Skilling reconsidered: the legislative-judicial dynamic, honest services fraud, and the ill-conceived 'Clean Up Government Act'.

• Author: Strader, J. Kelly

Introduction I. The Evolution of Honest Services Fraud A. Prosecutorial Invention of Honest Services Fraud B. The McNally Decision C. The Honest Services Statute, 18 U.S.C. [section] 1346 D. The Skilling Decision II. Responses to Skilling's Critics A. A Broad Honest Services Fraud Statute is Not a Necessary or Appropriate Vehicle for Addressing Public and Private Malfeasance B. The Court's Decision to Narrow Rather Than Void the Honest Services Statute Was a Reasonable Response to Overcriminalization C. The Skilling Decision Substantially Reduced the Risks Inherent in a Vague Criminal Statute D. The Court in Skilling Properly Declined to Engage in a More Detailed Rewriting of the Honest Services Statute III. The Court's Options in Skilling IV. The Congressional Response to Skilling Conclusion Appendix A real-estate developer seeks expedited environmental review of a proposed real estate project. When the matter comes before the local government, a local official opposes the developer's request for expedited review. At the time this matter is pending, the official's spouse is seeking payment for work she had performed for the developer's overseas affiliate on an unrelated matter. (1) INTRODUCTION

Every day, all across the country, local and state governmental entities face a myriad of ethical issues and decisions. These entities set up rules and regulations, and the elected officials in these jurisdictions are accountable to their voters for establishing and maintaining ethical rules and standards. In the news story outlined above, one such official may have overstepped ethical bounds and, if so, violated a state ethics rule that subjects the official to a $5000 regulatory fine. But, if the official used the United States mail in connection with this matter, proposed legislation before Congress would render that official guilty of a federal offense and subject to a possible twenty years in federal prison. (2) If we multiply this story by many thousands, then we may start to feel that there is something seriously wrong with this picture.

The underlying disease is the United States Congress's attempt, over the last forty years, to expand federal power to prosecute an ever-broader array of crimes. (3) In a case arising out of the notorious Enron financial fraud scandal, the United States Supreme Court in United States v. Skilling at last confronted one of the most egregious such crimes--federal "honest services" fraud. (4) In its decision, the Court narrowed the statute's reach in order to avoid holding the statute unconstitutionally vague. (5)

With its decision partially striking down the federal honest services fraud statute in the criminal case against former Enron CEO Jeffrey Skilling, the United States Supreme Court took a modest step to combat the trend towards the proliferation of overly-broad federal criminal statutes. Such laws are often passed--or existing laws expanded by prosecutors--in the midst of financial or political scandal, when the government needs to appear to be "doing something." (6) The government faces pressure to produce criminal charges whenever there is a perceived scandal or crisis, whether it is the recent financial sector melt-down or the Enron-era financial scandals. Many of these laws are passed quickly and with little thought or deliberation, producing the synergistic crises of overcriminalization (7) and over federalization. (8)

This trend has the potential to affect the criminal justice system in basic ways. Most fundamentally, under the U.S. Constitution's Due Process Clause, (9) we all have a right to know what conduct is criminal and what conduct is not. But the rush to criminalization has produced laws that no one--not even members of the U.S. Supreme Court--can understand. As Justice Scalia famously noted about the federal racketeering (RICO) statute, the definition of one of the crime's key elements is about as clear as "life is a fountain." (10) Such statutes provide prosecutors with largely unfettered discretion in bringing cases based upon novel, untested theories. (11) And to the extent that Congress has played the overcriminalization game, we have had a dramatic intrusion of federal law enforcement authority into areas usually reserved for state and local prosecutors. (12)

Where have the courts been during this overcriminalization crisis? Strangely absent. Courts have been hesitant to interfere with the legislative process by overturning criminal statutes. Even the U.S. Supreme Court has rarely invalidated criminal laws on the grounds that the laws are vague and incomprehensible.

Once again, in the Skilling case, the Court declined to find the criminal statute unconstitutionally vague. (13) Instead, the six member majority simply decided to rewrite the statute so that it only applies to bribery and kickbacks--even though those words appear nowhere in the statute. (14) In reaching this result, the Court opened itself to criticism from both sides. For some, including Justice Scalia in concurrence, (15) the Court had exceeded its power by rewriting the honest services statute and thereby acting as a sort of super-legislative body. Under this view, the Court should have voided the statute in its entirety. For others, the Court had overstepped its bounds by taking a powerful anti-corruption tool away from prosecutors. (16) Under this view, the Court should have upheld the statute without modification.

This Article provides a soft defense of the Skilling decision, and a critique of Congress's proposed response to the decision. (17) The Article argues that the honest services statute indeed created a vague crime that failed to provide fair notice to potential defendants or to cabin prosecutors' discretion. (18) But, in light of Congress's complicity in creating the overcriminalization and overfederalization crises, the Court probably took the best (or least bad) route in attempting to provide rational boundaries for honest services prosecutions. (19)

Part I of this Article traces the background of honest services fraud. (20) Part II examines the disparate responses to and criticisms of the Skilling decision. (21) Part III analyzes the Court's options in Skilling, concluding that the judicial-legislative dynamic, in an environment rife with overcriminalization and overfederalization, inevitably requires courts to attempt to provide some rational limits on our ever-expanding federal criminal laws. (22) Part IV provides a preliminary analysis of the proposed Congressional response to Skilling, a statute that fails to solve the fundamental ambiguities inherent in "honest services" fraud and that creates more problems than it solves. (23)

1. THE EVOLUTION OF HONEST SERVICES FRAUD

   Beginning in the 1970s, federal prosecutors increasingly employed the honest services theory to pursue corrupt politicians on the grounds that those politicians had used the U.S. mails or interstate wires to deprive their constituents of "honest services." (24) Among those convicted were state governors and many others. (25) The theory was also used against private employees who deprived their employers of "honest services." (26)

   A. Prosecutorial Invention of Honest Services Fraud

   Federal prosecutors, the courts, and Congress have all contributed to the evolution of the honest services quagmire. It all started in federal prosecutors' offices. In traditional mail or wire fraud cases, the government alleges that the defendant schemed to deprive the victim of money or property. (27) About forty years ago, however, another theory came to be widely applied in mail and wire fraud cases--honest services fraud. Initially, this theory was a prosecutorially-created and judicially-approved form of fraud that was not grounded in the language or history of the underlying statutes. The predecessor to the current mail fraud statute was adopted in 1872, and the wire fraud statute in 1952. (28)

   In the 1970s, prosecutors began to charge an array of crimes based on the theory that the defendants' schemes were designed to deprive the victims of the intangible right to honest services. (29) Public officials and private persons were charged with honest services mail or wire fraud based upon alleged deprivations owed, typically, to public citizens and private employers, respectively. (30) In the highest profile cases, the government employed the theory to prosecute state and local officials who had allegedly deprived their constituents of the officials' duty to provide the public with honest services. (31)

   B. The McNally Decision

   Federal courts consistently upheld this new mail and wire fraud theory. (32) Not surprisingly, the honest services theory produced case law that was both inconsistent and difficult to comprehend. In McNally v. United States, the Supreme Court overturned the law in all the circuits that had considered the issue and ruled that the honest services fraud theory is invalid. (33) Instead, the Court held, a mail or wire fraud case must be based upon proof that the defendant intended to deprive the victim of money or property. (34) In McNally, a Kentucky state official participated in a kickback scheme involving state insurance providers. (35) The case was brought solely on the theory that the state and its citizens lost their right to the public officials' honest services; the government did not allege or prove that the scheme was designed to deprive the victims of money or property. (36)

   The Supreme Court rejected the honest services theory on two grounds. Initially, the Court focused on the language of the statutes, which criminalize "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses...." (37) The Court rejected the argument that the "money or property" requirement only applies to the false or fraudulent pretenses prong of the statute. (38) The Court further found that Congress intended to incorporate the common law of fraud...