United States v. Van Eyl, Paul M. ( 2006 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-1785
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
v.
PAUL VAN EYL,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 02 CR 287—James B. Zagel, Judge.
____________
ARGUED MAY 8, 2006—DECIDED OCTOBER 2, 2006
AMENDED OCTOBER 5, 2006Œ
____________
Before BAUER, RIPPLE and ROVNER, Circuit Judges.
ROVNER, Circuit Judge. Paul Van Eyl went to trial on
a twelve-count indictment for various financial crimes.
The jury hung on ten of the counts and returned a verdict
of guilty on the other two. The district court granted Van
Eyl’s subsequent motion for a new trial because the govern-
ment’s closing argument contained a damaging theory of
guilt that the court had earlier excluded in response to a
motion in limine. Although the argument was made in good
faith, and although the court overruled the defendant’s
Œ
The opinion is hereby amended to include the inadvertently
omitted concurrence by Judge Bauer.
2 No. 05-1785
objection in the heat of the closing arguments, the court
later determined that the argument was improper and
likely had a substantial effect on the verdict in this very
close case. The government appeals the grant of a new trial.
Because of the deferential review we accord such decisions,
we affirm.
I.
Van Eyl worked for First Merchants Acceptance Corpora-
tion (“FMAC”), a finance company specializing in the
subprime auto lending market. Van Eyl served as vice
president for strategic planning and risk management.
Mitchell Kahn, a lawyer who co-founded FMAC and served
as its chief executive officer, was Van Eyl’s co-defendant.
Kahn pled guilty and cooperated with the government in its
prosecution of Van Eyl. FMAC was in the business
of lending money at above-market interest rates to
people with problematic credit histories so that they could
purchase cars. The company’s primary asset was its
accounts receivable, which FMAC used to secure a line of
credit with LaSalle Bank, the company’s primary source
of funds. Given the nature of FMAC’s business, not all of
the customer accounts were current at any given time, with
some customers being so late in their payments that their
accounts were charged off as a loss. Because of delinquent
accounts, two important aspects of FMAC’s business were
collections and repossessions. Accounts receivable were
tracked by a computer system called Norwest, which was
run by an outside contractor. The Norwest system grouped
delinquent accounts into thirty-day increments (called
“buckets” in the system) depending on how late the custom-
ers were in paying. For example, the thirty-day bucket
contained accounts that were thirty-one to sixty days late in
payment, the sixty-day bucket was comprised of accounts
that were sixty-one to ninety days late, and the ninety-day
No. 05-1785 3
bucket contained accounts more than ninety-one days
delinquent. Tracking the lateness of payments was a crucial
function because only relatively current accounts receivable
could serve as collateral when FMAC needed financing.
LaSalle Bank extended to FMAC a line of credit capped at
$205 million, secured by accounts receivable, and permit-
ting a monthly draw equal to 80% of eligible receivables.
These loans were repaid out of incoming cash when FMAC
customers made their monthly car payments. FMAC was a
publicly traded company and shareholders and potential
investors relied on company policies and the value of
accounts receivable in making investment decisions. These
policies and values were revealed in SEC filings that listed
assets and liabilities. In its SEC filing for the year ending
December 31, 1996, for example, FMAC reported that
it charged off as a loss the balance left on any account
that was more than ninety days delinquent. In some
instances, FMAC was able to repossess the car and recover
some of the outstanding balance of a loan; in other cases,
the car disappeared along with the borrower and the
account was a total loss.
Van Eyl interacted with a number of other FMAC employ-
ees in the course of his job. Julie Freisinger was FMAC’s
liaison to the contractor that ran the Norwest system. Tom
Ehmann was the chief financial officer, Brian Hausman
(who co-founded the company with Kahn) was in charge of
operations, and Peter Gorman was a specialist in collec-
tions. Van Eyl also worked closely with Kahn. Part of Van
Eyl’s job was to compile data from Norwest and keep track
of delinquent accounts and charge-off rates on a monthly
basis, and to use that data to project future charge-offs on
an annualized basis. Van Eyl regularly submitted this
information to Kahn. Some of this information was reported
in FMAC’s SEC filings and was also used in presentations
to investment bankers to promote investment in FMAC.
The charge-off rate was a very important number to
4 No. 05-1785
potential investors because it was highly correlated to
profitability, potential future earnings, and the value of
FMAC’s stock.
Early in 1996, senior management responsible for
reviewing this data noticed that the charge-off rate was
steadily climbing. The norm in the industry was 6-8% and
FMAC was charging off 9-10% of its loans. Collection
efforts, directed by Gorman, were slipping and delinquency
rates were rising. Van Eyl conceded at trial the events
that ensued from the rising delinquencies but vigorously
contested the issue of his involvement and intent in these
events. According to the government, Ehmann suggested to
Kahn that in order to hide FMAC’s problems, they should
manipulate FMAC’s financial reporting. At first, Kahn and
Ehmann tried keeping the books open, that is, posting
payments received in one month to the previous month in
order to minimize the delinquency rate for the previous
month. They soon realized that this practice merely delayed
the inevitable. Kahn then approached Van Eyl about
manipulating the accounting. Kahn, Ehmann and Van Eyl
discussed several strategies and decided to postpone
charging off accounts that were more than ninety-one days
overdue, to grant deferrals on some accounts and to treat
“skips” as if they were “repos.” “Skips” were delinquent
accounts where neither the customer nor the car could be
located. FMAC’s policy was to charge-off as a loss the entire
balance of these accounts. “Repos,” shorthand for reposses-
sions, were delinquent accounts where the car could be
located, recovered and re-sold. Repossessions typically
resulted in recovery of approximately 55% of the remaining
balance of an account, and for this reason, FMAC’s policy
was to charge-off as a loss 45% of the balance on a reposses-
sion. Treating a “skip” as if it were a repossession on the
company books meant that only 45% rather than 100% of
the balance was written off as a loss even though the
remaining 55% was virtually uncollectible. In order to
No. 05-1785 5
implement these changes, Van Eyl directed Freisinger (the
Norwest system liaison) not to enter skips and repos into
the system until he instructed her to do so. Van Eyl then
told Freisinger to place some skips into repo status and
charge off others. Van Eyl did not specify which accounts to
treat differently but rather gave Freisinger a dollar amount
of skips to charge off and a dollar amount to change to repo
status and left it to her to determine which accounts to
change to achieve the desired accounting results. Charge-off
decisions were thus based not on collectibility but on
achieving certain accounting numbers.
According to the government, this practice continued from
June 1996 through January 1997. During that time, Kahn,
Ehmann and Van Eyl represented publicly that accounts
more than ninety-one days delinquent were being charged
off. Nonetheless, delinquencies continued to rise and Kahn
discussed new strategies with Van Eyl. Out of these
discussions came the customer service deferral program. A
deferral was an agreement between FMAC and the bor-
rower to defer a monthly payment to the end of the loan
period. Deferrals are a legitimate practice in the lending
business, typically used to assist borrowers through a brief
period of money trouble without having the account re-
ported as delinquent. FMAC’s original informal policy was
to grant deferrals for good cause, but FMAC’s lenders
placed limits on the practice. Accounts that received three
one-month deferrals over the life of the loan or two deferrals
in a single year could no longer serve as collateral. Accounts
that were more than ninety days delinquent were not
eligible for deferral. In its short existence, the customer
service program accorded deferrals to approximately 9,300
ineligible accounts with balances totaling more than $109
million.
In March 1997, Ehmann, the CFO, was replaced by
Norman Smagley. Soon thereafter, Brian Hake, FMAC’s
treasurer, told Smagley that the high number of deferrals
granted in 1996 violated FMAC’s agreements with outside
6 No. 05-1785
lenders. Hake tendered his resignation over the manipula-
tion of the charge-off figures. Richard Zielinski, FMAC’s
internal auditor, also approached Smagley to report that he
had discovered that skips were being entered into the
Norwest system as repos and that seriously delinquent
accounts were not being charged off. Zielinski demanded
that Smagley report these findings to the audit committee
of the board of trustees. Smagley did so and an investi-
gation followed. As a result, the board terminated Kahn,
Ehmann, Freisinger and Van Eyl, and issued a press
release stating that FMAC’s financial reporting was not
accurate. The company issued restatements of its SEC
filings for 1996, bankruptcy ensued, and FMAC’s creditors
ultimately lost $13 million.
Van Eyl had a completely different view of these events.
According to Van Eyl, FMAC’s ninety-one day charge-off
policy was very conservative by industry standards. That
policy was changed to 121 days in late 1996, and this
change was fully disclosed to FMAC’s outside auditors
and was revealed in SEC filings. Van Eyl believed that
the rising delinquency rates were more related to poor
efforts in the collections area than to the quality of FMAC’s
loan portfolio. Of the many possible solutions to these
problems, the customer service program was selected to
remedy some of the problems created by poor collec-
tion efforts. Van Eyl, who was in his late twenties at the
time of these events and who had no prior experience in the
industry, believed Kahn when he assured Van Eyl that the
changes made were legitimate business practices that had
been cleared with the board of directors and with the
company’s lenders. Although the government portrayed the
customer service program as a sham, Van Eyl’s theory of
defense was that there were ample reasons for Van Eyl and
others to believe that the program was a legitimate and
appropriate means to address the collections problems.
According to Van Eyl, the customer service program was
No. 05-1785 7
fully disclosed, all deferrals were recorded in the Norwest
system, all the relevant records were provided to outside
auditors, and all relevant information was disclosed in the
SEC filings.
At trial, Kahn testified against Van Eyl, claiming that he
discussed with Van Eyl hiding the fact that delinquency
rates were rising along with charge-off rates. Kahn admit-
ted that he made the decision to manipulate the financial
data but that Van Eyl had operational control over charge-
offs with the help of Steve Zemaitis, an FMAC analyst who
reported to Van Eyl, and Freisinger. Gorman testified that
he told Van Eyl that the customer service program did not
make sense to him and that he thought “somebody is going
to have some issues at the Securities and Exchange Com-
mission, is going to have issues with this and in my mind
somebody is going to go to jail for this.” Tr. at 1941. Gorman
testified that Van Eyl’s response to this was that the
program was a common and acceptable practice in the
industry. According to Gorman, at the end of this conversa-
tion, Van Eyl went down the hallway to Kahn’s office. Tr. at
1942.
Before trial, Van Eyl moved in limine to exclude lay
opinion testimony or evidence on issues of law or conclu-
sions of fraud. Van Eyl was concerned that many of the
government’s lay witnesses would express opinions about
the “fraudulent” or “improper” nature of Van Eyl’s conduct
and the customer service program, or offer opinions
about his intent. In reviewing FBI reports produced by
the government, Van Eyl cited many statements by wit-
nesses that he believed crossed this line. For example,
Zemaitis told investigators that some of the financial
scenarios Zemaitis created and gave to Kahn and Van Eyl
were “clearly improper treatments of the accounts,” and
that “the most egregious fraudulent activity that took place”
involved the deferrals granted in December 1996. Zemaitis
also opined that Kahn and Van Eyl “were attempting to
manipulate the charge-off statistics” presented to the board
8 No. 05-1785
of trustees and to the public. Zemaitis’ language to investi-
gators was replete with words indicative of legal conclusions
like “fraud,” “improper elements,” “improper balance
adjustments,” “manipulations,” and “fraudulent activity.”
Similarly, Zielinski spoke about “fraudulently-treated
previous month’s transactions,” and “improper activity” in
handling the accounts. Citing Federal Rules of Evidence
701, 401 and 403, Van Eyl sought to exclude any lay opinion
testimony regarding issues of law. In its written response
to the motion, the government agreed with Van Eyl that lay
opinion on the unlawfulness of Van Eyl’s conduct or
whether the conduct violated particular statutes was
properly excluded. The government assured the court that
with one exception that we discuss below, it did not intend
to solicit such lay opinion testimony. The government
argued, though that lay testimony “concerning the wrong-
fulness or dishonesty” of Van Eyl’s conduct was not a legal
conclusion but rather was within the daily experience and
common knowledge of ordinary people. As such, the govern-
ment argued, it should not be excluded. The government
reasoned that if Van Eyl intended to rely on a defense of
good faith, it should be allowed to present the testimony
of his co-workers to help the jury gauge the reasonable-
ness of Van Eyl’s belief that his conduct was permissible.
The government expected this kind of testimony to come
from Robert Mark, the FMAC employee in charge of the
company’s repossession efforts, Steve Zemaitis, the FMAC
analyst who reported to Van Eyl, and Richard Zielinski, the
internal auditor. The government cited Gorman as a special
case because he had told Van Eyl directly that the deferrals
were improper, that the SEC would investigate and that
someone would be going to jail. The government contended
that his testimony was directly relevant to prove notice to
Van Eyl that his conduct was unlawful and to rebut his
contentions that he was acting in good faith.
The district court noted that, in some lay witness testi-
mony, there is a fine line between fact and opinion. Tr. at 3.
No. 05-1785 9
The court therefore directed Van Eyl’s attorney to raise his
concerns about each government witness. Using expected
witness Zielinski as an example, Van Eyl’s counsel objected
because this witness had little first-hand knowledge of the
underlying facts. Tr. at 4. The government informed the
court that Zielinski would testify about non-conformance
with the company’s announced policies, and would testify
that the company books were improperly affected, prompt-
ing him to approach the new CFO with his concerns. The
court warned the government, “Well, the words matter. The
words matter. The words he is going to utter matter.” Tr. at
5. The prosecutor assured the court, “I certainly do not
intend to ask him whether it was unlawful,” but instead
wished to ask the witness if certain conduct complied with
general accounting principles and with company policy. Tr.
at 6-7. The court noted that the witness could explain his
conduct of going to the CFO by stating that he noticed an
irregularity in the books or that he thought something was
not in compliance with company policy. In such a case, the
court noted, the statement would not be offered for the
truth of the matter (i.e., the jury could not use the state-
ment as substantive evidence of irregularity or improper
conduct) but to show why the witness approached the CFO.
Tr. at 7-8. With this understanding, the trial proceeded.
During the trial, defense counsel objected each time the
prosecutor crossed the line of the in limine ruling. The court
sustained an objection to the prosecutor asking Zemaitis,
“Do you need to be a CPA to tell the difference between the
truth and a lie?” Tr. at 442. The prosecutor also attempted
to elicit testimony from Freisinger that she lost a great deal
of weight during this time period because of the long hours
she was working and because she had anxiety that what she
was doing was not right. Tr. at 732-25. The court sustained
defense counsel’s objection to this line of questioning,
allowing the witness to testify only that she lost weight due
to her long hours. Tr. at 734-35. The court allowed this
10 No. 05-1785
limited testimony because the defense intended to question
Freisinger’s ability to recall these events and the extreme
weight loss caused by long hours bolstered why she remem-
bered the time period. The court did not allow the govern-
ment to elicit testimony that Freisinger had anxiety that
what she was doing was not right. The government later
asked an FMAC manager whether he was “suspicious” of
the customer service program, and the court sustained the
defense objection. Tr. at 602. The court instructed the
government that even Gorman was not allowed to opine on
the law, but could testify that he went to Van Eyl to tell
him that he thought the program was improper. Tr. at
1925-27. When Kahn testified, the district court ruled that
the “gloves are off with respect to this particular witness”
because he was a co-defendant who had pled guilty. Tr. at
1433. The court therefore allowed him to testify that he
believed certain conduct was fraudulent or illegal.
In closing argument, the defense argued that the gov-
ernment failed to prove that Van Eyl acted with the intent
to defraud. Specifically, defense counsel argued that the
evidence supported a finding of good faith because the
customer service program was not hidden but was well-
known throughout the company, that criteria were devel-
oped for the program and a task force was assigned to
implement it, that the program was successful in returning
defaulted borrowers to regular payment schedules, and that
Van Eyl had been assured by Kahn that the board of
directors and the company’s lenders knew about and
approved the program. Moreover, the large number
of deferrals in the fall of 1996 had been voluntarily dis-
closed in the company’s SEC filings and to FMAC’s bank
group well before allegations of misconduct surfaced.
In rebuttal, the prosecutor attempted to utilize the
opinions of lay witnesses about the fraudulent nature of the
conduct in order to demonstrate Van Eyl’s intent. The
prosecutor stated that Zemaitis “could recognize right from
No. 05-1785 11
wrong. He became so nervous at having to . . .” Tr. at 121.1
Defense counsel interjected, “Your Honor, I am going to
object to this. That testimony was for a limited purpose, not
for this type of argument, your Honor.” Tr. at 121. The court
overruled the objection and the prosecutor went on to make
similar comments about other witnesses. Specifically, the
prosecutor argued that Zielinski “was able to tell right from
wrong. He was able to tell a fraud is a fraud.” Tr. at 122.
Addressing the testimony of Gorman, the prosecutor argued
that “it is not necessary to have a college education to tell
right from wrong, truth from false, a fraud from a good
business deal. Mr. Gorman has not lost his moral sense. He
could tell that.” Tr. at 123. Hammering the point home, the
prosecutor said that Brian Hake could “tell right from
wrong. He could tell truth from false. He could tell fraud
when he saw one.” Tr. at 123-24. As to Smagley, the
prosecutor stated that “he could tell there was a fraud”
because he “could tell right from wrong. He could tell truth
from false and he went to the audit committee.” Tr. at 124.
The prosecutor also contended that the members of the
audit committee “could tell truth from false,” and that the
board of directors “could tell right from wrong.” Tr. at 124-
25. Referring to the board of directors, the prosecutor closed
the circle on this line of argument:
[T]hey could tell what any reasonable person can tell,
with or without a college education. They could tell
what Peter Gorman could tell, what Rich Zielinski could
tell, what Norman Smagley could tell, what Steve
Zemaitis could tell. They could tell that this was a
fraud. There is no valid business reason for doing this.
Tr. at 126.
1
For closing arguments, the pagination of the transcript be-
gins anew at page 1. All references to closing arguments are to the
April 29, 2003, transcript.
12 No. 05-1785
The jury could not reach a verdict on ten of the twelve
counts against Van Eyl but found him guilty of Counts I
(wire fraud) and Count III (filing a false and misleading
statement with the SEC). Van Eyl moved for a new trial
on the grounds that the prosecutor’s rebuttal argument was
improper, prejudicial and in violation of the court’s in
limine ruling. He also moved for a judgment of acquittal.
The district court denied the motion for a judgment of
acquittal but granted the motion for a new trial. The court
rejected the government’s motion for reconsideration. The
government now appeals.
II.
On appeal, the government argues that the rebuttal
argument did not violate the court’s in limine ruling, that
the argument drew fair inferences from admissible evi-
dence, that the rebuttal was invited by Van Eyl’s closing
argument, and that any error was harmless. The govern-
ment also contends that Van Eyl did not adequately
preserve his objection to most of the comments and that
we should review the district court’s ruling during clos-
ing argument for plain error. Under the plain error stan-
dard, the government continues, a new trial should not have
been granted unless the defendant probably would not have
been convicted but for the alleged error. Because this is not
the standard the district court applied in granting the new
trial, the government urges us to find that the court erred,
and asks that we reinstate the verdicts on Counts I and III.
A.
The government argues that Van Eyl forfeited his objec-
tions to most of the government’s rebuttal argument by not
continuing to object after the district court overruled the
first objection to this line of argument. The district court
disagreed:
No. 05-1785 13
When the prosecutor violated that in limine ruling
during closing argument, I overruled the objection.
While the objection was not as full as it should have
been, not as sufficient as it could have been, and
perhaps deficient in giving me all the information
I needed, I am reluctant to find waiver because I did
understand the objection to refer to the form of argu-
ment that was being made. I overruled it, I recall,
because I thought the door had been opened by the
defense argument and, more importantly, because
I thought the focus of the argument would be on the
testimony of Peter Gorman.
United States v. Van Eyl, Case No. 02 CR 287, Memoran-
dum Opinion and Order, at 5 (N. D. Ill. July 13, 2004)
(hereafter “Memorandum Opinion”). The government
concedes that, at worst, this failure to continue objecting
would be a forfeiture rather than a waiver, and contends
that we should therefore review the issue for plain error
only. Van Eyl correctly points out that the purpose of the
rule on forfeitures is to give the district court the first
opportunity to correct any errors that might arise. United
States v. Rogers, 382 F.3d 648, 650 (7th Cir. 2004). The
district court understood Van Eyl’s objection to be to the
entire line of argument and thus no purpose would have
been served by forcing Van Eyl’s lawyer to continue to
object. The objection was thus adequately preserved.
Moreover, Van Eyl had raised the issue in a motion
in limine and the district court’s ruling on that motion
was definitive, not provisional or tentative in any way.
See Wilson v. Williams, 182 F.3d 562, 563 (7th Cir. 1999)
(en banc) (once an in limine ruling is definitive, the function
of the objection requirement has been served and no further
objection need be made at trial). By any standard, the issue
was preserved.
On the defendant’s motion, a district court may grant
a new trial “if the interest of justice so requires.” Fed. R.
14 No. 05-1785
Crim. P. 33(a). We review the district court’s decision to
grant a new trial for abuse of discretion. United States v.
Gillaum, 372 F.3d 848, 857 (7th Cir.), cert. denied, 543 U.S.
969 (2004). If the judge in the course of analyzing the
motion resolves a pure issue of law, our review is plenary.
See United States v. Boyd, 55 F.3d 239, 242 (7th Cir. 1995).
A defendant is entitled to a new trial if there is a rea-
sonable possibility that a trial error had a prejudicial effect
upon the jury’s verdict. United States v. Berry, 92 F.3d 597,
600 (7th Cir. 1996). The district court judge is always in a
better position than appellate judges to assess the probable
reactions of jurors in a case over which that district judge
has presided. Berry, 92 F.3d at 600. For this reason, we will
not overturn that decision unless we are strongly convinced
that it is incorrect. Berry, 92 F.3d at 600; Boyd, 55 F.3d at
242. We noted in Boyd that this is not only the rule; it is the
dictate of common sense. Boyd, 55 F.3d at 242. The trial
judge has heard and watched the testimony of the trial
witnesses and the arguments of counsel. The trial judge had
the opportunity to observe the jurors as they listened to the
testimony and arguments and could gauge the impact of the
testimony and arguments on the jurors. We are confined to
reading the transcript and cannot duplicate the trial judge’s
experience of the trial. Boyd, 55 F.3d at 242. The trial judge
“may have been mistaken; we might suspect that he was
mistaken; but unless we are convinced that he was mis-
taken, we have no warrant to reverse.” Boyd, 55 F.3d at 242(emphasis in original). With those standards in mind, we
turn to the government’s arguments.
B.
The government first contends that the rebuttal argument
did not violate the court’s in limine ruling. The government
argues that Van Eyl’s motion sought only to bar opinion
testimony by lay witnesses on the legality of Van Eyl’s
No. 05-1785 15
conduct and did not apply to argument on that same subject
matter. There was nothing in the court’s ruling, according
to the government, that prohibited the prosecutor from
drawing inferences in the closing argument from testimony
that was admitted without objection. The government
contends that the prosecutor drew a fair inference that
various witnesses could tell right from wrong and truth
from falsity based on their testimony that they had con-
cerns about inappropriate actions and irregularities.
Moreover, the government believed this argument might be
permissible because the district court commented that there
was little difference between offering these witness state-
ments about irregularities for the truth of the matter
(which the court did not allow) and offering them to show
why the witnesses took certain actions (which the court did
allow). The government also faulted the district court for
stating that its original in limine ruling excluded the moral
as well as the legal opinions of witnesses.
The district court noted that its ruling should not be
interpreted as a judgment that the prosecutor violated
any standards of professional ethics, characterizing the
rebuttal errors as “honest mistakes made in good faith by a
lawyer who has in his appearances . . . demonstrated a high
standard of professional ethics and a sense of fairness
toward opposing parties.” Memorandum Opinion at 10-11
n.3. We echo that sentiment; there is certainly nothing in
the record to indicate otherwise and on this matter we defer
to the trial judge. That said, none of these scattershot
arguments hit the mark. The difference between offering
testimony for the truth of the matter asserted and offering
it to demonstrate why a person took a particular action is a
subtle distinction that might be lost on jurors, but that was
all the more reason to keep the lines clear, not a reason to
cross or blur the line. Nor is there any logic to a contention
that the court meant to allow in the rebuttal argument
what it found unfairly prejudicial in testimony. The court
16 No. 05-1785
did not wish to allow lay witnesses to testify about their
beliefs that Van Eyl’s actions were unlawful because the
court believed the jury would inappropriately use those
witnesses’ opinions to determine Van Eyl’s state of mind.
Having barred that testimony, the court did not intend to
allow the government to bring that theory in through the
back door of closing argument unless the defendant invited
this response, a theory we will address and reject shortly.
Nor did the district court mischaracterize its own ruling by
stating it barred moral as well as legal opinions from lay
witnesses. When we read the district court’s ruling on the
motion, it is clear that the court did not wish to allow lay
witnesses to offer their opinions about the wrongness (in
any sense of that word) of Van Eyl’s conduct. Again, the
court feared the jury would conclude that if others thought
the conduct was wrong, then Van Eyl must have possessed
the intent to defraud. For the purposes of the court’s ruling,
there was no distinction between moral opinions and legal
opinions. And it was well within the district court’s discre-
tion to exclude lay opinion testimony (and argument
utilizing lay opinion testimony) about Van Eyl’s state of
mind. United States v. Hauert, 40 F.3d 197, 200-01 (7th Cir.
1994), cert. denied, 514 U.S. 1095 (1995).
The government also argues that the argument was
invited by Van Eyl’s closing argument. Indeed, when the
court ruled on Van Eyl’s objection to the government’s
rebuttal, the court believed that Van Eyl’s lawyer had
“opened the door.” After further reflection, the district court
changed course:
After further consideration, however, I think the door
had not been opened. Substantially, the focus of the
defense argument was not that others thought every-
thing was all right; rather, the focus was that Van Eyl
was not told it was wrong. The prosecution was not
forced to make the argument it did in rebuttal.
No. 05-1785 17
Memorandum Opinion at 5 (emphasis in original). We have
reviewed the closing arguments of both the government and
the defense. Defense counsel’s closing argument focused on
the lack of government evidence proving beyond a reason-
able doubt that Van Eyl had an intent to defraud. Counsel
also argued that Van Eyl was not at all involved in the
preparation of certain financial statements. Van Eyl’s
lawyer did not comment on what others at the company
thought about the customer service program or other
conduct, and thus there were no misimpressions to correct.
In short, we think the district court did not err in determin-
ing that the rebuttal argument was not invited.
C.
Finally, the district court found that the error prejudiced
Van Eyl enough to warrant a new trial. The government
argues that Van Eyl was not prejudiced, and that any error
was harmless. The government again urges us to use the
plain error standard. Under that standard, the government
maintains that Van Eyl is not entitled to a new trial unless
he probably would not have been convicted but for the error.
As we explained above, plain error review is inappropriate
here because Van Eyl properly preserved his objection. The
applicable standard for the prejudice finding is whether
there is a reasonable possibility that a trial error had a
prejudicial effect upon the jury’s verdict. Berry, 92 F.3d at
600. The district court determined that it did. In particular,
the district court noted that Van Eyl never disputed what
happened at FMAC; rather, his defense was that the
government did not prove that he possessed the intent to
defraud. The prosecutor’s argument in rebuttal amounted
to “if everyone else could see a fraud, then Van Eyl saw it
too.” Memorandum Opinion, at 4. The court commented,
“The prosecutor should not have made this argument. It
was powerful and persuasive, and it is impossible for me to
18 No. 05-1785
conclude that it, standing alone, did not affect the verdict.”
Memorandum Opinion, at 6. The court weighed this error
against the strength of the evidence at trial. This was a
close case, with the jury unable to reach a verdict on ten of
the twelve counts. The government’s best evidence of Van
Eyl’s intent was Gorman’s testimony that he told Van Eyl
that the conduct was wrong and that someone was going to
go to jail for it. The court very carefully parsed the cross-
examination of Gorman, who was impeached on a number
of key points. Carefully weighing the effect of the prosecu-
tor’s powerful (albeit erroneous) argument against rela-
tively weak evidence from an impeached Gorman and an
even less credible Kahn, the court found the error suffi-
ciently prejudicial to warrant a new trial. This is precisely
the type of determination that is owed our deference on
appeal. The district court heard all the evidence, watched
both the witnesses and the jury, and was in a much better
position to judge whether the improper argument tipped the
scale against Van Eyl in the verdict on those two counts.
There was, in short, a reasonable possibility that a trial
error had a prejudicial effect upon the jury’s verdict. Berry,
92 F.3d at 600. In reviewing the trial judge’s determination
to grant Van Eyl a new trial, we are not “convinced that he
was mistaken,” and thus “we have no warrant to reverse.”
Boyd, 55 F.3d at 242. We therefore affirm the district
court’s judgment.
AFFIRMED.
BAUER, Circuit Judge, concurring. I submit a reluctant
concurrence. I believe, overall, the defendant received a fair
trial and the verdict was amply supported by the evidence.
And, in a case like this, opinion evidence of accounting
practices and procedures, and how legitimate business
differs from illegal or fraudulent business practices, almost
No. 05-1785 19
necessarily carries expert testimony—and prosecution
comments on it—into what I consider to be
not inappropriate areas.
Nevertheless, the opinion of the majority is quite correct:
Our standard of review over the decision of the district
court to grant a new trial is exceedingly deferential.
I emphasize that the prosecutor was not to blame and, had
the trial court denied the motion for a new trial, a guilty
verdict would have been easy to sustain.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—10-5-06