IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 16, 2009
No. 08-20038 Charles R. Fulbruge III
Clerk
UNITED STATES OF AMERICA
Plaintiff-Appellee
v.
JAMES A BROWN; ROBERT S FURST;
DANIEL BAYLY
Defendants-Appellants
Appeal from the United States District Court
for the Southern District of Texas
Before REAVLEY, WIENER, and SOUTHWICK, Circuit Judges.
REAVLEY, Circuit Judge:
The defendants in this interlocutory appeal, all former employees of
Merrill Lynch, appear before us for the second time in connection with charges
that they conspired to defraud the Enron Corporation and its shareholders by
agreeing with Enron employees to “park” assets with Merrill Lynch in order to
artificially enhance Enron’s 1999 earnings. The assets at issue were power-
generating barges located off the coast of Nigeria that Merrill Lynch allegedly
agreed to buy from Enron based on a secret side-deal that Enron would buy the
barges back in six months. After a jury convicted the defendants in a general
verdict for inter alia conspiracy and substantive wire fraud offenses, we reversed
No. 08-20038
those convictions on the legal ground that the circumstances of the transaction
were not covered by the honest services theory of wire fraud, which was one of
three means of fraud charged in the indictment. See United States v. Brown
(Brown I).1 The Government then sought to re-try the defendants without the
honest services theory. The defendants now appeal from the district court’s
denial of their motion to dismiss the indictment on grounds of double jeopardy.
We AFFIRM the district court’s judgment.
I.
The underlying facts of the alleged fraudulent transaction between Enron
and Merrill Lynch are recounted in great detail in Brown I. Briefly stated,
Enron’s Asia/Pacific/Africa/China (APACHI) energy division was under pressure
in 1999 to sell assets in order to meet earnings targets but had been
unsuccessful in finding a buyer for the Nigerian barges, and so it turned to
Merrill for help. As this court wrote:
Merrill agreed to invest $7 million to purchase equity in the barges
so that Enron could record $12 million in earnings and meet its
forecasts. The Government contended, however, that the sale was
a sham because Enron executives orally promised Merrill a flat fee
of $250,000 and a guaranteed 15% annual rate of return over the
six-month period of Merrill’s investment; Enron executives allegedly
promised that Enron or an affiliate would buyback Merrill’s interest
in the barges if no third party could be found. Such a buyback
agreement, the Government contended, rendered Merrill’s interest
in the barges risk-free, meaning that Enron’s accounting of the deal
as a sale rather than a lease was false.2
Enron approached Merrill in December 1999 and recorded the barge deal at the
end of that year after multiple discussions among the defendants and Enron
employees. Merrill was apparently willing to participate because of the
1
459 F.3d 509, 517 (5th Cir. 2006).
2
Id. at 513.
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No. 08-20038
opportunity to foster good relations with Enron and because Enron management,
including C.F.O. Andrew Fastow, purportedly gave verbal assurances that
Merrill would be taken out of the deal within six months for a fixed rate of
return on the investment. Enron allegedly paid Merrill an “advisory fee” of
$250,000 even though Merrill did not provide any advisory services. In late June
2000, Merrill sold the barges through arrangements from Enron to a third
company controlled by Fastow for just over $7.5 million, representing the
promised six-month rate of return. Merrill thus earned $775,000 as a result of
its assistance to Enron, which was able to inflate and misstate its earnings
report.3
The Government charged the defendants, along with several others, in a
Third Superseding Indictment with violating the wire fraud statutes under 18
U.S.C. §§ 1343 4 and 1346 5 by scheming to defraud both Enron and its
shareholders. Count one charged a conspiracy while counts two and three
alleged substantive offenses.6 In Brown I we identified three objects alleged for
3
See id. at 514–16.
4
The statute provides in relevant part:
Whoever, having devised or intending to devise any scheme or artifice to
defraud, or for obtaining money or property by means of false or fraudulent
pretenses, representations, or promises, transmits or causes to be transmitted
by means of wire, radio, or television communication in interstate or foreign
commerce, any writings, signs, signals, pictures, or sounds for the purpose of
executing such scheme or artifice, shall be fined under this title or imprisoned
not more than 20 years, or both.
18 U.S.C. § 1343.
5
“For the purposes of this chapter, the term ‘scheme or artifice to defraud’ includes a
scheme or artifice to deprive another of the intangible right of honest services.” 18 U.S.C.
§ 1346.
6
Count one alleged in relevant part that the defendants:
conspired to: (a) knowingly and intentionally devise a scheme and artifice to
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No. 08-20038
the conspiracy: (1) to commit wire fraud by fraudulent deprivation of Enron’s
money or property (the “money or property charge”); (2) to commit wire fraud by
fraudulent deprivation of the intangible right to honest services (the “honest
services charge”); and (3) to falsify Enron’s books and records (the “books and
records charge”).7
The jury found the defendants guilty in a general verdict, but we reversed.
We noted that because the jury was not asked to indicate the basis for its
verdict, we could affirm only if the Government proved all three theories alleged
for criminal liability.8 The panel majority concluded, however, that the
circumstances of the transaction as alleged by the Government did not extend
to honest services wire fraud. The panel reasoned that while honest services
fraud generally involves bribery, kickbacks, or self-dealing, the defendants’
conduct was disassociated from such actions. The panel noted that the Enron
employees here breached a fiduciary duty in pursuit of corporate earnings goals,
defraud Enron and its shareholders, including to deprive them of the intangible
right of honest services of its employees, and to obtain money and property by
means of materially false and fraudulent pretenses, representations, and
promises, and for the purpose of executing such scheme and artifice to transmit
and cause to be transmitted by means of wire communication in interstate and
foreign commerce writings, signs, signals, pictures and sounds . . . and (b)
knowingly and willfully falsify books, records and accounts of Enron . . . .
Counts two and three alleged that the defendants,
having devised a scheme and artifice to defraud Enron and its shareholders,
including to deprive them of the intangible right of honest services of its
employees, and to obtain money and property by means of materially false and
fraudulent pretenses, representations, and promises, and for the purpose of
executing such scheme and artifice to defraud, did transmit and cause to be
transmitted by means of wire communication in interstate and foreign
commerce writings, signs, signals, pictures and sounds, specifically [as stated
in two separate counts, certain interstate transmissions by facsimile and email
between Houston and New York].
7
Brown I, 459 F.3d at 516, 518.
8
Id. at 518 (citing Yates v. United States, 354 U.S. 298, 77 S. Ct. 1064 (1957)).
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No. 08-20038
which Enron had tied through incentives to employee compensation.9 The panel
noted in a footnote that Enron’s corporate incentive policy, coupled with “senior
executive support” for the barge transaction, created an understanding that
Enron was a “willing beneficiary[] of the scheme” and set the case apart from
other honest services fraud cases.10 We specifically limited our holding to be that
the conduct alleged by the Government was not a federal crime under the honest
services theory of fraud, and we expressly declined to address the viability of the
money or property charge and the books and records charge remaining in the
indictment.11
Upon remand, the Government moved to redact the indictment to remove
all references to the honest services theory of fraud. The redacted version of the
indictment is otherwise identical to the indictment on which the defendants were
convicted at the first trial. The defendants moved to dismiss the redacted
indictment, raising claims of double jeopardy and arguing in part that Brown I
necessarily precluded a retrial. The district court denied the motion but certified
the double jeopardy claims for interlocutory appeal.12
II.
Defendants Bayly and Furst contest on double jeopardy grounds the
money or property charge of the redacted indictment. They contend that they
may not be retried insofar as the indictment alleges that they schemed to
9
See id. at 522 (stating that “where an employer intentionally aligns the interests of
the employee with a specified corporate goal, where the employee perceives his pursuit of that
goal as mutually benefitting him and his employer, and where the employee’s conduct is
consistent with that perception of the mutual interest, such conduct is beyond the reach of the
honest-services theory of fraud”).
10
Id. at 522–23 n.13 (distinguishing United States v. Gray, 96 F.3d 769 (5th Cir.
1996)).
11
Id. at 523.
12
See generally Abney v. United States, 431 U.S. 651, 97 S. Ct. 2034 (1977).
5
No. 08-20038
deprive Enron of money or property. They reason that the Government must
prove for this charge that they intended to deceive the putative victim but that
this court held in Brown I that Enron was a willing participant in the scheme.
They further contend that although Enron and its shareholders are legally
distinct, the district court erroneously determined that a fraud could be worked
on the corporation given that senior executives, including Fastow, approved the
deal and the executives’ actions show the corporation was not a victim. Finally,
they argue that even if the shareholders could be victims, the redacted
indictment fails to allege the deprivation of a legally cognizable money or
property interest. They do not contend that retrial on the books and records
charge would violate double jeopardy.
In a separate brief, Defendant Brown argues that a retrial is barred by the
Double Jeopardy Clause because the original indictment charged as the object
of the wire fraud only the deprivation of the intangible right of honest services,
a theory that Brown I rejected. According to Brown, the redacted indictment
fails to allege a valid offense apart from the honest services charge because it
fails to allege an identifiable and cognizable object of money or property as the
basis for the fraud and fails to allege that any Merrill Lynch employee deprived
or took anything away from Enron or its shareholders.
“As traditionally understood, the Double Jeopardy Clause precludes
multiple prosecutions and multiple punishments for the same offense.” United
States v. Yeager.13 When a reviewing court determines that the evidence at the
first trial was insufficient and reverses a conviction, a retrial will be barred by
double jeopardy. See Burks v. United States.14 A reversal on any other ground
13
521 F.3d 367, 371 (5th Cir. 2008).
14
437 U.S. 1, 18, 98 S. Ct. 2141, 2150–51 (1978).
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No. 08-20038
will not foreclose a second trial. United States v. Scott.15 The Double Jeopardy
Clause also incorporates the collateral estoppel doctrine, which means that
“when an issue of ultimate fact has once been determined by a valid and final
judgment, that issue cannot again be litigated between the same parties in any
future lawsuit.” Ashe v. Swenson.16
The defendants’ arguments in this appeal largely implicate this latter
aspect of double jeopardy and require us to revisit Brown I.17 Whether a
prosecution violates the Double Jeopardy Clause or is precluded by collateral
estoppel are issues of law that we review de novo.18
We are not persuaded that our decision in Brown I precludes a retrial.
Our opinion there was guided by the general verdict rule, which “requires a
verdict to be set aside in cases where the verdict is supportable on one ground,
but not on another, and it is impossible to tell which ground the jury selected.”
Yates v. United States.19 Citing Yates, we determined that the defendants’
convictions could not be upheld because there was no way to tell on which theory
the jury had rested its verdict and the Government failed to prove that the
honest services charge extended to the defendants’ conduct.20 But we did not
15
437 U.S. 82, 90–91, 98 S. Ct. 2187, 2193–94 (1978) (“The successful appeal of a
judgment of conviction, on any ground other than the insufficiency of the evidence to support
the verdict . . . poses no bar to further prosecution on the same charge.” (internal citation
omitted)).
16
397 U.S. 436, 443, 90 S. Ct. 1189, 1194 (1970).
17
Indeed, Bayly and Furst contend in their reply brief that our statement in Brown I
that Enron was a willing participant in the barge scheme is dispositive of their appeal.
18
Yeager, 521 F.3d at 370–71; United States v. Delgado, 256 F.3d 264, 270 (5th Cir.
2001).
19
354 U.S. 298, 312, 77 S. Ct. 1064 (1957), overruled on other grounds by Burks v.
United States, 437 U.S. 1, 98 S. Ct. 2141 (1978).
20
Brown I, 459 F.3d at 518, 523.
7
No. 08-20038
consider any other means of fraud alleged. We could not have been clearer that
our reversal was premised narrowly and solely on the failure of the honest
services charge, stating: “This opinion should not be read to suggest that no
dishonest, fraudulent, wrongful, or criminal act has occurred. We hold only that
the alleged conduct is not a federal crime under the honest-services theory of
fraud specifically.”21 The opinion implicitly, if not explicitly, recognized the
possibility that criminal wrongdoing might be proved in a retrial, as we noted
that “the Government must turn to other statutes, or even the wire fraud
statutes absent the component of honest services, to punish this character of
wrongdoing.”22 Brown I thus did not on its face preclude a retrial on the money
or property charge because the panel did not rule that the evidence for that
charge was insufficient.23
Nor are we persuaded by Bayly and Furst that the panel’s footnote
reference to Enron as a “willing beneficiary” precludes a theory of Enron as a
victim for all purposes. First, this contention does not account for the Enron
shareholders, who were also alleged in the indictment to be victims apart from
the corporation. Second, as part of the honest services discussion in Brown I, the
“willing beneficiary” language was used to narrow the construction of honest
services fraud to exclude the defendant’s conduct and to distinguish the case.24
The decision did not consider other avenues alleged for conviction, and instead
21
Id. at 523 (emphasis in original).
22
Id. at 522–23.
23
See Scott, 437 U.S. at 90–91, 98 S. Ct. at 2193–94.
24
See Brown I, 459 F.3d at 522–23 & n.13; see also United States v. Skilling, 554 F.3d
529, 545 (5th Cir. 2009) (“In essence, Brown [I] created an exception for honest-services fraud
where an employer not only aligns its interests with the interests of its employees but also
sanctions the fraudulent conduct, i.e., where the corporate decisionmakers, who supervised
the employees being prosecuted, specifically authorized the activity.”), pet. for cert. filed, 77
U.S.L.W. 3645 (U.S. May 11, 2009) (No. 08-1394).
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No. 08-20038
noted that we “need not address the viability of the Government’s remaining
theories of criminal liability (the money-or-property and books-and-records
charges).”25 Enron was thus not excluded by the decision in Brown I as a victim
for purposes of those charges.26
Brown’s contention that the original indictment alleged only an honest
services wire fraud offense, and that therefore a retrial presents a pure double
jeopardy issue, is contrary to a plain reading of Brown I, which specifically
recognized that the indictment alleged three means for the conspiracy. Brown’s
real argument is that without reference to honest services, the remaining
allegations of the indictment are insufficient to state an offense. For example,
he argues that the redacted indictment uses boilerplate language alleging a
scheme to obtain money or property but fails to identify a specific object of that
scheme. That contention is not a double jeopardy claim, however, and is not
properly before us on interlocutory review.27
The defendants present additional challenges in the guise of double
jeopardy but which similarly implicate sufficiency issues based on the district
court’s ruling. The district court held that the participation of Enron executives
in the barge deal did not preclude Enron and its shareholders from being victims
25
Brown I, 459 F.3d at 523.
26
We hold only that Brown I does not preclude a retrial for the money or property
charge and books and records charge. We do not hold that Enron or its shareholders were
deceived, but whether they were or not for purposes of the additional fraud allegations is a
question of fact best resolved at trial, not by a reviewing court addressing, as we did in Brown
I, the limited question whether the indictment alleged one specific type of wire fraud offense.
As an appellate court, we do not find facts. See, e.g., Icicle Seafoods, Inc. v. Worthington, 475
U.S. 709, 714, 106 S. Ct. 1527, 1530 (1986).
27
See Abney, 431 U.S. at 663, 97 S. Ct. at 2042 (holding that the sufficiency of the
indictment does not come within the rule permitting interlocutory review of a denial of a
motion to dismiss); see also United States v. Arreola-Ramos, 60 F.3d 188, 191 (5th Cir. 1995)
(“The interlocutory appeal that Abney permits is, however, limited to double jeopardy claims
and does not include other challenges.”).
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No. 08-20038
of the fraud because the corporation and shareholders enjoy a separate identity
from corporate officers and directors. It further determined that the right to
accurate shareholder information is a legally cognizable intangible property
right under the wire fraud statutes. Bayly and Furst contend that Enron’s
shareholders could not be victims separate from the corporation because the
indictment fails to allege the shareholders were deprived of either money or
legally cognizable “property.” They also contend that shareholders possess no
cognizable property right under 18 U.S.C. § 1343 in accurate economic
information. Brown similarly argues that the indictment fails to allege a scheme
to defraud any victim of that victim’s specific money or property, and that honest
services are the only intangible right protected under the wire fraud statutes.
If the defendants are correct—and we intimate no opinion on the matter—their
arguments concern the sufficiency of the offense alleged in the indictment, an
issue which we do not address and which must be left for another day.28
III.
We conclude that there is no issue of double jeopardy or collateral estoppel
that impairs a retrial here. The district court’s judgment is AFFIRMED.
28
Abney, 431 U.S. at 663, 97 S. Ct. at 2042.
10