The curious case of corporate criminality.

• Author: Luna, Erik
• Position: Response to articles in this issue, p. 1359, 1481 - Achieving the Right Balance: The Role of Corporate Criminal Law in Ensuring Corporate Compliance

INTRODUCTION

Corporations dominate the business world, accounting for an overwhelming majority of commercial revenues and serving as the nearly exclusive organizational form for large-scale enterprise. (1) They are, quite simply, the major vehicles of American capitalism and a primary source of socio-economic prosperity and innovation. But corporations are also implicated in serious harm to individuals and society: massive fraud in securities, banking, and health care; damage to the environment from air and water pollution and the generation of hazardous waste; and systematic bribery, tax evasion, and obstruction of justice. If these acts were committed by an individual, there would be little doubt that prosecution and punishment might be in store--and, indeed, contemporary law accepts the idea that corporations can be held criminally liable in such circumstances. Yet to this day corporate criminality remains a curious concept. As artificial creatures of the law, corporations per se have no emotions or culpable mental states. Nor are they subject to incarceration, the primary mode of punishment in America. To use the hoary phrase, there is "no soul to damn, no body to kick." (2)

This symposium brings together leading scholars to explore the past, present, and future of corporate criminal law. The following response will offer some brief observations about several written contributions, all of which, I believe, help elucidate the peculiar institution of corporate crime.

1. DEODAND AND FRANKPLEDGE

   Professor Albert Alschuler's article takes issue with the very idea of corporations being convicted and sentenced like human defendants. (3) The modern doctrine traces back to 1909 and the (in)famous New York Central case, where the U.S. Supreme Court upheld corporate punishment based on the respondeat superior theory of tort law, thereby allowing a corporation to be held criminally liable for its agents' actions taken within the scope of their employment. (4) Although the Court suggested that "there are some crimes which in their nature cannot be committed by corporations," (5) Alschuler correctly notes that the opinion itself provided no guidance as to the boundaries of corporate criminality. In the ensuing decades, lawmakers and jurists have rejected most meaningful limits to the doctrine (6) and allowed corporations to be held liable not only for modern financial offenses but also for serious physical crimes (e.g., homicide). (7) Still, corporate criminal liability is an oddity, regardless of any approval or acquiescence by courts, politicians, and the public. Akin to saying "I love you" to an inflatable, it sounds strange to describe a corporation as a manslaughterer. (8)

   Alschuler exposes the foibles of this practice through analogy to two ancient institutions. The first is deodand, a biblically derived custom of punishing inanimate objects or animals involved in the killing of human beings. British common law permitted actions against chattel, which if found to have caused a person's death, would be forfeited to the Crown. The tradition of suing non-human entities continued after the American Revolution, sometimes in the form of a distinct doctrine that allowed ships to be seized without having to bring their owners within the jurisdiction. (9) But whether the fiction was grounded in deodand or admiralty law, the courts were acquiescing to a type of "transcendental nonsense," (10) to use Felix Cohen's phrase: property is treated as a person, denominated a party to litigation, and adjudicated guilty of wrongdoing. The fiction persists to this day and has facilitated some unconscionable results, like the forfeiture of an innocent woman's car because her husband had used it for a tryst with a prostitute. (11)

   Alschuler describes a second institution, frankpledge, which is "less silly than hating an artificial person." (12) Dating back to the Norman conquest of England, the practice held the male leaders of ten households responsible for keeping the peace within their community, and in particular, it required them to deliver any household member who had committed a crime. If he was not produced, all leaders could be fined regardless of whether the offender was part of their specific household, thus establishing collective liability for an individual's wrongdoing. In a sense, frankpledge was a mirror image of the older, far more brutal institution of "decimation" associated with the Roman army. If a large number of soldiers acted with cowardice, a tenth of the group could be drawn by lot and then executed. (13) In more recent history, a World War II Soviet commander utilized the practice against troops who had retreated during the battle of Stalingrad. (14)

   Whatever the historical analogy, however, Alschuler considers the modern doctrine of corporate criminal liability to be a form of collective punishment without concern for individual culpability:

   [C]riminal punishment cannot really be borne by a fictional entity [such as a corporation].... This punishment is inflicted instead on human beings whose guilt remains unproven. Innocent shareholders pay the fines, and innocent employees, creditors, customers, and communities sometimes feel the pinch too. The embarrassment of corporate criminal liability is that it punishes the innocent along with the guilty. (15) All told, Alschuler's article provides a compelling case against corporate criminal liability, illuminating its problems with provocative metaphors. My only question is whether a meaningful distinction can be drawn between a blameless person affected by corporate punishment and an equally innocent individual harmed by any other form of criminal sentencing. According to Alschuler, shareholders and employees supposedly receive penalties that "are not incidental, collateral, or secondary" (16) to corporate punishment, and yet there is no definitive test or set of criteria to differentiate between, for example, primary and secondary effects. The case caption provides one crude standard: if your name is in the heading--say, People v. Smith, and you happen to be Smith--then any adverse consequence imposed on you is aptly described as a primary, direct, and intentional result of the proceeding. Other than that, however, the distinctions tend to be contextual rather than categorical. Frankly, I am not at all sure why the "penalty" inflicted upon a former Enron security officer is different in kind from that imposed on the erstwhile bodyguard for an incarcerated celebrity. Both have lost their jobs and may experience the stigma of having worked for a convicted criminal.

   Some might contend that criminal liability is a natural extension of the original legal fiction of corporate jurisprudence, where corporations are considered persons in the eyes of the law. This anthropomorphizing of business entities provides tangible benefits for those who interact with corporations. Shareholders in particular receive unique advantages, chief among them, limited liability for corporate conduct: as long as an investor remains a passive provider of capital, he risks only his investment and can neither be civilly sued nor criminally prosecuted for the misdeeds of the corporation. (17) In fact, his exposure may be less than that of other types of equity holders. In business forms lacking a liability shield (e.g., sole proprietorships), owners may be held personally liable for all sorts of wrongdoing, including the misconduct of their employees (i.e., vicarious liability) and sometimes in the absence of a culpable mental state (i.e., strict liability). Such equity owners are the business, so to speak, and thus responsible for offenses committed under its guise. In contrast, a shareholder cannot be held liable for corporate crime unless he was more than a mere owner of stock (e.g., he was also an executive involved in the criminal activity). By the act of incorporation, a business becomes a separate entity from its owners; "and no corporation can, by violating a law, make any one of its stockholders who does not himself participate in that violation criminally liable therefor." (18) All of this might be viewed as an implicit deal for shareholders: as long as an investor remains passive, uninvolved in day-to-day corporate operations, his exposure is capped at the value of the stock. If the corporation is convicted of crime, however, any complaint that "innocent" shareholders are being unfairly punished will fall on deaf ears.

   This may seem harsh, no doubt, and I have serious misgivings about the above characterization. Like Alschuler, I am not a fan of corporate criminal liability, which should be scrapped in favor of the jurisprudentially sound approach of prosecuting individuals for their crimes and holding businesses liable in tort. Moreover, a corporate case may have derivative effects that are more widespread than an individual prosecution. It is hard to deny that the collapse of Arthur Anderson had an aggregate impact far greater than the downfall of a lone businessman. But on the individual level of injured parties, the harm may be the same regardless of its source. The putative victim of corporate prosecution does not have an inherently superior claim of innocence or beef about undeserved punishment vis-a-vis the families, work relations, and communities affected by severe sentences for non-corporate crime.

2. THE BANALITY OF CORPORATE CRIMINAL LIABILITY

   This last point is central to Professor Sara Sun Beale's symposium article, (19) which offers a potent rejoinder to the many critics of corporate criminal liability, including Alschuler. According to Beale, corporate criminal liability is far from unique. The argument in favor of using civil or administrative sanctions in lieu of criminal punishment, for instance, could apply to a wide range of crimes, not just corporate wrongdoing. Similarly, she provides several doctrinal examples where individuals, like corporations...