United States v. Treacy, No. 09-3939-cr (2d Cir. March 9, 2011) (McLaughlin, Hall, CJJ, Restani, JCIT)
James J. Treacy, former COO and President of the parent company of Monster.com, was convicted of securities fraud and related offenses based on a scheme in which he backdated stock options. On appeal, the circuit held that the district court violated Treacy’s confrontation rights by restricting his cross-examination of a Wall Street Journal reporter who had written an article about the backdating of options at Monster that seemingly contained false exculpatory statements made by Treacy, but that the error was harmless. The court also found that the district court improperly calculated the forfeiture amount with respect to one of the options grants.
The Confrontation Issue
At trial, the government introduced into evidence a WSJ article that opined that the odds were one in nine million that a pattern of options grants as favorable or more favorable than those Treacy received would have occurred if dates were selected randomly. The article also contained extensive quotes from Treacy himself, in which he denied any wrongdoing, and the government called the reporter to the stand to verify the accuracy of the statements he attributed to Treacy.
The reporter tried to quash the subpoena, citing the journalist’s privilege. The district would not quash, but tightly limited both the direct and the cross-examination. As for the direct, the questioning was to be limited only to the reporter’s work on the particular article; he would only be asked to verify that Treacy made statements to him that he subsequently reported, and to identify the specific things that they said to each other in the interview. As for the cross, since Treacy argued only that the statements were taken out of context, and not that he did not make them or that they were otherwise misreported, his questioning of the reporter was limited to going over the questions that the reporter asked of him “immediately before those that elicited the responses quoted in the story.”
In the event, when the reporter testified, the court sustained the reporter’s attorneys objections to questions asked by Treacy that went beyond the court’s ruling – such as why he interviewed Treacy, and questions about a post-interview that the reporter sent to Monster’s public relations consultant – holding that Treacy could not make an “open ended attack” on the reporter’s credibility. The court, however, did allow Treacy to introduce the email itself.
The circuit began its discussion with the journalist’s privilege, noting that “at least in the civil context” a “journalist possesses a qualified privilege protecting him or her from the compelled disclosure of even nonconfidential materials.” Here, there was no claim that the reporter was trying to protect a source or other confidential materials. To the contrary, he was trying to protect materials that the source wanted disclosed. In this situation, the nature of the press interest protected by the privilege is narrower, and the privilege is more easily overcome. In civil cases where this is the issue, the privilege yields if a litigant can establish that the materials are of likely relevance to a significant issue in the case and are not “reasonably obtainable from other sources.”
The court rejected the argument – made by Dow Jones, as an amicus – that there should be a higher standard for overcoming the journalist’s privilege in criminal cases. Without delving into the competing constitutional concerns, the court simply noted that Dow Jones had not provided “any convincing reason why” the test should be different in criminal cases where only nonconfidential materials are sought. Thus, “in instances where a reporter is not protecting a confidential source or confidential materials, the showing required to overcome the journalist’s privilege is the same in a criminal case as it is in a civil case.” This is true “whether the party seeking to overcome the privilege is the prosecution or the defense.”
The district court correctly applied these principles in limiting the direct examination of the reporter. Treacy’s statements to the reporter appeared to be false exculpatories, and were thus “likely relevant.” And, since Treacy could not be compelled to testify, the reporter was the only source of the information. The district court’s limitations protected the journalist’s privilege by tailoring the questions to the showing of relevance and necessity.
But the limitations on the cross-examination, by contrast, went too far. Even taking into account the district court’s broad discretion in setting the parameters of cross-examination, curtailing cross-examination that “keeps from the jury relevant and important facts bearing on the trustworthiness of crucial testimony” is an abuse of discretion. Accordingly, here, it was an abuse of discretion to forbid cross-examination of the reporter beyond the ways that the ordinary rules regarding scope of direct and relevancy would restrict the examination of any other witness. Since the privilege issue was the same on cross as it was on direct, the district court should not have treated the reporter’s “interest as a competing interest to be balanced against Treacy’s Confrontation Clause rights.”
Thus, Treacy should have been permitted to “challenge [the] reporter’s credibility about the specific content of his direct testimony.” In addition, while the district court had the discretion to prevent a “general attack on credibility,” in application the restriction here went too far. The purpose of the reporter’s direct testimony was to confirm the accuracy of the statements attributed to Treacy in the article. Thus, Treacy should have been able to test the reporter’s memory with respect to the writing of the article. If the district court truly believed that “Treacy could not fully exercise his Confrontation Clause rights” due to the reporter’s “assertion of the privilege, it ought to have” either quashed the subpoena or stricken the reporter’s direct testimony.
A confrontation error does not require reversal if the government establishes that the error was “harmless beyond a reasonable doubt,” after assuming that the “damaging potential of the cross-examination were fully realized.” That standard was met here, even though the government in summation repeatedly emphasize Treacy’s statements to the reporter as evidence of his mendacity. Here, “the other evidence in the prosecution’s case was vastly more significant to demonstrating Treacy’s actual actions.” The court noted that Treacy was able to introduce the reporter’s post-interview email and that this allowed him to argue, even if with less force, that the statements attributed to him in the article were taken out of context. Second, in this circuit, false exculpatory statements are considered to be weak circumstantial evidence of guilt. Finally, other evidence in the case convincingly established Treacy’s guilt, and the court was “confident that the jury would not have been persuaded otherwise by an ambiguous newspaper article.”
The Forfeiture Issue
The circuit did agree, however, that the district court erred in for calculating the forfeiture amount as to one of the options grants because the court used an incorrect measurement date. According to Treacy, if a different date were used it would result in a smaller forfeiture. The court thus vacated this portion of the forfeiture and remanded for recalculation.