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Honest services law must go

The Supreme Court should declare it unconstitutional rather than try to rewrite it.

January 18, 2010

Virtually all agree that the 1988 honest services amendment to the mail and wire fraud statutes, defining a scheme to defraud, is seriously defective in that it is vague and overly broad. Many have concluded that the statute can and should be saved through a judicial construction reading into it elements of prior case law under the mail and wire fraud statutes. In an unusual move, the U.S. Supreme Court has granted certiorari petitions in three separate honest services cases: U.S. v. Black, 530 F.3d 596 (7th Cir. 2008); U.S. v. Weyhrauch, 548 F.3d 1237 (9th Cir. 2008); and U.S. v. Skilling, 554 F.3d 529 (5th Cir. 2009). Two of those cases (Black and Weyhrauch) have been argued, and Skilling is to be argued in the spring. In the Skilling case, Jeffrey Skilling, the former president of Enron Corp., has clearly requested that the Court hold the statute unconstitutional because it is too vague to provide notice of what conduct is deemed potentially criminal.

As Justice Stephen Breyer said during oral argument in the Conrad Black case, at any given time, of the roughly 150 million workers in the United States, 140 million of them are engaged in conduct that potentially violates the statute.

Although the statute is extremely vague, the fundamental problem with it is not so much its vagueness as the fact that it has unlimited scope. Vagueness can be remedied through judicial clarifying interpretation based on case law existing when Congress enacted the statute. The Court could do this on the not unreasonable assumption that Congress adopted some of the case law giving content to the concept of honest services — a legal concept that, unlike the concept of property, does not have a clearly defined pedigree at common law.

More difficult would be the Court's justification of its authority, and the decisional standards it uses, to narrow the unlimited scope of the statute through inclusion and exclusion of potentially covered conduct. Assuming the Court has such constitutional authority (an arguable proposition, in light of the Court's ruling in U.S. v. Booker, 543 U.S. 220 (2005), to excise certain mandatory provisions of the Sentencing Guidelines in order to uphold their constitutionality), by what judicial criteria is the Court to determine what's in and out of the scope of honest services? Except for a body of federal common law doctrines under the mail and wire fraud statutes, not all of which are uniformly accepted by the courts of appeals, the Supreme Court has no constitutional text, structure or history to guide its decision-making.

Is theft of privacy rights, accepted by some courts in wire and mail prosecutions before the enactment of the honest services statues, out? In the private, nongovernmental context, is failure to disclose a conflict of interest or self-dealing in — at least when it is reasonably foreseeable that the conduct is likely to cause some significant economic or pecuniary harm to the victim? Where are these elements found in the language of the honest services statute? Moreover, what is the source of the duty whose violation may subject local and state officials, for example, to federal prosecution under the statute: federal or state law? This is a federalism thicket best avoided by the federal courts and left to Congress, where the interests of the states are adequately represented.


There are many problems with the Court rewriting the law. First, it is not entirely clear which of the many types of conduct falling within the reach of the statute Congress intended to include. Therefore, it would be very difficult for the Court to decide which ones are in and which ones are out.

Second, and more fundamental, it is inappropriate for the Court to get into the business of redrafting legislation, especially criminal law; such a function should be performed by the political branches of the government, i.e., the legislature and the executive.

Third, and most important of all, the Court has long subscribed to the view that the federal courts have no constitutional authority or jurisdiction to fashion common law crimes. Unfortunately, in the area of mail and wire fraud prosecutions, the courts have for some time now developed a body of what can only be characterized as common law criminal conduct.

More recently, the U.S. Securities and Exchange Commission, without any clear legislative authority, has pushed the envelope very far by defining the elements of criminal conduct under the securities laws — laws at times enforced with the honest services statute.

For example, the SEC has issued Rule 10b5-1, making it potentially a crime to buy or sell securities being "aware" of insider confidential information without actually using such information. The SEC has also asserted, under Rule 10b5-2, that, in misappropriation cases, a corporate "outsider" who breaches a duty (even a nonfiduciary duty) to the source of confidential corporate information obtained to conduct trades violates insider-trading law.


The honest services cases before the Court provide it the appropriate opportunity to put an end to further development of this nefarious doctrinal development by declaring the honest services statute unconstitutional under the due process clause. A statute defining conduct as criminal reflects the community's moral opprobrium of that conduct. Such a declaration should be made by the elective representatives of the members of the community, not by unelected judges. In recent years, we have gone too far down the road of defining almost all sorts of conduct as potentially criminal, and we have thereby cheapened the currency, i.e., the moral opprobrium, of the criminal sanction.

Congress can easily rewrite the honest services definition in the mail and wire fraud statute in a way that would limit the scope of the statute and clearly be constitutional. For example, Congress can say that the mail and wire fraud statutes are violated when a person seeks to deny an organization or community of his or her honest services by engaging in the following conduct: paying or receiving kickbacks, paying or receiving gratuities or briberies (although both are already covered by criminal statutes); breaching the fiduciary duties owed to the organization or the political community as defined in some statute or publicly promulgated code of conduct; or, in the case of an employee or corporate officer, breaching the common law duty of care and loyalty to an organization.

Hervé Gouraige is a member in the Newark, N.J., and New York offices of Epstein Becker & Green and co-group leader of the firms' national litigation practice.

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