[The case] is a victory for the law, as upholding loose applications of a criminal statute to matters best left to employers with the power to terminate employment and shareholders with the power to bring fiduciary duty civil suits would have cemented in place a decade of the overcriminalization of corporate law.Larry Ribstein:
The Court’s ruling strikes a huge blow against a significant weapon in the criminalization of agency costs which I’ve been criticizing since the beginning of my blogging days. I noted back in December that this result could be coming based on the oral argument, in which Justice Breyer asked why the “honest services” theory wouldn’t criminalize the acts of an employee getting his supervisor to “leave the room so that the worker can continue to read the Racing Form.” Breyer added: “Explain it to me how your test does not make this statute potentially criminalizing 100 million workers in the United States.”
As I said at the time:That discussion gets to what I think the central problem is here: distinguishing between ordinary agency costs, which are pervasive in firms, and which firms have a wide range of contractual devices to deal with, and the agency costs that should trigger jail time.Notably, all of the justices agreed that the statute should be struck down, at least in part. Justices Scalia and Thomas thought that the Court should have gone further and not attempted, as did the majority, to preserve the validity of the statute as to bribery and kickback allegations. These justices concluded that the statute was simply unconstitutionally unclear as to what it prohibited, and the Court should not have attempted to judicially construct a suitably clear statute.
This gets back to the basic problem noted above of trying to identify which part of agency costs should be criminalized. Whether you call it bribery or serious loafing, it’s all agency costs. Particularly since there is no coherent federal law of fiduciary duties – it’s all state law – Congress can’t assume that the courts will have any idea what it’s talking about when talks about “honest services.”
One reason why the majority may have declined to follow these dissenters’ suggestion lies in a Law Blog comment I quoted in my December post:Expect defendants convicted under the law to rush the courthouse door. Striking down the honest-services crime would trigger “an earthquake within the criminal justice community,” said David Seide, a former federal prosecutor now with Curtis Mallet-Prevost Colt & Mosle LLP in Washington. Defendants convicted under the statute “will be able to say their convictions need to be reversed,” he said.The Court avoided a serious earthquake by holding that the statute could be interpreted to support the bulk of honest services prosecutions involving bribery and kickback allegations.
As a result of this approach, prosecutors will still be able to use the honest services statute in future cases. However, one hopes that this case, plus revelations of what I’ve called “the real backdating scandal,” will throw a dose of cold water on the whole enterprise of criminalizing agency costs.