Law360 (June 4, 2020, 5:45 PM EDT) -- The U.S. Supreme Court's recent decision to toss the convictions of two New Jersey officials in the Bridgegate scandal could provide three men convicted in the NCAA basketball corruption probe a lifeline in overturning their convictions at the Second Circuit, experts say.
Former Adidas AG marketing executive Jim Gatto, former Adidas consultant Merl Code and aspiring player agent Christian Dawkins are appealing their 2018 wire fraud convictions for making payments to college basketball recruits to steer them toward schools sponsored by the shoe and apparel giant, in violation of NCAA rules. Prosecutors have alleged the payments defrauded the universities by exposing them to potential sanctions and depriving them of their right to recruit NCAA-eligible athletes.
But while the probe was initially touted by prosecutors as exposing the "dark underbelly of college basketball," it did not expand much further from when it was unveiled in September 2017. In their appeals, the three men have questioned whether the probe really cut deep enough to root out corruption in college basketball and whether the universities were truly victims.
Gatto, Dawkins and Code have argued that the case turns breaking NCAA rules into a federal crime and that while they may have paid athletes, they did not intend to defraud the schools. Rather, they claim they wanted to ensure those Adidas-sponsored schools had top recruits, and have even suggested the schools knew, or purposefully avoided knowing, what was going on.
Experts say the Supreme Court's May 7 decision in Kelly v. U.S. may give them further support. The case held that it is not wire fraud if the loss to the victim is an "incidental (even if foreseen) byproduct" of the scheme, raising the question of whether prosecutors in the NCAA case reached too far with a tenuous theory that the defendants meant to hurt the universities.
"Two of the most important words from the Kelly decision were 'incidental' and 'foreseeable,'" said Daniel J. Fetterman, chair of the white collar defense and investigations practice group at Kasowitz Benson Torres LLP. "There is a distinct possibility that the Second Circuit will reverse based on its analysis of the Gatto conspiracy's object. It may conclude that the object of that conspiracy was not to deprive the universities of their scholarship money."
Notably, the Second Circuit has directed the parties to address what impact the Bridgegate ruling may have on the convictions, even though the court already heard oral arguments in the appeal.
In Kelly, the high court tossed fraud convictions of two New Jersey officials for shutting down lanes of the George Washington Bridge between New York and New Jersey to punish a local mayor who did not support the re-election of then-New Jersey Gov. Chris Christie.
The high court's ruling came down to two issues, both of which the court said were grounds to overturn the convictions. First, the court found that interfering with the agency in charge of the bridge's right to control the lanes was not the type of property loss that could be the basis for fraud because control of the lanes is a government regulatory power.
Second, the court rejected the argument that the scheme defrauded the Port Authority out of money it paid to workers to actually shut down the lanes, because that loss was incidental to the scheme to exact political retribution.
"The time and labor of Port Authority employees were just the implementation costs of the defendants' scheme to reallocate the bridge's access lanes," Justice Elena Kagan wrote for the court. "Or said another way, the labor costs were an incidental (even if foreseen) byproduct. ... Neither defendant sought to obtain the services that the employees provided."
Fetterman said that language could be problematic for the government in the NCAA case.
"The universities were going to spend that money on recruits no matter what," Fetterman said. "The object of the conspiracy was to pair a particular recruit with a school that was sponsored by Adidas so that Adidas could increase its revenue and sales. So, any financial impact to the universities, although foreseeable, was incidental to the scheme's object."
In a brief to the Second Circuit last month addressing Kelly specifically, the three men argued that their objective was "to foster relationships with the athletes that could prove beneficial if they played in the NBA, rather than to interfere with the universities' property."
Prosecutors from the Southern District of New York told the Second Circuit that the scholarships were "not simply implementation costs of a scheme with some alternative goal" but central to the whole scheme.
They said the payments were specifically meant to get the recruits "to attend — and thus accept scholarships from — Adidas-sponsored schools, thereby wearing Adidas-branded uniforms, improving Adidas-branded teams, and positioning themselves to be NBA stars who would sign contracts with the defendants."
The three men further likened the public schools' decisions on who would receive scholarships to the regulatory power of the Port Authority to control the bridge lanes. Prosecutors, however, said that such powers of a state governmental agency are easy to distinguish.
Experts said the appeal may turn on whether the Second Circuit sees enough evidence in the record to agree with prosecutors that the scholarships really were central to the scheme.
"Will the Second Circuit consider that there is a basis to say that their actions were intentional or otherwise understood that the consequences of their actions were to cause harm to the universities?" said Dentons white collar and government investigations practice group chair Stephen L. Hill Jr.
Hill, a former U.S. attorney, was part of the prosecution in the early 1990s of Myron Piggie, a Kansas City-based AAU basketball coach who was convicted of mail and wire fraud for paying high school basketball players, which destroyed their NCAA eligibility.
One issue on appeal in that case, U.S. v. Myron Piggie , was whether the alleged harm to the colleges — through losing scholarship money, paying to investigate NCAA compliance and paying NCAA fines — could be considered in the calculation of loss for sentencing purposes. The Eighth Circuit found that it could.
"So there is some basis for arguing that" in the NCAA case, too, Hill said. The key question for the Second Circuit, he added, will be whether "the particular facts of this case support that conviction."
But simply by flagging the Kelly ruling, the Second Circuit indicated it's taking the issue seriously.
"Somebody on the Second Circuit thought, 'Wow. This raises an issue that we need to be paying attention to, and we need to hear from the parties,'" Fetterman said.
Notably, the Second Circuit has directed the parties to address what impact the Bridgegate ruling may have on the convictions, even though the court already heard oral arguments in the appeal.
In Kelly, the high court tossed fraud convictions of two New Jersey officials for shutting down lanes of the George Washington Bridge between New York and New Jersey to punish a local mayor who did not support the re-election of then-New Jersey Gov. Chris Christie.
The high court's ruling came down to two issues, both of which the court said were grounds to overturn the convictions. First, the court found that interfering with the agency in charge of the bridge's right to control the lanes was not the type of property loss that could be the basis for fraud because control of the lanes is a government regulatory power.
Second, the court rejected the argument that the scheme defrauded the Port Authority out of money it paid to workers to actually shut down the lanes, because that loss was incidental to the scheme to exact political retribution.
"The time and labor of Port Authority employees were just the implementation costs of the defendants' scheme to reallocate the bridge's access lanes," Justice Elena Kagan wrote for the court. "Or said another way, the labor costs were an incidental (even if foreseen) byproduct. ... Neither defendant sought to obtain the services that the employees provided."
Fetterman said that language could be problematic for the government in the NCAA case.
"The universities were going to spend that money on recruits no matter what," Fetterman said. "The object of the conspiracy was to pair a particular recruit with a school that was sponsored by Adidas so that Adidas could increase its revenue and sales. So, any financial impact to the universities, although foreseeable, was incidental to the scheme's object."
In a brief to the Second Circuit last month addressing Kelly specifically, the three men argued that their objective was "to foster relationships with the athletes that could prove beneficial if they played in the NBA, rather than to interfere with the universities' property."
Prosecutors from the Southern District of New York told the Second Circuit that the scholarships were "not simply implementation costs of a scheme with some alternative goal" but central to the whole scheme.
They said the payments were specifically meant to get the recruits "to attend — and thus accept scholarships from — Adidas-sponsored schools, thereby wearing Adidas-branded uniforms, improving Adidas-branded teams, and positioning themselves to be NBA stars who would sign contracts with the defendants."
The three men further likened the public schools' decisions on who would receive scholarships to the regulatory power of the Port Authority to control the bridge lanes. Prosecutors, however, said that such powers of a state governmental agency are easy to distinguish.
Experts said the appeal may turn on whether the Second Circuit sees enough evidence in the record to agree with prosecutors that the scholarships really were central to the scheme.
"Will the Second Circuit consider that there is a basis to say that their actions were intentional or otherwise understood that the consequences of their actions were to cause harm to the universities?" said Dentons white collar and government investigations practice group chair Stephen L. Hill Jr.
Hill, a former U.S. attorney, was part of the prosecution in the early 1990s of Myron Piggie, a Kansas City-based AAU basketball coach who was convicted of mail and wire fraud for paying high school basketball players, which destroyed their NCAA eligibility.
One issue on appeal in that case, U.S. v. Myron Piggie , was whether the alleged harm to the colleges — through losing scholarship money, paying to investigate NCAA compliance and paying NCAA fines — could be considered in the calculation of loss for sentencing purposes. The Eighth Circuit found that it could.
"So there is some basis for arguing that" in the NCAA case, too, Hill said. The key question for the Second Circuit, he added, will be whether "the particular facts of this case support that conviction."
But simply by flagging the Kelly ruling, the Second Circuit indicated it's taking the issue seriously.
"Somebody on the Second Circuit thought, 'Wow. This raises an issue that we need to be paying attention to, and we need to hear from the parties,'" Fetterman said.
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