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The Responsibility Gap in Corporate Crime

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Abstract

In many cases of criminality within large corporations, senior management does not commit the operative offense—or conspire or assist in it—but nonetheless bears serious responsibility for the crime. That responsibility can derive from, among other things, management’s role in cultivating corporate culture, in failing to police effectively within the firm, and in accepting lavish compensation for taking the firm’s reins. Criminal law does not include any doctrinal means for transposing that form of responsibility into punishment. Arguments for expanding doctrine—including broadening of the presently narrow “responsible corporate officer” doctrine—so as to authorize such punishment do not fare well under the justificatory demands of criminal law theory. The principal obstacle to such arguments is the large industrial corporation itself, which necessarily entails kinds and degrees of delegation and risk-taking that do not fit well with settled concepts about mens rea and omission liability. Even the most egregious and harmful management failures must be addressed through design and regulation of the corporation rather than imposition of individual criminal liability.

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Notes

  1. See, e.g., Jeff Connaughton, The Payoff: Why Wall Street Always Wins (2012); Charles H. Ferguson, Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America (2012); Matt Taibbi, Why Isn’t Wall Street in Jail?, Rolling Stone, Feb. 16, 2011; Jed S. Rakoff, The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?, N.Y. Rev. Books, Jan. 9, 2014; William D. Cohan. How the Bankers Stayed Out of Jail, The Atlantic, Sept. 2015, at 20; Jean Eaglesham & Anupreeta Das, Wall Street Crime: 7 Years, 156 Cases and Few Convictions, Wall St. J., May 27, 2016.

  2. Anton B. Valukas, Report to Board of Directors of General Motors Company Regarding Ignition Switch Recalls, May 29, 2014.

  3. Guilty Plea Agreement, United States v. BP Exploration & Production, Inc., Crim. No. 2:12-cr-00292 (E.D. La 2012); Information for Seaman’s Manslaughter, Clean Water Act, Migratory Bird Treaty Act and Obstruction of Congress, United States v. BP Exploration & Production, Inc., Crim. No. 2:12-cr-00292 (E.D. La 2012); The Spill, Frontline, Oct. 26, 2010; Raffi Khatchadourian, The Gulf War: Were there any heroes in the BP oil disaster?, The New Yorker, March 14, 2011.

  4. Stacy Cowley, “Lions Hunting Zebras”: Ex-Wells Fargo Bankers Describe Abuses, N.Y. Times, Oct. 20, 2016; Michael Corkery, Wells Fargo Fined $185 Million for Opening Accounts, N.Y. Times, Sept. 8, 2016.

  5. For extended discussion, see Samuel W. Buell, Capital Offenses: Business Crime and Punishment in America’s Corporate Age (2016); Samuel W. Buell, Is the White Collar Offender Privileged?, 63 Duke L.J. 823 (2014).

  6. See Indictment, United States v. Parnell et al., Case No. 1:13-CR-12-WLS (M.D. Ga. Feb. 15, 2013).

  7. See Indictment, United States v. Blankenship, Crim. No. 5:14-cr-00244 (S.D. W. Va. Nov. 13, 2014); see also United States v. Blankenship, 846 F.3d 663 (4th Cir. 2017).

  8. See, e.g., Susanne Craig et al., In Complex Trading Case, Jurors Focused on Greed, N.Y. Times Dealbook, Aug. 2, 2013; Peter Lattman, SEC Gets Encouragement from Jury that Ruled Against It, N.Y. Times Dealbook, Aug. 3, 2012; see also BP Engineer is Not Guilty in Case from 2010 Gulf Oil Spill, N.Y. Times, Feb. 25, 2016; Katy Reckdahl & Margaret Cronin Fisk, Ex-BP Executive Acquitted of Lying About Size of 2010 Spill, Bloomberg, June 5, 2015.

  9. United States v. Dotterweich, 320 U.S. 277 (1943).

  10. United States v. Park, 421 U.S. 658 (1975); Todd S. Aagaard, A Fresh Look at the Responsible Relation Doctrine, 96 J. Crim. Law & Criminology 1245 (2006); Amy J. Sepinwall, Responsible Shares and Shared Responsibility: In Defense of Responsible Corporate Officer Liability, 2014 Colum. Bus. L. Rev. 371; Amiad Kushner, Comment, Applying the Responsible Corporate Officer Doctrine Outside the Public Welfare Context, 93 J. Crim. Law & Criminology 681 (2003).

  11. Samuel W. Buell, The Blaming Function of Entity Criminal Liability, 81 Ind. L.J. 473 (2006).

  12. Reinier Kraakman, Corporate Liability Strategies and the Costs of Legal Controls, 93 Yale L.J. 857 (1984); Alan O. Sykes, The Economics of Vicarious Liability, 93 Yale L.J. 1231 (1984); Jennifer Arlen & Reinier Kraakman, Controlling Corporate Misconduct: An Analysis of Corporate Liability Regimes, 72 N.Y.U. L. Rev. 687 (1997); V.S. Khanna, Corporate Criminal Liability: What Purpose Does it Serve?, 109 Harv. L. Rev. 1477 (1996); Daniel Fischel & Alan Sykes, Corporate Crime, 25 J. Legal Stud. 319 (1996); Jennifer Arlen, The Potentially Perverse Effects of Corporate Criminal Liability, 23 J. Legal Stud. 833 (1994); Buell, supra note 11.

  13. See Jennifer Arlen & William J. Carney, Vicarious Liability for Fraud on Securities Markets: Theory and Evidence, 2012 U. Ill. L. Rev. 691.

  14. See Jennifer Arlen, Corporate Criminal Liability: Theory and Evidence in Research Handbook on the Economics of Criminal Law (A. Harel & K. Hylton, eds. 2012); Brandon L. Garrett, Globalized Corporate Prosecutions, 97 Va. L. Rev. 1775 (2011); Cindy R. Alexander & Mark A. Cohen, The Evolution of Corporate Criminal Settlements: An Empirical Perspective on Non-Prosecution, Deferred Prosecution, and Plea Agreements, 52 Am. Crim. L. Rev. 537 (2015).

  15. See Wayne R. LaFave, Substantive Criminal Law § 6.2 (2d ed. 2003); Otto Kirchheimer, Criminal Omissions, 55 Harv. L. Rev. 615 (1942); Graham Hughes, Criminal Omissions, 67 Yale L.J. 590 (1958).

  16. See In re Caremark Int’l Inc. Deriv. Secs. Litig., 698 A.2d 959 (Del. Ct. Ch. 1996); Jennifer Arlen, The Story of Allis Chalmers, Caremark, and Stone: Directors’ Evolving Duty to Monitor in Corporate Law Stories 245 (J. Mark Ramseyer, ed. 2009); Stephen M. Bainbridge, Caremark and Enterprise Risk Management, 34 J. Corp. L. 967 (2009).

  17. See 8 Del. C. § 145.

  18. At least one author has attempted such an argument, but without persuasively showing how to cabin the theory. See Aagaard, supra note 10, at 1281–7.

  19. See Larry Alexander & Kimberly Kessler Ferzan, Crime and Culpability: A Theory of Criminal Law 234–44 (2009); Michael S. Moore, Act and Crime: The Philosophy of Action and its Implications for Criminal Law 25–59 (1993); Larry Alexander, Criminal Liability for Omissions in Criminal Law Theory: Doctrines of the General Part 121 (A. Shute & A.P. Simester, eds. 2002); F.M. Kamm, Action, Omission, and the Stringency of Duties, 142 U. Pa. L. Rev. 1493 (1994); see also Douglas Husak, Rethinking the Act Requirement, 28 Cardozo L. Rev. 2437 (2007) (arguing for substituting capacity to control for the act requirement as a way of explaining, among other things, justified liability for omissions).

  20. See Hughes, supra note 15, at 620; Alexander, supra note 19, at 139–41; see also Arthur Leavens, A Causation Approach to Criminal Omissions, 76 Cal. L. Rev. 547, 555 (1988) (“Given that contract and tort law is primarily compensatory, it would be absurd to suggest that every breach of a civilly imposed duty should also be criminally punished if that breach led to a criminally proscribed harm.”). The Model Penal Code is puzzlingly oblivious to this problem, at least on the face of the Code and Commentaries. The Code qualifies for omission liability any duty “imposed by law,” then says in the Explanatory Note that the “duty to perform the omitted act must have been otherwise imposed by law” with reference in an accompanying footnote to “a statutory duty, a contractual duty, or a duty arising from tort law.” American Law Institute, Model Penal Code and Commentaries § 2.01(3) and Explanatory Note 3 (including n. 30).

  21. See Kimberly Kessler Ferzan, Opaque Recklessness, 91 J. Crim. Law & Criminology 597 (2001) (exploring in depth the complexities of liability for general versus specific risk-taking); Heidi M. Hurd & Michael S. Moore, Negligence in the Air, 3 Theoretical Inquiries in Law 333, 375–81 (2002) (showing the arbitrariness and malleability of a “harm within the risk” approach to determining risks with respect to which a negligent actor is responsible for his negligence). Hurd and Moore, if I understand them, set out to “defend a holistic view of negligence according to which all risks are taken into account in judging negligence,” id. at 339, but in spending most of their effort debunking “harm within the risk,” they do not say a great deal about their alternative approach to specifying responsibility for risk other than that it relies on proximate cause analysis.

  22. See Kenneth W. Simons, When Is Strict Criminal Liability Just?, 87 J. Crim. Law & Criminology 1075, 1105–20 (1996) (and sources cited therein).

  23. Perhaps the hardest cases to deal with on this view are the negligently caused fires (or stampedes, etc.) in public facilities that claim dozens or hundreds of lives. For example, The Station nightclub fire of September 2006 in West Warwick, Rhode Island killed 100 and injured many more. The fire was caused by careless handling of a musical act’s pyrotechnic show, coupled with installation of flammable insulation in the club. A co-owner of the club pled no contest to 100 counts of involuntary manslaughter and was released on parole after serving three years in prison. Eric Tucker, Co-Owner of R.I. Club Where 100 Died to be Released Early, Boston Globe, Jan. 17, 2008; see also Commonwealth v. Welansky, 316 Mass. 383 (1944) (owner of Cocoanut Grove night club held liable for homicide for deaths of hundreds of patrons who perished in a fire in a facility without adequate fire escapes).

  24. E.g., Alexander & Ferzan, supra note 19, at 70–85; for contrary views on the basic moral question, see, e.g., Seana Shiffrin, The Moral Neglect of Negligence in 3 Oxford Studies in Political Philosophy (D. Sobel, P. Vallentyne & S. Wall, eds. forthcoming 2017); Gideon Yaffe, Intoxication, Recklessness, and Negligence, 9 Ohio St. J. Crim. Law 545 (2012).

  25. Samuel W. Buell, What Is Securities Fraud?, 61 Duke L.J. 511 (2011).

  26. Id. at 555–61.

  27. 18 U.S.C. §§ 1341, 1343; 17 U.S.C. § 78j; 17 C.F.R. § 240.10b-5.

  28. Cf. Mark Dowie, Pinto Madness, Mother Jones, Sept. 1, 1977; Malcolm Gladwell, The Engineer’s Lament, The New Yorker, May 4, 2015.

  29. Kenneth W. Simons, Rethinking Mental States, 72 B.U. L. Rev. 463 (1992).

  30. Kenneth W. Simons, Statistical Knowledge Deconstructed, 92 B.U. L. Rev. 1, 62–66 (2012).

  31. See Alexander & Ferzan, supra note 19, at 81–85. Even the thoughtful drafters of the Model Penal Code recognized this question to be essentially insoluble through rules, preferring to leave the matter of how far to subjectivize reasonableness to the discretion of the jury. See, e.g., American Law Institute, supra note 20 § 210.3 cmt. 5(a) (the phrase “from the viewpoint of a person in the actor’s situation” in the statute governing reasonableness for purposes of reducing murder to voluntary manslaughter is “designedly ambiguous” and has to do whether the facts “arouse sympathy in the ordinary citizen”).

  32. See Simons, supra note 30.

  33. Several helpful commenters on drafts of this and related papers have pointed out that these are really “large organization” problems, not strictly corporate problems. This is true. But I focus here on the legal firm (not just public corporations but also nonprofits, partnerships, and so on) because that is the institution that has generated the great majority of calls for legal action when things have gone wrong. The military is another large institution in which problems of managerial responsibility arise with some frequency. The normative structure there is sufficiently different from the corporate context that I believe it requires separate treatment. See Jenny Martinez, Understanding Mens Rea in Command Responsibility, 5 J. Int’l Crim. Justice 638 (2007).

  34. United States v. Dotterweich, 320 U.S. 277 (1943); United States v. Park, 421 U.S. 658 (1975); see also 33 U.S.C. § 1319(c)(6); 42 U.S.C. § 7413(c)(6).

  35. Park, 421 U.S. at 671.

  36. Park, 421 U.S. at 670.

  37. Park, 421 U.S. at 673–74.

  38. Park, 421 U.S. at 672.

  39. 320 U.S. 277 (1943).

  40. RCO liability for antitrust violations has also been found to apply under the Sherman Act. United States v. Wise, 370 U.S. 405 (1962).

  41. Park, 421 U.S. at 673.

  42. E.g., Kane v. People, 8 Wend. 203 (Ct. Correction of Errors N.Y. 1831) (holding a director of a road and bridge company liable for a misdemeanor for failure to maintain a turnpike as required by a statute granting authority to build the road, and affirming a penalty of a $200 fine); Rex v. Medley, 172 Eng. Rep. 1246 (1834) (approving misdemeanor convictions of directors of a gas company for nuisance in polluting the Thames River, regardless of whether the directors were ignorant of what the company did); see also People v. Clark, 8 N.Y. Crim. R. 169 (Ct. Oyer & Terminer 1891) (approving misdemeanor indictment of the president and directors of a railroad corporation for the company’s use of statutorily banned stoves to heat its rail cars, but stating that their “personal participation” in the violation must be proved at trial). These decisions, in turn, may have some provenance in matters of quasi-military responsibility involving colonial corporations. See King v. Hollond, 101 Eng. Rep. 340 (1794) (approving prosecution of an official of the East India Company for failing to pursue military action in the Indian state of Madras, as required by a statute granting the corporation its colonial authority) (cited in Kane).

  43. E.g., Coffey v. Superior Ct., 147 Cal. 525 (1905); Hopewell v. State, 22 Ind. App. 489 (1899); State v. Gluck, 49 Kan. 533 (1892); People v. Meakim, 133 N.Y. 214 (1892); People v. Herlihy, 73 N.Y.S. 236 (A.D. 1st Dept. 1901); see also Criminal Law: Liability of Public Officers for Neglect of Duty, 4 U. Fla. L. Rev. 264 (1951).

  44. Perhaps the RCO doctrine appeared in twentieth century American law due in part to confusions, or obfuscations, about fundamental procedural differences of the 18th and early nineteenth centuries and between the American and English systems. For example, one relevant case involved a criminal prosecution in which the State of New Hampshire appears to have been pursuing, through criminal prosecution, a tort-like wrongful death action against the directors and superintendent of a road to recover funds on behalf of a victim killed during road construction. State v. Gilmore, 24 N.H. 461 (1852). In another action, from England, the Attorney General used a misdemeanor indictment as the vehicle for obtaining an injunction preventing a railroad company from operating its trains in excess of a statutorily permitted speed. Attorney-General v. London & North Western Railway Co., 1 Q.B. 78 (1899).

  45. Dotterweich, 320 U.S. at 280–285. See, e.g., United States v. Balint, 258 U.S. 250 (1922) (validating indictment for failure to pay tax on narcotics); Commonwealth v. Mixer, 207 Mass. 141 (1910) (affirming conviction for transporting liquor without a license); Commonwealth v. Wheeler, 205 Mass. 384 (1910) (affirming convictions for selling milk with less than the statutorily mandated quantity of solids); Commonwealth v. Farren, 91 Mass. 489 (1864) (validating indictment for selling adulterated milk).

  46. Dotterweich, 320 U.S. at 281; see United States v. Mills, 32 U.S. 138 (1833).

  47. Dotterweich, 320 U.S. at 285.

  48. See United States v. DeCoster, 828 F.3d 626 (8th Cir. 2016); see also Aagaard, supra note 10, at 1251–63 (arguing that Park did not resolve the question of RCOs’ mens rea requirements and that the mental state requirement for RCOs varies by statute). Whether prosecutors in fact tend to select cases involving negligence facts when deploying the RCO doctrine is another matter than whether the doctrine requires negligence.

  49. Lambert v. California, 355 U.S. 225 (1957); see also Peter W. Low & Benjamin Charles Wood, Lambert Revisited, 100 Va. L. Rev. 1603, 1617–18 (2014) (stating that one (overly narrow) reading of Lambert is that “[a] legislature may not create strict liability mala prohibita crimes of omission”).

  50. U.S. Dep’t of Justice, United States Attorneys’ Manual § 9–28.000; U.S. Dep’t of Justice, Memorandum of the Deputy Attorney General on Individual Accountability for Corporate Wrongdoing, Sept. 9, 2015.

  51. United Kingdom Financial Services Act 2013 § 36.

  52. See Indictment, United States v. Martin-Artajo, Crim. No. 13 Crim. 707 (S.D.N.Y. Sept. 16, 2013); In re JP Morgan Chase & Co., United States Secs. & Exchange Comm’n Exchange Act Release No. 70458 (Sept. 19, 2013).

  53. This is, I believe, an implementation problem that presents a fundamental obstacle even if one is prepared to cross the initial threshold of arguing that the dangerousness and accompanying benefits of industrial activities justify imposing criminal negligence liability, and perhaps even placing the burden of proof of due care, on corporate officers. See R.A. Duff, Strict Liability, Legal Presumptions, and the Presumption of Innocence in Appraising Strict Liability (Andrew Simester, ed. 2005).

  54. A further problem, which will not be explored here, is the extent to which retributive principles would require affording a mistake of law defense to this form of omission liability, in at least some circumstances, given the scale and complexity of criminal regulatory provisions that now govern many industries. See Hughes, supra note 15, at 602–3; see also Alexander, supra note 19, at 139–42 (raising similar legality concerns with respect to arguments for broadening status relationships giving rise to duties to act at pain of criminal liability).

  55. Arlen & Kraakman, supra note 12.

  56. Khanna, supra note 12; Fischel & Sykes, supra note 12.

  57. See, e.g., Deferred Prosecution Agreement, United States v. Och-Ziff Capital Management Group LLC, Cr. No. 16–516 (NGG) (E.D.N.Y. Sept. 29, 2016).

  58. Buell, supra note 11.

  59. For some evidence in support of pessimism, see Brandon L. Garrett, Nan Li & Shivaram Rajgopal, Do Heads Roll? An Empirical Analysis of CEO Turnover and Pay When the Corporation is Federally Prosecuted, Va. Law & Econ. Working Paper No. 2017–11 (May 11, 2017), available at ssrn.com.

  60. See Arlen, supra note 14.

  61. E.g., Sanjai Bhagat, Brian Bolton & Roberta Romano, Getting Incentives Right: Is Deferred Bank Executive Compensation Sufficient?, 31 Yale J. Reg. 523 (2014); Jesse M. Fried, Rationalizing the Dodd-Frank Clawback, European Corporate Governance Institute (ECGI)—Law Working Paper No. 314/2016 (Sept. 26, 2016), available at ssrn.com.

  62. E.g., Lucian Bebchuk, Alon Brav & Wei Jiang, The Long Term Effects of Hedge Fund Activism, 115 Colum. L. Rev. 1085 (2015); Jill E. Fisch, Sean J. Griffith & Steven Davidoff Solomon, Confronting the Peppercorn Settlement in Merger Litigation: An Empirical Analysis and a Proposal for Reform, 93 Tex. L. Rev. 557 (2015); Frank Partnoy, Delaware and Financial Risk in The Corporate Contract in Changing Times (S. Solomon & R. Thomas, eds. forthcoming 2017).

Acknowledgements

Many thanks to the participants in conferences at the Georgetown University Law Center and the University of Virginia School of Law for helpful comments and criticisms, and to Alexandra Dayneka for excellent research assistance.

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    Samuel W. Buell

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Buell, S.W. The Responsibility Gap in Corporate Crime. Criminal Law, Philosophy 12, 471–491 (2018). https://doi.org/10.1007/s11572-017-9434-9

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