In the Courts

Prior to trial in the United States District Court for the District of Utah, the government moved to disqualify Evanson's counsel, Max Wheeler, based on Wheeler's apparent first-hand knowledge and involvement in creating letters and e-mail the government sought to introduce as evidence of willfulness and an ensuing cover-up. The government held that if this evidence was successfully introduced, Wheeler would thereby become a necessary witness.

A magistrate judge initially denied the government's disqualification motion, citing concern that “'[i]f counsel who assist clients in investigative stages are to be disqualified in trial stages, defendants will be substantially restricted in their choice of counsel' and discouraged from seeking legal advice during an investigation.”

The government appealed the magistrate judge's determination. After two hearings on the issue, the district court reversed the magistrate judge's ruling. Specifically, the court pointed to the “strong possibility that Mr. Wheeler would be an unsworn witness.” The court cited the Second Circuit's opinion in United States v. Locascio, 6 F.3d 924 (2d Cir. 1993), which explained that “[a]n attorney acts as an unsworn witness when his relationship to his client results in his having first-hand knowledge of the events presented at trial.” This scenario is problematic because it allows the attorney to “subtly impart to the jury his first-hand knowledge of the events without having to swear an oath or be subject to cross-examination.”

For his part in the tax shelter scheme, the district court convicted Evanson on charges of conspiracy to commit tax fraud, tax evasion, and aiding and assisting in the preparation of false income-tax returns. Evanson contended on appeal that Wheeler's disqualification violated his Sixth Amendment right to counsel because the government failed to establish that Wheeler was “likely to be a necessary witness,” the standard for disqualification by conflict of interest included in Utah Rule of Professional Conduct 3.7. Utah R. Prof'l Conduct 3.7(a).

The Tenth Circuit rejected Evanson's appeal and affirmed Wheeler's disqualification.

In a concurring opinion, Judge Monroe G. McKay criticized the majority for endorsing disqualification as the means to cure possible unsworn witness issues, stating that the potential conflict of interest alone sufficiently justified disqualification.

Third Circuit Aligns with Ninth Circuit over Prongs of Federal Conspiracy Statute

In United States v. Rigas, No. 08-3218 (3rd Cir. Oct. 21, 2009), the Third Circuit found that 18 U.S.C. ' 371's “offense” and “fraud” prongs are merely separate means for committing a single offense and therefore, separate punishment is prohibited under the Fifth Amendment's Double Jeopardy Clause.

Defendants John and Timothy Rigas were convicted of conspiracy to commit an offense against the United States, and fraud counts in the Southern District of New York. The convictions related to the 2002 collapse of Adelphia Communications Corp., of which the elder Rigas was founder, Chairman, and CEO, and the younger Rigas served as CFO.

In their Third Circuit appeal to avoid trial for conspiracy to defraud the United States and underlying tax evasion charges in the Middle District of Pennsylvania, the Rigases argued that Section 371 merely delineates separate means to commit a single offense. After applying its four-factor test from United States v. Edmonds, 80 F.3d 810 (3d Cir. 1996) (en banc), the Third Circuit followed the approach taken by the Ninth Circuit and agreed with the Rigases, noting that Section 371's text, the historical treatment of conspiracy, due process considerations, and the rule of lenity all indicate that Section 371 creates a single offense. See United States v. Jerry Smith, 891 F.2d 703, 712 (9th Cir. 1989).

Next, the court used a totality of the circumstances evaluation to determine whether the Rigases had established a prima facie case for double jeopardy by showing that their conduct comprised a single violation of Section 371, dismissing the traditional “same elements” test set forth in Blockburger v. United States, 284 U.S. 299 (1932). Using this approach, the court held that the Rigases entered into a single agreement. Therefore, the court held that the Rigases could be prosecuted secondarily in Pennsylvania only if the government proved by a preponderance of the evidence that the Rigases entered into two separate agreements. The Third Circuit remanded this portion of the appeal to the District Court for that determination.

Judge Marjorie O. Rendell authored a dissenting opinion, arguing that the majority erred by not applying the Blockburger test, a choice which, according to Judge Rendell's analysis, was outcome determinative. Aligning with the rationale expressed by the Eighth and Tenth Circuits, Judge Rendell stated that Blockburger dictates that the “offense” and “fraud” prongs of Section 371 constitute separate offenses. See United States v. Ervasti, 201 F.3d 1029, 1039-40 (8th Cir. 2000); United States v. Thompson, 814 F.2d 1472, 1476-77 (10th Cir. 1987). Thus, under the Blockburger approach, subsequent prosecution of the Rigases would not violate the Double Jeopardy Clause.

No Honest-Services Fraud Without Violation of Fiduciary Duty

In United States v. McGeehan, No. 05-1954 (3d Cir. Oct. 22, 2009), the Third Circuit held that a violation of the implicit contractual duty of good faith and fair dealing is insufficient to secure a private sector honest services fraud conviction. Rather, 18 U.S.C. ' 1346 requires, at a minimum, establishing a violation of federal or state law fiduciary duty.

In McGeehan, the court dealt with an appeal by Lawrence McGeehan and Kathleen Haluska, the former President/CEO and Vice President/COO, respectively, of the Benjamin Franklin Technology Center, a Pittsburgh nonprofit corporation created by the State of Pennsylvania to encourage technology development and commercialization. As part of its mission, the BFTC contracted with the U.S. Navy to oversee a Navy electro-optics program. McGeehan and Haluska were prosecuted for mail fraud, wire fraud, and depriving both the BFTC and the Navy of the intangible right to their honest services for using BFTC funds to pay for personal expenditures and cover costs with no proper business purpose related to the Navy contract.

On appeal, McGeehan and Haluska argued that to obtain a private sector honest services fraud conviction, Section 1346 requires the government to prove a violation of a fiduciary duty specifically established by state or federal law. While McGeehan and Haluska conceded that they owed a duty to the BFTC to disclose material information, they argued that they owed no fiduciary duty to the Navy.

As part of prior Section 1346 decisions, the Third Circuit had previously addressed McGeehan's and Haluska's question with regard to public sector honest-services fraud, answering in the affirmative. See, e.g., United States v. Panarella, 277 F.3d 678, (3d Cir. 2002); United States v. Murphy, 323 F.3d 102 (3d Cir. 2003). Using its prior Section 1346 decisions as the starting point, the court sided with McGeehan and Haluska, holding that the court's precedent is properly read to require the existence of a specific federal or state law fiduciary relationship for establishing honest services fraud, be it public or private.

As the government's indictments relied solely on the inherent contractual duty of good faith and fair dealing, failing to identify a fiduciary duty owed to the Navy, the court overturned McGeehan's and Haluska's honest-services fraud count convictions. The court remanded their related wire and mail fraud appeals to the district court.

Tenth Circuit Rules on Defense Counsel Disqualification

In United States v. Evanson, No. 08-4164 (10th Cir. Oct. 19, 2009), the Tenth Circuit upheld a conviction obtained after pre-trial disqualification of the defendant's counsel due to concerns over a potential unsworn witness advantage arising from counsel's involvement throughout the government's investigation.

The defendant-appellant Dennis Evanson, along with five other individuals, was accused of using false insurance policies and promissory notes to conceal income and manufacture apparent deductions as part of a tax shelter scheme.

Prior to trial in the United States District Court for the District of Utah, the government moved to disqualify Evanson's counsel, Max Wheeler, based on Wheeler's apparent first-hand knowledge and involvement in creating letters and e-mail the government sought to introduce as evidence of willfulness and an ensuing cover-up. The government held that if this evidence was successfully introduced, Wheeler would thereby become a necessary witness.

A magistrate judge initially denied the government's disqualification motion, citing concern that “'[i]f counsel who assist clients in investigative stages are to be disqualified in trial stages, defendants will be substantially restricted in their choice of counsel' and discouraged from seeking legal advice during an investigation.”

The government appealed the magistrate judge's determination. After two hearings on the issue, the district court reversed the magistrate judge's ruling. Specifically, the court pointed to the “strong possibility that Mr. Wheeler would be an unsworn witness.” The court cited the Second Circuit's opinion in United States v. Locascio , 6 F.3d 924 (2d Cir. 1993), which explained that “[a]n attorney acts as an unsworn witness when his relationship to his client results in his having first-hand knowledge of the events presented at trial.” This scenario is problematic because it allows the attorney to “subtly impart to the jury his first-hand knowledge of the events without having to swear an oath or be subject to cross-examination.”

For his part in the tax shelter scheme, the district court convicted Evanson on charges of conspiracy to commit tax fraud, tax evasion, and aiding and assisting in the preparation of false income-tax returns. Evanson contended on appeal that Wheeler's disqualification violated his Sixth Amendment right to counsel because the government failed to establish that Wheeler was “likely to be a necessary witness,” the standard for disqualification by conflict of interest included in Utah Rule of Professional Conduct 3.7. Utah R. Prof'l Conduct 3.7(a).

The Tenth Circuit rejected Evanson's appeal and affirmed Wheeler's disqualification.

In a concurring opinion, Judge Monroe G. McKay criticized the majority for endorsing disqualification as the means to cure possible unsworn witness issues, stating that the potential conflict of interest alone sufficiently justified disqualification.

Third Circuit Aligns with Ninth Circuit over Prongs of Federal Conspiracy Statute

In United States v. Rigas, No. 08-3218 (3rd Cir. Oct. 21, 2009), the Third Circuit found that 18 U.S.C. ' 371's “offense” and “fraud” prongs are merely separate means for committing a single offense and therefore, separate punishment is prohibited under the Fifth Amendment's Double Jeopardy Clause.

Defendants John and Timothy Rigas were convicted of conspiracy to commit an offense against the United States, and fraud counts in the Southern District of New York. The convictions related to the 2002 collapse of Adelphia Communications Corp., of which the elder Rigas was founder, Chairman, and CEO, and the younger Rigas served as CFO.

In their Third Circuit appeal to avoid trial for conspiracy to defraud the United States and underlying tax evasion charges in the Middle District of Pennsylvania, the Rigases argued that Section 371 merely delineates separate means to commit a single offense. After applying its four-factor test from United States v. Edmonds , 80 F.3d 810 (3d Cir. 1996) ( en banc ), the Third Circuit followed the approach taken by the Ninth Circuit and agreed with the Rigases, noting that Section 371's text, the historical treatment of conspiracy, due process considerations, and the rule of lenity all indicate that Section 371 creates a single offense. See United States v. Jerry Smith , 891 F.2d 703, 712 (9th Cir. 1989).

Next, the court used a totality of the circumstances evaluation to determine whether the Rigases had established a prima facie case for double jeopardy by showing that their conduct comprised a single violation of Section 371, dismissing the traditional “same elements” test set forth in Blockburger v. United States , 284 U.S. 299 (1932). Using this approach, the court held that the Rigases entered into a single agreement. Therefore, the court held that the Rigases could be prosecuted secondarily in Pennsylvania only if the government proved by a preponderance of the evidence that the Rigases entered into two separate agreements. The Third Circuit remanded this portion of the appeal to the District Court for that determination.

Judge Marjorie O. Rendell authored a dissenting opinion, arguing that the majority erred by not applying the Blockburger test, a choice which, according to Judge Rendell's analysis, was outcome determinative. Aligning with the rationale expressed by the Eighth and Tenth Circuits, Judge Rendell stated that Blockburger dictates that the “offense” and “fraud” prongs of Section 371 constitute separate offenses. See United States v. Ervasti , 201 F.3d 1029, 1039-40 (8th Cir. 2000); United States v. Thompson , 814 F.2d 1472, 1476-77 (10th Cir. 1987). Thus, under the Blockburger approach, subsequent prosecution of the Rigases would not violate the Double Jeopardy Clause.

No Honest-Services Fraud Without Violation of Fiduciary Duty

In United States v. McGeehan, No. 05-1954 (3d Cir. Oct. 22, 2009), the Third Circuit held that a violation of the implicit contractual duty of good faith and fair dealing is insufficient to secure a private sector honest services fraud conviction. Rather, 18 U.S.C. ' 1346 requires, at a minimum, establishing a violation of federal or state law fiduciary duty.

In McGeehan, the court dealt with an appeal by Lawrence McGeehan and Kathleen Haluska, the former President/CEO and Vice President/COO, respectively, of the Benjamin Franklin Technology Center, a Pittsburgh nonprofit corporation created by the State of Pennsylvania to encourage technology development and commercialization. As part of its mission, the BFTC contracted with the U.S. Navy to oversee a Navy electro-optics program. McGeehan and Haluska were prosecuted for mail fraud, wire fraud, and depriving both the BFTC and the Navy of the intangible right to their honest services for using BFTC funds to pay for personal expenditures and cover costs with no proper business purpose related to the Navy contract.

On appeal, McGeehan and Haluska argued that to obtain a private sector honest services fraud conviction, Section 1346 requires the government to prove a violation of a fiduciary duty specifically established by state or federal law. While McGeehan and Haluska conceded that they owed a duty to the BFTC to disclose material information, they argued that they owed no fiduciary duty to the Navy.

As part of prior Section 1346 decisions, the Third Circuit had previously addressed McGeehan's and Haluska's question with regard to public sector honest-services fraud, answering in the affirmative. See, e.g., United States v. Panarella , 277 F.3d 678, (3d Cir. 2002); United States v. Murphy , 323 F.3d 102 (3d Cir. 2003). Using its prior Section 1346 decisions as the starting point, the court sided with McGeehan and Haluska, holding that the court's precedent is properly read to require the existence of a specific federal or state law fiduciary relationship for establishing honest services fraud, be it public or private.

As the government's indictments relied solely on the inherent contractual duty of good faith and fair dealing, failing to identify a fiduciary duty owed to the Navy, the court overturned McGeehan's and Haluska's honest-services fraud count convictions. The court remanded their related wire and mail fraud appeals to the district court.