Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, June 24, 2010

Supreme Court Says Honest-Services Doctrine Means Bribery & Kickback Schemes

Today the Supreme Court decided Jeffrey Skilling's appeal.  In the first part of the opinion, the majority opinion (written by Ginsberg) rejected Skilling's agument that pretrial publicity and community prejudice prevented him from obtaining a fair trial.  Sotomayor (joined by Stevens and Breyer) dissented to this part of the opinion.  I will leave analysis of the Sixth Amendment claim to others and turn to the Section 1346 "unconstitutionally vague" question.  Despite its length, the opinion's take-away is straightforward.  The statute means only bribery and kickbacks and is therefore constitutional.

Ginsberg emphasizes that the current caselaw requires the Court, if it can, to construe, and not condemn, Congressional enactments.  She determines (although not without some difficulty) that it can and begins the process by reviewing the development of the "the intangible right of honest services" caselaw.  She finds that, prior to the Supreme Court's 1987 opinion in McNally v. U.S.,  a consensus had developed in the lower courts that section 1346 could be used to prosecute offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes.  McNally, however, stopped the development of the intangible-rights doctrine in its tracks by limiting its scope to the protection of property rights.  Congress then reacted and enacted a statute specifically to cover "the intangible right of honest services."  Since Congress's action was in reaction to McNally, the majority reasons, Congress intended to make criminal the "core" conduct recognized by the courts prior to McNally, which involved fraudulent schemes to deprive another of honest services through bribery or kickbacks supplied by a third party that was not deceived.  Ergo -- one statute saved from unconstitutional vagueness.  (The analysis includes an inordinate emphasis on the meaning of "the" -- see text at footnote 40, if you appreciate these kinds of arguments.)

The majority declines the government's urging to go further to include "undisclosed self-dealing by a public official or private employee."  "If Congress desires to go further," repeating its words from McNally, "it must speak more clearly than it has."  In footnote 45, it makes clear how hard a drafting exercise this would be.

Finally, the opinion remands to the FifthCircuit to figure out how the reversal on the honest-services wire fraud count affects his conspiracy conviction (since it included securities fraud and money-or property wire fraud) and how the potential reversal on the conspiracy count affects his convictions on the other counts. 

Justice Scalia (joined by Thomas and Kennedy) finds that the statute is unconstitutionally vague and the majority's paring down of the statute amounted to an impermissible defining of a new federal crime.

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