Update: California Appeals Court Overturns Ban on Use of Grand Juries in Police Deadly Force Cases

In a post last year on grand jury secrecy, I wrote about how the state of California had banned the use of grand jury proceedings in cases involving the use of deadly force by police officers. The California state constitution provides that all felony cases shall be prosecuted by either grand jury indictment or by an information following a probable cause hearing before a magistrate. Which method to use is generally left up to the district attorney.

But in the wake of several controversial cases nationwide involving police use of deadly force, California legislators concluded that the secrecy of grand jury proceedings contributed to an atmosphere of suspicion surrounding such cases. They argued that the outcomes of grand jury investigations “can seem unfair or inexplicable” because the secret proceedings lack “transparency and accountability.” They concluded that, due to the intense public interest in and concern about cases involving the police, more openness was necessary. Accordingly, they amended the California Penal Code to prohibit the use of a grand jury to investigate any case involving the use of deadly force by a law enforcement officer. As a result, such cases could be charged only via a public hearing before a magistrate.

In that earlier post, I argued that this legislation was misguided and would likely make it more difficult to conduct fair investigations of cases involving police officers. As the California legislature noted, such cases often involve intense public scrutiny and interest. Whether they support the prosecution or the defense, witnesses in those cases may face tremendous public pressure related to their testimony. Grand jury secrecy allows the witnesses in such high-profile investigations to testify truthfully without fear of becoming the target of a vitriolic social media campaign or finding protestors on their front lawn. The grand jury proceeding provides a confidential forum where representatives of the community — the grand jurors themselves — can explore what happened largely free from the political pressure and social passions that may surround these cases.

The California legislation took effect on January 1, 2016 and was immediately challenged by a group of district attorneys led by Vern Pierson, the DA for El Dorado County. They argued that the law was unconstitutional and inhibited their ability to do their jobs effectively. This week a California Court of Appeals ruled in their favor and held that the legislation violated the California constitution.

The court noted that the law was the “first legislative effort in 167 years to constrict the grand jury’s power under the Constitution to exercise its power of indictment.” The state constitution provides for the potential use of the grand jury in all felonies, and the legislature was not free simply to disregard this mandate for a particular category of cases. If the legislature had that power, the court reasoned, the logical implication would be that it could abolish grand juries altogether, which would plainly conflict with the constitutional mandate.

The court noted that if the legislature wanted to restrict the use of grand juries, it was not powerless. It could pursue a constitutional amendment to alter the current language providing for the option of a grand jury investigation in all felony cases. It could also follow the “less cumbersome route” of modifying the rules of grand jury secrecy, which are not constitutionally mandated, to provide for more openness and public disclosure in grand jury investigations. But given the constitutional language, the legislature was not free simply to ban the use of grand jury proceedings altogether for a particular class of cases.

This is a good result for the people of California. As the prosecutors who challenged the law recognized, they are more likely to achieve a just result in police investigations if they are able to utilize the grand jury and the safeguards that it provides. The irony of the California legislation was always that it potentially sacrificed justice on the altar of transparency.

The opinion is narrow; it focuses only on the fact that the legislation was inconsistent with the state constitution. The court does not discuss the benefits of secret grand jury proceedings, particularly in high-profile cases, and why the legislation may have been a bad idea. That’s understandable, but unfortunate. It would have been nice to see a judicial recognition and discussion of how grand jury proceedings can best serve the interests of justice by providing a dispassionate forum to investigate controversial cases.

The concern now has to be that the legislature will follow the court’s suggestion and pass a law to limit or abrogate grand jury secrecy in police cases, or perhaps in all cases. But secrecy is a fundamental characteristic of grand jury proceedings and provides a number of important benefits. Hopefully cooler heads will prevail and the legislature will recognize that the solution to concerns about the police and use of deadly force is not to start tinkering with the essential nature of the ancient institution of the grand jury.

The case is The People ex rel. Vern Pierson v. The Superior Court of El Dorado County, CA Court of Appeal, Third Appellate District, No. C081603 (Jan. 10, 2017). (Click here to download the opinion.) Hat tip to Patrick O’Toole, a district attorney in California, who was involved in the case from the beginning, co-argued it in the California Appeals Court, and kept me updated on its progress.

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Misguided Prosecutions and Washington “Gaffes”

There’s a well-known saying in Washington that the definition of a “gaffe” is when a politician inadvertently tells the truth. Assistant Attorney General Leslie R. Caldwell is not a politician, but she had her own “Washington gaffe” moment earlier this month while speaking on a panel sponsored by the Federalist Society (YouTube video available here).

Caldwell, who serves (for a few more weeks, at least) as the head of the Criminal Division at the U.S. Department of Justice, appeared on the panel with four white collar defense attorneys on December 8 at the Washington Press Club. The topic was overcriminalization – not as in too many criminal statutes being on the books, but overcriminalization in the form of federal prosecutors bringing cases that never should have been pursued as criminal matters.

The defense attorneys on the panel had represented corporate and individual defendants in recent major cases involving FedEx, a medical device company called Vascular Solutions, and pharmaceutical company Warner Chilcott. Those cases ended either in acquittals or, in the case of Fed Ex, with the government dismissing the case mid-trial. Each defense attorney told a version of the same basic story: the prosecution was an outrageous miscarriage of justice, criminal charges never should have been filed or even considered, and no one within the relevant prosecutor’s office had been willing to give the defense a fair hearing about why the case should not be indicted.

When AAG Caldwell took the podium as the final speaker, she appeared to throw her colleagues in the U.S. Attorneys’ Offices under the proverbial bus. She went out of her way to distinguish the Criminal Division at Main Justice in DC from the ninety-four U.S. Attorney’s Offices around the country. She said that while the attorneys in the Criminal Division operate with professionalism and integrity, she has seen “wide variation around the country” in the U.S. Attorney’s Offices in terms of their level of experience and quality of supervision.

Although not commenting on the specific cases discussed by the other panelists, AAG Caldwell agreed that sometimes cases get filed that should not have been filed; “I’m not going to dispute that.” She discussed a couple of additional examples where U.S. Attorney’s Offices had proposed misguided prosecutions. In one instance, prosecutors wanted to indict two partners at a law firm for obstruction of justice for seeking additional time to respond to a grand jury subpoena; in another, prosecutors proposed to charge all the adult residents of a small town in a RICO conspiracy. Because RICO cases and indictments of attorneys — unlike most cases — require review by Main Justice, those cases were able to be quashed by the Criminal Division.

Finally, Caldwell encouraged defense lawyers who believe prosecutors are pursuing inappropriate cases to seek review by Main Justice if they cannot get their concerns addressed. She said the Criminal Division recognizes that “not all U.S. Attorney’s Offices are created equal,” and that defense attorneys should not hesitate to go over the U.S. Attorney’s head and appeal to Washington in appropriate cases.

Caldwell’s suggestion that prosecutors in the U.S. Attorney’s Offices around the country do not always measure up to those in her own Criminal Division apparently did not sit well with her Justice Department colleagues. Two days later she issued a letter of apology to all DOJ attorneys. She wrote that while speaking at the panel she had defended the Department “in a way that inappropriately suggested that the care taken by U.S. Attorney’s Offices and others in making prosecutorial decisions was less than that taken by attorneys in the Criminal Division.” She said she deeply regretted the remarks, which she called “a mistake.”

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Caldwell’s Comments: Mistake or D.C. Gaffe?

For AAG Caldwell to make her points in that particular forum and format may indeed have been a mistake – but was she wrong?

Before considering that, a couple of observations about the panel discussion. First, the Federalist Society’s agenda was pretty transparent, and the ratio of four defense attorneys to one prosecutor was not exactly an attempt to be “fair and balanced.” The defense attorneys were naturally presenting the details of their cases from their own perspective. They did prevail, so no doubt their claims have some merit. But there are always two sides to such stories, and I think it would be surprising if the facts were indeed so black and white. The panel would have been more interesting if prosecutors in some of those cases could have been persuaded to participate and explain why they believed the case was justified.

Second, as one of the panelists pointed out, there are between eighty and ninety thousand criminal defendants prosecuted each year by the Department of Justice and all but a relative handful end up with either a guilty plea or a conviction at trial. So while talking about a few high-profile cases where the defense prevailed is interesting and worthwhile, it would be wrong to conclude that those cases represent anything close to the norm. As they say in journalism, no one writes stories about all the planes that don’t crash. Examples where the prosecution’s case falls apart are interesting and newsworthy in part because they are so unusual.

But back to AAG Caldwell’s comments. It really shouldn’t be controversial to admit that occasionally cases get filed that should not be filed. Law is a human enterprise and thus inherently flawed. There are thousands of prosecutors working for the Department of Justice across the country on tens of thousands of case each year. People sometimes are going to screw up.

It also should be relatively uncontroversial to observe that the U.S. Attorney’s offices vary in terms of their levels of experience and quality. Those offices operate with a great deal of autonomy, and are staffed by individuals with varying backgrounds and experiences from different parts of the country with different legal communities and traditions. Obviously some offices are going to be better run and more experienced than others.

With relatively few exceptions, AUSAs are free to investigate and indict their cases with no oversight from D.C. I don’t know whether the average line attorney in the Criminal Division in Washington is smarter than the average AUSA around the country, but I do know the attorney in Washington is going to have his or her cases supervised and reviewed by veteran prosecutors who have seen many similar cases and issues in the past. That level of seasoned review and quality control is not always available within every U.S. Attorney’s Office, where they may not see nearly as many large or complex cases.

It’s not fair to suggest that Main Justice itself is immune from making mistakes or bringing bad cases, but I think it’s perfectly fair to suggest that such cases are more likely to originate in the U.S. Attorney’s offices.

So although I’m sure she wishes she had phrased them differently, I think AAG Caldwell’s comments were basically correct. And they highlight an issue I think DOJ needs to take seriously: a need for renewed focus and training nationwide on the sound exercise of prosecutorial discretion.

Emphasizing the “Discretion” in Prosecutorial Discretion

There have been a number of high-profile examples recently of cases that appear to have involved bad charging decisions. If the government loses, as in the cases discussed during the Federalist Society panel, that is generally the end of it — other than providing great war stories for defense counsel. But when the defendant in such a case is convicted, the government is faced with defending its charging decisions on appeal. As I wrote in this recent post, that has led the U.S. Supreme Court recently to question whether prosecutors can be trusted to exercise their discretion appropriately.

For example, in Bond v. United States a woman who was angry at her husband’s lover sprinkled a caustic chemical on her doorknob and mailbox, which caused a minor skin irritation easily treated with cold water. Federal prosecutors responded by charging Bond with a felony aimed at punishing the use of chemical weapons. In Yates v. United States, a commercial fisherman received a civil citation for catching several dozen undersized red grouper and was ordered to take the fish back to port to be seized by authorities. When instead he threw the fish overboard, he was indicted for obstruction of justice under a statute that carries a maximum twenty-year penalty. Both these cases made it to the Supreme Court, and in both cases the Court expressed incredulity that prosecutors had chosen to bring the charges.

Cases where inappropriate charges are filed do not cast the Department of Justice in a favorable light. For the individual defendants, of course, they can result in tremendous injustice, which is contrary to DOJ’s fundamental mission. And if courts lose faith in the judgment and charging decisions of prosecutors, they will try to find ways to rein the government in – even if, as in Yates, that means adopting an interpretation of a statute that seems contrary to its plain language and common sense. This can make it more difficult for all prosecutors to do their jobs.

Members of the Federalist Society panel also talked about prosecutor myopia, where prosecutors could only see the facts a certain way and remained convinced, up to the end, that their cause was righteous. I think this is a real phenomenon; those who are trained in criminal prosecution may tend to see criminal remedies as the best option. As the saying goes, when your only tool is a hammer, every problem looks like a nail. But particularly when it comes to white collar crime and regulatory offenses, it’s critical for prosecutors to recognize there are many possible alternative remedies and that criminal prosecution may not be the best solution.

Cases like Yates, Bond, and those discussed at the Federalist Society panel, along with AAG Caldwell’s observations about the varying levels of experience within the U.S. Attorney’s Offices, suggest that DOJ could benefit from a renewed emphasis on the proper exercise of prosecutorial discretion. Washington may not be able to review all proposed indictments, but Main Justice could ensure that all prosecutors around the country are thoroughly trained in the “discretion” aspect of their jobs.

Prosecutors need to know the criminal law, of course, but they also need to have hammered into them, from day one, that deciding when not to apply criminal law is a huge part of their jobs. All prosecutors know this on some level, but there’s a difference between knowing it and having it ingrained and repeatedly stressed as a part of your professional identity and institutional culture. If there is too much emphasis on indictment numbers and “stats,” prosecutors may lose sight of the fact that often they are doing their jobs by declining to file charges, even after a lengthy investigation.

It’s not unheard of for prosecutors and investigators who have worked on a case for months or years to “fall in love” with their case or their witnesses and lose some ability to evaluate it objectively. That’s where some level of review by experienced and uninvolved prosecutors could be particularly useful.

I think it would be interesting if DOJ established some more formal mechanism whereby defense attorneys like those who appeared at the Federalist Society panel could obtain Main Justice review of proposed major indictments they feel are misguided. Currently defense attorneys can try to seek such a review, but there is no official process and no guarantee that anyone will listen. It would be easy for such a system to be abused, of course, and so setting up guidelines might be tricky. But if there were some official avenue for review of major cases, perhaps some mishaps such as those discussed by the panel could be avoided.

If inappropriate cases get filed it isn’t good for anyone: certainly not for those charged, not for the Department of Justice that ends up with a black eye, and not for the justice system as a whole. The culture within any institution is set at the top, and the Department of Justice needs a culture that emphasizes the importance of the sound exercise of prosecutorial discretion. If DOJ recognizes, as AAG Caldwell observed, that not all U.S. Attorney’s Offices are created equal and some lack appropriate expertise and experience, it would be wise to take some nationwide steps to remedy that situation and provide some safeguards.

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The Supreme Court, Salman, and Insider Trading: Why Stock Tips Make Bad Stocking Stuffers

Almost exactly two years ago, this blog posed the following question in a post about insider trading:

Suppose your brother-in-law has too much eggnog at Christmas dinner and starts blabbing about confidential inside information concerning the company where he works. If you trade the company’s stock based on that information, do you risk finding a subpoena from the SEC in your stocking?

Last week, in Salman v. United States, the Supreme Court provided some answers to this holiday conundrum. The bottom line: insider stock tips still make lousy holiday gifts.

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The Standards for Tippee Liability: Dirks v. SEC

Salman involves a subspecies of insider trading called “tippee” liability. Insider trading is defined as buying or selling securities based on material, non-public information, in violation of a duty of trust and confidence. Corporate insiders and others who acquire company secrets may not use that information to enrich themselves in violation of a duty owed to the source of the information.

But the ban on insider trading would be easily evaded if a corporate insider, forbidden to trade herself, could simply tip off an outside friend or family member and encourage them to trade instead. Accordingly, in some circumstances such tippees may themselves be charged with insider trading.

The Supreme Court first addressed tippee liability in Dirks v. SEC in 1983. Dirks held that a tippee who does not owe a direct duty to shareholders may nevertheless be liable for insider trading, but only if: 1) the tipper was violating a duty by providing the information; and 2) the tippee knew or should have known about that violation.

Whether the tipper was violating a duty, the Court said, turns on the purpose of the tip: “[T]he test is whether the insider personally will benefit, directly or indirectly, from his disclosure. Absent some personal gain, there has been no breach of duty to stockholders. And absent a breach by the insider, there is no derivative breach [by the tippee].”

The Court recognized that potential benefits to tippers are not limited to monetary gains and may include reputational benefits or other intangibles. In particular, a benefit could be inferred when an insider “makes a gift of confidential information to a trading relative or friend.”

An important aspect of the Dirks test, therefore, is determining whether the tipper received a personal benefit sufficient to find a breach of duty. The Court took the Salman case to shed some light on how courts should approach this question.

Teeing up Salman: The Second Circuit’s Newman Decision

To fully appreciate Salman one must first consider the U.S. Court of Appeals for the Second Circuit’s 2014 decision in United States v. Newman, the subject of my post two years ago. Corporate insiders in Newman had disclosed confidential information to several securities analysts who passed the information along to others, including the defendants.

After they were convicted for trading on that information, the defendants appealed and argued the government had failed to satisfy both prongs of the Dirks test: they claimed there was insufficient evidence the insiders had received a personal benefit in exchange for the tips and thus violated their duty, and even if they did, there was no evidence the defendants knew about that violation.

The Second Circuit agreed that the government’s evidence of personal benefit to the tippers was inadequate. The government had argued that one tipper received occasional career advice from an analyst to whom he leaked information, while the other tipper and another analyst were social friends who attended the same church.

The Court agreed that “personal benefit” could include intangible benefits, but this did not mean the government could simply establish that the tipper and tippee were friends. If that were sufficient this requirement would practically disappear, because at least a casual friendship between tipper and tippee probably exists in almost all such cases.

Accordingly, the court held, proof of a personal benefit requires evidence of a “meaningfully close relationship [between tipper and tippee] that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.”   The evidence in Newman did not meet that standard, and so the court reversed the convictions.

The Supreme Court turned down the government’s request to review Newman, but then just three months later it granted certiorari in Salman, a Ninth Circuit case that also raised the “personal benefit” issue. (I wrote about Salman at the time, in a post you can find here.)

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Salman: What Qualifies as a Benefit to the Tipper?

Salman represents the Supreme Court’s first foray into tippee liability since Dirks. Maher Kara, a Citigroup investment banker, repeatedly passed confidential information about upcoming mergers and acquisitions to his brother Michael, knowing that Michael would use it to trade. Michael, in turn, shared the information with Bassam Salman, a close friend whose sister was married to Maher. Salman made more than $1.5 million by trading on these tips before the scheme was discovered. He was convicted of insider trading and sentenced to 36 months in prison.

On appeal to the U.S. Court of Appeals for the Ninth Circuit, Salman urged that court to apply Newman to overturn his conviction. Salman argued that Maher, the tipper, was simply helping his brother out and did not receive anything of a “pecuniary or similarly valuable nature” in exchange. Under the Newman test, he claimed, that meant no violation of a duty by Maher and thus no tippee liability for Salman.

The Ninth Circuit rejected Salman’s arguments, finding that his case involved a straightforward application of Dirks and disagreeing with the analysis in Newman. That created a circuit split that likely led the Supreme Court to take Salman’s case. But when it came to convincing the high court to adopt Newman, Salman was swimming upstream.

In a unanimous opinion by Justice Alito, the Court agreed with the Ninth Circuit and held that Dirks “easily resolves the narrow issue presented here.” Dirks, the Court observed, held that a personal benefit may be inferred when an insider “makes a gift of confidential information to a trading relative or friend.” Maher passed information to his brother knowing he would trade on it, which falls squarely within this language. Game, set, match.

The Court noted that if Maher had traded on the information himself and given the proceeds to his brother, there is no question that would be insider trading. By passing the information to his brother knowing he would trade himself, Maher achieved exactly the same goal. “In such situations, the tipper benefits personally because giving a gift of trading information is the same thing as trading by the tipper followed by a gift of the proceeds.” Because he obtained this personal benefit, sharing the information was a violation of Maher’s duty of trust and confidence to his clients – a duty that Salman inherited and then violated when he traded on the information with full knowledge of its improper origins.

The Supreme Court expressly rejected the more stringent benefit test adopted by Newman: “To the extent that the Second Circuit [in Newman] held that the tipper must also receive something of a ‘pecuniary or similarly valuable nature’ in exchange for a gift to family or friends . . .we agree with the Ninth Circuit that this requirement is inconsistent with Dirks.”

The Court also rejected Salman’s claim that the benefit test was unconstitutionally vague. Although it agreed that determining whether a benefit occurred might be difficult in some cases, the Court said it did not need to confront that issue because “Salman’s conduct is in the heartland of Dirks’s rule concerning gifts.”

Christmas Stockings

Issues Remaining after Salman: Moving Beyond Friends and Family

The most significant aspect of Salman is its rejection of Newman. Because the Second Circuit includes New York and Wall Street, Newman had caused quite a stir and was seen as a significant blow to the government. Prosecutors were forced to drop a number of insider trading cases in the wake of the decision. Salman thus should give a boost to both criminal and civil insider trading investigations.

The court of appeals in Newman had also considered what the government must prove concerning the tippee’s knowledge – the second part of the Dirks test. The government argued it had to prove the tippee knew the information was given in violation of the tipper’s duty but did not need to prove the tippee knew the tipper had received a benefit. The Second Circuit, however, held that the government must prove that the tippee knew both.

The knowledge issue was not before the Supreme Court in Salman, as the Court noted in a footnote. But the briefs, oral argument, and opinion all indicate the government now agrees it must prove the tippee knew both that the tipper violated a duty and that he received a benefit. Salman therefore provides some clarity on the knowledge prong of the Dirks test as well, and that portion of Newman appears to remain good law. And that means cases like Newman involving “remote tippees” – those several steps removed from the source of the information and thus less aware of the details of the tipper’s activities – may continue to be challenging for the government.

Some commentators have suggested Salman leaves unanswered how close a friendship must be before the tipper can be said to benefit from disclosure. Must there be a close, personal friendship, or would the standard apply to an occasional golfing buddy or even a casual Facebook friend? And who qualifies as a “relative”? In-laws? Second cousins twice removed?

I think future cases are unlikely to hinge on such questions. Basing criminal liability on determining, for example, whether a friendship was sufficiently “meaningfully close,” as the Second Circuit suggested in Newman, would likely be vague and unworkable.

The Court in Dirks listed a gift of information to a friend or relative merely as an example of an improper disclosure, not as the definition of one. It would be a mistake to believe that a court must now determine whether a tippee is truly a “friend” or “relative” and what exactly that means. The test should focus not on the nature of the relationship but on the purpose behind the tip.

Dirks held that whether disclosure is a breach of duty “depends in large part on the purpose of the disclosure,” and the Court in Salman reaffirmed this language. Much of the Salman oral argument also focused on the purpose of the gift, with the Justices (and the government) pointing out that Maher’s gift of inside information was done for a personal purpose and not a corporate one.

The government in Salman argued that the benefit requirement of Dirks is met any time an insider discloses information for a personal purpose rather than a corporate purpose. The Court did not need to go that far because Salman fell squarely within the language of Dirks about disclosure to a relative, and the Court simply took the narrowest path possible to decide the case at hand. But for future cases a test that hinges on the tipper’s purpose is the logical outgrowth of Dirks and Salman.

To borrow an analogy used during oral argument, suppose I see a sad person on the street and feel bad for them, so I give them inside information intending that they trade on it. If I traded on the information myself and give the stranger the money, that would be insider trading. That tip benefits me – it allows me to make the desired charitable gift without actually taking money out of my pocket. As the Court said in Dirks: “[t]he tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.”

A test based on the tipper’s purpose does not make criminal liability rest upon something as nebulous as the closeness of the relationship between tipper and tippee. Instead it focuses on intent, with which criminal law is accustomed to dealing. An insider who tips to a family member, occasional golfing buddy, or stranger on the street does not act for any proper corporate purpose. All such disclosures violate the insider’s duty to refrain from using corporate information for some personal end.

Tippee liability based on gifts of information is unlikely to be limited to close friends and family. Anyone who believes Salman leaves them free to act on improper tips from casual acquaintances will likely find that prosecutors and courts disagree. The Supreme Court’s reaffirmation of Dirks and rejection of Newman signify that it remains very comfortable with a robust theory of insider trading liability.

And as for that errant brother-in-law, tell him you’d rather have a nice sweater or something — and ask him to pass the eggnog.

Note: This post is adapted from a commentary I published in the George Washington Law Review’s “On the Docket.”  You can find that commentary here.

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The Emoluments Clause, Bribery, and President Trump

Like a previously unknown contestant on “The Apprentice,” the Emoluments Clause has been catapulted to stardom by Donald Trump. There has probably been more written about this obscure section of the Constitution in the past few weeks than in its entire previous 229-year history. Many people are saying that president-elect Trump’s foreign business holdings and relationships create a risk — or even a virtual certainty– that he will be embroiled in a constitutional crisis from day one of his presidency.

Some recent commentary has suggested the Emoluments Clause is basically an anti-bribery provision, but this is only partially correct. As a ban on public officials accepting gifts, the clause is indeed related to laws against bribery and conflicts of interest. But the Emoluments Clause differs from bribery in important ways, and those differences have significant implications for President Trump and his new administration.

I should note up front that everyone is sort of flying blind when it comes to the Emoluments Clause. There is basically no precedent concerning the clause and the Supreme Court has never interpreted it. We’ve also never had a president-elect with such extensive foreign business entanglements. For many questions about how the clause would apply to Trump, the most honest answer is, “we’re not entirely sure.” So with that caveat . . . .

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What Does the Emoluments Clause Prohibit?

The Emoluments Clause arose out of the framers’ fears about potential foreign influences on their fledgling country. Contained in Article I, Section 9, Clause 8 of the Constitution, it provides:

No Title of Nobility shall be granted by the United States; And no Person holding any Office of Profit or Trust under them, shall, without the Consent of Congress, accept of any present, Emolument, Office, or Title, of any kind whatsoever, from any King, Prince, or foreign State.

No one is concerned about Trump being granted an office or title from a foreign government, and no one is particularly worried about him receiving presents from Kings or Princes. The most relevant prohibitions are on the receipt of any “present” or “emolument” from a “foreign state.” An emolument is generally defined as a profit, fee, or compensation arising from an office or employment. “Present” presumably has its ordinary meaning of a gift, or something freely given without any strings attached.

Simply put, then, the clause prohibits government officials from accepting gifts or payments from a foreign government.

How Is the Emoluments Clause Related to Bribery?

The crime of bribery requires a quid pro quo. In exchange for something of value, a public official agrees to be influenced in the exercise of the powers of his or her office. Bribery is the quintessential corruption offense; the political process is corrupted because the public official acts not for the good of all but to benefit the person who is paying off the official.

In an op-ed in the New York Times, Professor Zephyr Teachout recently wrote that the Emoluments Clause is “essentially an anti-bribery rule.” Commentators at NPR and The New Republic have said the same thing. But this is not entirely accurate. When it comes to gifts from foreign states, the Emoluments Clause actually is far more sweeping than bribery because it does not require a quid pro quo. Even if the term “emolument” is read to imply compensation in exchange for a particular service (which is far from clear), the term “present” is far broader and contains no such implication.

Unlike bribery, the Emoluments Clause does not require that the public official agree to do anything in exchange for the gift. It doesn’t even require that the gift be linked to some particular official act, as does the federal gratuities statute. In this sense the Emoluments Clause is more akin to a simple gift ban, similar to those contained in most codes of ethics for government employees. It appears to guard against not only actual influence of public officials, as would occur with a bribe, but also the mere appearance of potential influence or divided loyalties that could be created by even a gift.

For a gift from a foreign government to constitute a bribe, President Trump would need to agree to perform some official act or be influenced in the exercise of his powers in exchange. But if a foreign government gave the President a present simply out of admiration, or out of hope that it might curry favor with the President, that would violate the Emoluments Clause even though it would not be a bribe.

In another sense, bribery is broader than the Emoluments Clause because it applies to private parties, not just to foreign states. So if a private foreign corporation or individual gave the President a gift in exchange for some exercise of his official power, that would be a bribe even though it would not violate the Emoluments Clause.

In short, there are many violations of the Emoluments Clause that would not be bribes, and many bribes that would not violate the Emoluments Clause.

Does the Emoluments Clause Apply to the President?

It’s not 100% clear – unlike some provisions of the Constitution, the clause does not specifically name the President and refers only to those holding an “office of profit or trust” under the United States. At least one commentator, Seth Tillman of Maynooth University in Ireland, argues that this and other historical clues suggest the clause was not intended to apply to the President.

But this appears to be a minority view. An “office of profit or trust” under the United States would logically seem to include the presidency. It would be quite strange if the framers did not intend the ban on potential foreign influence to extend to the highest office in the land, where such influences could potentially do the most damage.

Adam Liptak recently wrote in the New York Times about how a newly-elected President Obama sought legal advice from the Department of Justice concerning whether he could accept the Nobel Peace Prize without violating the Emoluments Clause. The DOJ Office of Legal Counsel, in its written opinion, considered it beyond debate that the presidency was “surely” an office of profit or trust under the United States. That seems correct.

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Does Bribery Apply to the President?

Yes. Trump made headlines last week when he told the New York Times that “the President can’t have a conflict of interest.” Federal criminal statutes related to conflicts of interest are contained in the 200-series of Title 18. It’s true that 18 U.S.C. § 202(c)  provides that a number of those laws – including the primary conflict of interest law, 18 U.S.C. § 208, prohibiting acts “affecting a personal financial interest” – do not apply to the President.

But this does not mean it is impossible for a President to have a conflict of interest. Hopefully Trump does not really believe he is free to pursue federal policies designed to benefit his personal financial interests. The universe of concerns about conflicts of interest is not encompassed by the federal criminal code; simply because something may not be a felony does not make it appropriate Presidential behavior. Indeed, the Emoluments Clause itself is plainly animated by a desire to avoid even a perception of potential conflicts of interest.

In any event, unlike the conflict of interest statutes, the President is not exempted from the federal bribery statute, 18 U.S.C. § 201. That law applies to any “officer or employee or person acting for or on behalf of the United States,” which certainly includes the President.

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How Could Trump Violate the Emoluments Clause?

Trump has numerous overseas business ventures and properties, as well as business relationships with many foreign entities. Once he is President, any business transaction with a foreign government that is anything less than completely arms-length could potentially violate the clause. If a foreign government gave him a sweetheart deal on a particular project, or purchased assets or paid rent at above-market rates, or pressured state-owned banks to give Trump favorable loan terms, those could be considered gifts or emoluments. A foreign government could also grant permits or approvals for Trump projects on more favorable terms or cancel investigations related to Trump deals, all of which could be considered financial benefits to Trump.

Some have suggested that even at fair market rates, any foreign government transaction with a Trump business — such as diplomats staying at the new Trump hotel in D.C. — would be payment for a service and therefore a prohibited emolument.

But there are a number of potential qualifications and loopholes. First, the clause only prohibits gifts from a “foreign state,” so gifts from a foreign private corporation would not violate the clause. Presumably a number of Trump’s overseas deals are with private companies and not with governments. (This is why President Obama ultimately was able to accept the Nobel Peace Prize money – the Department of Justice concluded that the prize was coming from a private organization, the Nobel Committee, that was sufficiently independent from the Norwegian government.)

A factual issue could arise concerning whether foreign corporations that are government owned or controlled would be treated as a foreign state for purposes of the clause. The answer should be yes if the clause is not to be completely undermined. (An analogous issue arises under laws such as the Foreign Corrupt Practices Act, where employees of state-controlled private corporations are often deemed to be “foreign officials.”) As Liptak reported, in the opinion for President Obama the Department of Justice noted it believes that corporations owned or controlled by a foreign government are presumptively foreign states for purposes of the Emoluments Clause. Whether this was true in any particular case would likely depend on the degree of state control.

Another issue could arise if a gift was given to the Trump Organization rather than to President Trump personally. Because corporations are generally considered distinct “persons” under the law, a gift to Trump’s corporation might not be considered a gift to the President. But because it is a privately-held corporation, arguably even a gift to the corporation should be deemed a gift to Trump. Some commentators recently argued that gifts to the Clinton Foundation should be considered gifts to Hillary Clinton for purposes of the Emoluments Clause – presumably the same analysis would apply to gifts to the Trump Organization.

A separate question could arise if the present was given to one of the Trump children, or one of their businesses. Assuming they are not holding an office in the new administration, such a gift would appear not to violate the clause. But particularly given the important role Trump’s family seems to play in his administration, the underlying concerns about outside influences and conflicts of interest would certainly still be present. This would seem to violate the spirit of the clause, if not the letter.

Finally, it appears that Congress could simply give Trump a pass on all of this. The Emoluments Clause provides that presents or emoluments may not be accepted “without the consent of Congress.” That suggests Congress could pass some kind of blanket permission for President Trump to pursue his businesses without worrying about the clause. How something like that would play politically would be another matter.

What Is the Remedy for a Violation of the Emoluments Clause?

There’s probably a reason there are no court cases interpreting the Emoluments Clause: most commentators think it is non-justiciable. In other words, no one would have standing to bring a lawsuit and a court would not be able to fashion a workable remedy. As Professor Jonathan Adler noted in the Volokh Conspiracy blog, if the clause is violated “the only remedies will be political.”

Political remedies could include an election, of course – if voters are upset by President Trump’s foreign entanglements they could toss him out of office in four years. Political remedies could also include hearings on Capitol Hill, with Congress issuing sternly-worded resolutions of disapproval that Trump could dismiss with a Tweet storm. Congress presumably could pass legislation that would impose some restrictions consistent with the clause, although enforcing it would again be problematic.

Or political remedies could include impeachment.

Is Violating the Emoluments Clause an Impeachable Offense?

The Impeachment Clause, Article II, Section 4 of the Constitution, provides:

The President, Vice President and all civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors.

Although it’s not a crime, a violation of the Emoluments Clause most likely is an impeachable offense. The phrase “high crimes and misdemeanors” is generally understood to refer not to criminal law but to political violations and misconduct related to public office. Impeachment is a political process, not a criminal one. As Hamilton wrote in The Federalist No. 65, impeachable offenses “proceed from the misconduct of public men . . . from the abuse or violation of some public trust.”

That being said, the meaning of the phrase “high crimes and misdemeanors” is not completely settled. There was a lot of debate about it during the impeachment of President Bill Clinton. Clinton’s lawyers argued that “high crimes and misdemeanors” meant misconduct related to the exercise of public office, and that Clinton’s behavior in his personal life did not meet that standard. Congress, of course, ultimately disagreed.

But a violation of the Emoluments Clause would be directly related to the exercise of Trump’s public office and his abuse of that trust, and as such should qualify as a “high crime or misdemeanor.” It would be strange indeed if the framers included the prohibition against emoluments but contemplated no possible enforcement mechanism or remedy for its violation. The most logical remedy is impeachment.

And in the end, as then-Congressman Gerald Ford famously remarked, “An impeachable offense is whatever a majority of the House of Representatives considers it to be at a given moment in history.” If Congress were to conclude that a violation of the Emoluments Clause was (or was not) an impeachable offense, there would be no real way to challenge that conclusion.

What Would Be the Remedy if Trump Committed Bribery?

If President Trump were to violate federal bribery law, the issue again would be the proper remedy. Whether or not a sitting President can be indicted is another question that was debated during the Bill Clinton investigation and has never been fully resolved. The Supreme Court did rule in the Paula Jones case, Clinton v. Jonesthat a President is not immune from civil litigation based on events that took place before he took office, but that is a different matter.

Indicting a sitting President raises far thornier issues. How would the President’s own Justice Department and Attorney General prosecute a criminal case against the President? Could the federal courts hear such a case without violating the separation of powers? What if a sitting President were convicted and sent to prison while still in office? And could a convicted President Trump pardon himself?

For all of these reasons, the better view is probably that a sitting President cannot be indicted for a crime. (This is also the official position of the Department of Justice.) The appropriate remedy for a President who commits criminal acts would once again be the impeachment process. In fact the Impeachment Clause (quoted above) specifically lists bribery as one of the grounds for impeachment.

If a President were impeached for bribery and removed from office, then presumably criminal bribery charges could be pursued against him or her as a private citizen. Article I, Section 3, Clause 7 of the Constitution provides that after removal by impeachment an official “shall nevertheless be liable and subject to Indictment, Trial, Judgment and Punishment, according to Law.” But again, we are in uncharted waters.

The Bottom Line

The Emoluments Clause is far more sweeping than the laws against bribery, at least when it comes to gifts from foreign governments. Almost any transaction involving Trump businesses and a foreign state or state-controlled entity is going to at least raise questions about whether any improper emolument was involved, even if Trump did not agree to do anything in return.

For any violation of either bribery law or the Emoluments Clause, the likely remedy is impeachment, not a lawsuit or criminal charges. And for those who believe a Republican Congress would never impeach a Republican President, bear in mind that if Trump were removed from office that would leave us with: President Pence.

That might be an outcome many Republicans would find very desirable.

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In Defense of the Grand Jury (Part 3): Disclosure of Exculpatory Information

During the course of a grand jury investigation, a federal prosecutor may learn information favorable to the defense, perhaps even suggesting that the target of the investigation is innocent of any crime. What is the prosecutor required to do with that information – and perhaps more important, what should the prosecutor do?

In my earlier posts on the federal grand jury (available here and here), I discussed how the grand jury, whose proceedings take place in secret, is a frequently misunderstood and sometimes controversial institution. One source of controversy is the one-sided nature of a grand jury presentation.

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The grand jury generally hears only from the government. The prosecutor presents the witnesses, documents and other evidence and ultimately asks the grand jury to return an indictment if the evidence establishes probable cause. The defense has no right to call witnesses or otherwise present its case. There is no defense attorney to object, cross-examine, or offer contrary evidence. The defendant himself has no right to testify.

This one-sided nature of the proceeding may seem to run counter to our most fundamental concepts of justice. How can the grand jury possibly make the right determination if it only hears one side of the story? But this argument misperceives the grand jury’s function.

The grand jury is merely accusatory, not adjudicatory. Its purpose is not to decide guilt or innocence or to weigh both sides of the case but to determine whether there is sufficient evidence to justify bringing the defendant into court to answer the charges. As such, part of its historic function is to serve as a shield against executive power. The government cannot simply run into court and file criminal charges on its own; it must first convince a panel of citizens in the same community that there is a basis for those charges.

In making that determination the grand jury needs to find only probable cause that the crimes took place, not the far higher standard of proof beyond a reasonable doubt that would be required for conviction at trial. And unlike a trial jury, a grand jury does not need to be unanimous; only twelve out of sixteen jurors need to find probable cause in order to return an indictment.

Many of the procedural protections we associate with a trial do not apply in the grand jury. If they did, grand jury proceedings could quickly become bogged down with endless hearings and disputes about the evidence being presented. A grand jury is simply making a threshold determination about whether there is a basis to proceed. It is not supposed to be “trial #1,” where we litigate every dispute and evidentiary issue, to be followed later by “trial #2” where we do it all over again with a higher standard of proof.

Accordingly, the defense generally is not able to challenge the evidence being presented to the grand jury or to present evidence of its own. With few exceptions, any such matters have to wait until pre-trial court proceedings or the trial itself, once the grand jury investigation is over and the case is indicted.

But this system must acknowledge a major caveat: an indictment alone can be devastating. It’s not much comfort to tell a wrongly indicted defendant, “It’s okay, now you can present your side of the case and be found not guilty at trial.” Trial may come only after two years of delay, a million dollars in legal fees, and severe damage to the defendant’s family, business, and reputation. That “not guilty” verdict at the end, even if it comes, is not going to feel like much of a victory. Simply being indicted can ruin someone’s life.

This fact, in turn, highlights the critical importance of the prosecutor’s obligations in the grand jury. Prosecutors, of course, must do everything they can to avoid indicting the wrong people. A fundamental part of the prosecutor’s role is to ensure that the innocent do not suffer. This requires recognition of the gravity of the decision to return an indictment and the potential impact on the person being indicted. The prosecutor’s duty is not to “win” by securing an indictment by any means necessary, but to ensure that justice is done. In the grand jury, the one-sided nature of the presentation makes that duty all the more critical.

Given these obligations and the nature of the grand jury, what should a prosecutor do when she comes across information favorable to the defense during a grand jury investigation?

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The Supreme Court’s Answer: United States v. Williams

The Supreme Court confronted this issue in 1992 in United States v. Williams. Williams was indicted for bank fraud for allegedly misrepresenting the nature of some of his assets when applying for a loan. After he was indicted, he argued the prosecutor should have disclosed to the grand jury information demonstrating that he had always treated those assets the same way for his tax and other accounting purposes. This information, Williams claimed, would have demonstrated he did not misrepresent his financial position and lacked any intent to defraud the bank.

After a hearing, the trial court agreed with Williams that the prosecutor’s failure to disclose the information rendered the grand jury’s decision to indict “gravely suspect.” The court dismissed the indictment without prejudice (which would have allowed the government to present the case to a new grand jury, this time including the allegedly exculpatory information). The court of appeals agreed and upheld the dismissal.

Given the nature and history of grand jury proceedings, Williams did not claim in the Supreme Court that the Constitution itself required the government to present exculpatory evidence to the grand jury. But he argued the Court should create such a rule on its own, as part of its general supervisory role over the justice system, in order to ensure the fairness of grand jury proceedings.

A divided Supreme Court disagreed. Writing for a 5-4 majority, Justice Scalia discussed the historical independence of the grand jury, which is mandated by the Bill of Rights but is not textually assigned to any one of the three branches of government. As such, it functions as a “constitutional fixture in its own right.” Given the grand jury’s independence, he concluded, the Court does not have a general supervisory power that would allow it to create rules for grand jury proceedings.

The Court also relied on the role of the grand jury, which is “not to determine guilt or innocence, but to assess whether there is adequate basis for bringing a criminal charge.” Williams’ proposed rule, the Court said, would effectively turn the grand jury into an adjudicatory body required to weigh both sides of the case. This would threaten to tie up grand jury proceedings in evidentiary hearings and disputes. It would also run counter to a long history of Court decisions refusing to scrutinize the adequacy of the evidence before the grand jury; such scrutiny would “run counter to the whole history of the grand jury institution.”

The Court concluded that if a rule requiring the disclosure of exculpatory information was good policy, Congress was free to enact a law requiring prosecutors to do so. The Court itself, however, declined to create such a rule on its own. Four dissenting Justices argued that a court should have the power to dismiss an indictment if the prosecutor withheld evidence that would “plainly preclude a finding of probable cause,” and that such a rule was necessary to limit potential prosecutorial misconduct.

Practical Challenges of Legally Mandating Disclosure

Congress has not taken the Williams Court up on the suggestion that it could pass a law requiring disclosure of exculpatory information. If Congress did so, enforcing such a requirement would raise a number of challenges. For example, what would happen when the defense and prosecution don’t agree over whether information is truly exculpatory? (Even the dissenting Justices in Williams agreed there was some doubt whether the proffered information really exculpated the defendant. If he treated the financial information the same way for tax and other purposes, might that not simply mean that he was a consistent crook?)

If the prosecutor didn’t agree that information proffered by the defense was exculpatory and declined to put it before the grand jury, what would be the remedy? Presumably the defense would file a motion with a judge and there would have to be a hearing. But reluctance to bog down grand jury proceedings with hearings and delays is precisely why the Court has consistently held that rules of evidence and procedure that apply during a trial do not apply in the grand jury. In a large, hard-fought white collar investigation, it would be easy to imagine the defense filing multiple motions concerning exculpatory information and potentially grinding the investigation to a halt.

In addition, it would be difficult to litigate such a motion while still preserving grand jury secrecy. How would the government demonstrate information was not truly exculpatory without being forced to reveal confidential information about the investigation? Even if the judge reviewed the papers in camera and did not disclose them to the defense, ruling on such a motion would require the judge to become enmeshed in the details and merits of the grand jury investigation to a degree completely contrary to the grand jury’s historically independent function.

Or suppose the prosecutor agrees that the information is potentially exculpatory, but it is contained in documents that are not self-explanatory. Does the defense then have the right to designate the witness who will explain the documents, to make sure they are properly understood? To write out the examination to make sure it is effective – or to conduct the examination itself? The same questions arise if the evidence consists of testimony from a witness: how does the defense ensure that the testimony is presented effectively without compromising grand jury secrecy? And if there are disputes about how to present the evidence, presumably a judge would again need to get involved.

In short, although creating a legal rule mandating the disclosure of exculpatory information may sound good in theory, it’s not difficult to see why the Court in Williams was reluctant to create such a rule, or why Congress has declined to do so.

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DOJ Policy and Prosecutor Best Practices

Simply because disclosure is not legally mandated does not mean it should not take place. The Department of Justice has recognized this in the U.S. Attorneys’ Manual, which provides that if the prosecutor is “personally aware of substantial evidence that directly negates the guilt” of the target, that evidence should be disclosed to the grand jury. USAM 9-11.233.

Of course, although policies in the U.S. Attorneys’ Manual provide important guidance to prosecutors, they do not create enforceable rights. The prosecutor may be subject to discipline for violating a rule, but a defendant cannot move to dismiss an indictment on that basis. Some might also argue that terms such as “substantial evidence” and “directly negates the guilt” leave a fair amount of wiggle room and that DOJ policy should require more fulsome disclosure.

But for the good prosecutor there are many sound reasons to disclose exculpatory information to the grand jury, whether or not the information is substantial enough to require disclosure under the DOJ policy.

The first reason is simply fairness: disclosing such information is the right thing to do. A good prosecutor has no interest in “hiding the ball,” misleading the grand jury, or giving even a perception that the grand jury process was unfair. The U.S. Attorneys’ Manual also provides that a prosecutor must be “scrupulously fair” in the grand jury and ensure that the grand jury is not misled. USAM 9-11.010. That may require disclosing even information that is only marginally or potentially exculpatory.

A prosecutor with a good case should have nothing to fear from disclosing potentially exculpatory information to the grand jury. After all, such evidence will undoubtedly come up at trial. If you as a prosecutor are so concerned about the information that you think it might result in the grand jury not finding probable cause, then how are you ever going to get a trial jury with the same information to find guilt beyond a reasonable doubt?

Indeed, if you’re a prosecutor and you have information you fear might cause the grand jury not to indict, then you shouldn’t be thinking merely about whether you should disclose that information to the grand jury. You should be thinking about whether you should pursue the case at all. Certainly if you have “substantial evidence” that “directly negates the guilt” of the defendant, you’d better stop and consider whether the investigation should proceed.

There also are sound tactical reasons to introduce exculpatory information in the grand jury. It allows the prosecutor to probe and explore the evidence completely, through examination of witnesses and possible additional investigation. A full review of the information may lead to additional evidence that further exonerates the defendant, or evidence that demonstrates the information is not truly exculpatory. It is better to explore those details in the grand jury than to wait and potentially be surprised at trial.

Presenting the evidence to the grand jury also allows the prosecutor to see how the grand jurors react to the evidence, to hear what questions they have, and to discuss the evidence with them. Again, all of that can be incredibly useful to guide further investigative efforts, prepare more fully for trial, or to decide that the case should not be indicted and the investigation should be closed.

It All Comes Down to the Prosecutor’s Responsibility

Critics of the grand jury may argue that we need a rule mandating the presentation of exculpatory evidence because most cases never make it to trial. An unscrupulous prosecutor could conceal substantial exculpatory information from the grand jury, thinking that he or she will be able to coerce a guilty plea once the case is indicted and the exculpatory information will never come to light.

There is no doubt, as I’ve noted in other posts in this series, that a prosecutor bent on misconduct can abuse the grand jury process, cause tremendous harm, and perhaps even indict a ham sandwich. But a legal rule that tries to regulate the type of evidence put before the grand jury is probably not the solution.  Good prosecutors are already going to consider themselves bound by DOJ policy and will want to disclose exculpatory information for the reasons I discussed above. Bad prosecutors who intend to abuse the process likely would find the rule easy to avoid. And the rule would raise all of the practical difficulties discussed above and fundamentally alter the nature of the grand jury.

Although concerns about prosecutorial misconduct in the grand jury are valid, the solutions need to focus primarily on the prosecutors themselves; on whom we hire to be prosecutors and how they are trained. Unless we do away with the grand jury entirely or fundamentally alter its centuries-old function, prosecutors in the grand jury are always going to have a great deal of autonomy and power. Given the one-sided nature of grand jury proceedings, it is particularly critical that prosecutors respect their obligations and recognize that with that great power comes great responsibility.

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Click here to read part one in this series, “The Guilty Ham Sandwich.”

Click here to read part two in this series, “Grand Jury Secrecy.”

One Angry Man: Supreme Court Confronts Racial Bias in Jury Deliberations

In the classic movie “Twelve Angry Men,” jurors file into a jury room to deliberate on the case of a young man charged with stabbing his father to death. Upon a preliminary vote, eleven of the twelve are in favor of a quick guilty verdict. The sole holdout, Juror #8 (played by Henry Fonda) insists they should not rush and that the young man’s fate deserves at least some of their time and consideration. As the deliberations proceed, every other juror eventually comes to agree with #8, as they discover different reasons to have a reasonable doubt. The film ends with the jurors heading back to the courtroom to return a “not guilty” verdict.

Sorry — maybe I should have led this post with, “Spoiler Alert.”

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The Jury Votes in “Twelve Angry Men”

Part of the appeal of “Twelve Angry Men” probably stems from the way it pulls back the curtain on a scene that most of us never see. Jury deliberations take place in secret. Although jurors generally are not prohibited from discussing the deliberations once the case is over, the public usually does not get much information about what goes on behind the jury room door.

The confidential nature of jury deliberations is reflected in a long-standing rule in federal court and in most states providing that information about what was discussed during jury deliberations cannot later be used to question the verdict. In federal court this rule is embodied in Federal Rule of Evidence 606(b), which provides that a juror’s testimony about things discussed or taking place during jury deliberations is not admissible in a later proceeding to challenge the jury’s decision.

Recently the U.S. Supreme Court heard arguments in a fascinating case, Peña- Rodriguez v. Colorado, that tests the limits of this rule when it collides with the compelling societal interest in not allowing racial bias to taint a criminal conviction.

Peña-Rodriguez v. Colorado

The defendant, Miguel Angel Peña-Rodriguez, was accused of groping two teenage girls at the Colorado racetrack where he worked. The girls were inside a restroom when a man they had seen at the racetrack earlier entered and asked them if they wanted to “drink or party.” When they said no, the man turned off the lights and tried to grab the girls. He touched one of them on the buttocks; the other girl felt his hand on her shoulder and moving towards her breast but she was able to push it away.

The girls escaped and ran to their father, who also worked at the racetrack, to tell him about the incident. Based on their description the father believed the man was Peña-Rodriguez, and he notified the authorities. Peña-Rodriguez was later stopped by the police and the girls identified him as their assailant.

The state of Colorado charged Peña-Rodriguez with one felony count of attempted sexual assault on a minor and three misdemeanors. The government’s evidence consisted primarily of the testimony and identifications from the victims. The defense presented alibi testimony from the defendant’s co-worker, who testified that the defendant was with him at the time of the offense. After what appears to have been a lengthy and difficult period of deliberations, the jury found Peña-Rodriguez guilty of the misdemeanors. They could not reach a verdict on the felony count, which was later dismissed.

After trial, two of the jurors spoke with defense counsel. They reported that one of the jurors – identified in the case only as “H.C.” — had expressed bias against the defendant during the jury deliberations. H.C., a former law enforcement officer, reportedly said the defendant was probably guilty because he was Mexican and Mexican men “ take whatever they want.” He said that Mexican men believe they can do whatever they want with women, and that when he was working on patrol, “nine times out of ten” Mexican men were guilty of being sexually aggressive towards women. He also said the defendant’s alibi witness could not be believed because he was “an illegal.” (This was not true; the witness testified that he was a legal resident.)

After obtaining affidavits from the two jurors the defense requested a new trial, arguing that racial animus had tainted the jury’s verdict. But Colorado, like most states, has a rule of evidence essentially identical to Federal Rule 606(b) that prohibits challenges to jury verdicts based on testimony about what happened during deliberations. Based on that rule, the trial court denied the motion. The Colorado Court of Appeals and Colorado Supreme Court affirmed this decision, and the Supreme Court agreed to hear the case.

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The Rule Against Impeachment of Jury Verdicts

All sides in the case agreed, of course, that H.C.’s comments were reprehensible and have no proper place in jury deliberations. But the issue is whether, once those comments are discovered, a defendant’s Sixth Amendment right to a fair trial requires an exception to the rule against impeaching a verdict based on evidence of what went on during jury deliberations.

The rule dates back more than two centuries and is based on several policy considerations. One concern is that allowing such evidence might inhibit full and frank discussions in the jury room, particularly about sensitive or controversial topics. Jurors should be free to speak their minds without fear that their statements may later become the subject of litigation challenging the verdict and potentially accusing them of misbehavior. The possibility of subsequent proceedings based on deliberations might also make jurors reluctant to return difficult or controversial verdicts.

Another concern is protecting jurors from harassment. If post-verdict litigation based on jury deliberations became routine, attorneys would have an incentive to track down jurors, even weeks or months after a case was concluded, to probe their recollections about deliberations and look for possible ways to get another bite at the apple. It’s true that jurors now sometimes voluntarily remain after a case is over to discuss deliberations informally with counsel – but that’s far different from being subpoenaed, put on the stand, and cross-examined about deliberations weeks or even months after the case is over.

But perhaps the paramount rationale for the rule is verdict finality: there is a public interest in having criminal judgments be final and respected and not subject to potentially endless rounds of challenges and rehearings. Public respect for and confidence in the jury system would be undermined if jury verdicts were routinely subject to attack and litigation long after a case is supposedly over.

There are other safeguards in the system that protect against juror bias. The most important is voir dire, the jury selection process, where attorneys and the judge may ask questions designed to ferret out any potential biases. A primary purpose of voir dire is to screen out at the front end any potential jurors who may be biased or otherwise unable to be impartial. In addition, jury panels are required to represent a fair cross-section of the community, and racial bias in jury selection is prohibited. If there are signs of juror bias during trial or deliberations but prior to a verdict, other jurors or court personnel may bring those matters to the judge’s attention. And the requirement of a unanimous verdict of guilt beyond a reasonable doubt dilutes the ability of any one prejudiced juror to influence the final outcome of the case.

(In this regard, it’s interesting to note that the defense at Peña-Rodriguez’s trial chose not to voir dire the potential jurors about any potential bias against Hispanics – a decision that apparently surprised the trial judge. And the two jurors who later raised concerns about H.C.’s comments did not bring those concerns to the judge’s attention during the jury deliberations, when the judge could have acted on them.)

Relying on these policy rationales and the presence of these other safeguards, the Supreme Court has upheld Rule 606(b) against Sixth Amendment challenges in cases involving significant juror misconduct. For example, in Tanner v. United States the Court refused to allow the defendant to present evidence that a majority of the jurors in his case had been drinking, using drugs, or sleeping during the proceedings. And in Warger v. Shauers, a car accident case, the Court refused to allow evidence that a juror had revealed during deliberations that her daughter had been involved in a very similar accident. Neither Tanner nor Warger, however, involved claims of racial bias.

Should There Be an Exception for Juror Bias Based on Race?

Although there are many sound arguments in favor of the rule against impeachment of verdicts, the public interest also demands that racial animus not be allowed to infect court proceedings. That’s what makes the Peña-Rodriguez case so intriguing. Once the information about Juror H.C.’s statements was discovered, can the criminal justice system allow that verdict to stand and still maintain its legitimacy?

(As an aside, strictly speaking this case is about bias based on ethnicity or national origin, not race. But both sides agreed that for purposes of the defendant’s right to a fair trial this was not a meaningful distinction and used the term “racial bias” throughout the case.)

I think it’s difficult for the justice system to tolerate an outcome that seems so infected by potential bias, and it may well be that the Court will rule in Peña-Rodriguez’s favor. But exactly how the Court resolves the issue will be extremely interesting. The case presents difficult line-drawing questions and raises fears of a number of proverbial slippery slopes.

The most obvious question concerns how to deal with other kinds of bias. At oral argument Peña-Rodriguez’s attorney wasn’t more than a minute into his presentation when Chief Justice Roberts started pressing him on whether a ruling in his favor would mean that future courts also would have to allow challenges to verdicts based on religious bias. Justice Ginsburg posed a hypothetical case involving a car accident where a juror says that all women are terrible drivers and so the woman is probably responsible – would that be subject to challenge as well?

Justices Kagan and Sotomayor in particular seemed willing to argue that “race is different.” They implied the Court could create an exception that encompassed only race and not other forms of bias, given our country’s long struggle against racial discrimination. But the Chief Justice and Justice Alito in particular seemed less inclined to believe that such a line could reasonably be drawn.

I tend to agree that drawing such a line is problematic. Could the justice system really tolerate a rule that said a defendant could challenge a verdict following expressions of racial bias but not a verdict based on a juror’s bias towards the defendant’s religion, gender, or sexual orientation? It’s arguable that allowing inquiry into only certain kinds of bias actually does more to undermine faith in the integrity of the justice system than a simple blanket prohibition against any such inquiries at all.

A rule that “race (or ethnicity) is different” could lead to some bizarre results. Suppose a defendant of Middle Eastern descent is on trial. Presumably, if during deliberations a juror said he believed the defendant was probably guilty because he was an Arab, that verdict could be challenged. But if a juror said that same defendant was probably guilty because he was a Muslim, that statement could not be used to impeach the verdict.

The more you start to think about how to draw the lines, the more you start to see the appeal of the current prophylactic rule that simply prohibits any such inquiries.

Much of the debate in this case also seems to underestimate the importance of the requirements of twelve jurors and a unanimous verdict. There’s a reason we have twelve jurors and require unanimity on proof beyond a reasonable doubt: the ability of any one juror to use improper arguments to sway an entire jury is greatly reduced.

Peña-Rodriguez’s attorneys argued in their brief that, “convicting someone of a crime because of his race tramples our most vital principles of liberty and equality.” No doubt that is true — but it’s not clear that’s what happened. We know that H.C. made racially biased statements, but that is not the same as saying the jury convicted the defendant because of his race. Are we to assume that the other eleven jurors were simply sheep, powerless to resist the influence of H.C.’s odious opinions? Or is it not just as likely that many of the jurors would consider the statements reprehensible and tend to “tune out” H.C. and discount anything further that he said about the merits of the case?

In “Twelve Angry Men” there is a scene where one of the jurors goes on an extended rant demonstrating bias against the defendant and arguing that “these people” are all animals with no morals. The other jurors, rather than being swayed by his arguments, one by one slowly get up, walk away from the juror and ignore him, until he finally falls silent. That’s only Hollywood, but it does effectively demonstrate the limited potential of a single biased juror to sway the unanimous verdict of all twelve. It also highlights the potential difficulty of evaluating the total dynamic of a jury’s deliberations based on a handful of statements taken in isolation.

Peña-Rodriguez’s attorneys would respond that they should at least have a chance to let a judge consider the statements in light of the overall case to determine whether they might have swayed the jury’s verdict. Of course a judge is not in the jury room during deliberations, so his or her ability to assess the impact of any statements may be somewhat limited. The Peña-Rodriguez  jury deliberated for twelve hours – how does the judge assess the impact of a handful of bigoted statements by one juror, short of having a full-blown hearing with all the other jurors testifying?

We could have a rule automatically throwing out any verdict where any discriminatory statements are made during deliberations, without trying to evaluate their impact. This would have the virtue of simplicity, but it’s a bit odd to allow relief only in those cases in which a juror is willing to vocalize his prejudices. Unfortunately, with our polarized society being what it is, it is probably safe to assume that inappropriate bias sometimes exists in jurors who do not admit it. Perhaps it is better simply to rely on the requirement of a unanimous verdict and other safeguards to prevent a biased juror from determining the final outcome, rather than having a rule that would grant one defendant relief over another simply because a juror in one defendant’s case was more blatant about his prejudices.

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In the end, I think it’s going to be hard for the Court to allow Peña-Rodriguez’s conviction to stand in light of what took place during deliberations. And in reality, cases where this kind of evidence surfaces will probably be very rare, so perhaps the concerns about opening the floodgates to potential challenges and juror harassment are misplaced. Maybe the holding can be limited to criminal cases, and only to cases involving claims of racial bias. But I don’t envy the Justices trying to craft a rule that will give defendants like Mr. Peña-Rodriguez a remedy without completely gutting the sound policy against impeaching jury verdicts that has existed since the country’s founding. And if that policy is gutted, the unintended consequences for the jury system could be severe.

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When Is Fraud Involving a Bank Not Bank Fraud? Shaw v. United States

Update 12/12/16: Today the Supreme Court unanimously ruled against Shaw and held that Section 1 of the bank fraud statute applies to a scheme to obtain deposits held by the bank even if the bank suffers no financial loss. The Court also affirmed that a bank does have a property interest in deposits that it holds, as both sides had basically ended up agreeing during oral argument. The Court sent the case back to the Ninth Circuit to consider the adequacy of the jury instructions, whether that issue was properly preserved, and whether any error in the instructions may have been harmless. See discussion below.

On the first day of arguments this term, the Supreme Court considered the scope of the federal bank fraud statute. The case, Shaw v. United States, involves complex questions concerning the definition of fraud and the nature of property rights. It’s a classic, nerdy white collar battle over statutory interpretation — and it was all completely unnecessary.

The federal bank fraud statute, 18 U.S.C. § 1344, makes it a crime to execute or attempt to execute a scheme or artifice:

1) to defraud a financial institution; or

2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.

Shaw involves the proper interpretation of clause 1 and what it means to defraud a financial institution. In particular, the issue is whether the defendant must intend to obtain property owned by the bank itself and cause the bank financial injury, or whether it is sufficient to show merely that the defendant intended to obtain property being held by the bank, such as customer deposits.

The defendant, Lawrence Shaw, was convicted for executing an elaborate scheme to steal money from a Bank of America checking account held by Stanley Hsu. After wrongfully obtaining Hsu’s bank statements and personal information, Shaw was able to open a PayPal account in Hsu’s name. He then repeatedly transferred money from Hsu’s checking account into the PayPal account and ultimately into other bank accounts that Shaw controlled. Shaw was able to siphon more than $300,000 out of Hsu’s account before Hsu, who was living in Taiwan, detected the losses.

Due to the operation of banking laws, Bank of America actually ended up suffering no financial loss as a result of the scheme. PayPal, which had allowed the phony account to be opened, ended up on the hook for about $100,000 of the loss. Hsu, who had failed to notify Bank of America about the fraud in a timely manner, personally lost nearly $200,000.

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PayPal was left holding the bag

Shaw was indicted on multiple counts of executing a scheme to defraud a financial institution under clause 1 of the bank fraud statute. At trial and on appeal, Shaw did not deny his culpability. His defense was basically that the government had charged him under the wrong section of the statute. Clause 1, he argued, requires the government to prove that Shaw was targeting property owned by the bank itself and intended to expose the bank to a financial loss. Shaw maintained that his goal all along was simply to get Hsu’s money. He never had any intent to harm the bank, and the bank in fact did not suffer a loss. Accordingly, Shaw argued, his conduct, although fraudulent, did not constitute a scheme to defraud the bank within the meaning of the statute.

Shaw maintained that his scam should have been charged under clause 2, which covers schemes to obtain property of others in the custody of the bank – in this case, Hsu’s deposits. (This, of course, is not a very sexy or sympathetic defense; Shaw isn’t saying,“I didn’t do it,” he’s saying “Yeah, I did it, but you charged me the wrong way.” But sexy or not, if he prevails his convictions will be reversed. As I’m sure some famous football coach said once, an ugly win is still a win.)

The trial court ruled against Shaw and held the government was not required to prove that Shaw intended the bank to suffer any financial harm or to lose its own property. The judge instructed the jury that a scheme to defraud a financial institution required only proof that the defendant intended to deceive or cheat the bank somehow, but did not require proof that the defendant intended the bank to suffer any loss. The jury convicted Shaw on fourteen counts of bank fraud.

The U.S. Court of Appeals for the Ninth Circuit upheld Shaw’s convictions. The court of appeals reasoned that Congress could not have intended liability for bank fraud to turn on arcane banking rules and regulations about who will bear the loss. Requiring proof of intent to harm the bank itself, the court said, would make prosecuting bank fraud unreasonably difficult. Because the goal of the statute is to protect the integrity of the banking system, any scheme that deceives a bank will suffice, regardless of who ultimately is harmed. The court therefore agreed with the trial judge that clause 1 requires only proof that the defendant intended to deceive the bank, not that he intended to expose the bank itself to any financial loss.

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SCOTUS Agrees to Weigh In

The Supreme Court agreed to hear Shaw’s appeal, and the case was argued this past Tuesday. The courts of appeal are divided on the question presented in Shaw. The Ninth Circuit is in the minority; most courts agree with Shaw’s argument that clause 1 of the bank fraud statute requires the government to prove the defendant intended to expose the bank itself to a risk of financial loss.

As I discussed in my last post, to defraud someone usually means to deprive him of money or property through some kind of deception. The law generally draws a distinction between defrauding someone and merely deceiving them; a scheme to defraud typically requires not only a deception but also an intent to injure the victim by depriving them of their property.

Based on this understanding of fraud, the plain wording of the statute supports Shaw’s argument that the scheme must target the bank’s own property. The language “scheme to defraud a financial institution” suggests that the financial institution itself would be the victim of the fraud. This in turn would mean that the scheme to defraud would be designed to deprive the bank of money or property.

But then the question becomes what qualifies as “property.” Although (as the Justices somewhat testily pointed out) the government’s brief was not entirely clear on this point, during oral argument the government confirmed that it agreed a scheme to defraud a bank requires intent to deprive the bank of property and that merely deceiving the bank is not enough. The government disagreed with Shaw, however, about the nature of the property interests protected by the statute, and about whether depriving the bank of a property interest necessarily requires exposing the bank to financial harm.

The government agreed that the Supreme Court has consistently held that a scheme to defraud means a scheme to deprive a victim of money or property, but noted that the Court has always interpreted the term “property” very broadly. Fraud, the government argued, protects both tangible and intangible property, and protects property that is merely in one’s possession as well as property that one owns.

Under this broad definition of property, a scheme to obtain customer deposits is in fact a scheme to deprive the bank of its possessory property interest in those deposits. The same would be true of a scheme to steal other assets being held by a bank, such as customer valuables in a safe deposit box. There is no requirement that the bank actually own the property or suffer a financial loss; the law of fraud requires only that the scheme contemplated depriving the bank of its possessory property right in the assets it holds.

During oral arguments, Shaw’s attorney ultimately agreed with the government that the bank’s possessory interest in customer deposits could qualify as a property interest for purposes of fraud. A line of questions from Justice Kagan honed in on the fact that both sides now seemed to agree about the definition of “property.” Shaw’s attorney maintained, however, that the ordinary understanding of a scheme to defraud meant that to deprive the bank of that property interest required proof of intent that the bank would bear the ultimate financial loss. The Justices seemed more skeptical on this point, with Justice Alito in particular arguing that you could deprive someone of a possessory interest in property without necessarily causing them a personal loss.

But even if the Court ends up agreeing with the government that Shaw’s scheme deprived Bank of America of a property interest in Hsu’s deposits, Shaw may still prevail – because that’s not what the jury instructions said. During oral argument, several of the Justices suggested that the key issue in the case is really the jury instructions. Under questioning from Justice Sotomayor, Shaw’s attorney argued that even if Shaw loses on the interpretation of the bank fraud statute, his convictions must be reversed because the jury instructions were flawed. When the Assistant to the Solicitor General began his argument, the Justices immediately started peppering him with questions about the jury instructions and whether they adequately conveyed the requirements of fraud.

The jury instructions could be read to say that depriving the bank of property was not required, and that it was enough if Shaw merely intended to deceive the bank. The instructions thus arguably failed to distinguish between defrauding and merely deceiving a victim, which is usually critical to the law of fraud. At oral argument, Chief Justice Roberts pointed out that the Ninth Circuit’s opinion also said the bank only needed to be deceived – which seems to endorse the incorrect standard. There was some additional back and forth about the grammatical structure of the instructions, how the jury would have interpreted them, and whether the issue was properly preserved, so how the Court will come out on that question is unclear. But it’s very possible the government could win the legal fight over the definition of bank fraud and still lose the appeal based on flawed jury instructions.

The Implications of Shaw

Although Shaw has implications for banking law and the definition of fraud – and certainly has significant implications for Mr. Shaw — it does not really implicate broader interests about federalism or overcriminalization that are present in many white collar cases. There is no real universe of cases that will no longer be subject to federal prosecution if Shaw wins; Shaw himself admits he could have been prosecuted under clause 2 of the bank fraud statute.

The National Association of Criminal Defense Lawyers filed an amicus brief supporting Shaw on federalism grounds. It argued the bank fraud statute should be construed narrowly in order to limit the scope of federal prosecutions and allow the states to pursue such cases. But this argument doesn’t really hold water. Regardless of the outcome here, cases like Shaw’s will still be subject to federal prosecution, whether through other provisions of the bank fraud statute or through other laws such as mail and wire fraud. There are more than enough arrows in the federal prosecutor’s quiver.

But however it ultimately comes out, Shaw will be instructive in one more area: the importance of sound prosecutorial charging decisions. Clause 2 of the bank fraud law seems clearly to cover Shaw’s conduct. If prosecutors had simply charged Shaw under clause 2 in the first place, this entire issue could have been avoided. Prosecutors would have saved themselves a lot of headaches, time and money that had to be devoted to defending the convictions.

This isn’t a case of over-charging of the type that has caused the Court concern in recent years. There’s no question that Shaw’s conduct was criminal and deserved to be prosecuted. But by charging the case the way they did, prosecutors handed Shaw an issue for appeal that may well be successful. It’s what that football coach would call an unforced error.

Shaw should bring some clarity to the law of bank fraud. But the real lesson of Shaw for prosecutors should be a reminder of the importance of careful charging decisions and selecting the proper statutes when crafting indictments.

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