—Gregory L. Poe

In Kumar, the government charged the former CEO of Computer Associates, a publicly traded company, along with the company’s head of North American sales, with various crimes relating to a securities fraud scheme. The case arose out of a fraudulent accounting practice known as the “35-day month.” The company had backdated contracts executed in the first few days of a financial quarter to recognize revenue from those contracts in the prior quarter. The illegal purpose of the practice was to make investors believe that the company had met or exceeded its quarterly earnings estimates. Eventually, the defendants pleaded guilty to fraud and other offenses. They were sentenced in November 2006.

Ordinarily, a sentencing court is required to apply the guidelines in effect at the time of sentencing. See U.S.S.G. § 1B1.11(a). If the application of that rule creates an ex post facto problem, however, then a sentencing court is required to apply the guidelines in effect at the time of the offense conduct. The binary choice required under the guidelines is commonly known as the “one-book rule.” See U.S.S.G. § 1B1.11(b)(1); Miller v. Florida, 482 U.S. 423, 430 (1987) (Ex Post Facto clause implicated if a law applies to events that occurred before its enactment and disadvantages the defendant affected by the law);  Weaver v. Graham, 450 U.S. 24, 30 (1981) (“the lack of fair notice and governmental restraint when the legislature increases punishment beyond what was prescribed when the crime was consummated” is central to the ex post facto prohibition).

The conduct underlying the charged fraud offenses in Kumar ended in 2000. Certain uncharged obstructive conduct relating to the fraud offenses had continued until 2005. The district court applied the 2005 guidelines (the version in effect at the time of sentencing) instead of the 1998 guidelines (the version in effect at the time of the offense conduct). The 2005 version of the guidelines contained several sentencing enhancements that did not exist in the 1998 version, including an enhancement for obstructive conduct. The district court, after deciding that defendants had obstructed the government’s investigation of the underlying conduct, applied the enhancement.

On appeal, the defendants argued that they were unfairly punished by application of the 2005 guidelines under the one-book rule because the enhancement did not exist before 2000 at the time of the offense conduct. The panel majority decided that the application of the 2005 guidelines clearly disadvantaged the defendants under the Miller standard because their sentencing ranges under the guidelines were much higher than they would have been if the 1998 guidelines had been applied. But the panel majority concluded that no ex post facto problem existed under Miller because the application of the 2005 guidelines was not retrospective. According to the Kumar majority, the defendants had fair notice of the consequences of committing obstructive conduct postdating the offense conduct because the one-book rule had been adopted before their offense conduct occurred.

Judge Sack, in dissent, stated that “the majority give[s] insufficient attention to the quality of notice that ex post facto jurisprudence requires. It is not notice simpliciter, but notice that is ‘fair.’” Slip op. at 19. In other words, Judge Sack stated a view that any notice created by the existence of the one-book rule existed at a level of generality too high to permit an enhancement based on an amendment to the guidelines that had been promulgated after the offense conduct. Ultimately, the disagreement between the panel majority and Judge Sack involves the types of line-drawing and contextual issues concerning the scope and meaning of notice that are often present in litigation under the Due Process Clause.

All of this invites a more basic question: What practical difference does ex post facto analysis make when the sentencing guidelines are simply one non-binding factor that a court must consider under 18 U.S.C. § 3553(a)? The Seventh Circuit, in an opinion by Judge Posner, has held squarely that the Ex Post Facto clause does not even apply to the post-Booker advisory sentencing guidelines. See United States v. Demaree, 459 F.3d 791, 795 (7th Cir. 2006) (“We conclude that the ex post facto clause should apply only to laws and regulations that bind rather than advise[.]”). According to Demaree, a sentencing judge who agrees with a guideline enhancement that was promulgated after the offense conduct can reach the same result through another means under 18 U.S.C. § 3553(a) as if he or she were directly applying the guideline enhancement. Id. (“[A] rule that a guidelines change cannot be applied retroactively if it would be adverse to the defendant would have in the long run a purely semantic effect”). (Even before United States v. Booker, when the sentencing guidelines were mandatory, Judge Easterbrook took the position that “sentencing guidelines are not ‘laws’ within the scope of [the Ex Post Facto] clause.” See United States v. Vivit, 214 F.3d 908, 924 (7th Cir. 2000) (concurring opinion).) Other circuits have disagreed with Demaree.  See, e.g., United States v. Turner, 548 F.3d 1094, 1099-1100 (D.C. Cir. 2008).

In Kumar, the district court had held (consistent with Demaree) that “because the Guidelines [are] advisory, the Ex Post Facto clause [is] not implicated by sentencing decisions.” Slip op. at 8. The court of appeals, however, chose to sidestep that bedrock question entirely. See slip op. at 25 n.12 (majority opinion); id. at 11 n.7 (dissenting opinion). Presumably, the Second Circuit proceeded in that manner because the government on appeal disclaimed any reliance on the district court’s position. Slip op. at 25 n.12. In Demaree, the government similarly had argued on appeal that the Ex Post Facto clause applies to the advisory guidelines. Not mincing words, Judge Posner characterized the government’s position as a “rearguard action against Booker” and an effort to make the guidelines “bind as tightly as possible.” 459 F.3d at 795.  (Now, the government has taken a position at odds with its stance in Demaree and Kumar. See United States v. Lanham, et al., Nos. 08-6504/6506, 09-5094/5095, slip op. at 20 (6th Cir., Aug. 24, 2010) (rejecting government’s argument that harsher, post-conduct version of the guidelines applied and stating that advisory nature of guidelines does not eliminate ex post facto concerns).  This is either a change of course or the Acting Solicitor General will need to impose order here.)

Whether one chooses to accept Judge Posner’s brand of legal realism, there is no question that a district judge has broad discretion to reach results under Section 3553(a) that vary substantially from the guidelines. In Kumar itself, the district court varied downward from life sentences recommended by the guidelines and imposed sentences of 7 years and 12 years. In the end, the type of intense legal skirmishing exemplified by Kumar may demonstrate, more than anything else, that the advisory guidelines continue to have a tethering effect despite their status under Section 3553(a) as a single factor among many that must be considered by courts in federal sentencing proceedings.

The logic behind Dura has enormous importance in federal criminal cases involving publicly traded securities. Under the advisory United States Sentencing Guidelines, the calculation of a sentence in a fraud case is largely driven by the amount of “loss” caused by the fraud. U.S.S.G. Section 2B1.1.  “Actual loss” is defined as the “reasonably foreseeable pecuniary harm that resulted from the offense.” Id., Commentary, 3(A)(i). Under the guidelines, a district court is required only to make a “reasonable estimate of loss.” Id., Commentary, 3(C). If a corporate executive – Enron’s Jeff Skilling and WorldCom’s Bernie Ebbers are two prominent examples – is convicted of fraud involving hundreds of millions of dollars in decreased market capitalization, he or she may be subject to decades in prison under the guidelines (or what amounts to a life sentence).

Given the liberty interests involved in a criminal case, one might think that the standards would be at least as strict as those that apply in a civil case. Not so. Recently, the Ninth Circuit rejected the proposition that Dura should apply to sentencing in a federal criminal case. See United States v. Berger, No. 08-50171 (9th Cir., Nov. 30, 2009). According to the Ninth Circuit, the criminal sentencing context is different because “a court gauges the amount of loss caused, i.e., the harm that society as a whole suffered from the defendant’s fraud.” Slip op. at 15629 (emphasis in original). But that reasoning is utterly circular. Whether “society as a whole” suffered any loss depends on the facts involved. If a fraud is committed but is never disclosed to the market, it is possible that the fraud did not actually affect share price at all. And even if a fraud is disclosed, the actual harm to any particular purchaser can’t simply be determined by subtracting the share price on the date of purchase from the price on the date the fraud was revealed. The effect of the fraud needs to be isolated from the many other variables that affect share price over time.

Other courts of appeals, as the Ninth Circuit recognized in Berger, have embraced the logic of Dura in the criminal context. See United States v. Rutkoske, 506 F.3d 170, 179 (2d Cir. 2007) (“we see no reason why considerations relevant to loss causation in a civil fraud case should not apply, at least as strongly, to a sentencing regime in which the amount of loss caused by a fraud is a critical determinant of the length of a defendant’s sentence.”); United States v. Olis, 429 F.3d 540, 546 (5th Cir. 2005) (“The civil damage measure should be the backdrop for criminal responsibility both because it furnishes the standard of compensable injury for securities fraud victims and because it is attuned to stock market complexities.”). Still, the practical reach of those cases may be limited in light of the requirement in the guidelines that a court need only make a “reasonable estimate of loss.” Defendants will argue that the government must prove actual loss with sophisticated analysis; the government will argue that no such exactitude is required.  See United States v. Ferguson, 584 F. Supp.2d 447, 451-52 (D. Conn. 2008).

Time will tell whether the Ninth Circuit’s view of Dura in the criminal context will stand. Even in the Ninth Circuit, however, Berger cannot be allowed to end the story. In every federal criminal case involving alleged shareholder loss, defense counsel must be prepared to advocate Dura’s plain logic. To the extent that a sentencing court views Dura as inconsistent with the sentencing guidelines, defense counsel must be prepared to convince the court that the guidelines don’t deserve to be followed. They are merely advisory.  A district court is free to disagree with a policy of the Sentencing Commission that has not been mandated by Congress. See Kimbrough v. United States, 128 S. Ct. 558, 564 (2008).

Congress has not mandated that criminal defendants faced with potentially long prison sentences be subject to standards less exacting than those applicable to defendants in civil cases. To the contrary, Congress has mandated that a sentencing court must consider the “nature and circumstances of the offense and the history and characteristics of the defendant” and that a court “court shall impose a sentence sufficient, but not greater than necessary,” to “reflect the seriousness of the offense, to promote respect for the law, and to provide just punishment for the offense,” and to “afford adequate deterrence to criminal conduct” and “protect the public from further crimes of the defendant.” See 18 U.S.C. Section 3553(a). Those principles, and proof of actual harm, must be guiding lights in all cases involving alleged shareholder loss.  Anything less exacting serves to elevate administrative convenience and excessive retribution over fundamental fairness.

Black, once one of the largest newspaper magnates in the world, was charged in a high-profile indictment with defrauding his former employer, Hollinger International, and obstructing justice. In 2007, a federal jury in Chicago acquitted him on numerous counts but convicted him on certain fraud and obstruction charges. On appeal, Black’s lawyers raised a number of important issues. Among others, the lawyers asserted that Black was entitled to a new trial on two of the fraud charges. Although the government’s theories were somewhat opaque, the government had asserted at trial that Black conspired fraudulently to deprive his employer of (1) money or property and (2) his honest services in connection with certain payments that benefited him. According to Black’s counsel, the “honest services” instruction to the jury was erroneous because it allowed the jury to convict him without concluding that he contemplated economic harm to his employer and that the harm was at his employer’s expense. Furthermore, Black’s counsel argued, the convictions on those counts were subject to reversal under Yates v. United States, 354 U.S. 298 (1957) even if the money/property theory was valid because the honest services instruction was flawed and thus allowed the jury to return a guilty verdict solely on a legally invalid ground.

The case was argued on June 5, 2008 before a panel that included Judge Richard A. Posner. Judge Posner authored an opinion that was issued on June 25, 2008 — fewer than three weeks after the argument. The opinion affirmed the conviction and sentence in all respects. Judge Posner did not pause in rejecting the honest services argument. Nor did he pause in stating that Black had forfeited his right to the Yates argument, even if Black’s honest services argument was correct, because Black had objected, before jury deliberations, to a special verdict form proposed by the government that would have had the jury specify the theory of conviction (honest services or money/property) underlying its verdict on those counts.

Black filed his petition for certiorari on January 9, 2009. The first question presented concerns the scope of the honest services statute. The second question presented, as framed by the petition, is “[w]hether a court of appeals may avoid review of prejudicial instructional error by retroactively imposing an onerous preservation requirement not found in the federal rules.” On May 18, 2009, the Supreme Court granted the petition on both questions presented.

The second question presented, which concerns the special verdict issue, has broad importance for criminal trial lawyers. Federal prosecutors use conspiracy charges as powerful tools in pursuit of convictions. As a “darling of the modern prosecutor’s nursery[,]” Harrison v. United States, 7 F.2d 259, 263 (2d Cir.1925) (L. Hand, J.), a conspiracy charge provides enormous leverage to the government in a criminal case. From the standards governing admission of co-conspirator hearsay evidence (Bourjaily v. United States, 483 U.S. 171 (1987)) to the fact that a conspiracy count may charge multiple objects (Braverman v. United States, 317 U.S. 49 (1942)), the federal law governing the use of conspiracy charges is very favorable to the government. Yates stands as a (relatively modest) check on that power in the sense that a forward-thinking prosecutor will reflect before including a weak theory in a multiple-object conspiracy count. A weak theory may increase the likelihood of a conviction but will also increase the risk of reversal down the road.

The federal rules of criminal procedure do not specify the form that a verdict must take. A general verdict form does not require a jury to specify the ground for its conviction. A special verdict form or special interrogatories, in contrast, may require a jury to identify (to some extent) the rationale for its decision. In a criminal case, a special verdict forms or special interrogatories may run a serious risk of interfering with the jury’s deliberations in violation of a defendant’s Sixth Amendment right to have the jury make the ultimate determination of guilt because the questions may have the effect of guiding the jury to its conclusion.

In the ordinary multiple-object conspiracy case, a prosecutor takes his or her chances. The theories are chosen and stated in the indictment, the evidence is presented, and the jury returns a general verdict subject to the rule in Yates. In the Black case, however, the prosecutors proposed a special verdict form (of sorts) by which the jury would specify for the conspiracy count whether its conviction was based on the honest services fraud theory or the money/property deprivation theory. As one might predict, the defense lawyers objected on the ground that such a form would unfairly skew deliberations. By holding that Black had forfeited his right to complain about the honest services instruction under Yates because he could have accepted the special verdict form, the panel created an election rule. The judges apparently believed that Black unfairly was trying to have it both ways by avoiding the special verdict form at trial and then taking refuge in Yates on appeal.

The basic legal problem with Judge Posner’s approach, as stated by the second question presented in Black’s petition, is that it is not rooted in any federal rule. More broadly, it risks undue pressure on the jury’s deliberations and thus threatens the criminal defendant’s Sixth Amendment rights. The election rule created by Judge Posner may have some superficial appeal as an equitable principle in litigation.  But the rule actually gives rise to more inequity.  The Seventh Circuit’s opinion fails to appreciate that the election rule creates a disincentive for federal prosecutors to choose the theories in a multiple-object conspiracy count carefully.  From that perspective, it could be called a non-election rule — one that increases the already-profound prosecutorial leverage in the conspiracy context against the interests of criminal defendants.  Although the focus on the Black case will continue to be on the honest services issue, the special verdict issue deserves close attention as well.

Despite a recent tease, the Supreme Court hasn’t made matters any more coherent. In United States v. Santos, 128 S.Ct. 2020 (2008), the Court held that the definition of “proceeds” in the federal money laundering statute, 18 U.S.C. § 1956, covers only criminal receipts, not profits. Writing for himself and Justices Thomas, Souter, and Ginsburg, Justice Scalia stated:

From the face of the statute, there is no more reason to think that ‘proceeds’ means ‘receipts’ than there is to think that ‘proceeds’ means ‘profits.’ Under a long line of our decisions, the tie must go to the defendant. The rule of lenity requires ambiguous criminal laws to be interpreted in favor of the defendants subjected to them. See United States v. Gradwell, 243 U. S. 476, 485 (1917); McBoyle v. United States, 283 U. S. 25, 27 (1931); United States v. Bass, 404 U. S. 336, 347– 349 (1971). This venerable rule not only vindicates the fundamental principle that no citizen should be held accountable for a violation of a statute whose commands are uncertain, or subjected to punishment that is not clearly prescribed. It also places the weight of inertia upon the party that can best induce Congress to speak more clearly and keeps courts from making criminal law in Congress’s stead. Because the ‘profits’ definition of ‘proceeds’ is always more defendant-friendly than the ‘receipts’ definition, the rule of lenity dictates that it should be adopted.

128 S.Ct. at 2025. Justice Stevens provided the fifth vote for the Court’s narrow holding but did not join Justice Scalia’s view of the rule of lenity. Concurring only in the judgment, Justice Stevens concluded that “proceeds” under Section 1956 can mean “receipts” in some instances and “profits” in others depending on the type of predicate criminal activity involved. 129 S.Ct. at 2031-34. To that, Justice Scalia responded for the plurality: “Our obligation to maintain the consistent meaning of words in statutory text does not disappear when the rule of lenity is involved.” Id. at 2030.

The plurality opinion in Santos, which was decided during the October 2007 Term, has marked a high point for the rule of lenity. Since then, the Court has retreated in its approach to the concept. See United States v. Hayes, 129 S.Ct. 1079 (2009); Dean v. United States, 129 S.Ct. 1849 (2009). The majorities in both Hayes and Dean invoked Muscarello‘s “grievous ambiguity” standard. Moreover, the lineup of Justices in Hayes and Dean is rather startling given Santos.

In Hayes, the defendant was prosecuted under 18 U.S.C. § 922(g)(9) for possession of a firearm after having been convicted of a misdemeanor crime of domestic violence. Writing for a seven-Justice majority (including Justices Thomas and Souter, who joined Justice Scalia’s plurality opinion in Santos), Justice Ginsburg (who also joined the Santos plurality opinion) stated that the requisite domestic relationship must be established beyond a reasonable doubt but need not be a defining element of the predicate offense. 129 S.Ct. at 1084-89. Rejecting the application of the rule of lenity, the Court stated: “Section 921(a)(33)(A)’s definition of ‘misdemeanor crime of domestic violence,’ we acknowledge, is not a model of the careful drafter’s art. See Barnes, 295 F.3d, at 1356. But neither is it ‘grievous[ly] ambigu[ous].’ Huddleston v. United States, 415 U.S. 814, 831  [] (1974).” In a dissent, Chief Justice Roberts (joined by Justice Scalia), stated: “This is a textbook case for application of the rule of lenity. . . . If the rule of lenity means anything, it is that an individual should not go to jail for failing to conduct a 50-state survey or comb through obscure legislative history. Ten years in jail is too much to hinge on the will-o’-the-wisp of statutory meaning pursued by the majority.” 129 S.Ct. at 1093.

In Dean, decided two months after Hayes, the Court held that a statutory sentencing enhancement under 18 U.S.C. § 924(c) for discharge of a firearm during the commission of a violent crime does not require proof of intent. 129 S.Ct. at 1856. Chief Justice Roberts, writing for seven Justices (including every member of the Santos plurality), invoked Muscarello‘s “grievous ambiguity” standard in holding that the rule of lenity was not implicated:

‘The simple existence of some statutory ambiguity, however, is not sufficient to warrant application of that rule, for most statutes are ambiguous to some degree.’ Muscarello v. United States, 524 U.S. 125, 138 [] (1998); see also Smith, supra, at 239, 113 S.Ct. 2050 (‘The mere possibility of articulating a narrower construction, however, does not by itself make the rule of lenity applicable’). ‘To invoke the rule, we must conclude that there is a grievous ambiguity or uncertainty in the statute.’ Muscarello, supra, at 138-139, 118 S.Ct. 1911 (internal quotation marks omitted). In this case, the statutory text and structure convince us that the discharge provision does not contain an intent requirement. Dean’s contrary arguments are not enough to render the statute grievously ambiguous.

129 S.Ct. at 1856. Dissenting, Justice Stevens invoked the rule of lenity. Id. at 1858-59 (Stevens, J., dissenting). Justice Breyer, in a separate dissent, stated that “the ‘rule of lenity’ tips the balance against the majority’s position.” Id. at 1861.

Despite the plurality opinion in Santos, a majority of the Justices now appear to have embraced Muscarello‘s “grievous ambiguity” standard with renewed vigor. The Justices’ treatment of the rule of lenity the last two Terms has been at best curious. Justice Scalia himself, after writing the Santos plurality opinion and joining the Hayes dissent, joined a majority opinion in Dean that articulates an especially narrow version of the rule of lenity.

If the Justices are unwilling to frame a consistent standard, lower court judges are far less likely to take the rule of lenity seriously and apply it meaningfully. Why can’t the Supreme Court set it straight? Given a description of Santos, Hayes, and Dean, the legal realists in the 1930s (and the so-called critical legal theorists in the 1980s) might have said that the Justices are using the rule of lenity, like canons of statutory construction, as nothing more than a vehicle to reach a desired result in a given case. Let’s hope that is not true. The rule of lenity, rooted in our deepest constitutional principles, is no mere interpretive tool. Although cynicism may be appropriate, it would be a serious mistake to accede to the ‘grievous ambiguity’ standard because the Court itself does not appear to be sure what it wants. So the focus must remain sharp: convincing district judges every day that the rule of lenity has real force – and eventually convincing five Justices to articulate a consistent standard that gives the rule of lenity its due.