Corporate probation resulting from a criminal conviction: an enigma

Mitt Romney once remarked that "corporations are people, my friend." He was partly right. Corporations are like people, only different. Although artificial entities, corporations have constitutional rights, just fewer rights than individuals. In the Citizens United v. Federal Election Commission, 558 U.S. 310 (2010), the U.S. Supreme Court held that corporations have First Amendment rights to engage in "political speech" (overturning McCain-Feingold's proscription on corporate political speech). A few years later the Supreme Court recognized religious freedom for corporations in Burwell v. Hobby Lobby Stores, Inc., 573 U.S. 682 (2104) (corporation as a person within the meaning of Affordable Care Act did not have to include contraception coverage in its health plans if that went against the owners' religious views). The evolution of corporate constitutional rights has been chronicled in an excellent book by UCLA Law Professor Adam Winkler, "We the Corporation: How American Businesses Won Their Civil Rights" (Norton, 2018).

In the criminal law, however, the advance of corporate rights has been a hesitant and halting march. Here, corporations have fewer rights than individuals. Corporations, for example, do not have a Fifth Amendment privilege against self-incrimination (at least not now), so a corporation served with a grand jury subpoena by federal prosecutors cannot decline to provide incriminating documents nor can the corporation prevent its key employees from being compelled to provide testimony against the company on the basis of the Fifth Amendment (as individuals may do). See Braswell v. U.S., 487 U.S. 99 (1988)(citing "collective entity rule" that a "corporation has no Fifth Amendment privilege").

Like individuals, corporations can commit crimes and are now frequently prosecuted in federal and state courts for a dizzying array of environmental and other business offenses. Corporate criminal liability is, of course, vicarious. If a corporation's agent or employee commits a crime (1) within the scope of his employment (or agency) and (2) with, at least in part, the intent of benefiting the corporation, the corporation is liable for the crime, along with the individual. The corporation does not have to actually "benefit" from the agent's criminal acts, and indeed such actions may, in fact, be contrary to corporate policies or procedures. New York Central & Hudson River Railroad Co. v. United States, 212 U.S. 481 (1909) (holding that the "act of the agent while exercising authority delegated to him" may be imputed to the corporation").

Corporations also do not have the same panoply of due process rights that individuals enjoy. If the corporation operates in a realm regulated by a government agency, like the Department of Defense, or quasi-governmental regulator like the Financial Industry Regulatory Authority, Inc., the government may effectively "punish" the perceived corporate violator without ever granting recourse to trials or what we would call due process. The DoD may debar or suspend a government contractor simply on indictment, a close analogy to a corporate "death penalty." The Federal Deposit Insurance Corporation can take actions against an offending bank including suspending a bank's insurance or placing the institution in receivership. The Environmental Protection Agency may implement broad powers of injunction and suspension over companies believed to be violating the complex welter of environmental laws. And the Securities and Exchange Commission and Federal Trade Commission can sue civilly and obtain injunctions and cease and desist orders against corporate violators. All without affording the company of a right to a trial and/or proof beyond a reasonable doubt.

Within this context, consider the appropriateness of a corporation being placed on court-ordered probation following a criminal conviction. Bear in mind that the number (and complexity) of our nations' criminal offenses, largely regulatory in nature as it affects most corporate conduct, is staggering. Not considering the scope and breadth of the California Penal Code and related regulatory offenses, the number of federal criminal offenses runs into the thousands, so many, in fact, that the Department of Justice abandoned an effort in 1982 to simply count the number of federal crimes. There were too many federal offenses to accurately tally them up. No one really knows.

This question was presented in the recent case of People v. Plains All-American Pipeline Co., which came before Superior Court Judge James Herman for sentencing on April 26. People v. Plains All-American Pipeline LP, 1495091 (2016). The prosecution arose from an accidental oil spill on Refugio Beach in Santa Barbara County in 2015 that occurred when one of Plains' buried pipelines (which unbeknownst to the company had corroded) burst, pouring thousands of gallons of crude oil into the Pacific Ocean before the line could be shut down. Rather than sue the company for civil damages caused by an extensive clean up -- which of course others have done -- the people of California led by the state attorney general and the Santa Barbara district attorney's office, obtained an indictment charging Plains with felony negligence and related misdemeanors arising from the unfortunate loss of sea animal life. In a rare exercise of grand jury independence, the state grand jury refused to indict several employees of Plains, with misdemeanor charges being filed against only one person, an environmental specialist who was charged with reporting the release to the responsible state agency 17 minutes late. (That defendant James Buchanan, whom I represented, was later dismissed from the case shortly before trial.)

According to a sentencing memorandum filed by Plains the "evidence [showed] that Plains employees worked hard to prevent a release ... Plains took immediate responsibility for the release and paid for every penny of the response effort. [Plains'] response efforts were commended by federal, state, and local agencies alike. Contrary to the People's absurd claim that Plains has never expressed remorse for this release, Plains apologized publicly as soon as it learned it was the responsible party" and apologized again to the court at sentencing. Plains, of course, looking at substantial civil liabilities for the damages caused by any unintended release, had every incentive to ensure that the risk of future spills would be minimized in the future. The judge imposed a fine of $3.35 million, far less than the $1.25 billion requested by the prosecution.

Aside from a fine, the question at sentencing was whether to sentence the corporation to probation. A corporation of course cannot be imprisoned, so the traditional rationale and attraction of probation -- avoidance of imprisonment provided during a period of "good behavior" -- was lacking. Plains saw no need for or justification of probation, and objected. Citing a long line of California authorities holding that probation could be declined by a defendant (all individuals of course), Plains refused to accept a term of probation, arguing that a criminal fine was sufficient punishment. The deputy attorney general in charge of the case argued on the other hand that the state "need[s] the probation ... to monitor and to have auditor" keep an eye on Plain's operations, "because they are not complying" with the regulatory requirements of a pipeline. But probation is not supposed to be punishment. Its goals traditionally have been remedial.

Can a corporation be subject to probation under California law, particularly if the corporation is able to pay a fine and attend to any corresponding restitution, and thus declines probation? The California Supreme Court has long said "no" to that question: "a defendant has the right to refuse probation," precisely because "its conditions may appear to [the] defendant more onerous than the sentence which might be imposed." See In re Osslo, 51 Cal.2d 371, 381 (1958). In refusing to order probation for Plains, Judge Herman, clearly a Star Trek fan, observed that the court "was not going where no judge has gone before."

If this case had been brought in federal court, the answer would have been different, but not necessarily the logic. Congress in the Sentencing Reform Act of 1984 authorized federal courts in sentencing an organization to a term of probation, a fine (which fines were greatly enhanced) or both. See 18 U.S.C. 3551-3559. Recognizing that neither judges nor probation officers, however, would be particularly well-suited to supervise the operations of complex business organizations, and mindful of the plague of "activist judges," the drafters cautioned: "It is not the intent of the Committee that the courts manage organizations as part of probationary supervision." Federal probation may be ordered to provide for and enforce restitution, remedial orders, and, in some cases, community service with the ultimate objective being to encourage "the organization [to] take all appropriate steps to provide compensation to victims and otherwise remedy the harm caused or threatened to the offense." U.S. Sentencing Guidelines, Chap. 8, part B, Intro. Comment.

In conclusion, corporate probation rarely makes sense especially when the corporation, like Plains All-American Pipeline, already operates in a heavily regulated milieu. Federally, the pipeline company is regulated by the Pipeline and Hazardous Materials Safety Administration, and by a host of state and local regulators. These are diligent watchdogs. The company has every incentive to discharge their important duty of care, as Plains stated "to safely deliver energy resources" and the company has emphasized that they "are committed to doing the right thing." As one commentator pointed out, the notion of "corporate probation suffers from the ills of other nonmonetary sanctions: heavy administrative and supervisory costs, attenuated connection to profit incentives [and] interference with the competitive process." Corporate probation should be the exception rather than the rule. Probation officers generally do not have MBA's.

In any event, few district attorney's in California even attempt to impose probation on corporations. Several years ago, the author had as a client, a small chemical manufacturer in Los Angeles County who was convicted of (unknowingly) storing some hazardous chemicals in barrels on a back lot for too long. After a whistleblower alerted the authorities, the city's environment department pounced. A guilty plea was worked out with a modest fine and a more significant amount to be a paid in restitution over a number of years. We agreed that the County Probation Department could collect the fines/restitution. It turned out that no one knew how to get the corporation on probation, however. We went, forlornly, from door to door in the Courthouse, looking to sign the company up for probationary supervision, only eventually to be told: "We don't do corporate probation. Go away." 