What constitutional rights do corporations have before they can be fined for their crimes?
The Southern Union Co., a natural gas company, was convicted by a federal jury in Rhode Island
for environmental violations -- storing toxic liquid mercury without a permit. The company's
subsidiary had old gas regulators with mercury and containers with mercury all sitting around
in an old building in Rhode Island. In 2004, neighborhood kids broke in and played with the
mercury, resulting in a spill, a cleanup, and community testing for mercury poisoning. Jury trials
in corporate cases are rare; there are just a handful of corporate trials in federal court each year.
A company can't be put in prison, so the fine is typically the main punishment (although the
company can compensate victims and be required to implement reforms). Here, the fine of $6
million was based on the number of days of violations. The environmental statute has a rate of
$50,000 a day and while the jury was not specifically asked how many days the violations lasted, the judge said the jury found "on or about" 762 days of illegal storage of the mercury. The company was also ordered to pay $12 million in "community service" to the Rhode Island Red Cross, other charities, and to fund grants for children's education and health.
The Supreme Court reversed the lower courts today in a 6-3 decision, holding that the fine violated the Sixth Amendment rights of the corporation, under its landmark 2000 decision in Apprendi v. New
Jersey . The judge had allowed the fine
to be increased without the number of days in question included in the indictment, and without
asking the jury to make a finding on the precise number of days. The Supreme Court had
never said before that criminal fines must be calculated based on a jury finding facts "beyond
a reasonable doubt." The Government argued that the reasoning of Apprendi was based on
the idea that the role of the jury is crucial where there is a "physical deprivation of liberty."
Companies can be fined, but not jailed.
Corporations are persons, and they have some of the same constitutional rights as
individual people, but not all of the same rights. Here, the Supreme Court largely avoided the
topic, just mentioning that corporations have a right to a jury trial under prior rulings, at least, if
the company is facing fines that are not petty ones -- and these were big fines. The Court never
asked whether corporations were criminally fined at common law -- prosecutions of companies
(and the existence of major private corporations to prosecute) are a more recent phenomenon.
Justice Breyer in dissent emphasized that at common law in England and in early America,
prosecutions for what we would call white collar offenses were usually brought by victims, and
rather than fines, the victims would themselves get compensation.
Today, corporations can face massive fines -- particularly under provisions that calculate
the fine for the corporation at up to twice the loss it caused others or the gain it received. I have
assembled substantial data on those corporate prosecutions and fines, if any are curious and
want to follow the money. The
Court cited as examples the record $48.5 million fine in the Siemens FCPA deferred prosecution
agreement and the record fine paid by Pfizer and Pharmacia & Upjohn, of $1.195 billion (plus
additional civil fines and restitution).
The Southern Union Co. ruling will be particularly important in white collar cases
and in corporate crime cases, where the fine may be the ballgame. The Court noted that
fines "are frequently imposed today, especially upon organizational defendants who cannot be
imprisoned." The Court added that in fiscal 2011, "a fine was imposed on 9.0% of individual
defendants and on 70.6% of organizational defendants in the federal system." Some of the
biggest fines are in environmental cases -- also in antitrust, public corruption and bribery cases,
and in fraud cases -- also in cases involving foreign corporations. There are huge fines in individual white collar prosecutions
-- and this will mean more work must be done to prove their basis. Justice Breyer, joined by
Justices Kennedy and Alito, dissented for that reason. They noted that there had been a history
of corporate fines being uneven and too low -- which is why the modern federal sentencing
statutes have enhanced the provisions.
Very few companies are prosecuted and even fewer are convicted at criminal trials.
In 2011 it was only nine companies, or less than 6% of the total. Most of the rest plead
guilty or sign deferred prosecution agreements with prosecutors. The Court's ruling
today could require, however, prosecutors to show more in the way of a fine calculation when
negotiating with companies. To be sure, some prosecutors have already treated the Sixth
Amendment as applying. And companies can already get a fair amount of leniency when they
negotiate deferred and non-prosecution agreements. But the Court's ruling may narrow the
bargaining range, as Justice Breyer pointed out in his dissent.
How about other money paid out in corporate crime cases? Companies also pay
substantial restitution to victims, or community service, like this company did -- the judge had
ordered Southern Union Co. to pay $12 million in community service -- twice the criminal
fine. The issue was not raised in this case, but contrary to how federal judges now treat them,
could such civil payments also be covered by the Court's new rule, since they are not petty
amounts? Bernard Madoff was at his sentencing ordered to forfeit $170 billion dollars (only a
fraction of that will be recovered) -- which was not a criminal fine but a civil forfeiture -- could
something like that be covered by the new rule? This may be the first time, but maybe not the
last time the Court has to rule on the Sixth Amendment and the money that white collar and
corporate criminals are ordered to pay.
Brandon L. Garrett, the Roy L. and Rosamund Woodruff Morgan Professor of Law
at the University of Virginia School of Law, is under contract with Harvard University
Press to write a book about corporate prosecutions, and recently wrote Convicting the
Innocent: Where Criminal Prosecutions Go Wrong.
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