Caught in a Revolving Door: The Supreme Court Determines Who Owes Honest Services

Client Alert
December 14, 2022

It is no secret that the modern U.S. Supreme Court has regarded enforcement of federal anti-corruption laws with a deep concern for constitutional overreach. That same concern animates petitioner’s arguments in Percoco v. United States, a case where the Court is examining the reach of federal anti-bribery laws and when an individual can be considered to be functioning as a public official. No. 21-1158 (U.S. argued Nov. 28, 2022). The Court’s holding could have profound effects on current and future lobbyists at all levels of government. The case was argued before the Court just over two weeks ago. If the questions posed to counsel are an indicator of future disposition, the Court seems amenable to overturning Mr. Percoco’s conviction.

Following a trial in the United States District Court for the Southern District of New York, a jury convicted petitioner Joseph Percoco on two counts of conspiring to commit honest-services wire fraud in violation of 18 U.S.C. §§ 1346 and 1349 and one count of soliciting bribes or gratuities in violation of 18 U.S.C. § 666(a)(1)(B). The jury found that Percoco, who served as the Executive Deputy Secretary in the Executive Chamber to then New York Governor Andrew Cuomo, received $35,000 in bribes from Steven Aiello, a real estate developer, during an eight-month period in which Percoco had left that position to work for Governor Cuomo’s re-election campaign. Although Percoco was not employed by the state government at this time, he shared with others, including Aiello, his expectations of returning to his previous position under the Governor. In addition, he also “held onto and used his Executive Chamber telephone, desk, and office, where he continued to conduct state business.” Brief for Respondent, dated May 24, 2022, at 4. Near the end of Percoco’s time working for the Cuomo campaign, Aiello gave Percoco $35,000 for assistance in avoiding a “labor peace agreement” with local unions, a major obstacle to a development project.  Id.  Percoco then called the head of the state agency that had required the agreement be reached and implored the agency to reverse its decision and instead allow the development to move forward as is, leading the agency head to note the “pressure” he was receiving from his “principals.” Id. at 5. On the day after the call, the agency reversed its decision and permitted Aiello to proceed with his development without an agreement with local unions. Percoco rejoined the Governor’s Office four days later.

The central issue before the Supreme Court concerns who may be liable for honest services fraud under 18 U.S.C. § 1346.  Percoco argues that his conduct -- a former government employee capitalizing on his clout and experience to aid a client interacting with the government -- is functionally identical to that of most lobbyists. See Brief for Petitioner, dated Feb. 17, 2022, at 1. Under this approach, lobbyists owe no fiduciary responsibility to the public writ large and, therefore, cannot fail to provide honest services under 18 U.S.C. § 1346. See id. In contrast, the United States counters that Percoco is unlike a traditional lobbyist because he left his government position “in name only,” continuing to “exercise a public office in fact” and was receiving money for influence after he “ha[d] been selected to return to the office.” Brief for Respondent at (I). The government contends that these distinctions placed Percoco within the ambit of 18 U.S.C. § 1346.

The case has broad ramifications, likely affecting tens of thousands of state and local government officials and their staffs. A ruling upholding Percoco’s conviction may confound the abundantly common transition from government aide to and from campaign staff. The implications of such a potential holding were explored in the rigorous questioning about the government’s proposed rule to identify “government officials” for purposes of 18 U.S.C. § 1346 enforcement. Chief Justice Roberts and Justices Alito, Barrett, Gorsuch, Jackson and Kagan expressed varying degrees of concern regarding the workability or origin of the proposed rule, noting that such a broad application of 18 U.S.C. § 1346 would affect lobbyists and other people adjacent to government employees. If, despite these concerns, the Court were to adopt such a broad test, state and local government employees would do well to communicate clearly the start and end dates of their government employment (e.g., avoid using government office resources after their government tenure ends or before it starts when there is a pending nomination).

The only member of the Court openly receptive to a broader definition of government official was Justice Sotomayor, who posited using principals of agency law to determine who owes the honest services to the public. See Oral Argument at 57:02, Percoco (No. 21-1158),

It appears quite possible that the Supreme Court will overturn Percoco’s conviction. If this were to happen, depending on the breadth of the Court’s reasoning, federal prosecutors might lament the hindrance of public corruption investigations by bribees obscuring exactly which hat they were wearing -- private citizen or public servant. Conversely, government employees and those lobbying them might be relieved to know that they will not be penalized for attempting to navigate the fluid career path between government and the private sector.

The Court’s apparent inclination to vacate Percoco’s conviction and narrow the reach of federal anti-bribery laws would be consistent with the Roberts Court’s general wariness of the federal anti-corruption enforcement mechanism. This skepticism of such federal prosecution was reflected by Justice Thomas disapprovingly noting that this case illustrated the federal government “using a federal law to impose ethical standards on state activity.” Id. at 31:56.  From Skilling, in which honest services fraud was limited to instances of bribery and kickbacks (see Skilling v. United States, 561 U.S. 358, 408-09 (2010)), to McDonnell, which narrowed the definition of the “official action” that an alleged bribee must perform (see McDonnell v. United States, 579 U.S. 550, 576 (2016)), to Kelly, which rejected a broader conception of federal program fraud (see Kelly v. United States, 140 S. Ct. 1565, 1571 (2020)), and now seemingly Percoco, the U.S. Supreme Court has incrementally broadened the scope of permissible conduct that individuals may take to influence their government.

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