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United States v. Pacific Gas and Electric Co.

United States District Court, N.D. California

July 13, 2016

UNITED STATES OF AMERICA, Plaintiff,
v.
PACIFIC GAS AND ELECTRIC COMPANY, Defendant.

          ORDER REGARDING DEFENDANT’S OBJECTIONS TO HOGENSON EXHIBITS

         Yesterday morning Defendant Pacific Gas and Electric Company (“PG&E”) lodged objections to eight of the exhibits the Government intends to introduce through witness Todd Hogenson. The Court now OVERRULES IN PART those objections.

         BACKGROUND

         PG&E makes only two objections to the eight contested exhibits. First, PG&E moves to exclude “Government’s Exhibits 96, 150, 459, 462, 463, 478, and 483 [on the basis] that they involve financial matters not tied to any charged conduct” and “under Rules 401 and 403.” Trial Tr., Vol. 19 at 2587:23-2588:1. Second, PG&E moves to exclude “Government’s proposed Exhibit 594 [on the basis that, ] [a]s with that exhibit weeks ago with Mr. Warner, we believe this relates to distribution.” Id. at 2588:4-6.

         The Court provides below some background on these two objections, and then with this background in mind, proceeds to a discussion of the eight contested exhibits.

         I. Financial matters not tied to any charged conduct.

         PG&E previously made a very similar objection to exhibits offered through Government witness William Manegold. That objection, titled “Financial Evidence Not Tied to the Government’s Allegations, ” stated as follows:

Several exhibits concern financial evidence not specifically tied to the government’s allegations that PG&E violated the charged regulations. These should be excluded under the Court’s Motion in Limine Order concerning such evidence. As this Court held, “proof of greed, without more” is unduly prejudicial. The Court gave, as an example of this, evidence of PG&E’s reported income for the second quarter of 2010, which was a “presentation of wealth unnecessary to any argument that PG&E’s profit motives drove regulatory violations, and it is therefore inadmissible.”
[But t]he Court found the government alleged “something more” - that is, some connection to the charged crimes - because it said it would show that “PG&E knew that updating all of its records and hydrotesting its old pipelines in highly populated areas would have been more expensive” and that PG&E therefore “chose to spend money elsewhere.” As the Court noted, at the time of our motion the government had not identified how it would show this. Through Mr. Manegold, the government will seek to offer financial evidence unrelated to PG&E decisions about hydrotesting or updating its records. . . . Other documents concern gas transmission or integrity management budgets, but say nothing about hydrotesting or recordkeeping decisions.

Dkt. No. 717 (“Objs. to Manegold Exs.”) at 1-2 (citations omitted).

         The “Motion in Limine Order” PG&E refers to above is this Court’s Order on PG&E’s Motion in Limine Number Four, which sought to exclude all financial evidence and argument unrelated to the charged conduct. In that Order, this Court held that “[p]roof of [greed], without more, is likely to amount to a great deal of unfair prejudice with little probative value, ” Dkt. No. 460 (“MIL Order”) at 18 (quoting United States v. Mitchell, 172 F.3d 1104, 1109 (9th Cir. 1999)), and that “[t]he Ninth Circuit therefore requires that ‘something more’ accompany evidence of poverty or greed for such evidence to be admissible, ” id. (quoting United States v. Bensimon, 172 F.3d 1121, 1129 (9th Cir. 1999)). But the Court went on to hold that financial evidence would be admissible in this criminal prosecution to the extent the Government delivers on its promise to provide that “something more”:

The Government alleges that PG&E’s profit motives drove “cost-cutting” decisions that actually meant “safety-cutting” decisions, including that “PG&E knew that updating all of its records and hydrotesting its old pipelines in highly populated areas would have been expensive [and] . . . chose to spend money elsewhere.” Gov’t Opp’n at 11. If true, such evidence presents more than “[a] mere interest, unconnected with inclination, ” Mitchell, 172 F.3d at 1109; it suggests that PG&E’s inclination to make money actually informed its decision-making in a way that informs its mental state[] on the charged regulatory crimes.

Id.

         PG&E’s continued objections to “financial matters” suggests that it continues to misread this in limine ruling, so the Court once again finds occasion to clarify it. See Dkt. No. 724 (“First Order on Manegold Objs.”) at 3-4 (clarifying the same ruling). By objecting to “[o]ther documents [that] concern [only] gas transmission or integrity management budgets, but say nothing about hydrotesting or recordkeeping decisions, ” PG&E seems to suggest that only a “smoking gun” - perhaps an email about executives pocketing dollars earmarked for hydrotesting or recordkeeping decisions - would be admissible “financial evidence” in this prosecution. Not so. PG&E wrongfully ignores the possibility that documents concerning “gas transmission or integrity management budgets” would meet the low bar for relevance[1] in a criminal prosecution about those very organizations and programs. When such documents are relevant, the general presumption is that they are admissible unless otherwise prohibited. Fed.R.Evid. 402. And PG&E likewise seems to ignore the meaningful standard set forth by the Rule - Federal Rule of Evidence (“Rule”) 403 - that it offers as a bar to the seven exhibits containing “financial matters.” Rule 403 allows the court to “exclude relevant evidence if its probative value is substantially outweighed by a danger of one or more of the following: unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence.” Fed.R.Evid. 403 (emphasis added).[2]

         II. Distribution Evidence

         PG&E’s allusion to “that exhibit weeks ago with Mr. Warner” is a reference to this Court’s prior order excluding (without prejudice) Government’s Exhibit 276. That exhibit is an email containing employee discussion about PG&E’s regulatory compliance “culture.” PG&E argued at the time that the email is inadmissible because it is “an email regarding the distribution system, which is not at issue in this case, ” Trial Tr., Vol. 5 at 689:17-18, and that such “evidence is a classic example of an ‘other act’ that is not admissible to prove a person’s character in order to show that on a particular occasion the person acted in accordance with the character” under Rule 404(b)(1), Dkt. No. 688 at 4.

         On the morning of June 24, 2016, the Court questioned Mr. Warner outside the presence of the jury about whether the “employees’ comments about culture change [in Exhibit 276] concerned PG&E’s compliance with the transmission regulations, the distribution regulations, or both, ” to which Mr. Warner responded that his “recollection was that it was related to the distribution regulations.” Trial Tr., Vol. 9 at 1191:3-8. On the basis of this response, the Court excluded Exhibit 276 “because it fails the Ninth Circuit’s test for the admission of Rule 404(b) evidence.” Id. at 1249:19-20.

         GOVERNMENT’S EXHIBIT 96

         This exhibit is an email chain and an attached draft “proposed job story, ” which discuss PG&E’s 2004 request for $5.4 million in funding to conduct External Corrosion Direct Assessment (“ECDA”) testing.

         This exhibit does not contain the sort of financial evidence prohibited by the Court’s order on PG&E’s Motion in Limine Number Four. Though the exhibit contains financial evidence, the exhibit offers “something more” than just evidence of greed. For example, the job story considers the various “alternatives” PG&E may take to achieve compliance with “the new Pipeline Safety Act regulations, ” i.e. the Integrity Management regulations that lie at the heart of this case, and lists the associated cost of each alternative. This information is relevant to the Government’s theory that financial considerations drove PG&E’s compliance (or noncompliance) with some of those regulations, and is therefore probative of the required mental state for some of the regulatory counts.

         Meanwhile, this exhibit is not excludable under Rule 403 because its probative value is not substantially outweighed by a danger of unfair prejudice, confusing the issues, misleading the jury, undue delay, wasting time, or needlessly presenting cumulative evidence. Indeed, it is difficult to imagine how PG&E could argue that the chief financial figure referenced in this exhibit - the request for $5.4 million in ECDA funding - is somehow unfairly prejudicial financial evidence or improper evidence of “greed”; this figure is on par with ...


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