U.S. v. Brown

• Decision Date: 12 August 2011
• Docket Number: No. 10–20621.,10–20621.
• Citation: 650 F.3d 581
• Parties: UNITED STATES of America, Plaintiff–Appellee,v.James A. BROWN, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

650 F.3d 581

UNITED STATES of America, Plaintiff–Appellee,
v.
James A. BROWN, Defendant–Appellant.

No. 10–20621.

United States Court of Appeals, Fifth Circuit.

Aug. 12, 2011.

[650 F.3d 582]

Stephan Edward Oestreicher, Jr. (argued), U.S. Dept. of Justice, Crim. Div., Washington, DC, for Plaintiff–Appellee.Sidney Katherine Powell (argued), Dallas, TX, Daniel K. Hedges, Porter & Hedges, L.L.P., Houston, TX, Torrence Evans Lewis, Law Offices of Sidney Powell,

[650 F.3d 583]

Asheville, NC, for Defendant–Appellant.Appeal from the United States District Court for the Southern District of Texas.Before SMITH, SOUTHWICK and GRAVES, Circuit Judges.JERRY E. SMITH, Circuit Judge:

James Brown challenges his convictions on the ground that the government violated his right to due process by withholding materially favorable evidence that it possessed pre-trial. See Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963). Because the district court did not clearly err in holding that the evidence was not material, we affirm.

I.

This appeal arises from an earlier trial relating to the Enron scandal. See United States v. Brown ( Brown I), 459 F.3d 509, 513 (5th Cir.2006). At years' end 1999, Merrill Lynch purchased an equity interest in three barge-mounted power generators off the Nigerian coast from Enron Corporation (“Enron”) for $28 million, with Merrill Lynch paying Enron $7 million and Enron loaning Merrill Lynch the balance. Enron booked a roughly $12 million profit on the transaction. The government contended that the sale was a sham whose sole purpose was to allow Enron artificially to enhance its fourth-quarter earnings to meet forecasts. According to the government, the transaction was not a true sale, because Enron did not actually sell a stake in the barges but instead secretly promised that a company run by Andrew Fastow, Enron's CFO, would buy back the stake in the barges from Merrill Lynch within six months for a guaranteed 15% return plus a $250,000 “advisory fee.” In other words, the government alleged Enron just loaned out the stake in the barges to Merrill Lynch, risk-free and with a guaranteed return, but made it seem like a sale so that it could book a pretend profit.

Brown was a managing director at Merrill Lynch and the head of its Strategic Asset and Lease Finance group at the time of the transaction. He testified to a grand jury that, to his knowledge, Enron had never promised that it would buy back Merrill Lynch's equity in the barges within six months of the purported sale.

The government indicted Brown, charging him with, as relevant here, perjury and obstruction of justice, alleging that Enron executives orally guaranteed to repurchase Merrill Lynch's equity stake in the barges, and Brown knowingly lied to the grand jury about his understanding of the transaction.¹ Specifically, the indictment quoted the following testimony and alleged that the underlined portions were false:

Q. Do you have any understanding of why Enron would believe it was obligated to Merrill to get them out of the deal on or before June 30th?

....

A. It's inconsistent with my understanding of what the transaction was.

....

[650 F.3d 584]

Again, do you have any information as to a promise to Merrill Lynch that it would be taken out by sale to another investor by June 2000?

A. In—no, I don't—the short answer is no, I'm not aware of the promise. I'm aware of a discussion between Merrill Lynch and Enron on or around the time of the transaction, and I did not think it was a promise though.

Q. So you don't have any understanding as to why there would be a reference to a promise that Merrill would be taken out by sale to another investor by June of 2000?

A. No.

Also relevant is the following testimony elaborating on Brown's understanding of the transaction:

Q. And let me now direct your attention to the to the [sic] paragraph of the Nigerian barge project. Now, do you see where it says in the second-to-last line, “[Merrill Lynch] was supportive based on Enron relationship [sic], approximately $40 million in annual revenues, and assurances from Enron management that we will be taken out of our $7 million investment within the next three to six months.” Does that accord with your understanding of the transaction?

A. No. I thought we had received comfort from Enron that we would be taken out of the transaction within six months or would get that comfort. If assurance is synonymous with guarantee, that is not my understanding. If assurance is interpreted to be more along the lines of strong comfort or use best efforts, that is my understanding.

We summarize the detailed evidence presented at trial relating to the perjury and obstruction-of-justice charges: On December 22, 1999, Merrill Lynch employee Tina Trinkle participated in a conference call (the “Trinkle call”) that included Brown. Trinkle testified that, during the call, “[s]omebody at Enron” promised Merrill Lynch that the Nigerian barges would be bought back, and a Merrill Lynch executive (possibly Brown himself; Trinkle was not sure) rejected putting that guarantee in writing, because it would not allow “the right accounting treatment.” Merrill Lynch employees asserted during the call that someone at Enron—they did not say who—had given them “his word” and “his strongest verbal assurances” of a buyback. No lawyers participated in the call.

Trinkle said Brown “was very negative on the deal, and he felt that it had a lot of risks.”² For example, Trinkle said Brown was concerned about the “political risk” involved in the transaction (because the barges were in Nigeria). Brown's notes also indicate that he was concerned about the “reputational risk” of “aid[ing]/abet[ting] Enron income stmt. manipulation,” and he communicated those concerns to Bill Fuhs, a vice-president working under him.

Katherine Zrike, chief counsel for Merrill Lynch's investment banking division, said Bob Furst, a managing director at Merrill Lynch and the investment banker responsible for the Enron account, told her, before the Trinkle call, that “the only agreement between Enron and Merrill Lynch was that Enron would help Merrill Lynch re-market the barges,” that is, do its best to find a third party to purchase them from Merrill Lynch. Indeed, a memorandum dated the day before the Trinkle call and sent from Furst to Brown said, “Enron is viewing this transaction as

[650 F.3d 585]

a bridge to permanent equity and they believe our hold will be for less than six months.” (Emphasis added.)

After the Trinkle call, that same day, Zrike convened a meeting of Merrill Lynch's Debt Markets Commitment Committee (“DMCC”), in which Brown participated, at which “everybody was agreeing” that there could not be a buyback of Merrill Lynch's equity interest in the barges, because that would not permit Enron legally to account for the transfer of the barges to Merrill Lynch as a sale. Furst stated at the meeting that the “ ‘real agreement with Enron is only to re-market.’ ” The DMCC did not approve the transaction but instead opted to have Dan Bayly, head of investment banking at Merrill Lynch, and his boss, Tom Davis, review it for approval or rejection.

Shortly thereafter, Zrike, Bayly, and others (but not Brown) met with Davis in Davis' conference room, where the deal was explained to Davis. Zrike said they “talked about the fact that this needed to be a true sale and, therefore, all risks of loss and all risks associated with owning the barge would pass to Merrill Lynch for the time that it owned the barges.” Zrike mentioned the risks of dealing with a property located in Nigeria, and there was a discussion about the fact that there had been no due diligence on the barges. Davis ultimately approved the deal, although he was “not happy” about it.

Brown went on vacation the day after the Trinkle call and DMCC meeting. ³ That day, Fastow conducted a conference call with Merrill Lynch that did not include Brown or Merrill Lynch's chief counsel, Zrike. No one who participated in the call testified about its contents, but Eric Boyt, an in-house accountant at Enron, testified that Daniel Boyle, an Enron finance executive who participated in the call, told him right after the call that Fastow had guaranteed a buyback with 15% return in six months if a buyer could not be found. Ben Glisan and Michael Kopper, both high-ranking Enron finance executives, also testified that Fastow and Enron Treasurer Jeff McMahon later told them that they had “promised” Merrill Lynch that they would make sure it was out of the Nigerian barge transaction within six months.

There are also contemporaneous emails from Glisan and James Hughes, another Enron executive, saying, respectively, that, “[t]o be clear, Enron is obligated to get Merrill Lynch out of the deal [by] June 30” and that if “no one will take the Merrill Lynch position, then Enron will inherit it.” Finally, there is an unsigned, undated internal Merrill Lynch document from sometime before December 31, 1999, that says that Enron “assured” Merrill Lynch that it “will be taken out of our investment within six months.”

The engagement letter itself, which was signed by Brown, makes no mention of a buyback guarantee or a remarketing agreement.⁴ An earlier draft of the letter, written by an associate in Brown's department and sent to Fuhs on December 23,

[650 F.3d 586]

1999 (while Brown was away), says, however, that Merrill Lynch's stake in the barges “will be subsequently sold to third party investors or purchased by Enron or an affiliate” and that Merrill Lynch would receive a 15% annualized return on its investment. Enron executive Boyle struck that language before the final draft.

Sean Long, head of the Enron group that oversaw the Nigerian barge project in Africa, testified that no one at Merrill Lynch “contact[ed] [him] at all with respect to the barges” between January and June 2000; that is, Merrill Lynch did not follow-up on the barges after it bought them, which...