If the case is not going your way, wouldn’t it be great if you could just change the law in your favor?  A pipe-dream in most cases, at least outside of the corporate context ,where sometimes companies can change the rules in the middle of the takeover fight, and tax, where everything can be made retroactive.  In a criminal case, one would certainly expect that the rules cannot be changed after the fact.  In the wake of the death of Ken Lay, however, the government has asked U.S. District Judge Sim Lake to hold off on deciding the motion of Lay’s estate to abate his conviction and indictment while it seeks to have Congress adopt legislation to overturn the abatement doctrine that controls the case.  In a filing with the court (available below, courtesy of the Houston Chronicle), the government acknowledges, in effect, that the abatement doctrine applicable in the Fifth Circuit will result in having Lay’s criminal record expunged, preventing prosecutors from using the conviction to support the criminal asset forfeiture it sought.  As described by the government, this is "radical relief" that "unnecessarily harms crimes victims" by depriving them of the use of the conviction in seeking recovery, although it is the doctrine applied in every federal court and a number of states.

The legislative proposal would be retroactive to July 1, conveniently timed for five days before Lay’s death, and it would create a new "special civil forfeiture proceeding" that would essentially preserve the conviction in those cases in which the defendant dies after the conviction but before a decision on the forfeiture or the completion of the first appeal as of right. The proposed legislation covers seven pages, and is followed by another seven-page analysis of the statute — all to overturn one high profile case in which the government will be forced to proceed with a civil asset forfeiture case if it still wants Lay’s assets, an avenue that presents greater hurdles to recovery. 

The proposed bill and accompanying documents seem to represent a significant effort on the part of the Department of Justice, and raises in my mind this question: Does the Enron Task Force have too much free time?  The number of cases in which abatement will occur is fairly small, I suspect, and it’s not as if the government does not have access to civil forfeiture to recover Lay’s assets.  A less expeditious tool, but then Lay did die, so it’s not as if he’s trying to duck out on a potential penalty. 

The government has framed the issue in terms of the rights of victims, noting that a civil forfeiture at this point could take years.  While that may be true, does the fairly uncommon situation require that a well-established legal doctrine be overturned to permit the government to achieve a quicker result in only a few cases?  Moreover, the assets in Lay’s estate subject to forfeiture, assuming there are any, are not going to disappear, and they represent only a minute fraction of the losses suffered by Enron shareholders.  It’s ironic that the government’s brief does not appear to acknowledge its recent position that Jeffrey Skilling is responsible, under principles of joint liability, for the entire amount sought through the criminal forfeiture (over $180 million).  If that is the case, then is there really a need for the legislation to reach Lay’s assets?

The government’s position is that the abatement doctrine is a common law principle, and opinions discussing it certainly seem to reflect that it is an exercise of the court’s equitable power.  But could there be a constitutional basis for it?  The right to appeal is not guaranteed by the Constitution, but if there is a statutory appeal as of right then due process and equal protection require that all defendants be treated similarly.  Because the criminal conviction cannot be challenged after death, would it be a denial of due process if the conviction is not abated?  Along the same lines, a defendant has a right to consult counsel, but of course that is denied in the "special civil asset forfeiture" incorporated in the legislation because the defendant is — of course — dead and cannot be consulted even though the conviction effectively continues.  It may not be as simple as the Department envisions to just roll back the clock in this case. 

And even if it can put the criminal forfeiture in the way-back machine, is it worth the effort, especially when it is certainly an open question whether Congress will choose to address the issue during its remaining few weeks right before an election when most of the federal budget has not been passed? (ph)

Download government_abatement_motion_response.pdf

With the court granting the motion to permit Ken Lay’s widow, Linda, to appear on behalf of his estate, her attorneys have filed a motion to abate the conviction and indictment so that there will be no official record of him having been prosecuted for crimes related to Enron.  The scope of the abatement doctrine in the Fifth Circuit is clear from that court’s en banc decision in United States v. Estate of Parsons, 367 F.3d 409 (5th Cir. 2004), which held that "the appeal does not just disappear, and the case is not merely dismissed. Instead, everything associated with the case is extinguished, leaving the defendant as if he had never been indicted or convicted." (citations omitted)  With a case so clearly on point, what is amazing is that the brief covers three pages (motion available below).

But perhaps even more amazing is a statement accompanying the motion that the Enron Task Force "will oppose the motion."  It’s not clear what grounds the government can advance to oppose the request of Lay’s estate when the Fifth Circuit’s case law is so clear on the issue of abatement.  It may be that the government wants to preserve the conviction for the purpose of pursuing the criminal asset forfeiture, although as noted in an earlier post (here), prosecutors have now asked that co-defendant Jeffrey Skilling be held liable for the full amount of the forfeiture, including Lay’s portion.  A criminal forfeiture proceeding is against the individual, while a civil forfeiture is directed against the tainted property and proceeds (in rem), and is a more difficult case to win, especially with an innocent owner defense available.  As I’ve come to learn, courtesy of Prof. Gerry Beyer of the Wills, Trusts, and Estates Law Prof Blog, Texas is a community property state so Linda Lay has a 50% ownership interest in all community property, and the government is unlikely to be able to reach her portion unless it can show her involvement in the underlying criminal conduct.

In the end, it’s not clear what the government would gain in opposing a motion that is clearly governed by recent circuit case law.  It may be that the effect of the abatement doctrine is to create a windfall for Lay’s heirs, and the desire to recover assets may be so strong that one might be able to make a passable appeal to equity in not giving complete effect to the doctrine.  The fact that an argument makes it past the laugh test does not mean it’s a good one, though. (ph)

Download laymotiontovacateconviction.pdf

Although Ken Lay’s estate may end up escaping liability to the government (see post here), Jeff Skilling may be penalized because of Lay’s death.  According to CNN here and Houston Chronicle here, the government is seeking $183 million in restitution from Skilling which represents a portion that would have been paid by Ken Lay, were he alive. 

Individuals charged with a federal conspiracy can also be charged with the individual crimes of co-conspirators if the crimes were in futherance of the conspiracy and forseeable.  Courts often give this instruction, known as a Pinkerton instruction, in federal cases. The question now becomes whether restitution should be jointly liable, implicating Jeff Skilling for the total amount. 

An argument for the government is that one who engages in a conspiracy takes the risk of the acts committed by their co-conspirator and therefore they should be held liable.  A defense response is that Skilling is basically being punished additionally just because Lay did not live.

(esp) 

The Houston Chronicle reports (here) that former Enron CEO Ken Lay’s appellate attorney has moved to appear before the federal district court on behalf of his estate to seek dismissal of the indictment and conviction against him.  As discussed in an earlier post (here), under the abatement doctrine as applied in the Fifth Circuit, a defendant who dies before having his first appeal as of right decided by the court of appeals can move to have the case expunged.  An attorney usually must represent a party to appear in a proceeding, so this procedural step is necessary before U.S. District Judge Sim Lake can issue the order to remove Lay’s indictment and conviction from the record. 

With the criminal conviction abated, the Enron Task Force is limited to a civil asset forfeiture action under 18 U.S.C. Sec. 981 if it wants to pursue that route to obtain property traceable to the violations from Lay’s estate.  One limitation on civil asset forfeiture actions is that the government can only obtain "[a]ny property, real or personal, which constitutes or is derived from proceeds traceable to a violation" but not substitute assets.  Also, a claimant to the property can raise an "innocent owner" defense to the forfeiture under Sec. 983(d).  All in all, civil asset forfeiture is not as simple as a criminal forfeiture after a conviction, especially because the government will have to prove the underlying violation by Lay all over again, without the benefit of using the criminal conviction as proof that the assets are forfeitable.  In the end, it may not be worth the effort to pursue the asset forfeiture further, but that decision will come another day. (ph)

A six week trial down the drain, and yet another loss for the government.  The Fifth Circuit Court of Appeals tossed out the conspiracy, and wire fraud counts against the defendants leaving one individual’s conviction for perjury and obstruction of justice. The basis for the reversal is premised on the "honest services theory" upon which the government rested this prosecution.

The court upholds the reasoning in prior decisions, including the Second Circuit’s famous Rybicki case.  There is no elimination of the entire honest services approach.  Rather, the court holds that:

"What makes this case exceptional is that, in typical bribery and self-dealing cases, there is usually no question that the defendant understood the benefit to him resulting from his misconduct to be at odds with the employer’s expectations. This case, in which Enron employees breached a fiduciary duty in pursuit of what they understood to be a corporate goal, presents a situation in which the dishonest conduct is disassociated from bribery or self-dealing and indeed associated with and concomitant to the employer’s own immediate interest."

The Fifth Circuit notes that "[t]his opinion should not be read to suggest that no dishonest, fraudulent, wrongful, or criminal act has occurred.  We hold only that the alleged conduct is not a federal crime under the honest-services theory of fraud specifically."

In addition to Judge Jolly’s opinion, there are two other separate opinions in this case. 

One concurring and dissenting opinion (concurring on Judge Jolly’s opinion reversing the honest services based convictions and dissenting on the affirmation of the perjury and obstruction of justice convictions) by Circuit Judge DeMoss’ calls for holding the statute as vague. Advocating the position taken by the dissenters in the Rybicki case, he states that "Congress should repair this statute that, in my opinion, fails to provide the requisite ‘minimal guidelines to govern law enforcement.’"

Courts have been wrestling with what is, or is not, a sufficient basis for a mail and/or wire fraud prosecution when the government proceeds under section 1346, the honest services statute that was enacted to counteract the Supreme Court’s holding in McNally. Prosecutors may find it easier to obtain a conviction when using this statute, but as seen here, it can place them in a tougher position on appeal.  And rightfully so.  After all, what is a deprivation of honest services? As I state in an article written years back in the South Carolina Law Review – if a candidate should say "Read my Lips, No New Taxes, " and then raise taxes, could this absurd example be interpreted to be a deprivation of honest services?  My answer is no, but it demonstrates the possible breadth of some of the terms in this statute.

Decision Can Be Found here – http://www.ca5.uscourts.gov/opinions/pub/05/05-20319-CR0.wpd.pdf

(esp) ( w/ a hat tip to Doug Berman)

It is extremely rare that a trial court overturns a jury conviction. More likely one finds the court granting a motion mid-trial to dismiss certain counts when there was insufficient evidence presented by the government.  It is, therefore, not surprising to see the trial court refusing a request to reverse Jeffrey Skilling’s conviction. (see Houston Chronicle AP here).  In addition to an upcoming sentencing, the government also has a case to present on forfeiture. 

(esp)   

The so-called NatWest Three, British investment bankers David Bermingham, Giles Darby and Gary Mulgrew, will be residing in or around the Houston area while they await trial on fraud charges related to an Enron deal in which they are accused of defrauding their employer out of a $7.3 million gain. The extradition of the three U.K. citizens caused a major row in Parliament over the one-sided application of the treaty that only Britain has ratified but not the U.S.  After their extradition, the three defendants asked to be allowed to return to their homes, but U.S. Magistrate Judge Stephen Smith denied the request and ordered that they live apart from one another in the Southern District of Texas and that they not leave the United States.  In addition, the defendants must post a bond of $1 million, and cannot speak with one another without their attorneys present, an interesting condition that I don’t recall seeing before in a white collar crime case.  Bermingham is quoted in a Houston Chronicle story (here) stating after the Magistrate Judge’s bail decision: "This is going to be tough. We are tough people, but I’m not underestimating the difficulties we face. It might be regarded as a form of psychological torture, if you wish."  I’ve heard that Houston in August is not very pleasant, but I didn’t know it amounted to torture, a conclusion that the Chamber of Commerce might disagree with — then again, maybe the unavailability of fine British fare might be considered a reprieve. (ph)