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Arthur Andersen LLP v. United States

Enron Corporation, during the 1990s, switched its business from operation of natural gas pipelines to an energy conglomerate, a move that was accompanied by aggressive accounting practices and rapid growth. Arthur Andersen LLP audited Enron's publicly filed financial statements and provided internal audit and consulting services to it. Andersen's engagement team for Enron was headed by global managing partner David Duncan. Enron's financial performance began to suffer in 2000 and continued to worsen in 2001. On August 14, 2001, Jeffrey Skilling, Enron's CEO, unexpectedly resigned. Within days, Sherron Watkins, a senior accountant at Enron, warned Kenneth Lay, Enron's newly reappointed CEO, that Enron could "implode in a wave of accounting scandals." She also informed Duncan and Michael Odom, an Andersen partner who supervised Duncan, of the problems.

A key accounting problem involved Enron's use of "Raptors," which were special-purpose entities used to engage in "off-balance-sheet" activities. Andersen's engagement team had allowed Enron to "aggregate" the Raptors for accounting purposes so that they reflected a positive return. This was a clear violation of generally accepted accounting principles.

On August 28, 2001, an article in The Wall Street Journal suggested improprieties at Enron, and the SEC opened an informal investigation. By early September, Andersen had formed an Enron "crisis-response" team, which included Nancy Temple, an in-house lawyer. On October 8, Andersen retained outside counsel to represent it in any litigation that might arise from the Enron matter. The next day, Temple discussed Enron with other in-house lawyers. Her notes from that meeting reflect that "some SEC investigation" is "highly probable."

On October 10, Odom spoke at a general training meeting attended by 89 employees, including 10 from the Enron engagement team. Odom urged everyone to comply with the firm's document retention policy. He added: "If it's destroyed in the course of normal policy and litigation is filed the next day, that's great. . . . We've followed our own policy, and whatever there was that might have been of interest to somebody is gone and irretrievable." On October 12, Temple entered the Enron matter into her computer, designating the "Type of Potential Claim" as "Professional PracticeGovernment/Regulatory Investigation." Temple also e-mailed Odom, suggesting that he "remind the engagement team of our documentation and retention policy."

Andersen's policy called for a single central engagement file, which "should contain only that information which is relevant to supporting our work." The policy stated that "in cases of threatened litigation, . . . no related information will be destroyed." It also separately provided that, if Andersen is "advised of litigation or subpoenas regarding a particular engagement, the related information should not be destroyed." The policy statement set forth "notification" procedures for whenever "professional practice litigation against Andersen or any of its personnel has been commenced, has been threatened or is judged likely to occur, or when governmental or professional investigations that may involve Andersen or any of its personnel have been commenced or are judged likely."

On October 16, Enron announced its third-quarter results, disclosing a $1.01 billion charge to earnings. The following day, the SEC notified Enron by letter that it had opened an investigation and requested certain information and documents. On October 19, Enron forwarded a copy of that letter to Andersen.

On the same day, Temple also sent an e-mail to a member of Andersen's internal team of accounting experts and attached a copy of the document retention policy. On October 20, the Enron crisis-response team held a conference call, during which Temple instructed everyone to "make sure to follow the [document] policy." On October 23, Enron CEO Lay declined to answer questions during a call with analysts because of "potential lawsuits, as well as the SEC inquiry." After the call, Duncan met with other Andersen partners on the Enron engagement team and told them that they should ensure team members were complying with the document retention policy. Another meeting for all team members followed, during which Duncan distributed the policy and told everyone to comply. These, and other smaller meetings, were followed by substantial destruction of paper and electronic documents.

On October 26, one of Andersen's senior partners circulated a New York Times article discussing the SEC's response to Enron. His e-mail commented that "the problems are just beginning and we will be in the cross hairs. The marketplace is going to keep the pressure on this and is going to force the SEC to be tough." On October 30, the SEC opened a formal investigation and sent Enron a letter that requested accounting documents.

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Throughout this time period, Andersen continued to destroy documents, despite reservations by some of Andersen's managers. For example, on October 26, John Riley, another Andersen partner, saw Duncan shredding documents and told him "this wouldn't be the best time in the world for you guys to be shredding a bunch of stuff." On October 31, David Stulb, a forensics investigator for Andersen, met with Duncan. During the meeting, Duncan picked up a document with the words "smoking gun" written on it and began to destroy it, adding "we don't need this." Stulb cautioned Duncan on the need to maintain documents and later informed Temple that Duncan needed advice on the document retention policy.

On November 8, Enron announced that it would issue a comprehensive restatement of its earnings and assets. Also on November 8, the SEC served Enron and Andersen with subpoenas for records. On November 9, Duncan's secretary sent an e-mail that stated: "Per DaveNo more shredding. . . . We have been officially served for our documents." Enron filed for bankruptcy less than a month later. Duncan was fired and later pleaded guilty to witness tampering.

In March 2002, Andersen was indicted in the Southern District of Texas on one count of violating witness tampering provisions 18 U.S.C. 1512(b)(2)(A) and (B). The indictment alleged that, between October 10 and November 9, 2001, Andersen knowingly, intentionally, and corruptly persuaded Andersen's employees, with intent to cause them to withhold documents from, and alter documents for use in, an official proceeding. The case went to a jury, which deadlocked after deliberating for seven days. The district court instructed the jury that it could find Andersen guilty if Andersen intended to "subvert, undermine, or impede" governmental factfinding by suggesting to its employees that they enforce the document retention policy. After three more days of deliberation, the jury returned a guilty verdict. Andersen appealed to the court of appeals, which affirmed the conviction. The court of appeals held that the jury instructions properly conveyed the meaning of "corruptly persuades" and "official proceeding" and that the jury need not find any consciousness of wrongdoing. The Supreme Court granted Andersen's request to review the decision.

Rehnquist, Chief Justice

Chapter 73 of Title 18 of the United States Code provides criminal sanctions for those who obstruct justice. Sections 1512(b)(2)(A) and (B), part of the witness tampering provisions, provide in relevant part:

Whoever knowingly uses intimidation or physical force, threatens, or corruptly persuades another person, or attempts to do so, or engages in misleading conduct toward another person, with intent to . . . cause or induce any person to . . . withhold testimony, or withhold a record, document, or other object, from an official proceeding [or] alter, destroy, mutilate, or conceal an object with intent to impair the object's integrity or availability for use in an official proceeding . . . shall be fined under this title or imprisoned not more than ten years, or both.

In this case, our attention is focused on what it means to "knowingly . . . corruptly persuade" another person "with intent to . . . cause" that person to "withhold" documents from, or "alter" documents for use in, an "official proceeding."

We have traditionally exercised restraint in assessing the reach of a federal criminal statute, both out of deference to the prerogatives of Congress and out of concern that a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed.

Such restraint is particularly appropriate here, where the act underlying the conviction "persuasion"is by itself innocuous. Indeed, "persuading" a person "with intent to . . . cause" that person to "withhold" testimony or documents from a Government proceeding or Government 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.

Nor is it necessarily corrupt for an attorney to "persuade" a client "with intent to . . . cause" that client to "withhold" documents from the Government. In Upjohn Co. v. United States, 449 U.S. 383 (1981), for example, we held that Upjohn was justified in withholding documents that were covered by the attorney client privilege from the Internal Revenue Service. No one would suggest that an attorney who "persuaded" Upjohn to take that step acted wrongfully, even though he surely intended that his client keep those documents out of the IRS' hands.

"Document retention policies," which are created in part to keep certain information from getting into the hands of others, including the Government, are common in business. It is, of course, not wrongful for a manager to instruct his employees to comply with a valid document retention policy under ordinary circumstances.

Acknowledging this point, the parties have largely focused their attention on the word "corruptly" as the key to what may or may not lawfully be done in the situation presented here. Section 1512(b) punishes not just "corruptly persuading" another, but "knowingly . . . corruptly persuading" another. The Government suggests that "knowingly" does not modify "corruptly persuades," but that is not how the statute most naturally reads. It provides the mens rea "knowingly"and then a list of acts "uses intimidation or physical force, threatens, or corruptly persuades." The Government suggests that it is questionable whether Congress would employ such an inelegant formulation as "knowingly . . . corruptly persuades." Long experience has not taught us to share the Government's doubts on this score, and we must simply interpret the statute as written.

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The parties have not pointed us to another interpretation of "knowingly . . . corruptly" to guide us here. In any event, the natural meaning of these terms provides a clear answer. "Knowledge" and "knowingly" are normally associated with awareness, understanding, or consciousness. "Corrupt" and "corruptly" are normally associated with wrongful, immoral, depraved, or evil. Joining these meanings together here makes sense both linguistically and in the statutory scheme. Only persons conscious of wrongdoing can be said to "knowingly . . . corruptly persuade." And limiting criminality to persuaders conscious of their wrongdoing sensibly allows 1512(b) to reach only those with the level of "culpability . . . we usually require in order to impose criminal liability."

The outer limits of this element need not be explored here because the jury instructions at issue simply failed to convey the requisite consciousness of wrongdoing. Indeed, it is striking how little culpability the instructions required. For example, the jury was told that, "even if Andersen honestly and sincerely believed that its conduct was lawful, you may find Andersen guilty." The instructions also diluted the meaning of "corruptly" so that it covered innocent conduct.

The District Court based its instruction on the definition of that term found in the Fifth Circuit Pattern Jury Instruction for 1503. This pattern instruction defined "corruptly" as "knowingly and dishonestly, with the specific intent to subvert or undermine the integrity" of a proceeding. The Government, however, insisted on excluding "dishonestly" and adding the term "impede" to the phrase "subvert or undermine." The District Court agreed over Andersen's objections, and the jury was told to convict if it found Andersen intended to "subvert, undermine, or impede" governmental factfinding by suggesting to its employees that they enforce the document retention policy.

These changes were significant. No longer was any type of "dishonesty" necessary to a finding of guilt, and it was enough for petitioner to have simply "impeded" the Government's factfinding ability. "Impede" has broader connotations than "subvert" or even "undermine," and many of these connotations do not incorporate any "corruptness" at all. The dictionary defines "impede" as "to interfere with or get in the way of the progress of" or "hold up" or "detract from." By definition, anyone who innocently persuades another to withhold information from the Government "gets in the way of the progress of" the Government.

The instructions also were infirm for another reason. They led the jury to believe that it did not have to find any nexus between the "persuasion" to destroy documents and any particular proceeding. In resisting any type of nexus element, the Government relies heavily on 1512(e)(1), which states that an official proceeding "need not be pending or about to be instituted at the time of the offense." It is, however, one thing to say that a proceeding "need not be pending or about to be instituted at the time of the offense," and quite another to say a proceeding need not even be foreseen. A "knowingly . . . corrupt persuader" cannot be someone who persuades others to shred documents under a document retention policy when he does not have in contemplation any particular official proceeding in which those documents might be material. If the defendant lacks knowledge that his actions are likely to affect the judicial proceeding, he lacks the requisite intent to obstruct.

For these reasons, the jury instructions here were flawed in important respects.