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SCOTUS: Honest-Services Fraud Jury Instructions Regarding Private Citizen Too Vague

by Richard Resch

The Supreme Court of the United States held that a trial court’s jury instructions on the standard as to whether a private citizen owes a fiduciary duty to the public and a breach thereof may serve as the basis for a conviction for honest-services fraud were too vague.

From 2011 to 2016, Joseph Percoco served as the Executive Deputy Secretary to former New York Governor Andrew Cuomo. His position afforded him a great deal of influence over official government decision-making. For an eight-month period in 2014, he resigned his government position to manage Cuomo’s reelection campaign.

During his break from government service, he accepted payments totaling $35,000 from a real-estate development company to persuade Empire State Development, a state agency, to drop the requirement for a costly “Labor Peace Agreement” with local unions as a precondition for being awarded a lucrative state project. After Percoco urged a senior official with the agency to drop the requirement, it did so and advised the real-estate company of its decision the next day.

The U.S. Justice Department discovered the arrangement and indicted Percoco and others in connection with several allegedly illegal schemes. He was charged with several crimes, including conspiracy to commit honest-services wire fraud in violation of 18 U.S.C. §§ 1343, 1346, and 1349. The Government alleged that the conspiracy occurred from 2014 to 2015, which included his tenure as a government official as well as his time as a private citizen working on the reelection campaign.  

Prior to trial, Percoco moved for dismissal, arguing that a private citizen cannot commit or conspire to commit honest-services wire fraud predicated on one’s duty of honest services to the public. The trial court denied the motion. When the case was submitted to the jury, the trial court instructed that the jury could find Percoco owed a duty to provide honest services to the public while a private citizen if (1) “he dominated and controlled any governmental business and (2) that “people working in the government actually relied on him because of a special relationship he had with the government.” The jury convicted him, and he was sentenced to 72 months’ imprisonment. He timely appealed.

The U.S. Court of Appeals for the Second Circuit affirmed, explaining that the jury instruction provided by the trial court accurately reflects the Second Circuit’s position on honest-services fraud adopted in United States v. Margiotta, 688 F.2d 108 (1982). Percoco sought review by SCOTUS to answer the question of whether a private citizen who “has informal political or other influence over governmental decision making” can be convicted of honest-service fraud. SCOTUS granted certiorari.

The Court began its analysis by recounting the history of federal wire fraud statutes, treatment of honest services by the lower courts, and Margiotta. In that case, Joseph Margiotta served as chair of the Republican Party Committees for Nassau County as well as the town of Hempstead. He used the considerable influence that came with those positions to engage in a kickback scheme. Despite holding no elective office, he was indicted for honest-services mail fraud. The prosecution argued that his party positions “afforded him sufficient power and prestige to exert substantial control over public officials.”

On appeal, a divided panel of the Second Circuit agreed, explaining that “there is no precise litmus paper test” for determining when a private citizen “owes a fiduciary duty to the general citizenry” but that “two-time tested measures of fiduciary status [were] helpful.” The tests are (1) whether “others [relied] upon [the accused] because of [his] special relationship in the government and (2) whether the accused exercised “de facto control” over “governmental decisions.” Margiotta. The Margiotta Court concluded that a private citizen could commit honest-services fraud if he “dominate[d] government.” 

About five years later, SCOTUS rejected the concept of honest-services fraud and held that the mail fraud statute was “limited in scope to the protection of property rights.” McNally v. United States, 483 U.S. 350 (1987). However, Congress quickly responded by enacting 18 U.S.C. § 1346, which provides that “scheme or artifice to defraud” (which appears in both § 1341 and § 1343) includes the deprivation of “the intangible right of honest services.” Skilling v. United States, 561 U.S. 358 (2010) (quoting § 1346).

The Court explained that Skilling instructed the intangible right of honest services “must be defined with the clarity typical of criminal statutes and should not be held to reach an illdefined category of circumstances simply because of a smattering of pre-McNally decisions.”

In the present case, the Second Circuit concluded that Congress effectively reinstated the far-reaching coverage of intangible rights of honest services of the Margiotta-theory cases. However, the Court rejected that interpretation, explaining that “Skilling was careful to avoid giving § 1346 an indeterminate breath that would sweep in any conception of ‘intangible rights of honest services’ recognized by some courts prior to McNally.”

With the foregoing principles in mind, the Court turned to the issue of whether the theory endorsed by the lower courts in this case results in the uncertainty of § 1346’s coverage that implicates “the due process concerns underlying the vagueness doctrine.” Skilling. First, the Court rejected Percoco’s argument for a per se rule that a private citizen can never have the requisite fiduciary duty to the public to support a conviction for honest-services fraud. It explained that individuals who are not formally employed by a government entity may nevertheless enter into agreements that authorize them to act as actual agent of the government, and such an agent owes a fiduciary duty to the government (the agent’s principal) and the public it serves.

But rejecting the adoption of a per se rule that private citizens can never owe a fiduciary duty to the public is insufficient to sustain Percoco’s convictions, the Court stated. To decide that issue, the Court must determine whether the trial court’s jury instructions based on the Margiotta theory are correct.

The Court held that they are not, because the standard articulated in Margiotta is too vague. For example, the standard could apply to well-connected lobbyists, but the public has no right to disinterested services from them. The Court explained that Margiotta fails to define “the intangible right of honest services … with sufficient definiteness that ordinary people can understand what conduct is prohibited [or] in a manner that does not encourage arbitrary and discriminatory enforcement.” McDonnell v. United States, 579 U.S. 550 (2016). Thus, the Court held that the Margiotta-based jury instructions are too vague to serve as the legal standard for concluding that a private citizen owes a fiduciary duty to the public.

Accordingly, the Court reversed the judgment of the Second Circuit and remanded the case for further proceedings consistent with its opinion. See: Percoco v. United States, 2023 U.S. LEXIS 1889 (2023).

 

 

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