This article discusses the practical impact on a subsequent civil litigation of four types of resolution of a criminal case in the U.S.: non-prosecution agreements (NPAs), deferred prosecution agreements (DPAs), nolo contendere pleas, and guilty pleas. NPAs and DPAs are increasingly used to resolve allegations of corporate wrongdoing. In his recent essay, Why Have No High Level Executives Been Prosecuted In Connection With The Financial Crisis, Judge Jed S. Rakoff stated that “[i]n recent decades . . . prosecutors have been increasingly attracted to prosecuting companies, often without indicting a single individual. This shift has often been rationalized as part of an attempt to transform ‘corporate cultures,’ so as to prevent future such crimes; and, as a result, it has taken the form of ‘deferred prosecution agreements’ or even ‘non-prosecution agreements,’ in which the company, under threat of criminal prosecution, agrees to take various prophylactic measures to prevent future wrongdoing.” NPAs or DPAs may help companies avoid some of the drastic collateral consequences of an indictment or conviction, but they typically include a list of admitted facts which can be used as admissions against the company in a subsequent civil action, such as a shareholder lawsuit seeking money damages. For instance, shareholders may file a class action complaint alleging that, in order to increase its stock price, the company deliberately misrepresented information regarding its financial performance and reported sales that were the product of FCPA violations.
A nolo contendere plea is a statement by the accused that he will not contest the criminal charge against him, and that he will accept the punishment that would be imposed on a guilty person. The plea may not be used against a defendant in a civil action based upon the same acts. Such a plea is extremely rare, however, because prosecutors and courts are typically unwilling to consent to it. A guilty plea constitutes the worst possible outcome for a corporate defendant because it constitutes an admission of all of the elements of a formal criminal charge and can be introduced as an admission in subsequent civil litigation.
Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs)
Of all four alternatives, the NPA constitutes the most favorable outcome for the company because it avoids any criminal charges so long as the company complies with the terms of the agreement. The government agrees not to initiate a criminal action typically in consideration for, among other things, a commitment from the company to (i) comply with the law in the future and report any future violations, (ii) pay substantial penalties, (iii) cooperate with the government in its ongoing investigation, and (iv) retain an independent compliance monitor for a stated period of time to review the design and implementation of an enhanced compliance program. NPAs are not filed with any courts, but the government may issue a press release to publicize the investigation and agreement. If the defendant is a public company, it may also be required to publically report it.
Deferred prosecution agreements (DPAs) are similar to non-prosecution agreements, with the difference that the government has filed a charging instrument with a court, but has agreed to defer the prosecution subject to conditions similar to those set forth in a NPA. Because the government has filed a charging instrument, however, the public typically knows about the criminal action. If the government believes that the company is in violation of a DPA or NPA, it reserves the right to declare the corporation in breach and initiate or resume prosecution. DPAs typically provide that, if the company abides by their terms, the government will dismiss the criminal information when the term of the agreement expires.
A critical aspect of many NPAs and DPAs is that they include an acceptance by the company of a statement of facts or an admission of responsibility as well as an agreement not to make public statements contradicting the statement of facts or admission of responsibility. To the extent the agreement is public, the statement of facts may be admitted as an admission in a subsequent civil lawsuit against the company. This statement of facts may also help a plaintiff defeat a motion to dismiss in a civil case. The U.S. Supreme Court has held that a plaintiff in a civil case is required to plead plausible factual allegations. Courts have held that statements contained in a DPA, such as a statement that the company “accepts and acknowledges responsibility” for the criminal acts of its own former employees, and the company’s agreement not to contest or contradict the facts set forth by the government, helped meet the plausibility requirement. It may be satisfied even if the DPA does not address the particulars of the plaintiff’s case. Therefore, a DPA may help a plaintiff avoid a motion to dismiss and proceed to discovery.
Nolo Contendere and Guilty Pleas
In contrast, a nolo contendere plea is a statement by the accused that he will not contest the criminal charge against him, and that he will accept the punishment that would be imposed on a guilty person. A plea of nolo contendere is an implied confession of guilt. It has the same effect as a plea of guilty, but that effect is restricted to the criminal case in which it is entered. That is, a defendant who has been sentenced on such a plea is deemed convicted of the offense for which he was indicted. Unlike a plea of guilty, however, a nolo contendere plea is not a factual admission that the defendant committed a crime and may not be used against a defendant in a civil action based upon the same acts. Specifically, the defendant is not estopped in a subsequent civil proceeding from denying the facts that were the basis of his plea. Further, the plea cannot be used as an admission in a civil case grounded upon the same facts.
Nolo contendere pleas are extremely rare, however, and they may not insulate the defendant from all the adverse consequences of a criminal conviction. First, prosecutors are generally unwilling to agree to a nolo contendere plea. The policy of the federal government is to oppose the acceptance of a plea of nolo contendere unless the circumstances of the case are so unusual that acceptance of such a plea would be in the public interest. The basic objection to nolo contendere pleas was set forth by a former Attorney General as follows:
a person permitted to plead nolo contendere admits his guilt for the purpose of imposing punishment for his acts and yet, for all other purposes, and as far as the public is concerned, persists in this denial of wrongdoing. It is no wonder that the public regards consent to such a plea by the Government as an admission that it has only a technical case at most and that the whole proceeding was just a fiasco.
Further, a court must consent before a nolo contendere plea is entered, and many courts will reject such pleas on the same grounds: that they do not promote the public interest. In 2012, in a case involving a price-fixing conspiracy among air cargo carriers, a defendant, Florida West International Airways, Inc., sought to enter a nolo contendere plea. The prosecutor advised the court that “in his twenty-plus year career with the Department of Justice, there was not a single case where he had agreed that a nolo contendere plea would be appropriate.” In that case, the court allowed the defendant to enter the plea and noted that the case involved highly unusual circumstances, and that the statute of limitations for bringing civil actions had apparently passed.
In the U.S., the government acknowledges that it does not have the resources to enforce federal statutes on its own. Congress often intends to use private self-interest as a means of enforcement. Courts may well conclude that a substantial deterrent is lacking if violators are subject to a fine that amounts to a “slap on the wrist,” but are allowed to avoid making factual admissions that that could help establish the company’s civil liability.
In deciding whether to accept a plea of nolo contendere, a court will examine factors, such as (i) the nature and duration of the claimed violation; (ii) the size and power of the defendant; (iii) the impact of the condemned conduct on the economy; (iv) whether a greater deterrent effect will result from conviction following a guilty plea rather than from acceptance of the nolo contendere plea; and (v) whether the government has expressed the view that the prospect of a conviction rather than a nolo contendere plea will more readily vindicate the public interest.
Second, while a defendant pleading nolo contendere is not estopped from denying the facts in a subsequent civil lawsuit, his conviction upon the plea may be used in the civil action. For instance, where a statute provides that the “conviction” of a person of certain crimes is a ground for revocation of a license, courts have frequently held that a judgment entered upon a nolo contendere plea constitutes such a “conviction.” In such a case, the nolo contendere plea may not prevent the revocation of the license. Therefore, a plea of nolo contendere may be of no help to the defendant if the conviction, rather than the admission of guilt, is the basis for a subsequent action.
The principal difference between a plea of guilty and a nolo contendere plea is that the plea of guilty is an admission of all of the elements of a formal criminal charge and can be introduced as an admission in subsequent civil litigation. Therefore, a guilty plea can result in, for instance, the revocation of essential licenses or other requirements for maintaining its operations, the debarment of the defendant and affiliates from its eligibility for government contracts, the debarment by institutions, such as the World Bank or the European Bank for Reconstruction and Development; in addition, civil plaintiffs could use the guilty plea as an admission in a civil lawsuit, which could result in the imposition of significant money damages.
In his landmark decision in SEC v. Citigroup Global Markets Inc., Judge Rakoff held that “a consent judgment that does not involve any admissions and that results in only very modest penalties is as just frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies.” To promote the public interest, the SEC has changed its policy and now increasingly requires corporate defendants to admit facts when they negotiate consent judgments with regulators. Plaintiffs might be able to use these facts in subsequent civil litigation. In light of this trend of the government requiring admissions, it is unlikely that nolo contendere pleas will develop as an alternative to NPAs, DPAs, or guilty pleas.