A former Eastern District judge erred when he asserted supervisory powers over a deferred prosecution agreement between the U.S. Department of Justice and HSBC, the U.S. Court of Appeals for the Second Circuit said Wednesday.
The former judge, Debevoise & Plimpton partner John Gleeson, oversaw the case against the U.S. subsidiary of the British-based bank for allowing the flow of hundreds of millions of dollars of illegal money through accounts it held.
On top of $1.9 billion in penalties paid by the bank, Gleeson signed off on a deferred prosecution agreement in July 2013, but gave himself “novel” powers to review the progress of the agreement’s stipulations, which were overseen by a monitor.
The appeal began after Gleeson, who left the bench last year, had authorized the public disclosure of the monitor’s report. Both prosecutors and the bank argued the court had no power to supervise the agreement nor to make the report public under rules governing judicial documents.
Part of Gleeson’s justification in United States v. HSBC Bank USA, 12-cr-00763, was the ability of courts to guard against any situation that “so transgresses the bounds of lawfulness or propriety as to warrant judicial intervention to protect the integrity of the court.”
Gleeson noted a situation that could warrant a court retaining the power to review how a deferred prosecution agreement was implemented: “What if, for example, the ‘remediation’ is an offer to fund an endowed chair at the United States attorney’s alma mater?”
It was not a hypothetical example. Eight years prior in New Jersey, then-U.S. Attorney Chris Christie demanded that Bristol-Myers Squibb endow a chair at Seton Hall University School of Law—Christie’s alma mater—as part of a deferred prosecution agreement after the company admitted to securities fraud. The move drew criticism at the time, and resulted in new DOJ rules.
That there appeared to be real-world concerns in Gleeson’s order did little to persuade circuit Chief Judge Robert Katzmann and Judges Gerard Lynch and Rosemary Pooler, who wrote a separate concurring opinion.
Katzmann found the lower court’s decision to invoke such supervisory powers was a mistake. Such oversight, he said, should be sparingly exercised with restraint and discretion, according to precedent, in the absence of an already existing impropriety.
“The problem with this reasoning is that it runs headlong into the presumption of regularity that federal courts are obliged to ascribe to prosecutorial conduct and decision-making. That presumption is rooted in the principles that undergird our constitutional structure,” Katzmann wrote. “In resting its exercise of supervisory authority on hypothesized scenarios of egregious misconduct, the district court turned this presumption on its head.”
Citing its own decision in 2008′s United States v. Sanchez, the circuit said the court “encroached on the executive’s prerogative” by not automatically presuming prosecutors were behaving properly. Asserting the power to review the deferred prosecution agreement “based on the mere theoretical possibility that the prosecutors might one day abdicate those duties” can’t be enough. Rather, something must be raised before the court that “smacks of impropriety” before the court can justify invoking such power.
Gleeson decline to comment on the circuit’s decision, as did a spokesman for the Eastern District U.S. Attorney’s Office.
Kirkland & Ellis partner Paul Clement, who represented HSBC before the circuit, could not be reached for comment.
Levine Sullivan Koch & Schulz name partner David Schulz represented Hubert Moore, whose request for disclosure of the monitor’s report led to its publication by Gleeson.
In a statement, Schulz said the circuit “regrettably takes a narrow view of a court’s authority to oversee the implementation of deferred prosecution agreements.” Since the financial crisis, deferred prosecution agreements for corporate actors have proliferated, letting “corporations and their responsible officers off the hook … while creating a shadow system of Wall Street regulation by prosecutors operating with no oversight from the courts or expert bank regulators.”
The panel expressly disagreed that this was the proper role of the courts in deferred prosecutions.
“Put simply, our role is not to act as ‘superprosecutors,’ second-guessing the legitimate exercise of core elements of prosecutorial discretion, but rather as neutral arbiters of the law,” Katzmann wrote.
While agreeing with the order, Pooler, in her concurring opinion, appeared sympathetic to concerns raised by both Gleeson and Moore’s attorneys in calling on Congress to address these concerns.
“As the law governing [deferred prosecution agreements] stands now, however, the prosecution exercises the core judicial functions of adjudicating guilt and imposing sentence with no meaningful oversight from the courts,” she said, pointing to a House of Representatives bill from 2014 that would have established clear guidelines and more authority for the courts.
“Legislation along the lines of this proposed act would restore some balance,” she noted.