Corporate settlements are proliferating in form and function. They include consent decrees, corporate integrity agreements, deferred prosecution agreements, non-prosecution agreements, leniency agreements, and plea bargains. Enforcers at the federal and state level now enter an array of administrative, civil, and criminal resolutions of enforcement actions against companies. Those resolutions may be entered and negotiated in parallel and settled jointly, and their reach is global. Corporate fines have hit new records, with penalties in the hundreds of billions of dollars affecting entire industries and economies. High-profile controversies have erupted over judicial review of government settlements with corporations, as these agreements have expanded in their ambition and their public significance.
In perhaps the best known recent judicial ruling regarding such a corporate agreement, U.S. District Judge Jed Rakoff found insufficient an SEC settlement with Citigroup, focusing on several defects, including lack of accountability of officers or employees, the small fine, and the lack of an admission of wrongdoing. He noted, “before a court may employ its injunctive and contempt powers in support of an administrative settlement, it is required, even after giving substantial deference to the views of the administrative agency, to be satisfied that it is not being used as a tool to enforce an agreement that is unfair, unreasonable, inadequate, or in contravention of the public interest.” In response, the Second Circuit Court of Appeals reversed, holding: “[t]he primary focus of the inquiry… should be on ensuring the consent decree is procedurally proper.”
U.S. District Judge Richard J. Leon rejected a deferred prosecution agreement with a company for foreign bribery, “looking at the DPA in its totality,” and noting that, not only were “no individuals . . . being prosecuted for their conduct at issue here,” but also “a number of the employees who were directly involved in the transactions are being allowed to remain with the company.” The D.C. Circuit reversed and strongly emphasized the discretion of the government to enter into deferred prosecution agreements.
U.S. District Judge John Gleeson, who raised “public interest” concerns with a criminal deferred prosecution with HSBC over money laundering-related violations, asserted a supervisory power to oversee and receive monitor reports in the case. The judge’s separate decision to make one of those monitor reports public in the HSBC case is presently on appeal before the Second Circuit.
These settlements have not been studied together, perhaps because they cover very different fields of law: antitrust, environmental, health, securities and banking. Private settlements, regulatory settlements, and prosecutions each brings with them varying standards of judicial review and different statutory and court-made procedures for approving them in and out of court. It is understood that judicial review is needed to ensure that the public interest is met. When government actors themselves settle with corporations, often the public interest is too readily presumed. Appellate courts in particular have sought to limit the discretion of district judges, even in the face of statutes conferring authority upon judges to safeguard the public interest.
In my new article, forthcoming in the Boston College Law Review, I explore how standards in disparate areas have converged, raising a common question: What protects the public interest when corporations settle with the government? My article is still very much a work in progress, and I would welcome any feedback from readers.
I begin by suggesting that a common field of law and, perhaps more important, equity governing judicial review of these complex corporate settlements deserves study. As the Supreme Court has put it in an oft-repeated formulation: “Courts of equity may, and frequently do, go much farther both to give and withhold relief in furtherance of the public interest than they are accustomed to go when only private interests are involved.” Equity is particularly important in corporate settlements, which envision judicial supervision and detailed remedies over a period of time.
Common equitable principles should be clarified and developed further in judicial rulings, regulations, and statutes, taking as their lodestar the concept of the public interest. I focus on how the case law has developed responses to the following factors that raise issues common to organizational settlements: (1) reasonableness of any fines or other punitive measures; (2) adequacy of any compliance-related safeguards; (3) presence or use of independent corporate monitors to supervise compliance; (4) cooperation with authorities in any ongoing investigations; (5) the presence or lack of requirements unrelated to the regulatory or statutory violation at issue; (6) potential collateral consequences of the agreement; (7) the appropriateness of compensation or restitution to any victims; (8) the effect of the agreement on other enforcers or regulators; and (9) the effect of the period of delay on statutes of limitations or other interests.
For example, judges could ask, regarding the second factor, whether the public interest is satisfied by compliance-related safeguards contained in an agreement. If there is a concern that the violations could recur and cause harm in the future, then what assurance is there that compliance measures will be successful? Judges might be correctly concerned if an agreement does not speak to compliance except in generic terms that might suggest only cosmetic compliance is being demanded. The Sentencing Guidelines view auditing or assessment of compliance as crucial to its effectiveness, but in the past, many corporate prosecution agreements did not contain terms requiring such assessment. Nor is the public interest served by compliance terms that impose costs on corporations and shareholders but that do not effectively prevent violations. The equitable supervision of a judge extends beyond the initial approval of an agreement. Some judges have insisted, for example, that there be probation supervision for convicted corporations, or that monitors apprise the court of a corporation’s progress during a deferred prosecution agreement, to ensure accountability.
In the concluding sections of my article, I explore how such considerations operate in the different settings in which corporate settlements are negotiated and offer proposals that could improve consideration of the public interest in corporate settlements.
This post comes to us from Professor Brandon L. Garrett at the University of Virginia School of Law. It is based on his recent article, “The Public Interest in Corporate Settlements,” available here.