United States v. Joseph M. Margiotta

*139RALPH K. WINTER, Circuit Judge

(concurring in part and dissenting in part):

While I do not agree in every particular with the majority’s analysis of the conviction rendered under the Hobbs Act, I concur in the result. Margiotta was not the instrument of a party organization executing well understood patronage practices but instead exercised personal discretion in each case as to the recipients of kickbacks, including payments to himself. This, I believe, is sufficient to characterize the entire kickback scheme as extortionate.

I dissent, however, as to the mail fraud count. The majority’s use of mail fraud as a catch-all prohibition of political disingenuousness expands that legislation beyond any colorable claim of Congressional intent and creates a real danger of prosecutorial abuse for partisan political purposes.

I

It should be emphasized at the outset that, while a kickback scheme1 is relevant to Margiotta’s conviction for mail fraud, it is not essential. Nor is the government required to prove any loss whatsoever to taxpayers or a violation of New York law. Reduced to essentials, the majority holds that a mail fraud conviction will be upheld when a politically active person is found by a jury to have assumed a duty to disclose material facts to the general citizenry and deliberately failed to do so. .Margiotta’s conviction is based upon his failure as a partisan political leader with great influence to disclose to the citizens of the Town of Hempstead and Nassau County his knowledge that the Williams Agency would have been willing to act as Broker of Record for considerably smaller commissions than were actually paid. Because those citizens might have compelled the municipalities to reduce these costs had they been given this information, it is a material fact.

The kickback scheme is relevant to Margiotta’s conviction because it proves (i) that the Williams Agency would have been willing to procure insurance for commissions considerably smaller than those actually paid and (ii) that Margiotta knew it. Had Margiotta secured Williams’ appointment because of past political support knowing that the size of the commissions far exceeded the value of services to be performed, the fraud would have been as complete. Moreover, Judge Sifton charged, and the majority agrees, that the government need not prove that actual savings to taxpayers would have resulted from disclosure. Finally, although Margiotta is a local partisan political leader and the scheme involves municipal funds, no violation of state or local law2 is necessary to support the federal mail fraud conviction since a jury is free to find a federal duty to disclose material facts.

The majority pays lip service to construing the criminal law against the government but then gives the mail fraud statute a more sweeping interpretation than any court which has addressed the statute to date. Given that this statute has occa*140sioned a number of courts to comment apprehensively in the past about its steady expansion,3 that is no mean feat.

The indictment itself demonstrates the scope of the theory underlying Margiotta’s conviction. It charged him with defrauding the State, the Town of Hempstead and Nassau County and their citizens (i) “of the right to have [their] affairs ... conducted honestly, impartially, free from bribery, corruption, fraud, dishonesty, bias, and deceit” and (ii) “of the honest and faithful participation of [Margiotta] in [their] affairs.” Given this sweeping charge and the majority opinion, no amount of rhetoric seeking to limit the holding to the facts of this case can conceal that there is no end to the common political practices which may now be swept within the ambit of mail fraud. Since the doctrine adopted by the majority applies to candidates as well as those holding office, United States v. States, 488 F.2d 761 (8th Cir. 1978), cert. denied, 417 U.S. 909, 94 S.Ct. 2605, 41 L.Ed.2d 212 (1974), a candidate who mails a brochure containing a promise which the candidate knows cannot be carried out is surely committing an even more direct mail fraud than what Margiotta did here. An elected official who for political purposes performs an act imposing unnecessary costs on taxpayers is guilty of mail fraud if disclosure is not made to the public. A partisan political leader who throws decisive support behind a candidate known to the leader to be less qualified than his or her opponent because that candidate is more cooperative with the party organization, is guilty of mail fraud unless that motive is disclosed to the public. A partisan political leader who causes elected officials to fail to modernize government to retain jobs for the party faithful is guilty of mail fraud unless that fact is disclosed. In each of these cases the undisclosed fact is as “material” as the facts which Margiotta failed to disclose, the harm to the public is at least as substantial as the harm resulting from Margiotta’s scheme, and the dishonesty, partiality, bias and deceit in failing to disclose those facts is equally present. This is not to say that Margiotta’s conduct as a whole is not more odious than the conduct described in these hypotheticals. That is not the issue. The point is that the actions taken by Margiotta deemed relevant to mail fraud by the majority are present in each case: a relationship calling for disclosure, a material fact known to the candidate, official or party leader, and a failure to disclose it.

The majority is quite simply wrong in brushing aside the First Amendment issues.. The theory they adopt subjects politically active persons to criminal sanctions based solely upon what they say or do not say in their discussions of public affairs. The majority explicitly bottoms Margiotta’s mail fraud conviction on his failure to say something. Its logic would easily extend to the content of campaign literature. Indeed, it takes no great foresight to envision an indictment framed on the theory adopted by *141the majority and alleging mail fraud based on public speeches.

II

My brethren are not striking out on their own in pushing the mail fraud statute to limits far exceeding any Congressional intent.4 To the contrary, much of what they say has substantial and direct precedent. For example, the statutory proscriptions are not limited to common law fraud or deceit but extend to dishonest schemes generally. United States v. Barta, 635 F.2d 999, 1005-06 (2d Cir. 1980), cert. denied, 450 U.S. 998, 101 S.Ct. 1703, 68 L.Ed.2d 199 (1981). It also seems well established that dishonest actions by an employee which violate the employee’s fiduciary obligations to an employer can be a basis for a mail fraud conviction. United States v. George, 477 F.2d 508, 512-14 (7th Cir.), cert. denied, 414 U.S. 827, 94 S.Ct. 49, 38 L.Ed.2d 61 (1973). Moreover, loss or concrete harm need not be shown beyond the fact that the employer was deprived of information which might have affected his or her judgment. Barta, supra.

One can, with seeming logic, move from those propositions to the proposition that a person holding governmental employment is bound by the same standards. United States v. Bush, 522 F.2d 641, 646 — 49 (7th Cir. 1975), cert. denied, 424 U.S. 977, 96 S.Ct. 1484, 47 L.Ed.2d 748 (1976); United States v. Brown, 540 F.2d 364, 374 (8th Cir. 1976); United States v. Del Toro, 513 F.2d 656 (2d Cir.), cert. denied, 423 U.S. 826, 96 S.Ct. 41, 46 L.Ed.2d 42 (1975). From that it seems a small leap to apply these principles to those who hold elective as well as appointed office. United States v. Mandel, 591 F.2d 1347 (4th Cir. 1979), cert. denied, 445 U.S. 961, 100 S.Ct. 1647, 64 L.Ed.2d 236 *142(1980); United States v. Isaacs, 493 F.2d 1124 (7th Cir.), cert. denied, 417 U.S. 976, 94 S.Ct. 3183,41 L.Ed.2d 1146 (1974). We then arrive at a rule that elected officials have a duty to disclose material facts concerning their conduct of public affairs. Any official who fails to disclose such facts is guilty of mail fraud without regard to whether actual loss occurred or to whether local law was violated.

Much of what the majority says thus has direct precedential support. They add only one seemingly small element to these precedents: a jury may find that a politically active person has sufficient influence and power over the acts of elective officials to be subjected to the same duty as those officials so far as those acts are concerned. The failure of such a person to disclose material information to the public can thus constitute mail fraud.

However logical this growth of the law may seem, it leads to a result which is not only greater than, but is roughly the square of, the sum of the parts. The proposition that any person active in political affairs who fails to disclose a fact material to that participation to the public is guilty of mail fraud finds not the slightest basis in Congressional intent, statutory language or common canons of statutory interpretation. This wholly impermissible result is brought about, I believe, by drawing an erroneous analogy between fiduciary relationships involving private parties based on express or implied contract and relationships between politically active persons and the general citizenry in a pluralistic, partisan, political system.

Mr. Justice Frankfurter quite appropriately underlined the fact that

to say that a man is a fiduciary only begins an analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?

Securities and Exchange Commission v. Chenery Corp., 318 U.S. 80, 85-86, 63 S.Ct. 454, 458, 87 L.Ed. 626 (1943). The words fiduciary duty are no more than a legal conclusion and the legal obligations actually imposed under that label vary greatly from relationship to relationship. Nevertheless, because fiduciary relationships in the private sector have been the subject of centuries of common law development, there is a considerable body of law based on implied or express contract governing whether particular behavior is legal. Its most notable feature, however, is the degree to which fiduciary obligations vary from relationship to relationship. Partners, employees, trustees and corporate directors are all fiduciaries, yet their legal obligations may be wholly dissimilar. While an hourly employee usually may quit a job without fearing legal action even though he leaves at a time which makes it difficult for the employer to continue business, a trustee may not so easily abandon his beneficiaries. While a trustee’s actions are void or voidable if tainted by a conflict of interest, the corporate officer generally can act even if he is personally interested so long as the action is fair to the corporation.

To transfer this complex, variable body of law to the political context, simply by mouthing the word fiduciary, makes the very mistake underlined by Mr. Justice Frankfurter in Chenery. Although the courts have, with precious little analysis, brought virtually all participants in government and politics under the rubric fiduciary, the obligations imposed are wholly the creation of recent interpretations of the mail fraud statute itself. A reading of the cases in this area, however, shows how little definition there is to these newly created obligations which carry criminal sanctions. For all one can find in the case law, no distinction is made between the fiduciary obligations of a civil servant, political appointee, elected official, candidate or partisan political leader. Juries are simply left free to apply a legal standard which amounts to little more than the rhetoric of sixth grade civics classes. One searches in vain for even the vaguest contours of the legal obligations created beyond the obliga*143tion to conduct governmental affairs “honestly” or “impartially,” to ensure one’s “honest and faithful participation” in government and to obey “accepted standards of moral uprightness, fundamental honesty, fair play and right dealing.” Mandel, 591 F.2d at 1361. The present case is no exception. While there is talk of a line between legitimate patronage and mail fraud, there is no description of its location. With all due respect to the majority, the quest for legal standards is not furthered by reference to “the right to good government” and the duty “to act in a disinterested manner.”

Of course, we should all hope that public affairs are conducted honestly and on behalf of the entire citizenry. Nevertheless, we should recognize that a pluralistic political system assumes politically active persons will pursue power and self-interest. Participation in the political process is not limited to the pure of heart. Quite frankly, I shudder at the prospect of partisan political activists being indicted for failing to act “impartially” in influencing governmental acts.5 Where a statute, particularly a criminal statute, does not regulate specific behavior, enforcement of inchoate obligations should be by political rather than criminal sanctions. Where Congress has not passed legislation specifying particular acts by the politically active as criminal, our reliance rather should be on public debate, a free press and an alert electorate. In a pluralistic system organized on partisan lines, it is dangerous to require persons exercising political influence to make the kind of disclosure required in public offerings by the securities laws.

Ill

My concerns in this case thus extend far beyond a disagreement over statutory interpretation. The limitless expansion of the mail fraud statute subjects virtually every active participant in the political process to potential criminal investigation and prosecution. It may be a disagreeable fact but it is nevertheless a fact that political opponents nrot infrequently exchange charges of “corruption,” “bias,” “dishonesty,” or deviation from “accepted standards of ... fair play and right dealing.” Every such accusation is now potentially translatable into a federal indictment. I am not predicting the imminent arrival of the totalitarian night or the wholesale indictment of candidates, public officials and party leaders. To the contrary, what profoundly troubles me is the potential for abuse through selective prosecution and the degree of raw political power the freeswinging club of mail fraud affords federal prosecutors.

Margiotta’s crimes were carried out in the name of Nassau County Executive Ralph Caso. Without his authority, the mail fraud described here could not have been committed. Caso testified that he was controlled by Margiotta and did not know that the Williams Agency would have procured insurance for smaller commissions or that there was a kickback scheme involved. Even if he lacked that specific knowledge, however, surely he did not think that Margiotta’s interest in naming the Broker of Record stemmed from intellectual curiosity about the application of actuarial principles. And surely the fact Caso appointed the Williams Agency solely at the behest of Margiotta and without regard to cost of *144insurance was a material fact which should have been disclosed by Caso, the County Executive, to the citizens of Nassau County. Yet Caso was not indicted.

Even as to the partisan distribution of insurance commissions, the government concedes that Margiotta’s conduct, so far as relevant to mail fraud, was hardly unique; in fact, it was a statewide practice. For example, Margiotta’s Democratic Counterpart in Long Island diverted commissions to brokers recommended by him when he was in power. One presumes he made no public announcement that he was doing so even though the practice imposed unnecessary costs on taxpayers. And the government brief states, as to insurance purchased by the State, “New York State employees performed all the work that a broker of record would perform; when policies were awarded, a politically designated broker was named the broker for each particular policy and received the commission.” While the government seeks to distinguish this scheme by saying there was no sale of office — a point irrelevant to the theory of the mail fraud count6 — the New York State scheme was, if anything, more harmful so far as the taxpayers were concerned. In Nassau County, the Williams Agency did perform some services in return for the commissions. The state practice was to pay state employees to do the work and distribute the commissions to brokers who did nothing at all. Notwithstanding the statewide existence of what in the majority’s view was mail fraud, only Margiotta was indicted.

In arguing this case, the United States Attorney left no doubt that he prosecuted Margiotta for political corruption generally.7 The problem is that in stretching the mail fraud statute to fit this case; we create a crime which applies equally to persons who have not done the evil things Margiotta is said to have done, a catch-all political crime which has no use but misuse. After all, the only need served by resort to mail fraud in these cases is when a particular corruption, such as extortion, cannot be shown or Congress has not specifically regulated certain conduct. But that use creates a danger of corruption to the democratic system greater than anything Margiotta is alleged to have done. It not only creates a political crime where Congress has not acted but also lodges unbridled power in federal prosecutors to prosecute political activists. When the first corrupt prosecutor prosecutes a political enemy for mail fraud, the rhetoric of the majority about good government will ring hollow indeed.

. My use of “kickback scheme” includes what has been referred to as a “sale of office.” While that phrase serves as useful window dressing for the majority, it is not clear whether they are referring to the post of Broker of Record or Republican County Chairman. Judge Sifton ruled that the former is not a public officer under New York law, while the latter seems a fortiori a private position. It does not matter, however, since the crux of the majority’s theory is non-disclosure of a material fact, i.e., the excessive nature of the insurance commissions. Whether these offices are either “public” or “sold” is irrelevant under that theory.

. The majority cites no New York authority establishing the duties they impose on political activists or public officials. They argue that Margiotta’s ability to influence official action renders him subject to the same obligations under state law as are borne by the official having de jure power to take such action. Even assuming that state law would treat Margiotta as a public officer — an assumption not supported by New York authority — there is nothing to indicate that such officers have legal obligations under state law such as those imposed on Margiotta by the majority. The majority’s assertions to the contrary are thus sheer ipse dixit. Since New York law is, as the majority itself notes, irrelevant to a federal mail fraud conviction, I fail to understand why they take such pains to make a patently inadequate argument.

. See, e.g., United States v. Rabbitt, 583 F.2d 1014, 1024 (8th Cir. 1978) (“Every case of breach of public trust and misfeasance in office in connection with which some mailing has occurred does not and cannot fall within the confines of the mail fraud statute.”), cert. denied, 439 U.S. 1116, 99 S.Ct. 1022, 59 L.Ed.2d 75 (1979); United States v. Louderman, 576 F.2d 1383, 1388 (9th Cir.) (“[T]he [mail fraud] statute should be carefully and strictly construed to avoid extension beyond the limits intended by Congress.”), cert. denied, 439 U.S. 896, 99 S.Ct. 257, 58 L.Ed.2d 243 (1978); United States v. McNeive, 536 F.2d 1245, 1252 (8th Cir. 1976) (Government attempt to prosecute “tipping” or payment of gratuities to official of a city agency “would effect a further extension of § 1341 so as to cover all actions which might offend the Government’s sense of personal propriety. ... The Government here is attempting to criminalize cupidity and we do not believe § 1341 can be extended to that extreme without a showing of additional facts which clearly bring the conduct within § 1341. Section 1341 is a penal statute with limitations as to its scope, which limitations were grossly exceeded in the present case.”); United States v. Edwards, 458 F.2d 875, 880 (5th Cir.) (“A narrow, careful construction is especially appropriate where, as here, the [mail fraud] statute threatens to reach criminal conduct in the field of domestic relations which the state can, and should, effectively and appropriately control.”), cert. denied, 409 U.S. 891, 93 S.Ct. 118, 34 L.Ed.2d 148 (1972); United States v. Kelem, 416 F.2d 346, 347 (9th Cir. 1969), cert. denied, 397 U.S. 952, 90 S.Ct. 977, 25 L.Ed.2d 134 (1970).

. The legislative history of the mail fraud statute gives no indication that the statute was ever intended by Congress as an all-purpose weapon against political corruption. The current statute, 18 U.S.C. § 1341, had its origin in Section 301 of the Act of June 8, 1872, Ch. 335, § 301, 17 Stat. 323, and was part of a broad recodification of the postal laws and aimed at “prevent[ing] the frauds which are perpetrated by lottery swindlers through the mails,” Report of the Postal Committee, March 30, 1870, 19-20. Congressman Farnsworth, sponsor of the legislation, stated that the mail fraud provisions were needed “to prevent the frauds which are mostly gotten up in the large cities ... by thieves, forgers, and rapscallions generally, for the purposes of deceiving and fleecing the innocent people in the country,” Cong.Globe, 41st Cong., 3d Sess. 35 (1870) (remarks of Rep. Farnsworth). In 1889, Congress amended the mail fraud statute by adding specific prohibitions against a type of “counterfeit money fraud” called the “sawdust swindle” which dealt in “green articles,” “green coin,” “bilis,” “paper goods,” “spurious Treasury notes,” “United States goods,” or “green cigars.” Act of March 2, 1889, Ch. 393, § 1, 25 Stat. 873; see S.Rep.No.2566, 50th Cong., 2d Sess. 2-4 (1889). In 1909, in the course of a general revision of the penal code, the phrase “or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises,” was added to the statute as a clarification of the original phrase “any scheme or artifice to defraud.” Act of March 4, 1909, Ch. 321, § 215, 35 Stat. 1130; see 42 Cong.Rec. 1026 (1908) (remarks of Sen. Heyburn). In 1948, the statute was modified to delete “the obsolete argot of the underworld" added in 1889 and other language considered “surplus-age,” “without change of meaning” in the provision. H.R.Rep. No. 304, 80th Cong., 1st Sess. A100 (1948); Act of June 25, 1948, Ch. 645, § 1341, 62 Stat. 763. In 1949 the term “dispose of” was substituted for “dispose or,” Act of May 24, 1949, Ch. 139, § 34, 63 Stat. 89, and in 1970 “Postal Service” was substituted for “Post Office Department,” Postal Reorganization Act, Pub.L.No. 91-375, § 6(j)(ll), 84 Stat. 719 (1970). None of these changes indicates any intent to fashion a statute with limitless parameters. Indeed, the addition of the “underworld argot” in 1889 arguably indicates that the original intent of the statute was not broad enough to cover even that most obvious of private frauds. Moreover, the addition to the statute of the phrase “false or fraudulent pretenses, representations, or promises” appears aimed at common law rulings which held false promises insufficient to gain a conviction for fraud. Indeed, it appears that Congress, in so modifying the legislation, was simply codifying the Supreme Court decision in Durland v. United States, 161 U.S. 306, 16 S.Ct. 508, 40 L.Ed. 709 (1896), which had previously rejected the common law rule. None of these changes indicates that the Congress considered mail fraud to be an appropriate statute for prosecuting political corruption and deception. Even if there were not a canon of construction calling upon us to avoid broad construction of criminal statutes, the recent extension of mail fraud by judicial fiat would be unwarranted.

. Among the truths assumed by the founders was that self-interest would be a major generating force in democratic politics. The concern over “faction” motivated by “passion .. . adverse ... to the interests of the community” appears again and again in The Federalist Papers. The Federalist No. 10, at 54 (J. Madison) (Modern Lib. ed. 1937); see also, e.g., id. No. 9 (A. Hamilton); id. No. 14, at 79-80 (J. Madison); id. No. 37, at 225, 228, 232 (J. Madison). The founders suffered under no illusion that only “enlightened statesmen” would hold the reins of power. Id. No. 10, at 57 (J. Madison). They sought safety in checks and balances and a separation of powers which would prevent the assertion of too much power in a single hand. See id. No. 47 (J. Madison); id. No. 48 (J. Madison); id. No. 49 (J. Madison or A. Hamilton); id. No. 50 (J. Madison or A. Hamilton); id. No. 51 (J. Madison or A. Hamilton). The majority decision vests federal prosecutors with largely unchecked power to harass political opponents. It may be that we should expect only “enlightened statesmen” to hold such office, but, with Madison, I would prefer not to take such a risk.

. See note 1, supra.

. During oral argument, there were comparisons to “Leonid Brezhnev” and “systems that are alien to our country,” statements such as “in Mineóla, not Moscow,” and a reference to “a former District Attorney who was supposed to be enforcing the law gets convicted, he’s paid off $2,000 a month to make sure that the skeletons stay in the closet.”