Wright, Teitelman and Chawla, a Kelly political donor, had been convicted in 2009 by a jury of conspiracy to commit honest-services fraud and related mail-fraud offenses. U.S. District Judge Eduardo Robreno sentenced Wright to 48 months in prison, Chawla to 30 months and Teitelman to 24 months.
All have been free on bail since July 2010, pending their appeals. Kelly was not implicated in any crimes involving Wright, Chawla and Teitelman.
Prosecutors alleged that Wright had received a rent-free apartment from Chawla and free legal services from Teitelman in exchange for official acts.
But the Supreme Court decision in the case of Skilling v. United States, involving former Enron chief executive Jeffrey Skilling, narrowed the scope of honest-services law, ruling that only bribery and kickbacks could prove a crime, but not conflict of interest.
Matthewson said she feels confident about a potential retrial on a bribery theory because the jury acquitted on all counts alleging official action by Wright.
The Wright jury had been instructed on both the bribery and conflict-of-interest theories of honest-services fraud, but the Skilling decision made the court's instructions on honest-services fraud incorrect and could have affected the verdict, the appeals panel wrote.
The appeals court said Wright may have intended not to be influenced by Chawla, but was merely doing his job.
Also, the appeals panel said it was not clear beyond doubt that the jury had found that Chawla was seeking to bribe Wright since the feds "presented little evidence" that Chawla had directed Teitelman to provide the rent-free apartment.
Further, the panel said that Teitelman's "close friendship" with Wright offered a motive for his generosity other than fraud.
The panel also concluded that the defendants' mail-fraud convictions were tainted by "spillover evidence" from the honest-services convictions and evidence from both "overlapped substantially."