U.S. v. McGeehan

• Decision Date: 22 October 2009
• Docket Number: No. 05-2446.,No. 05-1954.,05-1954.,05-2446.
• Citation: 584 F.3d 560
• Parties: UNITED STATES of America v. Lawrence McGEEHAN, Appellant at No. 05-1954. Kathleen Haluska, Appellant at No. 05-2446.
• Court: U.S. Court of Appeals — Third Circuit

584 F.3d 560

UNITED STATES of America v. Lawrence McGEEHAN, Appellant at No. 05-1954.

Kathleen Haluska, Appellant at No. 05-2446.

No. 05-1954.

No. 05-2446.

United States Court of Appeals, Third Circuit.

Argued February 11, 2008.

Filed: October 22, 2009.

Stephen H. Begler, Esquire (Argued), Pittsburgh, PA, for Appellant, Lawrence McGeehan.

John A. Knorr, Esquire, Pittsburgh, PA, for Appellant, Kathleen Haluska.

Michael L. Ivory, Esquire (Argued), Laura S. Irwin, Esquire, Office of the United States Attorney, Pittsburgh, PA, Attorneys for Appellee.

Before: SCIRICA, Chief Judge, RENDELL, and SMITH, Circuit Judges.^*

OPINION OF THE COURT

SCIRICA, Chief Judge.

This case requires us to address the scope of the legal theory of "honest services" fraud as applied to the conduct of persons who are not public officials. Defendants appeal their convictions of honest services mail and wire fraud, 18 U.S.C. §§ 1341, 1343, 1346, and 2. We will affirm the judgment of the District Court on counts 3, 5, 6, 7, 8, and 9 because the Superseding Indictment is sufficient as to those counts. We will vacate the judgment on counts 10, 11, 13, 19, 20, 21, and 22 because the specific facts alleged in those counts of the Superseding Indictment do not constitute honest services fraud under § 1346.

I.

The Ben Franklin Technology Center (BFTC) was a publicly-funded, non-profit corporation based in Pittsburgh, Pennsylvania. The Commonwealth of Pennsylvania created BFTC in the early 1980s— along with three other organizations—in an effort to encourage the development and commercialization of new technology. BFTC administered funds allocated by the Commonwealth through the Department of Community and Economic Development for economic development grants. The Commonwealth provided BFTC with these funds upon the condition that BFTC would spend them for approved purposes—such as grants and administrative expenses— and in conformity with the public mission of the organization. Any breach of BFTC's obligations to the Commonwealth could have jeopardized BFTC's state funding.

In 1995, BFTC entered into an agreement with the United States Navy to administer, on behalf of the Office of Naval Research, a project known as the National Network for ElectroOptics Manufacturing Technology (NNEOMT). The NNEOMT operated as a consortium: the Navy provided funding and the BFTC administered the program, including the disbursement of the appropriate amounts to subcontractors who were involved in the research and development of electro-optics technologies. The NNEOMT Agreement provided that any funds allocated thereunder were to be used solely for administering NNEOMT.

From September of 1994 to July of 1998, Lawrence McGeehan was the President and Chief Executive Officer of BFTC, and Kathleen Haluska was the Vice-President and Chief Operating Officer. Together, McGeehan and Haluska were responsible for BFTC's daily operations and budget-related issues, including the administration of the NNEOMT Agreement.

A federal grand jury returned an Indictment charging McGeehan and Haluska (collectively, "defendants") with twenty counts of mail fraud in violation of 18 U.S.C. §§ 1341, 1346, and 2, and two counts of wire fraud in violation of 18 U.S.C. §§ 1343, 1346, and 2. A Superseding Indictment charged the same twenty-two counts of the Indictment and alleged an additional seven counts of fraud against the United States in violation of 18 U.S.C. §§ 1031 and 2.

The Superseding Indictment charged that, instead of faithfully managing BFTC's operations and fulfilling its administrative duties under the NNEOMT Agreement, McGeehan and Haluska caused the BFTC to use its funding from the Commonwealth and the Navy to pay for personal expenditures for themselves and others, and to cover costs that did not have a proper business purpose.

Counts 1 through 9 of the Superseding Indictment alleged that defendants devised a scheme to defraud BFTC of their honest services by misusing its funding, making "excessive expenditures for purposes such as lavish travel and entertainment," subverting its fiscal controls, improperly withholding information from BFTC's Board of Directors, and threatening, intimidating, and/or removing employees who questioned their misuse of authority.

Counts 10 through 22 of the Superseding Indictment alleged that BFTC, under the management of defendants, "owed the United States Navy a duty of honest services pursuant to its cont[r]act to administer NNEOMT," and that the defendants "devised a scheme and artifice to defraud the United States Navy of the intangible right of honest services owed to it by BFTC. ..." The Superseding Indictment further alleged that defendants defrauded the Navy of BFTC's honest services using mail and wire communications, which caused BFTC to use NNEOMT funds for unauthorized purposes.

Counts 23 through 29 alleged that defendants knowingly caused BFTC to execute a scheme and artifice to defraud and to obtain money and property from the Navy having a value in excess of one million dollars or more, in violation of 18 U.S.C. §§ 1031 and 2.

Defendants each filed pre-trial motions seeking, among other things, to dismiss the first twenty-two counts of the Superseding Indictment. McGeehan argued that the allegations in counts 1 through 9 were insufficient to state an honest services fraud offense because the Government did not allege that he profited illegally from his conduct, nor did the Government allege a violation of state law, which he claimed was "required as a limiting principle on [the] prosecution." McGeehan also contended that counts 10 through 22—the mail and wire fraud counts that named the Navy as the victim—were insufficient for an honest services fraud charge insofar as he owed no fiduciary duty to the Navy. Haluska's motion to dismiss echoed McGeehan's motion with respect to counts 10 through 22. With respect to counts 1 through 9, however, Haluska argued that honest services fraud is limited to situations in which a fiduciary fails to disclose a conflict of interest. Although she conceded that she had a fiduciary relationship with BFTC, she claimed that the Superseding Indictment did not reference a conflict of interest or allege that she had failed to disclose any such conflict. Defendants both argued that several of the counts in the Superseding Indictment were multiplicitous and sought their dismissal on that ground. Neither defendant moved to dismiss counts 23 through 29.

The District Court issued a memorandum opinion addressing defendants' motions to dismiss. The Court rejected the defendants' arguments regarding the scope of the mail and wire fraud statutes and denied their motions to dismiss insofar as they claimed that counts 1 through 22 failed to state an offense. It agreed, however, that counts 10 through 18 violated the rule against multiplicity. The District Court concluded that, although the Government had identified a different victim, the Government had impermissibly relied on the same mailings for counts 10 through 18 as it had for counts 1 through 9. The District Court subsequently afforded the Government the opportunity to choose which counts it wished to advance at trial. The Government selected counts 3, 5 through 11, 13, and 19 through 29.

Initially, both defendants pleaded not guilty, and the case proceeded to trial. During the course of the trial, however, Haluska entered an unconditional guilty plea. McGeehan proceeded to verdict and was convicted on counts 6, 8, 9, 10, 11, 13, and 19 through 29. The District Court sentenced both defendants to a 34-month term of imprisonment for each count, to be served concurrently, and imposed three years of supervised release. McGeehan and Haluska each filed timely notices of appeal.¹ Upon a motion by the Government, we consolidated their appeals.²

II.

The sufficiency of an indictment presents a question of law over which we have plenary review. United States v. Hodge, 211 F.3d 74, 76 (3d Cir.2000). In evaluating an indictment's sufficiency, we consider "1) whether the indictment `contains the elements of the offense intended to be charged and sufficiently apprises the defendant of what he must be prepared to meet,' and 2) enables the defendant to plead an acquittal or conviction in bar of future prosecutions for the same offense." Gov't of the V.I. v. Moolenaar, 133 F.3d 246, 248 (3d Cir.1998) (quoting Russell v. United States, 369 U.S. 749, 763-64, 82 S.Ct. 1038, 8 L.Ed.2d 240 (1962)). The sufficiency of an indictment may be challenged not only on the basis that it fails to charge the essential elements of the statutory offense, but also on the ground that "the specific facts alleged ... fall beyond the scope of the relevant criminal statute, as a matter of statutory interpretation." United States v. Panarella, 277 F.3d 678, 685 (3d Cir.2002). Here, defendants contend that the specific facts alleged in the Superseding Indictment do not constitute honest services fraud.

III.

The federal mail and wire fraud statutes criminalize the use of the mails or wires to execute a "scheme or artifice to defraud." Specifically, 18 U.S.C. §§ 1341 and 1343 provide in part:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises ... [uses the mails or wires, or causes their use] for the purpose of executing such scheme or artifice shall be fined under this title or imprisoned. ...

To establish a violation of these statutes, the Government must prove "(1) the defendant's knowing and willful participation in a scheme or artifice to defraud, (2) with the specific intent to defraud, and (3) the use of the mails or interstate wire communications in furtherance of the scheme." United States v. Antico, 275 F.3d 245, 261 (3d Cir.2001).

In McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), the Supreme Court...