November 21, 2008 / 9:58 PM / 10 years ago

Appeals court hears brief on corporate liability

NEW YORK (Reuters) - A lawyer argued on Friday that an appeals court should change legal standards so corporations are not easily held criminally liable for the actions of employees who break company regulations.

Former federal prosecutor and now defense lawyer Andrew Weissmann made his case in the 2nd U.S. Circuit Court of Appeals in New York in support of Ionia Management S.A. of Piraeus, Greece, a ship management company convicted in Connecticut last year of illegal dumping of oily water at sea.

In the appeal, known as a friend of the court brief on behalf of six business groups and bar associations, Weissmann said the standard for corporate criminal liability was too low for companies that have compliance programs for their employees.

The appeals court reserved judgment on the brief, but during the hearing Judge Guido Calabresi suggested to Weissman that he “ought to bring it to the Supreme Court.”

At a different point, Calabresi said: “This is an academic panel and we’d love to play with this, but whether we should do something about this as judges is a different matter.”

If the judges rule for the government, then it will be up to Ionia whether or not to appeal to the U.S. Supreme Court.

A government prosecutor argued that Ionia did not challenge instructions given to the jury during trial that the company could be held liable for the conduct of a single employee.

“This is not the case to change the law or to suggest this law should be changed,” Assistant U.S. Attorney Sandra Glover of the District of Connecticut told the panel.

In 2002, Weissmann was one of the prosecutors investigating Enron Corp’s collapse. He won a guilty verdict against Enron’s accounting firm Arthur Andersen that was later overturned by the U.S. Supreme Court.

After the Arthur Andersen case, the U.S. Justice Department focused on so-called deferred-prosecution agreements under which companies plead guilty to a crime, pay fines and promise better behavior to avoid criminal charges.

The conviction of Iona under the Act to Prevent Pollution from Ships involved the tanker Kriton. The ship was boarded by the U.S. Coast Guard in New Haven, Connecticut in March 2007 after allegations by a ship’s electrician that it illegally disposed of the oily water.

On Friday, a lawyer for Ionia said the company had a full and approved compliance program for employees and personnel testified during the trial they knew the dumping was against policy.

“How much can a company do with personnel outside of its immediate control?” the lawyer, Irwin Schwartz, said after the hearing.

Stephanie Martz, director of the white collar crime project at the National Association of Criminal Defense Lawyers, told reporters outside the court it is difficult for companies to figure out whether or not they will be criminally prosecuted when they have programs in place to try and stop wrongdoing.

“This case presents an opportunity to have a rational discussion about whether or not a company is really, truly bad.”

The brief was filed on behalf of six business groups and bar associations — the U.S. Chamber of Commerce, the National Association of Criminal Defense Lawyers, the Association of Corporate Counsel, the New York State Association of Criminal Defense Lawyers, the National Association of Manufacturers and the Washington Legal Foundation.

Editing by Andre Grenon

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