August 21, 2013
White Collar Defense and Investigations
Court Rejects Corporate Plea Agreements For Failing to Sufficiently Protect The
Public Interest
By Reid J. Schar, Robert R. Stauffer, Tiffany M. Cartwright and Eddie A. Jauregui
In a recently issued order, a federal district court judge expounded upon a decision to reject two corporate
plea agreements that contained binding sentencing recommendations. In doing so, the court proclaimed that
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it would rarely, if ever, accept such agreements in the future. The order, by highly-regarded Judge William
Young of the District of Massachusetts, called for district courts to take on a more robust role in protecting the
public interest when deciding whether to accept a corporation’s guilty plea. The rejection of the corporate plea
agreements, both of which contained defined sentences, is part of a broader trend among federal district court
judges, who are increasingly demanding a greater role in vetting plea and settlement agreements and
fashioning resolutions for corporate defendants.
The Plea Agreements That Prompted The Court’s Order
The court’s order concerned two cases in which it rejected proposed plea agreements between corporate
defendants and the government. In the first case, U.S. v. Orthofix, Inc., the company appeared before the
court to plead guilty to obstructing a federal audit. The agreed disposition called for a fine of $7.7 million and
entry into a Corporate Integrity Agreement with the Office of Inspector General of the Department of Health
and Human Services.
In the second case, U.S. v. APTx Vehicle Systems, a British company contracted with the government to
construct fifty specialized vehicles to be delivered to Iraqi police in connection with reconstruction efforts in
Iraq. The vehicles were paid for in advance using a letter of credit upon receipt of a bill of lading and shipping
documents confirming that the vehicles were pierside, ready for shipment to Iraq. However, the documents
were fraudulent and no vehicles were delivered. APTx was subsequently acquired by a Russian company,
ETP Specialist Vehicle Systems, Ltd., and a Russian attorney unfamiliar with the facts showed up in court to
enter a plea agreement with an agreed disposition of a $1 million fine and $2 million civil settlement.
In both cases, the plea agreements were presented pursuant to Federal Rule of Criminal Procedure
11(c)(1)(C), in which the government agrees to recommend a specific sentence and that sentence is binding
on the court once the court accepts the guilty plea.
Despite routinely accepting such plea agreements from corporate defendants in the past, Judge Young
rejected the pleas from both Orthofix and APTx after concluding that the agreements did not sufficiently
protect the public interest. Neither defendant appealed the court’s rejection of the pleas, and the cases have
since proceeded – Orthofix pleaded guilty in December 2012 under Federal Rule of Criminal Procedure
11(c)(1)(B), which allows the government to make a non-binding sentencing recommendation to the court, and
APTx withdrew its guilty plea in April 2013 and is set to go to trial next month.
In late July, Judge Young entered one order for both cases explaining in detail his decision to reject the plea
agreements. After announcing that in the future “it would be rare indeed” for him to accept a 11(c)(1)(C) plea
from a corporate defendant, Judge Young remarked that he owed an explanation to the legal community,
which “must plan for and accommodate” his jurisprudence.
A Call For District Courts To Reassert Authority In Sentencing Corporate Defendants
Judge Young’s order emphasized that because sentencing is ultimately the responsibility of the court, judges
must zealously protect the public interest at every stage of the proceeding that determines a defendant’s
sentence. Judge Young noted that whether a judge is exercising his own discretion to impose the appropriate
sentence, or deciding whether to accept a sentencing recommendation as part of a guilty plea, the court
should consider the nature and circumstances of the offense; the history and characteristics of the defendant;
and whether the sentence fosters the protection of the public, deterrence of future criminal conduct, and
respect for the law.
Judge Young posited that a court’s authority to determine an appropriate sentence is fundamentally
incompatible with the widespread notion that plea agreements, particularly those under Rule 11(c)(1)(C), are
contracts between private parties binding upon the court to which they are presented. That analogy, he
explained, fails to account for the independent role that the courts play when they are asked to accept a guilty
plea and place the imprimatur of the judicial branch on the parties’ bargain. Moreover, the analogy
“disregards the heightened considerations of the public interest which obtain in the criminal, rather than the
private law, context.” Judge Young urged courts not to assume reflexively that the public interest is served
whenever parties come to a mutual agreement.
Instead, Judge Young suggested that sentencing courts should be especially vigilant about vetting plea
agreements from corporate criminal defendants for two reasons: (1) it is difficult to assess the sincerity and
capacity for rehabilitation of a corporation whose officers will change over time; and (2) large corporations
have the capacity to “wreak far more damage” than individual persons.
These considerations ultimately led the court to conclude that corporate criminal defendants as a group are
not well suited to plea agreements with binding sentencing recommendations under Rule 11(c)(1)(C). “Given
the complex nature of corporate criminals, and the gravity of the potential danger they pose to the public,”
Judge Young wrote, “it does not seem provident for the Court to accept a guilty plea under a procedural
mechanism which hamstrings it in the performance of its sentencing function.”
Particular Plea Agreement Provisions Likely To Draw Increased Scrutiny
The court identified particular provisions of the government’s plea agreements with Orthofix and APTx that it
viewed as failing to adequately protect the public interest:
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First, in the Orthofix plea agreement, the government agreed not to request probation or request that
Orthofix’s “Corporate Integrity Agreement” be incorporated as a term of probation. Noting that probation
is often necessary to ensure that a corporate criminal defendant reforms itself, Judge Young stated the
absence of probation alone would have been reason to reject the plea agreement.
•
Second, the Orthofix plea agreement failed to include a provision prohibiting Orthofix from later
disparaging the factual basis for its plea or its admission of guilt. Judge Young emphasized that nondisparagement clauses are “crucial to the protection of the public interest” because they force
corporations to acknowledge, or at least not refute, their bad acts.
•
And finally, the fine the government agreed to impose in the APTx plea agreement was far below the
amount recommended by the U.S. Sentencing Guidelines or authorized by the statutory maximum
penalty. Judge Young explained that the “paltry sanctions” imposed by this “bargain basement” guilty
plea undermined deterrence and respect for the criminal law.
These provisions, Judge Young concluded, indicated that the plea agreements were “suborning criminal
justice, and the sobriety that sustains it, to the parties’ narrow interests.”
A Broader Trend
Judge Young’s order was not issued in isolation. At several points, he cited favorably to a similar order issued
by Judge Jed Rakoff of the Southern District of New York, who in 2011 rejected a consent judgment in a civil
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case between the SEC and Citigroup. Judge Rakoff’s order (which was stayed by the Second Circuit
pending appeal) explained that the proposed judgment, which requested injunctive relief from the court while
allowing Citigroup to deny any wrongdoing, rendered the court “a mere handmaiden to a settlement privately
negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of
obvious public importance.”
Judge Rakoff has issued similar orders in the past, casting suspicion on settlements that suggest a “cynical
relationship” where the government agency claims that it exposed wrongdoing while the defendant denies
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wrongdoing and claims it was the target of overzealous regulators. In a footnote, Judge Young also cited
numerous orders from other district courts “expressing disquiet at the subordination of the public interest to
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the several interests of the parties” in consent agreements.
These high-profile orders suggest a broader trend among district court judges to refuse to “rubber stamp”
settlements or plea agreements negotiated by the government in both civil and criminal enforcement actions.
This reluctance may be especially strong when the court is asked to approve a settlement without detailed
knowledge of the underlying facts, or accept a plea agreement that constrains its sentencing discretion
without the information provided by a pre-sentence report and detailed sentencing briefing.
Corporations should monitor this trend. Should it continue, it suggests that companies, in order to resolve
cases with the government, may have to accept an increased degree of uncertainty regarding punishment and
settlement, as opposed to what has historically been a clear understanding of the ultimate resolution of their
case through agreement with the government.
1
United States v. Orthofix, --- F. Supp. 2d ----, 2013 WL 3853233 (D. Mass. July 26, 2013).
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Id. at *7; see SEC v. Citigroup Global Mkts., Inc., 827 F. Supp. 2d 328 (S.D.N.Y. 2011).
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SEC v. Bank of Am. Corp., 653 F. Supp. 2d 507, 512 (S.D.N.Y. 2009).
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Orthofix, 2013 WL 3853233 at *7 n.20. Cf. United States v. HSBC Bank USA, N.A., 2013 WL 3306161, *4–5
(E.D.N.Y. July 1, 2013) (Gleeson, J.) (noting that the court’s job in a federal criminal case is to be more than a
“potted plant” and holding that the general supervisory power of the federal courts includes the authority to
approve, reject, or oversee implementation of a deferred prosecution agreement).
Contact Us
Reid J. Schar, Partner, Jenner & Block
Phone: 312 923-2629
Email: [email protected]
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Practice Groups: Complex Commercial Litigation, Litigation, White Collar Defense and
Investigations
Robert R. Stauffer, Partner, Jenner & Block
Phone: 312 923-2905
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Practice Groups: Class Action, Healthcare Litigation, Japan Practice, Litigation, White
Collar Defense and Investigations
Tiffany M. Cartwright, Associate, Jenner & Block
Phone: 312 840-7268
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Eddie A. Jauregui, Associate, Jenner & Block
Phone: 212 891-1684
Email: [email protected]
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Practice Groups: Japan Practice, Litigation, White Collar Defense and Investigations
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