Skilling v. United States, 561 U.S. 358 (2010)

Justice Ginsburg delivered the opinion of the Court.

In 2001, Enron Corporation, then the seventh highest-revenue-grossing company in America, crashed into bankruptcy. We consider … [an issue] from the prosecution of Jeffrey Skilling, a longtime Enron executive, for crimes committed before the corporation’s collapse…. [Namely], did the jury improperly convict Skilling of conspiracy to commit “honest-services” wire fraud, 18 U.S.C. §§371, 1343, 1346?

… [T]he Fifth Circuit affirmed Skilling’s convictions. We … disagree with the Fifth Circuit’s honest-services ruling. In proscribing fraudulent deprivations of “the intangible right of honest services,” § 1346, Congress intended at least to reach schemes to defraud involving bribes and kickbacks. Construing the honest-services statute to extend beyond that core meaning, we conclude, would encounter a vagueness shoal. We therefore hold that § 1346 covers only bribery and kickback schemes. Because Skilling’s alleged misconduct entailed no bribe or kickback, it does not fall within § 1346’s proscription. We therefore … vacate in part.

I

Founded in 1985, Enron Corporation grew from its headquarters in Houston, Texas, into one of the world’s leading energy companies. Skilling launched his career there in 1990 when Kenneth Lay, the company’s founder, hired him to head an Enron subsidiary. Skilling steadily rose through the corporation’s ranks, serving as president and chief operating officer, and then, beginning in February 2001, as chief executive officer. Six months later, on August 14, 2001, Skilling resigned from Enron.

Less than four months after Skilling’s departure, Enron spiraled into bankruptcy. The company’s stock, which had traded at $90 per share in August 2000, plummeted to pennies per share in late 2001. Attempting to comprehend what caused the corporation’s collapse, the U.S. Department of Justice formed an Enron Task Force, comprising prosecutors and Federal Bureau of Investigation agents from around the Nation. The Government’s investigation uncovered an elaborate conspiracy to prop up Enron’s short-run stock prices by overstating the company’s financial well-being. In the years following Enron’s bankruptcy, the Government prosecuted dozens of Enron employees who participated in the scheme. In time, the Government worked its way up the corporation’s chain of command: On July 7, 2004, a grand jury indicted Skilling, Lay, and Richard Causey, Enron’s former chief accounting officer.

These three defendants, the indictment alleged,

“engaged in a wide-ranging scheme to deceive the investing public, including Enron’s shareholders, ... about the true performance of Enron’s businesses by: (a) manipulating Enron’s publicly reported financial results; and (b) making public statements and representations about Enron’s financial performance and results that were false and misleading.” App. ¶ 5, p. 277a.

Skilling and his co-conspirators, the indictment continued, “enriched themselves as a result of the scheme through salary, bonuses, grants of stock and stock options, other profits, and prestige.”

Count 1 of the indictment charged Skilling with conspiracy to commit securities and wire fraud; in particular, it alleged that Skilling had sought to “depriv[e] Enron and its shareholders of the intangible right of [his] honest services.” […] The indictment further charged Skilling with more than 25 substantive counts of securities fraud, wire fraud, making false representations to Enron’s auditors, and insider trading […]

Following a four-month trial and nearly five days of deliberation, the jury found Skilling guilty of 19 counts, including the honest-services-fraud conspiracy charge, and not guilty of 9 insider-trading counts. The District Court sentenced Skilling to 292 months’ imprisonment, 3 years’ supervised release, and $45 million in restitution […]

The Court of Appeals […] rejected Skilling’s claim that his conduct did not indicate any conspiracy to commit honest-services fraud. “[T]he jury was entitled to convict Skilling,” the court stated, “on these elements”: “(1) a material breach of a fiduciary duty ... (2) that results in a detriment to the employer,” including one occasioned by an employee’s decision to “withhold material information, i.e., information that he had reason to believe would lead a reasonable employer to change its conduct.” The Fifth Circuit did not address Skilling’s argument that the honest-services statute, if not interpreted to exclude his actions, should be invalidated as unconstitutionally vague. […]

Ill

We next consider whether Skilling’s conspiracy conviction was premised on an improper theory of honest-services wire fraud. The honest-services statute, §1346, Skilling maintains, is unconstitutionally vague. Alternatively, he contends that his conduct does not fall within the statute’s compass […]

Enacted in 1872, the original mail-fraud provision, the predecessor of the modern-day mail- and wire-fraud laws, proscribed, without farther elaboration, use of the mails to advance “any scheme or artifice to defraud.” See McNally v. United States, 483 U.S. 350, 356 (1987) […] In 1909, Congress amended the statute to prohibit, as it does today, “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” § 1341 (emphasis added); see id., at 357-358. Emphasizing Congress’ disjunctive phrasing, the Courts of Appeals, one after the other, interpreted the term “scheme or artifice to defraud” to include deprivations not only of money or property, but also of intangible rights.

In an opinion credited with first presenting the intangible-rights theory, Shushan v. United States, 117 F. 2d 110 (1941), the Fifth Circuit reviewed the mail-fraud prosecution of a public official who allegedly accepted bribes from entrepreneurs in exchange for urging city action beneficial to the bribe payers. “It is not true that because the [city] was to make and did make a saving by the operations there could not have been an intent to defraud,” the Court of Appeals maintained. Id., at 119. “A scheme to get a public contract on more favorable terms than would likely be got otherwise by bribing a public official,” the court observed, “would not only be a plan to commit the crime of bribery, but would also be a scheme to defraud the public.” Id., at 115.

The Fifth Circuit’s opinion in Shushan stimulated the development of an “honest-services” doctrine. Unlike fraud in which the victim’s loss of money or property supplied the defendant’s gain, with one the mirror image of the other, … the honest-services theory targeted corruption that lacked similar symmetry. While the offender profited, the betrayed party suffered no deprivation of money or property; instead, a third party, who had not been deceived, provided the enrichment. For example, if a city mayor (the offender) accepted a bribe from a third party in exchange for awarding that party a city contract, yet the contract terms were the same as any that could have been negotiated at arm’s length, the city (the betrayed party) would suffer no tangible loss. Cf. McNally, 483 U.S., at 360. Even if the scheme occasioned a money or property gain for the betrayed party, courts reasoned, actionable harm lay in the denial of that party’s right to the offender’s “honest services.” See, e.g., United States v. Dixon, 536 F. 2d 1388, 1400 (CA2 1976).

“Most often these cases ... involved bribery of public officials,” United States v. Bohonus, 628 F. 2d 1167, 1171 (CA9 1980), but courts also recognized private-sector honest-services fraud. In perhaps the earliest application of the theory to private actors, a District Court, reviewing a bribery scheme, explained:

“When one tampers with [the employer-employee] relationship for the purpose of causing the employee to breach his duty [to his employer,] he in effect is defrauding the employer of a lawful right. The actual deception that is practised is in the continued representation of the employee to the employer that he is honest and loyal to the employer’s interests.” United States v. Procter & Gamble Co., 47 F. Supp. 676, 678 (Mass. 1942).

Over time, “[a]n increasing number of courts” recognized that “a recreant employee” — public or private — “c[ould] be prosecuted under [the mail-fraud statute] if he breache[d] his allegiance to his employer by accepting bribes or kickbacks in the course of his employment,” United States v. McNeive, 536 F. 2d 1245, 1249 (CA8 1976); by 1982, all Courts of Appeals had embraced the honest-services theory of fraud […]

In 1987, this Court, in McNally v. United States, stopped the development of the intangible-rights doctrine in its tracks. McNally involved a state officer who, in selecting Kentucky’s insurance agent, arranged to procure a share of the agent’s commissions via kickbacks paid to companies the official partially controlled. 483 U.S., at 360. The prosecutor did not charge that, “in the absence of the alleged scheme[,] the Commonwealth would have paid a lower premium or secured better insurance.” Ibid. Instead, the prosecutor maintained that the kickback scheme “defraud[ed] the citizens and government of Kentucky of their right to have the Commonwealth’s affairs conducted honestly.” Id., at 353.

We held that the scheme did not qualify as mail fraud. “Rather than construing] the statute in a manner that leaves its outer boundaries ambiguous and involves the Federal Government in setting standards of disclosure and good government for local and state officials,” we read the statute “as limited in scope to the protection of property rights.” Id., at 360. “If Congress desires to go further,” we stated, “it must speak more clearly.”

 […]

Congress responded swiftly. The following year, it enacted a new statute “specifically to cover one of the 'intangible rights’ that lower courts had protected . . . prior to McNally: the intangible right of honest services.’” Cleveland v. United States, 531 U.S. 12, 19-20 (2000). In full, the honest-services statute stated:

“For the purposes of th[e] chapter [of the United States Code that prohibits, inter alia, mail fraud, § 1341, and wire fraud, § 1343], the term 'scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right of honest services.” § 1346.

B

Congress, Skilling charges, reacted quickly but not clearly: He asserts that § 1346 is unconstitutionally vague. To satisfy due process, “a penal statute [must] define the criminal offense [1] with sufficient definiteness that ordinary people can understand what conduct is prohibited and [2] in a manner that does not encourage arbitrary and discrimina tory enforcement.” Kolender v. Lawson, 461 U.S. 352, 357 (1983). […]

According to Skilling, § 1346 meets neither of the two due process essentials. First, the phrase “the intangible right of honest services,” he contends, does not adequately define what behavior it bars…. Second, he alleges, § 1346’s “standardless sweep... allows policemen, prosecutors, and juries to pursue their personal predilections,” thereby “faeilitat[ing] opportunistic and arbitrary prosecutions.”

In urging invalidation of § 1346, Skilling swims against our case law’s current, which requires us, if we can, to construe, not condemn, Congress’ enactments. See, e.g., Civil Service Comm’n v. Letter Carriers, 413 U.S. 548, 571 (1973). … Alert to § 1346’s potential breadth, the Courts of Appeals have divided on how best to interpret the statute.36 Uniformly, however, they have declined to throw out the statute as irremediably vague. […]

We agree that § 1346 should be construed rather than invalidated. First, we look to the doctrine developed in preMcNally cases in an endeavor to ascertain the meaning of the phrase “the intangible right of honest services.” Second, to preserve what Congress certainly intended the statute to cover, we pare that body of precedent down to its core: In the main, the pre-McNally cases involved fraudulent schemes to deprive another of honest services through bribes or kickbacks supplied by a third party who had not been deceived. Confined to these paramount applications, § 1346 presents no vagueness problem.

1

There is no doubt that Congress intended § 1346 to refer to and incorporate the honest-services doctrine recognized in Courts of Appeals’ decisions before McNally derailed the intangible-rights theory of fraud…. Congress enacted § 1346 on the heels of McNally and drafted the statute using that decision’s terminology…. As the Second Circuit observed in its leading analysis of § 1346:

“The definite article ‘the’ suggests that ‘intangible right of honest services’ had a specific meaning to Congress when it enacted the statute — Congress was recriminalizing mail- and wire-fraud schemes to deprive others of that ‘intangible right of honest services,’ which had been protected before McNally, not all intangible rights of honest services whatever they might be thought to be.” United States v. Rybicki, 354 F. 3d 124, 137-138 (2003) (en banc). […]

Satisfied that Congress, by enacting § 1346, “meant to reinstate the body of pre-McNally honest-services law,” post, at 422 (opinion of Scalia, J.), we have surveyed that case law. In parsing the Courts of Appeals decisions, we acknowledge that Skilling’s vagueness challenge has force, for honest-services decisions preceding Mc-Nally were not models of clarity or consistency…. While the honest-services cases preceding McNally dominantly and consistently applied the fraud statute to bribery and kickback schemes — schemes that were the basis of most honest-services prosecutions — there was considerable disarray over the statute’s application to conduct outside that core category. […]

It has long been our practice, however, before striking a federal statute as impermissibly vague, to consider whether the prescription is amenable to a limiting construction. […] We have accordingly instructed “the federal courts ... to avoid constitutional difficulties by [adopting a limiting interpretation] if such a construction is fairly possible.” Boos v. Barry, 485 U.S. 312, 331 (1988). …

Although some applications of the pre-McNally honest-services doctrine occasioned disagreement among the Courts of Appeals, these cases do not cloud the doctrine’s solid core: The “vast majority” of the honest-services cases involved offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes. United States v. Runnels, 833 F. 2d 1183, 1187 (CA6 1987); see Brief for United States 42, and n. 4 (citing dozens of examples).41 Indeed, the McNally case itself, which spurred Congress to enact §1346, presented a paradigmatic kickback fact pattern. 483 U.S., at 352-353, 360. Congress’ reversal of McNally and reinstatement of the honest-services doctrine, we conclude, can and should be salvaged by confining its scope to the core pre-McNally applications.

As already noted, […] the honest-services doctrine had its genesis in prosecutions involving bribery allegations. […] Both before McNally and after § 1346’s enactment, Courts of Appeals described schemes involving bribes or kickbacks as “core . . . honest services fraud precedents,” United States v. Czubinski, 106 F. 3d 1069, 1077 (CA1 1997); … “[t]he most obvious form of honest services fraud,” United States v. Carbo, 572 F. 3d 112, 115 (CA3 2009); “core misconduct covered by the statute,” United States v. Urciuoli, 513 F. 3d 290, 294 (CA1 2008) […]

In view of this history, there is no doubt that Congress intended §1346 to reach at least bribes and kickbacks. Reading the statute to proscribe a wider range of offensive conduct, we acknowledge, would raise the due process concerns underlying the vagueness doctrine. To preserve the statute without transgressing constitutional limitations, we now hold that §1346 criminalizes only the bribe-and-kickback core of the pre-McNally case law.43

3

The Government urges us to go further by locating within § 1346’s compass another category of proscribed conduct: “undisclosed self-dealing by a public official or private employee — i.e., the taking of official action by the employee that furthers his own undisclosed financial interests while purporting to act in the interests of those to whom he owes a fiduciary duty.” Brief for United States 43-44. “[T]he theory of liability in McNally itself was nondisclosure of a conflicting financial interest,” the Government observes, and “Congress clearly intended to revive th[at] nondisclosure theory.” Moreover, “[although not as numerous as the bribery and kickback cases,” the Government asserts, “the pre-McNally cases involving undisclosed self-dealing were abundant.” Ibid.

Neither of these contentions withstands close inspection. McNally, as we have already observed, involved a classic kickback scheme: A public official, in exchange for routing Kentucky’s insurance business through a middleman company, arranged for that company to share its commissions with entities in which the official held an interest. 483 U.S., at 352-353, 360. This was no mere failure to disclose a conflict of interest; rather, the official conspired with a third party so that both would profit from wealth generated by public contracts. Reading § 1346 to proscribe bribes and kickbacks — and nothing more — satisfies Congress’ undoubted aim to reverse McNally on its facts.

Nor are we persuaded that the pre-McNally conflict-of-interest cases constitute core applications of the honest-services doctrine. Although the Courts of Appeals upheld honest-services convictions for “some schemes of nondisclosure and concealment of material information,” Mandel, 591 F. 2d, at 1361, they reached no consensus on which schemes qualified. In light of the relative infrequency of conflict-of-interest prosecutions in comparison to bribery and kickback charges, and the intercircuit inconsistencies they produced, we conclude that a reasonable limiting construction of § 1346 must exclude this amorphous category of cases. […]

In sum, our construction of § 1346 “establishes] a uniform national standard, define[s] honest services with clarity, reach[es] only seriously culpable conduct, and accomplishes] Congress’s goal of ‘overruling’ McNally.” … “If Congress desires to go further,” we reiterate, “it must speak more clearly than it has.” McNally, 483 U.S., at 360.44

4

Interpreted to encompass only bribery and kickback schemes, § 1346 is not unconstitutionally vague. Recall that the void-for-vagueness doctrine addresses concerns about (1) fair notice and (2) arbitrary and discriminatory prosecutions. See Kolender, 461 U.S., at 357. A prohibition on fraudulently depriving another of one’s honest services by accepting bribes or kickbacks does not present a problem on either score.

As to arbitrary prosecutions, we perceive no significant risk that the honest-services statute, as we interpret it today, will be stretched out of shape. Its prohibition on bribes and kickbacks draws content not only from the pre-McNally case law, but also from federal statutes proscribing — and defining — similar crimes. See, e.g., 18 U.S.C. §§ 201(b), 666(a)(2); 41 U.S.C. §52(2) (“The term 'kickback’ means any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind which is provided, directly or indirectly, to [enumerated persons] for the purpose of improperly obtaining or rewarding favor able treatment in connection with [enumerated circumstances].”). […]

C

It remains to determine whether Skilling’s conduct violated § 1346. Skilling’s honest-services prosecution, the Government concedes, was not “prototypical.” … The Government charged Skilling with conspiring to defraud Enron’s shareholders by misrepresenting the company’s fiscal health, thereby artificially inflating its stock price. It was the Government’s theory at trial that Skilling “profited from the fraudulent scheme . . . through the receipt of salary and bonuses, . . . and through the sale of approximately $200 million in Enron stock, which netted him $89 million.”

The Government did not, at any time, allege that Skilling solicited or accepted side payments from a third party in exchange for making these misrepresentations. […] It is therefore clear that, as we read § 1346, Skilling did not commit honest-services fraud […]

For the foregoing reasons, we […] vacate its ruling on his conspiracy conviction, and remand the case for proceedings consistent with this opinion.

It is so ordered […]

Justice Scalia, with whom Justice Thomas joins, and with whom Justice Kennedy joins except as to Part III, concurring in part and concurring in the judgment.

I agree … that the decision upholding Skilling’s conviction for so-called “honest-services fraud” must be reversed, but for a different reason. In my view, the specification in 18 U.S.C. § 1346 (2006 ed.) that “scheme or artifice to defraud” in the mail-fraud and wire-fraud statutes, §§ 1341 and 1343 (2006 ed., Supp. II), includes “a scheme or artifice to deprive another of the intangible right of honest services” is vague, and therefore violates the Due Process Clause of the Fifth Amendment. The Court … in transforming the prohibition of “honest-services fraud” into a prohibition of “bribery and kickbacks” … is wielding a power we long ago abjured: the power to define new federal crimes. […]

I agree that Congress used the novel phrase to adopt the lower-court case law that had been disapproved by McNally — what the Court calls “the pre-McNally honest-services doctrine.” The problem is that that doctrine provides no “ascertainable standard of guilt,” United States v. L. Cohen Grocery Co., 255 U.S. 81, 89 (1921), and certainly is not limited to “bribes or kickbacks.” […]

The Court is aware of all this. It knows that adopting by reference “the pre-McNally honest-services doctrine,” ante, at 407, is adopting by reference nothing more precise than the referring term itself (“the intangible right of honest services”). Hence the deus ex machina: “[W]e pare that body of precedent down to its core,” ante, at 404. Since the honest-services doctrine “had its genesis” in bribery prosecutions, and since several cases and counsel for Skilling referred to bribery and kickback schemes as “core” or “paradigm” or “typical” examples, or “[t]he most obvious form,” of honest-services fraud, ante, at 408 (internal quotation marks omitted), and since two cases and counsel for the Government say that they formed the “vast majority,” or “most” or at least “[t]he bulk” of honest-services cases, ante, at 407-408 (internal quotation marks omitted), THEREFORE it must be the case that they are all Congress meant by its reference to the honest-services doctrine.

Even if that conclusion followed from its premises, it would not suffice to eliminate the vagueness of the statute. It would solve (perhaps) the indeterminacy of what acts constitute a breach of the “honest services” obligation under the pre-McNally law. But it would not solve the most fundamental indeterminacy: the character of the “fiduciary capacity” to which the bribery and kickback restriction applies. Does it apply only to public officials? Or in addition to private individuals who contract with the public? Or to everyone, including the corporate officer here? The pre-McNally case law does not provide an answer. Thus, even with the bribery and kickback limitation the statute does not answer the question, “What is the criterion of guilt?”

But that is perhaps beside the point, because it is obvious that mere prohibition of bribery and kickbacks was not the intent of the statute. To say that bribery and kickbacks represented “the core” of the doctrine, or that most cases applying the doctrine involved those offenses, is not to say that they are the doctrine. All it proves is that the multifarious versions of the doctrine overlap with regard to those offenses. But the doctrine itself is much more. Among all the pre-McNally smorgasbord offerings of varieties of honest-services fraud, not one is limited to bribery and kickbacks. […]

I certainly agree with the Court that we must, “if we can,” uphold, rather than “condemn,” Congress’s enactments, ante, at 403. But I do not believe we have the power, in order to uphold an enactment, to rewrite it. […]

_h2o_keep_element

36 Courts have disagreed about whether §1346 prosecutions must be based on a violation of state law …; whether a defendant must contemplate that the victim suffer economic harm …; and whether the defendant must act in pursuit of private gain [citations omitted].

41 Justice Scalia emphasizes divisions in the Courts of Appeals regarding the source and scope of fiduciary duties. Post, at 417-419. But these debates were rare in bribe and kickback cases. […]

43 Justice Scalia charges that our construction of §1346 is “not interpretation but invention.” Post, at 422. Stating that he “know[s] of no precedent for . . . ‘paring down’” the pre-McNally ease law to its core, post, at 422, he contends that the Court today “wield[s] a power we long ago abjured: the power to define new federal crimes,” post, at 415…. As noted supra, at 405-406, cases “paring down” federal statutes to avoid constitutional shoals are legion. These cases recognize that the Court does not legislate, but instead respects the legislature, by preserving a statute through a limiting interpretation. See United States v. Lanier, 520 U.S. 259, 267-268, n. 6 (1997) (This Court does not “create a common law crime” by adopting a “narrow[ing] construction].” … Given that the Courts of Appeals uniformly recognized bribery and kickback schemes as honest-services fraud before McNally and that these schemes composed the lion’s share of honest-services cases, limiting § 1346 to these heartland applications is surely “fairly possible.” Boos v. Barry, 485 U.S. 312, 331 (1988); cf. Clark v. Martinez, 543 U.S. 371, 380 (2005) (opinion for the Court by Scalia, J.) (when adopting a limiting construction, “[t]he lowest common denominator, as it were, must govern”). ... Only by taking a wrecking ball to a statute that can be salvaged through a reasonable narrowing interpretation would we act out of step with precedent.

44 If Congress were to take up the enterprise of criminalizing “undisclosed self-dealing by a public official or private employee,” Brief for United States 43, it would have to employ standards of sufficient definiteness and specificity to overcome due process concerns. The Government proposes a standard that prohibits the “taking of official action by the employee that furthers his own undisclosed financial interests while purporting to act in the interests of those to whom he owes a fiduciary duty,” so long as the employee acts with a specific intent to deceive and the undisclosed conduct could influence the victim to change its behavior. That formulation, however, leaves many questions unanswered. How direct or significant does the conflicting financial interest have to be? To what extent does the official action have to further that interest in order to amount to fraud? To whom should the disclosure be made, and what information should it convey? These questions and others call for particular care in attempting to formulate an adequate criminal prohibition in this context […]