Mihailis Diamantis on the Corporate Insanity Defense

Individual criminal defendants can claim the insanity defense.

Why not corporate criminal defendants?

That’s a question raised by Mihailis Diamantis, an Associate Professor at Iowa Law School, in a recent paper – The Corporate Insanity Defense.

“Corporations who successfully raise the insanity defense would immediately be neutralized as public threats through necessary constraints on their business conduct,” Diamantis writes. 

“While those constraints are in place, the corporation would face an intensive treatment program, designed and implemented by experts. The constraints would only be released once the experts certify and a court determines that the corporation no longer poses a danger. Victims can rest assured that they and others will not face injury again. At the same time, other innocent corporate stakeholders benefit as the corporations on whom their livelihood rests would remain going concerns.”

“While an initial concern about the corporate insanity defense could be that it would prove too much of a boon for corporations, the opposite concern now arises: Will corporations find the defense attractive enough to raise it?” 

“The benefits of the defense only materialize if corporations can see an overall advantage in it. If acquitted, corporations can avoid the reputational costs of conviction, but being declared ‘criminally insane’ would hardly make for an easy public relations challenge.”

“Adding insult to injury, executives and managers seem to be particularly averse to the sort of oversight that rehabilitative corporate treatment that the insanity defense would necessarily entail. Compulsory reform can be expensive and it infringes the autonomy interests that managers guard so closely.”

“Despite these costs, there are three compelling advantages that the insanity defense has to offer corporations. First, as compared to conviction, acquittal under the insanity defense would avoid the fatal collateral consequences that can follow a finding of guilt. Many convicted corporations automatically face various restrictions – like debarment or loss of license – that effectively terminate their ability to ply their trade. Any resolution that avoids that result should be preferable from the corporation’s perspective.” 

“Second, there is reason for corporations to prefer reform following an insanity defense over reform pursuant to a pretrial diversion agreement. If acquitted at trial under the insanity defense, corporations could avoid paying the criminal fines that are a near ubiquitous feature of pretrial diversion agreements.” 

“Additionally, corporations may see some benefit to having courts involved in their rehabilitation. Pretrial diversion agreements commonly reserve to the Department of Justice exclusive and total discretion to determine whether the corporation has complied. This despotic dynamic raises obvious concerns for corporations. Judicial oversight following a successful insanity plea should result in a more objective and balanced process.”

“The third and final appeal of the corporate insanity defense for corporations is that, if all goes as it should, corporate acquittees emerge with an expert certification and court validation that they are now reliable business partners, service providers, employers, and members of the community. In short, good corporate citizens. This should significantly mitigate the reputational effects of criminal trial.” 

“That is a result that everyone involved in the criminal justice process – the corporate defendant, its victims, the judge, the prosecutor, and the public looking on – can applaud.”

Has a corporation ever claimed the insanity defense?

“Not so far as I know, but I’m hoping this paper changes that,” Diamantis told Corporate Crime Reporter in an interview last week. “I argue in the paper that corporations should be able to claim the insanity defense.” 

“For all intents and purposes, anywhere the law uses the word person, you can substitute an individual or the corporate person. The real question is not whether corporations fit into statutes that allow people to claim the insanity defense. The question is whether corporations can meet the criteria for insanity.

Is there any law that prohibits a corporation from claiming the insanity defense?

“Not that I am aware of. There are very few cases which deny basic rights to corporations. Many people think that the ability to claim the insanity defense in a criminal trial where it might be warranted is a basic right. We have a strong history in the United States of diving deep into this fiction of corporate personhood. We say — the rights that we give to individual people we also extend to corporations. There are very few exceptions and I am not aware of any that would impact the insanity defense.”

You raise the question in your paper of an insane person versus a psychopath.

“There is the medical concept of insanity. I am not expert in saying anything about that. But there is the legal concept. Here we have a long tradition going back to British common law, coming to the United States, modified by our courts. This is a separate legal concept of insanity. The American Law Institute, in the Model Penal Code, explicitly excluded psychopathy as a condition that would warrant a defendant claiming the insanity defense.”

“They say that any condition that manifests itself by repeated anti-social conduct doesn’t qualify for the insanity defense. That was specifically to exclude psychopathy.” 

“There were a couple of reasons to do this.  One was a perception that psychopathy was not the kind of mental illness that deserves the insanity defense because it doesn’t manifest itself in the stereotypical paradigmatic cases of insanity. You don’t suffer from delusions when you are a psychopath. Rather you experience deficits of empathy.”

Psychopaths also engage in reckless risk taking. Maybe corporations are more psychopaths than insane.

“The kinds of conduct that psychopathy can drive you to is exactly the kind of conduct that most concerns us in criminal law. And it might turn out that a really high percentage of the people who commit crime and who are in jail right now are psychopaths. Maybe we don’t want to open the insanity defense to psychopaths for those reasons.”

“I agree with you that corporations suffer from psychopathic tendencies. Most of them are not structured in order to have these empathetic responses. They are structured to pursue their own profit. Those norms may be evolving. The Business Roundtable has hinted at perhaps interest in shifting corporate culture. But right now, many large corporations would, if the DSM criteria applied to them, qualify as psychopaths.”

“Under the definition of the insanity defense that most jurisdictions use, psychopathy would not qualify. Corporations who are psychopaths wouldn’t be able to raise the insanity defense by virtue of their psychopathy.”

If these companies are psychopaths and not insane, doesn’t that undermine your argument for the corporate insanity defense?

“As a corporation, you can be a psychopath and also suffer from other mental diseases and defects that would qualify for the insanity defense.”

One of the cases you raise in your paper is the case of the Ford Pinto – the marketing of a defective automobile knowing that unless a fix were made, people would die. That seems to be exhibiting high risk behavior where people will die as a result.

“I agree. It would be a strike against the thesis of this paper if it allowed Ford in the Pinto tragedy to claim the insanity defense. Same for the National Peanut Corporation case which also engaged in extreme risk behavior with respect to their customers and salmonella.”

“I definitely don’t want the insanity defense to apply to these types of corporations. There are more targeted applications where I think the insanity defense can do its most productive work.”

What is the legal definition of insanity? And what are some examples of corporate insanity that might fit the definition?

“There are two definitions of insanity. Some jurisdictions prefer one or the other. Some use them both. One is the volitional approach. It asks whether the defendant, at the time of committing the crime, lacks the substantial capacity to control its conduct. That’s the volitional definition – whether you can actually control what you are doing.”

“The other is the cognitive definition of insanity – which says that the defendant can claim the insanity defense if at the time of his crime, he lacked the substantial capacity to appreciate the wrongfulness of his conduct.”

“The easier case for corporations, the more straightforward case for corporations is the volitional defense. You might have a corporation that is doing its best, everything it reasonably can be expected to do to prevent itself, meaning its employees, from engaging in criminal conduct. You can imagine a corporation that has top grade stellar, effective compliance program in place. But as everyone acknowledges, even the best compliance programs are vulnerable to individual, bad rogue actors. You can’t prevent all of the misconduct all of the time, especially in the face of motivated individuals who want to subvert.”

“You have a corporation who lacks the capacity to control its own conduct. Under the law, the rogue employee’s conduct is acting on behalf of the corporation, assuming that the very weak requirements of respondeat superior are met. And this is despite all the efforts the corporation made to control all of its employees’ behavior. That is a pretty straight forward understanding of the volitional approach to insanity.”

If a company pleads insanity and allows for mental health professionals to treat it, is that the corporate equivalent of checking into an insane asylum?

“There are consequences to claiming the insanity defense. Individuals who claim it – they don’t go to jail, they go to a mental health institution. You can’t send a corporation to a mental health institution. And I am not suggesting that any of its individual employees belong in mental health institutions. You can have an insane corporation without having insane individuals within a corporation.” 

“But the equivalent for a corporation checking into a mental health institution is to do the kinds of things that prosecutors are already trying to do now. And that is – subjecting itself to oversight and reform at the hands of a corporate monitor. I would propose a court appointed monitor. But prosecutors are already trying to do some of this through deferred and non prosecution agreements through a monitoring system.”

“The purpose of treatment is to rehabilitate and reform – to make the defendant healthy again. In the corporate context, that looks like compliance reform.”

What are you working on now?

“I’ve been doing some work in corporations engaging in misconduct through algorithms. I have a paper coming in about a month raising these same set of mens rea issues but asking how we think about criminal mens rea when it’s an algorithm instead of an employee who is engaging in criminal conduct on behalf of the corporation. The concern is that corporations are transitioning much of their functionality from individual employees to artificially intelligent systems. They are carrying out the employee function, but they are not fool proof and they sometimes look really bad – engaging in stock manipulation, price fixing or discrimination.”

“The law now says – in order for a corporation to have a guilty mental state, it has to have an employee with a guilty mental state. How do we extend that to a world where the employee is taken out of the picture, but the corporation is still misbehaving?”

“And then in addition to that, I’m working on a book for Cambridge – The Law and Philosophy of the Corporate Person. It’s targeted toward an interdisciplinary audience. I want to provide philosophers working on corporations with more background in the law.  And I want to show corporate lawyers that philosophy has valuable insights on issues important to them.”

[For the complete q/a format Interview with Mihailis Diamantis, 34 Corporate Crime Reporter 13(12), March 23, 2020, print edition only.]

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