Strategy

USA vs. Conrad Black: Round 16

Conrad Black scores a big win at the Supreme Court, but the fight's not over.

The U.S. Supreme Court emasculated the controversial legal concept of “honest services” on Jun. 24th and in so doing, handed a moral victory to jailed former press baron Conrad Black. But what exactly that means for him remains uncertain.

Honest services is a concept attached to the U.S. mail fraud statute, under which three of Black’s four convictions fall. Essentially, it holds that fraud needn’t necessarily involve the theft of money, but can be expanded to include situations where the accused has somehow deprived someone else of an intangible right. First applied to bribery cases during the 1970s, it was soon expanded to the private sector. Black was among a number of high-profile executives accused of violating their fiduciary duties to shareholders.

The statute was applied so broadly that it became known as the prosecutor’s “Colt .45.” But that also sparked a decades-long battle to have the statute narrowed or eliminated. Some argued it was vague to the point of being unconstitutional. Others wanted U.S. Congress to explain in plain language what honest services meant, and to whom it should apply. Last year, the Supreme Court decided to hear a series of appeals against the statute, including that of Black and jailed former Enron CEO Jeffrey Skilling. The ruling on Skilling’s appeal preserved the statute but narrowed it considerably: henceforth it applies only to fraudulent schemes involving bribes or kickbacks.

That had immediate implications for Black’s case, although the back-story is convoluted. He and co-defendants John Boultbee, Peter Atkinson and Mark Kipnis were accused of involvement in a scheme in which so-called non-competition payments were improperly received by Black and other executives at the company they controlled, Hollinger International. At the conclusion of his four-month trial in 2007, prosecutors sought to convict on two alternative theories: one, that defendants actually stolen money from the company or; two, that by failing to disclose these payments, they’d deprived shareholders of their intangible right to honest services.

Prosecutors proposed that the jury be presented with a special verdict form that would have revealed on which theory, if either, the jury convicted on. The defendants objected, and prosecutors dropped the request. The jury convicted all defendants on three counts of mail fraud, and Black nabbed an additional conviction on obstruction of justice. (They were acquitted on the numerous other charges.) But because of the circumstances, it’s unclear on which theory they were convicted.

The defendants appealed. Among other things, they argued that since it was impossible to tell on what theory the mail fraud convictions rested, those convictions should be set aside. But the Seventh Circuit Appeals Court was unsympathetic. Its panel ruled that since the defendants rejected the prosecutor’s suggestion for a special verdict form, they forfeited their right to object to the jury instructions. In other words, they were out of luck.

So the defendants went to the Supreme Court. It seemed a long shot–the Supreme Court hears only a small fraction of the cases brought before it. One of its nine judges, Anton Scalia, publicly derided the statute as unconstitutional and unfair. Presented with numerous complaints and widespread confusion about what honest services meant, America’s top court decided to weigh in.

Ultimately, the Supreme Court reversed the Appeals Court’s ruling. “A criminal defendant, we hold, need not request special interrogatories, nor need he acquiesce in the Government’s request for discrete findings by the jury, in order to preserve in full a timely-raised objection to jury instructions,” Justice J. Ginsburg wrote in her explanation of the court’s decision. There are no allegations of bribery in Black’s case, so his convictions cannot stand on the honest services theory. But Ginsburg added: “The Court expressed no opinion on whether the honest-services instructional error was ultimately harmless, but leaves that matter for consideration on remand.”

So the matter heads back to the Seventh Circuit appeals court. Opinions diverge wildly on what that means for Black.

It might mean his release from a Florida prison, where Black has languished since 2008. Miguel Estrada, one of Black’s lawyers, told the Globe and Mail he intended to seek Black’s release on bail pending the Appeals Court’s deliberations. (Estrada did not return calls from Canadian Business.)

But Eric Sussman, the lead prosecutor in USA v. Black et al (he’s now in private practice) said that was a “long shot.” For Black, the problem is that he received concurrent 6-½-year sentences for the three fraud counts and obstruction. Even if the fraud counts are overturned, it might not affect Black’s sentence. Citing that reasoning, the Supreme Court denied Black bail while it considered his appeal.

It might mean a new trial. Now that the honest services theory has been ruled inapplicable to Black’s case, the appeals court must decide whether the erroneous jury instructions warrant tossing his convictions. Black’s lawyers will likely argue that the convictions were tainted by the erroneous jury instructions. But Sussman points out that in its first decision, the Appeals Court declared there was sufficient evidence to convict the defendants of conventional fraud. “Conrad Black has a tough road ahead of him to convince the court to reconsider that portion of their opinion,” Sussman claimed.

Again, others disagreed. “This is a very good day for Mr. Black and his co-defendants,” said Frank Razzano, a partner with Peppler Hamilton LLP in Washington and a vocal opponent of the honest services theory.

If the defendants are indeed granted a new trial, prosecutors would then need to decide whether to retry the case. (That wouldn’t be Sussman’s decision, since he has left the U.S. Attorney’s Office.) Todd Henderson, an assistant professor of law at the University of Chicago, said that in the event of a new trial, Black and his former colleagues would now have a strategic advantage. “Getting a new trial is always a good thing, because you have hope again,” he said. “The prosecutors have shown their hand, so the defence have seen their best. That allows them to play defence a little better.”

It could be some time before these uncertainties are resolved. “Nothing happens quickly in the law,” Razzano says. “Everything’s got to be briefed, everything must be argued, you need time to do that. It’s summertime.” Sussman guessed the Appeals Court might offer a decision by the end of the year.

As for the honest services statute, it survived. “There’s a bunch of people currently serving time of jail, politicians who engaged in bribery or kickbacks, and were prosecuted under honest services instead of the federal anti-bribery statute,” says Henderson. “Those people will stay in jail.” Yet its potency has been greatly reduced, particularly as a weapon against officers and directors of public companies. “Prior to this decision, any decent prosecutor could have indicted anyone in the United States for anything using that statute,” Razzano says. “The Supreme Court has emptied three bullets out of the revolver.”