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WASHINGTON – After hearing two other cases involving the application of the federal law criminalizing “honest services” fraud this term, the U.S. Supreme Court took another look at the law Monday in an effort to determine if it is unconstitutionally vague.

The case involves former Enron CEO Jeffrey Skilling, who was convicted of securities fraud and a number of other charges, including violation of the federal “honest services” fraud statute, which criminalizes employee conduct intended to achieve “private gain” rather than to advance the employer’s interest.

After Skilling was convicted, the 5th Circuit reversed an honest services fraud conviction in another case, where an executive’s conduct was wrongful, but not intended to achieve personal gain. Instead, it was intended to advance the company’s interests in maintaining its stock price.

Skilling appealed his conviction, and argued that a flawed honest services charge effectively tainted the jury’s findings regarding all the charges against him.

While the 5th Circuit agreed that Skilling’s acts were not intended to harm Enron or to obtain personal benefit at Enron’s expense, they affirmed his conviction, holding that the charge required only a finding of a material breach of a state-law fiduciary duty and resulting harm to the employer.

Skilling petitioned the U.S. Supreme Court for certiorari, and the Court agreed to consider the “private gain” application of the statute, as well as determine whether the statute was unconstitutionally vague.

The Court also agreed to consider whether a presumption of prejudice is created by widespread media coverage of a criminal case, requiring prosecutors to prove beyond a reasonable doubt that no juror was actually prejudiced.

‘Passions and prejudices’

Sri Srinivasan, a partner in the Washington office of O’Melveny & Myers, argued on Skilling’s behalf.

He began with the trial publicity issue.

Srinivasan said the negative sentiment toward Enron officials in the Houston area made finding a pool of unbiased jurors nearly impossible, and the judge’s voir dire process couldn’t overcome the problem.

“This is one of the very rare cases [where] the process of voir dire cannot weed out the bias,” Srinivasan said.

He noted that the judge seated the jury within a day, despite statements from many potential jurors that they thought Skilling was “guilty” and that Enron officials were “shameful.”

The justices asked if there was a way around the bias in the Houston area.

“If there had been more lengthy voir dire … would it have been possible to find a fair jury?” asked Justice Samuel Alito.

Srinivasan said it was doubtful, which is why defense attorneys sought to transfer the case to another venue.

“In a situation where you have the passions and prejudices that permeated the community in Houston, the process of voir dire would be unable to” combat that, he said.

On the constitutional issue, Srinivasan argued that the “honest services” law is so broad that any breach of fiduciary duty could rise to the level of a crime. Even employees who agree to use workplace computers only for work could face criminal penalties for surfing the Internet under the statute’s language, Srinivasan argued.

“It would threaten to convert any workplace fraud into an honest services fraud prosecution,” Srinivasan said.

Justice Ruth Bader Ginsburg said Skilling’s case was much more serious.

“Skilling owned shares of stock [and] Skilling then sold those shares at great profit to himself, and the shareholders were left without the information” upon which Skilling based his decision, Ginsburg said.

Crime of doing ‘a bad thing’

On the jury prejudice issue, Deputy Solicitor General Michael R. Dreeben argued that the judge in the case was in the best position to weed out potential juror bias – and he knew what he was doing.

“The judge had 15 years’ experience conducting trials,” Dreeben said, “and voir dire is better when conducted by a judge” than by the parties’ attorneys.

Justice Anthony Kennedy was concerned that the jury was questioned and seated in a mere five hours.

“It’s hard for me to think of a voir dire [going that quickly] for a case this difficult,” he said.

Dreeben replied that the speed of the process wasn’t the issue. He noted that even jurors who expressed negative feelings about the Enron situation stated that they would be able to judge the case without bias, and that nothing about the jurors’ responses indicated that they were inclined to vote based on a bias.

On the constitutional issue, Dreeben argued that the statute has been used to prosecute the very types of cases – like Skilling’s – it was intended to reach.

But Justice Antonin Scalia noted that even a vague statute can also be applied to its intended cases.

“Suppose you have a statute that criminalizes ‘doing a bad thing’,” Scalia said. “Of course murder would be covered.”

Dreeben argued that the honest services fraud law was adopted specifically to expand the wire fraud criminal statute to cover conduct that involved not only deprivation of property rights, but other intangibles such as bribes, kickbacks and inside trading.

He said Skilling violated his fiduciary duty “not to lie to shareholders.”

“Where does it say ‘fiduciary duty’ in the statute?” Scalia asked.

The Court is currently considering two other cases involving the honest services fraud statute: in Black v. U.S., the justices are considering the private sector application of the law in a case involving the conviction of newspaper magnate Conrad Black; and in Weyhrauch v. U.S., they will look at the law as applied to a public official, namely former Alaska state legislator Bruce Weyhrauch.

Both cases were argued in December, but they likely won’t be decided until the Court rules on the constitutional challenge presented in Skilling.

A decision from the Court is expected later this term.

Questions or comments can be directed to the writer at: kimberly.atkins@lawyersusaonline.com

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