Court Opinion

ID: 9635086
Source: CourtListenerOpinion
Date Created: 2023-08-22 13:35:53.783694+00
Date Added: 2024-06-11T18:09:17.707620
License: Public Domain

BERZON, Circuit Judge,
concurring:
I agree with the majority’s conclusion that a quid pro quo requirement is not necessary to all § 1346 prosecutions. I also agree that, because Kincaid-Chauneey appeals only the lack of a quid pro quo instruction, the question of whether a § 1346 prosecution also requires a showing of private gain or a violation of a specific conflict of interest disclosure standard is not properly before us. See Maj. Op. at 940 n. 13. And I recognize that our recent decision in United States v. Weyhrauch, 548 F.3d 1237, 1248 (9th Cir.2008), would compel the conclusion that a violation of a state law disclosure requirement is not necessary to sustain an honest services fraud conviction, had that specific question properly been before us here. I write separately, however, to express my view that where the government’s § 1346 theory rests on a defendant’s failure to disclose a conflict of interest, reference to some well-defined external disclosure standard, expressed in state law or elsewhere, is necessary to limit an otherwise amorphous standard for criminal liability. Proving a specific intent to defraud — which, in my view, always includes an intent to deceive — is a necessary element of an honest services fraud prosecution, but is not sufficient as a limiting principle in the conflict of interest context. For, particularly where public officials are the target of such prosecutions, vague or amorphous disclosure requirements risk political misuse and manipulation.
A public official’s failure to disclose a material interest in a matter over which the official exercises discretionary decision-making power may fall within the scope of § 1346, as several courts of appeal have recognized. See, e.g., United States v. Jennings, 487 F.3d 564, 577 (8th Cir.2007); United States v. Woodward, 149 F.3d 46, 63 (1st Cir.1998); United States v. Antico, 275 F.3d 245, 262-63 (3d Cir.2001). An official’s decision that tacitly favors private interests can undermine the public’s right to the official’s honest services and can threaten the integrity of the political process. See United States v. Panarella, 277 F.3d 678, 692 (3d Cir.2002) (“[N]on-diselosure of a conflict of interest in a fiduciary setting falls squarely within the traditional definition of fraud, and poses a ... threat to the integrity of the electoral system .... ”). But recognizing that a broad type of conduct may give rise to criminal liability does not specifically define it. As courts confronting this issue have recognized, “some conflicts of interest are tolerable,” United States v. Bloom, 149 F.3d 649, 654 (7th Cir.1998), and not every violation of a fiduciary duty should be criminal. United States v. Welch, 327 F.3d 1081, 1107 (10th Cir.2003). Thus, as the majority observes, the broad nature of § 1346 has left courts to search for a limiting principle, one that would separate illicit behavior from more innocuous behavior that Congress did not intend to make a federal crime. See Maj. Op. at 939 (citing United States v. Sorich, 523 F.3d 702, 707 (7th Cir.2008)).
Although the need for a limiting principle is apparent in all § 1346 prosecutions, more precise specification is of particular importance where the government’s theory of honest services fraud rests on a failure to disclose an alleged conflict of interest. As an initial matter, ascertaining what constitutes a conflict of interest — or whether a particular interest is sufficiently material to warrant disclosure — is not necessarily a self-evident determination. *948True, in some eases, such as the failure to disclose a substantial personal investment in a company receiving favorable legislative treatment, it is reasonably clear that such conduct would satisfy any meaningful definition of “conflict of interest” and falls well within what Congress likely meant by a deprivation of the public’s “intangible right to honest services.” See Jennings, 487 F.3d at 564 (upholding conviction where legislator-defendant personally guaranteed $670,000 in loans to company receiving a grant).
But other cases are much less clear-cut. Determining whether a particular relationship rises to the level of an improper conflict of interest can involve judgment calls that implicate subjective notions of morality and professional ethics. For this reason, statutes governing public employees and codes of professional ethics do not speak in general terms about the conflicts that can lead to the imposition of criminal liability or disciplinary sanctions. Rather, such requirements are spelled out in great detail. See, e.g., Cal. Gov’t Code §§ 87100-03 (regulating conflicts of interest for public employees); Model Rules of Profl Conduct R. 1.7-1.11 (governing conflicts of interest in the client-lawyer relationship).
Naturally, because separating permissible conduct from impermissible conduct can be an exercise in line drawing, different jurisdictions reach varying conclusions with respect to conduct that triggers conflict of interest rules. For example, in some instances, regulations seemingly prohibit public officials from participating in actions that implicate any of their personal financial interests, whereas others provide a floor of permissible financial interest before liability attaches. Compare, e.g., Ga. Code Ann. § 45-10-3(9) (prohibiting a public official from “tak[ing] any official action with regard to any matter under circumstances in which he knows or should know that he has a direct or indirect monetary interest in the subject matter of such matter or in the outcome of such official action”), with Cal. Gov’t Code § 87103(a) (allowing such activity where the official has less than $2000 invested in an interested business). Moreover, although it appears intuitively obvious that a prohibition against self-interested transactions might also extend to transactions in which immediate family members have an interest, it is less obvious who counts as “immediate family.” Jurisdictions reach different conclusions on this factor as well. Compare, e.g., Cal. Gov’t Code § 82029 (defining “immediate family” as one’s “spouse and dependent children”), with D.C.Code § 1-1106.01(i)(5) (defining “immediate family” as the “spouse or domestic partner and any parent, brother, or sister, or child of the public official, and the spouse or domestic partner of any such parent, brother, sister, or child”).
The point is not to dwell on the minutia or merits of various conflict of interest regulations, but rather to illustrate that it is often not readily apparent whether a problematic conflict of interest exists and therefore whether an official’s failure to disclose such information should or should not give rise to criminal liability. Without reference to some external disclosure standard, § 1346 could well impose criminal liability on activity that offends some people’s subjective sense of impermissible private entanglement, but may appear to others not to involve any conflict of interest. Cf. Panarella, 2Í11 F.3d at 698 (observing that characterizations of fraud as “a broad concept that is measured in a particular case by determining whether the scheme demonstrated a departure from fundamental honesty, moral uprightness, or fair play” do not “allay fears that the federal fraud statutes give inadequate notice of criminality” (internal quotations omitted)). Moreover, it is also unclear what mitigat*949ing steps an official might take that could render the conflict sufficiently immaterial to avoid disclosure.
Furthermore, resolving what constitutes an impermissible conflict of interest does not solve all of the ambiguity presented by § 1346 prosecutions. The fraud inheres not in the conflict itself, but in the failure to disclose it — “[a]n official’s intentional violation of the duty to disclose provides the requisite deceit.” Woodward, 149 F.3d at 63 (internal quotation omitted). But again, it is not self-evident what adequate disclosure means in any given case. How should disclosure be made? To whom is disclosure owed? Courts elaborating the conflict of interest theory of honest services fraud typically observe that employees owe duties of disclosure to their employers, see United States v. Rybicki, 354 F.3d 124, 140 (2d Cir.2003) (en banc), and, in the case of public officials, to the public. See Panarella, 277 F.3d at 697 (“[Disclosure laws permit the public to judge for itself whether an official has acted on a conflict of interest.”). However, without more, observing that a duty of disclosure is owed does not necessarily inform the conduct that would satisfy the disclosure requirement in any given case. Is it sufficient that a public official note the conflict at the time of the vote? In advance? Must the conflict be widely publicized, or will a notation in an obscure public record suffice? Is disclosure always an adequate antidote, or is the official’s recusal necessary in some circumstances?
Without a reference to external disclosure standards, the conflict of interest theory of honest services fraud risks imposing a dangerously amorphous standard of criminal liability. Courts have long been concerned that the mail fraud statute’s potentially broad scope could give insufficient notice of criminal liability and lead to the creation of federal common law crimes. See Sorich, 523 F.3d at 707-08 (“[G]iven the amorphous and open-ended nature of § 1346, ... courts have felt the need to find limiting principles ... [to reduce] the risk of creating federal common law crimes.... ”); United States v. Brumley, 116 F.3d 728, 746 (5th Cir.1997) (Jolly & DeMoss, JJ., dissenting) (“[A]d hoc definitions cannot possibly satisfy the requirements of ‘fair notice’ to our fellow citizens as to where the line between permitted and prohibited conduct is drawn.”).
The stakes are considerably higher in the case of public officials. The lack of statutory specification can give rise to selective prosecution and political misuse. See Thomas M. DiBiagio, Politics and the Criminal Process: Federal Public Corruption Prosecutions of Popular Public Officials Under the Honest Services Component of the Mail and Wire Fraud Statutes, 105 Dick. L.Rev. 57, 57-58 (2000) (“With no established standards, a federal public corruption prosecution, based on the intangible right to honest services, is particularly vulnerable to being snarled by politics.”); see also United States v. Margiotta, 688 F.2d 108, 143 (2d Cir.1982) (Winter, J., dissenting) (“It may be a disagreeable fact but it is never-the-less a fact that political opponents not infrequently exchange charges of ‘corruption,’ ‘bias’, ‘dishonesty,’ or deviation from ‘accepted standards of ... fair play and right dealing.’ Every such accusation is now potentially translatable into a federal indictment.” (alteration in the original)). As the Third Circuit observed, “[djeprivation of honest services is perforce an imprecise standard, and rule of lenity concerns are particularly weighty in the context of prosecutions of political officials, since such prosecutions may chill constitutionally protected political activity.” Panarella, 277 F.3d at 698. The conflict of interest theory, unhinged from an external disclosure standard, places too potent a tool in the hands of zealous prosecutors who may be *950guided by their own political motivations. Prosecutors might also feel political pressure to pursue certain state or local officials; there may be no sufficient constraint without reference to an external disclosure standard.
Finally, requiring a “specific intent to defraud” cannot always function as a sufficient limiting principle — one that would effectively prevent such political misuse — -in the absence of a well-specified and commonly understood notion of when non-disclosure amounts to “fraud.” One can certainly intend to withhold a particular piece of information, but it is nearly meaningless to say that such a withholding was done with the specific intent to deceive if there is no extrinsic standard governing whether the disclosure was required in the first place. Requiring a “specific intent to defraud” is necessary to satisfy the mental state required under the mail fraud statute, but determining whether that element is satisfied also requires reference to some external source of disclosure obligations.
Our recent decision in Weyhrauch held only that the government need not prove a violation of a state law disclosure requirement to sustain an honest services fraud conviction. 548 F.3d at 1248. We declined to adopt a state law limiting principle out of concern that requiring a violation of state law would “limit[ ] the reach of the federal fraud statutes only to conduct that violates state law,” id. at 1245, and would thereby constrain Congress’s ability to protect federal interests to the independent decisions of the states. Id. at 1246. That is, we rejected the idea that state law could supply the sole source of conflict of interest disclosure obligations. But because the conduct at issue in that case fell “comfortably within” either a bribery or conflict of interest theory of honest services fraud, including, notably, strong evidence of a quid pro quo arrangement, we had no occasion to define what an appropriate limiting principle would be. Id. at 1247.
I therefore concur in the majority opinion only because the challenge to the honest services fraud instruction did not encompass the concerns explored in this concurrence. Had the issue been raised, I would have agreed with the Third Circuit that the government must prove a violation of an externally established conflict-of-interest-based disclosure standard.