It was the signature prosecution of an executive whose company became synonymous with corporate fraud and greed: Jeffrey Skilling, Enron CEO, disgraced, convicted and sentenced to 24 years in jail.
Today, the Supreme Court said the government went too far, in a landmark 9-0 decision that could unravel Skilling's conviction and spring him from jail, and is already reverberating well beyond his case. The justices, vacating part of his conviction, sharply scaled back a key tool prosecutors use to go after corporate executives and public officials.
In an opinion by Justice Ruth Bader Ginsburg, the Court said the government simply stretched an anti-fraud law too far when it prosecuted Skilling and others.
Skilling's lawyer, Dan Petrocelli, called the unanimous decision "an exhilarating victory" and predicted a lower court will be forced to dismiss all charges against his client. Petrocelli said he will immediately petition the appeals court to release Skilling on bond.
"It means Jeff Skilling has been vindicated, and it means he will soon be a free and innocent man," Petrocelli said.
The justices also vacated the convictions of newspaper baron Conrad Black and former Alaska legislator Bruce Weyhrauch, both of whom also were convicted under the anti-fraud statute, which requires employees, executives and public officials provide "honest services."
Miguel Estrada, Black's lawyer, said he will be asking for Black to be released on bond, as well. Estrada said today's decision gutted the government's prosecution against Black, and would mean "returning Conrad Black to freedom and to his family."
"I am ecstatic," Estrada said. "The Court has at long last placed significant limits on this abusive statute that has been misused by overeager prosecutors."
And that's why this case is a landmark one--perhaps the most significant of the term. The Court sharply curbed the prosecutors' ability to use that law, saying it wasn't enough to argue employees or public officials weren't doing their jobs honestly. Instead, the Court said the government must prove a defendant had taken a bribe or a kickback to be guilty under the "honest services" provision.
That means the justices have unanimously---let me say this again--unanimously put very strict limits on a law that is frequently used by federal prosecutors to charge corporate executives, private employees and public officials in a wide array of cases, even where no bribes or kickbacks were ever involved.
Solicitor General and Supreme Court nominee Elena Kagan made clear last month that such a ruling would have a sweeping practical impact, according to a report by my colleague Jess Bravin at the Wall Street Journal.
"In the Solicitor General's office, we're interested in all of the cases" decided by the Supreme Court, Kagan said at a federal judicial conference in Chicago. "In the rest of the Justice Department, this is a three-case term. And the cases are Black and Weyhrauch and Skilling."
The Justice Department was focused on those three cases decided today because the law is so frequently used. Today's decision throws into question a host of past convictions. Petrocelli predicted "a wave" of motions to overturn those cases, and said the decision will mean big changes for the future.
"It will end the disturbing practice of the government over the last decade or so to over-criminalize conduct in the business world that does not plainly violate any other criminal law," Petrocelli said. "The honest services statute has been used as a statute of last resort, a default to prosecute and convict employees, ranging from rank-and-file folks all the way up to CEOs and board members."
For example, before today's ruling, the government could argue an employee who called in sick to go to a ballgame or did personal e-mails on company time was violating his duty to provide "honest services" to the company. Now, the government will have to show employees took bribes or kickbacks.Is the Roberts Court Pro-Business?
"This statute let prosecutors charge almost anything," said Andy Pincus, a partner at Mayer Brown. "This was the easiest tool."
Pincus said the ruling will put much-needed limits on what prosecutors can charge.
"Whether you're a liberal or conservative, you should be concerned about criminal statutes that give incredibly broad discretion to prosecutors to label conduct as criminal--where Congress has not specifically spelled out the attributes that make it criminal," Pincus said. "That's government power brought down on individuals with little or no oversight by anybody else. That's an area where the Court plays an appropriate role in protecting individuals against government power. "
In her opinion for the Court, Justice Ginsburg said because Skilling's misconduct did not entail bribes or kickbacks, he did not conspire to commit honest-services fraud under the federal law.
The key part of her opinion--and the reasoning--actually came from Black's lawyer, Estrada. He urged the Court to take that approach during his arguments in the Black case, referring the court to a friend-of-the-court brief filed by Albert Alschuler (my old criminal law professor at the University of Chicago.)
In vacating part of the convictions, the Court sent the cases back to the appeals courts to decide whether the underlying convictions could stand on other theories.
Skilling's attorney argues that the conspiracy charge could not survive without his conviction for honest services fraud. And then he argues that without a conspiracy charge, which was the anchor in the case, all the remaining counts must be dismissed as well.
"We believe all 19 counts of convictions will be reversed as a result of today's ruling. This is the fatal virus that infects all of those counts," Petrocelli said.
For example, when the government charged Skilling with securities fraud, it told the jury it did not have to find he made false and misleading statements to the public---it was enough that anyone else in the conspiracy had made false and misleading statements. But if the conspiracy count is invalid, then those other counts that relied on it must also fall, Petrocelli said.
The majority declined to hold the law unconstitutionally vague, ruling instead that it was putting clear limits on it to avoid declaring it unconstitutional. Justice Antonin Scalia, joined by Justices Clarence Thomas and Anthony Kennedy, wrote that he believed the law was too vague.
Justice Sonia Sotomayor, joined by Justices John Paul Stevens and Stephen Breyer, would have gone even further. They said Skilling was entitled to a new trial because he was denied a right to a fair trial in the first place.
And one a side note: This decision was expected to be part of Democrats' arguments next week that the Roberts Court, in vacating Skilling's conviction, is in the pocket of big business. But that won't work now--the opinion was written by Ginsburg, was unanimous and saw liberals actually more sympathetic to Skilling than the conservatives.