*1 America, STATES UNITED
Plaintiff-Appellee,
v. NACCHIO,
Joseph Defendant- P.
Appellant.
No. 07-1311. Appeals, States Court
United
Tenth Circuit. 17,
March *4 Justice, Division-Fraud Sec- Criminal
tion, brief), with him on the for Plaintiff- Appellee. Mayer H. Brown Schapiro,
Andrew Schultz, LLP, York, NY, New and Evan P. LLP, D.C.; Mayer Washington Brown Bergman, Barbara E. National Ass’n of Lawyers, Albuquerque, Criminal Defense NM; Smith, Smith, English B. David & Alexandria, VA, for Ass’n of National Lawyers as Amicus Cu- Criminal Defense support Defendant-Appellant. riae in Kamenar, D. Popeo Daniel J. and Paul Foundation, Washington Legal Washing- ton, D.C.; Levander, Andrew J. David S. Hoffner, Billy Jason O. and David P. Stau- bitz, York, NY; LLP, Dechert New *5 Kichline, LLP, L. Phila- Michael Dechert PA, delphia, Washington Legal for Foun- support dation as Amicus Curiae in Defendant-Appellant. KELLY, McCONNELL,
Before HOLMES, Judges. Circuit McCONNELL, Judge. Circuit jury A Joseph Denver convicted Nac- chio, Qwest the former CEO of Communi- International, Inc., cations of nineteen trading. counts insider Mr. Nacchio arguing that appeals, the evidence was him, insufficient to convict instructed, improperly and that Mahoney, Maureen E. Latham & Wat- judge incorrectly trial excluded evidence— (Alexandra LLP, Washington, kins D.C. expert testimony informa- and classified Shapiro, Ballenger, A.E. J. Scott Nathan important agree to his defense. We tion— Seltzer, Watkins, H. Latham Washing- & improper exclusion of his ton, D.C.; and Herbert J. Stern and Jef- trial, witness merits a new we conclude but Kilcullen, Roseland, frey Speiser, & Stern that the evidence before the district court NJ, briefs), with her on the for Defendant- try was sufficient for the to Appellant. again violating him without the Double Oestreicher, Jr., Stephan E. De- U.S. Jeopardy Clause. Justice, Division-Ap- partment of Criminal Section, pellate Washington, (Troy D.C. A. I. BACKGROUND Eid, Attorney, United States and James O. Qwest’s Projections A. Revenue Traskos, Hearty and T. Assistant Kevin July Qwest completed merger In Attorneys, United States District of Colo- rado; Wise, West, (larger) telecom- Department and Leo J. U.S. with U.S. another company. Therefore, munications Mr. Nacchio told income. to public meet its 2001 completion employees upon merger target, Qwest executives determined that five-year plan that “the business is ... Qwest had “aggressive to make an pivot” die, grow, Aplee.’s SuppApp., or sell.” or “shift” from its reliance on the sale of September exh. 514A. In he laid out to recurring streams, IRUs revenue such revenue, earnings, growth targets new standard phone consumer service. Qwest’s year. for next He announced a fact, 2600. In though even public prediction, “guidance,” $21.3 Qwest poor had a track in growing record expected billion in revenue $21.7 revenue, recurring the 2001 budget re- Qwest prepared separate also set of in- quired Qwest to growth double its 2000 ternal targets, higher revenue than the recurring rate for revenue. public guidance. targets Internal were early As Qwest as December exec- typically higher public targets set than utives told Mr. Nacchio that this shift from encourage employees public to exceed tar- recurring IRUs to revenue had to occur by addition, gets. performance bonuses April agreed. 2001 and he If Qwest failed paid employees were who met or ex- sign up enough new early customers targets. During ceeded internal most of year, it would not later benefit from the time relevant to litigation, the 2001 sufficient compounding to close its third year-end billion, target internal was $21.8 and fourth quarter budget gaps and would which was million more than the bot- $500 be forced to public guidance revise its public guidance. tom of the downward.1 Nacchio understood that time, At Qwest employees some ex- a slow start in obtaining new recurring pressed guidance concern that the and tar- revenue would have a “snowball effect” gets high. were September, too That which year-end would doom target *6 example, Qwest’s Szeliga, vice-presi- Robin for App. January 2001. 2494. In planning, dent of financial received a Mr. acknowledged importance Nacchio memo analysts from two financial who of this when he told his sales staff that memo, worked for her. The called a “risk “something big” happen “by had to April” estimate,” problems Qwest’s forecast with and that the first half of 2001 was “abso- guidance. revenue Szeliga Ms. shared the lutely 2178; App. critical.” Aplee.’s Supp. Qwest’s contents of the memo with Chief A, App. exh. Although Qwest 551 559B. in- Officer, Woodruff, Financial Robert and clearly appreciated siders the risk inherent with sug- later Mr. Nacchio. The memo public guidance, Qwest’s in the it was not Qwest gested could make as little as policy portion to disclose the of its income billion, a shortfall of $20.4 $900 million sales, attributable IRU and thus the public target. from its public degree was unaware of the of this particular problem Qwest One was that risk. traditionally had relied on revenues from Qwest’s targets revenues met internal leases, long-term known as indefeasible during quarters the first two (IRUs), rights space of use to use on However, largely due to IRU sales. there Qwest’s optic fiber network. Because early April, ominous In Mr. Qwest was news. money collected for the entire lease front, had up generated Greg conversations with Ca- IRU sales one-time sey, Qwest’s revenue rather than a recurring vice-president stream of executive Recurring begins early pie, begin January 1. revenue that in the subscribers who service year earnings pay increases annual re- more than for 12 months of service while those who curring begins begin only pay revenue that later. For exam- in December for 1 month. markets, Qwest going was to meet its company’s about the Nacchio how wholesale Casey Mr. sales of domestic IRUs. told targets, saying “now was the time growth him: [Qwest] to take to believ- [its] numbers drying up, market was ability.” App.
[T]he IRU 1599. Mr. Nacchio re- quarter after the second the second Qwest sponded products had better —in quarter, draining we felt like we were management, and stressed its and better pond in terms of the IRU deals that strong growth category in the revenue there, rely couldn’t were out and we IP.” trans- App. “data and 1605. One-time any on couldn’t see—have visi- IRUs —I revenue, up portion actions made of this bility doing to what IRUs would be after but Mr. Nacchio did not mention this. quarter. the second Wolfe, Qwest’s vice-president Lee of inves- App. 2496. relations, asked, tor testified that investors times,”
Similarly, Szeliga “[m]any makeup Ms. testified that on for “the of data April IP,” 9: and but that Mr. Nacchio refused to fact, point analysts tell them. plans
[T]he that we had IRUs, gaps repeatedly cover estimated were and investors requested ... spoken we had with Mr. Nacchio Qwest’s during breakdown of revenue about the fact that the market IRU was quarter of first insiders such as words, worsening, in other there wasn’t Schumacher, company’s Mark control- product. as much demand for this So ler, disclosing advocated the information. plan very risky ... if were was we However, Nacchio, who retained the just going rely on IRUs. disclosures, say final public over App. 2210-11. also learned Mr. Nacchio declined to do so. April recurring 9 that revenue was off 19%, indicating company was B. The Defendant’s Stock Sales recurring increasing well short of its reve- approximately At the time Mr. Nacchio nue time to reduce its third and fourth receiving internal re- reports these time, quarter budget gaps. At the same garding recurring IRU sales and revenue however, compa- Mr. Nacchio was told at a assuring investors that company ny meeting that even “with all of the de- public guidance, on track to meet its *7 bates ... the internal current view of selling he was over a million shares of Qwest they was that reach would $21.5 Qwest stock. This occurred a few months 31st, 2001,” by billion December still meet- company before the was forced lower its ing public projections. App. 2323. dollars, guidance by a the amount billion 24, Qwest April On announced its first previously by Qwest’s financial estimated release, quarter earnings press in a and officers, and the stock lost half its value. Mr. Nacchio conducted a conference call to govern- sales are the basis of the These call, investors. Mr. Nacchio an- charge that Mr. ment’s Nacchio was trad- company nounced that the was “still con- ing on inside information. Mr. Nacchio firming” previous guidance regarding its claims, however, understanding that a full long-term growth. App. 1598. He did not proves of the context of his sales other- Qwest’s earnings
break down into IRUs wise. recurring day, and revenue. Later many highly-paid Like CEOs at in Nacchio met with investors Los time, Mr. Nacchio received a substantial Angeles, who out that other tele- pointed portion compensation op- of his stock companies communications had lowered than in a guidance. Options their One of them asked Mr. tions rather cash. are they approximately part common of CEO salaries because one million shares each Option provide perform. quarter. incentives to This would enable him to exer- ad- compensation provides also cash-flow cise his million in options before their $7.4 a com- vantages company, to the because date, expiration spreading while his sales them, grants pany expends no cash when out over time to avoid the risk of a stock and, time, not need company at one a did drop many comes when too shares are until option to account for the cost sold at once. Mr. actually Nacchio did not Payment, exercised. See Share-Based enter into a formal trading plan in Octo- Accounting Fin. Statement of Standards ber, briefly—in he February but did so— (Fin. Accounting No. 123 Standards approved by which was Tempest. Bd.2004); Murphy, Explaining Kevin J. plan He cancelled the less than a month Compensation: Managerial Executive later, Qwest’s when stock fell below $38 the Perceived Power versus Cost Stock of time, per stated, share. At that he “I Options, 69 U. L.Rev. 859-60 Chi. expect my prior prac- to return to Scholes, (2002); Myron Fischer Black & making tice of in quarterly trading sales Pricing Options Corporate and Li- windows, or, in, appropriate circumstances (1973). abilities, 81 J. Pol. Econ. 637 entering consider daily into new sales Among holdings Mr. Nacchio’s as of Octo- program if I price believe the stock options ber 2000 were for million $7.4 more points realistic.” 4803. He now stock, Qwest with an expiration date that, to this decision as evidence rather June 2003. having than knowledge of an impending way that a can corporate One official revenue shortfall with attendant decline liability dispose of stock without for insider price, stock he price believed the stock trading pursuant is to do so to a fixed sales would remain above $38. rules, plan. person Under if a has no SEC second-quarter trading window be- material inside information when he 26, 2001, gan April with stock “[a]dopt[s] plan trading secu- written per May share. Between then and $39 rities,” that plan sets fixed rules for 1,255,000 Qwest Nacchio sold shares buy when he will and sell shares in the price as the share hovered between $37 future, then his trades are not “on the His rate of in those weeks sales $42. basis of’ inside information even if he later average was about four times his rate from acquire does information. 17 inside C.F.R. only slightly 1998 to but more than (c). Qwest’s general § 240. coun- 10b5-l per quarter the million he shares had de- sel, Tempest, required ap- Drake clared his intention to sell his October prove plan each stock sales entered into At 2000 announcement. the end of the officer; Qwest doing required each so window, May trading Mr. Nacchio entered not in determination officer was *8 plan, ap- into a second automatic sales possession nonpublic of material informa- 10,000 proved by Tempest, to sell shares plan. tion at the time he entered into the day price was at least long as stock Except according for sales to fixed sales per share. $38 Qwest plan, policy only permitted officers during “trading to sell stock short win- 29, 2001, May Qwest’s price On stock immediately quarter dows” each after $38, it dropped below where has remained quarterly earnings App. were announced. since. Mr. Nacchio sold no more shares 1879. that, year with more after and finished options than had owned at the
In vested he October Mr. Nacchio announced attempt He made no to sell options beginning. that he would exercise and sell (other Qwest options) guidance, company than and that the had not any of the stock account, nor that personal recurring he held in his made the needed shift to reve- family. by owned his placed company nue which at substan- meeting year-end guid- tial risk of not its Qwest Collapse of The Stock C. trial, sixteen-day jury ance. After a months, jury days During the next few inter- deliberated for six and convicted on a warnings regarding nal overreliance Mr. Nacchio on the nineteen counts of of sales were increas- dwindling pool IRU trading covering April insider his trades August Qwest ingly confirmed. On May acquitted It him of the filing in a disclosed its IRU sales with January covering counts the trades from SECApp. 1672. The immediate effect on to March. The district court then sen- Qwest’s price negligible, but it stock years’ imprison- tenced Mr. Nacchio to six in decline both and after. had been before count, concurrently, ment on each to run Lee Wolfe testified that “there had been years’ supervised two release on each quar- ... after the first some disclosure count, him concurrently, to run fined $19 ter,” Qwest’s that some of revenue was million, him to and ordered forfeit over $52 recurring, they one-time rather than “[b]ut conviction, Challenging million more. his known,” magnitude were not—the was not sentence, forfeiture, and the Mr. Nac- September until 1673. On August. appeals chio to this Court. 10, 2001, Qwest’s Mr. lowered Nacchio We reverse his conviction and remand public guidance one billion dollars. Mr. II, the case for a new trial. In Section we Wolfe testified that Mr. Nacchio and discuss the evidence that Mr. Nacchio was sought put Tempest enough Drake had prevented using trial, explain from regarding time between the disclosure reli- why the district court’s error entitles him change guid- and the ance on IRU sales there, stop to a new trial. We cannot if ance seem as Mr. however, because the is enti- concealing had been information. try tled to the defendant a second time By September Qwest’s stock had fallen only if its evidence at the first trial was January During 60% from its level. III, legally sufficient. In Section there- period, same the Dow Jones Industrial fore, explain government’s theory we Average dropped approximately 24% and sufficiency of the case and discuss the NASDAQ composite dropped index light jury the evidence in instruc- 46%.2 tions, that a concluding properly-instructed
D. Prosecution and Trial guilty could have found the Defendant Finally, trading. of insider in Section IV Mr. in- December Nacchio was we discuss the nature of the remand. charged dicted and with counts of insid- trading. government alleged er II. EVIDENTIARY ISSUES January May Nacchio’s sales from heavily strategy defense relied on 2001 were on the basis inside informa- proposed testimony of an wit- tion, nonpublic because he had material ness, Fischel, Professor Daniel and classi- Qwest specifically information about — fied information relevant to busi- company heavily relying IRU sales, prospects ness and the defendant’s state of non-recurring source revenue to *9 both, quarter public meet its first and second mind. The district court excluded http://money.cn n.com/quote/histori- money.cnn.com/quote/historical/historical. 2. See cal/historical.html?symb=INDU; html?symb=COMP. http://
1149 disclosure, prepare asserts that a revised the defendant district appeal and judge are error. We these decisions reversible commented that he was “flabber- of the district court’s exclusion agree gasted, frankly, that could [the defense] an testimony was error Professor Fischel’s think first an adequate was th[e disclosure] There no requires a new trial. disclosure,” expert “I and said: think excluding in the classified informa- error clear, pretty and ... pret- [Rule 16] it’s tion. ty what is required close to the civil area.” App.2038, government’s 2041. The Testimony Expert A. added, lawyer my then concern “[I]t’s Rules The Federal of Criminal Proce- least on the way based the disclosure is a defendant under certain require dure right now, raised there could be Dau- [sic] govern- provide circumstances to to respect bert issues that arise with to cer- ment, “a upon request, summary written of parts tain Id. testimony.” of at 2041- ” any intends testimony defendant is legal “Daubert shorthand for 702, 703, to use under Rules or [at trial] obligation pro- district court’s to test a 705 of the Federal Rules of Evidence.” posed expert’s methodology in of advance 16(b)(1)(C). This Fed.R.Crim.P. includes testimony.3 his counsel respond- Defense testimony. summary must “The Latin, ed: “In forewarned forearmed.” opinions, the describe the witness’s bases Id. then The court recessed. opinions, for these and the and reasons 29, On March the defendant a re- filed parties witness’s Id. qualifications.” vised, ten-page Rule 16 disclosure describ- do not that Rule 16 disclosure was dispute ing qualifications Professor Fischel’s as required in this case. academic, teaching his research and in law 16, 2007, the defense On March dis- finance, experience and his previous and to Daniel closed its intention call Professor consulting testifying. gave and It a “Sum- analysis provide Fischel to economic mary Opinions Opinions,” for and Bases trading patterns, and to tes- Mr. Nacchio’s explained that had Fischel conducted tify importance the economic about “study Questioned Sales relation allegedly material inside information. The benchmarks,” provided to various his objected that this notice was government opinion consequent Nacchio’s insufficient under Rule 16. district sales inconsistent with what one were agreed, holding court that the notice was if the expect govern- them to be Rules,” “plain violation of the because It App. ment’s claims were true. 427-30. no the defense had bases “offer[ed] recounted that Professor Fischel had stud- Fischel’s reasons whatsoever Professor public ied informa- stock data assorted summary.” opinions contained analysis and had concluded tion and stock judge instructed the defense 352. The price signifi- stock disclosure, “bringing file a sub- revised cantly allegedly when the material affected 16,” Rule compliance with mission into information was released. March 26. Id. 3, a 63- April On filed 22, March in the course of court on Professor Fischel’s days page motion exclude
granting the defense three extra
chael,
Pharms.,
S.Ct.
526 U.S.
3. See
v. Merrell Dow
Daubert
(1999),
actually
gov-
may
S.Ct.
1151 16(b)(1)(C)(i). expert It is proffered The district under Daubert. R.Crim.P. requires 16 regard that Rule also to the Rule 16 belief therefore mistake court’s of a method discussion witness’s extensive disclosure as a substitute for a Daubert incorrect, its of and exclusion ology was hearing. of an abuse discretion.4
the evidence
exactly
The
disclosure
defendant’s
did
give opposing
to
designed
Rule 16 is
required.
requires,
the law
Rule 16
what
testimony will
notice
counsel
that
first,
opinions.”
disclosure of “the witness’s
complete
permitting “more
presented,
be
16(b)(1)(C)(i).
govern
Fed.R.Crim.P.
side,
by the
preparation”
opposing
pretrial
does not
disclosure
ment
contest
the
Advisory
1993
Comm.’s
Fed.R.Crim.P.
opinions
Professor Fischel’s
on sev
listed
Notes,
up an
ex-
lining
opposing
such as
topics, including
Mr. Nac
eral
whether
cross-examination, or
preparing for
pert,
trading pattern was
how
suspicious,
chio’s
admissibility on
or
challenging
Daubert
to
Qwest
prices
Septem
stock
related
the
not
16
grounds. Rule
disclosure
other
the
and
guidance,
magnitude
2000
and
ber
court
to allow the district
designed
Qwest
of
had
importance
the information
to a
determina-
immediately
Daubert
move
requires
its IRU
Rule
about
revenue.
16
briefs,
other
hearing,
tion without
opin
“the
reasons for
next
bases and
those
testing
proposed
means of
the
appropriate
Id.
disclosure
explained
ions.”
A.
methodology.
Margaret
See
expert’s
opinion
analysis
the
was “based on”
of Mr.
Paradigms
Apply-
Berger, Procedural
trades,
prices,
Nacchio’s
data on stock
ex
Test, 78 Minn. L.Rev.
ing the Daubert
sales;
as
options,
ecutive
and stock
as well
(1994)(“Although
summary
the
1360
analysis
reports, analysts’
re
press
on
defense
provides
Rule 16
required
forecasts,
filings.
and
and
It
ports
SEC
notice,
requirement
of set-
with some
contained the reasons for Professor
also
‘the
and
for’ the
ting forth
bases
reasons
opinions.
example,
ultimate
For
Fischel’s
opinions does not
track the
witnesses’
principles
would have testified
he
by the
methodological factors set forth
pattern
of Mr. Nac
risk reduction and
Court.”).
Indeed, a Rule 16 dis-
Daubert
sales were inconsistent with reliance
chio’s
court,5
filed
need not be
with
closure
information,
inside
adverse material
counsel,
only
opposing
with
which
but
2000
was
September
guidance
and that
not
to serve
makes clear that it is
intended
misleading
price
because
stock
not
judicial
the basis for a
determination
announced but not when
fell after was
It
admissibility.
also bears
regarding
September
reduced in
guidance
required
that a
mention
defendant
not
Finally,
requires
disclosure
Rule
Rule 16
the defen-
file a
disclosure unless
The de
qualifications.”
of “the witness’s
request
has
a similar
dant
made
Fischel’s work
disclosed Professor
fense
16(a)(1)(G)
Rule
and
under
government
(a
consulting
law-and-economics
Lexecon
Obviously,
complied.
has
firm),
positions, his academic
his academic
preclude
govern-
this scenario does
research,
experience as an
his previous
from
challenging
ment
defendant’s
16(b)(1)(C),
discovery
argument,
appeared
criminal
the defendant
R.Crim.P.
4. At oral
argue
generally "proceed
did sub-
without
the district
that the Rule 16 disclosure
can
dispute.
stantially
method-
unless
is a
discuss
Fischel’s
intervention”
there
Professor
court’s
Mentz,
(6th
agree
ology. We
with the
court's con-
district
United States v.
F.2d
1988).
that it did not.
clusion
Cir.
The defendant’s disclosure
court,
with the
but
case was not filed
subsequent
government's
mo-
only
attached
requires
that the written sum-
5. Rule 16
testimony.
government,”
to exclude
mary
given
Fed.
tion
be
"to the
adviser,
forming
consultant and
ered in
opinion,
summary
economic
all
*12
exhibits,
vitae.
25-page
multiple
compensa-
curriculum
On
oc- or
and
supporting
casions,
Fischel
paid.
26(a)(2)(B)(ii)-(iii),
Professor
had testified as
tion he was
Id. R.
(vi).
expert
Department
Thus,
an
witness
of
judge’s
comment that the
in
cases.
Justice
finance
criminal
requirement
disclosure
“pretty
required
close to what is
in the
that, in response
do not doubt
to a
We
area,”
civil
App.2041,
not
correct —one
statement,
16
Rule
disclosure
district
only
need
look at
of
the text
the two rules
a party
court could order
to make a writ
recognize
requirements
to
the broader
of
admissibility
of
proffer
support
ten
un
Mehta,
the civil rule. See United States v.
der Rule 702.
United
v.
See
States Rodri
(D.Mass.2002)
150,
236 F.Supp.2d
155-56
(10th
1117,
guez-Felix, 450 F.3d
1122
Cir.
J.) (“One
(Gertner,
way to decipher the
2006);
Rodriguez-Felix,
United
v.
States
meaning
expert discovery
of
criminal
(D.
25,
No. 04-CR-665
N.M. filed Mar.
compare
rules is to
them to the civil dis-
2004),
76;
docket no.
United States v.
rules,
covery
which are much broader.
Sourlis,
(D.N.J.1996).
F.Supp.
953
581
26(a)(2)
While
requires
Fed.R.Civ.P.
a
It
not
does
much matter whether such
‘complete
expert’s opin-
statement’ of the
regarded
part
additional detail is
as
ion,
requires only
the criminal rule
a ‘sum-
disclose,
Sourlis,
“duty”
16
Rule
see
953
26(a)(2)
mary
testimony.’
of
Civil Rule
an
F.Supp.
or as
exercise of the
additionally requires the
of:
disclosure
‘all
in “deciding
court’s discretion
... what
opinions
expressed
to be
and the basis and
procedures
in making”
to utilize
the Rule
”).
determination,
reasons therefor ’....
702
as our precedent
im-
plies, Rodriguez-Felix,
1153 Cir.2007) (5th Cuellar, reading the court’s Even district v. F.3d ruling freestanding ruling Daubert gov (“Although provided the notice finding rather than a the Rule 16 all the detail re did contain ernment inadequate,6 a ruling disclosure was such purposes by the rule ... quired [t]he have been abuse of discretion on frustrated.”), cert. grant were not Rule 16 record, any which is devoid factual -, grounds, U.S. ed on other — basis on ruling which Daubert could be (2007). 436, 169 We L.Ed.2d 5.Ct. *13 made. In a criminal trial of proponent the no The requiring found case more. have expert testimony any is not under obli 16, complied Rule and that defense with to gation provide complete a “a statement” government opportu the all the “fair gave of the for the expert’s opinion, reasons that the rule nity” for cross-examination 26(a)(2)(B)(i), compare Fed.R.Civ.P. or an contemplates. explanation expert’s the methodology. of In the a court ruling absence of that the jDaubert Daubert issue be addressed and resolved violation, 16 if there no Rule Even way, in some the first of other order busi contends, the government the district upon in presenting expert ness court testimony un- properly court excluded qualifications would be to establish Daubert and Rule 702. We cannot der admissibility of his testimony, either agree. through by asking written submissions or necessary questions allowing importantly, the district court Most other side to cross-examine or introduce genuine any no of sort made determination challenging evidence basis for his testi straightforward Daubert. most under mony. place take This could outside the reading transcript judge of the is presence jury. The court district grounds the evidence on Rule 16 excluded could not make an Daubert de informed It was under Dau- alone. “the deficiencies hearing termination without such testimo and Kumho these bert Tire in disclosures ” ny receiving submissions on the issue “egregious.” that the district court found some other form. added). At App. (emphasis 3914 the con- Daubert, of clusion of its discussion testimony judges When admit district repeated that it was “concerned ... court make require under we them to Daubert absolutely methodology, with the which rather “specific findings on record” expert in this disclosure.” undisclosed v. Dodge than rule “off-the-cuff.” Cotter added). Cir.2003) It (emphasis (10th is true 1212, 3917 1223 Corp., 328 F.3d court what repeatedly discussed v. Denver & Rio Grande (quoting Goebel (10th W.R.R., requires expert, only an but Daubert of Cir. 215 F.3d 1088 2000)) (internal missing from Rule explaining quotation what was and em- marks discussed, omitted). require As we have also the court phasis 16 disclosures. We sufficiently full record provide developed 16 disclosure need not to “a Rule create ap- methodology, [on in order allow a determination explanation the witness’s to properly wrong peal] of whether the district court it is to demand such so Goebel, law.” 215 satisfy applied the relevant Daubert. disclosure susceptible equally a correct read- Sprint/United Management Co. der is v. Men 6. See delsohn, U.S.-, 1140, 1145, 128 S.Ct. ing.”). 552 believe court's We do not the district (“An (2008) appellate 1 court 170 L.Ed.2d susceptible” ruling "equally the alterna- presume a district in not court should entirely it out. reading, tive but we do rule legal an result when the or- tended incorrect 1154 (quoting v.
F.3d at 1088 United States tice that the intended to move Nichols, (10th F.3d Cir. a hearing. for such defendant no had 1999)) (internal quotation and fur- marks to think reason the Daubert issue omitted). “rejec- Although ther citation be resolved on the basis of memo- testimony exception tion of is the of law randa addressed the Rule 16 rule,” rather than the Fed.R.Evid. issue, procedure. which is usual not the Notes, Advisory have not Comm.’s we give judges We district “broad discretion had occasion to decide whether same deciding procedures ... ... what procedural apply before a requirements reliability, Dodge, utilize” assess judge expert. excludes need not We but it F.3d is for reason that here, resolve that issue because we con- parties guess proce- cannot be held to clude minimum it abuse that at a is an dural rules advance. Courts should not discretion an expert to exclude witness punish parties guessing wrong, espe- methodology because his is unreliable *14 cially with the extreme sanction of exclud- the allowing proponent present without to ing evidence central to the defense. any methodology evidence of what the Finally, the was permit- defense never proponent would be. The bears the bur- speak to establishing admissibility den of the ted to the issue court. When called, Rule evidence under but it must be Professor Fischel was the district given opportunity an to do so the before judge immediately announced he was testimony may ruled be inadmissible. excluding the A testimony. defense law- yer to speak. judge asked silenced Finally, government argues the immediately, saying him that once the that we affirm should Professor Fischel’s ruled, had court the trial was ... “[n]ot exclusion because the defense failed to re process you get argue interactive where to spond to April the Daubert issue in its later on.” App. 3921. When the court response, and thus right waived the to do does not allow a to lawyer present argu- so. agree. We do not The defense had ments, only we will not him day respond govern penalize one to for failing to the motion, 63-page ment’s not present and did have to them. clear present notice that had to its Dau judge necessarily A does not have to let bert judge’s defense at time. The lawyers “argue on,” later but he has to let ruling disclosure, first on the Rule 16 argue them sometime. Our decision
which exchange set the of motions and Rodriguez-Felix, United States v. replies going, mentioned “Federal Rules of (10th Cir.2006), F.3d 1117 illustrates the 401, 403, 602, 704,” Evidence but and point. Rodriguez-Felix, the defendant held that may “[t]he matter settled be to call an expert testify wished about through analysis under It Rule 16.” made reliability eyewitness the testimony. no mention of Daubert. The defendant (naturally) Because the Rule 16 notice did complied by providing an analysis under expert’s methodology, not disclose the the Rule App. Only 16. 351. did then the court hearing, district scheduled a Daubert motion, its lengthy file which ordered also the defendant submit a argument combined an that Rule 16 re specific proffer Daubert on the issue. quires of methodology disclosure with an States v. Rodriguez-Felix, United No. 04- attack on the methodology witness’s under (D. 25, 2004), N.M. Mar. CR-665 filed Daubert. may reasonably The defendant expert nos. the docket When did interpreted have the references to Daubert arguments hearing, as not attend the the district request about Rule court as a hearing, alone, for a or perhaps proffer Daubert no- then considered the Daubert testimony tify that diversification is an because issue and excluded Rodriguez- App. was insufficient. See case.” 3918-19. This proffer misunder- Felix, Nac- at 1125-27. In Mr. F.3d stands the nature of economic expertise. case, no simi- given the defense chio’s expert permitted only An economic present evidence. opportunity lar jury concept to tell that an economic analyze an issue” concept “is but to morn- explained later that judge As opinions. and offer informed In other “way on track to finish ing, trial was words, expert testimony may “assist 3942. The ahead time.” fact to trier of understand the facts al- Indeed, jury was of the room. out record, ready in the if all even it does is day soon for the rest of dismissed those facts in context.” 4 B. put Jack Profes- surprising exclusion of because Berger, & A. lawyers Margaret into Weinstein Wein- parties’ Fischel threw the sor (2d § Pro- disarray. judge put could have stein’s Federal Evidence 702.03[1] ed.2006) (footnote omitted). him fessor Fischel on the stand to ask why That is gov- methodology, allowed the about testimony economic routine when so, asked Mr. Nacchio’s ernment do materiality requires determination if like lawyers they would to address jury to decide the effect of information on time, simply let issue the first even See, e.g., Bromberg the market. 3 Alan R. speak they if had a meritori- them to see Lowenfels, D. Bromberg & Lewis objection. Having permitted ous none on Securities Fraud & Com- Lowenfels *15 however, things, it have those would been (2d ed.2007). § modities 6:153 Fraud Daubert an abuse of discretion make a analysis economic While sometimes asks finding unreliability. of jurors their own “abandon common sense,” 3920, App. that is not a reason to 3. 403 and 602 Rules expert testimony deem inadmissible. judge Pro- the district excluded While way Armchair economics is not the to de- gross “primarily fessor Fischel the [for] complex cide securities cases. disclosure, App. Rule 16 defect” the holding The district court’s that the tes- 3921, the expert he also excluded testimo- timony was under 403 inadmissible Rule not be ny thought because he problem. from The suffers the same helpful jury, prejudicial the was more analysis point very the court’s on probative, impermis- than and consisted of brief, mostly dependent and on conclu- the opinions. facts Fed. sible rather than See already rejected. we have sions 403, 602, 702. these R.Evid. We reverse as alternative conclusions well. Finally, the district court was wrong “perfectly to conclude that it was testimony Fischel’s Professor that Professor Fischel did obvious” of to include a discussion the economic the personal knowledge of facts that have incentives that inside information would opinions. App. for his formed basis Nacchio, sig given have statistical Fis judge 3921. The said Professor trading nificance of the differences in his of personal knowledge chel did not have patterns, the likelihood that economic and Qwest’s stock contents price, explained chal diversification better guidance analysts’ reports, or of the issued lenged sales than inside information. companies. by other telecommunications all judge things concluded that of these expert But Professor Fischel’s disclo knowledge “within the common were is the court sure—which all consulted— jury” and simply “[t]he d[id]n’t “ha[d] to tes- that he his staff reviewed” expert need this so—called witness said and 1156 analysts’ prices, reports, prove stock ernment to error did not 433. This personal so on. have “a ‘substantial influence’ on the out-
knowledge; it
not clear what
Rivera,
more the
come.”
v.
United States
900 F.2d
judge
Bryant
district
demanded.
v.
(10th Cir.1990) (en
banc)
1469
(quot-
Exch.,
(10th
Farmers Ins.
the evidence would have shown that he Prejudice personally to had reason believe that prospects economic were much government contends that even if Thus, better than realized. others he the exclusion of Professor Fischel was er- says, this ror, per evidence should have been it was We disagree. harmless. mitted both to show he did not have right of defendant to call material negate information to scien witnesses is testing prosecu crucial for ter. We affirm district court’s deci tion’s defeating case and the charges sion, if because even the classified informa Indeed, against “right present him. tion presented were and established what a defense ... is a fundamental element of would, he it said it could exonerate Mr. process due Washington of law.” v. Tex Nacchio as he claims. as, 19, 388 U.S. 87 S.Ct. 18 (1967). Essentially, argues Mr. L.Ed.2d Even if that un- 1019 the exclu positive sion does not the level of a disclosed can rise to constitu information be used violation, tional the burden is on as a gov- charge defense to a of trading on
1157 may dis- tion it fall short. We must therefore information. We negative undisclosed informa- has material government’s theory If an insider of the agree. examine because is cannot disclose tion that he sup- case and determine what is needed to then he must proprietary, confidential trading for in this port a conviction insider lesson of trading. That is the from abstain context. Co., Act Exchange Cady, Roberts & In re challenges Mr. Nacchio also certain of 6,668, 40 S.E.C. Release No. instructions, jury presented which (1961), v. Texas applied SEC later Gulf theory to the government’s of the case Co., 833, 848, n. 12 F.2d Sulphur jury and framed its considerations of the (2d Cir.1968), v. United and Chiarella States, 222, 226-29, right regarding If those 100 S.Ct. evidence. he 445 U.S. (1980). It is black- L.Ed.2d 348 and if the error is not harm- challenges, their that insiders must disclose letter law less, this would constitute additional information or else abstain. material reversal, ground though it would not preclude retrial. But if the evidence intro- like Texas It true that cases Gulf support at trial is insufficient to duced trading in bullish insiders were Sulphur, theory of the conviction under a correct ahead of the disclosure positions discovery, case, and thus proprietary judgment acquit- company’s he is entitled to a the inside trading correlated with their jury question tal. The instructions information, ar- while here Mr. Nacchio sufficiency-of-the-evidence question are infor- possession of classified gues asking interrelated: when what facts of other possession neutralizes his mation convict, we jury had to find order to However, general information. inside look to the elements of the crime as de- on the If an insider trades applies. rule law, if except fined of the net effect perception basis of his object jury instructions contain- did not informa- undisclosed bits of material two requirements, required it is ing additional re- tion, the law two he has violated too. United States v. prove those See spects, not none. (10th Romero, 1268, 1271-73 Cir. 136 F.3d 1998). III. OF SUFFICIENCY THE EVIDENCE scope. is narrow in Our review Although we have concluded instructions, can we respect With must be reversed Nacchio’s conviction objections accuracy to the only consider *17 error, cannot leave it of trial we on account before the that were raised instructions govern claims that the at that. He also (or plain error— trial court constitute introduce evidence sufficient ment failed to here) and with re do not find which we right, If he him convicted. he is to be the district court spect to the refusal of judgment acquittal a
was entitled to instructions, limited to we are issue other violating without cannot be retried actually requested by party. a Unit those Anderson v. Jeopardy Clause. See Double 1305, Crockett, 435 F.3d ed States v. (10th Mullin, 1148, 1155 Cir. 327 F.3d Cir.2006). (10th Moreover, a sufficien 2003). sufficiency of the analysis An in view the evidence cy challenge, we must matter, merely a technical is not evidence govern to the most favorable light important require resolution of but can ment, only if no rational and reverse the elements of questions regarding sufficient have found the evidence could a interpretation of one offense. Under doubt. Unit beyond a reasonable convict may be suffi the evidence penal statute 700, Brown, 704-05 200 F.3d v. cient, interpreta- ed States a different while under (10th Cir.1999). Materiality A. highly This is a deferen- tial standard. prohibition against insider
Mr. Nacchio was convicted under 15 trading applies only to those who trade on
78j, 78ff,
§§
U.S.C.
and 17 C.F.R.
the basis of material undisclosed informa
240.10b-5,
§§
and 240.10b5-1. These stat
parties
tion. The
do not contest that the
delegate
power
utes
to define criminal basic test for the materiality of inside in
liability to the Securities and Exchange
formation is whether
is “a
there
substan
by forbidding anyone
Commission
from tial likelihood that
the disclosure of the
willfully using, “in connection
pur
with the
omitted fact would have
been viewed
any security,
chase or sale of
...
any the reasonable
having signifi
investor as
manipulative
deceptive
device or contri
cantly altered the
mix’
‘total
of information
vance
contravention of such rules and made available.” TSC
v.
Indus.
North
regulations
may
as the
prescribe.”
[SEC]
Inc.,
way,
438, 449,
2126,
426 U.S.
96 S.Ct.
§ 78j(b).
15 U.S.C.
regu
Those rules and
(1976).
1159
fraud statute under
The securities
jury
of
accurately informed
they
”
charges
brought
v. McClat
these
are
is con-
States
which
law.’ United
governing
(10th Cir.2000)
823,
only
217 F.3d
834
cerned
with such material misstate-
chey,
Cerrato-Reyes,
v.
States
and
(quoting United
ments or such material omissions
Cir.1999)).
(10th
1253,
We
F.3d
meaningless
or
does not cover minor
by the
offered
any instructions
then review
unimportant matters or omissions.
court. “A
rejected by the
and
defendant
the matter
the test
is whether
So
an instruction
entitled to
defendant is
of
misstated or the matter omitted was
is a
if the instruction
theory of the case
reasonably
that it could
importance
such
law, and if he has
of the
correct statement
person
to cause a
to act or
expected
be
jury to
evidence for the
sufficient
offered
respect
not to act with
to the securities
Crockett,
at
435 F.3d
in his favor.”
find
at
transaction
issue.
judge’s refusal
a district
review
1314. We
App. 4558-59.
under
requested
instruction
to issue
recognize that
these instructions
We
Id.
of discretion.
for abuse
standard
instruction,
adapted
pattern
were
from a
only
reviewed
are
Unopposed instructions
Jay
&
O’Malley,
Grenig
Kevin
William
see
Biotech,
v.
Medlock Ortho
plain
for
error.
Lee,
Instruc-
Jury
Federal
Practice &
(10th Cir.1999).
545,
Inc., 164 F.3d
(5th
tions,
ed.2000),
they
§
but
are
62.14
nature
fact-specific
light
appeal,
informative. On
particularly
it is im
materiality determination
of
suggests that
the instruc-
the defendant
guidance to
jury enough
portant
give
to
the con-
incorporated
should have
tions
from noise.
information
sort out material
magnitude, see
cepts
probability
jurors
judge
to
untrained
It is difficult for
978,
Basic, Inc.,
at
108 S.Ct.
485 U.S.
to
important
what would have been
post
ex
mix,”
Indus., 426
at
“total
TSC
U.S.
ex ante. After
reasonable investors
2126, to further illuminate the
96 S.Ct.
money
fact,
made
anybody has
whenever
materiality, but he did not re-
concept of
say
one
easy
it is
trading stock
he had a
instructions when
quest such
to know whatever
have wanted
Nor did he
in trial court to do so.
chance
trader knew.
informing the
request any instruction
Here,
orally instructed
the district court
re-
guideposts
regulatory
the SEC’s
jury as follows:
materiality.
question
before
garding
“Material,”
you
to—for
in order
the instructions
is therefore whether
us
or a material
a material matter
find
misstated the law.
Mr. Nacchio did receive
omission,
prove
must
the Government
has
Supreme
Court
They did not.
the mat-
doubt that
beyond reasonable
the reasonable
“significance
said
or the matter omitted
ter misstated
...
on the withheld
place
investor would
it could reason-
importance that
of such
materiality,
information,”
is the test
person
cause a
ably
expected
be
Inc.,
108 S.Ct.
Basic
485 U.S.
to the
respect
not to act with
act or
jury was instructed.
and that what
at issue.
transaction
securities
in
request two
The defendant did
if it
Information
material even
may be
materiality,
they were
but
structions about
events,
to fore-
past
not to
but
relates
the law.”
statements]
not “correct
statements, so
forward-looking
casts and
First, he re
Crockett,
F.3d at 1314.
would con-
investor
long as a reasonable
materially
an instruction about
quested
to act or
deciding
important
sider it
statements,
forward-looking
misleading
to the securities
respect
act
not to
with
*19
of a different
requirements
based on
at issue.
transaction
rule,
required
Rule 10b-5. This Rule makes it a
to disclose such tentative internal
any
make
untrue
crime
statement of projections
“[t]o
pub-
that conflicted with the
a material fact or to omit to state a materi-
lished projections if the internal figures
al
necessary
fact
in order to make the
they
were so certain that
publish-
show the
statements
... not
...
misleading
made
figures
ed
to have been without a reason-
purchase
connection with
any
or sale of
able basis.” Id. at 757. In support of this
240.10b-5(b).
security.” 17 C.F.R.
The
instruction, the defendant relies on a num-
defendant
a
proposed
instruction
ber of
limiting liability
cases
for false
theory
on the
if
based
the nondisclo-
statements of material fact to cases where
sure of
regarding
information
the IRU those statements were made without a rea-
sales did not
public projec-
render
sonable basis
inor
bad faith. We do not
affirmatively misleading
tions
under Rule
think
apply
those cases
in this context.
10b-5,
information must not have
rule,
promulgated
SEC has
called
been
purposes
material for
of insider trad-
175,
Rule
specifically designed
provide
ing regulations.
safe harbor
for “forward-looking state
Much of the instruction Mr. Nacchio
...
filed with
ments]
Such a
[SEC].”
proposed
simply
is
confusing. For exam-
statement
“be deemed not to be a
will
ple,
provided:
it would have
“A forward-
fraudulent
statement
...
unless
is
looking
type
statement of the
conveyed to
shown that such statement was made or
public by Qwest
and Mr. Nacchio on or
reaffirmed without a reasonable basis or
7,
September
about
cannot be consid-
was disclosed
in good
other than
faith.”
by you
ered
to be ‘material’ under the law
§
17 C.F.R.
230.175.8
adoption
Until the
unless it is shown that the statement was
Rule
the SEC had discouraged firms
or
made
reaffirmed without a reasonable
making
all,
from
future projections at
and
basis or was disclosed other than in good
encouraged
only
them to comment
on hard
faith.”
But
755-56.
the materiality
data
present
past.
about the
and
Rule 175
issue
the case was whether the inside
adopted
was
to encourage companies to
material;
information
nobody
had at-
it,
make estimates. Without
Judge
tempted
deny
public guidance
asked,
Easterbrook has
“What’s
it for
material,
and it is not clear what that
them? If all estimates are
carefully
made
Moreover,
would mean.
public guid-
when
honestly,
half will turn out too favor
ance is “made or reaffirmed without a
able to the firm and the other half too
reasonable basis” that does not mean the
pessimistic.
guidance
either case the
is
difference
“material.”
Id. at 756.
It
may
investors,
disappoint
means that
guidance
say
who can
misleading.
la
This
syntax
they
nonsensical
ter that
bought
alone would
for too
have
much ... or
”
been a
reject
valid reason to
Mr. Nacchio’s
sold for too
Wielgos
little....
v. Com
instruction.
monwealth Edison Co. 892 F.2d
(7th Cir.1989).
proposed
instruction went on
Mr. Nacchio being prosecuted
to state:
for con-
[Qwest’s]
“Even if some of
inter
cealing true
projections
nal
information while trading, not
publicly-
conflicted with its
projections
making
issued
for
guidance
misleading
statements.
that infor
None-
theless,
material,
mation would not be
argues
considered
he
that a similar safe har-
Qwest
and Mr.
only
Nacchio would
be
bor rule must extend to his actions. How-
applies
8. Rule
liability
liability
under the Secu-
misleading
from
statements under
1933;
rule,
rities Act of
Exchange
second
17 C.F.R.
the Securities
Act of
the stat-
240.3b-6,
§
provides
protection
identical
trading.
ute that also criminalizes insider
*20
“accompanied by
ever,
trading
and the insider
and disclosures were
Rule 175
distinct. The insid-
conceptually
warnings
cautionary language
rules are
which
duty
to disclose or abstain.
trading
is
er
provide
investing public
with sufficient-
implies there
“or” in this formulation
The
disclosures,”
ly specific risk
he could not
per-
are
corporate
cases where
officials
are
be convicted.
758. This is known as
disclose,
they
as
long
not to
so
mitted
doctrine,
“bespeaks
caution”
also bor-
The
buying
selling
from
stock.
refrain
rowed from false-statements cases. See
only
the two:
theory collapses
defendant’s
Novell, Inc.,
Grossman v.
120 F.3d
affirmatively misleading
it would be
when
(10th Cir.1997).
The defendant’s ar-
disclose,
may liability
argues,
not to
he
gument
apply
this doctrine to insider
That is not
failing
attach for
to abstain.
trading fails for the same reason as his
all,
law. After
Rule 10b-5 makes it
reliance on the reasonable-basis doctrine:
a material fact”
crime “to omit to state
it
relationship misleading
confuses the
“necessary
if
fact is
in order to
only
in-
public projections and material inside
...
mis-
make the statements made
not
formation.
240.10b-5(b).
This
leading.”
C.F.R.
“bespeaks
appli-
caution” rule is an
possible
that it is
for omitted
presupposes
principle
cation of the
common-sense
public
though
facts to be material even
statement,
speaker qualifies
the more a
do not mislead.9
statements
if
people
the less
will be misled
the state-
basis
purpose
of the reasonable
put
ment turns out to be false. Or as we
that it
reinforces our conclusion
principle
Grossman,
bottom,
‘bespeaks
“[a]t
necessarily apply to insider trad-
does not
caution’
stands for the ‘unremark-
doctrine
cases,
ing
opposed
as
to false-statements
proposition that statements must be
able
encourage
com-
cases. The rule exists
analyzed
determining
in context’ when
regarding fu-
panies to disclose estimates
they
materially
or not
are
mis-
whether
by protecting companies
performance
ture
(quoting
Information is material if it adds material
3.5% of Fleming’s total assets and approxi-
ly to
mix
already
of information
avail mately
Fleming’s
worth”);
10% of
total net
Indus,
able to investors. TSC
v. North
Inc.,
In Apple Computer,
re
Fed.Appx.
127
438, 449,
way,
2126,
426
96
U.S.
S.Ct.
48
(9th
296,
Cir.2005)
304
(unpublished)
(1976).
L.Ed.2d 757
That the information
(“[Revenue] projections which are missed
already made available was couched in by 10% or
generally
less are not
action-
warnings does not make new information
able.”). But we have found no case that
(such as that IRUs constitute a dangerous
rigidly
adheres
to a mathematical thresh-
ly high part of revenues and that opportu
old.
nities for new
drying
IRU sales were
up)
We take our cue
guide-
from the SEC’s
immaterial. The
issue
this case is not
lines for the materiality of
errors
re-
Qwest’s public guidance
whether
was ma
ported revenues. See Staff Accounting
terially misleading, but whether the undis
(1999).
45,150
Bulletin No.
Fed.Reg.
closed information on which Mr. Nacchio
bulletin,
In that
the accounting
ap-
staff
allegedly traded was material.
plied the principles of TSC Industries and
improvements
Whatever
might have Basic, Inc., to assess the common “rule of
instructions,
been made in the
the defen-
among
thumb”
accountants “that the mis-
dant was not entitled to the instructions
statement or omission
anof
item that falls
for,
that he asked
and the instructions he
under a 5% threshold is not material in the
ultimately
legally
received were not
incor-
particularly
absence of
egregious circum-
rect.
(footnote
45,151
omitted).
stances.” Id. at
The staff blessed the rule of thumb so long
Sufficiency
of the Evidence
itas was not
rigidly:
used too
if
legal theory
Even
his
of materi
The use of a percentage as a numerical
ality
rejected,
the defendant argues that
threshold,
5%, may
such as
provide the
provide
failed to
sufficient
basis
for
preliminary
assumption
evidence that his information
“signifi
that —without considering all relevant
can[t
to]
reasonable investor.” Basic
circumstances —a deviation of less than
Inc.,
Courts look magnitude to the Thus, Id. a 5% potential of a numerical threshold loss is a determining whether starting sensible knowledge See, place of it is for e.g., assessing material. City Cos., materiality Fleming Phila. v. of Mr. 264 F.3d Nacchio’s information (10th Cir.2001) about (refusing risks to guidance, allow a revenue suit failing to disclose a lawsuit but it whose does not end inquiry. Special threatened damages only “totaled 2.4%- might factors make a smaller miss materi- Co., $21,991,000,000. true, That’s v. Citizens Utils. which was al. See Ganino (2d Cir.2000) (holding on 162-64 isn’t it? F.3d Bulletin No. Accounting
the basis Staff yes, original, A. we the — are in- benchmark[s]” 99 that “numerical *22 it up showed that as rounded to $22 test). not the “exclusive” formative but billion. po- the size of the parties dispute The App. testimony support That 2268. predicted to Mr. Nacchio tential shortfall figure, the defendant’s million be- $300 2001. The defen- by Qwest April, staff cause billion is million less than $21 $300 million, or figure claims this is dant $300 public guidance. the bottom of the How- (as by the of total revenues measured 1.4% ever, examination, re-direct Szeliga Ms. range presented pub- in the bottom of the (without so), saying corrected herself stat- government contends guidance). lic ing that the risk was closer to billion $1.2 million, of total or 4.2% figure $900 it against public target and that was around dispute revolves revenues. time, private not the one: Qwest’s testimony given by interpreting 1,192,000,- Q. you highlight can [I]f planning, financial Robin vice-president of Bickley what does Mr. describe that official who told Mr. Szeliga. She as? public pro- to the Nacchio about the risks examination, when she
jections. On direct A. Grand total risk street disclo- December/January first discussed her sures, 1,192,000,000. Nacchio, Szeliga testified meeting with Ms. Q. going I’m to round that to 1.2 bil- they all the risk were aggregated
that “we lion; is that fair? identifying, we were still at this time com- A. Yes. it related ing to a billion dollars of risk as Q. going And I’m to call that risk. So target to the that we had set.” 2134. street, according when I take the to this testimony ambiguous was because This memo, risks, minus the what do I come public projections and in- there were both to? Fur- targets, ternal as mentioned above. A. 20 billion .4. thermore, September Szeliga when Ms. billion, telling Q. right. the memo she was 20.4 all Street minus
had received about, the used estimates Nacchio memo risk is 20.4 billion. And I want to guidance and internal tar- public for the compare guidance that to the that Mr. from gets that were different the ones gave days to the street two memo, company eventually set. this, okay. after to be target predicted internal $22 Okay. A. (rather 21.8) “street” billion than and the (rather target was to be billion than $21.6
21.3). number, 20.4 Q. And how does this bil- cross-examination, Szeliga ap- On Ms. lion, to the low end of the compare peared testify that she meant one billion guidance that Mr. Nacchio disclosed to target of dollars less than the internal $22 the street? billion: A. About million lower. $900 Q. Okay. you talking Now when were App. 2423-24. about a billion dollar risk that all of reasons, we conclude that For two $900 debating were and discuss-
these folks figure million—the dollar risk in their ing, that was a billion the one closing argument budget at the time to the internal stressed view —is appellate Finally, we must consider on points review. Mr. Nacchio also out that First, explicitly the memo itself refers to there is no evidence that stock fell “in billion as risk street disclo- $1.2 at the time when he released information sures,” Szeliga’s with Ms. consistent re- Ordinarily, about the IRUs. that would be testimony. App. direct It is true powerful evidence that the information was Szeliga that Ms. testified Mr. Nacchio significant But gov- investors. memo, never saw the but she talking argues ernment that this is because Mr. contents, himto about its helpful so is to Nacchio “trickled out” the information so compare testimony her to the document a major as to avoid market Aplee’s shock. Second, describing. she was we are re- According Br. 31. to Lee Wolfe’s testimo- *23 quired interpret the evidence in the ny, August before some investors were light government. most favorable to the already skeptical Qwest’s revenue be- Szeliga’s Given Ms. clarification on re-di- company’s cause of the refusal to disclose rect, jury the was entitled to believe that information about August IRUs. Then on higher figure the was accurate. 7, Mr. Nacchio told investors in Boston Thus, we are asked to decide whether that a disclosure about IRUs would be company’s risk that a revenue will fall $900 later, forthcoming. Qwest A week filed an public million short of guidance' its 4.2%—a SEC disclosure reporting how much of its necessarily shortfall —is immaterial to in revenue quarters for the first two came Although vestors. it is a question, close sources, from one-time and Mr. Wolfe tes- we conclude that the answer is “no.” The tified that very “investors were surprised 4.2% shortfall is close to the 5% rule of by the magnitude,” notwithstanding that by SEC, thumb embraced and there there had been “some disclosure after the enough evidence of additional factors quarter.” App. first 1673. It also bears reject we cannot possibility of noting that Mr. Nacchio’s million dollars materiality as a matter of law. See Gani may sales have warned alert investors that no, 162-64; 228 F.3d at Accounting Staff prospects for the company were not as (1999). 45,150 Fed.Reg. Bulletin No. bullish saying. this, as he was From all of government argued The that the shortfall could have concluded that particular given had salience the state of price stock incorporated the information in economy industry. Mr. Nac phases. chio himself had in January said that the “skittish market” was so Thus, “mercurial” that the evidence government pro- even million shortfall could create a $50 duced trial was enough for a reasonable drop 15-20% price. Aplee.’s stock jury, instructed, properly to find Mr. Nac- Supp.App. exh. think 559A.We that if the chio’s information to be material. evidence is light viewed most favor able to the government, a reasonable and B. Scienter
properly-instructed jury could have con
cluded that
arguing
information about a
addition to
4.2%
the informa-
shortfall, in the special
possessed
material,
tion he
circumstances of
was not
Mr.
case,
was material.10
argues
Nacchio
good
he traded in
10. We
disregard
component
parties
do not
the other
solely
this case the
have focused
on
shortfall,
materiality analysis
respect
magnitude
with
to fore-
should it oc-
statements,
wardlooking
proba-
Aplt’s
which is the
(arguing
cur. See
Br. at 24
Basic,
bility that the event will occur. See
risk was too small to be material
if the
''[e]ven
Inc.,
").
485 U.S. at
jury thought
[T]he fraud. willfully, acts knowingly these and with “good While the term faith” has no intent to defraud. definition, precise it encompasses among I will now mean define what I things other a belief or opinion honestly these terms. held, an absence of an intention to de-
An intent to defraud or intent to an fraud, taking intention to avoid deceive, manipulate or is estab- defraud advantage unfair of another. if beyond
lished the Government proves proof burden is not a reasonable doubt that defendant prove good faith since knowingly acted with the intention or defendant has no prove any- burden to to deceive or purpose cheat. thing. *24 willfully To act means to act voluntari- Rather, the Government must estab- ly purposefully specific with the in- a beyond lish reasonable oppo- doubt the to something tent do which the law for- is, site of bad faith. That [sic] he acted That say, purpose, bids. is to with bad with intent to defraud charged in the disobey, or disregard to the law. Indictment. The term in “knowingly” as used you If the in evidence the case leaves the alleged these instructions to describe with a reasonable doubt as to whether of mind of state the defendant means Mr. Nacchio acted with the intent to he was that conscious and aware of his faith, in good defraud you or then must action, doing realized what he was or acquit him. him, happening what was around App. 4560-62. not act because of or ignorance did mis- This instruction defines the “will- word or take accident or carelessness. fully” specific “the intent to do some- good faith of the defendant is thing which law forbids. That is to complete charge defense to the of secu- say, purpose, disobey, with bad or disre- rities fraud contained in each count of gard Id. at govern- the law.” 4560. The Indictment faith on good because that objected ment this instruction too defendant, part of the it is if found Nacchio, generous Mr. arguing jury, by simply inconsistent with apply court should the standard used intent alleged to defraud each Supreme Court a fire- interpreting charge of the Indictment. licensing general arm statute: “As a mat- person or A who acts on a belief an context, ter, in the criminal a ‘willful’act is honestly punishable held opinion is not with a In purpose.’ one undertaken ‘bad merely under this statute because words, in order to other establish a ‘willful’ opinion be inaccu- belief turns out to statute, rate, violation Government wrong. incorrect or An honest with judgment prove rise must the defendant acted mistake does not to the of criminal conduct. knowledge level conduct was unlawful.” States, 191- Bryan v. U.S. United good A defendant does not act in faith (1998) 1939, 141 118 S.Ct. L.Ed.2d 197 though honestly if even he holds cer- (internal opinion knowing- quotation tain or belief if he marks and footnote also omitted). Sufficiency not decide which ver- of the Evidence We need accurate is a more sion of this instruction enough at trial The evidence 78ff, § of 15 U.S.C. because interpretation for the to infer Mr. Nacchio in- challenge Mr. Nacchio does purpose disobey acted with the the law the evidence was sufficient struction and knowledge doing that he was so. or the him under either version. convict about a conversation Lee Wolfe testified regarding he had with Mr. Nacchio “the challenge portion Mr. Nacchio does of disclosure of the use of one- impact faith, good that discusses of the instruction timers” on the market. 1653. He states that hav- however. The instruction testified that he and Mr. dis good faith makes one innocent of insid- ing likely reaction was that cussed that “[t]he trading, knowingly engaging er but that [analysts] surprised ... would be at the trading negates good insider faith. This transactions, and that the magnitude of the circular, may expresses sound but price go stock down some amount.” If the defendant was important point. addition, Id. Mr. Wolfe testified that simply Qwest’s prospects, too about bullish Qwest ultimately when decided to lower its guilty this does not make him of insider public guidance, Nacchio and Drake however, if trading; he knew that he was Tempest agreed that “there needed to be market, and that optimistic more than the enough lowering time” between the Qwest market stock if it would devalue guidance and the IRU disclosures Mr. knew, he he is not exonerated knew what August. Nacchio had made in Id. at 1677. by his bullishness. give “to the sense that This was this was *25 something lowering new caused the complains The defendant targets the ... so that investors would the jury by was misled this sentence of accept lowering targets the notion that the good-faith instruction: “A defendant does ... something was that Mr. Nacchio would if good though not act faith even he reasonably not have known when he made honestly or belief if opinion holds certain the statements in Boston.” Id. at 1677-78. device, knowingly employs he also interpreted This can be as an effort to App. 4561. scheme or artifice to defraud.” importance of the infor conceal the IRU the He claims that the instruction allowed Finally, jury mation. heard this testi jury to that Mr. acted in conclude mony from Mr. Wolfe cross-examina dishonesty totally bad faith on the basis of tion: charged unrelated to the crime he was Now, Q. you what did Mr. Nacchio tell judge charged jury But with. also response your concerns that were intent to defraud or intent “[a]n analysts raised about these one- deceive, manipulate or defraud” discussed time transactions? What was his re- good-faith in the instruction relevant was you? sponse to “the have commit because defendant must willfully, knowingly and with ted these acts Well, earlier, A. as I testified there (emphasis the intent to defraud.” Id. add responses in terms of were different ed). Therefore, they might while have impact price what on the stock clearer, been the bad-faith instructions A of other times he couple would be. charged know, limited to the crimes and did you why they were do need say, jury say, not allow the to hold Mr. Nacchio I to make an to know? And would buy or sell informed decision whether accountable for irrelevant conduct. basically, responded, Jury the stock. And he Instructions them, go buy. screw tell them to government’s Over the objection, jury 1798-99. was entitled to judge charged jury: believe Mr. Wolfe and to conclude from his A person trades on the basis of inside testimony that Mr. Nacchio knew that the information if the proves Government information had he was material to the beyond a reasonable doubt that per- market. son actually used material non-public in- general counsel, Tempest As ap- formation deciding to trade. It is not proved plans Mr. Nacchio’s sales in Febru- sufficient for an merely insider to have ary May and determined that possessed the non-public material infor- they were consistent with company’s mation when he traded. trading policy. insider jury convicted The inside—the test really here is one Mr. Nacchio pursu- of his trades executed of cause. The inside information need May ant to the February but not the plan. not have been the sole cause of the Mr. Nacchio argues that he should have may trade. There be other causes for acquitted also been of his trades under the the trade as well. It is sufficient that May plan Tempest’s because Mr. approval the inside significant information was a plan constituted evidence that Mr. factor in an insider’s decision to sell Nacchio did not willfully break the law. stock. A significant factor. However, based on the evidence Tem- App. 4559. pest and Nacchio concealing discussed This instruction arguably incorrect IRUs, importance of the because it was too favorable to Mr. Nac argued that jury should discredit his chio. Since Rule 10b5-1 provid has approval. Mr. Tempest testify. did not A ed that an insider trades “on the basis of’ reasonable could believe that Mr. information so long it, as he is “aware” of Tempest’s signature was not conclusive ev- 240.10b5-1(b), § 17 C.F.R. unless he falls idence of Mr. good Nacchio’s faith. The into one of the rule’s safe-harbors —the permitted defense put argument its creation of an automatic trading plan or regarding Tempest’s approval jury; to the some binding other contract or election to it was not entitled to judgment as a matter *26 sell stock in acquiring advance of the infor Further, of law. jury reasonable could 240.10b5-l(c). Id. § mation. This would by believe that the time Mr. Nacchio en- make Mr. Nacchio liable even if he could May tered into the plan, his scheme to prove that he had unrelated reasons for defraud already begun investors had (such his sales dispose the need to of Mr. Nacchio’s use of May plan, not- date) options before their expiration withstanding Tempest’s it, Mr. approval of thus that he did not trade “on the basis of’ part attempt thus of an to conceal that the information. In overruling govern scheme. objection “significant ment’s to the factor” Trading C. on the Basis of Inside and “actually requirements, used” the dis Information judge trict relied on the Ninth Circuit’s Smith, decision in United States v. 155 Finally, Mr. argues Nacchio also (9th Cir.1998), F.3d which because he explanation had an innocent trades, decided jury his before Rule 10b5-1 was enacted. could not have conclud- government ed that pointed his trades were “on the When out that basis of’ Smith did not apply § inside information. precedes C.F.R. 240. because “it (a). 10b5-l case,” judge rule issue Williams, any v. 376 F.3d 1051-52 think it makes States “I don’t responded, Cir.2004). (10th however, case, law,” In this good I think it’s still difference. proffered instruction said government’s App. explanation. further no providing jury must find that the informa- 4165-66. small, factor, “a however in the tion was may the district court have By ruling, so buy or sell.” insider’s decision Rule 10b5-1 is not implicitly held that argues that because the 743. Mr. Nacchio laws, of the securities interpretation lawful instruction, it government proffered this means, say, appears as it at least if stringent must be held to no less stan- affirmative gives defenses it sufficiency of of the evi- dard on review liability are exclusive. awareness gov- It is not clear to us that the dence. trading which insider statute under rejected jury ernment must be held to its “manipulative is limited to prosecuted do not need to resolve instructions.12 We 78j(b). § conduct. 15 U.S.C. deceptive” here, the evidence the conundrum because maintain that Some commentators was sufficient to establish both (the authority has not been Rule of which information, and Nacchio was aware of the circuit) any is unlawful be resolved factor, small,” in that it was “a however effectively eliminates fraud from cause it Rule decision to trade. Because 10b5-l is B. liability standard. See Carol Swan here, unchallenged we do not decide son, Trading Rule Insider Madness: whether the evidence is sufficient to dem- Scienter, Death 52 U. 10b5-1 and the actually onstrate that Mr. Nacchio used (2003). However, ap Kan. L.Rev. information, signifi- inside or that it was “a attempted has not peal, Mr. Nacchio factor,” judge cant as the instructed. on this unar judge’s defend the instruction assume, ground, ticulated so we without Sufficiency of the Evidence If deciding, that Rule 10b5-1 is lawful.11 urges The defendant that his so, then the district court’s instruction was May April and 2001 sales could have than generous provides. more Rule 10b5-l knowledge “on the basis of’ his inside been Thus, objection government’s entirely expla an innocent because he had signifi to the court’s instruction is below op nation: he had to exercise his stock analysis sufficiency cant for our they expired in June 2003. tions before anal conducting the evidence. When such enough But this is not to exclude as a normally ysis, we look to what the law possibility matter law the inside actually requires rather than what the was a factor. The fact that his information long options expiring so as the were means that he had was instructed them, objected exercising to exercise but after to the instruction below. United *27 proposed jury of the case” and as 11. Mr. Nacchio submitted a of "the doctrine law equitable remedy purpose more than the one he "an whose is to instruction favorable submission, prevent government arguing ap- In a footnote to that he from received. suggested by peal position below.” that Rule 10b5-1 was invalid which it abandoned hand, Sinai, Williams, Validity citing Challenge A at 1051. On one Stuart to 376 F.3d 10b5-1, (2002). Reg. normally applies only Rule 30 Sec. L.J. 261 case to issues law of the However, deci[ded],” appeal argue "[a]ctual[ly] he does not Alan in this 18B Charles denied, Miller, improperly or Wright, that his instruction was & Edward H. Coo- Arthur R. § that Rule 10b5-1 is invalid. per, Practice and Procedure Federal (2d ed.2002), arguments that not to are 649 other, theory rejected. equitable On the 12. We have described our rule about role accepted might apply proffered well as jury sufficiency- to as instructions in of uncontested application instructions. review both as an of-the-evidence
1169 option receiving Qwest and share one can either that had not made the necessary it. sell that share or hold When announc- shift to recurring revenue. Mr. Nacchio start ing redeeming his intention to his knew the budget required Qwest to October, said, Mr. options stock in Nacchio double its growth rate for recurring just hold,” revenue, “I and explaining can’t exercise he agreed knew and that such upon growth because he would be taxed happen early exer- had to possible as cising options, his he had to sell them to to benefit from sufficient com- pay Aplee.’s SuppApp. Qwest’s the tax. exh. pounding, and he knew 2001 bud- That plausible explanation, get is a but the relied on such compounding gener- to jury did not have to believe it. Mr. ate Nac- increased revenue the third and paid Further, chio could have the tax out of quarters. other fourth as of April 9— assets, shares, or sold some of after only he had February abandoned his trad- using proceeds pay ing the tax plan due on Nacchio knew that this —Mr. that, options. Mr. also argues occurred, Nacchio needed shift had not as recur- customarily, ring sell stock target CEOs as soon as revenue was off its 19%. A they option. power- exercise an These are jury reasonable infer could from these arguments jury, that, ful they for the but do notwithstanding facts Szeliga’s Ms. establish as a report his innocence matter of law. that the was on company track to year-end make its public target, Mr. Nac- argues Mr. pattern Nacchio also that his chio knew in April company’s requires sales exonerates him and us to earnings were in jeopardy, and that he jury’s overturn the verdict. He cancelled acted upon this nonpublic information February his plan automatic sales when deciding April May. trade and March share price because went $38, May plan below and his included a $38 IV. RETRIAL any floor. He never sold more stock after The improper exclusion of Professor May, and with year ended the more vested Fischel’s testimony prejudiced Mr. Nac- options than he at the beginning. owned defense, chio’s so we must reverse his face, On its curious this is behavior for However, conviction. because the evi- somebody knowledge with inside that the dence government presented was suffi- price likely plummet. stock How- cient, government may try him a sec- ever, require the law does not a defendant ond time. he will Because have to be to sell most to be of his stock convicted of sentenced anew if convicted again, he is we insider trading. The argued do not need to the challenges reach stopped selling Mr. Nacchio in May Nacchio raises to the forfeiture of his as- detection,” Aplee’s “to avoid Br. at sets or his sentencing enhancement. jury reasonable have could believed this. Finally, the defendant asks us to any event, In convicted Mr. assign any new trial to a new district only beginning April on trades Circuit, judge. we exercise our acquitting January him on trades from power only to do we find so where either (he through March 1 did not trade be- judge “personal harbored bias” or 26), April tween March 1 suggesting on the basis of circumstances laid out in a jury acknowledged legitimate his three-part test: exercising options prior reasons for *28 (1) April. By Mr. convicting judge Nacchio for his whether would original the trades, April May appears reasonably upon and expected be remand to April difficulty putting was convinced that he sold stock in have substantial in out May and because he knew at that time of his or her previously-expressed mind carry his burden under Nacchio did not to be erro- findings determined or views admissibility of establishing must be of that Daubert on evidence neous or based (2) testimony. According- reassignment Fischel’s whether Professor rejected, of from Section appearance I dissent preserve ly, respectfully advisable to (3) reassignment 11(A) majority’s and whether I concur justice, opinion. out of duplication and entail waste that Mr. majority’s would conclusion with in any gain preserving proportion grounds for re- failed to establish Nacchio of fairness. appearance court’s exclusion versal in the district in instruc- and its classified information 1448- Maynard, 80 F.3d Mitchell v. Cir.1996) I believe the evi- (10th jury. also States tions to (quoting United Co., support Sears, legally 785 F.2d 780 dence was sufficient Roebuck & v. Cir.1986)). Therefore, (9th I affirm suggest do not would jury’s We verdict. judge per- harbored assigned uphold district Mr. Nacchio’s the district court Nacchio, but we do against Mr. sonal bias conviction.1 in the factors outlined conclude that Profes- court’s exclusion of The district in retrial before militate favor of Mitchell testimony about Daubert. sor Fischel’s was reading the trial judge. After different chal- True, first framed its government it would concluded that transcript, we have proffered ex- lenge to Professor Fischel’s unreasonably expect difficult to be objection to the suffi- testimony as an pert fresh mind. retry the case with a judge to Rule 16 disclosure. ciency of Mr. Nacchio’s retry have to will Because However, the district court by the time way, there is from scratch either the case Fischel’s testi- ruled to exclude Professor unnecessary duplication” “waste [or] no the court was mony, it was clear reassigning it. Daubert. asking about repeatedly ques- court had The district V. CONCLUSION methodology— Fischel’s tioned Professor the district court is judgment Dau- that it must examine under an issue REMAND- and the case is REVERSED Thus, bert, Rule 16. Mr. Nacchio a different dis- ED for a new trial before known that he had to either should have judge. trict requested showing request make the HOLMES, dissenting in Judge, Furthermore, Circuit it was hearing.2 Daubert concurring part. part Nacchio, who was of- upon incumbent an wit- expert Fischel as fering Professor over majority elevates form sub- ness, proffered that his to demonstrate that Rule 16 was the concluding stance expert an to render expert qualified district court’s exclusion foundation for the Thus, the district court was opinion. when testimony. expert Fischel’s of Professor methodology, Mr. asking about heart of the district Daubert was at the to meet his burden of required to rise decision, and Mr. Nacchio was court’s testimony demonstrating The court did not notice of this fact. clear finding that Mr. was admissible. abuse its discretion conviction, expert’s gation proposed methodolo- challenging to test 1. In addition to Op. testimony.” Maj. challenges gy of his certain to his in advance Mr. Nacchio raised follow, then, that a regarding Logically, the mer- I offer no views 1149. it should sentence. sentencing challenges. repeated probing as to its of those court’s district methodology, expert’s sufficiency an here, propo- put expert witness’s agree majority Daubert is I with the was at issue. that Daubert nent on notice "legal the district court's obli- shorthand for *29 attempting Mr. Nacchio is to take an One following week this exchange, Mr. Nacchio unexceptional provided issue and craft it into a his tale revised expert disclo- sure, again, government ruling. respond- invidious district court How- ed raising Daubert ever, concerns. gov- it is clear that at argument best his ernment 63-page filed a motion to exclude nothing than more a run-of-the-mill claim Professor expert Fischel’s testimony based surprise of unfair clothed Rule 16. We on deficiencies in the Rule 16 disclosure when, have similar dismissed claims and based on Mr. Nacchio’s failure to meet here, the record belies them. See Ralston his burden to demonstrate that Professor Richards, Inc., Nephew v. Smith & Fischel’s testimony was admissible. See (10th 965, Cir.2001) F.3d 970 n. 4 (reject- App. at government that, 363. The argued ing the contention that a party was not 16, in addition to Rule there were numer- expert’s qualifications informed that her ous grounds for excluding Professor Fis- when, alia, would be at issue inter a sec- testimony, chel’s including 401, 403, Rules tion of a motion in opposition to 602, 702, and 703 of the Federal Rules of raised the expert’s qualifica- issue Evidence. tions); States, see also Solorio v. United When Mr. responded to this (10th Cir.2004) Fed.Appx. 707-10 motion next day, substance, he ad- (rejecting “essentially a claim of unfair dressed Daubert issues discussing Rule surprise arising from the district court’s 702 and Professor qualifications.3 Fischel’s expert[ when, exclusion of testimony” [ ] ] See App. Thus, at 463-68. as of his re- alia, inter government’s “[t]he reply brief sponse April Mr. Nacchio was not explicit mounted an Daubert attack” on only on notice that Daubert in play, expert’s reliability). but he also responded had to the Daubert Mr. Nacchio was on notice issues. that Profes- sor qualifications Fischel’s were at issue. 5), The following day (April when Mr. early government’s
As
as the
first motion Nacchio called Professor Fischel
to the
Fischel,
regarding Professor
govern-
stand, he still had not met his burden of
argued
ment
that Rule 702 was implicated.
demonstrating that Professor Fischel’s tes-
Supp.App.
at 39. At a March
2007 timony was admissible.
In particular, Mr.
hearing,
both the
and the Nacchio had not
yet
even mentioned
court raised the concern that there could possibility of a Daubert hearing. As the
arising
be issues
from the Daubert line of party offering
expert,
Mr. Nacchio
cases. Mr. Nacehio’s counsel responded,
“bore the burden of demonstrating to the
“forewarned is
App.
forearmed.”
at 2042. district court
proffered
expert]
[his
majority
3. The
states that Mr.
analytic approach
Nacchio made
toward the stock and
"other financial data” he has taken
no mention
to "for-
of Daubert or Professor Fischel’s
(i.e.,
opinions”
methodology).
mulate
Id.
methodology
filing. Maj.
Op.
this
at 1149—
Thus,
assertion,
contrary
majority's
Although technically
correct
filing
Nacchio’s
did address Daubert and Pro-
included,
word “Daubert” is not
this
one
methodology.
fessor Fischel's
See Daubert v.
example of
majority
how the
elevates form
Pharms.,
579, 588,
Merrell Dow
509 U.S.
filing
over substance. Mr. Nacchio's
contains
(1993) ("Here
S.Ct.
Ralston, at 970 See 275 F.3d review is deferential.” standard of advisory plicable committee’s note 702 Fed.R.Evid. Co., at 128 S.Ct. Mgmt. (“[T]he Sprint/United the burden of estab- has proponent Here, a deferential standard we have admissibility re- 1146. lishing pertinent that the review, (noting that there see id. at 1145 of of by preponderance are met quirements to a district evidence.”). granted discretion is broad the evidentiary rulings), and a district court’s ruling exclud- court made The district ruling interpreted that can be court Mr. Nacchio testimony because ing that Accord legal result.4 coming to a correct demonstrating met his burden had not presume not that we should ingly, Majority’s contrary admissibility. way. in this court erred district the mark: transcript misses reading of reading of the district court’s reasonably be A fair cannot The district court Daubert was the driv- ruling indicates that evidence to have “excluded the said that At that Maj. ing force behind decision. Op. at 1153. grounds Rule 16 alone.” time, Nacchio had not demonstrated problematic particularly is This conclusion Fischel’s tes- admissibility of Professor Court’s recent light Supreme of the Nacchio bore that timony. Because Mr. Management Co. ruling Sprint/United burden, complain that Mendelsohn, 06-1221, [ ]he he “cannot now 552 U.S. v. No. (2008). unprepared to attend to burden.” -, h[is] L.Ed.2d 1 170 S.Ct. Ralston, Yet, at 970 n. 4. this is There, “An 275 F.3d appellate instructed: the Court argument essentially what Mr. Nacchio’s that a district presume court should not to.5 legal incorrect result boils down intended an court reply argument in his to the example, stating that Nacchio's after Professor 4. For —made government’s to exclude the testimo- testimony excluded on a motion could be Fischel's grounds, ny opinions were the district court said: Professor Fischel’s number of —that App. convincingly, Compare the defendant has made proper "Most under Rule 702. attempt comply with Rule or Dau- App. no at 466. 3916 with testimony best, that Fischel's bert and establish majority pointed out two At has principles and meth- product of reliable ambiguous references to a "disclosure” principles applied some ods or that Fischel of the district court’s arise in context reliably App. at and methods in this case." sufficiency Mr. Nacchio’s of the assessment "Rule The district court then stated: arguments. “When a district court's Daubert governs Id. This indicates this issue.” here, ambiguous, it is language as it was the main rationale for the that Rule 702 was appeals presume improper the court of for district court's decision. an incorrect the lower court reached Co., Mgmt. legal Sprint/United conclusion.” interpretation support of the rec- As for its reading Although a fair of the district at 1145. ord, majority parts cites to two demonstrates that basis court's decision ruling. Maj. Op. at 15. In the district court's Daubert, Supreme ruling was instance, for the only refers the district court first compels guidance recent further Court’s outlining generically after to "disclosures” proper not for us to conclusion that it is government’s motion and indi- contents basing court was this assume that the district cating had also read both Mr. Nacchio’s ruling reply gov- on Rule 16. and his to the Rule 16 disclosure App. the sec- motion. at 3914. In ernment's "pe- majority instance, that we should 5. The states ond the district court stated argu- failing present an party nalize” methodology "in this was undisclosed "[wjhen added). allow the the court does not ment (emphasis at 3917 disclosure.” However, present Maj. Op. at 1154. lawyer” to it. previous court’s discus- the district However, on one contention is based refer to the Rule 16 disclosures. sion did not Instead, exchange Mr. Nacchio's counsel just quoted Mr. between the district court had April On the date Professor Fis- ous occasions that it was concerned about *31 last chel—Mr. Nacchio’s witness—fin- Professor Fischel’s methodology. Al- witness, testifying summary though a the court specifically ished Mr. did not order a Daubert requested hearing proffer, through Nacchio a Daubert its repeated for questions methodology, on it effectively the time. In a footnote of a motion to in- first vited Mr. to Nacchio to make one. permit provide expert Professor Fischel The dis- court, trict great which testimony government has discretion in to rebut two wit- nesses, deciding what procedures to use in acting Mr. asked the Nacchio court to as gatekeeper, Rodriguez-Felix, see 450 excluding reconsider its ruling Professor 1122, F.3d at should not now be held to expert testimony Fischel’s and noted that have erred because Mr. failed to evidentiary hearing particularly is “[a]n accept its invitation to alleviate its Daubert appropriate” in situations where the court concerns. insufficiently finds a report to be detailed. here,
App. at 481 n. 4. Mr. Even Nacchio Mr. attempt Nacchio’s to focus this key failed to the concern that address 16, court’s attention on Rule which certain- previously highlighted district court had in ly did require him to ad- demonstrate excluding testimony— Professor Fischel’s missibility, unavailing. should be Daubert particular methodology his for this case. issue, was the and Mr. Nacchio failed in his Daubert obligation establish the ad- Neither the nor the district missibility of Professor Fischel’s testimo- obligation court any was under to call for a ny. hearing or to prod supple- Mr. Nacchio to filings. majority
ment his
suggests
The
A district court’s
of
application
the Dau
that the district court
have
should
ordered
bert standard is reviewed for
of
abuse
a
proffer.
Mr. Nacchio to
Daubert
make
discretion. United
v. Rodriguez-
States
Maj.
19,
However,
Op.
Felix,
(10th
21.
we
have
450 F.3d
1125
—
required
Cir.),
denied,
never
a
court to inquire
U.S.-,
district
cert.
127 S.Ct.
Rather,
(2006).
pro-
about Daubert issues.6
as the
166
party
L.Ed.2d 297
ponent
expert testimony,
the admis- offering
expert
“must show that
sibility
proof
solely
burden of
rested
employed by
expert
method
...
Nacchio,
Mr.
and he had a multitude
scientifically
that the opinion
sound and
opportunities
provide
more information
satisfy
based on facts which
Rule 702’s
simply
or even
a
request
hearing.
reliability
He
requirements.” Dodge v. Cotter
(10th
any
Furthermore,
Cir.2003).
failed to
Corp.,
do
of this.
1222
328 F.3d
Ralston,
district court clearly
4;
indicated on numer- See also
F.3d at
970 n.
following
ruling
majority
prosecution
the district
court
court’s
“The
also states:
testimony
to exclude Professor Fischel’s
every right
hearing
had
to demand Daubert
ignores
ample opportunities
that Mr. Nac-
Maj. Op.
to test
methodology.”
at 1152.
Indeed,
respond.
previously
chio
had to
Although
prosecution
it is true
could
ignores
response
written
Mr. Nacchio
hearing,
have demanded
it was likewise
.a
already
discussing
had
made
Rule 702 and
obligation
proffer
under no
do so. In a
qualifications. Although
Professor Fischel's
expert testimony,
party
burden is on the
may
tight
Mr. Nacchio
have been on a
dead-
case,
offering
testimony.
that bur-
line,
requested
he never
continuance or
Accordingly,
den was on Mr.
when
Nacchio.
hearing
even Daubert
before he called Pro-
apparent
it became
that the district court was
fessor Fischel to the stand. Both of these
not convinced that Professor Fischel’s testi-
requests
simple
rather
have been
admissible,
mony
Nacchio—not the
certainly
required
would not have
much time
Yet,
prosecution
requested a Dau-
have
at all.
failed
Mr. Nacchio
to make either
—should
request.
hearing.
bert
jury.
Such
knowledge of
the common
advisory committee’s
Fed.R.Evid.
are
testimony
excluding expert
for
reasons
has broad discre
court
note. The district
indeed,
and,
have
an ex
reasonable
perfectly
to assess
determining how
tion in
Gabaldon,
by this court. See
Rodriguez-Felix,
upheld
been
credibility. E.g.,
pert’s
the exclusion
(upholding
The exclusion of
F.3d at 1099
at 1122.
450 F.3d
it was “not
testimony
“unless it is arbi
when
expert
overturned
expert is not
manifestly
testimony is
something
which
capricious, whimsical
trary,
*32
Fredette,
needed”);
(up-
are convinced
1240
we
F.3d at
or when
315
unreasonable
testimony
a clear error
expert
court made
of
holding
that the district
the exclusion
of
exceeded
bounds
outside
judgment or
not deal with matters
of
when it “did
in the circumstances.”
ju-
choice
permissible
everyday knowledge
typical
of
Metals,
ror”).
v. Ken-Mac
Furthermore,
Metals
not-
Champagne
the district court
Cir.2006)
(10th
Inc.,
1073, 1079
458 F.3d
ir-
completely
was
ed that some evidence
Gabaldon,
v.
389
States
(quoting United
example, Professor Fischel
relevant. For
Cir.2004)).
(10th
1090, 1098
F.3d
Michael
testify regarding
to
what
was set
with
doing
Dell were
and Michael
Eisner
testimony,
allowing expert
Before
companies
in their
when Mr.
stock
satisfy
must
itself
district court
sum,
In
the district
selling his stock.
was
and
testimony
both relevant
proffered
are not so unreasonable
court’s conclusions
See,
450
Rodriguez-Felix,
e.g.,
reliable.
It
permissible choice.
they
that
exceeded
Fredette,
1122;
States v.
at
United
F.3d
certainly
for the district
permissible
Cir.2003).
(10th
“The
1239
315 F.3d
evidence was
to conclude
court
context,
relevance,
in this
touchstone
not relevant.
testimony [will]
evidence or
whether ‘the
understand the
trier of fact to
assist the
could have excluded
The district court
”
a fact in issue.’
or to determine
evidence
testimony
grounds
Professor Fischel’s
Gabaldon,
(quoting
at 1098
Dau-
389 F.3d
alone,
noted
the court also
of relevance
but
2786).
In
bert,
S.Ct.
burden on the
testi-
words,
methodology.
In other
insofar as
Ralston,
mony
admissibility.
to demonstrate
gaps
any
there
in the
before the
were
record
closure any grounds on Daubert
witness —-without expert. offering party
notice to happened here. not what
But that is the method- notice that ample had opin- Professor Fischel’s underlying
ology (i.e., issue question) Daubert
ion demonstrating that the burden of
and bore easily He testimony was admissible. fully hearing requested
could have briefing. Mr. Nac- the issue
addressed Consequently, there to do so.
chio failed claim for a new to his
is no foundation
trial. and would affirm
I dissent respectfully conviction.
Mr. Nacchio’s *34 CORPORATION, MINING
PLATEAU
Petitioner,
v. MINE AND
FEDERAL SAFETY COMMISSION;
HEALTH REVIEW Safety Secretary Labor, Mine Administration, Respon Health
&
dents.
No. 06-9582. Appeals, States Court
United
Tenth Circuit.
March