Jeffrey Skilling's long appeals finally ended last month, when the courts shaved a decade off the prison sentence he received for his role in the Enron Corp. debacle. But the landmark U.S. Supreme Court ruling that bears his name has done little to convince appellate courts to reverse jury verdicts involving the honest-services fraud statute, under which Skilling had been convicted.
The Supreme Court's 2010 opinion in Skilling v. U.S. at first seemed a big win for individuals convicted under the statute, many of them politicians or others caught up in corruption scandals. The high court restricted honest-services fraud to cases involving bribery or kickbacks, rather than conflicts of interest.
But rather than release felons, the circuit courts for the most part have upheld convictions. Panels agreed with defendants that their juries had been improperly instructed as to the statute under Skilling's new definition, but they held the error harmless. "On balance, the courts of appeal have been reviewing these records in a lot of detail and saying: 'We think that there's no reasonable probability that this error, which we find, contributed to the verdict,' " Lisa Mathewson of the Law Offices of Lisa A. Mathewson in Philadelphia said. She has represented numerous defendants in honest-services fraud cases.
The courts reasoned that juries could have convicted on a separate theory — in most cases, bribery. But some attorneys see an emerging split over a fresh issue: Exactly what constitutes bribery in the context of honest-services fraud?
"One of the open questions Skilling left was: What are the contours of bribery and kickbacks?" Mathewson said. "Honest-services fraud is valid only if it fits the definition of bribes or kickbacks. But Skilling didn't give us a definition of a bribe or kickback, so people are fighting about how to define a bribe or kickback."
FINDING 'HARMLESS ERROR'
Skilling, who'd been Enron's chief executive officer, was convicted in 2006 of securities fraud, conspiracy and insider trading and sentenced to 24 years and four months in federal prison. In 2009, the U.S. Court of Appeals for the Fifth Circuit upheld his conviction but ordered that he be resentenced, citing an incorrect guidelines application.
Skilling appealed to the Supreme Court, which declined to reverse but did find that prosecutors had overreached in presenting an honest-services fraud theory to the jury. The honest-services fraud statute, most often applied in public-corruption cases, extends federal mail and wire fraud laws to cover schemes that defraud another person of "money or property" or "deprive another of the intangible right of honest services."
Specifically, the justices limited the statute to bribery and kickback schemes — not unconstitutionally vague conflicts of interest, as with Skilling's conviction.
Skilling, who reached a new deal with federal prosecutors last month, was resentenced in the Southern District of Texas to 14 years on June 21.
The high court's decision ultimately didn't factor into Skilling's resentencing, which was based primarily on the Fifth Circuit's earlier finding. But dozens of defendants imprisoned for crimes under the same statute cited the precedent in an attempt to reverse their own jury verdicts. The circuit courts have issued dozens of opinions in those appeals, analyzing jury instructions, lawyers' opening statements and closing arguments, or evidence considered during trial that could have swayed jurors to convict on a scheme involving bribery or kickbacks, rather than for conflicts of interest.
"They have to address the fact that, at that time, the government in the particular case at issue wasn't pursuing a bribery or kickback theory for their honest-services charges in the case," said Iris Bennett, a partner in the white-collar defense and investigations practice in Jenner & Block's Washington office.
In some cases, panels have reversed convictions. On April 15, for instance, the U.S. Court of Appeals for the Ninth Circuit reversed most of a public-corruption verdict against Albert Robles, the former treasurer of South Gate, Calif., and George Garrido, a businessman. They'd been convicted of honest-services fraud involving schemes to award city contracts to specific companies while lining their own pockets. The panel concluded "that there is a reasonable probability that the jury convicted Robles and Garrido of honest-services fraud based on their failure to disclose a conflict of interest."
The panel noted that the indictment, the jury instructions and the closing arguments at trial "were permeated with the prohibited failure-to-disclose theory," rather than references to bribes or kickbacks. "One could not decide the error was harmless, and that is what the Ninth Circuit concluded," said Robles' attorney, Thomas Kiley of Cosgrove, Eisenberg & Kiley in Boston.
But the panel affirmed five bribery counts against Robles, who is seeking a rehearing. In a May 29 filing, he argued that a quid pro quo agreement is required to establish bribery, particularly when the case involves campaign contributions protected under the First Amendment.
Those reversals aside, most panels have gone the other way. On February 27, the Seventh Circuit found in Sorich v. U.S. that the jury had enough evidence to convict three Chicago city employees for awarding jobs to their friends. In finding harmless error, the panel defined honest-services fraud as depriving another of money or property. "The trial reflected a single scheme to take City jobs and promotions through false representations, and these jobs and promotions were the City's money and property," the panel concluded.
The defendants have challenged that finding in a petition for rehearing en banc filed on April 12. On June 28, the Seventh Circuit said that it would not revisit the decision.
Other courts have looked for evidence of bribery. On March 4, for example, the Second Circuit affirmed the convictions of three Smart Online Inc. executives. While the jury instruction in U.S. v. Nouri was erroneous, the panel concluded, the evidence demonstrated that all three defendants were involved in bribes. In fact, two of them actually were convicted of bribery.
On March 28, the Second Circuit reached a similar conclusion in a case involving James Botti, a real estate developer convicted of honest-services fraud for bribing the mayor of Shelton, Conn. The jury did not reach a verdict on related bribery charges.
"The appellate court found that the only theory presented to the case was in fact a bribery theory, so therefore the jury had to find there was bribery when they convicted an individual on honest-services fraud," Bennett said. "In other words, essentially bribery was the only theory presented to the jury factually, even if the jury instruction itself was not correct — therefore, harmless error."
Some attorneys maintain that a split has emerged over what constitutes bribery in the context of honest-services fraud. "Most honest-services fraud cases have been bribery cases," said Timothy O'Toole, a member of Miller & Chevalier in Washington. "And so, one of the questions post-Skilling is: What is bribery?" He represents Jack Abramoff lobbyist Kevin Ring, who was convicted soon after the Skilling ruling of honest-services fraud.
On appeal, the D.C. Circuit concluded on January 25 that to convict on a bribery theory, the jury need not find that there was an explicit agreement but rather that Ring gave gifts with an "intent to 'influence' an official act." The panel wrote: "Because bribery does not require the official to agree to or actually complete a corrupt exchange, neither does honest-services fraud by bribery."
O'Toole begged to differ, emphasizing that bribery should involve some agreement between a public official and a third party. "It could be an email; it could be a wink and a nod," he said.
The definition of bribery is important in the context of honest-services fraud cases, many of which involve campaign contributions protected by the First Amendment, he said. For instance, Ring was a lobbyist whose job was to influence public officials. Under the panel's definition, giving meals and tickets to public officials "was enough to commit honest-services fraud, even if there was never any agreement between Kevin and a public official," O'Toole said.
O'Toole petitioned the U.S. Supreme Court on June 17 to reverse the ruling, which "threatens to undo the limiting construction of the honest-services-fraud law the Court adopted in Skilling" by expanding the statute's application. The ruling also conflicts with decisions in at least four other circuits, according to his petition.
QUID QUO PRO
The Sixth Circuit, for instance, found on February 14 that there was evidence that Steven Terry, a former judge on the Cuyahoga County, Ohio, Court of Common Pleas, had intended to accept a "thing of value" in exchange for an official act when he agreed with the county's auditor to rule favorably on summary judgment motions in exchange for contributions to his re-election campaign.
At trial, the panel noted, the jury was instructed to find a "quid pro quo" agreement in convicting on a bribery theory of honest-services fraud. The agreement could be formal, informal, written or oral, as long as Terry had intended to accept a "thing of value," which could include a campaign contribution.
"What's important about that case is [that] they found honest-services fraud, but the way they defined it was [that] it requires proof of an actual agreement," O'Toole said. "The actual agreement was between a public official and a private individual."
Terry's attorney, Sylvester Summers, a solo practitioner in Cleveland, did not return a call for comment.
Likewise, the Fifth Circuit on April 12 found that a plan by plaintiffs attorney Richard "Dickie" Scruggs to recommend a judge on the Hinds County, Miss., Circuit Court for the federal bench in exchange for favorable rulings in a case was enough of a "quid pro quo" to establish bribery, since "a bribe that takes the form of a promise to assist later — here, with a future district court vacancy — is still a bribe." In upholding the attorney's plea deal on honest-services charges, the panel found that the evidence "overwhelmingly establishes the existence of a corrupt bribery agreement" between Scruggs and the judge.
The Third Circuit outlined a similar definition of bribery but reached the opposite result. On January 4, 2012, the panel concluded that bribery required proof of both a benefit to a public official and the public official's intent to engage in an "official act" based on that benefit — even if he doesn't actually go through with it.
But in that case, which involved the principals of a real estate firm and Christopher Wright, the former chief of staff to a Philadelphia city councilman, the panel reversed the convictions because there was less than "overwhelming" evidence of bribery.
Mathewson, who has filed an interlocutory appeal addressing the scope of Wright's retrial, acknowledged the emerging circuit split. "What's happening is the courts are trying to hew to the spirit of Skilling and to be strict about limiting honest-services [fraud] to bribes and kickbacks, but realistically these cases are very fact-specific," she said.
The Second Circuit on May 29 rejected an appeal by David Rosen, former chief executive officer of MediSys Health Network Inc., who had argued that the government's allegations that he bribed three New York state legislators in exchange for official acts "as specific opportunities arose" was an unconstitutionally vague quid pro quo.
"We argued it should have been an explicit quid pro quo," said Elkan Abramowitz, a partner at New York's Morvillo Abramowitz Grand Iason & Anello, who represents Rosen. "The court said it was sufficient with an 'as opportunities arise' arrangement."
So far, the U.S. Supreme Court has declined to review post-Skilling appeals, including those by former Alabama Governor Don Siegelman and Chicago insurance broker Mike Segal. But defense attorneys are convinced that honest services will end up before the U.S. Supreme Court again soon.
"I don't know where it'll come from, but it will come," Kiley said.
Amanda Bronstad can be contacted at firstname.lastname@example.org.