In a landmark appeal from the first denial of a deferred prosecution agreement ("DPA'') by a federal court, a three-judge panel of the United States Court of Appeals for the District of Columbia Circuit has decided that a district court lacks the authority to deny an exclusion of time under the Speedy Trial Act ("STA") – a necessary step to effectuating a DPA -- on the ground that the district court thinks the government should bring different charges, charge additional defendants, or demand a more stern set of sanctions. See United States v. Fokker Services B.V., 15-3016 (D.C. Cir. Apr. 5, 2016). The decision will likely curb the recent trend of district courts asserting judicial power to substantively review DPAs and to second-guess the terms of the agreements.
Background— The District Court's Decision
In June 2014, Fokker Services B.V. ("Fokker"), a Dutch aerospace company, entered into a DPA with the US Department of Justice ("DOJ") to resolve criminal charges that the company had violated the US sanctions and export control laws by shipping aircraft parts and technology with US nexus to Iran, Sudan and Burma. The gross revenue from these illegal transactions totalled $21 million. The activities came to light when, in June 2010, Fokker self-reported to US authorities and began cooperating with a government investigation. Under the terms of the DPA, Fokker acknowledged culpability and agreed to pay $10.5 million in fines (together with additional fines to other federal administrative agencies to make the total fine equal the $21 million ill-gotten profit), to continue its cooperation and to implement new compliance policies. If Fokker complied with the terms of the DPA for 18 months, the DOJ agreed to dismiss the charges.
The DOJ filed a one-count criminal information charging Fokker with conspiracy to violate the International Emergency Economic Powers Act, The same day, the government and Fokker filed a joint motion to exclude time under the STA in order to allow Fokker to demonstrate its good conduct and implement certain remedial measures, as contemplated by the DPA. After a series of hearings at which the district court repeatedly emphasized its concerns with the terms of the DPA and the fact that no individual company officers had been prosecuted, the district judge denied the joint motion for exclusion of time under the STA, which effectively amounted to a rejection of the DPA. See United States v. Fokker Services B.V., 79 F.Supp.3d 160 (D.D.C. Feb. 5, 2015).
The court found that it had jurisdiction to carefully consider the substance of the DPA's terms in its evaluation of whether to exclude time under the STA. In denying the motion the court found the terms of the DPA were too lenient in light of Fokker's admitted "egregious conduct." The court emphasized three points. First, the fines to be paid by Fokker were "not a penny more" than its total revenue from the illegal transactions. Second, not only did the government decline to prosecute any of the individuals involved, some employees who were directly involved in the transactions were allowed to remain at the company. Finally, the DPA made no provision for an independent monitor or any reporting obligation to the court or the government to verify Fokker's compliance.
Both the government and Fokker filed interlocutory appeals from the decision.
The Circuit Court's Decision
The DC Circuit vacated the lower court's decision. The court observed that, under the Constitution, the Executive has the exclusive authority to make charging decisions, and the Speedy Trial Act does not authorize a court to withhold exclusion of time pursuant to a DPA based on concerns about these charging decisions. Specifically, the court analogized the language in the Speedy Trial Act requiring "the approval of the court" for an exclusion of time to rules providing for court approval of the dismissal of criminal charges or the approval of antitrust consent decrees. The court stated that, as the analogous circumstances did not call for substantive judicial review of the executive's decisions, neither did the STA.
The court also distinguished the judicial review of a DPA under the STA to the judicial review of a proposed plea agreement under Rule 11 of the Federal Rules of Criminal Procedure. The court noted that the review of a proposed plea agreement is warranted because the plea involves a criminal conviction and requires the court to carry out its traditional sentencing function. On the other hand, a DPA does not involve formal judicial action imposing or adopting its terms. Indeed, the purpose of a DPA is to avoid a criminal conviction and sentence by giving the defendant time to demonstrate good conduct and compliance with the law.
Consistent with its holding that the district court did not have the authority to second-guess the government's charging decision, the appellant court did not opine on whether the lower court's criticisms of the DPA were meritorious or not.
Implications for Corporate Crime Enforcement
This case involved the first denial of an exclusion of time under the STA and effective rejection of a DPA. The DC Circuit's ruling marks the first time the issue of judicial oversight of DPAs has been addressed by a Circuit Court.
The DOJ has increasingly used DPAs to resolve corporate criminal cases. By entering into a DPA, prosecutors are able to exact significant penalties and meaningful corporate reform without incurring the cost and uncertainty of trials and appeals. Meanwhile, innocent third parties – shareholders, employees etc. – are spared the collateral consequences of a corporate conviction.
However, the use of DPAs is not without criticism. In recent years, a handful of district judges have pushed back by asserting a more active role for the Judiciary in scrutinizing DPAs. Notably, this active judicial role has been supported by recently implemented UK legislation, which granted greater oversight to UK courts over the DPA process.
The DC Circuit's decision to insist upon deference to the executive's discretion in framing a DPA is a setback to trend of increased judicial oversight of this settlement tool. This should generally be viewed as a positive sign to corporations engaged in criminal settlement discussions with US enforcement authorities as it provides greater certainty that the agreed settlement terms cannot be rejected or changed by a court. However, it remains important for businesses to closely watch these developments in other circuits which the decision is not binding, including several decision made by Judge Gleeson in the Eastern District of New York, as discussed in our earlier e-bulletin here.