Disruptive Innovation in Criminal Defense: Demanding Corporate Criminal Trials

• Jurisdiction: United States,Federal
• Publication year: 2018
• Citation: Vol. 69 No. 3

Disruptive Innovation in Criminal Defense: Demanding Corporate Criminal Trials

Ellen S. Podgor

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Disruptive Innovation in Criminal Defense: Demanding Corporate Criminal Trials

by Ellen S. Podgor^*

Abstract

Perhaps the least sympathetic party in a corporate criminal matter is a corporate entity that has engaged in criminal conduct. If the corporation is large, subject to third party civil actions, and especially in an industry dependent upon a public perception of ethical behavior, a criminal indictment can destroy the entity, and few in society are likely to be concerned. To ameliorate the collateral consequences of an indictment, corporations are quick to cooperate with the government by signing onto non-prosecution, deferred prosecution, or plea agreements. The government secures a hefty fine and obtains from the entity the names and evidence against individuals who allegedly engaged in the corporate misconduct.

But what if companies refused to cooperate? What if corporations demanded speedy trials? What if the power and resources of the entity were used to protect innocent or naive corporate constituents? What if the corporate fines were directed to third parties who could assist in correcting any wrongdoing?

Proposed here is the idea that corporations need to reevaluate folding to the government and instead present a united front against government attempts to extort money and evidence from them to the detriment of their corporate constituents.

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I. Introduction

Perhaps the least sympathetic party in a corporate criminal matter is a corporate entity that has engaged in criminal conduct. If the corporation is large, subject to third-party civil actions, and in an industry especially dependent upon public perception of ethical behavior, a criminal indictment can destroy the entity, and few are likely to be concerned. Corporations are quick to cooperate with the government by signing onto non-prosecution, deferred prosecution, or plea agreements to ameliorate the collateral consequences of an indictment.¹ The government secures a hefty fine and obtains from the entity the names of and evidence against individuals who allegedly engaged in the corporate misconduct.² Cooperation becomes necessary for corporations that cannot suffer the collateral consequences of a conviction.³

But what if companies refused to cooperate? What if corporations demanded speedy trials? What if the power and resources of the entity were used to protect innocent or naïve corporate constituents? What if the corporate fines were directed to third parties who could assist in correcting any wrongdoing? These are the questions examined in this Article.

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This Article begins in Part II with an overview of the current corporate criminal landscape, highlighting that few cases go to trial in the current system. Part III examines two cases that in fact went to trial, United States v. Aguilar⁴ (Lindsey Manufacturing Co.) and United States v. FedEx Corp.,⁵ both resolved favorably for the company.⁶ Part IV looks at the lessons learned from these two prosecutions, demonstrating how when a corporation takes on the government, commonplace issues in the criminal justice process can come to light. These two cases provide examples of discovery violations and a failure to properly investigate prior to indictment.

Proposed here is that corporations need to reevaluate folding to the government and instead present a united front against government attempts to extort money and evidence from corporations to the detriment of their corporate constituents. Advocated here is that restoring an appropriate balance between corporate and individual criminal liability might benefit society in reducing corporate misconduct. More importantly, corporations have the resources to expose government pretrial and trial misconduct. The legal landscape could change if corporations were to expose government extortion, discovery violations, and improper cooperation agreements at trial, benefitting those exposed to the criminal justice system who have less power and resources. The disruptive innovation offered here is that corporations should not be so quick to enter pleas or government resolutions, but rather, should go to trial to expose government deficiencies.

II. Current Corporate Criminal Landscape

Corporate criminal liability is an accepted and common doctrine today. Historically, this was not the case as corporations have no body (so no actus reus), no mind (so no mens rea), and as an entity, could not be imprisoned.⁷ Corporate criminal liability developed over time, first allowing criminality when the corporation violated an omission statute and then allowing it for all regulatory strict liability offenses. Eventually,

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in New York Central & Hudson River Railroad Co. v. United States,⁸ the Supreme Court of the United States extended corporate liability for crimes requiring mens rea, like the violation of the Elkins Act⁹ seen in this case.¹⁰ Using respondeat superior, courts allowed corporations to be criminally liable when its agents committed violations within the scope of the agent's employment¹¹ and when the acts were for the benefit of the entity.¹²

The acceptance of the "collective knowledge" doctrine by the courts has facilitated the government's ability to prove the mens rea of a crime. Collective knowledge allows the government to aggregate the knowledge of individuals within the company so that knowledge can be demonstrated using the "sum of the knowledge of all the employees."¹³ It is "irrelevant whether employees administering one component of an operation know the specific activities of employees administering another aspect of the operation."¹⁴

The ease of proving corporate criminal liability is a factor in corporations reaching agreements with the government to avoid the possible severe ramifications of an indictment or conviction.¹⁵ Professor Brandon Garrett and Jon Ashley provide an exhaustive list of corporations that enter into Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs).¹⁶ The key differences between the two resolutions are whether there is a formal charge against the entity and whether the agreement requires court approval. The use of an NPA does not require a formal indictment against the entity. Rather, the government and the corporation exchange a letter agreeing to required terms.¹⁷ The government has the option to bring criminal charges against

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the company if the company fails to abide by these mandates.¹⁸ Because NPAs are entered into directly between the government and the entity, the number and existence of these agreements can be difficult to ascertain.

In contrast, a DPA requires that a formal charge be filed against the company.¹⁹ The parties then agree not to move forward with the case, pending the company complies with the agreed terms in the DPA.²⁰ If the entity complies with the terms of the agreement, the case is typically dismissed.²¹

Garrett and Ashby also track corporate prosecutions in their Corporate Prosecution Registry, such as when the company enters into a plea agreement with the government, in addition to providing information on NPAs and DPAs.²² There were 274 companies that entered into NPAs between 1992 and 2017, 208 companies that entered into DPAs, and 2,593 companies that reached a plea agreement between the company and the government.²³ Some of these numbers represent subsidiaries or companies related to the main company.²⁴ The registry only lists two companies with trial convictions,²⁵ both resulting from an antitrust violation. Further, there are only seven companies listed in this

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database with prosecution declinations,²⁶ and three companies are listed with acquittals.²⁷

The United States Sentencing Commission (USSC)²⁸ also provides information regarding sentencing under the organizational guidelines.²⁹ These USSC statistics report that, in 2016, 132 organizations were convicted of a federal offense.³⁰ Of this number only "1.1% was a publicly-traded corporation."³¹ "[E]nvironmental (23.5%), fraud (23.5%), and food and drug crimes (12.9%)" were "[t]he most common offenses committed by organizations."³² Of the fraud crimes, 48.4% fell in the mail fraud category, with the next-highest fraud offense being false statements (25.8%).³³ "97.7% of all organizational offenders pled guilty," with "[s]ixty percent (60.6%) of the organizations" being "sentenced to probation."³⁴ Overall, the sentencing of organizational offenders decreased by 27.1% from the prior year.³⁵ These numbers, however, do not reflect the government's proceeding against entities when the parties have entered into a NPA, as these would not have included an indictment or conviction,

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and therefore, these cases would not be reflected in sentencing statistics.³⁶

It is apparent that few companies are risking a trial, and most resolve criminal matters with either an NPA, DPA, or plea agreement. The 3,099 companies reported in the Corporate Prosecution Registry represent resolutions from 1992-2017, and despite it being of tremendous assistance to scholars, there appear to be some omissions in that cases that proceed to trial and end with a not guilty are sometimes not reflected.³⁷ But this number is most likely very small.

The high number of government resolutions without trial is easily explained. NPAs and DPAs allow the company to pay huge fines while avoiding the collateral consequences that can come with an indictment or a finding of guilt. Companies are quick to resolve cases when the government reminds them of what happened to Arthur Andersen, LLP. Andersen failed to enter into a NPA or DPA that resulted in an indictment, trial, and later conviction.³⁸ The company was already in bankruptcy³⁹ by the time the Supreme Court of the United States reversed the conviction.⁴⁰ Thus, the collateral consequence of even an indictment can place a company reliant on...