U.S. v. Skilling

• Citation: 638 F.3d 480
• Decision Date: 06 April 2011
• Docket Number: No. 06–20885.,06–20885.
• Parties: UNITED STATES of America, Plaintiff–Appellee,v.Jeffrey K. SKILLING, Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

638 F.3d 480

UNITED STATES of America, Plaintiff–Appellee,

v.Jeffrey K. SKILLING, Defendant–Appellant.

No. 06–20885.

United States Court of Appeals, Fifth Circuit.

April 6, 2011.

Joseph Douglas Wilson, Asst. U.S. Atty. (argued), San Francisco, CA, for U.S.Daniel M. Petrocelli (argued), Matthew T. Kline, David J. Marroso, Mark Randall Oppenheimer, O'Melveny & Myers, L.L.P., Los Angeles, CA, Meaghan McLaine VerGow, O'Melveny & Myers, L.L.P., Washington, DC, Ronald G. Woods, Houston, TX, for Skilling.John D. Cline, Law Office of John D. Cline, San Francisco, CA, for Nat. Ass'n of Crim. Defense Lawyers, Amicus Curiae.Appeal from the United States District Court for the Southern District of Texas.ON REMAND FROM THE SUPREME COURT OF THE UNITED STATES.Before SMITH and PRADO, Circuit Judges, and MOSES, District Judge. ^*

PRADO, Circuit Judge:

Former Enron Corporation CEO Jeffrey K. Skilling was convicted of conspiracy, securities fraud, making false representations to auditors, and insider trading. After we affirmed his convictions, the Supreme Court invalidated one of the objects of the conspiracy charge—honest-services fraud—and remanded, instructing us to determine whether the error committed by the district court in submitting the honest-services theory to the jury was harmless as to any of Skilling's convictions. Because we find that the error was harmless, we affirm the convictions. In addition, for the reasons stated in our previous opinion, we vacate the sentence and remand for resentencing.

I. BACKGROUND

In May 2006, Skilling was convicted by a jury of one count of conspiracy, twelve counts of securities fraud, five counts of making false representations to auditors, and one count of insider trading. The indictment alleged several possible objects of the conspiracy, including securities fraud and honest-services fraud, and the district court's jury instructions permitted the jury to convict on any of the alleged theories of guilt. The jury returned a general verdict of guilty on the conspiracy charge without identifying the specific object of the conspiracy. The district court sentenced Skilling to 292 months of imprisonment and three years of supervised release, and assessed $45 million in restitution.

Skilling appealed, arguing, among other things, that his conspiracy conviction was premised on an improper theory of honest-services fraud. We affirmed the convictions, holding that the Government's honest-services theory was proper under Fifth Circuit case law. See United States v. Skilling, 554 F.3d 529, 595 (5th Cir.2009), vacated in part, ––– U.S. ––––, 130 S.Ct. 2896, 177 L.Ed.2d 619 (2010). We also vacated the sentence and remanded for resentencing because the district court had incorrectly applied a sentencing enhancement for substantially jeopardizing a “financial institution.” See id.

On appeal, the Supreme Court reduced the scope of the honest-services fraud statute and invalidated the Government's honest-services theory in this case. See Skilling, 130 S.Ct. at 2907 (“Because Skilling's alleged misconduct entailed no bribe or kick-back, it does not fall within [the honest-services fraud statute]'s proscription.”). The Court did not, however, reverse any of Skilling's convictions, but remanded the case to us to determine whether the honest-services instruction amounted to harmless error. Id. at 2934–35.

II. STANDARD OF REVIEW

In Hedgpeth v. Pulido, 555 U.S. 57, 129 S.Ct. 530, 172 L.Ed.2d 388 (2008) (per curiam), the Supreme Court recently confirmed that an alternative-theory error—i.e., where a jury rendering a general verdict was instructed on alternative theories of guilt and may have relied on an invalid theory—is subject to harmless-error analysis “so long as the error at issue does not categorically ‘vitiat[e] all the jury's findings.’ ” Id. at 532 (alteration in original) (citation omitted); see Skilling, 130 S.Ct. at 2934 n. 46 (extending the holding of Pulido, which was a case on collateral review, to this case and other cases on direct appeal). The Court did not specifically identify the harmless-error standard that is applicable to alternative-theory errors, but it cited to a string of cases that apply a common harmless-error standard to other types of instructional errors. See Pulido, 129 S.Ct. at 532 (citing Neder v. United States, 527 U.S. 1, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999) (omission of an element of an offense); California v. Roy, 519 U.S. 2, 117 S.Ct. 337, 136 L.Ed.2d 266 (1996) (per curiam) (erroneous aider-and-abettor instruction); Pope v. Illinois, 481 U.S. 497, 107 S.Ct. 1918, 95 L.Ed.2d 439 (1987) (misstatement of an element of an offense); Rose v. Clark, 478 U.S. 570, 106 S.Ct. 3101, 92 L.Ed.2d 460 (1986) (erroneous burden-shifting as to an element of an offense)). The Court declared that “[a]lthough these cases did not arise in the context of a jury instructed on multiple theories of guilt, one of which is improper, nothing in them suggests that a different harmless-error analysis should govern in that particular context.” Pulido, 129 S.Ct. at 532.

Consistent with this line of cases, there are two ways to prove the harmlessness of an alternative-theory error. First, as set forth in Neder v. United States (which is the most recent of the line of cases cited in Pulido ), an error is harmless if a court, after a “thorough examination of the record,” is able to “conclude beyond a reasonable doubt that the jury verdict would have been the same absent the error.” 527 U.S. at 19, 119 S.Ct. 1827. If the defendant “raised evidence sufficient to support a contrary finding,” then the error was not harmless. Id. Thus, under the so-called Neder standard, a reviewing court, “in typical appellate-court fashion, asks whether the record contains evidence that could rationally lead to [an acquittal] with respect to the [valid theory of guilt].”¹ Id.

Second, as we held in United States v. Holley, 23 F.3d 902 (5th Cir.1994), and United States v. Saks, 964 F.2d 1514 (5th Cir.1992), an alternative-theory error is harmless if the jury, in convicting on an invalid theory of guilt, necessarily found facts establishing guilt on a valid theory. See United States v. Howard, 517 F.3d 731, 738 (5th Cir.2008) (stating that Holley and Saks stand for the proposition that “legally erroneous jury instructions [are] harmless in fraud cases when the inevitable result of the fraudulent activity proved at trial established that the defendants participated in the scheme that justified their convictions on legally correct instructions”). Our rulings in Holley and Saks pre-date the Supreme Court's decision in Pulido, but they apply a harmless-error test that is consistent with the Neder standard, and therefore we affirm their continuing vitality in our case law.²

III. ANALYSIS

A. The Conspiracy Conviction

The Government asserts that the invalid honest-services instruction was harmless with respect to the conspiracy conviction. Specifically, it argues that the evidence presented at trial proved that Skilling participated in a scheme to deceive the investing public about Enron's financial condition in order to maintain or increase Enron's stock price. If so, then we would be able to conclude beyond a reasonable doubt that absent the honest-services instruction, the jury would have convicted Skilling under a valid theory of guilt—conspiracy to commit securities fraud.³

Before examining the evidence presented at trial, however, we must address two nonevidentiary arguments raised by Skilling. First, Skilling argues that the district court's jury instructions, by permitting the jury to convict on either the honest-services theory or the securities-fraud theory, are dispositive evidence of the harmfulness of the error. We disagree. The instructions were clear and easy to understand, and they did not contain any statement that gave a preference to one theory over another. Moreover, the fact that the jury may have relied upon an invalid theory of guilt shows only that an alternative-theory error occurred, not that the error was not harmless. See Paredes v. Thaler, 617 F.3d 315, 318 (5th Cir.2010) (confirming that a jury instruction on alternative theories of guilt, one of which is invalid, is not a fatal “structural” error, but instead is “subject to harmless-error analysis”).

Second, Skilling contends that the Government's opening and closing statements made it more likely that the jury would rely on the honest-services theory rather than on the securities-fraud theory. Again, we disagree. The Government's opening and first closing statements both mentioned honest-services fraud only in relation to Skilling's co-defendant, Ken Lay, who, unlike Skilling, was charged with several counts of honest-services wire fraud. With respect to Skilling, both statements focused exclusively on conduct that constitutes securities fraud. In its rebuttal closing statement, the Government made reference to the honest-services allegations against both defendants, but it mentioned the honest-services theory in relation to Skilling only once. Further, it never argued that the jury should convict Skilling solely on the honest-services theory, nor did it tell the jury that it should disregard the evidence of securities fraud in reaching a conviction. This single reference to Skilling's honest services, in light of the Government's extensive argument on securities fraud, merely permitted the jury to decide the case on the wrong theory. It did not force or urge it to do so, and therefore, it shows only that an alternative-theory error occurred, not that the error was not harmless.

Having disposed of these two preliminary arguments, we next turn to the crux of the matter: whether, under the Neder standard, the evidence presented at trial proves that Skilling conspired to commit securities fraud. Based on our own thorough examination of the considerable record in this case, we find that the jury was presented with overwhelming...