A few years ago I wrote an article that compared the powerful tools of the prosecutors of white-collar crimes against the obstacles civil litigants face in trials surrounding the same bad acts. Two of the tools that I mentioned were a certain overbroad federal statute that criminalized "theft of honest services" and a legal theory under which prosecutors (but not civil litigants) could prove state of mind by proving "conscious avoidance." As we know, the Supreme Court has pruned away the honest services statute to make it mostly inapplicable to corporate crimes in Skilling v. U.S. But what about the conscious avoidance theory?
Conscious avoidance, sometimes called "willful ignorance," or "willful blindness," has helped prosecutors get convictions against several high-profile white-collar defendants, including Bernard Ebbers, Ken Lay and Jeff Skilling. (This theory is often used in federal drug-related cases as well.) This theory, in the form of a jury instruction, allows jurors to find that defendants commited securities fraud with intent even absent proof of knowledge of the specific illegal acts if "the evidence would permit a rational juror to conclude beyond a reasonable doubt that the defendant was aware of a high probability of the fact in dispute and consciously avoided confirming that fact." The Second Circuit affirmed Ebbers' conviction on these grounds, but the Fifth Circuit hinted in late 2006 that Skilling's jury instruction on this theory may have been flawed. In upholding the denial of bail pending appeal, the Fifth Circuit noted, however, that "[o[ur review has disclosed serious frailties in Skilling's conviction of conspiracy, securities fraud, and insider trading, difficulties brought by a decision of this court handed down after the jury's verdict, as well as less formidable questions regarding the giving of a jury instruction on deliberate ignorance." (I can find no link to this document outside PACER. This quote appeared in the WSJ on December 12, 2006.) As we know, the first part of the sentence hinted to the honest services portion of the verdict, and we've not yet addressed the "less formidable questions" on the conscious avoidance jury instruction.
But wait, there's more. Earlier this month, the Second Circuit, the same circuit that upheld the conscious avoidance theory as used in the Ebbers' conviction, has vacated Mark P. Kaiser's 2006 conviction for securities fraud. Kaiser was the chief marketing officer for U.S. Foodservice, which seems to have pumped up its financials by manipulating a rebate program with its vendors. In instructing the jury, the trial judge did not use the above language favored by the Second Circuit, instead stating
In determining whether the defendant acted knowingly, you may consider whether the defendant deliberately closed his eyes to what otherwise would have been obvious. To put it in very concise terms, there are times that a person can consciously avoid looking at facts that are available and that, in the law, is the equivalent of knowledge; in other words, you can't just hide yourself from knowing something, deliberately hide and then escape responsibility for that. And so we have the concept in the law of conscious avoidance.
And if there was conscious avoidance, that is deliberate failure to learn information, then that is the equivalent of actual knowledge, because somebody can't escape criminal responsibility by deliberately shutting his eyes to something which would have told him the facts.
The Second Circuit (2010 WL 2607140, July 1, 2010) concluded that this less-than-articulate formulation was closer to negligence than "conscious avoidance." To be accurate, a jury instruction has to communicate to points regarding conscious avoidance: "(1) that a jury may infer knowledge of the existence of a particular fact if the defendant is aware of a high probability of its existence, (2) unless the defendant actually believes that it does not exist.” The court refers to these parts of the instruction as the "high probability" and "actual belief" portions. So, Kaiser's seven-year sentence was vacated (on this and other grounds).
Does this have anything to do with Skilling? Probably not. Jeff Skilling's 2007 appellate brief to the Fifth Circuit argued the appropriateness of the instruction given the facts -- Skilling never asserted that he did not know about a fraud, he asserted that there was no fraud. Though his co-defendant, Lay, asserted ignorance, Skilling testified that he tried to know everything. At the time of the verdict, commentators were surprised that the instruction was used against Skilling and thought it was give the jury another way to convict by suggesting that Skilling should have known of the frauds. Skilling's brief led with this argument, but the Fifth Circuit (554 F. 3d 529 (5th Cir. 2009)) held that even if the trial judge shouldn't have given the instruction, that error was harmless because there was evidence of actual knowledge the jury could have been relying on. The court did not remark on the language of the instruction:
The word “knowingly,” as that term is used throughout these instructions, means that the act was done voluntarily and intentionally, not because of mistake or accident. You may find that a defendant had knowledge of a fact if you find that the defendant deliberately closed his eyes to what would otherwise have been obvious to him. While knowledge on the part of the defendant cannot be established merely by demonstrating that the defendant was negligent, careless, or foolish, knowledge can be inferred if the defendant deliberately blinded himself to the existence of a fact.
I could certainly challenge the reasoning that introducing what is known as a particularly dangerous instruction could influence whether a jury finds evidence of actual knowledge compelling or not. However, as time as played on, the honest services point on appeal became the one chosen for the writ of certiorari (along with the unsuccessful venue argument). Will we see this issue in the Skilling litigation again? Not sure, but it may be the next prosecutorial tool to come under broader attack.
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