The underpinning of the Justice Department’s criminal prosecutions program against companies is based on a simple premise – a company has to negotiate a pre-indictment settlement to avoid the catastrophe which occurred to Arthur Andersen in 2002. As you will recall, in 2002, Arthur Andersen went to trial, was convicted and the company evaporated, jobs were lost and pensions were gone. The impact on the community was huge.
The Justice Department cites this premise and companies follow the logic of it with few exceptions. It is a very powerful premise – companies are forced to enter into non-prosecution or deferred prosecution agreements (DPA or NPAs) which give prosecutors unprecedented power to impose “regulatory-type” requirements on companies. It is a dangerous practice to allow prosecutors to set corporate governance and compliance requirements, but that is the world in which we all live.
So let’s go back to the premise – can companies go to trial?
A recent example demonstrates that the answer may be yes. United Water just last week went to trial in an environmental crime cases and won an acquittal. Not only did United Water secure an acquittal but the threee individuals charged in the case were acquitted as well. The jury was out for a total of 8 hours deliberating. The cost of this debacle to the company, to taxpayers and the court system is enormous. For a good summary of the case, see Sol Weisenberg’s article on Professor Podger’s White Collar Crime Prof Blog here.
United Water is part of a global water conglomerate with services all around the world. It stands distinct from smaller companies such as Lindsey Manufacturing, which went to trial last year in an FCPA criminal case. The environmental crimes section took it on the chin. Unfortunately, this is not unprecedented. In 2009, the environmental crimes section lost a huge criminal case in Montana against W.R. Grace and three of its executives. It is important to keep these two significant cases in perspective. Overall, the environmental crimes section has had huge successes in prosecuting companies and individuals. Its track record is pretty impressive. My point in citing these two examples, however, is that there may be situations where a company can challenge the government’s evidence, exercise its constitutional right to a jury trial, and win. More importantly, the company can survive.
Of course, the reputational damage during the pendency of the case can be significant. The cost of going to trial is huge. And there is a benefit to a company to focus forward rather than devoting energy to defending itself for past actions.
Whatever the calculus is for an individual company, my question still stands – are there cases where companies can (or should) go to trial?
About the Author
Michael Volkov is a shareholder at the national law firm of LeClairRyan. His practice focuses on white collar defense, corporate compliance, internal investigations and regulatory enforcement matters, and he is a former federal prosecutor with almost 30 years of experience in a variety of government positions and private practice. He can be reached at firstname.lastname@example.org