ROUND THREE FOR HONEST SERVICES FRAUD; THE LAST ROUND FOR SKILLING

It was round three for honest services fraud, Section 1346 of the criminal code, passed after the Supreme Court held that the mail fraud statute does not cover intangible honest services fraud in McNally v. U.S., 360 U.S. 350 (1987). The statute is frequently the weapon of choice when the Government wants to indict corporate executives in white collar cases. Previously, the High Court heard the appeals of Canadian newspaper magnet Conrad Black and Alaska legislator Bruce Weyhrauch, discussed here.

On Monday, the Court heard the appeal of former Enron CFO Jeffrey Skilling, which also challenges Section 1346. Unlike the earlier two cases however, Skilling squarely raises the question regarding whether the statute is unconstitutionally vague. Both Black and Weyhrauch had argued for limitations on the construction of the statute which eliminated the potential constitutional infirmity while precluding the Section from applying to them. Prevailing on this issue will not win the release of Mr. Skilling from prison where he is serving a 24 year sentence.

Mr. Skilling’s appeal raised two issues for consideration by the Court. One issue which could win him a new trial concerns a denied motion for a change of venue and jury selection. The second challenging the constitutionality of the honest services fraud statute. U.S. v. Skilling, No. 08-1394 (S.Ct.).

The change of venue question hinges on Mr. Skilling’s claim that the collapse of Enron was an event of such magnitude and proportion in the Huston community were the company was headquartered that he could not receive a fair trail. This differs from a situation where pretrial publicity inflamed potential jurors, although publicity contributed to the atmosphere here. Conceding that the High Court has never concluded that the refusal to change venue is reversible error except in a capital case, Mr. Skilling’s counsel focused on the epic proportions of Enron’s collapse and the scant amount of time permitted for jury selection by the district court – a mere five hours overall and about 4 ½ minutes per juror in questioning primarily by the court. This compares to eighteen days and one hour per juror in the Oklahoma City bomber case after a change of venue and six days in the Martha Stewart case.

The Government countered, arguing that jury selection was fair. Its argument focused on two points. First, an extensive questionnaire was used to help evaluate jurors. Second, although the time was short and questioning by counsel limited, the selection process was conducted by a very experienced trial judge who could look the jurors in the eye as he questioned them.

Some members of the Court expressed skepticism regarding the fairness of the selection process, particularly in view of the very short time and the truncated questioning. Justice Breyer repeatedly expressed what may well be the focus of the issue for the Court. On the one hand the Justice expressed real concern as to whether Mr. Skilling received a trial by a fair and impartial jury given the selection process. At the same time, Justice Breyer conceded little actual experience in the area and expressed extreme reluctance to become involved in conducting a trial, effectively second guess an experienced district court judge who looked each juror in the eye to evaluate them. Any rule rejecting the district court’s procedure could lead to real difficulties in terms its limitations and application. In the end, it appeared that Justice Breyer and others left the argument with the intent of conducting a detailed review of the transcript for the jury selection process.

Honest services fraud was clearly on the Court’s mind throughout the arguments. Chief Justice Roberts abruptly moved the argument to a discussion of the statute during the presentation by the Petitioner and the Respondent. Although less animated than during the Black and Weyhrauch arguments held in December 2009, it was clear that the Justices were focused on the constitutional this issue which the Solicitor General had not briefed in those cases.

Petitioner claimed that the statute was vague. Encapsulating his argument in a single sentence, at one point counsel for Mr. Skilling noted that under Section 1346 virtually any work place lie can turn into a federal felony. In making this argument, Petitioner tried to focus on the shifting positions of the Government, a point which became evident later when the Solicitor General acknowledged that, in this case, the district court used the Fifth Circuit pattern jury instruction which is broader than the theory being argued to the Supreme Court. He also conceded in response to Justice Scalia that the instruction is somewhat circular.

Despite the concession regarding the actual jury instruction used here, the Solicitor General maintained that the statute is not vague. Focusing on the facts of the case, the Government contended that in this particular case the honest services fraud was actually a subset of the securities fraud. Furthermore, the language of the statute is defined by the pre-McNally case law and, in essence, the language of the statute is a term of art referencing that case law. In any event, the language of the statute is clear enough at its core, the Government argued.

As in Black and Weyhrauch the Justices repeatedly expressed concern about the open-ended breadth of the statute. At one point, Justice Kennedy pointedly noted that the Court is not supposed to rewrite statutes. Justice Scalia echoed this theme later, noting that just because some types of conduct clearly fall within the statute does not change the fact that it is vague. While at one point, the Chief Justice suggested that Petitioner had conceded the vagueness argument, at another, he clearly rejected the Government’s claim that the statute somehow contained a term of art for the pre-McNally case law. Again, Justice Breyer may have summed up the comments of the Justices when, toward the conclusion of the arguments, he commented that it is not the obvious cases that concern him but those which are not.

The Court is expected to hand down a ruling in Skilling, as well as Black and Weyhrauch, before its recess at the end of June.