U.S. v. Kay, 05-20604.

Citation513 F.3d 432
Decision Date24 October 2007
Docket NumberNo. 05-20604.,05-20604.
PartiesUNITED STATES of America, Plaintiff-Appellee, v. David KAY; Douglas Murphy, Defendants-Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Joseph Charles Wyderko (argued), U.S. Dept. of Justice, Criminal Div., Ellen R. Meltzer, U.S. Dept. of Justice, Washington, DC, James Lee Tuner, Asst. U.S. Atty., Houston, TX, for Plaintiff-Appellee.

Reid H. Weingarten, Brian Matthew Heberlig, Bruce C. Bishop (argued), David M. Fragale, Steptoe & Johnson, Washington, DC, for David Kay.

Kevin K. Russell, Thomas C. Goldstein (argued), Goldstein & Howe, Washington, DC, for Douglas Murphy.

John D. Cline, Peter E. Davids, Jones Day, San Francisco, CA, William E. Rittenberg, Rittenberg & Samuel, New Orleans, LA, for National Ass'n of Criminal Defense Lawyers, Amicus Curiae.

Appeals from the United States District Court for the Southern District of Texas.

Before HIGGINBOTHAM, BARKSDALE and CLEMENT, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

David Kay and Douglas Murphy, executives at an American company that exported rice to. Haiti in the 1990's, paid Haitian officials to reduce duties and taxes on their rice. Kay disclosed this activity to the attorney for his employer, the SEC investigated, and Murphy and Kay were prosecuted for violating the Foreign Corrupt Practices Act ("FCPA" or "the Act"). The district court dismissed the indictment, concluding that the FCPA did not cover bribes to reduce duties and taxes. We reversed the dismissal of the indictment and remanded to the district court, finding that no prior law clearly controlled the issue but that the indictment fell within the scope of the FCPA. On remand, a jury convicted both Defendants of the counts charged in the indictment. We now affirm the FCPA and obstruction of justice convictions.

I

American Rice, Inc. ("ARI") is a publicly-held company incorporated in Texas and based in Houston that exports rice to various parts of the world. It exported rice to Haiti in the 1990's, a time of political chaos and rampant corruption in that country, through Rice Corporation of Haiti ("RCH"), a subsidiary incorporated in Haiti. During that time, Murphy was ARI's President and Kay was its Vice President for Caribbean Operations.

Haiti levied both duties and taxes on rice importers. ARI, through Murphy and Kay, took various steps to reduce those costs: purchasing from government officials licenses, called "franchises," permitting charities to import food without duty; paying for a "service corporation" designation for RCH, which allowed the company to avoid paying sales and income taxes by claiming that it did not actually own the products it was importing; underreporting imports to reduce duties and taxes and paying officials to accept the underreporting; and paying officials to resolve another tax issue. While these payments, if made domestically, would surely pose, serious issues of criminal liability, the standard practice of Haitian government officials was to routinely press companies like RCH to pay for local service, and almost all companies, including RCH's competitors, paid. In short, paying officials for government service and escape from obstacles to business including taxes was "business as usual" in Haiti during the 1990's.

In 1999, ARI retained a prominent Houston law firm to represent it in a civil suit. Preparing for this suit, the lawyers asked Kay for background information on ARI's rice business in Haiti. Kay volunteered that he had taken the actions mentioned above, explaining that doing so was part of doing business in Haiti. Those lawyers informed ARI's directors. The directors self-reported these activities to government regulators.

The SEC launched an investigation into ARI, Murphy, and Kay. Murphy and Kay were eventually indicted on twelve counts of violating the FCPA, 15 U.S.C. §§ 78dd-2, 78ff, which makes it a crime to (1) "willfully;" (2) "make use of the mails or any means' or instrumentality of interstate commerce;" (3) "corruptly;" (4) "in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to;" (5) "any foreign official;" (6) "for purposes of [either] influencing any act or decision of such foreign official in his official capacity [or] inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official [or] securing any improper advantage;" (7) "in order to assist such [corporation] in obtaining or retaining business for or with, or directing business to, any person." The Government never charged ARI, or Defendants civilly, under the FCPA.

In 2002, the district court granted a motion to dismiss the indictment, concluding that "payments to foreign government officials made for the purpose of reducing customs duties and taxes [do not] fall under the scope of `obtaining or retaining business' pursuant to the text of the FCPA"1 (Kay I). This court reversed on appeal (Kay II). After a rigorous analysis of the FCPA and its legislative history, we concluded that "in diametric opposition to the district court ...[,] that bribes paid to foreign officials in consideration for unlawful evasion of customs duties and sales taxes could fall within the purview of the FCPA's proscription," but "[i]t still must be shown that the bribery was intended to produce an effect—here, through tax savings —that would `assist in obtaining or retaining business.'"2 The panel left to the district court on remand whether further prosecution of this case would deny Defendants due process for want of fair warning.

Back in district court, the Defendants moved to dismiss for lack of fair warning. The district court denied the motion. The Government then filed a superseding indictment repeating the first twelve counts but also charging both Defendants with conspiracy to violate the FCPA and Murphy with obstruction of justice for making false statements to the SEC during its investigation. A jury in Houston found Defendants guilty on all counts. Defendants renewed their lack of fair warning argument in post-trial motions to dismiss and arrest judgment, which the court denied. Murphy and Kay appeal, asserting several grounds, including lack of fair warning.

II

Defendants argue that the statute failed to give fair notice that their conduct was illegal and that proceeding to trial with the late arriving clarification of the Act violated their due process rights. The district court denied Defendants' motion to dismiss the indictment and the jury convicted Kay and Murphy. This court reviews de novo the district court's denial of a motion to dismiss an indictment.3 We also review de novo the underlying substantive issue of whether application of this court's last opinion in this case violates the Due Process Clause.4

Bouie provides the appropriate standard of fair notice in the present case. The Supreme Court in Bouie recognized two fair notice concerns in criminal statutes, including the vagueness of the statute's language and courts' retroactive enlargement of the scope of a statute, whether the statutory language underlying that enlargement is clear on its face or vague.5 The Court only applied the latter principle of retroactive enlargement to the facts in Bouie, however, since the terms of the statute were clear.6 Lanier expanded upon these standards, in a manner consistent with Bouie, and summarized two additional tests for fair notice: the rule of lenity, and a "touchstone principle" of fair notice, which combines the standards of statutory vagueness and judicial enlargement to determine fair notice.7

Kay and Murphy address all four of the Lanier standards of fair notice in their appeal8: 1) enforcement of a vague statute, 2) the rule of lenity, 3) retroactive application of a "novel" interpretation of a statute, and 4) whether the statute, "standing alone or as construed," made the law reasonably clear when the criminal conduct occurred.9 Under the fair notice principle of vagueness, they argue that this court's "finding that the statute was ambiguous as a matter of law ... should have led the Court to dismiss this prosecution under the vagueness doctrine...."10 Although Defendants argue, and we agreed in Kay II, that the business nexus standard is ambiguous,11 it does not follow that the standard requires guesswork or that the statutory language itself is vague.

The Court in Lanier defines a vague statute as one "which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application."12 The FCPA delineates seven standards that may lead to a conviction. All are phrased in terms that are reasonably clear so as to allow the common interpreter to understand their meaning. Defendants have, rather than showing vagueness, raised a technical interpretive question as to the exact meaning of "obtaining or retaining" business. Whether "obtaining or retaining" business covers the general activities that an entity undertakes to ensure continued success of a business or Defendants' more limited definition of contractual business is an ambiguity but not one that rises to the level of vagueness and unfair notice.

Nor is the FCPA's business nexus test vague under McBoyle, which originally defined the vagueness standard in the context of fair warning. Similar to Lanier's "common intelligence" test, the MeBoyle test for vagueness requires that "fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed ... so far as possible the line should be clear."13 Imprecise general language in one of seven requirements for a bribery conviction under the FCPA does not draw a line so vague that Defendants were not reasonably aware of their potential for engaging in...

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