WCC (1/25/21)

Please – No More Emails About Attendance

 Assignment
• For today, you should have read pp. 47-60 (Ch.
2 – Corporate and Individual Liability)
• For Wed. start reading pp. 61-89 (Ch. 3 –
Conspiracy)
 Issues
• Ch. 2 – Corporate and Individual Liability (pp. 21-60)
– U.S. v. Hilton Hotels (pp. 28-30)
– MPC § 2.07 = an alternative to respondeat superior
– Commonwealth v. Beneficial Finance Co. (pp. 33-38)
– Third theory of corporate liability: collective knowledge
– Fourth theory of corporate liability: willful ignorance
– Individual Liability: U.S. v. Park (pp. 50-57)
• Ch. 3 – Conspiracy (pp. 47-108)
– Conspiracy generally
• Plurality requirement
• Overt act requirement
• Conspiracy vs. attempt
• Wheel conspiracy vs. chain conspiracy
• Joinder
• Single vs. multiple conspiracy
• Ch. 3 – Conspiracy (pp. 47-108)
– Conspiracy generally
• Advantages to prosecution of conspiracy charge
• F.R.E. Rule 801
• Mens rea
• Withdrawal from conspiracy
• MPC § 5.03
• 18 USC § 371
• Factual impossibility is not a defense to § 371 charge
• Justice Jackson’s criticisms of conspiracy law
• Conspiracy vs. Accomplice liability
• Conspiracy cases
– Pinkerton v. U.S. (pp. 105-07)
– Kotteakos v. U.S. (pp. 83-88)
– U.S. v. Arch Trading (70-73)
– U.S. v. Rigas (74-82)
– U.S. v. Lewis (65-67)
– U.S. v. Jimenez Recio (pp. 90-92)
– Krulewitch v. U.S. (pp. 93-97)
– Smith v. U.S. (99-102)
U.S. v. Hilton Hotels, 467 F.2d 1000 (9th Cir.
1972) (pp. 28-30)
 Central Legal Question
• Should a corporation be liable for employee’s
criminal act even though employee’s criminal
act violated company’s explicit policy?
 Facts
• Operators of hotels, restaurants, hotel and
restaurant supply companies, and other
businesses in Portland, Oregon, organized an
association to attract conventions to their city.
• In order to help finance the association,
companies selling supplies to hotels were
asked to contribute an amount equal to 1% of
their sales to hotel members.
• To aid collections, hotel members agreed to
give preferential treatment to suppliers who
paid their assessments, and to boycott
purchases from those who did not.
 Section 1 of the Sherman Act. 15 U.S.C. § 1.
Trusts, etc., in restraint of trade illegal; penalty
• Every contract, combination in the form of
trust or otherwise, or conspiracy, in restraint
of trade or commerce among the several
States, or with foreign nations, is declared to
be illegal.
• Every person who shall make any contract or
engage in any combination or conspiracy
hereby declared to be illegal shall be deemed
guilty of a felony, and, on conviction thereof,
shall be punished by [a] fine not exceeding
$100,000,000 if a corporation, or, if any other
person, $1,000,000, or by imprisonment not
exceeding 10 years, or by both said
punishments, in the discretion of the court.
 Facts Continued
• … Hilton's president testified that it would be
contrary to the policy of the corporation for
the manager of one of its hotels to participate
in this boycott.
• The manager of [the Hilton in Portland] and
his assistant testified that it was the hotel's
policy to purchase supplies solely on the basis
of price, quality, and service.
• They also testified that on two occasions they
told the hotel's purchasing agent that he was
to take no part in the boycott.
• The purchasing agent confirmed the receipt of
these instructions but admitted that, despite
them, he had threatened a supplier with loss
of the hotel's business unless the supplier paid
the association assessment.
• He testified that he violated his instructions
because of anger and personal pique toward
the individual representing the supplier.
 Case History
• Hilton was indicted for violating section 1 of
the Sherman Antitrust Act, 15 U.S.C. § 1.
• The court instructed the jury that “[a]
corporation is responsible for acts and
statements of its agents, done or made within
the scope of their employment, even though
their conduct may be contrary to their actual
instructions or contrary to the corporation's
stated policies.”
• Jury convicted Hilton.
• Hilton appealed on the grounds that this jury
instruction was erroneous.
 Court's Decision
• Conviction affirmed.
• Hilton “could not gain exculpation by issuing
general instructions without undertaking to
enforce those instructions by means
commensurate with the obvious risks.”
Court's Reasoning
 Argument #1: Deterrence
• Purpose of Sherman Act: “to be a
comprehensive charter of economic liberty
aimed at preserving free and unfettered
competition as the rule of trade.”
• [T]he construction of the [Sherman] Act that
best achieves its purpose is that a corporation
is liable for acts of its agents within the scope
of their authority even when done against
company orders.
• ... [The] conviction and punishment [of
individual agents responsible for a Sherman
Act violation] is peculiarly ineffective as a
deterrent.
• In contrast, the threat of conviction and
punishment of the corporation is highly
effective as a deterrent.
• This threat (of conviction and punishment) is
necessary to counteract “pressure to
maximize profits that is commonly imposed by
corporate owners upon managing agents and,
in turn, upon lesser employees.”
• If this pressure to maximize profits were not
counteracted by the threat of conviction and
punishment, “generalized directions to obey
the Sherman Act, with the probable effect of
foregoing profits, [would be] the least likely to
be taken seriously.”
• So “exposure of the corporate entity to
potential conviction may provide a substantial
spur to corporate action to prevent violations
by employees.”
Argument #2: Prevent Unjust Enrichment

• [I]f a violation of the Sherman Act occurs, the

corporation, and not the individual agents,
will have realized the profits from the illegal
activity.
 Argument #3: Higher-Level Officials Are
Generally Involved; Therefore Application of
Respondeat Superior Doctrine Is Fair
• [I]t is generally true that high management
officials, for whose conduct the corporate
directors and stockholders are the most
clearly responsible, are likely to have
participated in the policy decisions underlying
Sherman Act violations, or at least to have
become aware of them.
 Second Theory of Corporate Criminal Liability:
MPC § 2.07(1)(c) (p. 33)
• Motive for this alternative: respondeat
superior too unfair, at least when
– (a) corporation did not intend or know that these
acts would be performed; and
– (b) acts violated explicit corporate policy, which
corporation dutifully tried to enforce.
 MPC § 2.07. Liability of Corporations, Unincorporated
Associations and Persons Acting, or Under a Duty to
Act, in Their Behalf.
(1) A corporation may be convicted of the commission of an
offense if:

(a) the offense is a violation or the offense is defined by a statute

other than the Code in which a legislative purpose to impose
liability on corporations plainly appears and the conduct is
performed by an agent of the corporation acting in behalf of the
corporation within the scope of his office or employment, except
that if the law defining the offense designates the agents for
whose conduct the corporation is accountable or the
circumstances under which it is accountable, such provisions shall
apply; or
Note: Part (1)(a) Refers to Regulatory Offenses,
Not Criminal Offenses Per Se
• Idea is to preserve respondeat superior for
minor offenses = administrative, not criminal.
• Note: The line between administrative law and
criminal law blurs when administrative law
prescribes (serious) punishment.
(b) the offense consists of an omission to
discharge a specific duty of affirmative
performance imposed on corporations by law;
or
 Note: Part (b) Is Designed to Incentivize
Corporate Compliance
• Mainly taxes and disclosures.
 Here Is the Alternative to Respondeat
Superior
(c) the commission of the offense was
authorized, requested, commanded, performed
or recklessly tolerated by the board of directors
or by a high managerial agent acting in behalf of
the corporation within the scope of his office or
employment.
 MPC § 2.07(4)(c)
“high managerial agent” means an officer of a
corporation or an unincorporated association,
or, in the case of a partnership, a partner, or any
other agent of a corporation or association
having duties of such responsibility that his
conduct may fairly be assumed to represent the
policy of the corporation or association.
 Idea Behind (1)(c)
• If state is going to justly punish corporation,
then
– crime must reflect corporation’s intent or
knowledge;
– the corporation’s intent or knowledge is
determined by its “mind” or “brain”; and
– the corporation’s mind/brain is constituted by its
leadership.
 Difference Between Respondeat Superior
and MPC § 2.07
• Respondeat superior: corporation potentially
on hook for lower-level employee’s/
employees’ criminal act, whether or not
leadership involved.
• MPC § 2.07: corporation on hook only if
criminal act “authorized, requested,
commanded, performed or recklessly tolerated
by” somebody in corporation’s leadership.
Next Case Strikes Compromise Between
Respondeat Superior and MPC § 2.07
Commonwealth v. Beneficial Finance Co.,
275 N.E.2d 33 (Mass. 1971) (pp. 33-38)
Facts – Not Important for Our Purposes

• Bribery
• Solicitation of bribery
• Conspiracy to bribe
 Central Legal Question
• What evidence is necessary to establish
corporate criminal liability for actions of
corporation's employees?
– High managerial approval (MPC)?
OR
– Only employee's acting within scope of
employment and to benefit corporation
(respondeat superior)?
Court's 3-Point Decision: Respondeat Superior
Plus Spirit, Not Letter, of MPC § 2.07(1)(c)
 Point #1
• Court adopts and applies principle common to
both MPC and respondeat superior:
corporation can be liable for criminal act of
lower-level employee.
 Point #2
• Court rejects explicit language of MPC §
2.07(1)(c), primarily because it is generally too
difficult to prove link between corporate
leadership and criminal acts.
 Point #3
• Still, court adopts spirit of MPC § 2.07(1)(c):
lower-level employee’s criminal act must
reflect corporate policy.
 Corollary of Point #3
• Corporate policy indicated by employee’s
position not in corporation per se – that is, not
by whether employee is a “high managerial
agent” – but with respect to “the particular
corporate business, operation or project in
which he was engaged at the time he
committed the criminal act”.
 Court’s Argument for Point #3 (Adopting Spirit, Not Letter, of
MPC § 2.07(1)(c)): Corporate Policy Reflected by Employee’s
Authority in Situation, Not by Title or Position in Corporation

• In a large corporation, with many numerous

and distinct departments, a high ranking
corporate officer or agent may have no
authority or involvement in a particular sphere
of corporate activity,
• whereas a lower ranking corporate executive
might have much broader power in dealing
with a matter peculiarly within the scope of his
authority.
• Employees who are in the lower echelon of
the corporate hierarchy often exercise more
responsibility in the everyday operations of
the corporation than the directors or officers.
• Assuredly, the title or office that the person
holds may be considered, but it should not be
the decisive criterion upon which to predicate
corporate responsibility.
 Court’s First Argument for Rejecting
MPC § 2.07(1)(c): Evidentiary Problems
• [W]e do not think that the Model Penal Code
standard really purports to deal with the
evidentiary problems which are inherent in
establishing the quantum of proof necessary
to show that the directors or officers of a
corporation authorize, ratify, tolerate, or
participate in the criminal acts of an agent
when such acts are apparently performed on
behalf of the corporation.
• Evidence of such authorization or ratification
is too easily susceptible of concealment.
• As is so trenchantly stated by the judge
[below]: 'Criminal acts are not usually made
the subject of votes of authorization or
ratification by corporate Boards of Directors;
• and the lack of such votes does not prevent
the act from being the act of the corporation.'
• It is obvious that criminal conspiratorial acts
are not performed within the glare of
publicity,
• nor would we expect a board of directors to
meet officially and record on the corporate
records a delegation of authority to initiate,
conduct or conclude proceedings for the
purpose of bribing a public official.
Court’s Second Argument for Rejecting
MPC § 2.07(1)(c): Justice
• To permit corporations to conceal the
nefarious acts of their underlings by using the
shield of corporate armor to deflect corporate
responsibility, and to separate the subordinate
from the executive, would be to permit
'endocratic' [large, publicly held] corporations
to inflict widespread public harm without
hope of redress.
 Court’s Third Argument for Rejecting MPC §
2.07(1)(c): Deterrence
• We believe that stringent standards must be
adopted to discourage any attempt by
endocratic corporations' executives to place
the sole responsibility for criminal acts on the
shoulders of their subordinates.
 Translation of Third Argument
• Under MPC § 2.07(1)(c), higher-ups would be
incentivized to scapegoat – i.e., pin all crimes
on subordinates to protect not only
themselves (individually) but also the
corporation.
• But if corporate policy rather than high
managerial agent is the condition of corporate
liability, then higher-ups have less/no incentive
to scapegoat.
 Beneficial Finance Case Also Lists the Most
Common Kinds of Corporate Punishment
• Fines
• Restitution
• Remedial orders
• Community service
• Probation
 Christopher R. Green, “Punishing Corporations: The Food-Chain
Schizophrenia in Punitive Damages and Criminal Law,” 87 Neb. L.
Rev. 197, 198-200 (2008)

• Slightly over half of the American jurisdictions

(28 of 55, counting federal law, the District of
Columbia, Puerto Rico, Guam, and the Virgin
Islands) take inconsistent positions on
corporate crime and corporate punitive
damages.
“Liberal Rule” = Respondeat Superior
“Restrictive Rule” = MPC § 2.07
• Of the 55 jurisdictions I survey, I count a
– 34 to 21 advantage for Restrictive Rules [MPC] on
corporate punitive damages and
– a 29 to 26 advantage for Liberal Rules [respondeat
superior] on corporate crime.
• All four possible approaches are well represented
among American jurisdictions.
– 11 jurisdictions are Consistently Liberal [respondeat
superior];
– 16 are Consistently Restrictive [MPC];
– 18 follow Liberal Rules for corporate crime but
Restrictive Rules for corporate punitive damages, and
– 10 follow Liberal Rules for corporate punitive
damages but Restrictive Rules for corporate crime.
• Therefore, among the 110 rules on corporate
punishment, I count a 60 to 50 advantage for
Restrictive Rules (MPC).
 Third Theory of Corporate Responsibility:
Collective Knowledge (pp. 47-48)
• Even if no one corporate agent has the
knowledge required for the crime, the
collection of different agents' knowledge might
satisfy knowledge requirement.
• Idea here is to attribute mens rea (usually
intent or knowledge) directly to corporation
rather than merely imputing mens rea to
corporation.
– Direct liability rather than vicarious liability.
Casebook Offers Both Sides (pp. 48-49)

• On the one hand, “most commentators have

rejected this doctrine as overly broad and
inconsistent with principles of criminal
accountability.”
– Example: Com. v. Life Care Centers of America, 926
N.E.2d 206, 212 (Mass. 2010)
• “On the other hand, in the absence of a collective
knowledge doctrine a corporation could ‘avoid
liability by simply dividing up the duties to ensure
that the fraudulent [activity was] only
[committed] by uninformed employees.’”
– Examples:
• In re Worldcom, Inc. Sec. Litig., 352 F. Supp. 2d 472, 497
(S.D.N.Y. 2005)
• Teamsters Local 445 Freight Div. Pension Fund v. Dynex
Capital Inc., 531 F.3d 190 (2d Cir. 2008)
 In re Worldcom, Inc. Sec. Litig., 352 F. Supp.
2d 472, 497 (S.D.N.Y. 2005)
• To carry their burden of showing that a
corporate defendant acted with scienter,
plaintiffs in securities fraud cases need not
prove that any one individual employee of a
corporate defendant also acted with scienter.
• Proof of a corporation's collective knowledge
and intent is sufficient.
Teamsters Local 445 Freight Div. Pension Fund v. Dynex
Capital Inc., 531 F.3d 190 (2d Cir. 2008) (p. 49)

• When the defendant is a corporate entity ...

the pleaded facts must create a strong
inference that someone whose intent could be
imputed to the corporation acted with the
requisite scienter.
• In most cases, the most straightforward way to
raise such an inference for a corporate
defendant will be to plead it for an individual
defendant.
• But it is possible to raise the required
inference with regard to a corporate
defendant without doing so with regard to a
specific individual defendant.
Example of Collective Knowledge: Honeywell
International
• Worker death at chemical plant after opening
one ton cylinder containing deadly toxic
material.
• Cylinder was not properly labeled.
• Criminal provisions of the Clean Air Act make it a
crime to knowingly release certain air
pollutants.
• Issue: did Honeywell knowingly violate the CAA?
 Result in Honeywell International
• Honeywell convicted of negligent
endangerment but agreed to total monetary
penalties of $12 million.
• Ordinarily, the statutory maximum for
negligent endangerment is $500K.
• Company settled partly from threat of facing
collective knowledge doctrine at trial.
 Fourth Theory of Corporate Liability: Willful
Ignorance or Blindness
• For the past several decades, courts have
consistently held that conscious avoidance of
knowledge itself amounts to knowledge.
• Casebook (p. 49) equates constructive
knowledge with willful ignorance, but this
equivalence is misleading ...
 Conscious Avoidance Doctrine in Global-Tech
Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2070
(2011) (pp. 49-50, 64)
• “(1) the defendant must subjectively believe
that there is a high probability that a fact
exists and
• (2) the defendant must take deliberate actions
to avoid learning of that fact.”
• Note: without (2), (1) would just be
recklessness.
 Constructive Knowledge
• Sufficient information or evidence was available to
defendant.
– Example: The information was published in a newspaper.
• Constructive knowledge, like willful ignorance, is
often considered to be knowledge, but it may not
be willful (deliberate).
• Note: constructive knowledge sometimes confused
with negligence because both involve the notion
that the defendant should have known.