United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
August 1, 2006
FOR THE FIFTH CIRCUIT
_____________________ Charles R. Fulbruge III
Clerk
No. 05-20319
_____________________
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
JAMES A. BROWN; DANIEL BAYLY; ROBERT S. FURST; WILLIAM R. FUHS,
Defendants - Appellants.
_________________________________________________________________
Appeals from the United States District Court
for the Southern District of Texas
USDC No. 4:03-CR-363-2
_________________________________________________________________
Before REAVLEY, JOLLY, and DeMOSS, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
This appeal arises from a six-week trial in which the
Government charged that Enron and Merrill Lynch employees of
engaged in a conspiracy and scheme to defraud Enron and its
shareholders by “parking” an Enron asset -- an equity interest in
three power-generating barges moored off the coast of Nigeria --
with Merrill for six months for the purpose of artificially
enhancing Enron’s 1999 end-of-year earnings report. 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. The jury agreed and convicted the
appellants of conspiracy and wire fraud. Additionally, appellant
Brown was convicted of perjury and obstruction of justice. For the
reasons stated below, we reverse the conspiracy and wire-fraud
convictions of each of the Defendants on the legal ground that the
government’s theory of fraud relating to the deprivation of honest
services –- one of three theories of fraud charged in the
Indictment -– is flawed. We further vacate appellant Fuhs’s
conviction on the ground that the evidence is insufficient to
support his conviction. Finally, we affirm appellant Brown’s
convictions of perjury and obstruction of justice.
I
The trial below involved six Defendants. Sheila Kahanek, an
accountant by training and a Senior Director in Enron’s
Asia/Pacific/Africa/China (“APACHI”) energy division, was acquitted
of all charges against her. Daniel Boyle, an Enron Vice President
of Global Finance, was convicted on all counts against him and does
not appeal. The following four Merrill Lynch executives (the
“Defendants”) were convicted on all counts against them and appear
2
before us on appeal: Jim Brown, the head of Merrill’s Strategic
Asset and Lease Finance Group in New York City; William Fuhs, a
Vice President under Brown in the New York office; Daniel Bayly,
the head of Merrill’s Global Investment Banking division; and
Robert Furst, a Merrill executive answering directly to Bayly,
responsible for generating business from Enron.
A
The Nigerian barges at the heart of this case were held by
Enron’s APACHI energy division. At the close of 1999, APACHI was
pressured to monetize or sell assets in order to show a gain and
meet earnings targets that, in turn, would allow Enron as a whole
to meet the company’s forecasted earnings for the final quarter of
1999. Various attempts at selling APACHI’s primary asset, the
barges, to an industry buyer were made in the final months of 1999,
but each prospective deal collapsed. In early December 1999, Enron
executives discussed the need for an “emergency alternative.” When
executives were informed that the barges would not be sold by
year’s end, they responded that a “friend of Enron,” Merrill Lynch,
might be able to buy the barges and “help Enron out.”
In late December, Enron approached Merrill about buying the
barges. Boyle discussed the deal with Furst, Merrill’s Enron
relationship manager. Furst communicated with others at Merrill,
including Bayly, Brown, and Schuyler Tilney, the head of banking in
Merrill’s Houston office. Furst explained that Enron’s then-
Treasurer, Jeff McMahon, “asked Merrill to purchase $7 [million] of
3
equity in a special purpose vehicle that will allow Enron to book
$10 [million] of earnings. The transaction must close by 12/31/99.
Enron is viewing this transaction as a bridge to permanent equity
and they believe [Merrill’s] hold will be for less than six months.
The investment would have a 22.5% return.” Furst emphasized the
importance of fostering an ongoing business relationship with Enron
and that the deal offered Merrill a chance to differentiate itself
from other investment banks. When Furst explained the deal to
Katherine Zrike, chief counsel for Merrill’s Global Investment
Banking, Zrike noted her concern due to the year-end nature of the
deal, its unique quality, and a lack of due diligence.1
Furst and Brown communicated by fax regarding the deal, and
Brown noted his concerns: “Enron credit/performance risk,” a lack
of “repurchase oblig. from Enron,” and the “reputational risk” of
“aid[ing]/abet[ting] Enron income stmt. manipulation.” Brown also
communicated his concerns to Fuhs, who in turn communicated the
risks, including the risk of aiding Enron with “income
manipulation,” to Tina Trinkle, an analyst. Due to these concerns,
the short timeline, and a lack of information about the deal, some
1
On December 1, 1999, Merrill reissued its policy, warning of
problematic end-of-year transactions by clients seeking to show
gains or losses prior to the end of the year. “Clients wishing to
effect a sale and then reestablish a position must be advised that
there can be no prearrangement as to the availability of the
financial instrument or the specific purchase price, if and when
the client decides to reestablish the position.”
4
Merrill employees, including Trinkle, thought the deal would not go
through.
According to the Government, the barge deal proceeded because
Enron agreed that either it or an affiliate would repurchase the
barges from Merrill if a third-party buyer could not be found and
that Enron would pay a fixed rate of return for the duration of
Merrill’s hold of the interest in the barges. Ben Glisan, a
colleague of Boyle’s and a Government witness, testified that
multiple sources informed him of Enron’s oral guarantee that
Merrill would be taken out of the transaction within six months for
a set return on the investment.
On December 22, Bayly, Brown, Furst and others (excluding Fuhs
and any lawyers) participated in a conference call about the deal
(the “Trinkle call”). Furst and Tilney explained that Enron needed
to sell the barges by year-end in order to book additional earnings
in 1999 and that someone at Enron indicated that Enron would agree
to take Merrill out at a fixed rate of return. Bayly asked for a
written assurance to support Enron’s promise, and someone responded
that a writing was not possible because such an assurance would
prevent Enron from receiving the accounting treatment it sought
with the deal. But either Furst or Tilney responded that Enron had
given its strongest verbal assurances that Merrill would not own
the barges after June 30. That same day, Brown and Fuhs received
an e-mail from Furst’s office in Dallas, describing some of the
material terms of the deal including that Bayly would confirm
5
Enron’s promise with senior Enron management. In a later meeting
with Furst that day, Zrike warned that for Enron to show the sale
as a profit on its books, Merrill would have to own the barges
outright without any buyback agreement. Furst stated that the
agreement contemplated only Enron’s attempt to remarket the barges.
Zrike restated her concerns in afternoon meetings with Bayly on
December 22, where the Government alleges Bayly had a duty, under
Merrill’s policy, to disclose his awareness of Enron’s buyback
promise to Zrike but failed to do so. At the end of the day on
December 22, Furst e-mailed Boyle to announce the conference call
between Bayly and Enron management –- Andrew Fastow, McMahon, and
Boyle -– for 9:30 the next morning.
According to Government witness Eric Boyt, an accountant for
APACHI, both Fastow and Boyle said that during the conference call,
Fastow promised that Merrill would not own the barges for longer
than six months and that if Enron could not facilitate a buyer, it
would “guarantee a 15 percent buyback within six months.” In this
vein, Boyle authored an e-mail explaining the transaction as
follows: “[Merrill’s] decision to purchase the equity was based
solely on personal assurances by Enron senior management to
[Merrill] that the transaction would not go beyond June 30, 2000.”
Although Brown was not on the December 23 conference call, the
Government alleges that he understood Fastow’s promise on Enron’s
behalf; this allegation is supported by Brown’s later e-mail of
March 2001, describing a similar, prospective deal: “I would
6
support an unsecured deal provided we had total verbal assurances
from [the company’s C.E.O. or C.F.O.] . . . . We had a similar
precedent with Enron last year, and we had Fastow get on the phone
with Bayly and lawyers and promise to pay us back no matter what.
Deal was approved and all went well.”
Following this call, the initial draft of the “engagement
letter” for the deal, including reference to Enron’s oral buyback
promise, was circulated. On December 28, Boyle sent out a revised
version of the engagement letter, with “strike-through” indicating
proposed removal of the language about the annual rate of return
and that Merrill’s interest would be subsequently sold or
repurchased by Enron or an Enron affiliate. Another draft, with
the oral promises redacted entirely, was circulated shortly
thereafter and signed by Brown and Fastow.
At the end of 1999, Enron recorded the barge deal and booked
from it $12,563,000 in earnings. The Government argues this
booking was a false entry because Merrill’s investment was never at
risk in the light of the guaranteed buyback, advisory fee, and
fixed rate of return. These oral but material terms, according to
the Government’s witnesses, required that the deal be booked as a
loan rather than as a sale.
The Government further asserted that the parties’ conduct,
between the end of 1999 and June 2000, was consistent with Enron’s
oral promise to buy back the parked barges from Merrill: Enron
wired a $250,000 “advisory fee” to a Merrill account at Citibank
7
even though Brown testified that Merrill did not provide advisory
services; Merrill did not monitor Enron’s attempts to remarket the
barges during the interim period; efforts to remarket the barges on
APACHI’s behalf were motivated by a desire to preclude Enron from
having to repurchase them from Merrill; Enron contacted Furst
seeking an extension of the deadline; and Merrill drafted for
Furst’s signature a letter to Enron demanding that Enron purchase
the barges by June 30 for $7,510,976.65, a number that was
consistent with the terms of the oral guarantee. Before the letter
left Merrill, however, Fuhs contacted Furst and told him that Enron
had lined up a buyer, an entity called LJM2.2 LJM2 served as a
temporary warehouse for Enron assets, according to Glisan’s
testimony, and was not wholly independent from Enron.
Merrill and LJM2 closed the deal for the resale on June 29,
2000, when LJM2 paid Merrill $7,525,000 for its interest in the
barges.3 That figure represented exactly six-months’ return at a
2
Brown, Bayly, Furst, and other Merrill employees invested in
a Merrill partnership which in turn invested in LJM2. Brown
invested $32,500 of the $400 million LJM2 fund; Furst and Bayly
each invested $130,000.
3
In turn, the plan was for LJM2 to also flip the interest in
the barges after the end of 2000 so that Enron would not have to
show that the profits earned in 1999 were “unwound.” In return for
Enron’s use of LJM2's balance sheet in this manner, Enron was to
pay LJM2 a flat $350,000 fee and a 15% annual rate of return for
the period it held the barges, and ensure that LJM2 would be taken
out of the investment by January 15, 2001. An industry buyer, an
energy company, ultimately bought the barges during the period LJM2
held the barges; tellingly, this ultimate buyer conducted purchase
negotiations with APACHI, not with LJM2 which held the barges in
name.
8
rate of 15% annually. Including the $250,000 “advisory fee”
received at the end of 1999, Merrill made $775,000 on its
investment in the barges. At the close of the deal, Fuhs e-mailed
Brown and Furst to inform them that the money had been paid to
Merrill and referred to the fact that Brown and Furst (along with
Bayly) were investors in LJM2 and as such still bore an interest in
the barges.
B
The Government charged all six Defendants with one count of
conspiracy and two counts of wire fraud. The conspiracy count
alleged a conspiracy under 18 U.S.C. § 371 to commit wire fraud in
violation of § 1343 (the “money or property” charge) and § 1346
(the “honest services” charge), and to falsify Enron’s books and
records in violation of 15 U.S.C. § 78m(b)(2), (b)(5) and 78ff, and
17 C.F.R. § 240.13b2-1 (the “books and records” charge). The
substantive wire fraud counts were based upon two interstate
transmissions between Houston and New York. The Government also
charged Brown with perjury before a Grand Jury in violation of 18
U.S.C. §§ 1623 and 3551, and with obstruction of a Grand Jury
investigation in violation of 18 U.S.C. §§ 1503 and 3551.
The six Defendants were tried together by jury over six weeks.
At the close of the Government’s case in chief, each Defendant
moved for a judgment of acquittal under Rule 29(a), claiming that
the Government’s evidence was insufficient to sustain a conviction
on any count of the Indictment. The district court reserved ruling
9
on the motions under Rule 29(b). Boyle and the appealing
Defendants were convicted of the conspiracy and wire fraud counts;
Kahanek was acquitted. Brown was additionally convicted on the
perjury and obstruction counts. The Defendants renewed their
motions for acquittal, and the court denied the motions in the
light of “substantial evidence justifying an inference of guilt
with respect to each.” Brown was sentenced to 46 months’
imprisonment; Bayly was sentenced to 30 months’ imprisonment; and
Furst and Fuhs were each sentenced to 37 months’ imprisonment.
II
The Defendants raise numerous issues on appeal. The
Defendants’ broadest attack on their convictions suggests that,
even if the Government proved all the allegations in the
Indictment, the alleged scheme would not run afoul of the wire
fraud statutes -- there was no deprivation of Enron’s intangible
right to the honest services of its employees, and there was no
scheme to defraud Enron and its shareholders of money or property.
The Defendants also claim that the crime of conspiracy does not
apply to the falsification of a corporation’s books and records
because of explicit statutory language to that effect. 15 U.S.C.
U.S.C. § 78m(b)(2), (b)(5) and 78ff. The Defendants raise numerous
further claims regarding 1) jury instructions on the theory of the
defense, good faith, and the materiality requirement of the books-
and-records charge; 2) evidentiary and related rulings, most
notably, admission into evidence of an inculpatory e-mail by Brown,
10
allowance of testimony as to Furst’s belief that the barge deal
included an Enron guarantee, exclusion of an expert witness on
accounting standards, failure of the court to order disclosure of
allegedly exculpatory evidence in the form of details of Fastow’s
interview with the FBI, and exclusion of impeachment evidence in
the form of contradictory statements by Fastow; 3) the denial of
their individual motions for acquittal and the sufficiency of the
evidence supporting their convictions; and 4) the calculation of
their sentences. Brown additionally appeals the legal and factual
sufficiency of the evidence supporting his convictions for perjury
and obstruction of justice, and Fuhs additionally alleges
prosecutorial misconduct in the form of a repudiation of a
stipulation pertaining only to him.
Because we hold that the honest-services theory of wire fraud
does not extend to the circumstances as contended by the
Government, we vacate the conspiracy and wire-fraud convictions.
We therefore do not reach the remaining issues, with the exception
of the denial of the Defendants’ motions for acquittal, which we
reverse only as to Fuhs, and Brown’s appeal of his separate perjury
and obstruction convictions, which we affirm.
III
A
We begin with the Defendants’ broad attack on the legal
sufficiency of the Government’s assertion of criminal liability.
11
We review the legal sufficiency of an Indictment de novo. United
States v. Caldwell, 302 F.3d 399, 407 (5th Cir. 2002).4
The Indictment charged the Defendants with one count of
conspiracy and two substantive counts of wire fraud. The
conspiracy count alleged a conspiracy to violate two different
statutes. The first statute is the wire-fraud statute, 18 U.S.C.
§ 1343, which reads:
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. If the violation
affects a financial institution, such person
shall be fined not more than $1,000,000 or
imprisoned not more than 30 years, or both.
Following the Supreme Court’s decision in McNally v. United States,
483 U.S. 350 (1987), that § 1343 only protects “money or property”
and not an employer’s or the public’s right to the honest services
of employees and public officials, Congress added § 1346, which
reads:
4
The Government notes some confusion as to whether the
Defendants’ argument challenges the legal sufficiency of the
Indictment or the sufficiency of the jury instructions. If the
latter, the Defendants’ failure to object during the charge
conference would render our standard of review one for plain error.
However, it is clear the Defendants mount a facial challenge to the
Indictment, and the Government accepts the propriety of de
novo review.
12
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.
Thus, the conspiracy count recited two objects of the alleged
conspiracy to commit wire fraud, namely, the fraudulent deprivation
of Enron’s intangible right to the honest services of its
employees, and the fraudulent deprivation of Enron’s money or
property. The second criminal statute is 15 U.S.C. § 78ff, which
punishes
[a]ny person who willfully violates any
provision of this chapter (other than section
78dd-1 of this title), or any rule or
regulation thereunder the violation of which
is made unlawful or the observance of which is
required under the terms of this chapter, or
any person who willfully and knowingly makes,
or causes to be made, any statement in any
application, report, or document required to
be filed under this chapter or any rule or
regulation thereunder . . . .
Thus, the conspiracy count alleged violation of the requirements
set forth in 15 U.S.C. § 78m(b)(2),(5) and 17 C.F.R. § 240.13b2-1.5
Because the jury was not asked to indicate the basis for its
verdict, the Government must prove all three theories in order for
us to affirm the convictions. Yates v. United States, 354 U.S. 298
(1957). The Defendants argue that the Government has proved none
of the three theories it alleges in the Indictment.
5
“No person shall directly or indirectly, falsify or cause to
be falsified, any book, record or account subject to Section
13(b)(2)(A) of the Securities Exchange Act.” 17 C.F.R. § 240.13b2-
1.
13
B
Wire fraud is (1) the formation of a scheme or artifice to
defraud, and (2) use of the wires in furtherance of the scheme.
See Pereira v. United States, 347 U.S. 1, 8 (1954); United States
v. Caldwell, 302 F.3d 399, 406 (5th Cir. 2002). Violation of the
wire-fraud statute requires the specific intent to defraud, i.e.,
a “conscious knowing intent to defraud,” United States v. Reyes,
239 F.3d 722, 736 (5th Cir. 2001); however, specific intent to
defraud need not be charged in the Indictment.
Honest-services wire fraud is wire fraud in which the scheme
or artifice to defraud “deprive[s] another of the intangible right
of honest services.” 18 U.S.C. § 1346. This provision can be
understood only in the light of the long history of the mail- and
wire-fraud statutes, which were intentionally written broadly to
protect the mail and, later, the wires from being used to initiate
fraudulent schemes. See McNally, 483 U.S. at 356. Over time, the
lower courts came to construe the fraud statutes to protect not
just money and property but also intangible rights such as the
right to privacy,6 and the right to honest services of employees
and public officials. In McNally, however, the Supreme Court
excised the protection of intangible rights from the scope of §§
1341 and 1343, holding that the statutes as written protected only
money and property. The Court explained that the 1909 amendment
6
See, e.g., United States v. Condolon, 600 F.2d 7 (4th Cir.
1979); United States v. Louderman, 576 F.2d 1383 (9th Cir. 1978).
14
adding “or for obtaining money or property by means of false or
fraudulent pretenses, representations, or promises” was meant to
confirm that liability covered not just fraudulent misstatements
about existing facts but also fraudulent promises and
representations about the future. Congress’s use of the
disjunctive in specifying “obtaining money or property” as an
object of the fraud was not meant to expand the criminal statute
beyond the protection of money and property. Id. at 358-60.
Congress responded by passing § 1346, which reads in its entirety,
“A ‘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. As we and other courts have held, § 1346 was
clearly meant specifically to overturn McNally, at least with
respect to the particular intangible right named in the statute,
i.e., the right to honest services. See United States v. Brumley,
116 F.3d 728, 733 (5th Cir. 1997) (en banc); United States v.
Rybicki, 354 F.3d 124, 134, 136-37 (2d Cir. 2003). Thus, the
meaning of honest services -– given that the statute provides no
perimeters -- is to be found in the pre-McNally case law. Brumley,
116 F.3d at 733; Rybicki, 354 F.3d at 136-37.
We have previously undertaken the task of considering the pre-
McNally case law. Thus, we have written, “‘Honest services’ are
services owed to an employer under state law,” including fiduciary
duties defined by the employer-employee relationship. Caldwell,
302 F.3d at 409; Brumley, 116 F.3d at 734. In order that not every
15
breach of fiduciary duty owed by an employee to an employer
constitute an illegal fraud, we have required some detriment to the
employer. United States v. Ballard, 663 F.2d 534, 540 (5th Cir.
1981). Ballard, however, implies that breach of the duty to
disclose material information is a sufficient detriment to the
employer because the materiality requirement, added to the false
disclosure or nondisclosure of information, contemplates that the
undisclosed information would have led a reasonable employer to
change its business conduct. Id. at 541; see also Rybicki, 354
F.3d at 145.7 Here, the Government alleged not only the harm
inherent in the failure to disclose material information -- that
the barge transaction presented no risk to Merrill because of the
oral side deal -- but also concrete harms to Enron in the form of
fees paid to Merrill to effect the deal and compensation bonuses
paid to Enron employees that depended on the completion of the
barge deal.
The Seventh Circuit has additionally held that honest-services
fraud requires some personal benefit accruing to the duty-breaching
employee. United States v. Bloom, 149 F.3d 649 (7th Cir. 1998).
Here, those same bonuses would likely constitute such a personal
benefit accruing to the Enron employees taking part in the alleged
scheme.
7
The Government must allege materiality in the Indictment, but
failure to do so is not fatal “if the facts alleged in the
Indictment warrant an inference of materiality.” Caldwell, 302 F.3d
at 409.
16
Thus, the Government presents a very plausible, even strong,
case for a criminal deprivation of honest services, alleging a
fiduciary breach -- the failure to disclose the full truth about
the barge transaction -- that resulted in both a personal benefit
(increased bonus) to the duty-breaching Enron employees and
detriments (but also benefits) to the corporation itself.8
Nevertheless, the Defendants put forth an equally plausible
argument that the limiting statements we have expressed in our past
cases do not demarcate the exact outer-most boundaries of honest
services. Instead, those limiting statements represent only
minimal distinctions we have had occasion to declare, and thus they
do not exhaust the constraints that are appropriate to recognize.
Thus, for example, we noted in Brumley that “the boundaries of
‘intangible rights’ may be difficult to discern, but that does not
mean that it is difficult to determine whether Brumley in
particular violated them.” Brumley, 116 F.3d at 733. If we are
8
The Government’s contention that Enron suffered a detriment
is not trouble-free. The breach in question resulted in an
increase in Enron’s stock price, an immediate benefit Enron
specifically sought. The Defendants indeed argue explicitly that
their actions benefitted the company for this very reason.
Certainly, from a practical and short-term perspective, this is
true. The Government claims that the detriment was Enron’s
spending money (in the form of fees paid to Merrill and bonuses
paid to employees) for the “sole purpose of misleading shareholders
and the investing public.” This theory is not fully convincing
absent the implicit claim that this specific deal led to Enron’s
unraveling, a causal connection for which there is no substantiated
support. Nevertheless, we will assume for purposes of this opinion
that the alleged detriment satisfies that element of honest-
services fraud.
17
not to lapse into defining a common law crime, the outer boundary
of this facially vague criminal statute must be determined from the
factual circumstances supporting affirmed convictions, not by
negative implication from the few constraints mentioned in
disparate cases.9 In essence, the Defendants argue that between
the core of cases affirming honest-services fraud convictions and
the shell of cases reversing them, there is a gap, a lacuna, a
vacuum, a no-man’s land, a demilitarized zone, in which this case
awkwardly sits alone.
Appraising this argument requires a study of the case law to
understand what behavior justifies criminal liability. We begin by
noting that the Government urges the broadest reading by relying on
the barest reiteration of the few constraints we have previously
acknowledged, even going so far as to argue that no detriment aside
from the fiduciary breach itself is necessary because “it is
sufficient for the government to show that the defendants violated
a duty imposed by state law. . . . The plain text of Section 1346
. . . does not require any detriment . . . beyond proof that the
scheme or artifice to defraud ‘deprive[d] another of the intangible
right of honest services.’” Given our repeated admonition that
“not every breach of fiduciary duty works a criminal fraud,” see
Ballard, 663 F.2d at 540 (quoting United States v. George, 477 F.2d
9
Put another way, the Defendants argue that the scope of
honest-services fraud is defined by the set of cases in which
convictions have been upheld, not by the complement of the set of
cases in which convictions have been reversed.
18
508, 512 (7th Cir. 1973)), we consider such a broad theory of
liability with caution.10
Turning to the case law, we are guided by the leading opinion
on honest-services fraud, the Second Circuit en banc decision in
Rybicki, supra. Rybicki concluded, and we agree, that cases
upholding convictions arguably falling under the honest services
rubric can be generally categorized in terms of either bribery and
kickbacks or self-dealing. The great weight of cases are clear
examples of such behavior.11 The Second Circuit formulated the
following rule based on its analysis:
[A] scheme or artifice to deprive another of
the intangible right to honest services in
section 1346, when applied to private actors,
means a scheme or artifice . . . to enable an
officer or employee of a private entity . . .
purporting to act for and in the interests of
his or her employer . . . secretly to act in
10
It is also worth noting that the Government’s argument is
somewhat circular, relying as it does on the statutory text’s use
of the term “honest services.” As already stated, the statute
itself provides not a hint of the definition of the term; instead,
it is the case law that establishes the meaning of the vague and
amorphous phrase.
11
See Rybicki, 354 F.3d at 139-44. For bribery/kickback cases,
see United States v. Schwartz, 785 F.2d 673 (9th Cir. 1986); United
States v. Price, 788 F.2d 234 (4th Cir. 1986); United States v.
George, 477 F.2d 508 (7th Cir. 1973); United States v. Connor, 752
F.2d 566 (11th Cir. 1985); United States v. Bryza, 522 F.2d 414
(7th Cir. 1975); United States v. Hasenstab, 575 F.2d 1035 (2d.
Cir. 1978); United States v. Lemire, 720 F.2d 1327 (D.C. Cir.
1983); United States v. Bohonus, 628 F.2d 1167 (9th Cir. 1980);
United States v. Boffa, 688 F.2d 919 (3d Cir. 1982). For examples
of self-dealing cases, see Ballard; Epstein v. United States, 174
F.2d 754 (6th Cir. 1949); United States v. McCracken, 581 F.2d 719
(8th Cir. 1978); United States v. Von Barta, 635 F.2d 999 (2d Cir.
1980).
19
his or her or the defendant’s own interests
instead . . . .
Rybicki, 354 F.3d at 141-42.12 Our circuit’s analysis has not been
much different from Rybicki’s, although perhaps we have couched our
language more broadly in terms of an understood divergence, rather
than a secret conflict, of interests. Thus, in Brumley, although
we recognized that bribery and self-dealing are the paradigmatic
cases of honest-services fraud, we wrote:
‘honest services fraud’ contemplates that in
rendering some particular service or services,
the defendant was conscious of the fact that
his actions were something less than in the
best interests of the employer – or that he
consciously contemplated or intended such
actions. For example, something close to
bribery.
Brumley, 116 F.3d at 734.
While it may be argued that the Defendants here were conscious
of the fact that their actions were “something less than in the
best interests of the employer,” at least long term, that argument
relies on the presumption, inherent in the Government’s insistent
argument, that a fiduciary breach is itself a sufficient reflection
of interest divergence. But that view encompasses every knowing
fiduciary breach, and we meet again our oft-mentioned chariness of
12
Note that the Second Circuit dissenters dissented not from
the narrowness of the construction but from the decision to uphold
the statute at all. They would have struck down honest-services
fraud as facially vague, emphasizing that “‘the average citizen .
. . must be forewarned and given notice that certain conduct may
subject him to federal prosecution.’” 354 F.3d at 159 (Jacobs,
Circuit Judge, dissenting) (quoting Brumley, 116 F.3d at 745-46
(Jolly and DeMoss, Circuit Judges, dissenting)).
20
making every knowing fiduciary breach a federal crime. What makes
this case exceptional is that, in typical bribery and self-dealing
cases, there is usually no question that the defendant understood
the benefit to him resulting from his misconduct to be at odds with
the employer’s expectations. This case, in which Enron employees
breached a fiduciary duty in pursuit of what they understood to be
a corporate goal, presents a situation in which the dishonest
conduct is disassociated from bribery or self-dealing and indeed
associated with and concomitant to the employer’s own immediate
interest.
Here, the private and personal benefit, i.e. increased
personal bonuses, that allegedly diverged from the corporate
interest was itself a promise of the corporation. According to the
Government, Enron itself created an incentive structure tying
employee compensation to the attainment of corporate earnings
targets. In other words, this case presents a situation in which
the employer itself created among its employees an understanding of
its interest that, however benighted that understanding, was
thought to be furthered by a scheme involving a fiduciary breach;
in essence, all were driven by the concern that Enron would suffer
absent the scheme. Given that the only personal benefit or
incentive originated with Enron itself -- not from a third party as
in the case of bribery or kickbacks, nor from one’s own business
affairs outside the fiduciary relationship as in the case of self-
dealing -- Enron’s legitimate interests were not so clearly
21
distinguishable from the corporate goals communicated to the
Defendants (via their compensation incentives) that the Defendants
should have recognized, based on the nature of our past case law,
that the “employee services” taken to achieve those corporate goals
constituted a criminal breach of duty to Enron. We therefore
conclude that the scheme as alleged falls outside the scope of
honest-services fraud.
We do not presume that it is in a corporation’s legitimate
interests ever to misstate earnings -- it is not. However, 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 as it has hitherto been applied.13
13
The Government cites one precedent that lies outside the bulk
of the honest-services case law and addresses a situation arguably
similar to the instant case. In United States v. Gray, 96 F.3d 769
(5th Cir. 1996), university basketball coaches were convicted of
mail and wire fraud for fraudulently establishing the academic
eligibility of transfer students recruited to play on the
basketball team. The court, relying on Ballard’s suggestion that
a non-disclosure of material information is itself sufficient harm
to the employer, rejected the defendants’ argument that their
actions furthered the fortunes of the basketball team and of the
university and were therefore not within the purview of fraud
statutes.
The Government argues, quite plausibly, that Gray is similar
enough to this case to dispose of the Defendants’ challenge,
because the principal argument of the Defendants is that they
believed their actions would benefit Enron. But Gray is
distinguishable both factually and legally. Gray is dissimilar to
22
Therefore, 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.
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. Given our repeated
exhortation against expanding federal criminal jurisdiction beyond
specific federal statutes to the defining of common-law crimes, we
resist the incremental expansion of a statute that is vague and
amorphous on its face and depends for its constitutionality on the
clarity divined from a jumble of disparate cases. Instead, we
this case in part because the opinion recognizes nothing akin to
Enron’s corporate incentive policy coupled with senior executive
support for the deal (the deal was sanctioned by Fastow, Enron’s
Chief Financial Officer), which together created an understanding
that Enron had a corporate interest in, and was a willing
beneficiary of, the scheme. The opinion in Gray presents only the
coaches’ own belief that their scheme benefitted the university; no
one or any authority outside the cadre of coaches encouraged,
approved, or even knew of the wrongdoing. Moreover, the Gray court
did not appear to have before it the limiting arguments presented
here based on Rybicki (decided years after Gray). Thus, without
attempting to call into question the result in Gray, we limit it to
its facts, since applying the wire fraud statute here, even if it
requires no new explicit statement of law, would expand honest-
services fraud to reach all manner of accounting fraud and
securities fraud, which have not generally been prosecuted as
honest-services fraud and are heavily regulated under other
statutes. The Government, in fact, would go even further; it
plainly stated at oral argument its position, explicitly based on
Gray, that the honest-services charge would reach the Defendants’
conduct even absent an oral buyback agreement. The Government’s
desire to build on Gray crystalizes the danger we face of defining
an ever-expanding and ever-evolving federal common-law crime.
23
apply the rule of lenity and opt for the narrower, reasonable
interpretation that here excludes the Defendants’ conduct. See
McNally, 483 U.S. at 360.
In sum, the convictions of each of the Defendants for
conspiracy and wire fraud cannot be upheld on the basis of the
honest-services theory and must be vacated per Yates, supra. We
therefore need not address the viability of the Government’s
remaining theories of criminal liability (the money-or-property and
books-and-records charges). Nor need we speak to the procedural
errors alleged by the Defendants. Instead, we turn to two
remaining issues: the Defendants’ motions for acquittal and Brown’s
conviction for perjury and obstruction of justice.
IV
A
We first consider the District Court’s denial of Fuhs’s Motion
for Judgment of Acquittal, which Fuhs submitted at the close of the
Government’s case-in-chief. Fuhs contends that the evidence in the
Government’s case-in-chief is insufficient to support a conviction.
Review for sufficiency where, as here, the motion was renewed
at the close of the evidence is de novo, meaning that “‘we
determine whether . . . a rational jury could have found the
essential elements of the offense beyond a reasonable doubt.’
United States v. Dean, 59 F.3d 1479, 1484 (5th Cir. 1995).” United
States v. Alarcon, 261 F.3d 416, 421 (5th Cir. 2001). As Fuhs
notes, because the District Court reserved ruling on the motion,
24
appellate review is limited to the evidence presented in the
Government’s case-in-chief. United States v. Rhodes, 631 F.2d 43,
44-45 (5th Cir. 1980). Thus, we ought not consider the
Government’s rebuttal evidence alleging that Fuhs lied on the
witness stand and that he may have edited, or even authored, a key
document -- the Appropriation Request (Govt. Exhibit 850.1) –- in
the prosecution’s case against all the Defendants.
The Government’s case-in-chief against Fuhs consisted entirely
of documents and e-mails, plus excerpts from Fuhs’s statements
before the SEC from 2002. The Government admits that none of its
witnesses testified about Fuhs’s knowing participation in the
alleged scheme and that Fuhs was absent from the critical calls and
meetings that allegedly put the Merrill Defendants on notice of
Enron’s intention to account improperly for the barge transaction.
Thus, the Government relies solely on the documentary evidence to
assert Fuhs’s knowledge of the oral buyback promise and his intent
to participate in the scheme to conceal that promise for the
purpose of effecting a misaccounting of the overall deal.
We find that the documentary evidence fails to sustain the
Government’s burden of proof beyond a reasonable doubt. Much of
the Government’s evidence consists of e-mails or memos not written
or initiated by Fuhs, not directly addressed to him, and in some
cases not even copied to him. They neither recognize a secret oral
side deal nor imply that the addressees of the correspondence knew
of such a secret deal. While they may support the assertion that
25
Fuhs knew Merrill wanted a buyback agreement to protect its
investment, and that it was at one point understood to be part of
the deal by Fuhs’s subordinate Geoffrey Wilson, the principal
documents relied upon by the Government simply do not sustain the
inference that Fuhs had knowledge of an oral guarantee that was to
be kept out of the written agreement and kept secret in (because it
conflicted with) the accounting of the deal.
Fuhs’s list of transactional risks was only a transcription of
Brown’s list to be passed along to analysts and executives. It
reveals nothing regarding Fuhs’s understanding of Enron’s intent to
misrepresent the transaction. The list does not reveal the
existence of a secret buyback promise or an intent to defraud; in
fact, the absence of a promise securing Merrill’s investment is
noted. Brown’s suggestion, passed on by Fuhs, that Merrill might
face reputational risk for aiding income manipulation does not
imply the specific understanding that such income manipulation was
to be effected by deception and fraudulent accounting. The
Government’s claim that “Fuhs would soon find out, if Brown had not
already told him, that Enron was ‘selling’ the barges only so that
it could book $12 million in earnings by the end of 1999,” is
neither here nor there –- selling an asset quickly to book earnings
by a certain date is not, by itself, fraudulent.
The Government, however, asserts that certain other documents,
especially a series of revisions of the engagement letter
representing the transaction, show Fuhs’s knowledge of an intent to
26
further a fraudulent accounting of the deal. The Government’s
inferences are deficient for two reasons. First, the revisions of
the engagement letter and other pre-deal memos received by Fuhs
suggest no more than an understanding that a buyback agreement was
desired by Merrill and was at some point, but not ultimately, a
part of the proposed deal. It is an unacceptable stretch to
conclude from these documents that Fuhs had knowledge that the
transaction ultimately included an oral promise to be kept secret
from the lawyers and accountants in order to effect a fraudulent
accounting. The fact that Fuhs forwarded to Merrill lawyers a
black-lined version of the edited engagement letter in which
mention of a buyback was redacted is only damning to Fuhs if one
assumes he was aware that the buyback guarantee remained part of
the deal. But the documents do not establish, nor does any other
evidence establish, that Fuhs knew the buyback obligation survived
the redaction such that the absence of references would suggest
concealment. The Government cannot simply assume the linchpin of
its case against Fuhs; yet it repeatedly frames documents as
inculpatory by presuming that Fuhs knew of the oral promise and
concluding that he willfully concealed the promise in furtherance
of the deception. Second, whatever understanding these documents
do reveal, such understanding is principally that of the primary
communicants of the correspondence, namely, Wilson, Furst, and
Boyle. The fact that Fuhs is copied on a stream of e-mails
documenting the transaction is far from sufficient to support
27
inferences that he knew of the details of an oral side agreement
that survived the removal of written references to it.
The Government also produced evidence stemming from six months
after the initial transaction, when Merrill was getting rid of its
purported equity interest. Fuhs wrote that he had spoken to Boyle
and that Enron had lined up a new buyer to purchase Merrill’s
interest “for the agreed upon amount outlined in the previously
forwarded memo.” This e-mail fails to prove anything other than
that Fuhs became aware of Enron’s procurement of a third-party
buyer to take Merrill out of its purported equity interest. Even
when taken together with the remainder of the evidence against
Fuhs, the e-mail demonstrates neither the knowledge of a secret
repurchase obligation owed by Enron nor the specific intent to
defraud by the concealment of that obligation. Nor does Fuhs’s
jocose reply, “only if i can guarantee a make-whole at par + return
in case of civil unrest/war,” to Brown’s query, “wanna buy a
barge?”, after Merrill had sold its stake but Brown was still
exposed because of his involvement in LJM2, add much evidence of
the requisite knowledge and the specific intent of Fuhs to defraud
in the purchase of the barge six months earlier.
As counsel for Fuhs noted at oral argument, if we begin with
the assumption that Fuhs is guilty, the documents can be read to
support that assumption. But if we begin with the proper
presumption that Fuhs is not guilty until proven guilty beyond a
reasonable doubt, we must conclude that the evidence is
28
insufficient to prove beyond a reasonable doubt that Fuhs had the
knowledge and intent to enter into the fraudulent scheme alleged by
the Government.
Ultimately, we do not have to conclude that Fuhs was an
innocent in the deal to relieve Enron of the barges. We only
conclude that at the close of its case, the Government had failed
to support its charges against Fuhs with sufficient evidence of
guilty knowledge, as charged in the Indictment, to survive his
motion for judgment of acquittal.
B
Regarding the other Defendants’ motions for acquittal, we have
reviewed the record and are satisfied that the Government’s
evidence was not so patently deficient that a judgment of acquittal
was required as a matter of law.
V
We turn finally to Brown’s convictions for perjury and
obstruction of justice. These charges stem from testimony Brown
gave to the grand jury investigating the barge transaction in the
fall of 2002. The Government charged that Brown’s testimony
concerning the agreement between Enron and Merrill was perjurious
and ultimately constituted obstruction of justice. The jury agreed
and convicted Brown under 18 U.S.C. § 1623 of one count of
perjury, and under 18 U.S.C. § 1503 of one count of obstruction of
justice. We affirm these convictions.
A
29
18 U.S.C. § 1623 defines perjury as “knowingly mak[ing] a
false material declaration” to a grand jury. The Government
charged Brown with one count of perjury, contending that Brown knew
or understood that Enron promised to remove Merrill from the barge
deal by June 30, and that Brown perjuriously denied under oath any
such knowledge or understanding.14 The Indictment quotes the
following testimony by Brown as constituting perjury (the
underlining is in the original and indicates the portions alleged
to be false):15
14
Specifically, the Indictment alleges that “[w]hile under
oath, Defendant BROWN testified falsely as to a material matter by
stating, among other things, that he did not know of any oral
promise between Enron and Merrill Lynch relating to the barge
transaction.”
15
The portion of the testimony from which the excerpts in the
Indictment were taken is as follows:
Q: Do you see where it [e-mail from Boyle, Grand Jury
Exhibit 11] says, “To be clear, Ene. (Enron) is
obligated to get Merrill out of the deal on or
about June 30th?
A: Yes, sir.
Q: Do you have any understanding of why Enron would
believe it was obligated to Merrill to get them out
of the deal on or before June 30th?
A: It is inconsistent with my understanding of what
the transaction was.
. . . .
Q: . . . And the question to you is do you have any
understanding as to whether – how or why – Enron
would believe that it was – it understood that it
was required . . . to get Merrill Lynch out of the
deal by June 30th?
30
A: I did not understand – you know, my understanding
of the transaction was that they were not required
to get us out of the transaction, but we made it
clear to them that we wanted to be out of it by
June 30th.
. . . .
Q: Now, do you see in this E-mail [still discussing
Grand Jury exhibit 11] where it says, “And someone
should be working on a backstop, as you will not be
able to extend Merrill, and I understand that there
are accounting ramifications if Enron repurchases”?
Now, do you have any understanding about
whether or not Merrill could extend past June 30th?
A: I don’t know anything about that.
Q: Okay. And under – if it was a true sale and if
Merrill purchases something, there would be no
extension needed. I mean Merrill has the asset and
until somebody comes along and buys it, they have
it; correct?
A: Correct.
. . . .
Q: Now, do you see in this document [LJM-2 document,
Grand Jury Exhibit 18]. . . in the first sentence
where it says, “Enron sold barges to Merrill Lynch
in December of 1999, promising that Merrill would
be taken out by sale to another investor by June
2000.”
Again, do you have any information as to a
promise to Merrill that it would be taken out by
sale to another investor by June 2000?
A: In – no, I don’t – the short answer is no, I’m not
aware of the promise. I’m aware of a discussion
between Merrill Lynch and Enron on or around the
time of the transaction, and I did not think it was
a promise though.
Q: So you don’t have any understanding as to why there
would be a reference to a promise that Merrill
would be taken out by sale to another investor by
31
June of 2000?
A: No.
. . . .
Q: [Discussing America’s Credit Flash Report for the
week ending 12/23/99, Grand Jury Exhibit 9] And let
me now direct your attention to the paragraph on
the Nigerian barge project.
Now, do you see where it says . . . , “IBK
[Merrill] was supportive based on Enron
relationship, approximately $40 million in annual
revenues, and assurances from Enron management that
we will be taken out of our $7 million investment
within the next three to six months.”
Does that accord with your understanding of the
transaction?
A: No. I thought we had received comfort from Enron
that we would be taken out of the transaction
within six months or would get that comfort.
If assurance is synonymous with guarantee,
that is not my understanding.
If assurance is interpreted to be more along
the lines of strong comforts or use of best
efforts, that is my understanding.
Q: [Discussing the Merrill appropriation request for
the Enron/Merrill barge transaction, Grand Jury
exhibit 7]. . . Do you see where it says, “Take
out,” where it says, “project start/finish,” and it
says, “Needs to close by 12/31/99"? And I’d for now
like to focus on the part where it says, “Take out
by June 30th, 2000.”
A: Yes, sir.
Q: Does that comport with your understanding of the
transaction, that the finish of the project was
June 30th of 2000 when there would be a take out?
A: You know, “take out” could mean that the
anticipated time frame of the investment runs
through that period, or in my mind it could, or it
could mean some sort of legal take out. So I
really – I can’t draw a conclusion from just those
32
Q: Do you have any understanding of why Enron would
believe it was obligated to Merrill to get them out
of the deal on or before June 30th?
A: It’s inconsistent with my understanding of what the
transaction was.
. . . .
Q: . . . Again, do you have any information as to a
promise to Merrill that it would be taken out by
sale to another investor by June 2000?
A: In – no, I don’t – the short answer is no, I’m not
aware of the promise. I’m aware of a discussion
between Merrill Lynch and Enron on or around the
time of the transaction, and I did not think it was
a promise though.
words.
Q: Do you see where it says “maturity”? . . .
A: Yes.
Q: And its says “less than 6 months”?
A: Yes.
Q: Do you have any understanding why it would say
“less than six months” if the terms of the
agreement are open-ended?
A: Well, I’d be speculating but I would assume that
that would reflect – at least my understanding or
whoever wrote this’s understanding, that the
anticipated hold period was less than six months.
Q: But if the contract between the parties is an open-
ended investment, why does the maturity just say
less than six month[s] when the terms of the
contract bring Merrill Lynch well beyond six
months?
A: I don’t know.
33
Q: So you don’t have any understanding as to why there
would be a reference [in the Merrill Lynch
document] to a promise that Merrill would be taken
out by a sale to another investor by June of 2000?
A: No.
Brown makes three primary arguments: first, that he testified
truthfully as to his subjective understanding of the barge deal;
second, that the questions posed to him before the grand jury were
too “vague and ambiguous” to support a perjury conviction; and
third, that any misrepresentations by Brown were not material and
thus cannot sustain a conviction under 18 U.S.C. § 1623. Each of
these arguments is properly characterized as an attack on the
sufficiency of the evidence.16 Consequently, “[w]e ask whether a
rational trier of fact could have found that the evidence
established the elements of the offense beyond a reasonable doubt.”
United States v. Holmes, 406 F.3d 337, 351 (5th Cir. 2005).
First, Brown argues that the evidence presented is
insufficient to support a reasonable juror’s finding that his
testimony was untruthful. We disagree. Along with other
16
Brown mischaracterizes his challenges as a legal sufficiency
challenge, which we would review de novo. It is clear, however,
that Brown’s challenge is to the sufficiency of the evidence. See,
e.g., United States v. Abrams, 568 F.2d 411, 417 (5th Cir. 1978)
(holding that when examining a jury’s determination that the
defendant “gave false testimony”, “[t]he applicable standard of
review is not whether we think the evidence sufficient but whether
a reasonable jury could so conclude beyond a reasonable doubt.”);
United States v. Bell, 623 F.2d 1132, 1136 (5th Cir. 1980) (“the
prevailing view is that the defendant’s understanding of the
question is a matter for the jury to decide”); United States v.
Gaudin, 515 U.S. 506 (1995) (holding that materiality is an element
of perjury and thus a question for the consideration of the jury).
34
circumstantial evidence of Brown’s knowledge of the details of the
transaction, the Government presented the following:
1. Brown was approached in late December 1999 by Furst, who
explained that Enron Treasurer Jeff McMahon “asked Merrill to
purchase $7 [million] of equity in a special purpose vehicle that
would allow Enron to book $10 [million] of earnings”, and that the
transaction “must close by 12/31/99". Furst further explained to
Brown that “Enron is viewing this transaction as a bridge to
permanent equity and they believe [Merrill’s] hold will be for less
than six months”.
2. Brown was a part of a conference call on December 22, 1999
(the Trinkle call) in which Brown, Bayly, Furst and others, all
Merrill Lynch employees, but excluding lawyers, discussed Enron’s
need to close the deal to achieve needed revenue goals. Further,
it was noted that Enron told Merrill that it would help find a
third party buyer and that, if a third party buyer was not secured
by June 30, 2000, Enron would repurchase the barges from Merrill.
At some point during the call, Bayly asked whether a written
assurance of Enron’s promise was available, and someone responded
that a writing was not possible because such an assurance would
prevent Enron from receiving the accounting treatment it was
seeking from the deal.
3. Three versions of the engagement letter were circulated
among Brown and others, the final draft being executed by Brown on
behalf of Merrill. The initial draft of the engagement letter
35
included reference to Enron’s buyback guarantee. On December 28,
Boyle sent out a second draft of the letter with “strike-through”
indicating the proposed removal of all references to the buyback
guarantee. The final executed version of the engagement letter
contained no reference to the buyback guarantee.
4. Finally, Brown’s own e-mail in March 2001, more than a
year prior to his grand jury testimony, plainly stated that “we had
Fastow get on the phone with Bayly and lawyers and promise to pay
us back no matter what.”17 (Emphasis added.)
Based on this proof, a reasonable jury could have found that
the evidence was sufficient to conclude that Brown’s answers were
untruthful. Brown further argues that his testimony was not
actually false, as he never denied knowledge of some
“understanding” or “comfort” between Enron and Merrill as to the
buyback; rather, he merely denied knowledge of a “promise” of such
a side-deal. This distinction and the spin placed on selective and
hyper-technical word choice provides no refuge from the jury’s
17
Brown, who was not a party to the “Fastow call,” argues that
the e-mail is inadmissible hearsay and that it is unreliable and
fails to provide evidence that his grand jury testimony was false.
However, the e-mail is admissible as non-hearsay under Federal Rule
of Evidence 801(c) to reveal Brown’s state of mind, i.e., his
belief that the side deal had been entered into and confirmed by
Fastow. Additionally, although Brown argues that any knowledge he
had of the call was based on hearsay, the e-mail is admissible
against him under Rule 801(d)(2)(A) as an admission by a party
opponent. Despite Brown’s contentions to the contrary, a
reasonable jury could consider such an admission reliable and
reject Brown’s proffered explanation that the e-mail was an
exaggeration of “the strength of the promise [made by Fastow] . .
. .”
36
verdict. “[I]f after conviction the defendant offers ‘a contrived
hypertechnical or lame interpretation of his answer’ . . . the
jury’s decision must be left undisturbed.” Bell, 623 F.2d at 1136
(quoting United States v. Clifford, 426 F.Supp. 696, 704 (E.D.N.Y.
1976)(citations omitted)). Based on this proof, a reasonable jury
could have found that the evidence was sufficient to conclude that
Brown knew that oral agreements had been made and that Brown’s
answers before the grand jury were untruthful.
Second, Brown argues that the grand jury questions were
“fundamentally ambiguous”. Our review of this testimony convinces
us that the questions posed adequately conform with the principle
that “[p]recise questioning is imperative as a predicate for the
offense of perjury,” Bronston v. United States, 409 U.S. 362, 358
(1973). There is no indication that Brown struggled to understand
or actually misunderstood the meaning of the questions. Brown’s
answers were carefully responsive to the questions posed. Brown’s
caution in his word choice, using words like “comfort” and “best
efforts,” rather than “assurance,” “promise,” or “guarantee,”
indicates he was keenly aware of the thrust of the prosecutor’s
questions.
Finally, Brown’s third argument challenging the materiality of
his answers is two-fold: First, he contends that any knowing
misrepresentations that he may have made were not material to the
grand jury investigation; second, he argues that the refusal of the
District Court to admit the entirety of his grand jury testimony
37
was error, because consideration of that evidence would have
prevented the jury from believing his testimony to be material.
Materiality under § 1623 requires only that the defendant’s
statements “[had] a ‘natural tendency to influence, or [were]
capable of influencing, the decision of the decisionmaking body to
which it is addressed.’” United States v. Gaudin, 515 U.S. 506,
509 (1995) (quoting Kungys v. United States, 485 U.S. 759, 770
(1988)); see also Abrams, 568 F.2d at 421 (same). The Government
does not have to demonstrate that the grand jury was actually
hindered in any way by the falsehood. See Abrams, 568 F.2d at 421
(“Actual impediment of the investigation is not required. . . .
Grand jurors are capable of judging credibility and they are free
to disbelieve a witness and persevere in an investigation without
immunizing a perjurer.”). The central issue before the grand jury
at the time of Brown’s testimony was whether there was an oral
buyback guarantee between Enron and Merrill and if there was such
an agreement, who was culpable. Any testimony by Brown relating to
the existence of the agreement, or his knowledge or understanding
about that agreement, was necessarily material to the inquiry of
the grand jury.18 Brown’s argument to the contrary is meritless.
18
The materiality requirement of § 1623 has been satisfied in
cases where the false testimony was “relevant to any subsidiary
issue or [wa]s capable of supplying a link to the main issue under
consideration.” United States v. Griffin, 589 F.2d 200, 207 (5th
Cir. 1979) (noting that “[t]he testimony need not be directed to
the primary subject under investigation”). Consequently, it appears
that even if Brown’s falsehood was relevant only as to his
participation in the buyback agreement (and was not, as Brown
38
Brown’s second argument as to materiality is that the District
Court erroneously excluded his entire grand jury testimony. This
evidentiary ruling is reviewed for an abuse of discretion. United
States v. Walker, 410 F.3d 754, 757 (5th Cir. 2005) (citing United
States v. Phillips, 219 F.3d 404, 409 (5th Cir. 2000)). Brown
contends that it was impossible for the trial jury to determine if
his statements were perjurious without seeing the context in which
they were given. The District Court reviewed Brown’s proffered
testimony and declined to admit it, finding that “the questions .
. . and answers” contained therein “are not genuinely in question,”
and concluding that the testimony was not relevant and would lead
to jury confusion. We have reviewed the record, including the
proffered testimony, and find no abuse of discretion by the
District Court.
For the reasons given, we find no reason to upset the jury
verdict and accordingly, affirm Brown’s conviction for perjury
before a grand jury.
B
Brown next argues that even if the perjury conviction must be
sustained, there is no basis for the verdict on obstruction of
justice. Obstruction of justice is defined in 18 U.S.C. § 1503(a)
as “corruptly . . . endeavor[ing] to influence, obstruct, or impede
. . . the due administration of justice”. 18 U.S.C. § 1503(a)
argues, material to the existence of the buyback itself) the
materiality requirement of § 1623 is still satisfied.
39
(1996). This clause “clearly forbids all corrupt endeavors to
obstruct or impede the due administration of justice.” United
States v. Williams, 874 F.2d 968, 977 (5th Cir. 1989) (emphasis in
the original). Brown contends, however, that where false testimony
alone is the basis for the offense, “it still must be shown to have
the effect of impeding justice.” Brown essentially argues that
perjury and obstruction are separable and distinct offenses;
consequently, the mere fact that one perjures himself does not mean
that he has obstructed justice.19 Thus, the obstruction conviction
must be reversed because “[t]he government introduced no evidence
. . . [to] establish that Brown’s testimony had any effect (actual,
natural, or probable) on the Grand Jury proceeding.”
Brown’s argument is reasoned and appealing. Nevertheless, our
precedent makes clear that material false testimony regarding one’s
knowledge of the subject matter of a grand jury investigation has
an effect beyond its falsity; it also impedes the investigation of
the grand jury. In both United States v. Griffin, 598 F.2d 200
(5th Cir. 1979), and Williams, the defendants testified falsely to
a grand jury by giving “evasive answer[s]” and “denials of
knowledge” relating to the subject of the grand jury inquiry. In
19
We acknowledge this argument is well reasoned and persuasive.
However, under the precedent of this circuit, as discussed infra,
false testimony as to one’s knowledge relating to the subject of a
grand jury inquiry does in fact establish obstruction; not because
the perjury ipso facto establishes obstruction, but because the
perjurious testimony has the effect of “closing off entirely the
avenue[] of inquiry being pursued.” Williams, 874 F.2d at 981.
40
both cases, the defendants, like Brown, argued that their § 1503
convictions must be reversed as the Government had not presented
independent evidence that these falsehoods actually impeded the
grand jury. Writing for this Court, respectively, both Judges
Wisdom and Garwood rejected those contentions, finding that “the
denials of knowledge had the effect of closing off entirely the
avenues of inquiry being pursued, namely, what appellants knew
about the subject under investigation.” Williams, 874 F.2d at 981
(emphasis added); see also Griffin, 598 F.2d at 204. As explicated
by Judge Wisdom, “[b]y falsely denying knowledge of events and
individuals when questioned about them, [the defendant] hindered
the grand jury’s attempts to gather evidence [of the alleged
scheme] as effectively as if he refused to answer the question at
all.” Griffin, 598 F.2d at 204. Consequently, the “testimony had
the effect of impeding justice.”20 Id.
Brown attempts to distinguish his case, arguing that he
testified of his own free will, that he answered every question,
and that he never directly denied knowledge of the Fastow
conversation. Consequently, he cannot be found to have obstructed
the grand jury. Brown’s argument, however, presupposes that his
“voluntary” and “complete” testimony was true –- a presupposition
20
Because the testimony in Griffin and Williams did in fact
impede the grand jury, both cases declined to determine whether
perjury before a grand jury “ipso facto constitutes a violation of
section 1503," see Griffin, 589 F.2d at 204; Williams 874 F.2d at
980.
41
rejected by the jury’s conviction of perjury. Given our precedent,
we see no principled reason that justifies different treatment of
Brown’s untruthful testimony and denials of knowledge; as much as
the defendants in Griffin and Williams, Brown “closed off entirely
the avenue being pursued,” namely, his knowledge or understanding
of what actually occurred. We are bound by the precedent of this
Circuit, and under that precedent, no other proof of impediment is
required to demonstrate obstruction under § 1503. Williams, 874
F.2d 968; Griffin, 598 F.2d 200.21
Given the evidence presented by the government that Brown’s
testimony was false, and the jury’s apparent acceptance of that
evidence, Brown’s perjurious testimony had the effect of “closing
off entirely the avenue[] of inquiry being pursued.” Williams, 874
F.2d at 981. Consequently, Brown’s testimony was corruptly
attempting to influence the administration of justice in violation
of § 1503. As such, we affirm Brown’s conviction for obstruction
of justice.
VI
We sum up as follows: The convictions of each of the
Defendants for conspiracy and wire fraud are VACATED; the District
Court’s denial of Fuhs’s motion for judgment of acquittal is
REVERSED and his convictions are VACATED; and the conviction and
21
Brown repeatedly cites In re Michael, 326 U.S. 224 (1945),
for the proposition that an obstruction conviction based on perjury
alone cannot stand. However, Griffin squarely rejected that
argument. 985 F.2d at 205-06. See also Williams, 874 F.2d at 979.
42
sentences of Brown on charges of perjury and obstruction of justice
are AFFIRMED.
REVERSED in part; VACATED in part; and AFFIRMED in part.
43
REAVLEY, concurring in part and dissenting in part:
I concur in the dismissal of charges against Fuhs because of
the insufficiency of the evidence at the stage of the end of the
government’s case-in-chief. And I concur in affirming Brown’s
convictions for perjury and obstruction of justice. I would,
however, affirm the judgment against Brown, Bayly and Furst for
conspiracy and wire fraud.
The government’s theory of wire fraud relating to the
deprivation of honest services is warranted by 18 U.S.C. § 1346
because it applies to the behavior in this case. While the
majority recognizes that the government provides a “very
plausible, even strong case for a criminal deprivation of honest
services,” it goes on to hold that the scheme as alleged in the
indictment falls outside the scope of honest services fraud, and
unnecessarily sets up a new “demilitarized zone” for the honest
services fraud theory. (“[W]here 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 mutual
interest, such conduct is beyond the reach of the honest-services
theory of fraud as it has hitherto been applied.”).
Both our pre- and post-McNally case law supports the honest
services fraud theory alleged in the indictment and proven at
44
trial. To prove a violation of the honest services branch of the
federal fraud statutes, the government must prove that a
defendant deprived his employer of services under state law.
United States v. Caldwell, 302 F.3d 399, 409 (5th Cir. 2002);
United States v. Brumley, 116 F.3d 728, 734 (5th Cir. 1997) (en
banc) (the employee “must act or fail to act contrary to the
requirements of his job under state law”). In United States v.
Ballard, 663 F.2d 534, 353 (5th Cir. 1981), this court held
that a breach of fiduciary duty of honesty or loyalty
involving a violation of the duty to disclose could only
result in criminal mail fraud where the information
withheld from the employer was material and that, where
the employer was in the private sector, information
should be deemed material if the employee had reason to
believe the information would lead a reasonable employer
to change its business conduct.
See also United States v. Gray, 96 F.3d 769, 774-75 (5th Cir.
1996) (same); United States v. Fagan, 821 F.2d 1002, 1009 (5th
Cir. 1987) (same). This court has held that “a breach of
fiduciary duty can constitute illegal fraud . . . only when there
is some detriment to the employer.” Ballard, 663 F.2d at 540.
The court went on to find that the detriment can be a deprivation
of an employee’s faithful and honest services if a violation of
45
the employee’s duty to disclose material information is involved.
Id. Thus, this court has focused its inquiry on the duty to
disclose and materiality.1
The indictment alleges that “[a]s Enron employees, Fastow,
Glisan, [and] Boyle . . . each owed a duty to Enron and its
shareholders to provide the company with their honest services.”
Count One then alleges that the defendants conspired to devise a
scheme or artifice to defraud Enron and its shareholders “of the
intangible right of honest services of its employees” and that
they used “materially false and fraudulent pretenses,
representations, and promises” in the process. Counts Two and
Three reiterate those allegations for the substantive wire fraud
offenses.
The evidence at trial proved that Fastow, Glisan, Boyle, and
McMahon, and other Enron personnel temporarily “parked” the
barges with Merrill Lynch so that Enron could meet its earnings.
The defendants never disputed that Fastow, Glisan, Boyle, and
McMahon were senior Enron executives and managers that owed a
fiduciary obligations under state law to Enron and its
1
I note that the Second Circuit in United States v. Rybicki,
354 F.3d 124, 145-46 (2d Cir. 2003), a case involving a kickback
scheme, followed the lead of this court and adopted the materiality
test in lieu of the reasonably foreseeable harm test. The court
found that private sector honest services cases fall into two
general categories: bribery or kickbacks and self-dealing. Id. at
139. While certainly these type of cases fit comfortably into the
plain meaning of § 1346, honest services fraud is not limited to
those categories, and any implication otherwise is unjustified.
46
shareholders. These fiduciary obligations included the duty of
loyalty, fair dealing, and candor. The Enron executives and
managers breached their fiduciary duties by “cooking” Enron’s
books and engaging in the fraudulent “sale” of the barges to
Merrill Lynch, withholding this information from Enron and its
shareholders, and causing Enron to pay nearly $1.5 million to
Merrill Lynch and LJM2 to hold the barges, along with paying
compensation bonuses to APACHI executives that depended on the
completion of the barge transaction.
In sum, the government proved that the defendants’ scheme
involved withholding material information from Enron and its
shareholders and caused a detriment to Enron and its
shareholders. Given that our pre- and post-McNally case law
supports the honest services fraud theory alleged in the
indictment and proven at trial, this should end the matter.
To distinguish this case from previous cases, the majority
relies on two important propositions: (1) that the barge
transaction was intended to serve a corporate purpose/goal,
(“This case, in which Enron employees breached a fiduciary duty
in pursuit of what they understood to be a corporate goal,
presents a situation in which the dishonest conduct is
disassociated from bribery or self-dealing and indeed associated
with and concomitant to the employer’s own immediate interest.”);
and (2) that there could no honest services violation because
47
certain Enron executives knew all of the specifics of the barge
deal and sanctioned the transaction, (“Enron’s corporate
incentive policy coupled with senior executive support for the
deal (the deal was sanctioned by Fastow, Enron’s Chief Financial
Officer), which together created an understanding that Enron has
corporate interest in, and was a willing beneficiary of, the
scheme.”). I object to both justifications for the conspiracy.
First, the barge transaction did not serve the purpose of
Enron’s shareholders, and it cost Enron nearly $1.5 million, plus
compensation to APACHI executives, that it should not have had to
pay. Most important, falsifying Enron’s books does not serve a
legitimate corporate purpose, even if it temporarily made Enron’s
finances appear more attractive to the investing public in the
short term. Second, it is no defense that the defendants’ co-
conspirators included high-ranking executives at Enron. The fact
that those co-conspirators were aware of defendants’ conduct does
not excuse defendants’ actions. But most important, Enron
executives are not Enron itself and, in any event, they owed a
fiduciary duty to Enron and its shareholders.2
I conclude that the behavior of the defendants falls
squarely within the meaning of a “scheme or artifice to deprive
another of the intangible right to honest services,” measuring it
2
For these two reasons, I find the majority’s attempt to
distinguish and limit United States v. Gray, 96 F.3d 769 (5th Cir.
1996), to be unpersuasive.
48
against our pre- and post-McNally case law. I therefore
respectfully dissent.
49
DeMOSS, Circuit Judge, concurring in part and dissenting
in part:
I join without reservation Judge Jolly’s opinion with
respect to the honest services theory of the Indictment
and the issue of insufficiency of the evidence as to
Fuhs. However, I write separately to explain two
additional points with respect to the honest services
charge and to dissent with respect to Brown’s convictions
for perjury and obstruction of justice.
I.
With respect to § 1346 and the honest services
theory, I would reach the Defendants’ constitutional
challenge and also point out the multiple and troubling
problems with the Government’s theory of applying § 1346
to these facts, even though the majority opinion disposes
of the Defendants’ appeal.
In our Brumley dissent, Judge Jolly and I did our
best to point out the ambiguities in the text of § 1346
that gave us grave reservations about the statute’s
application. While we did not there call into question
the statute’s constitutionality as applied, 116 F.3d at
736 (Jolly and DeMoss, JJ., dissenting), I have since
then twice had occasion to address § 1346. See United
States v. Griffin, 324 F.3d 330, 356 (5th Cir. 2003);
United States v. Evans, 148 F.3d 477 (5th Cir. 1998). The
Defendants have raised here a constitutional challenge to
§ 1346, and in my view the panel should now address that
issue. Years of review of the application of § 1346 to
varied facts persuade me that the constitutionality of §
1346 may well be in serious doubt. A federal criminal
statute must define the crime “with sufficient
definiteness that ordinary people can understand what
conduct is prohibited and in a manner that does not
encourage arbitrary and discriminatory enforcement.”
Kolender v. Lawson, 461 U.S. 352, 357 (1983). Section
1346's text is undeniably vague and ambiguous and is
subject to wide variation in application by the lower
courts. Rather than address the larger constitutional
problem with this statute, which would provide clarity to
Congress, prosecutors, and the lower courts, the circuit
courts have instead only clouded the meaning of § 1346 by
repeatedly resolving the ambiguities of the statute’s
text via judicially created definitions and limitations.
51
Our Court and our sister circuits end up doing precisely
what most would say we lack the constitutional power to
do, that is, define what constitutes criminal conduct on
an ex post facto and ad hoc basis. In this regard, I add
my voice to the dissenters in Rybicki. 354 F.3d at 163-65
(Jacobs, J., dissenting). Congress should repair this
statute that, in my opinion, fails to provide the
requisite “minimal guidelines to govern law enforcement.”
Id. at 358.
Additionally, the application of § 1346 to the facts
presented in this case is particularly problematic for
several reasons, the combination of which poses an even
greater harm to future business relationships and
transactions than would any one of the problems alone.
The Government’s extension of the already ambiguous reach
of § 1346 by way of an indictment for conspiracy to
commit honest services fraud is especially troublesome.
While § 1346's text offers little guidance on the scope
of the crime’s application, see Brumley, 116 F.3d at 741-
42, 746 (Jolly and DeMoss, JJ., dissenting), at a minimum
the word “services” has been in the past the basis for
52
the statute’s pre-McNally application to the
employer/employee relationship. See id. at 734
(Higginbotham, J., majority opinion). To the extent that
pre-McNally case law required a relationship that
generated a duty of honest services, such a relationship
does not exist in this case between the Defendants, who
are employees of Merrill, and Enron or its shareholders,
who are the purported victims of the alleged fraud. The
limitation of criminal activity to relationships giving
rise to a duty of honest services is ignored when any
person who negotiates with an employee of another
corporation is potentially entangled by the combination
of § 1346 with our very broad understanding of
conspiracy.
I also believe that a serious problem arises with
respect to the Government’s theory of harm in this case.
It is absolutely undisputed that Merrill paid $7 million
to Enron as a result of the closing of the transaction
contemplated by the Engagement Letter of December 29,
1999 that was the final written agreement of the two
parties (“the Engagement Letter”). Even granting the
53
Government that Enron paid back $250,000 as the advisory
fee to Merrill, Enron still had $6,750,000 more in its
bank account as a result of the Engagement Letter than it
had before. The Government’s theory of harm would have us
ignore the initial gains to Enron and focus solely upon
some later loss only tangentially connected to the
particular investment transaction that forms the basis of
the Indictment.
The cumulative effect of a vague criminal statute, a
broad conception of conspiracy, and an unprincipled
theory of harm that connects the ultimate demise of Enron
to a single transaction is a very real threat, of
potentially dramatic proportion, to legitimate and lawful
business relationships and the negotiations necessary to
the creation of such relationships.
II.
I dissent from the portion of the majority opinion
that affirms the convictions of Brown for perjury and
obstruction of justice. I cannot agree with the majority
that on this record, particularly the portions quoted in
the majority opinion, a reasonable jury could conclude
54
that Brown’s allegedly perjurious statements were in fact
false. Brown argues that his testimony was true because
it represented his subjective understanding of the
transaction contemplated by the Engagement Letter. I
agree. The majority relies primarily upon four points of
evidence to support its assertion of falsity: Furst’s
explanations to Brown that Enron viewed the deal as a
“bridge to permanent equity”; the discussions of the
December 22 conference call; working drafts of the
Engagement Letter transmitted between Merrill and Enron
that were never signed; and Brown’s own e-mail of March
2001. These four points, along with other circumstantial
evidence, comprise two types of evidence: (1) business
negotiations preceding a deal ultimately reduced to a
written agreement and (2) an after-the-fact
oversimplification and shorthand description of the barge
partnership investment by Merrill employees during the
discussion and evaluation of a subsequent and entirely
unrelated deal. Neither of these types of evidence should
be used to support an inference of the falsity of Brown’s
testimony.
55
The evidence regarding both working drafts of the
Engagement Letter and discussions between employees of
Enron and employees of Merrill leading up to the final
written agreement are simply the heart and soul of
business negotiations and should not indicate the
character of the ultimate business transaction. Some
negotiations may ultimately be reflected in the final
written agreement, but some may not. Here, negotiations
are no evidence of the actual nature of the deal because
there was no legally enforceable take-out promise in the
final written agreement; instead, the parties merely
bargained for Enron’s best efforts to continue to market
Merrill’s investment interest in the barge partnership to
the mutual benefit of both companies.
Such an agreement does not undermine the nature of
the transaction as set forth in the Engagement Letter
that was ultimately agreed to and signed by both parties.
Employees of Enron and Merrill may well have considered
a buy-back agreement, promise, or guarantee during the
negotiations leading up to the barge deal; the evidence
would certainly permit a reasonable jury to so conclude.
56
But the final written agreement excludes this term.
Instead, the parties relied upon their established
business relationship and discussions of best efforts and
strong comfort that Enron would continue its efforts to
find a third-party buyer for Merrill’s interest in the
barge partnership. The conversations preceding the deal
are only negotiations, and the ultimate written agreement
speaks for itself. Two material facts corroborate this
reading: (1) Fastow himself averred to the Government
that he, in fact, made only assurances of best efforts to
Merrill, not promises or guarantees to take Merrill out
of the deal; and (2) in conformance with the written
agreement, Merrill actually paid $7 million to Enron,
consistent with its purchase of an interest in the barge
partnership investment, and therefore had absolutely no
legally enforceable claim to be taken out of the deal.
The Government mischaracterizes the transaction evidenced
by the Engagement Letter when it labels the agreement a
“sham” and asserts that Merrill was never “at risk”
during the transaction. The Engagement Letter expressly
states, “No waiver, amendment, or other modification of
57
this Agreement shall be effective unless in writing and
signed by the parties to be bound.” Likewise, the
Engagement Letter also includes the following provision:
“This Agreement incorporates the entire understanding of
the parties with respect to this engagement of Merrill
Lynch by Enron, and supercedes all previous agreements
regarding such engagement, should they exist.” In light
of these provisions, Merrill’s $7 million was absolutely
at risk. Any oral assurances of a take-out offered to
Merrill by any Enron employee would not have been legally
binding on Enron.
In my view, both parties acted to maximize mutual
benefits in a clear effort to solidify a business
relationship. Both parties relied on the good faith of
each other in laying a foundation for continued business
relationships. Merrill could not have enforced Enron’s
assurance of its best efforts commitment to remarket the
investment interest that Merrill had agreed to purchase;
Merrill could only have refused to deal with Enron in the
future if the Engagement Letter had resulted in an
unsatisfactory business investment. Such negotiations
58
should not be the fodder for criminal indictments. If
there is any criminal wrong arising from the facts in
this record, and I have serious doubts on that score, it
would be in Enron’s employees’ reporting of the
transaction described in the Engagement Letter, not in
the manner in which Merrill’s employees negotiated the
deal.
Brown’s March 2001 e-mail was not a statement under
oath; rather, it was a statement made to another Merrill
colleague fifteen months after the Engagement Letter
transactions that discussed a proposed loan transaction
with a potential borrower, a large corporate entity
entirely unrelated to Enron (referred to in the e-mail as
“CAL”). The talking point in the e-mail was whether
Merrill would be a secured or an unsecured lender in the
proposed deal. The pertinent part of the e-mail reads,
If it[’]s as grim as It sounds, I would support
an unsecured deal provided we had total verbal
[a]ssurance from CAL ceo or Cfo, and [S]hulte
was strongly vouching for it. We had a similar
precedent with Enron last year, and we had
Fastow get on the phone with Bayly and lawyers
and promise to pay us back no matter what. Deal
was approved and all went well. What do you
think?
59
The text of the e-mail reveals that Brown was
attempting to use the success of the earlier deal with
Enron to persuade a colleague that the deal with CAL
would likewise be successful. In the email, Brown did not
distinguish the two deals. But the Enron deal and the CAL
deal discussed in the e-mail differ in at least one
important respect: the Enron deal involved the sale of an
equity interest in an Enron partnership to Merrill and
the CAL deal involved a loan by Merrill to CAL for funds
to be used in building an extension to CAL’s facilities.
At the time the e-mail was written, Brown may have
remembered the Enron deal as some sort of loan by Merrill
to Enron; however, the Engagement Letter and the evidence
before the jury reveal no such transaction. No legally
enforceable promise was ever made to take Merrill out of
the Enron deal. Accordingly, no reasonable jury could
construe the e-mail as anything but an overly simplified,
shorthand description of the barge investment made after
the fact in an effort to secure a subsequent, entirely
unrelated deal. Under this reading of the e-mail, Brown’s
60
testimony before the Grand Jury was not inconsistent with
the text of the email because there simply was no promise
or guarantee regarding a take-out in the Enron deal. The
questions posed by the Grand Jury related only to an
enforceable take-out, not to an oral “promise to pay us
back no matter what,” and Brown’s answers to those
questions therefore do not conflict with his statements
in the e-mail.
Finally, the Government’s own evidence supports a
conclusion that the only comfort offered to Merrill was
that Enron would use its best efforts to sell to a third
party. A reasonable jury could not convict Brown of
perjury where the Government speaks out of both sides of
its mouth with respect to the allegedly perjurious
testimony. The Government simultaneously proffers the
identical words as both evidence of Brown’s guilt of
perjury when the words are spoken by Brown and as
evidence of the nature of the Enron transaction not being
a sale when offered by the Government’s own witnesses.
I conclude, therefore, that no reasonable jury could
conclude that Brown’s testimony before the Grand Jury was
61
false. Accordingly, I must conclude that no reasonable
jury could convict Brown of perjury. See 18 U.S.C. §
1623. Moreover, the sole basis in the Indictment for the
charge against Brown of obstruction of justice, see 18
U.S.C. § 1503(a), was Brown’s allegedly false statements
to the Grand Jury. Accordingly, I would also conclude
that no reasonable jury could find Brown guilty of
obstruction of justice on this record.
For the foregoing reasons, I would reverse the
conviction of Brown on the perjury and obstruction of
justice counts.
62
63
United States v. Brown
Court: Court of Appeals for the Fifth Circuit
Date filed: 2006-08-01
Citations: 459 F.3d 509
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