Opinion
CRIMINAL ACTION NO. H-03-024
November 13, 2003
MEMORANDUM AND ORDER
By Memorandum and Order entered August 26, 2003 [Doc. # 57] ("Order"), this Court dismissed Counts One, Two and Three of the January 22, 2003 Indictment against Defendant Michelle Valencia on the grounds that § 13(a)(2) of the Commodities Exchange Act ("CEA") is unconstitutionally overbroad. This matter is now before the Court on Valencia's Motion to Reconsider the Court's denial of her Motion to Dismiss Due to an Incorrect Application of 7 U.S.C. § 13(a)(2) [Doc. #68], and her Motion to Reconsider the Court's denial of her Motion to Dismiss Counts One, Two and Three and to Declare § 13(a)(2) unconstitutionally vague [Doc. # 69]. Also before the Court is the Government's Motion to Reconsider the Court's dismissal of Counts One, Two and Three on the grounds that § 13(a)(2) is unconstitutionally overbroad [Doc. # 63]. Valencia has also moved for clarification of Counts Four through Seven of the Indictment [Doc. # 64], which the Government has provided. [Doc. # 73] (under seal). Having considered the parties' submissions, all matters record, and applicable legal authorities, the Court concludes that Valencia's motions to reconsider should be denied, and the Government's motion to reconsider should be granted in part. This Court's Order dismissing all of Counts One, Two and Three of the Indictment is vacated. Counts One, Two, and Three are dismissed except to the extent they charge Valencia with the knowing delivery of knowingly inaccurate information, which aspect of Counts One, Two, and Three remain pending for trial.
Section 13(a)(2) of the CEA reads as follows:
It shall be a felony . . . for:
Any person [i] to manipulate or attempt to manipulate the price of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity, or [ii] to corner or attempt to corner any such commodity or [iii] knowingly to deliver or cause to be delivered for transmission through the mails or interstate commerce by telegraph, telephone, wireless, or other means of communication false or misleading or knowingly inaccurate reports concerning crop or market information or conditions that affect or tend to affect the price of any commodity in interstate commerce. . . .7 U.S.C. § 13(a)(2) (emphasis added). Valencia is charged under the third prong of this statute.
See also Government's Consolidated Response [Doc. # 70],
See also Valencia's Response [Doc. #71], and Government's Reply [Doc. # 74].
1. VALENCIA'S MOTION TO RECONSIDER RULING ON INCORRECT APPLICATION OF 7 U.S.C. § 13(a)(2) The Parties' Contentions. — Valencia argues that the Court erred in its August 26, 2003 Order by holding that conduct proscribed by § 13(a)(2)'s reporting prong is unaffected by § 2(h) of the CEA. As she did in her Motion to Dismiss, Valencia argues she meets the requirements for the § 2(h) exemption from CEA coverage. Valencia points out that § 2(h), titled "Legal Certainty for Certain Transactions in Exempt Commodities," provides an exemption from the CEA for exempt commodities (including natural gas) that are (1) entered into by eligible contract participants and (2) are not entered into on a trading facility. See 1 U.S.C. § 2(h)(1)(A) and (B). Valencia contends that as an agent of Dynegy Marketing and Trade ("Dynegy"), she acted as an eligible contract participant She also asserts that the trades she reported were not entered into on a trading facility, and thus her conduct meets the requirements for the exception of § 2(h)(1)(A) and (B). Valencia also argues that, although § 2(h) contains predicate language making it applicable only to any "agreement, contract, or transaction in an exempt commodity," she nonetheless is covered by the exemption because § 4(c) of the CEA "authorizes the Commodities Futures Trading Commission to exempt any agreement, contract or transaction, including any person or class of persons offering, entering into, rendering advice or rendering other services with respect to the agreement contract or transaction) from any provisions of the [CEA]" and she fits the category of persons described in the above parenthetical.
See Order [Doc. # 57], at 20-23.
Section 2(h)(2)(C) of the CEA provides an express exception to the exemption created by § 2(h) for violations of the manipulation prong of § 13(a)(2). Because Valencia was not indicted under the manipulation prong, the effect of § 2(h) on that prong of § 13(a)(2) is not at issue here.
Valencia's Incorrect Application Motion, ¶ 2 (emphasis in orginal).
The Government contends that the Court correctly framed the issue as "what effect, if any, § 2(h) has on § 13(a)(2) for conduct that is not a contract" The Government argues the Court correctly found that § 13(a)(2) addresses a broader range of conduct than simply commodity transactions or contracts, and thus the Court correctly concluded that "conduct proscribed by § 13(a)(2)'s reporting prong is unaffected by § 2(h)." The Government argues that even accepting Valencia's contention that the exemption applies also to any person rendering services with respect to a contract, Valencia's conduct in issue, i.e., the reporting of fictitious trades, did not involve services related to a contract in an exempt commodity.
Order, at 22.
Id.
The Court's Conclusions. — Valencia's argument that § 13(a)(2) does not apply to her conduct by virtue of § 2(h) is inapposite to the facts of this case. This case is not about actual trades in an exempt commodity entered into by Valencia on behalf of Dynegy. The Indictment charges Valencia with reporting volume and price date for numerous trades of natural gas when Valencia knew that none of the reported trades actually occurred. Valencia's conduct in reporting fictious transactions that never took place does not constitute "offering, entering into, rendering advice or rendering other services with respect to the agreement, contract or transaction in an exempt commodity," as this clause is used in § 4(c) of the CEA. The Indictment correctly applies the reporting prong of § 13(a)(2) to Valencia's conduct, and Valencia's Motion to Reconsider is denied. II. VALENCIA'S MOTION TO RECONSIDER RULING ON UNCONSTITUTIONAL VAGUENESS The Parties' Contentions. — Valencia contends that the Court's ruling that the phrase "market information" in § 13(a)(2) is not unconstitutionally vague and refers to all markets fails to consider that the CEA specifically uses the modifiers "cash" or "spot" when it refers to those markets. Thus, a more accurate reading, Valencia argues, is that the CEA uses the term "market" to refer to all types of futures markets. In support of this argument, Valencia cites § 2(a)(1)(A), which sets forth the jurisdiction of the CFTC. Valencia asserts that although the CFTC's jurisdiction is limited to futures markets, § 2(a)(1)(A) uses the unmodified term "market."
Indictment, at 2-4.
See Order, at 25-34.
The Government contends that Valencia's argument simply confirms that Congress knew how to exclude "cash" or "spot" markets from the scope of § 13(a)(2) if it intended to do so. Moreover, Valencia's conduct is prohibited under any definition of "market information." The Court's Conclusions. — The Court declines to reconsider its decision that the phrase "market information" does not render the statute unconstitutionally vague. The phrase itself is broad, and may refer to information pertaining to cash, spot, or futures markets. The phrase "market information" is not vague as used in § 13(a)(2) because it is limited by another phrase that requires the information to affect or tend to affect the price of a commodity in interstate commerce. The CEA's use elsewhere of "cash" and "spot" to describe those markets and the statute's use of the unmodified term "market" in § 2(a)(1)(A) confirm that Congress intended the term "market" to be broad. Valencia's arguments do not alter the Court's conclusion about the meaning of § 13(a)(2), and her Motion to Reconsider on this basis is denied.
The Government argues also that Valencia has shown no more than a speculative danger of arbitrary enforcement.
III. GOVERNMENT'S MOTION TO RECONSIDER RULING ON OVERBREADTH
The Court concluded in its Memorandum and Order that § 13(a)(2) is unconstitutionally overbroad because it does not require the accused to have knowledge that the reported information was false or misleading. The Court's decision is based on well-established rules of statutory construction warning against rendering statutory language surplusage, and instructing that Congress is presumed to intend each of the terms it used in the statute to have a particular, non-superfluous meaning.
See Order, at 42-51.
The Parties' Contentions. — The Government argues that rules of statutory construction are not mandatory, citing Chickasaw Nation v. United States, 534 U.S. 84, 92 (2001), The Government contends that the legislative history of § 13(a)(2) makes it clear that Congress intended to include the requisite mens rea and thus the Court should not rely on canons of statutory construction to determine the meaning of the statute. In addition, the Government reargues its position that the modifier "knowingly" applies to both "deliver" and "false or misleading information" because scienter must be implied in statutes where it is not expressly included. Dennis v. United States, 341 U.S. 494 (1951); United States v. Rodriguez-Rios, F.3d 1040, 1044 (5th Cir. 1994); Carter v. United States, 530 U.S. 255, 267 n. 6 (2000). Such a construction is consistent with the maxim that statutes should be saved from constitutional infirmity if such construction is fairly possible. St. Martin Evangelical Lutheran Church v. South Dakota, 451 U.S. 772, 780 (1981); Immigration and Naturalization Service v. St. Cyr, 533 U.S. 289, 299 (2001). Finally, the Government points out that one court has read § 13(a)(2) as requiring proof that the defendant knew the information was false of misleading. See Utesch v. Dittmer, 947 F.2d 321, 328 (8th Cir. 1991) (stating "[t]he evidence upon which the plaintiffs rely is insufficient to show that Dittmer's investment recommendations and other statements he made regarding the October futures cattle market were false, misleading or inaccurate, or that he knew or believed them to be so when he made them").
The Government provides a lengthy legislative history. In brief, the Government relies on Congress's insertion of the modifier "knowingly" to describe "inaccurate information" in the original 1922 version of the statute, and the 1968 upgrade of the penalty under the statute from a misdemeanor to a felony which resulted in the elimination of the term "carelessly"as a modifier of the verb "deliver." During the debate before enactment of the 1968 amendment, Congress discussed and heard testimony regarding the required mem rea for a felony statute. See Government's Motion, at 8-20.
Government's Motion, at 2 n. 1.
Alternatively, the Government asks that if the Court rejects reconsideration, that the Court strike down only the part of § 13(a)(2) that is unconstitutional and leave the rest intact.14 If the Court adopts this alternative, Counts One, Two and Three of the Indictment need not be dismissed because the statute's prohibition against the knowing delivery of knowingly inaccurate information is not unconstitutional and is covered by the Indictment.
Valencia argues that the Government's position requires the Court to ignore longstanding canons of statutory construction that caution against rendering statutory language surplusage. See Bailey v. United States, 516 U.S. 137, 145(1995); United States v. Ceballos-Torres, 218 F.3d 409, 412 (5th Cir. 2000); United States v. Rayo-Valdez, 302 F.3d 314, 318 (5th Cir. 2002); Kashanchi v. Texas Commerce-Texas Commerce Med. Bank N.A., 703 F.2d 936, 939 (5th Cir. 1983). Valencia argues that Chickasaw Nation v. United States, relied upon by the Government, is distinct from the instant case because here the term "knowingly" before inaccurate was not a mistake or drafting error, as appeared to be the case in Chickasaw, but a conscious decision by Congress. Valencia further contends that the legislative history does not support the Government's position. The 1968 amendment deleting "carelessly" does not support an assumption that Congress at the same time meant to include a "knowingly" modifier before the terms false and misleading. The legislative history nowhere reflects any intention to include such a requirement, and only sheds light on the desire to raise the offense from a misdemeanor to a felony. Valencia also disputes the Government's interpretation of Utesch on the grounds that the defendant in Utesch challenged the sufficiency of the evidence, not the constitutionality of the statute,
In addition, Valencia resurrects her argument that the statute is also overbroad because it does not require an intent to manipulate the market. Finally, Valencia contends that the Government's alternative argument to strike only part of the statute is not proper on reconsideration and is really a request for permission to re-indict Valencia. The Court's Conclusion. — The Court is not persuaded by the Government's argument that the legislative history of § 13(a) (2) permits the Court to overlook the plain language of the statute. The legislative history cited by the Government does not support the conclusion the Government urges regarding Congressional intent; it only supports a finding that Congress was aware of the requirement for some mens rea, and thus deleted the "carelessly" option from the statute when it elevated the crime to a felony. Unlike Chickasaw, the legislative history here is muddy at best and does not provide a clear indication of Congressional intent. The specific issue at hand, whether the defendant must know the information is false or misleading, was not discussed in any way in the extensive legislative history discussed by the Government. Thus, it is appropriate for the Court to rely on basic canons of statutory construction and the plain meaning of the statute.
Chickasaw involved a statute that made certain provisions of the federal tax code concerning reporting or withholding of taxes (including certain listed sections and chapter 35 of the code) applicable to Indian gambling operations. Chapter 35 of the tax code has nothing to do with reporting or withholding of taxes, but imposes excise taxes and occupational taxes related to gambling. 534 U.S. at 87. The plaintiff Indian Tribes argued based on the statute that they were exempt from chapter 35 taxes. A previous version of the statute at issue applied to provisions concerning taxation as well as reporting and withholding of taxes. Once Congress intentionally limited application of the statute to only reporting and withholding, it made no sense to leave chapter 35 in the parenthetical list of provisions concerning reporting or withholding. The Court concluded that the "Tribes' interpretation would read back into the Act the very word "taxation" that the Senate committee deleted. "We ordinarily will not assume that Congress intended `to enact statutory language that it has earlier discarded in favor of other language.'" Id. at 93 (citations omitted). This was particularly true where the questionable language appears in a parenthetical, which should not be allowed to overcome the operative terms of the statute. Id. at 94-95. The Chickasaw Court determined that it was not "fairly possible" to interpret the statute other than to hold that the failure to delete the reference to chapter 35 in the parenthetical was a mere "drafting mistake" and surplusage. Id. at 91.
The Court agrees with Valencia that the Government overstates the holding of Utesch, Indeed, Utesch, a civil case that does not address the constitutionality of criminal sanctions under § 13(a)(2), does not support the Government's position. The Eighth Circuit held in Utesch that there was insufficient evidence to support a finding that the defendant delivered false, misleading, or inaccurate information, or that he knew or believed the information to be so. Utesch, 947 F.2d at 328. There is no holding in Utesch that the statute requires a finding that the defendant knew or believed the information was false, misleading, or inaccurate. The district court did not instruct the jury that such knowledge was necessary, and there was no finding of error in that instruction. Thus, it appears that Utesch actually supports this Court's interpretation of the statute.
"The district court charged the jury that to recover on their false reporting claim, the plaintiff[s] were required to show that the defendants knowingly delivered, or caused to be delivered, `false or misleading or knowingly inaccurate reports regarding the live cattle or live cattle futures market,' and that these reports `affected the price of October 1979 live cattle futures.'" Utesch, 947 F.2d at 328.
The Court declines to reconsider its ruling that § 13(a)(2) is constitutionally overbroad. However, the Government's alternative argument, relegated to a footnote, is persuasive. The Supreme Court has held that "if the federal statute is not subject to a narrowing construction and is impermissibly overbroad, it nevertheless should not be stricken severability . . . by including such a provision in the legislation, a presumption of severability arises").
The Court rejects Valencia's argument that the statute is also overbroad because it does not require intent to manipulate the market. As the Government has pointed out, the First Amendment does not protect intentional falsehoods or lies. Gertz v. Robert Welch, Inc., 418 U.S. 323, 340(1974). Intentional manipulation of the market is a separate offense addressed in another prong of § 13(a)(2). The statute is not overbroad on the additional grounds Valencia proposes.
Valencia has presented no evidence or authority that overcomes the presumption in favor of severability. Valencia's only retort to the Government's severability argument is that the Government's suggestion is really an attempt to re-indict Valencia. Valencia's argument is without merit. The indictment clearly includes the offense of knowing delivery of knowingly inaccurate information. Because this portion of the reporting prong of § 13(a)(2) is severable from unconstitutional portion of the statute, Counts One, Two and Three may proceed on that basis.
IV. VALENCIA'S MOTION TO CLARIFY COUNTS FOUR THROUGH SEVEN OF THE INDICTMENT
Valencia seeks an order directing the Government to clarify the Indictment. Counts Four through Seven allege that Valencia "devised a scheme or artifice to defraud and for obtaining money and property by means of material, false and fraudulent pretenses, representations and promises." While the indictment specifies what the false and fraudulent pretenses, representations and promises were, it does not say what party or parties were intended to be harmed by the alleged scheme. The Indictment says that "traders who reported false information to Inside FERC tended to affect the price of natural gas by pushing Inside FERC's index prices up or down which potentially costs consumers of electricity and natural gas throughout the country great sums of money." Valencia asks that the down on its face; if it is severable, only the unconstitutional portion is to be invalidated." New York v. Ferber, 458 U.S. 747, 769 n. 24 (1982) (citing United States v. Thirty-seven Photographs, 402 U.S. 363 (1971)). The Fifth Circuit applied this rule in Koog v. United States, 19 F.3d 452 (5th Cir. 1996), which involved duties imposed by interim provisions of the Brady Act upon local law enforcement officers. The Fifth Circuit found that certain of the interim provisions of the Brady Act violated the Tenth Amendment because they forced the States to act as subordinate agents of the federal government. Id. at 462. However, the Fifth Circuit found the unconstitutional provisions severable from the remainder of the statute. The Koog Court stated that in making a severability determination, the issue is "whether the statute will function in a manner consistent with the intent of Congress." Id. (citation omitted). "Unless it is evident that the Legislature would not have enacted those provisions which are within its power, independently of that which is not, the invalid part may be dropped if what is left is fully operative as a law," Id. (citation omitted).
Indictment, at 2, ¶ 7 (emphasis added in Valencia's Motion, ¶ 2)
In this case, there is no indication that Congress did not intend each one of the three ways in which the statute at issue could be violated, i.e., the knowing delivery of (1) false, (2) misleading, or (3) knowingly inaccurate information, to stand on its own. In fact, Congress expressed the opposite intent by including in the CEA § 17, which provides: "If any provision of this chapter or the application thereof to any person or circumstances is held invalid, the validity of the remainder of the chapter and of the application of such provision to other persons and circumstances shall not be affected thereby." 7 U.S.C. § 17; See Koog, 79 F.3d at 462 (holding "[w]here Congress itself has provided the answer to the question of Government be ordered to specify whether Valencia is accused of influencing the price up or down in each count, and to specify if Valencia is accused of a scheme to defraud "consumers of electricity and natural gas throughout the country."
The Government, in a sealed Response [Doc. # 73], has substantially responded to these issues. Thus, Valencia's request for a Court Order is moot.
V. CONCLUSION AND ORDER
The Court will not reconsider its rulings that CEA § 2(h) does not affect the reporting prong of § 13(a)(2), that the phrase "market information" in § 13(a)(2) is not unconstitutionally vague, and that § 13(a)(2) is unconstitutionally overbroad because it does not require knowledge that reported information is false or misleading. However, the Court concludes that the unconstitutional portion of § 13(a)(2) is severable from the remainder of that section, and those portions of Counts One, Two, and Three of the Indictment charging that Valencia "knowingly deliver[ed] . . . knowingly inaccurate" reports remain pending for trial Valencia's Motion to Clarify Counts Four through Seven of the Indictment is moot in light of the Government's Response. It is therefore
ORDERED that Valencia's Motion to Reconsider Defendant's Motion to Dismiss Counts One, Two and Three of the Indictment Due to an Incorrect Application of Title 7, U.S.C. § 13(a)(2) [Doc. # 68] is DENIED. It is further
ORDERED that Valencia's Motion to Reconsider Defendant's Motion to Dismiss Counts One, Two and Three of the Indictment and to Declare Title 7 U.S.C. § 13(a)(2) Unconstitutionally Vague [Doc. # 69] is DENIED. It is further ORDERED that the United States' Motion to Reconsider This Court's Order Granting In Part Valencia's Overbreadth Motion and Dismissing Counts One, Two and Three of the Indictment [Doc. # 63] is DENIED IN PART AND GRANTED IN PART. It is further
ORDERED that this Court's August 26, 2003 Memorandum and Order [Doc. # 57] is VACATED IN LIMITED PART as follows: The Court's dismissal of Counts One, Two and Three of the Indictment in their entirety is VACATED, and the Court instead DISMISSES the portions of Counts One, Two and Three of the Indictment charging that Valencia "did knowingly deliver and cause to be delivered . . . false and misleading" reports. This ruling leaves unaffected the portions of Counts One, Two and Three of the Indictment charging that Valencia "did knowingly deliver and cause to be delivered . . . knowingly inaccurate" reports. All other findings and conclusions in this Court's August 26, 2003 Memorandum and Order [Doc. #57] remain intact. It is further
ORDERED that Valencia's Motion to Clarify Counts Four Through Seven of the Indictment [Doc. # 64] is DENIED AS MOOT.