S.E.C. v. Kopsky
| Citation | 586 F.Supp.2d 1077 |
| Decision Date | 18 November 2008 |
| Docket Number | No. 4:07CV379 RWS.,4:07CV379 RWS. |
| Court | U.S. District Court — Eastern District of Missouri |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. Matthew KOPSKY, et al., Defendants. |
Robert M. Moye, Jeffrey A. Shank, Jonathan S. Polish, Securities and Exchange Commission, Chicago, IL, for Plaintiff.
Richard B. Walsh, Jr., Ronald B. Ziegler, Lewis Rice, David V. Capes, Jeffrey A. Cohen, Capes, Sokol, Goodman & Sarachan, St. Louis, MO, Stephen J. Crimmins, Thomas J. Hershenson, Mayer Brown LLP, Washington, DC, for Defendants.
The Securities and Exchange Commission brought this insider trading action against defendants Ronald W. Davis and Matthew E. Kopsky, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b5. The SEC moves in limine to exclude from evidence the February 20, 2006 report of Davis' polygraph, the expert testimony of John Long about the polygraph, and any mention of Davis' polygraph examination. I will grant the SEC's motion and exclude Davis' polygraph evidence as inadmissible under Federal Rules of Evidence 702 and 403.
To establish that Davis engaged in insider trading as alleged in this action, the SEC needs to prove that he knowingly disclosed material, nonpublic information to his broker Matthew Kopsky, the other defendant in the case. Davis disputes this element of the case, relying in part on the results of a polygraph examination. The polygraph examination was administered on February 16, 2006, three years after the alleged insider trading took place and before this action was filed. The examination was conducted by John Long, a retired FBI polygraph examiner, in the defense counsel's office. Long used the control question technique, a method used most often by polygraph examiners. See United States v. Cordoba, 194 F.3d 1053, 1057 (9th Cir.1999) (). According to the report generated by examiner Long, Davis was truthful in answering the following questions:
The polygraph exam was not stipulated by the parties to this case. Instead, it was arranged by the defense counsel in response to the SEC's investigation of Davis' activities in 2003. The SEC was first notified of the polygraph exam when it received the results from the defendant in 2006. The SEC did not participate in the selection of the examiner, the formulation of the questions, or the administration of the test, and it did not conduct its own polygraph examination of Davis.
In United States v. Scheffer, 523 U.S. 303, 118 S.Ct. 1261, 140 L.Ed.2d 413 (1998), the United States Supreme Court upheld a military rule of evidence that imposes a per se ban on admitting polygraph evidence in court martial proceedings. In upholding the military rule, the Court indicated a strong disfavor of admitting polygraph evidence for trial purposes. The Court noted that "there is simply no consensus that polygraph evidence is reliable."1 523 U.S. at 309, 118 S.Ct. 1261. The Court also believed that exclusion of polygraph evidence does not impair any significant defense interest because a defendant can always testify and submit other factual evidence to bolster his credibility.2 Id. at 316-17, 118 S.Ct. 1261.
Polygraph evidence is highly disfavored in this circuit.3 See United States v. Gill, 513 F.3d 836, 846 (8th Cir.2008) (); United States v. Gianakos, 415 F.3d 912, 925 (); United States v. Swayze, 378 F.3d 834, 837 (8th Cir.2004) (); Ortega v. United States, 270 F.3d 540, 548 (8th Cir.2001) (). Polygraph evidence is not per se inadmissible in the Eighth Circuit, but is tested for admissibility pursuant to Federal Rules of Evidence 702 and 403. See Gill, 513 F.3d at 846 (); United States v. Rouse, 410 F.3d 1005, 1011 (8th Cir.2005) (); Gianakos, 415 F.3d at 925 (). Cf. Anderson v. United States, 788 F.2d 517, 519 n. 1 (8th Cir.1986) ().
Rule 702 provides that for expert opinion to be admissible, it must be "scientific, technical, or other specialized knowledge" that "will assist the trier of fact to understand the evidence or to determine a fact in issue." This means the expert opinion must be both reliable and relevant. See Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 592-93, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). Under Daubert, trial judges are charged with the responsibility of acting as gatekeepers to exclude unreliable expert testimony. Id. at 593, 113 S.Ct. 2786. To determine whether the expert testimony meets this threshold, courts may consider:
1) whether the expert's technique or theory can be or has been tested;
2) whether the technique or theory has been subject to peer review and publication;
3) the known or potential rate of error of the technique or theory when applied;
4) the existence and maintenance of standards and controls; and
5) whether the technique or theory has been generally accepted in the scientific community.
Id. at 593-94, 113 S.Ct. 2786. Rule 702 further directs trial courts to "scrutinize not only the principles and methods used by the expert, but also whether those principles and methods have been properly applied to the facts of the case."
Under Rule 403, relevant evidence may be excluded "if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence."
I find Davis' polygraph evidence inadmissible under Rules 702 and 403.
For purposes of determining whether Davis' polygraph evidence meets the foundation requirements in Rule 702, I will assume without deciding that examiner Long is qualified as an expert in this case. Davis, as proponent of the evidence, has the burden of establishing the foundation under Daubert by a preponderance of evidence. See Bourjaily v. United States, 483 U.S. 171, 107 S.Ct. 2775, 97 L.Ed.2d 144 (1987).
After considering the studies and surveys filed by the SEC and Davis, I find the control question technique applied by examiner Long has been subjected to scientific tests and peer review, thereby satisfying the first two factors listed in Daubert. However, Davis fails to satisfy the remaining Daubert factors.
There is not a known or potential rate of error of the polygraph technique applied by examiner Long. Even though Defendant claimed that the control question technique has a known error rate of 10% or lower, I find the rate of error actually subject to much dispute. See Scheffer, 523 U.S. at 310, 118 S.Ct. 1261 (). The SEC also submitted a study by Congress which evaluated all then-available studies on the reliability of polygraph tests and concluded the error rates of polygraph tests could be significant. See U.S. Congress Office of Technology Assessment, Scientific Validity of Polygraph Testing: A Research Review and Evaluation-A Technical Memorandum 5 (1983).
Defendant fails to show the existence of controlling standards for administering polygraph examinations, which are necessary because an examinee can adopt countermeasures or strategies to suppress physiological responses and cause inconclusive readings by the polygraph machines and the examiner. See Scheffer, 523 U.S. at 310 n. 6, 118 S.Ct. 1261. Moreover, there is no general acceptance of polygraph techniques. "[T]he scientific community remains extremely polarized about the reliability of polygraph techniques." Scheffer, 523 U.S. at 309, 118 S.Ct. 1261. The studies submitted or cited by defendant do not sufficiently indicate there has been any change to the lack of consensus in the scientific community regarding the acceptance of polygraph techniques.
Even more disturbing in this case is the number of defects in the administration of Davis' polygraph that strongly suggest a failure to follow appropriate implementation methods and standards. The SEC's expert testified that Davis' polygraph results are inconclusive and unreliable because of the following defects: 1) two of the four relevant questions asked in the polygraph are poorly designed and vague; 2) the chart tracings from the polygraph are inadequate and were improperly marked by examiner Long by hand, especially in portions of Davis' answers which show significant upwards movement, which indicate an emotional response; 3) examiner Long did not revise the relevant questions supplied to him by defense counsel so as to eliminate the possibility of Davis'...
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