A Split Decision for Conrad Black in the 7th Circuit | Bleader

Friday, October 29, 2010

A Split Decision for Conrad Black in the 7th Circuit

Posted By on 10.29.10 at 03:51 PM

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Conrad Black was convicted of three counts of fraud and one count of obstruction of justice in 2007. On Friday the Seventh Circuit Court of Appeals reversed his convictions on two of the four counts.

An obstruction of justice count stands, and so does a fraud count involving $600,000 in so-called noncompete payments made to Black and other Hollinger International executives when Hollinger sold off several of its community newspapers to companies called Forum and Paxton. The appellate decision, written by Judge Richard Posner, said the notion that the money was paid in return for "covenants not to compete" was "unbelievable" — and only in part because of the highly inconvenient fact that there were no covenants!

Here's Posner's entire decision.

In his appeal, Black argued that he'd been found guilty of fraud under two theories — one no longer valid. The first theory was simply that he'd falsely enriched himself with money that belonged to the corporation — that is, committed "pecuniary fraud." The second was that he'd committed "honest services" fraud — he'd deprived Hollinger and its shareholders of his honest services as its CEO. But in June the Supreme Court unanimously chopped back the federal honest services law to apply only in cases involving bribery or kickbacks. And Black, freed in July on $2 million bond, said there was no way of telling whether the jury would have convicted him if honest services fraud had been taken off the table.

But with the Forum and Paxton payments, Posner wrote that "no reasonable jury" could have acquitted Black (and three other defendants) of pecuniary fraud on this count but acquitted them of honest-services fraud."

However, the two other fraud charges weren't so clear-cut. They involved payments totaling $5.5 million in return for a promise not to compete with a company called APC — a Hollinger subsidiary — and the one paper it still owned, in Mammoth Lake, California — for three years, should Black or any of the other defendants leave Hollinger. The idea that any of them would actually go into business against this tiny paper was "ridiculous," Posner wrote; but Black and the other had defended themselves in court by arguing that what they were really doing was taking management fees that they were genuinely owed in a form that would avoid Canadian taxes — Canada being where Hollinger was based.

It was a ploy carried out behind the backs of not only the shareholders but also Hollinger's board of directors, Posner noted, meaning that even if the jury had bought the argument that they had the money coming, it might have convicted Black and the others anyway under the honest-services law for deceiving the shareholders and directors that trusted them. In other words — Posner did not savor the irony as he might have — it was the scope of their alleged dishonesty that now made it impossible to be sure that the jury had convicted them for reasons that still stood up in court.

So those two convictions were vacated — circumstances "warranting — barely — a retrial." As for the obstruction of justice count — which was on Black alone — Posner said the evidence was powerful that he'd tried to sneak possibly incriminating files out of his office, and it hardly mattered if years later his convictions on matters those files dealt with were overturned.

Now the case goes back to the trial judge, Amy St. Eve, for resentencing on the two surviving counts. It's up to the U.S. Attorney's Office whether to retry Black on the reversed counts (he'd served 28 months of a 78-month sentence; his codefendants either received no prison time or were sentenced to no more than 27 months in prison). Posner, putting his 2 cents in, noted that the government might wish "to conserve its resources and wind up this protracted litigation, to dismiss the APC count[s] and proceed directly to resentencing."

And if that's what happens, there's nothing to keep St. Eve "from considering conduct underlying the [APC charges], so long as that conduct has been proved by a preponderance of the evidence." Here Posner was citing a precedent with which he clearly agrees. He'd considered Black's appeal once before, on its way up to the Supreme Court before the Court weighed in on honest services fraud, and he'd called Black's defense of the noncompete payments "ridiculous" and "preposterous."

POSTSCRIPT: Convicted Hollinger attorney Mark Kipnis played a small role in the noncompete payments, simply drawing up contracts, and was never accused of benefiting financially. He was sentenced to six months home confinement, and Judge St. Eve threw out his Forum-Paxton conviction. With the APC convictions having been overturned by the Seventh Circuit, today he stands in the eyes of the law guilty of nothing.

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