Lynsey Morris Barron, Right to Counsel Denied: Corporate Criminal Prosecutions, Attorney Fee Agreements, and the Sixth Amendment

• Publication year: 2009

COMMENTS

RIGHT TO COUNSEL DENIED: CORPORATE CRIMINAL PROSECUTIONS, ATTORNEY FEE AGREEMENTS, AND THE SIXTH AMENDMENT

On March 14, 2002, accounting firm Arthur Andersen was indicted for shredding documents in connection with the collapse of the Enron Corporation.¹In response to the spate of corporate scandals following the Enron disaster, the Bush Administration increased efforts to uncover and punish corporate malfeasance and to rebuild public faith in market systems in a way that has "fundamentally changed the government's relationship with industry and required companies to adapt accordingly."²Although the Supreme Court unanimously overturned Arthur Andersen's conviction,³it was too late to save the once-corporate giant from ruin.⁴

The lesson learned from Arthur Andersen's demise is that, in the world of white-collar crime, indictment alone can be a death sentence for a large corporation, resulting in "potentially catastrophic collateral and reputational consequences to a corporation."⁵Corporate scandals such as those involving Enron, Tyco, and WorldCom changed the landscape for enforcing white-collar crime.⁶Corporations suspected of criminal wrongdoing have adopted a new mantra: avoid indictment at all costs.⁷

Unfortunately, a corporation seeking to avoid indictment often finds the constitutional rights of its employees at odds with the company's interests because the government accepts no compromise.⁸This Comment examines U.S. Department of Justice (DOJ) policy and practice regarding corporate criminal prosecution with a specific focus on how the constitutional rights of individual corporate employees may be compromised when a corporation struggles to avoid indictment. The DOJ policy for prosecuting business organizations, articulated most forcefully in a guidance document by former

U.S. Deputy Attorney General Larry Thompson ("Thompson Memorandum"),⁹ was declared unconstitutional in a "landmark ruling"¹⁰by a federal district court in a tax shelter case against executives of the accounting giant KPMG.¹¹

In that case, the trial court's dismissal of the indictments against the executives was upheld by the Second Circuit Court of Appeals.¹²United States v. Stein received national attention because the decision challenged "government conduct in prosecuting companies and individuals accused of criminal wrongdoing."¹³

While the Thompson Memorandum had long been criticized because of the "downstream effect of the pressure exercised by prosecutors on companies . . . and the resulting myriad of implications for individual employees,"¹⁴Stein was the first case to challenge directly certain controversial aspects of DOJ policy on prosecuting corporations, bringing the dispute over the controversial memo to a head.¹⁵Of particular concern to the court was the fact that some federal prosecutors were using the memo to pressure, if not coerce, corporations to stop paying legal fees for their employees also under investigation, even when doing so compromised the employees' Fifth Amendment substantive due process rights and Sixth Amendment right to counsel protections.¹⁶Stein serves as a useful lens through which to evaluate the clash of values inherent in DOJ's corporate prosecution tactics.

Scores of critics have challenged DOJ's approach to corporate crime,¹⁷though no one has articulated a means by which the legitimate government interests in prosecuting crime and preventing obstruction of justice can be balanced against the constitutional rights of third-party employees who are harmed when the government strikes a deal with a corporation. In an effort to find such a balance, this Comment proposes a new standard for reviewing prosecutorial action during corporate investigations. It rejects substantive due process and its corollary of strict scrutiny review,¹⁸arguing that they are inappropriate for evaluating the claims at stake in such conflicts. The court in Stein reached the right conclusion-that KPMG employees' constitutional rights were compromised-but for the wrong reasons. Rather than invoke the nebulous and controversial standard of substantive due process, this Comment evaluates the Thompson Memorandum and prosecutorial behavior¹⁹in corporate criminal investigations in light of how both can compromise corporate employees' Sixth Amendment right to counsel. Because existing law,²⁰and the Stein decision in particular, has failed to offer a satisfactory standard for reviewing government action under the Sixth Amendment, a new standard is proposed.

The analysis proceeds in four parts. After a brief overview of theories of corporate criminal liability, Part I examines DOJ policy for prosecuting business organizations. Part II sets out the facts of Stein and the basis for the court's decision, providing context for the discussion that follows. Part III rejects substantive due process as the appropriate constitutional concern, arguing instead that this issue falls squarely within the confines of the Sixth Amendment. Part IV offers a different standard, one derived from the Court's decision in United States v. Wheat,²¹for reviewing DOJ actions that implicate the Sixth Amendment rights of corporate employees.

I. PROSECUTING CORPORATIONS

A. Theories of Corporate Criminal Liability

Criminal culpability for corporations is well-established at common law.²²

Likewise, federal law declares that, absent clear congressional language to the contrary, all statutory uses of "the words 'person' and 'whoever' include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals."²³

The basic rule of corporate criminal liability borrows the concept of vicarious liability from tort law.²⁴Under this theory, a corporation can be held liable for the criminal acts of its employees and agents so long as the illegal acts were within the scope of the employees' or agents' duties and were intended to benefit the corporation.²⁵This doctrine was first laid out at the beginning of the twentieth century when the Supreme Court upheld the Elkins Act, which imputed misdemeanor liability to any common carrier involved in interstate commerce should an agent or employee of that carrier break the law.²⁶

Courts have also relied at times upon a different theory of corporate criminal liability-the "collective knowledge" doctrine.²⁷This theory is best articulated in a federal appellate case, United States v. Bank of New England.²⁸

There, the trial court had acquitted individual bank employees for violations of the Currency Transaction Reporting Act, but it convicted the bank for those same violations.²⁹On appeal, the First Circuit reasoned that the knowledge of individual employees who are acting within the scope of their employment can be imputed to their employer.³⁰As applied, this means that the employer's knowledge is the sum of knowledge held by its employees.³¹Though employees may not know that they are involved in wrongdoing, "the aggregate of those components constitutes the corporation's knowledge of a particular operation."³²

Combining the theories of vicarious liability and collective knowledge, prosecutors have several avenues by which they can find corporations potentially liable for the acts and omissions of their employees.³³Despite the broad latitude prosecutors have in bringing charges, they rarely use the outer limits of their discretion.³⁴Some scholars have argued that this shows the existence of a "separate de facto substantive criminal law" known only to prosecutors, which guides and informs their decisions whether to bring charges.³⁵Likewise, until 1999, DOJ had no formal policy on corporate prosecution even though corporate criminal liability was well-established.³⁶

However, numerous corporate scandals in recent years, including Enron's bankruptcy and WorldCom's accounting restatement fraud undermined public confidence in corporate America, forcing the government to take drastic legislative and regulatory measures to restore that confidence.³⁷Congress responded by enacting the Sarbanes-Oxley Act of 2002.³⁸The Bush Administration, acting through DOJ, responded by placing greater emphasis on prosecuting corporate corruption and by formalizing the factors prosecutors must consider when deciding whether to indict business organizations.³⁹

B. The Thompson Memorandum: DOJ Guidance to Federal Prosecutors

Regarding Corporate Criminality

In July 2002, President Bush issued an executive order⁴⁰creating the Corporate Fraud Task Force to "strengthen the efforts of the Department of Justice and Federal, State, and local agencies to investigate and prosecute significant financial crimes, recover the proceeds of such crimes, and ensure just and effective punishment of those who perpetrate financial crimes."⁴¹

Central to this mission was restoring public confidence in corporations and the market by ferreting out corporate fraud.⁴²The Bush Administration's rhetoric became increasingly bold in an August 2002 statement declaring "war" on corporate crime.⁴³These efforts have been successful; in recent years, federal prosecutions have resulted in more than 1,100 convictions in corporate fraud cases.⁴⁴

Soon after creating the task force, DOJ distributed the Thompson Memorandum to federal prosecutors, outlining several factors that must be considered when deciding whether to bring charges against a corporation.⁴⁵

The Thompson Memorandum and its predecessor, written by then-Deputy Attorney General Eric Holder ("Holder Memorandum"), were not completely new tools; rather, they simply "commit[ed] to paper what good prosecutors [had] been doing for decades."⁴⁶Both outlined factors for prosecutors to consider when deciding whether to bring charges against a corporation. However, the Holder Memorandum noted that the factors were "not outcome- determinative" and were to serve only as "guidelines."⁴⁷The Thompson Memorandum left many parts of the Holder Memorandum unchanged, but the primary departure was that it...