United States v. Hazelwood
| Decision Date | 29 October 2020 |
| Docket Number | Nos. 18-6023/6101/6102,s. 18-6023/6101/6102 |
| Citation | 979 F.3d 398 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. Mark HAZELWOOD; Heather Jones; Scott Wombold, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Sixth Circuit |
In this wire fraud and mail fraud conspiracy case against employees of a multibillion-dollar gas company, Pilot Flying J (Pilot), the district court allowed the government to play audio recordings in which one of the defendants, Pilot President Mark Hazelwood, is heard using deeply offensive racist and misogynistic language. The district court admitted the recordings on the theory that if the defendant was reckless enough to use language that could risk public outrage against the company, he was a "bad businessman," and as a bad businessman, he was also reckless enough to commit fraud. This is vintage bad character evidence—and precisely the type of reasoning the Federal Rules of Evidence forbid.
The use of the audio recordings in this case jumped the rails of those rules. First, none of the Rules of Evidence support the recordings’ admissibility. Second, and more importantly, even if somehow otherwise admissible, the recordings are a textbook violation of Rule 403, because the risk of unfair prejudice eviscerates any purported probative value. For these reasons, we reverse the convictions of all three defendants.
The Manual-Rebate Scheme. Pilot Flying J (Pilot), headquartered in Knoxville, Tennessee, operates hundreds of truck stops nationwide and sells billions of gallons of diesel fuel annually to trucking companies. The government charged more than a dozen employees in Pilot's direct-sales division, including Defendants-Appellants Hazelwood, Scott Wombold, and Heather Jones,1 with conspiracy to defraud Pilot's trucking-company customers by falsely promising discounted fuel prices, and then secretly shorting those customers on the promised discounts through deceptive invoicing and rebate techniques. The indictment alleges that between February 2008 and April 2013 Hazelwood (who was Pilot's president and head of the direct-sales division) and Wombold (Pilot's vice-president of national accounts and manager of the direct-sales division) encouraged Pilot's direct-sales team to use the "manual rebate" technique,2 and that Heather Jones (a regional account representative on the direct-sales team) created fraudulent backup data to prevent the trucking companies from catching on to the scheme. The government charged Appellants Hazelwood, Wombold, and Jones with conspiracy to commit wire fraud ( 18 U.S.C. § 1343 ) and mail fraud (§ 1341) ("Count One"), as well as several individual counts of wire fraud ("Counts Two through Ten"). In addition, Wombold was charged with lying to investigators ( 18 U.S.C. § 1001(a)(2) ) ("Counts Eleven through Thirteen") and Hazelwood was charged with witness tampering ( 18 U.S.C. § 1512(b)(3) ) ("Count Fourteen").
Several other Pilot employees—Karen Mann, John Freeman, Vicki Borden, John Spiewak, and Katy Bibee—were charged in the same indictment. Freeman, Borden, Spiewak, and Bibee all pleaded guilty to the conspiracy charge. Karen Mann went to trial with Defendants.
The Government's Case and the Cross-Examination. The jury trial lasted over twenty-seven days. The government called nearly thirty witnesses, including cooperating Pilot employees who pled guilty for their roles in the conspiracy. The government also presented emails among the alleged co-conspirators, and undercover audio recordings. This appeal arises primarily from the admission of three of those tapes, wherein Hazelwood can be heard using profanity, making racial slurs, and belittling women. As described below, the district court admitted those recordings based on a complicated rebuttal theory.
The government's first witness was Janet Welch, a direct-sales account representative who pleaded guilty to mail fraud for her involvement in the rebate scheme. She testified that Pilot's sales division tried to persuade interstate trucking companies to buy gas from Pilot as opposed to its competitors. One way to increase sales was by offering discounted fuel prices. However, selling fuel at a discount would reduce Pilot's profit margin, so some Pilot employees looked for ways to offer significant discounts while secretly charging more. One such method was the manual-rebate scheme.
On cross-examination, Hazelwood's lawyer asked Welch whether "based on [her] years [at Pilot]" she believed that Hazelwood would approve the manual-rebate scheme. After the government objected, the court stated that the question "goes to character" and asked Hazelwood's attorney whether he "want[ed] to open up issues of character." When Hazelwood's attorney declined, the court sustained the objection. Later in the cross-examination, however, Hazelwood's attorney asked Welch about Hazelwood's "reputation as a manager and president within the company" and how she would rate him as a company president:
On the ninth day the government called Brian Mosher, who became a cooperating witness after pleading guilty to conspiracy to commit mail and wire fraud for his involvement in the manual-rebate scheme. Mosher, the director of national accounts, was one of the company's most ambitious salesmen. Mosher supervised Jones and reported to Wombold and Hazelwood. On direct examination, Mosher testified that he cheated customers by reducing their discounts without telling them. He further stated that Defendants Hazelwood and Wombold approved his use of the technique He also implicated Defendant Jones, who worked for him for five years, by testifying that she agreed to manipulate pricing data to make the fraudulent rebates appear legitimate.
On cross-examination, Hazelwood's attorney tried to expose flaws in Mosher's testimony. First, he attempted to reframe evidence that Hazelwood used profanity and endorsed aggressive sales tactics. To demonstrate a more supportive side of Hazelwood's management style, he showed Mosher a video of a presentation called "Mark the Driver," in which Hazelwood played the role of an average truck driver in order to teach Pilot employees to value the needs of their primary customers. He then asked Mosher whether the attitude shown in the Mark the Driver video was "inconsistent ... with these manual rebate things, where the trucking companies were getting a different deal [than they were promised]." Mosher did not concede that point, answering that "one is a skit, and the other was how we conducted our rebates."
Later, Hazelwood's attorney asked Mosher a series of questions meant to show that Hazelwood was too good a businessman to engage in something as high-risk and low-reward as the manual-rebate scheme:
The Recordings. After Hazelwood's cross-examination of Mosher, but before its redirect examination, the government filed a motion to introduce "rebuttal character evidence pursuant to Federal Rules of Evidence 404(a)(2)(A) and 405." In that motion, the government sought to offer the inflammatory audio recordings that form the crux of this appeal, claiming that the recordings captured Hazelwood engaging in conduct incompatible with his defense theory that he would never do anything to jeopardize Pilot's reputation or success.
Those recordings were made undercover by Vince Greco, a member of Pilot's direct sales team who agreed to cooperate with federal agents in the investigation that led to the charges in this case. On October 25, 2012, Greco attended a management meeting of Pilot...
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