Appeal from a judgment entered in the United States District Court for the Eastern District of New York, Charles P. Sifton, Judge, upon a jury verdict convicting Joseph M. Margiotta of one count of mail fraud in violation of 18 U.S.C. § 1341, and five counts of extortion in violation of 18 U.S.C. § 1951. Judge Winter concurs in part and dissents in part in a separate opinion.
Kaufman and Winter, Circuit Judges, and Ward, District Judge.*fn* Winter, Circuit Judge (concurring in part and dissenting in part).
The significant role played by political parties in municipal government has been an often noted characteristic of American urban life. Some critics, contributing to the prevailing mythology that machine politics have controlled the corridors of local government,*fn1 have highlighted the opportunities available to those who hold the strings of political power*fn2 for defrauding the citizenry and reaping personal gain, through the sale of public office and other favors. Other commentators, however, have asserted that local party leaders have often served important functions of political representation and association. In cities fragmented into diverse social and economic groups, it has been argued, party organizations have played a salutary role in organizing large numbers of people, and fulfilling their desires with patronage, jobs, services, community benefits, and opportunities for upward social mobility.*fn3 In sum, the line between legitimate political patronage and fraud on the public has been difficult to draw.
Today, not unmindful of these competing visions of political history, we must consider where such lines may be drawn in the context of a criminal prosecution for mail fraud*fn4 and extortion.*fn5 Specifically, we are asked to determine, inter alia, when, if ever, a political party leader who holds no official government office but who participates substantially in the governance of a municipality owes a fiduciary duty to the general citizenry, and what conduct violates such a fiduciary duty. The issues before us arise out of a criminal prosecution against Joseph M. Margiotta, long-time Chairman of the Republican Committees of both Nassau County and the Town of Hempstead, New York. The Government charges Margiotta with one count of mail fraud in violation of 18 U.S.C. § 1341 (1976)*fn6 and five counts of extortion in violation of 18 U.S.C. § 1951 (1976)*fn7 for activities in connection with the distribution of insurance commissions on municipal properties to Margiotta's political allies. The Government presented "evidence of a scheme of fraud spun into a web of political power"*fn8 at a trial before Judge Sifton, at which nearly seventy witnesses testified during a period of three weeks. After deliberating for eight days, the jury announced it was hopelessly deadlocked, and the trial judge declared a mistrial.
Upon a request by the Government, in anticipation of a retrial, Judge Sifton reconsidered a number of legal and evidentiary rulings made at the trial. The trial judge entered an order in which he stated that the challenged rulings would be followed at Margiotta's second trial. The Government then appealed to this Court for review of Judge Sifton's order prior to the retrial. We found those portions of Judge Sifton's order indicating the court would abide by certain jury instructions at retrial were not appealable pursuant to 18 U.S.C. § 3731 (1976)*fn9 and, accordingly, dismissed the Government's appeal in that respect. While the portions of the order concerning the judge's evidentiary rulings were appealable, we concluded that the district court had acted well within its discretion, and affirmed the order on the evidentiary rulings.
Margiotta's retrial before Judge Sifton proved to be another closely fought contest. Following a trial lasting three weeks, the jury deliberated conscientiously for three days. It returned a verdict of guilty on all six counts, including the one count of mail fraud in violation of 18 U.S.C. § 1341 (1976) and the five counts of extortion in violation of 18 U.S.C. § 1951 (1976). Judge Sifton sentenced Margiotta to concurrent terms of imprisonment of two years on each count.
Margiotta appeals to this Court from the judgment of conviction entered by Judge Sifton. On appeal, he raises a number of claims, several of which involve novel issues. Margiotta argues that his conviction of mail fraud must be reversed and the indictment dismissed on the grounds that the federal mail fraud statute, 18 U.S.C. § 1341 (1976), does not embrace a theory of fiduciary fraud by individuals who participate in the political process but who do not occupy public office, and that Margiotta owed no fiduciary duty to the general citizenry of Nassau County and the Town of Hempstead under federal or state law. Moreover, he asserts that the evidence was insufficient to support a finding of fiduciary duty even if it were held that the trial court's instructions were not erroneous as a matter of law. In addition, Margiotta claims that the indictment and conviction violate his First Amendment rights of freedom of expression, association and petition, and that the mail fraud statute is impermissibly vague on its face and as applied to him on the facts of this case. Furthermore, he asserts that he did not fail to disclose material information in violation of the mail fraud statute. Margiotta also claims that his conviction of five counts of extortion in violation of the Hobbs Act, 18 U.S.C. § 1951 (1976), should be reversed and the indictment dismissed because he did not commit extortion "under color of official right" or through the wrongful use of "fear," and because the district court's allegedly improper instructions on the mail fraud count prejudiced the jury's consideration of the Hobbs Act charges. Finally, Margiotta argues that Judge Sifton erred by admitting Richard A. Williams's hearsay account of his father's alleged agreement with Margiotta. For the reasons stated below, we reject Margiotta's contentions, and affirm the judgment of conviction in all respects.
Since the conduct at issue in this case involves an intricate scheme of fraud, we must set forth the facts in detail. As noted above, Joseph M. Margiotta, was at all relevant times the Chairman of the Republican Committee of both Nassau County and the Town of Hempstead, New York. Although he held no elective office, his positions as County and Town Republican Chairman, according to the Government, afforded him sufficient power and prestige to exert substantial control over public officials in Hempstead and Nassau County who had been elected to office as candidates of the Republican Party. This control, it was charged, enabled Margiotta to exercise influence over the appointees of these elected officials as well. The spread of his political tentacles over the governments of Town and County allegedly offered Margiotta the opportunity to engage in a highly remunerative fraudulent design involving the distribution of insurance commissions on municipal properties to his political associates.
The responsibility of the Nassau County Executive and the Presiding Supervisor of the Town of Hempstead in maintaining the properties owned and operated by their respective jurisdictions was at the crux of this artifice. The holders of these public offices were responsible for obtaining insurance coverage for the properties owned by the Town and County. As a matter of practice, the authority for obtaining insurance on municipal properties was delegated to a Broker of Record designated by the entities and serving at their pleasure. The Broker of Record was the only individual who acted on behalf of these jurisdictions in placing insurance policies. The Broker received as compensation for his services commissions consisting of a portion of the monies paid by the municipalities for the insurance policies.*fn10
According to the Government, this municipal insurance activity was transformed into a scheme to defraud the citizens of Hempstead and Nassau County in 1968. At that time, Margiotta allegedly contrived the appointment of Richard B. Williams & Sons, Inc., an insurance agency, (hereinafter the "Williams Agency" or "Agency"), as Broker of Record for the Town of Hempstead. Richard B. Williams determined to have the Agency designated as Broker of Record for the Town, a position then held by one Mortimer Weis. Williams allegedly met with Margiotta and Weis to strike a secret "deal": The Williams Agency would be named Broker of Record for the Town of Hempstead, and Weis would become a $10,000 a year consultant to the Town. In return for the appointment, the Williams Agency would set aside 50% of the insurance commissions and other compensation it received, to be distributed to licensed insurance brokers and others designated by Margiotta. Shortly thereafter, Ralph Caso, the Presiding Supervisor of Hempstead, appointed the Williams Agency as Hempstead's Broker of Record based on Margiotta's recommendation. In 1969, the Williams Agency began to write insurance for the Town of Hempstead, and commenced making "kickbacks" to brokers selected by political leaders of local election districts in the Town who were loyal to the appellant.
In 1970 Caso was elected County Executive of Nassau County. After his election, Richard B. Williams met with Margiotta to discuss the possibility of the Williams Agency acting as Broker of Record for Nassau County. On January 1, 1971, the day on which he took office, Ralph Caso designated the Williams Agency as Broker of Record for Nassau County based on Margiotta's recommendation. Soon thereafter, the Williams Agency commenced to distribute 50% of the commissions it earned on Nassau County properties to brokers and others politically allied with Margiotta. Between 1969 and 1978, according to the Government, the compensation paid the Broker of Record in connection with this arrangement totalled in excess of two million, two hundred thousand dollars. Among the recipients of more than five hundred thousand dollars in kickbacks were numerous insurance brokers who performed no legitimate work, lawyers and other friends of Margiotta who rendered no services in return for their compensation, and the appellant himself. The concealment of this fraudulent scheme, according to the Government, was fostered through the preparation of fictitious property inspection reports. As a result, it was made to appear that the recipients of the insurance commission kickbacks were legitimately earning their commissions. Moreover, the Government has charged, the insurance activities were disguised by Margiotta through false and misleading testimony during the course of an investigation by the New York State Investigation Commission.
In November, 1980, a federal grand jury indicted Margiotta on one count of mail fraud, in violation of 18 U.S.C. § 1341 (1976), and five counts of extortion, in violation of 18 U.S.C. § 1951 (1976). The mail fraud count (Count One) was based on a scheme to defraud the Town of Hempstead, Nassau County, New York State, and their citizens (1) of the right to have the affairs of the Town, County and State conducted honestly, free from corruption, fraud and dishonesty, and (2) of the right to Margiotta's honest and faithful participation in the governmental affairs of the Town, County and State. The factual predicate underlying Count One was the above-described insurance commission ruse in which, pursuant to a secret agreement, Margiotta arranged the appointment of the Williams Agency as Broker of Record for the Town and County in return for the Agency's payment of kickbacks to insurance brokers and others designated by Margiotta. Counts Two through Six charged Margiotta with violating the Hobbs Act by inducing the Williams Agency to make the payments of the insurance commissions under color of official right and by means of the wrongful use of fear. Count Two charged Margiotta with extortion in connection with the payments to the insurance brokers who were political allies. Count Three set forth a Hobbs Act violation based on Margiotta's actions in obtaining monthly payments in the amount of $2,000 from the Williams Agency to attorneys William Cahn and his son Neil Cahn between 1974 and 1975. Count Four was predicated on a $10,000 payment by the Williams Agency to one Robert Dowler, who allegedly entered into an agreement to pay one-half of the money to Margiotta. Count Five described a Hobbs Act offense arising from a series of payments totalling more than $60,000 to Joseph M. Reilly, a New York State Assemblyman, and Count Six charged Margiotta with extortion in connection with payments by the Williams Agency to Henry W. Dwyer, a New York State Assemblyman and consultant to the Nassau County Republican Committee.
The first of the appeals spawned by this indictment arose from the pretrial maneuvering of the parties. On January 6, 1981, Margiotta filed a pretrial motion to dismiss Count One,*fn11 alleging, inter alia, that Count One failed to state an offense pursuant to 18 U.S.C. § 1341, that the Count was duplicitous, and that it was unconstitutionally vague. In response, the Government submitted an affidavit describing hundreds of items sent through the mails upon which a charge of fraudulent use of the mail could be based. Judge Sifton ruled that Count One stated an offense under § 1341, but ordered the Government to elect a single mailing to submit to the jury. The Government appealed Judge Sifton's order to this Court, which held that the order was appealable and that the Government was not required to elect among the numerous specified mailings. United States v. Margiotta, 646 F.2d 729 (2d Cir. 1981). Trial commenced on March 27, 1981. While the Government presented evidence to prove that Margiotta's involvement in the insurance activities was a scheme to defraud, Margiotta offered a defense of good faith. He attempted to prove that he had no secret agreement with the Williams Agency for the distribution of insurance commissions as a quid pro quo for securing the appointment of the Agency as Broker of Record. Admitting that he recommended the Agency to be Broker of Record for both the Town and the County and that he directed the distribution of insurance commissions, he argued that this behavior was merely a longstanding political patronage arrangement practiced for decades by Republicans and Democrats alike. As noted above, after deliberating carefully for more than a week, the jury announced that it could not agree on a verdict, and a mistrial was declared.
This court's second review of the Margiotta case followed Judge Sifton's declaration of the mistrial. In anticipation of another hotly contested battle at the retrial, the Government sought reconsideration of a number of legal and evidentiary rulings Judge Sifton had made at the first trial. The Government challenged Judge Sifton's instruction to the jury that for the Government to show Margiotta had defrauded the citizens of Nassau County and the Town of Hempstead of the right to have the affairs of those entities conducted honestly, free from corruption, fraud and dishonesty, in violation of the mail fraud statute as charged in Count One, the jury had to find that Margiotta owed some kind of special fiduciary duty to the citizenry.*fn12 The Government also sought reconsideration of the district court's related instruction that a violation of mail fraud under Count One required an additional showing of willful concealment.*fn13 Moreover, the Government contended that the district court erred in declining to instruct the jury that Margiotta could be found guilty, as a principal, of extortion under color of official right in violation of 18 U.S.C. § 1951. Instead, Judge Sifton instructed that Margiotta could be found guilty of extortion pursuant to 18 U.S.C. § 2(b) only if the jury found that he had caused public officials acting under color of official right to induce a victim to part with money.*fn14 The Government also took issue with certain evidentiary rulings made by Judge Sifton at the first trial.*fn15 The Government appealed from Judge Sifton's order stating that he would follow these rulings at the second trial. This Court affirmed the order on the evidentiary rulings and dismissed the appeal with respect to the challenged jury instructions, on the ground that those portions of the order relating to the jury instructions were not appealable by the Government pursuant to 18 U.S.C. § 3731. United States v. Margiotta, 662 F.2d 131 (2d Cir. 1981). In dismissing the Government's appeal with respect to the jury instructions, we explicitly stated we intended to express no views on the merits of those claims.
At the second trial, the Government again sought to prove that Margiotta's participation in the insurance activities amounted to an elaborate scheme of fraud in violation of the federal mail fraud and extortion statutes rather than a mere political patronage system. The Government presented evidence to show that Margiotta had deeply insinuated himself into the affairs of government in the Town of Hempstead and Nassau County, to the point that he was in effect undertaking the business of government and not simply the activities of the Republican Party. This evidence was provided by testimony of Ralph Caso, who was the Presiding Supervisor of the Town of Hempstead until 1971 and Nassau County Executive until 1977. Caso stated that prior to his "break" with Margiotta in 1976, he was "controlled" by Margiotta in "the basic responsibilities that [he] was to carry out," including appointments to offices and positions such as the Broker of Record.
While Caso's successor, Francis Purcell, who still holds the office of Nassau County Executive, did not describe the same relationship of dominance over the affairs of government in Town and County, the testimony of Margiotta himself and those who carried out his directives established that the appellant exercised a vise-like grip over the basic governmental functions in Hempstead and Nassau County. In explaining his role in the selection of the Williams Agency for the position of Broker of Record, Margiotta testified that Richard B. Williams, an active participant in the political affairs of the Town of Hempstead and Nassau County, had approached him in 1968 and asked to replace Mortimer Weis as Broker of Record for the Town of Hempstead. Margiotta determined that the Williams Agency should replace Weis as the Broker of Record, and this decision was implemented by Caso. In 1971, after Ralph Caso was elected Nassau County Executive, Mr. Williams again approached Margiotta to express his desire to become Broker of Record for Nassau County. Margiotta testified that he determined the Williams Agency "deserved it above anybody else [he] thought was capable of handling it." On January 1, 1971, the day on which he took office, Ralph Caso designated the Williams Agency as Broker of Record for Nassau County based on Margiotta's recommendation.
Moreover, Margiotta's participation in the "governmental administration of insurance affairs" involved more than the selection of the Broker of Record. Margiotta himself testified that on one occasion he was directly involved in discussions concerning efforts to obtain insurance for the Nassau County Coliseum and the Veterans Hospital, and that he was consulted by Alphonse D'Amato, then Presiding Supervisor of the Town of Hempstead, about the possibility of adopting a self-insurance plan following inquiries by the New York State Investigation Commission. Insurance brokers Dowler and Curran corroborated this evidence of Margiotta's dominance in municipal insurance activities. They stated that when they sought the Town and County business, they undertook discussions with Margiotta, not with the public officials. After Margiotta declined their offers, they did not appeal to the public officials because, as broker Curran testified, "there was no place else to go." Margiotta's version of these discussions does not put the lie to the assertion he told Curran that "in view of [Williams's] party service I had no intention of taking any insurance away from him." Similarly, after Richard B. Williams, the founder of the Williams Agency, died in 1978, Margiotta testified that Williams's son, Richard A. Williams, approached him to ask whether the death of his father would affect their insurance arrangement. Margiotta stated that he would always "retain and recommend" the Williams Agency as Broker of Record. Moreover, Margiotta conceded that if the Williams Agency ever refused to follow his instructions concerning the distribution of portions of the insurance commissions, he would have convened a meeting of the Executive Committee of the Republican Party, and would have recommended that the Williams Agency be replaced as the Broker of Record.
The municipal insurance activities were not Margiotta's sole concern in participating in municipal government. Margiotta also played a substantial role in making hiring and promotion decisions. Margiotta's activities as a de facto Department of Personnel for Nassau County were described at trial by Alfred G. Riehl, the program staffing officer of Nassau County, and Donald Woolnough, the Republican headquarters functionary who was Margiotta's administrative assistant. Mr. Riehl assumed his duties as program staffing officer following a meeting with Margiotta, at which the appellant directed Riehl to see Donald Woolnough. Riehl and Woolnough discussed the procedure for handling requests for employment, promotions and raises. In essence, Riehl was informed that whenever a position not covered by applicable civil service regulations became available, Riehl should notify Woolnough. Woolnough testified that he would "disseminate" those jobs paying less than $15,000 to local Republican Party leaders unless a number of jobs were made available at one time, in which case Margiotta would instruct Woolnough on which local political districts should receive the employment opportunities. According to both Woolnough and Margiotta himself, while Woolnough would interview applicants for positions as clerks, electricians and other types of laborers to be hired by the municipal government, Margiotta would interview individuals who were applying for the higher level positions, such as candidates for County or Town Attorneys and department heads. Riehl testified that he contacted Woolnough on all cases involving hiring, requests for promotions, and salary increases in excess of $1,500. Woolnough stated that he would convey the information to Margiotta, who would often direct him to check with the local leader. Margiotta would also personally approve or disapprove promotions and salary increases for Nassau County positions. According to Woolnough, Margiotta's approval would be based upon the individual's "political activity." If a request for a raise or promotion was denied, Riehl would simply inform the appropriate department head of the decision, but would not proffer any reasons for the denial.
Margiotta played a similar role in the government of the Town of Hempstead. Muriel DeLac, the Director of Personnel for the Town of Hempstead stated that she followed the "unvarying practice" of seeking approval of raises and promotions concerning positions with the Town of Hempstead by forwarding a request to Donald Woolnough at the Republican Committee. The requests would be returned with the notations, "approved" or "denied." According to Ms. DeLac, the only individuals approved for hiring were those referred by the leaders of the Republican Party. One of Woolnough's responsibilities was to obtain lists from Nassau County and the Town of Hempstead showing the names of all employees and the salary they earned. Armed with this information, Margiotta and his associates would study the relationship between the amount of money earned by an individual and the amount of money contributed to the Republican Party before approving or denying a request for a raise or promotion.*fn16 In short, Margiotta's role in the affairs of Nassau County and the Town of Hempstead may be summarized in the words of Donald Woolnough: "everything went through his hands."
According to the Government, Margiotta converted this control over the governments of Town and County into a scheme to defraud relating to the municipal insurance activities. The tale of Margiotta's allegedly corrupt agreement was recounted at trial by Richard A. Williams, son of Richard B. Williams, the founder of the Williams Agency and close political associate of Margiotta. In 1968 Williams accompanied his father to a meeting attended by Margiotta and Mortimer Weis. The younger Williams waited outside the meeting room. Later, Williams was advised by his father that the Williams Agency would be named Broker of Record for the Town of Hempstead and that the Agency had agreed to split its commissions on a "50-50 basis." Margiotta has conceded that this meeting was held. Moreover, the testimony of Williams that his father had agreed to set aside 50% of his commissions was corroborated by documents prepared by Williams and his father in 1969. These documents specified the amounts of commissions the Williams Agency had received, and showed, under a column labeled "50% of commissions," that the funds had been divided in half. The younger Williams testified that his father had a conversation with Margiotta prior to the appointment of the Williams Agency as Broker of Record for Nassau County. The Williams Agency continued to set aside 50% of the commissions it earned on Nassau County properties for distribution to Margiotta's political allies.
Through his control over the appointment process and other aspects of municipal government, Margiotta had thus generated a "slush fund," the proceeds of which could be distributed to purchase party loyalty, to assist friends, or, for purposes he designated, in his words, "whenever the spirit moved [him]." For example, attorney William Cahn, a former district attorney for Nassau County, was "retained" by the Williams Agency at a fee of $2,000 per month beginning in January, 1975 after Margiotta asked whether the Williams Agency could "see its way clear to retain [Cahn]." The Williams Agency paid William Cahn $24,000 per year in 1975 and 1976, and continued to pay $2,000 per month in 1977. In April, 1977, the Agency began making the payments to Cahn's son, Neil, after William Cahn told Margiotta that he wanted his son to receive the money. The Williams Agency deducted the payments to the Cahns from the amount allocated from the commissions earned by placing insurance on Nassau County properties. Neither William nor Neil Cahn rendered any legal services on behalf of the Williams Agency.
Another beneficiary of the insurance scheme was Michael D'Auria, a former State Supreme Court Justice who was ultimately disbarred. Following Margiotta's approval, the Williams Agency made a series of payments totalling approximately $16,000 between 1971 and 1975 to D'Auria, who did no compensable legal work. Moreover, John Sutter, a Nassau County criminal lawyer, received payments derived from the insurance proceeds. Sutter represented Williams and several others, including Margiotta, William Cahn, Nassau County Executive Purcell, New York State Assemblyman Joseph Reilly, and Deputy Nassau County Executive Henry Dwyer, following inquiries by the New York State Investigation Commission and a grand jury into state insurance practices in 1977. Sutter never billed Margiotta or any of the other clients except the Williams Agency and Nassau County. Moreover, it appears that Sutter billed the Williams Agency for work incurred in representing one John Hansen in an unrelated state criminal matter, pursuant to instructions from Margiotta. Furthermore, the Government presented evidence that Margiotta had arranged for a payment of $5,000 to himself. Robert Dowler testified that Margiotta and Dowler agreed to split a payment of $10,000 made by the Williams Agency to Dowler.
To support its theory that the insurance arrangement was a scheme to defraud rather than a good faith patronage practice, the Government sought to prove that Margiotta tried to conceal the practice by directing the preparation of falsified property inspection reports by recipients of the kickback payments who did no meaningful work. According to the younger Williams, Margiotta convened a meeting with Williams in 1975, responding to the growing concern that the public exposure of the insurance activities would cause embarrassment to the Republican Party. As a result, from 1975 to 1978, the insurance brokers who received portions of the commissions earned by the Williams Agency were directed to make useless inspections of properties and to write unnecessary reports. Thus, it was made to appear that the recipients of the insurance proceeds were legitimately earning their commissions. In addition, the Government presented evidence showing that Margiotta attempted to disguise the insurance practices by misleading the State Investigation Commission when it inquired into the propriety of the insurance scheme in 1977 and 1978. Many of the recipients of the kickbacks, represented by a group of attorneys whose fees were paid by the Nassau County Republican Committee, misrepresented to the Commission the reason they were receiving the payments. The witnesses stated that they worked and performed services for the money they received. Margiotta himself testified that his conversation with Williams concerning the sharing of commissions in 1971 was motivated in part by the workload facing the brokers.
At trial, Margiotta maintained that, although he recommended the designation of the Williams Agency as Broker of Record and expected the Agency to continue the insurance patronage system, his recommendation was not made contingent upon a secret agreement to split the commissions on a "50-50 basis." Margiotta asserted that his practice of commission sharing among brokers was a good faith continuation of a long-standing and widely-known political patronage arrangement in New York. Margiotta argued that until 1978, no New York law prohibited the sharing of municipal commissions among non-working brokers.*fn17 He emphasized that the insurance patronage scheme was discontinued after Governor Carey proposed a new State regulation requiring the performance of services by brokers receiving commissions. John F. English, former Nassau County Chairman of the Democratic Party, Palmer Farrington, past Presiding Supervisor of the Town of Hempstead, testified that the distribution of insurance commissions on municipal properties to non-working brokers was a patronage system practiced by both Democrats and Republicans in the County for decades. Margiotta further asserted that he was not responsible for the preparation of fictitious property inspection reports, and that he did not lie to the State Investigation Commission. After deliberating for several days, the jury empanelled for his second trial convicted Margiotta of mail fraud and five counts of extortion. We have set forth at some length the factual contentions of the Government and Margiotta so that the points raised on appeal may be considered against the background of the bitterly contested trial.
On appeal, Margiotta raises a cluster of arguments in support of his claims that his mail fraud and Hobbs Act convictions should be reversed and indictment dismissed. Moreover, he asserts that the trial court erred by admitting into evidence Richard A. Williams's account of his father's alleged agreement with Margiotta. We turn now to the merits of Margiotta's claims.
Margiotta asserts that his conviction of mail fraud (Count One) must be reversed and the indictment dismissed on the grounds that the federal mail fraud statute, 18 U.S.C. § 1341 (1976), does not embrace a theory of fiduciary fraud by private participants in the political process, and that Margiotta owed no fiduciary duty to the general citizenry of Nassau County or the Town of Hempstead upon which a mail fraud offense could be based. Count One alleged that Margiotta devised a scheme to defraud Nassau County and the Town of Hempstead, New York State, and the citizens of these jurisdictions, (1) of the right to have the affairs of those entities conducted honestly, free from corruption, fraud and dishonesty, and (2) of the honest and faithful participation of Margiotta in the governmental affairs of those entities. The basic factual predicate underlying Count One was the allegation that Margiotta, who participated extensively in the selection of public officeholders in Hempstead and Nassau County, had entered into a secret agreement pursuant to which the Williams Agency was designated Broker of Record on the understanding that the Agency would kick back a substantial portion of its commissions in accordance with Margiotta's instructions. Margiotta argues that an alleged deprivation of an "intangible right" to a defendant's honest and faithful services forms a predicate for a federal mail fraud violation only where the defendant shares a fiduciary relationship with the putative victim. Asserting that a fiduciary duty to the general citizenry requiring honest and faithful participation in governmental affairs has been recognized only in cases involving defendants who are public officials, Margiotta concludes that the novel application of the mail fraud statute on an "intangible rights" theory to a non-office holder such as Margiotta represents an untenable and improper extension of the mail fraud statute beyond its permissible bounds.
In construing the elements of the mail fraud statute in this case of first impression, we tread most cautiously. As we have noted in another context, see United States v. Barta, 635 F.2d 999, 1005-06 (2d Cir. 1980), cert. denied, 450 U.S. 998, 68 L. Ed. 2d 199, 101 S. Ct. 1703 (1981), § 1341 is seemingly limitless on its face. We are not unaware of the time-honored tenet of statutory construction that ambiguous laws which impose penal sanctions are to be strictly construed against the Government. Id. at 1001. See also United States v. Wiltberger, 18 U.S. (5 Wheat.) 76, 5 L. Ed. 37 (1820). Concomitantly, it is indisputable that there are situations in which the legislature has intended to define broadly the scope of criminal liability. Our task today is complicated because the broad provisions of the mail fraud statute have been applied in a context implicating two conflicting sets of values, both of which merit stringent protections. On the one hand, the prosecution under § 1341 of those who simply participate in the affairs of government in an insubstantial way, or exercise influence in the policymaking process, poses the danger of sweeping within the ambit of the mail fraud statute conduct, such as lobbying and party association, which has been deemed central to the functioning of our democratic system since at least the days of Andrew Jackson. On the other hand, an unduly restrictive reading of § 1341, leading to the formulation of a rule that precludes, as a matter of law, a finding that a person who does not hold public office owes a fiduciary duty to the citizenry, regardless of that individual's de facto control of the processes of government, eliminates a potential safeguard of the public's interest in honest and efficient government. While we conclude that there are limitations on the application of the mail fraud statute to violations of the intangible right to "good government," we believe that the statute reaches the conduct evidenced by the appellant in this case.
A. The applicability of the mail fraud statute.
Margiotta argues that the mail fraud statute cannot, as a matter of law, embrace a theory of fiduciary fraud by private participants in the political process. Specifically, he emphasizes that although § 1341 has been applied to fiduciaries in both the public and private sectors, the fiduciary duty associated with the public's intangible right to an individual's honest and faithful participation in governmental affairs has been accepted only where the defendant is a public official. See, e.g., United States v. Mandel, 591 F.2d 1347, 1358 (4th Cir.), aff'd en banc in relevant part, 602 F.2d 653 (1979), cert. denied, 445 U.S. 961, 100 S. Ct. 1647, 64 L. Ed. 2d 236 (1980); United States v. Brown, 540 F.2d 364, 374 (8th Cir. 1976). We reject Margiotta's claim. In the private sector, it is now a commonplace that a breach of fiduciary duty in violation of the mail fraud statute may be based on artifices which do not deprive any person of money or other forms of tangible property. See United States v. Barta, supra, 635 F.2d at 1005-06 (deprivation of employer's right to employee's honest and faithful services); United States v. Buckner, 108 F.2d 921 (2d Cir.), cert. denied, 309 U.S. 669, 84 L. Ed. 1016, 60 S. Ct. 613 (1940). Fraudulent schemes designed to cause losses of an intangible nature clearly come within the terms of the statute. See United States v. Bronston, 658 F.2d 920 (2d Cir. 1981), cert. denied, 456 U.S. 915, 102 S. Ct. 1769, 72 L. Ed. 2d 174 (1982). A close reading of the statute supports this result. Section 1341 prohibits "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations or promises"*fn18 (emphasis added). Accordingly, the prohibition against schemes or artifices to defraud is properly interpreted to be independent of the clause "for obtaining money or property." See United States v. States, 488 F.2d 761, 764 (8th Cir. 1973), cert. denied, 417 U.S. 909, 94 S. Ct. 2605, 41 L. Ed. 2d 212, (1974). But see Comment, The Intangible-Rights Doctrine and Political Corruption Prosecutions Under the Federal Mail Fraud Statute, 47 U. Chi. L. Rev. 562 (1980) [hereinafter "Comment -- Intangible Rights "].
In the public sector, as the appellant correctly points out, the mail fraud statute has been employed in prosecutions of public officials who have allegedly deprived the citizenry of such intangible rights as the right to good government, or the right to the honest and loyal services of its governmental officers. A number of courts have approved the prosecution of allegedly corrupt politicians who did not deprive the citizens of anything of readily identifiable economic value. See, e.g., United States v. Mandel, supra; United States v. Keane, 522 F.2d 534 (7th Cir. 1975), cert. denied, 424 U.S. 976, 47 L. Ed. 2d 746, 96 S. Ct. 1481 (1976); United States v. States, supra. From these cases, a basic principle may be distilled: a public official may be prosecuted under 18 U.S.C. § 1341 when his alleged scheme to defraud has as its sole object the deprivation of intangible and abstract political and civil rights of the general citizenry. The definition of fraud is thus construed broadly to effectuate the statute's fundamental purpose in prohibiting the misuse of the mails to further fraudulent enterprises of all kinds. See United States v. States, supra, 488 F.2d at 764. See also Comment -- Intangible Rights, supra, at 564.
The instant case raises the novel issue whether an individual who occupies no official public office but nonetheless participates substantially in the operation of government owes a fiduciary duty to the general citizenry not to deprive it of certain intangible political rights that may lay the basis for a mail fraud prosecution. In the private sector cases, a formal employer-employee relationship is not a prerequisite to a finding that a fiduciary duty is owed. See, e.g., Oil & Gas Ventures -- First 1958 Fund Ltd. v. Kung, 250 F. Supp. 744, 749 (S.D.N.Y. 1966) (Weinfeld, J.) (fiduciary relation may be founded upon dominance). Similarly, we do not believe that a formal employment relationship, that is, public office, should be a rigid prerequisite to a finding of fiduciary duty in the public sector. Cf. United ...