People v. Wolf

• Decision Date: 07 May 2002
• Citation: 98 N.Y.2d 105,772 N.E.2d 1124,745 N.Y.S.2d 766
• Parties: THE PEOPLE OF THE STATE OF NEW YORK, Respondent, v. CYRUS WOLF, Appellant.
• Court: New York Court of Appeals Court of Appeals

98 N.Y.2d 105

772 N.E.2d 1124

745 N.Y.S.2d 766

THE PEOPLE OF THE STATE OF NEW YORK, Respondent, v. CYRUS WOLF, Appellant.

Court of Appeals of the State of New York.

Argued February 5, 2002.

Decided May 7, 2002.

Brafman & Ross, P.C., New York City (Mark M. Baker, Benjamin Brafman and Melinda Sarafa of counsel), for appellant.

Robert M. Morgenthau, District Attorney, New York City (Michael S. Morgan and Mark Dwyer of counsel), for respondent.

Chief Judge KAYE and Judges SMITH, CIPARICK, WESLEY, ROSENBLATT and GRAFFEO concur.

OPINION OF THE COURT

LEVINE, J.

In 1983 the Legislature created the felony crimes of first degree commercial bribing and commercial bribe receiving by adding an additional element to the definitions of the corresponding prior commercial bribery class A misdemeanors: that the bribe "causes economic harm to the employer or principal in an amount exceeding two hundred fifty dollars" (L 1983, ch 577, amending Penal Law §§ 180.03, 180.08). The primary issue on this appeal is the legal sufficiency of the evidence to establish that Aetna Life and Casualty Company, and Commercial Union Insurance Company, incurred the requisite economic harm as a result of defendant's bribery of their employees, as alleged in the two felony commercial bribing counts of the indictment. Resolving that issue requires us to determine the nature of the proof required to demonstrate economic harm under the circumstances of this case.

The underlying facts concerning defendant's conduct are not in dispute. Defendant, an attorney, paid kickbacks to insurance company adjusters through intermediaries out of his contingent fees, for expediting the settlement of his clients' personal injury claims. The courts below held that the payment of a kickback alone was sufficient to establish prima facie both the fact and the amount of the economic harm the insurance carrier/employer incurred in each of these cases. The Appellate Division based that conclusion on a simple syllogism and arithmetic calculation:

"[B]y accepting a specified settlement and then turning over a percentage of that settlement to the adjuster, defendant clearly evinced a willingness to settle the claim, at that point in time, for the amount of the settlement minus the amount of the bribe paid to the adjuster.

"Thus, a jury could find that each settlement was necessarily inflated by the amount of the bribe." (284 AD2d 102, 102 [2001].)

As will be explained, however, the felony commercial bribery legislation requires proof of concrete economic loss suffered by the bribe receiver's employer, which would not have been incurred in the absence of the corrupt arrangement. Proof that the employer of a bribe receiver paid an amount greater than it would have otherwise paid to consummate a transaction as a result of the bribe would establish the requisite economic harm. But not every kickback, though indicating the payor's "willingness to settle" for a lower amount, will demonstrate that the settlement would have been less costly had there been no venal agreement. To hold otherwise (as did the lower courts in this case)—that the kickback alone is equivalent to economic harm—would in effect eliminate the economic harm element the Legislature explicitly added to the statute for first degree felony commercial bribing.

I

The legislative history of the 1983 felony commercial bribery statute shows a purpose to require proof of an actual economic injury exceeding $250, suffered by the employer, that would not have occurred absent the bribery of its employee, in order to establish the new economic harm element. The primary purpose of the legislation was to deter through enhanced punishment the kind of commercial bribery that results in monetary or property loss that would be passed on to consumers in the form of higher prices (see Letter from Senator James Lack, Senate Sponsor, to Governor's Counsel, Bill Jacket, L 1983, ch 577, at 21; Attorney General's Legislative Program, id. at 17).

Initially, the requirement of economic loss that would not have been incurred but for the bribery was introduced into the proposed statutory scheme as an affirmative defense (see Attorney General's Legislative Program, id. at 16). During the Senate debate on the 1983 amendment, Senator Emanuel Gold asked Senator Lack whether the affirmative defense would be made out by proof that the employer would have paid the very same price in the transaction, irrespective of the bribing of its employee:

"Am I to understand that if there is a situation of commercial bribery, but it's a bribery between two competitive interests who may be at the same price and one interest decides that, in order to get the contract, [it] will make a commercial bribe, that since the employer may not suffer economically since it's between competing interests at the same price, that we are creating an affirmative defense?" (Senate debate transcript, at 9759-9760 [emphasis supplied].)

Senator Lack replied, "[i]f it did not cause economic harm, it is an affirmative defense in a commercial bribery situation" (id. at 9760). Ultimately, the affirmative defense was dropped in favor of making actual economic harm suffered as a result of the bribery an element of the offense to be established in the People's case.

It is thus quite clear that the "economic harm to the employer or principal" (Penal Law § 180.03) required for first degree commercial bribing cannot be established by proof of solely intangible, esoteric, or theoretical harms that would not result in additional costs increasing the price of goods or services to consumers. Therefore, the statute is not satisfied by such proof of harm as a breach of the duty of faithful service by the bribed employee; the loss of the employer's control over dispensing funds caused by the failure of the employee to share information concerning the payor's willingness to bribe; or the failure of the employee to turn over the bribe payments under a constructive trust or similar theory. No such "deprivations" would have resulted in losses to be passed on to customers.

II

We agree with both the defendant and the People that the kickback/bribery cases under the federal mail fraud statute (18 USC § 1341 et seq.), decided before a later amendment to that law, are analogous to our first degree commercial bribery cases, and instructive on the issue before us. Like the economic harm requirement for first degree commercial bribing, the mail fraud statute mandated proof of a "scheme * * * for obtaining money or property by means of false or fraudulent pretenses" (§ 1341 [emphasis supplied]). Contrary to the People's reading of the cases, however, the payment of a bribe or kickback was repeatedly held to be insufficient to satisfy the money or property loss element of mail fraud. Additional proof was required that the employer would have achieved a better deal with the payor of the bribe or kickback, in the form of lower prices or more favorable terms, had there been no corrupt arrangement with the employee.

The seminal mail fraud case involving kickbacks was McNally v United States (483 US 350 [1987]). In that case, the defendants controlled the granting of state insurance contracts. They awarded the state's workers' compensation insurance contract in return for a kickback from the successful broker's earned commissions. In McNally, the Court rejected the theory that the mere payment of a kickback showed that a deprivation of money or property was involved, holding instead that, under the mail fraud statute, "[t]here are no constructive offenses" (id. at 360 [internal quotations and citations omitted]). The state's loss of the intangible right to faithful service from the bribed official/employee was also found insufficient to satisfy the "money or property" element of section 1341 (id. at 356). The Court reversed the convictions because there was no proof or even a charge "that in the absence of the alleged scheme the Commonwealth would have paid a lower premium or secured better insurance" (id. at 360 [emphasis supplied]).¹

Following McNally, the Tenth Circuit sitting en banc in United States v Shelton (848 F2d 1485 [1988]) overturned the mail fraud convictions of defendants for "taking ten percent kickbacks from suppliers who sold goods to the[ir] counties [because] * * * the evidence at trial tended to show that the sales were made at a previously established low price and that the kickbacks were paid out of the suppliers' profits" (id. at 1491). Thus, there was a failure of proof that the scheme involved the taking of money or property—i.e., that "the counties lost money"—because of the kickbacks (id. [emphasis supplied]).

United States v Johns (742 F Supp 196 [ED Pa 1990]) is especially instructive. In Johns, the defendant was a procurement director for the "Acme" supermarket chain. Just like the People here, the government based its theory of property loss, in part, on the ground that the kickbacks from vendors that defendant received for channeling Acme's purchases of services and supplies both established and measured Acme's economic detriment caused by the corrupt arrangement. The court held, however, that the vendors' payment of kickbacks, despite suggesting their willingness to offer Acme reduced prices, was insufficient. As in McNally, the court required an additional showing that without the corrupt arrangement, Acme in fact would have achieved better terms with those vendors. "[T]he government must prove that Acme paid additional money to its vendors as a result of the kickback scheme" (id. at 215). That fact, however, was negated by the government's concession that "the prices charged by the vendors who made kickback payments * * * `were not inflated, in comparison to prices they were charging other accounts'" (id.) and that "Acme made its buyers aware that they were not permitted to violate the Robinson-Patman Act by inducing their vendors to sell to Acme at lower...