A post of this nature has appeared on these pages approximately fifteen times.
Even though the current Supreme Court is often ideologically divided, the Court has shown remarkable consistency in recent years in rejecting (often times unanimously) overly expansive interpretations of a criminal statute by the Department of Justice.
Recently, there were two additional instances on the same day: Ciminelli v. United States and Percoco v. United States.
Justice Clarence Thomas authored the unanimous decision in Ciminelli and the decision begins with the following relevant background.
“This case begins with then-New York Governor Andrew Cuomo’s “Buffalo Billion” initiative. On its face, the initiative was administered through Fort Schuyler Management Corporation, a nonprofit affiliated with the State University of New York (SUNY) and the SUNY Research Foundation. It aimed to invest $1 billion in development projects in upstate New York. Later investigations, however, uncovered a wide-ranging scheme that involved several of former Governor Cuomo’s associates, most notably Alain Kaloyeros and Todd Howe. Kaloyeros was a member of Fort Schuyler’s board of directors and was in charge of developing project proposals for Buffalo Billion; Howe was a lobbyist who had deep ties to the Cuomo administration. Each month, Kaloyeros paid Howe $25,000 in state funds to ensure that the Cuomo administration gave Kaloyeros a prominent position in Buffalo Billion.
Ciminelli had a similar arrangement. His construction company, LPCiminelli, paid Howe $100,000 to $180,000 each year to help it obtain state-funded jobs. In 2013, Howe and Kaloyeros devised a scheme whereby Kaloyeros would tailor Fort Schuyler’s bid process to smooth the way for LPCiminelli to receive major Buffalo Billion contracts. First, on Kaloyeros’ suggestion, Fort Schuyler established a process for selecting “preferred developers” that would be given the first opportunity to negotiate with Fort Schuyler for specific projects. Then, Kaloyeros, Howe, and Ciminelli jointly developed a set of requests for proposal (RFPs) that treated unique aspects of LPCiminelli as qualifications for preferred-developer status. Those RFPs effectively guaranteed that LPCiminelli would be (and was) selected as a preferred developer for the Buffalo projects. With that status in hand, LPCiminelli secured the marquee $750 million “Riverbend project” in Buffalo.
After an investigation revealed their scheme, Ciminelli, Howe, Kaloyeros, and several others were indicted by a federal grand jury on 18 counts including, as relevant here, wire fraud in violation of 18 U. S. C. §1343 and conspiracy to commit wire fraud in violation of §1349.
Throughout the grand jury proceedings, trial, and appeal, the Government relied on the Second Circuit’s “right to control” theory, under which the Government can establish wire fraud by showing that the defendant schemed to deprive a victim of potentially valuable economic information necessary to make discretionary economic decisions. The Government’s indictment and trial strategy rested solely on that theory.1 And, it successfully defeated Ciminelli and his codefendants’ motion to dismiss by relying on that theory. In addition, it successfully moved the District Court to exclude certain defense evidence as irrelevant to that theory. The Government also relied on that theory in its summation to the jury.
Consistent with the right-to-control theory, the District Court instructed the jury that the term “property” in §1343 “includes intangible interests such as the right to control the use of one’s assets.” The jury could thus find that the defendants harmed Fort Schuyler’s right to control its assets if Fort Schuyler was “deprived of potentially valuable economic information that it would consider valuable in deciding how to use its assets.” The District Court further defined “economically valuable information” as “information that affects the victim’s assessment of the benefits or burdens of a transaction, or relates to the quality of goods or services received or the economic risks of the transaction.” Ibid. The jury found Ciminelli guilty of wire fraud and conspiracy to commit wire fraud and the District Court sentenced him to 28 months’ imprisonment followed by 2 years’ supervised release.
On appeal, Ciminelli challenged the right-to-control theory, arguing that the right to control one’s assets is not “property” for purposes of the wire fraud statute. Defending the wire fraud convictions, the Government relied solely on the right-to-control theory. The Second Circuit affirmed the convictions based on its longstanding right-to-control precedents, holding that, by “rigging the RFPs to favor their companies, defendants deprived Fort Schuyler of potentially valuable economic information.”
As stated by Justice Thomas:
“In this case, we must decide whether the Second Circuit’s longstanding “right to control” theory of fraud describes a valid basis for liability under the federal wire fraud statute, which criminalizes the use of interstate wires for “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises.” 18 U. S. C. §1343. Under the right-to-control theory, a defendant is guilty of wire fraud if he schemes to deprive the victim of “potentially valuable economic information” “necessary to make discretionary economic decisions.” Petitioner Louis Ciminelli was charged with, tried for, and convicted of wire fraud under this theory. And the Second Circuit affirmed his convictions on that same basis.
We have held, however, that the federal fraud statutes criminalize only schemes to deprive people of traditional property interests. Cleveland v. United States, 531 U. S. 12, 24 (2000). Because “potentially valuable economic information” “necessary to make discretionary economic decisions” is not a traditional property interest, we now hold that the right-to-control theory is not a valid basis for liability under §1343. Accordingly, we reverse the Second Circuit’s judgment.”
In the opinion, Justice Thomas noted that the government’s enforcement theory was “unmoored from the federal fraud statutes’ text” and “vastly expands federal jurisdiction without statutory authorization.”
In conclusion, Justice Thomas stated:
“[T]he wire fraud statute reaches only traditional property interests. The right to valuable economic information needed to make discretionary economic decisions is not a traditional property interest. Accordingly, the right-to-control theory cannot form the basis for a conviction under the federal fraud statutes.”
Justice Samuel Alito authored the unanimous decision in Percoco and the decision begins with the following relevant background.
“Percoco was a longtime political associate of former New York Governor Andrew Cuomo. Except for a brief but important hiatus in 2014, Percoco served as the Governor’s Executive Deputy Secretary from 2011 to 2016, and that position gave him a wide range of influence over state decision-making. In April 2014, Percoco resigned from this position to manage the Governor’s reelection campaign, but after the Governor was reelected, he resumed his role as Executive Deputy Secretary in December 2014.
The question we address today arises from Percoco’s activities during his break in government service. In July 2014, Empire State Development (ESD), a state agency, informed developer Steven Aiello that his real-estate company, COR Development, needed to enter into a “Labor Peace Agreement” with local unions if he wished to receive state funding for a lucrative project. Id., at 597. Interested in avoiding the costs of such an agreement, Aiello reached out to Percoco through an intermediary so that Percoco could “help us with this issue while he is off the 2nd floor,” i.e., the floor that housed the Governor’s office. Percoco agreed and received two payments totaling $35,000 from Aiello’s company in August and October 2014. On December 3, mere days before returning to his old job, Percoco called a senior official at ESD and urged him to drop the labor-peace requirement. ESD promptly reversed course the next day and informed Aiello that the agreement was not necessary.
Percoco’s dealings in this and other matters later came to the attention of the United States Department of Justice, which obtained a multi-count indictment against Percoco and others for engaging in several allegedly illegal schemes. Percoco was charged with two counts of conspiring to commit honest-services wire fraud, in violation of 18 U. S. C. §§1343, 1346, and 1349; two counts of soliciting bribes and gratuities, in violation of §666(a)(1)(B); and three counts of Hobbs Act extortion, in violation of §1951. Only the wire fraud conspiracy count relating to the labor-peace requirement (count 10) is directly at issue before this Court.
That count alleged a conspiracy running “[f]rom at least in or about 2014, up to and including in or about 2015,” that is, both during the time when Percoco was formally employed in the Governor’s office and during the period when he was working on the Governor’s campaign. Before trial, Percoco moved for dismissal of that count—and another conspiracy count overlapping with the campaign period—on the ground that a private citizen cannot commit or conspire to commit honest-services wire fraud based on his own duty of honest services to the public. The District Court denied that motion, noting that the indictment alleged that Percoco, while formally working on the Governor’s campaign, had “‘continued to function in a senior advisory and supervisory role with regard to the Governor’s Office’” and had “‘continued to be involved in the hiring of staff and the coordination of the Governor’s official events and priorities . . . among other responsibilities.’”
At trial, the prosecution introduced evidence to support the indictment’s allegations about Percoco’s activities during his break in official service, as well as evidence that he had expressed his intent and had made plans to resume official service after the election. At the end of the prosecution’s case, Percoco again moved for judgment of acquittal on count 10, contending that no evidence showed that he had taken any act in furtherance of that conspiracy while serving in an official government capacity.
The court reserved decision on that motion, and the case was submitted to the jury. Over defense counsel’s objection, the court instructed that Percoco could be found to have had a duty to provide honest services to the public during the time when he was not serving as a public official if the jury concluded, first, that “he dominated and controlled any governmental business” and, second, that “people working in the government actually relied on him because of a special relationship he had with the government.” The jury convicted Percoco on count 10, as well as two other charged counts relating to additional conduct, but acquitted him on the other charges. The court then denied Percoco’s motion for judgment of acquittal, and he was sentenced to 72 months’ imprisonment.
On appeal, the Second Circuit affirmed. The court explained that the “fiduciary-duty [jury] instruction” given by the trial judge “fi[t] comfortably” with, and in fact restated, the understanding of honest-services fraud that the Second Circuit had adopted many years earlier in United States v. Margiotta, 688 F. 2d 108 (1982). See 13 F. 4th, at 194 (noting that Percoco and his co-defendants “seem to agree that the district court’s fiduciary-duty instruct[ion] falls within Margiotta”). Based on that precedent, the court also rejected Percoco’s claim that there was insufficient evidence to prove that he had “owed New York State a duty of honest services while he was managing the Governor’s campaign.”
Percoco sought this Court’s review, asking us to decide whether a private citizen who “has informal political or other influence over governmental decision making” can be convicted of honest-services fraud.”
As stated by Justice Alito:
“In this case, we consider whether a private citizen with influence over government decision-making can be convicted for wire fraud on the theory that he or she deprived the public of its “intangible right of honest services.” Petitioner Joseph Percoco was charged with conspiring to commit honest-services wire fraud during a period of time that included an eight-month interval between two stints as a top aide to the Governor of New York. Percoco was convicted of this offense based on instructions that required the jury to determine whether he had a “special relationship” with the government and had “dominated and controlled” government business. We conclude that this is not the proper test for determining whether a private person may be convicted of honest-services fraud, and we therefore reverse and remand for further proceedings.”
In the opinion, Justice Alito stated that “from time immemorial, there have been éminence grises, individuals who lacked any formal government position but nevertheless exercised very strong influence over government decisions. Some of these individuals have been reviled; others have been respected as wise counselors.”
According to Justice Alito, the relevant jury instruction did not define “the intangible right of honest services” “ ‘with sufficient definiteness that ordinary people can understand what conduct is prohibited,’” or “‘in a manner that does not encourage arbitrary and discriminatory enforcement.’”
A concurring opinion by Justice Neil Gorsuch (in which Justice Thomas joined) states:
“The Court holds that the jury instructions in this case were “too vague.” I agree. But to my mind, the problem runs deeper than that because no set of instructions could have made things any better. To this day, no one knows what “honest-services fraud” encompasses. And the Constitution’s promise of due process does not tolerate that kind of uncertainty in our laws—especially when criminal sanctions loom. “Vague laws” impermissibly “hand off the legislature’s responsibility for defining criminal behavior to unelected prosecutors and judges, and they leave people with no sure way to know what consequences will attach to their conduct.”
[…]
In this country, a criminal law is supposed to provide “ordinary people fair notice of the conduct it punishes.” Yet even 80 years after lower courts began experimenting with the honest-services-fraud theory, no one can say what sort of fiduciary relationship is enough to sustain a federal felony conviction and decades in federal prison.
[…]
Under our system of separated powers, the Legislative Branch must do the hard work of writing federal criminal laws. Congress cannot give the Judiciary uncut marble with instructions to chip away all that does not resemble David.
[…]
Doubtless, Congress had high and worthy intentions when it enacted §1346. But it must do more than invoke an aspirational phrase and leave it to prosecutors and judges to make things up as they go along. The Legislature must identify the conduct it wishes to prohibit. And its prohibition must be knowable in advance—not a lesson to be learned by individuals only when the prosecutor comes calling or the judge debuts a novel charging instruction. Perhaps Congress will someday set things right by revising §1346 to provide the clarity it desperately needs. Until then, this Court should decline further invitations to invent rather than interpret this law.”
The Ciminelli and Percoco decisions follow a clear trend over the last approximate decade of the Supreme Court overturning overly expansive DOJ interpretations of federal criminal statutes.
For instance in U.S. v. Skilling (2010), the Supreme Court rejected the DOJ’s “honest services fraud” theory of criminal prosecution. Instead of the broad construction the DOJ urged, the Court adopted a narrow interpretation of the relevant statute and reiterated “if Congress desires to go further, it must speak more clearly.”
Likewise in Bond v. U.S. (2013), the Supreme Court unanimously rejected the DOJ’s theory of criminal prosecution. Instead of the expansive construction of the term “chemical weapons” the DOJ urged, the Court adopted a narrow interpretation stating that the DOJ’s interpretation “would sweep in everything from the detergent under the kitchen sink to the stain remover in the laundry room.”
Similarly, as highlighted in this prior post, in U.S. v. Yates (2015), the Supreme Court again rejected the DOJ’s theory of criminal prosecution in the infamous are fish “tangible objects” case. Calling the DOJ’s enforcement theory an “unrestrained” and “unbounded” reading of relevant statute, the Court reversed the 11th Circuit’s opinion affirming the criminal conviction.
In U.S. v. McDonnell (2015) (see here for the prior post), the Supreme Court again rejected the DOJ’s theory of criminal prosecution. Calling the DOJ’s theory of prosecution “boundless,” the Court adopted a narrow interpretation of the meaning of “official action” (a term that also appears in the FCPA) in the federal bribery statute. As stated by the Court:
“There is no doubt that this case is distasteful; it may be worse than that. But our concern is not with tawdry tales of Ferraris, Rolexes, and ball gowns. It is instead with the broader legal implications of the Government’s boundless interpretation of the federal bribery statute. A more limited interpretation of the term “official act” leaves ample room for prosecuting corruption, while comporting with the text of the statute and the precedent of this Court.”
The McDonnell court further stated (internal citations omitted)
“[W]e cannot construe a criminal statute on the assumption that the Government will “use it responsibly.” The Court in Sun-Diamond declined to rely on “the Government’s discretion” to protect against overzealous prosecutions under §201, concluding instead that “a statute in this field that can linguistically be interpreted to be either a meat axe or a scalpel should reasonably be taken to be the latter.” A related concern is that, under the Government’s interpretation, the term “official act” is not defined “with sufficient definiteness that ordinary people can understand what conduct is prohibited,” or “in a manner that does not encourage arbitrary and discriminatory enforcement.” Under the “‘standardless sweep’” of the Government’s reading, public officials could be subject to prosecution, without fair notice, for the most prosaic interactions. “Invoking so shapeless a provision to condemn someone to prison” for up to 15 years raises the serious concern that the provision “does not comport with the Constitution’s guarantee of due process.” Our more constrained interpretation of §201(a)(3) avoids this “vagueness shoal.””
In Digital Realty Trust v. Somers (2018) (see here for the prior post) the Supreme Court once again reminded us that the law means what actual words in a specific statute say (not what other similar statutes may say) and not what the SEC interprets words in a statute to mean.
In Kelly v. U.S. (2020) (see here for the prior post) (the so-called Bridgegate case in which the DOJ charged former public officials who worked at or with the Port Authority of New York and New Jersey and had political ties to former New Jersey Governor Chris Christie), the Supreme Court unanimously reversed criminal convictions even though “the evidence the jury heard no doubt shows wrongdoing – deception, corruption, abuse of power.” In so doing, the court stated that “the federal fraud statutes at issue do not criminalize all such conduct” and that “not every corrupt act by state or local officials is a federal crime.”
In Van Buren v. U.S. (2021) (see here for the prior post), the Supreme Court rejected the DOJ’s expansive interpretation of the Computer Fraud and Abuse Act and concluded that actual words in a statute have meaning and that federal criminal statutes are not all-purpose ethics statutes.
And then of course there were Supreme Court benchslaps of SEC statute of limitations positions in Gabelli v. SEC (2013) (see here for the prior post) and Kokesh v. SEC (2017) (see here for the prior post) as well as the Supreme Court’s benchslap of the Federal Trade Commission in 2021 (see here for the prior post) as well as the Department of Health and Human Services in 2021 (see here for the prior post).
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