Circuit Grapples With `Honest Services` Fraud

A CLIENT IN THE midst of a nasty contract dispute braces herself for litigation, and litigation she gets, but not exactly in the form she expected. Instead of a summons and complaint, the client is arrested on an indictment brought by federal prosecutors who accuse her of mail and wire fraud for breaching the honest services she owed under the contract. What’s more, each of the mail and wire fraud counts carry with it a sentence of up to five years’ imprisonment.

The specter of this scenario – the federal criminalization of contract breaches – recently prompted the U.S. Court of Appeals for the Second Circuit, in United States v. Handakas, 286 F.3d 92 (2d Cir. 2002), to take the extraordinary step of finding the federal statute that criminalizes “honest services” fraud – 18 U.S.C. �1346 – unconstitutionally vague as applied to that case. Just a few weeks later, the Second Circuit weighed in on “honest services” fraud again in United States v. Rybicki, 287 F.3d 257 (2d Cir. 2002), articulating the basic elements necessary to sustain a conviction under the statute.