Policing the Corporate Citizen: Arguments for Prosecuting Organizations

• Publication year: 2008

§ 25 Alaska L. Rev. 175. POLICING THE CORPORATE CITIZEN: ARGUMENTS FOR PROSECUTING ORGANIZATIONS

Alaska Law Review
Volume 25, No. 2, December 2008
Cited: 25 Alaska L. Rev. 175

POLICING THE CORPORATE CITIZEN: ARGUMENTS FOR PROSECUTING ORGANIZATIONS

DANIEL L. CHEYETTE ^[*]

ABSTRACT

Alaska's corporate criminal liability statute exposes organizations to criminal liability for the actions of their agents, as long as agents intended the organization to benefit from their actions. Organizations cannot disclaim liability through codes of conduct or corporate policies, and their liability extends beyond any merger, consolidation, or dissolution. This Article argues that criminally prosecuting an organization is advantageous because it allows greater criminal fines and carries collateral consequences. In addition, criminally prosecuting an organization may be easier than criminally prosecuting an individual because Fifth Amendment privileges and hearsay obstacles do not apply. Corporations accrue the knowledge of their agents, so proving specific intent may also be less difficult. Finally, this Article describes considerations that should be weighed when deciding whether to prosecute a particular organization. The author argues that Alaska's corporate criminal liability statute is a powerful tool that, where appropriate, should be used more often.

TABLE OF CONTENTS

INTRODUCTION.................................................... 176 I. HISTORICAL UNDERPINNINGS......................................... 179 II. CURRENT CONTOURS OF ORGANIZATION LIABILITY....................... 183 A. Alaska Jurisprudence.......................................... 185 B. Existence of Organization Policies Prohibiting the Criminal Conduct and the Requisite Quantum of Benefit..... 189 C. Collective Corporate Knowledge................................ 193 D. Effect of Merger, Consolidation, and Dissolution.............. 194 III. PROSECUTORIAL CONSEQUENCES....................................... 197 A. Penalty Provisions............................................ 197 B. Collateral Consequences....................................... 199 IV. PRACTICAL CONSIDERATIONS FOR PROSECUTORS......................... 201 A. No Fifth Amendment Privilege.................................. 201 B. Avoiding Hearsay.............................................. 202 C. Corporations Can Be Tried In Absentia......................... 202 D. Organizations Engender Less Sympathy.......................... 203 V. CHARGING CONSIDERATIONS.......................................... 204 A. Factors to Weigh.............................................. 204 B. Case Study: Strategica Import-Export Financial Group, LLC..... 206 CONCLUSION............................................................ 210

INTRODUCTION

When charging cases, Alaska prosecutors too often overlook crucial potential defendants: the organizations ^[1] --corporations, companies, partnerships, and other entities--on whose behalf individual wrongdoers act. Alaska law casts a wide net for liability by making organizations liable for the criminal conduct of their agents, ^[2] and by authorizing larger criminal fines against convicted organizations than against convicted individuals. ^[3] These considerations beg the obvious question: why are organizations not investigated and prosecuted more frequently? The most likely explanation is that few prosecutors are aware of how far-reaching an organization's criminal liability extends. In addition, correctly or incorrectly, some prosecutors likely view the prosecution of an organization as an unwanted hassle--the prosecution would be different than their typical cases and may well involve high- paid corporate counsel unfamiliar with criminal practice. ^[4] Finally, some prosecutors might mistakenly believe that organizational prosecutions punish innocent shareholders rather than actual wrongdoers. ^[5] Thus, it has not been common practice in state prosecutor offices to charge organizations. ^[6]

The Author hopes this Article will change these views and encourage prosecutors to examine their caseloads for potential organizational defendants. There are significant benefits to be gained by charging organizations rather than individuals: courts will likely impose larger fines against organizations, prosecution of an organization may effect change within the organization, and negative publicity and other collateral consequences will pressure the organization to settle. Furthermore, should the case go to trial, the defense will not be able to protect organizations' records or utilize certain other evidentiary tools to hamstring the prosecution's presentation of evidence.

The aftermath of the 1989 Exxon Valdez oil spill provides a good illustration of why prosecuting an organization is often superior to prosecuting an individual wrongdoer. The 1989 grounding of the tanker Exxon Valdez spilled approximately eleven million gallons of crude oil into Prince William Sound. ^[7] Following the grounding, the State of Alaska prosecuted Joseph Hazelwood, the captain of the ill-fated vessel. ^[8] Hazelwood was convicted by a jury of negligent discharge of oil ^[9] but received only a conditionally suspended sentence. ^[10] Conversely, the United States prosecuted Exxon, ultimately resulting in a negotiated plea agreement and a combined criminal fine of one hundred million dollars. ^[11] The latter was a better use of prosecutorial resources and obtained a better result. ^[12]

It is particularly common for organizations to be defendants in several niche areas of Alaska criminal law. For example, Title 4 criminalizes various aspects of alcohol-related behavior. ^[13] Bush pilots who knowingly or negligently allow passengers to carry alcohol aboard their flights can expose their air carrier to criminal liability. ^[14] Titles 8 and 16 criminalize violations of the state's hunting and fishing laws and regulations. ^[15] Fishing guides who assist their clients by knowingly or negligently violating state fishing regulations expose their employers, such as lodges or guiding outfits, to criminal liability. ^[16]

These principles also apply to the more "traditional" crimes defined in Title 11 of the Alaska Criminal Code. One well-publicized example of such a prosecution was that of Whitewater Engineering Corporation. ^[17] Gary Stone, a Whitewater employee, was killed in an avalanche at a Whitewater jobsite near Cordova. ^[18] Prosecutors charged the corporation and its president, Thom A. Fischer, with manslaughter because key employees failed to heed avalanche warnings and failed to observe necessary safety precautions. ^[19] Although charges against Fischer were ultimately dismissed, the company pled no contest to a charge of criminally negligent homicide. ^[20]

This Article examines criminal liability of organizations under Alaska law. Part I begins with the historical development of organizational criminal liability in the United States and Alaska. Part II covers the current contours of organizational criminal liability, as codified in the Alaska Statutes and interpreted by Alaska courts. Part III discusses the various consequences typically flowing from a conviction. Additionally, Part IV explores practical considerations for prosecutors, and Part V explores charging considerations for prosecutors who decide to file charges against an organization. Within these sections and in the Conclusion, this Article explains why it is advantageous to prosecute organizations as opposed to solely prosecuting the individual wrongdoers.

I. HISTORICAL UNDERPINNINGS

Courts were the first to recognize corporations as legal entities capable of suing and being sued. ^[21] Early decisions established that corporations could be sued in tort. In Philadelphia, Wilmington and Baltimore R.R. Co. v. Quigley, ^[22] the United States Supreme Court explained in detail the policy considerations that mandated this result. ^[23] Quigley sued the railroad for libel due to the conduct of one of its employees. The company argued that a corporation could only act within the limits of its charter and therefore could not be held liable for any acts of its agents that exceeded those limits. The Court rejected this argument because it would allow corporations to do business and interact with the public while escaping liability when corporate agents, conducting corporate business, injure members of the public. ^[24] By the latter part of the nineteenth century, corporate tort liability was no longer in dispute and lawsuits against corporations were commonplace. ^[25] The law imputed tortious intent from the agent to the corporation, making the corporation liable for actual damages. The courts would not, however, impute the intent necessary to award punitive damages for any injuries absent a showing of wrongdoing by the corporation itself. ^[26]

Corporate criminal liability grew from these civil liability roots. Courts slowly acknowledged that corporations could be criminally liable for the conduct of their agents. For example, in Commonwealth v. Proprietors of New Bedford Bridge, ^[27] the Massachusetts Supreme Court upheld the indictment of a corporation for a public nuisance. ^[28] In 1899, the same court affirmed that corporations could be guilty of criminal contempt in Telegram Newspaper Co. v. Commonwealth. ^[29] Regarding corporate criminal liability, the court stated:

We think that a corporation may be liable criminally for certain offenses, of

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