The U.S. Supreme Court’s May 11 ruling that overturned former New York contractor Louis Ciminelli's conviction for allegedly helping to structure project requests for proposals to favor his firn as likely winner of contracts in the state’s one-time “Buffalo Billions” economic development program may cost prosecutors a tool against illegal bid manipulation.
Justices ruled against use by the U.S. Attorney in New York City of the “right-to-control” theory to indict and later convict the former CEO of LP Ciminelli and other defendants for wire fraud for depriving the bid selection committee for the state-funded projects of potentially valuable economic information that would have resulted from a truly fair and competitive RFP process.
Under the legal strategy, the executives were found guilty of fraud for deliberately withholding important financial information from business customers, even without clear evidence that they benefited from doing so.
Defendants, who could not disprove the theory to two federal courts, appealed to the Supreme Court to reverse the convictions. The Associated General Contractors filed a brief in support of defendants' argument against use of right-to-control for federal criminal wire fraud prosecutions.
Control of Assets
Justices had to decide whether a charge of wire fraud can go beyond the traditional property interests to also include the right to control one’s assets.
“The right to valuable economic information needed to make discretionary economic decisions is not a traditional property interest. Accordingly, the right-to-control theory cannot form the basis for a conviction under the federal fraud statutes,” Justice Clarence Thomas said in the unanimous opinion. Federal fraud statutes criminalize only schemes to deprive people of traditional property interests, he said. “We now hold that the right-to-control theory is not a valid basis for liability."
Despite the rulibng, the right-to-control theory is not crucial in bid-rigging prosecutions, a former government attorney told ENR.
“It usually comes up in bid rigging where there was misconduct, but only when something is missing from a normal antitrust or bribery case,” he said. Bid rigging in the antitrust sense requires an agreement between competitors to eliminate some form of competition during bidding, the attorney said.
In the Ciminelli case, however, the U.S. Solicitor General claimed in a high court filing that evidence showed that the contractor and other defendants “contemplated the deprivation of money,” not just deprivation of the right to control assets.
“Nothing about the ruling suggests that had the case been charged using the bid-rigging statute, or under a different theory of wire fraud, the conviction wouldn’t stand,” another attorney told ENR.
But repercussions of the court opinion could be many, with Thomas McKay, a partner at Morvillo Abramowitz Grand Iason & Anello, contending that it "will likely lead to further litigation, including challenges to pending prosecutions and existing convictions based on that theory.”
Pipeline, State Mandate Disputes Also Decided
In another decision in a controversial case, justices added a new wrinkle to the long-running $6.2-billion construction of the 304-mile Mountain Valley natural gas pipeline project in Virginia and West Virginia.
The court said a federal district court does have jurisdiction to hear a lawsuit by several Virginia landowners against the pipeline developer in seizing their property for the project under eminent domain authority granted by the Federal Energy Regulatory Commission.
The lower court now will hear merits of the landowners' challenge to that authority. The controversial pipeline is nearly complete, says its developer, but still faces construction permit challenges.
A pipeline spokeswoman declined to speculate on the decision's impact on project completion, terming it "procedural," according to a Roanoke, Va., newspaper online report..
The ruling comes as the U.S. Interior Dept. and U.S. Forest Service both issued mid-May approvals for the line to cross 3.5 miles of the Jefferson National Forest in Virginia, following an order by the U.S. appeals court in Richmond to re-analyze prior permits. But the latter agency said in its new notice that builders are "not authorized to undertake activities related to construction" until they obtain state and federal "authorizations outstanding for the entire project.”
Those include water crossing permits under the federal Clean Water Act that the same federal court in April ordered West Virginia to reissue, and one pending from the U.S. Army Corps of Engineers. But a just reissued U.S. Fish and Wildlife Service permit now faces a new challenge from project opponents
The Supreme Court also decided another case seen as a test of whether a state could set a mandate applying to out of state businesses, such as related to carbon emissions curbs.
Justices supported the state in adopting the rule that banned sale of pork from out of state producers that did not raise pigs humanely. U.S. pork producers had challenged the ban as unconstitutional based on impact to interstate commerce.
“This Supreme Court decision ... changes the standard of how state governments can impose regulatory burdens on businesses and consumers outside of that state,” said Beth Milito, an executive of the National Federation of Independent Business, adding that it "sets a dangerous precedent, and small businesses will bear the consequences.”
But Howard Learner, executive director of the Environmental Law & Policy Center, a non-profit advocacy group, said the ruling "is a big win for states stepping up with important environmental and public health protections and advancing innovative climate change solutions when Congress is gridlocked or the federal government does not sufficiently act.”
