How consolidating the circuits would have defined the borders of honest services fraud.

• Author: Delgado, Jorge R.
• Position: St. Thomas Law Review 25th Anniversary Issue

1. THE UNITED STATES SUPREME COURT PUNTS THE ISSUE THEN ELECTS TO RECEIVE

   1. NO ANSWER FROM SORICH V. UNITED STATES (1)

   Between 1990 and 1997, the Mayor of Chicago's Office of Intergovernmental Affairs ("IGA") ferreted out over 5,000 patronage civil service jobs to many of the mayor's cronies. (2) The IGA served as a liaison between the city of Chicago and the state and federal governments, and was not meant to serve any role in the hiring of the city's 37,000 jobs. (3) Robert Sorich, the Assistant to the Director of the IGA, relayed certain names received from campaign coordinators to various governmental department heads. (4) The heads then conducted mock interviews and filled out false forms, hiring the persons submitted regardless of merit. (5) Sorich, among others, was charged and convicted of several counts of mail and wire fraud under [section][section] 1341, (6) 1343, (7) and 1346 (8) of the United States Code.

   By way of introduction, the government must prove several elements to sustain a conviction of mail and wire fraud: (1) a scheme or artifice to defraud, (2) intent to defraud by the defendant, and (3) use of the mails in furtherance of the scheme. (9) A scheme or artifice to defraud could encompass two different theories, both of which the government used to convict Sorich. The first, or traditional theory, is when the defendant perpetrates a fraud intended to deprive a person of money or property. (10) The second theory is when a defendant perpetrates a fraud intended to deprive a person of the intangible right of the defendant's honest services as a public official, also termed "honest services fraud." (11) By its terms, honest services fraud requires a breach of fiduciary duty between the public official and the person or persons deprived of honest services. (12)

   During Sorich's trial, the court instructed the jury that it could find honest services fraud where there is "an intent 'to deprive a governmental entity of the honest services of its employees for personal gain to a member of the scheme or another.'" (13) On appeal to the Seventh Circuit, Sorich's two-fold argument centered on this instruction. First, he argued that his conduct did not amount to honest services fraud because (1) the "private gain" requirement of the Seventh Circuit (14) required that "another" be a co-schemer, and (2) he did not misuse his office for any private gain since the jobs were ill gotten by others. (15) Alternatively, Sorich argued that if a non-schemer could satisfy the private gain requirement then [section] 1346 lacked any notice of what activity was criminal and was therefore void for vagueness. (16) Additionally, Sorich argued that the government had failed to show that any fiduciary duty between him and the people of Chicago and that only state law could provide such a duty. (17)

   The Seventh Circuit rejected all of Sorich's arguments and held that "'private gain' ... simply mean[s] illegitimate gain, which usually will go to the defendant, but need not." (18) In its reasoning, the court pointed to several past examples of mail fraud convictions where defendants did not receive private gains. (19) Surprisingly, the court upheld these examples as legitimate exercises of [section] 1346 because of their rarity, reasoning that, because most schemes to defraud directly benefit the schemers, honest services fraud would not become unlimited and consequently unduly vague. (20) Furthermore, the court reasoned that the focus of the private gain requirement was not on who received the spoils of the fraud, but in parsing out those actionable breaches of a fiduciary duty that come from misuse of a public office or position. (21) To the court, that focus clearly defined the boundaries of [section] 1346, which should have put Sorich on notice that his job scheme was a clear abuse of his office and probably illegal. In addition, concerning the state-law limiting principle, the court held that no state law was required in creating a fiduciary duty because "merely by virtue of being public officials the defendants inherently owed the public a fiduciary duty to discharge their offices in the public's best interest." (22)

   Sorich and some of his co-defendants filed for certiorari with the U.S. Supreme Court, which was denied. (23) Justice Antonin Scalia, however, strongly dissented from the denial, accusing the majority of acting "irresponsible" in refusing to define the borders of [section] 1346. (24) He argued that, by its terms, honest services fraud could logically criminalize, for example, a state legislator's vote meant to curry favor with a faction of his constituency, a mayor's attempt to obtain a restaurant table without a reservation by the power of his office, or even a public employee phoning in sick to attend a sporting event. (25) In fact, if one agrees with the Seventh Circuit that public officials are bound to "[act] in the public's best interest" (26) even absent a preexisting state-defined fiduciary duty, there is no differentiating the aforementioned misuses of office from more traditional illegitimate gains such as briberies or conflicts of interests. In short, Justice Scalia declared that:

   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. (27) B. [section] 1346 IS RE-WRITTEN IN UNITED STATES V. SKILLING (28)

   Only a year after giving the cold-shoulder in Sorich, the U.S. Supreme Court granted certiorari in three different cases regarding honest services fraud: United States v. Skilling, (29) United States v. Weyhrauch, (30) and United States v. Black. (31) The result--present in the opinion in Skilling--was a virtual re-write of [section] 1346 under the guise of a limiting interpretation. Ironically, Justice Scalia, who before had dissented from the Court's refusal to attempt to define the borders of honest services fraud, now disagreed with the Court's attempt at doing so.

   Skilling involved the now infamous Jeffrey Skilling, former president and CEO of Enron. (32) Skilling and his co-conspirators engaged in an expansive scheme to deceive the public and Enron's shareholders regarding the viability of Enron by manipulating publicly reported financial results, and making false and misleading public statements and representations about Enron's financial performance. (33) The parties then "enriched themselves as a result of the scheme through salary, bonuses, grants of stock and stock options, other profits, and prestige." (34) Count One of the indictment charged Skilling with conspiracy to commit securities and wire fraud, and in particular, of "depriv[ing] Enron and its shareholders of the intangible right of [his] honest services." (35) He was found guilty. (36) The Fifth Circuit Court of Appeals subsequently rejected Skilling's claim that his conduct did not indicate any conspiracy to commit honest services fraud, holding that the jury was entitled to convict Skilling based on "(1) a material breach of a fiduciary duty ... (2) that results in a detriment to the employer," including one occasioned by an employee's decision "to withhold material information, i.e., information that he had reason to believe would lead a reasonable employer to change its conduct." (37) The Fifth Circuit, however, did not address Skilling's void-for-vagueness argument. (38)

   The Supreme Court, however, agreed with Skilling that his conviction was likely constitutionally infirm due to the statute's seeming overreach. But rather than strike [section] 1346 in its entirety, the Court opted for a limiting interpretation:

   We agree that [section] 1346 should be construed rather than invalidated. First, we look to the doctrine developed in pre-McNally cases in an endeavor to ascertain the meaning of the phrase "the intangible right of honest services." Second, to preserve what Congress certainly intended the statute to cover, we pare that body of precedent down to its core: In the main, the pre-McNally cases involved fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who had not been deceived. Confined to these paramount applications, [section] 1346 presents no vagueness problem. (39) Accordingly, the Court concluded: "To preserve the statute without transgressing constitutional limitations, we now hold that [section] 1346 criminalizes only the bribe-and-kickback core of the pre-McNally case law." (40) In doing so, the Court paid mere lip service to the various limiting principles created by the various circuits, observing that "[a]lthough some applications of the pre-McNally honest-services doctrine occasioned disagreement among the Courts of Appeals, these cases do not cloud the doctrine's solid core: The 'vast majority' of the honest-services cases involved offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes." (41) The Court's decision, however, effectively overruled some, if not all, of those limiting principles. (42)

   Of course, per its terms, [section] 1346 is not merely limited to bribes and kickbacks. In Justice Scalia's concurring opinion, "[a]rriving at that conclusion requires not interpretation but invention." (43) Accordingly, Justice Scalia charged the majority with defining new federal crimes, a power that courts are without. Moreover, Justice Scalia saw the irony in referring to pre-McNally cases in defining [section] 1346 since it was McNally itself--as will be explained below--that refused to see the mail fraud statute as encompassing the deprivation of one's honest services. In his words, "[A]dopting by reference 'the pre-McNally honest-services doctrine' is adopting by reference nothing more...