Black v. United States (08

Oral argument: 
December 8, 2009

Oral argument: Dec. 8, 2009

Appealed from: United States Court of Appeals for the Seventh Circuit (June 25, 2008)


The United States convicted Petitioners Conrad Black, John Boultbee, and Mark Kipnis of mail and wire fraud under 18 U.S.C. § 1341. The Seventh Circuit affirmed the convictions, rejecting arguments that the trial judge erred in failing to instruct the jury that a violation of 18 U.S.C. § 1346 requires contemplation of economic harm to the party to whom one owes “honest services.” The Seventh Circuit further held that objection to the prosecution’s request for a special verdict constituted waiver of the right to challenge the trial judge’s instruction in light of the fact that a special verdict would have clarified whether the trial judge’s instruction regarding honest services fraud was the basis for the convictions. The Supreme Court’s decision will determine the limits of the honest services provision and the means by which to preserve instructional error.

Questions presented

1. Whether 18 U.S.C. § 1346 applies to the conduct of a private individual whose alleged "scheme to defraud" did not contemplate economic or other property harm to the private party to whom honest services were owed.

2. Whether a court of appeals may avoid review of prejudicial instructional error by retroactively imposing an onerous preservation requirement not found in the federal rules.



Whether honest services fraud requires a showing of economic harm, and whether a preservation requirement enables an honest services fraud conviction to be upheld without analyzing jury instructions for error.



Hollinger International, Inc. (“Hollinger”), owner of the Chicago Sun-Times, came under governmental suspicion in 1998 when it began executing non-competition agreements in connection with the sale of most of its smaller newspapers. See United States v. Black, 530 F.3d 596, 599 (7th Cir. 2008). Of particular suspicion was one agreement, drafted and executed by Mark S. Kipnis, Hollinger’s Corporate Counsel, which paid four Hollinger executives, including Conrad M. Black, Hollinger’s CEO, and John A. Boultbee, Hollinger’s Executive Vice President, a total of $5.5 million in exchange for their promise not to compete with a Hollinger subsidiary. See id. Petitioners, Conrad M. Black, et al. (“Black”), maintain that the payments represented rightfully-earned compensation for their management of Hollinger. See id. They state that ordinarily their compensation came from the management fee account of Ravelston Corp. Ltd., a private Canadian company that effectively controlled Hollinger through voting shares. See id. But, they explain, compensation in the form of non-compete payments was preferable because it allowed Canadian executives, Black and Boultbee, to profit from Canadian law rendering non-competition agreements nontaxable. See id.

Because Black both failed to disclose the payments to the Securities and Exchange Commission and caused Hollinger to falsely represent to its shareholders that the payments were made in satisfaction of “a closing condition,” the United States charged them with, inter alia, violating 18 U.S.C. § 1341 and 18 U.S.C. § 1346. See Black, 530 F.3d at 599. 18 U.S.C. § 1341 criminalizes using the mail system to obtain money fraudulently, while 18 U.S.C. § 1346 states that § 1341 includes schemes “to deprive another of the intangible right of honest services.” 18 U.S.C. 1341; 18 U.S.C. § 1346. At trial in the United States District Court for the Northern District of Illinois, the judge instructed the jury that it could convict Black for conventional fraud (theft of money or other property from Hollinger by misrepresentation and misleading omissions amounting to fraud) or honest-services fraud. See Black, 530 F.3d at 600. The judge further instructed the jury that conviction for honest services fraud required a finding that Black schemed to deprive Hollinger International of “the intangible right” to “honest services” and that “the objective of the scheme was for private gain.” See id.

A jury convicted Black of both mail fraud and wire fraud under 18 U.S.C. § 1341. See Black, 530 F.3d 596, 598 (7th Cir. 2008). Black appealed to the Seventh Circuit Court of Appeals, arguing that the district court erred by failing to instruct the jury that a conviction for honest-services fraud required proving economic injury to Hollinger, rather than to the Canadian government. See id. at 602–03. The Seventh Circuit rejected this argument and affirmed the district court’s decision, reasoning that even if the honest-services instruction were incorrect, it was harmless error. See id. Additionally, the Seventh Circuit rejected Black’s appeal based on a finding that Black’s objection to the United State’s request for a special verdict constituted forfeiture of the right to challenge the judge’s jury instructions. See id. Specifically, the Seventh Circuit stated that“[i]f the jury had been given a special verdict that separated the two types of fraud, and had indicated on the verdict that the defendants were not guilty of an honest services fraud, the challenge to the instruction would be moot.” Id. at 603.

The Supreme Court granted certiorari on May 18, 2009 to determine the scope of the honest services provision and whether an appeals court may avoid review of instructional error by retroactively imposing a preservation requirement. See Docket No. 08-876.



Directly at issue in this case is whether 18 U.S.C. § 1346 (“§1346”) contains a contemplated-economic-harm requirement. See Brief for Petitioners, Conrad Black, John Boultbee, and Mark Kipnis (“Black”) at 22; Brief for Respondent, United States of America at 15. White-collar criminal defendants, businesses, criminal defense attorneys, and organizations concerned about holding unethical public officials accountable for their actions care most about the Court’s decision.

An example of a white-collar criminal defendant with a strong interest in this case is Jeffrey Skilling, a former Enron Corporation executive currently incarcerated for securities and wire fraud in relation to Enron’s bankruptcy in 2001. See Brief of Amicus Curiae Jeffrey Skilling in Support of Neither Party at 1. Though Skilling does not support either Black or the United States, he views the outcome of this case as possibly instrumental to him winning a reversal of his conviction. See id. at 2. Skilling’s interest is in whether the Court will find that §1346 requires proof of private gain. See id. at 1. He urges the Court to find that honest services fraud “requires proof that the defendant acted for “private gain,” rather than to advance the employer’s interests.” Id. He insists that this requirement is necessary in order to differentiate unwise or unethical acts (for which convictions are unsustainable) from criminal conduct (for which convictions are sustainable). See id. at 12–14.

The Chamber of Commerce, representing the interests of businesses, also urges the Court to demarcate clearly what constitutes criminal conduct under §1346. See Brief of Amicus Curiae Chamber of Commerce in Support of Petitioners. It expresses particular concern over what it perceives to be §1346’s opaque language. See id. at 5. The Chamber of Commerce argues that §1346 opens the door to arbitrary and unpredictable enforcement because it fails to give ordinary citizens fair notice of what constitutes prohibited conduct. See id. at 1. It contends that §1346’s vagueness deters legitimate business dealings because it causes businessmen and women to steer away from entering into lawful certain business transactions for fear of engaging in criminal activity. See id. at12.

Contrary to Skilling and the Chamber of Commerce, however, Citizens for Responsibility and Ethics in Washington (“CREW”), a non-profit group concerned with holding government officials accountable for unethical activity, argues that §1346 is not vague as applied to schemes to defraud the public of the honest services of public officials. See Brief of Amicus Curiae CREW in Support of Respondent at 17. CREW asserts that the Court should not adopt Black’s proposed contemplation of economic harm requirement in regards to the public sector. See id. It states that “the critical role of the honest services fraud statute in combating federal, state, and local corruption weighs strongly against adopting an interpretation of 18 U.S.C. § 1346 that would apply a “reasonably foreseeable harm” test to public sector cases to criminalize only those schemes that threaten victims with tangible (money or property) harm.” See id. at 5, 9. CREW explains that it is difficult to meaningfully measure harm in the public sector, and that even if it were easily defined, Black’s proposed requirement would allow many corrupt acts of self-dealing to go unpunished simply because there was no foreseeable, tangible injury. See id. at 10.

Also at issue in this case is the Seventh Circuit’s waiver rule regarding preservation of the right to challenge a jury instruction. See Brief for Petitioners at 50; Brief for Respondent at 47. The National Association of Criminal Defense Lawyers (“NACDL”) and the New York Council of Defense Lawyers (“NYCDL”) both support Black’s position that the Court should reject the Seventh Circuit’s waiver rule. See Brief of Amici Curiae NACDL & NYCDL in Support of Petitioners at 24. They argue that if adopted, the waiver rule would force defendants to either “accept prejudicial interrogatories” or “forfeit objection to prejudicial instructional error.” See id. On the other hand, the United States maintains that application of the waiver rule would promote judicial economy. See Brief for Respondent at 48. The United States specifies that adoption of the Seventh Circuit’s rule would prevent unnecessary appeals and retrials and reduce defendants’ ability to manipulate the judicial system. See id.



The issues in this case relate to the “honest services” provision of 18 U.S.C. § 1346. Petitioners Black, et al. (“Black”) challenge the Seventh Circuit’s holding that violation of 18 U.S.C. § 1346 does not require contemplation of economic harm to the company to which one owes “the intangible right of honest services.” See Brief for Petitioners, Conrad Black, John Boultbee, and Mark Kipnis (“Black”) at 22. The United States seeks affirmation of the Seventh Circuit’s holding that 18 U.S.C. § 1346 has no economic harm requirement. See Brief for Respondent, United States of America at 15. It further asks the Court to hold that even if 18 U.S.C. § 1346 requires a finding of contemplation of economic harm, an objection to a prosecutorial motion for a special verdict waives the right to challenge the trial court’s jury instruction as a basis for reversing a general verdict. See id. at 47.

Does violation of 18 U.S.C. §1346 require contemplation of economic harm to the person to whom one owes “the intangible right of honest services?”

Each party contends that the statutory text and the legislative history support their positions regarding the economic harm requirement. Black argues that the relationship between § 1346 and the main mail and wire fraud statute, 18 U.S.C. § 1341, supports an interpretation of § 1346 as requiring proof of contemplation of economic harm. See Brief for Petitioners at 26. Section 1341 prohibits three types of acts: schemes or artifices to defraud, schemes or artifices to counterfeit money for unlawful purposes, and schemes or artifices to obtain “money or property by means of false or fraudulent pretenses.” See 18 U.S.C. § 1341. With this in mind, Black emphasizes that instead of enacting the honest services provision as a fourth type of scheme, Congress explicitly enacted it within the context of § 1341. See Brief for Petitioners at 26. Section 1346 states that “[f]or 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.” 18 U.S.C. § 1346.

Black argues that since deprivation of honest services is a definition of “scheme or artifice to defraud,” it can only be criminal so far as it conforms to conventional elements of fraud. See Brief for Petitioners at 26–27. And fraud, Black contends, while not always resulting in economic harm, by its very nature requires some contemplation of economic harm to those being defrauded. See id. at 27-28. Breach of an ethical duty without an intent or understanding of economic harm does not rise to the level of fraud, Black argues. See id.

The United States points to a number of statutory arguments in disagreement. First, the United States contends that if Congress intended to include a contemplation of an economic harm requirement in § 1346, it would have explicitly done so. See Brief for Respondent at 18. Second, the United States points to the fact that Congress passed § 1346 soon after, and in response to, the Supreme Court’s decision in McNally v. United States, which held that the mail and wire fraud statutes were “limited in scope to the protection of property rights.” See id. at 19. The United States argues that by enacting § 1346 one year after McNally, Congress intended to dispense with the property constraint placed upon it by the Supreme Court and to include the type of activity defendants engaged in here. See id. at 19-20.

Finally, the United States contends that adoption of Black’s argument that § 1346 requires proof of contemplation of economic harm risks rendering the honest services provision meaningless. See Brief for Respondent at 22-23. This is because, the United States explains, “most honest-services frauds that threaten the victims with foreseeable economic harm” qualify as “money-or-property frauds” under § 1341. See id. at 22. “Surely,” the United States reasons, “Congress did not enact § 1346 merely to provide an additional ground on which to prosecute cases that already could have been prosecuted as money-or-property frauds.” Id. at 23.

Lurking behind the statutory arguments on both sides is the specter of constitutional issues with the honest services statute. Black contends that wide ranging use of the honest services statute allows the government to prosecute individuals for actions not specifically rendered criminal by Congress. See Brief for Petitioners at 37-39. Such prosecutions, they contend, offend constitutional respect for the separation of powers. See id. Black contends that the judge-made-laws the honest services provision allows violate the principle that the authority to promulgate laws belongs exclusively to the legislative branch. See id.

The United State’s response to the constitutional difficulties Black raises is that 18 U.S.C. § 1346 is not vague, and thus does not allow for as much prosecutorial and judicial discretion as Black alleges. See Brief for Respondent at 35. The United States maintains that the honest services provision clearly requires breach of the fiduciary duty of loyalty, intent to cheat or deceive, and misrepresentations to the party to whom the duty is owed. See id. at 17. These elements, the United States insists, give enough definition to the statute to overcome vagueness concerns without resort to the economic harm requirement. See id.

May a court of appeals avoid review of prejudicial instructional error by retroactively imposing a preservation requirement?

A significant hurdle to Black winning reversal of the Seventh Circuit’s decision is the issue of whether they waived their right to challenge the trial court’s jury instructions regarding what constitutes honest services fraud.

Judge Posner, writing for the Seventh Circuit, held that even if the Seventh Circuit’s rejection of the economic harm requirement was incorrect, Black’s case still failed because he waived his right to challenge the honest services jury instruction when he rejected the government’s motion for special verdicts. See United States v. Black, 530 F.3d 596, 603 (2008). At trial, the United States proposed that the jury deliver special verdicts on the fraud counts, to clarify whether they were convicting under a money or property fraud theory or an honest services fraud theory. See id. Black objected to this instruction and the trial judge instead directed the jury to give a general verdict of guilty or not guilty on the fraud counts. See id. The Seventh Circuit held that Black’s objection constituted waiver of his right to challenge the verdict since it created uncertainty as to whether the conviction was even under an honest services theory. See id.

Black argues that the Seventh Circuit had no authority to declare their objection to be a waiver. See Brief for Petitioners at 50–51. They contend that neither the Federal Rules of Criminal Procedure nor any Supreme Court rule establishes the proposition that opposition to a special verdict waives the right to challenge that verdict on appeal. See id. Thus, they assert, the formation of such a rule in this case is not only unlawful, but also fundamentally unfair to the defendants here. See Reply Brief for Petitioners at 26. Black argues that this is especially the case given that special verdicts are generally disfavored because of their inherent prejudice to the defendant. See Brief for Petitioners at 52.

The United States contends that the Seventh Circuit had authority to declare the waiver. See Brief for Respondent at 47–48. It claims that waiver in this situation is much like a defendant who, after losing an objection on the admittance of evidence, further objects to a limiting instruction to prevent any impermissible prejudice. See id. at 47–48. A defendant cannot benefit, it reasons, from trial error that he himself could have ameliorated. See id. at 48. Furthermore, the United States argues, the Seventh Circuit’s waiver rule promotes judicial economy by increasing the number of special verdicts and thus eliminating an undeserved retrial. See id.



In deciding this case, the Supreme Court has the option to rule in favor of Conrad Black et al., and limit the applicability of 18 U.S.C. § 1346 to cases where the defendant contemplated economic harm to the one to whom he owed the intangible right of honest services. If it does so, the Court may greatly restrain the ability of federal prosecutors to use § 1346 to proscribe unethical business conduct in the private sector. Should the Court adopt the United State’s position, however, and find that § 1346 includes no contemplation of economic harm requirement, it may expand the United State’s ability to prosecute corporate executives for unethical business conduct. In making its decision regarding the honest services provision, the Court will also determine whether objection to a special verdict constitutes waiver of the right to challenge a general verdict based on instructional error.



Prepared by: Will Rosenzweig and Daniel Shatz

Edited by: Lucienne Pierre

Additional Sources

• New York Times, Adam Liptak: A Question of When Dishonesty Becomes Criminal (Oct. 12, 2009)

• Wall Street Journal Law Blog: Conrad Black, the Supreme Court, and Honest Services Fraud (May 23, 2009)

• Wall Street Journal Law Blog: It’s Not Just the Skilling Case: High Court Tackles Honest Services Fraud (Oct. 13, 2009)


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