- Vagueness Challenge to Honest Services Mail Fraud Fails in the Eleventh Circuit post-Skilling v. United States
- April 1, 2013 | Authors: Nicholas S. Feltham; Ronald A. Sarachan
- Law Firm: Drinker Biddle & Reath LLP - Philadelphia Office
On March 13, 2013, the Eleventh Circuit upheld the conviction of a former Jacksonville, Florida public official who was tried for honest services mail fraud, bribery, and several related offenses. The defendant based his appeal on an as-applied vagueness challenge to the honest services fraud statute, relying on Justice Scalia’s concurrence in Skilling v. United States, 130 S. Ct. 2896 (2010). However, the case presented poor facts to support a further refining of the definition of honest services fraud, and the majority of the Eleventh Circuit panel in United States v. Nelson, No. 12-11066, 2013 WL 949878 (11th Cir. March 13, 2013), had no trouble rejecting the defendant’s vagueness concerns and holding that the honest services fraud statute gave the defendant ample notice that his conduct was prohibited.
Following McNally v. United States, 483 U.S. 350 (1987), in which the Supreme Court held that mail fraud is limited to the protection of property rights and excludes honest services fraud, Congress quickly reacted to preserve the crime of honest services fraud by enacting 18 U.S.C. § 1346, which defines the term “scheme or artifice to defraud” in the mail and wire fraud statutes to include a “scheme or artifice to deprive another of the intangible right of honest services.” In Skilling, the Court rejected the defendant’s constitutional vagueness challenge to § 1346 by holding that the statute criminalizes only cases involving bribes or kickbacks. In a scathing concurring opinion, Justice Scalia criticized the majority’s narrowing of honest services fraud to bribery or kickbacks as judicial creation of a new federal crime that did not solve the statute’s vagueness. According to Justice Scalia, the “fundamental indeterminacy” remains, namely, that the statute lacks language describing the character and scope of the fiduciary duty from which the honest services obligation arises.
In Nelson, the defendant was an unpaid, part-time board member of JAXPORT, the Jacksonville port authority. The defendant was introduced to the owner of a local dredging contractor, and the defendant began providing informal advice to the owner and started urging the JAXPORT staff to use the owner’s company for certain contracts. Eventually, the defendant told the owner that he was more effective than the company’s actual lobbyist and “wanted to be on the payroll.” The owner retained the defendant as a “consultant” through a third-party company at a rate of $8,500 a month. After the official relationship commenced, the defendant advocated even more strongly for the company, obtaining change orders for increased contract amounts and securing the release of contract retainage amounts that otherwise would have been held by JAXPORT until the completion of the contract. The relationship between the defendant and the owner ultimately spurred an investigation, during which the defendant failed to disclose the existence of an agreement between the parties and that money had been exchanged for the “access” that the defendant provided.
Defendant Nelson argued that, as an unpaid and part-time board member, he was permitted to do business with companies that contract with JAXPORT, that the Jacksonville Deputy General Counsel and Co-Ethics Officer had blessed lobbying relationships between JAXPORT board members and potential contractors, so long as the board member abstained from voting on matters involving the contractor, and that Nelson complied with his understanding of the rules and never voted on a contract under which the dredging company or its owner stood to benefit. Nelson argued that the scope of his fiduciary obligations to JAXPORT were too indeterminate to support a criminal conviction.
Neither the jury nor the Eleventh Circuit was persuaded by this defense. Nelson conceded that he was a public official and the Eleventh Circuit previously held that public officials “inherently owe a fiduciary duty to the public to make governmental decisions in the public’s best interest.” That, coupled with previous decisions that described “bribery of a public official as the ‘paradigm case’ of honest-services fraud,” was sufficient to alert Nelson to the duty he owed the public. While Nelson did not vote on any matters involving the contractor, he accepted money from the contractor and engaged in internal lobbying efforts and attempts to influence the JAXPORT board and staff on behalf of the contractor. The court concluded that “there is nothing in the nature of Nelson’s conduct or his role on the JaxPort board, in particular, that separates him from those similarly charged with bribery who, according to the Supreme Court, ‘cannot tenably complain about . . . vagueness.’” The court’s conclusion may have been further reinforced by several unfavorable facts that emerged during Nelson’s trial, including that he attempted to hide the payments from the contractor by routing them through a third party, and he deferred some of the payments to minimize the chance they would be uncovered during a due diligence period. The defendant’s lack of transparency about his relationship with the contractor, the secretive nature of the payment scheme, and the “unprecedented” treatment the defendant requested on behalf of the contractor, were more than sufficient grounds to establish that the defendant knew his conduct was prohibited and reject a challenge to § 1346 on vagueness grounds.
The Eleventh Circuit held open the possibility of as-applied vagueness challenges to § 1346, but the defendant’s conduct in Nelson was simply too egregious for him to claim that the statute was unconstitutionally vague as applied to his circumstances. Following Skilling, the courts are likely to view attempts to further narrow the scope of honest services fraud with considerable skepticism. However, with increased emphasis on prosecuting corruption cases, we anticipate continuing attempts to raise vagueness challenges along the lines spelled out by Justice Scalia and, on the right set of facts, such a challenge may succeed. But Nelson was not that case.