Legal News

Second Circuit Shoots Down Novel Take on Corporate Criminality

By Ashby Jones

Would the Second Circuit shift its stance on the criminal prosecution of companies? That was the question many in the white-collar world were asking as they awaited a decision in a case called U.S. v. Ionia Management. Well, on Tuesday, they got their answer: no. In a relatively short (13-page) per curiam opinion, Judges Joseph McLaughlin, Guido Calabresi and Debra Livingston called the arguments in support of such a shift “unavailing” and “contrary to the precedent in our Circuit on the issue.”

First, a little background. A jury convicted Ionia, a Greek shipping concern, of violating something called the Act to Prevent Pollution on Ships. On appeal to the Second Circuit, former Enron Task Force head Andrew Weissmann, now of Jenner & Block (and pictured), filed an amicus brief on behalf of the U.S. Chamber of Commerce and others. In what some viewed as a possible harbinger of good things, the court allowed Weissmann a few minutes to explain his position at oral arguments.

Weissmann argued that the trial court wrongly instructed the jury that a corporate defendant could be criminally responsible for acts committed by a single employee, even if those acts were committed against the company’s policies. Weissman argued that for nearly a century, judges, prosecutors and defense lawyers had misconstrued a 1909 Supreme Court decision, called New York Central and Hudson River Railroad v. United States, which allowed a company to be held criminally liable any time an employee commits a crime intended to help the company.

A ruling in Weissmann’s favor would have done “a lot to influence the balance of power between a prosecutor and a defense lawyer representing a company,” said Jonathan Polkes, a defense lawyer at Weil, Gotshal & Manges, to the WSJ’s Amir Efrati last fall. (Click here for the corresponding LB post.)

But alas, it was not to be. Wrote the court: “Furthermore, 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 employees.” Noting that the argument was made “only by amici curiae,” the court went on: “the argument, whoever made it, is unavailing.”

At least one white-collar defense lawyer, Stanley Twardy of Day Pitney in Stamford, was chagrined. Wrote Twardy in a message to the Law Blog: “On Tuesday, the U.S. Court of Appeals for the Second Circuit missed an opportunity to reign in the unchecked power of federal prosecutors to destroy companies whose low-level employees commit crimes in violation of company policy.”

Weissmann did not immediately return a call seeking comment.

Photo: Reuters

Full post as published by Law Blog - WSJ.com on January 22, 2009 (boomark / email).