Arthur Andersen LLP v. U.S. (05/31/2005)

Question presented: Whether Arthur Andersen LLP's conviction for witness tampering under 18 U.S.C. " 1512(b) must be reversed because the jury instructions upheld by the 5th Circuit misinterpreted the elements of the offense, in conflict with decisions of the Supreme Court and the Courts of Appeals for the 1st, 3rd, and D.C. Circuits?

BY JESSICA M. BLOUSTEIN, MEDILL NEWS SERVICE

What remains of Arthur Andersen, LLP—once an empire of an accounting and consulting firm with 28,000 employees worldwide and whose biggest client was Enron—is now roughly 200 employees working out of an office in Chicago who serve to wrap up lingering legal matters.

Andersen fell to its knees in June 2002 after a jury in the U.S. District Court in Houston, Texas, convicted the company of "corruptly persuading" employees to destroy documents related to Enron's shady finances in anticipation of a U.S. Securities and Exchange Commission investigation.

Judge Melinda Harmon ordered Andersen to pay a $500,000 fine and to serve up to five years of probation.

The 5th Circuit Court of Appeals all but sealed Andersen's fate as a fallen empire two years later when it unanimously affirmed the conviction.

Writing for the 5th Circuit panel, Judge Patrick Higginbotham was not persuaded by Andersen's arguments that the prosecution's case left some doubts, complaining among other things that the prosecution failed to include as evidence all of the documents that employees did not destroy.

Regarding the volume of documents Andersen did not destroy, Higginbotham noted that the district court in Texas had ruled that there was "ample" evidence to show the fact that Andersen employees had indeed not destroyed everything relevant to the Enron case.

Andersen also complained that the government was wrong to drag Andersen's previous investigations by the Sec, unrelated to the Enron case, into the fray in the Houston court. That too was unconvincing to the court, which concluded that such evidence was relevant because it showed Andersen should have known that an Sec investigation would follow any kind of accounting discrepancies that prompt earnings restatements, as was the case with Enron.

The 5th Circuit also rejected Andersen's claims that Judge Harmon's jury instructions "misrepresented the elements of the offense" -- so much so that Andersen would have been found not guilty otherwise.

For the jury to decide whether or not to convict Andersen on a charge of obstructing justice, Harmon told the jury that the term "corruptly" means having an improper purpose to "subvert, undermine or impede" the fact-gathering mission of an official proceeding, that an "official proceeding" had to be an investigation but that it did not necessarily have to have been started at the time of the offense, and that Andersen did not have to know that it was doing something illegal to be found guilty.

First, Andersen argued that in order to demonstrate corrupt behavior, the government had to show concrete evidence of improper purpose; the government should have had to show that there was something more evil going on, like bribery or intimidation.

Andersen contended during trial and appeal that it was merely housekeeping: cleaning up its files on Enron, throwing out all extraneous documents—with a lack of evidence of anything like bribery, intimidation or threats.

Is it truly corrupt behavior to ask one's secretary to shred a document that according to legal company policy, one could shred oneself, Andersen asked.

The government responded that there was something inherently improper about a "mere intent to make documents unavailable," and the 5th Circuit agreed.

"A company's sudden instruction to institute or energize a lazy document retention policy when it sees investigators around the corner, on the other hand, is more easily viewed as improper," wrote Higginbotham.

Secondly, Andersen did not believe that the Sec's investigation was formal at the time of their mass document shredding, which took place largely in October of 2001. The company said it only knew of an official investigation as of Nov. 8, 2001.

The jury, on the other hand, was instructed that an official investigation did not have to be ongoing during the time of the offense, and the jury convicted based on the evidence that high-ups on Andersen's Enron account told coworkers to expect a formal Sec investigation.

In arguing for reversal, Andersen claimed the jury might have acquitted if it had been instructed that the official proceeding must be "scheduled" or "particular" or "expected" or "likely" or any other formulation capturing the notion that a concern about possible future proceedings is not enough. Again, the 5th Circuit rejected the argument.

Finally, Andersen maintained that by simply following their document retention policy, unaware of any formal Sec investigation, it was not knowingly doing anything illegal.

Noting the general rule that "ignorance of the law is no defense," the 5th Circuit concluded that had Congress wanted to apply a narrower rule for such obstruction of justice crimes, it would have done so in defining the crime.

In rejecting all of Andersen's arguments, the 5th Circuit opinion characterized Anderson as one of many in Enron's supporting cast that were taken down as Enron fell from its "lofty corporate perch…[l]ike a falling giant redwood."

On Jan. 7, 2005, the U.S. Supreme Court accepted review in the case, and on May 31, the Court unanimously reversed, finding that the jury instructions failed to convey properly the elements of a corrupt persusasion conviction under the witness tampering provisions of the federal obstruction of justice statutes.

Writing for the Court, Chief Justice William Rehnquist cautioned that the jury instructions were particularly important in this case because the the act of persuading employees that prompted the conviction "is by itself innocuous." Indeed, Justice Rehnquist wrote, persuading a person even with the intent to cause the person to "withhold" testimony or documents from a government proceeding or official is not "inherently malign." Consider, for instance, a mother who suggests to her son that he invoke his right against compelled self-incrimination, or a wife who persuades her husband not to disclose marital confidences, the justice noted.

"The jury instructions at issue simply failed to convey the requisite consciousness of wrongdoing," wrote Rehnquist. "Indeed, it is striking how little culpability the instructions required."