Supreme Court Again Narrows Scope of Honest Services Fraud in Reversing Percoco

For the past decade, when the Supreme Court has considered the honest services fraud statute, it has found its application to be unconstitutionally vague and/or too broad. The Court's recent decision in Percoco v. United States, 598 U.S. ___ (2023), is no exception and continues the Court's general reluctance to criminalize what it views as politics as usual. Percoco served as then-Governor Cuomo's executive deputy secretary but left state service for eight months to manage Cuomo's re-election campaign and, post-election, resumed his previous government position. During Percoco's time managing the campaign, he accepted two payments totaling $35,000 from a real estate company with business before the state in exchange for assistance related to an issue with a labor union. The issue in Percoco was whether the jury was properly instructed that under the honest services fraud statute, private persons could owe a fiduciary duty to the public if they exercised control in and with the government. In finding this jury instruction impermissibly vague, the Supreme Court reasoned that such an instruction potentially could create a fiduciary duty to the public for a wide range of private individuals including "wise counselors," "lobbyists," and "political party officials" on whom public officials have long relied. In reversing Percoco's conviction and remanding the case back to the district court, the Court did not foreclose the possibility that a person nominally outside public employment could have a fiduciary duty to the public but gave little guidance on what factors would create such a duty other than citing traditional notions of agency. Accordingly, while it is hypothetically possible that a private individual could be convicted of honest services fraud where the facts demonstrated that such person actually was an agent of the government at the time the bribe or kickback was accepted in exchange for an official act, the likelihood of all these necessary facts being present is extremely unlikely. Rather, going forward, federal public corruption prosecutions probably will focus on bribes or kickbacks accepted by public officials during their public service tenure.

Invalidating the "Right-To-Control" Theory of Fraud in Ciminelli

Given that even the government abandoned their own theory on appeal and instead argued harmless error, it is somewhat unsurprising that the Supreme Court in a 9-0 opinion rejected the often criticized "right-to-control" theory in federal wire fraud cases. But, even though the Supreme Court's opinion had been widely anticipated, like the Court's decisions during the past decade in the public corruption arena, the Ciminelli decision illustrates the Court's reluctance to expand the wire fraud statute beyond traditional bribes or kickbacks. In U.S. v. Ciminelli, 598 U.S. __ 2023, the government charged a real estate developer and other state actors with wire fraud based on defendants' purported scheme to deprive the state government of potentially valuable economic information necessary to make discretionary economic decisions. Consistent with that theory, the jury was instructed that the term "property" in the wire fraud statute "includes intangible interests such as the right to control the use of one's assets," by failing to disclose potentially valuable information. In finding such an instruction to be in error, the Supreme Court held that "the right to valuable economic information needed to make discretionary economic decisions is not a traditional property interest," thereby invalidating the "right-to-control" theory in federal fraud prosecutions. Again, the Court demonstrated its concern that such a broad application of a federal fraud statute could criminalize everyday behavior, here, ordinary business disputes, verses, in Percoco decided the same day, politics as usual. While post-Ciminelli, federal fraud cases no longer can be based on a right to control theory, the laws of many states are broader and do not necessarily require a showing of pecuniary or potential pecuniary loss to the government or otherwise. Accordingly, the Ciminelli decision also is in line with previous Supreme Court decisions in the public corruption realm in which the Court has expressed federalism concerns when considering issues of corruption at the state or local level.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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