Saturday, September 16, 2006

Prosecutors Seek En Banc Review of Enron Nigerian Barge Decision

The Enron Task Force has asked the Fifth Circuit to review en banc the panel decision in United States v. Brown, 2006 WL 2130525 (5th Cir. Aug. 1, 2006), overturning the convictions of three defendants for violating the mail fraud statute in connection with the Enron Nigerian Barge transaction.  The government's request centers on the reversal of the convictions on the ground that the "right of honest services" provision, 18 U.S.C. Sec. 1346, does not cover the conduct for which the defendants were convicted.  The key to that analysis was the court's determination that the defendants believed their conduct was aligned with Enron's interest, and therefore they did not intend to deprive the company of their honest services:

We do not presume that it is in a corporation's legitimate interests ever to misstate earnings--it is not. However, where an employer intentionally aligns the interests of the employee with a specified corporate goal, where the employee perceives his pursuit of that goal as mutually benefiting him and his employer, and where the employee's conduct is consistent with that perception of the mutual interest, such conduct is beyond the reach of the honest-services theory of fraud as it has hitherto been applied.  Therefore, the Government must turn to other statutes, or even the wire fraud statutes absent the component of honest services, to punish this character of wrongdoing.

This opinion should not be read to suggest that no dishonest, fraudulent, wrongful, or criminal act has occurred. We hold only that the alleged conduct is not a federal crime under the honest-services theory of fraud specifically.

I suspect the government's concern is that future defendants will seize on this language in private right of honest services fraud cases to argue that they believed their interests were aligned with the corporate employer, so that they did not have the requisite intent to defraud the company of their honest services.  En banc's are fairly rare, although the Fifth Circuit has used that approach in another case, United States v. Brumley, 116 F.3d 728 (5th Cir. 1997), to clarify the scope of the honest services form of mail and wire fraud, although Brumley involved a public official and not private actors. 

The other danger, of course, is that the en banc court will read the honest services fraud form of mail/wire fraud even more narrowly, or worse for the government, finds that it is unconstitutionally vague and therefore unenforceable.  A Houston Chronicle story (here) quotes blog co-editor Ellen Podgor about the appeal, who points out that "[w]hen courts have trouble deciding whether conduct is within or outside the honest services language of the statute, then how can we expect lay people to know if what they are doing is criminal? . . . What really needs to happen here is for Congress to rewrite the law so that it is clear and people know what is legal and what will be considered criminal."  While an unfavorable decision from the Fifth Circuit en banc might trigger an appeal to the Supreme Court, the Enron Task Force is 0 for 1 there so far, so the Solicitor General's Office may not see this case as any more appealing to the Court than Arthur Andersen was, when the government's theory was roundly criticized. (ph)

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