Corporate Deferred Prosecution As Discretionary Injustice

Peter Reilly teaches alternative dispute resolution at Texas A&M University School of Law.

Peter Reilly
Texas A&M School of Law

He sees deferred and non prosecution agreements as a form of alternative dispute resolution.

And he’s out with a new paper on the subject titled Corporate Deferred Prosecution as Discretionary Injustice.

In the article, Reilly takes on the DC Circuit’s decision in Fokker. Reilly says that the ruling is “ill-advised”, and suggests how other courts might address these same legal issues while arriving at different conclusions.

Reilly argues that if federal prosecutors are going to continue using deferred prosecution agreements in addressing allegations of corporate criminal misconduct, then that discretionary power must be confined and checked through meaningful judicial review.

He says that if the law surrounding corporate deferred prosecution agreements is permitted to develop on its current course, federal prosecutors will continue to use these agreements in a discretionary manner that both subordinates public interest and undermines separation of powers principles.

In 2014, Reilly published a paper titled Justice Deferred is Justice Denied: Let’s End Our Failed Experiment with Deferring Corporate Criminal Prosecution.

In the article Reilly writes that the deferred prosecution agreement “makes a mockery of the criminal justice system by serving as a disturbing wellspring of unfairness, double standards, and potential abuse of power.”

Reilly calls on Congress to pass legislation to halt the Department of Justice’s ability to use deferred prosecution agreements in the context of corporate criminal law enforcement.

If Congress doesn’t act, “these agreements will continue to greatly compromise the pursuit of justice, consistency in the rule of law, and basic notions of fairness.”

Reilly says that three district court judges who looked at the issue of whether judges should have some authority over deferred prosecution agreements came down with the answer — yes. But two circuit courts overturned those rulings.

“ It’s interesting that the three district courts that looked at this have said similar things,” Reilly told Corporate Crime Reporter in an interview last week. “Judge Leon in Fokker, Judge Sullivan in Saena Tech and Judge Gleeson in HSBC — they all said that the judge should be able to look at the terms of the agreement. It was really the Fokker Circuit Court that went in another direction. The HSBC Circuit Court in effect agreed with the Fokker Circuit Court. You now have two circuit courts saying this.”

“I wrote this paper hoping that the other eleven circuit courts will come down differently.”

“When we have plea deals, we insist on having this neutral third party, the judge, look at the out of court settlement and ask — is this reasonable, is this fair, is this good for the public? Why don’t we allow the same kind of oversight for deferred prosecution agreements?”

We published an article last week on corporate probation. It was based on a dissertation by William Lofquist. He looked at book by Charles Lindblom titled Politics and Markets. He said that if you look at corporate crime from a political point of view, you end up with criminal prosecution of the company and corporate probation. If you look at it from a markets point of view, you end up with fining the company, maybe going after the individuals.

Is the same dynamic at work when it comes to deferred and non prosecution agreements?

“I don’t know what role politics might or might not be playing. But why are we handling corporate matters so differently? Some people will make the allegation — these deferred prosecution agreements are essentially speeding tickets to these companies, even though the companies are committing serious crimes. Judge Sullivan gets into this at the end of his opinion. He says — if these agreements are so good for companies, why don’t we start using them for individuals accused of street crimes? If they are so good for the companies, why aren’t they good for everyone else? It’s a serious point to ponder.”

You also have an expertise on the Foreign Corrupt Practices Act and on discretionary justice. In this paper you talk about discretionary injustice.

“I became interested in deferred prosecutions through the Wal Mart FCPA case. A few years ago, Wal Mart got in trouble in Mexico. Many of the cases in the FCPA space were being resolved with deferred prosecutions. Many years ago, Kenneth Culp Davis wrote a book titled — Discretionary Justice: A Preliminary Inquiry. The premise was that you need discretionary power. But Davis was arguing that you need discretion to be properly confined — it should be checked. That’s the part that is lacking in these cases.”

“There was a note in the Yale Law Journal in 1974 titled “Pretrial Diversion from the Criminal Process.”

Deferred prosecutions were just coming into being. The article argued that once a prosecutor agrees to establishing a pre-trial diversion program, fairness requires that the prosecutor’s discretion to divert, unlike his discretion to prosecute, should be subject to judicial control. And that’s key.”

“The article states that pre-trial diversion is a sentencing function by non judicial personnel. The accused is sentenced to a term of probation before trial. And it’s that article that I use to build my argument. It’s the prosecutor, the executive, by functionally engaging in adjudication and sentencing activities through pre-trial diversion, is encroaching on the authority of the judiciary.”

Was this about brute corporate power? The corporate crime lobby succeeded in imposing a system of alternative dispute resolution that shifted the power from the courts to the companies?

“It’s an interesting theory. If that’s true, what were the specific steps that were taken by the people who supposedly hold the power?”

The various iterations of the Holder memo — Principles of Federal Prosecution of Business Organizations. Eric Holder who was going back and forth between the Justice Department and Covington & Burling. It laid the groundwork for the move to deferred and non prosecution agreements. That was at the behest of the corporate lobbies. The corporations don’t want to plead guilty to felonies. Even if they commit felonies. Probably because of reputation.

“I do think that people are aware about problems with how these mechanisms are being used. I find it interesting that the Accountability in Deferred Prosecution Act has sat in Congress since 2009. They want to make some changes. But that goes nowhere in Congress. Judge Sullivan in Saena Tech and Judge Pooler in the HSBC case, they both have said — Congress needs to take action. The way Congress is now, I don’t know that there is going to be action any time soon. But people are aware there is a problem.”

Fokker had its take. That’s one of 13 circuit courts. Now HSBC has come down in the Second Circuit agreeing with Fokker. The Second Circuit stated that district courts should be limited to the following specific and highly circumscribed role during the approval and implementation of corporate deferred prosecution agreements. ‘Absent unusual circumstances not present here, a district court’s role vis-à-vis a deferred prosecution agreement is limited to arraigning the defendant, granting a speedy trial waiver if the deferred prosecution agreement does not represent an improper attempt to circumvent the speedy trial clock, and adjudicating motions or disputes as they arise.’”

“That is trying to give the district court as limited of a role as possible in reviewing these agreements. I hope the law does not continue to develop in this direction. I have tried to set forth not a blueprint, but some ideas so that courts that disagree with the Fokker direction can see that there are strong arguments on the other side.

I’ve tried to set down some reasons why the Fokker court could have come down the exact opposite way.

“Judge Pooler wrote a concurring opinion in HSBC in the Second Circuit. She wrote — “As the law governing deferred prosecution agreements stands now. . .the prosecution exercises the core judicial functions of adjudicating guilt and imposing sentence with no meaningful oversight from the courts.”

“Judge Pooler nailed it.”

“It’s ironic that the Fokker case relied on separation of powers for its ruling. In fact, separation of powers demand just the opposite outcome. It demands more oversight by district court judges. You need a neutral party to oversee the agreement that has been negotiated over years by the defendant and the prosecutor. You need that neutral power to look at the agreement and ask — is it fair, is it reasonable, is it in the public interest? And if it is either too lenient, or too harsh, to be able to reject. Now, we are in a situation where that cannot be done.”

[For the complete q/a transcript of the Interview with Peter Reilly, see 31 Corporate Crime Reporter (35)12, September 11, 2017, print edition only.]


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