Justice Department to federal judges: Get off my lawn

By Alison Frankel
August 29, 2014

Have you heard the old joke about the difference between God and a federal court judge? The punchline is that God doesn’t think he’s a judge – implying, of course, that federal judges have a perhaps inflated perception of their omnipotence.

The Justice Department is doing its best to prick that bubble, at least when it comes to judicial oversight for its deals with corporate defendants. None of the government’s megabillion-dollar settlements with banks for their alleged mortgage securitization crimes, for instance, has been subject to review by a federal judge, since all of the deals have been struck before Justice actually filed cases. (Better Markets has been sounding an alarm on these settlements since February, when it sued Justice over JPMorgan Chase’s $13 billion deal.) Formal non-prosecution agreements, which also permit Justice and corporate defendants to sidestep federal judges, have been on the rise for more than a decade. Gibson, Dunn & Crutcher‘s midyear corporate crime report, issued in July, said Justice has struck five non-prosecution agreements – including one settlement, with SunTrust Mortgage, that introduced a whole new category of non-prosecution deals, the “restitution and remediation agreement” – so far in 2014. (Sue Reisinger at Corporate Counsel had a good piece Friday on this latest avenue of evasion for corporate defendants.)

Deferred prosecution agreements, which the Justice Department has deployed more frequently than non-prosecution agreements, do involve judicial oversight, thanks to the Speedy Trial Act of 1974. The act, which requires the federal government to try criminal defendants expeditiously, entails judicial approval for agreements that toll time limits. Historically, such deals involved individual defendants, and judges reviewed them to be sure that prosecutors and defendants weren’t colluding to delay trials.

But in a few recent corporate cases involving deferred prosecution agreements – most notably, a 2013 deal to resolve the Justice Department’s money-laundering allegations against HSBC – federal judges have expanded their traditional scope of review under the Speedy Trial Act. In the HSBC case, U.S. District Judge John Gleeson of Brooklyn said there’s “barren” precedent to guide judges reviewing deferred prosecution deals, but he concluded that the court’s supervisory power granted him authority to determine the adequacy of the entire agreement, not just to decide whether it’s a trial-delaying tactic. (Judge Gleeson ended up approving the agreement but requiring HSBC and Justice to present him with quarterly reports on the bank’s compliance.)

In another 2013 deferred prosecution case, U.S. District Judge Terrence Boyle of Raleigh, North Carolina, held two hearings on the government’s deal to resolve Medicare fraud allegations against the healthcare provider WakeMed, weighing the equities of the agreement before he decided to approve it.

Now, however, the Justice Department wants to shut down wide-ranging judicial review of deferred prosecution deals. In a little-noticed domestic bribery case against the Korean military contractor Saena Tech Corp, U.S. District Judge Emmet Sullivan of Washington, D.C., has put off a ruling on an agreement until he determines the scope of his authority to consider the entire “fairness and reasonableness” of the deal. (Hat tip to Corporate Crime Reporter, where I first heard about the case.) In a brief filed earlier this month, the Justice Department’s fraud and public corruption unit urged Judge Sullivan to restrict his review of the agreement.

His role, according to Justice, “is limited to deciding that a deferred prosecution agreement is truly about diversion and not simply a vehicle to fend off a looming trial date,” the Justice brief said. “Outside of that limited authority, the court has no reason or basis to consider the fairness or reasonableness of the deferred prosecution agreement.” The brief cited the recent (and already infamous) ruling in SEC v. Citigroup – in which the 2nd U.S. Circuit Court of Appeals severely curtailed judicial review of enforcement agency settlements – for the proposition that “it is outside the court’s authority to review the Department of Justice’s conclusion that a deferred prosecution agreement is the appropriate resolution for the defendant’s conduct.”

Judge Sullivan wanted to hear from a less interested party, so he appointed University of Virginia law professor Brandon Garrett to submit an amicus brief. Garrett, whose book “Too Big to Jail: How Prosecutors Compromise with Corporations,” is due out this fall, maintains a database on corporate deferred and non-prosecution agreements and speaks frequently on corporate crime. Last week, he submitted his brief in the Saena case – and it advocates quite a different standard for judicial review than the government’s filing.

“The court retains unqualified discretion to approve a deferred prosecution agreement or not, just as with a plea agreement,” Garrett wrote. Federal judges must apply the requisite deference to the executive branch of the government, he said, but deferred prosecution agreements raise a host of public interest issues that call for judicial review. And judges, Garrett wrote, are empowered under the Speedy Trial Act, the federal sentencing guidelines and the court’s inherent supervisory authority to engage in a thorough evaluation of the terms of a deferred prosecution deal.

“In deciding whether to approve a deferred prosecution agreement, a court should conduct an individualized examination whether it is reasonable, fair, comports with the goals of the sentencing guidelines and is in the public interest,” Garrett wrote.

In an email to me, Garrett put things more starkly. “I frankly do not understand why DOJ is so allergic to judicial review and transparency in corporate settlements,” he wrote. (He was out of the country and unavailable for an interview.) “Judges can add legitimacy to the process and their involvement can strengthen the deterrent (effect) of a prosecution. The more the public knows about what happens when companies break laws, the better. The notion that deals would be kept secret, or settled out of court, or settled without explaining the violative conduct in detail or the bases for the fines, all seems completely perverse.”

In other words: What is Justice so afraid of? As Garrett said, if prosecutors (and enforcement agencies) want us to believe that they’re representing us adequately when they strike a deal with corporate defendants, they have to be willing to subject those deals to scrutiny, beginning with the review of a federal judges. They may not be God, but they’re a whole lot better than no one.

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