Oral argument: Dec. 8, 2009
Appealed from: United States Court of Appeals for the Ninth Circuit (Aug. 4, 2008)
MAIL-FRAUD STATUTE, HONEST SERVICES, FEDERALISM, DISCLOSURE DUTY
Petitioner, Bruce Weyhrauch ("Weyhrauch"), a member of the Alaska House of Representatives, was charged with honest services mail fraud for intending to devise a scheme to deprive the State of Alaska of its intangible right to his honest services in violation of 18 U.S.C. § 1346. Respondent, the United States of America ("United States"), asserts that Weyhrauch should have disclosed his attempts to procure future employment from VECO, an oil company, before voting for legislation that would benefit the company. Weyhrauch claims that he cannot be convicted of honest services fraud because Alaska only requires the disclosure of actual conflicts of interest, not possible ones. The United States believes a violation of § 1346 does not require a concurrent violation of state law in order to convict Weyhrauch of honest services fraud. The Supreme Court’s decision in this case will determine whether § 1346 mandates the creation of a federal common law extending the federal government’s authority over criminal matters usually handled by the states. The Court’s decision will also settle a circuit split and decide what type of conduct constitutes honest services fraud.
Whether, to convict a state official for depriving the public of its right to the defendant's honest services through the non-disclosure of material information, in violation of the mail-fraud statute (18 U.S.C. §§ 1341 and 1346), the government must prove that the defendant violated a disclosure duty imposed by state law.
Whether the government must first prove that a defendant violated a disclosure duty under state law before it can convict that state official of non-disclosure of material information in violation of the federal mail-fraud statute under 18 U.S.C. §§ 1341 and 1346.
Petitioner Bruce Weyhrauch (“Weyhrauch”) is a former member of the Alaska House of Representatives. See United States v. Weyhrauch, 548 F.3d 1237, 1239 (9th Cir. 2008). In 2006, while Weyhrauch was still a state representative, the House dealt with legislation concerning the state’s tax on oil production. See id. VECO Corporation, an oil field services company, had an interest in the state’s oil tax, and, according to the United States, Weyhrauch had been in contact with two executives from the company on a number of occasions regarding the pending legislation. See id. Although it is not alleged that Weyhrauch took any explicit bribe from VECO, the criminal indictment alleges that Weyhrauch “took actions favorable to VECO” with the understanding that VECO would subsequently hire him at the end of his term in government service. See id.
The United States charged Weyhrauch with violation of honest services mail fraud under 18 U.S.C. § 1346, alleging that his dealings with VECO deprived the citizens of Alaska of their intangible right to his honest services as a government official. See Weyhrauch, 548 F.3d at 1239–40. 18 U.S.C. §1346 provides that a right to honest services is violated where a government official or fiduciary performs their duties in a way involving “deceit, self-dealing, bias, and concealment.” 18 U.S.C. § 1346. The parties disputed whether Weyhrauch actually had an affirmative duty to disclose the conflict of interest stemming from his dealings with VECO. See id. at 1240. Before the trial, the United States sought to introduce evidence to demonstrate that Weyhrauch knowingly concealed a conflict of interest—which the United States argues can be used to support a conviction of a violation of honest services, even if such disclosure is not required under state law. See id. Weyhrauch argues that he should not be held criminally accountable for behavior that falls within the bounds of the ethical rules governing the state body in which he is serving. See Brief for Petitioner, Bruce Weyhrauch at 22–23.
The U.S. District Court for the District of Alaska acknowledged that there is a circuit split on this issue and that there was no Ninth Circuit precedent on the matter. See Weyhrauch, 548 F.3d at 1240. The District Court therein adopted the approach of the Fifth Circuit Court of Appeals and held that “any duty to disclose sufficient to support the mail and wire fraud charges here must be a duty imposed by state law.” Id. Thus, because Alaska state law did not require Weyhrauch to disclose his negotiations for future employment with a company affected by pending legislation, the district court found it would be inappropriate to admit evidence that would support the United States’ contention that Weyhrauch should be federally liable for concealing his conflict of interest. See id.
The government thus initiated an interlocutory appeal on this evidentiary ruling to the Ninth Circuit Court of Appeals. See Weyhrauch, 548 F.3d at 1240. The Ninth Circuit reversed the district court’s decision and held that § 1346 “establishes a uniform standard for ‘honest services’ that governs every public official and that the government does not need to prove an independent violation of state law to sustain an honest services fraud conviction.” Id. at 1248. The Ninth Circuit therein returned the case for further deliberation in the district court; instructing the district court to allow the United States to present evidence relevant to proving that Weyhrauch had concealed his conflict of interest. See id.
Weyhrauch subsequently petitioned to the United States Supreme Court for certiorari, which was granted in July 2009. In deciding this case, the Court will determine whether the government must first prove that the defendant violated a disclosure duty under state law before it can convict a state official for non-disclosure of material information in violation of the mail-fraud statute under 18 U.S.C. §§ 1341 and 1346. See Question Presented.
Following the Supreme Court’s decision in McNally v. United States, Congress enacted 18 U.S.C. § 1346 in an attempt to clarify the mail-fraud statute, 18 U.S.C. § 1341. See Brief for Petitioner, Bruce Weyhrauch at 2–3 (citing McNally v. United States, 483 U.S. 350 (1987)). § 1346 states that a “scheme or artifice to defraud” includes any plan to deprive another of the intangible right of honest services. See 18 U.S.C. § 1346. Originally, the Supreme Court held in McNally that this was too broad of an application of the Mail Fraud Statute to prosecute individuals, however Congress effectively overruled the Supreme Court’s interpretation of the matter with the passage of § 1346. See Brief for Petitioner at 3. Since the passage of this statute, the “honest services” theory of prosecution has been expanded to the point where the federal government can prosecute both state and private officials for corruption under the theory that the official defrauded the public or their shareholders of their intangible right to honest services. See Brief of Amicus Curiae National Association of Criminal Defense Lawyers ("NACDL") in Support of Petitioner at 7–8, 15.
The National Association of Criminal Defense Lawyers ("NACDL") argues that § 1346 does not define what constitutes an “intangible right of honest services,” and an interpretation of the statute that includes prosecution of state and local officials for ethical violations that are not illegal at the state or local level creates an undefined and ambiguous basis for criminal liability. See Brief of NACDL at 7–8. NACDL is concerned that this creates a nebulous crime that effectively gives free rein to prosecute state officials. See id. at 11. Some circuits have attempted to define this offense more precisely by requiring the official’s corrupt act to be tied to a violation of state law, but circuit courts are currently split on whether §1346 should be limited by tying the criminal liability to a violation of state law. See id. at 10-12.
NACDL points out that the broad construction of “honest services” could have constitutional implications if it fails to meet the requirements of the Due Process Clause by not providing citizens fair notice about what it criminalizes. See Brief of NACDL at 5-6. NACDL also points out that in cases that involve ambiguity concerning due process rights, the Ninth Circuit applies a rule of lenity. See id. at 5–6. Under this rule, a court should resolve an ambiguity in a criminal statute in a defendant’s favor. See id. at 6. NACDL contends that the rule of lenity is particularly important in a case with a concept such as “honest services” which, when taken literally, seems to provide an limitless basis for prosecution. See id. at 7.
On the other hand, the United States contends that Congress did not intend to peg liability for honest services mail fraud to state law violations, and that doing so is not necessary to prevent a potential constitutional issue of vagueness. See Brief for Respondent, United States of America at 10–13. The United States argues that § 1346 contains three elements that define the statute’s scope and provide a public official sufficient notice to comply with due process requirements, thus precluding the need for state-law incorporation; a breach of the duty of loyalty, an intent to deceive, and materiality. See id. at 44. According to the United States, a defendant who breaches these outlined elements, and accepts bribes or fails to disclose self-dealing or material conflicts of interest, and who intends to deceive the citizenry, provides himself ample notice of criminal liability based on his conduct alone. See id. at 45.
The United States also points out that the presumption in settled principles of statutory construction is that Congress intends its enactments to have uniform national application, and when it departs from that general intention, it tends to refer expressly to state law when defining federal offenses. See Brief for Respondent at 18–19. The United States argues that the default provision of a statute is indeed to have uniform nationwide application, rather than vary on a state-to-state basis. See id. According to the United States, Congress would have thus incorporated a direct reference to state law if it have intended the “honest services” statute to deviate from the presumption of universal applicability. See id. at 20. The United States thus finds the lack of state-law language in § 1346 determinative that Congress likely did not intend to require a state official to violate a state-law duty before an “honest services” prosecution could proceed against him. See id. at 18–20.
The Federal Mail Fraud Statute, 18 U.S.C. § 1341, states that, “whoever, having devised or intending to devise any scheme or artifice to defraud . . . shall be fined under this title or imprisoned.” See 18 U.S.C § 1341. Following the Supreme Court’s decision in McNally v. United States, Congress enacted 18 U.S.C. § 1346 in an attempt to clarify the language of the Mail Fraud Statute. See Brief for Petitioner, Bruce Weyhrauch at 2–3 (citing McNally v. United States, 483 U.S. 350 (1987)). § 1346 therein states that a “scheme or artifice to defraud” includes any plan to deprive another of the intangible right of honest services. 18 U.S.C § 1346. The Ninth Circuit Court of Appeals held that § 1346 establishes a uniform federal common law standard of what constitutes “honest services” governing state officials. See United States v. Weyhrauch, 548 F.3d 1237, 1240 (9th Cir. 2008). Additionally, the Ninth Circuit held that the United States does not need to prove that a state official also violated a state law in order to sustain a conviction of fraud. See id. The issue before the Supreme Court in this case is whether the United States can convict a state official of mail-fraud in violation § 1346 without proving that the defendant also violated a state imposed disclosure duty. See Question Presented.
Does the text of § 1346 indicate that a mail-fraud conviction is dependent upon a finding of a violation of state law?
Petitioner, Bruce Weyhrauch, argues that a state official’s failure to disclose a conflict of interest is not a violation of § 1346’s guarantee of “honest services” if there is no violation of a state law requiring disclosure. See Brief for Petitioner at 18. Weyhrauch claims that prosecution of a “scheme to defraud” requires some independent, preexisting federally or state imposed duty to disclose. See id. at 26. He goes on to explain that because there is no preexisting duty to disclose information, the public has no “right” to the information allegedly withheld. See id. at 26–27. Consequently, Weyhrauch concludes that because he has not violated the public’s right to intangible services, he cannot be guilty of a scheme to defraud as defined by § 1346. See id. at 28–29.
Conversely, Respondent, the United States, argues that the Court should uphold the Ninth Circuit’s interpretation. McNally indicated that if state law does not specifically require a public official to disclose potential profit from governmental decisions, then there is no violation of federal law if that potential profit is not disclosed. See McNally, 483 U.S. at 361 n. 9. However, the United States explains that pre-McNally doctrine did not require a violation of state law in order to commit mail fraud, and Congress intended for § 1346 to overrule McNally and reinstate pre-McNally case law. See Brief for Respondent, United States of America at 30–32. Before McNally, failure to disclose any conflict of interest was considered a form of honest services fraud because it deprived the public of its right to determine whether the official was acting in its best interest, regardless of whether the act constituted an independent state-law offense or not. See id. at 25.
Does the Ninth Circuit’s decision calling for the creation of a federal common law violate established “cannons of construction” such as federalism, the principle of Constitutional avoidance, or the rule of lenity?
Weyhrauch argues that the Ninth Circuit’s decision violates principles of federalism. See Brief for Petitioner at 30. He asserts that when an interpretation of a federal statute upsets the usual balance of power between the states and federal government, the Court requires a showing of clear language to support this reading, and that there is no such language in this case. See id. at 30–31. Weyhrauch also explains that a federal common law outlining state official’s disclosure duties would extend federal power into a realm traditionally governed by the states, and he rejects the notion that Congress intended to expand federal authority in this way with § 1346. See id. at 30–31, 34.
Furthermore, Weyhrauch argues that the United States, in pursuing this fraud claim, is acting contrary to Alaskan policy. See Brief for Petitioner at 32. He explains that Alaska’s Standards of Conduct and disclosure provisions require legislators to disclose only actual conflicts of interest resulting from dual employment, not potential conflicts. See id. According to Weyhrauch, Alaskans developed this policy because legislators are not only permitted, but also expected, to earn outside income. See id. He notes that Alaskan legislators serve only part-time and the Standards Conduct are designed to encourage continued public service without unduly burdening those trying to simultaneously earn additional income. See id.
The United States believes Weyhrauch's federalism concerns are misplaced. See Brief for Respondent at 44. They assert that with § 1346, Congress actually reaffirmed the federal-state balance that existed prior to McNally. See id. at 50. The United States claims that § 1346’s reincorporation of pre-McNally doctrine removed the need for the creation of a federal common law for disclosure duties for state officials “from scratch.” See id. The inherent duties of loyalty and honesty that state officials owe to their constituents obviate the need for a federal common law to define appropriate conduct. See id.
Moreover, the United States asserts that § 1346 reflects Congress’ view that state level corruption is of significant federal interest. See Brief for Respondent at 50. They cite the prevailing belief in Congress that states’ corruption investigations are “frequently insufficient” to combat corruption due to the sophisticated and interstate nature of the crimes. See id. at 50–51.
B) Principle of Constitutional Avoidance
Weyhrauch claims that allowing federal common law to define disclosure requirements for state officials would fail both prongs of the Court’s “vagueness test.” See Brief for Petitioner at 35–36. First, he explains that federal common law would be “ever-evolving” and “amorphous” and thus prevent “ordinary people” from understanding what conduct § 1346 requires. See id. Consequently, according to Weyhrauch, an amorphous common law definition of § 1346 fails to provide fair notice to potential offenders. See id. at 35–36. He also argues that a federal common law definition of state officials’ obligations would violate due process. See id. at 36. Weyhrauch explains that because a common law definition is amorphous, enforcement of that standard would be inconsistent and invite abuse by law enforcement and “headline-grabbing prosecutors” seeking to bring down politicians and corporate officials. See id.
However, the United States claims that three non-jurisdictional elements of § 1346 are collectively sufficiently narrow in scope so that vagueness is not a concern and make it such that a state disclosure law is unnecessary to provide fair notice. See Brief for Respondent at 44, 47. First, according to § 1346, an official deprives the public of its right to honest services and breaches the duty of loyalty by “secretly acting in his own interests while purporting to act in the interests of his principal.” See id. at 44. Second, mail fraud statutes punish only intentional schemes to defraud. See id. at 46. The United States asserts that the government’s burden of proving intentional fraudulent conduct beyond a reasonable doubt eliminates concerns about vagueness and lack of fair notice. See id. at 47. Lastly, the materiality requirement in mail fraud offenses excludes actions against public officials who made insignificant misrepresentations. See id. at 48. The United States explains that materiality is an element for the jury to resolve and determine if the official’s conduct would affect how reasonable voters assess whether the official placed his interests above the public interest. See id. at 49.
C) Doctrine of Lenity
Weyhrauch says that the rule of lenity requires that ambiguous criminal laws be interpreted in a light most favorable to the public official. See Brief for Petitioner at 38 (citing United States v. Santos, 128 S. Ct. 2020, 2025 (2008)). According to Weyhrauch, McNally established that when a mail fraud statute can be read two ways, the harsher interpretation should be adopted only when Congress’ language is clear and definite. See id. He adds that in not applying the rule of lenity to its analysis of § 1346, the Ninth Circuit produced an interpretation of § 1346 that keeps its boundaries ambiguous and improperly allows the federal government to shape the duties of state officials. See id. at 39.
The United States believes that the rule of lenity does not apply in this case. See Brief for Respondent at 52. They explain that the rule only applies where there is “grievous ambiguity” in the statutory text. See id. According to the United States, the scope of § 1346 is not ambiguous. See id. It argues that §1346 does not require a violation of state law prior to conviction because depriving the public of honest services “has long been understood as a federal crime.” See id.
Petitioner Bruce Weyhrauch argues that the government must prove the existence of some violation of state law, apart from elements of the offense defined in § 1346, in order to convict a state official of honest services fraud. However, the United States claims that the language and intent of § 1346 imposes no such requirement. The Supreme Court’s decision in this case will determine whether § 1346 mandates the creation of a federal common law extending the federal government’s authority over criminal matters usually handled by the states. The Court’s decision will also settle a circuit split and decide what type of conduct constitutes honest services fraud.
Edited by: Katie Worthington
· The New York Times – A Question of When Dishonesty Becomes Criminal
· Washington Legal Foundation - Honest Services Statute: When Federal Righteousness Goes Off The Rails