Published with permission – Hugh Kaplan's BNA's Criminal Reporter 2008-09 Term in Review – Download SCOTUS2008-09
(esp)
Category: Judicial Opinions
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The Ninth Circuit Court of Appeals decision in United States v. Comprehensive Drug Testing, Inc. & Major League Baseball Players Association v. United States looked at "the procedures and safeguards that federal courts must observe in issuing and administrating search warrants and subpoenas for electronically stored information."
It all started in 2002 when the "federal government commenced an investigation into the Bay Area Lab Cooperative (BALCO), which [was] suspected of providing steroids to professional baseball players." It is always interesting to see how an investigation can lead to people well beyond the initial scope of inquiry. Oftentimes the government obtains incriminating evidence against some that is used to move an investigation far from its initial roots. Those that are trapped by the government may provide pleas with coooperation — as one way to lower a sentence may be to implicate others.
In this case baseball players had been tested under terms that "the results would remain anonymous and confidential." Ten players turned up as testing positive and the government secured a grand jury subpoena in the Northern District of California "seeking all 'drug testing records and specimens'" pertaining to the baseball player's testing. The subpoena was quashed and the government went in with a search warrant for the "records of the ten players as to whom the government had probable cause." Nothing like the government not getting their way and circumventing the order by using a search. But the government did not stop there, as they went to the District of Nevada and also obtained a warrant – a place where the drug tests had been performed.
In total it ended up being three judicial opinions with the judges "express[ing] grave dissatisfaction with the government's handling the investigation, some going so far as to accuse the government of manipulation and misrepresentation." The government appealed and the en banc court eventually ended up with the case. A summary of the court's ruling can be found here.
Clearly there are grave concerns here with respect to the government's conduct. But the decision, with its majority opinion authored by Judge Alex Kosinski, also explores how to handle searches of electronically stored files. On one hand you have a government wanting to obtain information for an investigation and on another hand you have Fourth Amendment's rights to privacy. The court sets forth a framework for how these searches should occur including requiring that "magistrates should insist that the government waive reliance upon the plain view doctrine in digital evidence cases." The decision calls for "[s]egregation and redaction" to be "either done by specialized personnel or an independent third party." And it goes on from there. The bottom line is that the court is trying to bring us into a new and modern age that understands and considers how best to handle computerized material.
Whether this framework is the best one, remains to be seen. But it certainly is good to see that a court is recognizing the need to re-examine the plain view doctrine in this computer and information age.
(esp)
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Former CEO of Brocade Communications Systems, Gregory Reyes, had his convictions overturned by the the Ninth Circuit Court of Appeals. The court reversed Reyes' conviction "because of prosecutorial misconduct in making a false assertion of material fact to the jury in closing argument." Reyes had argued that he "signed off on the backdated options without intent to deceive." He also argued that "he relied in good faith on the accuracy of the Finance Department's documentation when he signed off on false financial statements." In reversing, the court states that "[t]he prosecutor asserted as fact a proposition that he knew was contradicted by evidence not presented to the jury." The court does not, however, conclude that "the prosecutor's conduct was so egregious as to require dismissal of the prosecution" and remands the case for a new trial.
The court does not give this same relief to the former vice-president of the Human Resources Department of Brocade Communications Systems Inc. The court affirmed her conviction, but vacated the sentence and remanded the case for resentencing without an enhancement for alleged obstruction of justice.
Materiality was a key issue that Reyes raised and he had requested a directed verdict upon this issue. There is a certain irony here in the court finding that the prosecutor's comments were not harmless error and that "the prosecution argued to the jury material facts that the prosecution knew were false, or at the least had strong reason to doubt."
Opinion – here
See also Mercury News.com here, NYTimes here, WSJ Blog here.
(esp) (w/ a hat tip to Tiffany Joslyn)
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As noted here, the 10th Circuit issued an opinion in the Nacchio case that reverses and remands the sentencing aspect of the case. I agree with Talkleft here that this is a very technical opinion pertaining to how to determine loss in insider trading cases. The court opts for a disgorgement approach as opposed to the district court's net-profit approach. And in that regard, I wholeheartedly agree with Professor Doug Berman here, that this is a major decision. The court holds that:
We conclude that the district court's net-profit sentencing approach does not square with the plain language of the relevant guideline, § 2F1.2; therefore we reject it. We further determine that district courts must undertake "thorough analysis grounded in economic reality," Olis, 429 F.3d at 547, when sentencing defendants in insider trading cases and deem it appropriate to look to the civil sphere for guidance regarding the proper approach. We conclude that the civil disgorgement remedy provides an appropriate guidepost for sentencing insider trading cases.
What concerns me is the level of economic and mathematical skills needed by counsel and the courts to handle these cases. Clearly experts exist who understand the figures being presented, and have the ability to offer their schooled explanations to the court. But counsel and the court still need more than a basic understanding of economics to properly represent and sentence someone accused of insider trading.
(esp) (M.B.A. – U.of Chicago)
Addendum – Christine Hurt, Conglomerate Blog here
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The defense filed a 57 page Brief in the Conrad Black (Boultbee and Kipnis) case pending in the U.S. Supreme Court. Cert was granted to examine two questions, one of which involves section 1346's honest services provision. (see here) At issue is whether the statute applies "to the conduct of a private individual whose alleged 'scheme to defraud' did not contemplate economic or other property harm to the private party to whom honest services were owed." As anticipated, Appellant's Brief references Justice Scalia's words from his dissent of a denial for certiorari in the case of Sorich v. United States – "nothing more than an invitation for federal courts to develop a common-law crime of unethical conduct." A key focus of the petitioner-appellant is that economic harm is needed.
As stated in the Brief, "in enacting Section 1346, Congress did not make a federal crime out of any arguable failure to render 'honest services,' but sought to target such conduct only as part of a broadened understanding of 'scheme to defraud.' It did not remotely license federal prosecutors, as here, to pursue their own untethered understanding of 'honesty' apart from any conventional understanding of 'fraud.'”
Appellants also note the due process fair notice violation that occurs when you have a statute that "reaches any 'dishonest' conduct in the private sector…" The Rule of Lenity is mentioned, especially since interpreting the mail fraud statute can trigger a money laundering charge.
20 days following the oral argument in this case, the 7th circuit ruled with Hon. Posner authoring the opinion that affirmed the conviction. Irrespsective or whether one agrees or disagrees with the use of honest services fraud in the private context without economic harm, it is good see that more time is being spent examining this important question.
Brief – Download Black et al v United States merits brief filed 7-30-2009
(esp)(w/ a hat tip to Peter Goldberger)
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Over at PointofLaw.com, Professor Mike Seigel (Florida) and Professor John Hasnas (Georgetown Business) are part of a Manhattan Institute exchange on "Criminalizing Corporate Conduct: How Far Is Too Far?" It is a fascinating discussion with two very divergent views. But I find it particularly interesting to see both professors focusing on whether there should be corporate criminal liability and the value or lack of value that it serves. As usual the word "punishment" is under consideration. This is an important discussion, but it also needs to be considered from another angle. Wouldn't it be a more positive approach for the government to expend more resources on "educating compliance" then on a reactive model that punishes misconduct. My next essay will explain more in this regard.
Over at ProfessorBainbridge.com, Professor Stephen Bainbridge takes on Professor Henning's Wall St Jrl blog entry regarding the SEC v. Mark Cuban opinion. The WallSt Jrl blog does post a correction on one point. But I guess I am still fascinated at how computerization raises new legal considerations. In this regard I am speaking about the second case Professor Henning discusses – SEC v. Dorozhko.
(esp)
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The Ninth Circuit Court of Appeals granted former Orange County Sheriff Michael S. Carona's motion for bail finding that "[t]he parties agree that appellant is not likely to flee or to pose a danger to the safety of any other person or the community if released." The Ninth Circuit found that Appellant met the second test for bail – his appeal "raises a 'substantial question' of law or fact that is likely to result in reversal, an order for a new trial, or a sentence that does not include a term of imprisonment, on all counts on which imprisonment has been imposed." The Ninth Circuit sent the bail issue back to the trial court to set "appropriate conditions of release." The former sheriff had been convicted on one count and acquitted on five counts (see LA Times here)
Ninth Circuit's Bail Order – Download O.C. Sheriff – 9th circuit grants bond pending appeal
(esp)
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I previously blogged on my review of 100 white collar related cases of Judge Sotomayor here. TRAC reporting now confirms empirically what I found. See here. They conclude that
"A case-by-case examination of the sentences imposed by Judge Sonia Sotomayor during her six years as a trial judge in the Southern District of New York has determined that she was more likely than her colleagues to send a person to prison. . . this was particularly true for convicted white-collar criminals."
They provide charts and numbers that confirm their findings. They used a definition of white collar that may have been more restrictive than I used as they compared only 47 of her cases with a total of 1,570 of all judges in New York's Southern District. They found that
"For this group of criminals, Judge Sotomayor's colleagues sent 43% to prison, with only one out of three of the total receiving a sentence of six months or longer. Judge Sotomayor, in contrast, handed out prison time more often. In her case, a bit more than half (52%) were given some prison time and nearly half (48%) — rather than one-third (34%) — were given a prison sentence of 6 months or more."
Hats off to TRAC for providing this empirical evidence.
(esp) (w/ disclosure that she is a B.S. graduate of Syracuse U.- home of the Trac Reports).
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The Yeager decision (see here) by the Supreme Court is an important decision for those handling both white collar and non-white collar cases. Some thoughts on the decision:
- Just because it is a hung jury on some counts, doesn't mean the government can rrepackage it and try again calling it something else. If it is the "same offense" it will not be allowed. Here the conduct forming the basis for the "insider trading" was the same as the "fraud" offense.
- The doctrine set forth in Ashe v. Swenson controls - even when dealing with a multi-count case.
- The government practice of filing multiple counts for the same conduct, hoping that something will stick, doesn't provide them with multiple trials when it is the same conduct and the jury has acquitted on that conduct. As stated by the Court –
Because a jury speaks only through its verdict, its failure to reach a verdict cannot – by negative implication – yield a piece of information that helps put together the trial puzzle. A mistried count is therefore nothing like the other forms of record material that Ashe suggested should be part of the preclusion inquiry.
- In deciding whether a retrial should be allowed, look at what the jury decided, not at what they failed to decide. Thus, if they decided that the defendant had no material inside information, then clearly he could not be reprosecuted for conduct that was premised on his having material inside information.
- This decision will assist defendants who suffered multiple trials at enormous costs to them and their families. The Supreme Court is sending a strong message that the government only has one bite of the apple for the same conduct.
- The Court leaves a door slightly open for the government to relitigate the fact issue in the lower courts, but one hopes that the government will use taxpayer money wisely and move forward with prosecutions where the jury has not spoken.
- This decision reaches far beyond the white collar world and offers defendants who have been subjected to multi-count indictments- set forth in multiple different ways - with increased finality should there be a hung jury on some of the counts in the Indictment. The breadth of many federal criminal statutes allow for prosecutors to bring the same conduct under different statutes. If there is an acquittal on the conduct - it really means not guilty.
(esp)(blogging from Boulder, Colorado)
Addendum to Bullet One – Yeager speaks to cases when there is a "not guilty" on some counts and a hung jury on others. Obviously, it would be a different situation if there were a hung jury on all counts.
MattBray.net 