Last month in Percoco v. United States (U.S. May 11, 2023), the Supreme Court reversed the petitioner’s judgment of conviction for conspiracy to commit honest-services wire fraud for allegedly accepting $70,000 from a developer in return for asking a state agency to drop its labor peace agreement requirement. Joseph Percoco had previously served as Executive Deputy Secretary to former New York Governor Andrew Cuomo and would later return to state government—but was not a government employee when he accepted the developer’s payment and asked the agency to drop its requirement. At issue on appeal were the jury instructions, which, consistent with the Second Circuit’s law at the time, authorized conviction if (1) Percoco dominated and controlled any governmental business, and (2) the people working in the government relied on him because of his special relationship with the government. Relying on its earlier holding in Skilling v. United States, 561 U.S. 358 (2010), the Court held that this was not the proper standard for whether a private individual with informal influence over the government decision making can be convicted of honest-services wire fraud. To the dismay of two concurring Justices, however, the Court did not entirely close the door to such a theory of honest-services fraud.
Facts & Procedural History
Petitioner Joseph Percoco served as former New York Governor Andrew Cuomo’s Executive Deputy Secretary from 2011 to 2014 and 2014 to 2016. Percoco v. United States, No. 21-1158, slip op. at 2 (U.S. 2023). In April 2014, Percoco resigned from his position to manage Governor Cuomo’s re-election campaign and resumed his role as Executive Deputy Secretary in December 2014, following the Governor’s re-election. Id.
While he was managing the re-election campaign, a developer approached Percoco and asked for Percoco’s assistance dealing with a state agency “‘while he [was] off the second floor,’ i.e., the floor that housed the Governor’s office.” Id. The state agency had informed the developer that the developer must “enter into a ‘Labor Peace Agreement’ with local unions if he wished to receive state funding.” Id. Percoco agreed to help the developer, and the developer paid Percoco $70,000. Id. Three days before Percoco resumed his role as Executive Deputy Secretary, Percoco called an official at the state agency and asked him to remove the labor-peace requirement; the state agency then dropped the requirement. Id.
A federal grand jury charged Percoco with, among other offenses, one count of conspiring to commit honest-services wire fraud connected to the labor peace agreement. Percoco moved to dismiss the honest-services wire fraud count before trial, and then moved for judgment of acquittal on that count during trial, arguing there was no evidence to show he acted in furtherance of the conspiracy while Executive Deputy Secretary. The district court denied those motions and instead instructed the jury that if they found (1) that Percoco “dominated and controlled any governmental business” and (2) that “people working in the government actually relied on him because of a special relationship he had with the government,” Percoco had a duty of honest services to the public. The jury convicted Petitioner on this count and two others and acquitted him on others.
The Second Circuit affirmed on appeal, explaining that the test used in the district court’s jury instruction “‘fit comfortably’ with” its holding in United States v. Margiotta, 688 F.2d 108 (1982). The Supreme Court granted certiorari to address whether a private citizen with informal influence over government decisionmaking may be convicted of honest-services wire fraud.
Margiotta & Shilling
The Supreme Court held that the Margiotta test that the district court applied was the wrong test to apply when determining whether a private individual with informal influence over government decisionmaking may be convicted of honest-services wire fraud. Writing for the Court, Justice Alito relied on Skilling v. United States in reaching its holding. Id. at 7. Skilling held that the intangible right of “honest services” in 18 U.S.C. § 1346 must be defined and does not reach “all intangible rights of honest services.”
Here, the Court explained, the Margiotta test was too vague to define who owes a duty of honest services to the public. The test could apply to anyone “who lacked any formal government position but nevertheless exercise[s] very strong influence over government decisions,” including lobbyists and political party officials. The standard for “intangible right of honest services” must be defined so ordinary people can understand the prohibited conduct or so that the law does not result in arbitrary and discriminatory enforcement.
At the Supreme Court, the Solicitor General’s Office did not defend Margiotta directly, but instead argued the jury instruction was harmless error. The Government advanced two arguments on this theory. First, the Government argued that a private individual owes a duty of honest services when the person is selected to work for the government in the future. The Court was unpersuaded by this argument because the jury could have found the actual instructions’ requirements were met without considering evidence Percoco was selected for future government service, so it was not clear, on this theory, that the error was harmless.
Second, the Government argued that a private individual owes a duty of honest services when the person exercises the functions of a government position with acquiescence from other government personnel. The Court rejected this argument because it considered it a restatement of Margiotta and because the jury had not been instructed to find that government personnel “‘acquiesce[d]’ in Percoco’s exercise of government functions.”
In a footnote the Court recognized that the Government had identified a third possible theory at oral argument: that Percoco’s departure from office had been a sham. The Court expressly reserved any comment on that theory.
Justice Gorsuch, joined by Justice Thomas, concurred in the judgment. While he agreed with the Court’s holding, Justice Gorsuch opined that the duty of honest-services still remained vague. Tracing the history of honest-services wire fraud jurisprudence, Justice Gorsuch concluded that while “we may know a little more about when a duty of honest services does not arise, . . . we still have no idea when it does.” While the courts will continue to grapple with what fiduciary relationships give rise to the duty of honest-services, according to Justice Gorsuch, it was up to the legislature to more precisely identify the prohibited conduct. Justice Gorsuch’s concerns with the definition of “honest services” under § 1346 went beyond merely when a private individual could owe a duty of honest services to the public; in his view, § 1346 has already proven too difficult to cabin through construction.
With Percoco, the Supreme Court has identified a standard under which a private individual may not be convicted of honest-services wire fraud. However, as Justice Gorsuch, joined by Justice Thomas, highlights in the concurrence, the standards for honest-services wire fraud remain vague. It is hard to imagine aggressive federal prosecutors refraining from carefully wording future indictments to match the two theories of private liability for public honest-services fraud that the Court did not reject in Percoco—and prosecutors will undoubtedly develop evidence during investigations with an eye toward those theories.
The case is also the latest exhibit in support of the proposition that the most defendant-friendly federal court may well be the Supreme Court. Both the district court and the Second Circuit affirmed Percoco’s honest-services conviction on the basis of a circuit-specific theory of liability that predated 18 U.S.C. § 1346 itself and that was hardly required, given the intervening statutory developments and Supreme Court opinions. (The Court’s decision comes far too late for Joseph Margiotta, who passed away in 2008 and who spent 14 months in prison for depriving the public of honest services when he was not an elected official.) Advocates defending criminal defendants who are charged by novel or rare theories should therefore fashion defenses to preserve the possibility of review even past direct appellate review by the circuit court—recognizing that such issue-preservation can sometimes be tricky, given the need to press other arguments at the district and circuit levels
 Justice Jackson did not join Part II-C-2 of the opinion, which addressed the Government’s arguments.