‘Honest Services’ Law Narrowed

By Kenneth Jost
Supreme Court Editor, CQ Press
      A unanimous Supreme Court has substantially narrowed a federal criminal statute that federal prosecutors had used as one of the most flexible legal weapons to go after corporate and government misconduct.
      The ruling set aside convictions in two high-profile white-collar criminal cases, including the 2006 conviction of former Enron chief executive Jeffrey Skilling for his part in overstating the company’s financial picture in the years prior to its collapse. Skilling had also attacked jury selection in his trial in Enron’s hometown of Houston, but the justices rejected his appeal on that issue by a 6-3 vote.
      In a second case, the court also set aside the 2007 conviction of Canadian publishing magnate Conrad Black for an alleged conflict of interest in a multimillion-dollar side deal in connection with the sale of a California newspaper.
      Both Skilling and Black had received lengthy prison sentences: 24 years for Skilling; six-and-a-half years for Black. The Supreme Court’s rulings in both cases leaves it up to federal appeals courts to determine whether the convictions can stand under the new, narrow definition of the federal “honest services” statute.
      The statute makes it a crime for a defendant to defraud someone — for example, a company or an officeholder’s constituents — of the “intangible property” of the defendant’s “honest services.” Congress enacted the current version of the law in 1988 following a Supreme Court decision aimed at cutting back federal prosecutors’ expansive use of the statute in its previous form.
      The court’s ruling in Skilling’s case says, in effect, that Congress’s re-enactment left the law perilously close to unconstitutional vagueness. To cure the problem, Justice Ruth Bader Ginsburg wrote for a six-justice majority in Skilling v. United States, the law would be limited to bribery or kickback schemes, not to more amorphous offenses.
      “Reading the statute to proscribe a wider range of offensive conduct,” Ginsburg wrote, “would raise the due process concerns underlying the vagueness doctrine.”
      Three justices would have gone further and ruled the provision flatly unconstitutional. “In transforming ‘honest services fraud’ into a prohibition of ‘bribery and kickbacks,’ [the court] is wielding a power we long ago abjured: the power to define new federal crimes,” Justice Antonin Scalia wrote. Justices Clarence Thomas and Anthony M. Kennedy joined his opinion.
      In a third case, the court also ordered a new hearing for an Alaska legislator, Bruce Weyhrauch, who had been indicted under the honest-services law for an alleged conflict of interest in seeking legal work from an oil services company with a bill affecting the industry pending before the legislature. A federal district court judge threw out the charge, but the Ninth U.S. Circuit Court of Appeals reinstated the charge.
      The Supreme Court had indicated its concern with the “honest services” statute by agreeing to hear Black’s and Weyhrauch’s appeals a year ago and then adding Skilling’s case to its calendar in October after the start of a new term. Briefs urging the justices to narrow the law were filed by the U.S. Chamber of Commerce and the National Association of Criminal Defense Lawyers
      With the Supreme Court nearing the end of its term — now set for Monday — court watchers had been waiting expectantly for the ruling. Experts appeared to have formed a consensus that the justices would narrow the law. Even so, the unanimous vote to confine the law to no more than what Ginsburg called its “bribe-and-kickback” core seemed something of a surprise.
      Douglas Berman, a sentencing law expert at Capital University Law School in Columbus, Ohio, and publisher of Sentencing Law Blog, said the decisions may have been prompted in part by the hefty prison terms available in federal court. “It is reasonable to speculate that the very lengthy prison sentences that are now often prescribed under the federal sentencing guidelines for fraud may have played a role in the justices’ thinking,” Berman wrote on his blog.
      In Houston, one of Skilling’s lawyers said his attorneys were “extremely pleased and relieved” with the decision. “The Supreme Court unanimously decided that Jeff Skilling did not violate the honest services law, and that is fatal to the government’s case,” attorney Daniel Petrocelli told the Houston Chronicle.
      Skilling was convicted of a total of19 nineteen counts: one count of conspiracy to commit wire honest-services fraud, 12 counts of securities fraud, five counts of making false statements to auditors, and one count of insider trading. Since Skilling was not charged with accepting any “side payments,” Ginsburg said, he could not have been guilty of honest-services fraud under the new construction.
      Skilling’s lawyers argued in effect that the government’s honest-services count influenced the jury’s convictions on the other counts. The Supreme Court ruling left it up to the federal appeals court in New Orleans to consider whether the other counts could stand.
      Black, chief executive officer of Hollinger Company, owner of the Chicago Sun Times among many other newspapers, was convicted under a general jury verdict of three counts of mail and wire fraud and one count of obstruction of justice. He was charged with negotiating an agreement to be paid $5.5 million in exchange for a non-compete agreement after the sale of a small community newspaper in Mammoth Lake, Calif.
      The short, unanimous ruling in Black v. United States left it up to the federal appeals court in Chicago to determine whether Black’s conviction should be reversed because the case was tried under the now-rejected broad view of the honest-services law.

     For background, see Kenneth Jost, “Corporate Crime,” CQ Researcher, Oct. 11, 2002.