Analysis: “Honest services” law in jeopardy?

By Lyle Denniston
on Oct 13, 2009 at 3:16 pm

Analysis

Last February, Justice Antonin Scalia launched one of the verbal broadsides for which he is so well known — this time, a blast at the federal “honest services” law, a law that dates from 1988.  Though that law “consists of only 28 words,” Scalia noted, it has been “invoked to impose criminal penalties upon a staggeringly broad swath of behavior, including misconduct not only by public officials and employees but also by private employees and corporate fiduciaries…Without some coherent limiting principle to define what ‘the intangible right of honest services’ is, whence it derives, and how it is violated, this expansive phrase invites abuse by headline-grabbing prosecutors in pursuit of local officials, state legislators, and corporate CEOs who engage in any manner of unappealing or ethically questionable conduct.”

Dissenting alone as the Court denied review in Sorich, et al., v. U.S. (08-410), Scalia said he would have granted review to “squarely confront both the meaning and the constitutionality” of the statute, known as Section 1346.  “Indeed,” he concluded, “it seems to me quite irresponsible to let the current chaos prevail.”

That was in February.  Since then, at least four Justices — the number it takes to grant review of a case — have been willing to “squarely confront” at least the meaning, if not also the constitutionality, of Section 1346, and to do so repeatedly.  Three times — once in May, once in June and once on Tuesday — the Court has voted to hear cases testing the scope of the “honest services” law. Each time, it has done so by turning aside arguments against review by the U.S. Solicitor General.

It now is appropriate, it seems, to ask the question: when the current Term of the Court has come to an end, what will be left of the federal law that makes it a crime to deprive someone of “honest services,” in the private or public sector?

The Court has the option, in any one of the three cases it will review, to act on Justice Scalia’s suggestion and decide whether the law is unconstitutional, as too vague or for some other failing.  Many lower court judges have devised ways of limiting the sweep of Section 1346, in order to save it constitutionally. 

But the legitimacy of that approach is now questioned, even — or, perhaps, especially — by judges themselves.  Circuit Judge Dennis Jacobs, for example, said six years ago that the law “effectively imposes on courts a role they cannot perform. When courts undertake to engage in legislative drafting, the process takes decades and the work is performed by unelected officials without the requisite skills and or expertise; and as the statutory meaning is invented and accreted, prosecutors are unconstrained and people go to jail for inchoate offenses.” Another Circuit Judge, E. Grady Jolly, has written that the courts in interpreting Section 1346 are attempting to perform “a role somewhere between a philosopher king and a legislator” to create definitions of what is meant by a denial of “honest services.”

The Court, of course, can decide any one of the three granted cases by doing exactly what lower courts have done: read the statute in a way so that it, in practice, covers less than what its actual language might support.  But if that is the tack the Court takes, it still could be a hard year for this law, and for prosecutors who have been in the habit of deploying the statute in wide-ranging ways.

If convicted individuals win each of the three pending cases, and that seems like a fair prospect, here is what Section 1346 would no longer cover:

** A corporate executive’s use of a fraudulent scheme to increase his own compensation — if there is no proof that the mischief caused “economic harm” to the corporation.  (That is what Canadian newspaper mogul Conrad Black is arguing for in his case, Black v. U.S., 08-896, now scheduled for argument on Dec. 8.)

** A state legislature’s failure to disclose that, while supporting tax legislation favorable to a company, he was seeking future legal work from that company — if there is no proof that state law requires a disclosure of such conflicts of interest.  (That is what former Alaska legislator Bruce Weyhrauch is arguing for in his case, Weyhrauch v. U.S., 08-1196, scheduled for argument right after the Black case on Dec. 8.)

** A corporate executive’s efforts to deceive stockholders, accountants, federal regulators and the investing public about the company’s financial condition and performance — if there is no proof that the executive obtained some private gain. (That is what former Enron Corp. CEO Jeffrey K. Skilling is arguing for in his case, Skilling v. U.S., 08-1394, just granted on Tuesday and likely to be heard in either February or March.)

The Skilling case goes a giant step further than the other: if the law is not limited as he contends it should be, must the law be struck down as unconstitutionally vague?  (And it adds another issue: whether strongly negative publicity in Houston — Enron’s home — made it impossible for him to get an impartial jury.  If Skilling should win on that point, perhaps the Court would not need to pass upon the scope of the “honest services” law in his case, though the “private gain” issue is another one that has produced directly conflicting decisions by lower courts and thus probably needs to be clarified.)

By assigning itself review of an array of issues on what Section 1346 does cover, the Court has demonstrated in a bold way the open-ended nature of the law, and thus has put on display the clear potential for free-wheeling application of the law by prosecutors if the law is not reined in.  One of the law’s most aggressive critics, the National Association of Criminal Defense Lawyers, argued to the Court in an amicus filing in the Skilling case that “the time has come to resolve the confusion that engulfs the honest services statute.”

The most fundamental issue, that group said, is “whether courts have the power to engraft limiting principles — none of which has any strong textual basis — on the vague language of Sec. 1346.  If federal judges lack that power, then the Court must decide whether the honest services statute, shorn of judge-created limiting principles, is void for vagueness….The effort by courts to infuse meaning into Sec. 1346 collides…with the principle that there is no federal common law of crimes…Federal crimes are defined by statute rather than by common law.”

One cautionary note on the potential for a sweeping constitutional ruling on Section 1346’s validity: the fact that the Court has not consolidated the three cases, and is treating each as a stand-alone case, may imply that it will confine its review solely to the specific interpretation in each case.  Still, any one could provide the vehicle, if the Court wishes for one, to decide much more broadly.

It is clear, though, that the outcome, however narrow or targeted, is likely to include a significant rebuke for Congress’s draftsmanship in putting an “honest services” clause into the federal laws on mail and wire fraud.  When the Court ruled in McNally v. U.S. in 1987 that the mail fraud law as it existed at that time did not include any civic right to “honest services,” it said that if Congress wanted that to be a part of the law, “it must speak more clearly than it has.”

But, a year later, Congress amended fraud law simply to say that “the term ‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.”  As Justice Scalia remarked last February, “that terse amendment” hardly qualified as speaking “more clearly.”  After 20 years, that purportedly clarifying language is going to get a full airing by the Supreme Court.