Gregory A. Brower is a Shareholder with Brownstein Hyatt Farber Schreck, LLP in Las Vegas, NV and Washington, DC. Stanley L. Garnett is a Shareholder in the firm’s Denver, CO office. Mr. Brower also serves on WLF Legal Policy Advisory Board and is the WLF Legal Pulse’s Featured Expert Contributor, White Collar Crime and Corporate Compliance.

The latest political scandal involving a presidential candidate and a bridge came to a screeching halt on Thursday with the U.S. Supreme Court overturning the convictions of two former political operatives prosecuted for allegedly defrauding a federally funded entity.  In a 9-0 opinion authored by Justice Kagan, the Court held that the government must show an intent to obtain money or property in order to prove a violation of either the federal wire fraud statute or federal program fraud statute.  Clarifying that every corrupt act does not constitute a federal crime, the Court reversed the Third Circuit and overturned the convictions.

Kelly v. United States arose from the so-called “Bridgegate” scandal in 2013 which involved a scheme concocted by two staffers of then New Jersey Governor Chris Christie to punish the mayor of Fort Lee, New Jersey for not endorsing their boss’s reelection campaign.  The staffers conspired with New York-New Jersey Port Authority officials to alter traffic on the George Washington Bridge to create traffic gridlock in Fort Lee.  Exposure of the conspiracy led to a federal criminal investigation.  A federal grand jury charged the responsible officials under the federal criminal statutes prohibiting wire fraud (18 U.S.C. § 1343) and fraud on a federally funded program or entity (18 U.S.C. § 666(a)(1)(A)).  Two of the defendants went to trial and were convicted.  The Third Circuit affirmed the convictions, at least on the fraud charges, and the Supreme Court granted review.

The question for the Supreme Court was whether the defendants’ conduct actually constituted  fraud under the charged statutes.  While the Court agreed with the Government that the defendants did engage in wrongdoing including “deception, corruption, [and] abuse of power,” the Court nevertheless concluded that under settled precedent, the defendants’ conduct could violate the federal laws charged only if the object of their dishonesty was to obtain money or property.  The Government argued that the indictment satisfied this requirement because the defendants sought to both “commandeer” the bridge’s access lanes and to divert the wage labor of the Port Authority employees used in that effort.  The Court, however, disagreed, characterizing the scheme as aimed at altering a regulatory choice, not appropriating the government’s money or property.

With this decision, the Court further narrows the permissible scope of the federal criminal code in the property-fraud context.  Beginning with its decision in McNally, and continuing with Skilling, McDonnell, and now Kelly, the Court has increasingly raised the bar for DOJ when it comes to proving fraud.  Moreover, Kelly, like McDonnell, also reveals the Court’s growing reluctance to allow DOJ to criminalize purely political behavior.  As Justice Kagan observed, “not every corrupt act by state or local officials is a federal crime.”