Deprivation of Honest Services as a Basis for Federal Mail and Wire Fraud Convictions
Released: 2011-09-16T00:00:00

Summary:
The United States Supreme Court in Skilling v. United States construed the honest services branch of the federal mail and wire fraud statutes to reach no more than cases involving bribery or kickbacks. The mail and wire fraud statutes, 18 U.S.C. Sections 1341 and 1343, impose criminal penalties for the use of mail or interstate wire communications to deprive another of money or property through a "scheme or artifice to defraud." In its 1987 McNally decision, the Court had held that while the fraud statutes reached schemes to deprive another of property rights, they did not cover "the intangible right of the citizenry to good government." Congress responded almost immediately by enacting the "honest services" statute, 18 U.S.C. Section 1346, which declares that the phrase "scheme or artifice to defraud" in the mail and wire statutes also encompasses depriving "another of the intangible right of honest services."
In its 2009 term, the Court was presented with three honest services cases—Skilling, Black, and Weyhrauch. Each offered the Court a slightly different prerequisite for an honest services conviction—for Weyhrauch, a public official, it was an underlying state law violation; for Black, in the private sector, it was foreseeable harm; for Skilling, an Enron executive, it was private gain. The Court instead returned to the pre-McNally case law which it felt Congress intended the honest services statute to revive. In the pre-McNally world, most of the honest services cases, the core cases, involved bribery or kickbacks. This, the Court said, is what Congress meant when it spoke of honest services: the deprivation of honest services, public or private, by bribery or kickbacks.
To construe the statute otherwise, the Court felt, would ground the statute on "a vagueness shoal." In fact, three members of the Court refused to endorse the majority opinion in full because they thought the honest services statute unconstitutionally vague on due process grounds. Should Congress desire a more inclusive definition of honest services fraud, the Court urged that it "employ standards of sufficient definiteness and specificity to overcome due process concerns."
The Court sent each of the three cases back to the lower courts—Black and Skilling, for a determination of whether erroneous jury instructions on honest services fraud had so tainted their convictions as to require a new trial or whether the instructions simply constituted harmless error; Weyhrauch, for the reconsideration in light of the Court's Skilling decision.
Related CRS Reports include CRS Report R41930, Mail and Wire Fraud: A Brief Overview of Federal Criminal Law, by [author name scrubbed], and CRS Report R42016, Prosecution of Public Corruption: An Overview of Amendments Under H.R. 2572 and S. 401, by [author name scrubbed].

subsections: section_title: Introduction
paragraphs: The Supreme Court in Skilling v. United States held that the honest services class of mail and wire fraud offenses proscribes only bribery and kickbacks. In doing so, the Court took the middle ground between those who had urged that the definition be found unconstitutionally vague and those who favored sweeping and severe condemnation of public and private corruption. 
The federal mail and wire fraud statutes, 18 U.S.C. Sections 1341 and 1343, have been described as federal prosecutors' "true love," because they provide a basis for criminal liability in a broad spectrum of instances, and perhaps because they now carry a 20-year maximum sentence. For the purpose of mail and wire fraud prosecutions, federal jurisdiction is triggered when a person utilizes the federal postal service or an interstate carrier or sends a wire or radio communication. For example, the statutes may apply to schemes in which a FedEx package or an e-mail was sent. Convictions are obtained after a prosecutor achieves the more difficult step of proving that an intent to further a "scheme or artifice to defraud" accompanied the use of mail or wire. Over time, the scope of "scheme or artifice to defraud" has been a subject of contentious debate, particularly with regard to schemes to defraud victims of rights unrelated to pecuniary assets.
Congress enacted the honest services statute, 18 U.S.C. Section 1346, in 1988 to incorporate within the ambit of the federal mail and wire fraud statutes schemes infringing on a victim's right to an official's or employee's "honest services" (i.e., an employee's honest work on behalf of a company or an official's honest public service). High-profile examples include a guilty plea by the lobbyist Jack Abramoff to conspiracy to commit honest services fraud and the indictment of former Illinois Governor Rod Blagojevich on honest services fraud and related charges. In the private sector, a notable case involves the conviction of Jeffrey Skilling, a former Enron executive.
Although it is generally agreed that Congress has the authority to regulate the federal mail system and interstate wire communications, the sparse text and potential breadth of the honest services statute have prompted concerns regarding its constitutionality. Critics of the statute have argued that its mere "28 words" form a vague and unfair basis for federal criminal jurisdiction in many cases. Likewise, in an opinion dissenting from the Supreme Court's decision to deny review in a 2008 honest services case, Justice Scalia suggested that the statute's vague language invites federal prosecution of seemingly commonplace actions, such as "a mayor's attempt to use the prestige of his office to obtain a restaurant table without a reservation." Prompted by these and other considerations, federal courts have employed judicial interpretation techniques to avoid an overly broad reading of the statute. However, the federal courts of appeals disagreed regarding the appropriate approach.
Perhaps in part to address the disagreement among the courts of appeals, the Supreme Court granted writs of certiorari in three cases, Weyhrauch v. United States , Black v. United States , and Skilling v. United States . The cases provided the Court's first opportunity to interpret the honest services fraud statute since it was enacted. Particularly with the decision to review Skilling , a highly publicized case connected with the collapse of Enron, the grants of certiorari garnered significant media attention. The Court's granting of the three writs within a relatively short time frame, less than a year after Justice Scalia's strongly worded dissent from the denial of certiorari in a case from the Court's 2008 term, prompted speculation that the Supreme Court might construe the statute narrowly.
section_title: Background: Mail and Wire Fraud
paragraphs: The Court in Skilling hardly wrote upon a clean slate. In 1872, Congress enacted the mail fraud statute "to curtail an epidemic of 'large-scale swindles, get-rich-quick schemes, and financial frauds.'" In 1952, it established an analogous federal crime, wire fraud, which applies to frauds committed by the use of wire, radio, or television communications in interstate commerce. Because the triggering activities for federal jurisdiction—use of mail or wire, including the Internet—are very common modes of communication, the federal mail and wire fraud statutes, 18 U.S.C. Sections 1341 and 1343, provide federal criminal jurisdiction over a broad range of fraudulent schemes.
Except for the instrument (the mail system versus radio or wire) used to trigger federal jurisdiction, the mail and wire fraud statutes involve identical criminal conduct and are generally interpreted in the same manner by the federal courts. The mail fraud statute subjects anyone to criminal liability who, "having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises," deposits or causes to be deposited, knowingly causes to be delivered, or takes or receives, any "matter or thing whatever" in a post office or "authorized mail depository" or with "any private or commercial interstate carrier ... for the purpose of executing [a fraudulent] scheme." The wire fraud statute includes the same "having devised or intending to devise any scheme or artifice to defraud ..." and "for the purpose of executing such scheme" language but applies to transmittals of "any writings, signs, signals, pictures, or sounds" "by means of wire, radio, or television communication in interstate or foreign commerce."
Generally speaking, criminal convictions require the government to prove both an actus reus (action) and a mens rea (mental state). As mentioned, the actus reus component of the federal mail and wire fraud statutes is satisfied with proof of a relatively innocuous action—namely, the very common act of using mail or telecommunications. For example, in United States v. Weyhrauch , the defendant's alleged scheme involved voting a particular way on state legislation regarding taxation of oil companies in exchange for an oil company hiring the defendant to provide legal services. However, the event triggering jurisdiction for purposes of the mail fraud statute was the defendant mailing his resumé to the oil company. Furthermore, in most cases, a prosecutor need not prove that a person actually used the mail or sent a wire or radio communication. Instead, it is generally sufficient that a defendant knew or should have foreseen that mail or wire would be used. In addition, it is usually not necessary to prove that a victim was actually harmed (i.e., that a person was deprived of property or other rights).
Thus, the success of mail or wire fraud prosecutions typically turns on whether a defendant had the requisite mental state—namely, whether he or she intended to devise a "scheme or artifice to defraud." For both crimes, a prosecutor must prove that a defendant had specifically intended to perpetrate a fraud. Thus, the statutes are sometimes described as having a "specific intent" requirement. In the public corruption context, some courts of appeals have adopted relatively strict interpretations of this requirement. For example, the Court of Appeals for the First Circuit has noted that the intent requirement in the mail and wire fraud statutes requires that a prosecutor "indicate wrongdoing by a public official, [but] also demonstrate that the wrongdoing at issue [was] intended to prevent or call into question the proper or impartial performance of that public servant's official duties." Other decisions have tempered the extent of the specific intent hurdle, however. In a later case, the First Circuit allowed that the "prosecution may prove this requisite intent to defraud through circumstantial evidence." In addition, the scope of activities which may constitute fraud for the purpose of fulfilling the intent requirement is relatively broad. The Supreme Court has held that "scheme or artifice to defraud" extends to "any act or omission that 'wrong[s] one in his property rights by dishonest methods or schemes and usually signif[ies] the deprivation of something of value by trick, deceit, chicane or overreaching.'"
Materiality presents a final component to the analysis in mail and wire fraud cases. In general, federal courts require that a scheme to defraud must be material; that is, it must have a natural tendency to induce reliance to the victim's detriment or to the offender's benefit. However, as discussed, mail and wire fraud are typically punishable regardless of the ultimate success of a fraudulent scheme.
section_title: Honest Services Statute
paragraphs: The honest services statute, 18 U.S.C. Section 1346, states that for the purposes of the federal crimes of mail and wire fraud, "the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services." Because of its sparse text but broad application, questions persisted regarding the scope of the statute and the range of situations to which it applied. The provision's historical context, together with case law predating the provision and various constitutional considerations, informed judicial interpretation of the statute.
subsections: section_title: Historical Context
paragraphs: Beginning in the 1930s and 1940s, federal courts applied the federal mail fraud statute to frauds stemming from a breach of fiduciary duty. During the late 1970s and 1980s, using fiduciary duty as an analogy, federal courts first included public corruption within the types of activities which could give rise to a mail or wire fraud conviction. A theory suggested to justify honest services convictions in the public sector context "relie[d] on the idea that a public official acts as trustee for the citizens and the State ... and thus owes the normal fiduciary duties of a trustee, e.g., honesty and loyalty to them." 
In 1987, the Supreme Court halted such "honest services" convictions when it held, in McNally v. United States , that the definition of "any scheme or artifice to defraud" extended only to schemes targeting money or property interests and not other interests, such as an interest in honest services. The Court explained that it had chosen the narrow interpretation, "[r]ather than construe 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." It added that "[i]f Congress desires to go further, it must speak more clearly than it has."
The following year, in response to the McNally decision, Congress amended the statutory definition of "scheme or artifice to defraud" for purposes of mail and wire fraud to encompass any "scheme or artifice to deprive another of the intangible right of honest services." Some courts interpreted the new statute as having "reinstated the line of cases preceding [ McNally ]" with respect to the honest services theory, whereas other courts have concluded that Congress could not have intended to reinstate the pre- McNally case law.
The honest services fraud amendment was interpreted by some as overruling McNally only with regard to the right of honest services, and not with regard to other intangible rights. Before Congress enacted the honest services statute, the Supreme Court, in United States v. Carpenter , applied the mail fraud statute to intangible property—specifically, to confidential information that would affect stock trading. However, the Carpenter holding appeared to extend only to interests that could be construed as property interests, rather than to other intangible rights, such as those contemplated by the honest services provision. Thus, it might have been argued that three categories of mail and wire fraud then existed—traditional fraud affecting tangible pecuniary interests, fraud affecting intangible pecuniary interests, and honest services fraud—whereas other types of intangible rights were not included within the ambit of mail and wire fraud. For example, in a 2000 case, Cleveland v. United States , the Court overturned a conviction in which the lower courts found that the state of Louisiana was fraudulently induced to issue a video poker license. The Court held that the mail and wire fraud statutes were inapplicable because the license was not "money or property" while in the state's hands, nor was a deprivation of honest services implicated.
section_title: Prosecutions
paragraphs: Based in part on the pre- McNally case law, federal courts had interpreted the honest services provision as encompassing services owed by both publicly elected officials and private employees. In both private sector and public corruption cases, prosecutions were not limited to the public official or employee who owed honest services. For example, in some circuits a third party might be found criminally liable for concealing a conflict of interest on behalf of a public official or engaging in a conspiracy with an employee to defraud a corporation.
In the private sector, defendants in a typical case might include various people involved in a fraudulent scheme (e.g., to award a company's contracts or services in exchange for kickbacks). The statute has been described as applying to schemes that would "enable an officer or employee of a private entity ... purporting to act for and in the interests of his or her employer ... secretly to act in his or her or the defendant's own interests instead." Over time, it has been applied to corporate officers, purchasing agents, stock brokers, "and others with clear fiduciary duties to their employees or unions."
In the public corruption context, honest services cases arose when a defendant is alleged to have deprived the public of its right to an elected official's honest services. Lower courts noted that the two most common situations in which the honest services statute is implicated include bribery of a public official and undisclosed conflicts of interest. Convictions for both types of schemes, as well as patronage schemes, were upheld in various cases prior to McNally . Bribery of a public official has been described as the "most obvious" form of honest services fraud, but courts occasionally characterized the receipt of benefits as a result of an undisclosed conflict of interest as a more subtle version of having accepted a bribe.
section_title: Constitutional Considerations
subsections: section_title: Federalism
paragraphs: The terse, sweeping text of the honest services statute prompted some special constitutional examination. Congress's authority to enact the mail and wire fraud statutes is derived in large measure from its Article I powers to establish a postal system and regulate interstate commerce. Principles of federalism may impose outer limits on the reach of federal authority, particularly as applied to state political activities. Federalism, derived from the constitutional structure which creates a federal government of limited powers, and from the Tenth Amendment to the Constitution, recognizes that the states and the federal government exist as dual sovereigns. Although the extent to which the Tenth Amendment or general principles of federalism impose an affirmative limit on the federal government is somewhat unsettled, the Supreme Court has historically invoked these principles to justify a narrow reading of federal criminal statutes. Likewise, in the mail and wire fraud context, in particular, the Court has indicated that it requires a clear statement from Congress before it will interpret the statutes as intruding on areas traditionally governed by the states.
Such concerns are perhaps most strongly implicated by the honest services statute in the context of federal prosecutions against state and local officials. They may have influenced the Supreme Court's decision in Weyhrauch , in which the Court granted certiorari to resolve the question "[w]hether, to convict a state official for depriving the public of its right to the defendant's honest services through the disclosure of material information, in violation of the mail-fraud statute ... the government must prove that the defendant violated a disclosure duty imposed by state law." In other cases, lower federal courts had argued that an approach to the honest services fraud statute that is not subject to the state law limiting principle, rejected by the lower court in Weyhrauch and discussed infra , might be inconsistent with principles of federalism. The Supreme Court, however, put the question aside and elected instead to return Weyhrauch to the Ninth Circuit for reconsideration in light of the Court's decision in Skilling .
section_title: Void-for-Vagueness
paragraphs: In Skilling and Weyhrauch , appellants argued that the honest services statute was unconstitutionally vague. Criminal statutes are held to violate the due process clauses of the Fifth and Fourteenth Amendments when they are sufficiently vague that people "of common intelligence must necessarily guess at [their] meaning." This "void-for-vagueness" doctrine is rooted in due process concerns regarding notice to citizens and the arbitrary enforcement of laws. Courts may declare statutes void if the conduct giving rise to criminal liability, the persons to which it applies, or the punishment which may be imposed are unclear. 
However, assessments of vagueness are determined in light of judicial precedents that have construed a statute's scope or meaning. Thus, a key question with regard to the honest services statute was whether judicial precedents—including case law before and after the Supreme Court's decision in McNally — provided a sufficient degree of clarity to satisfy due process requirements. Some commentators argued that the case law was inconsistent and did not provide any firm boundaries for the scope of the statute. As a theoretical matter, vagueness questions arose in part because judicial opinions in honest services cases relied upon concepts such as fiduciary duty, which were borrowed from the context of civil liability. Such concepts arguably did not provide sufficient clarity to satisfy the constitutional requirements for penal statutes, which are subject to a heightened level of scrutiny before the government may place a defendant's life, liberty, or property at stake.
Prior to the Supreme Court decision in Skilling , the federal courts of appeals that had addressed the issue had rejected void-for-vagueness challenges. The most notable case was United States v. Rybicki , a 2003 decision in which the Court of Appeals for the Second Circuit, sitting en banc , upheld the honest services statute against such a challenge. The court noted that case law predating the enactment of the honest services statute clarifies the scope of the crime. In contrast, several dissenting judges argued that the judicial doctrines that the court characterized as having formed the backdrop for the honest services fraud provision are "as standardless as the statute itself." However, that characterization might have been said to apply to standards governing the application of the mail and wire fraud statutes, generally, rather than only honest services cases.
section_title: Judicial Limitations on the Scope of the Honest Services Statute
paragraphs: The courts of appeals had generally recognized a "need to find limiting principles to cabin the broad scope of § 1346." When explaining the need for such standards, courts referenced the constitutional concerns discussed supra . Some courts had also asserted that the text of the honest services statute would otherwise seemingly justify absurd convictions. For example, at least one court had suggested that in private sector cases, "the plain language of the 'honest services' doctrine codified in § 1346 suggested that 'dishonesty by an employee, standing alone, is a crime.'" Thus, although "[u]nder such an application of the statute, [a defendant's] conduct [might be] clearly within the scope of § 1346 ... courts generally [had] been reluctant to apply § 1346 in a way that would expose employees to mail fraud prosecution for 'every breach of contract or every misstatement made in the course of dealing.'" Dissenting to denial of certiorari in an honest services case, Justice Scalia appeared to agree that a limiting principle was necessary. He stated: "Without some coherent limiting principle to define what 'the intangible right of honest services' is, whence it derives, and how it is violated, this expansive phrase invites abuse by headline-grabbing prosecutors in pursuit of local officials, state legislators, and corporate CEOs who engage in any manner of unappealing or ethically questionable conduct."
Despite a general agreement that some limiting principle was necessary, however, the lower federal courts could not agree on a single approach. Some established special requirements before a defendant could be convicted for mail and wire fraud based on an honest services theory. As discussed below, the three most prominent requirements include the "private gain," a "state law violation," and a "foreseeable harm" requirement. 
Others had declined to adopt tests applicable only to honest services cases. They relied instead on specific intent and materiality requirements, required elements for mail and wire fraud convictions generally. The Court of Appeals for the Tenth Circuit has perhaps articulated this view most forcefully. In United States v. Welch , it criticized the special tests as requiring courts "to judicially legislate by adding an element to honest services fraud which the text and the structure of the fraud statutes do not justify." Defendants in the case were members of the Salt Lake City Olympic Bid Committee who allegedly bribed members of the International Olympic Committee in an effort to secure Salt Lake City's chances to host the 2002 Winter Olympic Games. In rejecting various proposed limiting principles, the Tenth Circuit stated that the honest services statute "'must be read against a backdrop of the mail and wire fraud statutes, thereby requiring fraudulent intent and a showing of materiality'" and concluded that these existing requirements provided sufficient checks against the statute's potential overbreadth. In September 2009, the Court of Appeals for the Ninth Circuit took a similar approach in United States v. Inzunza , a case involving former members of the San Diego City Council. It joined what it characterized as the "majority rule," holding that the intent and materiality requirements implicit in the mail and wire fraud statutes rendered special tests unnecessary. Although courts sometimes characterized materiality and specific intent requirements as alternatives to the limiting principles established for honest services, they tended to emphasize that such tests were "inherent" in the mail and wire fraud framework rather than having been judicially created specifically for honest services cases, as are the following tests.
subsections: section_title: Private Gain
paragraphs: The "private gain" or "personal gain" test, which had been most fully adopted by the Court of Appeals for the Seventh Circuit, would have limited the scope of the honest services provision by requiring a showing that a defendant aimed to secure a private gain for himself or another. In United States v. Bloom , a Chicago alderman, who also worked as a private attorney, had advised a client to plant a proxy buyer at a real estate auction as part of a scheme to obtain tax advantages. The court dismissed the honest services count because the prosecutor had not alleged that these actions had been intended for the alderman's personal gain. The Seventh Circuit held that the "[m]isuse of office (more broadly, misuse of position) for private gain is the line that separates run of the mill violations of state-law fiduciary duty ... from federal crime."
A later Seventh Circuit case, United States v. Sorich , involved a "corrupt and far-reaching scheme, based out of the [Chicago mayor's office], that doled out thousands of city civil service jobs based on political patronage and nepotism." The court upheld a jury instruction which required proof that the defendants intended "to deprive a governmental entity of the honest services of its employees for personal gain to a member of the scheme or another."
Bloom left unresolved whether conviction may be obtained where a defendant has sought gain on behalf of a third party. In Sorich , the court clarified that "private gain ... simply mean[s] illegitimate gain, which usually will go to the defendant, but need not." It then affirmed the convictions resulting from the patronage scheme, signaling that at least in some circumstances, private gain may include gain sought on behalf of third parties. The test's application to third parties has not been further explored.
Other parameters of the Seventh Circuit's conception of "private gain" were not clearly defined. The Seventh Circuit appeared to have limited the definition to benefits that were received in secret or outside of regular procedures. In a 2007 case, United States v. Thompson , the defendant, a section chief in a state procurement office, was alleged to have influenced the selection process for a state travel agent contract for political reasons. However, the gain that the defendant was alleged to have obtained was characterized as favor with her supervisor and a pay raise through the ordinary compensation process. The court held that strengthened job security and the pay raise could not be construed as a private gain for the purpose of a mail fraud conviction. In reaching this conclusion, the court contrasted these alleged gains with examples of private gain given in Bloom , all of which involved "payoffs outside the proper channels." However, one could imagine factual scenarios in which a gain might be difficult to categorize as being clearly inside or outside the boundaries of typical compensation procedures. For example, it is unclear how the standard would have applied in conflict-of-interest cases in which a payment related to an undisclosed interest might be received through "proper channels" within the meaning of that phrase as articulated in Bloom and Thompson — for example, in the form of ordinary compensation for services rendered to satisfy a legal contract obligation.
Although a few other federal courts of appeals appeared to have alluded to the private gain analysis, others had explicitly rejected it. Reasons for the rejection included a view that it simply "substitut[ed] one ambiguous standard for another" and a concern that the private gain test had the potential to make Section 1346 under-inclusive, for example by failing to apply in conflict-of-interest cases. In some cases, courts of appeals had rejected the private gain test in favor of reliance on the specific intent requirement inherent in the mail and wire fraud framework. For example, the Court of Appeals for the Ninth Circuit, in Inzunza , stated that "careful attention to the intent element dispels concerns about the statute's overbreadth." In other cases, courts of appeals had rejected the test in favor of other limiting principles. Most notably, the lower court in Skilling declined to apply the test.
section_title: State Law Limiting Principle
paragraphs: A few federal courts of appeals had adopted the "state law limiting principle," which dictated that a conviction for mail or wire fraud on an honest services theory required a showing that a defendant's activity violated state law. Courts that adopted the principle emphasized the principles of federalism and the importance of state law as a dividing line between criminal behavior and common political maneuvering.
The Fifth Circuit first adopted the principle in United States v. Brumley , in which it noted the importance of federalism concerns for its holding. The defendant in Brumley had served on the Texas Industrial Accident Board, which administered workers compensation claims in the state. He allegedly borrowed money from several lawyers who represented claimants whose claims were to be resolved by the Board. The court held that "services must be owed under state law" and that "the government must prove in a federal prosecution that they were in fact not delivered." It concluded that the defendant's behavior violated a state statute which prohibited "a public servant with judicial authority" from accepting "any benefit" from a person with an interest in a matter before the public servant. The Fifth Circuit reaffirmed the principle in later cases, including its Skilling decision, which the Supreme Court chose as a vehicle for review. 
Although it had declined to formally adopt it, the Court of Appeals for the Third Circuit also followed the state law limiting principle. In United States v. Panarella , a state senator had allegedly failed to disclose compensation he had obtained from the owner of a tax collection business. The Third Circuit concluded that "[s]tate law offers a better limiting principle for purposes of determining when an official's failure to disclose a conflict of interest amounts to honest services fraud" than is offered by the private gain test or other alternatives. Applying the principle, it upheld the conviction of an accessory to the senator's crime, holding that the senator had taken a discretionary action which he knew would directly benefit a financial interest that he had concealed in violation of a state criminal law. In a subsequent case, the court clarified that the violation of state law "does not require a violation of criminal law, but rather a violation of a state-created fiduciary duty."
In a 2009 case, United States v C arbo , the Third Circuit considered what mental state was required in connection with the violation of a state law. As in Panarella , the case involved a failure to disclose a conflict of interest. However, in Carbo , the defendant was a third party, rather than a public official or his accessory. Specifically, he was a business owner in Norristown, Pennsylvania, who was charged with honest services fraud as a result of a scheme with the borough administrator in which favors were allegedly provided in return for government contracts. The administrator allegedly failed to disclose his interest in the business in violation of state law. An issue on appeal was whether a knowledge requirement—that is, a showing that a defendant knew that a public official's failure to disclose would violate state law—should be applied in cases involving a third party defendant. The court adopted such a requirement, but it construed it so as not to present an "insurmountable obstacle to prosecutors." Specifically, the court stated that "it is not necessary to demonstrate that the defendant knew the fine details of an official's reporting requirements." It further clarified that "if the evidence is sufficient for a reasonable jury to conclude that the defendant participated in a scheme to assist a public official in hiding a conflict of interest, and that the defendant knew that the law forbade the official from engaging in that form of undisclosed conflict of interest, a conviction for honest services mail fraud should be upheld."
In United States v. Murphy , a 2003 case, the Third Circuit characterized a sister circuit's rejection of the state law limiting principle as an outlier approach and criticized it as having "extend[ed] the mail fraud statute beyond any reasonable bounds." However, thereafter, a majority of federal courts that considered the issue declined to adopt the principle. A notable example is the opinion by the Court of Appeals for the Ninth Circuit in Weyhrauch . 
Among the federal circuits that rejected the state law limiting principle, some applied a "federal common law standard of good government" to determine whether a defendant's actions were covered by the statute. Even in such cases, however, the violation of state law was often viewed as relevant evidence to establish that a defendant had the requisite intent to deprive a government or employer of its right to an official or employee's honest services. This principle was demonstrated most clearly in the context of conflict-of-interest cases. For example, in United States v. Woodward , the Court of Appeals for the First Circuit held that specific intent had been demonstrated by the defendant's failure to disclose a conflict of interest which he was required by law to disclose.
It was unclear whether courts of appeals that rejected the state law limiting principle in public corruption cases might have been willing to apply the principle in private sector honest services cases. Some federal courts "crafted special requirements in the limited context of honest services fraud in the private sector."
section_title: Foreseeable Harm
paragraphs: Several federal circuit courts had adopted a "foreseeable harm" test to limit the scope of the honest services provision. The Court of Appeals for the Sixth Circuit adopted the test in United States v. Frost , a case involving a professors and graduate students at the University of Tennessee who allegedly defrauded the university and government agencies in order to secure government research contracts. It held that in order for a conviction on an honest services theory to stand, "the prosecution must prove that the employee foresaw or reasonably should have foreseen that his employer might suffer an economic harm as a result of [a] breach" of fiduciary duty. In United States v. Vinyard , the Court of Appeals for the Fourth Circuit applied the Sixth Circuit's approach to a case involving two brothers who allegedly misrepresented their joint venture's relationship with one brother's employer for the purpose of defrauding the employer. 
Some courts had characterized the foreseeable harm test as an alternative to a "materiality" test, which appeared to be the same as or similar to the test for materiality applied in mail and wire fraud cases generally. Both the Fourth and Sixth Circuits had asserted that the foreseeable harm test was superior to the materiality test for two reasons: (1) its focus on a defendant's mental state ensured that only criminal behavior was included; and (2) it excluded what the Fourth Circuit termed "trivial frauds"—that is, infractions that were minor but nonetheless instigate a material change in business practices—from the scope of the honest services fraud statute. 
Courts' formulations of the foreseeable harm test varied somewhat. However, the most common approach appeared to integrate the test within an examination of a defendant's mental state. A representative articulation required "that the defendant was at least reckless as to the likelihood that his breach of the duty of honest services would harm the party to whom the duty is owed."
Although some judicial opinions suggested that the foreseeable harm test applied only in private sector cases, some suggested that the test was to be employed in all honest services cases. In the private sector cases in which it was applied, the "harm" contemplated by the test was generally characterized as harm to economic or property interests. However, "property" in this context was interpreted to include confidential information such as trade secrets.
Some of the courts of appeals had explicitly rejected the foreseeable harm test. Most notably, the Court of Appeals for the Seventh Circuit joined this latter group in its decision in Blac k .
section_title: Cases in Which the Supreme Court Granted Certiorari
paragraphs: The United States Supreme Court heard argument in the honest services cases of Weyhrauch v. United States , Black v. United States , and Skilling v. United States , in its 2009 term. In their petitions for review, some appellants argued that the honest services statute was unconstitutionally vague. Although, as mentioned, Justice Scalia had signaled some willingness to consider that issue, a majority of the Court ultimately decided to construe the statute narrowly in order to avoid due process vagueness concerns.
subsections: section_title: United States v. Skilling
paragraphs: The Supreme Court used Skilling for its principal decision; it issued a separate confirming opinion in Black ; and ordered Weyhrauch returned to the lower courts for disposition consistent with its Skilling opinion. Six members of the Court joined in Justice Ginsburg's majority opinion which limited honest services mail and wire fraud to those cases that involve either bribery or kickbacks; the other three members of the Court would have found the honest services definition unconstitutionally vague. 
In the lower court, the Court of Appeals for the Fifth Circuit upheld the conviction of former Enron executive Jeffrey Skilling. As Enron's former chief operating officer and former chief executive officer, Skilling was convicted of engaging in a conspiracy to overstate the company's financial position in order to artificially inflate the company's short-run stock price. Before the Fifth Circuit, Skilling argued that his actions did not breach his fiduciary duty to Enron, because he had acted in the company's interest. The court of appeals rejected that argument, primarily because it appeared that Enron had not approved the deceptive measures taken by Skilling. The court clarified that where an employer did not sanction a fraudulent scheme, a defendant may be found to have violated an underlying state law fiduciary duty even if he purports to have acted in his employer's best interest.
In his petition for certiorari, Skilling argued that the Supreme Court should adopt the "private gain" test to limit the scope of the statute, and that without such a construction, the statute is unconstitutionally vague. As conceived by the Seventh Circuit in Bloom and Thompson , the private gain test appeared to require an illicit intended gain or a gain otherwise outside of normal channels of compensation. Skilling's argument was that "there is no allegation ... that Skilling sought to advance private interests instead of Enron's," and any gain he received was through proper channels and thus would not qualify as "private gain" under the Seventh Circuit's test.
The Supreme Court neither endorsed the private gain test nor found the honest services statute unconstitutionally vague. Instead, it determined, as it announced at the outset of its opinion, that, "[i]n proscribing fraudulent deprivations of 'the intangible right to honest services,' §1346, Congress intended at least to reach schemes to defraud involving bribes and kickbacks. Construing the honest-services statute to extend beyond that core meaning ... would encounter a vagueness shoal."
Beginning in the mid-19 th century, the Court observed, an intangible honest services theory of fraud had gained some acceptance among the lower federal courts. In 1987, however, the Court "stopped the development of the intangible-rights doctrine in its tracks" with McNally v. United States . Concerned about the "ambiguous" nature of the doctrine and its implications for federal-state relations, the Court in McNally confined the mail and wire fraud statutes to the prosecution of schemes designed to deprive victims of money or other property, not merely honest services.
"Congress responded swiftly" with the honest services statute which provides that, "For purposes of th[e] chapter [of the United State Code that prohibits, inter alia , mail fraud, §1341, and wire fraud §1343], the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services."
The Court in Skilling declined to find the honest services statute unconstitutionally vague. It looked rather to pre- McNally cases to ascertain how to accommodate Congress's intent with the amorphous wording of the statute. There it found the bribery and kickback fraud cases the most common and most consistently applied, and concluded that "[c]onfined to these paramount applications, §1346 presents no vagueness problem." Beyond those cases, however, the Court found the chaos and uncertainty incompatible with due process.
The government urged that the third most common among the pre- McNally fraud cases—the self-dealing-conflicts-of-interest (private gain) cases—be admitted to the fold. This, the Court rejected in light of splits among the pre- McNally lower federal courts and in the interests of lenity (i.e., when a criminal statute admits to two interpretations, the more lenient should prevail). Congress might of course include this category of offenses within the definition of honest services, but the Court recommended that it do so with care:
If Congress desires to go further, we reiterate, it must speak more clearly than it has. [If Congress were to take up the enterprise of criminalizing undisclosed self-dealing by a public official or private employee, it would have to employ standards of sufficient definiteness and specificity to overcome due process concerns. The Government proposes a standard that prohibits the taking of official action by the employee that furthers his own undisclosed financial interests while purporting to act in the interests of those to whom he owes a fiduciary duty, so long as the employee acts with a specific intent to deceive and the undisclosed conduct could influence the victim to change its behavior. That formulation, however, leaves many questions unanswered. How direct or significant does the conflicting financial interest have to be? To what extent does the official action have to further that interest in order to amount to fraud? To whom should the disclosure be made and what information should it convey? These questions and others call for particular care in attempting to formulate an adequate criminal prohibition in this context.]
As for Skilling himself, it was clear to the Court that the conduct with which he was charged and for which he was convicted did not constitute honest services fraud as construed by the Court. It left for the lower courts the question of whether this tainted his conviction on other grounds.
Skilling raised a second constitutional issue—namely, that pre-trial publicity made Skilling's trial presumptively unfair. Here, the Court affirmed the holding of the lower court. The Court felt the trial court committed no error when it denied Skilling's motion for a change of venue given the steps it took to ensure selection of an impartial panel. Nor, the Court concluded, did actual prejudice taint the jury that convicted Skilling. Justices Sotomayor, Stevens, and Breyer contended that the trial court's voir dire of prospective jurors should have been more thorough and accordingly dissented from that portion of the opinion.
section_title: United States v. Black
paragraphs: The Court's Skilling construction of the honest services statute doomed the jury instructions in Black's honest services case as well. The Court wrote a second opinion, however, to address a separate issue raised there. The Seventh Circuit had held that Black forfeited his right to challenge the erroneous honest services jury instruction when he objected to separate jury verdicts on the government's alternate honest services fraud and money or property fraud theories. Not so, ruled the Supreme Court. "[B]y properly objecting to the honest-services jury instructions at trial, Defendants secured their right to challenge those instructions on appeal. They did not forfeit that right by declining to acquiesce in the Government-proposed special-verdict forms."
Black afforded the Supreme Court an opportunity to pass on the foreseeable harm limitation on the honest services statute. The defendants were executives of a publicly held corporation, Hollinger International, Inc. They were also majority stockholders in a Canadian private corporation, Ravelston Corp. Ltd., which in turn held a controlling interest in Hollinger. Rather than receive their compensation from Hollinger directly, the executives were paid by Ravelston out of management fees that Ravelston charged Hollinger. In order to take greater advantage of Canadian tax laws, the executives arranged for, and were compensated from, non-compete agreements between themselves and a Hollinger subsidiary. There was a factual dispute regarding the extent to which Hollinger's board had knowledge of this arrangement. The defendants argued that the board had been aware of the deal and that the payments they received constituted legitimate compensation for the do-not-compete agreements. In contrast, the government alleged that the do-not-compete payments were actually management payments received without corporate approval.
The defendants urged the lower court to adopt the foreseeable harm test. They argued that their convictions would fail under that test because they had arranged for the do-not-compete agreements in order to take advantage of a favorable Canadian tax ruling rather than to harm their employer corporation. However, the Seventh Circuit rejected the test, which it characterized as an argument equivalent to "no harm, no foul." Instead, the court applied the private gain test. Thus, it focused on whether the defendants intended to reap a private gain by fraudulent means. Affirming a jury instruction which relied on the private gain test, the court upheld the defendants' convictions. Skilling established that the Seventh Circuit's ruling on the honest services jury instruction was clearly wrong. The Court left for the lower courts the determination of whether the error was harmless or warranted overturning the convictions of the Black defendants and ordering a new trial.
section_title: United States v. Weyhrauch
paragraphs: Weyhrauch presented only an honest services issue, and consequently the Court simply returned it to the lower court with instructions to dispose of the case in manner consistent with the Court's opinion in Skilling . In United States v. Weyhrauch , the Court of Appeals for the Ninth Circuit had declined to adopt the state law limiting principle. The defendant was an Alaska state legislator who allegedly failed to disclose a conflict of interest regarding his relationship with an oil company prior to his vote on a bill addressing the taxation of oil production. At trial, federal prosecutors sought to introduce legislative ethics publications which recommend that such conflicts be disclosed, together with evidence suggesting that Alaskan legislators customarily disclose them. However, there was no evidence that the defendant had violated any state statute. The question on appeal was whether a mail fraud conviction on an honest services theory required a showing that a defendant's actions violated state law. The court of appeals found that no evidence in the statutory text or the legislative history indicated a congressional intent to limit the honest services statute to only those cases that involve a breach of a state-law duty. It also emphasized that Congress has sufficient constitutional authority to regulate and punish the use of mail and interstate wire communications when they are used for fraudulent purposes and that the circuit had "never limited the reach of the federal fraud statutes only to conduct that violates state law." In his petition for certiorari to the Supreme Court, Weyhrauch argued, in part, that as interpreted by the Ninth Circuit, the honest services statute allows a federal common law basis for conviction in conflict with principles of federalism. The Supreme Court opted simply to resolve the case on honest services grounds.
Skilling holds that an honest services fraud prosecution must involve bribery or a kickback. Congress may prefer more expansive coverage, modeled perhaps after one of the standards previously suggested by the lower courts. If so, the Court recommended that Congress speak with clarity and precision.