United States v. Blaszczak

56 F.4th 230

UNITED STATES of America, Appellee,

v.David BLASZCZAK, Theodore Huber, Robert Olan, Christopher Worrall, Defendants-Appellants.

Docket Nos. 18-2811

18-2825

18-2867

18-2878

United States Court of Appeals, Second Circuit.

Argued: June 9, 2021

Decided: December 27, 2022

ERIC J. FEIGIN, Deputy Solicitor General, United States Department of Justice, Washington, D.C. (Elizabeth B. Prelogar, Acting Solicitor General, United States Department of Justice, Washington, D.C.; Audrey Strauss, United States Attorney for the Southern District of New York, Ian McGinley, Joshua A. Naftalis, Won S. Shin, Assistant United States Attorneys, New York, New York, on the brief), for Appellee.

DONALD B. VERRILLI, JR., Washington, D.C. (Elaine J. Goldenberg, Jonathan S. Meltzer, Dahlia Mignouna, Jacobus P. van der Ven, Munger, Tolles & Olson, Washington, D.C., David Esseks, Eugene Ingoglia, Alexander Bussey, Allen & Overy, New York, New York, on the brief for Defendant-Appellant Robert Olan; Daniel M. Sullivan, James M. McGuire, Holwell Shuster & Goldberg, New York, New York, Stephen Fishbein, John A. Nathanson, Shearman & Sterling, New York, New York, on the brief for Defendant-Appellant Christopher Worrall; Alexandra A.E. Shapiro, Daniel J. O'Neill, Eric S. Olney, Shapiro Arato Bach, New York, New York, Barry H. Berke, Dani R. James, Kramer Levin Naftalis & Frankel, New York, New York, on the brief for Defendant-Appellant Theodore Huber; Colleen P. Cassidy, Barry D. Leiwant, Federal Defenders of New York, New York, New York, on the brief for Defendant-Appellant David Blaszczak), for Defendants-Appellants.

KATHERINE R. GOLDSTEIN, New York, New York (Akin Gump Strauss Hauer & Feld, New York, New York, on the brief), Court-appointed Amicus Curiae, in support of reinstatement of this Court's decision of affirmance.

Peter Neiman, New York, New York (Nicholas Werle, Wilmer Cutler Pickering Hale and Dorr, New York, New York, Jessica Lutkenhaus, Wilmer Cutler Pickering Hale and Dorr, Washington, D.C.; Lindsay A. Lewis, Committee of the National Association of Criminal Defense Lawyers, New York, New York, of counsel), submitted a brief for Amicus Curiae National Association of Criminal Defense Lawyers in support of reversal.

Roman Martinez, Washington, D.C. (Michael Clemente, Latham & Watkins, Washington, D.C., Jason M. Ohta, Latham & Watkins, San Diego, California; Stephen R. Cook, Brown Rudnick, Irvine, California, Justin S. Weddle, Weddle Law, New York, New York, of counsel), submitted a brief for Amicus Curiae Jeffrey Wada in support of Defendants-Appellants and reversal.

Michael H. McGinley, Philadelphia, Pennsylvania (Michael P. Corcoran, Dechert, Philadelphia, Pennsylvania, of counsel), submitted a brief for Amicus Curiae The Alternative Investment Management Association in support of reversal.

Before: KEARSE, WALKER, and SULLIVAN, Circuit Judges.

Judge Walker joins the majority opinion and concurs in a separate concurring opinion, in which Judge Kearse joins.

Judge Sullivan dissents, in a separate opinion.

KEARSE, Circuit Judge:

This appeal returns to us on remand from the United States Supreme Court for further consideration, in light of Kelly v. United States , ––– U.S. ––––, 140 S. Ct. 1565, 206 L.Ed.2d 882 (2020), of this Court's prior affirmance of judgments of the United States District Court for the Southern District of New York convicting defendants David Blaszczak, Theodore Huber, Robert Olan, and Christopher Worrall of conversion of government property in violation of 18 U.S.C. § 641 and wire fraud in violation of 18 U.S.C. § 1343 ; and convicting Blaszczak, Huber, and Olan of securities fraud in violation of 18 U.S.C. § 1348 ("Title 18 securities fraud"), conspiracy to commit wire fraud and Title 18 securities fraud in violation of 18 U.S.C. § 1349, and conspiracies in violation of 18 U.S.C. § 371 to, inter alia , convert government property and defraud the United States, all originating from misappropriation of confidential information from the Centers for Medicare & Medicaid Services ("CMS"), see United States v. Blaszczak , 947 F.3d 19 (2d Cir. 2019) (" Blaszczak I "), vacated and remanded , ––– U.S. ––––, 141 S. Ct. 1040, 208 L.Ed.2d 513 (2021). On this remand: (A) defendants contend that their argument that the CMS information at issue does not constitute "property" or a "thing of value" within the meaning of the above statutes is supported by the Supreme Court's decision in Kelly ; (B) the government, concurring in that contention, confesses error as to those substantive counts and as to a conspiracy count premised only on crimes concerning "property" (Count Two); and it agrees that either the defendants’ convictions on those counts should be reversed, or the cases should be remanded to the district court so that the government can dismiss those counts pursuant to Fed. R. Crim. P. 48(a) ; and (C) the government seeks affirmance on the remaining conspiracy counts on which one or more defendants were convicted (Counts One and Seventeen).

For the reasons that follow, given the Supreme Court's decision in Kelly and the prosecutorial discretion to which the Executive Branch of the government is entitled, we grant the government's request to remand the cases to the district court for dismissal of the substantive counts and the conspiracy charged in Count Two. As to Counts One and Seventeen, the verdicts do not reveal whether the jury found that the charged defendants conspired to engage in alleged conduct other than that which the government no longer contends was criminal. Accordingly, we vacate the convictions on these two counts and remand for such further proceedings as may be appropriate.

I. BACKGROUND

The history of this prosecution, summarized briefly here, is set out in Blaszczak I , 947 F.3d 19, familiarity with which is assumed.

CMS is an agency within the United States Department of Health and Human Services. CMS administers Medicare and Medicaid, including inter alia , issuing rules setting reimbursement rates for healthcare providers. The rules may impact the stock prices of companies that offer products and services covered by the rates.

Worrall was an employee at CMS; Blaszczak, a consultant for hedge funds, was a former CMS employee. Huber and Olan were partners in a hedge fund ("Deerfield"). At various times between 2009 and 2014, Worrall gave Blaszczak nonpublic information about the timing and substance of proposed CMS rule changes that would change reimbursement rates for certain types of medical care for various health conditions. Blaszczak gave that information to Huber, Olan, or another Deerfield partner, following which Deerfield engaged in profitable short sales of shares of companies that would be negatively affected by reimbursement rate reductions when they became effective. Between 2010 and 2013, Blaszczak also gave such information to another hedge fund client, following which that fund profitably maintained its short positions and purchased put-options in shares of such companies.

A. The Prosecution and the Convictions

With respect to the above activities, defendants were indicted and tried on substantive charges of Title 18 securities fraud in violation of § 1348, securities fraud in violation of 15 U.S.C. § 78j(b) and 78ff, and 17 C.F.R. § 240.10b-5 (collectively "Title 15 securities fraud"), wire fraud in violation of 18 U.S.C. § 1343, and conversion of United States property (i.e. , the CMS information) in violation of 18 U.S.C. § 641. All four defendants were charged with conspiracy, in violation of 18 U.S.C. § 371, to commit Title 15 securities fraud, to convert government property, and to defraud the United States (Count One), and conspiracy in violation of 18 U.S.C. § 1349 to commit wire fraud and Title 18 securities fraud (Count Two). Blaszczak was charged in Count Seventeen with conspiracy in violation of § 371 to convert government property and to defraud the United States.

The jury acquitted all of the defendants on all substantive counts of Title 15 securities fraud. On the other substantive charges, all four defendants were convicted on at least one count of § 641 property conversion and at least one count of § 1343 wire fraud: Blaszczak was convicted on a total of three counts of § 641 property conversion, two counts of § 1343 wire fraud, and two counts of Title 18 securities fraud. Huber and Olan were each convicted on one count of § 641 property conversion, one count of § 1343 wire fraud, and one count of Title 18 securities fraud. Worrall was convicted only on one count of § 641 property conversion and one count of § 1343 wire fraud. As to the conspiracy counts, Blaszczak, Huber, and Olan were convicted on Counts One and Two; Blaszczak was convicted on Count Seventeen.

On appeal, defendants challenged their convictions on the principal ground that §§ 1343 and 1348 apply to fraudulent schemes to obtain "money or property" and that § 641 applies to conversion of "money[ ] or [a] thing of value" of the government, and that CMS's confidential information as to its plans for announcing changes in medical service reimbursement rates was not government "property" or a "thing of value" within the meaning of those statutes. The majority in Blaszczak I disagreed, and the convictions were affirmed.

B. The Supreme Court's Decision in Kelly

Following denial of defendants’ petitions for rehearing in this Court and a stay of their time to seek further review, defendants petitioned the Supreme Court for certiorari. In the meantime, the Supreme Court had decided Kelly .

Kelly involved politically motivated conduct by officials in the administration of New Jersey's then-Governor Chris Christie to cause significant traffic gridlock for several days in Fort Lee, New Jersey--terminus of the George Washington Bridge to Manhattan--by reducing the Bridge's toll plaza lanes accessed from Fort Lee from three lanes to one, in retribution for the refusal of Fort Lee's mayor to endorse Christie's bid for...