U.S. v. Nacchio

Decision Date25 February 2009
Docket NumberNo. 07-1311.,07-1311.
PartiesUNITED STATES of America, Plaintiff-Appellee, v. Joseph P. NACCHIO, Defendant-Appellant.
CourtU.S. Court of Appeals — Tenth Circuit

Maureen E. Mahoney of Latham & Watkins LLP, (Alexandra A.E. Shapiro, J. Scott Ballenger, and Nathan H. Seltzer of Latham & Watkins LLP, Washington, DC; and Herbert J. Stern and Jeffrey Speiser of Stern & Kilcullen, Roseland, NJ, with her on the briefs), for Defendant-Appellant.

Edwin S. Kneedler, Deputy Solicitor General, Office of the Solicitor General, Department of Justice, (Troy A. Eid, United States Attorney, and James O. Hearty and Kevin T. Traskos, Assistant United States Attorneys, District of Colorado; and Leo J. Wise and Stephan E. Oestreicher Jr., Attorneys, Criminal Division, Department of Justice, Washington, DC, with him on the briefs), for Plaintiff-Appellee.

Andrew H. Schapiro, Mayer Brown LLP, New York, NY; and Barbara E. Bergman, National Association of Criminal Defense Lawyers, Albuquerque, NM, filed an amicus curiae brief for the National Association of Criminal Defense Lawyers.

Before HENRY, Chief Judge, TACHA, KELLY, BRISCOE, LUCERO, MURPHY, HARTZ, McCONNELL, and HOLMES, Circuit Judges.

OPINION ON REHEARING EN BANC

HOLMES, Circuit Judge, joined by TACHA, BRISCOE, LUCERO, and HARTZ, Circuit Judges.

A jury convicted Joseph Nacchio, the former CEO of Qwest Communications International, Inc. ("Qwest"), of nineteen counts of insider trading. On appeal, Mr. Nacchio challenged his conviction, his sentence, and the forfeiture of his assets. Regarding his conviction, he argued that the evidence was insufficient to convict him, that the jury was improperly instructed, and that the trial judge incorrectly excluded both expert-testimony evidence and classified information important to his defense. A divided panel of this Court affirmed on the sufficiency of the evidence, jury instruction, and classified information issues but held that the expert testimony had been improperly excluded. The panel did not reach the challenges that Mr. Nacchio raised to the forfeiture of his assets or his sentencing enhancement. Thus, the case was reversed and remanded for a new trial. See United States v. Nacchio ("Nacchio I"), 519 F.3d 1140 (10th Cir.2008).

We granted rehearing en banc to consider the expert testimony issue.1 In accordance with our local rule, the judgment was vacated, the mandate stayed, and the case was restored as a pending appeal. See 10th Cir. R. 35.6. On rehearing en banc, we hold that the expert testimony was properly excluded and affirm the district court's judgment. We now vacate the panel opinion insofar as it reversed the district court's judgment, including Parts II(A), IV, and V, as well as the separate concurring and dissenting opinion. The remainder of the panel's decision remains in effect.

I. BACKGROUND

As the panel opinion provides a full recitation of the factual background, see Nacchio I, 519 F.3d at 1144-48, we discuss only the relevant events and rulings as needed to frame our analysis. The government had alleged that Mr. Nacchio, the former CEO of Qwest, made sales of shares of Qwest stock from January to May 2001 on the basis of material, nonpublic information. The jury trial commenced after more than a year of discovery and motions in limine, during which Mr. Nacchio disclosed no expert witness.

On March 16, 2007—three days prior to the start of trial—Mr. Nacchio first disclosed, pursuant to Fed.R.Crim.P. 16(b)(1)(C) ("Rule 16"), that he planned to call to the stand Professor Daniel Fischel as an expert. Under certain circumstances, Rule 16 requires a defendant to provide to the government, upon request, a written summary of any expert testimony that the defendant intends to use as evidence at trial under Federal Rules of Evidence ("FRE") 702, 703, or 705. "This summary must describe the witness's opinions, the bases and reasons for those opinions, and the witness's qualifications." Fed.R.Crim.P. 16(b)(1)(C).

It is undisputed that a Rule 16 disclosure was required in this case, because Mr. Nacchio previously had requested, pursuant to Fed.R.Crim.P. 16(a)(1)(G), a summary of any expert testimony the government intended to use during its casein-chief at trial. Aplee. Supp. En Banc App. 3. The provisions of Rule 16 are "intended to meet [the need for counsel to learn that an expert is expected to testify] by first, requiring notice of the expert's qualifications which in turn will permit the requesting party to determine whether in fact the witness is an expert within the definition of Federal Rule of Evidence 702." Fed. R.Crim.P. 16 advisory committee's note (1993). Next, "the requesting party is entitled to a summary of the expected testimony." Id. And finally, "and perhaps most important, the requesting party is to be provided with a summary of the bases of the expert's opinion." Id. (emphasis added).

Pursuant to Rule 16, Mr. Nacchio provided the government with a short summary of Professor Fischel's anticipated testimony as well as his curriculum vitae. Aplt.App. 460. The government objected that the disclosure did not satisfy the requirements of Rule 16 and requested a complete, proper disclosure. Aplee. Supp.App. 35. The government's objection additionally highlighted shortcomings of the disclosure under various rules of evidence, including FRE 702, and it included several references to the expert testimony requirements of Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). Aplee. Supp.App. 35, 38-42. The district court agreed that Mr. Nacchio's notice did not comply with Rule 16 because it "offer[ed] no bases or reasons whatsoever for Professor Fischel's opinions contained in the summary" and stated that "[t]he matter may be settled through analysis under Rule 16." Aplt.App. 349-52. The district court also noted, however, the government's additional assertion that the disclosure did not satisfy "[FRE] 401, 403, 602, 702, and 704." Aplt.App. 351. The district court instructed that "Defendant shall produce an expert disclosure compliant with the federal rules described herein by March 26, 2007." Aplt.App. 352 (emphasis added).

On March 22, 2007, while the jury was dismissed, the district court granted Mr. Nacchio three extra days to provide his revised Rule 16 disclosure. In doing so, the district court judge stated that he was "flabbergasted ... that [Mr. Nacchio] could think that was an adequate expert disclosure" and that "I think the rule is pretty clear, and ... it's pretty close to what is required in the civil area."2 Aplt.App.2038, 2041. The following exchange then took place:

[GOV'T ATTORNEY]: [I]t's my concern at least based on the way the disclosure is raised right now, there could be Daubert issues that arise with respect to certain parts of the testimony. ...

THE COURT: Probably not Daubert, but maybe Kumho Tire issues.

[GOV'T ATTORNEY]: Yes, I misspoke.

[DEFENSE COUNSEL]: In Latin, forewarned is forearmed.

THE COURT: That's not Latin.

[DEFENSE COUNSEL]: No, but I don't speak Latin.

THE COURT: All right.

Aplt.App.2041-42 (emphasis added).

Mr. Nacchio provided a revised Rule 16 disclosure on March 29 which summarized Professor Fischel's qualifications as an academic, his research and teaching in law and finance, and his previous experience both consulting and testifying. The disclosure outlined the bases for Professor Fischel's opinions and highlighted specific expected areas of testimony as well as the documents and data reviewed by Professor Fischel in connection with this matter. Aplt.App. 425-34. This revised Rule 16 disclosure explained that in reaching his conclusions, Professor Fischel had conducted a "study of the Questioned Sales in relation to various benchmarks and other relevant criteria." Aplt.App. 427. The revised disclosure also noted that Professor Fischel had analyzed Qwest's guidance, its actual stock performance, and reaction from the investment community; Qwest's guidance history compared to the guidance history of other telecommunications firms; and various facets of Qwest's revenue from indefeasible rights of use. Aplt.App. 430-32.

On Tuesday, April 3, the government filed a 63-page motion to exclude Professor Fischel's expert testimony. Aplt.App. 362. In this motion, the government thoroughly addressed the standards and case law of Rule 16 and FRE 401, 403, 602, 702, and 703, and discussed them in the context of Professor Fischel's qualifications and relative to each of his opinions as set forth in the revised Rule 16 disclosure. Aplt. App. 367-418. Included throughout were references to Professor Fischel's methodology and arguments regarding the role of Daubert3 and FRE 702's reliability requirement in establishing the admissibility of expert testimony. See, e.g., Aplt.App. 385, 388, 390, 405, 408. The government asserted that not only had Mr. Nacchio failed to comply with Rule 16, but that Mr. Nacchio had not established the admissibility of the evidence with respect to any of the proposed opinions due to, inter alia, failure to comply with FRE 702, and thus Professor Fischel's testimony should be excluded. The government further requested that, if the district court was inclined to allow any portion of the expert testimony "based on the disclosures to date," the court grant a hearing prior to the admission of the testimony "in order to [permit the government to] challenge its admissibility out of the presence of the jury." Aplt.App. 421 ("taking note of `Daubert's requirement that some reliability determination must be made by the trial court before the jury is permitted to hear the evidence'" (quoting Dodge v. Cotter Corp., 328 F.3d 1212, 1229 (10th Cir. 2003))). The government additionally requested that in advance of such a hearing, Professor Fischel should provide the reasons and bases of his opinions for the government's review. Aplt.App. 421-22.

Mr. Nacchio filed a...

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