When then-Judge John Gleeson ruled in early 2016 that the public had a right to see a report by an independent monitor on how HBSC was faring since it entered into a controversial five-year deferred prosecution agreement, he noted that he was, after all, not, “to borrow a famous phrase, a potted plant.”  His ruling came in a case filed by Hubert Dean Moore, an HSBC mortgage customer from Pennsylvania who wanted to know whether there were still problems at HSBC and asked the court to order disclosure of the 1000-page report. HSBC had and has publicly revealed ongoing and serious problems that the monitor identified.

In its ruling on July 12, the Second Circuit reversed Gleeson’s decision, saying judges have no “freestanding supervisory power” to review and approve such agreements or ensure compliance with them. The three-judge panel did not say judges were like a “potted plant,” but that was largely the thrust of the ruling.

In deciding to approve the HSBC deal, Judge Gleeson noted that supervisory power in the context was novel, but found it important in deciding whether to approve such a significant deal.  After all, the case involved almost $2 billion dollars in penalties for what was then the largest money-laundering related prosecution of all time. The conduct involved transactions on a grand scale (over $880 million) with Mexican drug cartels, terrorist-linked organizations, and entities in a range of sanctioned countries. And yet prosecutors were seeking to resolve the matter in court without following the standard judicial process for approving a plea agreement.  The speedy trial clock would be tolled for five years, pending the bank’s compliance with the detailed terms of the agreement, which included penalties and any reforms required by the independent monitor.  Judge Gleeson ordered in a separate ruling the public release of the monitor’s report, subject to redactions, pursuant to a judge’s supervisory power over criminal proceedings generally, in part because this was no ordinary corporate prosecution.  He noted the “heavy public criticism” of the deal’s lenient treatment of the bank, which avoided a conviction, and its employees, none of whom were prosecuted.  The judge said it was “appropriate and desirable for the public to be interested and informed in the progress of the arrangement between DOJ and HSBC that the government chose to make the centerpiece of a federal criminal case.”

The Second Circuit panel never squarely addressed Judge Gleeson’s reasoning that the case itself was of great public concern and affected the public interest.  The panel considered, only in a tangential way, that the judge must address public interest concerns when approving an agreement between a corporation and prosecutors.  The appeals court seemed to assume that only prosecutors represent the public interest and that judges are, well, potted plants.  To be sure, much of the Second Circuit’s ruling dealt with whether the monitor’s report was a judicial document that the public had a right to see under the First Amendment.  As part of that analysis, however, the panel had to decide what a “judicial function” was in the context of a deferred prosecution agreement.  That, in my view, was where the panel made its mistake, concluding that there is little role for a judge in a deferred prosecution agreement between prosecutors and a corporation.

I should note that I wrote an amicus brief in the case and expressed my views at length in the litigation and in an article in progress discussing the public interest in corporate settlements.  And I was pleased that the Second Circuit panel seriously considered my arguments that judges should have a substantive role in approving and supervising corporate deferred prosecution agreements.  The panel agreed that the Speedy Trial Act is ambiguous when it says that judges have the power to approve deferred prosecution agreements.  My view was that the statute does grant that power, particularly when read in light of its purpose, which is to permit close judicial supervision of low-level offenders granted diversion, and of its structure, which conditions the tolling of the speedy trial clock in in other circumstances on the approval of a judge.  In my view, judges should be deferential to prosecutors, but exercise their power to review such agreements and ensure that they serve the public interest.

The panel did not carefully address that argument.  It cited cases on a prosecutor’s discretion to bring criminal charges , which is a different issue, though the D.C. Circuit also relied on those cases in its Fokker Services ruling.  The panel did not address what deference judges owe prosecutors in deciding whether to grant special dispensation to waive speedy trial deadlines.  The reasoning was also faulty in assuming that doubts about the meaning of a criminal procedure statute should be resolved in favor of prosecutorial power.  I find that reasoning disturbing and unsupported, particularly when applied to a statute dealing with important rights (speedy trial rights) of criminal defendants, and not the prerogatives of prosecutors.

That said, the panel did highlight how the monitor’s report might become a judicial document subject to public disclosure if issues later arose that made it relevant to judicial decision making.  On that basis alone, it might be wise for prosecutors to insist that monitors write portions of their reports in ways that would make redaction unnecessary if they are made public.  An even stronger basis for granting public requests for such documents may be that victims now have statutory rights in deferred prosecutions under the Crime Victims Rights Act as amended 18 U.S.C. §§ 3771(a)(9).  Of course, in my view, monitors should be asked to make much of their work public as a matter of prosecution policy.  That this issue has had to be litigated, with the DOJ joining forces with HSBC, is itself a troubling indication that prosecutors do not take the public role in such cases seriously enough.

Judge Pooler wrote separately to say that there should be new legislation on this topic, given its importance.  As Judge Pooler wrote, using DPAs for corporations is not necessarily undesirable, but there should be “meaningful oversight from the courts.”  Congress did not even have corporate deferred prosecution deals in mind when it drafted the Speedy Trial Act in the 1970s.  Those deals barely existed in the 1990s.  Legislation has been introduced but not enacted in recent years, and perhaps it will move forward now that both the Second Circuit and the D.C. Circuit have ruled that prosecutors have such broad discretion in these settlements.

The Corporate Prosecution Registry, which I maintain with Jon Ashley at the University of Virginia School of Law, shows how the number of deferred prosecution agreements skyrocketed in the early 2000s.  And as I describe in my book, Too Big to Jail, the use of corporate monitors, questions about whether these agreements are effective, and the underlying criminal conduct itself are all of enormous public significance.  The largest public companies are entering these deals to settle the largest corporate crimes.  To keep monitorships in the shadows is poor public policy.  When monitors do successful work, it should be public, in redacted form, so that other companies can benefit from the example, and the public can gain confidence in the integrity of the corporation.  When monitors uncover ongoing problems, the public interest is also great.

Although I did not find the ruling convincing, I did find it unsurprising.  Courts have often strained to narrowly interpret judges’ power to review corporate agreements, in criminal and in civil cases, and Congress has often had to step in and write stronger legislation in response; the Tunney Act in antitrust is an example.  And perhaps the public can obtain this document through a Freedom of Information Act request, as has been done for corporate non-prosecution agreements that prosecutors had kept private.  More important, as Judge Pooler suggested in her concurring opinion, to “restore some balance” to corporate prosecutions, the Speedy Trial Act should be re-written to clearly set out the scope of judicial review and supervision of corporate deferred prosecution agreements.  Judges should not be potted plants but rather important watchdogs for the public interest in settlements of the largest corporate criminal cases.

This post comes to us from Brandon L. Garrett, the Justice Thurgood Marshall Distinguished Professor of Law at the University of Virginia School of Law.  This fall, Harvard University Press will publish his new book, “End of Its Rope: How Killing the Death Penalty Can Revive Criminal Justice.”