Friday, February 27, 2009

The Mega Trial and Jurors' Attention Span

Although not a tax crimes case and, indeed, not a criminal case at all, a recent SEC civil case is interesting for the criminal tax lawyer in these days of greater complexity for criminal tax trials. In SEC v. Koenig, 557 F.3d 736 (7th Cir. 2009), here, the SEC sued the former CFO of Waste Management, Inc. for cooking the books of WMI, thereby defrauding investors and obtaining bonuses which he would not have received had earnings been properly stated. The decision covers a number of points that only a trial lawyer or judge would love, but I focus here on the length of trial issue.

The trial lasted 12 weeks. The reason was that the trial court permitted Koenig to raise as a defense what was really a diversion -- that WMI's "new management had taken an 'earnings bath' to make its own performance look good by comparison." The court of appeals said the issue was Koenig's actions, not subsequent management's action. Still, since Koenig had successfully importuned the court to permit him to detour into the issue, that opened the door for the SEC to exploit the detour. With that, the fray was joined, for as noted by the Court of Appeals: "Koenig then presented his defense, the SEC responded in kind, hearsay became rampant, and the trial dragged on and on, lasting a total of 12 weeks." The Court then said (citations omitted):
A good deal of research shows that 20 days is about the longest trial any jury can comprehend fully; the longer the trial goes, the more the jury forgets and the less accurate the decision becomes. Koenig does not complain about the trial's length; perhaps he was hoping that jurors would lose focus. (A 12-week trial about accounting! Sounds like material for Jay Leno.) But he does complain, and loudly, about the hearsay that the SEC adduced to meet his phantom "defense."
The Court then concluded that "Well, Koenig asked for it," so that he is in a poor position to complain. And, besides, how the district court managed this detour started by Koenig himself is in the trial court's discretion -- "[T]hat subject is committed to the district judge's discretion, which was not abused given that Koenig went into this irrelevant and unnecessary subject with his eyes open."

Similar concerns about lengthy jury trials were stated by the dissent to granting a petition for rehearing in United States v. Warner, 506 F.3d 517 (7th Cir. 2007), the criminal case involving the former Governor of Illinois, George Ryan. Judges Posner, Kanne and Williams dissented, writing a marvelous tome on the dangers in long jury trials and the need for active management to get the trial time down and the jurors' attention focused. (If I may speculate, I think Judge Posner had significant input into the reasoning and language of the opinion.) I cite the dissent simply because, in my mind, it is must reading for any white collar crime attorney (including those involved in the tax crimes subset) in these days of longer criminal tax trials. I was particularly interested in the Warner dissent because I represented one of the defendants in the KPMG tax shelter mega indictment of 19 defendants for promoting allegedly abusive tax shelters. Although not involving complex accounting as in Koenig, the KPMG shelters did involve complex tax rules and resulting complex financial arrangements, as well as malleable concepts such as economic substance that I doubt any juror could understand (and even judges can't agree upon). With regular 4 day trial weeks (with days off for holidays), the Government estimated its case-in-chief would last approximately four months , so that by the time the defendants (then 18) put on their defense and the Government rebutted, the trial was estimated to last six to eight months. United States v. Stein, 495 F.Supp. 2d 390 (S.D.N.Y. 2007), aff'd United States v. Stein, 541 F.3d 130, 157 (2d Cir. 2008). After 13 defendants were dismissed for prosecutorial abuse (Id.) and one of the 5 remaining pled guilty, the four then remaining defendant's trial lasted about 6 weeks. My client was one of those dismissed, so this case dodged the bullet of the mega trial. All of the problems discussed cryptically in the Koenig case and in more detail in the Warner case would have been encountered had the 13 defendants not been dismissed, unless as it focused for trial the Government had streamlined its case to the essence for a much shorter trial (which I think could have been done and is what likely would have happened, particularly with some prodding by the trial judge).

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