Flying the Too-Friendly Skies: The Investigation of United Airlines
Update July 14, 2016: Today David Samson, the ex-chairman of the Port Authority, pled guilty to one felony count of bribery. It's unclear whether he is cooperating in the investigation and whether additional charges might follow. Jeff Smisek, the CEO of United Airlines, and two other senior United executives resigned abruptly on September 8. Their unexpected departure raises the question whether under Smisek’s leadership the friendly skies crossed the line that separates mere friendship from corruption. Smisek’s resignation comes in the midst of an ongoing criminal investigation by the United States Attorney’s Office in New Jersey. The investigation began as an inquiry into the so-called “Bridgegate” scandal, where officials in the administration of New Jersey Governor Chris Christie ordered inbound lanes on the George Washington Bridge closed to punish a local politician who refused to support Christie for re-election.
The Bridgegate investigation soon led to Christie ally David Samson, the then-Chairman of the Port Authority of New York and New Jersey. The Port Authority oversees much of the transportation infrastructure in the two states, including the George Washington Bridge. It also has jurisdiction over all the major airports in the New York City metropolitan area, including Newark’s Liberty International Airport. And that leads us to United Airlines. Newark was a major hub for Continental Airlines, and after Continental and United merged it became increasingly important to United. In 2011 United was negotiating with the Port Authority for a more favorable lease at the Newark airport, as well as for some major terminal improvements and other facilities upgrades. Exactly what went on between Samson, Smisek, and other officials at United during those negotiations is now apparently a subject of the federal investigation.
The “Chairman’s Flight”
Samson owns a weekend home near Columbia, South Carolina. During the time United was seeking upgrades and other concessions at the Newark airport, Samson reportedly pushed United to begin offering a nonstop flight between Newark and Columbia, which would make it easier for him to reach his vacation property. United apparently resisted at first because the route would be unprofitable, but then began offering the twice-weekly flight in 2012. Port Authority officials nicknamed it the “Chairman’s flight;” it was cancelled just a few days after Samson resigned in 2014. Investigators are now focused on the possible connection between the Chairman’s flight and steps taken by the Port Authority to benefit United. The sudden departures of Smisek and the other United executives suggest that the airline’s internal investigation uncovered something serious. This has already amounted to an embarrassing corporate and political scandal – but could it be criminal? Imagine two extreme (and hypothetical) scenarios: in the first, United Airlines decides to offer the Chairman’s flight hoping that it will please Samson and improve its chances of getting what it wants from the Port Authority. There is no request, demand or pressure from Samson and no agreement with Samson that United will offer the flight, United simply acts on its own. This would not be a crime. Corporations are free to pursue general policies in an attempt to please local authorities, simply to be seen as a good corporate citizen or even in the more specific hope that it might cause those authorities to look more favorably on issues of interest to the corporation. As long as there is no deal or understanding concerning anything that will be done in return, this kind of corporate ingratiating behavior is not criminal. On the opposite extreme would be a case where Samson and Smisek (or some other United official) expressly agreed that if United began the Chairman’s flight Samson would act favorably on United’s various requests before the Port Authority. This just as clearly IS corrupt criminal behavior. It describes classic quid pro quo bribery: in exchange for receiving a valuable benefit from United, Samson agrees to exercise the powers of his office on United’s behalf. Not all bribes consist of Rolex watches or wads of cash in plain brown envelopes. Anything of subjective value to the bribe recipient may potentially form the basis of a bribery charge. Offers of employment, promises of future contracts, even things like companionship or sexual favors, all have been found to be “things of value” that may serve as the quid in a quid pro quo. The flight is not cash going directly into Samson’s pocket, but simply having that route in place is of economic value to him and could support a bribery charge – even if he paid for all the tickets himself. Or imagine a third scenario: the shakedown. Suppose during negotiations Samson said in effect, “If you want any of this done, you need to give me that flight.” United capitulates and starts offering the flight not as an eager participant in a corrupt deal but because it feels it has no choice. It has to offer the flight just to get the Chairman to move forward on United’s requests and do his job. That sounds more like extortion than bribery. In such a case, Samson might be charged but United would be considered a victim, not a defendant. Between these various extremes is the vast gray area wherein the truth usually lies. It’s an area filled with nods, winks, implied understandings, suggestions, ambiguity, and circumstantial evidence. Navigating that gray area is what makes white collar crime so interesting, and what makes political corruption cases in particular so challenging. There’s often a fine and potentially blurry line between what’s criminal, what’s merely sleazy, and what’s just politics as usual.
The Potential Criminal Statutes
We don’t know whether any criminal conduct occurred here or whether anyone will be charged with a crime. But given what we do know, if federal prosecutors are indeed examining potential criminal charges based on United’s relationship with Samson, what statutes might they be considering? Samson was not a federal public official, so the federal bribery statute, 18 U.S.C. 201, likely would not apply. But when the federal government prosecutes state or local corruption, it has a number of other options. Federal Program Bribery: 18 U.S.C. 666 – This statute, which applies to theft and bribery affecting programs that receive federal funds, would be a likely choice in a case like this. It applies to bribery of agents of any organization that receives more than $10,000 in federal funds annually, as long as the bribe was in connection with agency business worth $5,000 or more. If those conditions are met, the statute punishes both the agent who received the bribe and the person who paid it. The Port Authority undoubtedly receives more than $10,000 in federal funds in a year, and the United business at issue was worth far more than $5,000. If the facts revealed a corrupt deal between United officials and Samson to swap the Chairman’s flight for the terminal upgrades and other benefits that United sought, the federal program bribery statute could apply. Honest Services Fraud: 18 U.S.C. 1341/1343 – honest services mail and wire fraud is another mainstay of federal prosecutions of state and local corruption. In a political corruption case, honest services fraud effectively functions as bribery by another name. When public officials accept bribes in exchange for being influenced in the performance of their duties, the public is deprived of its right to the fair and honest services of those officials. The people of New York and New Jersey have a right to the honest services of their public officials and to have those officials act in the best interests of the public, free from fraud, corruption, and conflicts of interest. The argument would be that by accepting a bribe from United in the form of the Chairman’s flight and acting to benefit United in exchange, Samson deprived the citizens of NY and NJ of their right to his honest services. United officials who participated in that scheme by agreeing to pay the bribe could also be charged. Hobbs Act: 18 U.S.C. 1951 – The Hobbs Act might be more likely to come into play if prosecutors find that the facts suggest extortion – the shakedown scenario. The Hobbs Act applies to “extortion under color of official right” by public officials. In effect, it operates as a one-sided bribery statute. The Supreme Court has held that extortion under color of official right is essentially the equivalent of taking a bribe: the public official accepts something of value to which he or she is not entitled, knowing that it is given in exchange for some exercise of official power. Under an extortion theory, however, the person who pays is usually considered a victim rather than a willing participant. In a bribery prosecution the person who paid the bribe is at the defense table with the public official; in an extortion prosecution, the person who paid may be the government’s star witness. It's possible to try to charge the payors in a Hobbs Act case as participating in their own extortion, but it's an awkward legal theory. The Hobbs Act therefore might be a more likely choice if the prosecution concludes that United was being shaken down by Samson and was responding largely out of duress and business necessity. In such a case, Samson would be charged but United and its officers likely would not, and Smisek could end up testifying for the prosecution. RICO: 18 U.S.C. 1961 – If prosecutors really wanted to bring out the big guns, this type of case could potentially result in a prosecution under the Racketeer Influenced and Corrupt Organizations Act (RICO). RICO requires that the defendants conducted the affairs of an “enterprise” through a “pattern of racketeering activity.” The enterprise in this case would be the Port Authority, and prosecutors could charge that Samson (by accepting bribes) and United (by paying them) participated in the conduct of that enterprise’s affairs through a pattern of racketeering activity. The Hobbs Act, honest services fraud, or even state law bribery all qualify as “racketeering activity.” A “pattern,” however, requires that more than one instance of racketeering activity took place. If offering the Chairman’s flight was a single instance of bribery, there could be a potential issue in proving a pattern. In any event, RICO is a powerful statute primarily aimed at large, ongoing criminal organizations, and may be an inappropriate choice in a case like this.
What do the resignations mean?
So what can we gather from the fact that Smisek and the other executives resigned? Losing the CEO is disruptive for any corporation and suggests that something serious is going on. This is treacherous ground for United: if the Department of Justice found that United executives broke the law, it potentially could charge the corporation itself. The company needs to tread carefully. One possibility is that DOJ has notified Smisek and the other executives that they are targets of the grand jury investigation and are likely to be indicted. Under such circumstances, United no doubt would demand their resignation. It’s also possible that United’s own internal investigation revealed a level of misconduct, whether criminal or not, that led the company to demand the resignations. United issued a statement saying that the resignations were a result of the company’s own internal investigation, suggesting they were not directly prompted by any actions from DOJ. If that’s the case, there may be no criminal charges forthcoming at all. It’s interesting that these events took place just as DOJ issued a new policy memorandum about holding individual officers and employees accountable when investigating corporate misconduct. The memo provides that corporations that want to be considered cooperative may not shield individual employees who commit criminal acts and must assist DOJ in the prosecution of those individuals. It’s possible that United, seeing potential criminal charges coming, decided to clean house and throw out the culpable executives in an attempt to persuade DOJ that the company is being cooperative and should not be charged. There’s a lot of misconduct that goes on that isn’t criminal. It may be that losing their jobs will be the only sanction that Samson, Smisek, and the others end up facing. We should learn more as the ongoing investigation continues to unfold. Click here to join the Sidebars mailing list and receive e-mail notifications of future posts.