Supreme Court's Opinion on Skilling v. U.S. Now Online At

June 24, 2010

An irreverent Wall Street Blog
by Bill Singer


Bill Singer's Comment: 

In its Opinion dated June 24, 2010, the United States Supreme Court ruled on the appeal of Jeffrey Skilling.  The Court stated that in 2001, Enron Corporation, then the seventh highest revenue-grossing company in America, crashed into bankruptcy. Thereafter, Skilling and two other top Enron executives were indicted for engaging in a scheme to deceive investors about Enron's true financial performance by manipulating its publicly reported financial results and making false and misleading statements.

As against Skilling, Count 1 of the indictment charged him with, inter alia, conspiracy to commit "honest-services" wire fraud, 18 U. S. C. §§371, 1343, 1346, by depriving Enron and its shareholders of the intangible right of his honest services. Skilling was also charged with over 25 substantive counts of securities fraud, wire fraud, making false representations to Enron's auditors, and insider trading.

The Supreme Court considered two questions arising from the prosecution of Skilling:

  • First, did pretrial publicity and community prejudice prevent Skilling from obtaining a fair trial?

  • Second, did the jury improperly convict Skilling of conspiracy to commit "honest-services" wire fraud, 18 U. S. C.§§371, 1343, 1346.
As to the first basis for appeal, the Fifth Circuit had previously determined that the volume and negative tone of media coverage generated by Enron's collapse created a presumption of juror prejudice. However, that was a rebuttable presumption and the Circuit concluded that lower District Court had empaneled an impartial jury.

As to the second basis for appeal, the Fifth Circuit was satisfied that the jury had properly convicted Skilling of the alleged honest-services conspiracy.

Answering "no" to both questions, the Fifth Circuit Court of Appeals affirmed Skilling's convictions.

The Supreme Court concurred with the Fifth Circuit, and found that Skilling's fair-trial argument failed. The Supreme Court found that Skilling failed to establish that a presumption of juror prejudice arose or that actual bias infected the jury that tried him. Although the Supreme Court has overturned a conviction obtained in a trial atmosphere that was utterly corrupted by press coverage,  the Court would not broaden its prior rulings to stand for the proposition that juror exposure to news accounts of a given crime alone presumptively deprives a defendant of due process. The Court admonished that

Prominence does not necessarily produce prejudice, and juror impartiality, we have reiterated, does not require ignorance.

In this case, the news stories about Enron did not present the kind of vivid, unforgettable information that the Supreme Court has recognized as particularly likely to produce prejudice, and given the size of Houston as the trial venue and the diversity within that city, the Court believed that the media's impact was diluted.
Further, the Court found it of "prime significance," that Skilling's jury acquitted him of nine insider-trading counts.

However, the Supreme Court disagreed with the Fifth Circuit's honest-services ruling. In order to satisfy due process,  the Supreme Court noted that a penal statute must define the criminal offense
  1. with sufficient definiteness that ordinary people can understand what conduct is prohibited, and
  2. in a manner that does not encourage arbitrary and discriminatory enforcement.
In reviewing the statutory history, the Court found that Congress intended at least to reach schemes to defraud involving bribes and kickbacks. As such, the Supreme Court interpreted the law as encompassing only bribery and kickback schemes -- the alternative available to the Supreme Court would have been to simply strike down the entire law. This rigid interpretation allows §1346 to pass muster and not be deemed unconstitutionally vague .

However, in Skilling, the Court was clearly troubled by the attempt to stretch the statute beyond its plain and reasonable language.  If the government's case had merely charged that Skilling fraudulently deprived another of his honest services by accepting bribes or kickbacks, then the Court would likely have sustained the fair-notice aspect of that count.  Because
bribes and kickbacks traditionally constituted the foundation of honest-services fraud, the absence of those predicate acts were deemed material and rendered the count as lacking in fair notice to Skilling.  As such, the Supreme Court held that because Skilling's alleged misconduct entailed no bribe or kickback, his conduct fell outside §1346's proscription.

Accordingly, in its Opinion by Justice Ginsburg, the Court affirmed in part and vacated in part.

NOTE: The Court previously granted certiorari and heard arguments during this Term in two other cases raising questions concerning the honest-services statute's scope. See Black v. United States, No. 08-876; Weyhrauch v. United States, No. 08-1196. The Court vacated and remanded those decisions in light of this opinion.

Part I (jury impartiality),
Part II (voir dire), and
Part III (honest services)

Justice Alito filed a separate Opinion that joined the judgment of the Court on Parts I and III but not Part II.  Alito expressed concerns about the adequacy of the voir dire in Skilling and the trial judge's findings that certain jurors could be impartial, but ultimately found the circumstances to be highly fact-specific issues and not within the question presented on appeal.  Alito states that the Sixth Amendment guarantees criminal defendants a trial before "an impartial jury." He deems that requirement is satisfied so long as no biased juror is actually seated at trial. Of course, evidence of pretrial media attention and widespread community hostility may play a role in the bias inquiry.

Justice Sotomayor was joined by Justices Stevens and Breyer in a concurrence in part and dissent in part.  Justice Sotomayor's Opinion noted that:

I concur in the Court's resolution of the honest-services fraud question and join Part III of its opinion. I respectfully dissent, however, from the Court's conclusion that Jeffrey Skilling received a fair trial before an impartial jury. Under our relevant precedents, the more intense the public's antipathy toward a defendant, the more careful acourt must be to prevent that sentiment from tainting the jury. In this case, passions ran extremely high. The sudden collapse of Enron directly affected thousands of people in the Houston area and shocked the entire community. The accompanying barrage of local media coverage was massive in volume and often caustic in tone. As Enron's one-time CEO, Skilling was at the center of the storm. Even if these extraordinary circumstances did not constitutionally compel a change of venue, they required the District Court to conduct a thorough voir dire in which prospective jurors' attitudes about the case were closely scrutinized. The District Court's inquiry lacked the necessary thoroughness and left serious doubts about whether the jury empaneled to decide Skilling's case was capable of rendering an impartial decision based solely on the evidence presented in the courtroom. Accordingly, I would grant Skilling relief on his fair-trial claim.

In another separate Opinion in Skilling, Justice Scalia was joined by Justice Thomas as to Parts I (jury impartiality), II (voir dire), and III (honest services), and joined by Justice Kennedy except as to Part III (essentially a concurrence in part and a concurrence in the judgment). In typically blunt and barbed language, Justice Scalia states:

I also agree that the decision upholding Skilling's conviction for so-called "honest services fraud" must be reversed, but for a different reason. In my view, the specification in 18 U. S. C. §1346 (2006 ed., Supp. II) that "scheme or artifice to defraud" in the mail-fraud and wire-fraud statutes, §§1341 and 1343(2006 ed.), includes "a scheme or artifice to deprive another of the intangible right of honest services," is vague, and therefore violates the Due Process Clause of the Fifth Amendment. The Court strikes a pose of judicial humility in proclaiming that our task is "not to destroy the Act . . . but to construe it," ante, at 43 (internal quotation marks omitted). But in transforming the prohibition of "honest services fraud" into a prohibition of "bribery and kickbacks" it is wielding a power we long ago abjured: the power to define new federal crimes. See United States v. Hudson, 7 Cranch 32, 34 (1812).

. . .

It is hard to imagine a case that more clearly fits the description of what Chief Justice Waite said could not be done, in a colorful passage oft-cited in our vagueness opinions, United States v. Reese, 92 U. S., at 221:

"The question, then, to be determined, is, whether we can introduce words of limitation into a penal statute so as to make it specific, when, as expressed, it is general only.

"It would certainly be dangerous if the legislature could set a net large enough to catch all possible offenders, and leave it to the courts to step inside and say who could be rightfully detained, and who should be set at large. This would, to some extent, substitute the judicial for the legislative department of the government. . . .

"To limit this statute in the manner now asked for would be to make a new law, not to enforce an old one. This is no part of our duty."


Finally, not that my ego knows no bounds, but I have reprinted verbatim my thoughts from December 8, 2009 on the Black case as it related to the "honest services" count. No wonder they pay me the big bucks!

Back At Black: Honest Services . . . indeed!

Written December 8, 2009

A number of reporters have asked me about the so-called "honest service" fraud on which U.S. v. Conrad Black et al. was indicted, convicted, and which now serves as the basis for his appeal before the United States Supreme Court.  I reprint below the verbatim applicable sections:


§ 1341. Frauds and swindles

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation occurs in relation to, or involving any benefit authorized, transported, transmitted, transferred, disbursed, or paid in connection with, a presidentially declared major disaster or emergency (as those terms are defined in section 102 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5122)), or affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

§ 1346. Definition of "scheme or artifice to defraud" 
For the purposes of this chapter, the term "scheme or artifice to defraud" includes a scheme or artifice to deprive another of the intangible right of honest services.

Although I do not defend Defendant Black's conduct as alleged in the Indictment, and while I frankly find much of his conduct reprehensible, nonetheless, I am deeply trouble by the vague and overly elastic language that forms the basis of his conviction.  For a statute to define as fraudulent an act that deprives another "of the intangible right of honest services," strikes me as so vague as to be void.  Moreover, the drafting is such a bizarre example of circular logic that I can hardly imagine that its passage into law was not accompanied by much laughing and elbowing in the ribs. Alas -- so much for those entrusted with drafting and passing our laws.

Come to think of it, since few elected officials appear to deliver honest services, perhaps we simply need to cast a wide net and round up the malfeasors and nonfeasors in government who plague us?  Now that would be a fine application of this law!