Tomorrow, the Supreme Court returns to the bench for a new round of hearings. Up first are two hearings on the troubling but all-too-familiar topic: public corruption. The two cases were decided on the same day in a lower court and raise closely related issues.
The Court will broadcast “live” the audio (no video) of the hearings on its homepage, supremecourt.gov To listen, click on “Live Audio” and follow the prompt when the courtroom scene appears lower on the page. The audio also will be available, under the title of each case, on C-Span TV at this link: cspan.org/supremecourt
Background of both cases: Public corruption, one might say, is as American as apple pie. Hardly any generation in U.S. history has been free of it. Stories of scandal can be called up by a word, a phrase, a name: Citizen Genet, the XYZ affair, Tammany Hall, Teapot Dome, Spiro Agnew, Abscam, Watergate, Enron, the college admissions scandal, Trump’s Washington hotel.
When public corruption leads to federal prosecution, the charges are usually brought under the law against fraud – that is, deceiving someone to obtain a personal gain or to deny someone a right (the English word fraud is derived from 13th Century Latin, fraudem, and 14th Century French, fraude. In both languages, the words meant “to cheat.”).
For Congress to create a federal crime, the Constitution requires it to aim at acts that cross state lines; otherwise, crime is primarily a state or local problem. The law of fraud easily meets the interstate test, by criminalizing fraud while using wires (telephone, telegraph, radio, television – or, today, the Internet) or while using the mail. Wire fraud law dates back to 1952; mail fraud to 1872.
Wire and mail fraud law are favorites of federal prosecutors, who often seek to expand the scope of the law’s meaning. That option may be open to prosecutors because Congress, in drafting legislation, sometimes leaves ambiguities in what or who is covered. Under the Constitution’s guarantee of due process, however, the people are entitled to know – with specificity – what the criminal law requires of them, and a law written in vague terms fails.
Here is a clear example of widening of a law’s scope: beginning in the 1940s, prosecutors successfully persuaded courts that fraud not only included depriving victims of money or physical property, but also of intangible property. One form of intangible property that prosecutors cited in cases against public officials was the denial to victims of a “right to good government.” Another form successfully pushed by prosecutors was a private person’s denial of “honest services” to a private employer.
In 1987, the Supreme Court put an abrupt stop to that trend, ruling in the case of McNally v. U.S. that the law of fraud only covered deception to obtain money or physical property. “If Congress desires to go further, it must speak more clearly,” the Court said then.
One year later, Congress endorsed the prosecutors’ approach, overturning the McNally decision by amending the law to make it a crime to deprive victims of “the intangible right of honest services.” Prosecutors took advantage of that, and began a new expansion, aiming at an officer of a private company who profits out of misleading stockholders about a company’s value. Once again, the Supreme Court turned that aside, ruling in 2010 in a case arising out of the Enron Corp. scandal (Skilling v. U.S.) that wire and mail fraud only apply to actual bribery or kickbacks. This time, Congress did not react, leaving the law as is.
An expansion of who the “honest services” duty covers is now being challenged in the first case the Court will hear on Monday. The second case tests whether wire fraud law makes it a crime to deny victims of full and accurate information in commercial dealings – also a considerable expansion. The cases are being heard separately.
First hearing Monday: Percoco v. U.S. Scheduled for one hour, the hearing begins at 10 a.m.
Facts of this case: In 2014, Joseph Percoco had temporarily left the staff of Andrew Cuomo, then New York’s governor, to run Cuomo’s reelection campaign. He had been promised a return to the staff after the campaign was over. He was approached by a businessman who wanted a favor from the state government: access to public funding without meeting all the conditions. He paid Percoco $35,000, who telephoned state officials and got the favor.
In 2016, federal prosecutors charged Percoco with failing to provide “honest services” to the state and its people. A state official testified that he felt “pressure” to act because of Percoco’s ties to the governor. A jury convicted Percoco of “honest services” wire fraud, based on his telephone calls, and on another charge; he was sentenced to six years in prison.
Lower courts rejected his challenge that he owed no duty to the state at the time of his calls, ruling that the wire fraud law applied to a former government official who “exercised sufficient control and reliance” on public officials to be able to obtain public services for someone else. A federal appeals court upheld Percoco’s conviction.
Percoco appealed to the Supreme Court, challenging the “control” theory as applied to a person not in government at the time.
The question before the Court: Can a private citizen who has no government position be convicted of failing to provide the public with “honest services” based only on a claim of an ability to influence official actions?
Second hearing Monday: Ciminelli v. United States. The hearing will begin as soon as the Percoco hearing has ended. It is scheduled for one hour.
Facts of this case: Louis Ciminelli, a Buffalo, N.Y., businessman, headed a major construction company, LPCiminelli. He was caught up in a bid-fixing scheme for then-Governor Cuomo’s 2012 “Buffalo Billion” plan to spend $1 billion of state funds to renew that upstate city. The state assigned a non-profit company, Fort Schuyler Management Corp., to select contractors for the project.
In 2014, Ciminelli was charged, along with an officer of the Fort Schuyler firm, with violating the “honest services” wire fraud law by writing the conditions for contracts to steer the money to preferred companies. Ciminelli’s company was chosen for a $750 million project for a high-tech project in the city. The Fort Schuyler board awarded that contract without knowing about the rigging of the contract bids.
Ciminelli was convicted of wire fraud and other charges, and was sentenced to 28 months in prison. A federal appeals court upheld his conviction, ruling that proving a violation of the “right to control” theory did not require that anybody had suffered any financial loss or, in this case, that any other potential bidder suffered any harm.
The only requirement, that court said, was that the accused person deprived a victim of full and accurate information to induce that victim to carry out a commercial deal. In Ciminelli’s case, it ruled, his conduct resulted in a “leg up” in what the Fort Schuyler board had thought was genuine competitive bidding.
He appealed to the Supreme Court, arguing that a failure to fully disclose information is not enough to illegally harm someone in a commercial deal, especially with no proof of any property loss.
The question before the Court: May a private businessman be charged with commercial fraud merely for failing to disclose full information in a transaction, in which no one lost any property?
Significance of these two cases: As the history of fraud cases in the past eight decades shows, the questions of what is property and when does a property loss occur as a result of deception have led federal prosecutors and the federal courts on a meandering pursuit of the meaning of ambiguous phrases in a frequently used criminal law.
As lawyers involved in one of these new cases told the Justices: “This Court has repeatedly granted review to correct unwarranted extensions of federal mail and wire fraud statutes so as to confine their scope to traditional ‘property fraud.’…This Court should intervene once again to confirm that the federal fraud statutes are not an all-purpose protection of ethereal interests.” The Court agreed to review both appeals.
The fundamental reason that the same cycle keeps repeating itself in federal courts is that Congress, in several attempts to say what the law of fraud should be, has created more puzzles and less clarity. As the Court said in the McNally decision, and repeated verbatim in the Skilling ruling: “If Congress desires to go further, it must speak more clearly.”
The Court had a chance, in the Skilling case, to strike down entirely the law of “honest services” fraud as unconstitutionally vague. Former Enron CEO Jeffrey Skilling had made that explicit argument in challenging his conviction, but the Court refused to do so. It said then: “This Court must, if possible, construe, not condemn, Congress’ enactments…[This law] should be construed rather than invalidated.”
Its interpretations have not stopped prosecutors or federal courts from experimenting with novel views of what they think the law of fraud ought to mean. The challenge to the Court, once more, is to find a way to interpret the fraud laws so that it ultimately saves it.
On Tuesday, the Court will hear one case, a highly significant test of whether state governments that strongly oppose government immigration policy have a right to sue to block it.