## Facts

- California Micro Devices, Inc. was a publicly traded semiconductor company facing financial difficulty.
- Company executives engaged in a scheme to inflate reported revenue by tactics including early shipping, false orders, and fictitious title transfers.
- Steven J. Henke and Chan M. Desaigoudar, former executives, were indicted along with company president Surendra Gupta.
- Before trial, all three executives and their attorneys participated in joint-defense meetings under an agreement requiring confidentiality of communications.
- Gupta later pleaded guilty and agreed to testify for the government against Henke and Desaigoudar.
- Defense counsel believed Gupta’s trial testimony conflicted with statements he made during joint-defense meetings but feared the joint-defense obligations barred using those statements; Gupta’s counsel threatened legal action for breach.
- Because of that perceived constraint, defense counsel did not cross-examine Gupta, a key government witness, and informed the court the joint-defense obligations impeded adequate representation.
- The government also introduced lay opinion testimony from a Cal Micro director suggesting the defendants “must have known” about the fraudulent reporting.
- A jury convicted both defendants on conspiracy, false statements, securities fraud, and insider trading counts; the government cross-appealed the sentences.

## Issues

1. Whether the joint-defense agreement and prior confidential meetings created an actual conflict of interest that adversely affected counsel’s performance by limiting cross-examination of Gupta, violating the Sixth Amendment.
2. Whether the district court improperly admitted lay opinion testimony on the defendants’ knowledge under Federal Rule of Evidence 701.
3. Whether the evidence was sufficient to support the insider trading convictions, such that retrial would not be barred.
4. Whether additional alleged trial errors (including evidentiary rulings, failure to review interview notes in camera for Brady/Giglio material, and prosecutorial questioning asking whether other witnesses were “lying”) warranted relief.

## Decision

- The Ninth Circuit vacated the convictions and sentences and remanded for a new trial.
- The court held an actual conflict of interest existed because counsel’s continuing confidentiality duty under the joint-defense arrangement materially constrained cross-examination of Gupta and counsel refrained from cross-examining him.
- The court held the district court erred by admitting lay opinion testimony effectively addressing the defendants’ knowledge of the scheme, a central issue for the jury.
- The court held the evidence was sufficient to support the insider trading convictions, so retrial on those counts was permitted.
- Because the convictions and sentences were vacated, the court did not reach the government’s sentencing cross-appeal.

## Legal Principles

- A joint-defense confidentiality obligation can create an actual Sixth Amendment conflict when a former joint-defense participant becomes a government witness and counsel’s duty to protect confidences materially limits cross-examination.
- An actual conflict violates the Sixth Amendment when it adversely affects counsel’s performance, including by foreclosing meaningful cross-examination of a key witness.
- Under Federal Rule of Evidence 701, lay opinion must be based on the witness’s perception and be helpful to the jury; lay testimony that effectively instructs the jury on a defendant’s mental state (e.g., what the defendant “knew” or “must have known”) impermissibly invades the jury’s role.
- When convictions are vacated for trial error, appellate review of evidentiary sufficiency may still be required to determine whether retrial is barred; sufficient evidence permits retrial.

## Conclusion

The court ordered a new trial because the joint-defense confidentiality arrangement produced an actual conflict that impaired defense counsel’s ability to cross-examine a principal witness, and because the jury heard improper lay opinion on the defendants’ knowledge; however, the insider trading evidence was sufficient to allow retrial on all counts.


United States v. Henke, 222 F.3d 633 (9th Cir. 2000)