United States: "Honest Services At Risk"

In 1987, with its decision in McNally v. United States, the Supreme Court limited the broad use of one of the federal prosecutors' main statutes when they decided that "[t]he mail fraud statute clearly protects property rights,...[it] does not refer to the intangible right of the citizenry to good government." That decision invalidated the Government's often used theory that a defendant who deprived the citizens of the intangible right to honest and impartial services has committed fraud. Congress responded shortly thereafter to vitiate this ruling with the passage of Title 18, United States Codes, Section 1346, which defines "scheme or artifice to defraud," as used in the mail and wire fraud statutes (18 U.S.C. §§ 1341 and 1343), to include "a scheme or artifice to defraud another of the intangible right of honest services."

Under section 1346, the Government may charge mail or wire fraud either under the theory that the defendant used the mails or wires to deprive another of physical property or money, or used the mails or wires to deprive another of the intangible right to honest services. Whereas, section 1346 defines "scheme or artifice to defraud," it provides no definition of "honest services" and thus courts have been left with the difficult task of determining the reach and application of the honest services doctrine. Since its inception in November 1988, section 1346 has long been criticized for its vagueness and resulting overbreadth and after years of disperate application is finally being addressed in a series of three cases currently before the Supreme Court. The Supreme Court now stands ready to potentially deal yet another fatal blow to the Government's broad use of the honest services theory.

The questions left unanswered by section 1346's "honest services" language have been noted by many critics, including Supreme Court Justice Antonin Scalia, who illustrated the overbreadth of the statute in the following passage:

Sorich v. United States (No. 08-410), cert denied, Feb. 23, 2009.

In December, the Supreme Court heard two cases involving the application of the honest services doctrine and is set to hear another this spring—making up what some have referred to as the Court's "honest-services trilogy." Although each case presents different issues involving the application of section 1346, the Court's questions from the first two arguments seem to indicate an eagerness to decide whether the statute's vagueness renders it unconstitutional.

In United States of America v. Black, the Supreme Court heard the case of Conrad M. Black, a newspaper executive convicted of defrauding his media company, Hollinger International. The Seventh Circuit addressed the application of section 1346 and affirmed Mr. Black's conviction. As Judge Posner explained, to be found guilty of fraud under section 1346 the jury must find that the defendant deliberately deprived the victim of honest services in order to obtain private gain. The issue in Mr. Black's case was whether the jury must find that the private gain obtained by the defendant was "at the expense of the persons (or other entities) to whom the defendants owned their honest services." Mr. Black and his co-defendants argued that because the private gain allegedly obtained was at the expense of a party other than Hollinger, to whom they owed their honest services, they had not violated section 1346. The Seventh Circuit rejected this argument and explained: "if the defendants in this case deprived their employer, Hollinger, of the honest services they owed it, the fact that the inducement was the anticipation of money from a third party . . . is no defense." In their petition for certiorari to the Supreme Court, the defendants raised the specific question of what proof of harm the Government must offer to support a conviction under section 1346. Despite the limited nature of the question presented, the defendants broadened their challenge in their supporting briefs, arguing that to avoid running afoul of the Constitution, the Court must read section 1346 narrowly by requiring proof of economic harm to the party who had been deprived honest services. Responding to the defendants' request for a limited reading, the Government argued that the statute is sufficiently limited in its application such that it does not create the risk of unconstitutional application hinted at by the defendants.

In Weyhrauch v. United States, the second case in the honest-services trilogy the Court will hear this Term, the question presented was "whether, to convict a state official for depriving the public of its right to the defendant's honest services through the non-disclosure of material information, in violation of the mail-fraud statute (18 U.S.C. §§ 1341 and 1346), the Government must prove that the defendant violated a disclosure duty imposed by state law." Bruce Weyhrauch served as Juneau's representative in the Alaska House of Representatives from 2002 through 2006. The Government charged Weyhrauch with committing fraud in violation of section 1346 arising from an alleged promise he made to perform official acts benefiting an Alaskan oil services company in exchange for the promise of future work. The Government sought to introduce evidence supporting the argument that Weyhrauch had a duty to disclose his conflict of interest under both state law and general fiduciary principles. The district court, however, excluded the proffered evidence based on its finding that the Government's evidence failed to demonstrate a duty to disclose under state law. The Ninth Circuit, in reversing the district court, rejected an application of the honest services doctrine conditioned on state law and cited as support a federal interest in a uniform standard of conduct. Under that uniform standard of conduct, the definition of honest services would include "taking a bribe or otherwise being paid for a decision," and "nondisclosure of material information." Because it concluded Weyhrauch's conduct fell within those two categories of prohibited conduct, the Ninth Circuit determined that it need not "define the outer limits of public honest services fraud," and held the Government should have been allowed to proceed on its theory that Weyhrauch violated section 1346 "by failing to disclose a conflict of interest or by taking official actions with the expectation that he would receive future legal work for doing so."

Despite the narrow issues raised by these two cases, the Court's questions during oral argument centered on whether it should or could reach the constitutionality of the entire statute. It seemed several of the justices wondered why they should go out of their way to decide the existence of the type of limitations the parties were debating when in fact it might be the case that the statute is so vague that there can be no possible constitutional application. Consequently, the issue that continued to bubble to the surface was whether the statute's constitutionality was properly before the Court or whether it must wait until it hears United States v. Skilling, the third and final case in the honest-services trilogy.

Jeffrey Skilling's conviction arises out of the infamous collapse of Enron Corp. Skilling appealed his fraud conviction and challenged the Government's use of the honest services doctrine in his case. In his petition for review, Skilling raised the constitutionality of section 1346 insofar as he asked the Court to impose a requirement that the Government prove the defendant gained personally from his actions to prove a violation of the honest services doctrine. Without such a requirement, he argued, the statute is unconstitutionally vague. In his brief to the Court, Skilling more directly challenges the constitutionality of section 1346, no doubt taking a cue from the arguments in the Black and Wayhrauch cases. Skilling argues that to require defendants to determine the application of section 1346 from the "hodgepodge of oft-conflicting holdings, statements, and dicta" of lower court rulings "does nothing more than substitute a multitude of vague and inconsistent standards for the facilly meaningless phrase that Congress plucked out of the caselaw."

Skilling's case seems to present the Court with the opportunity it has been waiting for—a chance to address the constitutionality of the honest services statute. Perhaps further indicating its anxiousness to put an end to years of confusion surrounding the application of section 1346, the Court moved up the hearing date for Mr. Skilling's case and heard the third and final case in the honest-services trilogy on March 1, 2010, three weeks earlier than originally scheduled. The Court's ruling should ultimately provide guidance in this confusing area and, like its McNally precedent, limit the broad reach of the Government's practices.

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