Earlier in this series, we observed situations in which moral considerations crept into adjudications involving the federal fraud statutes. And they did so because these statutes are vague, ambiguous, or otherwise unclear. In this final installment of the series, we’ll first look at the philosophical problem with vague laws and then undertake a case study of a representative lawsuit in which the injection of moral standards worked a great deal of mischief.

Vague Laws Pose Deep Philosophical Problems

As a matter of legal philosophy, the problems attendant on vague laws are manifold. Indeed, many theorists (some of whom who agree on little else!), including Lon Fuller, Joseph Raz, and Neil MacCormick, have urged that the rule of law demands that laws have certain baseline minima—what Fuller calls the “inner morality of law.” By this, most commentators mean that laws must be (in Fuller’s conception) general, promulgated, prospective, understandable, consistent, performable, continuous, and congruently administered.

MacCormick gets to the nub of the matter when he suggests that:

If the Rule of Law is to be actually a protection against arbitrary intervention in people’s lives, it seems clear that it is not in practice enough to demand that the operative facts did on some occasion actually happen or obtain… . [I]t must also be possible to challenge the relevancy of the legal accusation or claim. Such a challenge is to the effect that, whatever may be the facts of the matter, the legal materials that supposedly warrant the assertion of a rule governing the case do not warrant it at all in the alleged, or the actually proven, state of the facts.

Nowhere are these concerns more apparent than in the “moral uprightness” formulation that we started this series with. Many courts are of course attuned to the dangers lurking with the formulation, with some in effect recognizing that it violates the Fuller-Hart-MacCormick desiderata. For example, the Seventh Circuit, in In re EDC rejected the formula’s “hyperbole”: “Read literally it would put federal judges in the business of creating new crimes,” new crimes being just another way of saying “retrospective laws.” Then, too, as the Third Circuit noted in US v. Leahy, there’s the “clarity” problem that flows from ambiguity and vagueness: “the ambiguity inherent in concepts such as morality and fairness has been thought to provide constitutionally inadequate notice of what conduct is criminal … .” Let’s look at a recent example that will also demonstrate why equating statutory fraud with “moral uprightness” has considerable civil consequences, even though the federal fraud statutes have no private right of action.

When Moral Standards Supplant Legal Standards: a Case Study

Hatfield v. Ornelas arose from a dispute between lawyers vying to represent the heirs of two women killed when a tractor-trailer truck crossed a centerline and rolled over onto their vehicle in Arkansas. (I joined this case as counsel for one group of defendants somewhat past mid-stream.) The accident attracted the attention of “two so-called case runners,” i.e., “individuals who engage in barratry, better known by the derogatory term ‘ambulance chasing,’ a practice where lawyers seek out victims and families immediately following an accident.” These case runners allegedly committed a litany of offenses, including paying for funerals and promising U.S. citizenship to family members who signed up with particular lawyers, all of which violated Arkansas lawyer-ethics rules. Based on these alleged offenses, the disappointed lawyer, Hatfield, sued under RICO (and several state-law theories).

To state a civil RICO claim, a plaintiff must show that he was injured “by reason of” a criminal RICO violation, which entails pleading such a violation, which in turn requires him to identify the predicate commission of certain specified crimes (e.g., mail or wire fraud) and to satisfy certain defined terms (e.g., pleading the existence of an “enterprise”). Here, Hatfield pleaded mail/wire fraud as predicate acts. On defendants’ motion to dismiss, the trial court articulated a fairly standard definition of statutory fraud: “mail and wire fraud require a showing of: (1) a plan or scheme to defraud, (2) intent to defraud, (3) reasonable foreseeability that the mail or wires will be used, and (4) actual use of the mail or wires to further the scheme.”

The Court began by positing that “The first element, that of a plan or scheme to defraud, is not limited to criminal conduct.” As stated, that’s plainly wrong. Only a criminal scheme can be a crime as a matter of logic. But it’s interesting how the Court led itself into this error:

The crime of mail fraud is broad in scope and its fraudulent aspect is measured by a non-technical standard, condemning conduct which fails to conform to standards of moral uprightness, fundamental honesty, and fair play. Here, Hatfield alleges that … Defendants coordinated to impermissibly procure vulnerable clients (against Texas law and Arkansas legal ethics rules) … This is sufficient to show a plan or scheme to defraud . ... Accordingly, Hatfield has stated the first element of a mail and wire fraud claim.

What the court did, then, was substitute a moral standard (moral uprightness) for a legal standard (scheme to defraud) and thereby declare an ethics violation a new crime. And although the Court later recanted in light of controlling circuit law, the nature of its initial error begs greater scrutiny.

Although legal positivists view law and morals as separate domain, even a “hard” positivist like Raz recognizes that sometimes there are gaps in the law or that it is unsettled on some point and courts’ “decisions in such cases rely at least partly on moral and other extra-legal considerations.” But that’s a far cry from replacing—as did the Hatfield Court—a somewhat vague term with one that is hopelessly so.

There’s a practical angle to explore here, too, and it has to do with the personal nature of moral inquiry. Several courts have worried that, read literally, the “moral uprightness” language would put federal judges in the position of creating new crimes, crimes that “would be the moral vanguard.” And, as Raz has warned, the notion that a single judge has perfect access to community values rests on “two really harmful myths”:

One is the myth that there is a considerable body of specific moral values shared by the population of a large and modern country. The myth of the common morality has made much of the oppression of minorities possible. It also allows judges to support a partisan point of view while masquerading as the servant of a general consensus. The second myth is that the most general values provide sufficient ground for practical conclusions. This myth holds that, since we all have a general desire for prosperity, progress, culture, justice, and so on, we all want precisely the same things and support exactly the same ideals; and that all the differences between us result from disagreements of fact about the most efficient policies to secure the common goals. In fact, much disagreement about more specific goals and about less general values is genuine moral disagreement, which cannot be resolved by appeal to the most general value-formulations which we all endorse, for these bear different interpretations for different people.

It’s reasonably clear that that the Hatfield Court was acting on its own sense of moral outrage “masquerading as the servant of a general consensus.” This is revealed in that fact that the Court was well aware that violations of state attorney ethics rules are not RICO predicate acts, nor can they establish violations of the federal mail- and wire-fraud statutes, a fact confirmed by the text of Arkansas rules themselves, which state, among other things, that: “Violation of a Rule should not give rise to a cause of action against a lawyer nor should it create any presumption in such a case that a legal duty has been breached.” Nonetheless, the Court initially found that ethical violations and other moral lapses—and even knowing about them—can be enough to support a statutory fraud claim.

None of my criticism here is to condone all sharp or unethical business practices. But those business practices, as in Hatfield, are often regulated by state law, without resort to disproportionate 20-year wire-fraud sentences or treble damages bootstrapped into a RICO claim. In the end, it’s one thing to institutionalize a moral rule as a law (it’s both wrong and a crime to steal) but something altogether different to make something as vague as a departure from “moral uprightness” a crime. The problem with the mail- and wire-fraud statutes is, as the First Circuit sees it, that they can be “used to prosecute kinds of behavior that, albeit offensive to the morals or aesthetics of federal prosecutors, cannot reasonably be expected by the instigators to form the basis of a federal felony.”

Conclusion

Although zombies and vampires exist only in fiction, they metaphorically exist in moralistic language that refuses to die in the lower courts. Instead of mildly criticizing “moral uprightness” formulations from time to time as “grandiloquence” and the like, the Supreme Court should once and for all put a stake in the heart of the formulations and thereby constrain the reach of the federal fraud statutes to those who steal with lies.

Reprinted with permission from © ALM Media Properties LLC. All rights reserved.