UNITED STATES OF AMERICA, Plаintiff-Appellee, v. ROBERT SORICH, TIMOTHY MCCARTHY, JOHN SULLIVAN, and PATRICK SLATTERY, Defendants-Appellants.
Nos. 06-4251, 06-4252, 06-4253 & 06-4254
United States Court of Appeals For the Seventh Circuit
April 15, 2008
Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 05 CR 644—David H. Coar, Judge. ARGUED MAY 1, 2007—DECIDED APRIL 15, 2008
WILLIAMS, Circuit Judge. Despite the existence of a federal consent decree and other measures that for decades have sought to bring more transparency and legitimacy to the City of Chicago‘s civil service hiring, patronage appointments have continued to flourish. These defendants were key players in a corrupt and far-reaching scheme, based out of the mayor‘s Office of Intergovernmental Affairs, that doled out thousands of city civil service jobs based on political patronage and nepotism. The
I. BACKGROUND
The beating heart of this fraudulent scheme was the mayor‘s Office of Intergovernmental Affairs (IGA). Formally, the office serves as a liaison between the City of Chicago and state and federal governments and has no role in hiring for the city‘s 37,000 or so civil service jobs. Informally, the office coordinated a sizeable portion of the
The government introduced a substаntial amount of evidence describing both the contours and the details of this long-running operation (it has likely been in place since before any of these defendants came to work for the city1). We view the evidence in the light most favorable to the government since the jury found the defendants guilty. It includes testimony from former department heads, political campaign coordinators, personnel managers, and workers both hired and rejected; wiretaps of conversations; and documentary evidence, including hiring records, sham interview forms, and lists tracking job applicants and their sponsors. The most dramatic document is a spreadsheet showing all 5,700 patronage applicants and their sponsors between 1990 and 1997. The spreadsheet was kept on defendant Robert Sorich‘s laptop computеr, and he attempted to destroy both the list and the computer, but both were turned over to the FBI in 1997 pursuant to a grand jury subpoena. FBI analysts were able to recover the spreadsheet.
Rather than describe this evidence in detail, we will provide an overview here, and will supply any relevant specifics in the analysis section below. Sorich was the mayor‘s so-called “patronage chief,” and held the title Assistant to the Director of IGA. Defendant Timothy McCarthy was Sorich‘s deputy from 2001 to 2005 and often stepped into his shoes. Campaign coordinators would pass Sorich lists of campaign workers and volun-
During both individual and mass-hiring sequences, departmental managers like Slattery and Sullivan would hold sham interviews and then falsify interview forms in favor of the pre-selected “winners.” The interview forms were often filled out weeks after the interviews, with one pile for blessed applicants (to be given high scores), and another for everybody else (to be given low scores). Some positions, such as tree trimmer, required merit tests but the results were frequently ignored. Evidence showed that Sorich even pressured departmental managers to hire applicants with drinking problems for positions that involved overseeing workplace safety.
This all went on despite the existence of multiple laws and personnel regulations forbidding the use of political considerations in hiring for civil service jobs, and mandating the awarding of thosе jobs on merit. These laws largely stem from the “Shakman Decrees,” which are two federal consent decrees banning the use of politics in City of Chicago hiring that came into being as a result of litigation in the 1970s and ‘80s. Members of the scheme falsely signed “Shakman certifications,” attesting that particular hiring sequences had not been influenced by political patronage.
Early on, the defendants moved to dismiss the indictment. The district court denied the motion, and many of the arguments that it rejected form the basis of this appeal. During trial the government moved to dismiss its first count of mail fraud, which implicated all four defendants,
II. ANALYSIS
A. Mail fraud
The indictment posited two theories of mail fraud: that the defendants defrauded the city and the people of (1) money and property, and (2) the intangible right to the defendants’ honest services as city officials. The jury filled out a general verdict form that did not specify under which theory it convicted. If the defendants were mounting a factual challenge to the sufficiency of the evidence, then sufficient evidence to convict on either theory would preserve the jury‘s verdict. But both theories must be legally sound—the honest services statute must be constitutional, for instance—in order for the guilty verdict to stand, and the defendants argue that the honest services theory was fatally flawed. See Griffin v. United States, 502 U.S. 46, 59-60 (1991); Tenner v. Gilmore, 184 F.3d 608, 611 (7th Cir. 1999); United States v. Sun-Diamond Growers, 138 F.3d 961, 972 (D.C. Cir. 1998). We begin with that argument, and then consider the defendants’ narrower challenge to the money and property theory of mail fraud.
The defendants’ chief argument on appeal is that the district court‘s jury instructions on honest services mail fraud impermissibly expand the scope of that crime beyond the statute. They also contend that the honest services mail fraud statute is unconstitutionally vague, and that only state law can supply the fiduciary duty that runs between public officials and the citizenry. Before turning to those arguments, we provide a bit of background on honest services mail fraud.
a. Background and history
The mail fraud statute,
Rather than construe the 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, we read § 1341 as limited in scope to the protection of property rights. If Congress desires to go further, it must speak more clearly than it has.
Broadly speaking, honest services fraud cases come in two types. In the first, an employer is defrauded of its employee‘s honest services by the employee or by another. In United States v. George, 477 F.2d 508, 509-10 (7th Cir. 1973), for example, an employee of television manufacturer Zenith granted a contract to another company to supply television cabinets in exchange for kickbacks. The Zenith employee, the worker at the cabinet factory, and a middleman all were convicted of depriving Zenith of its employee‘s honest services. In the second and more common type of case, the citizenry is defrauded of its right to the honest servicеs of a public servant, again, by that servant or by someone else. For instance, in United States v. Warner, 498 F.3d 666 (7th Cir. 2007), the Illinois Secretary of State channeled state contracts and leases to a friend in return for paid vacations.
In both examples above, and in most honest services cases, the defendant violates a fiduciary duty in return for cash—kickbacks, bribes, or other payments. Not all fraud cases follow this precise pattern, as we shall see, but given the amorphous and open-ended nature of
Our misuse-of-position-for-private-gain limitation has not been adopted by other circuits, and in fact has come in for its share of criticism. The Tenth Circuit, in rejecting the limitation, characterized it as an effort “to judicially legislate by adding an element to honest services fraud which the text and structure of the fraud statutes do not justify.” United States v. Welch, 327 F.3d 1081, 1107 (10th Cir. 2003). And the Third Circuit stated that the requirement “adds little clarity to the scope of § 1346” and is, among other things “under-inclusive” because it would not cover
b. Private gain
The defendants’ chief argument centers on the “private gain” requirement. The district court‘s jury instruction stated that a scheme to defraud requires an intent “to deprive a governmental entity of the honest services of its employees for personal gain to a member of the scheme or another” (emphasis added). The defendants contend that the “or another” language misstates Bloom, which, they say, teaches that only a scheme to enrich the defendant or his co-schemers qualifies as a fraud—a scheme to enrich а third party does not count. The distinction is critical, because here the defendants are charged not with enriching themselves but with enriching (with
The defendants’ argument that any private gain must go to the defendants themselves is not without basis, for we and other courts have not always been consistent with our description of the requirement. Although McNally itself and the key portions of Bloom refer to “private gain,” Bloom also once uses the phrase “personal gain,” 149 F.3d at 657, and in United States v. Hausmann, 345 F.3d 952, 956 (7th Cir. 2003), we used “personal gain” exclusively. Other circuits have also described our requirement as a “personal gain” or “personal benefit.” See Brown, 459 F.3d at 520; Welch, 327 F.3d at 1106; Panarella, 277 F.3d at 692. The semantic difference between “private” and “personal” gain may be insignificant, but to the extent that “personal” connotes gain only by the defendant, it is misleading. By “private gain” we simply mean illegitimate gain, which usually will go to the defendant, but need not.
Imagine scenario (A) in which a mayor surreptitiously channels city contracts to his cronies in the business community; they get a windfall whereas he has merely
These cases are the exception to a rule of human nature rather than of law: usually someone up to no good will be out to enrich himself, not others. It is thus with a hint of irony that we stated in United States v. Spano, 421 F.3d 599, 603 (7th Cir. 2005), that “[a] participant in a scheme to defraud is guilty even if he is an altruist and all the benefits of the fraud accrue to other participants.” The defendants seize on Spano‘s “other participants” language and contend that fraud exists when private gain goes to other
Reading Bloom‘s private gain requirement to include gain by non-schemers does not, as the defendants wаrn,
The defendants also contend that United States v. Thompson compels a decision in their favor. There we reversed the mail fraud conviction of Wisconsin procurement officer Georgia Thompson, who was in charge of awarding a contract for the state‘s travel needs. Thompson forced a run-off between her boss‘s contractor of choice, Adelman Travel Group, and another bidder that came out slightly ahead in a highly subjective scoring process. The two companies tied in the run-off and Thompson broke the tie in Adelman‘s favor according to approved procedures. Her boss was happy and she received a small raise through normal channels, but we held that this was not
The present case, by contrast, features a massive scheme to dеfraud, complete with specific intent and material misrepresentations. The defendants created an illegitimate, shadow hiring scheme based on patronage and cronyism by filling out sham interview forms, falsely certifying that politics had not entered into their hiring, and covering up their malfeasance. These are the hallmarks of a fraud. See United States v. Bush, 522 F.2d 641, 647-48 (7th Cir. 1975). Thompson is miles away.
c. Constitutionality of 18 U.S.C. § 1346
The defendants next contend that the honest services mail fraud statute is unconstitutionally vague as applied to their case. They argue that they were not on notice that their behavior was illegal, and that the government‘s interpretation of the statute is open to prosecutorial overreaching. Again we must disagree.
An en banc panel of the Second Circuit recently stated that “[n]o circuit has ever held . . . that section 1346 is unconstitutionally vague.” Rybicki, 354 F.3d at 143. That statement involved an asterisk, because the Second Circuit had just a year earlier held that the provision was
d. Source of fiduciary duty
The defendants next argue that the indictment and the jury instructions impermissibly stated that the Shakman consent decree was one of the sources creating a fiduciary duty between the defendants and the citizenry. We review this challenge de novo.
There are actually two Shakman decrees, one entered in 1972 and one in 1983, and both are the result of litigation by Michael Shakman, an independent candidate for the Illinois Constitutional Convention who felt locked out of the campaign process because of the City of Chicago‘s patronage hiring system. See generally O‘Sullivan v. City of Chicago, 396 F.3d 843, 847-50 (7th Cir. 2005). Somewhat simplified, the decrees forbid the city from basing its hiring decisions for civil servants on political factors.
The defendants nevertheless contend that the Shakman decrees are an impermissible source of a fiduciary duty, and that since the jury did not indicate which source it relied upon, the verdict must be overturned. But we have never held that only state law can supply a fiduciary duty between public official and public or between employee and employer in honest services cases. See Bush, 522 F.2d at 646 n.6. Indeed, our case law, and the case law of the vast majority of circuits, shows that other sources can create a fiduciary obligation. E.g., George, 477 F.2d at 514 n.7 (employee handbook); United States v. Williams, 441 F.3d 716, 723-24 (9th Cir. 2006) (power of attorney agreement). It may well be that merely by virtue of being public officials the defendants inherently owed the public a fiduciary duty to discharge their offices in the public‘s best interest. See United States v. DeVegter, 198 F.3d 1324, 1328 (11th Cir. 1999).
The defendants invite us to adopt the minority “state law limiting principle” shared by the Third and Fifth Circuits, Murphy, 323 F.3d at 116-17; Brumley, 116 F.3d at 734, but we have already declined to add this limiting
2. Traditional mail fraud
In addition to challenging the government‘s theory of honest services mail fraud, the defendants attack the alternate theory that they committed what might be called traditional mail fraud. We review de novo their contention that the indictment insufficiently alleged a deprivation of money or property. See United States v. Moore, 446 F.3d 671, 676 (7th Cir. 2006).
By setting up a false hiring bureaucracy the defendants arguably cheated the city out of hundreds of millions of dollars. The defendants argue that since the city would have filled these jobs and paid these salaries anyway, it has not suffered a loss. But we rejected this argument in United States v. Leahy, 464 F.3d 773, 787-89 (7th Cir. 2006), in which we upheld the conviction of a Chicagoan who obtained millions of dollars in city contracts by falsely certifying his businesses as minority-owned enterprises. We were unpersuaded by his contention that since the city would have awarded the contracts to someone, no harm was done: the “object was money, plain and
Jobs are a lot like contracts. Neither is a bag full of money but both are immensely valuable: a contract is a promise to pay for services rendered, while a job is the exchange of labor for a paycheck. Hence just as Leahy held that fraudulently obtained contracts are property, courts have found thаt salaries fraudulently obtained, United States v. Doherty, 867 F.2d 47, 56, 60 (1st Cir. 1989) (Breyer, J.), and job opportunities fraudulently denied, United States v. Douglas, 398 F.3d 407, 417-18 (6th Cir. 2005); United States v. Granberry, 908 F.2d 278, 280 (8th Cir. 1990), represent property for purposes of mail fraud. The defendants argue that the right to give out jobs is a mere regulatory interest of the kind that Cleveland v. United States, 531 U.S. 12, 20-21 (2000), said cannot give rise to a property right. But the Court in Cleveland held that a video poker license granted by the state is not property, and we think the jobs at issue here are much closer to contracts than poker licenses.
The defendants also point to United States v. Walters, 997 F.2d 1219 (7th Cir. 1993), which they say counsels that if the money or property doesn‘t go to the defendants, it doesn‘t amount to mail fraud. In Walters, we reversed the conviction of a sports agent who signed college athletes, in contravention of NCAA rules. The theory of
In sum, we hold that jobs are property for purрoses of mail fraud, and that the indictment sufficiently alleged a deprivation of property.
3. Other matters pertaining to mail fraud and the indictment
Sorich, McCarthy, and Slattery raise a host of other challenges to their convictions. We find these arguments unpersuasive, and briefly discuss those substantial enough to warrant written comment.
a. Use of the mails
McCarthy contends that insufficient evidence ties the use of the mails to his two counts of conviction. With respect
b. Joining the scheme
Slattery argues that insufficient evidence shows that he joined the fraudulent scheme and possessed the specific intent to defraud. The argument has very little merit. To start with, Slattery personally falsified hundreds, if not thousands, of interview forms. He contends that “the forms cannot be accurately described as true or false,” but this is a bit too philosophical for us, as we suspect it was for the jury. The forms contained numerical scores for such categories as, in a truck driver hiring sequence, driving ability and past driving experience. Although these criteria are perhaps subjective, filling them out willy-nilly and dozens at a time—high scores for blessed applicants, low scores for the rest, without even an attempt to quantify their skills—can fairly be described as falsification.
Slattery also pleads ignorance, saying that no juror could have found that he even knew that a fraudulent hiring system was afoot, let alone joined it. We think the jury was well-supported in rejecting this contention. Slattery and Sorich were good friends, and Daniel Katalinic, a former deputy commissioner of Streets and Sanitation who ran a political organization, testified that he overheard Slattery complain that his own political workers were not getting choice enough jobs, and that he would talk to Sorich about the matter. Katalinic also testified, as did Slattery‘s boss Jack Drumgould, that Slattery accompanied Drumgould to meetings in which Sorich would hand out a group of blessed applicants, and that Slattery sometimes took names directly from Sorich and passed them on to Drumgould for hiring. A reasonable jury could find beyond a reasonable doubt on this evidence that Slattery joined the scheme with an intent to defraud.
Sorich and McCarthy contend that the district court abused its discretion by refusing to dismiss a portion of the indictment that the government amended by superseding indictment thirteen days prior to trial. The government contends that after reviewing its trial proof, it decided to substitute one mailing for another on count two in order to strengthen its case and to avoid having to rely on a witness with shaky credibility. The defendants can neither show that this minor change prejudiced them in any concrete way—by demonstrating, for example, that their attorney was unable to prepare in time—nor rebut the government‘s explanation that it simply wished to tighten its case. They have failed to make out a due process claim on this point. See United States v. McMutuary, 217 F.3d 477, 481-82 (7th Cir. 2000).
McCarthy argues that count five—which charged mail fraud in the hiring of two unqualified union officials’ sons as building inspectors—was inconsistent with the remainder of the indictment. The indictment charged a scheme of false hiring exclusively for political campaign work, he argues, whereas in this count, hiring was based on nepotism. But as in United States v. Stout, 965 F.2d 340, 344 (7th Cir. 1992), McCarthy‘s “interpretation of the indictment is too narrow.” In the very first paragraph of the indictment‘s “overview of the scheme” section, this text appears: “In addition, in some cases Sorich and others rewarded other favored persоns and groups with City jobs and promotions.” Fairly read, the scheme set out in the indictment is fraudulent hiring of cronies—usually political cronies, but not always—and count five fits in this scheme.
John Sullivan was charged with one count of mail fraud and two counts of knowingly making materially false statements to the FBI,
Sullivan was interviewed three times by Assistant United States Attorneys and FBI agents. At that early point in the investigation, the agents focused their questioning on the city‘s “hired truck” scandal, which turned out to be the wedge that allowed prosecutors to split the log of fraudulent city hiring. See generally United States v. Boyle, 484 F.3d 943, 944 (7th Cir. 2007). Nevertheless, they did ask about patronage in hiring, and specifically about the clout of Daniel Katalinic, who as mentioned above ran a political organization and was the Assistant Commissioner for the Department of Streets and Sanitation. Katalinic was originally indicted with these four defendants, but he pled guilty and cooperated with the government.
At trial the government elicited the specifics of Sullivan‘s February 18, 2005 interview through the testimony of FBI Agent John Hauser, who was present аnd took notes:
Government: Now, sir, what, if anything, did he say about Mr. Katalinic‘s political organization or getting preferential treatment in the hiring process?
Hauser: He said that to his—he didn‘t have any knowledge about members of Katalinic‘s political organization getting preferential treatment.
. . .
Government: What, if anything, did he say about his knowledge of membership of the Katalinic organization?
Hauser: He said he didn‘t know who the members of Mr. Katalinic‘s organization were.
These two statements make up the count of conviction for false statements. The indictment describes the false statements as “A. Sullivan had never heard of members of Katalinic‘s organization getting preferential treatment; and B. Sullivan did not know the identity of members of Katalinic‘s organization.”
During the cross-examination of Agent Hauser, the defense emphasized that he did not record the conversation verbatim, but rather used his notes to refresh his recollection on the stand, and that he did not write up his formal report of the interview until five and a half months later. (Hauser testified that it was not his usual practice to wait so long, but that there “was an intense amount of activity in the investigation at that point.“) The defense also pinned Hauser down on what exactly his notes—which were not introduced into evidence—said.
Q: Never heard of DK‘s political people getting good treatment?
A: Doesn‘t know who they are.
We reject Sullivan‘s argument that there was insufficient evidence for the jury to find that he knowingly and willfully made false material statements about his knowledge of Katalinic‘s organization. See United States v. Humphrey, 34 F.3d 551, 556 (7th Cir. 1994). Sullivan says he was unaware of a shadow hiring system, but the testimony of several witnesses, including Katalinic and Drumgould, showed that Sullivan complаined about various IGA picks, instructed others to interview and hire certain individuals, passed on IGA candidates to those with hiring authority, and discussed members of Katalinic‘s political organization, including Pat Foy, a close friend of Sullivan‘s and a member of Katalinic‘s organization who testified for the government. Thus it is telling that during his three interviews with Assistant U.S. Attorneys and FBI agents, Sullivan never mentioned IGA or the role of politics in hiring decisions, despite ample opportunities to do so. With particular regard to Katalinic‘s political workers, testimony tied Sullivan to a list of Streets and Sanitation interviewees, complete with a color-coded key matching favored applicants with powerful sponsors, including “Dan K.” Foy testified that the key was in Sullivan‘s handwriting. The jury was permitted to conclude that Sullivan knew the identities of members of Katalinic‘s organizatiоn, and that Sullivan knew that they were getting jobs and promotions.
Sullivan also contends that he was entitled to an instruction under Bronston v. United States, 409 U.S. 352 (1973),
C. Sentencing
Only one defendant challenges his sentence. Slattery argues that the district court clearly erred by refusing to
We cannot agree with Slattery that he was substantially less culpable than the average participant in the hiring scheme. He was certainly less involved than Sorich, who oversaw all hiring. But the fraud could not have succeeded without high-level players in each department willing to organize sham interviews and hire the blessed candidates. In other words, the scheme required both a chief executive and mid-level management. See United States v. Gallardo, 497 F.3d 727, 741 (7th Cir. 2007) (essential member of scheme not entitled to adjustment even though othеrs were more involved); United States v. Olivas-Ramirez, 487 F.3d 512, 516 (7th Cir. 2007) (same). Slattery protests that he only contributed to the scheme for part of its duration, but that argument is tough enough when one is involved for only two days, Olivas-Ramriez, 487 F.3d at 515-16, let alone the five years that Slattery participated. We also note that Slattery was personally responsible for providing false information on hundreds if not thousands of interview forms, behavior that belies a suggestion that he was a bit player. The district court did not clearly err in denying his request for a minor-role adjustment.
For the foregoing reasons, we AFFIRM the convictions and sentences of the defendants.
USCA-02-C-0072—4-15-08