The U.S. Supreme Court today limited the use of the honest-services wire fraud statute, and lawyers immediately disagreed over what it means for former San Diego City Councilmen Ralph Inzunza and Michael Zucchet and ex-pension officials who were prosecuted under the controversial law.
The justices were unanimous in the opinion that prosecutors may continue to use the honest services law, but only in cases alleging that defendants accepted bribes or kickbacks. The justices said the government may not use the law in cases that allege a failure to disclose conflicts of interest.
“This is not a clear victory for anybody, but I think you could view it as a little bit of a push back to the government,” said former San Diego U.S. Attorney Charles LaBella, who is now a white-collar criminal defense attorney. “The Supreme Court has said there’s a line here, and you can’t cross it.”
The 28-word statute, which makes it a crime to “deprive citizens of the intangible right to honest services,” was challenged by former Enron CEO Jeffrey Skilling as unconstitutionally vague, allowing prosecutors to criminalize conduct that might otherwise be considered merely unethical in the business and political arenas.
The law, which will apply to thousands of cases nationwide, can no longer be used as a catch-all by prosecutors, LaBella said.
“It means it’s no longer a bucket into which you can throw amorphous ethical violations, moral transgressions and other questionable and improper conduct. It means something very specific, it means bribes and kickbacks, and all of us know what constitutes bribes and kickbacks,” LaBella said.
In today’s ruling, the court held that the conduct of Skilling for his role in the collapse of Enron did not fall into the bribery or kickback category, and therefore he could not be convicted of honest-services fraud.
The Supreme Court did not overturn the Skilling case, but sent it back to the lower courts, which will have to apply the new rules and reconsider whether the case should stand, and if not, whether other charges in the same case were tainted by the honest-services conviction and should also be thrown out. That’s what will happen in the Inzunza matter.
San Diego prosecutors — nervous the whole statute might be scrapped — were heartened by today’s ruling, saying their theories in the cases fall within the parameters described by justices as appropriate.
“I think it’s a good thing,” said former Assistant U.S. Attorney John Rice, one of the prosecutors on the Inzunza case. “Our theory was that it was a bribery situation, and that’s certainly what we had.”
In the City Hall corruption case, both councilmen were convicted; but at the sentencing hearing in November 2005, U.S. District Court Judge Jeffrey T. Miller threw out seven of nine counts against Zucchet, and granted a new trial on two counts.
The ruling means the new U.S. attorney, Laura Duffy, will have to decide whether to re-try Zucchet on the remaining counts. That decision had been postponed until the Supreme Court ruled on the honest-services statute.
Zucchet’s attorney, Jerry Coughlan, said the ruling has no impact on his client. “His case is dead as far as we’re concerned.”
In the pension case, federal prosecutors had alleged that the pension board agreed to accept lower city contributions to the pension fund to help ease the city’s financial crisis, in return for increased benefits. In April, U.S. District Judge Roger Benitez dismissed all criminal charges against the pension officials, saying the law was too vague.
The government has appealed that ruling to the 9th U.S. Circuit Court of Appeals, and today prosecutors asked for more time to file their first brief so they can incorporate arguments related to the Supreme Court ruling.
“This was a good day, not a bad day,” said attorney Frank Vecchione, who represents one of the defendants, Teresa Webster. Vecchione said the pension case does not fit the new parameters of honest services fraud because it does not involve bribes or kickbacks.
The U.S. Attorney’s Office had no comment; Inzunza’s lawyer could not be reached.
— KELLY THORNTON