On March 17, The Luck of The Irish: The Tenth Circuit Reverses The Convictions of Joseph Nacchio
St. Patrick’s day is a lucky day for the Irish– and on March 17th everyone is Irish. At least it may seem that way to the former Quest Communications CEO Joseph P. Nacchio. On March 17th the Tenth Circuit Court of Appeals handed down an opinion reversing Mr. Nacchio’s conviction on nineteen counts of insider trading and remanded his case for retrial to a new district court judge. U.S. v. Nacchio, Case No. 07-1311 (10th Cir. March 17, 2008). While Mr. Nacchio raised several issues on appeal, including questions concerning the exclusion of proffered classified evidence and relating to the jury instructions, the one that secured him reversal concerned the exclusion of defense economic expert Professor Daniel Fischel.
Professor Fischel was retained to testify as a defense witness regarding Mr. Nacchio’s stock trading patterns and the fact that they were inconsistent with possessing inside information. The key to the reversal was the adequacy of the defendant’s Criminal Rule 16 disclosures and the failure of the district court judge to allow any type of hearing or obtain any evidence relating to a Daubert issue.
Federal Criminal Rule 16 requires a defendant seeking to offer expert testimony to disclose that fact to the government along with the substance of the opinion and other information if the defense has requested similar information from the government. Absent a defense request, disclosure is not required.
In Mr. Nacchio’s case both sides agreed that disclosure was required. The defense furnished a brief description of the proposed testimony. That description did not include any description of Professor Fischel’s methodology. It did however reference the Professor’s vitae and identify his opinions and the basis for them. After briefing the district court, without argument, excluded the testimony.
The Court of Appeals reversed. In reaching its conclusion the Court of Appeals held that “the district court’s belief that Rule 16 also requires extensive discussion of a witness’s methodology was incorrect, and its exclusion of the evidence an abuse of discretion. “ Slip. Op. at 16 (emphasis original). Rule 16 disclosure, according to the court, is only designed to provide notice and “more complete pretrial preparation” by the opposing side. It is not designed to permit the court to make a Daubert determination as was done here. Here the Court held that the defendant’s disclosure was adequate because it set forth the substance of the proposed opinions, along with their basis and reasons for the opinions.
The Tenth Circuit viewed the district court’s ruling as confusing Federal Criminal Rule 16 with the expert disclosure mandated by the Civil Rules: “The district court’s error may have proceeded from confusion between the civil and criminal rules. Unlike under the civil rules, an expert in a criminal case is not required to present and disclose an expert report in advance of testimony. A Rule 16 disclosure must contain only ‘a written summary of any testimony’ and “describe the witness’s opinions, the bases and reasons for those opinions, and the witness’s qualifications’ quoting Fed. R. Crim. P. 16(b)(1)(iv).” Id. at 20. Accordingly, the district court’s comment that a Rule 16 disclosure is “pretty close” to a civil expert report is error.
The Court also rejected the government’s claim that in any event the proposed testimony would have been inadmissible under Daubert. Here there was no hearing or other submission in the district court on this question. Accordingly, the Circuit Court held “[t]he district court could not make an informed Daubert determination without hearing such testimony [regarding the basis for the testimony] or receiving submissions on the issue in some other form.” Id. at 23.
Finally, the Circuit Court conducted a careful review of the evidence to determine whether Mr. Nacchio could be retried. Following a detailed review of the evidence the Court concluded that there was more than sufficient evidence to sustain a conviction by a properly instructed jury. Accordingly, the case was remanded for retrial – but, at Mr. Nacchio’s request, to a different district judge. For now the luck of St. Patrick’s day and the Irish had visited Joseph Nacchio.