Is Vagueness Choking the White-collar Statute?

• Publication year: 2019

Is Vagueness Choking the White-Collar Statute?

David Kwok
University of Houston Law Center

IS VAGUENESS CHOKING THE WHITE-COLLAR STATUTE?

David Kwok^*

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TABLE OF CONTENTS

I. INTRODUCTION.......................................................................... 497

II. VAGUENESS AND OVERBREADTH IN WHITE-COLLAR STATUTES...........................................................................500

A. VAGUENESS.................................................................... 500
B. OVERLY BROAD STATUTES .............................................. 503
C. COMPARING VAGUENESS AND OVERBREADTH ................. 504
D. IMPORTANCE IN WHITE - COLLAR OFFENSES.................... 507

1. Prevalence of vagueness and overbreadth concerns. 508
2. Corporate compliance..............................................512

III. NARROWING STRATEGIES.......................................................515

A. THE IMPACT OF VAGUENESS ON THE NARROWING STRATEGY ..................................................................... 517
B. SOURCES OF VAGUENESS IN NARROWING STRATEGIES ... 519

1. Vagueness of the element itself................................ 520
2. The element's relationship with existing elements.. 523

IV. MATERIALITY AND THE FALSE CLAIMS ACT...........................526

A. MATERIALITY IS NOT A SIMPLE ELEMENT....................... 528

1. Binary analysis........................................................529
2. Confusing normative and positive analysis............530

B. MATERIALITY IS HIGHLY RELATED WITH EXISTING ELEMENTS OF FRAUD .................................................... 532

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1. Materiality's link to mens rea..................................532
2. Materiality's link to harm.......................................534

C. OTHER CONFUSING FACTORS.......................................... 537
D. POST-ESCOBAR EVIDENCE.............................................. 543

1. Impact on Trinity....................................................545
2. Impact on whistleblowers........................................546

E. PROMOTING CLARITY IN THE FCA.................................... 546

V. CONCLUSION ............................................................................ 547

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I. Introduction

Legislators and prosecutors often argue that broad, expansive white-collar statutes are necessary given the creativity and expertise of corporate offenders.¹ The Supreme Court, however, has often been unsympathetic as it has frequently raised concerns that federal white-collar statutes are overly broad and vague.² In McDonnell v. United States, for example, the Supreme Court overturned the criminal bribery conviction of a state governor who had accepted expensive cars in exchange for setting up a meeting.³ The Court recognized both overbreadth and vagueness concerns.⁴ It rejected the Government's broad interpretation of federal anti-bribery statutes, questioning whether Congress truly intended to punish a public official who received a free lunch in exchange for meeting with a constituent.⁵ It also highlighted the "vagueness shoal" motivating its decision: the statute was not sufficiently precise to put public officials on fair notice about acceptable behavior.⁶ While the statute was not so vague as to be unconstitutional, the Court believed that Congress did not speak

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sufficiently clearly so as to prohibit such an exchange.⁷ The Court narrowed the scope of federal bribery, holding that Congress did not prohibit payment of public officials for simple meetings.⁸

Overbreadth and vagueness, however, are not coextensive concerns. While closely related, overbreadth and vagueness address distinct interests. A narrowing decision addresses the overbreadth problem, and this is a victory for the immediate defendant. Proof of liability becomes more difficult. Not all parties similarly situated to the defendant, however, may appreciate a narrower scope of liability. In McDonnell, the governor was pleased to have his conviction overturned. For public officials in general, however, it is unclear whether they all would prefer a world in which they could accept expensive cars in exchange for setting up meetings.⁹ Public officials who represent poorer districts might resent such a rule because they have few constituents who have the capacity to offer large payments. Other officials might personally find such payments immoral and dislike the idea that federal law does not criminalize those payments.

In contrast, there is a common interest in clarity; individuals and companies want to know precisely what activity might subject them to liability. Reduced breadth may be helpful to particular companies, but it is possible that some companies simply prefer a level playing field in which everyone understands the clear rules. It is likely that public officials widely benefit from the improved clarity of the McDonnell holding. They now know the bright-line rule. Thus to the extent they consider accepting any payment or gift in

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exchange for a meeting, they can safely make the decision knowing that there is no threat of federal criminal liability.

The Supreme Court's narrowing decision in McDonnell is a frequent response to these vagueness and overbreadth concerns for white-collar statutes. The decision reduces the breadth of the prohibited behavior: elected officials may not accept bribes in exchange for official acts, but solely setting up a meeting does not constitute an official act.¹⁰ This narrowing decision fortunately also reduces vagueness.¹¹ Elected officials have a bright-line rule, knowing that they can confidently accept payment in exchange for a meeting. Public officials can thus make decisions regarding accepting a payment or gift in exchange for a meeting with greater certainty regarding the consequences.

There are a variety of narrowing strategies that courts can apply, however, and not all narrowing strategies result in reduced vagueness. In this article, I explore the range of narrowing strategies and their impact on the vagueness shoal. Some strategies may increase vagueness because they introduce a complex or unclear element of analysis. Other strategies increase vagueness because they introduce an element that has an unclear relationship with other existing elements of analysis. Even if the new element is not vague, the interaction with existing elements may exacerbate vagueness. The unpredictable situation may lead both to greater vagueness and potentially broader liability. I highlight the Supreme Court's recent decision in Universal Health Services, Inc. v. United States ex rel. Escobar attempting to narrow the scope of civil liability under the False Claims Act as an example of a strategy that exacerbates vagueness both through the complexity of the new element and the relationship of the element to the existing analysis.¹²

The Supreme Court's general strategy of narrowing liability in the face of vagueness as to the scope of white-collar offenses has often been sound, but it is vital that the Court not lose sight of the

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broader interests in clarity. Failing to address the vagueness concerns hinders the ability of corporations to comply with the law. Furthermore, the vagueness problems may also hinder the dialectic with Congress in improving these laws. In Part II, I compare the principles of vagueness and overbreadth, particularly as they apply to white-collar statutes. In Part III, I consider the spectrum of narrowing strategies. Part IV evaluates the Supreme Court's decision in Escobar, and I conclude in Part V.

II. Vagueness and overbreadth in White-Collar Statutes

A. VAGUENESS

Vagueness is the antithesis of clarity, and the "vagueness shoal" described by the Supreme Court encompasses a variety of doctrines and concerns.¹³ The most immediate legal doctrine concerning vagueness is void-for-vagueness: a "statute must clearly define the conduct it proscribes."¹⁴ Courts may refuse to enforce imprecise statutes based on principles related to the Due Process Clause.¹⁵ Vagueness concerns do not necessarily require invalidation of a statute, though.¹⁶ The rule of lenity reflects this same vagueness concern, requiring that "ambiguity concerning the ambit of criminal statutes should be resolved in favor of lenity."¹⁷

The main principle underlying vagueness is fair notice: a person is entitled to fair notice of what is prohibited.¹⁸ It seems unfair that a person should be punished if the statute was insufficiently clear

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about the proscribed behavior.¹⁹ Another is the concern that a statute "is so standardless that it authorizes or encourages seriously discriminatory enforcement."²⁰ This second concern recognizes the risk of excessive discretion in the hands of law enforcement.²¹ A third, potentially related, concern is that the vagueness may be an improper delegation of legislative power.²²

Vagueness usually concerns the scope of prohibited conduct.²³ Vagueness issues may also arise regarding the scope of parties subject to the statute.²⁴ Vagueness may also encompass the severity of punishment; the public should also be on notice as to the potential sanctions facing such conduct.²⁵ Vagueness challenges have also been used in non-criminal contexts.²⁶

We can see the Court's concern regarding vagueness in Smith v. Goguen.²⁷ In Goguen, a man was prosecuted for wearing jeans that contained a U.S. flag because he "did publicly treat contemptuously the flag of the United States."²⁸ The Supreme Court struck down the conviction on void for vagueness grounds.²⁹ It recognized that

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"casual treatment of the flag in many contexts has become a widespread contemporary phenomenon . . . . It and many other current, careless uses of the flag nevertheless constitute unceremonial treatment that many people may view as contemptuous."³⁰ Thus, the statute

fails to draw reasonably clear lines between the kinds of nonceremonial treatment that are criminal

...