United States v. Panarella Jr. ( 2002 )

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
1-11-2002
USA v. Panarella Jr.
Precedential or Non-Precedential:
Docket 01-1739
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2002
Recommended Citation
"USA v. Panarella Jr." (2002). 2002 Decisions. Paper 14.
http://digitalcommons.law.villanova.edu/thirdcircuit_2002/14
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2002 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
Filed January 11, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-1739
UNITED STATES OF AMERICA
v.
NICHOLAS PANARELLA, JR., Appellant
On Appeal From the United States District Court
For the Eastern District of Pennsylvania
(D.C. Crim. No. 00-cr-00655)
District Judge: Honorable Marvin Katz
Argued: July 31, 2001
Before: BECKER, Chief Judge, AMBRO, and
WEIS, Circuit Judges.
(Filed January 11, 2002)
RICHARD L. SCHEFF, ESQUIRE
(ARGUED)
JILL BAISINGER, ESQUIRE
Montgomery, McCracken, Walker
& Rhoads, LLP
123 South Broad Street
Philadelphia, PA 19109
Counsel for Appellant
PATRICK L. MEEHAN, ESQUIRE
United States Attorney
ROBERT A. ZAUZMER, ESQUIRE
Assistant United States Attorney
Chief of Appeals
CATHERINE L. VOTAW, ESQUIRE
GREGORY A. PAW, ESQUIRE
(ARGUED)
Assistant United States Attorneys
615 Chestnut Street, Suite 1250
Philadelphia, PA 19106
Counsel for Appellee
OPINION OF THE COURT
BECKER, Chief Judge.
Defendant Nicholas Panarella, Jr. appeals from a
judgment of the District Court convicting him of being an
accessory after the fact to a wire fraud scheme by F. Joseph
Loeper, Jr., then a Pennsylvania State Senator, to deprive
the public of his "honest services" as a legislator. See 18
U.S.C. SS 3, 1343 & 1346. Panarella contends that the
superseding information to which he unconditionally
pleaded guilty failed to charge an offense, and alternatively,
that his guilty plea lacked an adequate factual basis under
Federal Rule of Criminal Procedure 11(f). Panarella does not
dispute that the facts alleged in the superseding
information are sufficient to charge him with being an
accessory after the fact to Loeper's scheme to deprive the
public of his "honest services" if, under the applicable law,
such a scheme existed. Instead, Panarella contends that
the facts alleged in the superseding information do not
establish that Loeper committed "honest services" wire
fraud in violation of 18 U.S.C. SS 1343 & 1346, and that
Panarella therefore cannot be charged as an accessory.
Section 1343 provides, in relevant part, that
[w]hoever, having devised . . . any scheme . .. to
defraud, . . . transmits . . . by means of wire . . . in
2
interstate or foreign commerce, any writings, signs,
signals, pictures, or sounds for the purpose of
executing such scheme or artifice, shall be fined under
this title or imprisoned not more than five years, or
both.
Section 1346 elaborates on the meaning of "scheme to
defraud," stating that "[f]or the purposes of this chapter,
the term ``scheme or artifice to defraud' includes a scheme
or artifice to deprive another of the intangible right of
honest services." We will refer to this type of fraud as
"honest services fraud."
Panarella argues that because the superseding
information does not allege that Panarella's payments to
Loeper were bribes, or that Loeper's actions as Senator
were improperly influenced by the payments he received
from Panarella, Loeper did not deprive the public of his
honest services. According to Panarella, in the absence of
such allegations, the mere fact that Loeper failed to disclose
his income from Panarella's business while speaking and
voting against proposed legislation that would have
significantly harmed Panarella's business does not amount
to honest services fraud. The government responds that to
establish that Loeper engaged in honest services wire fraud,
it is not necessary to show that his actions as Senator were
influenced by his financial relationship with Panarella, but
only that Loeper unlawfully concealed a financial interest
while taking discretionary action that directly benefitted
that interest.
As a threshold matter, the parties dispute whether
Panarella's challenge to the sufficiency of the superseding
information is waived by his unconditional guilty plea.
Panarella relies on our decisions in United States v.
Cefaratti, 221 F.3d 502, 507 (3d Cir. 2000), and United
States v. Spinner, 180 F.3d 514, 516 (3d Cir. 1999), and
Federal Rule of Criminal Procedure 12(b)(2), which provides
that "objections . . . that [the indictment or information]
fails . . . to charge an offense . . . shall be noticed by the
court at any time during the pendency of the proceedings."
Maintaining that the fact that the charging language in the
superseding information tracks the language of the relevant
criminal statute is sufficient to conclude that it charges an
3
offense, the government attempts to distinguish challenges
that an indictment or information fails to allege a necessary
element of an offense, which the government concedes
survive a guilty plea, from challenges that the specific facts
alleged in an indictment or information are beyond the
reach of the relevant criminal statute, which is what it
submits is at issue in this case. Disagreeing with the
government's position, we hold that Rule 12(b)(2) and our
cases applying this Rule permit a defendant who enters an
unconditional guilty plea to argue on appeal that the
specific facts alleged in the charging document do not
amount to a criminal offense.
Turning to the merits, we reject Panarella's claim that,
because the superseding information contains no allegation
that Panarella's payments to Loeper improperly influenced
Loeper's actions as State Senator, the specific facts alleged
in the superseding information fail to establish that Loeper
deprived the public of his honest services. Rather, we hold
that where a public official conceals a financial interest in
violation of state criminal law and takes discretionary
action in his official capacity that the official knows will
directly benefit the concealed interest, the official has
deprived the public of his honest services, regardless
whether the concealed financial interest improperly
influenced the official's actions. Moreover, because
Panarella's challenge to his guilty plea under Rule 11(f)
rests on the same legal theory as his challenge to the
sufficiency of the superseding information -- namely, that
there was an inadequate factual basis for concluding that
Loeper's official conduct was improperly influenced by his
income from Panarella -- we reject his Rule 11(f) challenge.
Accordingly, we will affirm the judgment of the District
Court.
I.
For purposes of determining the sufficiency of the
superseding information, we assume the truth of the
following facts alleged in the superseding information.
Panarella operated a tax collection business that entered
into contracts with various state and local government
bodies to collect taxes owed to them under state and local
4
tax laws. In particular, Panarella's business received
significant revenue from enforcement of Pennsylvania's
"business privilege tax." Panarella developed special
expertise and secured marketing advantages in enforcing
the business privilege tax against non-resident businesses
operating in the taxing jurisdiction but not having a
physical place of business within the jurisdiction. His tax
collection business depended largely on his ability to
produce revenue for local governments by collecting
Pennsylvania's business privilege tax from non-resident
business. Beginning in 1993, he engaged Senator Loeper as
a business consultant. Between 1993 and 1997, Panarella
paid Loeper more than $330,000 for his consulting
services.
Beginning in 1994, while Majority Leader of the
Pennsylvania Senate, Loeper supported Panarella's
business development efforts by appearing with him before
local governments in Pennsylvania and attending meetings
with him and the Secretaries of two Pennsylvania state
agencies, the Department of Revenue and the Pennsylvania
Higher Education Assistance Authority, in an attempt to
obtain state collection contracts for Panarella. Moreover, in
1994 and 1995, Loeper spoke and voted against proposed
legislation that would have restricted the enforcement of
the business privilege tax against non-resident businesses
and significantly harmed Panarella's business. These
restrictions were eventually defeated.
While he was a Senator, Loeper failed to disclose his
income from Panarella as required by 65 Pa. C.S.A.
SS 1104(a) & 1105, filing false Statements of Financial
Interest with the Pennsylvania Ethics Commission for the
calendar years 1993 through 1997. To conceal his financial
relationship with Loeper, Panarella directed third parties to
make payments to Loeper on Panarella's behalf, although
the government does not specifically allege that Panarella
reimbursed these third parties. Then, in August of 1997,
Loeper lied to a reporter about the sources of his income,
and Loeper and Panarella asked a third party who paid
Loeper on Panarella's behalf to lie to the reporter about the
nature of the payments. In addition, Panarella edited the
third party's response to a letter from the reporter inquiring
into the basis for the third party's payments to Loeper.
5
A grand jury returned an indictment charging Panarella
with seven counts of aiding and abetting mail fraud and
wire fraud in violation of 18 U.S.C. SS 2, 1341, 1343 &
1346. Panarella moved to dismiss the indictment for failure
to state a federal crime, but the District Court denied the
motion. Represented by experienced counsel, Panarella
subsequently signed a plea agreement in which he agreed
to plead guilty to a superseding information charging him
with one count of being an accessory after the fact to a wire
fraud scheme to deprive the public of Loeper's honest
services. The superseding information alleged that Loeper
had engaged in an honest services wire fraud scheme in
violation of 18 U.S.C. SS 1343 & 1346 and charged
Panarella with being an accessory after the fact in violation
of 18 U.S.C. S 3. Eschewing the benefit of Rule 11(a)(2),
which permits the entry of a conditional plea of guilty
under which the point reserved can be raised on appeal,
Panarella entered an unconditional plea of guilty to the
superseding information and was sentenced to six months
imprisonment, one year of supervised release, and a fine of
$20,000. As noted above, Panarella now challenges the
sufficiency of the superseding information, and also the
trial judge's determination under Rule 11(f) of the Federal
Rules of Criminal Procedure that a sufficient factual basis
existed to accept the guilty plea.
II.
Before reaching the merits of Panarella's claim that the
facts alleged in the superseding information do not amount
to honest services wire fraud, we must first decide whether
Panarella's appeal is foreclosed by his unconditional guilty
plea.
A.
Panarella submits that a challenge to the sufficiency of a
charging document may be raised at any time, including on
appeal after an unconditional guilty plea. He first invokes
the rubric "jurisdictional," arguing that a"jurisdictional
defense" survives an unconditional guilty plea, jurisdiction
being a matter that can be raised at any time. He also relies
6
on the text of Federal Rule of Criminal Procedure 12(b)(2),
which provides that an objection that "the indictment or
information fails . . . to charge an offense . . . shall be
noticed by the court at any time during the pendency of the
proceedings." In Panarella's submission, the plain text of
Federal Rule of Criminal Procedure 12(b)(2), together with
our cases applying this rule, require us to reach the merits
of his argument notwithstanding his unconditional guilty
plea. The government counters that because Panarella did
not enter, pursuant to Federal Rule of Criminal Procedure
11(a)(2), a conditional guilty plea reserving his right to
challenge the sufficiency of the superseding information on
appeal, he is precluded from now raising the issue. Because
we hold that Rule 12(b)(2) requires us to entertain this
appeal notwithstanding Panarella's unconditional guilty
plea, we need not reach Panarella's alternative
"jurisdictional" argument for why this appeal survives his
guilty plea.1
We have squarely held that Rule 12(b)(2) applies equally
to both objections raised before a District Court and
objections raised for the first time before a Court of
Appeals. See Gov. of the Virgin Islands v. Pemberton, 813
F.2d 626, 631 (3d Cir. 1987) ("This court has interpreted
Fed. R. Crim. P. 12(b)(2) to mean that an objection to an
information on the ground that it fails to charge an offense
may be raised for the first time on appeal."); United States
_________________________________________________________________
1. Apart from Rule 12(b)(2), the source of law on which Panarella's
"jurisdictional" argument rests remains murky; it is unclear to us
whether the argument relies on the Fifth Amendment's Grand Jury
Clause, putative statutory or Article III limits on federal courts'
subject
matter jurisdiction, or some rule of federal common law. Indeed, we are
unsure whether use of the term "jurisdictional" to refer to challenges to
the sufficiency of an indictment is anything more than simply a label
used to announce the conclusion that a particular defense survives a
guilty plea. See Peter Westen, Away from Waiver: A Rationale for the
Forfeiture of Constitutional Rights in Criminal Procedure, 75 Mich. L.
Rev.
1214, 1232 n.36 (1977) ("[O]nce we have explained why a certain
category of defenses survives a plea of guilty, we may find it useful to
describe the category as ``jurisdictional' defenses. But calling a defense
``jurisdictional' is a conclusion, not an explanation: it does nothing to
explain why the defense should be deemed to survive a guilty plea."
(internal citation omitted)).
7
v. Wander, 601 F.2d 1251, 1259 (3d Cir. 1979); United
States v. Manuszak, 234 F.2d 421, 422 (3d Cir. 1956). See
generally Fed. R. Crim. P. 1 ("These rules govern the
procedure in all criminal proceedings in the courts of the
United States, as provided in Rule 54(a) . . . ."); Fed R.
Crim. P. 54(a) ("These rules apply to all criminal
proceedings . . . in the United States Courts of Appeals
. . . ."). We have also held that Rule 12(b)(2) applies even
after a defendant has entered an unconditional guilty plea.
See United States v. Cefaratti, 221 F.3d 502, 507 (3d Cir.
2000); United States v. Spinner, 180 F.3d 514, 516 (3d Cir.
1999).2
The government submits, however, that Rule 12(b)(2)
does not apply in this case, because the superseding
information does not "fail[ ] . . . to charge an offense." The
government argues that, in interpreting Rule 12(b)(2), we
should construe the phrase "fails . . . to charge an offense"
narrowly, to cover only those cases where the charging
instrument completely neglects to mention, even in general
_________________________________________________________________
2. Both Cefaratti and Spinner permitted a defendant who had pleaded
guilty to challenge the sufficiency of the charging document for the first
time on appeal. While the positive law that Cefaratti and Spinner relied
on is somewhat unclear, we read Spinner and Cefaratti as resting, at
least in part, on Rule 12(b)(2). Cefaratti, in entertaining the
defendant's
challenge, did not cite Rule 12(b)(2), but rather, cited only Spinner. See
Cefaratti, 221 F.3d at 507 ("Although [defendant] did not raise this
argument before the District Court, we will consider it in light of our
prior holding that a defendant may challenge an indictment for failure to
charge an offense for the first time on appeal."). Spinner, in turn,
suggested that the rule that an unconditional guilty plea does not
preclude an objection that an indictment fails to charge an offense has
a constitutional basis. See Spinner, 180 F.3d at 515 ("The inclusion of
all
elements . . . derives from the Fifth Amendment, which requires that the
grand jury have considered and found all elements to be present.")
(quoting United States v. Hooker, 841 F.2d 1225, 1230 (4th Cir. 1988)
(en banc)). In addition to suggesting a constitutional basis for its
holding,
however, Spinner also cited Rule 12(b)(2) as support for its statement
that "[f]ailure of an indictment sufficiently to state an offense is a
fundamental defect . . . and it can be raised at any time." 180 F.3d at
516. Moreover, the cases Spinner cited themselves squarely rested on
Rule 12(b)(2). See United States v. Wander, 601 F.2d 1251, 1259 (3d Cir.
1979); United States v. Manuszak, 234 F.2d 421, 422 (3d Cir. 1956).
8
terms, an element of the offense. Thus, the government
attempts to distinguish our decisions in Spinner and
Cefaratti on the grounds that defendants in those cases
argued on appeal that the charging instrument failed even
to mention an essential element of the offense charged.
In Spinner, the statutory provision under which the
defendant was convicted specifically required that"the
offense affect[ ] interstate or foreign commerce." 18 U.S.C.
S 1029(a). The indictment in Spinner, however, failed to
mention interstate commerce. Spinner, 180 F.3d at 515.
Similarly, in Cefaratti, the defendant, who was charged with
engaging in monetary transactions in property derived from
specified unlawful activity in violation of 18 U.S.C. S 1957,
argued that the information failed to allege an essential
element of the offense -- that the criminally derived
property was "proceeds obtained from a criminal offense,"
as required by 18 U.S.C. S 1957(f)(2). See Cefaratti, 221
F.3d at 507. Thus, in both Spinner and Cefaratti, the
defendants pointed to specific statutory language that was
an essential element of the crime charged and claimed that
the charging instrument was deficient because it failed to
allege that element.
The superseding information in this case charges that:
On or about September 8, 1997, in the Eastern District
of Pennsylvania, defendant Nicholas Panarella, Jr.,
knowing that an offense against the United States had
been committed, namely, wire fraud in violation of Title
18, United States Code, Sections 1343 and 1346,
knowingly and willfully assisted F. Joseph Loeper, Jr.
in order to hinder and prevent Loeper's apprehension,
trial and punishment by editing the response from S.R.
to the reporter so as to continue to conceal the
financial relationship between Panarella and Loeper, in
violation of Loeper's duty to provide honest services.
Unlike in Spinner and Cefaratti, Panarella does not point to
any specific statutory language that the charging
instrument omitted. Indeed, the superseding information in
this case tracks the language of the relevant statutory
provisions nearly word for word. Rather, Panarella's claim
is that the specific facts alleged in the superseding
9
information do not, as a matter of law, satisfy the elements
of honest services wire fraud that the superseding
information alleges.
More particularly, unlike the defendants' challenges in
Spinner and Cefaratti, Panarella's challenge asks this Court
to decide a question of statutory interpretation-- whether
the federal wire fraud and honest services fraud statutes
apply to the particular facts alleged in the superseding
information. In Cefaratti, the defendant argued that the
relevant criminal offense, as a matter of statutory
interpretation, did not subsume the specific facts alleged.
The court considered this argument not in the context of
the indictment's sufficiency but in the context of
defendant's challenge under Rule 11(f) that his guilty plea
lacked a sufficient factual basis. See Cefaratti , 221 F.3d at
509-11. We thus believe the government's argument offers
a plausible ground for distinguishing Spinner and Cefaratti
and for reading narrowly the language "fails . . . to charge
an offense" in Rule 12(b)(2).
This interpretation of Rule 12(b)(2), however, is foreclosed
by our decision in Government of the Virgin Islands v.
Greenidge, 600 F.2d 437 (3d Cir. 1979). In Greenidge, the
criminal statute under which the defendant was charged
provided that "[w]hoever . . . with intent to commit rape . . .
assaults another . . . shall be imprisoned not more than 15
years." 14 V.I. Code Ann. S 295(3) (1964). The information
in Greenidge tracked this statutory language, alleging that
"On or about the 11th day of February, 1978, in the Virgin
Islands of the United States, . . . Rafael Greenidge. . . did,
with the intent to commit rape, assault one Joseph
Lekarzyk, in violation of Title 14 V.I.C., S 295(3)."
Greenidge, 600 F.2d at 438. We nonetheless sustained
Greenidge's argument, raised for the first time on appeal,
that the information failed to charge an offense, holding
that S 295(3) reaches only those cases in which the person
assaulted is the same as the person whom the defendant
intended to rape. Id. at 438-40. Since on the specific facts
alleged in the information the person Greenidge assaulted
was different from the person he attempted to rape, we
found that the information failed to charge an offense. Id.Citing Rule 12(b)(2), we held that this objection to the
10
charging document may be raised for the first time on
appeal. Id. at 439 n.2.
Greenidge is thus like this case, for the charging
document tracked the relevant statutory language nearly
word for word. And in both this case and Greenidge, the
defendant argued that as a matter of statutory
interpretation, the specific facts alleged in the charging
document fall outside the reach of the relevant criminal
statute. See Greenidge, 600 F.2d at 439 ("Greenidge
contends that the Information . . . reflect[s] an improper
interpretation of the statute."). Panarella argues that
because the superseding information fails to allege that
Panarella's payments to Loeper improperly influenced
Loeper's actions as State Senator (and Majority Leader), the
facts alleged in the superseding information fail to
constitute the offense of honest services wire fraud. If, as
the Court held in Greenidge, an indictment whose charging
language tracks the relevant criminal statute nonetheless
"fails . . . to charge an offense," for purposes of Rule
12(b)(2), when the specific facts alleged fall beyond the
reach of the statute, Panarella's argument that the specific
facts alleged in the superseding information do not amount
to honest services wire fraud must also be an argument
that the information "fails . . . to charge an offense."
To be sure, the defendant in Greenidge never pleaded
guilty, but was tried and convicted. Nonetheless,
Greenidge's interpretation of the phrase "fails . . . to charge
an offense" in Rule 12(b)(2) is binding on us in this case,
since Rule 12(b)(2) does not distinguish on its face between
defendants who have pleaded guilty and those who have
not. As long as Rule 12(b)(2) applies notwithstanding an
unconditional guilty plea (and we held in Spinner and
Cefaratti that it does), then we must construe it
consistently both in cases where the defendant has pleaded
guilty and in cases where the defendant has not.
We are thus constrained to reject the government's
contention that an indictment or information charges an
offense, for purposes of Rule 12(b)(2), as long as it recites
in general terms the essential elements of the offense, even
if the specific facts alleged in the charging instrument fail
to satisfy those elements. Instead, we hold that, for
11
purposes of Rule 12(b)(2), a charging document fails to
state an offense if the specific facts alleged in the charging
document fall beyond the scope of the relevant criminal
statute, as a matter of statutory interpretation. Therefore,
notwithstanding Panarella's unconditional guilty plea, Rule
12(b)(2) permits Panarella to argue for the first time on
appeal that the specific facts alleged in the superseding
information do not amount to honest services wire fraud.
In reaching the merits of Panarella's argument
notwithstanding his unconditional guilty plea, we join the
Fifth, Ninth, and Eleventh Circuits, which have held that
an objection that the relevant criminal statute does not
reach the specific facts alleged in the charging document
shall be noticed for the first time on appeal, even after
defendant has pleaded guilty. See United States v. Tomeny,
144 F.3d 749, 751 (11th Cir. 1998) (permitting defendants
who pleaded guilty to argue on appeal that the indictment
failed to charge an offense because the general federal
criminal false statement provision under which defendants
were convicted, 18 U.S.C. S 1001, was "preempted" by the
criminal false statement provision of the Magnuson-Stevens
Fishery Conservation and Management Act, 16 U.S.C.
S 1857(1)(I)); United States v. Osiemi, 980 F.2d 344, 345
(5th Cir. 1993) (permitting a defendant who pleaded guilty
to possession of a counterfeit passport in violation of 18
U.S.C. S 1546(a) to argue on appeal that S 1546(a) does not
apply to possession of a counterfeit passport issued by a
foreign government and that the indictment therefore fails
to state an offense); United States v. Caperell , 938 F.2d 975,
977-78 (9th Cir. 1991) (holding that a defendant who
pleaded guilty to charges related to the manufacture,
distribution, and possession of a controlled substance may
challenge the sufficiency of the indictment on the ground
that the particular substance involved in the case--
methamphetamine -- had been approved by the FDA for
use in non-prescription drugs and therefore was not a
controlled substance); see also United States v. DiFonzo,
603 F.2d 1260, 1263 (7th Cir. 1979) (holding that a guilty
plea does not preclude a defendant from arguing that"the
indictment contradicts itself, and, more importantly, that
the preliminary factual allegations of the indictment negate
one of the elements of the offense charged").
12
We note that the Fourth Circuit reached a different
conclusion in United States v. Borden, 10 F.3d 1058 (4th
Cir. 1993), which held that as long as a charging document
recites in general terms all the elements of the relevant
offense, a defendant who pleads guilty is barred from
arguing on appeal that the specific facts alleged fail to
establish a predicate offense. See id. at 1063. Borden,
however, contains no citation of Rule 12(b)(2), and therefore
failed to reconcile its holding with Rule 12(b)(2)'s
instruction that an objection that an indictment or
information fails to charge an offense shall be noticed at
any time during the pendency of the proceedings.
B.
Although for the reasons set forth above, our
jurisprudence requires us to take up Panarella's
contentions on the merits, in the interest of law reform, we
explicate our belief that a rule permitting a defendant who
enters an unconditional plea of guilty to challenge his
conviction on the ground that the specific facts alleged in
the charging instrument fail to constitute an offense has a
number of harmful consequences. First, this rule reduces
criminal defendants' incentives to raise defenses in a timely
fashion in district court. Commentators have noted that the
rule permitting defendants to challenge an indictment's
failure to charge an offense at any time has led to strategic
decisions by defendants to delay raising the defense. See 4
Wayne R. LaFave et al., Criminal ProcedureS 19.1(d), at 741
n.50 (2d ed. 1999) ("The facts of various cases indicate that
the practice of sandbagging, by deliberately postponing the
objection, continues as to these defects, particularly the
failure to charge an offense.").
Allowing appeals such as this also undermines judicial
economy and finality in criminal adjudication. Defendants
convicted after pleading guilty have little to lose by arguing,
either on direct or collateral review, that the statute under
which they were convicted does not reach the conduct
alleged in the charging instrument. Requiring a defendant
to raise this defense before pleading guilty respects the
proper relationship between trial and appellate courts and
prevents the waste of judicial resources caused when a
13
defendant deliberately delays raising a defense that, if
successful, requires reversal of the defendant's conviction
and possibly reindictment.
Finally, by reaching the merits of Panarella's appeal, we
interfere with the ability of defendants (within the Third
Circuit) to waive their right to challenge the sufficiency of
the charging document in exchange for concessions from
the prosecution, thereby making it more difficult for
defendants and prosecutors to enter plea agreements that
benefit both the parties and society as a whole. 3 To
illustrate, consider, for example, a defendant whose defense
is that, as a matter of law, the relevant criminal statute
should be interpreted in a way that would not reach the
particular conduct that the defendant engaged in. Such a
defense might present a close call as a legal matter, and
after consultation with counsel, a defendant might decide
that he would prefer to plead guilty in exchange for
prosecutorial concessions rather than run the risk that his
legal argument will be rejected by the court and that he will
_________________________________________________________________
3. The Supreme Court recognized this point as early as Brady v. United
States, 397 U.S. 742 (1970), where it observed that plea agreements
benefit both prosecutors and defendants and play a fundamental role in
our criminal justice system:
For a defendant who sees slight possibility of acquittal, the
advantages of pleading guilty and limiting the probable penalty are
obvious -- his exposure is reduced, the correctional processes can
begin immediately, and the practical burdens of a trial are
eliminated. For the State there are also advantages-- the more
promptly imposed punishment after an admission of guilt may more
effectively attain the objectives of punishment; and with the
avoidance of trial, scarce judicial and prosecutorial resources are
conserved for those cases in which there is a substantial issue of
the defendant's guilt or in which there is substantial doubt that
the
State can sustain its burden of proof. It is this mutuality of
advantage that perhaps explains the fact that at present well over
three-fourths of the criminal convictions in this country rest on
pleas of guilty . . . .
Id. at 752 (footnotes omitted); see also Mabry v. Johnson, 467 U.S. 504,
508 (1984) ("[B]ecause each side may obtain advantages when a guilty
plea is exchanged for sentencing concessions, the agreement is no less
voluntary than any other bargained-for exchange." (footnote omitted)).
14
therefore be exposed to a greater sentence than he would
have been had he pled guilty. However, at least in some
cases, a prosecutor may be unwilling to allow the defendant
to plead guilty to a lesser offense unless the defendant
enters an enforceable agreement to forgo a subsequent
challenge to the sufficiency of the specific facts alleged in
the charging document.
Put differently, our holding potentially transforms every
guilty plea into a conditional guilty plea with respect to the
defense that the charging document fails to state an
offense. Prosecutors may simply decline to enter plea
bargains agreeing to conditional guilty pleas (at oral
argument the Prosecutor represented that that is what
happened in this case) or at least may not offer the
defendant as good a "deal" for a conditional guilty plea. If
a defendant may raise a particular defense on appeal
notwithstanding an unconditional guilty plea, then there is
no reason why a prosecutor would offer a concession in
exchange for the defendant surrendering that defense. By
reaching the merits of Panarella's claim, we thus establish
a precedent that impedes the ability of a criminal defendant
to enter an enforceable plea agreement whereby he
surrenders the defense that, as a matter of statutory
interpretation, the facts alleged in the charging document
do not amount to a criminal offense, even when the
defendant believes that surrendering such a defense is in
his best interests. Cf. United States v. Mezzanatto, 513 U.S.
196, 208 (1995) ("A sounder way to encourage settlement is
to permit the interested parties to enter into knowing and
voluntary negotiations without any arbitrary limits on their
bargaining chips.").4
_________________________________________________________________
4. We have noted that the law governing enforceability of commercial
contracts provides guidance in resolving questions arising from plea
agreements. See United States v. Baird, 218 F.3d 221, 229 (3d Cir. 2000)
("Although a cooperative plea agreement is not altogether the same as a
commercial arrangement, civil contract law is nevertheless an important
and useful aid in interpretation."); United States v. Nolan-Cooper, 155
F.3d 221, 236 (3d Cir. 1998) ("Plea agreements, although arising in a
criminal context, are analyzed under contract law standards."); see also
Robert E. Scott & William J. Stuntz, Plea Bargaining as Contract, 101
Yale L.J. 1909, 1910 (1992) ("Properly understood, classical contract
15
It is highly doubtful that in this case, Panarella's trial
counsel, Edward S.G. Dennis, Jr., who was an experienced
_________________________________________________________________
theory supports the freedom to bargain over criminal punishment."). For
the same reasons that voluntary commercial agreements generally make
both parties to the agreement better off ex ante, counseled, voluntary
plea agreements generally inure to the mutual benefit of both the
prosecution and the defense. As Professors Scott and Stuntz have
argued, a presumption that plea agreements are enforceable expands the
range of choices available to criminal defendants:
[P]lea bargains deserve a presumption of enforceability . . . .
Parties
who are denied either freedom to contract or freedom to exchange
entitlements suffer unnecessary constraints on their choices . . .
.
[V]oluntary exchange offers people more choices than they would
otherwise enjoy and, other things being equal, more choice is
better
than less.
Scott & Stuntz, supra, at 1913, 1918. A rule that a guilty plea forecloses
a defendant's right to contest the legal sufficiency of the specific facts
alleged in an indictment preserves the range of choice available to
defendants, since a defendant could choose either to: (1) plead guilty and
thereby waive any legal challenges that the relevant criminal statute
does not reach defendant's conduct (and get a better deal); or (2) enter
a conditional guilty plea preserving the right to appeal the sufficiency
of
the particular facts alleged in the indictment, see Fed. R. Crim. P.
11(a)(2) (providing for conditional guilty pleas).
To be sure, scholars have long criticized the plea bargaining process
on a variety of grounds, many of which question whether a plea
agreement presumptively makes both parties better off in the same way
that a commercial contract does. See, e.g., Albert W. Alschuler, The
Changing Plea Bargaining Debate, 69 Cal. L. Rev. 652 (1981). Defects
such as imperfect information, agency costs, and bilateral monopoly
infect the negotiation of guilty pleas, and because criminal convictions
are public goods, the parties to a plea agreement may fail to internalize
the costs that the agreement imposes on society. See generally Stephen
J. Schulhofer, Plea Bargaining as Disaster, 101 Yale L.J. 1979 (1992).
While these objections are forceful, they are objections to the entire
process of plea bargaining generally, and as such have largely been
rejected not only by the common experience of a generation of judges,
prosecutors, and defense lawyers, state and federal, but also by the
caselaw holding that counseled, voluntary plea bargains are
presumptively constitutional. See, e.g., Brady v. United States, 397 U.S.
742 (1970); McMann v. Richardson, 397 U.S. 759 (1970); Parker v. North
Carolina, 397 U.S. 790 (1970); see generally Scott & Stuntz, supra, at
16
criminal defense lawyer as well as the former United States
Attorney for the Eastern District of Pennsylvania and
Assistant Attorney General of the United States in charge of
the Criminal Division, overlooked the particular legal
argument that Panarella makes on appeal. It is more likely
that Panarella, through counsel, deliberately chose to waive
this objection to the sufficiency of the information. For this
reason, this appeal is particularly troubling.
But it is at least conceivable that Mr. Dennis overlooked
the defense that Panarella here raises. If so, leaving aside
the possibility that Panarella may claim ineffective
assistance of counsel in a habeas proceeding under 28
U.S.C. S 2241, Panarella's guilty plea was not a deliberate
waiver of his argument that the superseding information
fails to charge an offense. Indeed, as Panarella points out,
the plea agreement contains no explicit waiver of
Panarella's right to appeal his conviction on these
particular grounds.5 Nonetheless, a guilty plea is presumed
to forfeit those defenses not explicitly reserved by entering
a conditional guilty plea. "[W]hen the defendant . . . admits
his guilt . . . he assumes the risk of ordinary error in either
his or his attorney's assessment of the law and the facts."
McMann v. Richardson, 397 U.S. 759, 774 (1970). To
_________________________________________________________________
1910 ("The many academic arguments for abolishing (or at least severely
restricting) plea bargaining have thus been largely ignored."). There is
no
reason for concluding that a defendant's waiver of his challenge to the
factual sufficiency of an indictment is any more susceptible to defects in
the plea bargaining process than those waivers that courts have
consistently upheld, see, e.g., Tollett v. Henderson, 411 U.S. 258 (1973)
(holding that a guilty plea precludes defendant's challenge to the
exclusion of African-Americans from the grand jury); Gioiosa v. United
States, 684 F.2d 176, 180 (1st Cir. 1982) (holding that a guilty plea
precludes objections to an unlawful search and seizure).
5. In the written plea agreement, Panarella did waive his right to appeal,
but the waiver spoke only to Panarella's right to challenge a sentence
falling within the limits agreed to by the parties. We have held that a
right of appeal may be waived but that the terms of the waiver must be
strictly construed. United States v. Khattak, No. 00-4169, 2001 U.S. App.
LEXIS 26121 (3d Cir. Dec. 6, 2001). Hence, the plea agreement in this
case did not explicitly waive Panarella's right to appeal his conviction
on
the ground that the superseding information failed to charge an offense.
17
require a defendant to enumerate explicitly in a plea
agreement each particular defense that the defendant is
surrendering would be impractical and would unnecessarily
increase the complexity of plea agreements.
The result that we are forced to reach is particularly
unwise in view of Rule 11(a)(2), which permits a defendant
to enter a conditional guilty plea explicitly reserving the
right to raise certain defenses on appeal. By requiring us to
entertain Panarella's appeal notwithstanding his
unconditional guilty plea, Rule 12(b)(2) renders a
conditional guilty plea under Rule 11(a)(2) pointless in
cases such as this, and undermines the rule.
For the foregoing reasons, we urge the Judicial
Conference Advisory Committee on Criminal Rules to
consider amending Rule 12(b)(2) to prevent what has
happened here, particularly in view of its amendments to
Rule 11 allowing for conditional guilty pleas.6
III.
Turning to the merits of Panarella's defense, we must
determine whether, on the facts alleged in the superseding
information, Panarella is guilty under 18 U.S.C.S 3 of being
an accessory after the fact to a wire fraud scheme to
deprive the public of Loeper's honest services, in violation
of 18 U.S.C. SS 1343, 1346. Panarella appears to concede
that, on the facts alleged in the superseding information, if
Loeper is guilty of committing honest services wire fraud in
violation of SS 1343 and 1346, then he is guilty of being an
accessory after the fact under 18 U.S.C. S 3. Thus, although
Loeper is not a defendant in this case, the critical question
is whether the facts alleged in the superseding information
establish that Loeper committed honest services wire fraud.
The federal wire fraud statute provides, in relevant part:
_________________________________________________________________
6. To be sure, there may be constitutional objections to precluding a
defendant who enters an unconditional guilty plea from challenging his
conviction on the grounds that the specific facts alleged in the charging
document are beyond the reach of the relevant criminal statute, and in
revisiting Rule 12(b)(2) the Committee ought to consider such issues.
18
Whoever, having devised . . . any scheme . . . to
defraud, . . . transmits . . . by means of wire . . . in
interstate or foreign commerce, any writings, signs,
signals, pictures, or sounds for the purpose of
executing such scheme or artifice, shall be fined under
this title or imprisoned not more than five years, or
both.
18 U.S.C. S 1343. Section 1346 of Title 18 elaborates on the
meaning of "scheme to defraud," stating that"[f]or the
purposes of this chapter, the term ``scheme or artifice to
defraud' includes a scheme or artifice to deprive another of
the intangible right of honest services." Congress enacted
S 1346 in response to the Supreme Court's decision in
McNally v. United States, 483 U.S. 350 (1987), which
overturned a long line of lower court decisions and held
that the mail and wire fraud statutes did not reach
schemes to defraud citizens of their intangible right to a
public official's honest services, but rather were"limited in
scope to the protection of property rights." Id. at 360. In
interpreting S 1346, we therefore look to both post-McNally
cases interpreting S 1346 and pre-McNally cases
interpreting S 1341 and S 1343 for guidance. See United
States v. Antico, No. 00-1446, 2001 U.S. App. LEXIS 25318,
at *41 n.16 (3d Cir. Nov. 28, 2001) ("[C]ommentary and
judicial reflection indicate that [S 1346] was enacted to
overturn McNally and restore the evolution of mail and wire
fraud to its pre-McNally status."); United States v. Lopez-
Lukis, 102 F.3d 1164, 1169 (11th Cir. 1997) ("[W]e consider
pre-McNally cases as persuasive authority in evaluating the
scope of honest services.").
"Honest services fraud typically occurs in two scenarios:
(1) bribery, where a legislator was paid for a particular
decision or action; or (2) failure to disclose a conflict of
interest resulting in personal gain." United States v. Antico,
No. 00-1446, 2001 U.S. App. LEXIS 25318, at *45 (3d Cir.
Nov. 28, 2001); see also United States v. Woodward, 149
F.3d 46, 54-55 (1st Cir. 1998). Because the superseding
information does not allege that Panarella bribed Loeper,
the question presented by this appeal is under what
circumstances nondisclosure of a conflict of interest rises to
the level of honest services fraud.
19
The government argues that because the superseding
information alleges that Loeper unlawfully concealed a
financial interest while taking discretionary action that
directly benefitted that interest, the information sufficiently
alleges that Loeper committed honest services wire fraud.
The superseding information alleges that from 1993
through 1997 Loeper filed false Statements of Financial
Interest in violation of 65 Pa. C.S.A. SS 1104(a) & 1105,
failing to report more than $300,000 in income that he
received from Panarella for the consulting services that he
provided to Panarella's tax collection business. The
superseding information further alleges that during this
time Loeper, while serving as Senate Majority Leader, spoke
and voted against proposed legislation that would have
significantly harmed Panarella's business by restricting the
enforcement of the business privilege tax.7
_________________________________________________________________
7. As a threshold matter, Panarella contends that in construing the
superseding information, we should consider only the facts alleged in the
charging paragraph, which reads:
On or about September 8, 1997, in the Eastern District of
Pennsylvania defendant Nicholas Panarella, Jr., knowing that an
offense against the United States had been committed, namely, wire
fraud in violation of Title 18, United States Code, Sections 1343
and
1346, knowingly and willfully assisted F. Joseph Loeper, Jr. in
order
to hinder and prevent Loeper's apprehension, trial and punishment
by editing the response from S.R. to the reporter so as to continue
to conceal the financial relationship between Panarella and Loeper,
in violation of Loeper's duty to provide honest services.
On the basis of this language, Panarella submits that the entire scheme
to defraud alleged in the superseding information is limited to his
efforts
to conceal his financial relationship with Loeper from a reporter. We
believe, however, that the allegation that Panarella edited S.R.'s
response
to the reporter defines only Panarella's participation as an accessory
after the fact, and that the actual scheme to defraud the public of
Loeper's honest services, to which Panarella was an accessory after the
fact, is defined by the detailed factual allegations set forth in the body
of
the superseding information.
More particularly, although the charging paragraph refers to the
"conceal[ment] [of] the financial relationship between Panarella and
Loeper, in violation of Loeper's duty to provide honest services," we do
not read this language as limiting the alleged violation of Loeper's duty
20
Panarella submits that these allegations alone are
insufficient to establish that Loeper committed honest
services wire fraud, since, as the government concedes,
there is no allegation that Loeper sold his vote to Panarella
or that Loeper's financial relationship with Panarella
influenced Loeper's decision to speak and vote against the
proposed legislation. We must decide, then, whether
allegations that Loeper unlawfully concealed his income
received from Panarella while taking discretionary action
that Loeper knew would directly benefit Panarella amounts
to a scheme to deprive the public of his honest services, or
whether an additional allegation that Loeper's discretionary
action was influenced by Panarella's payments is necessary.
For the reasons that follow, we hold that where a public
official takes discretionary action that the official knows will
directly benefit a financial interest that the official has
concealed in violation of a state criminal law, that official
has deprived the public of his honest services under 18
U.S.C. S 1346.
to provide honest services to concealment alone. Rather, we interpret
this phrase as incorporating by reference the other facts specifically
alleged in the body of the superseding information, such as the fact that
Loeper took discretionary action as Pennsylvania Senate Majority Leader
that directly benefitted Panarella and that Loeper filed false Statements
of Financial Interest with the Pennsylvania Ethics Commission. To be
sure, the superseding information does not explicitly allege that these
facts constituted the scheme to defraud the public of Loeper's honest
services, and a court should "not strain to interpret a defective
indictment to be in conformity with [the mail or wire fraud statute]."
United States v. Olatunji, 872 F.2d 1161, 1166 (3d Cir. 1989).
Nonetheless, we do not believe that it is a stretch to read the
superseding information as alleging that the detailed facts recited in the
body of the superseding information as a whole amounted to honest
services fraud. Moreover, because Panarella challenges the sufficiency of
the superseding information for the first time on appeal, we must
construe the information liberally. See United States v. Cefaratti, 221
F.3d 502, 507 (3d Cir. 2000) ("[W]hen a challenge is urged for the first
time on appeal we will construe the indictment liberally in favor of
validity.").
21
A.
In urging us to reverse his conviction, Panarella relies
heavily on the Seventh Circuit's decision in United States v.
Bloom, 149 F.3d 649 (7th Cir. 1998), which reversed the
honest services fraud conviction of a Chicago alderman who
in his private capacity as a lawyer advised a client to use
a proxy bidder at a tax scavenger sale at which the client's
property was being auctioned, thereby depriving the city of
tax revenues. We believe that Bloom is distinguishable on
its facts, because the alleged scheme to defraud in Bloom
did not involve anything that the defendant did in his
official capacity. The only wrongdoing in Bloom was advice
given by the defendant in his private capacity as a lawyer.
See Bloom, 149 F.3d at 655 (noting that the indictment
"does not charge that [defendant] used his office in any
way, let alone that he misused it"). In contrast, in this case,
Loeper took discretionary action in his official capacity that
directly benefitted an unlawfully concealed financial
interest.
Although Bloom is distinguishable, Panarella asks us to
adopt the specific limiting principle espoused by Bloom,
which held that "[a]n employee deprives his employer of his
honest services only if he misuses his position (or the
information he obtained from it) for personal gain." Id. at
656-57. We see several problems with Bloom's definition of
honest services fraud as limited to misuse of office for
personal gain.
First, we believe that the notion of misuse of office for
personal gain adds little clarity to the scope ofS 1346.
Panarella contends that because there is no allegation in
the superseding information that Loeper sold his vote, there
was no misuse of office for personal gain. The government
responds that Loeper misused his office for personal gain
because he concealed a financial interest while taking
discretionary action directly benefitting that interest. This
dispute between the government and Panarella as to
whether, on the facts alleged in the superseding
information, Loeper misused his office for personal gain
illustrates the difficulty in applying the standard"misuse of
office for personal gain" and suggests that this standard,
rather than clarifying the meaning of "scheme or artifice to
22
deprive another of the intangible right of honest services,"
18 U.S.C. S 1346, adds an extra layer of unnecessary
complexity to the inquiry.
In addition to its lack of clarity, "misuse of office for
personal gain" risks being both over-inclusive and under-
inclusive as a limiting principle. To the extent that, as
Panarella argues, misuse of office for personal gain does not
cover a public official's nondisclosure of a conflict of
interest, it is too narrow, since, as discussed below,
nondisclosure of a conflict of interest in a fiduciary setting
falls squarely within the traditional definition of fraud, and
poses a similar threat to the integrity of the electoral
system as that posed by misuse of office for personal gain.
See Section III.C. Conversely, to the extent that "misuse of
office for personal gain" would envelop anyone from an
elected official who uses his position of power to seduce a
young intern to a Senator who takes home pencils from the
office supply cabinet for personal use, the standard is too
broad. And to the extent that it is unclear whether the
standard would cover the public officials in the examples
above and in the case before us, it is too vague to cure
whatever ambiguity exists in the meaning of honest services
fraud.
Although the Bloom court stated that "[n]o case we can
find in the long history of intangible rights prosecutions
holds that a breach of fiduciary duty, without misuse of
one's position for private gain, is an intangible rights
fraud," id. at 656, such cases do exist, even in the Seventh
Circuit. See, e.g., United States v. Bush, 522 F.2d 641 (7th
Cir. 1975); see also United States v. Espy, 989 F. Supp. 17(D.D.C. 1997), rev'd in part on other grounds , 145 F.3d
1369 (D.C. Cir. 1998). In Bush, the Seventh Circuit
squarely held that the defendant's concealment of a conflict
of interest amounted to honest services fraud, even though
"[t]here is no concrete evidence of extortion, bribery,
kickbacks, or a violation of any criminal law other than the
mail fraud statute." Bush, 522 F.2d at 646 (footnote
omitted). Although the Bloom panel asserted that "the
indictment[ ] in . . . Bush . . . alleged that the defendant[ ]
converted to private use information that [he] possessed by
virtue of [his] public position[ ]," 149 F.3d at 655, we can
23
find no mention of this fact in the Bush opinion, and
therefore cannot agree with the Bloom court that conversion
of information to private use was the basis for the holding
in Bush.
Rather than substituting one ambiguous standard for
another in holding that an official deprives the public of his
honest services only if he misuses office for personal gain,
we believe that state law offers a better limiting principle for
purposes of determining when an official's failure to
disclose a conflict of interest amounts to honest services
fraud. Cf. United States v. Brumley, 116 F.3d 728, 734-35
(5th Cir. 1997) (en banc) (using state law to define the
contours of honest services fraud). Although we need not
decide whether a violation of state law is always necessary
for nondisclosure to amount to honest services fraud, we
note that the clarity of Pennsylvania's disclosure statute
criminalizing a public official's nondisclosure of his sources
of income addresses rule of lenity concerns, see infra
Section III.D, more effectively than does "misuse of office for
personal gain." Moreover, the existence of a violation of
state law in this case mitigates the federalism concerns that
arise from federal prosecutions of local public officials, see
infra Section III.B, in a way that "misuse of office for
personal gain" does not.
Bloom considered the use of state law as a limiting
principle, since the advice that the defendant in Bloom gave
his client -- to use a proxy bidder at a tax scavenger sale
at which the client's property was being sold -- counseled
the client to engage in unlawful conduct. Ultimately,
however, the Bloom court rejected the use of state law as a
limiting principle:
One way to cope with this problem [of the breadth of
honest services fraud] would be to limit prosecutions to
cases in which a defendant's acts not only violated a
fiduciary duty but also transgressed some other rule of
law. . . . As a limiting principle, this has two
shortcomings. First, Bloom did not violate 35 ILCS
200/21-265(a)(1); only [Bloom's client] and the straw
purchaser did so. Second, and more important, this
line of argument has nothing to do with Bloom's status
as an alderman. If advising a client to violate a state
24
law in order to avoid paying taxes is a scheme to
defraud the governmental body that should have
received those taxes . . . , then every member of the bar
would be as culpable as Bloom.
Bloom, 149 F.3d at 654. We find this reasoning
unpersuasive as a basis for rejecting use of state law as a
limiting principle.
The fact that Bloom did not violate the relevant state law
is in itself no reason to reject state law as a limiting
principle -- it simply shows that if state law is adopted as
a limiting principle, then Bloom did not commit honest
services fraud. Similarly, the fact that the state law "ha[d]
nothing to do with Bloom's status as an alderman" is not a
reason for rejecting as a limiting principle state law that
does relate to a defendant's status as a public official.
Under either the limiting principle adopted in Bloom, which
requires misuse of office for personal gain, or the limiting
principle that requires a violation of some state criminal
law regulating public officials, Bloom's conviction would
have been reversed. In our view, the Bloom court thus failed
to explain why misuse of office for personal gain provides a
sounder limiting principle than state law.
B.
We are mindful that the prosecution of state public
officials for honest services fraud raises federalism concerns
about the appropriateness of the federal government's
interference with the operation of state and local
governments. See McNally v. United States, 483 U.S. 350,
360 (1987) (refusing to "construe the [federal mail fraud]
statute in a manner that leaves its outer boundaries
ambiguous and involves the Federal Government in setting
standards of disclosure and good government for local and
state officials"). In our view, use of state law as a limiting
principle defining the scope of honest services fraud in
close cases better addresses these federalism concerns than
does the limiting principle of misuse of office for personal
gain, which Panarella urges upon us.
In this case, the intrusion into state autonomy is
significantly muted, since the conduct that amounts to
25
honest services fraud is conduct that the state itself has
chosen to criminalize. See United States v. Antico, No. 00-
1446, 2001 U.S. App. LEXIS 25318, at *43 n.18 (3d Cir.
Nov. 28, 2001) ("[W]e need not reconcile the principles of
federalism with S 1346 in this case because[defendant]
owed a duty to the citizens of Philadelphia under state and
local law."). See generally George D. Brown, Should
Federalism Shield Corruption? -- Mail Fraud, State Law and
Post-Lopez Analysis, 82 Corn. L. Rev. 225, 282-99 (1997).
To be sure, the violation of Pennsylvania's disclosure
statute is only a misdemeanor, see 65 Pa. C.S.A. S 1109(b),
whereas violation of the federal mail fraud statute may
result in up to five years imprisonment, see 18 U.S.C.
S 1343. This disparity in punishment, however, may occur
whenever federal criminal law defines predicate offenses by
reference to state law. See, e.g., 16 U.S.C.SS 3372(a)(2) &
3373(d) (making it a federal criminal offense to transport,
sell, or purchase fish or wildlife obtained in violation of
state law); 18 U.S.C. S 1955 (making it a federal criminal
offense to conduct a gambling operation in violation of state
law).
Indeed, it is a truism that a healthy federalism involves
some interposition of state and federal governments into
each other's respective spheres of sovereignty. See Testa v.
Katt, 330 U.S. 386 (1947) (requiring state courts of general
jurisdiction to entertain claims predicated on federal law
where Congress has conferred concurrent jurisdiction); Erie
R.R. Co. v. Tompkins, 304 U.S. 64 (1938) (requiring federal
courts sitting in diversity jurisdiction to apply and enforce
state law); The Federalist No. 51, at 351 (James Madison)
(Jacob E. Cooke ed., 1961) ("The different governments will
controul each other; at the same time that each will be
controuled by itself.").
In particular, federal prosecution of state and local public
officials can play a beneficial role where state prosecutors
are reluctant to bring charges against political allies or
superiors. See United States v. Schermerhorn, 713 F. Supp.
88, 92 n.4 (S.D.N.Y. 1989) ("[O]ur own experiences in this
court have taught us that numerous illegal kickback,
election, and like schemes involving state and local officials
are, for whatever reasons, often not prosecuted by state law
26
enforcers. It is empirically clear to us, therefore, that in the
absence of federal intervention many of these political
crimes would go unpunished, and perhaps worse,
unnoticed or undiscovered."); Adam H. Kurland, The
Guarantee Clause as a Basis for Federal Prosecutions of
State and Local Officials, 62 S. Cal. L. Rev. 367, 377 (1989)
("For a variety of reasons, not all of them venal or corrupt,
local prosecutors have generally been unable to prosecute
local corruption consistently and effectively.").
C.
Rather than limiting honest services fraud to misuse of
office for personal gain, we hold that a public official who
conceals a financial interest in violation of state criminal
law while taking discretionary action that the official knows
will directly benefit that interest commits honest services
fraud. See United States v. Woodward, 149 F.3d 46, 62 (1st
Cir. 1998) ("A public official has an affirmative duty to
disclose material information to the public employer. When
an official fails to disclose a personal interest in a matter
over which she has decision-making power, the public is
deprived of its right either to disinterested decision making
itself or, as the case may be, to full disclosure as to the
official's motivation behind an official act." (quoting United
States v. Sawyer, 85 F.3d 713, 724 (1st Cir. 1996))); United
States v. Mandel, 591 F.2d 1347, 1363 (4th Cir. 1979),
aff 'd 602 F.2d 653 (4th Cir. 1979) (en banc) ("Provided the
requisite intent is shown, the official's failure to disclose the
existence of a direct interest in a matter that he is passing
on defrauds the public and pertinent public bodies of their
intangible right to honest, loyal, faithful and disinterested
government."); United States v. Keane, 522 F.2d 534, 546
(7th Cir. 1975) ("It is clear to us that one who breaches the
public trust by actively concealing a personal financial
interest from the public and from a public body charged
with the responsibility of passing judgment on matters
directly affecting that financial interest, and on which he
serves and in which he participates in the formulation of
collective judgment of that body, pursuant to his official
duties, may be prosecuted for mail fraud."); see also United
States v. Silvano, 812 F.2d 754, 759 (1st Cir. 1987) ("[A]n
27
employee's breach of a fiduciary duty falls within the
strictures of the statute when it encompasses the breach of
a duty to disclose material information to the employer.").
We acknowledge that in most cases upholding honest
services fraud convictions based on concealment of a
conflict of interest there was also an allegation of bribery or
that the concealed conflict of interest improperly influenced
the defendant's performance of his official duties. At least
in some cases, however, courts have convicted solely on the
basis of the defendant's intentional breach of a duty to
disclose, without any allegation or evidence of bribery or
other misuse of office. See United States v. Bush, 522 F.2d
641, 646 (7th Cir. 1975) (upholding an honest services
conviction even though "[t]here is no concrete evidence of
extortion, bribery, [or] kickbacks"); United States v. Espy,
989 F. Supp. 17, 25 (D.D.C. 1997), rev'd in part on other
grounds, 145 F.3d 1369 (D.C. Cir. 1998) ("The law in this
Circuit does not require allegations that a quid pro quo or
selling of office is necessary for the indictment to support
charges for honest services fraud."). Moreover, even where
evidence of misuse of office in addition to mere
nondisclosure exists, courts have explicitly disclaimed any
reliance on such evidence in affirming defendants'
convictions. See, e.g., United States v. Bronston, 658 F.2d
920, 926 (2d Cir. 1981) ("[T]he concealment by a fiduciary
of material information which he is under a duty to disclose
to another under circumstances where the non-disclosure
could or does result in harm to the other is a violation of
the statute. . . . [P]roof that the fiduciary relationship was
used or manipulated in some way is unnecessary.").
We believe that our holding -- that a public official
commits honest services fraud if he takes discretionary
action that he knows directly benefits a financial interest
that the official concealed in violation of state criminal law
-- has a sound basis in both doctrine and policy. As a
doctrinal matter, a public official's nondisclosure of a
financial interest while taking discretionary action that the
official knows will directly benefit that interest falls
squarely within the classical definition of fraud."Fraud in
its elementary common law sense of deceit . . . includes the
deliberate concealment of material information in a setting
28
of fiduciary obligation." United States v. Holzer, 816 F.2d
304, 307 (7th Cir. 1987), vacated and remanded for
consideration in light of McNally, 484 U.S. 807 (1987); see
also United States v. Dial, 757 F.2d 163, 168 (7th Cir.
1985) ("Fraud in the common law sense of deceit is
committed by deliberately misleading another by words, by
acts, or, in some instances -- notably where there is a
fiduciary relationship, which creates a duty to disclose all
material facts -- by silence."). As explained below, the facts
alleged in the superseding information in this case
sufficiently establish that: (1) Loeper had a duty, both
under state common law and state criminal law, to disclose
material information to the public; (2) Loeper deliberately
concealed his income received from Panarella; and (3) this
information was material. We thus find that Loeper's
conduct falls squarely within the definition of fraud, in its
classical sense.
Both at common law and under Pennsylvania criminal
law, Loeper had a duty to disclose to the public material
information. "A public official is a fiduciary toward the
public, . . . and if he deliberately conceals material
information from them he is guilty of fraud." Holzer, 816
F.2d at 307; see also United States v. deVegter , 198 F.3d
1324, 1328 (11th Cir. 1999) ("Public officials inherently owe
a fiduciary duty to the public . . . ."); United States v.
Sawyer, 85 F.3d 713, 733 n.17 (1st Cir. 1996) ("[T]he
obligation to disclose material information inheres in the
legislator's general fiduciary duty to the public."). This
common law duty to disclose is codified by Pennsylvania
statute, which requires public officials to file annual
Statements of Financial Interest and criminalizes
intentional misrepresentations in these statements. See 65
Pa. C.S.A. SS 1104(a), 1105 & 1109(b).
By lying about his income, Loeper breached this duty to
disclose. The information that Loeper allegedly concealed in
this case -- his financial relationship with Panarella -- was
material because at the time Loeper misrepresented the
information, he was taking discretionary action that directly
benefitted Panarella's business. Cf. Holzer, 816 F.2d at 307("The standard of materiality is an objective one; it does not
reach every piece of information that a particular litigant
29
might like to have about a judge. A judge need not disclose
information that would not make a reasonable person think
him incapable of presiding impartially in the case."). In this
case, however, Loeper, as a Pennsylvania Senator and in
the powerful position of Senate Majority Leader, both spoke
and voted against proposed legislation that would have
directly harmed Panarella's business. The information that
Loeper concealed was therefore material, since knowledge of
Loeper's income from Panarella would have been relevant
both to Loeper's colleagues in assessing Loeper's comments
when deciding how to vote on the bill, and to the electorate
in assessing whether Loeper placed his financial self-
interest above the public interest. Moreover, on the facts
alleged in the superseding information, Loeper clearly knew
that his discretionary action would directly benefit
Panarella's business, given Loeper's familiarity with both
the nature of the proposed legislation and the nature of
Panarella's business.
We thus conclude that because Loeper deliberately
concealed a financial interest in violation of Pennsylvania
criminal law, while taking discretionary action that he knew
directly benefitted that interest, his conduct constituted a
scheme to deprive the public of his honest services for
purposes of S 1346.
As a matter of policy, we believe this result is justified by
the central role of disclosure in a well-functioning
representative democracy. Critical to the health of the
electoral process is the voters' ability to judge whether their
representatives are acting to further their own financial
self-interest instead of the public interest. As noted in the
margin, the requirement under Pennsylvania law that
elected representatives disclose their sources of income
serves a purpose analogous to that served by federal laws
requiring candidates for federal office to disclose the source
of their campaign contributions.8
_________________________________________________________________
8. In discussing these disclosure requirements, the Supreme Court has
observed:
[D]isclosure provides the electorate with information as to where
political campaign money comes from and how it is spent by the
30
The criminal penalties that Pennsylvania law attaches to
a public official's concealment of a financial interest affirm
the crucial role of disclosure in the electoral process. See
65 Pa. C.S.A. S 1101.1(a) ("[P]eople have a right to be
assured that the financial interests [of public officials] do
not conflict with the public trust. Because public
confidence in government can best be sustained by
assuring the people of the impartiality and honesty of
public officials, this chapter shall be liberally construed to
promote complete financial disclosure as specified in this
chapter.").
Were it easy to detect and prosecute public officials for
bribery, the need for public officials to disclose conflicts of
interest would be greatly reduced. As long as a public
official does not act on a conflict of interest, the conflict of
interest by itself poses little threat to the public. One
reason why federal and state law mandates disclosure of
conflicts of interest, however, is that it is often difficult or
impossible to know for sure whether a public official has
acted on a conflict of interest. Cf. Holzer, 816 F.2d at 308("How can anyone prove how a judge would have ruled if he
had not been bribed?"). The only difference between a
public official who accepts a bribe and a public official who
receives payments while taking discretionary action that
benefits that payor, as Loeper did in this case, is the
existence of a quid pro quo whereby the public official and
the payor agree that the discretionary action taken by the
public official is in exchange for payment. Recognizing the
practical difficulties in proving the existence of such a quid
_________________________________________________________________
candidate in order to aid the voters in evaluating those who seek
federal office. . . . The sources of a candidate's financial
support . . .
alert the voter to the interests to which a candidate is most
likely to
be responsive and thus facilitate predictions of future performance
in office.
Buckley v. Valeo, 424 U.S. 1, 66-67 (1976) (internal quotation marks and
footnote omitted); see also Nixon v. Shrink Mo. Gov't PAC, 528 U.S. 377,
408 (2000) (Kennedy, J., dissenting) (noting that disclosure of campaign
contributions allows the public to "judge for itself whether the candidate
or the officeholder has so overstepped that we no longer trust him or her
to make a detached and neutral judgment").
31
pro quo, disclosure laws permit the public to judge for itself
whether an official has acted on a conflict of interest.
To sum up, we reject Panarella's argument that an
allegation of bribery or other misuse of office is necessary
to sustain a conviction for honest services wire fraud.
Rather, for the reasons discussed above, we hold that if a
public official fails to disclose a financial interest in
violation of state criminal law and takes discretionary
action that the official knows will directly benefit that
interest, then that public official has committed honest
services fraud.
D.
Panarella argues that the rule of lenity dictates that we
construe S 1346 narrowly to exclude from its scope a public
official who conceals a financial interest while taking
discretionary action that directly benefits that interest. The
rule of lenity, which requires that ambiguities in criminal
statutes be resolved against the government, "serves to
ensure both that there is fair warning of the boundaries of
criminal conduct and that legislatures, not courts, define
criminal liability." Crandon v. United States , 494 U.S. 152,
158 (1990); see also United States v. Sanders , 165 F.3d
248, 251 (3d Cir. 1999).
We note that, as a textual matter, it is not a strained
reading of S 1346 to hold that a public official who
deliberately lies about his income while taking discretionary
action in his official capacity that directly benefits his
concealed financial interest "deprives [the public] of the
intangible right of honest services." At all events, our
criminal law contains numerous statutes whose
construction and application pose difficulties in
interpretation. See, e.g., 15 U.S.C. S 1 (criminalizing "[e]very
contract, combination . . . , or conspiracy in restraint of
trade"). Deprivation of honest services is perforce an
imprecise standard, and rule of lenity concerns are
particularly weighty in the context of prosecutions of
political officials, since such prosecutions may chill
constitutionally protected political activity. Moreover,
decisions of our own Court stating that "fraud is a broad
32
concept that ``is measured in a particular case by
determining whether the scheme demonstrated a departure
from fundamental honesty, moral uprightness, or fair play
and candid dealings in the general life of the community,' "
United States v. Monostra, 125 F.3d 183, 186 (3d Cir. 1997)
(quoting United States v. Goldblatt, 813 F.2d 619, 624 (3d
Cir. 1987)), do little to allay fears that the federal fraud
statutes give inadequate notice of criminality and delegate
to the judiciary impermissibly broad authority to delineate
the contours of criminal liability.
We believe that the policies underlying the rule of lenity
are not implicated in this case, however, because Loeper's
deliberate concealment of his income from Panarella clearly
violated a Pennsylvania criminal statute, 65 Pa. C.S.A.
SS 1104(a), 1105 & 1109(b). This statute gave both Loeper
and Panarella unambiguous notice that Loeper's
nondisclosure was criminal. A public official who
deliberately chooses to lie about an income source in
violation of a criminal law clearly imposing a duty to
disclose does so at his peril. The subsequent efforts taken
by Panarella and Loeper to conceal Loeper's initial
misrepresentation further undermine any claim of
inadequate notice. See United States v. Holzer , 816 F.2d
304, 309 (7th Cir. 1987), vacated and remanded for
consideration in light of McNally, 484 U.S. 807 (1987)
("Elaborate efforts at concealment . . . are powerful evidence
that a defendant's conduct violates an ethical standard well
known to him and to the whole community, and not just
something thought up after the fact by a perhaps overly
sensitive federal judge."); Dial, 757 F.2d at 170 ("The
defendants' elaborate efforts at concealment provide
powerful evidence of their own consciousness of
wrongdoing."). Finally, the existence of a clear violation of
Pennsylvania criminal law complies with the separation of
powers principle requiring legislatures, not courts, to define
criminal conduct.
E.
In sum, we hold that where a public official conceals a
financial interest in violation of a criminal disclosure
statute and takes discretionary action in his official
33
capacity that he knows will directly benefit that interest,
the official has engaged in "a scheme or artifice to deprive
[the public] of the intangible right of honest services." 18
U.S.C. S 1346. Concomitantly, we emphasize the
narrowness of our holding. First, Loeper's nondisclosure
was in clear violation of Pennsylvania criminal law. The
existence of this violation of state law resolves federalism
and vagueness concerns that might otherwise arise in cases
such as this.9 Second, Loeper took discretionary action in
his official capacity that he knew would benefit his
undisclosed financial interest. This action rendered the
information that Loeper concealed material, since the
public would find the information relevant in assessing
Loeper's voting record. Finally, our holding is limited to
public officials, and does not reach private officials' breach
of a fiduciary duty to disclose. Because disclosure is critical
to the electoral process, unlawful concealment of conflicts
of interest by public officials implicates weightier concerns
than breaches of fiduciary duty by persons who do not hold
public office. See John C. Coffee, Jr., Modern Mail Fraud:
The Restoration of the Public/Private Distinction , 35 Am.
Crim. L. Rev. 427, 462 (1998) ("[T]he victims of public
corruption lack any right of exit. Put simply, they cannot
_________________________________________________________________
9. Although we hold that the existence of a violation of state law,
coupled
with the other facts discussed above, is sufficient to establish honest
services wire fraud in this case, we need not decide whether a violation
of state law is necessary for nondisclosure of a conflict of interest to
amount to honest services fraud. Our decision in United States v. Antico,
No. 00-1446, 2001 U.S. App. LEXIS 25318 (3d Cir. Nov. 28, 2001),
suggested in dicta that a violation of state law is not necessary for
nondisclosure of a conflict of interest to constitute honest services
fraud.
See id. at *49 ("Duties to disclose material information affecting an
official's impartial decision-making . . . exist within this fiduciary
relationship regardless of state or local law codifying a conflict of
interest."). However, since the defendant's nondisclosure in Antico
violated state law, the Antico court, like this Court, did not have
occasion
to hold squarely that a public official who does not violate state law may
nonetheless be guilty of honest services fraud for failing to disclose a
conflict of interest. See id. ("When coupled with the duty imposed by
state and local conflict of interest laws, Antico's failures to disclose
his
finanicial business arrangement with Ricciardi and to recuse himself
from taking action with respect to her applications fall within the scope
of honest services fraud.").
34
change governments. But investors can change
investments.").
We believe that the narrowness of our holding, and in
particular our reliance on Loeper's violation of Pennsylvania
criminal law as a limiting principle, avoids the parade of
horribles envisioned by those who fear overly broad
application of the federal mail and wire fraud statutes. See
United States v. Bloom, 149 F.3d 649, 654 (7th Cir. 1998)
(arguing that under the prosecution's theory, "every city
employee would be required to shop exclusively in Chicago
in order to maximize its receipts from sales taxes, and
would be guilty of a federal felony if he bought a pair of
boots through the mail from L.L. Bean"); United States v.
Margiotta, 688 F.2d 108, 140 (2d Cir. 1982) (Winter, J.,
dissenting) (fearing that "[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").
IV.
Finally, we address Panarella's argument that his guilty
plea lacked an adequate factual basis, as required by
Federal Rule of Criminal Procedure 11(f). Rule 11(f)
provides that "[n]otwithstanding the acceptance of a plea of
guilty, the court should not enter a judgment upon such
plea without making such inquiry as shall satisfy it that
there is a factual basis for the plea." This rule is intended
to "protect a defendant who is in the position of pleading
voluntarily with an understanding of the nature of the
charge but without realizing that his conduct does not
actually fall within the charge." McCarthy v. United States,
394 U.S. 459, 467 (1969).
Because Panarella's argument that his guilty plea lacked
an adequate factual basis rests primarily on the same
argument that the superseding information failed to charge
an offense, we reject his Rule 11(f) challenge. 10 Since we
_________________________________________________________________
10. Panarella also argues that in reviewing the factual basis for his
guilty
plea, we should consider only the following exchange with the District
Court at his plea colloquy:
35
would reach the same result under either a plain error or
abuse of discretion standard of review, we need not decide
the question of the appropriate standard of review where,
as in this case, a defendant fails to raise a Rule 11(f)
challenge before the district court, e.g., by moving to
withdraw the plea. See United States v. Cefaratti, 221 F.3d
502, 509 & n.3 (3d Cir. 2000) ("A district court's finding of
_________________________________________________________________
THE COURT: All right. Just to be absolutely certain, Mr.
Panarella, did you help Mr. Loeper continue the false disclosure
form that he filed, the story about the false disclosure form that
he
filed in 1993, by some things that you did in 1997?
THE WITNESS: Yes.
THE COURT: That's what I want to be comfortable with. I'm
satisfied that the defendant is competent to plead. The plea is
voluntary, and not the result of force or threats or any promises,
apart from the plea agreement which has been fully disclosed on
this record.
There is, I'm comfortable, a factual basis for the plea of guilty,
along with accessory after the fact for Mr. Panarella's involvement
in
assisting Mr. Loeper in covering up Mr. Loeper's false cover story.
Panarella contends that this exchange shows that the trial judge relied
solely on the admission quoted above, and that in reviewing the District
Court's Rule 11(f) finding, we may therefore consider only this
admission. Panarella submits that by itself the admission quoted above
provides an inadequate factual basis for accepting his guilty plea, even
if the theory charged in the superseding information is valid.
We do not agree that, in concluding that Panarella's guilty plea had an
adequate factual basis, the District Court relied exclusively on the
admission quoted above. Before this admission, the government
summarized the facts that it would prove at trial, which included
Loeper's concealment of his payments from Panarella and the
discretionary action taken by Loeper that directly benefitted Panarella.
After this summary, the court asked the defendant,"Mr. Panarella, do
you agree with the prosecutor's summary of what you did?" Panarella
replied "Absolutely." We therefore conclude that the factual basis for
Panarella's guilty plea that the trial judge relied on included the
government's summary of what it would prove at trial, and Panarella's
admission that he "absolutely" agreed with the summary. This
admission, together with the admission quoted above, provided an
adequate factual basis for Panarella's guilty plea.
36
a factual basis for a plea is reviewed for an abuse of
discretion. . . . The government maintains that Cefaratti's
failure to raise this issue before the District Court
necessitates plain error review -- an issue on which there
is some disagreement in the courts. We need not decide
this issue in light of our disposition." (citations omitted)).
For the foregoing reasons, the judgment of the District
Court will be affirmed.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
37