In the Courts

Global Tech Standard: Petition for Certiorari Pending Before Supreme Court

On May 18, 2012, the United States Court of Appeals for the Fifth Circuit upheld a district court verdict in United States v. Brooks, 681 F. 3d 678 (5th Cir. 2012), in which the defendants, former employees of El Paso Merchant Energy Corporation (EPME), were convicted of false reporting of natural gas trades in violation of the Commodity Exchange Act (CEA), as well as federal wire fraud. In its decision, the Fifth Circuit addressed a number of interesting issues, including application of the deliberate ignorance standard articulated by the Supreme Court in Global-Tech Appliances, Inc. v SEB S.A., — U.S. —, 131 S. Ct. 2060, 179 L.Ed.2d 1167 (2011). The defendants have recently filed a Writ of Certiorari, requesting Supreme Court review of the Fifth Circuit's application of the Global-Tech standard, which, if granted, would be the first opportunity the Court has had to consider application of the standard in a criminal case. The petition may be decided by the end of this year.

At trial, the government alleged that the defendants violated the CEA by sending false information regarding natural gas prices to trade magazines that report such prices to the public, in an effort to manipulate natural gas price indexes. Brooks, 691 F.3d at 685. The manipulated indexes would then affect the public market for natural gas futures, which would benefit EPME, the defendants' employer. Id. After three days of deliberations, the jury found the defendants guilty of false reporting under the CEA as well as wire fraud and related conspiracy charges. Id. at 689. The district court sentenced two of the defendants to 135 months' imprisonment and another to 168 months' imprisonment.

On appeal, the defendants asserted 10 different grounds for error. Id. Among the more interesting arguments on appeal, the defendants claimed that the district court clearly erred in failing to find that the government impermissibly pressured EPME to cut off payment of the defendants' legal fees, in violation of their Fifth and Sixth Amendment rights, requiring dismissal of the indictments. The Fifth Circuit contrasted this matter with United States v. Stein, 541 F. 3d 130 (2d Cir. 2008), in which the Second Circuit held that the government had forced KPMG to stop paying the defendants' legal fees, violating the defendants' constitutional right to counsel of their choice. Id. at 690. Importantly, the Fifth Circuit noted that, in Brooks, “[w]hile the correspondence shows that [EPME] possessed an intense desire to be seen as cooperative by the government, the government never demanded or suggested to [EPME] that it cease paying the legal fees of the Defendants.” Id. at 689. Furthermore, EPME clearly explained in correspondence with the defendants regarding this issue that it retained discretion under its by-laws as to whether or not to advance legal fees, although it would be required to indemnify the defendants for legal fees if they were later found not to have engaged in wrongdoing. Id. at 686. In fact, EPME made clear that their decision as to at least one of the defendants was based on the conclusions of an internal investigation that he had been involved in wrongdoing. Id. at 690. Based on the lack of evidence of direct government influence over the decision as well as the fact that EPME's policy with respect to advancement of fees was clearly discretionary, the Fifth Circuit upheld the lower court's denial of the motion to dismiss based on Fifth and Sixth Amendment violations.

The defendants also challenged aspects of the jury instructions. Of most interest, the defendants argued that the district court's jury instruction on mens rea improperly lowered the standard to include recklessness and was contrary to the standard set forth by the Supreme Court in Global-Tech. Id. at 701. In that case, the Supreme Court considered the deliberate ignorance standard in the civil context, holding that deliberate ignorance requires proof that “(1) the defendant [] subjectively believe[d] that there [was] a high probability that a fact exists and 2) the defendant [took] deliberate actions to avoid learning of that fact.” Global-Tech, 131 S. Ct. at 2070. The Supreme Court further explained that deliberate ignorance “surpasses recklessness or negligence” and that “a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts.” Id. at 2070-71.

The Fifth Circuit held that, while the circuit's pattern jury instruction did not use the same language set out in Global-Tech, the instruction properly captured the meaning conveyed in that opinion. Brooks, 681 F.3d at 703. The Court noted, in particular, that the instruction provided that the defendant must have “deliberately closed his eyes to a fact that would otherwise have been obvious to him,” satisfying the Global-Tech requirement of subjective belief of a high probability that a fact exists. Id. The Court further explained that the second prong of the Global-Tech instruction, that the defendant take “deliberate action to avoid learning the fact,” was satisfied by the district court's explanation that the defendant must have “deliberately closed his eyes” or “deliberately blinded himself to the existence of a fact.” Id.

Finally, of note with respect to evidentiary issues, the defendants argued that the district court erred by failing to order the government to immunize a potentially exculpatory witness. Id. at 710. At the time of trial, the witness at issue had pleaded guilty to the relevant crimes, but had not yet been sentenced because the government wanted to ensure his continued cooperation. The district court declined to either grant immunity to the witness at issue or to admit a summary of the relevant witness statement, which the defendants' argued was exculpatory. The Fifth Circuit explained that, because a district court has no inherent authority to grant immunity, it must rely on its authority to direct the government to do so, but then only in cases of government abuse. Id. at 711. The Fifth Circuit held that the defendants had not demonstrated such abuse merely by virtue of the government delaying the witness' sentencing, and deciding not to call the witness based on concerns about the veracity of his testimony.

The defendants also raised a number of other evidentiary issues as well as challenges to the application and constitutionality of the CEA and the application of the U.S. Sentencing Guidelines, none of which the Fifth Circuit found persuasive. On certiorari, the defendants have raised both the application of the deliberate ignorance standard under Global-Tech as well as the issue of defense witness immunity for the Court's consideration.

Global Tech Standard: Petition for Certiorari Pending Before Supreme Court

On May 18, 2012, the United States Court of Appeals for the Fifth Circuit upheld a district court verdict in United States v. Brooks , 681 F. 3d 678 (5th Cir. 2012), in which the defendants, former employees of El Paso Merchant Energy Corporation (EPME), were convicted of false reporting of natural gas trades in violation of the Commodity Exchange Act (CEA), as well as federal wire fraud. In its decision, the Fifth Circuit addressed a number of interesting issues, including application of the deliberate ignorance standard articulated by the Supreme Court in Global-Tech Appliances, Inc. v SEB S.A., — U.S. —, 131 S. Ct. 2060, 179 L.Ed.2d 1167 (2011). The defendants have recently filed a Writ of Certiorari, requesting Supreme Court review of the Fifth Circuit's application of the Global-Tech standard, which, if granted, would be the first opportunity the Court has had to consider application of the standard in a criminal case. The petition may be decided by the end of this year.

At trial, the government alleged that the defendants violated the CEA by sending false information regarding natural gas prices to trade magazines that report such prices to the public, in an effort to manipulate natural gas price indexes. Brooks, 691 F.3d at 685. The manipulated indexes would then affect the public market for natural gas futures, which would benefit EPME, the defendants' employer. Id. After three days of deliberations, the jury found the defendants guilty of false reporting under the CEA as well as wire fraud and related conspiracy charges. Id. at 689. The district court sentenced two of the defendants to 135 months' imprisonment and another to 168 months' imprisonment.

On appeal, the defendants asserted 10 different grounds for error. Id. Among the more interesting arguments on appeal, the defendants claimed that the district court clearly erred in failing to find that the government impermissibly pressured EPME to cut off payment of the defendants' legal fees, in violation of their Fifth and Sixth Amendment rights, requiring dismissal of the indictments. The Fifth Circuit contrasted this matter with United States v. Stein , 541 F. 3d 130 (2d Cir. 2008), in which the Second Circuit held that the government had forced KPMG to stop paying the defendants' legal fees, violating the defendants' constitutional right to counsel of their choice. Id. at 690. Importantly, the Fifth Circuit noted that, in Brooks, “[w]hile the correspondence shows that [EPME] possessed an intense desire to be seen as cooperative by the government, the government never demanded or suggested to [EPME] that it cease paying the legal fees of the Defendants.” Id. at 689. Furthermore, EPME clearly explained in correspondence with the defendants regarding this issue that it retained discretion under its by-laws as to whether or not to advance legal fees, although it would be required to indemnify the defendants for legal fees if they were later found not to have engaged in wrongdoing. Id. at 686. In fact, EPME made clear that their decision as to at least one of the defendants was based on the conclusions of an internal investigation that he had been involved in wrongdoing. Id. at 690. Based on the lack of evidence of direct government influence over the decision as well as the fact that EPME's policy with respect to advancement of fees was clearly discretionary, the Fifth Circuit upheld the lower court's denial of the motion to dismiss based on Fifth and Sixth Amendment violations.

The defendants also challenged aspects of the jury instructions. Of most interest, the defendants argued that the district court's jury instruction on mens rea improperly lowered the standard to include recklessness and was contrary to the standard set forth by the Supreme Court in Global-Tech. Id. at 701. In that case, the Supreme Court considered the deliberate ignorance standard in the civil context, holding that deliberate ignorance requires proof that “(1) the defendant [] subjectively believe[d] that there [was] a high probability that a fact exists and 2) the defendant [took] deliberate actions to avoid learning of that fact.” Global-Tech, 131 S. Ct. at 2070. The Supreme Court further explained that deliberate ignorance “surpasses recklessness or negligence” and that “a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts.” Id. at 2070-71.

The Fifth Circuit held that, while the circuit's pattern jury instruction did not use the same language set out in Global-Tech, the instruction properly captured the meaning conveyed in that opinion. Brooks, 681 F.3d at 703. The Court noted, in particular, that the instruction provided that the defendant must have “deliberately closed his eyes to a fact that would otherwise have been obvious to him,” satisfying the Global-Tech requirement of subjective belief of a high probability that a fact exists. Id. The Court further explained that the second prong of the Global-Tech instruction, that the defendant take “deliberate action to avoid learning the fact,” was satisfied by the district court's explanation that the defendant must have “deliberately closed his eyes” or “deliberately blinded himself to the existence of a fact.” Id.

Finally, of note with respect to evidentiary issues, the defendants argued that the district court erred by failing to order the government to immunize a potentially exculpatory witness. Id. at 710. At the time of trial, the witness at issue had pleaded guilty to the relevant crimes, but had not yet been sentenced because the government wanted to ensure his continued cooperation. The district court declined to either grant immunity to the witness at issue or to admit a summary of the relevant witness statement, which the defendants' argued was exculpatory. The Fifth Circuit explained that, because a district court has no inherent authority to grant immunity, it must rely on its authority to direct the government to do so, but then only in cases of government abuse. Id. at 711. The Fifth Circuit held that the defendants had not demonstrated such abuse merely by virtue of the government delaying the witness' sentencing, and deciding not to call the witness based on concerns about the veracity of his testimony.

The defendants also raised a number of other evidentiary issues as well as challenges to the application and constitutionality of the CEA and the application of the U.S. Sentencing Guidelines, none of which the Fifth Circuit found persuasive. On certiorari, the defendants have raised both the application of the deliberate ignorance standard under Global-Tech as well as the issue of defense witness immunity for the Court's consideration.