Ionia Management was indicted when some of its employees dumped waste oil into the ocean and failed to keep the required records under the Act to Prevent Pollution from Ships. It appealed its conviction to the Second Circuit, arguing in part that it could not be vicariously liable for the acts of employees who violated strict company policy, who acted outside the scope of their employment, and whose illegal acts provided no benefit to the company.
The NAM joined with 5 other groups in supporting this appeal. Our brief challenged a jury instruction and urged an approach that is consistent with Supreme Court precedent and the objectives of criminal liability. The jury instruction allowed the imposition of criminal liability on the corporation for the conduct of a single low-level employee even if he or she acted in direct contravention of corporate policy and a robust compliance program. The instruction stems from a longstanding but indisputably mistaken application of a Supreme Court decision from 1909, the New York Central & Hudson River Railroad case. Although that case stood only for the proposition that Congress may include respondeat superior principles in a criminal statute, it did not mandate the use of such principles in statutes where Congress has made no such choice. It is critically important, in light of the increasing criminal investigations of organizations and the corporate life-or-death consequences an indictment can bring, that the courts apply the correct principles and criteria to the imputation of criminal misconduct by corporate employees to their employer.
In various statutes with criminal penalties, the Supreme Court has limited a company's responsibility to the acts of supervisors and when the company has no reasonable policies in place to deter the offending employee's conduct. The trial court's decision in this case would make it easier to impute conduct and knowledge to a corporation in a criminal case than it would be in a civil case under the Civil Rights Act of 1964.
The threat of criminal liability gives government prosecutors tremendous power to require the waiver of attorney-client privilege and to create Draconian non-prosecution and deferred prosecution agreements. We urged the Second Circuit to adopt a standard that mirrors recent Supreme Court decisions and that adds an additional element to criminal liability that requires the prosecution to prove that a corporation lacks effective policies and procedures to deter and detect criminal actions by its employees. This would encourage self-policing while protecting corporations and shareholders from rogue employees who commit crimes despite a corporation's diligence.
Regrettably, on 1/20/09, the Second Circuit upheld the conviction. The court cited an earlier Second Circuit case, United States v. Twentieth Century Fox Film Corp., which held that a compliance program, no matter how robust, does not protect a company from liability when its employees break the law.