WASHINGTON — Business and white-collar defense groups have lost an effort to convince a federal appellate court to reconsider the “erroneous” approach of lower federal appellate courts to the issue of vicarious corporate criminal liability.
In the closely watched appeal of U.S. v. Ionia Management, No. 07-5801, the 2d U.S. Circuit Court of Appeals rejected the argument made in an amicus brief by a coalition of business, legal and defense organizations and authored by former Enron prosecutor Andrew Weissmann of the New York office of Jenner & Block.
The amicus effort, which included the Association of Corporate Counsel, the U.S. Chamber of Commerce, the National Association of Criminal Defense Lawyers, the National Association of Manufacturers, the New York State Association of Criminal Defense Lawyers, and the Washington Legal Foundation, had urged the appellate court to re-examine the standard for holding corporations criminally liable for the acts of their agents.
In their amicus brief, the group argued that the trial court, like many federal courts, gave a common instruction to the jury on vicarious liability based on a mistaken application of the Supreme Court’s ruling in New York Central & Hudson River Railroad v. U.S., 212 U.S. 481 (1909).
That high court case, said Weissmann, determined only that Congress has the constitutional power to include respondeat superior principles in a criminal statute. Under most courts’ instructions, a corporation is criminally responsible for the actions of any of its employees taken within the scope of their employment and for the benefit of the corporation.
But Weissmann and others argued that recent high court rulings in the job bias context, as well as actions by the states limit the application of respondeat superior in determining vicarious corporate liability. The high court’s sexual harassment decisions created an affirmative defense for employers facing liability for the acts of supervisors if the employer had reasonable and effective policies in place to deter the conduct and the employee did not avail him or herself of those policies.
Virtually the same approach is embraced by the Model Penal Code, according to the amicus brief, which provides an affirmative defense for corporations whose officers “exercised due diligence to prevent [the crime's] commission.”
Weissmann argued that allowing corporations to present evidence of effective compliance programs as a defense is more consistent with the recent Supreme Court rulings and the purpose of corporate criminal liability.
But the 2d Circuit said, “We refuse to adopt the suggestion that the prosecution, in order to establish vicarious liability, should have to prove as a separate element in its case-in-chief that the corporation lacked effective policies and procedures to deter and detect criminal actions by its employees.”
Adding such an element is contrary to circuit precedents, said the appellate court, adding, “And this remains so regardless of asserted new Supreme Court cases in other areas of the law. As the District Court instructed the jury here, a corporate compliance program may be relevant to whether an employee was acting in the scope of his employment, but it is not a separate element.”
The appeal before the court involved a Greek company that manages a fleet of tanker vessels and was convicted and sentenced for its role in falsifying records to conceal the overboard dumping of waste oil from one of its vessels into international waters.
“The amicus brief was a great brief, and I think the logic of the argument is entirely correct,” said John Hasnas, a professor of business and law and a white-collar crime scholar at Georgetown University Law Center. “I was skeptical the court would accept it. “We have 100 years now of precedent on this. It may be the original Supreme Court decision was a bad one, but it’s really hard to get courts to revisit such established precedent.”
Hasnas said that to get the appropriate change, legislative action is necessary, but, he added, he is “extremely pessimistic” that Congress would take on the issue.
“It’s very hard to see Congress doing something that would be perceived as letting corporations off the hook,” he said. “We’re talking about the situation in which a corporation is held criminally liable for the actions of even one rogue employee. But the general public is not aware of the details of the law and would see this as a legal reform that would allow corporations to escape criminal liability. In the current climate, there’s no way to get this.”