The false promise of fiduciary government.

AuthorDavis, Seth
PositionIV. The Problem of Function through Conclusion, with footnotes, p. 1182-1207
  1. THE PROBLEM OF FUNCTION

    To assess fiduciary government, it makes sense to consider the areas where federal lawmakers have experimented with it. In a few cases, they have imposed relatively narrow constraints on political corruption and naked self-dealing. These cases provide little heft for fiduciary government, not only because of their limited scope, but also because they suggest problems with the theory in practice. These problems become acute where federal courts experiment with broader fiduciary constraints.

    1. Narrow Public, Fiduciary Constraints

      1. Political Corruption and the Honest Services Statute

        Curiously, fiduciary theorists do not make anything out of the one context where federal courts frequently describe government in fiduciary terms: criminal prosecutions of state and local officials under the federal honest services statute. Federal criminal law prohibits wire and mail fraud, including fraudulent deprivations of the "intangible right of honest services." (219) Federal courts have held that "[e]lected officials generally owe a fiduciary duty to the electorate," and that, when they breach that duty and deprive citizens of something of economic value, officials may be criminally liable under the honest services statute. (220)

        Many honest services prosecutions have involved naked self-dealing. Although there are reasons to object to federal policing of state and local government on federalism grounds, a narrow criminal constraint on self-dealing seems largely unobjectionable. Only the Department of Justice (DOJ) can prosecute honest services fraud, which limits the risk of over-deterrence that would arise from broad private enforcement of public fiduciary duties. And given the widespread norm against quid pro quo corruption, (221) prosecution does not impose fiduciary constraints in the absence of consensus about the ends of regulation.

        Criminal prohibition of political corruption need not depend upon a fiduciary model of political ethics, however. One may object to corruption on equality grounds: it allows some citizens unequal access to political decisionmakers. Another objection is that it effectively suppresses the speech of some by elevating the speech of others. Yet a third objection is that it leads to inefficient governance and has market-distorting effects. A fourth focuses upon the expressive impact of political corruption: "Leave the perception of impropriety unanswered, and the cynical assumption that large donors call the tune could jeopardize the willingness of voters to take part in democratic governance." (222) None of these objections focuses upon an official's breach of a duty of loyalty, but rather upon the harms that may arise from a corrupt political system. (223)

        Had the DOJ confined itself to prosecuting state and local officials for naked self-dealing, the honest services statute might have remained a relatively uncontroversial mechanism for addressing those potential harms. But in the 1970s, the DOJ sought to broaden the scope of the statute to include "abstract" breaches of a politician's duty towards her constituents, without regard to an injury to money or property. (224) United States v. Mandel is illustrative. In that case, the Fourth Circuit held that the Governor of Maryland could be liable for honest services fraud when he promoted the enactment of legislation that redounded to the benefit of his friends in the race track industry, even though the government had not shown that he had any "direct interest" in the race track business, much less that his friends had offered him a bribe. (225)

        Mandel and similar cases launched a firestorm of criticism. It was far from clear, commentators pointed out, that the honest services statute authorized an expansive federal common law of political crimes. The Mandel approach threatened to expand prosecutorial discretion beyond acceptable bounds and to turn tortious activity into federal crimes. John Coffee offered a trenchant statement of the critical view:

        To describe political patronage as in conflict with the common morality, and hence "a scheme to defraud" citizens of their tangible right to honest government, seems inconsistent with the undeniable existence of that institution as a recognized and highly visible part of American political life at least since the time of Andrew Jackson. (226) Perhaps judicial retrenchment was inevitable. In Skilling v. United States, the Court construed the honest services statute narrowly to avoid constitutional concerns under the void-for-vagueness doctrine. (227) Under Skilling, the statute proscribes bribes and kickbacks, nothing more. (228) Thus ended the DOJ's experiment with a broad doctrine of public fiduciary duties for state and local officials. To be sure, the Court's reasoning was unique to the criminal context. No void-for-vagueness doctrine compels judicial reluctance to recognize private rights of action to enforce public fiduciary duties. But many of the objections to broad honest services prosecutions are cogent in the civil setting. Fiduciary government may unduly interject judicial oversight into the workings of government. Whether the federal courts have a warrant to interject themselves in this way is at least debatable in some cases, particularly where the textual or doctrinal hook is vague at best.

      2. Insider Trading and the STOCK Act

        Where Congress has mandated public fiduciary duties, this last objection does not arise. Some ethics-in-government provisions can be understood in fiduciary terms but impose constraints that are narrow and thus not a model for the broad fiduciary theory of government. Consider, for example, the Stop Trading on Congressional Knowledge Act of 2012 (STOCK Act). (229) The Act requires members of Congress, their staffs, and executive branch employees to disclose their financial information in order to deter them from trading in securities based upon nonpublic information they obtained in their capacity as public servants. (230) The Act also clarifies that the securities laws' prohibition upon insider trading applies to public officials. (231) Thus, the STOCK Act imposes a limited prohibition founded in a fiduciary duty of trust and confidentiality.

        In its short life the STOCK Act has had a mixed record. Congress thrice postponed the reporting requirements, and critics have argued the Act could undermine national security and the privacy of federal employees. (232) A federal district court temporarily enjoined implementation of the Act on the ground that the Act unduly burdens the substantive due process right to privacy. (233) Moreover, the insider trading prohibitions turn upon the misuse of "material" information, and defining materiality in the public setting will prove difficult at best.

        Whatever the STOCK Act's merits, the problems with its implementation suggest the potential pathologies of a broad doctrine of fiduciary government. Imposing fiduciary duties upon a bureaucracy as far reaching as the national government raises a bevy of competing concerns that do not arise in the traditional fiduciary case. The STOCK Act, for example, threatens daily political interactions with the specter of insider trading liability, which includes trading upon "tips" from covered persons. (234) That is not to say the STOCK Act is bad policy, although it is terribly in need of clarification. It is to say, however, that even narrow fiduciary constraints on government may cause significant functional problems.

    2. Broad Fiduciary Government

      In some cases, courts have experimented with broad fiduciary rules for government, usually with questionable, sometimes with disastrous, results.

      1. The Federal Indian Trust Doctrine

        Perhaps the best example is the federal Indian trust doctrine. The foundation of the doctrine lies in the Founding period. The Constitution recognizes Indian tribes as preconstitutional sovereigns. (235) The federal trust relationship between the United States and Indian tribes is "traceable" to a bilateral relationship stretching back "to the first cessions of Indian land to the federal government." (236) When the United States, by virtue of the doctrine of discovery and treaties with Indian tribes, obtained title to tribal lands, it accepted the duty of treating the tribes with the faithfulness of a fiduciary. In the Marshall trilogy of cases, Chief Justice John Marshall grounded the trust relationship in international law and the "doctrine of discovery" that legitimated European claims to Indian lands based upon conquest or agreement with tribes. (237) Marshall drew an analogy to the relationship between a "ward" and a "guardian," while suggesting the federal-tribal relationship was a unique one that required the national government to protect tribal sovereignty. (238)

        The trust relationship imposes upon the United States a proprietary trust responsibility in so far as it manages Indian property for tribes or individual Indians. In form, this proprietary trust mirrors private trusts in which a trustee manages property for the benefit of another. It does not depend upon the United States' status as a sovereign, and its contours "are largely defined in traditional equitable terms." (239)

        That is the conventional understanding anyway. In recent years, however, the Court has shown little patience for even the narrow proprietary trust. Its recent decision in United States v. Jicarilla Apache Nation (240) portends reluctance to treat the United States as a conventional fiduciary. The Jicarilla Court held that because the United States government is tasked with representing many competing public interests, the fiduciary exception to the attorney-client privilege does not apply when tribes request documents pertaining to the Department of Interior's alleged mismanagement of Indian trust funds. (241) In treating a proprietary trust relationship as something other than a conventional trust, the Court rejected fiduciary constraints...

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