Monday, January 21, 2008

Honest Services Fraud Convictions Overturned

The First Circuit overturned the convictions of two former senior officers at Roger Williams Medical Center in Providence, Rhode Island, because the jury instructions allowed the honest services theory of mail fraud to roam a bit too far from the core of the statute.  The case highlights, once again, that honest services is among the most slippery of concepts in the federal criminal code, and any claim that it can be defined is a chimera.  The statute, Sec. 1346, says only that "the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services" but no where does it try to explain what that means.  Courts have struggled with it ever since Congress adopted the provision to overturn McNally because there is virtually no legislative history and the government has not been shy about using one of its most potent anti-corruption statutes in a variety of contexts.

The First Circuit decision, United States v. Urciuoli (available below), concerns the hiring of an influential Rhode Island state Senator, Joseph Celona, for what the government claimed was a sham job on behalf of a subsidiary of RWMC when in fact he was using his position to help out the hospital in the state Senate.  The government alleged three activities that aided the deprivation of honest services owed by Celona: influencing legislation to help RWMC, pressuring local mayors to use RWMC for ambulance services on so-called "rescue runs," and pressuring an insurance company to settle a dispute with the hospital favorably.  The First Circuit found the first activity clearly violative of the honest services fraud provision because it was a misuse of office of personal gain by Celona.  The third activity also can be the basis for a mail fraud conviction because Celona brought representatives of the insurer into his office and implied -- rather pointedly -- that things would not go well in the legislature if RWMC didn't receive a favorable resolution. 

The problem was the second activity, in which Celona had the mayors of local municipalities come into his office and urged them to follow the law by sending their ambulances to the hospital, even though he never disclosed his financial ties with RWMC.  The government called this the "cloak of office" misuse of public authority that constituted mail fraud.  The First Circuit described the weakness of this theory of honest services fraud:

The government says that a legislator's informal duties commonly extend to representing constituents with local officials and engaging in oversight functions and so to this extent should be regarded as official; but Celona's conduct falls in a borderland where analogies can easily be drawn both to public and private conduct and there is no indication that Celona invoked any purported oversight authority or threatened to use official powers in support of his advocacy. The government says the mayors can be affected by state legislation, but it did not show by context or threat that Celona sought deliberately to exploit this leverage.

Certainly his title and (possibly improper) use of senate letterhead assured him access and attention . . . ; but his position guaranteed that in any event and its invisible force would have existed even if he emphasized that he was present solely as a paid advocate. Indeed, even the legitimate work that Celona performed on behalf of [RWMC] traded in part on the reputation, network and influence that comes with political office. That much is an unavoidable result of Rhode Island's decision to retain a system of government in which legislators hold outside employment without very stringent restrictions.

The government's rationale for introducing this evidence is that having Celona advocating on behalf of the hospital worked to subtly -- or perhaps overtly -- put pressure on the mayors, who would want to curry favor with a powerful member of the state Senate.  But the First Circuit rejected this kind of "wink-and-a-nod" approach to honest services fraud as conduct that did not involve any misuse of office nor a clear violation of any state law prohibition that would take it beyond at most an arguable ethics violation.

While the government had two good theories and only one problematic one, the indictment and jury instructions did not distinguish among them, so that the jury simply convicted the defendants of mail fraud (and conspiracy to commit mail fraud).  Therefore, much like the convictions based in part on the private right of honest services theory in the Enron Nigerian Barge trial that were overturned in United States v. Brown, the presence of one bad theory taints the entire case and requires a new trial.  Whether the outcome will be any different remains to be seen, but the defendants will get a second bite at the apple. (ph)

Download us_v_urciuoli_first_circuit_opinion_jan_18_2008.pdf

http://lawprofessors.typepad.com/whitecollarcrime_blog/2008/01/honest-services.html

Corruption, Fraud, Judicial Opinions | Permalink

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» CA1: First reverses conviction in “honest services” legislature case from Appellate Law
US v. Urciuoli, Nos. 07-1297, 07-1327. This case vacates the convictions of conspiracy to commit honest services mail fraud and various counts of such mail fraud; 18 U.S.C. §§ 371, 1341, 1346 (2000) in a legislator-bribery scheme. What makes this [Read More]

Tracked on Jan 22, 2008 5:41:36 AM

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