United States: Court Slams DOJ By Dismissing The Majority Of Indictment Against Fedex – Rules The Defense Does Not Have A Duty To Correct DOJ's Mistakes

In the ambitious and novel federal criminal prosecution of FedEx for alleged drug distribution conspiracy, Judge Charles R. Breyer recently ruled that defense counsel has no duty to correct government's mistakes when negotiating with the government.  The ruling came in a dispute over the statute of limitations – the government used the wrong names for most of the corporate defendants when drafting an agreement waiving the statute of limitations.  As a result, the waiver failed with respect to most of the defendants and Judge Breyer dismissed fifteen of the eighteen counts of the superseding indictment.  See United States v. FedEx Corp., 2016 U.S. Dist. LEXIS 36383 (N.D. Cal. Mar. 18, 2016).

The case dates back to 2008 when the Department of Justice initiated an investigation against FedEx for conspiring with online pharmacies to illegally distribute prescription drugs.  In large white collar cases, it is not uncommon for the government to agree to delay presenting an indictment while it negotiates with the corporate target of the investigation.  In cases where those negotiations may implicate the statute of limitations, the government will only delay indictment if the defendant agrees to toll the five-year statute of limitations. The government usually drafts the tolling agreement and presents it for signature by the defendants and their attorneys.

During the FedEx investigation, the government drafted and provided to FedEx four tolling agreements from January 1, 2010 to June 30, 2012. Somehow, when drafting the tolling agreements, the government used the wrong corporate names for FedEx and many of its affiliates. When negotiations for a settlement failed, the government returned an indictment in June, 2014 that also used the erroneous corporate names.  The indictment charged three conspiracy counts for drug distribution and money laundering and fifteen substantive counts for actual drug shipments and financial transactions that occurred more than five years prior to the indictment.

DOJ discovered its mistake when defense counsel filed the corporate disclosure to the court. The government presented a superseding indictment in August, 2014 charging the same counts as the original indictment and correcting only the names of the corporate entities.

FedEx filed a motion to dismiss the fifteen substantive counts as outside the statute of limitations and argued that the tolling agreements prepared by the government were defective because the agreements did not toll the statute of limitations against the corporate entities named in the superseding indictment.  FedEx did not challenge the conspiracy counts because the indictment alleged conduct within the statute of limitations.

The government responded that FedEx had acted in bad faith by not catching the mistake and sought to capitalize on the government's error. Judge Breyer had little sympathy for the government at oral argument or in his written opinion.  In the opinion, Judge Breyer noted that in response to government subpoenas, FedEx and its affiliates had repeatedly turned over records that bore the correct corporate names. Moreover, the correct corporate names were all listed on the SEC's website and available publicly.

In short, the court dismissed the government's argument that defense counsel acted in bad faith by not pointing out the mistake in the tolling agreements.  The court observed that "[t]he government appears to have forgotten that in a criminal prosecution, the defense is not required to make the government's case."  The defense has no duty to protect the government from itself.  The opinioned echoed what Judge Breyer said at the hearing on the motion: the defense does not have an affirmative duty to straighten out the prosecution's misconceptions about the case.

Near the close of the hearing, Judge Breyer stated he was going to issue a written opinion, but commented he was not sure how the order dismissing all the substantive counts affects the government's case at trial. The prosecutor advised the court that it would have no effect on the government's case. The District Court noted, somewhat sarcastically, "Well, I'm delighted to participate in a motion that has no effect."

This is not the first time Judge Breyer had been critical of the U.S. Attorney's Office in San Francisco. He recently dismissed an indictment against a U.N. official in Canada for taking bribes from employees of a Ukrainian Passport Company. The government brought the case in California despite the fact that none of the officials were from the United States, no acts occurred within the United States, and no documents were ever intended to be presented to the United States. DOJ argued that the U.S. had jurisdiction because they provided federal funds to the program. However, the government admitted that the federal funds were not involved in the criminal case, but were merely a jurisdictional hook to bring the cases. In that case Judge Breyer sarcastically "congratulated" the U.S. Attorney's office for having reduced the crime rate in the Northern District of California to the extent they had the resources to go after criminal activity that occurs in foreign countries. He noted that in his 50 years of criminal practice he had never seen such a "misguided prosecution."  Judge Breyer reflects a growing trend on the federal bench of skepticism toward the judgment and practices of the Department of Justice in large corporate prosecutions.

The FedEx trial is scheduled for June 1, 2016. The court has already referred to the government's prosecution theory as "novel." If the past is any indication, this will be a lively trial.

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