United States v. Singleton ( 2010 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 10, 2010
No. 08-20546 Charles R. Fulbruge III
Clerk
UNITED STATES OF AMERICA
Plaintiff - Appellee
v.
MICHELLE M VALENCIA
Defendant - Appellant
--------consolidated with 08-20573--------
UNITED STATES OF AMERICA
Plaintiff - Appellee
v.
GREG SINGLETON
Defendant - Appellant
Appeal from the United States District Court
for the Southern District of Texas
USDC Nos. 4:04-CR-514; 4:06-CR-80
Before JOLLY, DeMOSS, and PRADO, Circuit Judges.
Per Curiam:
Michelle Valencia and Greg Singleton appeal wire fraud convictions
arising from alleged efforts to manipulate natural gas markets. Each defendant
No. 08-20546; 08-20573
raises myriad issues on appeal, which we have considered carefully, along with
an exhaustive review of the trial court’s record. Confident that each defendant
received a fair trial and that the convictions rest on solid evidence, we affirm.
I.
We start with a factual overview of this case before delving into the
particulars of the issues on appeal. We first describe the nature of defendants’
job duties and give a sketch of the industry’s relevant practices. We then
describe the course of proceedings brought against the defendants and the
salient details of their four-week trial, which took place in July and August of
2006. After documenting the facts and procedure, we consider the issues raised
on appeal.
A.
The acts relevant to this appeal occurred in 2000 and 2001. During that
time, Valencia was employed by Dynegy Marketing and Trade (“Dynegy”) in
Houston, Texas, as a natural gas trader on Dynegy’s “West Desk.” Singleton was
employed by El Paso Corporation (“El Paso”) as a natural gas trader for El Paso’s
Merchant Energy segment in Houston. Natural gas is transported to consumers
throughout North America via a network of pipelines. Natural gas produced in
one region is interchangeable with gas produced elsewhere; the significant
difference among regions is the cost of transport. Contracts for future delivery
are traded on the New York Mercantile Exchange, or NYMEX. The most basic
type of natural gas trade is a “physical” trade. A physical trade calls for
delivery of a set volume of gas to the buyer at a particular delivery location. A
“baseload” trade is a kind of physical trade. It calls for delivery of natural gas
each day for an entire month. Most baseload trades are negotiated during a
period at the end of the preceding month called “bidweek.” The most common
unit of volume is one million British thermal units (“MMBtu”). Traders often
buy or sell tens of thousands of MMBtu in a given transaction.
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The price of a trade can be set if traders agree upon a dollar amount at the
time of trade; this is called a “fixed” price. However, traders can also opt to use
prices which will be set in the future, called “index prices.” Commonly, traders
use a price published either daily or monthly in a privately owned newsletter.
These index prices also affect other natural gas transactions, such as swaps,
where two traders agree to buy the same volume of gas from each other at the
same time, but at different prices. In essence, swaps are financial transactions
in which traders bet on, or hedge against, changes to an index price. Index
prices also affect long-term supply contracts tied to index prices, options
contracts, royalty payments, “tariffs” charged by pipelines, and futures contracts.
The index prices published in two newsletters are relevant to this case:
Inside FERC Gas Market Report (“Inside FERC”) and Natural Gas Intelligence
(“NGI”). Each publication is privately owned and is not affiliated with any state
or federal governmental entity. Inside FERC and NGI independently determine
and publish index prices at the beginning of the month for natural gas delivered
at dozens of different “hubs” across the country. The publications gather
monthly price data through surveys of natural gas traders. Inside FERC
provides a Microsoft-Excel form for making reports, and instructs traders: “Only
report FIXED-PRICE, BASELOAD DEALS negotiated during bidweek.”
Traders must indicate the delivery points, prices, volumes, and dates of each
trade. At the time of the acts alleged in this case, the publications requested,
but did not require, identification of the other contracting party, or
“counterparty.” After receiving bidweek trades from market participants, each
publication publishes indices which purport to represent the price of natural gas
at delivery points across the country. It was the policy of both Dynegy and El
Paso to require its natural gas traders to submit such information each month.
Both Valencia and Singleton bought and sold natural gas in order to fulfill
long-term contracts, to utilize capacity, and ultimately, to bring profits to his
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No. 08-20546; 08-20573
respective employer. Each defendant was authorized to execute trades for
physical delivery of gas throughout much of the western United States, as well
as financially oriented trades based upon the same trading nodes. In addition
to trading, Valencia and Singleton (along with other natural gas traders at their
respective companies) were required to gather and submit bidweek trade
information to Inside FERC and NGI. The government alleged that defendants
submitted, or caused to be submitted, reports with false information to the
publications in a scheme to manipulate the price of natural gas. Each defendant
allegedly sought to raise the index price if the trader or his company had a net
long position, i.e., had excess gas to sell, or lower the index price if he had a net
short position, i.e., needed to purchase additional gas to meet contractual
obligations. Valencia’s and Singleton’s alleged misrepresentations included
reporting trades which never occurred, misstating the price or volume of real
trades, and omitting real trades. By swaying gas indices one way or another at
certain locations, Valencia and Singleton could allegedly boost their monthly
performance and increase profits for their respective companies. Better
performance would redound to the benefit of the trader in the form of promotions
or higher year-end bonuses.
B.
Michelle Valencia was indicted on January 22, 2003. She was initially
charged with three counts of false reporting under the Commodities Exchange
Act (“CEA”), in violation of 7 U.S.C. § 13(a)(2), and four counts of wire fraud, in
violation of 18 U.S.C. §§ 2 and 1343. Upon Valencia’s pre-trial motion, the
district court dismissed certain portions of the indictment charging Valencia
with delivering or causing to be delivered false or misleading reports under the
CEA. See United States v. Valencia, 2003 WL 23174749, at *19-21 (S.D. Tex.
Aug. 25, 2003), vacated and modified upon reconsideration, 2003 WL 23675402,
at *4-5 (S.D. Tex. Nov. 13, 2003). The court ultimately reasoned that the false
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No. 08-20546; 08-20573
reporting provision of the CEA was unconstitutionally overbroad because it did
not contain a sufficient mens rea requirement. See 2003 WL 23675402, at *4-5.
In an interlocutory appeal, a panel of this Court held that the statute could be
construed so as to avoid constitutional infirmity, and reversed. United States v.
Valencia, 394 F.3d 352, 355 (5th Cir. 2004). The Supreme Court denied
Valencia’s petition for writ of certiorari. Valencia v. United States, 544 U.S.
1034 (2005).
A second superseding indictment was filed as to Valencia on March 8,
2006. It alleged that she conspired with Singleton from July to September of the
year 2000 to violate the CEA. Valencia was also alleged to have emailed over
twenty reports to Inside FERC and NGI between December 30, 1999, and
January 31, 2002, and also caused other employees to email such reports. The
reports “affected and tended to affect index prices, and thereby, the price of
natural gas.” False information in the reports would affect the indices,
increasing the profitability of Valencia’s trades. Valencia was charged with one
count of conspiracy to violate the false reporting provision of the CEA, thirteen
counts of false reporting under the CEA, and nine counts of wire fraud.
Singleton was indicted on November 17, 2004. Like Valencia, Singleton
was accused of having sent reports with false information to Inside FERC and
NGI about trade volumes and prices between July and September of 2000. In
a superseding indictment filed March 8, 2006, Singleton was charged with one
count of conspiracy to violate the false reporting provision of the CEA, five
counts of false reporting under the CEA, three counts of wire fraud, and one
count of obstruction of justice for impeding an investigation concerning the false
trades. In light of the nexus of common acts alleged, the defendants and
government agreed to a joint trial. After numerous continuances, trial was set
for July 2006.
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No. 08-20546; 08-20573
Pretrial discovery involved production and analysis of vast amounts of
data. Thousands of hours of telephone calls and other voice recordings, emails
from scores of individuals, reams of paper records, and multiple electronic
databases comprised the universe of potentially relevant material obtained from
Dynegy, El Paso, the corporate parents of Inside FERC and NGI, governmental
agencies, and other players or stakeholders in the natural gas markets. Before
trial commenced, and during the trial itself, the parties often disagreed as to
whether the government had turned over all relevant and discoverable
information. In addition, the government consulted with and retained witnesses
to analyze the potential effects of the acts alleged in the indictments on Dynegy’s
and El Paso’s respective profitability.
Prior to trial, defendants moved to limit or exclude the testimony of two
government witnesses. Defendants contended that the witnesses were offered
to present expert testimony, but did not meet the strictures of admissibility. The
first witness, Glenn Labhart, challenged by Valencia only, was the chief risk
officer at Dynegy during the time period of the acts alleged in the indictment.
The government retained Labhart to analyze Dynegy’s monthly positions at the
time of the acts alleged. Labhart was tasked with determining whether trade
reports submitted to Inside FERC and NGI contained true or false information,
whether Dynegy’s monthly positions at certain trading points were long or short,
and whether changes in the indices published in Inside FERC and NGI would
have affected Dynegy’s profits. Defendants also moved to limit or exclude the
testimony of Matthew O’Loughlin. The government retained O’Loughlin in order
to determine whether Valencia’s and Singleton’s false reports could have, or did,
affect the monthly indices published by Inside FERC and NGI. The district
court initially reserved ruling on the admissibility challenges. After a hearing,
the court held that Labhart was a corporate fact witness presenting analysis
which was part of his job duties while he was employed at Dynegy.
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No. 08-20546; 08-20573
Consequently, the court allowed him to testify. The court also conducted a
hearing to determine whether O’Loughlin’s opinion testimony was admissible.
The court concluded that his testimony met the admissibility requirements of
the Federal Rules of Evidence.
C.
Trial was held from July 10 to August 4, 2006. Over the course of trial, the
government presented twenty-one witnesses. The witnesses included natural
gas traders from Dynegy and El Paso at the time of the acts alleged, corporate
custodians who testified about the compensation paid to Valencia and Singleton,
corporate representatives who presented company records from both Dynegy and
El Paso, the editors of Inside FERC and NGI, and the government’s expert,
Matthew O’Loughlin. In addition to live testimony, the jury heard dozens of
phone calls and saw dozens of emails. The jury viewed demonstrative exhibits,
as well as exemplars of trade tickets from natural gas transactions, and the
monthly price reports sent by Valencia and Singleton to Inside FERC and NGI.
Upon completion of the government’s case-in-chief, defendants did not call
witnesses or present evidence, but rather, moved for judgment of acquittal on all
counts and rested. The court granted Singleton’s motion as to count six (false
reporting under the CEA by aiding and abetting) and count ten (obstruction of
justice). The court denied the motions as to all other counts.
On August 1, 2006, the court delivered its instructions to the jury, and
counsel presented closing arguments. The jury then deliberated for several days.
In a note to the court on August 2, 2006, the jury requested further definitions
of the terms “price” and “index.” The court referred the jury back to the evidence
in the case and the court’s instructions. The jury then requested a dictionary.
The court responded: “No, sorry.” Near the end of the day on August 2, the jury
stated in a note: “We are currently deadlocked over definitions of price versus
index as it applies to the fourth element of the false reporting charges. Can we
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No. 08-20546; 08-20573
please get further clarification as to their definitions or are they synonymous?”
The jury also requested the trial transcripts for two witnesses. The court again
instructed the jury to consider the court’s instructions, the jury’s own
recollection of the testimony, and the trial exhibits.
Around noon the next day, August 3, 2006, the jury delivered the court
another note. It read: “We are deadlocked starting with the first counts and all
others on the same points as we were all day yesterday as well. We do not agree
on how the evidence fits the definitions of false reporting and conspiracy and
neither side is willing to change.” The court brought the jury into the courtroom,
explained that it was unclear what the jury was struggling with, and asked the
jury to attempt to resume deliberating after a lunch break. A few hours later,
the jury sent another note stating: “Following your instructions we took a break
for lunch in order to clear our heads and give the case a fresh look. After
returning, we carefully reread your instructions several times and we are still
hung on the conspiracy count, which we believe to be the foundation of the rest
of the charges. Specifically for the purpose of this case, we cannot come to an
agreement on the price of a commodity in relation to the index price. Without
guidance from the court, we remain hopelessly deadlocked.” In response, the
court brought the jury into the courtroom. The court provided more overview,
and instructed the jury to “consider each charge in each indictment separately
and consider the elements as to each count separately and in light of the rest of
the charge.” The court asked the jury to continue deliberating.
At 5p.m. on August 3, the jury sent another note to the court indicating
that it had reached a verdict on three of the eight counts against Singleton, and
nine of the twenty-three counts against Valencia. Namely, the note indicated
that the jury had reached verdicts for the wire fraud counts. However, the jury
remained “hopelessly deadlocked” over the remaining counts, i.e., the conspiracy
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No. 08-20546; 08-20573
and CEA counts. The court asked the jury to adjourn for the evening, continue
thinking about the case, and return in the morning.
The next morning, August 4, 2006, the jury returned and indicated that
it wished to continue deliberating. The jury then reached a verdict as to three
of the CEA counts against Valencia and two of the CEA counts against
Singleton. At that point, the court took the jury’s partial verdict. The jury found
Valencia guilty of seven counts of wire fraud, not guilty of two counts of wire
fraud, and not guilty of three counts of false reporting under the CEA. The jury
did not reach a verdict as to the remaining ten counts of false reporting or the
one count of conspiracy. The counts upon which the jury was deadlocked were
dismissed at the government’s motion. The jury found Singleton guilty of one
count of wire fraud, not guilty of two counts of wire fraud, and not guilty of two
counts of false reporting under the CEA. The jury did not reach a verdict as to
the remaining two counts of false reporting or the one count of conspiracy; these
were also dismissed at the government’s motion. The district court later denied
Valencia’s and Singleton’s post-verdict motions for judgment of acquittal and
motions for a new trial.
Valencia now argues: (1) that the government committed misconduct by
reading an incriminating letter aloud during opening statements and referring
to it again in closing argument, requiring retrial; (2) that the district court
abused its discretion in allowing Glenn Labhart to testify about the effects of
Valencia’s actions on Dynegy’s bottom line, and that the government’s at-trial
disclosure of a fee agreement with Labhart requires a new trial; (3) that the
district court abused its discretion in allowing Matthew O’Loughlin to testify
about the effects of false reports on Inside FERC’s and NGI’s indices; (4) that
cumulative evidentiary errors at trial mandate retrial; (5) that the evidence is
insufficient to sustain Valencia’s convictions; and (6) that the district court erred
when sentencing Valencia. Singleton joins Valencia’s challenges to the
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No. 08-20546; 08-20573
admissibility of O’Loughlin’s testimony, and challenges the sufficiency of the
evidence to support the count of wire fraud of which he was convicted. We
provide more details herein as they are germane to each issue raised on appeal.
II.
We first consider whether the government’s reading of a whistle-blower
letter by Jeffrey Hornback, a former Dynegy employee, during opening
statements was reversible plain error. After detailing the circumstances in
which the government used the letter, as well as Hornback’s in-court testimony,
we evaluate whether Valencia is entitled to a new trial on this basis. We
conclude that no reversible error occurred.
A.
Following voir dire, the government represented to the court that it would
not use any trial exhibits during its opening statement. For the most part, the
government’s hour-long opening statement complied with this representation.
The prosecutor, Mr. Lewis, gave the jury an overview of natural gas markets, the
acts alleged, and the means by which the government intended to prove the
elements of the crimes charged. However, as Mr. Lewis delved into greater
detail about the specific acts, he showed the jury an excerpt from Government
Exhibit 14, a price report sent by Singleton to NGI on July 31, 2000. Mr. Lewis
also described what certain key phone calls would reveal, identifying the
conversations by date and exhibit number. Defense counsel did not object to the
use of or reference to these trial exhibits.
With approximately fifteen minutes left in his allotted time for an opening
statement, Mr. Lewis told the jury that the government would call Jeffrey
Hornback as a witness. Hornback was a natural gas trader at Dynegy and a
coworker of Valencia’s on the West Desk. Mr. Lewis asserted that in July of
2000, Hornback sent a price report which included fake trades and omitted real
trades. Hornback allegedly did so at the direction of Valencia and a supervisor
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No. 08-20546; 08-20573
at Dynegy. Mr. Lewis told the jury: “I’m going to show you evidence that
employees at Dynegy and El Paso had choices as to what to do when they were
confronted with opportunities to do something wrong and what I’m going to do
is read from an exhibit that will, I believe, come into evidence and it’s Exhibit
668.” The document in question is a letter which Hornback apparently wrote in
March of 2001, in response to an internal requirement that employees certify
that they were unaware of violations of Dynegy’s Code of Business Conduct.
Defense counsel did not object, and the following was read to the jury:
I am writing this report to expand on the reasons I checked that I
was aware of violations regarding financial integrity according to
Dynegy’s Code of Business Conduct. Let me make clear from the
start that these violations are not in any way related to Dynegy’s
accounting practices or reporting, but, in my opinion, they are no
less a violation of integrity than a misstatement of earnings would
be.
The first and most widespread problem I have observed is the
blatant fabrication of numbers reported to the publications that
report monthly and daily gas price indices. These publications, such
as Inside FERC, NGI, and Gas Daily, rely on the honesty and
integrity of companies such as Dynegy to report any and all fixed-
price physical transactions that actually occur. If transactions are
actually reported, then the resulting index should always be a fair
representation of the value of gas at a particular point, at a
particular time.
However, at Dynegy I have observed month after month and day
after day blatant lies being reported by Dynegy to intentionally
attempt to skew the index in favor of Dynegy’s position. I have seen
members of top management in the organization instruct traders in
their group that this is how the game is played and it is how Dynegy
must behave in order to compete. I have even seen a top manager
require that he be given a chance to review the numbers before they
were sent to the publications so he could be sure they were where he
wanted them to be, regardless of which prices were actually
transacted.
To me, it has been a huge ethical dilemma to see volumes reported
many, many times greater than would have even been possible to
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No. 08-20546; 08-20573
trade at a given point and to see prices reported well-outside the
range of what actually traded.
I know almost every trader and manager at Dynegy condones this
practice and I know that none of them mean any harm. They are
only trying to enhance the profitability of their positions.
Nonetheless, this practice is, in fact, harmful to many outside the
company. For example, the posted index prices have far-reaching
impacts, affecting everything from the price utilities pay for their
gas and ultimately the price that rate payers pay, to the price that
royalty owners receive for their gas at the wellhead.
In fact, one of my previous employers was so sensitive to the impact
that index price reporting had on royalty payments, that the
company’s traders were forbidden to report to the publications for
fear of class-action lawsuits.
Obviously, I am not a legal expert, but I feel very strongly that lying
on price reports is not only dishonest and unethical, but could
expose Dynegy to huge legal and public relations risks. It is, after
all, a blatant form of price manipulation. Imagine how the public
and press in California would react, for example, if they found out
that Dynegy’s traders were intentionally manipulating prices higher
in their state. Consequently, I feel very adamant that Dynegy
should enact a policy regarding honest reporting to the index
publications to remove this risk.
By coming forward with these complaints, I am not trying to get any
individuals into trouble or cause any dissension in the company. In
fact, I would not have come forward at all had it not been for the
code of conduct statements we were forced to sign. I just could not
with a clean conscience sign that I was unaware of violations
because of the reasons outlined above.
I sincerely hope this will remain anonymous and that no individuals
will be reprimanded. At the same time, it is my true desire that
these questionable practices should end.1
Mr. Lewis then told the jury “you will hear that people had choices.” After a few
more sentences, he concluded his opening statement.
1
Because the letter was never subsequently admitted into evidence, its full text was
not provided to the jury. The foregoing has been reproduced as it appears in the district court’s
transcript, with minor interjections by Mr. Lewis omitted.
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No. 08-20546; 08-20573
Mr. Flood, Valencia’s counsel, then began his opening statement. He said:
“I’m not going to talk about the letter of Mr. Hornback, who’s going to be a
government witness, because I think the evidence will show that that letter was
an attempt to try to deflect from his own responsibility in what he had done and
it has nothing to do with the evidence against Ms. Valencia.” Mr. Flood then
moved on to other matters.
Hornback testified at trial for nearly two full days. His live testimony
described the day-to-day practices of natural gas trading at Dynegy’s West Desk.
Through Hornback, the government introduced myriad emails, phone calls, and
other documents. The tone and substance of Hornback’s testimony in many
ways mirrored the accusations which the prosecutor read to the jury during
opening statements. For instance, Hornback at one point stated that “as far as
I can recall, we had never really accurately reported prices.” Rather, when
Hornback first joined the West Desk, traders would list what they considered
representative trades, in “an honest attempt to just report what we did see in the
market.” However, after Dynegy’s West Desk came under the supervision of a
hard-knuckled vice president named Steve Barron some time in late 1999 or
early 2000, Dynegy’s reporting practices “became, in my view, an intentional
attempt to skew the index one way or the other to benefit our positions.”
Hornback said that there were times where Barron “specifically told me to go
back and change numbers that I had previously planned to submit.” The change
in reporting practices was apparently largely driven by a sense that Enron was
dominating natural gas markets and manipulating prices, and that other players
in the market had to push back in order to stay afloat.
Hornback often interacted with Valencia. He stated that in or around July
of 2000, Dynegy began reporting trades entered into by West Coast LLC (“West
Coast”). West Coast was a partly owned joint venture of Dynegy and NRG
Energy, Inc. Hornback testified that Valencia had explained to him that “we
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No. 08-20546; 08-20573
were going to use [West Coast] to report offsetting transactions to the
transactions that we submitted at Dynegy to give them basically more validity
as far as the publication was concerned.” In other words, West Coast would
report trades with Dynegy at price levels favorable to Dynegy’s market positions
in an effort to show that greater volumes of gas were being bought and sold at
a given location. Hornback explained that publications such as Inside FERC and
NGI might become suspicious if Dynegy alone reported transactions involving
atypically large volumes of gas, “but if you had two independent parties that
both had the same data, then the publication would be more likely to believe it
as being real.”
Recorded phone calls corroborated the assertion that Valencia participated
in fabricating trades, inflating the volume of real trades, or omitting real trades
to favor Dynegy’s positions. With Hornback on the stand, the government
played a phone call from July 31, 2000, between Valencia and Michael Stewart,
an employee of West Coast. In the call, Valencia tells Stewart to fax West
Coast’s price reports to the publications. Valencia states at one point that she
wants Stewart to fax the data from a separate machine (i.e., a machine in West
Coast’s office, not Dynegy’s office). Valencia states: “I’m—just worried, I just
want it to look as legitimate as possible.” In another phone call between Stewart
and Hornback, also from July 31, 2000, Stewart indicates that “the guy from
Inside FERC called me about these monthly . . . numbers that Michelle emailed
him.” Hornback says to Stewart: “these numbers are . . . in the legitimate range,
so I’m not sure why he would be questioning them.” When asked to explain this
statement, Hornback testified that “there must have been real trades that
happened in the ranges of prices that we reported. . . . It seems that they were
not real trades done at Dynegy though.”
Additionally, the government introduced a physical trade ticket
documenting a fixed-price, baseload deal entered into on July 28, 2000, for
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No. 08-20546; 08-20573
delivery for the next month. Although Hornback filled out the information on
the ticket, he did so on behalf of Valencia, who had entered into a contract for
Dynegy to buy 10,000 MMBtu of natural gas from El Paso at a price of $4.60 per
MMBtu at a delivery point called SoCal Ehrenberg. Hornback agreed that this
trade met the criteria for reporting to Inside FERC and NGI, but noted that the
trade was not listed on Dynegy’s monthly report sent on July 31, 2000, from
Hornback to Kelly Doolan, the chief editor of Inside FERC.
With Hornback still on the stand, the government demonstrated that
several other trades meeting Inside FERC’s and NGI’s reporting criteria were
not in a report sent by Valencia on November 30, 2000. The government played
a phone call from November 30, 2000, between Valencia and Rick Anderssen, a
natural gas trader at Pan Canadian Energy Services. Anderssen was Valencia’s
boyfriend at the time of the call; he is currently Valencia’s husband. In the call,
Valencia tells Anderssen that she “already turned in my indexes and I couldn’t
get hold of you because the deadline was one o’clock.” She then tells Anderssen:
“I turned in twenty thousand at fifteen fifty.” In other words, Valencia reported
trading 20,000 MMBtu at a price of $15.50. Anderssen states: “I’ll put it down
right here. Twenty at fifteen fifty. Okay.” Later, Valencia begins to describe
what she reported for a delivery point in Northern California called Malin.
Anderssen asks: “Flat to SoCal?” Valencia responds: “F*** no, I want Malin
low!” Anderssen then asks: “I mean you—you think Malin will be low, yeah. I
do too.” Valencia answers: “No. I’m only reporting it low.” Hornback testified
that “flat to SoCal” meant the index price at Malin would be the same as the
index price at SoCal, or Southern California.
Hornback testified that at some time during the summer of 2000, he
overheard Valencia apparently “speaking to a trader at another company
discussing what prices to report or not report for the first of month index report.”
He stated that it caused him to become concerned:
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No. 08-20546; 08-20573
I had been feeling personally conflicted from an ethical standpoint,
you know, ever since it started to become more of what I felt was a
dishonest approach to reporting the indices. And that particular
conversation I remember, you know, it made an impression because
it kind of scared me a bit, because I remembered enough from
business law classes in college to know that you shouldn’t be talking
to somebody at another company about things like that.
Due to such concerns, some time after overhearing Valencia’s conversation,
Hornback “decided not to participate anymore with the reporting.”
I decided that I would report to Michelle what the actual trades
were that I had transacted and then from there I said that I did not
want to know anything else about it. Basically I didn’t want to see
what was sent in, I didn’t want to be a part of any conversations
about it, kind of just tried to distance myself from it.
Hornback indicated that Valencia appeared to understand and respect this
decision. Hornback did not tell Barron about his decision to distance himself
from the monthly reports.
After Hornback had been on the stand for several hours, the government
began a line of questioning concerning Dynegy’s Code of Business Conduct.
Specifically, in early 2001, employees were required to certify that they knew of
no ethical violations. Hornback stated that he could not make such a
certification in good conscience given what he had witnessed. Mr. Flood,
Valencia’s counsel, then requested a sidebar and stated: “During the opening
statement I unfortunately did not object, I guess. . . . Mr. Lewis read from a
letter that I think is rank hearsay.” The court noted that the government had
not offered Hornback’s letter into evidence, and reasoned that the fact that he
wrote the letter was not hearsay. However, the court continued that if the
government wished to introduce the letter to prove its contents, i.e., that
Hornback had witnessed lies being reported to the publications in order to skew
indices in Dynegy’s favor, there would be a hearsay question. Singleton’s
counsel, Mr. Nugent, also asserted that the letter was “rank hearsay.” The
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No. 08-20546; 08-20573
government disagreed. The court stated that it would not admit the letter at
that time, but would consider admitting portions of it if the need arose.
Hornback testified that after he declined to certify that he knew of no
ethical violations, he was contacted by the office of Eric Bruce, Dynegy’s top
compliance officer. Hornback met with Bruce, and Bruce requested that
Hornback describe his observations in a written memorandum. He did so, but
did not sign or date the document, and left it under Bruce’s door around the
beginning of March, 2001. When asked why he did this, Hornback said: “I didn’t
want it to appear that I was trying to betray anybody on the floor, that I was
trying to get anybody in trouble or anything like that.” Hornback stated that
Exhibit 668 was a copy of the letter. The government offered the letter into
evidence; the court stated: “I’m not going to receive it right now.” Some time
later, Hornback stated that the contents of the writing summarized what he had
discussed with Bruce concerning misreporting of trades and pressure from
managers to engage in misconduct. When Hornback could not recall the exact
contents of the document, the government requested that Hornback be allowed
to read from it. The court conducted a sidebar at which it ruled that the
government did not need the document to show that Valencia, like Hornback,
had a choice as to whether to misreport trade information. Hornback also
testified that he received a very bad performance review from Steve Barron in
early 2001. Hornback quit his job at Dynegy in mid-March of 2001, about two
weeks after delivering the memorandum to Bruce.
On re-direct examination, Mr. Lewis returned Hornback to his interactions
with Valencia and other traders on the West Desk regarding the reporting of
trades. Hornback testified that, on one particular occasion, he had objected to
efforts to “skew” indices lower because this could reduce royalty payments to
mineral rights owners, some of whom could be “little old ladies” who depended
17
No. 08-20546; 08-20573
on the royalties for their income. Hornback could not recall whether Valencia
reacted in any way to this statement.
Trial proceeded for several more weeks with no references to Hornback’s
letter. In the first minutes of his closing argument, Mr. Lewis stated: “[T]hese
index prices were not some sort of theoretical concept floating out there in
somewhere other than the real world. I mean, people really bought gas at these
prices. And those little old ladies that Jeff Hornback described, they’re real.”
Mr. Lewis beseeched the jury to be mindful of Hornback’s testimony. These were
the only direct references to Hornback made during Mr. Lewis’s closing.
Thereafter, Mr. Lewis replayed many telephone calls and displayed for the jury
key documents which had been entered into evidence. He insisted that greed
motivated the defendants, and not a blind need to follow orders or a desire to act
as a counterweight to Enron’s perceived dominance of the markets.
During his closing argument, Mr. Flood repeatedly mentioned Hornback’s
in-court testimony to show that Valencia was but one of many contributors to the
monthly price reports, and thus that others were equally or more culpable for
misrepresentations in the reports. He then stated that he would remind the jury
of certain things Mr. Lewis said during opening statements:
“Top management instructed us to report this way. That is how the
game is played.” Mr. Lewis said that to you in opening statement.
“Top management changed the numbers on the report. I know that
every trader and manager at Dynegy condones this practice and I
know none of them mean any harm.” Those were his words in
opening statement. “I know none of them mean any harm.”
Mr. Lewis objected that this line of argument “misstates the opening statement.”
The court instructed the jury that “it’s up to you to recall Mr. Lewis’s opening.”
Mr. Flood then moved on, and thereafter made only fleeting references to
Hornback as a participant in the reporting of false trades.
Singleton’s counsel, Mr. Nugent, also made references to Hornback’s
testimony, such as representing that Hornback had said: “We never sent in
18
No. 08-20546; 08-20573
accurate numbers. We sent in representational numbers that were accurate
market information, but they weren’t based on real trades.” Mr. Nugent later
said: “But Jeff Hornback finally talks to the vice president of Dynegy, I think his
name was Eric Bruce, and he talks to him for an hour and [a] half and he writes
that letter and says, ‘top management is pressuring us at Dynegy.’”
During rebuttal, Ms. Beek, co-counsel for the government, stated:
Mr. Flood attributed comments to Mr. Lewis and so did Mr. Nugent
that were not Mr. Lewis’s. For example, Mr. Lewis read you in the
opening a whistle-blower letter from Mr. Hornback, where Mr.
Hornback says, “I am writing this report to expand on the reasons
I checked that I was aware of violations regarding financial
integrity according to Dynegy’s code of business conduct.” And then
he goes on to say, “However, at Dynegy I have observed month after
month, day after day blatant lies being reported by Dynegy to
intentionally attempt to skew the index in favor of Dynegy’s
position. I have seen members of top management in the
organization instruct traders in their group that this is how the
game is played and it’s how Dynegy must behave in order to
compete.” Those were from Mr. Hornback’s whistle-blower letter.
They were not comments of Mr. Lewis.
Defense counsel did not object to Ms. Beek’s statements.
B.
Valencia says the government should not have read Hornback’s letter
during the opening statement or read portions of it during the closing argument.
Valencia says the letter was inculpatory hearsay, and was prejudicial because
it: (1) described the breadth of the false reporting; (2) divulged the intent and
identities of the individuals who made false reports; (3) established the
materiality of the false reports; and (4) suggested what the consequences would
be. In sum, the letter “established every element of the government’s case and
was the single most damaging piece of information the jury heard.” Valencia
insists that the government should have known that the letter might be
inadmissible, and thus should not have mentioned it until it was admitted.
19
No. 08-20546; 08-20573
Valencia says the letter was not cumulative of Hornback’s in-court testimony,
as he could not recall all of its contents. The jurors’ difficulty in reaching a
verdict, and the split verdict it rendered, purportedly militate in favor of a new
trial. Valencia also argues that the government improperly bolstered its own
credibility and the credibility of the Hornback letter by stating that it was the
prosecutor’s job to tell the jury the truth.
The government stated at oral argument that Valencia’s failure to object
to use of the letter in advance of trial means she forfeited any challenge to its
admissibility. In its brief, the government does not actually argue that it was
proper to read Hornback’s letter during the opening statement, but rather,
insists that the contents of the letter were never explicitly deemed inadmissible
hearsay. Moreover, the government says references to the letter during closing
arguments were invited by defense counsel. The purpose of mentioning the
letter during closing was, ostensibly, to correct mis-attributions. The
government says there is no prejudice because the district court instructed the
jury that lawyers’ statements and arguments are not evidence. More
importantly, the government says that evidence of Valencia’s and Singleton’s
guilt was “overwhelming.” The government insists that Hornback’s testimony
conveyed much of what his letter said, and that Valencia’s own emails and phone
calls provide ample evidence of guilt.
C.
Valencia concedes that she failed to timely object to references to
Hornback’s letter. We therefore review for plain error. See FED. R. CRIM. P.
52(b); United States v. Mares, 402 F.3d 511, 520 (5th Cir. 2005). Valencia must
show “(1) error, (2) that is plain, and (3) that affects substantial rights.” Mares,
402 F.3d at 520 (quotation omitted). If these conditions are present, we may
exercise our discretion to correct the error if it “seriously affects the fairness,
integrity, or public reputation of judicial proceedings.” Id.
20
No. 08-20546; 08-20573
“This court applies a two-step analysis when reviewing claims of
prosecutorial misconduct. The court must first decide whether the prosecutor
made an improper remark. The court evaluates the remark in light of the
context in which it is made.” United States v. Morganfield, 501 F.3d 453, 467
(5th Cir. 2007), cert. denied, 128 S. Ct. 2500 (2008) (citations omitted). To
determine whether improper statements require a new trial, we ask whether the
prosecutor’s remarks “prejudiced the defendant’s substantive rights,” and “cast[]
serious doubt on the correctness of the jury’s verdict.” Id. (quotations and
citations omitted). We must weigh: “(1) the magnitude of the prejudicial effect
of the prosecutor’s remarks, (2) the efficacy of any cautionary instruction by the
judge, and (3) the strength of the evidence supporting conviction.” Mares, 402
F.3d at 515-16 (quotation omitted). We also presume that a jury can and will
follow an instruction that attorneys’ statements are not evidence, “unless there
is an overwhelming probability that the jury will be unable to follow the
instruction and there is a strong probability that the effect is devastating.”
Morganfield, 501 F.3d at 468 (citations and internal quotations omitted). As for
“invited error:”
The doctrine of invited error provides that when injection of
inadmissible evidence is attributable to the actions of the defense,
the defense cannot later object to such “invited error.” Under this
doctrine, a defendant cannot complain on appeal of alleged errors
which he invited or induced, especially where the defendant may not
have been prejudiced by the error. We will not reverse on the basis
of invited error, absent manifest injustice.
United States v. Green, 272 F.3d 748, 754 (5th Cir. 2001) (citations and internal
quotations omitted).
In United States v. Flores-Chapa, 48 F.3d 156, 161 (5th Cir. 1995), we
found that prejudicial prosecutorial comments constituted reversible plain error.
At trial, the district court ruled that hearsay testimony connecting the defendant
to a drug conspiracy was inadmissible. Id. at 159. However, the government
21
No. 08-20546; 08-20573
referred to the hearsay when examining the next witness and again during
closing argument. Id. at 159 & n.6. The court held that the error was plain, and
that the statement was prejudicial “in the context of the entire trial,” in light of
the “paucity of evidence” that the defendant was involved in the conspiracy. Id.
at 160-61; see also United States v. Novak, 918 F.2d 107, 109 (10th Cir. 1990)
(noting that a prosecutor may not “refer to evidence of questionable
admissibility” during opening statements). In Novak, the government made two
assertions during opening statements which were never substantiated: (1) that
a citizen reported to police that the defendant sold cocaine from his home; and
(2) that cocaine seized in the defendant’s home was very pure—“dealer” grade
as opposed to “user” grade. 918 F.2d at 108, 110. The government’s case was
“completely circumstantial” and relied heavily on inferences drawn from these
statements to prove the defendant’s intent. Id. at 110-11. Therefore, the
prosecutor’s improper remarks and conduct at trial prejudiced the defendant in
a way that was incurable by the court’s admonition that the opening statements
were not evidence. Id. Valencia relies primarily on the authority of Flores-
Chapa and Novak in asserting that the government’s use of Hornback’s letter
was plain error which prejudiced her substantial rights.
D.
We may quickly dispense with the government’s assertion that Valencia
forfeited the opportunity to challenge the letter’s admissibility by failing to object
to its use before trial. The district court did set a pre-trial deadline for objections
to the authenticity of trial exhibits. However, it is abundantly clear, based on
our review of the record, that the lack of a pre-trial objection did not preclude all
challenges to the admissibility of an exhibit, as the government suggests. The
district court regularly entertained objections based on relevance, lack of
foundation, the hearsay rule, or undue prejudice. The government represented
in its brief that the court never deemed the letter hearsay. However, prior to
22
No. 08-20546; 08-20573
jury instructions, the government acknowledged that Hornback’s letter was
never admitted into evidence due to defendants’ hearsay objections. We find the
government’s insouciance regarding the record and the district court’s orders
unsettling.
We conclude that Mr. Lewis’s decision to read Hornback’s letter verbatim
in his opening statement was improper. See Morganfield, 501 F.3d at 467.
There was a very good chance that the court would deem the letter inadmissible
hearsay, and the court apparently sustained defendants’ objection to admission
of the letter for this reason. The government says that the court did not
explicitly deem the letter hearsay, or alternatively, that the letter could have
been admitted under the business record exception to the hearsay rule. These
post-hoc justifications are a thin reed. Mr. Lewis could have simply paraphrased
Hornback’s anticipated testimony, avoiding the inflammatory language of the
letter. We admonish the government that its cavalier approach to the district
court’s rulings has made our task of reviewing the fairness of the trial and the
soundness of the verdict considerably more difficult.
The decision to read Hornback’s letter in its entirety was “error.” See
Mares, 402 F.3d at 520. However, even assuming the error was “plain,” see id.,
any prejudice to Valencia was minor. The letter does not mention Valencia by
name. Moreover, over the course of two days, Hornback’s testimony directly
implicated Valencia in a scheme to mis-state Dynegy’s trades in the monthly
reports to Inside FERC and NGI. The government presented copious evidence
of false trade data sent either by Valencia or at her direction. Recordings of
Valencia’s phone calls provided ample evidence from which the jury could
conclude that she intended to manipulate the trade reports in order to skew the
indices in favor of her trading positions, or those of Dynegy as a whole. A
thorough review of the record refutes Valencia’s contention that Hornback’s trial
testimony was “vague and ineffective.” We cannot agree with Valencia’s
23
No. 08-20546; 08-20573
assertion that Hornback’s letter “was the single most damaging piece of
information the jury heard.” The extensive, incriminating in-court testimony
provided by Hornback and others, in conjunction with inculpatory, properly
admitted exhibits, heavily dampened the magnitude of whatever prejudicial
effect Hornback’s whistle-blower letter had upon the jury. See Morganfield, 501
F.3d at 467; Mares, 402 F.3d at 515-16. The judge did not give a cautionary
instruction to the jury to disregard the contents of Hornback’s letter, but
Valencia failed to ask for one. Finally, the strength of the evidence supporting
the wire fraud convictions is strong independent of the assertions in Hornback’s
letter. See Morganfield, 501 F.3d at 467. Therefore, the improper remarks are
not so prejudicial that a new trial must be held. See id.; Mares, 402 F.3d at 515-
16.
Valencia relies on Novak and Flores-Chapa, but these cases lend scant
support to her position. In Novak, the government never presented evidence
that it had promised in opening statement; references to this “evidence” at trial
nevertheless played a key role in proving the defendant’s intent. 918 F.2d at
110. Here, Hornback’s in-court testimony restated and significantly expanded
upon the assertions of his letter, and for the first time, implicated Valencia
personally. This is a far cry from Flores-Chapa, where it was solely inadmissible
hearsay which connected the defendant to a drug conspiracy. 48 F.3d at 160-61.
What is more, in that case, even after the district court ruled that the evidence
was inadmissible, the prosecutor made several references to it. In this case, the
impact of Hornback’s letter was greatly outweighed by his live testimony
connecting Valencia to the scheme. The district court also never forbade the
government from making reference to the letter.
In contrast to opening statements, the government’s references to
Hornback’s letter during closing arguments were invited. See Green, 272 F.3d
at 754. Mr. Lewis did not mention the letter during closing argument. Defense
24
No. 08-20546; 08-20573
counsel for both Valencia and Singleton made references to the letter. On
rebuttal, Ms. Beek clarified who said what. Ms. Beek showed that certain
statements came from the letter, as opposed to Mr. Lewis. Moreover, the court
instructed the jury that it was “up to you to recall Mr. Lewis’s opening.” The
district court later instructed the jury that the lawyers’ arguments and
statements were not evidence. Valencia shows no reason to disregard our
normal presumption that the jury is capable of following the court’s instructions.
See Morganfield, 501 F.3d at 468. Having brought up the substance of the
accusations contained in Hornback’s letter in closing, Valencia cannot contend
she was prejudiced because the government sought to set the record straight.
Given these circumstances and the weight of the evidence as a whole, we cannot
conclude that Ms. Beek’s reference to Hornback’s letter caused “manifest
injustice.” See Green, 272 F.3d at 754.
Valencia also complains that the government vouched for its own
credibility and that of Hornback’s letter by stating during closing argument that
it was the prosecutor’s job to tell the jury the truth. We do not condone such
statements, but it is implausible to say that this oblique remark, to which
Valencia did not object and which did not directly bolster the credibility of
Hornback’s letter, caused devastating prejudice. Cf. United States v. Garcia, 522
F.3d 597, 601-02 (5th Cir. 2008). The jury’s lengthy deliberations lend support
to Valencia’s argument that the case was close and the jury struggled to reach
a verdict. However, the jury was tasked with recalling several weeks worth of
evidence and deliberating upon more than thirty distinct counts between
Valencia and Singleton. Also, it is evident from the jury’s notes that it mainly
struggled to understand the conspiracy and CEA counts, which we do not review
in this appeal. Given the jury’s difficult assignment, and the panoply of evidence
supporting guilty verdicts on the wire fraud counts, it would be far-fetched to
conclude that the mere length of the jury’s deliberations “casts serious doubt on
25
No. 08-20546; 08-20573
the correctness of the jury’s verdict,” rising to the level of plain error. See
Morganfield, 501 F.3d at 467 (quotation omitted); cf. United States v. Fields, 483
F.3d 313, 379 (5th Cir. 2007) (Benavides, J., dissenting) (noting that courts “have
been unwilling to find error harmless where the record . . . affirmatively shows
that the jurors struggled with their verdict”) (emphasis added).
We admonish the government that it was improper to read Hornback’s
letter during opening statement, and that its attempts to justify the error before
this Court are completely unpersuasive. Nevertheless, considering the entirety
of Hornback’s testimony in the context of trial, we conclude that references to the
letter, individually or cumulatively, are not reversible plain error. See Mares,
402 F.3d at 515-16.
III.
Valencia next raises issues concerning the testimony of Glenn Labhart.
Valencia makes three distinct arguments: (1) that Labhart was an expert
witness, implicating the strictures of prior disclosure under Federal Rule of
Criminal Procedure 16(a)(1)(G), as well as foundation and reliability
requirements under Federal Rule of Evidence 702; (2) that Labhart provided
summary testimony which did not comply with Federal Rule of Evidence 1006;
and (3) that the government’s at-trial disclosure of a fee agreement with Labhart
was a material violation of Valencia’s rights under Brady v. Maryland, 373 U.S.
83 (1963). Valencia contends that each error is sufficient to require a new trial.
We first recount the circumstances and details of Labhart’s testimony, and then
consider each argument in turn. None is meritorious.
A.
Glenn Labhart was the chief risk officer of Dynegy from 1997 to 2004. His
duties included monitoring Dynegy’s trading operations, and specifically,
26
No. 08-20546; 08-20573
enforcing the “trading limits and risk tolerances” set by higher-ups at Dynegy.
Labhart assisted Dynegy in responding to the government’s requests that
Dynegy determine whether trades reported by Dynegy and West Coast in 2000
and 2001 were real or fictitious (“true-false analysis”). He also determined
whether Dynegy had net long or short positions at various trading points (“long-
short analysis”). Finally, he analyzed how Dynegy stood to benefit through
changes in the indices published by Inside FERC and NGI during that time
period (“penny-up penny-down analysis”). Before trial, Valencia moved to
exclude Labhart’s proposed testimony on the grounds that it was expert in
nature, and failed to meet the requirements of Federal Rule of Evidence 702 and
Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). Valencia
also averred that the government had not provided a report detailing the nature
of Labhart’s conclusions, and that the government failed to turn over databases
containing the universe of trade records upon which Labhart based his analysis.
The district court initially reserved ruling on this motion. On the thirteenth day
of trial, July 26, 2006, before Labhart had been called to the stand, the court
conducted a hearing outside of the jury’s presence to evaluate these matters.
At the hearing, Labhart said he did not complete the true-false, long-short,
or penny-up penny-down analyses relevant to this case by the time he left
Dynegy in 2004. He was subpoenaed by the government in March of 2006,
several months in advance of trial, to pick up where he left off in 2004 and
complete this work. Labhart was familiar with the trade reports sent to Inside
FERC and NGI from his time as chief risk officer. He stated that for the true-
false analysis, trades were reviewed from a system called AREV. AREV was
generally used to track physical positions for buying, selling, storing, and
transporting natural gas. For the long-short and penny-up penny-down
analyses, Labhart mainly used a risk management system at Dynegy called
Abacus. Dynegy tracked both physical and financial transactions via Abacus.
27
No. 08-20546; 08-20573
If Labhart needed additional portfolios or records from within the Abacus
system, he requested the information from Dynegy, which provided it to him.
A Dynegy computer programmer named Wanda Chovanec assisted Labhart in
combing through the databases.2 Labhart stated that, just days before he was
called to testify, he prepared a final summary report of his analysis (“the
summary report”). The summary report contained positions for each relevant
month and location at which prices were reported, both physical and financial,
as contained in Abacus and AREV. Labhart did not show the summary report
to the government until the day before the July 26 hearing.
After Labhart stated the foregoing, Valencia’s counsel re-urged the motion
to exclude Labhart’s testimony on the basis that it was expert testimony, and
that Labhart had not been shown to be qualified to render such opinions. The
court overruled the motion as to the true-false and long-short analyses, stating:
“He’s saying he was reviewing the records and doing exactly what he did while
he was in the job. He had access to the database as part of his work and he was
the risk manager.” The court reasoned that such analysis was “clearly what he
did during the day at work. And the fact that he’s had to reconstruct it later is
immaterial to the ruling.” However, the court reserved ruling on whether
Labhart was qualified, based on his job duties while he was at Dynegy, to relate
the penny-up penny-down analysis to the jury. The court ordered the
government to lay a foundation before seeking to elicit such analysis.
The government noted that it had provided Labhart with enlargements of
the monthly price reports sent to Inside FERC and NGI containing the allegedly
false reports. The government instructed Labhart to mark a blue star next to
each reported trade which matched an actual fixed-price trade. If the volume
2
Chovanec separately testified that she extracted all physical trade information from
Dynegy’s AREV database. At Hornback’s direction, she conducted searches from the database
to yield the universe of relevant trades against which Labhart compared the trade reports sent
by Valencia or at her direction.
28
No. 08-20546; 08-20573
was inaccurate, Labhart was told to write the correct volume in red ink next to
the reported trade. The government also told Labhart to list omitted reports on
the report in purple. Finally, Labhart was to include the results of his penny-up
penny-down analysis, i.e., the amount Dynegy stood to gain or lose from
movements in a particular index price. The court instructed the government to
keep the penny-up penny-down figures covered unless and until such analysis
was deemed admissible. Defense counsel did not object to the use of the marked-
up reports in this manner.
With the jury present, Labhart stated that the index prices published by
Inside FERC and NGI affected Dynegy’s risk positions and profits.
Consequently, Dynegy vigilantly monitored its positions for locations and
contracts affected by the published indices. As part of his job as risk manager,
Labhart could calculate daily how any given trade by the West Desk, or an
individual trader on the Desk, could affect Dynegy’s profits. Labhart also ran
profit and loss calculations each month when the index prices were released.
Labhart stated that he used the same methodology when preparing his penny-up
penny-down analysis in anticipation of his testimony in this case.
Outside of the presence of the jury, the court ruled that Labhart’s penny-
up penny-down analysis was based upon his experience and duties as the chief
risk officer of Dynegy. The court deemed this “complex lay opinion,” which was
not expert testimony and therefore was not subject to Federal Rule of Evidence
702. In the alternative, the court ruled that if Labhart’s opinions were expert
in nature, such met the requirements of Rule 702. Counsel for Valencia asserted
that Labhart was a “summary witness,” that no report of Labhart’s opinions was
given to defense counsel, and moreover, “we have not been able to have his
methodology and/or his opinions independently assessed by our own expert to
determine if they’re, in fact, valid.” The court noted that defense counsel had not
received Labhart’s recent summary report until the day before Labhart testified
29
No. 08-20546; 08-20573
(Labhart put together the report only days before testifying), but “you have had
the underlying data and could have done this comparison with the databases
that were provided several weeks ago.”
With the jury present once more, Labhart first related his true-false
analysis and long-short analysis. He noted that many of the trades reported by
Valencia did not exist in the AREV database, that some volumes appeared to
have been reported inaccurately, and that some real trades meeting the
reporting criteria were not included. In other words, many of the reports sent
by Valencia or at her direction contained fictitious or inaccurately reported
trades, and omitted real trades. Labhart also testified that, based on his review
of Dynegy’s databases, Valencia often entered into transactions called “swing
swaps” and “basis swaps,” which used index prices published by Inside FERC
and NGI. Labhart noted that Valencia often kept “open” positions, meaning her
monthly natural gas portfolio was either long or short. As a result, changes in
the published indices would have a direct effect on the performance of Valencia’s
portfolio.
Labhart then presented his long-short and penny-up penny-down
conclusions to the jury. For each report, he indicated how much money Dynegy
would have gained or lost from a one-cent movement in the indices for each
trading point, as well as what Dynegy stood to gain from changes in the indices’
basis figures. Labhart’s true-false and penny-up penny-down analyses were
depicted on the blow-ups of Dynegy’s monthly reports, which had already been
admitted into evidence. The jury was thus able to see Labhart’s conclusions
superimposed on the reports. Defense counsel did not object to the use of reports
in this fashion, although counsel reiterated objections based upon Labhart’s
methodology. The true-false, long-short, and penny-up penny-down analysis
took much of the afternoon of July 26; at the conclusion of this testimony, the
government passed the witness.
30
No. 08-20546; 08-20573
On the morning of July 27, the government recalled Labhart in order to
clarify what the markings on the enlarged reports were intended to mean. The
government then pursued a new line of questioning concerning the time Labhart
had spent preparing his analysis. Labhart said that after being subpoenaed, he
spent about 350 hours of his time, for which he had been paid $36,500 by the
government and about $20,000 by Dynegy. He anticipated billing for additional
work, for a total of roughly $50,000 from the government. He stated that he was
not being paid for his in-court testimony. Counsel for Valencia and Singleton
cross-examined Labhart on the details of his compensation. Counsel protested
that compensation details had never been disclosed, whereupon the court
ordered the government to provide such information to defendants. That
evening, the government emailed documents including a form number “OBD-47”
for Labhart, which bears the caption “Expert Witness Statement of Work.”
Under the heading “Purpose and Objective of Expert Witness Services,” the
following items are checked:
(1) To support litigation/prosecution theory or conclusion
(2) To determine loss dollar value
(3) To provide technical explanations of fact
(5) Other: To determine (1) accuracy of reported gas trades & (2)
benefit to company from changes in index price movement.
Item (4), “To offer professional opinion,” is not checked. The following items are
checked under the heading “Preparation and Scope of Work Requested:”
(1) Review case files, records or evidence
(3) Create and produce technical charts, graphs or accountings
(4) Evaluate and compare technical facts
(6) Validate hypothesis
(11) Oral presentation to Counsel
(12) Prepare and present expert reports, graphics, models, exhibits
and demonstrations for trial preparation and for trial.
31
No. 08-20546; 08-20573
B.
We agree with the district court’s conclusion that Glenn Labhart was a lay
witness, and not an expert witness. Labhart’s testimony related to his former
job duties as risk officer at Dynegy. He recreated much of the analysis he
regularly performed when evaluating risk tolerances. He was properly
characterized as a fact or lay opinion witness. See FED. R. EVID. 7013; Nat’l
Hispanic Circus, Inc. v. Rex Trucking, Inc., 414 F.3d 546, 551-52 (5th Cir. 2005)
(“Rule 701 does not exclude testimony by corporate officers or business owners
on matters that relate to their business affairs, such as industry practices and
pricing.”). Labhart apparently analyzed a great deal of data first provided to
him after he left Dynegy’s employ. However, this does not change the character
of his testimony. Valencia insinuates that the timing of Labhart’s departure
from Dynegy—after the acts complained of but before trial—means his
testimony must be considered expert in nature. We cannot agree. Because
Labhart’s knowledge and analysis were derived from duties he held at Dynegy,
his opinions were admissible as testimony based upon personal knowledge and
experience gained while employed by Dynegy. See FED. R. EVID. 701. He
engaged in precisely the kind of analysis he regularly performed as chief risk
officer; the fact that he drew particular opinions and projection for the purposes
of this case does not make him an “expert” within the meaning of Federal Rule
of Evidence 702. See Tex. A&M Research Found. v. Magna Transp., Inc., 338
F.3d 394, 403 (5th Cir. 2003).4
3
“If the witness is not testifying as an expert, the witness’ testimony in the form of
opinions or inferences is limited to those opinions or inferences which are (a) rationally based
on the perception of the witness, (b) helpful to a clear understanding of the witness’ testimony
or the determination of a fact in issue, and (c) not based on scientific, technical, or other
specialized knowledge within the scope of Rule 702.”
4
Valencia cites Teen-Ed, Inc. v. Kimball Int’l, Inc., 620 F.2d 399, 404 (3d Cir. 1980), for
the proposition that “[t]he essential difference” between lay and expert testimony “is that a
qualified expert may answer hypothetical questions.” However, that case holds that “[a]
32
No. 08-20546; 08-20573
C.
We now turn to Valencia’s argument that Labhart gave inadmissible
summary testimony. See FED. R. EVID. 1006.5 We review evidentiary rulings for
an abuse of discretion, and in the event of error, we will affirm provided the
error is harmless. See United States v. Bishop, 264 F.3d 535, 546 (5th Cir. 2001).
While “[r]eview of evidentiary rulings is heightened in a criminal case,” United
States v. Gutierrez-Farias, 294 F.3d 657, 662 (5th Cir. 2002), to obtain reversal,
the appellant “must demonstrate that the district court’s ruling caused [her]
substantial prejudice.” Bishop, 264 F.3d at 546. Here, we may only review for
plain error because Valencia failed to object to Labhart’s use of the enlarged
reports to convey his analysis. See FED. R. CRIM. P. 52(b).
We see no merit in Valencia’s contention that Labhart gave inadmissible
summary testimony. Labhart’s testimony, and that of programmer Wanda
Chovanec, indicate that Labhart analyzed all relevant trades contained in
Dynegy’s vast databases. The government stated at trial that it had provided
defense counsel with these records approximately one month before trial began.
Valencia did not dispute that the records had been provided, nor that the
databases were available for her inspection.6 Valencia provides no support for
projection of lost profits based on evidence of record regarding decreased sales of a certain
product may not accurately be characterized as ‘hypothetical.’” Id. Since Labhart calculated,
inter alia, how changes to natural gas indices affected Dynegy’s profits, this case provides little
support for Valencia. Accord DIJO, Inc. v. Hilton Hotels Corp., 351 F.3d 679, 686 (5th Cir.
2003) (noting that “a lay witness who was never employed by or directly involved in a business
is unlikely to have the type of first-hand knowledge necessary to provide reliable forecasts of
future lost profits”) (emphasis added).
5
“The contents of voluminous writings, recordings, or photographs which cannot
conveniently be examined in court may be presented in the form of a chart, summary, or
calculation. The originals, or duplicates, shall be made available for examination or copying,
or both, by other parties at reasonable time and place. The court may order that they be
produced in court.”
6
The timing of the government’s disclosures is not entirely clear. Following Chovanec’s
description of the trades she turned over to Dynegy’s counsel, which in turn were provided to
33
No. 08-20546; 08-20573
the statement in her appellate brief that the government “provided the defense
with disks containing various data splices that had been ‘cherry-picked’ from
those databases.” At trial, Labhart provided visual depictions of his true-false,
long-short, and penny-up penny-down analyses, which he was qualified to
perform based upon his previous experience as chief risk officer. He wrote these
findings on enlarged copies of the reports sent to Inside FERC and NGI, which
had been admitted into evidence. In so doing, Labhart was able to compare and
contrast the false price reports with the financial reality at Dynegy for each
given month. This would assist the jury in understanding how voluminous
records boiled down to the potential for profit or loss—a means of showing
Valencia’s motive for falsifying trade reports. See United States v. Jennings, 724
F.2d 436, 442 (5th Cir. 1984) (citation omitted) (recognizing that summaries are
useful to demonstrate the contents of accounts or other business transactions).
Valencia complains that the government failed to introduce Dynegy’s
databases into evidence or show that the databases were business records
subject to a hearsay exception. Valencia cites our decision in Bishop, where we
noted that “Rule 1006 allows admission of summaries when (1) the evidence
previously admitted is voluminous, and (2) review by the jury would be
inconvenient.” 264 F.3d at 547. Bishop is different because it concerned
summaries of live testimony and exhibits presented in court, see id., not
voluminous records which “cannot conveniently be examined in court.” See FED.
R. EVID. 1006; United States v. Nguyen, 504 F.3d 561, 571-72 (5th Cir. 2007)
(citation omitted) (recognizing that Rule 1006 does not concern summaries of
the government, the government represented that it had turned over the trades to defense
counsel on January 23, 2006. Defense counsel did not quarrel with this statement. It is
apparent that counsel was most concerned with whether Chovanec was instructed to search
all relevant trade records, as well as the completeness of the trades she did search and turn
over. Nevertheless, in light of Chovanec’s testimony and the government’s uncontested
representations, we conclude that defense counsel had adequate opportunities to check the
completeness and veracity of the data relied upon by Labhart.
34
No. 08-20546; 08-20573
trial exhibits or trial testimony). Therefore, despite its broad wording, Bishop
did not mandate that the databases be admitted into evidence before Labhart
could summarize their contents, as this would contravene the plain language
and purposes of Rule 1006. Additionally, Labhart and Chovanec testified that
Dynegy maintained its databases in the course of regularly conducted business
activities. Therefore, the district court did not err, much less abuse its
discretion, in overruling Valencia’s hearsay-based objections to Labhart’s
conclusions. See FED. R. EVID. 803(6).
Valencia was not sandbagged by Labhart’s testimony or reliance on
records from Dynegy’s AREV and Abacus databases. Counsel cross-examined
Labhart on the thoroughness and relevance of his calculations, revealing
familiarity with Dynegy’s use of databases to track its transactions and open
positions. See Jennings, 724 F.2d at 442; Harris v. United States, 356 F.2d 582,
585 (5th Cir. 1966). In light of the nebulous objections raised by Valencia in the
trial court—indeed, given her failure to cite Rule 1006 until appeal—we would
be justified in concluding that an objection based on Rule 1006 was not properly
raised, and therefore, is forfeited. However, following our independent review
of the record, we are confident that Labhart’s means of presenting his
conclusions to the jury was proper. Valencia has not shown an abuse of
discretion, much less “substantial prejudice” or plain error mandating a new
trial. See Bishop, 264 F.3d 535, 546.
D.
We likewise hold that the government’s failure to disclose its fee
agreement with Labhart was not reversible error. Under the Brady rule, the
government must give the defense impeachment evidence and exculpatory
evidence. See United States v. Johnson, 872 F.2d 612, 619 (5th Cir. 1989). We
review de novo whether the government violated the Brady rule. United States
v. Fernandez, 559 F.3d 303, 319 (5th Cir. 2009). As the proponent of a new trial,
35
No. 08-20546; 08-20573
Valencia must prove that: “(1) the prosecution did not disclose evidence; (2) the
evidence was favorable to the defense; and (3) the evidence was material.”
United States v. Infante, 404 F.3d 376, 386 (5th Cir. 2005). Evidence is material
if there is a reasonable probability that the outcome of the trial would have been
different had such evidence been revealed to the defense. Id. “The question is
not whether the defendant would more likely than not have received a different
verdict with the evidence, but whether in its absence he received a fair trial,
understood as a trial resulting in a verdict worthy of confidence.” United States
v. Brown, 303 F.3d 582, 593 (5th Cir. 2002) (quoting Kyles v. Whitley, 514 U.S.
419, 434 (1995)). Moreover, the harmless error rule applies to Brady violations.
Id. at 597.7 In United States v. Cervantes-Pacheco, 826 F.2d 310, 315-16 (5th Cir.
1987) (en banc), we reasoned that when the government has a fee arrangement
with a testifying informant, it must make a “complete and timely disclosure” of
this to defense. This gives the defendant “an adequate opportunity to cross-
examine the informant and government agents,” especially if the informant’s
compensation depends in part on a conviction. See id. at 316.
The government should have revealed in advance of trial that it had a fee
agreement with Labhart. Such could have been used to impeach Labhart’s
motive to tell the truth. However, we conclude that if such failure constituted
a Brady violation, it was immaterial and harmless. The jury heard that Labhart
was receiving tens of thousands of dollars from the government and Dynegy in
exchange for over 350 hours of analysis in this case. He also stated that he was
subpoenaed to complete work he had not completed while he was employed by
Dynegy. Labhart was not testifying as an accomplice to a crime seeking a
7
Valencia says Kyles, 514 U.S. at 435, stands for the proposition that Brady violations
are never harmless. Kyles actually teaches that a violation of United States v. Bagley, 473 U.S.
667 (1985), is not harmless. 514 U.S. at 435. Since a violation of Bagley necessarily entails
a determination that a Brady violation is material, see 473 U.S. at 678, Valencia’s argument
is off the mark.
36
No. 08-20546; 08-20573
reduced sentence or a “hired gun” in search of a bounty. Rather, Labhart was
the most qualified person to perform the true-false, long-short, and penny-up
penny-down analyses. There is no indication that Labhart anticipated receiving
a bonus in the event of a guilty verdict. The facts and circumstances of
Labhart’s unique role in this case do not implicate the policy concerns we have
expressed about undisclosed payments to informants testifying in criminal cases.
Cf. Cervantes-Pacheco, 826 F.2d at 315-16, overruling Williamson v. United
States, 311 F.2d 441, 444 (5th Cir. 1962) (“[W]e cannot sanction a contingent fee
agreement to produce evidence against particular named defendants as to crimes
not yet committed.”).
Valencia asserts that the use of a form commonly used for expert witnesses
shows the government’s duplicity in hiding the nature of Labhart’s “expert”
testimony. We cannot agree that the government’s use of a particular form to
hire Labhart transforms his findings into expert testimony. We reiterate that
Labhart performed analysis which was part and parcel of his daily duties while
he was chief risk officer of Dynegy. Valencia also suggests that the boxes
checked on the contract indicate that Labhart would allow his conclusions to be
swayed by a “contractual obligation to provide inculpatory, expert testimony at
trial.” It is true that on the OBD-47 form, the box “support litigation/prosecution
theory or conclusion” was checked. However, the government had always
represented that Labhart’s testimony and conclusions would support its theory
of the case. Ultimately, it is the duty of the jury to determine whether Labhart
was a credible witness despite his compensation arrangements. See Cervantes-
Pacheco, 826 F.2d at 316 (“[W]e hold that the credibility of the compensated
witness, like that of the witness promised a reduced sentence, is for a properly
instructed jury to determine.”).
Valencia says advance disclosure of the fee contract would have allowed
her to more effectively impeach Labhart regarding his pecuniary motives,
37
No. 08-20546; 08-20573
because counsel was focused on numerous other matters in this complex trial.
Even if this is true, Valencia fails to show that the error was prejudicial—that
inability to better impeach Labhart rendered her trial unfair. Even without the
written contract, counsel for both Valencia and Singleton thoroughly cross-
examined Labhart regarding his fee agreement and insinuated that the
payments biased him towards the government’s position. See United States v.
McKinney, 758 F.2d 1036, 1050 (5th Cir. 1985) (“If the defendant received the
material in time to put it to effective use at trial, his conviction should not be
reversed simply because it was not disclosed as early as it might have and,
indeed, should have been.”). We do not condone the government’s failure to
reveal in advance its compensation agreement with Labhart. However, this
misstep does not undermine confidence in the jury’s verdict. See Infante, 404
F.3d at 386; Brown, 303 F.3d at 593, 597. Valencia is not entitled to a new trial
on this basis.
IV.
The next issue on appeal, urged by both Valencia and Singleton, concerns
the testimony of the government’s expert, Matthew O’Loughlin. Defendants
contend that the district court abused its discretion in admitting O’Loughlin’s
testimony, which fell short of the admissibility requirements of expert opinions.
We disagree.
A.
The government hired O’Loughlin to evaluate whether defendants’ false
reports affected or tended to affect the natural gas indices published by Inside
FERC and NGI. On July 5, 2006, days before trial began, defendants requested
a hearing regarding expert testimony; on July 8, 2006, defendants moved to
exclude O’Loughlin’s testimony as unreliable under Federal Rule of Evidence
702 and Daubert. At a pretrial hearing, the court stated that the motion to
exclude was untimely, but indicated that it would entertain the objection
38
No. 08-20546; 08-20573
pursuant to its gatekeeping duty. Several days into trial, on July 14, 2006, the
district court held a conference outside of the presence of the jury, at which it
considered the admissibility of O’Loughlin’s testimony. O’Loughlin was not
present, but the court considered the report he had prepared pursuant to
Federal Rule of Criminal Procedure 16, as well as counsel’s arguments. The
court explained that the purpose of the conference was to determine whether
O’Loughlin’s presence at a Daubert hearing would be necessary, or whether the
court could make admissibility determinations based on information already
available.
It was undisputed that indices published by Inside FERC and NGI were
commonly used by participants in natural gas markets to price transactions.
However, defendants contested whether false reports could have an effect on the
published indices. Legally, this was relevant to the materiality of the reports for
both the CEA and the wire fraud counts. At first blush, the relationship between
price reports and indices would seem elementary: the editors of both Inside
FERC and NGI testified that the reports were their starting point when
determining index prices. However, neither editor could say that a given report
could, or actually did, change the index price. Specifically, Kelly Doolan, chief
editor of Inside FERC, testified that he examined the volume-weighted averages
for bidweek trades. However, he said he exercised his judgment in determining
whether to include all reported trades in the averages. Doolan frequently
discarded what he considered outlier data, and said it “would be speculation” to
conclude that a particular report had changed, or could change, the indices. He
might also decide to alter an index price based on information not contained in
the price reports. Mark Curran, chief editor of NGI, examined the trade reports
and used editorial discretion in determining whether to include all trades in the
volume-weighted average. However, Curran testified that, after deciding which
39
No. 08-20546; 08-20573
figures to include or exclude, he typically published the final volume-weighted
averages as NGI’s index prices.
In light of the assertions of Doolan and Curran regarding their editorial
discretion in creating the monthly indices, the government could not simply ask
the jury to infer or assume that a given false price report had changed, or had
the tendency or ability to change, a given index price. The government retained
O’Loughlin in order to probe the relationship of the price reports to the indices.
O’Loughlin was provided the trade reports submitted to Inside FERC. He
calculated volume-weighted averages for all reported trades and delivery nodes,
and compared these figures to Inside FERC’s published index prices. In this
manner he could test how closely the indices tracked the raw data. For NGI, the
monthly reports were not available. However, O’Loughlin was able to obtain the
final worksheets used by chief editor Mark Curran to calculate the publication’s
volume-weighted averages, which ultimately became the index prices. For both
Inside FERC and NGI, O’Loughlin found a strong correlation between the
volume-weighted averages of the trades submitted and the published index
prices. O’Loughlin then examined the months when Valencia or Singleton
allegedly submitted false reports. He removed the false trades in an effort to see
whether the trades had the potential to change the volume-weighted averages.
He found that they did.
At the July 14 conference, the court acknowledged that O’Loughlin’s
methodology was “not one that he purports others have used,” and that he was
“largely summarizing factual material and then doing an arithmetic calculation.”
However, the court also reasoned that this issue was res nova, as “there has been
no need in the world for anyone to do the work that O’Loughlin has done.” The
upshot of O’Loughlin’s analysis was, as the district court stated, an inference
that Inside FERC’s and NGI’s published indices closely tracked the volume-
weighted averages of the trades submitted to the publications. Thus, the
40
No. 08-20546; 08-20573
editorial judgment of the editors was minimal. Defense counsel objected that
O’Loughlin would essentially be asking the jury to disregard the editors’
testimony. Moreover, Doolan and Curran exercised discretion in deciding which
trades to include or exclude from the volume-weighted averages. Therefore,
defendants asserted that O’Loughlin failed to account for a critical step in the
process of creating the indices. The court ruled that this did not undermine
O’Loughlin’s methodology, but instead challenged an assumption he made in
reaching his conclusions. The court reasoned that defendants’ critiques affected
the weight of the testimony, not its admissibility, and were fodder for cross-
examination. Consequently, the court held that the government had met its
burden of proving under Daubert that the expert’s methodology and opinions
were reliable, and were based on sufficient data.
O’Loughlin testified near the end of trial, from July 27 to 28, 2006.8 He
stated that, in order to analyze Inside FERC’s practices, he examined the trade
reports for a twenty-eight month period from January 2000 through April 2002.
These reports were used to create approximately 1,600 index prices for various
trading points. He used the reports to create a volume-weighted average for
each point. O’Loughlin found that for the vast majority of the data points,
approximately eighty percent, the volume-weighted average was the same as the
published index price. The data points were depicted on a graph and displayed
to the jury. Based on these observations, O’Loughlin opined that the volume-
8
Prior to O’Loughlin’s in-court testimony, Valencia’s counsel re-urged the motion to
exclude on the basis that O’Loughlin made unfounded assumptions when forming his opinions,
namely that the volume-weighted averages became the index prices. The court stated: “As I
understand O’Loughlin’s testimony, he will do statistical analysis to the effect that the vast
majority of time the volume-weighted average is the index price.” The court stated that it had
seen O’Loughlin’s “statistical analysis, and there is a very strong correlation between the
volume-weighted average and the index price” for both Inside FERC and NGI. Thus,
O’Loughlin could testify about the correlation, and defendants’ objections concerned the weight
of his testimony in the mind of the jury, not its admissibility. The court added, however, that
without a proper foundation, it would not allow O’Loughlin to opine about whether, if the false
“trades had not been included in the data the index would have changed.”
41
No. 08-20546; 08-20573
weighted average “has a strong relationship with the index price,” and that a
change in the volume-weighted average was “very likely to lead to a different
index price.” In light of the frequency with which the volume-weighted average
and the index price were very close or identical, he inferred that the volume-
weighted average was “an explanatory variable for the index price.” He further
explained that, in light of the data, it appeared that there was a relationship
between the volume-weighted averages and the index prices, “and the
relationship is showing that the change in the volume-weighted average appears
to be one for one with the change in the index price.”
O’Loughlin reached a similar conclusion for NGI. Although he lacked the
bidweek data submitted to NGI, O’Loughlin read from NGI’s methodology
statement, which stated: “The prices that appear in NGI’s gas price index
represent the volumetric weighted average of negotiated fixed price transactions
that occur during a particular time period . . . .” As O’Loughlin explained, the
methodology statement acknowledged that outlier data would be discarded, and
that the volume-weighted average of the remaining data set would be published
as the index price. On this basis, he concluded that the volume-weighted
average was the most important component of NGI’s indices.
In addition, O’Loughlin testified about whether the false trades submitted
by defendants had the potential to change the volume-weighted averages
compiled by Inside FERC and NGI. In the case of trades submitted by Valencia
to Inside FERC and identified by Glenn Labhart as false, O’Loughlin found that
removing the trades could change the volume-weighted averages, in some cases
by several cents. O’Loughlin engaged in this analysis for the false trades
submitted to NGI by both Valencia and Singleton, and concluded that these also
had the potential or tendency to affect the volume-weighed averages. Finally,
O’Loughlin drew the inference that because volume-weighted averages were the
most important component of the indices, and because trade reports had the
42
No. 08-20546; 08-20573
potential to affect volume-weighted averages, false trade reports had the
tendency or capability to affect the final published index prices. In particular,
O’Loughlin noted that, based upon his review of Curran’s testimony, most trades
submitted by Dynegy and El Paso would be included in the volume-weighted
averages, and hence, the indices. His conclusion covered both Inside FERC and
NGI: “[G]iven that there is this relationship that we’ve seen both for Inside
FERC and NGI between changes in the volume-weighted average and changes
in the index price, my sense is that if, in fact, the volume-weighted average is
being affected by more than a penny, it is likely that there was some influence
on the index price.”
B.
Valencia and Singleton argue that the district court abused its discretion
in admitting O’Loughlin’s opinions. Defendants do not contest his credentials
or qualifications, but rather, argue that his testimony was not relevant or
reliable. Defendants fault the district court for failing to require that O’Loughlin
be present for voir dire at a pre-trial Daubert hearing, and for ruling on the
admissibility of his opinions mid-trial. Defendants say the court abdicated its
gatekeeping role over expert testimony, and allowed spurious testimony to reach
the trier of fact. Defendants criticize O’Loughlin’s calculations as unreliable
tweaks to volume-weighted averages, which disregarded Doolan’s and Curran’s
testimony that their respective indices “were determined through subjective
editorial judgments.” As such, defendants characterize O’Loughlin’s conclusions
as impermissible attacks on the witnesses’ credibility. Defendants say
O’Loughlin’s analysis was unreliable because he did not conduct multiple-
regression analysis to account for potentially confounding variables affecting the
index prices. On this basis, O’Loughlin allegedly posited an unsubstantiated
causal link between the defendants’ false reports and changes in the published
indices. Defendants say the admission of the testimony prejudiced them because
43
No. 08-20546; 08-20573
the aura of credibility conferred by O’Loughlin’s expert status likely swayed the
jury to find the materiality element of the crimes, which no other evidence in the
record directly provided.
Moreover, Valencia contends that O’Loughlin wrongly conveyed hearsay
directly to the jury. O’Loughlin evaluated so-called voice broker data generated
by services such as the now-defunct Enron Online, which matched buyers and
sellers of gas. After evaluating these records, O’Loughlin testified that Dynegy
used Inside FERC’s indices in California to price gas contracts. This
contradicted Jeffrey Hornback’s testimony that Dynegy used NGI’s indices to
price contracts in California. O’Loughlin allegedly failed to state in his expert
report that he would consider voice broker data or present this conclusion.
Singleton argues separately that O’Loughlin wrongly concluded that Singleton’s
July 31, 2000 email to NGI “likely” influenced NGI’s Southern California Border
index. However, Singleton says that the volume-weighted average for Curran’s
worksheets for that month remains the same whether Singleton’s trades are
included or excluded. Singleton says this erroneous statement indicates that
O’Loughlin’s opinions are unreliable.
The government says O’Loughlin was qualified to testify as an expert in
the fields of economics and energy affairs with experience evaluating natural gas
indices. Moreover, his analysis conforms to the requirements of relevance and
analytical rigor required of an expert in economics or statistics. The government
contends that multiple regression analysis was not necessary because
O’Loughlin was trying to establish that, notwithstanding the editorial judgment
exercised by the editors of Inside FERC and NGI, defendants’ false reports had
the potential or tendency to influence index prices. The government also states
that defendants did not criticize the lack of regression analysis during voir dire
of the witness or before the district court. Because success of a scheme is not an
element of wire fraud, the government says it was proper to allow O’Loughlin to
44
No. 08-20546; 08-20573
testify that it was possible or likely that the false reports were market-moving
communications without eliminating all confounding or contributory factors.
C.
We review the admission or exclusion of expert testimony for an abuse of
discretion. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 152 (1999). The district
court’s ruling will not be disturbed on appeal unless it is manifestly erroneous.
United States v. Norris, 217 F.3d 262, 268 (5th Cir. 2000). If the court abuses its
discretion, judgment will be affirmed under the harmless error doctrine unless
the error affected a substantial right of the defendant. Id. (citations omitted);
Watkins v. Telsmith, Inc., 121 F.3d 984, 988 (5th Cir. 1997) (noting that
“[d]istrict courts enjoy wide latitude in determining the admissibility of expert
testimony”) (citations and internal quotations omitted).
Under Federal Rule of Evidence 702,9 district courts are assigned a
gatekeeping role to determine the admissibility of expert testimony. Daubert,
509 U.S. at 592-93. The court must find that the evidence is both relevant and
reliable before it may be admitted. Id. To do so, the court must evaluate
whether the reasoning and methodology underlying the testimony is valid and
can be reliably applied to the facts of the case. Id. This requires more than a
glance at the expert’s credentials; the court must also ensure that the expert has
reliably applied the methods in question. See Moore v. Ashland Chem. Inc., 151
F.3d 269, 276 (5th Cir. 1998) (en banc). Factors to consider when evaluating
reliability include: (1) whether a theory or technique can be tested; (2) whether
the theory or technique has been subjected to peer review and publication; (3)
9
“If scientific, technical, or other specialized knowledge will assist the trier of fact to
understand the evidence or to determine a fact in issue, a witness qualified as an expert by
knowledge, skill, experience, training, or education, may testify thereto in the form of an
opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the
testimony is the product of reliable principles and methods, and (3) the witness has applied the
principles and methods reliably to the facts of the case.”
45
No. 08-20546; 08-20573
the known or potential rate of error; (4) the existence and maintenance of
standards and controls; and (5) general acceptance of the theory in the scientific
or expert community. Daubert, 509 U.S. at 593-95. Nevertheless, the reliability
inquiry is flexible, and the judge has discretion in determining which factors are
most germane in light of the nature of the issue, the particular expertise, and
the subject of the expert’s testimony. Id. at 594-95; Kumho Tire, 526 U.S. at 142.
Overall, the trial court must strive to ensure that the expert, “whether basing
testimony on professional studies or personal experience, employs in the
courtroom the same level of intellectual rigor that characterizes the practice of
an expert in the relevant field.” Kumho Tire, 526 U.S. at 152.
The relevance and reliability of expert testimony turns upon its nature and
the purpose for which its proponent offers it. See, e.g., Hodges v. Mack Trucks,
Inc., 474 F.3d 188, 195 (5th Cir. 2006) (“Of course, whether a proposed expert
should be permitted to testify is case, and fact, specific.”) (citing Kumho Tire, 526
U.S. at 150-51). Expert statistical opinions are often offered to demonstrate a
causative relationship between a dependent variable and an explanatory
variable because the existence vel non of a causal link is a legally relevant fact
of consequence.10 See, e.g., Munoz v. Orr, 200 F.3d 291, 300 (5th Cir. 2000) (in
Title VII disparate impact claim, “the evidence will focus on the degree of
statistical disparity between protected and non-protected workers in regards to
employment or promotion”); Sheehan v. Daily Racing Form, Inc., 104 F.3d 940,
942 (7th Cir. 1997) (Posner, J.) (in age discrimination claim, “equating a simple
statistical correlation to a causal relation . . . indicates a failure to exercise the
degree of care that a statistician would use in his scientific work”); McClain v.
Metabolife Int’l, Inc., 401 F.3d 1233, 1243 (11th Cir. 2005) (in claims for toxic
10
See FED. R. EVID. 401 (“‘Relevant evidence’ means evidence having any tendency to
make the existence of any fact that is of consequence to the determination of the action more
probable or less probable than it would be without the evidence.”).
46
No. 08-20546; 08-20573
torts or negligent prescription, evidence of correlation or temporal proximity
cannot establish required causative nexus between defendant’s act and plaintiff’s
ensuing injury). Logically and legally speaking, in such cases causal evidence
is relevant to the jury. See Huss v. Gayden, 571 F.3d 442, 457 (5th Cir. 2009)
(noting, in dictum, that evidence of injury by negligent prescription must be
shown “to a reasonable degree of medical certainty”) (citation omitted), petition
for cert. filed, 78 U.S.L.W. 3447 (U.S. Jan. 8, 2010) (No. 09-842).
Evidence of mere correlation, even a strong correlation, is often spurious
and misleading when masqueraded as causal evidence, because it does not
adequately account for other contributory variables. See, e.g., id. at 459 (“Any
scientist or statistician must acknowledge, however, that correlation is not
causation.”); Munoz, 200 F.3d at 301-02; Sheehan, 104 F.3d at 942 (“Completely
ignored was the more than remote possibility that age was correlated with a
legitimate job-related qualification, such as familiarity with computers.”).
However where evidence of correlation itself is potentially relevant and unlikely
to mislead the jury, an expert who reliably discerns this relationship can present
such conclusions to the jury. See Pirlott v. NLRB, 522 F.3d 423, 435, 436 (D.C.
Cir. 2008) (reasoning that, in order to charge objecting nonmembers union dues,
union can show “a positive correlation between wages and union density in the
relevant market at issue”; expert witness presented such evidence) (internal
quotation and citation omitted); United States v. W.R. Grace, 504 F.3d 745, 765
(9th Cir. 2007) (holding that “the fact that a study is associational—rather than
an epidemiological study intended to show causation—does not bar it from being
used to inform an expert’s opinion about the dangers of asbestos releases”);
United States v. White, 356 F.3d 865, 870 (8th Cir. 2004) (“Our court recognizes
the known correlation between drug dealing and weapons, and accepts that they
are closely and integrally related to the issue of possession of a firearm.”); United
States v. Hopkins, 310 F.3d 145, 151 (4th Cir. 2002) (holding that expert
47
No. 08-20546; 08-20573
testimony that defendant’s behavior was consistent with dealing crack was
relevant and reliable in light of expert’s law enforcement experience and
analysis of germane facts in the case). Whether a particular opinion is relevant
and reliable thus does not simply turn on whether the expert asserts a causal or
correlative relationship, but is closely tied to the law and facts at issue in a given
case. See Hodges, 474 F.3d at 195.
D.
Having reviewed the parties’ arguments, O’Loughlin’s testimony, and the
district court’s thorough examination of the proffered opinions, we cannot
conclude that the court abused its discretion and committed manifest error in
allowing O’Loughlin to testify about the tendency of defendants’ false trade
reports to affect the indices published by Inside FERC and NGI.
Regarding the Daubert factors, the district court recognized that the
unprecedented nature of O’Loughlin’s work made it impractical, if not
impossible, to subject the methods to peer review and publication, and that there
would be no general acceptance of the theory in the scientific or expert
community. See 509 U.S. at 593 (noting that publication “is not the sine qua non
of admissibility; it does not necessarily correlate with reliability, and in some
instances well-grounded but innovative theories will not have been published”)
(internal citations omitted). However, given the arithmetic underpinnings of
O’Loughlin’s analysis, one can test the theories and determine the rate of error.
See id. Indeed, by noting that the volume-weighted averages matched the
published indices approximately eighty percent of the time, O’Loughlin
acknowledged that his opinion—that prices reports had the tendency to affect
indices—was imperfect. The district court recognized that the fit between the
data and O’Loughlin’s theory was approximate, but reasoned this did not render
the opinions altogether unreliable, and defendants could highlight any
inconsistencies on cross-examination. In light of the district court’s insightful
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No. 08-20546; 08-20573
consideration of, and fidelity to, the Daubert factors at this necessarily “flexible”
stage of the trial, see id., we cannot say that the court abused its discretion in
admitting O’Loughlin’s testimony as sufficiently rigorous economic and
statistical analysis. The record belies defendants’ assertion that the court
abdicated its duty to exclude irrelevant or spurious testimony from the
courtroom. Moreover, the court did not abuse its discretion in declining to
require that O’Loughlin be present at the Daubert hearing, especially in light of
defendants’ eleventh-hour motion to exclude his testimony.
Concerning relevance, it is important to bear in mind that in this case,
defendants were charged with, and we now review convictions solely based upon,
wire fraud. To prove wire fraud, the government must show a scheme to
defraud, the use of wire communications in furtherance of the scheme, and the
defendant’s specific intent to participate in the scheme. United States v.
Stalnaker, 571 F.3d 428, 436 (5th Cir. 2009) (citations omitted). The government
must also prove that the communications were material. Neder v. United States,
527 U.S. 1, 25 (1999). A “material” statement has “a natural tendency to
influence, or is capable of influencing, the decision of the decision-making body
to which it was addressed.” See United States v. Lucas, 516 F.3d 316, 339 (5th
Cir.) (quotation omitted), cert. denied, 129 S. Ct. 116 (2008)11; United States v.
Philip Morris USA Inc., 566 F.3d 1095, 1122 (D.C. Cir. 2009) (“This materiality
requirement is met if the matter at issue is of importance to a reasonable person
in making a decision about a particular matter or transaction.”) (citation and
internal quotation omitted). Success of the scheme is not an element of the
crime. See United States v. Loney, 959 F.2d 1332, 1337 (5th Cir. 1992).
11
Lucas is a mail fraud case, but the same analysis and reasoning applies to wire fraud.
See United States v. Mills, 199 F.3d 184, 188 (5th Cir. 1999); see also Neder, 527 U.S. at 25
(“[W]e hold that materiality of falsehood is an element of the federal mail fraud, wire fraud,
and bank fraud statutes.”).
49
No. 08-20546; 08-20573
Defendants agree that O’Loughlin’s testimony concerned the materiality
of defendants’ false reports. For this element, it was incumbent on the
government to show that the false reports had the tendency to influence the
indices published by Inside FERC and NGI. It was not legally determinative
whether a particular report actually changed a particular index price.
O’Loughlin concluded, after evaluating the relationship between the data and
the indices, that the information submitted by Valencia and Singleton, or at
their direction, would be important to a reasonable person seeking to determine
the price of natural gas at the trading points for which defendants submitted
reports. This inference is largely consistent with the testimony of Doolan and
Curran, who said they considered the bidweek reports when creating index
prices. While it was a matter of editorial discretion whether a given trade would
be included within a volume-weighted average, and ultimately, the index price,
O’Loughlin demonstrated that this discretion was either infrequently invoked
or played a comparatively minor role.
We acknowledge that O’Loughlin’s conclusions were somewhat in tension
with the statements of Doolan and Curran. However, O’Loughlin did not simply
urge the jury to disregard their testimony. O’Loughlin’s conclusion was well
grounded in his thorough analysis of the data, not a metaphysical disagreement
with the editors’ assertions. We therefore reject defendants’ argument that
O’Loughlin’s opinion was an unsubstantiated and impermissible attack on the
editors’ credibility. Because O’Loughlin’s testimony helped show that the
bidweek reports were important to Doolan and Curran, the testimony was
relevant to the element of materiality. See Philip Morris, 566 F.3d at 1123 (“The
question, however, is not whether a reasonable person would have believed
Defendants’ false statements, but only whether a reasonable person would have
considered the issue of importance . . . .”) (quotation marks omitted).
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No. 08-20546; 08-20573
As for reliability, O’Loughlin carefully explained the nature of his
conclusions so that he remained within the scope of his properly admitted
opinions. Contrary to defendants’ representations, O’Loughlin did not state that
the false reports changed the published indices. Rather, he stated that volume-
weighted averages and index prices often moved in tandem, and that volume-
weighted averages were an “explanatory variable” for index prices. Based upon
this observation, it was possible, or in some cases, likely that the false reports
would have an effect on the volume-weighed averages, and hence, the indices.
The statements cited by defendants as evidence of unsubstantiated causation
testimony are either couched in terms of changes to volume-weighted averages
or are answers to hypothetical questions. In isolated instances, O’Loughlin
stated that false reports changed the indices. However, if counsel objected, the
district court sustained the objection, and O’Loughlin then corrected himself.
Such slip-ups are not prejudicial in light of the fact that O’Loughlin meticulously
maintained the distinction between volume-weighted averages and final index
prices. Moreover, on cross-examination, O’Loughlin stated that he did not
assume, nor conclude after his analysis, that any one-cent change in a volume-
weighted average would lead to a corresponding one-cent change in an index
price. Therefore, O’Loughlin’s opinions were both relevant and reliable.
We disagree with defendants’ assertion that the testimony should have
been excluded because O’Loughlin did not employ multiple regression analysis.
Multiple regression analysis is a tool for understanding the relationship between
a dependent and an explanatory variable. See generally Daniel L. Rubinfeld,
Reference Guide on Multiple Regression, in REFERENCE MANUAL ON SCIENTIFIC
EVIDENCE 179 (2d ed. 2000). Defendants are correct to point out that this is a
powerful tool when the trier of fact must determine whether a causal link exists.
Nevertheless, regression analysis is not a mandatory feature in all applications
of economics or statistics. See Adams v. Ameritech Servs., Inc., 231 F.3d 414, 425
51
No. 08-20546; 08-20573
(7th Cir. 2000) (“[W]e are not prepared to hold as a matter of law that nothing
but regression analyses can produce evidence that passes the Daubert and
Kumho Tire thresholds. Statisticians might have good reasons to look at data
in different ways.”).
In cases where a causal relationship is not an essential fact of
consequence, an expert need not eliminate all confounding variables or potential
contributory factors in order to present an opinion that is both relevant and
reliable. See Int’l Bhd. of Teamsters v. United States, 431 U.S. 324, 340 (1977)
(noting that the usefulness of statistics “depends on all of the surrounding facts
and circumstances”); cf. Mathis v. Exxon Corp., 302 F.3d 448, 461 (5th Cir. 2002)
(“Although Pulliam may not have isolated the precise effect Exxon’s pricing had
on each station, that was not the purpose of his testimony. The ‘subject of his
testimony,’ as listed by plaintiffs, was whether Exxon had set a commercially
reasonable price in an economic sense.”). In this case, to show that defendants’
statements were material, the government had to prove that they were
important to Doolan and Curran, not that the statements caused Doolan and
Curran to change the indices. See Philip Morris, 566 F.3d at 1123. O’Loughlin
reached his conclusions after applying statistical methods in a reliable manner.
In this case, the lack of regression analysis affected the weight which the jury
assigned to the expert’s testimony, not its legal admissibility.
Valencia also contends that O’Loughlin relied on inadmissible hearsay to
fill a “gap” in the government’s case. Specifically, Jeffrey Hornback testified that
Dynegy used NGI’s indices to price California contracts. O’Loughlin relied on
voice broker records to show that Dynegy also used Inside FERC’s indices.
Valencia says this is significant because the false reports she sent were mostly
directed to Inside FERC. Valencia complains that O’Loughlin did not disclose
in his Rule 16 report that he would rely on voice broker data, and that
O’Loughlin directly conveyed inadmissible documents to the jury. At trial, the
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No. 08-20546; 08-20573
district court overruled Valencia’s hearsay-based objections to Government
Exhibit 686, which purported to show, inter alia, that Dynegy used Inside
FERC’s indices for contracts in California.12
We do not believe that the court abused its discretion in allowing
O’Loughlin to present this conclusion to the jury. O’Loughlin did not directly
convey voice broker data to the jury. Rather, he analyzed the data, concluded
that Dynegy used Inside FERC’s indices to price transactions, and conveyed this
conclusion to the jury in the form of an exhibit he created. Valencia has not
shown that the court abused its discretion in treating the voice broker data as
business records, nor that the court erred in holding that O’Loughlin was
entitled to rely on the records in forming his expert opinion. See FED. R. EVID.
703 (“If of a type reasonably relied upon by experts in the particular field in
forming opinions or inferences upon the subject, the facts or data need not be
admissible in evidence in order for the opinion or inference to be admitted.”);
United States v. Avants, 367 F.3d 433, 447 (5th Cir. 2004). Because Valencia did
not object at trial that the testimony was beyond the scope of O’Loughlin’s Rule
16 expert report, we may only review for plain error. See Avants, 367 F.3d at
446. Government Exhibit 431, a Dynegy contract using an Inside FERC index
to price a gas transaction in California, was submitted into evidence without
objection. Because independent evidence corroborates O’Loughlin’s conclusions,
Valencia’s substantial rights were not affected. See Mares, 402 F.3d at 520.
Singleton maintains that O’Loughlin’s materiality opinion is inadmissible
because the report Singleton submitted on July 31, 2000 could not have changed
12
Valencia never objected at trial that the voice broker data were omitted from
O’Loughlin’s report. Regarding the hearsay objection, the court held that the voice broker data
were business records. Moreover, because O’Loughlin was an expert, Exhibit 686 could “come
into evidence based on [O’Loughlin’s] expertise and his representation that he has gone
through the records.” The court also stated that it relied on the government’s representation
that the voice broker data had previously been furnished to defendants.
53
No. 08-20546; 08-20573
NGI’s August 2000 Southern California Border Average index. O’Loughlin did
state that the false trades reported by Singleton had no effect on the volume-
weighted average.13 During cross-examination, O’Loughlin again acknowledged
that the volume-weighted average remained the same whether Singleton’s false
trades were included or excluded. Singleton asserts that the inability of the
report to change the volume-weighted average undermines O’Loughlin’s
opinions. This argument does not help Singleton for two reasons. First, it is the
tendency of a communication to affect a decision maker which is relevant, not
whether the communication actually had an effect. O’Loughlin posited such a
tendency after demonstrating the propensity of reported trades to affect volume-
weighted averages, and the propensity of volume-weighted averages to affect
indices. Second, if the expert has used reliable methods to assess the data,
isolated computational or arithmetic discrepancies affect the weight of the
testimony, not its admissibility. See Daubert, 509 U.S. at 595 (noting that trial
courts must focus on experts’ “principles and methodology, not on the
conclusions that they generate”). O’Loughlin freely noted that Singleton’s report
of July 31, 2000 would not have changed the volume-weighted average.
Nevertheless, the jury was free to continue to rely on O’Loughlin’s opinion that
the false reports had the tendency or capability to affect the indices.
In sum, the district court properly exercised its duties under Rule 702 and
Daubert, and did not abuse its discretion in admitting the testimony of Matthew
O’Loughlin. Defendants are not entitled to a new trial.
V.
13
In contrast, O’Loughlin stated that the false trades reported by Valencia changed the
volume-weighted average from $4.45 to $4.48.
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No. 08-20546; 08-20573
Valencia says the numerous evidentiary errors in this case deprived her
of a fair trial and, cumulatively, mandate a new trial. The government has not
responded to this argument.
We have previously recognized the so-called cumulative error
doctrine under which “an aggregation of non-reversible errors (i.e.,
plain errors failing to necessitate reversal and harmless errors) can
yield a denial of the constitutional right to a fair trial.” United
States v. Munoz, 150 F.3d 401, 418 (5th Cir. 1999); see United States
v. Sepulveda, 15 F.3d 1161, 1195-96 (1st Cir. 1993) (explaining the
cumulative error doctrine).
United States v. Williams, 264 F.3d 561, 572 (5th Cir. 2001). A claim of
cumulative error is “sui generis;” we evaluate the number and gravity of the
errors in the context of the case as a whole. See Sepulveda, 15 F.3d at 1196.
To recapitulate our holdings, we have concluded that the government
committed non-reversible error in reading the letter of Jeffrey Hornback during
opening statements, and non-reversible error in failing to timely and fully notify
defense of its fee agreement with Glenn Labhart. We have rejected defendants’
arguments concerning the propriety of the district court’s evidentiary and
admissibility rulings, as well as other matters concerning the fairness of their
trial. We do not condone the government’s missteps. But, we recognize that no
trial is perfect, and the shortcomings here did not deprive defendants of a fair
trial. Moreover, the district court assiduously and scrupulously weighed all
objections which were timely brought to its attention. In the context of the vast
amount of evidence presented over the course of four weeks, and in light of the
weight of the evidence supporting defendants’ wire fraud convictions, we reject
Valencia’s assertion that cumulative error mandates retrial in this case. See id.
VI.
Both Valencia and Singleton argue that the evidence presented was not
sufficient to sustain their wire fraud convictions. Valencia says the evidence was
insufficient to show that she submitted false trades, to show her mens rea, and
55
No. 08-20546; 08-20573
to prove materiality. She says Labhart’s testimony did not establish falsity
because he did not show that the “false” trades listed in the trade reports did not
actually occur. Valencia posits that not all trades may have been recorded, that
trade data may have been lost, that there may have been transcription errors,
and that Labhart’s search may have been unreliable or incomplete. Regarding
mens rea, Valencia says the jury would have to infer intent from scant evidence
that her reports did not perfectly match actual bidweek trades. Thus, “the jury
could only speculate impermissibly whether the mere presence of some
incongruity was the result of intentionally fraudulent misreporting” or an honest
error. Finally, Valencia insists materiality was not demonstrated because the
editors of Inside FERC and NGI said they used editorial discretion to set index
prices. Singleton similarly argues that there is insufficient evidence of the
materiality of the false statement he sent on July 31, 2000. Alternatively,
Singleton says the evidence preponderated against his guilt, such that the
district court should have ordered a new trial.
Additionally, defendants have submitted pursuant to Federal Rule of
Appellate Procedure 28(j) asserting that the government needed to prove that
the false information provided to Inside FERC and NGI “affected and tended to
affect index prices.” This language was alleged in the CEA counts of both
indictments, and was “adopted, realleged and incorporated” into the wire fraud
counts as well. Defendants insinuate that unless the government has shown
beyond a reasonable doubt that the false reports affected index prices, the
materiality element of wire fraud has not been met. Alternatively, defendants
suggest that failure to prove at trial that their communications “affected and
tended to affect index prices” constitutes a material variance.
The government emphasizes that evidence in emails, spreadsheets, and
other documents, as well as in taped phone conversations, shows that Valencia
and Singleton engaged in the scheme with the intent to defraud, and that their
56
No. 08-20546; 08-20573
statements were both false and material. The government says that even if the
witnesses’ statements do not always align, the jury was entitled to credit the
theory supporting guilt. The government also argues that the allegation that
defendants’ actions “affected and tended to affect index prices” was mere
surplusage and not a material variance from the proof at trial.
A.
We review de novo the denials of defendants’ motions for judgment of
acquittal under Federal Rule of Criminal Procedure 29(a). See United States v.
Myers, 104 F.3d 76, 78 (5th Cir. 1997). We must affirm the verdict if “a
reasonable trier of fact could conclude from the evidence that the elements of the
offense were established beyond a reasonable doubt, viewing the evidence in the
light most favorable to the verdict and drawing all reasonable inferences from
the evidence to support the verdict.” Id. The evidence “need not exclude every
reasonable hypothesis of innocence or be wholly inconsistent with every
conclusion except that of guilt.” Id. at 79 (quotations omitted). The denial of a
motion for a new trial under Rule 33(a) is reviewed for an abuse of discretion.
See United States v. Sipe, 388 F.3d 471, 492-93 (5th Cir. 2004). To prove wire
fraud, the government had to show a scheme to defraud, the use of wire
communications in furtherance of the scheme, defendants’ specific intent to
participate in the scheme, and materiality of defendants’ communications. See
18 U.S.C. § 1343; Neder, 527 U.S. at 25; Stalnaker, 571 F.3d at 436; Lucas, 516
F.3d at 339.
B.
The evidence presented at trial was sufficient to sustain all seven counts
of wire fraud upon which Valencia was convicted, as well as the sole count of
wire fraud on which Singleton was convicted. Jeffrey Hornback testified
extensively about a scheme at Dynegy to misstate natural gas trades in order to
benefit Dynegy’s trading position. Hornback’s testimony implicated Valencia in
57
No. 08-20546; 08-20573
the scheme. Valencia’s own recorded phone calls, while at times cryptic or
oblique, presented evidence from which the jury could infer that Valencia
knowingly and willingly participated in the scheme. Moreover, for each count
on which Valencia was convicted, the government showed a communication
transmitted via the wires by Valencia or at her direction to Inside FERC or NGI.
The testimony of Glenn Labhart indicated that false information was contained
in the bidweek reports. While Valencia surmises that Labhart’s testimony might
not have been wholly accurate, the jury was entitled to reject this hypothesis.
The properly admitted testimony of Matthew O’Loughlin established that the
communications were material, i.e., the communications were important to, and
had the tendency to affect, the decision-makers to whom they were directed. See
Philip Morris, 566 F.3d at 1124; Lucas, 516 F.3d at 339. The jury was entitled
to believe that the false trades had the tendency to sway the indices,
notwithstanding the testimony of Doolan and Curran that editorial discretion
played a role in how the index prices were generated.
In Singleton’s case, the evidence is likewise sufficient to sustain the guilty
verdict based on Singleton’s July 31, 2000 report to NGI. The jury could infer
Singleton’s participation in the scheme to misreport gas trades based upon a
July 28, 2000 phone call with Valencia. Namely, Singleton and Valencia
tentatively agree to a sale of gas, but Singleton tells Valencia: “If, if you buy it
from me you don’t have to report it. I won’t report it.” Valencia replies: “Ok,
that’s a cool thing.” Alison Reitze, a trader with El Paso, testified that El Paso’s
records showed a fixed-price baseload trade between El Paso and Dynegy,
entered into by Singleton and Valencia, respectively, on July 28, 2000. The
trade met NGI’s reporting criteria, but was not included on the report Singleton
sent to NGI on July 31, 2001. Ronald Clay Sanders, the director of risk
management and analysis for El Paso’s marketing and trading company,
likewise testified that many of the trades listed in Singleton’s July 31, 2000
58
No. 08-20546; 08-20573
report to NGI were not listed in El Paso’s risk management database. The
foregoing facts adequately show Singleton’s knowing participation in, and use
of the wires in furtherance of, a scheme to misreport trades.
Singleton again suggests that the false trades were not material because
NGI’s Southern California Border index was the same whether his trades were
included or excluded. He also states that O’Loughlin misrepresented the
testimony of Mark Curran, chief editor of NGI, regarding how the index was
calculated. Singleton emphasizes that Curran testified that he had no record of
how he created the index, and that the index price was entirely at his discretion.
As discussed above, even if the false trades reported by Singleton did not change
the index, this does not mean the communication was immaterial. See Philip
Morris, 566 F.3d at 1124; Lucas, 516 F.3d at 339. Success is not an element of
the crime. See Loney, 959 F.2d at 1337. O’Loughlin’s testimony also presented
evidence which, if found credible by the jury, would support a well-grounded
inference that trade reports from Singleton and other natural gas traders were
important to Curran, regardless of his undisputed editorial discretion. At most,
Singleton’s arguments concern the weight the trier of fact could assign to various
pieces of evidence. Because a reasonable jury could have found each element
present beyond a reasonable doubt, Singleton’s wire fraud conviction stands.
C.
The language in defendants’ indictments is not defective or a material
variance from the proof adduced at trial. We normally disregard arguments not
briefed or raised for the first time at or after oral argument. See, e.g., United
States v. Whitfield, 590 F.3d 325, 370 (5th Cir. 2009). At best, we may review for
plain error. Id. at 371. Even so, defendants’ arguments lack merit. We have
long held that the government need only prove facts alleged in the indictment
which meet the essential elements of the crime. United States v. Robinson, 974
F.2d 575, 578 (5th Cir. 1992); United States v. England, 480 F.2d 1266, 1269 (5th
59
No. 08-20546; 08-20573
Cir. 1973). We treat the allegation of additional facts beyond those which
comprise the elements of the crime as “mere surplusage.” Robinson, 974 F.2d
at 578. The materiality element of wire fraud does not require a showing that
a false communication actually caused an intended consequence. Thus, the
allegation in the indictment that Valencia and Singleton “affected and tended
to affect index prices” is surplusage. See id.; United States v. Hughes, 766 F.2d
875, 879 (5th Cir. 1985).
There was also no material variance between the indictment and the proof
at trial. “A variance is material if it prejudices the defendant’s substantial
rights, either by surprising the defendant at trial or by placing the defendant at
risk of double jeopardy.” Robinson, 974 F.2d at 578 (citations and internal
quotations omitted). A variance is immaterial if the nature of the charge
remains the same. See id.; see also United States v. Millet, 123 F.3d 268, 272
(5th Cir. 1997) (“A constructive amendment to the indictment occurs when the
jury is permitted to convict the defendant on a factual basis that effectively
modifies an essential element of the offense charged in the indictment.”)
(citations omitted). In this case, the wire fraud scheme alleged in the indictment
was the same as that demonstrated at trial, namely, that defendants submitted
false natural gas trade reports to Inside FERC and NGI. The success of the
schemes is not relevant to wire fraud. Therefore, defendants could not have
been surprised or exposed to double jeopardy for these counts if the proof did not
demonstrate an unequivocal causal effect between the reports and changes to
the indices. See Robinson, 974 F.2d at 578. There was no plain error. See
Millet, 123 F.3d at 272.
In sum, there was sufficient evidence to sustain all counts on which the
jury returned verdicts of guilty. We reiterate that we have only reviewed the
sufficiency of the counts of wire fraud. We have not considered the conspiracy
counts, nor the substantive counts of violations of the Commodities Exchange
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No. 08-20546; 08-20573
Act, which were dismissed at the government’s motion in light of the jury’s
partial verdict. We express no opinion regarding whether the evidence was
sufficient to support such counts.
VII.
Finally, Valencia argues that the district court erred in failing to consider
whether she was entitled to a downward departure based on her caregiver
status. Sentencing took place on August 21, 2008, more than two years after
trial. The Guidelines range was forty-six to fifty-seven months. Valencia had
recently given birth to a daughter with Turner’s syndrome, and requested a
departure for this reason. The court said Valencia’s decision to conceive and
carry a child to term, despite her imminent incarceration, “was a personal
choice. . . . I cannot change my sentence for that reason.” The court sentenced
Valencia to concurrent fifty-seven month terms of imprisonment, the top of the
Guidelines range, followed by concurrent two-year terms of supervised release.
Valencia avers that the court’s statement, “I cannot change my sentence for that
reason,” reveals the district court’s failure to comprehend its broad authority to
grant a departure. See Gall v. United States, 552 U.S. 38, 49-50 (2007).
Valencia requests resentencing. The government counters that the court’s
statement reflects its understanding of its duties to uphold the law and apply the
faactors of 18 U.S.C. § 3553(a), and not a sense that it lacked discretion to grant
a downward departure.
Review of a district court’s sentence is governed by a two-step process, in
which we first ask whether the district court committed a procedural error.
United States v. Delgado-Martinez, 564 F.3d 750,751 (5th Cir. 2009). If there is
no error or the error is harmless, we review the substantive reasonableness of
the sentence for an abuse of discretion. Id.; see Gall, 552 U.S. at 51. There is no
indication, nor does Valencia argue, that the court committed a procedural error
in calculating the Guidelines range. Moreover, the court acknowledged its
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No. 08-20546; 08-20573
authority and responsibilities, including those stated in Kimbrough v. United
States, 552 U.S. 85 (2007), United States v. Booker, 543 U.S. 220 (2005), and
under § 3553(a). The court’s statement does not indicate misapprehension of its
authority to give Valencia the sentence it deemed proper, whether within, above,
or below the Guidelines range. The court also stated to Valencia: “I’m going to
give you the sentence that I think is the right sentence regardless of the
Guidelines.” The court thereafter explicitly acknowledged that the Guidelines
were not binding, and that the court had the authority to deviate if it so chose.
In context, the words “I cannot” are best understood as “I will not.” This isolated
comment does not indicate that the district court believed that the Guidelines
range should presumptively apply. See United States v. Cisneros-Gutierrez, 517
F.3d 751, 766 (5th Cir. 2008). Valencia is not entitled to resentencing.
VIII.
We have exhaustively examined the vast trial record, defendants’
arguments on appeal, and the relevant law. We conclude that defendants’
convictions withstand each of the challenges raised. We therefore affirm the
convictions and sentences of defendants Valencia and Singleton.
AFFIRMED.
62