Opposition Brief — Schmidt v. United States

SA Supreme Us.

“)} FILE

No. 00-997 uy 0 on

In the Supreme Court of the United States“ >=

ERIC SCHMIDT, ET AL., PETITIONERS

VU.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

BARBARA D. UNDERWOOD

Acting Solicitor General

Counsel of Record

JOHN C. KEENEY

Acting Assistant Attorney

General

THOMAS E. BOOTH

Attorney

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

QUESTIONS PRESENTED

1. Whether petitioners were entitled to a new trial

based on a government witness’s false or contradictory

testimony where the defense exposed the witness’s

falsehoods during cross-examination and argued to the

jury that the witness had been thoroughly impeached.

2. Whether, when a court of appeals conducts plain-

error analysis under Federal Rule of Criminal Pro-

cedure 52(b) of a claim of legal error that became clear

only as the result of an intervening change in the

settled law of the circuit, the defendant bears the

burden of establishing that he was prejudiced by the

error.

(I)

TABLE OF CONTENTS

Page

Opinions below .........-ssesessessssereeseeneenees 1

Jurisdiction ..........c.cccccccccersscsessossocsscscosssecsescesees 1

aA oc cccnccnsesseccseccncencenscennsosomenasenianns 2

ATgZuUMEeNt .....scssessecsecssssseneesnssnsennesnsenscasssnernseaenscanscnsenannanncnnscnceneens 9

COMCIUBION ..cccccecesccccesoccccsccesesccscecesscecescesecsonssnsnsscaqsencnenseonsssenenssebiees 20

TABLE OF AUTHORITIES

Cases:

Barrientes v. Johnson, 221 F.3d 741 (5th Cir.

2000), cert. dismissed, 121 S. Ct. 902 (2001) ........--sseesneeees 12

Brady v. Maryland, 373 U.S. 83 (1963) ...-...--ssessssssenseersees 6

Giglio v. United States, 405 U.S. 150 (1972) ............ 9, 10, 11

Johnson v. United States, 520 U.S. 461 (1997)... 8, 14, 15, 16

Kyles v. Whitley, 514 U.S. 419 (1995) .....-s.-sessseneeneerssesnes 12

Napoli v. United States, 45 F.3d 680 (2d Cir.), cert.

denied, 514 U.S. 1084 (1995) ......cscsessceeenssesssensseneneneensnes 15

Napue v. Illinois, 360 U.S. 264 (1959) ...--sesssssseerseeeeseesees 9,11

_ Neder v. United States, 527 U.S. 1 (1999) .....-ssseseseeseees 7

O’Keefe v. United States, 523 U.S. 1078 (1998) .....-.-+--00+- 2

United States v. Atkinson, 297 U.S. 157 (1936) ...........0++ 13

United States v. Ballistrea, 101 F.3d 827 (2d Cir.

1996), cert. denied, 520 U.S. 1150 (1997) .....s.sesessesesseeenee 15

United States v. Baumgardner, 85 F.3d 1305 (8th

Cher, BOBBY cncnccccecsnccsocscccsocsncecsasnrsesesscososssnccsocosescsctssosscssonssossosses 17

United States v. Burch, 156 F.3d 1315 (D.C. Cir.

1998), cert. denied, 526 U.S. 1011 (1999) .......-:ecseseeeeeenees 10

United States v. Gaudin, 515 U.S. 506 (1995) ........eeceeeee 16

United States v. Higgins, 75 F.3d 332 (7th Cir. 1996) ..... 12

United States v. Joyner, 201 F.3d 61 (2d Cir.

DOOD) ......cccecorsoserersssssescsesesesensecererersssosscssssensscscncecessecsseres 10, 11, 12

United States v. Knoll, 116 F.3d 994 (2d Cir. 1997),

cert. denied, 522 U.S. 1118 (1998) .......ssssssserersrersenenenenes 17

United States v. Langston, 970 F.2d 692 (10th Cir.),

cert. denied, 506 U.S. 965 (1992) ......csseeseseeeseseneeeneenenenes 10

(IIT)

IV

Cases—Contined: Page

United States v. Maloof, 205 F.3d 819 (5th Cir.),

cant. Gomied, 293 &. CL. FG CORB D icenciscisccscsassnseresiccscsessveis 12

United States v. Malpeso, 115 F.3d 155 (2d Cir.

1997), cert. denied, 524 U.S. 951 (1998) oo... eee 15, 18

United States v. Olano, 507 U.S. 725 (1993) ...... 13, 14, 15, 16

United States v. Perkins, 94 F.3d 429 (8th Cir.

1996), cert. denied, 519 U.S. 1136 (1997)... ceeeeseees 10

United States v. Rodriguez, 162 F.3d 135 (1st Cir.

1998), cert. denied, 526 U.S. 1152 (1999) oo... eee eeeeeees 12

United States v. Santiago, 238 F.3d 213 (2d Cir.

ED siscniassoccuiiestelisintaikeiiiciansilabbceiiaieh eaeapiaiapiiinn 14-15, 18

United States v. Santiago, 798 F.2d 246 (7th Cir.

| Se ererreencenenenteer rere reer vere eer srr rare vere wer 10, 11

United States v. Viola, 35 F.3d 37 (2d Cir. 1994),

cert. denied, 513 U.S. 1198 (1995) ..............c.ccssssssesees 13, 14, 15

United States v. Walsh, 75 F.3d 1 (1st Cir. 1996) ............ 12

United States v. White, 238 F.3d 537 (4th Cir.

SODA sincssestshensnatietnahicinananiliniunaapidaitinainteilcciaatiheipiyecneitiashtialnbnuaiibetiiirn 10

Constitution, statutes and rules:

U.S. Const. Amend. V (Due Process Clause) ............:.:sc000 9

BD EE eke AEM wiisteniailnipisdle aa gaincasitorhin dliesenchanaiibeaaideaabeienie 2

Be Crh IE scinhcscteiaridiaatinicinirciashcicesblnaiiatibetiaitiiaciondeahdiacciandiniiad ind 2

BS Ries MI shes naceiesacedtiuchenhigeslanitccactesnciestanceomeanscasniddeaiaitning i

as NEED distri nccitess nin Asciasipincntancetnmnanth sttiskebetecininenie 2

Fed. R. Crim. P. :

I i 14

POUND TID vcnesscncernsnssncanssnisneaniigcansnmnsaisamnnistisaniinnaticis 13, 14, 15, 16

In the Supreme Court of the Gnited States

No. 00-997

ERIC SCHMIDT, ET AL., PETITIONERS

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-33a)

is unpublished, but the decision is noted at 229 F.3d

1148 (Table). An earlier opinion of the court of appeals

(Pet. App. 34a-67a) is reported at 128 F.3d 885. An

earlier opinion of the district court (Pet. App. 68a-152a)

is unreported.

JURISDICTION

The judgment of the court of appeals was entered on

August 11, 2000. A petition for rehearing was denied

on September 14, 2000 (Pet App. 205a-206a). The

petition for a writ of certiorari was filed on December

13, 2000. The jurisdiction of this Court is invoked under

28 U.S.C. 1254(1).

(1)

2

STATEMENT

Following a jury trial in the United States District

Court for the Eastern District of Louisiana, petitioners

Eric Schmidt, Michael O’Keefe, Sr., and Gary Bennett

were convicted of conspiracy to commit mail and wire

fraud, in violation of 18 U.S.C. 371 (Count 1); wire

fraud, in violation of 18 U.S.C. 1343 (Counts 2 and 4);

mail fraud, in violation of 18 U.S.C. 1341 (Counts 5-7);

and money laundering, in violation of 18 U.S.C.

1956(a)(2)(A) (Counts 14-23). Petitioner Paul Schmitz

was convicted of a single mail fraud count (Count 12).’

After trial, the district court granted a new trial

based on prosecutorial misconduct. On the govern-

ment’s appeal, the court of appeals reversed the new

trial order and remanded. Pet. App. 34a-67a. This

Court denied certiorari. O’Keefe v. United States, 523

U.S. 1078 (1998) (No. 97-1542). O’Keefe was later sen-

tenced to 235 months’ imprisonment; Schmidt was

sentenced to 121 months’ imprisonment; Bennett was

sentenced to 97 months’ imprisonment; and Schmitz

received a three-year term of probation. The court of

appeals affirmed. Pet. App. la-33a.

1. Petitioners and co-defendant John O’Brien (see

note 1, supra) engaged in a fraudulent scheme to siphon

off millions of dollars in assets of Physicians National

Risk Retention Group, Inc. (PNRRG), a Louisiana

medical malpractice insurer. O’Keefe, who had twice

! Co-defendant John O’Brien was convicted of mail and wire

fraud conspiracy, wire fraud, and money laundering. He was sen-

tenced to 121 months’ imprisonment and was ordered to pay resti-

tution. O’Brien has filed a separate petition for certiorari that

raises an issue substantially identical to the third question pre-

sented in the petition in this case. That petition is currently

pending before the Court. See O’Brien v. United States, No. 00-

896 (filed Dec. 1, 2000).

3

been convicted of fraud, was selected to operate Associ-

ated Auditors, the management company for PNRRG.

Schmidt served as president of PNRRG. O’Brien and

Bennett were also involved in the management of

PNRRG, and Schmitz was a claims manager. Pet. App.

2a; Gov’t. C.A. Br. 7-8, 23.

PNRRG became insolvent, and the State of Louisi-

ana moved to liquidate it. Petitioners and O’Brien

arranged to have Builders and Contractors Insurance

Limited (BCI), a dormant Bahamian corporation that

was controlled by Charles Donaldson, act as a rein-

surer. The Louisiana Department of Insurance and the

Board of PNRRG approved the reinsurance agreement,

based on petitioners’ assurances that the reinsurance

program would be backed by Sphere Drake, an estab-

lished reinsurance company with assets in excess of

$500 million; that coverage of PNRRG’s physicians

would continue; and that all future claims would be paid

by BCI. Attorney Johnny Moore participated in the

negotiation of the reinsurance contract with O’Keefe on

behalf of the Louisiana Insurance Department. Pet.

App. 2a-3a, 7a, 35a; Gov’t. C.A. Br. 7-8, 23-24.

Based on petitioners’ representations that the rein-

surance program would require additional funding,

PNRRG and the Louisiana Department of Insurance

authorized the transfer of more than $10 million in cash

assets of PNRRG to a trust account of O’Keefe’s law

firm, with the funds to be held on behajf of BCI.

Petitioners and O’Brien entered into a reinsurance

contract with Sphere Drake. At O’Brien’s direction,

however, they canceled the contract a few months later.

Neither PNRRG nor the Louisiana Department of

Insurance was advised of the cancellation. Petitioners

also canceled the insurance coverage of a large number

of physicians before the expiration date, and they failed

to pay claims for the insured physicians as promised.

Pet. App. 3a; Gov’t. C.A. Br. 7-8, 24-26.

Associated Insurance Consultants, Inc. (AIC), a man-

agement company owned by O’Brien, Schmidt, and

Bennett, signed a management contract to handle the

claims and carry out the terms of the reinsurance

agreement on BCI’s behalf. The insured physicians, the

Board of PNRRG, and the Louisiana Department of

Insurance were unaware of that management contract,

which resulted in AIC’s receipt of more than $5 million

in profits generated by the cancellation of the Sphere

Drake contract, the early cancellation of the physicians’

insurance coverage, and the failure to pay claims.

Ultimately, that money was diverted to the personal

bank accounts of O’Brien, Schmidt, and Bennett. Pet.

App. 3a; Gov’t. C.A. Br. 25-26, 28-30.

A representative of the Louisiana Department of

Insurance testified that the Department would not

have entered into the reinsurance agreement if it had

known that petitioners intended to cancel physicians’

insurance coverage. Pet. App. 10a; Gov’t. C.A. Br. 53.

An attorney for the Department testified that in ap-

proving the reinsurance agreement with BCI, the

Department sought a solvent insurer for the plan, and

that the Department was not informed of the

cancellation of the reinsurance contract with Sphere

Drake. /d. at 54. Physician PNRRG board members

similarly gestified to their understanding, based on

representations from petitioners, that the agreement

would protect doctors. Jbid. The physicians also

testified that they were unaware of the profit diversion

or the cancellation of the Sphere Drake reinsurance

contract. Jbid.

2. Donaldson and Moore were two of the primary

witnesses against petitioners at trial. The Federal

5

Bureau of Investigation (FBI) prepared a “302 Report ”

that documented an interview between: Donaldson, an

FBI agent, attorneys for both Donaldson. and the

government, and other law enforcement personnel.

Pet. App. 36a. According to the report, a participant in

the interview stated that “O’Keefe suggested that

BCI’s shareholders meeting minutes be altered to make

it appear that Donaldson had authority to enter into the

PNRRG/BCI contract.” Ibid. The 302 Report did not

identify the person who had made the statement, but

when Donaldson pleaded guilty in federal court, the

prosecutors incorporated the statement into the factual

basis of the guilty plea in such a way as to make it

appear that Donaldson had made the statement. bid.

At trial, the government furnished the 302 Report to

the defense just before Donaldson testified on direct

examination. Pet. App. 36a-37a. On direct examina-

tion, the government did not ask Donaldson any ques-

tions about the minutes. Jd. at 37a. On cross-examina-

tion, Donaldson first appeared to deny, but ultimately

admitted, that he had falsely accused O’Keefe of

participating in the alseration of the minutes. Jd. at 37a

& n.2. Petitioners subsequently moved to strike

Donaldson’s testimony, but the district court overruled

the objection. Jd. at 38a-39a. In their closing argument,

petitioners emphasized that in their view Donaldson’s

testimony had been successfully impeached, and they

urged the jury not to credit that testimony. Jd. at 39a,

57a-58a & n.10.

After petitioners had been found guilty by the jury,

the district court granted a new trial on the ground of

prosecutorial misconduct. The court concluded that

Donaldson had perjured himself both before and during

trial and that the prosecutors had known of the perjury.

The court also found that the government had failed to

6

comply with its obligations under Brady v. Maryland,

373 U.S. 83 (1963); that changes in Johnny Moore’s

testimony at trial had become significant in light of

Donaldson’s false testimony; and that the government

had redrafted the indictment in an attempt to mislead

the defense. Pet. App. 39a-40a; see zd. at 68a-152a.

3. The court of appeals reversed and remanded. Pet.

App. 34a-67a. The court stated that Donaldson’s false-

hoods, “to the extent that any were uttered, occurred

as a result of the defense’s cross-examination, not from

testimony elicited by the prosecution. Once those

falsehoods emerged, the defense had total leeway in

cross-examining Donaldson and used the information

provided by the prosecution to powerful effect.” Jd. at

56a. The court stressed that the defense had “ably

exploited” the 302 Report to impeach Donaldson. Id. at

57a. Even if the government had a duty to correct any

falsehoods that were not corrected by Donaldson

himself, the court stated, “any attempt by the prosecu-

tion to intercede during this cross-examination would

have actually harmed the defense by depriving the jury

of the full, dramatic effect.” Jbid.

The court of appeals determined that Donaldson’s

“falsehoods were sufficiently exposed before the jury to

enable the jury to weigh those falsehoods in its

deliberations.” Pet. App. 57a. The court noted that

petitioners had made the impeachment of Donaldson

“the centerpiece of their closing arguments,” and that

the district court had “included a strong cautionary

statement in the jury instructions.” Jd. at 58a. The

court also observed that “the testimony of Donaldson

was overwhelmingly corroborated by other witnesses,

and the falsehoods occurred on collateral matters.” Id.

at 60a. The court of appeals concluded that there was

no “reasonable probability that the jury would have

7

reached a different outcome even had it been fully

aware of all of the alleged inconsistencies and false-

hoods in Donaldson’s testimony.” Id. at 62a; see id, at

60a (“given the degree of impeachment of Donaldson on

the stand, any furthér impeachment * * * would

merely have been cumulative”).”

4. On remand, the district court reinstated the

convictions after denying petitioners’ remaining claims

for reversal. The court of appeals affirmed. Pet. App.

la-33a. During the pendency of the appeal in this case,

this Court held in Neder v. United States, 527 U.S. 1

(1999), that materiality is an element of wire fraud

under 18 U.S.C. 1848. On appeal, petitioners and co-

defendant O’Brien contended that the district court had

failed to submit the question of materiality to the jury

and that the omission required reversal of their

convictions.

The court of appeals agreed that the jury instructions

had not clearly identified materiality as an essential

element of the mail and wire fraud offenses. Pet. App.

17a. The court stated, however, that in the absence of

2 The court of appeals also ruled that the district court had

abused its discretion in finding that the government had changed

the indictments to mislead the defense. Pet. App. 55a-56a. The

court of appeals further held that the district court’s remaining

findings of government misconduct were untenable in light of the

reversal on the perjury claim. /d. at 62a-66a.

3 The court explained:

As the government points out, there is some language in the

jury instructions regarding materiality, such as the

instructions that intent to defraud may be found “from a

material misstatement of fact made with reckless disregard of

the facts,” and that “[a] statement * * * or representation is

‘false’ within the meaning of the wire fraud and mail fraud

statutes when it constitutes a half truth, or effectively conceals

8

a timely objection at trial, the omission of that element

was reviewable only for plain error. J/bid. (citing

Johnson v. United States, 520 U.S. 461, 463-466 (1997)).

Under the plain-error standard, the court explained, an

appellant must establish error that is “plain” and affects

his “substantial rights.” Jbid. “Even if these require-

ments are met,” the court of appeals observed, “an

appellate court may in its discretion correct a plain

error only if the error seriously affects the fairness,

integrity or public reputation of judicial proceedings.”

Id. at 17a-18a (citing Johnson, 520 U.S. at 467). The

court held that petitioners had not established reversi-

ble error under that standard because the evidence

would support a jury finding that the misrepresenta-

tions and omissions were in fact material:

Defendants do not show that the inclusion of a

materiality instruction in the already complex

charge would have altered the outcome of the jury’s

deliberations. While defendants put on a vigorous

defense, the jury obviously accepted the govern-

ment’s theory that defendants schemed to fraudu-

lently siphon off the assets of PNRRG from the

inception of their dealings with PNRRG and the

[Department of Insurance]. There was clear

evidence of materiality.

Id. at 18a.

a material fact, provided it is made with intent to defraud.”

However, the jury charge did not plainly explain that material-

ity of falsehood is a separate element of the mail and wire

fraud statutes. Defendants did not object to the trial court’s

failure to so instruct the jury.

Pet. App. 17a.

9

ARGUMENT

1. Petitioners contend (Pet. 12-27) that the court of

appeals erred in the earlier appeal by reversing the

district court’s order granting a new trial. They main-

tain that the decision below conflicts with decisions of

other courts because it (a) does not require the gov-

ernment to correct the false testimony of its witnesses

on cross-examination and (b) applies an unduly

restrictive standard of materiality to determine when

the introduction of perjured testimony at trial requires

reversal. This case differs from those on which peti-

tioners rely, however, because petitioners exposed the

witness’s false testimony at trial and argued to the jury

that the witness was thoroughly impeached. Further

review is therefore unwarranted.

a. In Napue v. Illinois, 360 U.S. 264 (1959), the

principal government witness in a murder trial falsely

testified that the prosecutor had not promised him any

consideration in exchange for his testimony. The

prosecutor did not correct the false testimony at trial.

This Court reversed, holding that a conviction obtained

through the use of false testimony violates the defen-

dant’s rights under the Due Process Clause. Jd. at 269.

The Court stated that the same result obtains when the

government, although not soliciting false evidence,

allows it to go uncorrected when it appears. Ibid. The

Court also held that reversal of the defendant’s

conviction is required if there is “any reasonable

likelihood” that the false testimony affected the jury’s

verdict. Id. at 271.

In Giglio v. United States, 405 U.S. 150 (1972), the

government’s only witness linking the defendant to the

charged forgery offense testified on cross-examination

that he had not been offered leniency by the govern-

10

ment. Id. at 151-152. The prosecutor did not correct

that testimony. /d. at 152. After trial, it was revealed

that another prosecutor’ had ‘offered a deal to the

witness in exchange for his testimony. /bid. Relying on

Napue, this Court reversed, stating that the witness’s

credibility was important and that the jury was entitled

to know of any consideration given to the witness by

the government. /d. at 154-155.

Based on Napue and Giglio, the courts of appeals

have held that a defendant’s due process rights are

violated if a critical government witness testifies

falsely, either on direct or on cross-examination; the

prosecutor does not correct the false testimony; and

there is a reasonable likelihood that the false testimony

affected the outcome of the trial. See, e.g., United

States v. White, 238 F.3d 537, 540 (4th Cir. 2001); United

States v. Burch, 156 F.3d 1315, 1328 (D.C. Cir. 1998),

cert. denied, 526 U.S. 1011 (1999). On the other hand,

the courts of appeals agree that no due process viola-

tion occurs if a government witness provides false or

contradictory testimony, but the defense exposes the

falsity or contradiction on cross-examination. See, e.g.,

United States v. Joyner, 201 F.3d 61, 82: (2d Cir. 2000);

United States v. Perkins, 94 F.3d 429, 482-433 (8th Cir.

1996), cert. denied, 519 U.S. 1136 (1997); United States

v. Langston, 970 F.2d 692, 700-701 (10th Cir.), cert.

denied, 506 U.S. 965 (1992); United States v. Santiago,

798 F.2d 246, 247-248 (7th Cir. 1986). Where the

defense has fully exposed the witness’s false or contra-

dictory testimony at trial, the courts do not require the

prosecutor to engage in the pointless and redundant

11

exercise of formally correcting that testimony. See

Joyner, 201 F.3d at 82; Santiago, 798 F.2d at 247-248,!

In the instant case, the court of appeals’ expressly

found that any falsehoods in Donaldson’s testimony

“were sufficiently exposed before the jury to enable the

jury to weigh those falsehoods in its deliberations.”

Pet. App. 57a. The district court gave a “strong cau-

tionary statement in the jury instructions,” and peti-

tioners argued at length to the jury that Donaldson’s

testimony had been thoroughly impeached by the

exposure of his falsehoods. Jd. at 58a & n.10. The court

of appeals further explained that Donaldson’s false

testimony was limited to “collateral matters” and that

the rest of Donaldson’s trial testimony was “over-

whelmingly corroborated by other witnesses.” Jd. at

60a. Petitioners cite no case reversing a criminal

conviction under comparable circumstances.

b. Because Donaldson’s falsehoods were disclosed at

trial, this is not an appropriate case to determine

whether the court of appeals erred in using the “reason-

able probability” standard of materiality (Pet. App. 52a,

62a) to determine whether a new trial was required. In

false testimony cases, this Court has held that reversal

is required if there is any “reasonable likelihood” that

the false testimony could have affected the jury’s

verdict. See Giglio, 405 U.S. at 154; Napue, 360 U.S. at

271. In cases involving the government’s failure to

disclose exculpatory evidence to the defense, the Court

has held that constitutional error occurs if there is a

4 The cases cited by petitioners (Pet. 14-15) for the proposition

that the prosecutor must correct false testimony involve the situa-

tion in which the false testimony was not exposed by any party at

trial. They do not suggest, much less require, that the prosecutor

must correct false testimony after the defense has already done so.

12

“reasonable probability” that the result of the pro-

ceeding would have been different if the evidence had

been disclosed. See, e.g., Kyles v. Whitley, 514 U.S. 419,

433-434 (1995). The “reasonable likelihood” standard is

more favorable to the defense than the “reasonable

probability” standard. United States v. Rodriguez, 162

F.3d 135, 147 (1st Cir. 1998), cert. denied, 526 U.S. 1152

(1999).

It is far from clear that either the “reasonable likeli-

hood” or “reasonable probability” standard applies

when the truthful evidence is ultimately disclosed to

the defense and the jury at trial. In false testimony

cases in which the witness’s falsehoods or contradictory

statements were ultimately revealed to the jury, some

courts of appeals have simply stated that the disclosure

of the truth eliminates any taint that the false testi-

mony might otherwise have caused. See, e.g., Joyner,

201 F.3d at 82. Similarly, in cases involving the delayed

disclosure of exculpatory evidence, some courts of

appeals simply ask whether the defense was able to

make effective use of the evidence. See, e.g., United

States v. Higgins, 75 F.3d 332, 335 (7th Cir. 1996);

United States v. Walsh, 75 F.3d 1, 8 (1st Cir. 1996).

It is also unclear whether the Fifth Circuit is firmly

committed to applying the “reasonable probability”

standard in false testimony cases. In two other recent

decisions, the Fifth Circuit has stated the test for

materiality in a false testimony case as the “reasonable

likelihood” standard. See, e.g., Barrientes v. Johnson,

221 F.3d 741, 752-753 (5th Cir. 2000), cert. dismissed,

121 S. Ct. 902 (2001); United States v. Maloof, 205 F.3d

819, 827 (5th Cir.), cert. denied, 121 S. Ct. 176 (2000). In

any event, petitioner would not be entitled to relief

under either a “reasonable probability” or “reasonable

likelihood” standard. Donaldson’s falsehoods were dis-

13

closed at trial; the falsehoods referred only to collateral

matters; Donaldson’s testimony was corroborated by

other witnesses; the defense capitalized onthe false-

hoods to argue to the jury that Donaldson was

unworthy of belief; and the jury received an appropri-

ate cautionary instruction.

2. Petitioners contend (Pet. 27-28) that the court of

appeals erred in placing on them the burden of

establishing prejudice from the district court’s failure

to instruct the jury on materiality, and that the decision

below conflicts with the Second Circuit’s decision in

United States v. Viola, 35 F.3d 37 (1994), cert. denied,

518 U.S. 1198 (1995). That claim does not warrant

further review.

a. Federal Rule of Criminal Procedure 52(b) pro-

vides that “[pJlain errors or defects affecting sub-

stantial rights may be noticed although they were not

brought to the attention of the court.” In United States

v. Olano, 507 U.S. 725 (1993), this Court explained that

under Rule 52(b), a criminal defendant who fails to

object to an alleged error at trial is entitled to relief on

appeal only if he can make four distinct showings. The

defendant must establish that the district court com-

mitted (1) an “error” (2) that was “plain,” in the sense of

“clear” or “obvious,” and (3) that “affect{ed] [his] sub-

stantial rights.” 507 U.S. at 732-735. Under the third

(“substantial rights”) prong of the Olano analysis, “(i]t

is the defendant rather than the Government who bears

the burden of persuasion with respect to prejudice.” Jd.

at 734. Even when those showings are made, a

reviewing court may exercise its discretion to reverse a

conviction for plain error only (4) “if the error ‘seriously

affect[s] the fairness, integrity or public reputation of

judicial proceedings.’” Jd. at 736 (quoting United States

v. Atkinson, 297 U.S. 157, 160 (1936)).

14

In Olano, the government “essentially concede[d]”

that the error in question—the presence of alternate

jurors during jury deliberations in violation of Federal

Rule of Criminal Procedure 24(c)—was “plain.” 507

U.S. at 737. In concluding that the error satisfied the

second prong of the “plain error” standard, the Court

therefore was not required to “consider the special case

where the error was unclear at the time of trial but

becomes clear on appeal because the applicable law has

been clarified.” Jd. at 734. In Johnson v. United States,

520 U.S. 461, 468 (1997), the Court decided the question

left open in Olano, holding that “where the law at the

time of trial was settled and clearly contrary to the law

at the time of appeall[,] it is enough that an error be

‘plain’ at the time of appellate consideration.”

b. In Viola, 35 F.3d at 41-42, the Second Circuit

relied on the above-quoted language from Olano in

fashioning an exception to the general rule that the

defendant bears the burden of establishing prejudice in

a plain-error inquiry under Rule 52(b). The Viola court

held that “[w]Jhen a supervening decision alters settled

law, the three Olano conditions for reviewing plain

error under Rule 52(b) still must be met, but with one

crucial distinction: the burden of persuasion as to

prejudice (or, more precisely, lack of prejudice) is borne

by the government, and not the defendant.” 35 F.3d at

42;° see also United States v. Santiago, 238 F.3d 213,

° The court in Viola acknowledged that a defendant who fails to

assert a timely objection at trial “rightly bears the burden of pro-

ving prejudice in the ordinary case.” 35 F.3d at 42. The court

found, however, that “[t]he situation is different when a superven-

ing decision alters settled law. A defendant clearly has no duty to

object to a jury instruction that is based on firmly established

circuit authority. He cannot be said to have ‘forfeited a right’ by

15

215 (2d Cir. 2001); United States v. Malpeso, 115 F.3d

155, 165 (2d Cir. 1997), cert. denied, 524 U.S. 951 (1998);

United States v. Ballistrea, 101 F.3d 827, 885 (2d Cir.

1996), cert. denied, 520 U.S. 1150 (1997); Napoli v.

United States, 45 F.3d 680, 6838 (2d Cir.), cert. denied,

514 U.S. 1084 (1995). That holding is incorrect and has

been effectively superseded by this Court’s decision in

Johnson.

2. The Court in Olano did not leave open (or explic-

itly allude to) the question whether, in a plain-error

inquiry under Rule 52(b), the burden of persuasion as to

prejudice should shift to the government when a

supervening decision alters settled law. Rather, the

Olano Court noted (while declining to resolve) the

distinct question whether an error is “plain” within the

meaning of Rule 52(b) when the law is unsettled at the

time of trial but the erroneous character of a district

court ruling is clear by the time that the court of

appeals decides the case. 507 U.S. at 734; see p. 14,

supra. The Court later resolved that question in

Johnson, holding that under those circumstances an

error is “plain” for purposes of the second prong of Rule

52(b) analysis. 520 U.S. at 468. Nothing in Olano

suggests the existence of a “settled law” exception to

the Court’s facially unqualified holding that under Rule

52(b), “i]t is the defendant rather than the Government

who bears the burden of persuasion with respect to .

prejudice.” 507 U.S. at 734.

2. Johnson was decided after Viola and effectively

supersedes Viola’s “settled law” exception to the gen-

erally applicable requirements of Rule 52(b). In John-

son, the district court, in accordance with existing

not making an objection, since at the time of trial no legal right

existed.” Jbid.

16

circuit precedent, decided the issue of materiality in a

perjury prosecution. 520 U.S. at 463-464. After

Johnson was convicted, this Court issued its decision in

United States v. Gaudin, 515 U.S. 506 (1995), which

held that the materiality of a false statement is a ques-

tion for the jury. See 520 U.S. at 464. On appeal,

Johnson argued that the district court’s failure to

submit the issue of materiality to the jury required

reversal of his conviction. bid.

This Court held that, given the defendant’s failure to

assert a timely objection at trial, his challenge was

reviewable for plain error under Rule 52(b). Applying

the plain-error standard set forth in Olano, the

Johnson Court held that the district court’s failure to

submit the question of materiality to the jury was error

and that the error was plain. 520 U.S. at 467-468. The

Court questioned whether the district court’s error had

affected Johnson’s substantial rights. Jd. at 468-469.

The Court declined to resolve that issue, however,

finding that in any event the error did not meet the

final requirement of Olano because it did not seriously

affect the fairness, integrity, or public reputation of

judicial proceedings. See id. at 469-470.

Johnson thus makes clear that, even when a district

court ruling accords with existing circuit precedent at

the time of trial, a defendant who fails to assert a timely

objection may obtain relief on appeal only if he can

establish plain error under the standards set forth in

Olano. And, as Olano clearly provides, “[i]t is the

defendant rather than the Government who bears the

burden of persuasion with respect to prejudice.” 507

U.S. at 734; see also id. at 741 (“Whether the Govern-

ment could have met its burden of showing the absence

of prejudice, under Rule 52(a), if respondents had not

forfeited their claim of error, is not at issue here. This

17

is a plain-error case, and it is respondents who must

persuade the appellate court that the [error] was

prejudicial.”).® sh

2. In light of Johnson, it is unclear whether the

Second Circuit will continue to adhere to Viola’s modi-

fied plain-error rule. In United States v. Knoll, 116

F.3d 994 (2d Cir. 1997), cert. denied, 522 U.S. 1118

(1998), decided after Johnson, the Second Circuit re-

jected the defendant’s claim that the trial court’s pre-

Gaudin failure to submit the issue of materiality to the

jury in his perjury prosecution constituted plain error.

Like this Court in Johnson, the Second Circuit in Knoll

found that the first two prongs of Olano were satisfied,

but declined to decide whether the error affected the

defendant’s substantial rights, on the ground that there

was no basis for finding that the materiality element

was not met and the error therefore did not “seriously

affect[] the fairness, integrity or public reputation of

judicial proceedings.” See 116 F.3d at 1000-1002. The

court declined to address the defendant’s argument

that Viola’s “modified” plain-error standard of review

should apply in determining whether the third prong of

Olano was met. Id. at 1001 (“There is no need for us to

address this argument * * * because we resolve this

° No other circuit has adopted the modified plain-error rule

embraced by the Second Circuit in Viola. In United States v. -

Baumgardner, 85 F.3d 1305, 1309 n.2 (1996), the Eighth Circuit

noted the Second Circuit’s holding in Viola. The Eighth Circuit

declined to address the question, however, stating that “although

we find the Viola analysis persuasive, we leave the issue of

burden-shifting for another day.” Ibid. The court’s decision in

Baumgardner, moreover, predates Johnson, which clarifies that

the usual plain-error analysis applies in cases where the contested

district court ruling is consistent with then-existing circuit

precedent.

18

appeal without reaching possible issues raised by the

third prong of Olano.”). But see Santiago, 238 F.3d at

215 (describing “modified plain error” rule of Viola

without mentioning Johnson, but rejecting defendant’s

contention that intervening decisions had altered

settled circuit law). Until the Second Circuit has either

reaffirmed or disavowed the Viola standard in light of

Johnson, review by this Court would be premature.’

ec. Even if the question whether the defendant or the

government bears the burden of proof in this context

otherwise warranted this Court’s review, the instant

case would be an unsuitable vehicle for deciding it. The

theory of the government’s case was that petitioners

and O’Brien persuaded PNRRG and the Louisiana

Department of Insurance to approve the reinsurance

agreement and to authorize the transfer of over $10

million in cash assets of PNRRG to a trust account with

the funds to be held on behalf of BCI, based on the

defendants’ false assurances that the reinsurance pro-

gram would be backed by Sphere Drake, that coverage

of PNRRG’s physicians would continue, and that BCI

would pay all future claims. In defining “scheme to

defraud,” the district court’s instructions concerning

the government’s charge of an intangible-rights depri-

vation emphasized that a criminal breach of the em-

ployee’s duty of loyalty may be found “when, with

specific intent to defraud, the employee conceals or fails

to disclose information which the employee has reason

to believe would cause harm to the employer or would

lead a reasonable employer to change its business

7 In United States v. Malpeso, supra, decided less than one

month after this Court’s decision in Johnson, the Second Circuit

applied Viola’s modified plain-error standard, without any dis-

cussion of Johnson. See 115 F.3d at 165.

19

conduct.” 86 R.A. 127. The district court also in-

structed the jury that “[a] statement or representation

is ‘false’ within the meaning of the wire fraud and mail

fraud statutes when it constitutes a half truth, er

effectively conceals a material fact, provided it is made

with intent to defraud. To act with intent to defraud

means to act with the specific intent to deceive,

ordinarily for the purpose of causing some financial loss

to another or bringing about some financial gain to

one’s self.” Jbid. The court further instructed that

“{s]pecific intent to defraud may also be found from a

material misstatement of fact made with reckless

disregard of the facts.” Jd. at 128. Thus, although “the

jury charge did not plainly explain that materiality of

falsehood is a separate element of the mail and wire

fraud statutes,” Pet. App. 17a, the district court’s

instructions adequately ensured that petitioners would

not be convicted of mail or wire fraud based on false

statements having no natural capacity to influence the

conduct of PNRRG or the Louisiana Department of

Insurance.

Indeed, materiality was not seriously contested at

trial. Petitioners did not dispute that their activities

were capable of influencing the Insurance Department

and the insured physicians. Rather, their defense was

one of good faith—that their diversion of millions of

dollars was legitimate business conduct, conducted not

with intent to defraud, but for a legal purpose. See

Gov’t. C.A. Br. 55-56. Accordingly, allocation of the

burden of persuasion to the government on the issue

whether any omission of a materiality instruction

prejudiced petitioners would have no effect on the

outcome of this case.

20

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

BARBARA D. UNDERWOOD

Acting Solicitor General

JOHN C. KEENEY

Acting Assistant Attorney

General

THOMAS E. BOOTH

Attorney

MAY 2001