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Univ. of South Carolina School of Law

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Sunday, October 7, 2012

Hypothetically Speaking: Southern District Of Texas Finds No Problem With Hypothetical Testimony Under Rule 704(b)

Federal Rule of Evidence 704(b) provides that 

In a criminal case, an expert witness must not state an opinion about whether the defendant did or did not have a mental state or condition that constitutes an element of the crime charged or of a defense. Those matters are for the trier of fact alone.

Often, prosecutors will circumvent Rule 704(b) in cases in which defendants are charged with possession of drugs with intent to distribute by having officers testify that, based upon their experience, the amount of drugs possessed would typically be associated with an intent to distribute. But in United States v. Lopez, 2012 WL 4663530 (S.D.Tex. 2012), it was the defendant finding a way around Rule 704(b).

In Lopez, Gilbert Lopez,

an accountant, joined Stanford Financial Group ("SFG") in September 1997 as its Assistant Controller. After joining SFG, Lopez worked in several positions within the company, and in September of 2006, Lopez was named SFG's Chief Accounting Officer. In 1997, [Mark] Kuhrt was initially hired as an accountant by an SFG affiliate company, Stanford Leasing Company ("SLC"). After working for SLC and later SFG, Kuhrt became the Global Controller of Stanford Financial Group Global Management ("SFGGM"). Both SFG and SFGGM are affiliate companies to Stanford International Bank ("SIB").

The Government allege[d] that SIB and its affiliated companies sold Certificates of Deposit ("CDs"), marketing the CDs as "safe and secure investments" through its promotional materials, financial statements, and other published reports. The Government contend[ed] that the sales of the CDs was actually a scheme by Defendants and others to defraud depositors "in order to enrich themselves through the payment of wages, bonuses, and other monies." The Government contend[ed] that Lopez and Kuhrt, as Chief Accounting Officer and Global Controller of their respective companies, misrepresented information to investors in furtherance of the scheme to defraud.

Before trial, Lopez and Kuhrt indicated that they planned to call certified public accountants as expert witnesses at trial. In response, the government filed a motion that sought, inter alia, to preclude these experts from opining "on what either Defendant knew, believed, or relied upon."

The United States District Court for the Southern District of Texas agreed in part, finding that these experts could not testify about what Lopez or Kuhrt actually "knew, believed, or relied upon" because of Rule 704(b). The court, however, also disagreed in part, finding that

expert testimony is permissible under 704(b) if the testimony does not go to the mens rea of the crimes charged, but merely provides the expert's opinion on a predicate matter in which the jury could "extropolate whether the defendants possessed the necessary mens rea."... As a result, the Court finds that expert testimony related to the general knowledge, understanding, or beliefs of a professional in a similar position to Kuhrt or Lopez, may be admissible if (1) a foundation can be laid showing that the expert has the requisite qualifications to opine on such matters; and (2) the Defendants have established relevance for such information. Therefore, the Government's motion—as it relates to what a hypothetical person in either Lopez's or Kuhrt's position would know, believe, or rely upon—must be denied at this time. 

In other words, just as officers can testify about whether the average defendant with 100 grams of marijuana likely has intent to distribute it, CPAs can testify about whether the average accountant who engages in certain acts likely has the intent to defraud. But these experts cannot testify about the mental state of the actual criminal defendant. Based on this does anyone see a point to 704(b)?

-CM

http://lawprofessors.typepad.com/evidenceprof/2012/10/704b-us-v-lopezslip-copy-2012-wl-4663530sdtex2012.html

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Comments

Colin: I thought it would be good to contribute to your blog an a matter that has nothing to do with the forfeiture doctrine :). I saw this slip opinion too and offer the following commentary:

First, I wear many hats, one of which is that of a CPA. I am routinely retained as an expert / consultant in federal/state cases to opine on "predicate matters" that are unique to the knowledge, expertise, and training of a CPA.

Secondly, I think Judge Hittner ruled appropriately on the pre-trial motions before him, including his decision to "exclude 'lay testimony' regarding specific accounting standards or principles" which the prosecution sought to offer. The slip opinion made it clear that the prosecution wants to exclude any "expert testimony" that may exculpate the defedants and instead "elicit testimony from lay witnesses regarding the actual operations that occurred at Stanford and its affiliated companies - those 'based on a process of reasoning familiar in every day life.'"

Bottom Line: As Judge Hittner correctly noted, every day life can not turn a lay witness into an expert on accounting standards and principles.

Lastly, in this case, the government is allegeing that Stanford offered billions of dollars of CD's / investments that offered "improbable and unsubstantiated interest rates" and the defendants (Controller and CFO) made misrepresentations about Stanford's ability to make good on those investments. I would think there are many "predicate matters" a CPA could testify about that would not run afoul of FRE 704(b), including: 1.) comparison of Stanford's CD/investment rates with those contemporaneously offered by other financial institutions, 2.) analysis of Stanford's assets, liabilities, income, and expenses - all of which could bear on whether Standford had the finacial wherewithal to make good on investment payments, 3.) analysis of Stanford's Statement of Cash flows (an integral part of every business' financial statements) - were the cash flows positive or negative, from which sources did they come, etc.?

I submit all of the above matters (upon which only a CPA or other financial expert is qualified to testify) are highly relevant in aiding the jury to "extropolate whether the defendants possessed the necessary mens rea" to be found guilty of the fraud offense charge, without actually rendering an opinion on the defendants state of mind.

BARRY

Posted by: Barry | Oct 7, 2012 4:30:52 PM

Barry, I agree that the CPA can offer testimony that is highly relevant without running afoul of Rule 704(b). But I do think that the CPAs' proposed hypothetical person testimony does run afoul of Rule 704(b) if that Rule is to have any meaning. I just don't see any difference between an expert opining that a hypothetical defendant with "X" amount of drugs likely possesses those drugs with intent to distribute and that expert opining that THIS defendant with "X" amount of drugs likely possessed those drugs with intent to distribute. And the same applied here. But I don't have a problem with other valuable testimony that the CPAs could render.

Posted by: Colin Miller | Oct 8, 2012 4:01:24 AM

Colin,
In response to your query whether there is any point to 704(b), one must recall the genesis of the rule: the acquittal of the guy who attempted to assassinate President Reagan. The rule was designed to prevent psychiatrists and psychologists from testifying that the defendant was or was not insane when he committed the crime (however that insanity is legally defined).

I've always thought that 704(b) should be limited to that context because it is only mischievious when applied in other contexts. It needs serious revision.

Posted by: Fred Moss | Oct 8, 2012 4:13:29 PM

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