More firms weighing going to court in federal criminal cases, says law review article

When companies face criminal charges, they rarely go to trial. When they do, however, they have a good chance of winning, according to Joseph Warin, chair of Gibson, Dunn & Crutcher’s litigation department. In a recent article in the Georgetown’s American Criminal Law Review, titled ‘Refusing to settle: why public companies go to trial in federal criminal cases’, Warin and his associate, Julie Rapoport Schenker, reviewed the outcomes of 12 criminal cases involving publicly traded corporations that were brought to trial during the last 20 years. They found that half ended in acquittal, one settled after two hung juries, one resulted in a conviction whose charges were ultimately dismissed, two took mid-trial plea agreements, and two ended in convictions that stuck.

That array of final outcomes is much better than would be expected given the Department of Justice’s overall conviction rate exceeding 85 percent during the same period.  Nonetheless, the small size of the dataset -- 12 cases in 20 years (Warin says he and Schenker made every effort to identify cases) -- indicates how rare it is for companies to go to trial. But Warin believes it may become more common for companies to defend themselves against charges in court. Based on his extensive experience and the research and analysis that went into his article, Warin says, ‘if you’re confronted with a charge, the decision [to settle or litigate] needs to be very fact and circumstances driven.’

More companies appear interested in doing that analysis, he adds. ‘Boards of directors and senior executives are increasingly exploring options beyond settlement. They ask What are my options? '

To help boards, executives and counsel understand what their factual analysis should entail, Warin and Schenker scrutinized the 12 cases to identify common elements that might indicate whether a company should litigate rather than settle. They came up with five: ambiguity of the law, complexity of the legal scheme, unreliable witnesses, missing critical evidence and a strong compliance defense. Beyond those case-specific factors, they identified other strategic considerations for companies, including the risk of a ‘corporate death sentence’, as companies risk being barred from future contracts because of allegations of misconduct, much less a conviction or non-prosecution or deferred prosecution agreement.

Exemplifying ‘ambiguity of the law’ was a price-fixing suit against Nippon Paper that represented the first time a foreign company was tried for conduct that occurred entirely outside the US, and it was uncertain if the law reached that far. Although five alleged co-conspirators pled guilty, Nippon Paper’s trial ended with a hung jury. Before the company could be retried, it won a motion for acquittal by arguing that the law did not cover the conduct at issue.

A second example of ambiguity of the law that Warin and Schenker flag is a current case pending against FedEx. By defending itself against the charges, the company is challenging the idea that a common carrier of freight must know the contents of that freight, or what it is customers have actually put in the box.

In addition to the legal and evidentiary factors tied to the specific charges, Warin and Schenker cite other considerations that argue for going to trial. For example, a company heavily dependent on government contracts, such as one in the medical or defense industries, can be suspended from existing contracts and blocked from applying for new ones while a criminal matter is pending. That collateral consequence can be fatal to such companies, and therefore all but eliminates trial as an option. Still, Warin urges even these contractors not to dismiss going to trial out of hand. Sometimes it’s possible to persuade a regulator to not impose harmful penalties or suspend contracts while a criminal case is pending, he explains.

Another factor for those companies and others is how the decision to defend itself against the charges is likely to affect the company’s reputation in the eyes of investors and analysts, says Warin. Companies need to consider how effectively they can promulgate their message, he adds. 

Some companies may simply believe that they have done nothing wrong. Waste Management of Hawaii and two of its managers are being prosecuted for contamination resulting from a catastrophic storm. The company holds that it responded to the storm appropriately, and the charges it faces are baseless, Warin says.

Time is yet another factor to consider when choosing between trial and settlement. Even though a criminal trial can take years to be resolved, it may entail a shorter timeline than a compliance program or other remedial demands made by the government in exchange for a settlement. ‘Corporate criminal investigations are almost always prolonged and whether a case is tried or resolved, it frequently lasts several years,’ Warin notes.

If he’s right that companies are increasingly willing to litigate, there will soon be more data on court outcomes to analyze. The way in which that data skews will provide a better basis on which companies can decide whether litigating makes more sense  than settling.