Weyhrauch v. United States

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Argued December 8, 2009. Decided June 24, 2010.

Authorship: Rakesh Kilaru of Stanford Law School (with SCOTUSblog's Lyle Denniston contributing to the argument recap)

Docket: 08-1196

Issue: Whether, to convict a state official for depriving the public of its right to the defendant’s honest services through the non-disclosure of material information, in violation of the mail-fraud statute (18 U.S.C. Sec. 1341 and 1346), the government must prove that the defendant violated a disclosure duty imposed by state law.

1 Briefs and Documents
2 Opinion Recap
3 Oral Argument Recap
4 Argument Preview
5 Links and Further Information
- 5.1 Media Links
- 5.2 From the Blogosphere

Briefs and Documents

Decision

VACATED AND REMANDED in a per curiam opinion.

Oral Argument

Transcript (December 8, 2009)

Merits Briefs

Certiorari-Stage Documents

Amicus Briefs

Opinion Recap

Lyle Denniston originally wrote the following for SCOTUSblog

Analysis

For nearly a quarter of a century, federal prosecutors pursuing corruption cases — involving public officials and those in private life — have had a broadly worded criminal law available, and they have used it both creatively and expansively. On June 24, the Supreme Court, while refusing to strike down the law under the Constitution, pared it down to what the majority called its “solid core”: the law may be used only to prosecute bribery or kickbacks. The Court suggested that Congress may want to try to expand the law’s reach, but warned the lawmakers to approach that prospect with constitutional hesitation.

In a separate ruling, also quite significant, the Court made it far harder for defense lawyers in high-profile criminal cases to try to undo guilty verdicts that were reached in a community that was saturated, for months on end, with highly inflammatory publicity and detectable local hostility. The Court indicated it would find verdicts impaired by those conditions only in “the extreme case.”

Three separate rulings, threatening (though not quite nullifying) convictions or prosecutions in three different criminal corruption cases, put an exclamation point on the defeat for government prosecutors in their efforts to salvage wide discretion in employing the so-called “honest services fraud” law, enacted in 1988 in an attempt to overturn a 1987 Supreme Court ruling. The lead ruling — producing 105 pages of often deeply conflicting views — came in the case of a former Enron Corp. official convicted in one of the government’s biggest corruption cases ever. That case, Skilling v. U.S. (08-1394), involved former Enron CEO Jeffrey K. Skilling. Based largely on the Skilling decision, the Court also questioned convictions in the case of Black v. U.S. (09-876). It also summarily disposed of a third case, Weyhrauch v. U.S. (09-1196). Each case must now return to a lower court for another look. (It was in Skilling’s case, alone, that the Court raised significantly the barrier to contesting guilty verdicts based on unfavorable publicity surrounding a high-profile criminal trial.)

Almost from the day Congress enacted the law specifying that fraud can be committed by denying someone the ‘intangible right” to one’s “honest services,” lower courts have struggled to define just what kind of wrongdoing would fit within that concept. Perhaps to illustrate just how uncertain the meaning of the law is, the Justices themselves could not agree on Thursday on how to read the string of lower court decisions that have interpreted the law; six Justices thought the pattern of those rulings was quite clear and definite, but three other Justices said the rulings were a hodgepodge.

The three Justices who read those rulings as varying widely would have struck down the law as unconstitutionally vague. But the other six Justices proceeded on the premise that the Court’s duty was “to construe, not condemn, Congress’ enactments.” And the construction those Justices put on the law was that it criminalizes “bribes and kickbacks — and nothing more.”

The majority thus rejected Justice Department arguments that the law should also be available for prosecuting for “self-dealing” — that is, taking some action that gives one personal gain, without disclosing that fact — or going after conflicts-of-interest. Reading the law as covering anything but bribes and kickbacks, the Court ruled, would raise constitutional questions about enacting a vague law that did not give people clear warning of what was forbidden. (Near the end of the main opinion, the Court in a footnote suggested that, if Congress were to try to add new crimes under the “honest services” law, it would “leave many questions unanswered,” so the lawmakers should proceed with “particular care.”)

Those parts of the ruling, in the main opinion written by Justice Ruth Bader Ginsburg, had the support of Chief Justice John G. Roberts, Jr., and Justices Samuel A. Alito, Jr., Stephen G. Breyer, Sonia Sotomayor and John Paul Stevens. Justices Antonin Scalia — a long-time critic of the “honest services” law — would have struck down the law as too vague to satisfy the Constitution. His opinion had the support of Justices Anthony M. Kennedy and Clarence Thomas.

The dissenters argued that the majority had not simply reinterpreted the “honest services” law, but had actually enacted a new law as if it were doing a legislative task. Of all of the lower court rulings applying that law in specific cases, Justice Scalia wrote for the dissenters, “not one is limited to bribery and kickbacks. That is a dish the Court has cooked up all on its own.” Because the law’s meaning is so unclear, the dissenters said, it cannot be salvaged by an act of judicial “invention.”

In the Skilling case, the former Enron executive had been convicted of a conspiracy to commit fraud, and that charge was based on prosecutors’ claim that Skilling had denied his company his “honest services.” He also was convicted of twelve counts of securities fraud, five counts of making false statements to accountants, and one count of insider trading. (He was found not guilty on nine other counts of insider trading.) As a result of Thursday’s ruling, the conviction on the conspiracy count is to be reevaluated by lower courts, according to the Court. But the Court gave both sides some options when the case goes back to lower courts. It told prosecutors they could try to sustain the conspiracy conviction by showing that it was only a “harmless error” to gain a conviction on that count based on an “honest services” theory. It told Skilling’s defense lawyers that they could attempt to persuade lower courts that every count of his conviction was tainted by the “honest services” fraud charge, so all parts of the guilty verdict should fall. Thus, it was clear that, on Thursday, the Supreme Court itself had not nullified Skilling’s conviction in any final way.

Skilling had earlier won a resentencing in the case, but that has been on hold while his case went to the Supreme Court. The sentencing issue now will be expanded because of the ruling on the “honest services” issue. But Skilling’s lawyers also have plans to seek a completely new trial, on the theory that prosecutors denied them access to information that would have helped the defense.

In the Court’s separate opinion in the Black case, it similarly put into doubt the conviction of former Canadian newspaper magnate Conrad M. Black as well as those of two of his corporate colleagues, but did not overturn their convictions outright. Black and his colleagues had been convicted of violating the “honest services” fraud law by a scheme of corporate compensation that prosecutors attacked as violating duties they owed to the newspaper corporation, Hollinger International.

The Court, noting its Skilling opinion, said that the charge in this other case “did not involve any bribes or kickbacks,” so it ruled that its decision had undercut a jury instruction by the trial judge that they could convict the Hollinger executives if they found that they had misused their positions for private gain or had violated their duty of loyalty to the company. The executives’ lawyer had properly objected to that instruction, so they were free to challenge that on appeal, the Court ruled, even though they had resisted the use of a clarifying verdict form that could have indicated just what part of the verdict on fraud was based on the denial of “honest services.”

But, as in the Skilling case, the Court said that lower courts were free to consider whether the flawed instruction was a “harmless” error; thus, it did not nullify the fraud conviction explicitly. The Court also indicated that Black, who had also been convicted of obstructing justice by destroying records, could raise in lower courts his argument that the “honest services” evidence had spilled over to taint the obstruction conviction.

Justices Kennedy, Scalia and Thomas repeated in the Black case their argument that the “honest services” prosecution had to be overturned because of their view that the law is unconstitutionally vague.

The Court’s third ruling in this trio of cases was a one-paragraph, unsigned opinion (delivered orally by Justice Ginsburg) in the case of Bruce Weyhrauch, a Juneau, Alaska, lawyer, who had been charged with “honest services” fraud for allegedly attempting to obtain legal work from an oil field services company while he was a member of the state legislature, allegedly in return for his voting on tax measures that the company, VECO Corp., had favored. The “honest services” charge was based on prosecutors’ assertions that Weyhrauch had failed to disclose to voters that he was seeking such favors as a legislator.

Weyhrauch has not yet been tried on any charges. On the “honest services” fraud charge, the Ninth Circuit Court had ruled that the case could go ahead even without any proof that the legislator had a duty under state law to disclose his alleged conflict-of-interest. Thursday’s Supreme Court ruling simply wiped out that ruling, and returned the case to the Circuit Court to consider the impact of the Skilling decision. Weyhrauch has been accused in the case of other crimes.

The “honest services” issue was only half of what the Court decided in the Skilling case. With a different pattern of voting among the Justices, the Court rejected Skilling’s claim that his entire trial — and thus all of the convictions — was unconstitutionally unfair because of the atmosphere in which it was tried in Houston — Enron Corp.’s home city — in 2006.

Justice Ginsburg’s opinion finding that Skilling suffered no “actual prejudice” at the trial was supported in whole or significant part by the Chief Justice and Justices Alito, Kennedy, Scalia and Thomas. Justice Alito wrote a separate opinion on that issue, saying he would strike down a jury verdict as unfair only if there were actual proof that a biased juror was actually seated at the trial. Justice Sotomayor dissented, joined by Justices Breyer and Stevens.

There is a very sharp divergence between the Ginsburg and Sotomayor opinions, in how each interpreted the publicity and the community atmosphere that surrounded the Houston trial of Skilling and another top Enron executive, Kenneth Lay (who also was convicted, but who died later). and in how each opinion interpreted the efforts by the trial judge to ensure that an impartial jury was chosen for the trial. The Ginsburg opinion was far less impressed with the negative atmosphere than were the dissenters, and far more favorably inclined toward the actions of the trial judge. (The trial judge was U.S. District Judge Simeon T. “Sim” Lake of Houston; he is not named in either opinion. which is quite customary.)

The majority of the Court rejected two claims by Skilling’s lawyers: one, that the atmosphere in Houston — after the economic collapse of Enron, with widespread economic harm, and the drumbeat of accusatory publicity in the local news media — entitled him to a “presumption of prejudice” that should have led the trial judge to move the trial elsewhere, and, two, that the actual conduct of the jury-selection process resulted in “actual prejudice” because the jury was not impartial. (The dissenters did not object to the majority’s conclusion that the judge did not act unconstitutionally in failing to move the trial out of Houston.)

For the first time, the Court ruled that the “presumption of prejudice” from prejudicial publicity is to be reserved only for “the extreme case,” and the Court cited a handful of its prior rulings in the most extreme cases of prejudice and contrasted those with what occurred in Houston.

After canvassing the jury selection process, and the characteristics of the jurors actually seated in the trial, the majority concluded that Judge Lake had a “sturdy foundation” for his conclusion that a fair jury had been selected.

Oral Argument Recap

Rakesh Kilaru originally wrote the following for SCOTUSblog:

At oral argument in Weyhrauch v. United States, the bulk of the Court’s questioning focused on the broader issue of whether the “honest-services fraud” statute at issue – 18 U.S.C. § 1346 – is unconstitutionally vague. Indeed, the primary issue on the Justices’ minds seemed to be whether it was at all possible to construe the statute in a manner that would make its scope clear to the “average citizen.” Nevertheless, as Lyle Denniston observed in his comprehensive argument recap, the Court will likely not be able to confront the vagueness question in Weyhrauch. Instead, the Court will have to address the actual question presented: whether the federal government must prove that a public official violated a state-law disclosure duty to prosecute that official for depriving the public of its right to the defendant’s honest services through the non-disclosure of material information.

The Court’s discussion of this question focused largely on two issues: is it proper to punish individuals in federal court for violations of state duties? And if so, what are the proper sources of those duties? This post, however, will focus on a subsidiary issue raised at the argument: whether Weyhrauch’s conduct violated Alaska state law.

The government first raised this issue in a footnote in its merits brief, observing that Weyhrauch “violated Alaska law prohibiting his official action on a matter that could substantially benefit or harm an entity with which he was negotiating for employment.” Deputy Solicitor General Michael Dreeben pressed this point at argument, observing first that “the underlying action in this case by Mr. Weyhrauch was prohibited by State law,” and then arguing, in response to a question from Justice Scalia, that “substantive state law prohibited [Weyhrauch] from taking official action with respect to a company whose interests would be benefited when he was negotiating employment [with that company].”

The law on point is as clear as Mr. Dreeben suggests; Alaska Stat. §24.60.030(e)(3) provides that a legislator may not “take or withhold official action or exert official influence that could substantially benefit or harm the financial interest of another person with whom the legislator is negotiating for employment.” What is less pellucid, however, is whether that statute is helpful in resolving this case. Mr. Dreeben suggested that statutes like Section (e)(3) are instrumental in honest services prosecutions because they enable the government to show that an official intentionally violated his duty. Here, for example, the existence of a state law forbidding Weyhrauch’s alleged conduct makes it more likely that Weyhrauch knew he was acting wrongfully. But arguments that the government can prove intent under the honest-services statute are question-begging, for they assume that the government has already established the violation of a duty. And the question presented in Weyhrauch is whether there is a duty at all. The Alaska statute thus sheds little light on the issue before the Court.

At bottom, then, the fact that Weyhrauch’s conduct may have been prohibited by Alaska law is really only relevant as an alternate theory of prosecution under the honest services statute: that Weyhrauch deprived Alaskan citizens of their rights to honest services by engaging in forbidden acts. Both parties agree that this theory is a valid one; arguing on behalf of Mr. Weyhrauch, Donald Ayer conceded that if the government wants to pursue a prosecution on that theory, it would “have every right to.” Mr. Ayer argued, however, that the government cannot prevail on that theory as a matter of fact, because there were no employment negotiations taking place, and because Weyhrauch did not vote in “the way that the conflicting interest would have had him vote.” Here, in the words of Justice Stevens, Weyhrauch could “win on the facts, not the theory.”

Lyle Denniston originally wrote the following for SCOTUSblog:

The Supreme Court normally is not eager — far from it — to decide a constitutional question; its traditions are for hesitancy about that ultimate stroke. But on Tuesday, the Court seemed quite impatient to ask, and answer, an issue of constitutionality: the validity of the 1988 law that is a vital government weapon against corruption — the “honest services fraud” law.

It seemed, however, that there could be a scheduling problem: should they wait until March, to see if it is properly raised in a case then, or should they tell lawyers sooner to come up with the arguments in one or both of the cases just heard: Black et al. v. U.S. (08-876) and Weyhrauch v. U.S. (08-1196)? No one seemed persuaded of a third option: act as if the issue is already before the Court in one or both of those cases, as presently composed.

It seemed evident, after two hours of oral argument Tuesday, that the Court had agreed to hear three cases this Term on the scope of the “honest services” law in order to make a major declaration about it, and perhaps go all the way to strike it down. Justice Antonin Scalia reflected what appeared to be on the mind of most of his colleagues: ”Why should I turn somersaults” to find a way to save the statute?

Of course, he has been the statute’s most vehement critic on the Court, but none of his colleagues rose to a defense of the law in the first two of the three cases heard on so-called “honest services fraud.”

The arguments in Black and Weyhrauch moved back and forth over what specific “honest services” are demanded by the mail fraud amendment adopted by Congress 21 years ago. Is the law violated if a worker reads the racing form after misleading the boss into thinking he was actually working? What about playing hookey to go to a ball game? Or telling the boss you liked his hat when you really didn’t? More broadly, might the law be so vague that 100 million workers might be violating it without knowing it?

Despite the best efforts of a government lawyer who argued in both cases – Deputy Solicitor General Michael R. Dreeben — to show that the law was not intended to reach trivialities, the Court seemed far from convinced of that. “What’s the source, where do you draw the line, where do you look to see [what's covered]?” asked Justice Sonia Sotomayor. And her question was hardly unique.

So, the Justices wondered, if “the average citizen” cannot know what the law outlaws, can the law be constitutional? And if that is the core question, is it before the Court now, or should it be asked explicitly, to give both sides a chance to focus directly on it? Neither of the petitions for review in the two cases argued Tuesday poses the constitutional question (or does so only implicitly). But the third case, growing out of the Enron scandal (Skilling v. U.S., 08-1394), makes it a part of the first question the Court has agreed to hear.

The merits brief for Jeffrey Skilling is now due on Friday of this week, so the Court will know soon just how energetically the constitutional issue is pressed in that case. Still, that case is not due to be argued until at least late March. If the Court is determined to focus on the constitutional issue, it perhaps may not be prepared to wait that long. But, in the meantime, it would not be entirely fitting to go ahead and write opinions in Black and Weyhrauch pretending that the fundamental question is not lurking in each. That, of courses, raises the prospect that further briefing might now be ordered in one of those cases.

Washington lawyer, Miguel A. Estrada, representing a Canadian media tycoon convicted of failing to give “honest services” to his company, opened the Black argument by noting that lower courts had agreed that the law at issue was “fraught with” constitutional problems of vagueness and intrusion into state powers. There was, he said, no “elegant way out” of the statute’s difficulty. He thus was pressing an argument not made in the opening petition, but pursued energetically in the merits brief.

Argument Preview

Weyhrauch v. United States presents the second entry in this Term’s “honest services trilogy” – a trio of cases construing the federal “honest services” fraud statute. (The other two cases are United States v. Black, which will be argued immediately before Weyhrauch on Tuesday, and United States v. Skilling, which will be argued in March or April.) That statute, codified at 18 U.S.C. § 1346, was enacted in response to McNally v. United States (1987), in which the Court held that the federal mail fraud statute, 18 U.S.C. § 1341, did not proscribe a public official’s “scheme or artifice to defraud” citizens of their “intangible rights to honest and impartial government,” but instead was “limited in scope to the protection of property rights.” Just one year later, Congress enacted Section 1346, which provides simply that the mail fraud statute does punish “a scheme or artifice to deprive another of the intangible right of honest services.”

The specific question presented in Weyhrauch is “whether, to convict a state official for depriving the public of its right to the defendant’s honest services through the non-disclosure of material information, in violation of the mail-fraud statute (18 U.S.C. §§ 1341 and 1346), the government must prove that the defendant violated a disclosure duty imposed by state law.” But the fact that the Court has granted three cases construing Section 1346 suggests that it has a broad vision of honest-services liability inconsistent with the status quo. This Term thus promises to be a watershed for future federal public corruption prosecutions.

It is therefore fitting that Weyhrauch arises from the most prominent public corruption investigation in recent memory: the investigation by the Department of Justice of financial ties between VECO (an Alaskan oil services company) and several Alaskan legislators, including Senator Ted Stevens. After the completion of that investigation in 2007, a grand jury indicted petitioner Bruce Weyhrauch – Juneau’s representative in the Alaska House of Representatives from 2002 to 2006 – for several crimes, including honest-services fraud. According to the indictment, Weyhrauch promised to perform official acts benefiting VECO in exchange for the promise of future legal work. For example, Weyhrauch allegedly switched his votes on the tax bill at VECO’s behest to ensure that the final legislation was beneficial to VECO.

In pretrial proceedings, the government attempted to introduce evidence regarding state ethics laws and best practices, arguing that Weyhrauch had a duty to disclose his conflict of interest under both state law and general fiduciary principles. But the district court suppressed that evidence, concluding that the government had to establish a state law disclosure duty, which did not exist in these circumstances.

The Ninth Circuit reversed, holding that Congress did not intend to “condition the meaning of ‘honest services’ on state law” and thereby create the risk of inter-state disparities over what conduct violates the federal mail fraud statute. Instead, Congress enacted the statute to establish a uniform standard of conduct for public officials and prevent them from using the mails to perpetrate fraud. But rather than define the outer bounds of honest services fraud, the court concluded that any definition of honest services would include Weyhrauch’s conduct, because it fell “comfortably” within two categories that would obviously be included: “taking a bribe or otherwise being paid for a decision,” and “nondisclosure of material information.” Weyhrauch subsequently filed a cert. petition, which was granted on June 29, 2009.

In his opening brief on the merits, Weyhrauch advances five principal arguments for requiring proof of a state-law duty. First, he argues that the text of the statute compels a ruling in his favor. By using the phrase “scheme to defraud,” the statute invokes the common law of fraud, whereby a failure to disclose information could only give rise to liability if the failure violated a pre-existing legal duty. And the statute’s use of the terms “right” and “service” similarly suggest the necessity of a state-law duty; rights imply correlative duties, and the word “service” alludes to an already established set of duties, typically arising from an employment relationship.

Second, Weyhrauch contends that the Ninth Circuit’s reading of the statute violates several established canons of construction. The type of “clear statement” necessary to “upset the usual constitutional balance” between the federal government and the states is not present in the statute. Additionally, permitting prosecutors and courts to define the scope of honest-services liability on a case-by-case basis would render the statute unconstitutionally vague. Finally, under the rule of lenity, any ambiguities in the statute must be resolved in his favor.

Third, the Ninth Circuit’s opinion calls for the creation of a federal common law of honest services. But Congress has not clearly authorized the creation of such a regime, and there is no direct conflict between federal and state law implicating uniquely federal interests.

Fourth, the legislative history provides no guidance; to the extent that it argues for the reinstatement of pre-McNally case law, that law is incoherent and impractical.

Fifth and finally, Weyhrauch argues that requiring a breach of a preexisting duty would not impede public corruption prosecutions, because there are ample laws establishing such duties.

The government counters with four arguments of its own. First, the government argues that the text and history of Section 1346 support the decision below. The text contains no indicia of an intent to incorporate state law, leading to the presumption that state law does not apply. Moreover, the term “intangible right of honest services” is a term of art that signals Congress’s intent to “adopt doctrine from pre-McNally decisions.” Those decisions, in turn, consistently held that public officials had inherent fiduciary duties to act in the public’s interest, and permitted honest-services liability without any showing of a state-law violation.

Second, the legislative history reveals that Congress rejected several proposals that would incorporate state law in favor of a “simple, unqualified phrase” drawing upon pre-existing case law that was not dependent on state law.

Third, the government contends that refusing to import state-law principles into Section 1346 does not amount to the creation of a common-law crime, but instead requires courts to engage in a task they are quite adept at: interpreting statutory language against a backdrop of preexisting case law.

Finally, the government dismisses Weyhrauch’s federalism, vagueness, and lenity arguments, contending that the elements of a Section 1346 offense – breach of a duty of loyalty, intent to deceive, and materiality – sufficiently narrow the crime to avoid vagueness and lenity concerns. Moreover, the statute does not raise federalism issues because it merely restores the pre-existing federal-state balance canonized in the pre-McNally cases and vindicates the federal government’s important interest in eradicating local corruption.

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