United States v. Peter Atkinson ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 07-4080, 08-1030, 08-1072, 08-1106
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
CONRAD M. BLACK, PETER Y. ATKINSON, JOHN A.
BOULTBEE, and MARK S. KIPNIS,
Defendants-Appellants.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 05 CR 727—Amy J. St. Eve, Judge.
____________
ARGUED JUNE 5, 2008—DECIDED JUNE 25, 2008
____________
Before POSNER, KANNE, and SYKES, Circuit Judges.
POSNER, Circuit Judge. At the end of a four-month trial,
the jury convicted the defendants of mail and wire fraud
in violation of 18 U.S.C. § 1341 and Black in addition of
obstruction of justice in violation of 18 U.S.C. § 1512(c). The
judge sentenced him to 78 months in prison, Atkinson
and Boultbee to 24 and 27 months, and Kipnis to proba-
tion with six months of home detention.
The defendants were senior executives (Black was the
CEO) of an American company called Hollinger Inter-
2 Nos. 07-4080, 08-1030, 08-1072, 08-1106
national, which through subsidiaries owns a number of
newspapers here and abroad. It was controlled by a
Canadian company, since defunct, called Ravelston,
which in turn was controlled by Black, who owned 65
percent of its shares. (In between Hollinger and Ravelston
was a holding company that we can ignore.) Black effec-
tively controlled Hollinger through his majority stake in
Ravelston. He owned some stock in Hollinger, but a
much higher percentage of the stock of Ravelston, in
which Atkinson and Boultbee also owned stock. So it
was in his and their financial interest to funnel income
received by Hollinger to Ravelston. This was done by
Hollinger’s paying large management fees to Ravelston.
Hollinger had a subsidiary called APC, which owned a
number of newspapers that it was in the process of selling.
When it had only one left—a weekly community news-
paper in Mammoth Lake, California (population 7,093
in 2000, the year before the fraud)—defendant Kipnis,
Hollinger’s general counsel, prepared and signed on
behalf of APC an agreement to pay the other defendants,
plus David Radler, another Hollinger executive and a
major shareholder in Ravelston, a total of $5.5 million in
exchange for their promising not to compete with APC
for three years after they stopped working for Hollinger.
The money was paid. Neither Hollinger’s audit com-
mittee, which was required to approve transactions
between Hollinger’s executives and the company or its
subsidiaries because of conflict-of-interest concerns, nor
Hollinger’s board of directors, was informed of this
transaction. Or so the jury was entitled to find; the evi-
dence was conflicting.
That Black and the others would start a newspaper in
Mammoth Lake to compete with APC’s tiny newspaper
Nos. 07-4080, 08-1030, 08-1072, 08-1106 3
there was ridiculous. But the defendants argue that really
the $5.5 million represented management fees owed
Ravelston and that they had characterized the fees as
compensation for granting covenants not to compete in the
hope that Canada might not treat the fees as taxable
income. Although Hollinger is a large, sophisticated, public
corporation, no document was found to indicate that the
$5.5 million in payments was ever approved by the
corporation or credited to the management-fees account on
its books. The checks were drawn on APC, though the
evidence was that the defendants had no right to manage-
ment fees from that entity, and were backdated to the year
in which APC had sold most of its newspapers. The
purpose of the backdating was—or so the jury could
find—to make the compensation for the covenants not to
compete seem less preposterous. And while management
fees were supposed to be paid to Ravelston as well as from
a management-fee account, the payments were made to the
defendants personally and came from the proceeds of a
newspaper sale, facts that increase the implausibility of
supposing that these direct payments to the defendants
were a means of discharging a debt owed them by
Hollinger. It is true that Radler, who pleaded guilty and
testified for the government, said that he thought the
audit committee had approved the so-called management
fees. But the members of the committee testified other-
wise and the jury was entitled to believe them.
There is more. The defendants failed to disclose the
$5.5 million in payments in the 10-K reports that they
were required to file annually with the Securities and
Exchange Commission. And they caused Hollinger to
represent to its shareholders falsely that the payments
had been made “to satisfy a closing condition.”
4 Nos. 07-4080, 08-1030, 08-1072, 08-1106
There was still more evidence of the fraud, but there is
no need to go into it. The jury convicted the defendants
of a second, similar fraud, on equally compelling evid-
ence; there is no need to extend the opinion with a dis-
cussion of that either.
The evidence established a conventional fraud, that is,
a theft of money or other property from Hollinger by
misrepresentations and misleading omissions amounting
to fraud, in violation of 18 U.S.C. § 1341. United States v.
Orsburn, 525 F.3d 543, 545-46 (7th Cir. 2008). But the jury
was also instructed that it could convict the defendants
upon proof that they had schemed to deprive Hollinger
and its shareholders “of their intangible right to the
honest services of the corporate officers, directors or
controlling shareholders of Hollinger,” provided the
objective of the scheme was “private gain.” That instruc-
tion is the focus of the appeals.
Section 1346 of the federal criminal code, added in 1988
in order to overrule McNally v. United States, 483 U.S. 350
(1987), defines “scheme or artifice to defraud” in section
1341 to include a scheme or artifice to “deprive another
of the intangible right of honest services.” The defendants
do not deny that Hollinger was entitled to their honest
services. They were senior executives of Hollinger and
owed the corporation fiduciary obligations, implying
duties of loyalty and candor. It is not as if Black had
merely been using his power as controlling shareholder
to elect a rubber-stamp board of directors or to approve
a merger favorable to him at the expense of the minority
shareholders. He was acting in his capacity as the CEO
of Hollinger when he ordered Kipnis to draft the
covenants not to compete and when he duped the audit
committee and submitted a false 10-K. On his own theory,
the fees that he collected, which the jury was entitled to
Nos. 07-4080, 08-1030, 08-1072, 08-1106 5
find were never owed to him, were management fees
rather than dividends. The defendants’ unauthorized
appropriation of $5.5 million belonging to a subsidiary
of Hollinger was a misuse of their positions in Hollinger
for private gain, which is just the kind of conduct that
we said in United States v. Bloom, 149 F.3d 649, 655-57
(7th Cir. 1998), was the essence of honest services fraud.
See also United States v. Hausmann, 345 F.3d 952, 955-57
(7th Cir. 2003); United States v. Rybicki, 354 F.3d 124, 141-42
(2d Cir. 2003) (en banc).
So if the jury found such a misappropriation, this
would mean that the defendants, having both deprived
their employer of its right to their honest services and
obtained money from it as a result, were guilty of both
types of fraud. United States v. Turner, 465 F.3d 667, 678-
79 (6th Cir. 2006); United States v. Caldwell, 302 F.3d 399,
408 (5th Cir. 2002). Nothing is more common than for
the same conduct to violate more than one criminal stat-
ute. But the section 1346 instruction, which we quoted,
did not require that the jury find that the defendants
had taken any money or property from Hollinger; all it
had to find to support a conviction for honest services
fraud was that the defendants had deliberately failed to
render honest services to Hollinger and had done so to
obtain a private gain. The defendants do not deny that
they sought a private gain. But they presented evidence
that it was intended to be a gain purely at the expense of
the Canadian government. They argue that for the
statute to be violated, the private gain must be at the
expense of the persons (or other entities) to whom the
defendants owed their honest services—a group not
argued to include the Canadian government.
They are making a no harm-no foul argument, and such
arguments usually fare badly in criminal cases. Suppose
6 Nos. 07-4080, 08-1030, 08-1072, 08-1106
your employer owes you $100 but balks at paying, so
you help yourself to the money from the cash register. That
is theft, e.g., State v. Winston, 295 S.E.2d 46, 51 (W. Va.
1982); Edwards v. State, 181 N.W.2d 383, 387-88 (Wis.
1970); State v. Self, 713 P.2d 142, 144 (Wash. App. 1986),
even though if the employer really owes you the money
you have not harmed him. You are punishable because
you are not entitled to take the law into your own hands.
Harmlessness is rarely a defense to a criminal charge;
if you embezzle money from your employer and replace
it (with interest!) before the embezzlement is detected,
you still are guilty of embezzlement.
The application of this principle to honest services mail
and wire fraud is straightforward. As explained in United
States v. Orsburn, supra, 525 F.3d at 546, section 1346
was added “to deal with people who took cash from
third parties (via bribes or kickbacks). United States v.
Holzer, 816 F.2d 304 (7th Cir. 1987), supplies a good ex-
ample. Judge Holzer accepted bribes from litigants. What
he took from his employer, the state’s judicial system,
was the honest adjudication service that the public thought
it was purchasing in exchange for his salary.” See also
United States v. Sorich, 523 F.3d 702, 707-08 (7th Cir. 2008);
United States v. Thompson, 484 F.3d 877, 884 (7th Cir. 2007);
Man-Seok Choe v. Torres, 525 F.3d 733, 737 (9th Cir. 2008);
United States v. Kemp, 500 F.3d 257, 279-80 (3d Cir. 2007);
United States v. Rybicki, supra, 354 F.3d at 139-42. Similarly,
if the defendants in this case deprived their employer,
Hollinger, of the honest services they owed it, the fact
that the inducement was the anticipation of money from
a third party (the anticipated tax benefit) is no defense.
Nos. 07-4080, 08-1030, 08-1072, 08-1106 7
This case is different from those we have cited because
Canada was not bribing the defendants with the offer of a
tax benefit. But the distinction is unrelated to anything
in the text or purpose of section 1346. The grant of a tax
benefit is a purposive act, which confers a benefit on
the grantor just as a voluntary transfer of money or prop-
erty to him does; in fact it is a voluntary transfer of
money. The defendants do not argue that they were
trying to defraud Canada; they argue that their
recharacterization of management fees as compensation for
granting covenants not to compete was proper under
Canadian tax law, even if the receipt of the payments
violated American law. Canada, they contend in effect,
was willing to “pay” the defendants in the form of a tax
benefit in order to advance Canadian policy.
And if the defendants were trying to defraud Canada,
that augmentation of their wrongdoing would not help
their case. Suppose a third party gives a bribe to a buyer
for a department store, and the buyer pockets the bribe
but does not carry out his side of the bargain, which
was that he would purchase supplies from the principal
of the person who bribed him. The buyer has deprived
his employer (the department store) of his honest serv-
ices, and has done so for private gain, but he has conferred
no benefit on a third party. Judges who accept bribes
invariably argue that they didn’t allow the bribes to
influence their decisions. But a judge who accepts
bribes deprives the judiciary of his honest services even
if, as contended by Francis Bacon, the most famous of
corrupt judges, he does nothing for the person who bribed
him. Such a case does not differ materially from that of
the “honest” recipient of a bribe—the recipient who,
committed to honor among thieves, performs his side of
the illegal bargain.
8 Nos. 07-4080, 08-1030, 08-1072, 08-1106
Notice, too, how honest services fraud bleeds into money
or property fraud. In the procurement case, the eagerness
of the seller’s agent to make a sale might enable the
purchasing agent to negotiate a better price, to the finan-
cial benefit of his employer; instead he takes the “better
price” in the form of a bribe. In this case, had the defen-
dants disclosed to Hollinger’s audit committee and
board of directors that the recharacterization of manage-
ment fees would net the defendants a higher after-tax
income, the committee or the board might have decided
that this increase in the value of the fees to them war-
ranted a reduction in the size of the fees. If $10 in tax-free
income is worth $15 to the recipient in taxed income,
the employer who learns about the tax break may
require the employee to accept in tax-free income less
than $15 in taxed income.
This is not to say that every corporate employee must
advise his employer of his tax status. But the defendants
had a duty of candor in the conflict-of-interest situation
in which they found themselves. Instead of coming
clean they caused their corporation to make false filings
with the SEC, and they did so for their private gain. Such
conduct is bound to get a corporation into trouble with
the third party and the SEC.
Even if our analysis of honest services fraud is wrong,
the defendants cannot prevail. There is no doubt that
the defendants received money from APC and very
little doubt that they deprived Hollinger of their honest
services; whether they also got (or hoped to get) a tax
break from the Canadian government was not an issue
at trial, as the defendants acknowledged, albeit back-
handedly, when they said in their reply brief in this
court that the theory “that defendants ‘misused’ their
Nos. 07-4080, 08-1030, 08-1072, 08-1106 9
positions at [Hollinger] for personal gain in the form of
Canadian tax benefits” was “the very theory the gov-
ernment propounded up to the eve of trial” (emphasis
added). It was not the government’s theory at trial.
The defendants point out that Yates v. United States,
354 U.S. 298 (1957), held that if the instructions permit
the jury to convict of a nonexistent crime, the fact that
they also permit it to convict of a genuine crime will not
save a conviction declared in a general verdict. United
States v. Sorich, supra, 523 F.3d at 706. That is different
from a case in which two correct theories of illegality are
presented in the instructions and there is sufficient evi-
dence to convict only on one; the jury is assumed to have
followed the instruction on the government’s burden of
proof and therefore to have rejected the insufficiently
supported theory. Griffin v. United States, 502 U.S. 46, 59-
60 (1991); Tenner v. Gilmore, 184 F.3d 608, 611 (7th Cir.
1999). But a jury that is given an illegal instruction can-
not be assumed not to have followed it, since juries are
neither authorized nor competent to make judgments of
law.
An error in jury instructions is subject to the harmless-
error doctrine. E.g., Pope v. Illinois, 481 U.S. 497, 502-03
(1987); United States v. Ramsey, 406 F.3d 426, 432 (7th
Cir. 2005). Submitting an illegal theory to the jury may
or may not be subject to it; it is an issue on which the
courts of appeals are divided. Compare United States v.
Cappas, 29 F.3d 1187, 1192-93 (7th Cir. 1994), and United
States v. Holly, 488 F.3d 1298, 1305-06 n. 3 (10th Cir. 2007),
with Lara v. Ryan, 455 F.3d 1080, 1085 (9th Cir. 2006), and
United States v. Edwards, 303 F.3d 606, 641-42 (5th Cir.
2002). But giving an instruction that omits a qualifica-
tion required to make it unambiguously correct is dif-
10 Nos. 07-4080, 08-1030, 08-1072, 08-1106
ferent from submitting a case to a jury on an erroneous
theory of criminal liability. The prosecution did not ask
the jury to convict the defendants because their private
gain was at Canada’s expense. The government’s honest
services theory was straightforward. It was that the
defendants had abused their positions with Hollinger
to line their pockets with phony management fees dis-
guised as compensation for covenants not to compete. Had
the jury believed that the payments for the covenants not
to compete were actually management fees owed the
defendants, as the defendants argued, it would have
acquitted them.
If the jury had been given a special verdict that
separated the two types of fraud, and had indicated on
the verdict that the defendants were not guilty of an
honest services fraud, the challenge to the instruction
would be moot. The defendants were not required to
request a special verdict. But there is a wrinkle in this
case that shows they forfeited their objection to the in-
struction: the government requested a verdict that would
require the jury to make separate findings on money or
property fraud and on honest services fraud. The defen-
dants objected—they wanted a general verdict. In effect,
they wanted to reserve the right to make the kind
of challenge they are mounting in this court.
They are reduced to arguing that the judge after re-
ceiving the verdict should have told the jury to deter-
mine whether it had found both a money or property
fraud and an honest services fraud. That procedure was
tentatively approved by the Third Circuit in United States
v. Riccobene, 709 F.2d 214, 228 n. 19 (3d Cir. 1983), although
that court has since made clear that it is better to give
the jurors the interrogatories on the same form as the
Nos. 07-4080, 08-1030, 08-1072, 08-1106 11
verdict. United States v. Hedgepeth, 434 F.3d 609, 613-
14 (3d Cir. 2006). Questioning the jurors after they
have handed down their verdict is not a good procedure
and certainly not one that a district judge is required to
employ; nor has the Third Circuit so suggested. The
defendants’ proposal could if adopted create a night-
mare in which the jury renders a general verdict; the
jurors are polled and think they’re about to be released
from their term of indentured servitude—here four
months—and be free to get on with their lives; and then
they are told they must take an exam so that the judges
and lawyers can know exactly how they evaluated
the various theories presented to them in the instruc-
tions. Must they resume deliberations? And if they dis-
agree, what then—an Allen charge?
We turn to the obstruction of justice charge against Black.
The charge is that he concealed or attempted to conceal
documents “with the intent to impair the [documents’]
integrity or availability for use in an official proceeding.”
18 U.S.C. § 1512(c)(1). There was evidence that Black
knew that the alleged frauds were being investigated by
a grand jury and by the SEC. In the midst of these pro-
ceedings Black with the help of his secretary and his
chauffeur removed 13 boxes of documents from his
office, put them in his car, was driven home, and helped
carry them from the car into his house. He later returned
them, but no one knows whether the boxes he returned
contained all the documents that had been in them when
he removed them from his office. It is true that copies
were available to the government before the boxes were
removed, but it was material to the investigation whether
Black had had copies in his office. For that would mean
that he had received them, in which event his denials of
knowledge of their contents would be undermined.
12 Nos. 07-4080, 08-1030, 08-1072, 08-1106
Anyway, the statute does not require proof of mate-
riality, United States v. Ortiz, 367 F. Supp. 2d 536, 542-44
(S.D.N.Y. 2005), affirmed without opinion, 220 Fed. App’x
13 (2d Cir. 2007), for the excellent reason that being able
to deny the materiality of a document is the usual reason
for concealing the document. All that need be proved is
that the document was concealed in order to make it
unavailable in an official proceeding. See, e.g., United
States v. Senffner, 280 F.3d 755, 762 (7th Cir. 2002); United
States v. Lessner, 498 F.3d 185, 197-98 (3d Cir. 2007); United
States v. Tampas, 493 F.3d 1291, 1300-01 (11th Cir. 2007). The
evidence of that was ample. Black’s secretary testified
that Black intended to remove the documents to a tempo-
rary office that she would set up for him in her home
because he had to vacate his office at Hollinger within
10 days. But this testimony was inconsistent with his
having put the boxes in his car (not hers, which was at the
scene) and taken them home. There was also evidence
that in removing the boxes he tried to avoid the surveil-
lance cameras in the building—unsuccessfully.
Three more issues need to be discussed. The first is
whether an “ostrich” instruction should have been
given. The reference of course is to the legend that
ostriches when frightened bury their head in the sand. It
is pure legend and a canard on a very distinguished
bird. Zoological Society of San Diego, Birds: Ostrich,
www.sandiegozoo.org/animalbytes/t-ostrich.html (visited
June 12, 2008) (“When an ostrich senses danger and
cannot run away, it flops to the ground and remains still,
with its head and neck flat on the ground in front of it.
Because the head and neck are lightly colored, they blend
in with the color of the soil. From a distance, it just looks
like the ostrich has buried its head in the sand, because
Nos. 07-4080, 08-1030, 08-1072, 08-1106 13
only the body is visible”). It is too late, however, to cor-
rect this injustice.
An ostrich instruction tells the jury that to suspect that
you are committing a crime and then take steps to avoid
confirming the suspicion is the equivalent of intending
to commit the crime. E.g., United States v. Giovannetti, 919
F.2d 1223, 1228 (7th Cir. 1990). Suppose you think
you’ve rented your house to a drug gang, but to avoid
confirming your supposition you make sure not to drive
near the house, where you might observe signs of drug
activity. That would be the equivalent of knowledge that
you had rented the house to the gang. It would be a
case of physical avoidance of confirmation of one’s suspi-
cions but there is also psychological avoidance, which is
the type alleged here and which requires the jury’s
“distinguishing between a defendant’s mental effort of
cutting off curiosity, which would support an ostrich
instruction, and a defendant’s simple lack of mental
effort, or lack of curiosity, which would not support an
ostrich instruction.” United States v. Carrillo, 435 F.3d 767,
780 (7th Cir. 2006). It is the distinction between willful
ignorance and ordinary ignorance.
The defendants argue that either they knew they
were taking money that they were not entitled to, or they
were entitled to it; there is no middle ground. But there is.
Remember that the defendants received the payments in
question not from Hollinger but from APC, which the
evidence showed did not owe them any management fees.
If you receive a check in the mail for $1 million that you
have no reason to think you’re entitled to, you cannot
just deposit it and when prosecuted for theft say you
didn’t know you weren’t entitled to the money—that it
might have been a random gift from an eccentric billion-
14 Nos. 07-4080, 08-1030, 08-1072, 08-1106
aire. You would have strongly suspected that you
weren’t entitled to the money and you would therefore
have a duty to investigate. By shutting your eyes you
tacitly confessed your all-but-certain knowledge that you
were stealing the money. United States v. Orsburn, supra,
525 F.3d at 545 (“The embezzled funds were roughly twice
the couple’s legitimate income, and they spent it all.
Michael could hardly avoid noticing this sudden im-
provement in the couple’s fortunes even if he never
looked at bank statements”); United States v. Rogers, 289
F.2d 433, 438 (4th Cir. 1961); 3 Wayne R. LaFave, Substan-
tive Criminal Law § 19.2(g), pp. 71-72 (2d ed. 2003).
The defendants argue that the judge gave an inadequate
limiting instruction with respect to the jury’s use of the
false filings with the SEC. The instruction, although correct,
was abrupt: “You have heard evidence in this case regard-
ing the disclosures of non-competition payments in
Hollinger International’s quarterly and annual reports
and proxy statements in 2001 and 2002. The defendants in
this case are not charged with securities fraud.” It was
important for the jury to understand that it could use
the false filings to infer that the defendants had been
trying to conceal their receipt of the payments but that
the filings themselves were not charged as crimes.
The defendants proposed a misleading instruction as an
alternative. It substituted for the second sentence (“The
defendants in this case are not charged with securities
fraud”) the following: “The defendants are not charged
with making false or misleading statements in these
filings, and you may not conclude that a defendant is
guilty of mail or wire fraud based on any alleged false
statements or omissions in any of these filings.” The
defendants were “charged,” in the sense of accused, of
Nos. 07-4080, 08-1030, 08-1072, 08-1106 15
making false statements in these filings. And the jury was
entitled to base a judgment of guilt “on any alleged false
statements or omissions in any of these filings,” provided
that the false statement or omission was material to the
alleged mail or wire fraud. At argument, the lawyer who
had proposed the instruction told us at first that he
had made other, oral submissions as well. But when
reminded that he had said in his brief that he
had “proposed a series of limiting instructions, cul-
minating with this request for the final charge”—the
proposed instruction that we quoted—he backed off.
If one party submits an instruction that is accurate but
could be made clearer, and the other party submits a
misleading instruction, the judge can go with the first
instruction. Not that the cases require “that a sub-
mitted charge be technically perfect to alert the court to
the need for a particular charge.” Bueno v. City of Donna,
714 F.2d 484, 490 (5th Cir. 1983); see also Wilson v. Mari-
time Overseas Corp., 150 F.3d 1, 9-10 (1st Cir. 1998). But
given the number and skill of the defendants’ lawyers, the
misleading character of their proposed instruction
cannot be regarded as a merely “technical” failing, as
opposed to an effort to mislead. Nor was the judge’s
instruction erroneous; it was merely terse.
Defendant Kipnis, the least culpable of the defendants,
as indicated by the light sentence he received (though any
felony conviction is likely to be devastating for a lawyer),
complains that he should have been acquitted because
he knew nothing about the management fees and had
nothing to gain from the fraud. The last point has no merit,
since Black controlled Hollinger and therefore held
Kipnis’s fate in his hands. The first two points are really
just one point, with respect to which the ostrich instruc-
16 Nos. 07-4080, 08-1030, 08-1072, 08-1106
tion was decisive. It was he who prepared the agreement
that purported to grant covenants not to compete in
exchange for $5.5 million. He knew that the covenants
made no sense, since APC was on its way out of the
newspaper business and the other grantors of the cove-
nants not to compete were not about to leave Hollinger
to start a newspaper in Mammoth Lake. The jury was
entitled to infer that Kipnis suspected a fraud, which
he facilitated by his preparation of the agreement, but
asked no questions lest his suspicion rise to a certainty.
He buried his head in the sand.
The defendants raise some other points in their 161
pages of briefs, but none that has sufficient merit to re-
quire discussion. The judgments are
AFFIRMED.
USCA-02-C-0072—6-25-08