White Collar Crime Prof Blog

More on Honest Services and Skilling

GUEST BLOGGER-SOLOMON L. WISENBERG

The breakdown is as follows. All nine justices agree that the judgments in the three honest services fraud cases must be vacated and remanded. The majority rules that Section 1346 honest services fraud encompasses only bribery and kickback schemes, and would be unconstitutionally vague if interpreted more broadly. The majority opinion in Skilling (and Black) is written by Justice Ginsburg, who is joined by five other justices. Justice Scalia (joined by Justices Thomas and Kennedy) concurs, but would simply hold Section 1346 unconstitutionally vague under the Due Process Clause and would not seek to salvage it through a narrowing interpretation.

The jury instructions in all of the cases allowed for conviction under the now-discredited broad view of honest services. The lower courts must decide whether the instructional errors were harmless.

Jefffrey Skilling's fair trial arguments were rejected 6-3, with Justice Sotomayor, joined by Justices Stevens and Breyer, dissenting.

Conrad Black and co-defendants properly preserved their objections to the jury charge.

All of this is based on my quick skim. More detailed analysis will come later.

Once more, here are the slip opions in Skilling, Black, and Weyhrauch.

(slw)

Enron Barge Case Continues

Some cases continue - like Jim Brown of the Enron Barge Case. The latest is that Hon. Werlein denied the defense Speedy Trial Act Motion. (Download Memorandum & Order 61510 Dkt. 1208)  The defense had claimed that "[s]ince August 13, 2009, the government has failed to take even a first step to bring Brown to trial." 

This case also includes claims of discovery violations on the part of the Enron Task Force, with the defense arguing that "[a]fter Brown's trial and appeal, a new prosecutor finally produced the government's notes of multiple conversations with Fastow, the grand jury testimony of Merrill counsel, and other Brady material -all which proves Brown's innocence on all charges." (Download SuppMtnNewTRIAL.Dkt.1160).  

Discovery violations have been prominent issues in several recent cases (see here) including the prosecution of former Senator Ted Stevens. Most recently, DOJ issued new guidelines pertaining to discovery practices in the DOJ (see here). With strong claims of discovery violations and prosecutorial selectivity in the Brown case, one has to wonder if DOJ will re-examine what has transpired in this case.

(esp)  

Skilling Magazine Article - Well Worth the Time to Read

With no ruling on the Jeffrey Skilling case today, you might have time to read what Dr. Archelle Georgiou has written in CNN Money - Fortune titled, Skilling speaks: Enron CEO's jailhouse interview.

(esp)

Commentary on Skilling Oral Argument

I'll pass on the jury prejudice issue and leave it to crimprof to handle this one. But the honest services exchange was fascinating.  You have several justices asking where to find this pre-McNally law. (see here). Do you need lawyers, do you have to carry around treatises -  but then Justice Alito hits the homerun.  He asks the important question of whether we would find this scenario in the pre-McNally cases. Mr. Dreeben says "not to my knowledge."  A "logical extension" is what he offers.  I call that - stretching. 

(esp)

Addendum -See Lyle Denniston, Scotus Blog here ; Tom Kirkendall, Houston Clearthinkers here; Mary Flood, Houston Chronicle, Justices worried about fair trial for Skilling; Robert Barnes, Wash Post, Skilling case latest to test 'honest services'

Second Addendum - The more I keep reading, the more I keep thinking about the Court's words in the Carpenter case, where they found the "right to intangible property" covered under the mail fraud statute, but noted that the Wall Street Journal "was defrauded of much more than its contractual right to his honest and faithful service, an interest too ethereal in itself to fall within the protection of the mail fraud statute..."  Clearly this was pre-1346, but it is telling.

Oral Arguments in the Skilling Case

The transcript can be found here. The defense focused on the jury prejudice issue, and rightfully so - a victory on this issue goes to all charges. But there was ample discussion of honest services.  Some highlights:

Justice Scalia - questioning Mr. Dreeben - states: "And there were cases that -- that -- some of which included bribery, but others of which included a variety of -- of other actions, some of which were allowed by some courts, and some of which were disallowed by some courts.  There was no solid content to what McNally covered."

Chief Justice Roberts - questioning Mr. Dreeben - states: "you need lawyers and research before you get an idea of what the pre-McNally state of the law was with respect to intangible..."

Justice Kennedy - questioning Mr. Dreeben - asks: "What authority do I look to, to see that some employees are fiduciaries and others are not?"

Best question goes to Justice Alito- questioning Mr. Dreeben - "Were there any pre-McNally cases that involved a situation like this, where the benefit to the employee was in the form of the employee's disclosed compensation?  Mr. Dreeben responded:  There were not to my knowledge, Justice Alito, and I would frankly acknowledge that this case is a logical extension of the basic principle that we have urged the Court to adopt in the nondisclosure cases, and the Court can evaluate whether it believes that that is legitimately within the scope of an honest services violation or not..."

Justice Breyer - questioning Mr. Dreeben - "Then if you're not saying that, then what the  person has to carry around with them is an agency treatise."

(esp)

In the News & Around the Blogosphere

Mary Flood, Houston Chronicle, Ex-Enron broadband figure given home confinement

(esp)

You Can't Prosecute An Acquittal - Yeager Case

Back from the Supreme Court's decision in United States v. Yeager (see discussion here), the Fifth Circuit Court of Appeals had to decide what to do with the remains of this case.  Mary Flood, Houston Chronicle, Appeals court wipes slate clean for Enron defendant Yeager reports on the Fifth Circuit Court of Appeals decision concerning this former Enron Broadband executive. Yeager, after a very long process, has now been acquitted. The Fifth Circuit Court of Appeals in United States v.Yeager stated:

Today, freed from the chains of Larkin it is clear under our initial Ashe analysis the jury made a finding in acquitting Yeager that precludes prosecution on insider trading and money laundering. We are satisfied that the panel conducted a proper review of Yeager’s claim and the required collateral estoppel analysis under Ashe and will not do so again. We decline the invitation to revisit our settled findings.

(esp)( w/ a hat tip to Bill Olis)

Enron Broadband's CFO Pleads

A DOJ Press Release reports on Former Enron Broadband Chief Financial Officer Pleads Guilty to Falsifying Books and Records.  "According to the terms of the plea agreement, Howard faces a maximum sentence of up to 12 months of home confinement at his sentencing."  The press release states that "[i]n an attempt to generate earnings sufficient to meet the earnings target, Howard admitted that he and others at EBS structured a transaction known as 'Project Braveheart' designed to 'monetize' or book a portion of the anticipated hundreds of millions of dollars of future earnings from EBS’s agreement with Blockbuster in the fourth quarter of 2000."  But the reality is that Howard had a hung jury the first time around and a conviction vacated the next time.  Most likely the cost of trial, including the psychological cost, made this plea extremely attractive.  

See also Tom Kirdendall, Houston ClearThinkers. Chalk up Another Trial Penalty Deal;Amir Efrati, WSJ Blog, Former Enron Exec Could Get Home Confinement After Plea

Skilling Files Petition for Cert

Jeffrey Skilling filed a Petition for Certiorari to the US Supreme Court and focuses his claim on the honest services aspect of mail fraud and jury prejudice.  Clearly these are strong arguments as the Houston home court advantage was extraordinary in a case that was related to Enron and the honest services aspect of mail fraud has been a source of contention in many cases. Justice Scalia, in a recent dissent ona denial of certiorari, voiced strong opposition to the progression of mail fraud's intangible rights doctrine.  He noted the breadth in the "28 words" in the statute and concluded by stating that "it seems to me quite irresponsible to let the current chaos prevail."  It's a good move for Skilling to focus on this aspect of the statute, but the key will be whether the Court will accept certiorari in this case. Based upon a dissent in another Second Circuit en banc case, Rybicki, there are many circuits split on various aspects of the mail fraud statute. 

See also Mary Flood, Houston Chronicle, Skilling asks Supreme Court to review conviction.; Bill Mears, CNN, Former Enron CEO Files High Court Appeal; Ashby Jones, WSJ Blog, Skilling Takes Appeal to High Court

(esp) 

Addendum - Adam Liptak of the NYTimes (here) reminds us, in an unrelated story of today, that "the Senate approved Justice Scalia's nomination ... by a vote of 98-to-0."

Supremes to Hear White Collar Case from Enron Broadband

The U.S. Supreme Court is set to hear oral argument tomorrow on the case of Yeager v. United States, (see here) a case that reexamines the collateral estoppel rule in a white collar context.  The question before the Court is:

"Whether, when a jury acquits a defendant on multiple counts but fails to reach a verdict on other counts that share a common element, and, after a complete review of the record, the court of appeals determines that the only rational basis for the acquittals is that an essential element of the hung counts was determined in the defendant's favor, collateral estoppel bars a retrial on the hung counts."

The defendants in the case "were tried on various counts for their actions while employed at Enron Broadband Services ("EBS"). The jury acquitted Defendants on some of these counts but hung on others, after which the United States ("Government") again indicted Defendants on some of the mistried counts." The issue is now whether collateral estoppel can apply to hung counts.

There is no question that the circuits are split on this issue and that Supreme Court guidance is needed. But a lot is at stake here in that the collateral estoppel rule, an important component of the constitutional protection against double-jeopardy,  is being tested.  Some of the questions here are: Should prosecutors be rewarded for "overcharging their cases and then failing to prove the superfluous charges?" Should courts provide legal oversight when it is clear that the law can only be interpreted one way? If the acquitted counts estop the hung counts, can a court chalk this up to jury irrationality and just permit the jury a second bite at the apple?

(esp)

Addendum - Briefs can be found on this ABA site here. (w/ a hat tip to Jack Townsend)

Skilling Asks for En Banc Hearing

Not surprisingly, Jeffrey Skilling is asking the Fifth Circuit for an en banc hearing.  He focuses on three issues, with the lead one being premised on "honest services" fraud.  The petition argues that the panel's decision is in conflict with other Fifth Circuit decisions, including U.S. v. Brown. It also raises the issue of vagueness as to section 1346.  After all - what is "honest services"?

See Ashby Jones, WSJ Blog, Skilling, Petrocelli Make Two More Pleas to the Fifth Circuit ;  Kristen Hays, Houston Chronicle, Enron’s Skilling asks full court to review convictions

(esp)

What Others Are Saying About the Skilling Decision

Doug Berman, Sentencing Law & Policy here (note that Professor Frank Bowman has a comment on the possible sentence)

Dan Slater, WSJ Blog, Skilling Conviction Upheld, Resentencing Ordered

Tom KIrkendall, Houston Clearthinkers, The Fifth Circuit rules in the Skilling appeal

Juan A. Lozano,Washington Post (AP), U.S. Court Orders Skilling Resentenced

Jef Feeley and Thom Weidlich, Bloomberg.com,  Skilling’s Conviction Upheld, Resentencing Ordered

(esp) (blogging from San Diego)

Skilling - Commentary on the Decision

The Fifth Circuit issued a 106 page opinion in the Skilling case (see here or here) - here are some thoughts on it -

• Many courts have struggled with the scope and definition of the honest services fraud statute.  Since its passage, section 1346 has caused several opinions that have attempted to provide a definition to "honest services" - a term that is undefined in the statute.  The Fifth Circuit, in a prior case - Brown had placed some restraints on prosecutions using this statute.  The Skilling decision narrows these restraints and allows more prosecutorial power in bringing an honest services fraud case. The court states:

"Therefore, it is not a matter of Skilling setting the corporation’s policy himself. Instead, the question is whether anyone who supervised Skilling specifically directed his actions—such as how Fastow sanctioned the scheme in Brown. Skilling never alleged that he engaged in his conduct at the explicit direction of anyone, and therefore he cannot avail himself of the exception from Brown."

Simplistically - will this mean that if you can blame someone else for your conduct (such as a higher-up in the corporation), this will mean the Brown exception applies, but if you are the person at the top you may be out of luck in trying to make this claim?

• The court finds - at best- harmless error in the giving of a deliberate ignorance instruction.
• The court rejects each of the claims regarding improper jury instructions.
• The court also rejects the venue claims of Skilling saying -

"It would not have been imprudent for the court to have granted Skilling’s transfer motion. The issue before us, however, is whether the court committed reversible error. It did not."

• The court rejects Skilling's claims of prosecutorial misconduct, and also rejects the Brady violation claims of the defendant.  But the court does let Skilling know that he can raise some of the Brady issues in the trial court.  So this issue may have a future. The court explicitly states:

"We find the omission of this statement from the 302s troubling. Perhaps even more troubling is that the government never disclosed the page of interview notes containing this statement to the district court. However, because the district court never had the opportunity to consider this page of interview notes, we cannot address this Brady claim for the first time on appeal. The district court did not assess the materiality of this statement or determine whether its suppression violated Brady. Thus, there is nothing for us to review. Skilling must bring this claim to the district court before we can address it."

Basically, this means that this case is far from over.

• The sentencing aspect is the biggest win for Skilling. Although the court states that it was proper to use the SEC testimony, it does reject the "four-level enhancement for substantially jeopardizing the safety and soundness of a 'financial institution.'"  What is  the definition of a "financial institution" is the question here, and the court uses the rule of lenity and sides with the defense. I await Professor Doug Berman's calculations from the Sentencing Blog, as to exactly the amount of time that this could reduce his sentence.

(esp)(blogging from San Diego)

Skilling- Sentencing Reversal and Remand; Conviction Stands

Opinion here - Download 06-20885-CR0.pdf

Commentary to follow.

(esp) (from San Diego)

Skilling Hearing - Sounds Like it Wasn't a Hot Bench

Reading the reports from those who were there, it sounds like the Skilling bench was a quiet one. But then again - a lot of the argument dealt with "honest services" under the mail fraud statute. 

The mail fraud statute is an 1872 statute that was a section in a revision of the Postal Act.  In the 1970's prosecutors extended mail fraud to prosecute cases involving "intangible rights."  In the case of McNally v. United States, the Supreme Court shot this doctrine down finding that "money or property" was required.  Congress came back with a new statute 18 U.S.C. 1346 that allowed prosecutions premised on a right to "honest services."  But the statute has been problematic in both its breadth and in the government's attempt to extend it in new ways.  The courts as seen in the Brown case, have provided limits to what might appear as a limitless statute.  But the bottom line is that this statute has numerous problems, both in its wording and in its application. And because mail fraud is difficult to understand, it is not surprising that a hearing related to this crime might prove dry.

Amit Efrati, U.S. Judges Hint at Little in  Skilling Appeals Session

Loren Steffy - Houston Chronicle Business Blog - Skilling's Appeal Opens With a Bang, Ends With a Whimper

(Houston Chronicle) AP Court Hears Appeal of Enron's Skilling

Nola.com Skilling Hearing Concludes With Smaller Audience Than Expected

(esp)

They're Expecting A Crowd for Skilling

The Fifth Circuit Court of Appeals has special instructions on its website about the Skilling oral argument set for today. For example, it states "[n]o one will be allowed to enter any of the courtrooms prior to 1:00 p.m., April 2, 2008, to allow court staff to set up additional chairs in the East Court room, and prepare other courtrooms for overflow spectators."

The case will be heard by three judges: Hon. Jerry E. Smith (Yale law grad, Reagan appointee), Edward C. Prado (Texas law grad, George W. Bush appointee), and Alia Moses Ludlum (Texas law grad, George W. Bush appointee) (see Times Picayune here).   

Some of the key issues before the court are:

• Whether there was a Brady violation in the failure of the prosecution to provide the Fastow Notes and full discovery pre-trial.
• Whether there is any reason not to follow the court's precedent in the Brown case with the prosecution's use of  the "honest services" theory.
• Whether there was error in instructions given to the jury with respect to deliberate ignorance.
• Whether it was improper to refuse instructions on materiality, reliance, and "oral side deals."
• Whether the accused was deprived of a fair trial as a result of the venue of this trial.
• Whether the accused was provided sufficient voir dire.
• Whether errors with respect to the honest services doctrine spillover to other aspects of the case.
• Whether there were sentencing errors.

(esp)

Wednesday Is Jeffrey Skilling Day

This Wednesday is the day that the Fifth Circuit will listen to arguments in the case of United States v. Skilling.  Although the briefs are filled with many arguments, the ones focused upon in the oral argument will likely be fewer in number.  That's typical, as you can't hit everything in a time-tight oral argument. 

As one looks at all of the original legal arguments and the new issues from the release of the Fastow notes, it is clear that the court will have a good bit to consider. And perhaps one item that might be lingering in some minds, is the continuing question as to  why the government didn't object to Fastow's argument for a sentence below the agreed upon terms of the plea agreement. Tom Kirkendall at Houston ClearThinkers (see here) pointed out one segment from the Skilling trial when Fastow was on redirect examination and he answered questions as follows:

Q. And what is the minimum amount of time that that plea agreement calls for?

A. It calls for a 10-year sentence.

Q. So after January 14th, can your cooperation lower that 10 years?

A. My understanding is that I will be sentenced to 10 years. The Judge ultimately has a discretion; but in my plea agreement, I agreed to the 10-year sentence."

Andy Fastow, however, received a sentence of six (6) years. This was despite a provision in the plea agreement that stated:

"The parties agree that Defendant's sentence under the Sentencing Guidelines shall include 120 months in the custody of the Bureau of Prisons.  Defendant agrees that he will not move for a downward departure from the offense level or the guideline range calculated by the Court and that no grounds for a downward departure exist."

And the government did not object.  Why?

The following are links to key posts from this blog that relate to the forthcoming argument, and the briefs that have been filed.

Government Responds to Skilling Supplemental Brief

The Skilling Discovery Problem - Part II of Commentary

The Falling of the Enron Case House of Cards

Skilling and the Fastow Notes

The Skilling Case - Stay Tuned

The Fastow Notes

Commentary on Skillings Reply Brief

Skilling's Reply Brief Arrives, Just in Time for the Holidays

The Government Weighs in on Skilling

Skilling's Fifth Circuit Brief Arrives

Also check out Larry Ribstein's Ideoblog here

(esp)

Government Responds to Skilling Supplemental Brief

Jeffrey Skilling filed a supplemental brief discussing the failure of the government to provide exculpatory material, specifically items now discovered as a result of the release of the Fastow Notes (see here, here, and here).  The government has now responded with an 83-page brief that challenges the defense position. Perhaps the paragraph that sums up the government position best is seen here -

"At trial, the government provided the district court with the rough notes underlying those 302s so that the court could monitor Fastow's testimony and disclose to Skilling any information in the notes that could be used to impeach Fastow.  Now, having obtained those notes while his conviction is on appeal, Skilling argues that they contain undisclosed exculpatory information and show that the government presented false testimony to the jury. As explained in detail below, Skillings' claims rely on isolated snippets culled from  420 pages of handwritten notes and stripped of their context.  Put in its proper context, and divorced from Skilling's hyperbolic rhetoric, each portion of the notes on which Skilling relies contains information that Skilling possessed prior to trial or that would have had minimal value in impeaching Fastow. "

So the government is claiming that the items would have "minimal value."  If that's the case, why didn't they just give them to defense counsel?  Why should we have after-the-fact discussions of whether an item was disclosed and whether it would have made a difference? When an individual is being given a sentence of 24 years, shouldn't the accused be allowed to have everything to properly present a defense to the jury?

Later in the government response they state:

"Finally, if the government had disclosed the information in the February 4, 2004 note, Skilling could not have profitably used it to impeach Fastow.  If Skilling had impeached Fastow with the note, the government would have been entitled to rehabilitate Fastow with the notes showing that on two later occasions he recalled Skilling knew of the quid pro quo."

Should the government be deciding the value of impreachment and rehabilitation evidence?  Isn't that a role we leave to juries?

See WSJ Blog here, Mary Flood's Houston Chronicle Blog here, Kristen Hays - Houston Chronicle here

(esp)

Addendum - Government's Brief -

Download usa_v. Skilling Case# 06-20885 USCA, 5th Circuit 3-25-08 Supplemental Brief by Appellee USA .pdf

(w/ a Stetson hat tip to Whitney Curtis)

In the News - Wecht, Kilpatrick, Paulson Talk, Enron

Philly.Com (AP) - Fifth Day of Deliberations End in Wecht Fraud Trial; Pittsburgh Tribune Review - Wecht Deliberations to Resume Thursday

DetroitNews.com - Mayor Kilpatrick to Get Legal Defense Funding;  Attorneys in Scandal to be Probed

ABA Journal - Ninth Circuit Bounces Judge From Case for Favoring Prosecution

Wall Street Journal - Paulson Joins Advocates of Wider Fed Oversight

AP - Citi Settles Enron Suit for $1.66 Billion

(esp)

The Nigerian Barge Case - Will It Sink?

Tom Kirkendall's Houston ClearThinkers has the Motion to Dismiss filed on behalf of a former Merrill Lynch executive who is awaiting retrial (see here). As anticipated, the Fastow Notes - and the alleged failure of the prosecution to provide exculpatory material to the defense - may prove devastating to this prosecution.  The Motion includes numerous references to the Model Rules of Professional Conduct, the ABA Standards for Criminal Justice, and the Restatement (Third) Law Governing Lawyers. Although ethics rules are usually not enforceable at law, they have been used to provide a standard for appropriate conduct in the community.  In this case, the Motion alleges many different violations of ethics rules.

The key issues for the court will likely be: 1) did the prosecution withhold exculpatory material; and 2)  what is the appropriate remedy. Both of these issues offer interesting aspects.  On the first one, a question will be whether the Enron prosecutors will be testifying or is the paper trail sufficient to present each side of the argument.  It is likely that the prosecution will vigorously argue the second issue (that a retrial cures this problem) in an attempt to avoid losing the case on a court dismissal.   But the more important question remains - why are the Fastow notes so late in coming (see here).

(esp)