24 Oct 2016

Time For A New Pleading Standard In Criminal Cases

On the one hand, trading on the basis of all obtainable information is what savvy financial managers (like the person managing your retirement account) are supposed to do. On the other hand, trading on the basis of material, nonpublic information can open the door to a federal subpoena, a grand jury indictment, and potentially a long-term stay in federal prison. The difference between the legal and the criminal depends on a set of esoteric, generalized pronouncements that federal courts have devised and issued over the years.

On Wednesday, the Supreme Court is going to give insider-trading law a fresh look in Salman v. United States, which raises the issue of whether committing that crime requires that the person dispensing the inside information (the “tipper,” in legal parlance) has received a concrete benefit from the person who receives the information (the “tippee”), as opposed to just gratuitously sharing the information. But as the Supreme Court reconsiders insider trading, it is worth asking how we got here—not just in this area of criminal law, but for the many sprawling and opaque federal criminal prohibitions that have spurred calls for reform by everyone from the ACLU to the Koch brothers.

Most people think our federal criminal justice system is the fairest legal system in the world, but the reality is much different. Indeed, the federal criminal justice system is not even as fair as the civil one; it is often much easier to protect your money from a plaintiff than to defend your liberty from a prosecutor. One basic reason for that difference—and one reason why the law of insider trading is such a confused mess—is that federal judges often refuse to dismiss criminal charges that are based on an incorrect understanding of what the law actually prohibits.

The rules governing civil cases require plaintiffs to allege enough facts to make clear that, if a plaintiff is actually right about what he or she says happened, then the plaintiff is entitled to recover from the defendant. One of the most basic steps in defending a civil suit is thus the “motion to dismiss”—a filing in which defense lawyers explain to the judge why, even if everything the plaintiff claims happened actually did happen, it still would not entitle him or her to recover anything. In other words, the defendant argues that the plaintiff’s case has no legal merit regardless of whether the plaintiff’s factual assertions are true. If the judge agrees with the defendant, then the case is dismissed. After all, there is no need for expensive, time-consuming factual investigation or a complicated trial if the plaintiff is wrong on the law.

The written rules governing criminal cases require that federal prosecutors clear the same bar as civil plaintiffs. Just like the rules of civil procedure, the rules of criminal procedure say that indictments—the formal documents laying out what the prosecutors allege the defendant did—must state a complete criminal offense. But despite nearly identical phrasing in the relevant procedural rules, federal courts are often (and inexplicably) reluctant to dismiss criminal charges on the ground that prosecutors failed to allege an actual federal crime. Rather than dismiss legally flawed cases at the outset—as judges routinely do in the civil context—it is common for federal judges to preside over lengthy, complex criminal trials without ever meaningfully engaging with the correctness of the prosecutors’ legal theory.

While this procedural difference may seem mundane, its effect is anything but. To the contrary, it has enormously important implications for our criminal justice system.

Courts typically flesh out the meaning of laws through judicial opinions explaining how those laws apply to different sets of facts. When courts consider motions to dismiss, this is a relatively simple process: If all the allegations in this document are true, would that violate federal law? That process—reading one document and determining how the law applies to the facts alleged in it—is a simple one that enables judges to focus on articulating the clear legal rules that govern the case they are currently deciding, as well as future ones. Motions to dismiss thus furnish an excellent procedural platform for expounding and clarifying the law.

Read more about it here: http://bit.ly/2f9BLzo

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