Corporate Governance

US v. Nacchio: A Modest Ruling by a Modest Majority

By J. Robert Brown

As we more or less predicted, the full court vacated the panel opinion which had overturned the verdict of Joe Nacchio and ordered a new trial.  The affect of the en banc opinionis to reinstate the conviction.  The majority opinion was written by Judge Holmes who also wrote the dissent in the panel opinion.  His opinion is a lengthy discussion showing that Nacchio had plenty of notice and opportunity to make a stronger case for the admission of Daniel Fischel, the excluded experts. 

Judge Holmes made it very clear that the case was not about the personality of the judge or his hubris in the courtroom.  As he noted:  

• Mr. Nacchio is attempting to recast an unremarkable district court evidentiary ruling as an invidious act of judicial hubris. But it will not work. At bottom, Mr. Nacchio’s argument is no more than a run-of-the-mill lament of unfair surprise. We have rejected similar claims when, as here, the record belies them.

Judge Holmes further noted that Nacchio had not sustained his burden on the methodology used by Fischel.  While Fischel could rely on his "experience," the defendant needed to offer something more than simply taking the expert's word for it.    

• Mr. Nacchio considered his revised Rule 16 disclosure to be a submission on Professor Fischel’s methodology. Aplee. Supp. En Banc App. 50. This filing indicated that Professor Fischel was basing his opinion on analysis of, inter alia, market- and stock-related information. These assertions indicate that Professor Fischel was applying his experience to material that he reviewed to formulate an opinion. An expert witness’s testimony can rely solely on experience. When that is the case, however, “the witness must explain how that experience leads to the conclusion

  reached, why that experience is a sufficient basis for the opinion, and how that experience is reliably applied to the facts.” Fed. R. Evid. 702 advisory committee’s note (2000). Mr. Nacchio did not offer any of this additional information. “The trial court’s gatekeeping function requires more than simply ‘taking the expert’s word for it.’” Id. “[N]othing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence that is connected to existing data only by the ipse dixit of the expert.” Joiner, 522 U.S.  at 146.

Although conceding that Fischel had testified in the past, the expert's past experience and general expertise was not a substitute for a description of the proposed methodology. 

• It appears that Mr. Nacchio relied on Professor Fischel’s qualifications to tip the balance in favor of the admissibility of his expert testimony.  In doing so, Mr. Nacchio ignored the precept that when assessing expert testimony, “the question before the trial court [i]s specific, not general.” Kumho Tire, 526 U.S. at 156. Although Professor Fischel generally has been permitted to testify in the past, and a district court might well respect his credentials, the court had an obligation to assess the methodology that Professor Fischel had employed in the case at hand. See id. at 153-56; Rodriguez-Felix, 450 F.3d at 1122. Mr. Nacchio could not assume that his expert’s testimony would be admitted because other courts had allowed it in; he had to carry his burden of demonstrating the admissibility of Professor Fischel’s testimony in this particular case. Mr. Nacchio, however, failed to satisfy the district court that Professor Fischel’s testimony was reliable. Thus, the district court was well within its discretion in excluding it. See Rodriguez-Felix, 450 F.3d at 1125 (finding no abuse of discretion when the district court excluded testimony based on the “woefully inadequate” report regarding proffered testimony).

The opinion ended by sending the case back to the panel to address some remaining unresolved issues, including those centering around sentence enhancement and asset forfeiture.  These are relatively modest issues that do not go to the underlying merits or the need for a new trial.  For Nacchio to have any meaningful hope of reversal, he will have to go up the ladder with the decision.  

The primary materials on this case have been posted at the DU Corporate Governance web site.

Full post as published by The Race to the Bottom on February 26, 2009 (boomark / email).