U.S. v. Lay

• Court: U.S. District Court — Southern District of Texas
• Writing for the Court: Lake
• Citation: U.S. v. Lay, 456 F.Supp.2d 869 (S.D. Tex. 2006)
• Decision Date: 17 October 2006
• Docket Number: Criminal Action No. H-04-0025.
• Parties: UNITED STATES of America, v. Kenneth L. LAY, Defendant.

456 F.Supp.2d 869

UNITED STATES of America, v. Kenneth L. LAY, Defendant.

Criminal Action No. H-04-0025.

United States District Court, S.D. Texas, Houston Division.

October 17, 2006.

Robert J. Sussman, Lead Attorney, Hinton Sussman, et al., Houston, TX, for Larry Lawyer, Rodney L. Faldyn, Wade Stubblefield, Movants.

Wendell A. Odom, Jr., Lead Attorney, Houston, TX, for Michael Anderson, Movant.

Joseph R. Larsen, Lead Attorney, Ogden Gibson, et al., Houston, TX, for Sheila McNulty, Movant.

Randall D. Armentrout, Lead Attorney, Nyemaster Goode et al., Des Moines, IA, for Arild Holm, Movant.

Samuel J. Buffone, Lead Attorney, Ropes & Gray, Washington, DC, for Estate of Kenneth L. Lay, Movants.

"Keli Luther, Lead Attorney, Crime Victims Legal Assistance Project, District of Arizonia, AR, for Russell P. Butler, Movant.

Charles G. King, III, Lead Attorney, King & Pennington, LLP, Houston, TX, for Goldman Sachs & Co., Interested Party.

Gregory A. Markel, Lead Attorney, Cadwalader Wickersham et al., New York City, for Bank of America N.A., Interested Party.

Joseph R. Larson, Lead Attorney, Ogden Gibson et al., Houston, TX, for Chronicle, Associated Press, Interested Parties.

William J. Murphy, Lead Attorney, Murphy & Shagger, Baltimore, MD, for Ronald T. Astin, Interested Party.

John K. Villa, Lead Attorney, Williams, & Connolly, LLP, Washington, DC, for Vinson & Elkins, LLP, Interested Party.

Philip Harlan Hilder, Lead Attorney, Hilder & Associates, Houston, TX, for Sherron S. Watkins, Interested Party,

Rosslyn Stevens Hummer, Latham & Watkins LLP, Los Angeles, CA, for Arthur Anderson LLP, Interested Party.

Lynn Lincoln Sarko, Lead Attorney, Keller Rohrback LLP, Seattle, WA, Robin L. Harrison, Campbell Harrison, et al., Houston, TX, for Title Plaintiffs, Interested Party.

Dan Lamar Cogdell, Lead Attorney, Cogdell Law Group, Houston, TX, William D. Dolan, III, Lead Attorney, Venable Baetjer, et al., Vienna, VA, for Ken Rice, Material Witness.

Financial Litigation, Lead Attorney, US, Attorney's Office, Southern District of Texas, Houston, TX, U.S. Marshall — H, Lead Attorney, Houston, TX, US Pretrial Svcs — H, Lead Attorney, Houston, 14X, US Pretrial Probation — H, Lead Attorney, Houston, TX, Kathryn H. Rummler, Lead Attorney, US Dept. of Justice Crim. Div., Enron Task Force, Houston, TX, Linda Lacewell, Lead Attorney, Asst. U.S. Atty., Washington, DC, Patrick T. Murphy, Lead Attorney, US Dept. of Justice, Washington, DC, Sean Berkowitz, Lead Attorney, Enron Task Force, Washington, DC, for USA, Plaintiff.

MEMORANDUM OPINION AND ORDER

LAKE, District Judge.

On May 25, 2006, following a sixteen week jury trial and a separate one week bench trial, Kenneth L. Lay was found guilty of all ten counts charged against him in the Second Superseding Indictment: conspiracy to commit securities and wire fraud (count 1), wire fraud involving false and misleading statements in employee meetings (counts 12-13), securities fraud involving presentations to securities analysts and rating agency representatives (counts 27-29),¹ bank fraud (count 38), and making false statements to banks (counts 39-41).² On July 5, 2006, Lay suffered a heart attack and died. Pending before the court are the Motion of the Estate of Kenneth L. Lay to Vacate His Conviction and Dismiss the Indictment (Docket Entry No. 1082), and the motion of alleged crime victim Russell L. Butler for an order of restitution contained in Crime Victim's Motion Opposing Motion of the Estate of Lay to Vacate His Conviction and Dismiss the Indictment (Docket Entry No. 1091). For the reasons explained below, the estate's motion to vacate and dismiss will be granted, and Butler's motion for an order of restitution will be denied.

I. Motion to Vacate and Dismiss

Citing United States v. Estate of Parsons, 367 F.3d 409 (5th Cir.2004) (en banc) the estate argues that Lay's conviction should be vacated and that the indictment as it relates to Lay should be dismissed because Lay's death deprived him of his right to pursue a planned appeal. The estate asserts that Lay engaged counsel to file and prosecute an appeal, that on the morning of July 5, 2006, Lay was pronounced dead in Aspen, Colorado, and that by Order of the Probate Court No. 1 of Harris County, Texas, in Cause No. 365,-466 entered on August 8, 2006, Letters Testamentary were issued to Linda P. Lay as Executrix of the Last Will and Testament of Kenneth L. Lay.³ In an unopposed motion filed on August 9, 2006, (Docket Entry No. 1079), the executrix sought leave to substitute the estate for Lay in this action so that the estate could file and prosecute, the pending motion to vacate and dismiss. On August 10, 2006, the court granted the motion to substitute (Docket Entry No. 1081). The estate argues that the doctrine of abatement ab initio applied in Parsons, 367 F.3d at 409, requires the court to grant the pending motion to vacate and dismiss.⁴

II. Opposition to Motion to Vacate and Dismiss

A. United States' Opposition

Without disputing the estate's argument that Parsons, 367 F.3d at 409, requires abatement ab initio of this action against Lay, "[t]he United States opposes [the pending motion to vacate and dismiss] on grounds that the Lay Estate should not be unjustly enriched with the proceeds of fraud that would otherwise be subject to forfeiture and distribution to Lay's victims."⁵ 5 Asserting that "the verdicts established Lay's fraud as charged in the indictment beyond a reasonable doubt,"⁶ and that the guilty verdicts returned against him provide a "basis for the likely disgorgement of fraud proceeds totaling tens of millions of dollars,"⁷ the United States "requests that the Court defer ruling on the motion filed by the Lay Estate until the previously scheduled date of sentencing, October 23, 2006."⁸ The United States explains that by deferring its ruling the court will allow Congress "a reasonable opportunity to address the issue of abatement through a legislative proposal that has recently been presented."⁹

B. Crime Victim's Opposition

Russell P. Butler, an individual who asserts that he is a victim of the crimes for which Lay was found guilty, moves the "Court to order restitution based on the conviction of Defendant Lay ... pursuant to 18 U.S.C. § 3771(6) and (8) as well as Mandatory Victims Restitution Act of 1996, PL 104-132, 1996 S. 735."¹⁰ Butler argues that the estate's motion to vacate and dismiss should be denied because "such an order would violate the Crime Victim's due process right to statutorily authorized restitution."¹¹ Asserting that the CVRA "codifies several statutory rights implicated by the Lay Estate's motion including the right to fairness; the right to notice; the right to be present; the right to be heard as well as the right to full and timely restitution,"¹² Butler argues that

enactment of the CVRA transforms the Lay Estate's seemingly routine abatement motion into a case of first impression [because] ... if granted, [it] will leave Mr. Butler—and thousands of additional crime victims—. . . .stripped of their statutory right to restitution for the crimes committed by Kenneth L. Lay.¹³

Citing the dissent in Parsons, 367 F.3d at 421-422, Butler argues that these statutes "mandate restitution for designated crimes,"¹⁴ and create "a property interest that is improperly erased if restitution is abated."¹⁵

III. Analysis

A. Controlling Authority

In Durham v. United States, 401 U.S. 481, 91 S.Ct. 858, 860, 28 L.Ed.2d 200 (1971) (per curiam), the Supreme Court adopted the so-called "abatement rule," holding that "death pending direct review of a criminal conviction abates not only the appeal but also, all proceedings had in the prosecution from its inception." See also Parsons, 367 F.3d 409; United States v. Pauline, 625 F.2d 684, 685 (5th Cir.1980). Five years later in Dove v. United States, 423 U.S. 325, 96 S.Ct. 579, 46 L.Ed.2d 531 (1976) (per curiam), the Supreme Court overruled Durham in an opinion that the Fifth Circuit has described as "42 cryptic, enigmatic words." Pauline, 625 F.2d at 685. The Dove decision simply states that

[t]he Court is advised that the petitioner died at New Bern, N.C., on November 4, 1975. The petition for certiorari is therefore dismissed. To the extent that Durham v. United States, 401 U.S. 481, 91 S.Ct. 858, 28 L.Ed.2d 200 (1971), may be inconsistent with this ruling, Durham is overruled.

96 S.Ct. at 579. Reasoning that "[t]here are substantial differences between appeals of right and petitions for certiorari," the Fifth Circuit joined other courts of appeals in concluding that Dove applies only to petitions for certiorari, not to appeals of right. Pauline, 625 F.2d at 685. See also United States v. Asset, 990 F.2d 208, 210 (5th Cir.1993), abrogated on other grounds by Parsons, 367 F.3d at 409 ("It is well established in this circuit that the death of a criminal defendant pending an appeal of his or her case abates, ab initio, the entire criminal proceeding."); United States v. Schuster, 778 F.2d 1132, 1133 (5th Cir.1985) ("Under the firmly established rule in this circuit, the death of a defendant pending conclusion of the direct criminal appeal abates, ab initio, not only the appeal, but the entire criminal proceeding.").

Nevertheless, prior to issuing its en banc opinion in Parsons, 367 F.3d at 409, the Fifth Circuit did not apply the doctrine of abatement ab initio to orders for restitution or forfeiture without first looking to the purpose for which such an order had been issued. See Parsons, 367 F.3d at 413. Orders intended to punish the defendant were considered penal and abated with the rest of the conviction while orders intended to make a defendant's victims whole were considered compensatory and survived the defendant's death. Id. (citing United States v. Mmahat, 106 F.3d 89, 93 (5th Cir.), cert. denied, 522 U.S. 878, 118 S.Ct. 200, 139 L.Ed.2d 138 (1997)). In Parsons the Fifth Circuit examined the principles behind that...