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Honest Services and the Mail-Fraud Statute

Below, Stanford Law School’s Rakesh Kilaru previews Weyhrauch v. United States, one of two cases to be heard by the Supreme Court on Tuesday, December 8. Check the Weyhrauch v. United States (08-1196) SCOTUSwiki page for additional updates.

On Tuesday, December 8, 2009, the Supreme Court will hear argument in No. 08-1196, Weyhrauch v. United States.  Weyhrauch 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.