On January 20, 2009, the Second Circuit affirmed the conviction of Ionia Management, S.A. (“Ionia”) for the criminal acts of its non-management employees. On appeal, Ionia, along with several amici curiae, including the Association of Corporate Counsel and the U.S. Chamber of Commerce, argued that the court should revisit its long-standing, and in their view erroneous, rule that a company can be held criminally liable for any criminal acts of even low-level employees. The court found that argument “unavailing,” and refused to alter the standard for respondeat superior liability in the criminal context.

THE IONIA PROSECUTION

Ionia is a ship-management company that handles shipping vessels, including the oil-tanker M/T Kriton (“Kriton”), which Ionia employees operated as it transported oil to the United States. While criss-crossing oceans, Kriton produced oil-contaminated bilge waste, which it was required to store for proper disposal at ports of entry or process with pollution prevention and control devices. To ensure that ships entering U.S. ports comply with international protocols governing such procedures, the Act to Prevent Pollution from Ships (“APPS”), 33 U.S.C. §§ 1901, et seq., makes it a crime to knowingly violate international protocols and requires that ships maintain Oil Record Books, recording that ship’s treatment and disposal of oily mixtures generated from its machinery.

The indictment alleged that Ionia conspired with others, including a crew member in the Kriton’s engine room, to violate the APPS. Specifically, the indictment charged Ionia with conspiring to not maintain an accurate Oil Record Book aboard the Kriton, to falsify the Oil Record Book to mislead the U.S. Coast Guard, and to obstruct justice. The indictment further alleged that the agents and employees of Ionia illegally dumped the Kriton’s oil-contaminated bilge waste and then doctored its Oil Record Book to conceal its dumping. The indictment, always alleging that the company was “acting by and through its agents and employees, acting in the scope of their employment and for the benefit of their employer,” also charged Ionia with substantive offenses for the same conduct.

At trial, the district court charged the jury that a corporate defendant could be held criminally responsible for the conduct of a single low-level employee even if that employee acted in direct contravention of corporate policy and a robust compliance program. Ionia failed to object to the charge, and the jury found Ionia guilty. Ionia appealed its conviction, arguing inter alia that the district court overstated the reach of the respondeat superior doctrine when charging the jury that any act by any employee -- even a low-level employee -- could result in criminal liability for the company.

Naturally, a company can act only through its employees. The question the amici put before the Second Circuit, therefore, was whether the company should be criminally responsible when its employees commit criminal acts without corporate direction or authorization.

THE LEGACY OF NEW YORK CENTRAL & HUDSON RIVER RAILROAD V. UNITED STATES

In 1909, the U.S. Supreme Court held in New York Central & Hudson River Railroad v. United States, 212 U.S. 481 (1909), that Congress has the power to enact laws to hold a corporation criminally liable for the criminal acts of its employees. The Court was silent, however, on when an employee’s conduct would create respondeat superior liability for his employer.

Based on New York Central’s narrow holding, the Second Circuit had reasoned that a corporation always can be held criminally liable for the criminal acts of its employees, citing, United States v. Twentieth Century Fox Film Corp., 882 F.2d 656, 660 (2d Cir. 1989); United States v. George F. Fish, Inc., 154 F.2d 798, 801 (2d Cir. 1946) (per curiam). This reasoning applies even if the particular statute at issue is silent on the matter of corporate liability, as most are, criminalizing violations by any “person,” which is broadly defined in the U.S. Code to “include corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals,” 1 U.S.C. § 1.

At oral argument, both the amici and Ionia pressed the panel to revisit the Second Circuit’s precedent stemming from New York Central. The Court refused this invitation. Since the company had failed to object to the challenged jury instruction at the time it was given, the Second Circuit rejected Ionia’s claim as failing to meet the plain error standard of review. In its opinion, the Court reiterated its standard for respondeat superior liability -- that the government must prove merely that the wrongdoers acted within the scope of their employment -- and held “that there was ample evidence for a jury to have reasonably found that the Kriton’s crew” did so. Moreover, the Court found that “there was overwhelming evidence that the Kriton’s Chief Engineers specifically directed crew members to use the ‘magic hose,’ and so Ionia’s argument is without merit in any event.” The Court also “refuse[d] to adopt the suggestion [of the amici] that the prosecution, in order to establish vicarious liability, should have to prove as a separate element in its case-in-chief that the corporation lacked effective policies and procedures to deter and detect criminal actions by its employees. . .” The Court ruled that a “corporate compliance program may be relevant to whether an employee was acting in the scope of his employment, but it is not a separate element.”

Unless Ionia obtains Supreme Court review of the Second Circuit decision, any change in prevailing law will have to await the indictment and subsequent legal challenge of a corporation on facts implicating the fairness of attaching criminal liability to the organization for the criminal acts of certain employees. The full text of the Second Circuit decision can be found at United States v. Ionia Management, S.A.___, F.3d ___, 209 U.S. App. LEXIS 902, Nos. 07-5801 and 08-1387 (2nd Cir. January 20, 2009).