By Leo Strupczewski
The Legal Intelligencer
When the U.S. Supreme Court issued decisions in three companion cases challenging the constitutionality of the honest services fraud statute, some white collar defense attorneys were expecting the Department of Justice to review the opinions and issue guidelines before federal prosecutors took any action on potentially affected cases.
It doesn't appear that process has taken very long.
Just two days after the high court's decision to limit the statute to bribery and kickbacks, Thomas D. Carbo, a Norristown, Pa., businessman who was convicted of honest services fraud under an "undisclosed conflict of interest" theory, filed an emergency motion for judgment of acquittal.
It took another two days for the prosecutor in the case to inform the judge, U.S. District Judge for the Eastern District of Pennsylvania Mary A. McGlaughlin, that the government did not oppose the motion, and one additional day for McGlaughlin to grant the motion.
Though it might be a telling example of the magnitude of impact the Supreme Court's decision in Skilling v. United States will have, some defense attorneys are reserved in their expectations.
Whatever the Department of Justice determines, some attorneys believe the result will ultimately be that prosecutors will argue the limiting nature of the high court's decisions isn't really that narrow at all.
"What I think you're going to see is a prosecutor arguing, 'Well, really, it's a bribery case. ... Really, it's a kickback case,'" said Larry Lustberg, chair of the criminal defense department at Gibbons in Newark, N.J.
And that, it seems, will be the jump-off point for the latest twist in the debate on honest services fraud.
The recent decision and subsequent debate could have an impact in Pennsylvania, where three judges in Luzerne County have either pleaded guilty to honest services fraud or have been charged with the crime and three other individuals have argued against convictions on the crime before the 3rd U.S. Circuit Court of Appeals.
Long argued by defense attorneys to be unconstitutionally vague, the U.S. Supreme Court last month ruled to limit the honest services fraud statute. Instead of allowing federal prosecutors the leniency to attach an honest services fraud charge to allegations stemming from self-dealings and undisclosed conflicts of interest, prosecutors are now hamstrung to the statute's "core applications" — bribery and kickbacks.
The high court, however, failed to define "bribery" in its decisions on the issue.
And with different sections of the federal criminal code defining "bribery" differently, defense attorneys anticipate prosecutors may argue the law developed in Skilling v. United States, Black v. United States and Weyrauch v. United States does not require a "quid pro quo" exchange to meet the charging threshold.
"The question of what is bribery and what are kickbacks will be the subject of a lot of litigation," said Lustberg, who has argued the honest services fraud issue before the 3rd Circuit. "I'm sure there's more to come on all that."
Filling the Gap
Defense attorneys interviewed by Pennsylvania Law Weekly, of course, were unanimous in opining that prosecutors will have to prove a quid pro quo arrangement to prosecute a defendant using honest services fraud.
And that would make the charge more difficult to prove.
No longer, said Lustberg, can honest services fraud be related to simply currying favor or a campaign contribution in exchange for a possible favor down the road.
"It has to be, 'I give you this, you give me that,'" Lustberg said. "It's really going to depend not upon the evidence, but upon the indictment. You can't get underneath the indictment."
To get there, said Pepper Hamilton attorney Michael A. Schwartz, federal officials will likely take a different tack to their investigations.
For one, he said, law enforcement will likely resort to more sting operations, similar in nature to the FBI's ABSCAM investigation in the 1970s, and wiretaps.
Further, he said, state attorneys general and local district attorneys will likely be more involved in prosecuting state conflict of interest laws.
Schwartz, a former federal prosecutor, said more vigorous investigations will stem from the fact that honest services fraud, before Skilling, had been used to bridge the gap between two federal bribery and kickback laws — sections 201 and 666 of the federal criminal code.
Section 201 covers bribes involving federal officials, Schwartz said, and Section 666 covers bribes of more than $5,000 involving local and state officials whose entities receive more than $10,000 in federal assistance.
Those statutes, however, require a quid pro quo arrangement, Schwartz said. Further, local officials have skirted prosecution under Section 666 for bribes smaller than $5,000 or in situations where their entity failed to receive the requisite amount of federal assistance.
"The practical reality is, without a tape recording or the cooperation of one of the participants, it is often impossible to prove there was, in fact, a quid pro quo bribery," Schwartz said.
To get around that, prosecutors in the past have charged public officials with extortion, but that charge deals with "unwilling payors," people who provide public officials with money outside the color of their office but who are also viewed as victims. Those people cannot be prosecuted for their actions, Schwartz said.
Those realities made — and still make — honest services fraud a valuable tool for prosecutors.
The court in Skilling did not change the limits to whom the statute may apply.
"I think honest services fraud fills that gap," Schwartz said. "The federal hook is either that the mails or the interstate wires are used. That gives the federal jurisdiction. As a former prosecutor, juries understand this concept that a public official promises to act in a manner that is not self interest but is in the best interest of the taxpayers and the citizens."
Questions Ahead
Jill Fisch, a professor at University of Pennsylvania Law School, said the decision "hugely clarifies" what constitutes honest services fraud.
That doesn't mean, however, that the ruling puts an end to debates concerning honest services fraud.
Toward the end of Justice Ruth Bader Ginsburg's majority opinion in Skilling, the court wrote that the statute's "prohibition on bribes and kickbacks draws content not only from the pre-McNally case law, but also from federal statutes proscribing — and defining — similar crimes."
Though there will always be "borderline cases" as to what constitutes bribery and kickbacks, Fisch said, "we have a fairly good idea of what those terms mean."
But the language used in Skilling isn't a definition, said Philadelphia attorney Lisa Mathewson. Instead, it's a call for a uniform standard.
And that's a problem, she said.
Bribery is defined differently under sections 201 and 666 of the federal criminal code, Mathewson said, and circuit courts of appeal are split on whether Section 666 requires a quid pro quo arrangement.
Because Skilling calls for pulling from "disparate sources," there is a potential to actually dilute the existing case law, said Mathewson, who has developed a niche in defending honest services fraud cases.
That means definitions will likely be molded on a case-by-case basis and "probably 10 years from now, end up in front of the Supreme Court again."
"These decisions reduce the elasticity, but they don't reduce the confusion," said Mathewson, who has developed a niche in defending honest services fraud cases. "What they're doing is simply shifting the grounds of debate to the meaning of bribery."
Cases Affected?
In Luzerne County, former Judges Michael T. Conahan and Mark A. Ciavarella Jr. were charged with a 48-count racketeering indictment that included charges of honest services fraud for allegedly taking more than $2.8 million in payments from the builder and former co-owner of a private juvenile detention facility.
Conahan has since pleaded guilty to one count of racketeering, but Ciavarella has maintained his innocence.
Neither of the judges' attorneys commented for the story. Nor did the attorney for a third Luzerne County judge, Michael T. Toole, who pleaded guilty in December to tax fraud and honest services fraud for failing to disclose a $30,000 payment on his taxes and for improperly ruling in an attorney's favor after accepting things of value from him.
Several white-collar defense attorneys contacted by the Law Weekly were unwilling to discuss Skilling's impact on the Luzerne County corruption scandal. Some had ties to the probe and said it would be inappropriate to discuss the situation, but others simply balked at discussing the high profile cases.
So, what will happen with those charges and plea agreements is unclear.
Mathewson, though, said she has already begun reviewing the Skilling decision as it relates to the convictions of her clients, former New Jersey state Sen. Wayne Bryant and former Philadelphia City Council aide Christopher Wright.
Mathewson also represents Carbo, the Norristown businessman.
"Every case [involving honest services fraud] is going to go up on appeal," she said.
Judging the Impact
Though the court's decision in Skilling will apply retroactively, the majority complicated matters by injecting a harmless error analysis into reviews of honest services fraud convictions, Mathewson said.
Prior to the ruling, the procedural rules required a new trial when a legal theory presented to the jury was invalid. There was a presumption, said Mathewson, that the error infected the jury.
That rule, developed under the 1957 high court decision Yates v. United States, was never before subjected to a harmless error analysis, said Mathewson.
Now, there has to be a showing.
"It's really undermining the whole concept of the presumption," Mathewson said. "Under Yates, you got a new trial. I don't know what the showing has to be."
Northwestern University Law School professor Al Alschuler, whose amicus curiae brief in Weyrauch laid out the reasoning adopted by the majority in Skilling, said the burden, whatever it turns out to be, will fall to the defendant to show the error infected the jury.
"The government can argue even if the jury was instructed incorrectly ... if the evidence clearly establishes guilt, that's harmless error," Alschuler said.
Still, he said, prosecutors used honest services fraud as a tool to introduce "a lot more" evidence than needed and that they may now "pay the price for that."
"Those kinds of games are gone," he said. "Under quid pro quo, you can't introduce patronage hiring. That doesn't have anything to do with it."
For those currently facing honest services fraud charges on a theory other than bribery or kickbacks, the scramble is likely already beginning.
Alschuler and Lustberg both said federal prosecutors may have to resort to superseding indictments.
A good example, said Alschuler, is former Illinois Gov. Rod Blagojevich's case. There, the U.S. Attorney's Office handling the prosecution reindicted Blagojevich on RICO violations after initially charging him with honest services fraud, Alschuler said.
"They don't have to dump [the charges] now," Alschuler said. "They had anticipated the ruling and taken it into account."
Of course, those new charges require a greater burden of proof on the part of the prosecution.
"There is going to be some number of cases where you can't pound the square peg into the round hole," Lustberg said. "Where there's not a way of twisting it into a proper mail fraud theory."
It took another two days for the prosecutor in the case to inform the judge, U.S. District Judge for the Eastern District of Pennsylvania Mary A. McGlaughlin, that the government did not oppose the motion, and one additional day for McGlaughlin to grant the motion.
Though it might be a telling example of the magnitude of impact the Supreme Court's decision in Skilling v. United States will have, some defense attorneys are reserved in their expectations.
Whatever the Department of Justice determines, some attorneys believe the result will ultimately be that prosecutors will argue the limiting nature of the high court's decisions isn't really that narrow at all.
"What I think you're going to see is a prosecutor arguing, 'Well, really, it's a bribery case. ... Really, it's a kickback case,'" said Larry Lustberg, chair of the criminal defense department at Gibbons in Newark, N.J.
And that, it seems, will be the jump-off point for the latest twist in the debate on honest services fraud.
The recent decision and subsequent debate could have an impact in Pennsylvania, where three judges in Luzerne County have either pleaded guilty to honest services fraud or have been charged with the crime and three other individuals have argued against convictions on the crime before the 3rd U.S. Circuit Court of Appeals.
Long argued by defense attorneys to be unconstitutionally vague, the U.S. Supreme Court last month ruled to limit the honest services fraud statute. Instead of allowing federal prosecutors the leniency to attach an honest services fraud charge to allegations stemming from self-dealings and undisclosed conflicts of interest, prosecutors are now hamstrung to the statute's "core applications" — bribery and kickbacks.
The high court, however, failed to define "bribery" in its decisions on the issue.
And with different sections of the federal criminal code defining "bribery" differently, defense attorneys anticipate prosecutors may argue the law developed in Skilling v. United States, Black v. United States and Weyrauch v. United States does not require a "quid pro quo" exchange to meet the charging threshold.
"The question of what is bribery and what are kickbacks will be the subject of a lot of litigation," said Lustberg, who has argued the honest services fraud issue before the 3rd Circuit. "I'm sure there's more to come on all that."
Filling the Gap
Defense attorneys interviewed by Pennsylvania Law Weekly, of course, were unanimous in opining that prosecutors will have to prove a quid pro quo arrangement to prosecute a defendant using honest services fraud.
And that would make the charge more difficult to prove.
No longer, said Lustberg, can honest services fraud be related to simply currying favor or a campaign contribution in exchange for a possible favor down the road.
"It has to be, 'I give you this, you give me that,'" Lustberg said. "It's really going to depend not upon the evidence, but upon the indictment. You can't get underneath the indictment."
To get there, said Pepper Hamilton attorney Michael A. Schwartz, federal officials will likely take a different tack to their investigations.
For one, he said, law enforcement will likely resort to more sting operations, similar in nature to the FBI's ABSCAM investigation in the 1970s, and wiretaps.
Further, he said, state attorneys general and local district attorneys will likely be more involved in prosecuting state conflict of interest laws.
Schwartz, a former federal prosecutor, said more vigorous investigations will stem from the fact that honest services fraud, before Skilling, had been used to bridge the gap between two federal bribery and kickback laws — sections 201 and 666 of the federal criminal code.
Section 201 covers bribes involving federal officials, Schwartz said, and Section 666 covers bribes of more than $5,000 involving local and state officials whose entities receive more than $10,000 in federal assistance.
Those statutes, however, require a quid pro quo arrangement, Schwartz said. Further, local officials have skirted prosecution under Section 666 for bribes smaller than $5,000 or in situations where their entity failed to receive the requisite amount of federal assistance.
"The practical reality is, without a tape recording or the cooperation of one of the participants, it is often impossible to prove there was, in fact, a quid pro quo bribery," Schwartz said.
To get around that, prosecutors in the past have charged public officials with extortion, but that charge deals with "unwilling payors," people who provide public officials with money outside the color of their office but who are also viewed as victims. Those people cannot be prosecuted for their actions, Schwartz said.
Those realities made — and still make — honest services fraud a valuable tool for prosecutors.
The court in Skilling did not change the limits to whom the statute may apply.
"I think honest services fraud fills that gap," Schwartz said. "The federal hook is either that the mails or the interstate wires are used. That gives the federal jurisdiction. As a former prosecutor, juries understand this concept that a public official promises to act in a manner that is not self interest but is in the best interest of the taxpayers and the citizens."
Questions Ahead
Jill Fisch, a professor at University of Pennsylvania Law School, said the decision "hugely clarifies" what constitutes honest services fraud.
That doesn't mean, however, that the ruling puts an end to debates concerning honest services fraud.
Toward the end of Justice Ruth Bader Ginsburg's majority opinion in Skilling, the court wrote that the statute's "prohibition on bribes and kickbacks draws content not only from the pre-McNally case law, but also from federal statutes proscribing — and defining — similar crimes."
Though there will always be "borderline cases" as to what constitutes bribery and kickbacks, Fisch said, "we have a fairly good idea of what those terms mean."
But the language used in Skilling isn't a definition, said Philadelphia attorney Lisa Mathewson. Instead, it's a call for a uniform standard.
And that's a problem, she said.
Bribery is defined differently under sections 201 and 666 of the federal criminal code, Mathewson said, and circuit courts of appeal are split on whether Section 666 requires a quid pro quo arrangement.
Because Skilling calls for pulling from "disparate sources," there is a potential to actually dilute the existing case law, said Mathewson, who has developed a niche in defending honest services fraud cases.
That means definitions will likely be molded on a case-by-case basis and "probably 10 years from now, end up in front of the Supreme Court again."
"These decisions reduce the elasticity, but they don't reduce the confusion," said Mathewson, who has developed a niche in defending honest services fraud cases. "What they're doing is simply shifting the grounds of debate to the meaning of bribery."
Cases Affected?
In Luzerne County, former Judges Michael T. Conahan and Mark A. Ciavarella Jr. were charged with a 48-count racketeering indictment that included charges of honest services fraud for allegedly taking more than $2.8 million in payments from the builder and former co-owner of a private juvenile detention facility.
Conahan has since pleaded guilty to one count of racketeering, but Ciavarella has maintained his innocence.
Neither of the judges' attorneys commented for the story. Nor did the attorney for a third Luzerne County judge, Michael T. Toole, who pleaded guilty in December to tax fraud and honest services fraud for failing to disclose a $30,000 payment on his taxes and for improperly ruling in an attorney's favor after accepting things of value from him.
Several white-collar defense attorneys contacted by the Law Weekly were unwilling to discuss Skilling's impact on the Luzerne County corruption scandal. Some had ties to the probe and said it would be inappropriate to discuss the situation, but others simply balked at discussing the high profile cases.
So, what will happen with those charges and plea agreements is unclear.
Mathewson, though, said she has already begun reviewing the Skilling decision as it relates to the convictions of her clients, former New Jersey state Sen. Wayne Bryant and former Philadelphia City Council aide Christopher Wright.
Mathewson also represents Carbo, the Norristown businessman.
"Every case [involving honest services fraud] is going to go up on appeal," she said.
Judging the Impact
Though the court's decision in Skilling will apply retroactively, the majority complicated matters by injecting a harmless error analysis into reviews of honest services fraud convictions, Mathewson said.
Prior to the ruling, the procedural rules required a new trial when a legal theory presented to the jury was invalid. There was a presumption, said Mathewson, that the error infected the jury.
That rule, developed under the 1957 high court decision Yates v. United States, was never before subjected to a harmless error analysis, said Mathewson.
Now, there has to be a showing.
"It's really undermining the whole concept of the presumption," Mathewson said. "Under Yates, you got a new trial. I don't know what the showing has to be."
Northwestern University Law School professor Al Alschuler, whose amicus curiae brief in Weyrauch laid out the reasoning adopted by the majority in Skilling, said the burden, whatever it turns out to be, will fall to the defendant to show the error infected the jury.
"The government can argue even if the jury was instructed incorrectly ... if the evidence clearly establishes guilt, that's harmless error," Alschuler said.
Still, he said, prosecutors used honest services fraud as a tool to introduce "a lot more" evidence than needed and that they may now "pay the price for that."
"Those kinds of games are gone," he said. "Under quid pro quo, you can't introduce patronage hiring. That doesn't have anything to do with it."
For those currently facing honest services fraud charges on a theory other than bribery or kickbacks, the scramble is likely already beginning.
Alschuler and Lustberg both said federal prosecutors may have to resort to superseding indictments.
A good example, said Alschuler, is former Illinois Gov. Rod Blagojevich's case. There, the U.S. Attorney's Office handling the prosecution reindicted Blagojevich on RICO violations after initially charging him with honest services fraud, Alschuler said.
"They don't have to dump [the charges] now," Alschuler said. "They had anticipated the ruling and taken it into account."
Of course, those new charges require a greater burden of proof on the part of the prosecution.
"There is going to be some number of cases where you can't pound the square peg into the round hole," Lustberg said. "Where there's not a way of twisting it into a proper mail fraud theory."