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The 2nd U.S. Circuit Court of Appeals has found a federal statute criminalizing mail fraud by depriving another of “honest services” to be unconstitutionally vague as applied. A divided court ruled that contractor Vassilios K. Handakas had no way of knowing he was violating the federal mail fraud statute when he skirted a state law requirement to pay the prevailing wage on projects for the New York City School Construction Authority (SCA). “If the ‘honest services’ clause can be used to punish a failure to honor the SCA’s insistence on the payment of prevailing rate of wages, it could make a criminal out of anyone who breaches any contractual representation: that tuna was netted dolphin-free; that stationary is made of recycled paper; that sneakers and t-shirts are not made by child workers; that grapes are picked by union labor — in sum so called consumer protection law and far more,” Judge Dennis Jacobs said in United States v. Handakas, 00-1751. The issue before the court involved 18 U.S.C. �� 1341 and 1346, which defines mail fraud as a “scheme or artifice to defraud,” using the mails, to deprive another of money, property or “the intangible right of honest services.” Handakas, head of Astro Waterproofing Restoration Co., allegedly manipulated worker pay and worker records to avoid paying the prevailing wage. He was arrested while on his way to Greece in May 1998 for carrying $102,000 without having made a currency disclosure report. In addition to conspiracy to commit mail fraud, Handakas was convicted of conspiracy to launder money, two counts of structuring of financial transactions to evade currency reporting laws, and other charges. Senior Judge Jack B. Weinstein of the Eastern District of New York sentenced Handakas to 5 years and 10 months in prison and ordered him to pay a $500,000 fine and $638,350 in restitution. Judge Jacobs said the government, in summations to the jury on the mail fraud count, “focused entirely on deprivation of the SCA’s contractual rights.” But, Jacobs said, “Even someone fully familiar with Sections 1341 and 1346, and our cases, would lack any comprehensible notice that federal law has criminalized breaches of contract. Accordingly, application of those criminal statutes to Handakas violates the due process guarantee of fair notice.” Jacobs said that affirmation of Handakas’ mail fraud conviction on the grounds that he violated the state prevailing wage law or furnished inaccurate reports of work performed to the SCA would “effect a breathtaking expansion of mail fraud.” “Every breach of a contract or state law (committed in the vicinity of a telephone) and every false state tax return (sent by mail) would become punishable as a felony in federal court,” he said. The judicially created doctrine of “honest services,” ultimately adopted by Congress in an amendment to the mail fraud statute, he said, “has been aptly described as an all-purpose prosecutorial expedient … . “[T]his prosecution was driven by a conception formed by federal prosecutors that certain New York laws appeal so strongly to the social conscience that violation should be treated as felonious under federal law,” he said, an extension of federal authority made even more “dubious where interstate commerce is at best tangentially implicated.” DISSENT In dissent, Senior Judge Wilfred Feinberg disagreed that the statute was unconstitutional as applied to Handakas. Feinberg said that “the constitutional issue was not raised in the district court,” and therefore should be reviewed under the “plain error” standard. “Even if we make the unlikely assumption that there was an error below regarding the constitutionality of Section 1346 … we cannot properly characterize such error as plain,” Feinberg said. Feinberg said that “every circuit court to address the specific question of vagueness since the phrase ‘honest services’ appeared in the statute has found Section 1346 to be constitutional on its face or as applied.” Judge Jose A. Cabranes was in the majority with Judge Jacobs. Assistant U.S. Attorneys Lisa Fleischman, Susan Corkery, Richard Weber and David C. James, along with Chief Assistant U.S. Attorney Barbara D. Underwood, represented the government. James B. Lebow of Bournazos & Matarangas represented Handakas.

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