EvidenceProf Blog

Eyeball Reliance?: Second Circuit Finds That Rule 406 Applied In Misleading Statements Appeal

Federal Rule of Evidence 406 provides that

Evidence of a person’s habit or an organization’s routine practice may be admitted to prove that on a particular occasion the person or organization acted in accordance with the habit or routine practice. The court may admit this evidence regardless of whether it is corroborated or whether there was an eyewitness.

This "habit" rule is often used to prove a "matter of practice," as was the case with the recent opinion of the Second Circuit in Gould v. Winstar Communications, Inc., 2012 WL 2924254 (2nd Cir. 2012).

In Gould, 

 

Winstar was a broadband communications company whose core business was to provide wireless Internet connectivity to various businesses. GT served as Winstar's independent auditor from 1994 until Winstar filed for bankruptcy in April 2001, and GT regarded Winstar as "one of [its] largest and most important clients."

In 1999, however, the relationship deteriorated. Winstar warned GT that it would likely terminate the relationship if GT's performance on unrelated international tax planning and other accounting matters proved unsatisfactory. In March 1999 at least one member of Winstar's board of directors openly urged during a board meeting that the GT partner overseeing the audit of Winstar be removed from the Winstar account. GT eventually re-staffed the Winstar account so that the 1999 audit was managed by a partner, Gary Goldman, and a senior manager, Patricia Cummings, neither of whom had previously reviewed or audited the financial records of a telecommunications company....

GT's audit for 1999 included several "large account" transactions that Winstar consummated in an attempt to conceal a decrease in revenue associated with Winstar's core business. Most of the large account transactions involved Lucent Technologies, Inc. ("Lucent"), Winstar's strategic partner, and all of them were consummated at the end of Winstar's fiscal quarters in 1999. Together, the transactions accounted for $114.5 million in revenue, or approximately 26 percent of Winstar's reported 1999 operating revenues and 32 percent of its "core" revenues that year. At the time, GT considered these transactions to be "red flags," warranting the accounting firm's "heightened scrutiny." However, GT ultimately approved Winstar's recognition of revenue in connection with each of these transactions.

 

Among those subsequently bringing an action against GT were the Jefferson plaintiffs.

 

From December 1998 to February 2001, the Jefferson Plaintiffs purchased over $200 million worth of Winstar stock. The investment portfolios of most of the Jefferson Plaintiffs were managed by Ronald Clark, the Chief Investment Officer for Allianz of America ("Allianz"). The remaining entities deferred to Clark to select their investments in United States securities. Although Clark enjoyed ultimate authority for these investment decisions, he relied on recommendations from a team of analysts, including Livia Asher, who recommended that Allianz purchase Winstar stock. Based on Asher's recommendation, Clark caused Allianz and the other Jefferson Plaintiffs to invest in Winstar.

Clark, it appears, did not personally review Winstar's financial statements prior to making the decision to invest in Winstar. Instead, he relied on Asher to review the statements as part of her job. During discovery, however, Asher acknowledged that she was uncertain of the date of, or reason for, her recommendation that Allianz purchase Winstar stock. Nor could she specifically recall reading Winstar's 1999 Form 10–K report. However, Asher testified that she "probably flipped through every single page" of the report, based on her practice. She explained, "I can't imagine any reason why I would not have looked at this,...given our position in the stock and given what I would normally do." Asher added that she habitually read auditors' opinion letters included in Forms 10–K to make sure that auditors believed that an issuer's reports were "kosher," but she did not specifically recall reviewing GT's audit report.

The Jefferson Plaintiffs' action against GT included a claim for misleading statements pursuant to 15 U.S.C. § 78r(a), which requires, inter alia, actual, rather than constructive reliance. Based upon Asher's aforementioned testimony, the district court granted GT's motion for summary judgment dismissing this claim, finding that the Jefferson Plaintiffs failed to prove actual reliance.

 

The Second Circuit, however, reversed, finding that

Even assuming that such "eyeball" reliance is the sort of actual reliance required by our precedents, the District Court's conclusion somewhat understates the record evidence on this score. Ronald Clark and Livia Asher worked on behalf of the Jefferson Plaintiffs. Although Asher was unable to recall specifically that she reviewed GT's audit opinion letter, there was evidence that she actively reviewed such letters as a matter of practice in deciding whether to recommend certain stocks. At this stage of the proceedings, Asher's testimony is enough; from that evidence, a jury reasonably could infer that she actually reviewed the relevant documents. See, e.g., Fed.R.Evid. 406.

-CM

William Friedkin, "Killer Joe," "The Exorcist," "The Possessed Razor," "Beyond The Door" & Valuing A Stolen Movie

Today marks the release of William Friedkin's "Killer Joe," his first theatrical effort since 2006's creepy "Bug." Friedkin has had his share of terrific films, including "The French Connection," "To Live and Die in L.A.," and "Sorcerer." But, of course, Friedkin's signature film and the one he's most known for is 1973's "The Exorcist." Unsurprisingly, that film is also the Friedkin film that is cited most often by courts. Also unsurprisingly, most court references to "The Exorcist" cite to the appearance and behavior of the Linda Blair character in the film:

-Gillette Co. v. Norelco Consumer Products Co., 69 F.Supp.2d 246, 249 (D.Mass. 1999) ("The commercial called 'The Possessed Razor' features what appears to be the same animated wet razor as in the 'Fire Breathing Razor' commercial. This time, however, the razor corrodes and twists its 'neck and head,'apparently in an effort to evoke recollection of a scene from the motion picture The Exorcist.");

-People v. Vargas, 2012 WL 1107712 (Cal.App. 2 Dist. 2012) ("According to Vargas, he was diagnosed as suffering from paranoid schizophrenia. When Thompson fails to take her medication, she acts 'like something out of 'The Exorcist.'");

-Sophia S. v. Superior Court, 2011 WL 184549 (Cal.App. 2 Dist. 2011) ("The court noted that it had become concerned when A.A. suffered bruises and the caretakers provided several different explanations about how this occurred. After that, when the children appeared in court, the girls looked like the girl in The Exorcist, exhibiting zombie-like behavior."); and

-People v. Scott, 121 P.2d 366, 370 n.2 (Colo.O.P.D.J. 2005) ("Respondent's described his own voice as sounding like a character from 'The Exorcist.'").

And then, there are the cases involving the movie itself. One of these, Warner Bros. Inc. v. Film Ventures Intern., 403 F.Supp. 522 (C.D. Cal. 1975), saw the producers of "The Exorcist" suing the producers of "Beyond the Door" for copyright infringement. The court found no such infringement but did grant a preliminary injunction because of two problems with the following poster:

1. "It showed a partially opened door with light coming through into a dark room, just like a poster for "The Exorcist;" and

2. "The use of the letter "T" in the poster is intentionally designed to resemble a crucifix, which "created a suggestion that 'Beyond' is a sequel to 'The Exorcist' and possibly that it was produced by the same craftsmen who skillfully produced 'The Exorcist', and that it might be a film of the superior quality of ‘The Exorcist’, which it is not." (emphasis added).

And then there's United States v. Atherton, 561 F.2d 747 (9th Cir. 1977).

In Atherton, Raymond Atherton was convicted of five counts of an indictment charging him with copyright infringement and one count charging him with interstate transportation of stolen property. After he was convicted, Atherton appealed,, and the Ninth Circuit held that

Atherton's conviction for transporting a print of "The Exorcist" is violation of 18 U.S.C. s 2314 raises some interesting, almost metaphysical, legal issues. The most intriguing question is whether the intangible idea protected by the copyright is sufficiently reified by being embodied on a film that the copyright becomes "goods, wares, or merchandise" within the meaning of Section 2314. That question has been resolved against Atherton in United States v. Drebin, supra. Here, however, unlike Drebin, the Government failed to prove that the property was worth $5,000. The only evidence that the Government offered to prove value was the box office receipts of "The Exorcist," as it was then being shown by authorized licensees in theatres. The Government offered no evidence to show that the 16 millimeter print of "The Exorcist" that Atherton sold could ever have been the subject of theatrical distribution. On the contrary, the evidence that it introduced for other purposes makes crystal clear that 16 millimeter print could not and would not have been shown to general public at theatres. The Government's evidence also showed that if one buys from a party other than the copyright owner, the most one can legally expect to get is the right to use the film privately and the right to resell.

Therefore, the Ninth Circuit reversed Atherton's Section 2314 conviction, concluding that

Valuing a print in terms of the market value to film exhibitors who could not and would not have exhibited it, and who have licensing arrangements with the copyright owner, is incorrect.

-CM

Return To Sender: Court Of Appeals Of Virginia Finds E-Mail Inadmissible Under State Of Mind Exception

[Update: 9/13/12: As shown by this Replacement Opening Brief of Appellant [Download Replacement Opening Brief], there is a colorable claim that the e-mail was not admitted to prove the truth of the matter asserted, which would make it non-hearsay.]

Federal Rule of Evidence 803(3) provides an exception to the rule against hearsay for

A statement of the declarant’s then-existing state of mind (such as motive, intent, or plan) or emotional, sensory, or physical condition (such as mental feeling, pain, or bodily health), but not including a statement of memory or belief to prove the fact remembered or believed unless it relates to the validity or terms of the declarant’s will.

Virginia doesn't yet (but will soon have) codified rules of evidence, but its courts do recognize the same state of mind exception to the rule against hearsay. See, e.g., Andrews v. Creacy, 696 S.E.2d 218, 227-28 (Va.App. 2010). What this also means is that, as with Federal Rule of Evidence 803(3), Virginia's state of mind exception doesn't cover statements of memory or belief. And that was precisely the problem for the appellee in Tucker v. Clarke, 2012 Wl 2886713 (Va.App. 2012).

In Clarke, Sharon Ruth Tucker (mother) appealed a custody order in which John Harrison Clarke (father) was awarded sole legal and physical custody of their child. After judgment was entered, the mother appealed, claiming, inter alia, that the trial court erred in not allowing her to admit into evidence e-mails regarding the child's teacher and principal because of hearsay. Specifically,

During the trial, evidence came before the trial court that mother went to the child's classroom and called the teacher a liar in front of the children. Mother sought to introduce e-mails to explain her actions and why she acted the way she did. She argued that it showed her state of mind at the time. The trial court held that the e-mail was "written to third person after the incident and it is written by a party, it is a self-serving statement and it is not admissible on this ground." The trial court explained to mother that she could testify and explain her actions without asking the trial court to infer from the e-mails what she meant. Mother then proceeded to explain her actions to the trial court. She subsequently attempted to introduce her e-mails again, and father objected. The trial court sustained the objection because the e-mails were self-serving and mother testified about her actions.

In affirming this ruling, the Court of Appeals of Virginia found that "[t]he trial court did not err in sustaining father's objection because the e-mails were self-serving and mother testified about her actions." These conclusions were correct, but I would also add that the reason that the e-mails were not admissible under the state of mind exception to the rule against hearsay is because they were statements of memory rather than statements concerning her present state of mind.

-CM

iTrial: Tria Judge Grants Apple's Motion For Adverse Inference Instruction Based On Samsung's Auto-Deletion Of E-Mails

A huge trial looms between tech giants Samsung and Apple. Apple "believes Samsung owes “substantial monetary damages” in the region of $2.5 billion for illegally copying Apple products such as the iPhone and iPad." In turn, Samsung claims that "Apple could not have become a successful participant in the mobile telecommunications industry" without the use of Samsung’s patented technology and that the iPhone maker was trying "to stifle legitimate competition and limit consumer choice to maintain its historically exorbitant profits." 

So,who will win? I don't know, but the judge's pretrial order grating Apple's motion for an adverse inference instruction based upon spoliation of evidence can't hurt the company that Steve Jobs built. So, what was the basis for the judge's ruling?

According to the order, posted by FOSS Patents, Apple claimed that Samsung failed to take 'adequate steps to avoid spoliation after it should have resonably anticipated this lawsuit and elected not to disable the 'auto-delete' function on its homegrown 'mySingle' e-mail system." So,why did the judge grant Apple's motion? Well, the easiest explanation comes from the first two paragraphs of the judge's order. The first sentence of the first paragraph begins with the observation that "Samsung's auto-delete e-mail function is no stranger to the federal courts. Then, after noting previous litigation in which Samsung's auto-delete function possibly erased e-mails relevant to trial, the judge noted that "[r]ather than building itself an off-switch -- and using it -- in future litigation such as this case, Samsung appears to have adopted the alternative approach of 'mend it don't end it.'"

More specifically, the judge found that

a party seeking an adverse inference instruction based on the destruction of evidence must establish (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a culpable state of mind; and (3) that the destroyed evidence was relevant to the party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.

Then, when a judge find these elements satisfied, the judge should give an adverse inference instruction

insofar as such a sanction would "serve[] [the] threefold purpose of (1) deterring parties from destroying evidence; (2) placing the risk of an erroneous evaluation of the content of the destroyed evidence on the party responsible for its destruction; and (3) restoring the party harmed by the loss of evidence helpful to its case to where the party would have been in the absence of spoliation."

Based upon Samsung's failure to correct the problems connected with its auto-delete function after prior litigation, the judge easily found that the above three elements were satisfied and that an adverse inference instruction would serve the above three purposes, so it gave the following instruction:

"Samsung has failed to prevent the destruction of relevant evidence for Apple’s use in this litigation. This is known as the 'spoliation of evidence.'

I instruct you, as a matter of law, that Samsung failed to preserve evidence after its duty to preserve arose. This failure resulted from its failure to perform its discovery obligations.

You also may presume that Apple has met its burden of proving the following two elements by a preponderance of the evidence: first, that relevant evidence was destroyed after the duty to preserve arose. Evidence is relevant if it would have clarified a fact at issue in the trial and otherwise would naturally have been introduced into evidence; and second, the lost evidence was favorable to Apple.

Whether this finding is important to you in reaching a verdict in this case is for you to decide. You may choose to find it determinative, somewhat determinative, or not at all determinative in reaching your verdict."

-CM

This IS A Recording: Court Of Appeals Of Utah Bypasses Rule 803(5) Issue By Finding Harmless Error

Similar to its federal counterpart, Utah Rule of Evidence 803(5) provides an exception to the rule against hearsay for

A record that:

(A)   is on a matter the witness once knew about but now cannot recall well enough to testify fully and accurately;

(B)   was made or adopted by the witness when the matter was fresh in the witness’s memory; and

(C)   accurately reflects the witness’s knowledge.

If admitted, the record may be read into evidence but may be received as an exhibit only if offered by an adverse party.

In In re J.H., 2012 WL 2924061 (Utah App. 2012), the juvenile court almost certainly erred by allowing for the admission of a journal into evidence in violation of Rule 803(5). So, why didn't the Court of Appeals of Utah acknowledge this mistake?

In J.H., E.O. (Mother) appealed a juvenile court's order awarding permanent guardianship of her children to their maternal grandparents. The facts adduced at trial indicated that

Mother left the children to be raised by their grandparents for several years, during which time period she abused drugs and alcohol, lacked stable employment, was homeless, and was incarcerated. The juvenile court found specific instances of neglect including an episode where Mother was absent and she left her child unattended to care for younger children between the ages of two and five years old. The juvenile court also determined that Mother neglected the children by subjecting the children to a traumatic situation by discussing the legal proceedings with the children contrary to the court's order. The juvenile court found that the totality of Mother's behavior relating to the violation of the court's order rose to the level of the neglect of both children. 

Some of the facts came from the journal of the maternal grandmother, who had an insufficient recollection to testify completely at trial. 

In her appeal, E.O. claimed that the juvenile court erred by allowing the journal to be admitted into evidence in violation of Rule 803(5). The Court of Appeals of Utah, however, refused to reverse, finding that

Mother fails to demonstrate that the juvenile court's decision to admit the grandfather's journal as an exhibit resulted in an injustice or that admitting the grandfather's journal affected the outcome of the proceedings. Even were we to assume that the juvenile court erred by admitting the grandfather's journal, there is no reasonable likelihood that the asserted error affected the juvenile court's determination that Mother neglected her children as there was sufficient, independent evidence to support the juvenile court's decision.

It is tough for me to challenge the court's conclusion because I'm lacking in information. What independent evidence was there to support the court's decision? How much was the jury influence by the journal? The court's opinion doesn't tell us about these factors. What the opinion also doesn't tell us is what seems abundantly clear: The juvenile court erred by allowing the proponent to introduce the journal as an exhibit in violation of Rule 803(5).

-CM

Under The Shield: Should The Rape Shield Rule Apply At Sentencing Hearings?

Federal Rule of Evidence 412(a), the Rape Shield Rule, provides that

The following evidence is not admissible in a civil or criminal proceeding involving alleged sexual misconduct:

(1) evidence offered to prove that a victim engaged in other sexual behavior; or

(2) evidence offered to prove a victim’s sexual predisposition.

At the same time, it is well established that the Federal Rules of Evidence do not apply at a sentencing hearing. See Federal Rule of Evidence 1101(d). So, let's say that a defendant is convicted of (1) persuading a minor to engage in sexually explicit activity for the purpose of producing a visual depiction, (2) use of a means of interstate commerce to persuade a minor to perform sexual acts, (3) receipt of child pornography, and (4) possession of child pornography. And, let's say that the defendant thereafter seeks to present evidence of the victim's other sexual behavior or predisposition at his sentencing hearing. Because the Federal Rules of Evidence do not apply at a sentencing hearing, does that mean that the Rape Shield Rule does not apply? Let's take a look at the recent opinion of the Sixth Circuit in United States v. Ogden, 2012 WL 2895261 (6th Cir. 2012).

In Ogden, the facts were as stated above, with the defendant, Daniel Ogden claiming, inter alia, that district court erred by applying the Rape Shield Rule to preclude him from admitting records of the victim's online conversations with other men during his restitution hearing, at the close of which he was ordered to pay for most of her psychotherapy expenses. The Sixth Circuit disagreed, finding that

Ogden cites nothing in the record to suggest the district court actually excluded the chat logs from the restitution hearing. And if Ogden assumes the court did so, he assumes too much: The rules of evidence do not apply during sentencing proceedings. See Fed.R.Evid. 1101(d). His argument is meritless.

With due respect to the Sixth Circuit, I think that it misunderstood Ogden's argument, and its last sentence makes little sense. It seems to me that Ogden's point was the same as the Sixth Circuit's: The rules of evidence do not apply during sentencing proceedings. Accordingly, his argument was that Federal Rule of Evidence 412(a) does not apply during sentencing proceedings, meaning that its protections did not apply to the chat log evidence.

The Sixth Circuit seems to have missed this point, and, as far as I can tell, it is not covered by the Federal Rules of Evidence. It is however, covered by several states' rules of evidence. For instance, Washington Rule of Evidence 1101(c) provides that the Washington Rules of Evidence "(other than with respect to privileges, the rape shield statute and ER 412) need not be applied" at sentencing. And Section 16-97-103 of the Arkansas Code provides that

Evidence relevant to sentencing by either the court or a jury may include, but is not limited to, the following, provided no evidence shall be construed under this section as overriding the rape shield statute, 16-42-101....

These rules make sense to me. The Rape Shield Rule is in place to prevent judges and jurors from making inappropriate inferences regarding victims, to protect victims from shame and embarrassment, and to encourage victims to come forward with their claims. None of these values can be achieved if rape shield evidence were inadmissible at the guilt-innocence phase of trial but admissible at the sentencing phase of trial. I thus think that the Federal Rules of Evidence should be amended to make explicit that the Rape Shield Rule still applies at sentencing.

-CM

And, Cousin, I'm A Union Man: Supreme Court Of Alaska Recognizes A Union-Relations Privilege

In Peterson v. State, 2012 WL 2947636 (Alaska 2012), 

Russell Peterson, Jr. began working for the Alaska Department of Labor in 2007. He became a member of the Alaska State Employees Association (ASEA) union. In 2009 he requested service time credit for a previous period of employment with the State; while investigating his request the State discovered Peterson's 2007 job application did not disclose a previous felony. The State subsequently terminated Peterson's employment.

Peterson filed a grievance under ASEA's collective bargaining agreement (CBA) with the State. The CBA states only the union, and not private counsel, may represent an employee in the grievance process. A non-lawyer ASEA representative handled Peterson's grievance. The ASEA representative communicated with Peterson's attorney, Douglas Mertz, regarding strategy. ASEA and the State were unable to resolve Peterson's grievance and ASEA decided not to pursue arbitration. Peterson then filed suit in superior court for wrongful termination.

The State subpoenaed the ASEA representative to appear for a deposition with the union grievance file pertaining to Peterson, including all written communication between ASEA and Mertz. Peterson sought a protective order on privilege grounds. The superior court denied the motion, holding that any attorney-client privilege covering Mertz's letters was waived by giving the letters to the union and that there was no basis for recognizing a new union-relations privilege.

The Supreme Court of Alaska reversed and decided to recognize a new union-relations privilege.

In recognizing this new privilege, the Supreme Court of Alaska cited to Alaska Rule of Evidence 501, which states in relevant part that

Except as otherwise provided by the Constitution of the United States or of this state, by enactments of the Alaska Legislature, or by these or other rules promulgated by the Alaska Supreme Court, no person, organization, or entity has a privilege....

The question for the Alaska Supremes was thus  whether a basis for a union-relations privilege could "be found in statutes, the rules of this court, or the constitution." According to the court, it could. Initially, the court cited to some precedent. Specifically, it cited to:

-Cook Paint & Varnish Co., 258 N.L.R.B. 1230 (1980), in which "[t]he National Labor Relations Board (NLRB)...held an employer's demand to discover grievance-related confidential communications between an employee and his union representative interferes with the employee's right to union representation;"

-City of Newburgh v. Newman, 421 N.Y.S.2d 673 (N.Y.App.Div.1979), in which the court held that "[q]uestioning of a union official as to his observations and communications with a union member facing disciplinary proceedings, if permitted, would tend to deter members of the union from seeking advice and representation with regard to pending charges, thereby seriously impeding their participation in an employee organization;" and

-Seelig v. Shepard, 578 N.Y.S.2d 965 (N.Y.Sup.1991), in which the court concluded that a union-relations privilege would protect a union president's "legitimate concern for the confidentiality of internal Union communications on matters concerning labor relations."

The Supreme Court of Alaska then found similar grounds for a union-relations privilege implied in its statutes (and thus did not need to address whether such a privilege is constitutionally required). According to the court,

Implicit in Alaska's public union statutory rights is the right of the union and its members to function free of harassment and undue interference from the State. As the New York court in Seelig explained, this includes the right to confidential communications with union representatives regarding labor disputes and grievances:

If unions are to function, leaders must be free to communicate with their members about the problems and complaints of union members without undue interference. Members must be able to have confidence that what they tell their representatives on such subjects cannot be pried out of the representatives by an overzealous governmental agency. Union members must know and be secure in feeling that those whom they elect from among their ranks will be their spokespersons and representatives, not the unwilling agents of the employer.

Moreover, the court held that

As with attorney-client relationships, there is a strong interest in encouraging employees to communicate fully and frankly with their union representative. Frank communication ensures the employee receives accurate advice and meaningful and effective union representation.

Finally, the court concluded that

Any attempt by the State to force disclosure of confidential communications between an employee and a union representative during a grievance proceeding would constitute an unfair labor practice. Such interference "would tend to deter members of the union from seeking advice and representation ... thereby seriously impeding their participation in an employee organization." We believe the protection against forced disclosure of confidential union-related communications should not be lost if the grievance dispute is not resolved and the employee files a civil suit, otherwise the statutory protection is greatly undermined. 

-CM