Vol. 4, No. 2, Pg. 25. Let the Master Answer: Corporate Vicarious Criminal Liability.

• Author: By James C. Snyder Jr.

South Carolina Lawyer

1992.

Vol. 4, No. 2, Pg. 25.

Let the Master Answer: Corporate Vicarious Criminal Liability

25Let the Master Answer: Corporate Vicarious Criminal LiabilityBy James C. Snyder Jr.Federal and state prosecutors are stepping up their efforts to hold corporations criminally liable for the actions of the corporations' employees.

In recent years federal prosecutors have brought actions against high-profile corporate defendants based on their employees' misconduct. These defendants include Drexel Burnham Lambert for securities fraud, Eastern Airlines for false maintenance reports, Chevron Oil Company for environmental crimes and the General Electric Company for false claims under a defense contract. This trend is likely to continue.

The United States Sentencing Commission's recently issued Guidelines for Organizational Defendants (the Guidelines) provide incentive for the government to prosecute corporations and other organization defendants. U.S.S.C., Federal Sentencing Guidelines Manual, Ch. 8 (West 1991). The Guidelines, which became effective November 1, 1991, dictate dramatically higher criminal fines for convicted corporate defendants.

In addition, the Guidelines limit judicial discretion to impose lower fines and vastly expand a court's power to implement and enforce the penalties.

Despite increased prosecution of corporations, no federal statute defines the scope of corporate criminal liability. Principles governing federal corporate criminal liability have developed almost exclusively through federal case law. Similarly, most states, including South Carolina, lack any statutory standard for imposing corporate vicarious criminal liability.

Case law holding corporate defendants criminally liable for acts of employees is expansive. Today a corporation, acting in the utmost good faith, may be held criminally liable for the actions of even low-level employees. This is true even when the employee violated express corporate policy prohibiting his or her wrongful conduct.

Evolution of Corporate Criminal Vicarious Liability

Early common law prohibited criminal charges from being brought against a corporation because a corporation lacked the requisite mens rea to prove criminal intent. The inability to punish a corporation also was cited as a reason a corporation could not be criminally liable for the conduct of its employees. Common law courts observed that where a statute prescribed imprisonment as the only punishment for a particular crime, a corporation could not be prosecuted because it could not be imprisoned.

In 1909, the United States Supreme Court rejected the common law notion that corporations were immune from criminal prosecution. In its landmark decision New York Central & Hudson Railroad v. United States, 212 U.S. 481 (1909), the Supreme Court held that a railroad could be held criminally liable for the acts of an

26 employee. In New York Central, an assistant traffic manager of the railroad gave rebates on railroad rates. The rebates resulted in shipping rates that fell below the mandated rates. The railroad was...