Reversing Convictions Based On Exclusion Of Civil Deposition Under FRE 804(b)(1)

Commodity Futures Trading Commission seal

Seventh Circuit concludes exclusion of deceased co-defendant’s civil deposition before the Commodity Futures Trading Commission (CFTC) as evidence of his innocence required reversal of commodity fraud and related convictions; the requirements of FRE 804(b) were met as the CFTC and Department of Justice were the same party and had a “similar motive” to develop the civil deposition testimony, in United States v. Sklena, 692 F.3d 725 (7th Cir. Aug. 23, 2012) (No. 11-2589)

FRE 804(b) provides for the admission of former testimony of an unavailable witness “at a trial, hearing, or lawful deposition” which is “offered against a party who had — or, in a civil case, whose predecessor in interest had — an opportunity and similar motive to develop it by direct, cross-, or redirect examination.” The Seventh Circuit considered the application of this rule against the government for a civil deposition offered in a criminal case.

In the case, defendants Sklena and Sarvey were floor traders at the Chicago Board of Trade (CBOT). While the market price for Five-Year Note futures fell, they sold some customer contracts below the market price, allowing them to obtain a profit. The Commodity Futures Trading Commission (CFTC) filed a civil complaint against both floor traders, claiming they defrauded customers of more than $2 million through “a series of non-competitive trades.” Depositions were obtained from Sklena and Sarvey. The civil action was stayed pending the criminal fraud charges. However, defendant Sarvey passed away before trial. Defendant Sklena proceeded to a bench trial. The trial court disallowed the former deposition testimony of the deceased defendant “because (1) the CFTC and the U.S. Department of Justice may not be considered the same party, and (2) the CFTC and the Justice Department did not share ‘similar motive[s]’ to develop Sarvey’s testimony.” Sklena, 692 F.3d at 730. The defendant was convicted at the bench trial. On appeal, he challenged the exclusion of the CFTC deposition.

Same Party Under FRE 804(b)(1)
The Seventh Circuit reversed the conviction after concluding the deposition should have been admitted under FRE 804(b)(1). The circuit concluded that “the CFTC (which ran the first deposition) and the United States, now represented by the U.S. Department of Justice, are the same party” and that “the CFTC had in the earlier case both the opportunity and a similar motive to develop Sarvey’s testimony.” Sklena, 692 F.3d at 731. On this issue, the circuit noted:

There is very little law on the question whether two government agencies, or as in this case the United States and a subsidiary agency, should be considered as different parties for litigation purposes, or if they are both merely agents of the United States.

Sklena, 692 F.3d at 731. The circuit distinguished other cases in concluding the two federal agencies could be considered as the same party:

Our case is not one that involves the differing interests of two separate constitutional branches of government, as United States v. North [910 F.2d 843, 906 (D.C. Cir. 1990)] did, nor does it involve an agency acting in the capacity of a representative of a non-governmental party, as FDIC v. Glickman 450 F.2d 416, 418 (9th Cir. 1971) (FDIC and United States not the same party when the FDIC “stands in the shoes of the insolvent bank”)] did. Instead, the CFTC and the Department of Justice play closely coordinated roles on behalf of the United States in the overall enforcement of a single statutory scheme. Their interdependence is memorialized in the statute. Perhaps the point would be even more clear if the Department had litigating authority for the agency, as it often does, but we decline to hold that this is the sine qua non for finding that the United States and one of its agencies are in substance the same party. Functionally, the United States is acting in the present case through both its attorneys in the Department and one of its agencies, and we find this to be enough to satisfy the “same party” requirement of Rule 804(b)(1).

Sklena, 692 F.3d at 731.

Similar Motive To Develop The Deposition Testimony

The circuit also concluded that the government had a “similar motive to develop” the former deposition testimony, as required under FRE 804(b)(1). Specific factors were identified for this requirement:

Whether the motive of the United States, acting through a civil enforcement agency, is similar enough to its interests when it engages in criminal enforcement depends on a number of factors, including the substantive law that each is enforcing, the factual overlap between the two proceedings, the type of proceeding, the potential associated penalties, and any differences in the number of issues and parties. See, e.g., United States v. Feldman, 761 F.2d 380, 385 (7th Cir. 1985).

Sklena, 692 F.3d at 732. The circuit concluded these factors were satisfied in the case:

Both were investigating the same underlying conduct with an eye to taking enforcement action, and so they shared the same motive to find out what went on. In fact, aside from the Department’s need to prove the jurisdictional fact of the use of the wires, the agency and the Department alleged and needed to prove the same allegations, as a comparison of the CFTC’s civil complaint and the indictment demonstrates. Furthermore, although the CFTC proceeding was civil in nature and the present prosecution criminal, the deterrent effect of a large civil penalty (like the one that the court ultimately imposed against Sklena) can be similar to that of a criminal sentence…. In this case, in order to enforce the laws regulating commodities markets, the CFTC and the United States (acting through the Department) had essentially the same incentive to develop Sarvey’s factual testimony about the events of April 2, 2004.

Sklena, 692 F.3d at 732.

Not Harmless Error
Finally, the circuit concluded reversal was required because the error in excluding the deposition testimony was not harmless. The deposition testimony provided corroboration to the defendant’s version of the events, illuminated a key conversation between the defendants, and challenged the time line of events offered by government witnesses. While the evidence was determined to be “sufficient,” it “was far from overwhelming.” The convictions were reversed and the case remanded.

The Sklena case confronts issues that have rarely been addressed concerning the application of FRE 804(b)(1) to the government. The Seventh Circuit concludes that the former deposition of a deceased witness developed during civil proceedings were sufficient to be admitted in subsequent criminal proceedings. Whether this case will be limited to its unique facts or followed in other cases will remain to be seen.

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