Although deferred prosecution agreements (DPAs) are a commonly-used tool for government prosecutors, courts continue to struggle to determine how much judicial supervision of these agreements is permitted. On July 12, 2017, the Court of Appeals for the Second Circuit provided guidance on this issue in U.S. v. HSBC Bank USA, N.A.,1 in which the court upheld the government’s authority to craft and enforce DPAs with minimal judicial scrutiny.
The message is clear: Absent good cause to do so, district courts should not interfere with, or regularly exercise supervisory power over, DPAs.
The background of the case is as follows: In December 2012, following a four-year investigation, the United States and HSBC entered into a DPA pursuant to which the United States filed a four-count criminal information against HSBC but agreed to defer prosecution for five years in exchange for HSBC’s agreement to pay a cash penalty, to enact certain remedial practices, and to retain an independent monitor to report to the government regarding HSBC’s compliance with the DPA. When the United States and HSBC jointly moved in the district court for a speedy trial waiver,2 Judge Gleeson invoked his supervisory power to review and “approve” the DPA, and in the exercise of that purported authority, he granted his approval on the condition that government submit quarterly, confidential, reports prepared by the monitor to the court. The parties did not challenge this order, and the government proceeded to file the monitor’s reports under seal. In November 2015, a private citizen filed a pro se letter with the district court asking that these reports be unsealed. Based on a determination that these reports were “judicial documents” for which there is a “presumptive right of access,” the district court ordered that the monitor’s reports be publicly disclosed (with some redactions). Both the government and HSBC appealed this order.
The Second Circuit unanimously overruled the district court’s order. The Second Circuit acknowledged that there is a presumptive right to public access of “judicial documents,” but found that the monitor’s reports were not judicial documents because they were not relevant to any judicial function. According to the Second Circuit, the government’s decision to enter into a DPA, and its determination of whether a defendant has complied with the terms of the DPA, are virtually unreviewable by a court. Thus, the Second Circuit held, the district court had erred in using the “extraordinary” and “sparingly exercised” doctrine of “supervisory powers” to insist on judicial monitoring of the parties’ DPA, and the parties should not have been required to file the monitor’s reports in the first place. The Second Circuit analogized the monitor’s reports to deposition transcripts, interrogatories, and other materials that are regularly exchanged between parties to a lawsuit without being filed in Court, for which there is no expectation of public access.
The court left open the question of whether the monitor’s reports could become judicial documents, subject to public disclosure, if the court ever had to rely on them to determine that there had been a breach of the DPA or when the parties moved to dismiss the case at the end of the five-year term. In either instance, it might become necessary for the court to review these documents to perform its supervisory functions and thus the reports might become subject to public disclosure. Companies entering into DPAs should continue to proceed under the assumption that any reports from a monitor could eventually become publicly available.
The most important aspect of the Second Circuit’s ruling is its strong repudiation of the efforts of the district court to oversee a DPA. The HSBC opinion is thus consistent with another leading case, the D.C. Circuit’s 2016 ruling in U.S. v. Fokker Servs. B.V.,3 which held that a district court had “substantially overstepped its authority” by second-guessing, and ultimately rejecting, a DPA for being too lenient. In the wake of these appellate decisions, the clear instruction to the district courts, at least for now,4 is that the judiciary should take a “hands-off” approach when the government presents it with a DPA.