UNITED STATES OF AMERICA v. GLEN CASADA and CADE COTHREN
Case No. 3:22-CR-00282
UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF TENNESSEE NASHVILLE DIVISION
July 25, 2023
District Judge Eli J. Richardson; Magistrate Judge Alistair Newbern
This Court should grant Defendant Cade Cothren‘s Motion to Dismiss Indictment for all of the reasons set forth herein.
I. INTRODUCTION AND RELEVANT FACTS
On August 22, 2022, Defendants Glen Casada and Cade Cothren were indicted on twenty counts of various purportedly illegal acts: federal program theft (Count Two), bribery and kickbacks concerning a federal program (Counts Three and Four), honest services wire fraud (Counts Five through Ten), use of fictitious name to carry out a fraud (Count Eleven), money laundering conspiracy (Count Twelve), and money laundering (Counts Thirteen through Twenty). Doc. No. 3 (“Indictment“). Count One charges Defendants with engaging in a conspiracy with “Individual 4” (former House Member Robin Smith) to commit federal program theft and honest services wire fraud, and to accept or pay bribery and kickbacks concerning a federal program. Indictment at ¶¶ 15-57. The Indictment is fatally flawed in numerous respects. For the purposes of this Motion only, the facts in the Indictment are accepted as true as required.
Conspicuously absent from the Indictment is any allegation that Phoenix Solutions, Company 1, and/or Company 2 failed to deliver goods and services totaling the $51,947 invoiced—a fatal omission. Likewise fatal is the Indictment‘s failure to allege (because it cannot) that Phoenix Solutions, Company 1, and Company 2 did not do exactly what they agreed to do: produce mail pieces for constituent mailings. Notably, the government does not allege that the State, the Speaker, or individual Members of the Tennessee General Assembly, for their part, would not have approved Phoenix Solutions as one of the private companies allowed to do constituent mailings if Cothren‘s association with Phoenix Solutions and its joint venture with Company 1 or Company 2 were known. Finally, the government does not allege that any such representation went to the heart of the bargain of producing constituent mail. Instead, the
Federal Jurisdiction Under 18 U.S.C. Section 666
The alleged basis for federal jurisdiction under
The Indictment alleges that the three entities at issue received payments totaling $51,947 in funds allocated annually to the General Assembly‘s “Mailer Program.” Indictment at ¶¶ 11, 52.1 While the Indictment repeatedly (and artfully) refers to the Postage and Printing Allowance as a “Mailer Program” in an attempt to shoehorn these facts into a statute (
The Postage and Printing Allowance
To fully grasp the Indictment‘s myriad defects, an understanding of the Postage and Printing Allowance and corresponding Guidelines is useful. Every year, the Tennessee General Assembly votes on an operating budget for the legislative branch‘s operating expenses. See Exhibit B: Excerpt from State of Tennessee Budget, Fiscal Year 2019-2020 (“Budget Excerpt“). Out of that, the Joint Legislative Services Committee allocates to each Member of the House a $3,000 allowance to fund postage and printing of items to be sent to the legislators’ constituents. Exhibit A: Guidelines at p. 8. The Indictment claims the “State” allocates such funds, but the State of Tennessee and General Assembly are not one and the same. Indictment at ¶ 11. A Member‘s Postage and Printing Allowance can be used to “design and mail legislative update mailers and legislative surveys” to constituents; however, the Guidelines limit the use of a Member‘s allowance to certain, non-campaign materials, such as the “printing of letterhead, envelopes, business cards, newsletters and letters and other approved written materials.” Exhibit A: Guidelines at p. 8. The Guidelines only require Members to seek and obtain approval of the proposed written materials from the House Speaker‘s Office. See Exhibit A: Guidelines at pp. 9-10. The words “along with a copy of the material to be printed” presumes that the work must have been commissioned and completed before the Speaker‘s content authorization and approval
While the Guidelines set out the rules surrounding the Postage and Printing Allowance, what is not in the Guidelines is equally important. The Guidelines do not prohibit Members from using their own or another Member‘s business when accessing their allowance nor do they require a Member to disclose any financial or other personal interest the Member may have in the company delivering said services or the ownership information and/or identities of any subcontractors used. See generally, Exhibit A: Guidelines. The Indictment does not allege as much.
Despite the Indictment‘s many references to a Printing and Postage Allowance vendor approval process, the Guidelines do not mention any such process. The Guidelines do not mention, imply, or infer that those companies are State vendors at all. Instead, it makes clear they are “private sector printing companies” or “private sector vendors” selected by individual Members. Id.
To be sure, the government‘s reliance on a non-existent “Mailer Program” and vendor approval process (Indictment at ¶ 12) is problematic. However, the primary problem with the government‘s theory is its failure to allege the Speaker would not have approved Phoenix Solutions, and alleging instead that Defendants’ expectations were that such approval was needed but would not be granted. Indictment at ¶¶ 21. Based on these faulty premises, the government presumptuously charged Cothren and his alleged co-conspirators with deceiving House Members and “pressuring” the Speaker‘s Office to “approve” Phoenix Solutions as a mail vendor and to pay for the constituent mailing services provided to Members. But Cothren committed no crime, and all charges should be dismissed.
To successfully challenge the sufficiency of an indictment, a defendant need only demonstrate that the indictment fails to (1) state all the elements of the crime charged; (2) adequately inform the defendant of the nature of the charges against him; or (3) allow the defendant to assert the judgment as a bar to future prosecutions of the same offense. United States v. Lee, 919 F.3d 340, 349 (6th Cir. 2019).
Here, Cothren did not violate federal or state law; thus, “the indictment cannot within reason be construed to charge a crime.” United States v. Gatewood, 173 F.3d 983, 988 (6th Cir. 1999) (quoting United States v. Hart, 640 F.2d 856, 857-58 (6th Cir. 1981)). In other words, the Indictment should be dismissed not because the government cannot prove its case against Cothren (although that is also true), but because there is no case to prove. See United States v. Risk, 843 F.2d 1059, 1061 (7th Cir. 1988) (“The district court found no violation [of the governing statute]
A. Counts Two Through Four Should Be Dismissed for Lack of Jurisdiction.
The government charged Cothren with theft, bribery, and kickbacks under the “Theft or bribery of programs receiving federal funds” statute. See
First, these charges do not satisfy
1. There Is No Jurisdiction Because the Postage and Printing Allowance Funds Are Not Even State Funds.
As discussed at the outset of this Memorandum, the “Mailer Program” referenced throughout the Indictment does not exist. Sensing—rightly—that the federal program charges in Counts Two through Four require both an “organization” and that organization‘s receipt of federal benefits, the government has artfully re-branded the annual $3,000 “Postage and Printing Allowance” allocated to each Member as part of the “Administrative Procedures” of Tennessee‘s
Although the Legislature‘s operating budget is based on its receipt of funds from the State of Tennessee, the Postage and Printing Allowance that each house in the Legislature allocates to its Members loses any arguable connection to the State of Tennessee as soon as those funds are allocated to the individual Members. At that point, each Member‘s Postage and Printing Allowance becomes the property of his/her district, and funds cannot be transferred “from one district to another.” See Exhibit A: Guidelines at p. 8 (“All account funds remain with the legislative district to which they were originally allocated.“).
Following the United States Supreme Court‘s ruling in Fischer v. United States, 529 U.S. 667 (2000), appellate courts have dismissed
The facts of this case merit the same conclusions reached in Doran and McLean. Even if the Postage and Printing Allowance funds are determined to be “state funds,” there is no conceivable relationship between those funds and any federal benefits or interest. Thus,
2. Section 666 Is Unconstitutional as Applied to Cothren Because the Alleged Wrongdoing Does Not Touch Federally Funded Assets.
In Madison, the defendant argued that federal jurisdiction did not exist under
Before undertaking Fischer‘s fact-based inquiry here, it is helpful to understand the legislative intent behind the jurisdictional limitations of
When considering jurisdictional challenges under the ambiguous
Though it is undisputed that the State of Connecticut, during the pertinent period, was a recipient of more than $ 10,000 in federal assistance, the government did not show that the exemption legislation had any financial value to the State of Connecticut; nor did it show that the exemption had any connection whatever with a federal program. In short, insofar as the evidence presented in this case reveals, the exemption affected neither the financial interests of the protected organization nor federal funds directly.
United States v. Foley, 73 F.3d 484, 493 (2nd Cir. 1996). In reaching this conclusion, the appellate court looked to Congress‘s intention in enacting the statute and found persuasive the Senate Report, which noted “that although § 666‘s protection of certain federal funds is very broad, this protection extends only to a very specific federal interest, namely, safeguarding the integrity of federal funds that are intended to serve legislatively defined policy objectives.” Foley, 73 F.3d at 490 (quoting Senate Report at 370, 1984 USCCAN at 3511) (emphasis added)).
b. Fischer fact-based inquiry.
In Fischer, the owner of a private medical consultant group was convicted under
The defendant appealed his conviction and challenged federal jurisdiction under
In reaching its conclusion the Fischer Court first reiterated the limitations of
Our discussion should not be taken to suggest that federal funds disbursed under an assistance program will result in coverage of all recipient fraud under § 666(b). Any receipt of federal funds can, at some level of generality, be characterized as a benefit. The statute does not employ this broad, almost limitless use of the term. Doing so would turn almost every act of fraud or bribery into a federal offense, upsetting the proper federal balance.
Id. at 681. Next, the Supreme Court identified the need for, and explained how to conduct, a fact-intensive inquiry into the nature of the organization/program and its funding to establish whether the facts support the application of
To determine whether an organization participating in a federal assistance program receives “benefits,” an examination must be undertaken of the program‘s structure, operation, and purpose. The inquiry should examine the conditions under which the organization receives the federal payments. The answer could depend, as it does here, on whether the recipient‘s own operations are one of the reasons for maintaining the program.
Id. In its extensive examination of the relationship between the federal Medicare program and the hospitals receiving Medicare payments, the Court listed several important facts regarding the relationship between the Medicare funds provided and the organization/program. Id. at 679-681. The Court also made numerous observations about the federal objectives in providing Medicare funds and its relationship to the organization before finally concluding that
When the fact-intensive Fischer analysis is undertaken in this case, it is quite clear that (1) there is no state “Mailer Program“; (2) the Legislature‘s operating budget received zero dollars in
In sum, under the Fischer inquiry, this case plainly falls well short of the jurisdictional parameters in
3. The Government Has Not Met the $5,000 Transaction Requirement in 18 U.S.C. Section 666.
The Indictment also fails to satisfy the $5,000 “transaction” element due to the exception found in
Accepting as true (for purposes of this Motion only) the government‘s factual allegations related to Counts Two, Three, and Four, the $51,947 in Postage and Printing Allowance funds paid to Cothren, Casada, and Individual 4, through their respective companies, fall within the statutory exception because were “bona fide salary, wages, fees, or other compensation paid, or expenses paid or reimbursed, in the usual course of business,” for constituent postage and mailing services.
The case of U.S. v. Mills, 140 F.3d 630 (6th Cir. 1998) illustrates this point. In Mills, a former chief deputy sheriff was charged under
The Sixth Circuit affirmed the dismissal and expressly rejected the government‘s argument that the salaries paid to the co-conspirators who paid bribes and obtained full-time deputy sheriff positions could not be bona fide “because of the illegal nature of the employment procurement process.” Id. at 633. The appellate court reiterated that Congress “saw fit to exclude from the reach of the federal statute those individuals and those transactions that involved only the payment of bona fide salaries, wages, fees, and other compensation.” Id. at 634.
Like the salary payments to the sheriff‘s deputies in Mills, the Postage and Printing Allowance payments issued to Phoenix Solutions, Company 1, and Company 2 for constituent mailing services were, in fact, earned. Unlike the defendants in Mills, however, there were no “bribes” or “kickbacks” paid to Casada, Individual 4, Company 1, or Company 2. If anything, the facts alleged in the Indictment only confirm that the payments were bona fide compensation for the constituent “mailer services” provided to Tennessee House Members. See Indictment at ¶¶ 65, 69. Because the government does not allege that these payments were “unnecessary or unjustified,” the payments in this case fall squarely within the statutory exception set forth in
The Indictment is the government‘s attempt to make alleged misconduct in the procurement process and non-disclosure of potential conflicts of interest federal crimes—they are not.7 The Sixth Circuit has affirmatively held that the focus under
Just this year, the Supreme Court again declined to broadly interpret federal criminal statutes in a way that would improperly expand the federal court‘s jurisdiction. In Ciminelli, the defendant was convicted of federal wire fraud based on the “right to control theory” in that he deprived the victims of intangible potentially valuable economic information necessary to make economic decisions.” Ciminelli v. United States, 134 S. Ct. 1121, 1126-28 (2023). The Supreme Court reversed the conviction, parsing the statutory language to reason that the “scheme or artifice to defraud” must involve “money or property,” and therefore the defendant‘s conviction for fraud to deprive of an intangible “right to control,” was improper. Id. The Supreme Court reasoned that
Mills, Kelly, and Ciminelli all support the dismissal of the
B. Count Two Should Be Dismissed Also Because the Indictment Fails to Allege a Loss or Contemplated Loss.
In Count Two of the Indictment, the government charges Cothren with “Theft Concerning Programs Receiving Federal Funds,” under
Even accepting all of the allegations in the Indictment as true, the government fails to set forth a prima facie case for program theft as a matter of law. As previously discussed, there is no “federal program” or “federal funds” tied to the General Assembly‘s Postage and Printing Allowance. But even if there was a connection between these federal funds and the Postage and Printing Allowance/fictional “Mailer Program,” the government must still allege an actual loss of money or property, or that the Defendants’ alleged scheme contemplated a cognizable loss of money or property. See United States v. Riley, 621 F.3d 312, 327-28 (3d Cir. 2010). The government has not alleged—and cannot allege—either one of these facts, at least one of which is required to prove the second essential element of this charge. Accordingly, this count should be dismissed.
Another irreparable flaw in the government‘s federal program theft charge (beyond the non-existence of any federal program or benefits tied to Members’ Postage and Printing Allowance) is its failure to adequately allege the requirements of a “scheme to defraud money or property” or facts surrounding the loss that are necessary to satisfy the second element of this
The Indictment fails to allege a loss or contemplated loss. A properly supported charge of federal program theft requires the government to allege that Cothren and Casada actually embezzled, stole, or fraudulently obtained property (including money). See Riley, 621 F.3d at 327-28. While the Indictment does use those terms of art, the facts supporting Count Two essentially allege that Defendants fraudulently obtained money by concealing Cothren‘s name and involvement with Phoenix Solutions and the profit-sharing joint venture between and among that company, Company 1, and Company 2. Indictment at ¶¶ 61. These allegations, however, are not enough to state a claim for program fraud under
At best, it seems the government is relying on a “right to control” theory of fraud, which the United States Supreme Court soundly rejected after Cothren was indicted. Under the “right to control” theory, the alleged scheme rests not on an alleged deprivation of property, but on depriving the victim of “potentially valuable economic information necessary to make discretionary economic decisions.” Ciminelli v. United States, 143 S. Ct. 1121, 1124 (2023) (internal citations and quotations omitted). The government‘s chief complaint in this case is that Defendants deprived the State of Tennessee of “potentially valuable economic information” by
We have held, however, that the federal fraud statutes criminalize only schemes to deprive people of traditional property interests. Cleveland v. United States, 531 U. S. 12, 24 (2000). Because “potentially valuable economic information” “necessary to make discretionary economic decisions” is not a traditional property interest, we now hold that the right-to-control theory is not a valid basis for liability under
§1343 .
Ciminelli v. United States, 143 S. Ct. 1121, 1124 (2023) (overturning wire fraud conviction because right to control one‘s assets is not “property” for the purposes of the wire fraud statute). Thus, to support this charge, the government must allege actual or contemplated loss of legitimate money or property. It does not.
Time and time again, courts have dismissed or acquitted defendants of fraud-based charges (including federal program theft) wherein the alleged victim received the full “benefit of the bargain” because the alleged fraudulent scheme did nothing more than induce the transaction. As the Third Circuit outlined in Riley, a violation of
In Anming Hu, a professor at the University of Tennessee was charged with three counts of wire fraud and three counts of false statement after he performed research under funding and grants from NASA while allegedly covering up the fact that he was also a faculty member of Beijing University of Technology, which allegedly violated NASA‘s “China Funding Restriction.” United States v. Anming Hu, No. 3:20-CR-21-TAV-DCP-1, 2021 U.S. Dist. LEXIS 171165, at *2-3 (E.D. Tenn. Sep. 9, 2021).
In adopting and analyzing the “scheme to defraud money or property” language, the district court relied heavily on the Eleventh Circuit’s decision in Takhalov and concluded that “to defraud, one must intend to use deception to cause some injury; but one can deceive without intending to harm at all.” Anming Hu, at *41 (quoting United States v. Takhalov, 827 F.3d 1307, 1312 (11th Cir. 2016)). Ultimately, the Anming Hu court held that, for a scheme to defraud to be shown, the government must show that the defendant had “intent to cause a tangible harm to the victim regarding the benefit of the bargain between the parties” Anming Hu, 2021 U.S. Dist. LEXIS 171165, at *51. Ultimately, the district court granted the defendant’s motion for judgment of acquittal on all charges of wire fraud, holding the government’s evidence:
is insufficient to show a scheme to defraud because, although, even if we assume that defendant intended to deceive, such deception about his affiliation with [Beijing University] does not show intent to harm NASA. And again, without intent to harm, there is no “scheme to defraud” even if “the transaction would not have occurred but for the trick.”
Id. at *52 (citing Takhalov, 827 F.3d at 1313).
In Takhalov, the defendants hired women to pose as tourists, locate visiting businessmen, and lure them to defendants’ bars and nightclubs. Takhalov, 827 F.3d at 1310. The Eleventh Circuit reversed defendants’ wire fraud and related convictions after the district court declined to instruct the jury “that they must acquit if they found that the defendants had tricked the victims into entering a transaction but nevertheless gave the victims exactly what they asked for and charged them exactly what they agreed to pay.” Id. at 1310, 1323-24.
The Takhalov court overturned the fraud convictions based on the lack of actual harm to the alleged victims, but the appellate court also made several observations relevant to the “intent to harm” or contemplated loss aspect of schemes to defraud that the Anming Hu court found crucial in its decision:
[A] schemer who tricks someone to enter into a transaction has not “schemed to defraud” so long as he does not intend to harm the person he intends to trick. And this is so even if the transaction would not have occurred but for the trick. For if there is no intent to harm, there can only be a scheme to deceive, but not one to defraud.
Consider the following two scenarios. In the first, a man wants to exchange a dollar into four quarters without going to the bank. He calls his neighbor on his cell phone and says that his child is very ill. His neighbor runs over, and when she arrives he asks her to make change for him. She agrees; the quarters pass to the man; the dollar passes to the woman; and they part ways. She later learns that the child was just fine all along. The second scenario is identical to the first, except that instead of giving the woman a true dollar, he gives her a counterfeit one.
The first scenario is not wire fraud; the second one is. Although the transaction would not have occurred but-for the lie in the first scenario—the woman would have remained home except for the phony sickness—the man nevertheless did not intend to “depriv[e] [the woman] of something of value by trick, deceit, [and so on].” Bradley, 644 F.3d at 1240. But in the second scenario he did intend to do so.
Other courts have reached similar conclusions. See United States v. Regent Office Supply Co., 421 F.2d 1174, 1179 (2d Cir. 1970) (concluding conviction of stationary seller under the mail fraud statute could not stand where the misrepresentation of sales personnel’s identities or customer connections were “not directed to the quality, adequacy or price of goods to be sold, or otherwise to the nature of the bargain”). In United States v. Jackson, No. 3:16-CR-31, 2017 U.S. Dist. LEXIS 43295 (N.D.W. Va. Mar. 24, 2017), a district court dismissed a 53-count mail fraud indictment against defendants who conducted “charity” bingo games and made multiple misrepresentations about their charitable status to the Fraternal Order of Police and a county Humane Society while maintaining 90% of the proceeds from said games. Id. at *16-17. There, the court held that:
The Defendants’ alleged victims do not have a property right, as recognized by
§ 1341 , to the truth. Moreover, any lies must be material and go to the heart of the bargain. Based upon the indictment, the lie alleged is akin to those in Cleveland, Regent, Sadler, and Takhalov. Clearly the Defendants received the vast majority ofthe proceeds derived from the bingo games and raffles. However, the indictment states that the Defendants conducted “charitable bingo and charitable raffle occasions in the name of [FOP #83 and BCHS from 2010 through 2014].” Taken on its face, the indictment alleges a scheme where the Defendants used the charities to obtain licenses so that the Defendants could conduct charitable bingos and raffles, in violation of state law, and they distributed a portion of the proceeds to the charities in return. There is no allegation that the charities were injured in any way. In fact, the charities benefited from the scheme by receiving a portion of the proceeds they otherwise would not have received had the Defendants not used their charities to obtain licenses. The misrepresentation in the instant case is not material and does not go to the heart of the bargain as to any arrangement between the Defendants and the charities. Accordingly, the indictment fails to demonstrate a scheme or artifice to defraud.
Id. at *23-24 (internal citations omitted).
Based on this collection of cases, it is clear (in the absence of any allegation in the Indictment to the contrary) that the alleged victims of the purported Postage and Printing Allowance “scheme”—the State and its elected Members—received the full “benefit of the bargain” and the alleged fraudulent misrepresentations or omissions by the Defendants, at best, did nothing more than induce the transaction. In any event, it is clear the allegations and/or omissions did not go to the “heart of the bargain” related to providing constituent mailers.
Although the government summarily alleges Defendants “embezzled, stole, and obtained by fraud” Postage and Printing Allowance funds, the government utterly fails to allege any actual tangible harm or loss to property or money. Instead, the government merely alleges that Defendants assumed certain state officials and representatives would not have done business with Phoenix Solutions had they known about Cothren’s role in the company or its joint venture with Individual 4/Company 1 and Casada/Company 2. Indictment at ¶¶ 21, 24, 34.
There are absolutely no allegations in the Indictment that, if proven, would establish that the State of Tennessee lost money or property in the transaction or that the elected Members: (i) did not receive the mailers paid for, (ii) received inferior mailers, (iii) paid more for the mailers
As previously discussed, the loss of tangible property or money is the distinguishing feature between wire/mail/program fraud and honest services fraud and must be adequately alleged and proven with respect to Count Two. See Riley, 621 F.3d at 327-28. Here, the Indictment does not—and cannot—allege any actual loss because the alleged victims clearly received exactly what they bargained for, despite the alleged concealment of Cothren’s association with Phoenix Solutions and his joint venture and profit-sharing with Casada and Individual 4’s consulting companies.
Count Two is also ripe for dismissal because the government does not even allege a contemplated injury to another’s money or property. “It is not required that the victims of the scheme in fact suffered harm, but the ‘government must, at a minimum, prove that defendants contemplated some actual harm or injury to their victims.’” United States v. Binday, 804 F.3d 558, 569 (2d Cir. 2015) (quoting United States v. Novak, 443 F.3d 150, 156 (2nd Cir. 2006)); see also United States v. Sadler, 750 F.3d 585, 590 (6th Cir. 2014) (internal citations omitted) (“To be guilty of fraud, an offender’s ‘purpose must be to injure,’ a common-law root of the federal fraud statutes.”); Riley, 621 F.3d at 328 (“the risk of exposure to such a loss of money or property is sufficient to distinguish
The Indictment fails to allege any actual or contemplated loss of property. In the absence of any alleged “loss” or “contemplated loss,” Count Two is fatally defective and should be dismissed.
C. Counts Three and Four Should Be Dismissed Also Because the Government Has Not Alleged Facts Sufficient to Prove Defendants Received or Solicited Bribery or Kickbacks Concerning Programs Receiving Federal Funds.
1. Casada and Individual 4 Were Acting as Independent Business Owners and Not as Public Officials with Respect to Their Constituent Mail Activities.
Although the Indictment correctly alleges that Casada and Individual 4 were “elected Representative(s) of the State of Tennessee” during the relevant time period (Indictment at ¶¶ 64, 68), these individuals were not acting as an “agen[t] of the State of Tennessee” when they were soliciting constituent mailing work from their fellow House Members. The Tennessee General Assembly meets for only 90 session days over a two year period, with legislative sessions lasting from approximately “mid-January through late April or May of each year.”7 Because Tennessee General Assembly Members serve the state in a part time capacity, many maintain other employment and/or own their own businesses. Here, the distinction between an elected official’s public versus private conduct is critical.
Even if Casada and Individual 4 solicited the constituent mailing work from their colleagues knowing full well that it would be done by Phoenix Solutions, the Indictment acknowledges these solicitations were done on behalf of themselves and their consulting companies (Company 1 and Company 2), and does not allege they were required to disclose their affiliation with Phoenix Solutions or its owner, Cothren. Indictment at ¶¶ 65, 69. Furthermore, the
The D.C. Circuit vacated a U.S. Department of Housing and Urban Development (“HUD”) official’s bribery conviction under analogous circumstances in United States v. Muntain, 610 F.2d 964 (D.C. Cir. 1979). In that case, the HUD official was convicted for allegedly accepting illegal gratuities (in the form of consulting fees and expenses) after mass-marketing group automobile insurance policies to labor unions with whom he interacted as a part of his official duties. The official “frequently combine[d] the promotion of the automobile insurance with trips taken at government expense for the purpose of conferring with labor officials across the United States concerning official business.” Id. at 966-67. Notwithstanding the defendant’s blended public and private activities, the appellate court noted that, “[t]o the extent that [the defendant’s] use of his official position to promote a purely private venture created an appearance of impropriety, his conduct is reprehensible, but it is not criminal.” Id. at 967-68 (emphasis added).
Though not binding on this Court, the Eleventh Circuit’s rationale for affirming the district court’s dismissal of comparable Hobbs Act extortion charges arising from the private business venture of elected city officials in United States v. O’Keefe is also helpful to examine. United States v. O’Keefe, 825 F.2d 314 (11th Cir. 1987). In O’Keefe, the defendants were city officials who received payments in connection with the consulting and other work they performed in connection with a local nursing home project, which they had also voted to approve in their official capacities. Id. The district court found that, while the government met its burden of proving the officials received payments and voted in favor of the project, the government “presented no
In sum, a charge under
2. The Government Has Failed to Allege That Defendants “Corruptly Solicited” the Postage and Printing Allowance Payments at Issue.
“To corruptly solicit or accept anything of value means that it was done with ‘intent to give some advantage inconsistent with official duty and the rights of others.’” United States v. Hills, 27 F.4th 1155, 1182 (6th Cir. 2022) (quoting United States v. Buendia, 907 F.3d 399, 402 (6th Cir. 2018) (holding that defendant “corruptly solicited” by accepting kickbacks (gift cards) to “subvert[] the normal bidding process” and award the contracts “in a manner inconsistent with her duty to obtain goods and services for her school at the best value.”)).
The Indictment fails to allege that Casada and Individual 4 subverted any owed duty to the State with regard to their joint venture. This case is easily distinguishable from Buendia and other government contract cases because (i) the Indictment alleges no such formal contract or bidding process when it came to a Member’s use of his/her Postage and Printing Allowance (again, because that process did not exist); and (ii) the Guidelines clearly vested House Members with the discretion to spend (or not) the $3,000 for constituent mail printing and postage (among other things) allocated to them annually and conditioned such expenditures not on the Speaker’s approval of the Member’s chosen constituent mail Private Sector Vendor, but on the content of the proposed constituent mailer. Exhibit A: Guidelines at p. 9.
Because Counts Three and Four impermissibly seek to criminalize the private business activities of public officials that paid bona fide compensation in connection with such activities, the government has failed to adequately allege all the elements of these charges, and both counts should be dismissed.
D. The Government’s Alleged Facts, Even If Proven, Would Not Support a Conviction for Honest Services Wire Fraud (18 U.S.C. Sections 1343, 1346, 2).
An honest services fraud case differs from garden-variety fraud or theft case “in which the victim’s loss of money or property supplied the defendant’s gain . . . .” An honest services case targets “corruption that lack[s] similar symmetry.” The Supreme Court in Skilling v. United States, 561 U.S. 358, 401 (2010), explained the theory of honest services this way:
While the offender profited, the betrayed party suffered no deprivation of money or property; instead, a third party, who had not been deceived, provided the enrichment. For example, if a city mayor (the offender) accepted a bribe from a third party in exchange for awarding that party a city contract, yet the contract terms were the same as any that could have been negotiated at arm’s length, the city (the betrayed party) would suffer no tangible loss.
Here, the government must allege facts that, if proven, would establish that Cothren and Casada, aided and abetted by each other and Individual 4, “used the mail to carry out a ‘scheme or artifice to defraud’ another,
As discussed in Section II.B, supra, a “scheme or artifice to defraud” “includes any plan or course of action by which someone intends to deprive another by deception of money . . . by
A public official accepts a bribe or kickback when he or she “corruptly…receives…anything of value…in return for…being influenced in the performance of any official act.”
Dismissal of Counts Five through Ten is warranted for at least four reasons. First, the Indictment fails to sufficiently allege facts that, if proven, would establish Defendants made a “material” misstatement with respect to the purported “scheme and artifice to defraud.” Second, neither Casada nor Individual 4 acted as a “public official” with respect to their Postage and Printing Allowance activities. Third, even if Casada and Individual 4 were deemed to be “public
1. The Indictment Does Not Plead Facts Showing the Alleged Misrepresentation(s) Related to the Scheme or Artifice to Defraud Was Material.
Preliminarily, Counts Five through Ten fail because satisfaction of the “scheme or artifice to defraud” element of an honest services wire fraud charge requires not only proof that the defendant said something false, but that the false statement was “material.” Daniel, 329 F.3d at 486. While the issue of materiality, and whether the alleged false statement tended to influence or could have influenced the decision-maker in question, is generally reserved for the trier of fact, the Indictment fails to allege any facts that, if proven, would establish that the alleged false statements did, in fact, influence the decision-making of the Tennessee Speaker, his office, or any of the Members who hired Company 1 and Company 2 for their constituent mailing work.
The Indictment only references Defendants’ “expectations” that “Phoenix Solutions would not be approved by the State to be a Private Sector Vendor or hired by individual members of the Tennessee General Assembly if Cothren’s operational involvement” in Phoenix Solutions and joint venture with Company 1 and Company 2 were publicly known. The Indictment does not, however, allege that the State or any individual representatives were actually influenced or could have been influenced by the alleged misrepresentations or omissions related to Phoenix Solutions. The
2. Absence of a “Public Official.”
The absence of a “public official” is also fatal to the government’s honest services wire fraud charges (Counts Five through Ten) for the same reasons discussed at length in Section II.D.1, above. And, as explained further below, even if this Court disagrees, there is no question that neither Casada nor Individual 4 performed any “official act” with respect to any Member’s Postage and Printing Allowance.
3. Absence of Bribery/Kickbacks and Agreement to Perform “Official Act.”
In Counts Five through Ten, the Indictment broadly asserts that Casada and Cothren, aided and abetted by Individual 4, “devised and intended to devise a scheme and artifice to defraud and deprive Tennessee and the citizens of Tennessee of their right to the honest services” of “elected state officials” (i.e., Casada and Individual 4), “through bribery and kickbacks.” Indictment at ¶ 71. The Indictment further avers that Casada, Cothren, and Individual 4, transmitted various wire communications “for the purpose of executing” the aforementioned scheme. Indictment at ¶ 72. The government alleges that Casada and Individual 4 performed three “official acts” in exchange for “bribes and kickbacks” from Cothren:
(1) pressuring the Tennessee House Speaker’s Office and other State officials to approve Phoenix Solutions as a Mailer Program vendor and to disburse State funds to Phoenix Solutions, Company 1, and Company 2;
(2) advising and pressuring other members of the Tennessee House of Representatives to use Phoenix Solutions, Company 1, and Company 2 as their Mailer Program vendor and to disburse State funds to Phoenix Solutions, Company 1, and Company 2; and
(3) choosing to use Phoenix Solutions, Company 1, and Company 2 for Casada and Individual 4’s mailings to their constituents under the Mailer Program.
Indictment at ¶ 26.
Assuming, arguendo, that the above allegations were sufficient to establish an agreement with a quid pro quo, there can be no honest services conviction because none of these “acts,” if proven, was “official” according to McDonnell v. United States, 579 U.S. 550 (2016). With respect to the first alleged “official act,” as previously outlined, the applicable Guidelines belie the government’s contention that a formal vendor approval process existed for representatives seeking to use their Postage and Printing Allowance during the relevant time period: it did not. In reality, the Guidelines devote a total of two sentences to the use of private sector printing companies: “[p]rinting may be handled by private sector printing companies or through the State’s print shop;” and “[f]or information regarding payment of private sector vendors for printing and distribution services, please call 741-1100, ext. 44883.” See Exhibit A: Guidelines at p. 9. These Guidelines also do not prohibit Members from using their own or another Member’s business for Postage and Printing Allowance services, nor do they require Members to disclose any financial or other personal interest he/she may have in the company delivering said services. See generally, Exhibit A: Guidelines.
Regarding the second supposed “official act,” McDonnell makes it clear that “advising and pressuring” other Members to use their Postage and Printing Allowance to hire a Private Sector Vendor would not constitute a “decision or action” on a “question, matter, cause, suit, proceeding or controversy” required to sustain a conviction under
With respect to the third purported “official act,” there was likewise nothing “official” about Casada’s decision to use Individual 4’s consulting company (and vice-versa), or Phoenix Solutions, for their constituent mail. As previously explained, both Members had the option to use their Postage and Printing Allowance for constituent mail and their decision to hire Phoenix Solutions and/or a consulting company to generate and send this mail did not involve any “official act” by Casada and Individual 4, even if these two individuals also happened to be elected officials. To the extent that the third and final alleged “official act” is premised on the government’s theory of “undisclosed self-dealing”—that is, that Casada and Individual 4 wrongly acted in their own interests when deciding who they would hire to do their constituent mailers—Skilling expressly rejected this theory of criminal liability. An undisclosed conflict of interest cannot sustain an honest services conviction under
4. Due Process and Vagueness.
Assuming, for purposes of this Motion only, that the government’s reading of the statutes forming the basis for the honest services wire fraud charges against Cothren is correct (which Cothren vigorously disputes), then those statutes are still unconstitutionally vague, and the Indictment should be dismissed on those grounds. “To satisfy due process a penal statute [must] define the criminal offense (1) with sufficient definiteness that ordinary people can understand what conduct is prohibited and (2) in a manner that does not encourage arbitrary and discriminatory enforcement.” Skilling, 561 U.S. at 402-03. The government’s strained reading of the wire fraud statute fails both tests. Thus, Counts Five through Ten should be dismissed.
Defining an “official act” in a way that does not require proof that a public official sought to exercise governmental power on a specific matter will leave public officials second guessing the legality of every single decision facing them, no matter how perfunctory or inconsequential. The government’s all-encompassing definition of “official act” would potentially criminalize an elected official’s business dealings with other elected officials even if in a wholly private capacity, (like the owners of Company 1 and Company 2 in this case) and an official’s choices in purely administrative matters, such as the selection of a Private Sector Vendor and use of the Postage and Printing Allowance that had already been allocated. Such a broad and uncertain standard fails to provide fair notice in accordance with Skilling. It would also create a chilling effect on a public official’s routine decision-making and create criminal liability for nearly every decision a public official makes, even those in a private capacity.
By way of example, Members of the General Assembly receive, in addition to their salary and Postage and Printing Allowance, a “monthly expense allowance” of $1,000 for “expenses incurred in connection with official duties when away from the seat of government.” See Exhibit
Second, such a broad construction of “official act” would lead to arbitrary prosecutions. The danger of arbitrary prosecution is particularly clear here, given that Casada and Individual 4 are clearly not the only state officials whose private businesses benefited—and still benefit—in some way from their political offices.
In short, the government asks this Court to expand the “official act” concept beyond its settled scope. Should the honest services fraud provision be read and revised as the government requests, then those statutes will be rendered unconstitutionally vague. This Court should “resist the Government’s less constrained construction absent Congress’ clear instruction otherwise.” Skilling, 561 U.S. at 411.
E. Without an Underlying Illegal Act, the Conspiracy Charge in Count One Cannot Stand.
The government’s conspiracy charge in Count One of the Indictment is wholly derivative of the underlying offenses discussed at length above and fails for the same reasons. “The gist of the crime of conspiracy is the agreement to commit an illegal act.” United States v. Fruehauf Corp., 577 F.2d 1038, 1071 (6th Cir. 1978) (emphasis added). Without an “illegal act,” there can be no conspiracy under
F. The Absence of an Unlawful Business Is Fatal to the Fictitious Name to Carry Out a Fraud (18 U.S.C. Sections 1342, 2) Charge in Count Eleven.
In Count Eleven, the Indictment alleges Cothren used a fictitious name (“Matthew Phoenix”) and the United States Postal Service to carry on “an unlawful business, that is, the fraudulent operation of Phoenix Solutions.” Indictment ¶ 74.
G. There Can Be Neither Money Laundering nor Conspiracy to Commit Money Laundering in the Absence of Criminal Activity.
Counts Twelve through Twenty allege both money laundering and conspiracy to commit the same. The federal money laundering statute prohibits certain conduct involving “unlawful activity” or the “proceeds” of unlawful activities. See
To establish that money laundering or a conspiracy to commit the same occurred, the government must show that a criminal activity occurred in the first place.
As shown above, the government has failed to adequately allege that Cothren committed any unlawful act. In the absence of any criminal activity, there can be no money laundering and no related conspiracy. Consequently, the government’s remaining counts for conspiracy to commit money laundering and money laundering (Counts Twelve through Twenty) cannot stand. Because all counts fail, the Indictment should be dismissed in its entirety.
III. CONCLUSION
The political corruption charges brought against Cothren seek to criminalize business activities that were private—not public—in nature and completely lawful. Furthermore, the government seeks to criminalize a company providing the full benefit of the bargain to individual Members for the constituent mailers Phoenix Solutions, Company 1, and Company 2 provided. Adopting the government’s theory of the case would make it virtually impossible for these officials to understand what type of conduct is and is not prohibited and create criminal exposure for the wholly private business affairs of public officials. The federal programs, wire fraud, and honest services statutes do not afford federal prosecutors such wide-ranging power. The government’s overreaching Indictment therefore fails in toto, and all charges should be dismissed.
Respectfully Submitted,
Sherwood Boutique Litigation, PLC
/s/ Cynthia A. Sherwood
Cynthia A. Sherwood, #20911
Austin M. Correll, #39561
414 Union Street
Suite 1110
Nashville, TN 37219
T: 615-873-5670
F: 615-900-2312
cynthia@sherwoodlitigation.com
austin@sherwoodlitigation.com
Counsel for Defendant Cade Cothren
Barnes & Thornburg LLP
/s/ Joy Boyd Longnecker
Joy Boyd Longnecker, #29627
827 19th Avenue South
Suite 930
Nashville, TN 37203-3447
T: 615-925-9506
Joy.Longnecker@btlaw.com
Counsel for Defendant Cade Cothren
CERTIFICATE OF SERVICE
I certify that a true and correct copy of the foregoing was electronically filed with the Clerk on July 25, 2023, and service was made upon all persons registered in that case via CM/ECF and/or by email.
/s/ Cynthia A. Sherwood