According to this Washington Post article, Martha Stewart‘s appeal is likely to challenge the trial court’s exclusion of expert evidence that her stock trade wasn’t illegal. It appears that the trial judge’s the ruling excluding the expert evidence was based on the finding that the technical legality of the trade was not relevant to the question of whether Ms. Stewart had a motive to obstruct investigations into the trade. Presumably, the judge would have allowed Ms. Stewart to testify as to her belief as to the legality of the trade, which would have been relevant on the motive issue. Alas, as we all know, Ms. Stewart elected not to testify during the trial. Nevertheless, the excluded expert testimony represented one of the only ways through which the defense could present its case on the legality of the trade issue without waiving Ms. Stewart’s right not to testify.
Meanwhile, Harvard Law Professor Alan Dershowitz excoriates the Stewart defense team’s decision not to allow Ms. Stewart to testify in this Wall Street Journal ($) op-ed, which includes the following speculation:

One of the most intriguing aspects of the entire Stewart case was never addressed by either side: namely, that virtually every action for which Ms. Stewart was convicted took place after she had consulted with highly experienced and expensive lawyers. As legal ethics expert Stephen Gillers wrote before the trial in The American Lawyer, “defendants ordinarily retain lawyers after they commit their alleged crimes. In contrast, all the crimes charged against Stewart were allegedly committed while she was receiving the advice of excellent defense lawyers at Wachtell, Lipton, Rosen & Katz — one of the nation’s best law firms. Three times, in fact, the indictment’s chronology refers gratuitously to Stewart’s lawyers [though not by name].”
The job of these lawyers was to keep their client out of any further legal difficulties. In doing this job, no lawyer should ever accept a client’s initial account, especially if it is not corroborated by hard evidence. As Mr. Gillers correctly observed, every lawyer knows that “many clients lie even when they have nothing to hide.” Even if the lawyer believes his client is being truthful, he should not allow the client to relate an uncorroborated account to law enforcement officials, unless the lawyer is absolutely certain that the account will not be subject to challenge by the government. (One would think that every lawyer would have learned that painful lesson from Bill Clinton’s lawyer, Robert Bennett, who allowed the president to be deposed about his sex life without corroborating his highly questionable account.) Yet Ms. Stewart’s original lawyers allowed her to make the statements to law enforcement officials that formed the basis of her convictions. It was these lawyers who then recommended her trial lawyer, Mr. Morvillo. (“We decided to add him to our team.”) According to several lawyers familiar with New York practice, Mr. Morvillo and Ms. Stewart’s original lawyers are part of the same “old boy” network of former New York prosecutors who sometimes refer cases to each other. It was Mr. Morvillo who made the decision not to put on any case.
If the Stewart defense team had put on a more complete case, with or without her testimony, the entire story would have become a matter of public focus, to the potential embarrassment of her original lawyers. Whether this factor entered into Mr. Morvillo’s decision not to put on a defense case will probably never be known. There were certainly other more traditional reasons for making that risky decision; but since it turned out to be the wrong one, legal and ethical experts will surely pick up on Mr. Gillers’ perceptive observation by asking whether Mr. Morvillo’s decision may have been influenced — consciously or unconsciously — by considerations other than the interests of his client, Martha Stewart.

Since The Daubert trilogy of Untied States Supreme Court decisions -? Daubert, Joiner, and Kumho Tire, codified in Federal Rule of Evidence 702 — established new rules for the admissibility of expert witness evidence in federal court, appellate decisions have been rare that overrule a federal district court’s exclusion of expert witness testimony on Daubert grounds. However, in this decision emanating from an appeal in a legal malpractice case, the Seventh Circuit Court of Appeals has reversed the district court’s Daubert-based exclusion of testimony from a civil engineering and human factors expert who contended that Cook County failed to maintain a road appropriately and that such failure caused the accident at issue in the litigation underlying the malpractice case. Although the Seventh Circuit remanded the Daubert issue for the district court to resolve, the Court criticized the district court’s failure to explain how it applied the Daubert factors to exclude the expert’s testimony and strongly intimated that the testimony was well-defended and should be admissible.

Dallas-based Jenkens & Gilchrist reached a $75 million settlement yesterday with investors who had filed lawsuits accusing it of designing and selling questionable tax shelters. As noted earlier here, the firm and its clients remain subject to a Justice Department investigation into alleged fraud involved in the promotion of the tax shelters.

As noted earlier here, the decision of Martha Stewart’s defense team not to have Ms. Stewart testify was a risky one. This NY Times story confirms the downside of such a strategy, reflected best by this quote from one of the jurors:

One juror called the decision to not put the defendants on the stand “a serious mistake.” “How could we tell anything about how smart either of them was if they never took the stand?” asked Amos Matthew Mellinger, 55, a freelance market researcher from Riverdale, the Bronx, who was Juror No. 4 in the trial.

Similarly, this Reuters article refers to another juror’s remarks:

Chappelle Hartridge, 47, a computer technician from New York’s Bronx borough, said he and fellow jurors saw the domestic style-setter, who built a fortune on homemaking advice and interior decor, as a corporate bigwig. “Maybe she thought she was above everything and didn’t have to do things other people have to do,” he said.

Again, particularly in white collar criminal cases, jurors want to hear from the defendant. Accordingly, exercise the right not to testify with great care.

Martha Stewart was convicted today of conspiracy, obstruction of justice and making false statements in connection with the sale of her shares of ImClone Systems in 2001. The jury in Manhatten Federal District Court also found Ms. Stewart’s stockbroker and co-defendant, Peter E. Bacanovic, guilty of the same charges and an additional charge of perjury.
Turns out that I was wrong in my prediction that Martha would be acquitted, although the decision to have Martha not testify was a risky move. However, as Professor Stephen Bainbridge explains here, this prosecution of Ms. Stewart was a stretch from the beginning. Indeed, if sound prosecutorial discretion had been used, the prosecution would never had been pursued. Unfortunately, Ms. Stewart’s celebrity status worked against her in that regard.
Over the past several weeks, I have had many discussions with friends regarding my position that the Stewart prosecution is wrong. “Why shouldn’t she be prosecuted,” my friends observe. “She is a liar, she apparently is abusive to her employees, and she probably did something illegal. Why do you support her?”
In explaining my position, I have pointed my friends to an insightful scene from the wonderful 1966 movie, “A Man For All Seasons.” In a scene from that great film, one of Sir Thomas More’s apprentices — Richard Rich — confronts Sir Thomas while Sir Thomas is conversing with his wife, daughter, and his daughter’s fiancee, Will Roper (an aspiring lawyer). Rich begs Sir Thomas for a political appointment, which Sir Thomas proceeds to refuse because he knows that Rich is prone toward corruption and would never be able to resist the bribes that he would be tempted to take in such an appointment (Sir Thomas thought Rich should be a teacher). After an embittered Rich leaves Sir Thomas and his family to take a political job with Thomas Cromwell, who has been ordered by King Henry to pressure Sir Thomas to take the King’s oath forsaking Catholicism and the Pope, it is obvious to everyone that the resentful Rich will ultimately betray Sir Thomas, which indeed he does later in the story. That leads to the following dialogue:

Lady Alice (Sir Thomas’ Wife): “Arrest him!”
Sir Thomas: “For what?”
Lady Alice: “He’s dangerous!”
Roper: “For all we know he’s a spy!”
Daughter Margaret: “Father, that man is bad!”
Sir Thomas: “There’s no law against that!”
Roper: “But there is, God’s law!”
Sir Thomas: “Then let God arrest him!”
Lady Alice: “While you talk he’s gone!”
Sir Thomas: “And go he should, if he were the Devil himself, until he broke the law!”
Roper: “So, now you give the Devil the benefit of law!”
Sir Thomas: “Yes! What would you do? Cut a great road through the law to get after the Devil?”
Roper: “Why, yes! I’d cut down every law in England to do that!”
Sir Thomas: “Oh? And when the last law was down, and the Devil turned ’round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man’s laws, not God’s! And if you cut them down–and you’re just the man to do it, Roper!–do you really think you could stand upright in the winds that would blow then?”
“Yes,” Sir Thomas concludes: “I’d give the Devil the benefit of law, for my own safety’s sake!”

But for Martha Stewart’s celebrity status, this case would not have been brought against her. That she is a celebrity should not have prompted the prosecution. I am hopeful that this conviction is reversed on appeal, not only for Martha’s benefit, but for ours.

Criminal cases are notoriously hard fought, but this is taking it a bit too far.

This Chronicle article reports that former Enron treasurer Ben Glisan, the right hand man of former CFO Andrew Fastow and the only former Enron executive who is presently serving prison time, has been testifying before the Enron grand jury in Houston over the past several days. Speculation is rampant that the grand jury is preparing to indict former Enron Chairman and CEO, Ken Lay.

The NY Times reports here today that the Dallas-based law firm Jenkens & Gilchrist is the subject of a Justice Department motion in federal court that seeks to require the firm to disclose the identities of its clients who were sold abusive tax shelters. The government is contending that Jenkens & Gilchrist participated in fraud and should not be allowed to hide the identities of its tax-shelter clients from the Internal Revenue Service. The so-called crime-fraud exception to attorney-client privilege is most often applied to lawyers who represent organized-crime families and drug rings suspected of racketeering, not to tax lawyers suspected of civil or criminal tax fraud. The I.R.S. issued 25 summonses for the names of Jenkens & Gilchrist clients and other information, the firm refused to comply with any of the summons, and now the Justice Department is seeking an order to enforce the summons.

Here is a motion filed recently in the Garden Ridge Corporation chapter 11 case that requests the Delaware bankruptcy court to transfer the case to Houston bankrupty court. A hearing on the motion is scheduled for March 17th. Although worth a shot, the motion will probably fail for the reasons discussed in this prior post. Houston attorney Kirk Kennedy filed the motion on behalf of his clients, the Fazio Family. Prior posts about Houston-based Garden Ridge are here, here and here.

The Harris County District Attorney‘s major fraud division announced in this story that it is conducting a criminal investigation into the demise of Houston-based Premiere Holdings of Texas, which promoted itself as a high-yield investment fund to prominent Houstonian investors but spiraled into bankuptcy over two years ago amid allegations of Ponzi scheme-type activity. One of the principal owners of Premiere is David Lapin, who is related to prominent Houston attorneys Jack Lapin (father) and Bobby Lapin (brother). Premiere promoted itself as a high-yield investment fund to mainly wealthy and conservative Houstonians. Indeed, Mike Richards, the former conservative talk show host on Houston conservative Christian radio station KSEV, used to promote Premiere as hot investment opportunity on his radio show. The Premiere case involves some of the best attorneys in Houston’s business litigation bar, so the D.A.’s investigation into Premiere could generate some interesting sparks. Stay tuned.