U.S. Supreme Court Again to Address DOJ’s Prosecution of ‘Honest Services Fraud’

July 8, 2022 | Insights

By Arthur Gollwitzer

Can a private citizen who holds no elected office or government position owe a fiduciary duty to the general public such that he can be convicted of honest services fraud? On June 30, 2022, the Supreme Court granted certiorari in Percoco v. United States (No. 21-1158) to answer that question. Put simply, will the Court continue its trend of curtailing the government’s use of the honest services fraud statute, 18 U.S.C. § 1346, to combat public corruption?

As Joseph Percoco explained in his petition, “when a public official accepts money to convince the government to do something, we call him a crook,” but “when a private citizen accepts money to convince the government to do something, we call him a lobbyist.” In Percoco, however, the government seems to have ignored that distinction.

The United States government prosecuted Percoco for being paid $35,000 to help a real estate developer navigate a government approval process. According to the prosecutors, Percoco owed a “duty of honest services” to the public because he formerly worked for New York’s governor and apparently had “clout.” Percoco was convicted despite not holding any public office, and the Second Circuit affirmed his conviction. United States v. Percoco, 13 F. 4th 180 (2d Cir. 2001).

Prior to 1987, the government prosecuted public corruption cases via the mail and wire fraud statutes, 18 U.S.C. §§ 1341 and 1343, under the theory that the public had a right to receive “honest services,” from public officials. The government applied this theory to a wide variety of cases in which a public servant received personal benefits in exchange for government action – it could be described as a fraud on the public theory.

In 1987, the United States Supreme Court invalidated prosecutions under such an intangible rights theory in McNally v. United States, holding that the government’s theory was too vague and potentially limitless. 483 U.S. 350 (1987). In response, Congress enacted today’s honest services fraud statute, 18 U.S.C. §1346, expressly making it a crime to defraud another of “the intangible right of honest services.” And federal prosecutors promptly began treating the corrupt procurement of government services as theft of government property.

Congressional action, however, did not end the debate. Defendants continued to argue that the statute was unconstitutionally vague, and the Supreme Court has generally agreed. In Skilling v. United States, 561 U.S. 358 (2010), the Court held that honest services fraud is limited to situations where the defendant

  1. breached his fiduciary duty as a result of
  2. actual bribes or kickbacks.

Recently, in Kelly v. United States, 140 S. Ct. 1565 (2020), the so-called “Bridgegate” case, the Court held that acts of political retribution are not covered by the honest services fraud statute.

Notwithstanding the Supreme Court’s consistent, longstanding scrutiny of the honest services statute, in this case, the Department of Justice prosecuted a private citizen for helping another private citizen navigate a state development approval process because the defendant had worked for the New York governor, was working on the governor’s re-election campaign, and generally had “clout.” To do so, the trial court instructed the jury that a private citizen can owe a fiduciary duty to the public. The Second Circuit agreed, relying on a 1982 case, United States v. Margiotta, 688 F.2d 108 (2d Cir. 1982), holding that the “honest services” theory could be applied to private citizens.

Percoco argues that Margiotta was abrogated by the 1987 McNally decision and subsequent Supreme Court curtailing of the honest services theory. He told the Court, “the notion that private citizens owe a duty of honest services to the public so long as a jury deems them sufficiently influential” has no basis in law. (Percoco Cert. Pet. at 2 (emphasis added).) Indeed, the Percoco conviction seems to open the door to cases against any lobbyist who has a personal relationship with a government official.

The line between lawful lobbying and a jury finding that a lobbyist has de facto control over a government official will be thin and vague. Many lobbyists formerly served in public office or worked for public officials. Likewise, friends, media figures, and even family members may be targeted by aggressive or politically motivated prosecutors. Under the Percoco and Margiotta logic, a jury could find all of these individuals have sufficient influence over a public official so as to owe their own duty of honest services to the public.

Under the Percoco and Margiotta logic, a jury could find all of these individuals have sufficient influence over a public official so as to owe their own duty of honest services to the public.

By agreeing to review Percoco in light of its consistent scrutiny of government prosecutions in this area, the Supreme Court has signaled it may share these concerns.

This update is not intended to provide legal advice, and no legal or business decision should be based on its contents. Please consult with your legal counsel for guidance. For questions relating to fraud, lobbying, and government relations, please contact Arthur Gollwitzer (agollwitzer@jw.com; 512.236.2268) or any member of our Investigations & White Collar Defense team.