March 02, 2010
Skilling v. U.S., Part I: "Not all employees are fiduciaries, no, Justice Scalia"
Posted by Christine Hurt

There's a lot to glean from the Skilling v. U.S. transcript, here.  Lots about the voir dire proceeding (which is Texas is pronounced "vwore dear," so follow along), which I'll try to cover later.

But in the "honest services" questioning of Deputy Solicitor General MIchael Dreeben, one particular discussion stood out to me, the lowly Business Associations professor.  The justices want Dreeben to admit that the honest services statute could cover an employee using a business computer for personal business.  Dreeben is arguing that the statute only applies to breaches of fiduciary duty (unspecified), but that this means only "undisclosed conflict of interest cases", so obviously does not want to admit this, so he answers "Well, whether the employee had a fiduciary duty in that respect would be I think quite a litigable question."

JUSTICE SCALIA:  I'm sorry.  The duty of an employee to provide honest services to his employer, that's not included because the employee is not a fiduciary?

MR. DREEBEN:  Not all employees are fiduciaries, no, Justice Scalia.  I mean, most fiduciaries have a sort of heightened duty towards the --

JUSTICE SCALIA:  Where do you get the fiduciary limitation?

MR. DREEBEN:  I think that it's inherent.

* * * *

JUSTICE KENNEDY:  What authority do I look to, to see that some employees are fiduciaries and others are not?

MR. DREEBEN:  That would be a standard agency law principle, Justice Kennedy.

JUSTICE KENNEDY:  If I look in the Restatement of Agency and they have a section that applies to fiduciaries and non-fiduciaries, both of whom are employees?

MR. DREEBEN:  Normally, Justice Kennedy, no such complexities are necessary, and I think that this Court can resolve this case without introducing such complexities, because the core duties of loyalty that have formed the core of the honest services prosecutions are universal.

Well, I have more time on my hands than Justice Kennedy had during oral argument (although I don't have the same staff), so I went to the Restatement of Agency.  You see, I tell my students that all employees are agents, and all agents have fiduciary duties.  So, I need to figure out this complexity, even if the Court doesn't need to.

So, Section 801 of the Restatement (Third) of Agency says:   An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship.  This section is entitled the "General Fiduciary Principle."  In the comments,  we learn that this section applies to all common-law agents, who seem to include employees, particularly employees who use work computers for personal use.

All who assent to act on behalf of another person and subject to that person's control are common-law agents as defined in § 1.01 and are subject to the general fiduciary principle stated in this section. Thus, the fiduciary principle is applicable to gratuitous agents as well as to agents who expect compensation for their services, and to employees as well as to nonemployee professionals, intermediaries, and others who act as agents. Cases that limit the fiduciary duty owed by employees generally involve postemployment disputes engendered by a former employee's subsequent competition with the former employer and do not support the limitation of an employee's fiduciary duty to exclude, for example, liability for self-dealing or unconsented-to use of the employer's property during the employment relationship.

Emphasis is mine.

Well, maybe not all employees are agents, which would then make Mr. Dreeben's assertion that not all employees are fiduciaries true.  However, Section 1.01 of the Restatement defines the agency relationship in the way we all recognize: 

Agency is the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act.

Then the Restatement seems to assume that we all know that employees are agents -- they are the easy question as compared to independent contractors, housekeepers, brokers, etc.  The Restatement does, however, explain in Comment G,

As agents, all employees owe duties of loyalty to their employers. The specific implications vary with the position the employee occupies, the nature of the employer's assets to which the employee has access, and the degree of discretion that the employee's work requires. However ministerial or routinized a work assignment may be, no agent, whether or not an employee, is simply a pair of hands, legs, or eyes. All are sentient and, capable of disloyal action, all have the duty to act loyally.  

Again, the emphasis is mine.  The Illustration posits a non-officer, non-director assembly-line worker profiting from information he was told in his line of work. 

From my journey through the Restatement, I would say that if (1) All agents are fiduciaries and (2) all employees are agents, then it's hard to assert that some employees are not fiduciaries.  That being said, I cannot imagine arguing in front of the Supreme Court and being asked a question about the Restatement of Whatever, so I mean Mr. Dreeben no disrespect.  However, in answering this very important question about the honest services statute, I hope that one of Justice Kennedy's clerks writes a nice memo on this point.

UPDATE:  My colleague Larry Ribstein, a noted expert on partnership and agency law, has his own take, based on his own research on partnerships that case law in some circumstances doesn't treat all agents the same.

| Bookmark

TrackBacks (0)

TrackBack URL for this entry:

Links to weblogs that reference Skilling v. U.S., Part I: "Not all employees are fiduciaries, no, Justice Scalia":

Recent Comments
Popular Threads
Search The Glom
The Glom on Twitter
Archives by Topic
Archives by Date
January 2019
Sun Mon Tue Wed Thu Fri Sat
    1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30 31    
Miscellaneous Links