The Nacchio Appeal: Part I (Overview)

We will trickle out over the next day or so some observations about the appeal of Joe Nacchio.  It was held in the Byron White courtroom, home of the 10th Circuit, yesterday, on December 18.  It was standing room only, with an overflow courtroom available (audio only).  Laptops were allowed in the courtroom. 

The panel consisted of judges McConnell, Kelly and Holmes.  With Nacchio having been granted bail pending appeal, the court ordered oral argument to be held on an accelerated schedule, specially scheduling the date for oral argument.  It was the only case on the calendar and both sides were largely given unlimited time to argue, contributing to an appearance that in the 10th Circuit, white collar cases get special treatment. 

Judge McConnell asked the most questions in a relatively soft spoken way.  It was apparent from the first one that he knew the record quite well, challenging Maureen Mahoney on one of her factual assertions.  Judge Kelly, presiding, came across as almost angry.  He managed to convey a belief that the government was overreaching by treating relatively small developments within Qwest as material and turning them into criminal prosecutions.  He also seemed quite perturbed at the trial judge, Judge Nottingham, for some of his actions, particularly his decision not to hold a hearing on whether to exclude the testimony of Daniel Fischel.  Judge Holmes likewise asked questions that demonstrated he had studied the record and the case.  He seemed the most unconflicted about the allegations of insider trading. 

The lawyering?  Maureen Mahoney, dressed in a black suit, one string of pearls, a highly professional demeanor, knew her cases but got trapped in an argument with Judge McConnell over the facts in the record, Judge McConnell suggesting that she had not been entirely accurate.  During the government's time, it became clear that the panel wanted to focus on whether Nacchio's awareness of a $300 million or $900 million shortfall was material, an issue that could result in an acquittal.  When returning to the podium after reserving time, Mahoney returned to the jury instruction issue, avoiding an opportunity to bring that critical issue home. 

The facts were the strongest thing going for the government but Stephan Oestreicher, counsel for the government, grey suit, white shirt, an almost military issue haircut, spent a good portion of his time discussing the facts and, oddly, on the short end of much of the discussion.  It was clear that the panel was concerned about the materiality of the earnings shortfall known to Nacchio in April 2001.  The panel had problems with the materiality of a $300 million shortfall in a $21 billion dollar company and the potential impact a finding of materiality would have on other officers of public companies.  They also focused on the failure of anyone within the company to tell Nacchio that the numbers were unattainable and the advise of counsel that Nacchio had no inside information when he set up the Rule 10b5-1 plan.  Other than note that Nacchio himself had said even a $50 million shortfall would result in a 20% drop in the stock, Oestreicher did little to dispel the panel's concerns.

Having said all of this, there was no question that it was a highly prepared pair of lawyers arguing in front of an engaged, knowledgeable panel.  Whatever the outcome, it was lawyering at its best.