## Facts

- A New York personal-injury law firm and two principals used “expediters” to route secret payments to insurance-company claims adjusters.
- The adjusters received money tied to claim handling while purporting to act solely for their employer insurers.
- The payments and resulting conflicts of interest were not disclosed to the insurers.
- The government prosecuted under mail and wire fraud statutes, alleging a scheme to deprive insurers of the “honest services” of their employee-adjusters, without attempting to prove actual, quantifiable economic loss.
- After an eight-week trial in the Eastern District of New York, defendants were convicted of multiple counts of mail fraud, wire fraud, and conspiracy.
- The Second Circuit reheard the case en banc to consider whether 18 U.S.C. § 1346 is unconstitutionally vague and whether it reaches this private-sector conduct.

## Issues

1. Whether 18 U.S.C. § 1346 (honest-services fraud) is unconstitutionally vague on its face or as applied.
2. Whether § 1346 covers private-sector schemes involving undisclosed side payments and conflicts of interest absent proof of actual or intended economic loss to the employer.
3. Whether the evidence and jury instructions were sufficient under a limiting construction of honest-services fraud.

## Decision

- The en banc court affirmed the convictions.
- The court held § 1346 is not unconstitutionally vague when construed in light of its pre-*McNally* core meaning.
- The court concluded the statute covers schemes using mails or wires in which an employee owing a duty of loyalty secretly acts in self-interest (or a defendant’s interest) through undisclosed kickbacks/conflicts, accompanied by a material misrepresentation or omission.
- The court rejected any requirement that the government prove actual financial loss in this honest-services prosecution.

## Legal Principles

- Section 1346 is constitutional when limited to the core of honest-services fraud recognized in pre-1987 federal case law.
- Private-sector honest-services fraud requires: (1) a relationship creating a duty of loyalty; (2) secret self-dealing, bribery, kickbacks, or a concealed conflict while purporting to act for the employer; and (3) a material misrepresentation or omission regarding the conflict.
- In honest-services cases, the government need not prove actual economic loss; the deprivation may consist of the employer’s loss of loyal, disinterested services and decisionmaking.
- A limiting construction is used to avoid criminalizing mere ethical lapses or internal rule violations unconnected to bribery/kickbacks or undisclosed self-dealing.

## Conclusion

The Second Circuit, sitting en banc, upheld § 1346 against a vagueness challenge and affirmed convictions where plaintiffs’ lawyers used intermediaries to funnel undisclosed kickbacks to insurer adjusters, depriving insurers of the adjusters’ loyal services through concealed conflicts and material nondisclosure, without proof of actual monetary loss.


United States v. Rybicki, 354 F.3d 124 (2d Cir. 2003) (en banc)