State/Local Government Employees Face Possible Federal Prosecution in Wake of Chicago City Hall Hiring Investigation

By Patrick E. Deady, J. Michael Tecson, and Katherine E. Rengel

 Patrick E. Deady is a partner, J. Michael Tecson an associate, and Katherine E. Rengel a law clerk in the Chicago, Illinois, office of Hogan Marren, Ltd.

 It has been well-established that officials who work for the state, a county, a city, for municipal corporations, or other public employers (collectively “Public Employers”) subject themselves and the entity for which they work to liability and penalties when they base the firing, hiring, or promotion of other public employees, or potential employees, on their political affiliations. Such “patronage” decisions have been generally held to violate the employee’s or job applicant’s First and Fourteenth Amendment rights to freedoms of belief and association. Until recently, offending public officials feared only civil suits seeking damages and reinstatement for such patronage practices. Now, after the government’s successful prosecution in United States v. Sorich, No. 05-CR-664, 2006 WL 3347555 (N.D. Ill. Nov. 15, 2006), the same patronage violations could result in criminal convictions and federal jail sentences.

In Sorich, the defendants, who worked for the City of Chicago (the “City”), were convicted of mail fraud under 18 U.S.C. §§ 1341 and 1346. The indictment in Sorich alleged that the four defendants engaged in a scheme to rig the City of Chicago’s hiring and promotion process, granting favorable consideration to particular job applicants who had engaged in political activities on behalf of various campaign coordinators and politicians. The defendants received sentences that ranged from eighteen months to forty-seven months.

Prior to Sorich, public officials or employees were, for all intents and purposes, immune from criminal prosecution for engaging in such patronage hiring. In fact, it took years for the judiciary to create a uniform application of the civil penalties for alleged constitutional violations. In 1976, the U.S. Supreme Court decided the case of Elrod v. Burns, 427 U.S. 347 (1976). In Elrod, the Cook County sheriff, a Democrat, systematically replaced employees in the Sheriff’s Office who were unwilling to pledge their allegiance and support to the Democratic Party. Employees dismissed or threatened with dismissal because they did not support the Democratic Party brought a class action lawsuit against the sheriff. The lawsuit alleged that the sheriff had violated the employees’ First Amendment rights. Id. at 347. The Supreme Court agreed with the employees that the sheriff’s partisan-based dismissals were unconstitutional. First, the dismissals violated the employees’ First Amendment freedoms of belief and association by conditioning the employee’s job upon conformance to the current sheriff’s political party. Id. at 355. Second, the practice of such patronage hindered the “free functioning of the electoral process” by restricting the employees’ ability to support opposing candidates. Id. at 356. Therefore, the Supreme Court determined that the sheriff of Cook County was liable for civil penalties for violating the employees’ First Amendment rights in the absence of a vital governmental interest. Id. at 362.

In O’Hare Truck Service v. City of Northlake, 518 U.S. 712 (1996), the Supreme Court decided that the anti-patronage protections of Elrod applied not just to direct employees of counties and municipalities, but they were equally applicable to a city’s independent contractors. In O’Hare Truck Service, an independent contractor’s contract was terminated and its name removed from an official list of contractors authorized to perform public services because the contractor refused to contribute to the incumbent mayor’s campaign, and instead contributed to his opponent. Id. at 712. Considering the Court’s prior decision in Elrod, the O’Hare Truck Service Court held that “those who perform the government’s work outside the formal employment relationship” have the same First Amendment rights as public employees. Id. at 720. The O’Hare Truck Service Court maintained that the government can terminate or modify at-will contracts and employment positions without any cause at all, but cannot do so based on conflicting political views. Id. at 726. Thus, the City of Northlake was found civilly liable for violating the independent contractor’s First Amendment rights. Id. at 714.

In 1990, the Supreme Court extended the Elrod rule, prohibiting patronage dismissals, to hiring and promotion decisions at the state level. Rutan v. Republican Party of Illinois, 497 U.S. 62 (1990). In Rutan, the governor of Illinois implemented a civil service employment system in which every employment decision was subject to the governor’s approval, which ensured that hiring and promotional decisions were conditioned upon political support for the governor’s interests. Id. Public employees passed over in the hiring and promotion process brought an action challenging the governor’s use of political considerations. Id. Using similar reasoning to Elrod, the Court held that conditioning hiring and promotion decisions on political belief and association violates the applicant’s First Amendment right, unless there is an essential government interest. Id. at 78.

By systematically applying Elrod,O’Hare Truck Services, and Rutan to termination and, subsequently, to promotions and hirings, the judiciary has given adequate warning to Public Employers and their officials that if they employ a politically based patronage system, they may be held accountable for violating employees’ and prospective employees’ constitutional rights. Now, through Sorich, Public Employers and their officials must also fear the threat of criminal prosecutions for what was previously considered only civil violations.

In Sorich, the scheme alleged in the indictment included the defendants’ directions to other City employees to falsify or inflate the test scores of certain job applicants so those applicants would be found the most qualified for the positions. The scheme also included the pre-screening of names before job interviews so that the persons conducting the interviews would know which applicants were to receive the highest ratings. The government contended that, through this fraudulent scheme, the defendants and other co-schemers were able to maintain the City’s political patronage system, which supplied precinct workers and other campaign support to political candidates favored by the City administration. What was unique about the Sorich scheme, as compared to previous hiring fraud prosecutions, was the absence of any overt bribery or kickbacks. Other than their continued City employment, the participants in the scheme received no money or any other thing of value.

In light of Elrod,O’Hare Truck Services, and Rutan, it would appear initially that the defendants should have been subjected to civil penalties, or perhaps criminal contempt citations, for violating the constitutional rights of the applicants who were not hired and the employees who were not promoted. At the time of the scheme in Sorich, the City and all of its hiring officials had been subject to the provisions of the Shakman Decree, a civil consent decree entered by the U.S. District Court for the Northern District of Illinois, Eastern Division. The decree provided that City employees were permanently enjoined from basing any aspect of City employment, including hiring and promotions, “upon or because of any political reason or factor including, without limitation, any prospective employee’s political affiliation, political support or activity, political financial contributions, promises of such political support, activity or financial contributions or such prospective employee’s political sponsorship or recommendation.” Pursuant to the decree, the City was obligated to take steps to ensure that all non-policymaking positions were filled without any political consideration and to file periodic compliance reports.

Under the decree, City workers have filed claims against the City for alleged violations of the Shakman Decree as civil actions for damages and, in some instances, injunctive relief. Until Sorich, no violations of the Shakman Decree had been prosecuted criminally. The Sorich indictment alleged that through their scheme, Defendants Sorich and McCarthy arranged for the promotion of a current City employee who had volunteered on a political campaign. Federal mail fraud jurisdiction was based on the fact that job candidates were, in some instances, notified of the hiring decisions through the U.S. mail.

The government alleged that the defendants had used the U.S. mail in violation of 18 U.S.C. §§ 1341 and 1346 and, through these false statements, deprived the City and the people of the City of Chicago of money and property and the defendants’ “honest services” as City employees. Whether such a scheme, absent some personal gain to the defendants or the loss of some identifiable money or property, amounts to mail fraud, is now before the U.S. Court of Appeals for the Seventh Circuit.

The Seventh Circuit first articulated the “personal gain” requirement of honest services fraud under the mail fraud statute in United States v. Bloom, 149 F.3d 649, 650 (7th Cir. 1998). In Bloom, a Chicago lawyer, who was also an alderman, was charged with violation of the mail fraud honest services provisions of 18 U.S.C. § 1346. The indictment alleged that Bloom had provided legal advice to one of his clients that deprived the City of Chicago of tax revenues the City would otherwise have obtained absent Bloom’s advice. Bloom’s advice would allow his client to circumvent certain state statutes and allow the client to avoid paying the full value of delinquent property taxes. The prosecution claimed that this arrangement conflicted with Bloom’s fiduciary duties to the City as alderman. The Seventh Circuit upheld the district court’s dismissal and recognized the principle that “[n]ot every breach of every fiduciary duty works a criminal fraud.” Id. Moreover, “[i]n almost all of the intangible rights cases [the Seventh] [C]ircuit has decided (before McNally or since § 1346), the defendant used his office for private gain, as by accepting a bribe in exchange for official action.” Id. at 655. The Bloom court relied heavily on its analysis of other cases in which the indictments charged that the “defendants converted to private use information that they possessed by virtue of their public positions.” Id. Having found that Bloom’s conduct in advising his client resulted in no personal gain to Bloom, the Seventh Circuit affirmed the district court’s dismissal of the mail fraud and honest services count. Id. at 656–57.

The holding in Bloom is consistent with the Seventh Circuit’s holding in United States v. Hausman, 345 F.3d 952 (7th Cir. 2003), in which the appellate court affirmed the denial of a defendant attorney’s motion to dismiss mail and wire fraud charges under 18 U.S.C. §§ 1341, 1343, and 1346. Hausman was a Wisconsin personal injury attorney who referred clients to a co-defendant chiropractor, Rise, for services paid from insurance settlement proceeds. In exchange for the referral of business from Hausman, the chiropractor would pay 20 percent of the fees collected from the insurance companies to third parties who had provided various personal and business services to either Hausman or Rise. Considering the court’s prior holding in Bloom that criminal liability for breach of fiduciary duty under the § 1346 “intangible rights of honest services” stems from some personal gain on the defendant’s part, the Hausman court found that the indictment did sufficiently allege that the attorney breached his fiduciary duty to his clients (i.e., his employer) by failing to disclose the benefit he was receiving from the kickback scheme with the chiropractor. Hausman, 345 F.3d at 956–57.

In Sorich, the district court relied on certain dicta in United States v. Spano, 421 F.3d 599 (7th Cir. 2005), cert. denied, 126 S. Ct. 1084 (2006), in which the court observed that a participant in a scheme to defraud is guilty even if all the benefits of the fraud accrued to other participants. The Sorich court read that language to extend to the ultimate job recipients who, based on the trial evidence, were not knowing participants in the criminal scheme.

Despite the lack of personal gain by any of these defendants, each was still convicted under the mail fraud statute. What was once considered only a possibility for civil violations has now morphed into an entirely different type of exposure. Moreover, since Sorich seems to have equated the dispensing of jobs to supporters of certain political candidates to the necessary “personal gain” to find criminal liability, patronage decisions to hire, fire, or promote may become a stronger focus of federal corruption investigations and prosecutions.