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

323 F.3d 102

UNITED STATES of America v. Peter A. MURPHY, Appellant.

No. 01-3757.

United States Court of Appeals, Third Circuit.

Argued September 18, 2002.

March 19, 2003.

Lawrence S. Lustberg (Argued), Kevin McNulty, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, Newark, for Appellant.

Christopher J. Christie, United States Attorney, George S. Leone (Argued), Chief, Appeals Division, Office of the United States Attorney, Newark, for Appellee.

Before BECKER, Chief Judge, SCIRICA and MCKEE, Circuit Judges.

OPINION OF THE COURT

BECKER, Chief Judge.

This is an appeal by Peter A. Murphy following a jury trial in which he was convicted on three counts of violating the Travel Act, 18 U.S.C. § 1952 (the predicate offense being bribery under New Jersey law, N.J.S.A. 2C:27-2), and three counts of mail fraud, 18 U.S.C. §§ 1341 and 1346. Murphy is the former Chairman of the Republican Party in Passaic County, New Jersey ("the County"). The charged conduct concerned a contracts-for-payments scheme that Murphy allegedly organized by using his considerable influence over Passaic County officials to procure contracts for Central Medical Services, Inc. ("CMSI"). According to the Government's case, CMSI would then siphon off a certain amount of funds received from the County contracts to a panel of four individuals chosen by Murphy who performed no useful services in return for the payment.

In its prosecution of the mail fraud charge, the Government pursued three alternative theories of criminal liability. The first theory alleged that Murphy defrauded Passaic County of money and property. The second theory accused him of participating in a scheme to defraud the County of the honest services of its County Administrator, who was involved in the bribery scheme. The Government's third theory charged Murphy with depriving the County of its right to Murphy's own honest services in the affairs of the County.

This last theory relied on the decision of the Court of Appeals for the Second Circuit in United States v. Margiotta, 688 F.2d 108 (2d Cir.1982), which sustained the conviction of a county chairman under similar circumstances. Margiotta was decided over a strong dissent by Judge Ralph K. Winter, who opined that the Court had impermissibly allowed the jury to determine whether a private party official involved himself so much in the government that he acquired a fiduciary duty to its citizens, and that such an inquiry was not based on any legal duties articulated in federal or state law. The Government's Margiotta theory was that Murphy had attained such a dominant role in the political system of Passaic County that he could be considered the equivalent of a publicly elected official, and that Murphy had a fiduciary duty to the County and its citizens to provide honest services which he breached by not informing County officials about the fraudulent nature of the contracts-for-payments scheme.

The District Court permitted the Government to proceed under Margiotta, and charged the jury accordingly. Murphy contends that this court should not endorse the Margiotta rationale because it is an overreaching interpretation of the mail fraud statute. We agree and conclude, in accord with Judge Winter, that Margiotta extends the mail fraud statute beyond any reasonable bounds. In our recent decisions interpreting honest services fraud, we emphasized the need to establish a violation of state law in such cases to serve as a limiting principle on the federal prosecution of local political actors. See United States v. Panarella, 277 F.3d 678, 693 (3d Cir.2002); United States v. Antico, 275 F.3d 245, 262 n. 18 (3d Cir.2001). Although the Government suggests that Murphy's violation of the New Jersey Bribery Act, N.J.S.A. 2C:27-2, which was the predicate offense in the Travel Act charges, could serve as the state law source of a fiduciary obligation, we are not persuaded by this argument. The Bribery Act does not create a fiduciary relationship between Murphy and the public, just as no other criminal statute creates such a relationship between a defendant and the public. Without the anchor of a fiduciary relationship established by state or federal law, it was improper for the District Court to allow the jury to create one. We will therefore reverse Murphy's mail fraud conviction and remand for a new trial in which the Margiotta theory of mail fraud will not be submitted.

Because we find reversible error in the mail fraud counts, we must consider whether the evidence the Government presented to support its invalid Margiotta theory tainted the jury's verdict on the Travel Act counts as well. The key step in this analysis is the identification of evidence admitted to prove the mail fraud counts that would not be admissible with respect to the charge of bribery under the Travel Act. If such evidence exists that prejudiced the verdict on the Travel Act, we must reverse the entire conviction. According to our decision in United States v. Pelullo, 14 F.3d 881, 898-99 (3d Cir.1994), our investigation into prejudice requires an inquiry into whether: (1) the charges are "intertwined with each other"; (2) the evidence supporting the remaining counts is "sufficiently distinct to support the verdict" on these counts; (3) the elimination of the invalid count "significantly changed the strategy of the trial"; and (4) the prosecution used language "of the sort to arouse a jury."

Murphy contends that under Margiotta, the Government was entitled to present evidence about his role in Passaic County government that was prejudicial and not admissible to prove bribery under the Travel Act. We agree. At trial, the Government often justified its admission of evidence regarding Murphy's activities in the County that were unrelated to the specific contracts-for-payments scheme with CMSI by claiming that such evidence supported its Margiotta theory of mail fraud. The jury evidently viewed this evidence as concerning the mail fraud and Travel Act counts because in a query to the District Court during its deliberations, the jury asked how evidence of Murphy's political activities, which mostly included evidence to prove the Margiotta theory, affected the elements of both criminal offenses. Further, much of the evidence that related only to the Margiotta theory was highly damaging because it suggested that Murphy had the propensity to engage in corrupt activities.

Finally, because Murphy wanted to limit the evidence of his involvement in Passaic County politics in order to lessen the appearance that he acquired a fiduciary duty to the County under the Margiotta theory, it appears that he might have employed a different defense strategy absent this impermissible theory to counter the charge in the Travel Act counts that he had the intent to engage in a corrupt quid pro quo rather than ordinary and legal patronage. We must therefore set aside the conviction on Travel Act counts as well as the mail fraud counts, and remand to the District Court for a new trial.

I.

The charged conduct arose out of a "contracts-for-payments" scheme that involved the award of $1,207,199 of Passaic County contracts in exchange for $72,879.25 in payments to four individuals designated by Murphy. We construe the facts on which Murphy's conviction is based "in the light most favorable to the Government, as we must following the jury's guilty verdict." United States v. Perez, 280 F.3d 318, 323 (3d Cir.2002) (citing Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 86 L.Ed. 680 (1942)).

A. Murphy's Influence in Passaic County Politics

The Government adduced extensive evidence at trial about Murphy's dominance of numerous aspects of Passaic County's politics. To understand this evidence, some background on the County's political system is necessary. The County is managed by a seven-member Board of Freeholders elected by the voters. The Freeholders have ultimate legislative and administrative responsibility for the County, which includes the approval of County contracts. Because the Freeholders serve part-time and meet only biweekly, an unelected County Administrator conducts the day-to-day operations of the County and serves at the pleasure of the Freeholders. The County Administrator is charged with the responsibility to negotiate contracts on behalf of the County, review and recommend contract bids to the Freeholders, monitor the operations of contractors, and approve payments on contracts.

During the relevant period, all seven Freeholders were members of the Republican Party. As Republican Party County Chairman, Murphy strongly influenced who in his party ran for Freeholder, which Freeholders could run for re-election, who would receive campaign funds, and how the Board of Freeholders operated. Testimony by the County Administrator, Nicola DiDonna, indicated that Murphy handpicked the membership of the Freeholder committees in order to maintain control over the Freeholders' decision-making process.¹ Murphy also took an active role in determining the agenda of Freeholder meetings, including making suggestions about how to vote on resolutions, the selection of contract vendors, and the employment of County personnel.

County Administrator DiDonna apparently owed his job security to Murphy as well. Although DiDonna had been appointed several years before Murphy assumed the Chairmanship of the Republican Party, DiDonna testified as to his belief that his continued enjoyment of his job depended on a positive relationship with Murphy. He also explained how Murphy communicated with the heads of the various County agencies in order to influence their selection of vendors for County contracts and applicants for public employment positions. Although the Freeholders approved the selection of contractors and County personnel, Murphy directed the entire process. Murphy's role was not a secret, and potential contractors knew that they needed his approval before presenting bids to...