United States: Individual Defense In The Shadow Of Corporate Guilty Pleas

Last Updated: March 7 2017
Article by Jessica K. Nall and Janice W. Reicher

Recent corporate guilty pleas can be expected to have serious implications for the individual executives and employees alleged to have been involved in the conduct under scrutiny. But there are other factors at play in such cases that can make even more of a difference to the eventual outcomes for individuals than whether their corporate employer pleads guilty or pursues an alternative resolution. Key among these is the extent to which a cooperative relationship can be established between company counsel and individual counsel despite accusations of individual wrongdoing.

In a post-Yates memo world where individuals should presume that the company has handed the government most or all of the incriminating or problematic evidence as to them, an individual's ability to timely access that same information to defend his or her case preindictment is of overwhelming significance. In criminal antitrust cases, for example, where corporate guilty pleas and "full cooperation" by companies against individuals are a fact of life, cooperation between counsel for the company and counsel for individuals under investigation is an accepted norm and helps facilitate both parties' efforts to resolve the government's investigation. Evaluating the possibilities for establishing such a relationship and accessing this key information is thus priority number one in defending individuals — no matter what eventual resolution a corporation may be expected to pursue.

Investigations of Individuals and Corporations in General

Broadly speaking, the road to a government resolution for both corporations and individuals is as follows: A company learns of criminal or otherwise problematic activity via whistleblowers or other means. Faced with allegations of wrongdoing within its ranks, the company, its board of directors or a board committee, will hire outside counsel to conduct an internal investigation. Depending on the scope, these investigations generally include reviewing a subset of company documents, interviewing employee witnesses, and presenting the investigation findings and recommendations to the company's board or management.

If the government, whether the U.S. Department of Justice, the U.S. Securities and Exchange Commission or other regulatory agency, is also investigating the company, the company will often pledge cooperation and investigative counsel will share their findings with the government in order to negotiate a more favorable outcome for the company. In many cases, the company — without admitting or denying guilt — will enter into a settlement agreement (whether a nonprosecution or deferred prosecution agreement) that includes a fine and other terms for remediation and future compliance with the law. In rarer cases, despite efforts to cooperate and allay such a result, a corporation may face the difficult prospect of entering a corporate guilty plea.

Meanwhile, the conduct of certain individuals who have become the focus of government investigators (either through the company's own disclosures or by other means) will necessitate that separate counsel be hired to protect those individuals' interests. Individual counsel are typically paid by the company pursuant to indemnity obligations and also based on the company's interests in avoiding or minimizing its own liability (including civil liability) by ensuring that its executives and employees are adequately represented in a criminal investigation and/or prosecution. In almost every case, the company has a strong interest in advancing fees for such counsel (sometimes on limited terms) rather than to allow individuals to navigate the investigative process without counsel and risk increasing the scope of liability for the company through incorrect or overbroad admissions of wrongdoing.

Though basic ethical tenets prevent the company from attempting to influence strategic decision-making by separate counsel in the representation of individuals, provision of defense costs often puts company counsel in the position of being able to recommend counsel and thus influence the selection of counsel to some degree. Provision of defense costs and referrals to individual counsel can at least place the individual and company on more conciliatory footing than denying defense costs and leaving individuals "out in the cold" to make potentially unfounded admissions that will ultimately redound to the company.

Provision of defense costs is a threshold issue; provision of access to key information regarding the individual's alleged conduct is even more determinative of eventual outcomes for individuals. In the typical criminal antitrust cartel case, for example, it is commonplace for a company (even one facing the prospect of a guilty plea) to share access to relevant documents with individual counsel, coordinate with individual counsel to obtain information needed in an internal or government investigation, and to share information on developments in the government's investigation. Though the interests of the individual and the company are often (at least somewhat) aligned during this process, this alignment generally ends where, for example, the company pleads guilty while the individual asserts his or her innocence. At that point, joint defense or common interest arrangements may shift, but a cooperative relationship between counsel will still be helpful to both parties as they face the government as a mutual adversary.

Impacts to Individuals of Corporate Guilty Pleas

On Jan. 11, 2017, Volkswagen plead guilty to conspiring to defraud the United States and consumers, and to Clean Air Act violations. The company had installed defeat devices into thousands of vehicles with the intent to circumvent U.S. regulations. In addition to paying $4.3 billion in criminal and civil penalties and undergoing corporate compliance monitoring, Volkswagen agreed to cooperate fully with the Justice Department's ongoing investigation and prosecution of individual wrongdoers. That same day, the Justice Department charged six Volkswagen executives with one count of conspiracy to defraud the United States and consumers, and to violate the Clean Air Act, all by making false statements to regulators and the public. On Jan. 13, in another case, automobile parts manufacturer Takata agreed to plead guilty to wire fraud charges and pay a $1 billion criminal fine for fabricating test results to disguise a defect in the company's airbags. The Justice Department also announced criminal charges against three Takata executives allegedly involved in the fraud.

As these cases demonstrate, investigation and prosecution of a corporation and potentially responsible individuals usually goes hand-in-hand. Where the company has already plead or announced the intention to plead guilty to one or more crimes, counsel for the individuals must determine how best to defend their clients in the shadow of their corporate employer's criminal admissions. Attendant publicity may motivate companies pleading guilty to take positions opposed to their individuals in the press or in their government negotiations. And it goes without saying that individuals whose corporate employers have plead guilty may not be as able to pursue fact-based defenses resting on presumptions of innocence. They can and should expect instead that the government has already heard from their corporate employer that a crime has been committed and the individuals at issue have committed it.

Whether or not a company pleads guilty, in any case where a company seeks cooperation credit from investigators, individuals involved in the conduct at issue must assume that the company will turn over all relevant facts about their conduct and that it may not permit or invite any kind of cooperative relationship with company counsel. This likely means a company will have turned over an individual employee's emails, notes and other evidence containing the facts of his or her involvement to the government, but not the individual. Even when materials are provided through counsel, individuals typically only receive access to the evidence pertaining to him or her, which may preclude a comprehensive understanding of the evidence and (in some cases intentionally) impacts individuals' ability to cooperate as to others that also may have been involved. Aside from making "corporate bloodletting" and the strategic provision of information as to certain individuals potentially more likely, a corporate guilty plea does not fundamentally change these realities for the individual defendant.

That said, some aspects of an individual's defense may become tougher once a corporate employer pleads guilty. For one, it may become more difficult for an individual's counsel to challenge the prosecutor's view of the individual's culpability after a corporate guilty plea. The company's admissions (which will necessarily involve admissions as to individual conduct, as entities cannot act alone) will only bolster the government's theory of the evidence involving individuals, and the government may pursue individuals more forcefully and seek more severe consequences where the entity has already admitted criminal guilt. In some cases, a company's willingness to cooperate with individual counsel may decrease once the entity has admitted guilt. Once a corporate guilty plea has been entered, civil liability based on individual conduct is a foregone conclusion and the company may perceive less benefit in facilitating an individual's ability to defend. In some but not all cases, a corporate guilty plea may be expected to shift the relationship dynamic with individuals, especially if the parties' interests diverge.

Cooperative Relationship Between Counsel is a Key Driver for Success

To understand the impact of corporate guilty pleas on individual defense, it is helpful to look to the analogous paradigm of criminal antitrust cases, in which corporate guilty pleas are the norm. One of the key drivers for individual success in defending criminal antitrust cases has always been the degree of cooperation that exists between company and individual counsel.

In recent years, outside of the antitrust context, companies accused of wrongdoing have generally been permitted to resolve criminal investigations without pleading guilty, instead entering into deferred and nonprosecution agreements despite paying large fines and penalties for conduct that could arguably form the basis for a criminal plea. Corporate guilty pleas like those of Volkswagen and Takata thus might seem like a rarity. In the criminal antitrust context, by contrast, corporate guilty pleas have long been commonplace for companies that fail to report their crimes through the DOJ's leniency program, which provides full immunity for companies and their employees when the company is the first to self-report. In antitrust cases, where joint defense arrangements are common despite the near-certainty of corporate guilty pleas, individuals have at least a fighting chance to evaluate defense options and explore the possibility of cooperation with the government themselves.

In a general criminal case involving allegations of corporate wrongdoing, the degree to which a cooperative footing may be established between company and individual counsel is variable. Whether and how much a company is willing to cooperate with individual counsel may depend on many factors, including publicity and the degree to which taking an adverse position vis-à-vis certain individuals may provide an actual or perceived benefit to the company's own government negotiations.

Corporate Cooperation Since the Yates Memo: Individuals In the Hot Seat

From the company's standpoint, whether faced with an antitrust or other regulatory or criminal investigation, cooperation with the government is often the best — indeed, the only — option for mitigating any negative consequences. The trend toward requiring "full" corporate cooperation with the government in order to obtain leniency outside of the antitrust context picked up momentum when the DOJ released the Yates memorandum in September 2015. Though an updated memorandum can be expected from the new administration, it is almost certain that the government will continue to view favorably and reward corporate cooperation.

Under the Yates memo, which remains in effect, corporate cooperation with the government is all or nothing. The company must provide all relevant facts and cannot "cherry pick" what it reports to investigators. Significantly, the Yates memo requires companies to provide all facts relating to the conduct of all accountable individuals in order to qualify for cooperation credit. As former Deputy Attorney General Sally Yates herself noted in May 2016, in response to the Yates memo companies have begun to provide government investigators with so-called "Yates binders" containing evidence related to the conduct of particular individuals. As she explained, the presumption of what a corporate resolution looks like has shifted: DOJ attorneys must now get approval if they decide not to bring charges against individuals and may not release individuals from civil or criminal liability except under the rarest of circumstances. The all-or-nothing cooperation paradigm that the Yates Memo has set up, in essence, requires the company to act as a proxy for government investigators if it wishes to obtain cooperation credit.

All of this means that an individual executive or employee at a company under criminal investigation, without information to the contrary, must proceed on the presumption that the government has received from the company negative and/or potentially incriminating evidence as to him or her. This creates a unique predicament for executives under investigation for corporate crime. In most other criminal contexts (aside from antitrust prosecutions), it is rare that the government has access to all potentially incriminating evidence regarding an individual's role in an alleged crime. And it is certainly not typical for that evidence to be turned over to the government in a neatly organized binder.

In addition to the obligation to cooperate per the Yates memo are the interests companies may have (or believe they have) in supporting the government's investigation as to certain individuals over others as a form of "corporate bloodletting." Although technically not favored under Yates, it would not be surprising to hear of companies providing a subtly greater degree of cooperation as to certain individual suspected wrongdoers over others. By the same token, government investigators may themselves attempt to influence the process of corporate cooperation with certain individuals in order to facilitate their own investigations in certain respects. This can result in some individuals being on a cooperative footing with counsel for the company and some being left "out in the cold."

Access to Information More Important Than Form of Corporate Resolution

In a very real sense then, whether the company (through counsel), stands on a cooperative footing with an individual suspected of wrongdoing and provides timely access to key information may be more important to an individual's prospects for success against the government than whether the company pursues a guilty plea over some other form of resolution. Individuals themselves often have a strong incentive to cooperate with the government's investigation. For some, they may wish to clearly identify their role or lack thereof in the conduct at issue. For others, taking responsibility for wrongdoing and providing full disclosure of their own and others' involvement in return for cooperation credit or even simply leniency may be an option for mitigating potential negative consequences. As a practical matter, however, cooperation becomes more difficult — if not impossible — for individuals who are not granted timely access to "Yates binder"-like materials.

A corporation's level of cooperation with both the government and accused individuals can make significant differences in individual's ability to defend themselves. For the individual under investigation, one thing remains certain as long as the Yates memo remains in effect: Whether or not the company pleads guilty, the individual must assume that a corporation under investigation will have provided the government with some or all facts regarding an individual's participation in the conduct. Whether the individual will timely receive the same materials to permit them to defend against the government is another question. The answer to that question, which depends on a myriad of factors, may be more significant than the ultimate form of the corporate resolution.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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