Law, Business and Society 11th Edition by Tony McAdams

Exercise 18

Justice Ginsburg
(I AND II OMITTED-ED.)
Ill
We next consider whether Skilling's conspiracy conviction was premised on an improper theory of honest-services wire fraud. The honest-services statute, Section 1346, Skilling maintains is unconstitutionally vague…
A
To place Skilling's constitutional challenge in context, we first review the origin and subsequent application of the honest- services doctrine
1
Enacted in 1872, the original mail-fraud provision, the predecessor of the modern-day mail- and wire-fraud laws, proscribed, without further elaboration, use of the mails to advance "any scheme or artifice to defraud." See McNally v. United States, 483 U.S. 350, 356, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987). In 1909, Congress amended the statute to prohibit, as it does today, "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises." Section 1341 (emphasis added); Emphasizing Congress' disjunctive phrasing, the Courts of Appeals, one after the other, interpreted the term "scheme or artifice to defraud" to include deprivations not only of money or property, but also of intangible rights.
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2
In 1987, this Court, in McNally iz. United States, stopped the development of the intangible-rights doctrine in its tracks. McNally involved a state officer who, in selecting Kentucky's insurance agent, arranged to procure a share of the agent's commissions via kickbacks paid to companies the official partially controlled. The prosecutor did not charge that, "in the absence of the alleged scheme),] the Commonwealth would have paid a lower premium or secured better insurance." Instead, the prosecutor maintained that the kickback scheme "defraud[ed] the citizens and government of Kentucky of their right to have the Commonwealth's affairs conducted honestly."
We held that the scheme did not qualify as mail fraud. "Rather than constru[ing] the statute in a manner that leaves its outer boundaries ambiguous and involves the Federal Government in setting standards of disclosure and good government for local and state officials," we read the statute "as limited in scope to the protection of property rights." "If Congress desires to go further," we stated, "it must speak more clearly."
3
Congress responded swiftly. The following year, it enacted a new statute "specifically to cover one of the 'intangible rights' that lower courts had protected … prior to McNally: 'the intangible right of honest services.'" In full, the honest-services statute stated:
For the purposes of th[e] chapter [of the United States Code that prohibits, inter alia, mail fraud, Section 1341, and wire fraud, Section 1343], the term "scheme or artifice to defraud" includes a scheme or artifice to deprive another of the intangible right of honest services.
B
Congress, Skilling charges, reacted quickly but not clearly: He asserts that Section 1346 is unconstitutionally vague. To satisfy due process, "a penal statute [must] define the criminal offense [1] with sufficient definiteness that ordinary people can understand what conduct is prohibited and [2] in a manner that does not encourage arbitrary and discriminatory enforcement" Kolenderv. Lawson, 461 U.S. 352,357,103 S.Ct. 1855,75 L.Ed.2d 903 (1983). The void-for-vagueness doctrine embraces these requirements.
According to Skilling, Section 1346 meets neither of the two due process essentials. First, the phrase "the intangible right of honest services," he contends, does not adequately define what behavior it bars. Second, he alleges, Section 1346's "standardless sweep allows policemen, prosecutors, and juries to pursue their personal predilections," thereby "facilitating] opportunistic and arbitrary prosecutions."
In urging invalidation of Section 1346, Skilling swims against our case law's current, which requires us, if we can, to construe, not condemn, Congress' enactments.
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There is no doubt that Congress intended Section 1346 to refer to and incorporate the honest-services doctrine recognized in Court of Appeals' decisions before McNally derailed the intangible-rights theory of fraud… Congress enacted Section 1346 on the heels of McNally and drafted the statute using that decision's terminology.
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Satisfied that Congress, by enacting Section 1346, "meant to reinstate the body of pre-McNally honest-services law," we have surveyed that case law. In parsing the Courts of Appeals decisions, we acknowledge that Skilling's vagueness challenge has force, for honest-services decisions preceding McNally were not models of clarity or consistency.
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Although some applications of the pre-McNally honest- services doctrine occasioned disagreement among the Courts of Appeals, these cases do not cloud the doctrine's solid core: The "vast majority" of the honest-services cases involved offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes.
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In view of this history, there is no doubt that Congress intended Section 1346 to reach at least bribes and kickbacks. Reading the statute to proscribe a wider range of offensive conduct, we acknowledge, would raise the due process concerns underlying the vagueness doctrine. To preserve the statute without transgressing constitutional limitations, we now hold that Section 1346 criminalizes only the bribe-and-kickback core of the pre-McNally case law.
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Interpreted to encompass only bribery and kickback schemes, Section 1346 is not unconstitutionally vague. Recall that the void-for-vagueness doctrine addresses concerns about (1) fair notice and (2) arbitrary and discriminatory prosecutions ….
As to fair notice, "what ever the school of thought concerning the scope and meaning of" Section 1346, it has always been "as plain as a pikestaff that" bribes and kickbacks constitute honest-services fraud, Williams i/. United States, 341 U.S. 97, 101,71 S.Ct. 576, 95 L.Ed. 774 (1951)….
As to arbitrary prosecutions, we perceive no significant risk that the honest-services statute, as we interpret it today, will be stretched out of shape. Its prohibition on bribes and kickbacks draws content not only from the pre-McNally case law, but also from federal statutes proscribing-and defining-similar crimes.
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c
It remains to determine whether Skilling's conduct violated Section 1346. Skilling's honest-services prosecution, the Government concedes, was not "prototypical." The Government charged Skilling with conspiring to defraud Enron's shareholders by misrepresenting the company's fiscal health, thereby artificially inflating its stock price. It was the Government's theory at trial that Skilling "profited from the fraudulent scheme … through the receipt of salary and bonuses,… and through the sale of approximately $200 million in Enron stock, which netted him $89 million."
The Government did not, at anytime, allege that Skilling solicited or accepted side payments from a third party in exchange for making these misrepresentations. ("[T]he indictment does not allege, and the government's evidence did not show, that [Skilling] engaged in bribery.") It is therefore clear that, as we read Section 1346, Skilling did not commit honest-services fraud.
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Affirmed in part. Vacated in part. Remanded.
AFTERWORD
The Supreme Court returned Skilling's case to the federal Fifth Circuit Court of Appeals where, in 2011, the Skilling saga appeared to be nearing its conclusion. The Fifth Circuit upheld Skilling's conviction finding the honest services error was "harmless" in that ample evidence unrelated to the honest services charge supported Skilling's conviction on 19 counts of securities fraud, conspiracy, insider trading and making false representations. At this writing, Skilling is serving his sentence in a Colorado prison, but an agreement was reached to reduce his 24-year sentence by 10 years because of a mistake in interpreting the federal sentencing guidelines. Skilling also agreed to give up about $42 million, all of which will go to Enron fraud victims. The case now seems to be at an end, and Skilling may depart prison as early as 2017.
Why did the Court conclude that Skilling did not commit honest-services fraud?