United States District Court,
UNITED STATES of
GROWERS OF CALIFORNIA, Defendant.
Crim. Action No.
Sept. 9, 1996.
OPINION AND ORDER
URBINA, District Judge.
Sun-Diamond's Motion to Dismiss the Indictment
On September 9, 1994, pursuant to 28
U.S.C. Section 593(b), the United States Court of Appeals for the District of Columbia
Circuit, Special Division for the Appointment of Independent Counsels (Special Division),
appointed Donald C. Smaltz Independent Counsel to investigate whether former Secretary of
Agriculture Alphonse Michael (Mike) Espy (Secretary Espy) violated federal criminal law by
accepting improper gifts from organizations or individuals with business matters pending
before the Department of Agriculture while he was Secretary of Agriculture.
Sun-Diamond, a large agricultural cooperative based in California, had business
matters pending before the Department of Agriculture during Secretary Espy's
tenure.Sun-Diamond is owned by five member cooperatives: Diamond Walnut Growers, Sun-Maid
Growers of California, Sunsweet Growers, Inc., Valley Fig Growers, and Hazelnut Growers of
Oregon. In December 1994, the Office of Independent Counsel (OIC) began its investigation
of Sun-Diamond using a grand jury convened by this court. The grand jury returned an
indictment against Sun-Diamond alleging that the defendant had unlawfully provided $9,000
worth of gifts, directly or indirectly, to Secretary Espy, in violation of the federal
gratuity statute, 18
U.S.C. s 201(c)(1)(A). The indictment further alleges that Sun-Diamond devised and
executed a scheme to make an unlawful corporate contribution, in the name of another, in
the amount of $4,000 to a federal candidate for office, in violation of 2
U.S.C. s 441b(a) and 441f.
Specifically, count I alleges that Sun-Diamond, through its former Senior Vice
President, Richard Douglas (Mr. Douglas), expended on Secretary Espy's behalf, over a 14
month period, approximately $2,295 for tickets to the 1993 U.S. Open Tennis Tournament,
approximately $2,427 for luggage, approximately $665 for meals, and approximately $524 for
a framed print, packing for the print, and a crystal bowl. Count I also charges that all
of the expenses associated with the gratuities given by Mr. Douglas to Secretary Espy were
reimbursed by Sun- Diamond as company business expenses. Count II alleges that Mr. Douglas
advanced $3,100 to Secretary Espy's girlfriend, Patricia Dempsey, to pay for the cost of
an airplane ticket so that she could accompany Secretary Espy to a trade association
conference in Greece. The indictment further alleges that the trade association that
sponsored the conference reimbursed Mr. Douglas.
Counts III through IX allege the following: Mr. Douglas and James H. Lake (Mr. Lake),
a principal of Robinson, Lake, Sawyer and Miller (Robinson-Lake), a public relations firm
in Washington, D.C., together devised a scheme to enable Sun-Diamond to make an unlawful
corporate contribution in the name of another. [FN1] To effect this contribution, Mr.
Douglas and Mr. Lake allegedly agreed that Mr. Lake would obtain $1,000 contribution
checks from several Robinson-Lake employees. Robinson-Lake then invoiced Sun-Diamond for a
false and fictitious expense sufficient to cover these contributions. Finally, Sun-
Diamond's payment of the expense to Robinson-Lake was used to reimburse the individuals
that advanced the campaign contributions. [FN2]
Espy, Secretary Espy's brother, was to be the beneficiary of the contribution. Henry Espy
ran, unsuccessfully, for the congressional seat vacated by Secretary Espy when he became
Secretary of Agriculture.
FN2. Counts III
and IV allege wire fraud. Counts V through IX allege violations of the Federal Election
This matter comes before the court upon Sun-Diamond's motion to dismiss the indictment
in this case. Sun-Diamond raises six arguments in support of its motion. Each argument
addresses one or more counts contained in the indictment. First, Sun-Diamond argues that
count I, which charges a violation of the gratuity statute, should be dismissed because it
fails to allege that Sun-Diamond provided things of value to Secretary Espy to reward him
for an act he had already performed or had committed himself to perform. Second, Sun-
Diamond posits that count II, which also alleges a violation of the gratuity statute,
should be dismissed because it fails to allege that Sun-Diamond provided a "thing of
value" to Secretary Espy. Third, Sun-Diamond moves to dismiss counts I and II because
the allegations set forth therein do not distinguish between innocent gift giving and
illegal gratuities. Fourth, Sun- Diamond requests that the court dismiss counts III
through IX of the indictment because the violations alleged in those counts are outside
the scope of the independent counsel's jurisdiction. Fifth, Sun-Diamond moves to dismiss
count III, which alleges wire fraud, because the alleged wire communication at issue did
not further the execution of the alleged scheme. [FN3] Lastly, Sun-Diamond moves to
dismiss, or in the alternative strike, the part of counts III and IV that allege that Mr.
Douglas and Mr. Lake sought to defraud two entities, Robinson-Lake and its parent company,
Bozell Worldwide, Inc., of the intangible right to Mr. Lake's honest services. The court
will address each argument seriatim.
alleged scheme relates to the effort by Mr. Douglas and Mr. Lake to make an unlawful
campaign contribution to help retire Henry Espy's campaign debt.
Sun-Diamond moves to dismiss count I of the indictment on the basis that the
indictment fails to allege that Sun-Diamond provided things of value to Secretary Espy for
an improper purpose. More particularly, Sun-Diamond claims that the indictment does not
allege that Sun-Diamond provided things of value to reward Secretary Espy for a specific
act he had already performed or was already committed to perform. Sun-Diamond contends
that the indictment must allege and the OIC must demonstrate a nexus between the alleged
gratuity and "a definite official act for which [Sun-Diamond] intend[ed] to
compensate [,]" Secretary Espy in order for its conduct to be in violation of 18
U.S.C. s 201(c), the gratuity statute. Given this required nexus, Sun-Diamond argues,
the indictment must allege that it "intended to reward [Secretary Espy] for past
action or action [the Secretary] was already committed to take." As fully discussed
infra, to sustain a charge under the gratuity statute, it is not necessary for the
indictment to allege a direct nexus between the value conferred to Secretary Espy by
Sun-Diamond and an official act performed or to be performed by Secretary Espy. It is
sufficient for the indictment to allege that Sun-Diamond provided things of value to
Secretary Espy because of his position. Accordingly, the court denies Sun-Diamond's motion
to dismiss count I.
The indictment alleges that there were two matters pending before the Department of
Agriculture and Secretary Espy, in which Sun-Diamond had a significant economic stake.
They were the market promotion program (MPP) and the issue of whether the fumigant methyl
bromide would be banned by the Environment Protection Agency (EPA). During 1993 and 1994,
the Department of Agriculture administered a grant program, MPP, designed to increase
export sales of certain U.S. agricultural commodities abroad. Under the MPP, the Secretary
of Agriculture was authorized to award government funds to trade organizations, if the
Secretary determined that such organizations would significantly contribute to the sale of
U.S. farm commodities abroad. To receive money to market their products abroad, trade
organizations submitted marketing plan applications to the Department of Agriculture. By
law, the Secretary of Agriculture had to approve the award of MPP money to each trade
organization. The trade organizations would in turn award money to companies, like the
member cooperatives of Sun-Diamond, to pay for part of their marketing campaigns in
Beginning in or about August 1993, the Department of Agriculture was required by law
to develop regulations which gave small-sized entities preference in obtaining certain MPP
funds. During that time, the Department of Agriculture entertained the issue of whether to
include cooperatives in the definition of a small-sized entity. The indictment alleges
that Sun-Diamond wanted the Secretary of Agriculture to direct the Department of
Agriculture to promulgate MPP regulations that would allow Sun-Diamond member cooperatives
to receive the preferences provided for small entities. In addition, Sun-Diamond wanted
the Department of Agriculture to continue to study the issue with a view towards giving
cooperatives the same preference given to small-sized entities.
The other matter pending before the Department of Agriculture in which Sun- Diamond
had an economic stake involved methyl bromide. Methyl bromide was a chemical used to kill
pests and other insects when planting orchards and fields, as well as after a commodity
was harvested. Certain Sun-Diamond member cooperatives used the chemical for post-harvest
fumigation of walnuts, prunes, and figs.
In 1992, the EPA announced plans to promulgate a rule which would phase out and
ultimately bar the use of the chemical in the U.S. In 1993 and 1994, Sun- Diamond, and
more particularly Diamond Walnut Growers, Inc., was concerned that the loss of methyl
bromide and a lack of a viable alternative thereto, would hurt their ability to sell their
products. Consequently, Sun-Diamond sought the assistance of the Department of Agriculture
to persuade the EPA to delay promulgating the rule that would phase out and eliminate the
use of methyl bromide. Sun-Diamond also sought to have the Department of Agriculture
increase its funding for research for alternatives to methyl bromide in the event that the
use of the chemical became restricted or prohibited.
Count I alleges that Sun-Diamond violated Section 201(c)(1)(A) by providing Secretary
Espy with improper gratuities. Section 201(c)(1)(A), provides, in pertinent part,
Whoever ... gives, offers, or promises anything of value to any public official,
former public official, or person selected to be a public official, for or because of any
official act performed or to be performed by such public official, former public official,
or person selected to be a public official ... shall be fined under this title or
imprisoned not more than two years, or both. [FN4]
FN4. Count I
also alleges that Sun-Diamond violated 18
U.S.C. s 2, the aiding and abetting statute, which provides,
commits an offense against the United States or aids, abets, counsels, commands, induces
or procures its commission, is punishable as a principal.
willfully causes an act to be done which if directly performed by him or another would be
an offense against the United States, is punishable as a principal.
U.S.C. s 2(a) and (b).
Sun-Diamond concedes that Secretary Espy was a public official during the relevant
time period of the indictment, namely, January 5, 1993 through March 11, 1994.
Additionally, Sun-Diamond acknowledges that count I sufficiently identifies things
"of value" that Sun-Diamond allegedly gave to Secretary Espy, e.g., tickets,
meals and limousines for the U.S. Open Tennis Tournament, luggage, and meals at
restaurants. Sun-Diamond, however, maintains that it did not give these items of value to
Secretary Espy "for or because of any official act performed or to be performed
by" Secretary Espy. [FN5] The pertinent official acts relate to the MPP and methyl
bromide, the two matters pending before the Department of Agriculture in which Sun-Diamond
had a significant economic stake.
official act is defined by 18
U.S.C. s 201(a)(3) (West Supp.1996) as being,
any decision or
action on any question, matter, cause, suit, proceeding or controversy, which may at any
time be pending, or which may by law be brought before any public official, in such
official's official capacity, or in such official's place of trust or profit.
 The issue before the court is whether, with respect to appointed officials, the
gratuity statute requires the indictment to allege a nexus between the provision of things
of value and a specific official act performed or committed to be performed by the
appointed official. This District Court and the various federal courts of appeal that have
addressed this precise issue have concluded that the gratuity statute does not require
such nexus to be alleged by an indictment. Rather, it is sufficient for the indictment to
allege that the provider of the gratuity has matters within the purview of the official
receiving the gratuity, and that the gratuity be provided "simply because of ...
[the] official['s] position, in appreciation of th[e] relationship, or in anticipation of
its continuation." United
States v. Secord, 726 F.Supp. 845, 847 (D.D.C.1989) (emphasis in the original).
"The Government need not prove that the gratuity was given in exchange for any
specific official act; there need be no 'quid pro quo ...' " Id. "[T]he
Government must [only] show that Defendant acted simply because of [the individual's]
official position ..." Id. [FN6]
FN6. See also United
States v. Crutchfield, 547 F.2d 496 (9th Cir.1977); United
States v. Alessio, 528 F.2d 1079 (9th Cir.1976), cert. denied, 426 U.S. 948, 96 S.Ct.
3167, 49 L.Ed.2d 1184 (1976).
Sun-Diamond's reliance on United
States v. Brewster, 506 F.2d 62 (D.C.Cir.1974), is unavailing. In Brewster, a former
United States Senator was charged with bribery and with accepting illegal gratuities. He
was acquitted of the bribery charges. He was, however, convicted of accepting illegal
gratuities in the form of campaign contributions that he received from a mail-order
company that had an interest in defeating enactment of pending legislation to increase
postal rates. Id. at 67. The Senator appealed his convictions and the U.S. Court of
Appeals for the District of Columbia Circuit reversed on the basis that the jury
instructions did not distinguish "with indisputable clarity" between the
elements of bribery and gratuity. Id.
The Brewster court, in distinguishing between the elements constituting the crimes of
accepting a bribe and accepting an illegal gratuity, explicitly stated: "The bribery
section makes necessary an explicit quid pro quo which need not exist if only an illegal
gratuity is involved; the briber is the mover or producer of the official act, but the
official act for which the gratuity is given might have been done without the gratuity
[.]" Id. at 72 (emphasis added). This statement weakens Sun-Diamond's argument that
this Circuit requires the indictment to allege that a nexus between the gratuity and a
specific official act exists. Under the bribery statute, the focus is on the briber who
instigates an official act. However, as Brewster makes clear, under the gratuity statute,
the emphasis is not on the act, which the official might have done with or without the
provision of an improper gratuity. Rather, the definition of "official act"
denotes that the official need not have undertaken or committed himself to undertake a
specific act. An official act is one which involves "any decision or action on any
question, matter, cause, suit, proceeding, or controversy, which may at the time be
pending [.]" 18
U.S.C. s 201(a)(3) (emphasis supplied). Presently, the indictment alleges that there
were two matters pending before Secretary Espy in which Sun-Diamond had a significant
interest. There is no indication that the gratuity statute or the definition of the term
"official act" require the indictment to allege that Sun-Diamond intended to
reward Secretary Espy for an act that he had done or committed himself to do.
In Brewster, the court's concern centered on an elected official's potential criminal
liability under the gratuity statute. In the context of a politician receiving an illegal
gratuity the court stated,
[n]o politician who knows the identity and business of his campaign contributors is
ever completely devoid of knowledge as to the inspiration behind the donation. There must
be more specific knowledge of a definite official act for which the contributor intends to
compensate before an official's action crosses the line between guilt and innocence.
Id. at 81. The difficult question in Brewster therefore involved the ability of the
jury to distinguish between illegal gratuities and legal campaign contributions. The court
found that the trial judge had not made the distinction intelligible to the jury and, as a
consequence, implicitly required a heightened nexus standard between the illegal gratuity
and the official act. The court required such a standard because of the Senator's status
as an elected, rather than an appointed official. As the court recognized, "[e]very
campaign contribution is given to an elected public official probably because the giver
supports the acts done or to be done by the elected official." Id. at 72 n. 26. In
the case of elected officials, a nexus was required, otherwise, "... there is no
distinction in the case of an elected public official between an illegal gratuity and a
perfectly legitimate, honest campaign contribution." Id.
This concern is, however, inapplicable with respect to appointed officials. As the
court subsequently explained, "the requisite [criminal] intent must be more clearly
shown when the case involves a campaign contribution to 'an elected public official' than
'when the recipient is an ... appointed official.' " United
States v. Campbell, 684 F.2d 141, 150 n. 16 (D.C.Cir.1982) (quoting Brewster, 506 F.2d
at 73 n. 26). [FN7] Consequently, in cases involving appointed officials, such as the
present matter, it is sufficient for the indictment to allege that Secretary Espy received
things of value because of his status as Secretary of the Department of Agriculture. [FN8]
Campbell, the court upheld the conviction of a Superior Court judge for receiving an
illegal gratuity. The court concluded that it was "more than sufficient" for the
trial judge to require that the gratuity be given and received "knowingly and
willingly," and "for or because of an official act." Id. at 150. The court
did not require the government to establish a nexus between the gratuity and a specific
the court finds the statute to be unambiguous, it declines Sun-Diamond's invitation to
apply the rule of lenity. The rule of lenity stands for the principle that if a criminal
statute is subject to multiple meanings, the court should resolve any ambiguity in favor
of the defendant. Bell
v. United States, 349 U.S. 81, 83, 75 S.Ct. 620, 622, 99 L.Ed. 905 (1955). That rule,
however, is applicable only in situations where the language of the statute is not clear.
States v. Schwartz, 785 F.2d 673, 681 (9th Cir.), cert. denied, 479 U.S. 890, 107 S.Ct.
290, 93 L.Ed.2d 264 (1986).
Courts of appeal from other jurisdictions have similarly given Section 201(c) a broad
interpretation. The Sixth Circuit has held that the "purpose of the [gratuity
statute] is to reach all situations in which a government agent's judgment concerning his
official duties may be clouded by the receipt of an item of value given to him by reason
of his position." United
States v. Gorman, 807 F.2d 1299, 1304 (6th Cir.1986), cert. denied, 484 U.S. 815, 108
S.Ct. 68, 98 L.Ed.2d 32 (1987). In United
States v. Evans, 572 F.2d 455 (5th Cir.), cert. denied, 439 U.S. 870, 99 S.Ct. 200, 58
L.Ed.2d 182 (1978), the Fifth Circuit stated:
[U]nder the unlawful gratuity subsection all that need be proven is that the official
accepted, because of his position, a thing of value 'otherwise than as provided by law for
the proper discharge of official duty.'... Thus, [the gratuity statute] makes it criminal
for a public official to accept a thing of value to which he is not lawfully entitled,
regardless of the intent of the donor or donee.
Id. at 480-481 (internal citations omitted). Importantly, our court of appeals has
quoted with approval Evans, upon which the court in Secord relied. " 'The gravamen of
[the offense of taking an illegal gratuity] is not an intent to be corrupted or
influenced, but simply the acceptance of an unauthorized compensation.' " United
States v. Baird, 29 F.3d 647, 652 (D.C.Cir.1994) (quoting Evans, 572 F.2d at 481). The
court also cited with approval United
States v. Standefer, 610 F.2d 1076, 1079 (3d. Cir.) (en banc), aff'd on other grounds, 447
U.S. 10, 100 S.Ct. 1999, 64 L.Ed.2d 689 (1980), which concluded that all that the jury
needs to find under the gratuity statute is that the defendant received a gratuity because
of his official position.
Finally, in United
States v. Bustamante, 45 F.3d 933 (5th Cir.), cert. denied, 516 U.S. 973, 116 S.Ct. 473,
133 L.Ed.2d 402 (1995), the court held,
To find a public official guilty of accepting an illegal gratuity ... no proof of a
quid pro quo is required; it is sufficient for the government to show that the defendant
was given the gratuity simply because he held public office ... In addition, the jury need
not find that the official accepted the gratuity with the intent to be influenced. The
jury must only conclude that the evidence establishes beyond a reasonable doubt that the
official accepted unauthorized compensation.
Id. at 940 (internal citations omitted). [FN9] Thus, the government need not prove
that the gratuity was given in exchange for a specific official act. Bustamante,
45 F.3d at 941. Consequently, the indictment need not allege that Secretary Espy took
or committed to take any action beneficial to Sun-Diamond with respect to the MPP and/or
methyl bromide because, "[e]ven if corruption is not intended by the donor or the
donee, there is still a tendency in such a situation to provide conscious or unconscious
preferential treatment of the donor by the donee ..." Evans,
572 F.2d at 480. [FN10] The court therefore denies Sun-Diamond's motion to dismiss
Count I of the indictment.
FN9. See United
States v. Niederberger 580 F.2d 63 (3d Cir.1978), cert. denied, 439 U.S. 980, 99 S.Ct.
567, 58 L.Ed.2d 651 (1978). In Niederberger, the court upheld the gratuity conviction
of an IRS employee in charge of auditing a large company which provided him with golfing
trips. The court made clear that the gratuity statute did not obligate the government to
prove a specific intent or to establish a quid pro quo. Id. at 69. See also United
States v. Alessio, 528 F.2d 1079, 1082 (9th Cir.), cert. denied, 426 U.S. 948, 96 S.Ct.
3167, 49 L.Ed.2d 1184 (1976) (the court upheld gratuity conviction of defendant who
paid part of a federal prison camp administrator's expenses during vacation because the
administrator was in a position from which he could affect the conditions of confinement
of the defendant's father, an inmate at the prison); United
States v. Umans, 368 F.2d 725, 730 (2nd Cir.1966), cert. denied, 389 U.S. 80, 88 S.Ct.
253, 19 L.Ed.2d 255 (1967) (the court upheld gratuity conviction of CPA because of
payments to IRS agents who disallowed a lesser portion of deductions than otherwise would
have been disallowed).
FN10. As the
Brewster court recognized, the gratuity statute covers a wide range of conduct because it
is directed at the behavior of public officials "who should exercise extraordinary
caution to avoid acts potentially violative of their public trust[.]" Id. at 77-78.
B. Thing of Value
Sun-Diamond moves this court to dismiss count II of the indictment because it fails to
allege that Sun-Diamond provided a "thing of value" to Secretary Espy. Rather,
Sun-Diamond states that count II alleges that Sun-Diamond provided money to Secretary
Espy's girlfriend. According to Sun-Diamond, the gratuity statute does not criminalize its
conduct because the "thing of value" was not given directly to Secretary Espy.
Sun-Diamond's construction of the term "thing of value," is, however, too
narrow. A "thing of value" can constitute both tangible benefits, such as money,
and intangible benefits, such as companionship. Because Secretary Espy received an
intangible benefit from Sun-Diamond's gift to his girlfriend, Sun-Diamond's motion to
dismiss count II on this basis shall be denied.
 Count II of the indictment alleges that Sun-Diamond Senior Vice President Richard
Douglas arranged for Secretary Espy's girlfriend, Patricia Dempsey, to accompany them to
Athens, Greece for a meeting of the International Nut Council (Council), whose members
include Diamond Walnut, a member cooperative of Sun-Diamond. According to the indictment,
the Council worked to expand the worldwide consumption of tree nuts. The indictment states
that the Council thought it important to have Secretary Espy speak to its members at the
IX World Tree Nut Congress held in Athens, Greece. The indictment alleges that Diamond
Walnut wanted to use the Council to increase its exports. Count II alleges that Mr.
Douglas, acting on behalf of Sun-Diamond, provided $3,100 in cash to Ms. Dempsey to cover
the cost of her business class airplane ticket to Greece, and as such provided a benefit
to Secretary Espy. The International Nut Council, the indictment alleges, reimbursed Mr.
Douglas for these expenditures.
Secretary Espy received a benefit, albeit an intangible one, as a result of the
actions allegedly taken by Mr. Douglas on behalf of Sun-Diamond. The term "thing of
value" is a term of art which courts have interpreted broadly. It has been repeatedly
used by Congress in many criminal statutes. United
States v. Girard, 601 F.2d 69, 71 (2d Cir.), cert. denied, 444
U.S. 871, 100 S.Ct. 148, 62 L.Ed.2d 96 (1979). [FN11] Since the term is not defined in
the gratuity statute, the court must assume that the ordinary meaning of the words express
the legislative purpose behind them. Russello
v. United States, 464 U.S. 16, 17, 104 S.Ct. 296, 297, 78 L.Ed.2d 17 (1983).
FN11. The court
has found nothing in the legislative history of the gratuity statute that suggests
Congress intended the term thing of value to be construed more narrowly than in other
criminal statutes that employ the term.
The purpose of the gratuity statute is to cover all instances in which a public
official may be improperly influenced by the receipt of an object of value because of his
or her status. Evans,
572 F.2d at 480. Pursuant to the statute, Congress sought to punish the misuse of
public office. United
States v. Williams, 705 F.2d 603, 623 (2d Cir.), cert. denied, 464 U.S. 1007, 104 S.Ct.
524, 525, 78 L.Ed.2d 708 (1983). To fully implement Congress' policy judgment, the
term "thing of value" must be broadly construed. Gorman,
807 F.2d at 1305. In analyzing whether an official received a thing of value, the
focus should be on the value the official "subjectively attaches to the items
received." Id. at 1305 (citing Williams,
705 F.2d at 623).
Courts have found the term to encompasses tangible, as well as intangible benefits.
Id. For instance, under the gambling statute, amusement has been judicially interpreted to
constitute a thing of value. Girard,
601 F.2d at 71 (citing Giomi v. Chase, 47 N.M. 22, 132 P.2d 715, 716-17 (1942)); Hightower
v. State, 156 S.W.2d 327, 328 (Tex.Civ.App.1942). Courts have also found the testimony
of an important government witness to be a "thing of value." United
States v. Zouras, 497 F.2d 1115, 1121 (7th Cir.1974). Information can also be a thing
of value. "For instance, state secrets might trade hands without cash consideration.
Information obtained for political advantage might have value apart from its worth in
dollars. In each case the information sought would have value to others, in addition to
the seeker." United
States v. Sheker, 618 F.2d 607, 609 (9th Cir.1980) (emphasis supplied). In Sheker, the
defendant was convicted of impersonating a federal officer in order to obtain a thing of
value: The whereabouts of a witness against the defendant. Id. at 608-609. The court, in
interpreting the term "thing of value" noted that the witness would also see a
thing of value implicated--maintaining his whereabouts unknown to the defendant. Id. at
609. In addition, "[t]he criminal justice system, concerned with the safety of
witnesses, has a similar interest." Id. Contrary to Sun-Diamond's implication, a
thing of value does not necessarily require a direct benefit to the recipient but also
includes a potential benefit to third parties.
In sum, an expansive construction of the term is necessary because "monetary
worth is not the sole measure of value." United
States v. Nilsen, 967 F.2d 539, 543 (11th Cir.1992), cert. denied, 507 U.S. 1034, 113
S.Ct. 1856, 123 L.Ed.2d 478 (1993) (citing United States v. Schwartz, 785 F.2d 673,
679 (9th Cir.1986)). [FN12] The fact that the alleged gratuity benefited someone other
than the public official is not dispositive. As a result, count II sufficiently alleges
that Sun-Diamond improperly provided a thing of value to Secretary Espy. Specifically, the
indictment alleges that Sun-Diamond thing provided money to Ms. Dempsey so that she could
accompany Secretary Espy on his trip to Greece. In addition, the OIC contends that at
trial it will establish, inter alia, that a portion of the $3,100 was used by Secretary
Espy to pay his credit card bill which included the charge for Ms. Dempsey's airline
ticket. This alleged benefit, coupled with any other intangible benefit that Secretary
Espy may have received, including Ms. Dempsey's companionship, warrants the submission of
this matter for the jury to determine whether in fact Secretary Espy received a benefit.
States v. McDade, 827 F.Supp. 1153, 1175 (E.D.Pa.1993), aff'd, 28 F.3d 283 (3d Cir.),
cert. denied, 514 U.S. 1003, 115 S.Ct. 1312, 131 L.Ed.2d 194 (1995) (holding that the
question of whether a member of Congress benefited personally from scholarship payments to
his son is one which should be resolved by the jury; not the court in a pretrial motion).
Accordingly, count II properly alleges that Sun-Diamond provided something of value to
Secretary Espy. [FN13]
Nilsen, the court concluded that the term "thing of value" included intangible
objectives, such as a defendant's attempt to extort a witness' testimony linking him to
two pending state bank robbery charges. Id. at 543. The Second Circuit, in a broad
construction of the term thing of value, interpreted it to include commercially worthless
stock which a defendant "believed" had value for himself. United
States v. Williams, 705 F.2d 603, 623 (2d Cir.), cert. denied, 464 U.S. 1007, 104 S.Ct.
524, 525, 78 L.Ed.2d 708 (1983).
Sun-Diamond also argues that count II must be dismissed because it fails to allege that a
nexus between the purported gratuity and a specific official act existed. As the court,
however, discussed in part II.A.2.supra, no such nexus need be alleged by the indictment.
 Sun-Diamond also contends that the conduct alleged in count II and engaged in by
Mr. Douglas cannot be imputed to Sun-Diamond because Mr. Douglas provided payment to Ms.
Dempsey and the International Nut Congress reimbursed Mr. Douglas. Sun-Diamond therefore
argues that it is not implicated in the allegations set forth in count II. The indictment,
however, need not be so explicit. There is no need for the government to set out in full,
its "theory of proof" in the indictment. United
States v. Edmond, 924 F.2d 261, 269 (D.C.Cir.1991). The indictment must only state
"the essential facts constituting the offense, not how the government plans to go
about proving them." Id. (citing Fed.R.Crim.P. 7(c)(1)). Rule 7(c)(1) states, in
pertinent part, "the indictment ... shall be a plain, concise and definite written
statement of the essential facts constituting the offense charged." In this case,
count II of the indictment sufficiently alleges that Mr. Douglas, an officer of
Sun-Diamond, provided Ms. Dempsey $3,100 to defray the cost of her airline ticket to
Greece. The fact that Mr. Douglas was reimbursed by the Council and not Sun-Diamond does
not mean that Mr. Douglas' conduct cannot be imputed to Sun-Diamond, as Sun-Diamond
maintains. Diamond Walnut, one of the owners of Sun-Diamond, and its President were
members of the Council's Executive Committee. Mr. Douglas, a Sun-Diamond Vice President,
undertook actions which arguably benefited Diamond Walnut, and as a result, Sun-Diamond.
 Sun-Diamond moves this court to dismiss counts I and II because the allegations
set forth in those counts do not distinguish between innocent gift giving and legitimate
business related conduct on the one hand, and illegal gratuities on the other. Sun-Diamond
thus argues that the gratuity statute is void for vagueness as applied to Sun-Diamond's
conduct. [FN14] Sun-Diamond contends that under the gratuity statute, the offender must
give the thing of value in order to reward the official, in this case, Secretary Espy, for
actions he had taken or was committed to take. Sun-Diamond avers that since the facts, as
set forth in counts I and II, do not contain such allegations, the gratuity statute cannot
be read by the court as reaching Sun-Diamond's conduct. Sun-Diamond argues that absent
this intent to reward a public official, the gratuity statute, as applied to Sun-Diamond's
conduct, would be transformed from a general intent criminal statute to a strict liability
one by punishing the mere provision of things of value to public officials.
Sun-Diamond does not maintain that the gratuity statute is, on its face, over broad. Such
a challenge was rejected by the court in Brewster,
506 F.2d at 76-78.
The question of whether Sun-Diamond's reason for providing the gratuities to Secretary
Espy was an innocent one and not motivated because of his official position is one that
should be entertained by the jury. The gratuity statute does not require the government to
prove specific intent, nor does it require proof of a quid pro quo. See Baird,
29 F.3d at 652 (citing Brewster, 506 F.2d at 72-74 n. 26). As previously discussed by
the court, the OIC is not required to show that Sun-Diamond intended to reward Secretary
Espy for actions he had undertaken or had committed himself to undertake.
The gratuity statute requires that the gratuities be given to an appointed official
"for or because of official acts" performed or to be performed by the appointed
official. Consequently, to find Sun-Diamond guilty under the gratuity statute, the jury
needs only to conclude that Sun-Diamond provided the gratuities to Secretary Espy because
of his status as an appointed official; and not merely for innocent reasons, such as
friendship. [FN15] In other words, the OIC must demonstrate that Sun-Diamond knew that it
was providing the gifts to Secretary Espy not solely for the sake of friendship, or some
other innocent reason, but instead, because of Secretary Espy's position. [FN16] The
language of the statute and the cases that interpret it provided Sun-Diamond with
sufficient notice of the prohibited conduct. As a result, the statute is not void for
vagueness as it relates to Sun-Diamond's purported conduct. Accordingly, Sun-Diamond's
motion to dismiss counts I and II based on this ground is denied.
Standefer, the court, in determining whether the defendant had been properly convicted of
receiving illegal gratuities, stated:
All that was
required in order to convict [the defendant] was that the jury conclude that the gifts
were given by him for or because of [the government official's] official position, and not
solely for reasons of friendship or social purposes. 610
F.2d at 1080.
statute does not, as Sun-Diamond contends, criminalize all things of value that are
provided to appointed officials without regard as to the reason. The OIC must establish
that Sun-Diamond provided improper gratuities to Secretary Espy because of his status as
an appointed official.
Independent Counsel's Jurisdiction
Sun-Diamond moves this court to dismiss counts III through IX of the indictment on the
basis that the violations alleged therein are outside the scope of the Independent
Counsel's jurisdiction. Sun-Diamond maintains that the allegations in counts III through
IX do not pertain to the subject matter of the Independent Counsel's investigation,
namely, the alleged acceptance of improper gratuities by Secretary Espy. Sun-Diamond
argues that because counts III through IX do not specifically relate to the subject of
gratuities, the Independent Counsel exceeded his jurisdiction. Sun-Diamond contends that
the Independent Counsel could only have referred the allegations set forth in counts III
through IX to the Department of Justice for its consideration, or in the alternative,
sought a referral from the Attorney General or Special Division over the allegations of
wrongdoing contained in those counts. According to Sun-Diamond, since the OIC did not
pursue either of these options, it exceeded its jurisdiction. The court, however,
concludes that the Independent Counsel did not exceed its jurisdiction because the
allegations set forth in counts III through IX are related to the core subject matter of
the OIC's investigation and thus fall properly within the Independent Counsel's
FN17. The court
notes that the jurisdiction of the Independent Counsel has inspired extensive treatment.
Specifically, "the jurisdiction of the Independent Counsel ... has already been
tested in district court by forty-three motions." In
re Espy, 80 F.3d 501 (D.C.Cir.1996).
 Counts III through IX of the indictment allege that Sun-Diamond made illegal
campaign contributions to the congressional election campaign of Secretary Espy's brother,
Henry Espy. Specifically, the indictment alleges that as a result of Henry Espy's
unsuccessful campaign for the Democratic Party nomination to the seat vacated by his
brother when he became Agriculture Secretary, Henry Espy incurred campaign debts. To help
retire these debts, the indictment alleges that Mr. Douglas, at the time a Senior
Vice-president of Sun-Diamond and James H. Lake, a principal of the D.C. public relations
firm of Robinson-Lake, together devised a scheme to enable Sun-Diamond to make unlawful
corporate contributions in the name of another. To effectuate this contribution, the
indictment alleges that Mr. Douglas and Mr. Lake agreed that Mr. Lake would obtain $1,000
contribution checks from several Robinson-Lake employees. Robinson-Lake then invoiced
Sun-Diamond for a false and fictitious expense sufficient to cover the contributions.
Sun-Diamond's payment of the false expense was purportedly used to reimburse the
individuals making the campaign contributions.
The Ethics in Government
Act, 28 U.S.C. s 591, et. seq., authorizes the Attorney General to investigate
high-ranking federal executive officials, national campaign committee officials, or
persons who present a personal, financial, or political conflict of interest to the
Executive Branch. Id. at ss 591(b) and (c). These persons are referred to as "covered
persons," because they are explicitly covered by the Act. See United States v.
Tucker, 78 F.3d 1313, 1322 (8th Cir.1996). Under the Act, the Attorney General, "upon
completion of a preliminary investigation," may apply to the Special Division for the
appointment of an independent counsel. 28
U.S.C. s 591(c)(1)(A). In the application, the Attorney General is to provide
"sufficient information to assist the division of the court ... in defining [the]
independent counsel's prosecutorial jurisdiction so that the independent counsel has
adequate authority to fully investigate and prosecute the subject matter and all matters
related to that subject matter." Id. at s 592(c).
The Special Division, in delineating the independent counsel's prosecutorial
jurisdiction, must "assure that the independent counsel has adequate authority to
fully investigate and prosecute the subject matter with respect to which the Attorney
General has requested the appointment of counsel, and all matters related to that subject
matter." Id. at s 593(b)(3). The independent counsel is also to have the jurisdiction
to investigate and prosecute crimes that "may arise out of the investigation or
prosecution of the matter with respect to which the Attorney General's request was made
On August 8, 1994, the Attorney General submitted an application to the Special
Division for the appointment of an independent counsel, "to investigate whether any
violations of federal criminal law were committed by Secretary of Agriculture" Espy.
In re Alphonso Michael (Mike) Espy, Application for Appointment of an Independent Counsel,
No. 94-2, at 1 (Aug. 8, 1994). The Attorney General's preliminary investigation developed
evidence that Secretary Espy had received gifts from Tysons Foods, a major poultry
processing corporation headquartered in Arkansas, with a number of pending regulatory
issues before the Department of Agriculture. Id. at 2. In addition, the Attorney General
concluded that Secretary Espy allegedly received gifts from other organizations and
individuals with business matters pending before the Department of Agriculture. Id.
On September 9, 1994, the Special Division, pursuant to 28
U.S.C. s 593(b), appointed Donald C. Smaltz Independent Counsel to investigate
to the maximum extent authorized by the Independent Counsel Reauthorization Act of
1994 whether [Secretary Espy] has committed a violation of any federal criminal law ...
relating in any way to the acceptance of gifts by him from organizations or individuals
with business pending before the Department of Agriculture.
In re Alphonso Michael (Mike) Espy, Div. 94-2, Order at 1-2 (D.C.Cir.Sp.Div. Sept. 9,
The Special Division further vested the Independent Counsel with authority to
other allegations or evidence of violations of any federal criminal law ... by any
organization or individual developed during the Independent Counsel's investigation ...
and connected with or arising out of that investigation.
Id. at 2. The Independent Counsel was also given the authority
to seek indictments and prosecute any organization or individuals involved in any
ofthe matters [outlined in the order], who are reasonably believed to have committed a
violation of any federal law arising of such matters, including organizations or
individuals who have engaged in an unlawful conspiracy or who have aided or abetted any
Id. Finally, the Independent Counsel was to
... fully investigate and prosecute the subject matter with respect to which the
Attorney General requested the appointment of independent counsel ... and all matters and
individuals whose acts may be related to that subject matter ...
Id. at 3.
On September 14, 1994, after the appointment of the Independent Counsel, the Attorney
General referred to him a related matter under 28
U.S.C. s 594(e). The referred matter was the allegation that "Secretary Espy
hosted a fundraising dinner, attended by agricultural lobbyists, the purpose of which was
to retire the campaign debt of his brother." Notice of Prosecutorial Jurisdiction, at
The issue before the court is whether the allegations set forth in counts III through
IX are related to the subject matter originally identified by the Attorney General in its
application for the appointment of an independent counsel or in the subsequent referral.
Preliminarily, the court notes that the OIC is not limited in its investigation to those
persons that are explicitly covered by the Act. Tucker, 78 F.3d at 1322. The important
issue is whether the persons or organizations and the matters being pursued by the OIC are
related to the original subject matter of the OIC's investigation. "To demonstrate
that one occurrence is 'related' to another, [the OIC] need only show that there is a
reasonable causal or logical connection between the two, some tenable correlation between
725 F.Supp. at 566.
The court concludes that the Independent Counsel has not exceeded his jurisdictional
mandate because the counts in question are related to the original subject matter of the
investigation. In essence, counts III through IX charge that Sun-Diamond sought to gain
improper influence with Secretary Espy by providing money to help retire Henry Espy's
campaign debt. [FN18] This factual predicate is intertwined with the original core subject
matter of the Attorney General's investigation, as well as the subsequent related referral
dealing with the allegations that Secretary Espy hosted a fundraising dinner to help
retire his brother's campaign debt. The Attorney General's original investigation and
request for appointment sought to determine whether certain individuals or organizations
with business matters pending before the Agriculture Department improperly influenced
Secretary Espy. "Obviously, the concern motivating such an investigation is that a
cabinet Secretary may have been influenced improperly to favor or intervene in the
gift-givers' causes pending before his or her Department." In
re Espy, 80 F.3d 501, 508 (D.C.Cir.1996). Similarly, the allegations of counts III
through IX present the alleged scenario that Secretary Espy was improperly influenced
because of his status by individuals or organizations with matters before the Department
of Agriculture. The court's conclusion is supported by In re Espy and United States v.
Tucker, 78 F.3d 1313 (8th Cir.1996). [FN19]
Mr. Lake, who has entered a guilty plea before this court, admitted at the plea proceeding
that Mr. Douglas advised him that Secretary Espy desired the help of Mr. Douglas in
raising money to help retire Henry Espy's campaign debt. The Attorney General's September
14, 1994, referral also dealt with Secretary Espy's effort to retire his brother's
campaign debt. The scheme that Mr. Lake and Mr. Douglas allegedly entered into is
therefore closely related to the subject matter of the referral. Importantly, the referral
does not include a reference to any gratuity. This fact undermines Sun-Diamond's argument
that count III through IX do not mention the subject of gratuities, and as such, the
allegations contained therein are beyond the OIC's jurisdiction.
these two cases involved the issue of referral, they are nevertheless directly applicable
to this case. This is so because this court faces the same task the courts in those cases
encountered. Namely, the court must interpret the independent counsel's original grant of
prosecutorial jurisdiction. As the court in In re Espy stated: In referring a relating
matter, this court is interpreting, but not expanding, the independent counsel's
jurisdiction over a matter that was implicitly included in the original grant of
prosecutorial jurisdiction, thus permitting the court to make explicit the independent
counsel's jurisdiction over a matter that was implicitly included in the original grant of
Id. at 507
(emphasis added). This is precisely the same task this court has endeavored to meet.
In re Espy, the independent counsel, Donald C. Smaltz, sought a referral of a related
matter under section 594(e) of the Ethics in Government Act. He sought a referral over
alleged "violations of federal criminal law by associates of Secretary Espy in
matters related to the original grant of jurisdiction wherein the persons involved,
patterns of conduct, witnesses, underlying facts, and applicable law overlap with"
his original investigation. Id. at 503-504. The court granted the application for
referral, noting that the independent counsel had
identified evidence allegedly showing a pattern of conduct involving payment or gifts
to Espy and his close associates in return for favorable treatment by the Department of
Agriculture, which was developed during the [Independent Counsel's] original investigation
of Secretary Espy's acceptance of gifts from parties with business pending before the
Department of Agriculture [.] [FN20]
referral order in In re Espy demonstrates to this court the expansive reading of the
Independent Counsel's jurisdiction given by the Special Division. The Special Division
referred the following matter to the Independent Counsel pursuant to 28
U.S.C. s 594(c):
jurisdiction and authority to investigate and prosecute any violation of any federal law
... by any organization or individual, related to any application, appeal, or request for
subsidy made to or considered by the United States Department of Agriculture, for which
Secretary of Agriculture Alphonso Michael (Mike) Espy and/or his Chief of Staff Ronald
Blackley intervened in the application, approval, or review process.
In re Alphonso
Michael (Mike) Espy, Div. 94-2, Order at 1 (D.C.Cir.Sp.Div. April 1, 1996).
The order does
not contain a specific mention of any unlawful gratuity made directly to Secretary Espy.
This fact also undermines Sun-Diamond's argument that because counts III through IX do not
specifically allege that it gave Secretary Espy an improper gratuity, the OIC exceeded its
Id. at 509. [FN21] Similarly, counts III through IX allege that Sun-Diamond engaged in
a pattern of unlawful conduct that sought to benefit one of Secretary Espy's closest
associates, his brother. In addition, the OIC has presented evidence that Secretary Espy
was actively involved in soliciting contributions to retire his brother's campaign debt.
FN21. The court
rejected the Department of Justice's arguments against referral. The Department of
Justice's position was similar to the one presently taken by Sun-Diamond. It contended
that the matter for which the independent counsel sought referral was not sufficiently
related to his original prosecutorial jurisdiction
connection between the alleged wrongdoing by Secretary Espy's associates and the improper
acceptance of gifts by Espy [was] too speculative ... The proper course in [the Department
of Justice's] view [was] for IC Smaltz to allow [it] to investigate the new matters and
determine whether to prosecute any federal offense it may discover.
Id. at 508.
This is analogous to the argument presently proffered by Sun-Diamond.
Specifically, at Mr. Lake's guilty plea proceeding, the government's statement of facts
(with which Mr. Lake agreed) stated that Mr. Douglas had told Mr. Lake that Secretary Espy
wanted help in raising money to retire Henry Espy's campaign debt.
In United States v. Tucker, the court also recognized the broad nature of an
independent counsel's jurisdiction. In that case, the Independent Counsel was originally
vested with jurisdiction to investigate the relationship of the President of the United
States and the First Lady to a savings and loan association and a land development
corporation. The issue before the court was to determine the propriety of a referral to
the Independent Counsel. The referral sought to grant the Independent Counsel with
jurisdiction to investigate another separate, corporation. As a result of the referral,
the governor of Arkansas, his attorney, and the governor's business partner were indicted.
The indictment was the subject of the appeal. The court concluded that the referral was
appropriate because it was sufficiently related to the Independent Counsel's original
jurisdiction. The court so concluded because there was an overlap in the defendants and in
the witnesses between the original prosecutorial jurisdiction and the referral
jurisdiction. Id. at 1321. In addition, there was a defined relationship between the
The Tucker court's reasoning is particularly applicable to this case. [FN23] In this
case, the connection between the allegations set forth in counts III through IX and the
subject matter of the independent counsel's original grant of jurisdiction is at a minimum
as strong as the connection found by the court in Tucker. Counts I and II, which
Sun-Diamond concedes fall within the OIC's original jurisdiction, involve perhaps the most
important individual in the case, Mr. Douglas, the same individual that counts III through
IX implicate. Moreover, there is a clearly defined relationship between Mr. Douglas and
Secretary Espy alleged by all counts. Consequently, the court concludes that counts III
through IX fall within the purview of the OIC's jurisdiction. Sun-Diamond's motion to
dismiss counts III through IX of the indictment is therefore denied.
Importantly, our court of appeals, in In re Espy, adopted the Tucker court's approach in
determining whether two matters were related. In
re Espy, 80 F.3d at 507.
E. Wire Fraud
 Sun-Diamond moves the court to dismiss count III of the indictment (wire fraud)
because the alleged wire communication at issue did not further the execution of the
alleged scheme that Mr. Douglas and Mr. Lake pursued. Count III alleges, in pertinent
Defendant Sun-Diamond, acting through its Senior Corporate Officer [Richard Douglas],
for the purpose of executing the aforesaid scheme and artifice to defraud, and attempting
to do so, knowingly and willfully transmitted and caused to be transmitted in interstate
commerce, by means of a wire communication, that is: a telephone call between [Mr.
Douglas] and James H. Lake's office ... in the District of Columbia, writings, signs,
signals, pictures and sounds, that is among other things, a message that [Mr. Douglas]
needed to speak with James H. Lake. [FN24]
FN24. Count III
refers to an illegal scheme allegedly devised by Mr. Douglas and Mr. Lake to enable
Sun-Diamond to make unlawful corporate contribution to help retire Henry Espy's campaign
The court must determine the sufficiency of a criminal indictment by examining the
indictment on its face. United
States v. Critzer, 951 F.2d 306, 307 (11th Cir.1992). "The indictment is
sufficient if it charges in the language of the [applicable] statute." Id. [FN25] The
indictment must, however, set forth the essential elements of the alleged crime. United
States v. Cole, 755 F.2d 748, 759 (11th Cir.1985). Presently, wire fraud requires
proof of a scheme to defraud and the use of an interstate wire communication to further
this scheme. United
States v. Maxwell, 920 F.2d 1028, 1035 (D.C.Cir.1990).
FN25. The wire
fraud statute states, in pertinent part,
devised or intending to devise any scheme or artifice to defraud, or for obtaining money
or property by means of false or fraudulent pretenses, representations, or promises,
transmits or causes to be transmitted by means of wire, radio, or television communication
in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for
the purpose of executing such scheme or artifice, shall be fined under this title or
imprisoned not more than five years, or both.
U.S.C. s 1343 (West Supp.1996).
 In count III of the indictment, the OIC has sufficiently identified the elements
of the charged offense. The sufficiency of the evidence is a matter to be left for the
trial. See Critzer,
951 F.2d at 307. [FN26] At trial, the OIC will have to establish that the use of the
wire advanced or was integral to the execution of the fraud. United
States v. Vontsteen, 872 F.2d 626, 629 (5th Cir.1989), cert. denied, 498 U.S. 1074, 111
S.Ct. 801, 112 L.Ed.2d 862 (1991). The government will have to establish that the wire
communication was at a minimum "incident[al] to an essential part of the
v. United States, 347 U.S. 1, 8, 74 S.Ct. 358, 363, 98 L.Ed. 435 (1954) (elements of
mail fraud). [FN27] The indictment, however, only need inform the defendant of the charge
against him/her and enable the defendant to plead double jeopardy in any subsequent
prosecution for the same offense. Critzer,
951 F.2d at 307. Count III of the indictment identifies the essential elements of the
charged offense and provides Sun-Diamond with the requisite notice. Accordingly,
Sun-Diamond's motion to dismiss count III is denied.
FN26. At trial,
Sun-Diamond, can at the appropriate time, challenge the sufficiency of the evidence.
requisite elements of "scheme to defraud" under the wire fraud statute and the
mail fraud statute are the same. Therefore, cases interpreting mail fraud apply equally to
wire fraud. United
States v. Lemire, 720 F.2d 1327, 1334-1335 n. 6 (D.C.Cir.1983), cert. denied, 467 U.S.
1226, 104 S.Ct. 2678, 81 L.Ed.2d 874 (1984).
Right to Honest Services
Lastly, Sun-Diamond moves the court to dismiss, or in the alternative strike, the part
of counts III and IV of the indictment that allege that Mr. Douglas and Mr. Lake sought to
defraud both Robinson-Lake and Bozell Worldwide, Inc. of the intangible right to Mr.
Lake's honest services. [FN28] Sun-Diamond maintains that count III and IV fail to allege
that Mr. Douglas and Mr. Lake intended to cause Robinson-Lake and Bozell Worldwide, Inc. a
concrete economic business injury. [FN29]
Robinson-Lake was a wholly-owned subsidiary of Bozell Worldwide, Inc. which in turn is
owned by Bozell, Jacobs, Kenyon & Eckhardt, Inc., a Delaware corporation.
indictment alleges that Mr. Douglas and Mr. Lake entered into a scheme to defraud Bozell
Worldwide, Inc. of the intangible right of honest services of Mr. Lake by, among other
things, creating a false expense report seeking reimbursement from Bozell Worldwide of
money expended by Mr. Lake for the benefit of Sun-Diamond; falsifying financial records;
and causing Bozell Worldwide to advance funds for the purpose of concealing an illegal
corporate campaign contribution by Sun-Diamond to help retire Henry Espy's campaign debt.
The wire fraud statute requires the indictment to allege that the defendant engaged in
a "scheme or artifice to defraud ..." 18
U.S.C. s 1343. A "scheme or artifice to defraud" is a "scheme or
artifice to deprive another of the intangible right of honest services." 18
U.S.C. s 1346. Sun-Diamond argues that section 1343 requires that the alleged
deprivation threaten or cause harm to the victim's pecuniary interests. In support of this
proposition, Sun-Diamond principally relies on United
States v. Lemire, 720 F.2d 1327 (D.C.Cir.1983), cert. denied, 467 U.S. 1226, 104 S.Ct.
2678, 81 L.Ed.2d 874 (1984). In Lemire, the court held that "an intentional
failure to disclose a conflict of interest, without more, is not sufficient evidence of
the intent to defraud an employer necessary under the wire fraud statute." Id. at
1337. The court found that to deprive another of the intangible right of honest services,
the defendant's conduct must carry "a significant risk of identifiable harm to the
employer apart from the loss of his employee's loyalty and fidelity." Id.
Lemire was decided prior to the enactment of section 1346. [FN30] The court there
noted that "Congress had not defined 'scheme or artifice to defraud' when it first
coined that phrase." Id. at 1335. Congress, however, has since defined the term and
the indictment tracks the statutory language with sufficient factual specificity. In
addition, Lemire dealt with what the jury had to find in order to sustain a conviction
under Section 1343; not with what an indictment must allege on its face. [FN31] The court
was concerned that disloyalty alone would become an indictable crime. Id. at 1336. In the
present case, however, the government has not indicated any intention to make such an
1346 was enacted by Congress in November 1988 to overturn McNally
v. United States, 483 U.S. 350 (1987). In McNally, the Court held that Section 1343
did not criminalize schemes to defraud citizens of their right to honest government.
Section 1346 extended the applicability of "scheme or artifice to defraud" to
include "a scheme or artifice to defraud" to include "a scheme or artifice
to deprive another of the intangible right of honest services." Congress, in enacting
Section 1346 wanted "to reinstate all the pre-McNally case law pertaining to the mail
and wire fraud statutes without change." Senate Judiciary Committee, Section Analysis
of Anti-Drug Abuse Act of 1988, 134 Cong.Rec. S17, 360-02 (daily ed. Nov. 10, 1988); see
States v. Waymer, 55 F.3d 564, 568 n. 3 (11th Cir.), cert. denied, 517 U.S. 1119, 116
S.Ct. 1350, 134 L.Ed.2d 519 (1996) ("Congress' purpose in enacting s 1346 was to
restore the mail fraud statute to its pre- McNally position ...").
Sun-Diamond has not presented the court with any authority that requires a count charging
an offense under Section 1343 to include an allegation that the wrongdoer intend some
The government has, however, indicated that it will prove at trial, consistent with
Lemire, that both Robinson-Lake and Bozell, Inc. suffered identifiable harm. Specifically,
counts III and IV allege a risk to the reputation of both entities and as a result, a risk
to their continued business prosperity. [FN32] The OIC also intends to prove at trial that
this risk was foreseeable to Mr. Douglas and Mr. Lake. [FN33] Counts III and IV adequately
allege violations of Sections 1343 and 1346. Consequently, Sun-Diamond's motion to
dismiss, or in the alternative to strike portions of counts III and IV, is denied.
"[A]lthough the scheme to defraud must threaten some cognizable harm to its target,
that harm need not be a deprivation of tangible property or money; criminal fraud
encompasses schemes to defraud persons of significant intangibles as well." Lemire,
720 F.2d at 1336 (citations omitted).
Lemire, the court stated that "[s]o long as the jury finds [an intentional failure to
disclose a conflict of interest] furthers a scheme to abuse the trust of an employer in a
manner that makes an identifiable harm to him, apart from the breach itself, reasonably
foreseeable, it may convict the employee of wire fraud." Id. at 1337.
For the foregoing reasons, it is this 7th day of September 1996,
ORDERED that Sun-Diamond's motion to dismiss be and is hereby denied.