A Good Day To Be a CEO

Supreme Court Breakfast Table

A Good Day To Be a CEO

Supreme Court Breakfast Table

A Good Day To Be a CEO
An email conversation about the news of the day.
June 24 2010 6:03 PM

Supreme Court Breakfast Table


Wow. I thought briefing schedules could be tight, but this working on deadline is excruciating. How do you do this, Dahlia?

It will take me a while longer to digest the Supreme Court's opinion in Skilling v. United States, what turned out to be the lead case of the court's "honest services" trilogy (not as long as it will take me to adjust to the reality that the defending champs, the once-feared Azzurri, are out of the World Cup, but a while nonetheless). For one thing, the opinions in the Skilling case alone are more than 100 pages, and the lineup is interesting as justices flipped-flopped from  the majority to the dissent on the two major issues in the case. Hats off to Justice Ruth Bader Ginsburg for being able to keep a five-justice majority on each issue, even though only Chief Justice John Roberts joined her opinion in full.


One thing is clear: It was a good day to be a CEO before the high court. Both Jeffrey Skilling and Conrad Black scored at least partial victories. To be sure, Skilling lost in his effort to throw out his convictions completely based on the refusal of the trial court to transfer his case out of Houston. On this issue, Ginsburg was joined by the court's conservatives, while Justice Sonia Sotomayor wrote a 40-page dissent joined by Justices John Paul Stevens and Stephen Breyer. I focused more on the honest-services issue than this venue issue, but the one principle that emerges clearly is that it is a lot harder to win a change-of-venue motion if you commit a notorious crime in a big city like Houston instead of a small town. Maybe the fact that the justices are increasingly from big cities on the Eastern seaboard does have an effect on their decisions.

But although Skilling failed to win big on the venue issue, the court did trim way back on the scope of the honest-services provision of the federal government's two principal anti-fraud statutes, concerning mail and wire fraud. Just how much this trimming back will help Skilling and Black will be determined by the lower courts, but there is no question this was a big loss for the government. Indeed, not a single justice accepted the federal government's view of the statute as reflected at argument and in the jury instructions in the two high-profile prosecutions. The court divided on the issue of whether the statute should be substantially narrowed or thrown out entirely. On this issue, it was Justices Antonin Scalia, Anthony Kennedy, and Clarence Thomas flanking the rest of the court.  They would have issued an even more pro-criminal-defendant ruling and thrown out the statute in its entirety.

There are two interesting issues raised by the court's disposition. But first a little more background on the statute and the decision.  The classic case of fraud involves deceit that mulcts the victim out of some money. But what about a fraudulent scheme that less clearly tricks an identifiable victim out of money? Suppose a government employee has the power to award a valuable contract, but the price of the contract is fixed—the government will pay the contractor $1,000. If the employee takes a $100 kickback to award the contract to a relative, is there fraud, even without an obvious victim?  It sure feels like there is, which is why lower courts held that this kind of fraud, labeled by some as honest-services fraud because the government worker deprives the public of his or her honest services, was covered by the basic anti-fraud statutes.

But along came the Supreme Court in 1987—feeling a little more textual with the then-recent addition of Justice Scalia—to call a halt to such prosecutions. The court held in a case called McNally that, unless Congress intervened, the statute would be limited to more traditional fraudulent schemes. Congress did not take long to respond and enacted the language at issue in today's opinion. Specifically, Congress "made clear" that for purposes of the mail- and wire-fraud statutes, "the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services."

Clear as mud, all nine justices agreed today. Six said the statute was vague and had to be limited to the bribery and kickback schemes believed to be at the core of the conduct Congress sought to criminalize in responding to McNally. Neither Skilling nor Black was involved in a classic bribery or kickback scheme, so this was good news for them, although the court left the task of figuring out just how good the news really was to the lower courts. The three dissenters said the statute was so vague it had to be thrown out entirely.

Two things seem particularly interesting about the court's disposition. First, by narrowing the statute rather than invalidating it, and by leaving the lower courts to sort out the details, the court may succeed in blunting some of the backlash that could have come from a decision freeing Skilling and Black and invalidating the statute even when it comes to bribery and kickbacks.  Second, the back-and-forth between Ginsburg's majority opinion and Scalia's dissent really goes to the heart of the proper role of the court in responding to problematic legislation. Every justice agreed that the phrase Congress actually used—"the intangible right to honest services"—was impermissibly vague.  All nine would have also agreed that terms like bribery and kickback are clear, and are not normally mere synonyms for "the intangible right to honest services."

But from that common starting point the justices came to very different conclusions:  the majority salvaged what it identified as the core of what Congress hoped to criminalize, while the dissenters would have sent Congress back to the drawing board. It will be interesting to see how Congress reacts. Perhaps Congress will respond to augment the narrowed statute that emerged from the majority opinion. On the other hand, there is no question that Congress would have responded swiftly if the court had invalidated the provision entirely, and Congress probably would not have stopped with just prohibitions on kickbacks and bribes. Beyond all that, the dissent does show Scalia in his pro-criminal-defendant mode.

Walter, I know your firm was involved in Skilling and so you may be constrained in what you can say. But I would be fascinated by your reaction to this landmark criminal law decision. And Dahlia, since you seem less distracted by the World Cup (my son accused me of "double-screening" during the Italy game as I tried to get results from First Street and South Africa simultaneously), I am guessing you have had more time to read the court's opinions. What did I miss in focusing on Skilling?