United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
For the Fifth Circuit December 17, 2004
Charles R. Fulbruge III
Clerk
No. 03-21217
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
VERSUS
MICHELLE M. VALENCIA,
Defendant-Appellee.
Appeal from the United States District Court
For the Southern District of Texas
Before DeMOSS, DENNIS, and CLEMENT, Circuit Judges.
DeMOSS, Circuit Judge:
Plaintiff-Appellant United States of America (the
“Government”) appeals the district court’s dismissal of a portion
of three counts of a seven-count indictment against Defendant-
Appellee Michelle Valencia. The district court held a portion of
§ 13(a)(2) of the Commodity Exchange Act (“CEA”), 7 U.S.C. §
13(a)(2), unconstitutional as overbroad and severed the offending
portion of the statute, permitting the constitutional portions as
well as other counts of the indictment to survive Valencia’s motion
to dismiss. For the following reasons, we determine that §
13(a)(2) is not unconstitutionally overbroad and therefore REVERSE.
BACKGROUND
Valencia was indicted on January 22, 2003, and is charged in
relevant part with the knowing delivery on three occasions of
“false and misleading and knowingly inaccurate reports” concerning
market information that affected and tended to affect the price of
natural gas, a commodity in interstate commerce, in violation of 7
U.S.C. § 13(a)(2). The indictment alleges Valencia was employed by
Dynegy Marketing and Trade as a natural gas trader, thereby capable
of entering transactions that call for the physical delivery of
natural gas at fixed or “index” prices.
According to the indictment, Inside FERC Gas Market Report
(“Inside FERC”) is an industry newsletter published on the first
day of each month that reports certain index prices. Inside FERC
calculates its reported index prices using information received
from traders during monthly surveys, including the price and volume
of fixed price, natural gas trades during a period of time.
Electric utilities often purchase natural gas at prices tied to the
index prices, and the prices of natural gas contracts are often
based on index prices. Thus, traders who report false information
to Inside FERC tend to affect the price of natural gas by pushing
reported index pricing up or down, potentially costing gas and
electricity consumers throughout the country considerable sums of
money.
The indictment charges that Valencia knowingly reported to
Inside FERC the volume and price data on natural gas trades that
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never occurred. The three counts under § 13(a)(2) arose from
Valencia’s alleged reporting of multiple fabricated trades, trades
she allegedly knew never occurred, on three occasions, in November
2000, January 2001, and February 2001.
Valencia moved to dismiss these counts on multiple grounds,
asserting that: (1) § 13(a)(2) is unconstitutional as vague; (2)
the statute is unconstitutionally applied to the facts of the
indictment; and (3) the statute is unconstitutionally overbroad.
The district court granted Valencia’s motion, dismissing counts
one, two, and three in their entirety. The court rejected
Valencia’s arguments that § 13(a)(2) is unconstitutionally vague
and is unconstitutionally applied to the facts of the indictment.
But the court granted the motion as to the overbreadth argument and
held that because the statute could not be read to require
knowledge that the information was false or misleading without
rendering the second use of “knowingly” mere surplusage, the
provision lacked the requisite scienter. In other words, the
district court read the statute to create a felony for the knowing
delivery of a report not known to be false or misleading. The
statute, under this reading, would criminalize innocent conduct and
infringe upon protected speech, and so the district court held it
unconstitutional.
The Government filed a motion to reconsider, and the district
court vacated its initial order. Upon reconsideration, the court
dismissed only those portions of the indictment charging that
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Valencia knowingly delivered and caused to be delivered false and
misleading reports. The district court permitted the portions of
the indictment charging that Valencia knowingly delivered and
caused to be delivered knowingly inaccurate reports to survive.
The Government appeals this disposition.
DISCUSSION
The district court’s interpretation of the constitutionality
of a federal statute is a question of law that this Court reviews
de novo. United States v. Hebert, 131 F.3d 514, 525 (5th Cir.
1997). Here, we consider whether a portion of 7 U.S.C. § 13(a)(2)
is unconstitutional as lacking the requisite mens rea, that is,
knowledge that the reported information is false or misleading at
the time of the knowing delivery.
Section 13(a)(2) of the CEA reads in relevant part:
It shall be a felony . . . for:
. . . .
(2) Any person to [1] manipulate or attempt to manipulate
the price of any commodity in interstate commerce, or for
future delivery on or subject to the rules of any
registered entity, or [2] to corner or attempt to corner
any such commodity or [3] knowingly to deliver or cause
to be delivered for transmission through the mails or
interstate commerce by telegraph, telephone, wireless, or
other means of communication false or misleading or
knowingly inaccurate reports concerning crop or market
information or conditions that affect or tend to affect
the price of any commodity in interstate commerce . . .
.
7 U.S.C. § 13(a)(2) (2001) (emphasis added).1
1
The district court referred to these three prongs, in
order, as the manipulation prong, the cornering prong, and the
4
The parties’ dispute is limited to the third or
“reporting” prong of the subsection and presents the question
of whether “knowingly” applies, as a matter of law, to only
the delivery or also to the nature of reports as false or
misleading. Both parties agree that the second appearance of
“knowingly” modifies the inaccuracy of the reports. Valencia
argues that a plain reading of the statute reveals that only
the delivery be knowing or, in other words, that a felony lies
where one knowingly delivers reports that are not known by the
deliverer to be false or misleading. Therefore, she argues
the statute is overbroad for criminalizing innocent conduct
and infringing upon protected speech.
In construing the United States Code our task must begin
with the words provided by Congress and the plain meaning of
those words. See Bailey v. United States, 516 U.S. 137, 144-
45 (1995); Staples v. United States, 511 U.S. 600, 605 (1994).
In so doing, we give effect to the intent of Congress, and “as
between two possible interpretations of a statute, by one of
which it would be unconstitutional and by the other valid, our
plain duty is to adopt that which will save the Act.”
Blodgett v. Holden, 275 U.S. 142, 148 (1927) (Holmes, J.,
concurring). These principles stem from respect afforded to
Congress, “which we assume legislates in the light of
reporting prong.
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constitutional limitations.” Rust v. Sullivan, 500 U.S. 173,
191 (1991).
The Supreme Court recently reiterated its hesitance to
encourage the facial attack to a statute’s constitutionality
on grounds of overbreadth. Sabri v. United States, 124 S. Ct.
1941, 1948-49 (2004). But in this instance, the plain
language of the statute permits at least two readings, and the
parties each champion one. Valencia echoes the district court
and argues that Congress intended to create a felony when one
knowingly delivers or causes to be delivered a report that is
unknowingly false or misleading. The Government argues that
the term “knowingly,” when first used in the reporting prong
of the statute, applies to both “deliver” and “false or
misleading information” because scienter must be implied in
statutes where it is not expressly included. See United
States v. X-Citement Video, Inc., 513 U.S. 64 (1994); see also
Dennis v. United States, 341 U.S. 494 (1951) (holding statute
with disjunctive use of “knowingly” requires specific intent).
The Government’s position is correct. The rule requiring
a statute be read to contain an adequate mens rea to avoid
constitutional infirmity stems both from a canon of
construction and Supreme Court precedent.2
2
Although both parties additionally argue that the
legislative history supports their respective positions, we find
no salient assistance from those records and instead rely upon
6
In X-Citement Video, the Supreme Court addressed a
similar construction problem and held that the most natural
reading of the statute was properly rejected to avoid
criminalizing innocent conduct. 513 U.S. at 78. The statute
there in question, 18 U.S.C. § 2252(a) (1988 & Supp. V 1994),
provided for the punishment of any person who knowingly
transported any visual depiction if it involved the use of a
minor engaging in sexually explicit conduct and it depicted
such conduct. The Court held that the word “knowingly”
modified all three portions of the subsection: (1) the
transportation (which was undisputed); (2) the age of the
performer in the visual depiction; and (3) the “sexually
explicit nature of the material.” X-Citement Video, 513 U.S.
at 68, 78. Relying primarily on Morissette v. United States,
342 U.S. 246 (1952), and Staples, 511 U.S. 600 (1994), the
majority stated: “the presumption in favor of a scienter
requirement should apply to each of the statutory elements
that criminalize otherwise innocent conduct.” X-Citement
Video, 512 U.S. at 72.
Before the Supreme Court decided X-Citement Video, a
panel of this Circuit, in United States v. Wallington, 889
F.2d 573 (5th Cir. 1989), addressed the constitutionality of
case law and principles of statutory construction to reach this
result.
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a statute penalizing information disclosure by government
employees. The panel concluded that a construction of the
statute saved it from constitutional infirmity, despite the
reality that a plain reading might apply to a wide array of
innocent conduct. Id. at 576-79. Thus, this Circuit has
previously interpreted a potentially overbroad statute
narrowly and “read an implicit mens rea requirement” into a
criminal statute that is silent on the subject. Id. at 577-
78.
Wallington does not, though, pointedly control the result
in this case because § 13(a)(2) is not silent on the matter of
the mens rea element but instead provides an explicit knowing
requirement as to delivery and inaccuracy. Valencia argues,
echoing the district court’s reasoning, that this difference
distinguishes Wallington and X-Citement and requires that §
13(a)(2) be held unconstitutional, at least as to a felony
grounded in the knowing delivery of false or misleading
reports. Valencia argues that, under Bailey, 516 U.S. at 145,
and United States v. Ceballo-Torres, 218 F.3d 409 (5th Cir.
2000), we must give meaning to each word in the statute and
render none superfluous. Valencia argues this cannot be
accomplished by reading a scienter requirement into the false
or misleading nature of the reports because to do so renders
superfluous the word “knowingly” that Congress expressly
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provided as modifying the inaccuracy of reports. We disagree.
Because X-Citement Video elevates a canon of statutory
construction to a rule of law, 512 U.S. at 81 (Scalia, J.,
dissenting), we are guided by precedent in reading the first
“knowingly” of § 13(a)(2) to modify both “false” and
“misleading,” as well as delivery. Scienter applies, even
where none explicitly is provided. “The presumption in favor
of scienter requires a court to read into a statute only that
mens rea which is necessary to separate wrongful conduct from
‘otherwise innocent conduct.’” Carter v. United States, 530
U.S. 255, 269 (2000) (citing X-Citement Video, 512 U.S. at
72).
Thus, this Court ultimately rejects one natural
grammatical reading of the statute — the reading adopted by
the district court that requires knowing delivery but not
knowledge of the falsity or misleading character of the
reports. Instead, we favor a construction of the statute that
avoids criminalizing innocent conduct.
CONCLUSION
Although a natural reading of § 13(a)(2) is consistent
with the district court’s determination that the reporting
prong of the statute is overbroad and criminalizes innocent
conduct, Supreme Court precedent mandates that the statute be
read narrowly in order to prevent that outcome. Accordingly,
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we hold the knowledge requirement of the reporting prong of §
13(a)(2) applies to the false or misleading character of the
reports, as well as to delivery and inaccuracy. The cause is
REMANDED to the district court for further proceedings.
REVERSED and REMANDED.
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