Friday, February 15, 2008

Fifth Circuit Continues to Rule Against the Government - Honest Services Issue

The Fifth Circuit Court of Appeals, in a unanimous opinion written by Hon. W.  Eugene Davis, refused to accept the government claim that the case of United States v. Brown did not apply to one of the counts dismissed in the case against the former CFO of Enron Broadband. The appellee had initially been convicted of  five counts, but the court dismissed these convictions post-Brown. The district court had vacated the conviction on Count 5 because "there was a reasonable possibility that ....Count Five was indeed tethered to Count One." The government, unhappy with this decision, appealed.

The Brown court ruled that "honest services" did not apply "where an employer intentionally aligns the interests of the employee with a specific corporate goal where the employee perceives his pursuit of that goal as mutually benefiting him and his employer, and where the employer's conduct is consistent with that perception of mutual interest."  Because the jury "could have based its conviction on the tainted conspiracy charge" the district court refused to accept the government's argument that this count should be reinstated.  The Fifth Circuit agreed.

This decision is fascinating on several levels:

  • A Pinkerton instruction is a powerful tool for the government as it allows them to proceed against individuals on substantive acts that they may not have been directly involved in -- acts that were foreseeable and in furtherance of the conspiracy. This may be a unique instance showing how the government can get trapped by its own stretching of statutes.  By using Pinkerton, when the conspiracy fell - it also caused the charged substantive act to fall. An after-the-fact claim of -  I really didn't mean it to apply here, does not carry much weight.  The lesson of this case is that prosecutors need to think of the ramifications of having a Pinkerton instruction if they truly believe it isn't necessary.   
  • Should prosecutor's have a second chance when they stretch a statute and get caught?  How much of the taxpayer's money should they be allowed to spend?  In other words - should they be allowed to retry this count? (See Tom Kirkendall's comment on Houston ClearThinkers)
  • The Fifth Circuit is very clearly saying that the Brown decision is here to stay.
  • This decision may be particularly helpful to Jeff Skilling as it not only fortifies Brown, a case focused on in Skilling's appeal, but it also takes a strong position that counts within the "spill-over" of tainted counts, will not stand.

U.S. v. Howard - Download HowardAppealOpinion.wpd.pdf


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I am glad to see the 5th Circuit standing up for itself on this issue. I wrote a paper about this about a year ago in my last year of law school, in which I advocated for the 5th Circuit's Brown decision to be bolstered and applied in other circuits. Honest services fraud is just too amorphous. I predict, however, that we will begin seeing a slew of honest services prosecutions (perhaps not in the 5th but elsewhere) stemming from the subprime mortgage meltdown.

Posted by: Justin | Feb 15, 2008 4:25:45 PM

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