The U.S. Supreme Court’s unanimous decision May 7 reversing the convictions in the “Bridgegate” scandal establishes limits on the scope of the federal wire fraud and mail fraud statutes that will have an important impact on pending and future prosecutions. The court’s decision will not only affect prosecutions involving alleged public corruption, it will also touch prosecutions involving the alleged defrauding of private entities and individuals.
An interesting example of this potential impact is the current prosecutions arising out of the “Varsity Blues” college admissions scandal.
The Bridgegate Decision
The federal wire fraud and mail fraud statutes are limited to the protection of property rights, and so the government must prove that the object of the fraud was to obtain money or property. In the Bridgegate case, the government argued that the scheme—which involved reallocating lanes and a phony traffic study—had the objects of:
- commandeering part of the George Washington Bridge by taking control of its lanes, and
- depriving the Port Authority of money—the compensation paid to traffic engineers and back-up toll collectors.
The court rejected both arguments.
The court explained that the reallocation of the lanes between different groups of drivers was an exercise of regulatory power, and that a scheme to alter a regulatory choice did not constitute a scheme to appropriate property. The defendants exercised the regulatory rights of “allocation, exclusion, and control” over who should get a benefit and who should not, and such intangible rights do not create a property interest.
Further, the object of the scheme was not to deprive the Port Authority of their employees’ services or the value of the employees’ paid time. Rather, the time and labor of those employees were simply the implementation costs of the defendants’ scheme to reallocate the Bridge’s lanes—“an incidental (even if foreseen) byproduct of [their] regulatory object.” The “property must play more than some bit part in a scheme: It must be an ‘object of the fraud.’”
The Implications of the Bridgegate Decision
Two aspects of the Bridgegate decision will impact other prosecutions for mail and wire fraud.
First, the court’s holding that intangible rights of allocation, exclusion, and control do not create a property interest should affect not only public corruption cases but also those (more unusual) cases where the scheme targets a private victim that is making a choice without direct economic consequences for it, such as selecting which customers it will allow to purchase its product.
Second, while the court had previously ruled that a scheme does not constitute mail fraud if use of the mails is only collateral or incidental to the scheme, it had never previously applied the “incidental” limitation to the property element of the offense.
Further, the lower courts had split on the related question of whether there is a de minimis limitation on the property interest that will support a mail or wire fraud prosecution. The Bridgegate decision now clearly establishes that a scheme that has only an incidental effect on property interests is not a covered offense.
The potential application of these holdings is illustrated by the Varsity Blues cases involving alleged corruption of the college admissions process. The prosecutors allege that the defendants committed mail and wire fraud by seeking “to obtain money and property, to wit, ACT and SAT and other standardized tests and test scores, and admission to the Universities.” The analysis in Bridgegate might be used to defend against this charge in several ways.
First, admission to a university may be viewed as a regulatory right of “allocation, exclusion, and control.” If so, then corrupting the admissions process to secure the admission of a particular student would not be a taking of property covered by the mail and wire fraud statutes as now interpreted by the Bridgegate case.
Second, the Bridgegate decision calls into question whether conducting standardized tests is also a form of regulation rather than property, so that any cheating during the testing process would not be a taking of property. Previously, one federal circuit court ruled that an educational testing service has sufficient property interests in its testing materials and test scores to support a mail fraud charge against participants in a scheme by which imposters were paid to sit for the test. It remains to be seen if that analysis is still persuasive after Bridgegate.
Finally, the Bridgegate decision might also support a defense that any interference with the property interests of a testing service was only an incidental byproduct of the scheme’s actual object: gaining admission to the university. The resolution of this issue may turn on whether the interference with the testing service played a sufficiently significant role in the overall scheme to constitute one of its objectives. (A single scheme may have multiple objects.) Once again, this issue will spur further litigation.
It appears, however, that actress Lori Loughlin and her counsel have decided not to make any of these Bridgegate arguments to contest the charges against her. Loughlin pleaded guilty to conspiracy to commit wire and mail fraud based on an allegation that the object of the fraud was property in the form of securing her daughter’s college admission.
Regardless of how it ultimately impacts the Varsity Blues cases, the Bridgegate decision significantly narrows the scope of all mail and wire fraud charges in the future. It limits the range of intangible interests that qualify as property and it discourages prosecutors from bringing charges where the property interests at stake play only a minor role in the fraudulent scheme.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Steven D. Gordon is a litigation partner in Holland & Knight’s Washington, D.C., office. He has been lead counsel in more than 100 trials and has argued in most of the federal appeals courts and the U.S. Supreme Court.