Joe Nacchio and the Tenth Circuit: A Handicap

Last week we were posting daily on the CSX case and the proposed changes to the formula used by US News to rank law school.  As a result, we have been a bit remiss in commenting on the decision of the Tenth Circuit to hear en banc aspects of the appeal of Joe Nacchio.  Oral argument will be held in Denver at 1:00 pm on September 25. 

For most, the decision to take the case was a surprise.  After all, the case takes up the time of the entire circuit, something the judges agree to only grudgingly.  Indeed, the rules of the appellate procedure provide specifically that hearings en banc are not "favored" (Fed. R. App. Rule 35) and the local rules of the 10th Circuit note that a rehearing will only be granted for "an issue of exceptional public importance or on a panel decision that conflicts with a decision of the United States Supreme Court or of this court."  Since this case doesn't conflict with the Supreme Court or precedent in the circuit, it can be assumed that the circuit voted to hear it because of its "exceptional importance."  And that tells you something about the judges in this circuit. 

This is a circuit that in general does not view itself with much pretense.  It is right of center but has never been caught up in the huge ideological debates that have plagued other circuits.  There are not many judges, Michael McConnell, the author of the panel opinion a possible exception, who seriously aspire to be on the Supreme Court.  As a result, the judges in this circuit are generally not motivated by publicity or the need to demonstrate their intellectual acumen by writing ground breaking opinions. 

Much of this can be seen from the decision with respect to Joe Nacchio.  The place to make ground breaking law is on the substantive elements of the alleged criminal behavior.  On appeal, Nacchio sought not just reversal but acquittal, arguing that, among other things, the information he knew before trading was not material.  Had the court agreed with Nacchio, some insider trading cases would have been more difficult to bring.  More importantly, however, such an opinion would have crippled many shareholder class actions based upon only modest understatements of earnings.   In setting the case for en banc hearing, the circuit declined to consider this issue.

The circuit, however, ignored the issue and instead opted to examine a more procedural issue, examining when a defendant has an obligation to request a hearing (otherwise waiving the right to challenge the contested point) and, where a hearing is required, the appropriate remedy (reversal or remand and an evidentiary hearing).  In the more politicized places like the DC circuit, this would hardly be viewed as a matter of "exceptional importance."  But in the Tenth Circuit it is.  Why?  The case goes to the proper functioning of the trial courts.  The panel decision (finding that the failure to hold an unrequested hearing was reversible error) affects every trial judge in the circuit.  If the panel opinion remains in place, trial courts in the circuit will likely be forced to hold hearings sua sponte even when not requested in order to insulate their decision from reversal.  It will be an inefficient, time consuming addition to the work load of already busy courts. 

And it is this impact, not the publicity surrounding the Defendant, that has caused the entire circuit to take up the case.  The Tenth Circuit may ultimately decide that the trial judge should have held a hearing but it is clear that the entire circuit will not impose this burden on trial courts without seriously weighing the consequences.

The briefs and other materials filed in connection with the appeal and the request for hearing en banc can be found at the DU Corporate Governance web site.