In my last Insights, I introduced the concept of the deferred prosecution agreement (DPA) which has become a standard tool of the U.S. Department of Justice in dealing with white collar crime. A DPA is a contract between the DOJ and the target of an investigation – often a corporation or business entity – that resolves a federal criminal investigation short of a formal prosecution or guilty plea. It provides the DOJ with a middle ground between closing an investigation without further prosecutorial pursuit and indicting a corporation, which can have adverse collateral consequences to the corporation’s employees, investors, suppliers and customers. For its part, the corporation avoids full prosecution. To do so, it typically must acknowledge wrongdoing, admit to specific facts that support the government’s theory of wrongdoing, refrain from breaking laws under the threat of resuming the prosecution, pay a monetary penalty and sometimes permit a government-appointed monitor inside the corporation for a set period of time. The DOJ often publicly files a formal charging document setting forth the necessary elements of the alleged crime.
The effects of the DPA can include much more than merely large penalties and fines, the potential media coverage, and life with an inside monitor. The DPA can have a formidable role in ongoing or subsequent civil and regulatory proceedings, which require corporate counsel to navigate sensitive, uncharted waters. Here are two collateral consequences companies should take into consideration when evaluating whether to enter into these agreements with the government.
Noncontradiction Clauses. Many corporations facing DOJ criminal investigation are also wrapped up in related private civil actions or investigations at the state level. While the standard terms of the DPA permit the corporation to assert a defense in such other proceedings, they typically preclude the company from contesting or contradicting the DPA’s representations or statement of facts. If the DOJ subjectively determines that the corporation has done so, it may demand an immediate and loud retraction by the corporation or unilaterally declare a breach of the DPA. These restrictions might eliminate case strategies while allowing opponents in parallel litigation to explore the DPA’s factual underpinnings to obtain settlement leverage. The restriction also presents the practical dilemma of handling witness testimony that is inconsistent with the DPA and its statement of facts. While most DPA typically provide some safe-harbor language permitting witnesses to testify truthfully, the practical application creates testimonial obstacles in future civil litigation. This is particularly the case as to witnesses testifying as corporate representative under the Federal Rules of Civil Procedure. In that scenario, because the deposition testimony may bind the company, sensitivity to the factual representations in the DPA is crucial.
Civil Discovery. Once the DPA becomes publicly known, plaintiffs in parallel litigation undoubtedly will seek information regarding the DPA through civil discovery. While this is an evolving area of litigation, courts often have rejected attempts to obtain deposition testimony of corporate executives regarding plea agreements, consent decrees and settlement agreements, including the negotiations and events leading to them. Nevertheless, nonprivileged written evidence relating to the DPA may be more difficult to protect than testimony. Corporations and their boards must be mindful of how the DPA and accompanying discussions with the DOJ may be made available to opposing parties in other litigation.
Patrick Mincey is a trial lawyer in Wilmington, where he founded the Criminal Defense Group at Cranfill Sumner & Hartzog LLP. His criminal practice ranges from representing individuals and corporate clients who are targets, subjects or witnesses in federal and state white collar proceedings to “blue collar” defendants charged with murder, drug conspiracies and assaults. To contact Patrick Mincey, call (910) 777-6017 or email him at [email protected].
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