White-collar lawyers say that federal prosecutors will have a tougher time getting convictions in public corruption cases if, as many predict, the U.S. Supreme Court strikes down the controversial “honest services fraud” statute.

The court heard arguments last month in two unrelated cases in which defense attorneys asked the justices to declare the widely used law, 18 U.S.C. §1346, unconstitutionally vague.

The statute, passed in 1988 in response to the Supreme Court’s McNally v. U.S. decision, which restricted a prosecutor’s ability to bring mail and wire fraud cases, has been used against public and private officials who engage in “a scheme or artifice to defraud another of the intangible right of honest services.”

“In the world of federal corruption prosecutions, there is no question that the outcome of these cases is enormously significant and is going to directly impact a number of prominent prosecutions across the country,” said Daniel I. Small, a former U.S. Department of Justice prosecutor who is not involved in either case.

Small, who practices at Holland & Knight in Boston, added that if the court strikes down the honest services fraud statute, “which many believe they will, it’s going to wreak havoc on a number of indictments and leave a large hole in the government’s ability to go after these cases. And it’s really not clear to me how that hole will be filled.”

John A. MacFadyen of MacFadyen, Gescheidt & O’Brien in Providence, R.I., who recently represented a Rhode Island hospital executive indicted under the statute, said one of the major problems with the law is the lack of clarity surrounding its meaning.

“The definition of honest services is as broad as the human imagination,” he said, “and the reality has been that in those circumstances where the prosecution has elected to press the envelope, they are defining the crime after the event. It’s an area where really smart people sitting in circuit courts have written themselves into very convoluted and conflicted positions.”

Thomas R. Kiley of Boston’s Cosgrove, Eisenberg & Kiley, who represented a Providence, R.I.-based CVS executive charged in 2008, said there has been an historic lack of uniformity among the federal courts with regard to what the law covers.

He added that prosecutors across the country have applied different tests in different cases.

Two days after the Supreme Court heard oral arguments, Kiley said, he was in California where “the Justice Department took a position on the issue that was the polar opposite of what they had said to the justices in Washington. The problem is that they don’t speak with a single voice around the country, and what you have is a statute that is being used extensively in ways that intrude on basic state federalism issues.”

‘Enormous impact’

Former Massachusetts acting U.S. Attorney Mark W. Pearlstein said lawyers across the country have long argued that the language in the honest services fraud statute does not provide defendants with sufficient notice.

Pearlstein, who now practices at McDermott, Will & Emery in Boston and has been closely following the debate, said the Supreme Court was clearly concerned with the vagueness issues raised during oral arguments.

“Just reciting the statutory language proves the point that we’re dealing with a pretty vague law,” he said. “As was noted by the court, there is any number of fairly trivial forms of employment behavior that could arguably fall within the rubric of a deprivation of honest services. I just don’t think the statute provides guidance as to what is lawful and what is not, and it appears there are a number of members of the Supreme Court who are very troubled by its seemingly limitless reach.”

As lawyers await the court’s decision, Pearlstein said, many prosecutors have been “hedging their bets” by bringing superseding indictments that include charges other than honest services fraud.

While superseding indictments could potentially save pending cases, such tactics will not help the “large number of cases across the country where people have been convicted and put in jail for honest services fraud,” Small said.
Those defendants, he said, will have a strong basis for appeal. When the Supreme Court determines that a law is unconstitutional, its holding generally applies retroactively.

“We’re not talking about a law that was passed a year or two ago,” he said. “This is something that has been used regularly for almost 20 years, so if the Supreme Court does what a lot of people think it may do and strikes this law down, it’s undoubtedly going to have an enormous impact.”

Flunking the test

During oral arguments, Washington, D.C., lawyer Miguel A. Estrada, who represents one of the defendants, told the court that the law covers a potentially endless set of actions and contains no concrete definition of honest services.

“The root difficulty in this case is that this court asked Congress to speak clearly, and Congress did not do that,” Estrada said.

He said that the constitutional problem with the statute could possibly be cured by limiting its application to cases involving bribes and kickbacks.

But that solution did not seem to sit well with Scalia.

“The problem with the bribe or kickback explanation [is] that there’s no basis in the statute for limiting it to that,” Scalia said.

“I don’t think that I can give an answer that would be fully satisfactory to a pure textualist that this can be taken out of the words of the statute,” Estrada admitted. “But I do not think that, even under the textualist view, it is fair to say that Congress [wanted to criminalize actions involving] the intent to defraud.”

Donald B. Ayer, who argued on behalf of the second defendant, said the statute covers alleged conduct that does not necessarily involve a violation of any state law. The breach of duty must involve, at least, the commission of a crime, Ayer argued.
“Maybe we are comfortable with thinking that Congress, with these wonderful 28 words [in the statute], actually meant to make the breach of [a] criminal duty punishable under this statute,” Ayer said.

Justice Stephen G. Breyer wondered if the statute is too broad, saying that something as simple as going to a baseball game on work time could result in criminal liability.
“Perhaps there are 150 million workers in the United States,” Breyer said. “I think possibly 140 of them would flunk your test” and violate the law.

Deputy Solicitor General Michael R. Dreeben, who argued both cases on the government’s behalf, contended that they did not raise the constitutional vagueness issue in the question presented.

A DOJ spokeswoman in Washington, D.C., declined to comment.

Reporter Noah Schaffer contributed to this story.