In defense of corporate criminal liability.

• Author: Friedman, Lawrence

Corporations move like poltergeists through our material world: We register their presence by the tangible evidence of their actions, whether it be the construction of a manufacturing facility, the termination of employees, or the sponsorship of a sporting event. And yet corporations are regarded as more than mere ghosts. Like the actions of a corporeal person, the conduct of a corporation has consequences, and so we believe the law should set similar limits on the behavior of each. Indeed, it has become commonplace for federal and state governments to seek to impose criminal liability upon corporations for their actions in such areas as tax, securities, antitrust, insurance and environmental law.

Notwithstanding the ubiquity of federal and state corporate criminal liability regimes,(1) there has been surprisingly little studied consideration by American jurists and legal commentators of the raison d'etre for corporate criminal liability.(2) Critics of corporate criminal liability have recently sought to correct this oversight. In his article, Corporate Criminal Liability: What Purpose Does It Serve?,(3) Professor V.S. Khanna concludes, on efficiency grounds, that corporate criminal liability in fact serves no purpose whatever: "After all," Khanna writes, "corporations cannot be imprisoned," and "it is not clear that corporate criminal liability is the best way to influence corporate behavior."(4) And in their essay, Corporate Crime, Professors Daniel R. Fischel and Alan O. Sykes likewise conclude that, because corporations cannot be imprisoned, criminal liability ultimately "is inferior as a practical matter to an appropriate corrective on the civil side."(5)

In response, I suggest that these critics of corporate criminal liability may be incorrect--that corporate criminal liability is not without purpose. The problem lies in a foundational premise of the critics' arguments: By centering the case for eradicating corporate criminal liability exclusively upon its asserted inefficiency as a deterrent to unlawful acts, Khanna, Fischel, and Sykes overlook retribution as a normative basis for criminal liability and accordingly fail fully to appreciate that, even in the corporate context, moral condemnation remains a valid aim of the criminal law. Indeed, the attributes of modern corporate existence support the argument that corporations, like individuals, can and should be morally condemned for actions that transgress the law.

This Essay proceeds thus: In Part I, after briefly visiting the history of corporate criminal liability, I review the arguments made by the critics who regard corporate civil liability as superior to criminal liability in terms of social desirability. In Part II, I suggest that, in associating social desirability exclusively with efficient deterrence, Khanna, Fischel, and Sykes slight the retributive rationale for criminal liability. To provide a framework for analysis, I sketch Kantian and expressive retributive theories of criminal liability. This leads to a discussion in Part III of the applicability of these retributive theories in the corporate context. I argue that corporations are susceptible to expressive retributive concerns because they have independent identities in the community, based upon attributes--identifiable personae and a capacity to express moral judgments--that substantively distinguish them from their owners, managers and employees. In Part IV, I address the question whether the goals of expressive retribution in the corporate context can be duplicated by civil liability regimes. Concluding that civil liability cannot capture the retributive concerns of criminal liability, I argue in Part V that corporations should continue to be subject to the same dictates that the community imposes upon individuals insofar as criminal conduct is concerned.

I.

At the time of the framing of the United States Constitution, private corporations lurked at the periphery of the American commercial landscape, and corporations did not share in the rights and liberties the Constitution promised natural citizens. It was not long, though, before lawyers representing corporations began to challenge accepted understandings of the corporate form's supposed limitations. In an 1809 case, Bank of the United States v. Deveaux,(6) Chief Justice John Marshall addressed the question whether a corporation could invoke the diversity jurisdiction of the federal courts. The Chief Justice answered in the negative, stating that a corporation "is certainly not a citizen," for a corporation is an "invisible, intangible, and artificial being, ... [a] mere legal entity."(7)

By mid-century, the Supreme Court had reconsidered this view. In the 1853 case Marshall v. Baltimore & Ohio Railroad Company,(8) the Court held that, while a corporation is an artificial being, it may invoke diversity jurisdiction in the federal courts under the legal fiction that its stockholders are presumed to be citizens of the state of incorporation.(9) And so, notwithstanding their "invisibility" and "intangibility," corporations gained entry into the federal judicial system as participants equal in standing to individuals.

Some fifty years later, the Supreme Court ushered in the modern age of corporate criminal liability in New York Central & Hudson River Railroad Company v. United States.(10) In that case, the government alleged that New York Central had violated the Elkins Act,(11) section 1 of which provided, among other things, that

anything done or omitted to be done by a corporation common carrier, subject to the Act to regulate commerce and the Acts amendatory thereof which, if done or omitted to be done by any director or officer thereof, or any receiver, trustee, lessee, agent, or person acting for or employed by such corporation, would constitute a misdemeanor under said Acts or under this Act shall also be held to be a misdemeanor committed by such corporation, and upon conviction thereof it shall be subject to like penalties as are prescribed in said Acts or by this Act.... In construing and enforcing the provisions of this section the act, omission, or failure of any officer, agent, or other person acting for or employed by any common carrier acting within the scope of his employment shall in every case be also deemed to be the act, omission, or failure of such carrier, as well as that of the person....(12) Appealing its conviction for Elkins Act violations to the Supreme Court, New York Central urged the Court to hold the Act's authorization of corporate criminal liability unconstitutional on the ground that Congress had "no authority to impute to a corporation the commission of criminal offenses, or to subject a corporation to a criminal prosecution by reason of the things charged."(13) Harking to the corporation's "invisibility" and "intangibility," the railroad maintained that "owing to the nature and character of its organization and the extent of its power and authority, a corporation cannot commit a crime of the nature charged in this case."(14)

Drawing from the civil law of tort, the Supreme Court rejected New York Central's argument. On the facts, the Court found no impediment to holding "that the act of the agent, while exercising the authority delegated to him to make rates for transportation, may be controlled, in the interest of public policy, by imputing his act to his employer and imposing penalties upon the corporation for which he is acting."(15) The public policy interests to which the Court alluded, moreover, were straightforward: Reasoning that corporations conduct a vast amount of business in interstate commerce, the Court concluded that to immunize corporations from criminal liability based upon the "exploded" doctrine that corporations lack the capacity to commit crimes would eliminate perhaps the sole means of controlling corporate conduct.(16)

In Corporate Criminal Liability: What Purpose Does It Serve?, Khanna speculates that the public nature of the harms allegedly caused by corporations in no small part inspired the Court's policy-based decision in New York Central. While civil enforcement was possible in the early 1900s, mature civil enforcement mechanisms did not exist. Khanna accordingly concludes that "corporate criminal liability appears to have been the only available option that met both the need for public enforcement and the need for corporate liability."(17) Though government developed effective civil enforcement mechanisms over time, courts and commentators have to this day essentially accepted the existence of corporate criminal liability without question;(18) as Fischel and Sykes observe in Corporate Crime, "the common-law rule that corporations cannot commit crimes is now nothing more than a historical curiosity."(19)

Given that the chasm between government's civil and criminal enforcement powers has now narrowed considerably, the critics question whether corporate criminal liability remains "socially desirable" today.(20) Viewing social desirability through the prism of economic analysis and operational efficiency, Khanna argues that to determine whether the imposition of corporate criminal liability is socially desirable, "one must compare the net benefits of imposing alternative liability strategies,"(21) such as a civil liability regime. Khanna maintains that the comparison is a fair one because both criminal and civil liability share two characteristics: the imposition of liability on the corporation and the goal of deterrence.(22) Indeed, in undertaking this comparison, Khanna expressly considers deterrence to be "the aim of both corporate criminal liability and corporate civil liability."(23)

Under an economic analysis, criminal liability fares poorly as compared to civil liability. Khanna notes that the continuum of sanctions available to deter unlawful corporate conduct--cash fines, probation, debarment, loss of license and related penalties--"are or can...