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United States v. Riley

September 16, 2010

UNITED STATES OF AMERICA, APPELLANT IN 08-3758 & 08-3759
v.
TAMIKA RILEY AND SHARPE JAMES TAMIKA RILEY, APPELLANT IN 08-3361 SHARPE JAMES, APPELLANT IN 08-3413



On Appeal from the United States District Court for the District of New Jersey (D.C. No. 2-07-cr-00578) District Judge: Honorable William J. Martini

The opinion of the court was delivered by: Restani, Judge.

PRECEDENTIAL

Argued April 13, 2010

Before: SLOVITER and NYGAARD, Circuit Judges, and RESTANI,*fn1 Judge

OPINION OF THE COURT

Defendant-Appellants and Cross-Appellees ("Appellants") Sharpe James ("James") and Tamika Riley ("Riley") were convicted in the United States District Court for the District of New Jersey of three counts of mail fraud (Counts 1--3) as part of a scheme to convey City-owned property in violation of 18 U.S.C. § 1341 and 2, one count of fraud (Count 4) involving a local government receiving federal funds in connection with the fraudulent sale of City-owned properties in violation of 18 U.S.C. § 666(a)(1)(A) and 2, and one count of conspiracy (Count 5) to defraud the public of James's honest services contrary to 18 U.S.C. §§ 1341 and 1346, in violation of 18 U.S.C. § 371. These five counts are collectively called the "Land Fraud Counts." Additionally, Riley was convicted of three counts of housing assistance mail fraud in violation of 18 U.S.C. § 1341 and 2, and three counts of tax fraud for her failure to report income in violation of 26 U.S.C. § 7206(1). Appellants appeal the Land Fraud Counts. For the following reasons we will reverse the convictions on Count 5 and affirm the convictions on Counts 1--4.

I. Factual Background and Procedural History

A. Facts

The jury convicted Sharpe James and Tamika Riley of the Land Fraud Counts for engaging in a fraudulent scheme to assist Riley's purchase of City-owned parcels of real property under the South Ward Redevelopment Plan ("SWRP"). Sharpe James was the Mayor of Newark, New Jersey for twenty years between July 1986 and June 2006. James was also a New Jersey State Senator representing the 29th Legislative District from 1999 until 2008. Tamika Riley, who had an intimate relationship with James, was the owner and chief executive officer ("CEO") of Tamika Riley, Inc. ("TRI"), a public relations firm specializing in the entertainment industry.

1. South Ward Redevelopment Plan

In the aftermath of the 1967 Newark riots, many residents abandoned the city, and the market for properties substantially eroded. During this time, home ownership was extremely low and lenders often would not provide financing to acquire property in Newark. In 1998, in order to address these problems, Newark adopted the SWRP, which was designed to sell parcels of distressed, City-owned real property at low prices to pre-approved developers, without advertisement and public bidding.

In exchange, the purchaser contracted to construct new or renovated housing on those parcels,*fn2 which would then be sold, occupied, and returned to the City's tax rolls, in order to revitalize the residential real estate market and redevelop Newark.

The New Jersey Department of Economic and Housing Development ("DEHD") managed the SWRP process. Initially, the DEHD conducted a pre-qualification process that screened applicants to ensure they had experience in the construction of residential property and the ability to finance the projects. Once DEHD approved an application, department officials drafted a resolution and the contracts, which were then reviewed by the attorneys in the Newark Corporate Counsel's Office ("Corporate Counsel"),*fn3 the City Clerks office, and the Municipal Council.*fn4 After the resolutions were approved by the Municipal Council, the DEHD was responsible for enforcing the contractual provisions to renovate the distressed properties.

The SWRP proved successful and profitable to participants early on. By 2001-2002, the market for Newark real estate surged and applicants for SWRP property flooded the DEHD with requests. This success prompted the Municipal Council to pressure the program to accommodate "local entrepreneurs" and minorities with little or no development experience. Thus, the DEHD abandoned the pre-qualification process and no longer required applicants to have development experience so long as an applicant had "the right team" to fulfill the obligations under the contract.

2. James's Control Over the SWRP

James was very involved in the SWRP process as were his subordinates. Basil Franklin ("Franklin") served as Chief of Housing Production under the James Administration and reported directly to James's Deputy Mayor who was also the Director of the DEHD. James met frequently with his Deputy Mayor to discuss the availability and allocation of properties under the SWRP.*fn5 The Deputy Mayor would then direct Franklin to approve the SWRP application of those who had been recommended by James.

During the time period at issue, James and the Municipal Council disagreed as to who had the power to select eligible persons to receive City property under the SWRP. After the Municipal Council prevailed in litigation against the Mayor regarding this issue, James successfully sponsored legislation in 2004, Senate Bill 967, that authorized the Mayor alone to select persons eligible for SWRP property.

3. James and Riley's Relationship and Riley's Acquisition of SWRP Properties

In 1999, Riley introduced the Mayor to a Newark-born professional basketball player, Eric Williams ("Williams").

Williams had recently signed a contract with the Boston Celtics and was interested in investing in his home town of Newark. Shortly after the Williams introduction, James's Deputy Mayor brought Riley and her friend to Franklin's office and told Franklin that James wanted him to "help these ladies acquire some property." SA 229:172. Franklin knew that Riley had no experience as a real estate developer, but at the time Riley applied for property the pre-qualification process had been abandoned.

Both James and Riley contest the duration of their intimate relationship. Nonetheless, James was aware that the City transferred real estate parcels to Riley because in his official capacity as Mayor, James signed each of the contracts transferring the properties to TRI. Riley maintained calendars and daily "agenda" lists containing innumerable notations regarding her communications with James about the status of her acquisitions of City-owned property from 2001 through 2006. James was also copied on a letter "advising" Riley that certain City-owned properties were set aside for acquisition by her company. Further, in April 2000, Riley wrote a letter to James, thanking him for his assistance in helping her to obtain Cityowned properties.

Riley acquired City-owned property in three phases. Phase I consisted of four properties and Phase II consisted of three properties. Although the Municipal Council approved the sale of five other Phase III parcels to Riley in 2002, she was unable to close on the properties because James informed Franklin that the City "will not do any more business with Tamika Riley until further notice." SA 235:196. In 2004, Riley resumed her pursuit of the SWRP properties (amended Phase III) and the Municipal Council authorized the sale of four other properties to Riley.

Riley developed only two of all the parcels she purchased under the SWRP. As to those properties that she did not develop, Riley quickly turned around and sold them for a profit.*fn6

Riley's access to SWRP property ended in 2006, however, when a new mayoral administration instituted legal proceedings to block the sale of the properties to her.

B. The Indictment, Trial, and Sentencing

In July 2007, a federal grand jury sitting in Newark returned a 33-count indictment. The District Court severed the first twenty counts and the Government submitted a redacted and renumbered indictment (hereinafter, "Indictment").*fn7 Counts 1--5 of the Indictment, the Land Fraud Counts, include Counts 1--3, which charged James and Riley with mail fraud as part of the scheme to convey City-owned property to Riley between 2002 and 2005, in violation of 18 U.S.C. §§ 1341 and 2.*fn8 Count 4 charged James and Riley with fraud involving a local government receiving federal funds, in connection with the fraudulent sale of City-owned properties to Riley in 2005, in violation of 18 U.S.C. §§ 666(a)(1)(A) and 2. Count 5 charged James and Riley with conspiracy to defraud the public of James's honest services between 1999 and 2006, contrary to 18 U.S.C. §§ 1341 and 1346, in violation of 18 U.S.C. § 371. Counts 6--9 (collectively, the "Housing Fraud Counts") charged Riley with housing assistance fraud in violation of 18 U.S.C. §§ 1341 and 2. Finally, Counts 10--13 (collectively, the "Tax Fraud Counts") charged Riley with tax evasion in violation of 26 U.S.C. § 7206(1).

Trial began on February 26, 2008. On April 16, 2008, following five weeks of testimony, the jury convicted James and Riley on all five Land Fraud Counts and Riley on Counts 6--13. On July 23, 2008, the District Court denied Appellants' post-trial motions. The District Court sentenced James and Riley to a custodial sentence of twenty-seven months and fifteen-months respectively. James and Riley appealed the Land Fraud convictions and the Government cross-appealed the sentences.*fn9

II. Discussion

This Court has jurisdiction to hear the instant appeal pursuant to 28 U.S.C. § 1291. The appeal is limited to the Land Fraud Counts (Counts 1--5). In light of the recent United States Supreme Court decision in Skilling v. United States, 130 S.Ct. 2896 (2010), Appellants seek a reversal of Count 5, the conspiracy to defraud the public of James's honest services.*fn10

James also argues that if Count 5 falls, then all the Land Fraud Counts should fall. Although we will reverse Appellants' convictions under Count 5, we do not find that there is spillover prejudice sufficient to taint Counts 1--4. Further, we will affirm the convictions under Counts 1--4 because the District Court did not err when it denied Appellants' post trial motions.*fn11

A. Skilling v. United States and Appellants' Honest Services Fraud Convictions Under Count 5

1. Skilling v. United States

In June 2010, the United States Supreme Court decided Skilling and addressed the issue of whether the jury properly convicted Skilling of conspiracy to commit honest services wire fraud. Skilling, 130 S.Ct. at 2907. Jeffrey Skilling, a longtime Enron officer, was Enron's chief executive officer from February until August 2001, when he resigned. Id. Less than four months after Skilling resigned from Enron, the company declared bankruptcy. Id. The jury convicted Skilling "with conspiracy to commit securities and wire fraud; in particular, it alleged that Skilling had sought to 'depriv[e] Enron and its shareholders of the intangible right of [his] honest services.'" Id. at 2908.

The Supreme Court considered the scope and constitutionality of the honest services statute and determined that "[t]o preserve the statute without transgressing constitutional limitations," § 1346 criminalizes only "fraudulent schemes to deprive another of honest services through bribes or kickbacks." Skilling, 130 S.Ct. at 2928, 2931. The Supreme Court rejected the Government's argument that § 1346 should also encompass "undisclosed self-dealing by a public official . . . [such as] the taking of official action by the [official] that furthers his own undisclosed financial interests while purporting to act in the interests of those to whom he owes a fiduciary duty." Id. at 2932 (internal quotation marks and citation omitted). Because the Government in Skilling did not allege that Skilling accepted bribes or kickbacks, the Supreme Court determined that Skilling's honest services fraud conviction was flawed and vacated the Fifth Circuit's affirmance of Skilling's conspiracy conviction. Id. at 2934--35.

2. The Effect of Skilling on Appellants' Honest Services Fraud Convictions (Count 5)

Appellants argue that the Indictment and the District Court's jury instructions with regard to honest services fraud are inconsistent with the Supreme Court's decision in Skilling and therefore, the conviction under Count 5, "Conspiracy to Use the U.S. Mail to Defraud the Public of Defendant James's Honest Services," must be dismissed. Although James and Riley challenged the honest services charge on various bases, they did not argue below that honest services fraud was void for vagueness or should be limited to bribes or kickbacks.*fn12

Therefore, the most appropriate standard of review is plain error under Federal Rule of Criminal Procedure 52(b).*fn13 United States v. Marcus, 130 S.Ct. 2159, 2164 (2010). Pursuant to Federal Rule of Criminal Procedure 52(b), an appellate court may recognize a "plain error that affects substantial rights," even if that error was "not brought to the court's attention." Fed. R. Crim. P. 52(b). Thus, an appellate court may, in its discretion, correct an error not raised at trial only where the appellant demonstrates that (1) there is an "error"; (2) the error is "clear or obvious, rather than subject to reasonable dispute"; ...


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