In a recently issued order, a federal district court judge expounded upon a decision to reject two corporate plea agreements that contained binding sentencing recommendations. In doing so, the court proclaimed that it would rarely, if ever, accept such agreements in the future.1 The order, by highly-regarded Judge William Young of the District of Massachusetts, called for district courts to take on a more robust role in protecting the public interest when deciding whether to accept a corporation’s guilty plea. The rejection of the corporate plea agreements, both of which contained defined sentences, is part of a broader trend among federal district court judges, who are increasingly demanding a greater role in vetting plea and settlement agreements and fashioning resolutions for corporate defendants.

The Plea Agreements That Prompted The Court’s Order

The court’s order concerned two cases in which it rejected proposed plea agreements between corporate defendants and the government. In the first case, U.S. v. Orthofix, Inc., the company appeared before the court to plead guilty to obstructing a federal audit. The agreed disposition called for a fine of $7.7 million and entry into a Corporate Integrity Agreement with the Office of Inspector General of the Department of Health and Human Services.

In the second case, U.S. v. APTx Vehicle Systems, a British company contracted with the government to construct fifty specialized vehicles to be delivered to Iraqi police in connection with reconstruction efforts in Iraq. The vehicles were paid for in advance using a letter of credit upon receipt of a bill of lading and shipping documents confirming that the vehicles were pierside, ready for shipment to Iraq. However, the documents were fraudulent and no vehicles were delivered. APTx was subsequently acquired by a Russian company, ETP Specialist Vehicle Systems, Ltd., and a Russian attorney unfamiliar with the facts showed up in court to enter a plea agreement with an agreed disposition of a $1 million fine and $2 million civil settlement.

In both cases, the plea agreements were presented pursuant to Federal Rule of Criminal Procedure 11(c)(1)(C), in which the government agrees to recommend a specific sentence and that sentence is binding on the court once the court accepts the guilty plea.

Despite routinely accepting such plea agreements from corporate defendants in the past, Judge Young rejected the pleas from both Orthofix and APTx after concluding that the agreements did not sufficiently protect the public interest. Neither defendant appealed the court’s rejection of the pleas, and the cases have since proceeded – Orthofix pleaded guilty in December 2012 under Federal Rule of Criminal Procedure 11(c)(1)(B), which allows the government to make a non-binding sentencing recommendation to the court, and APTx withdrew its guilty plea in April 2013 and is set to go to trial next month.

In late July, Judge Young entered one order for both cases explaining in detail his decision to reject the plea agreements. After announcing that in the future “it would be rare indeed” for him to accept a 11(c)(1)(C) plea from a corporate defendant, Judge Young remarked that he owed an explanation to the legal community, which “must plan for and accommodate” his jurisprudence.

A Call For District Courts To Reassert Authority In Sentencing Corporate Defendants

Judge Young’s order emphasized that because sentencing is ultimately the responsibility of the court, judges must zealously protect the public interest at every stage of the proceeding that determines a defendant’s sentence. Judge Young noted that whether a judge is exercising his own discretion to impose the appropriate sentence, or deciding whether to accept a sentencing recommendation as part of a guilty plea, the court should consider the nature and circumstances of the offense; the history and characteristics of the defendant; and whether the sentence fosters the protection of the public, deterrence of future criminal conduct, and respect for the law.

Judge Young posited that a court’s authority to determine an appropriate sentence is fundamentally incompatible with the widespread notion that plea agreements, particularly those under Rule 11(c)(1)(C), are contracts between private parties binding upon the court to which they are presented. That analogy, he explained, fails to account for the independent role that the courts play when they are asked to accept a guilty plea and place the imprimatur of the judicial branch on the parties’ bargain. Moreover, the analogy “disregards the heightened considerations of the public interest which obtain in the criminal, rather than the private law, context.” Judge Young urged courts not to assume reflexively that the public interest is served whenever parties come to a mutual agreement.

Instead, Judge Young suggested that sentencing courts should be especially vigilant about vetting plea agreements from corporate criminal defendants for two reasons: (1) it is difficult to assess the sincerity and capacity for rehabilitation of a corporation whose officers will change over time; and (2) large corporations have the capacity to “wreak far more damage” than individual persons.

These considerations ultimately led the court to conclude that corporate criminal defendants as a group are not well suited to plea agreements with binding sentencing recommendations under Rule 11(c)(1)(C). “Given the complex nature of corporate criminals, and the gravity of the potential danger they pose to the public,” Judge Young wrote, “it does not seem provident for the Court to accept a guilty plea under a procedural mechanism which hamstrings it in the performance of its sentencing function.”

Particular Plea Agreement Provisions Likely To Draw Increased Scrutiny

The court identified particular provisions of the government’s plea agreements with Orthofix and APTx that it viewed as failing to adequately protect the public interest:

  • First, in the Orthofix plea agreement, the government agreed not to request probation or request that Orthofix’s “Corporate Integrity Agreement” be incorporated as a term of probation. Noting that probation is often necessary to ensure that a corporate criminal defendant reforms itself, Judge Young stated the absence of probation alone would have been reason to reject the plea agreement.
  • Second, the Orthofix plea agreement failed to include a provision prohibiting Orthofix from later disparaging the factual basis for its plea or its admission of guilt. Judge Young emphasized that nondisparagement clauses are “crucial to the protection of the public interest” because they force corporations to acknowledge, or at least not refute, their bad acts.
  • And finally, the fine the government agreed to impose in the APTx plea agreement was far below the amount recommended by the U.S. Sentencing Guidelines or authorized by the statutory maximum penalty. Judge Young explained that the “paltry sanctions” imposed by this “bargain basement” guilty plea undermined deterrence and respect for the criminal law.

These provisions, Judge Young concluded, indicated that the plea agreements were “suborning criminal justice, and the sobriety that sustains it, to the parties’ narrow interests.”

A Broader Trend

Judge Young’s order was not issued in isolation. At several points, he cited favorably to a similar order issued by Judge Jed Rakoff of the Southern District of New York, who in 2011 rejected a consent judgment in a civil case between the SEC and Citigroup.2 Judge Rakoff’s order (which was stayed by the Second Circuit pending appeal) explained that the proposed judgment, which requested injunctive relief from the court while allowing Citigroup to deny any wrongdoing, rendered the court “a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.”

Judge Rakoff has issued similar orders in the past, casting suspicion on settlements that suggest a “cynical relationship” where the government agency claims that it exposed wrongdoing while the defendant denies wrongdoing and claims it was the target of overzealous regulators.3 In a footnote, Judge Young also cited numerous orders from other district courts “expressing disquiet at the subordination of the public interest to the several interests of the parties” in consent agreements.4

These high-profile orders suggest a broader trend among district court judges to refuse to “rubber stamp” settlements or plea agreements negotiated by the government in both civil and criminal enforcement actions. This reluctance may be especially strong when the court is asked to approve a settlement without detailed knowledge of the underlying facts, or accept a plea agreement that constrains its sentencing discretion without the information provided by a pre-sentence report and detailed sentencing briefing.

Corporations should monitor this trend. Should it continue, it suggests that companies, in order to resolve cases with the government, may have to accept an increased degree of uncertainty regarding punishment and settlement, as opposed to what has historically been a clear understanding of the ultimate resolution of their case through agreement with the government.