In Kelly v. United States, the U.S. Supreme Court unanimously reversed the "Bridgegate" convictions of Bridget Anne Kelly and William Baroni Jr. The decision follows from the court's prior holdings that the federal mail and wire fraud statutes do not impose standards of good government on public officials, and that a scheme directed to the exercise of regulatory power is not prohibited by those statutes. In that respect, the decision does not break new ground. But the court also found that while the scheme resulted in the taking of property (the paid time of public employees), that taking was not the "object" but merely "an incidental byproduct" of the scheme. That aspect of the holding may well create new defenses and raise the prosecution's burden in future fraud cases.

In 2013, Kelly, aide to then-New Jersey Gov. Chris Christie, Baroni, deputy executive director of the Port Authority, and David Wildstein, Baroni's chief of staff, devised a scheme to exact revenge on the mayor of Fort Lee for his refusal to endorse Christie for reelection. In a kickoff email that would become well known, described by Justice Elena Kagan as "admirably concise," Kelly wrote: "Time for some traffic problems in Fort Lee."

Under the guise of conducting a traffic study, Kelly, Baroni and Wildstein agreed to reduce Fort Lee's dedicated toll lanes on the George Washington Bridge from three to one to create a traffic jam that would send a "message" to the mayor. The city's streets came to a standstill as school buses, police vehicles, and ambulances struggled to reach their destinations. The traffic lasted four days, until the executive director of the Port Authority reversed the lane reduction. Baroni, Kelly and Wildstein lost their jobs and a federal investigation ensued. Wildstein cooperated, pleading guilty to conspiracy charges. Kelly and Baroni were convicted of fraud on a federally funded program, wire fraud, and conspiracy.  The Third Circuit affirmed.

The Decision

Kagan wrote the opinion for a unanimous Supreme Court, reversing.  The court held that the scheme at issue was not one to obtain money or property, as the federal fraud statutes require. First, the plot to realign the lanes was a scheme to direct an exercise of regulatory power, not a scheme to deprive the government of property. Second, while the co-conspirators intentionally usurped property in the form of public employee labor to further the scheme, through the use of traffic engineers for the fictitious traffic study and backup toll collectors for the lane realignment, the court found that the taking of this property was not the object of the scheme, but rather its "incidental (even if foreseen) byproduct." Therefore, that conduct was not fraud.

The Supreme Court's decision in Kelly is consistent with the court's long-standing narrow reading of federal fraud statutes, particularly as applied in public corruption prosecutions. In 1987's McNally v. United States, the Supreme Court rejected a broader application of these statutes to frauds resulting in a deprivation of the intangible right to good government, but that did not involve the taking of money or property. The court emphasized that the federal fraud statutes are limited to protecting property rights. It reaffirmed this position in 2000's Cleveland v. United States, holding that a scheme to obtain state and municipal licenses could not be charged as fraud because the state had only a regulatory interest, not a property interest, in those licenses.

When Congress amended the mail and wire fraud statutes to include honest services fraud in the wake of the McNally decision, the court in Skilling v. United States limited the application of those statutes to schemes involving bribery and kickbacks. And in McDonnell v. United States the court further limited the statute's application, narrowing the categories of "official" acts that may be prosecuted as honest services fraud.

Broader Implications

In these decisions, from which Kelly logically follows, the court has consistently limited the use of the federal fraud laws to prosecute public corruption. Kelly's limiting principle arguably goes a step further, however, in finding that while the co-defendants deceptively and intentionally obtained public employee labor, they did not violate the fraud statutes because this was not their object, but was merely "incidental" to their regulatory goals. The court agreed with the government that Port Authority employees' time and labor are property within the meaning of the fraud statutes, and that Kelly and Baroni intended to misuse this property in connection with their scheme. Ample precedent supported the Third Circuit's conclusion that these facts were sufficient to establish the elements of federal wire fraud. But the court instead dismissed this intentional taking of property by deception as an "incidental byproduct," rather than the real object, of the defendants' scheme.

The holding may allow for new defenses to fraud charges, to the extent it suggests that the government must prove not only a defendant's intentional taking of property, but also that the taking of property was the defendant's primary object, and not merely incidental (even if foreseeable). Juries are routinely charged that a scheme to defraud is a plan or course of action to obtain money or property by false pretenses. The facts would appear to establish that Kelly and Baroni did just that. A scheme may have multiple objects, and the government previously has not been required to prove that the sole object of the scheme was to obtain property. It remains to be seen whether the Kelly ruling will increase the government's burden, particularly in federal fraud cases outside the public corruption context.

Jocelyn Strauber is a partner and Caroline Ferris White and Mary C. Ross are associates at Skadden, Arps, Slate, Meagher & Flom. They represent companies and individuals in a wide array of criminal and civil enforcement matters.