Why Can’t A Company Go To Trial?
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 thre may be situations wehere 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?
Michael,
You are absolutely right. I have been saying for sometime that Arthur Anderson was a unique situation that should not be allowed to intimidate other companies into settling with the government. AA provided a service that was inextricably intertwined with its reputation. AA's customers did not know whether their clients, creditors, bankers, and regulators would be willing to rely upon the representations by an auditor who was itself being prosecuted.
There is a significant difference between the calculus that an institution and a human being must engage in before deciding whether to fight criminal charges . An individual may decide to roll the dice and go to trial despite significant evidence of criminal conduct. Sometimes the likely sentence is so high and difference between what the prosecutor has offered and what the person will receive after a trial is so small, there is no downside going to trial. Sometimes the nature of the evidence is such that there is the possibility that it will not be believed by a jury. Cases dependent upon testimony by cooperating witnesses who are not corroborated by physical evidence are often won at trial.
With an institution the situation is different. What is the financial cost of a Non or Differed Prosecution Agreement versus the cost of going to trial and being vindicated by a jury? The former can sometimes be much cheaper. But if private civil litigation can't be avoided there may be a significant value to obtaining that acquittal. What is the financial cost of a conviction? Is there a risk of debarment? What impact could it have on civil suits? What will it do to the company's stock price?
Obviously, the most important factor in all of these calculations is good judgment. And a dask of luck.
Jon
dash of luck!
I SUGGEST THAT THE RECENT TRIALS (ALBEIT MAINLY OF INDIVIDUALS) WHICH HAVE OCCURRED IN THE LAST FEW YEARS, INCLUDING OUR AFRICA STING TRIAL, ARGUE FOR THE PROPOSITION THAT A COMPANY CAN INDEED GO TO TRIAL AND/OR AT LEAST PUT THE GOV'T TO THE TEST THROUGH THE CRUCIBLE OF REAL OPPOSITION AND COME OUT THE OTHER END EITHER WITH A GREAT VERDICT OR A NEGOTIATED SETTLEMENT WHICH IS FAR MORE FAVORABLE TO THE COMPANY THAN THAT OFFERED ORIGINALLY BY THE GOVERNMENT OR RESULTING FROM THE VOLUNTARY DISCLOSURE ROUTE
THE LAST TIME I CHECKED CORPORATIONS (WHO ARE REALLY REPRESENTING THE RIGHTS OF ITS STOCKHOLDERS) AND INDIVIDUALS BOTH HAVE THE RIGHT IN OUR COUNTRY TO CHALLENGE THE GOV'T ASSERTIONS OF PRESUMED GUILT