Question

In the Skilling v. United States 130 S. Ct. 2896 (2010), what did the court hold regarding "honest services"?

Answer 1

When one tampers with the employer-employee relationship for the purpose of causing the employee to breach his duty to his employer, he in effect is defrauding the employer of a lawful right. The actual deception that is practiced is in the continued representation of the employee to the employer that he is honest and loyal to the employer’s interests.

Quote the case: Petitioner Jeffrey K. Skilling was the former chief executive officer of Enron, then an energy and commodities company, from February until August 2001. Less than four months later, Enron, the seventh-highest revenue-grossing company in America at the time, crashed into bankruptcy, and its stock plummeted in value. Skilling was charged with engaging in a scheme to deceive investors about Enron’s true finances by manipulating its publicly reported financial results and making false and misleading statements about Enron’s financial performance. Count One of the indictment charged Skilling with conspiracy to commit honest services wire fraud by depriving Enron and its shareholders of the intangible right of his honest services.

After a four-month trial, the jury found Skilling guilty of nineteen counts, including the honest services fraud conspiracy charge, and not guilty of nine insider trading counts. Skilling appealed, claiming his conviction was premised on an improper theory of honest services wire fraud.Skilling maintained that section 1346 was unconstitutionally vague, and alternatively, that his conduct did not fall within the statute. The Fifth Circuit affirmed Skilling’s convictions, and the Supreme Court granted certiorari.

The Court acknowledged that Skilling’s vagueness challenge had force because honest services decisions were not models of clarity or consistency, but held that there is a definable core of honest services cases. The Court in Skilling determined that the statute should be construed and pared down.

In view of the history of honest services cases, the Court determined that Congress intended section 1346 to reach “at least” bribes and kickbacks. The Court stated that the McNally case itself, which spurred Congress to enact section 1346, presented a paradigmatic kickback fact pattern. The Court acknowledged that reading the statute to proscribe a wider range of offensive conduct would raise the due process concerns underlying the vagueness doctrine.

As to Skilling’s conduct, the Court noted that the Government did not, at any time, allege that Skilling solicited, accepted, or offered payments to or from a third party in exchange for making these misrepresentations. Therefore, he did not commit honest services fraud.

Conclusion: A charge under section 1346 now requires that the defendant have a fiduciary duty, and the scheme to defraud of honest services is limited to bribery and kickback schemes.