US v. Nacchio: The 10th Circuit Reverses

Thoughts on Tenth Circuit Reversal in Nacchio Case

John Holcomb

Department of Business Ethics & Legal Studies

Daniels College of Business

University of Denver

Having read the Tenth Circuit’s opinions, I have the following thoughts:

1. I think Judge Holmes has it right on the expert witness and Daubert issues, even though Judge McConnell is a real intellectual force on the bench. It is interesting how two judges can read the same facts and record, cite some of the same case authority, and come to such conflicting conclusions. However, Judge Holmes is persuasive that the case is more about Daubert than it is about rule 16 and that Judge Nottingham gave the defense ample opportunity to qualify the expert witness and his methodology and to request a Daubert hearing.

2. The Appeals Court opinion is firm in upholding Judge Nottingham on the issues of materiality and sufficiency of evidence. In fact, it points out Judge Nottingham was more generous toward the defense than he needed to be in some key instructions and that the defense was just wrong in much of its analysis. This makes it highly unlikely that another jury and court will come to a different conclusion on guilt when the case is argued on remand.

3. The national security defense is also likely now disposed of for good. The Court’s succinct analysis puts that issue to rest and even demonstrates that if Nacchio could prove his point on the confidential positive information at his disposal, this makes him all the more guilty if he is claiming that he acted on such information in his trading behavior.

4. On the Daubert issue, the only one on which the Court reverses the Nacchio verdict, it ironically relies on a case (Goebel v. Denver & Rio Grande) in which Nottingham had improperly allowed expert testimony, in the eyes of the Tenth Circuit. Nottingham must feel that he is in a Catch-22 situation – whether he allows or disallows the expert witness, he gets hammered.

5. What is the likely impact of this ruling on remand? We will get the same result, with the added expense of a new trial. Fischel and possibly other “experts” will be allowed to testify. He or they will then be vigorously cross-examined, and the government will call its own experts to refute Fischel and his interpretation of the facts. It may be a wash for the jury, or Nacchio will appear even guiltier. This may simply delay the day of reckoning for Nacchio.

6. The Appeals Court has thrown a momentary lifeline to the defense and bailed it out from its own mistakes. First, it should have answered the Court’s challenges and provided more qualifications for its expert’s methodology, and it should have also requested a Daubert hearing at an earlier stage. Further, as the opinion states on page 27, the facts were allowed in Court as summary testimony, and they evidently didn’t have any real impact on the jury. The defense also didn’t even see fit to use any of the facts or testimony in its closing argument, so how pivotal could they be on retrial?

7. What are other possible outcomes that might occur? Given the relatively minor issue on which the case is reversed, and the strength of the Appeals Court’s opinion in upholding the insider trading verdict, leading Denver attorney Ray Friedlob suggests that there may be a possible plea before the second trial. Given the likelihood of a guilty verdict the second time around, and the risk of an even longer sentence, Nacchio may opt to cut a deal for a 2-3 year sentence in advance of the second trial.

8. If the case does go to a second trial, the time and expense become unfortunate, given the narrowness of the Court’s opinion and the persuasive dissent from Judge Holmes.

9. Since the Court overturned the verdict solely on the basis of the expert witness issue, it raises once again the question posed by Jay Brown of the Sturm School of Law at the University of Denver. Did the University of Chicago connection between Judge McConnell, Professor Fischel, and defense counsel Maureen Mahoney play at all into the opinion? For appearances sake, should Judge McConnell have recused himself, leading to the participation of another judge from the Tenth Circuit panel instead? Jay Brown may now have further thoughts on those issues.