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In-Depth On The Second Circuit’s Recent HSBC Decision

This February 2016 post [1] awarded an FCPA Professor Apple Award to then U.S. District Court Judge John Gleeson (E.D.N.Y.) for championing transparency and not acquiescing in secret criminal law enforcement by finding that an HSBC Monitor Report (a condition of a deferred prosecution agreement) was “a judicial record, and that the public has a First Amendment right to see the Report.”

In this recent decision [2] a Second Circuit panel consisting of Judge Katzmann, Judge Pooler and Judge Lynch (the first two President Clinton appointees and the later a President Obama appointee), reversed and held that the “Monitor’s Report is not a judicial document because it is not now relevant to the performance of the judicial function.”

The Second Circuit opinion is troubling / interesting on many levels.

First, the court’s finding that “a federal court has no roving commission to monitor prosecutors’ out‐of‐court activities” invites the DOJ to continue to bypass the judicial system in resolving alleged instances of corporate crime.

Second, what makes the issue of a judicial role in DPAs a disputed issue is that the DOJ (as it often does) bases its authority to enter into corporate DPAs – not on an explicit statute – but a vaguely worded statute (the Speedy Trial Act) that was intended for a different reason (individual criminal prosecutions – as a concurring opinion rightly notes). As the opinion states, there is an “absence of any clear indication that Congress intended courts to evaluate the substantive merits of a DPA or to supervise a DPA’s out-of-court implementation” and “Congress did not speak clearly in the [Speedy Trial Act] – far from it.” Contrast the DOJ’s flimsy assertion of authority to use DPAs with recent developments in other jurisdiction (such as the United Kingdom, France and current developments in Australia) where DPAs have been adopted (or are under consideration) by legislative bodies enacting specific legislation detailing active judicial involvement. As I long maintained, if the U.S. is to have DPAs (and NPAs) the U.K. and emerging model is far more preferable.

Third, in a concurring opinion Judge Pooler makes this precise point by stating that it is time for “Congress to revisit the issue of deferred and nonprosecution agreements (collectively, “DPAs”)” and she “respectfully suggest[s] it is time for Congress to consider implementing legislation providing for such review [of DPAs].”

[3]

In pertinent part, the Second Circuit stated:

“First, the district court misapprehended its supervisory authority. By sua sponte invoking its supervisory power at the outset of this case to oversee the government’s entry into and implementation of the DPA, the district court impermissibly encroached on the Executive’s constitutional mandate to “take Care that the Laws be faithfully executed.” U.S. Const. art. II, § 3. In the absence of a showing of impropriety, a district court has no authority to supervise the implementation of a DPA. To hold otherwise would be to turn the presumption of regularity on its head.

Second, the Monitor’s Report is not relevant to the district court’s role under the Speedy Trial Act. See 18 U.S.C. § 3161(h)(2). Section 3161(h)(2) excludes from the speedy trial clock “[a]ny period of delay during which prosecution is deferred by the attorney for the Government pursuant to written agreement with the defendant, with the approval of the court, for the purpose of allowing the defendant to demonstrate his good conduct.” 18 U.S.C. § 3161(h)(2). We hold that the statute’s requirement of court approval does not imbue the judiciary with ongoing authority to oversee a DPA, but rather authorizes courts to determine that a DPA is genuine and not merely a means of circumventing the speedy trial clock.

Third, though the Monitor’s Report might one day be relevant to the judicial function, that is not sufficient to render the Monitor’s Report a “judicial document” today.”

In pertinent part, the decision begins as follows:

“The threshold merits question in this case is whether the Monitor’s Report is a judicial document, as only judicial documents are subject to a presumptive right of public access, whether on common law or First Amendment grounds

…..

The appellants contend that the Monitor’s Report is not a judicial document, but rather an “executive document” designed to inform the executive branch’s exercise of its prosecutorial discretion in determining whether to dismiss or pursue the deferred charges. That discretion, HSBC notes, flows from the Executive’s duty under Article II of the Constitution to “take Care that the Laws be faithfully executed.” U.S. Const. art. II, § 3. […]

The appellants thus argue that the district court invaded the province of the Executive in preemptively invoking the court’s supervisory authority to oversee the implementation of the DPA and the Monitor’s work. Because the district court lacked the authority it claimed to have, the argument goes, the Monitor’s Report cannot be a judicial document. Moore and his amici, by contrast, assert that the Monitor’s Report is relevant to the performance of the judicial function on four separate grounds. Specifically, they assert that the Monitor’s Report is relevant to: (1) the district court’s supervisory authority to approve and supervise the implementation of the DPA; (2) the district court’s authority to approve the DPA under the Speedy Trial Act; (3) the district court’s assessment of any Rule 48(a) motion for dismissal that the government might bring at the conclusion of the DPA’s term; and (4) the district court’s adjudication of the proceedings in the event that the government alleges that HSBC breached the DPA. We analyze these proffered bases for treating the Monitor’s Report as a judicial document in turn.”

Next, the opinion states under the heading “The District Court’s Asserted Supervisory Power”:

“We hold that the district court erred in sua sponte invoking its supervisory power to monitor the implementation of the DPA in the absence of a showing of impropriety.

The supervisory power “permits federal courts to supervise ‘the administration of criminal justice’ among the parties before the bar.” United States v. Payner, 447 U.S. 727, 735 n.7 (1980) (quoting McNabb v. United States, 318 U.S. 332, 340 (1943)). “The purposes underlying use of the supervisory powers are threefold: to implement a remedy for violation of recognized rights; to preserve judicial integrity by ensuring that a conviction rests on appropriate considerations validly before the jury; and finally, as a remedy designed to deter illegal conduct.” United States v. Hasting, 461 U.S. 499, 505 (1983) (citations omitted); Mesarosh v. United States, 352 U.S. 1, 14 (1956) (“This is a federal criminal case, and this Court has supervisory jurisdiction over the proceedings of the federal courts. If it has any duty to perform in this regard, it is to see that the waters of justice are not polluted.” (footnote omitted)). Courts have also traditionally exercised their supervisory powers to establish rules of evidence and procedure to govern the administration of justice in the federal courts. See, e.g., McNabb, 318 U.S. at 340–45 (holding that confessions obtained in violation of congressional requirement to promptly present defendant to court must be excluded, even though Congress had not explicitly forbidden the admission of such confessions); Bank of Nova Scotia v. United States, 487 U.S. 250, 254 (1988) (“In the exercise of its supervisory authority, a federal court may, within limits, formulate procedural rules not specifically required by the Constitution or the Congress.” (internal quotation marks omitted)).

However, “[t]he supervisory power doctrine is an extraordinary one which should be ‘sparingly exercised.’” United States v. Jones, 433 F.2d 1176, 1181–82 (D.C. Cir. 1970) (quoting Lopez v. United States, 373 U.S. 427, 440 (1963)); see also Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991) (“Because of their very potency, inherent powers must be exercised with restraint and discretion.”). As the district court recognized below, “[i]n the typical supervisory power case, the defendant raises a purported impropriety in the federal criminal proceeding and seeks the court’s redress of that impropriety.” HSBC Bank USA, N.A., 2013 WL 3306161, at *6; see also United States v. Johnson, 221 F.3d 83, 96 (2d Cir. 2000) (“[G]enerally the exercise of supervisory power arises in the context of requests by defendants to vacate convictions, dismiss indictments, or invalidate sentences . . . .” (citations omitted)). Indeed, “the federal judiciary’s supervisory powers over prosecutorial activities that take place outside the courthouse is extremely limited, if it exists at all.” United States v. Lau Tung Lam, 714 F.2d 209, 210 (2d Cir. 1983).

The district court justified its concededly “novel” exercise of supervisory power in this context by observing that “it is easy to imagine circumstances in which a deferred prosecution agreement, or the implementation of such an agreement, so transgresses the bounds of lawfulness or propriety as to warrant judicial intervention to protect the integrity of the Court.” HSBC Bank USA, N.A., 2013 WL 3306161, at *6. We agree that it is not difficult to imagine such circumstances. But the problem with this reasoning is that it runs headlong into the presumption of regularity that federal courts are obliged to ascribe to prosecutorial conduct and decisionmaking. That presumption is rooted in the principles that undergird our constitutional structure. In particular, “because the United States Attorneys are charged with taking care that the laws are faithfully executed, there is a ‘presumption of regularity support[ing] their prosecutorial decisions and, in the absence of clear evidence to the contrary, courts presume that they have properly discharged their official duties.’” United States v. Sanchez, 517 F.3d 651, 671 (2d Cir. 2008) (alteration in original) (quoting United States v. Armstrong, 517 U.S. 456, 464 (1996)). In resting its exercise of supervisory authority on hypothesized scenarios of egregious misconduct, the district court turned this presumption on its head. See HSBC Bank USA, N.A., 2013 WL 3306161, at *6 (“[C]onsider a situation where the current monitor needs to be replaced. What if the replacement’s only qualification for the position is that he or she is an intimate acquaintance of the prosecutor proposing the appointment?” (citation omitted)). Rather than presume “in the absence of clear evidence to the contrary” that the prosecutors administering the DPA were “properly discharg[ing] their official duties,” the district court invoked its supervisory power—and encroached on the Executive’s prerogative—based on the mere theoretical possibility that the prosecutors might one day abdicate those duties. Sanchez, 517 F.3d at 671 (internal quotation mark omitted).

To be sure, in its history, this nation has not been free of executive misconduct and abuse of power. And if misconduct in the implementation of a DPA came to a district court’s attention (for example, through a whistleblower filing a letter with the court), the district court might very well be justified in invoking its supervisory power sua sponte to monitor the implementation of the DPA or to take other appropriate action. The point is not that the court can or should disregard governmental misconduct, but rather that a federal court has no roving commission to monitor prosecutors’ out‐of‐court activities just in case prosecutors might be engaging in misconduct. See Fokker Servs. B.V., 818 F.3d at 744 (“[A]lthough charges remain pending on the court’s docket under a DPA, the court plays no role in monitoring the defendant’s compliance with the DPA’s conditions.”); In re U.S., 503 F.3d 638, 641 (7th Cir. 2007) (“[A] judicial effort to supervise [a prosecutor’s] process of reaching a decision intrudes impermissibly into the activities of the Executive Branch of government.”).

In sum, because the district court has no freestanding supervisory power to monitor the implementation of a DPA, the Monitor’s Report cannot be deemed “relevant to the performance of the judicial function” on that basis. Lugosch, 435 F.3d at 119.”

Next, the opinion states under the heading “The District Court’s Role under the Speedy Trial Act”:

“Amicus Curiae Professor Brandon Garrett suggests that the Monitor’s Report is relevant to the district court’s role under the Speedy Trial Act as specified by 18 U.S.C. § 3161(h)(2). Section 3161(h)(2) excludes from the speedy trial clock “[a]ny period of delay during which prosecution is deferred by the attorney for the Government pursuant to written agreement with the defendant, with the approval of the court, for the purpose of allowing the defendant to demonstrate his good conduct.” 18 U.S.C. § 3161(h)(2) (emphasis added). But what is it that courts are to approve and on what basis? On one hand, the text could be read to limit the court’s inquiry to the issue of whether the parties’ agreement is genuinely “for the purpose of allowing the defendant to demonstrate his good conduct”—that is, to the issue of whether the parties are acting in good faith. Id. On the other hand, at least in isolation, the text could plausibly be read to imbue courts with the authority to “approve” (or reject) a DPA as a public policy matter and to decline to grant a speedy trial waiver for virtually any reason. Indeed, according to Professor Garrett, “whether to approve a DPA” pursuant to § 3161(h)(2) “is necessarily combined with substantive review of [the DPA] and is joined with ongoing supervision of the case.” Amicus Br. of Prof. Brandon L. Garrett.

In United States v. Fokker Services B.V., 818 F.3d 733 (D.C. Cir. 2016), the D.C. Circuit confronted this interpretive question when the parties in that case appealed the district court’s refusal to grant a speedy trial waiver based on its view that the DPA at issue was too lenient. See id. at 737–38, 742–45. The D.C Circuit vacated the district court’s order, reasoning that Congress, in enacting § 3161(h)(2), “acted against the backdrop of long‐settled understandings about the independence of the Executive with regard to charging decisions” and that “[n]othing in the statute’s terms or structure suggests any intention to subvert those constitutionally rooted principles so as to enable the Judiciary to second‐ guess the Executive’s exercise of discretion over the initiation and dismissal of criminal charges.” Id. at 738.

We agree. At least in the absence of any clear indication that Congress intended courts to evaluate the substantive merits of a DPA or to supervise a DPA’s out‐of‐court implementation, the relative functions and competence of the executive and judicial branches counsel against Professor Garrett’s interpretation. Subject to constitutional constraints, “[t]he Executive . . . has the exclusive authority to decide whether to prosecute and to choose among alternative charges.” Huerta, 878 F.2d at 92 (citations omitted). There are good reasons for that delegation of authority: “Few subjects are less adapted to judicial review than the exercise by the Executive of his discretion in deciding when and whether to institute criminal proceedings, or what precise charge shall be made or whether to dismiss a proceeding once brought.” United States v. Ross, 719 F.2d 615, 620 (2d Cir. 1983); Holley v. Lavine, 553 F.2d 845, 850 (2d Cir. 1977). As the Supreme Court has explained, “[s]uch factors as the strength of the case, the prosecution’s general deterrence value, the Government’s enforcement priorities, and the case’s relationship to the Government’s overall enforcement plan are not readily susceptible to the kind of analysis the courts are competent to undertake.” Wayte v. United States, 470 U.S. 598, 607 (1985). Put simply, our role is not to act as “superprosecutors,” second‐guessing the legitimate exercise of core elements of prosecutorial discretion, but rather as neutral arbiters of the law. Inmates of Attica Corr. Facility v. Rockefeller, 477 F.2d 375, 380 (2d Cir. 1973) (internal quotation marks omitted).

If, in the context of DPAs, Congress intended to rejigger the historical allocation of authority between the courts and the Executive, we would expect it to do so rather clearly. Congress, at least as a general matter, does not “hide elephants in mouseholes.” Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468 (2001). But Congress did not speak clearly in § 3161(h)(2)—far from it—and we thus decline to interpret that provision’s vague “approval” requirement as imbuing courts with an ongoing oversight power over the government’s entry into or implementation of a DPA. Rather, we hold that § 3161(h)(2) authorizes courts to determine that a DPA is bona fide before granting a speedy trial waiver—that is, that the DPA in question is genuinely intended to “allow[] the defendant to demonstrate his good conduct,” § 3161(h)(2), and does not constitute a disguised effort to circumvent the speedy trial clock. See Fokker Servs. B.V., 818 F.3d at 744–45 (adopting this interpretation). As the D.C. Circuit reasoned in Fokker, such an interpretation accords with the ordinary distribution of power between the judiciary and the Executive in the realm of criminal prosecution.6 See id. at 738, 741–45.

To the extent that Moore and Professor Garrett contend that the district court’s mandate to assess the bona fides of a DPA survives as long as the DPA is pending—and that the Monitor’s Report was relevant to this function—we are not persuaded. Even assuming arguendo that a district court could revoke a speedy trial waiver were it to later come to question the bona fides of a DPA, the presumption of regularity precludes a district court from engaging in the sort of proactive and preemptive monitoring of the prosecution undertaken here.”

Next, the opinion states, under the heading “The District Court’s Role when Considering a Rule 48(a) Motion or Adjudicating a Claimed Breach of the DPA” as follows:

“Moore next argues that the Monitor’s Report is a judicial document because it will either be relevant to deciding a motion to dismiss the Information at the conclusion of the DPA’s term or, alternatively, to adjudicating any claimed breach of the DPA. These arguments fail.   Even if we assume that the Monitor’s Report might be relevant to the judicial function at a later point in this case, that would not be sufficient to render the Monitor’s Report a judicial document now. Critically, as we held above, the district court erred in ordering the government to file the Monitor’s Report pursuant to its authority over the implementation of the DPA for the simple reason that the district court had no such authority. Thus, although the government complied with the district court’s order, the Monitor’s Report—for purposes of the public access doctrine—is not unlike a document exchanged by the parties in the course of litigation that has not yet been brought to the attention of the court. And we have long recognized that documents “passed between the parties in discovery[] lie entirely beyond the . . . reach” of the presumption of public access. United States v. Amodeo, 71 F.3d 1044, 1050 (2d Cir. 1995) (“Amodeo II”); cf. Amodeo I, 44 F.3d at 145 (“[T]he mere filing of a paper or document with the court is insufficient to render that paper a judicial document . . . .”). If the rule were otherwise, deposition transcripts, interrogatories, and documents exchanged in discovery would become “judicial documents” to which the public could demand access before the parties had even contemplated filing such documents with the court. While “public monitoring is an essential feature of democratic control,” such an approach would constitute a radical expansion of the “public access” doctrine. Amodeo II, 71 F.3d at 1048 (“Unlimited access to every item turned up in the course of litigation would be unthinkable.”); S.E.C. v. Am. Int’l Grp., 712 F.3d 1, 4 (D.C. Cir. 2013) (“[T]hough filing a document with the court is not sufficient to render the document a judicial record, it is very much a prerequisite.”).

[…]

Because the Monitor’s Report is not a judicial document, the district court abused its discretion in ordering it unsealed.”

In conclusion the opinion states:

“Striking the appropriate balance between the prerogatives of the three branches of government is never easy. We emphasize that while the district court exceeded its authority in this case, the Take Care Clause of the Constitution is not a blank check. Where the presumption of regularity has been called into question, we do not foreclose the possibility that steps of the kind taken by the district court here could be warranted. But that is not this case.”

Judge Pooler authored a concurring opinion which stated in pertinent part:

“[I] write separately to suggest that it is time for Congress to revisit the issue of deferred and nonprosecution agreements (collectively, “DPAs”).

DPAs exist because Section 3161(h)(2) of  the Speedy Trial Act  excludes “[a]ny period of delay during which prosecution is deferred by the attorney for the Government pursuant to written agreement with the defendant, with the approval of the court, for the purpose of allowing the defendant to demonstrate his good conduct.” 18 U.S.C.  § 3161(h)(2). Without this exception, the filing of the criminal information would trigger the running of the speedy trial clock.

The Senate Judiciary Committee explained that this section was included in the Act:

to encourage the current trend among United States attorneys to allow for deferral of prosecution on the condition of good behavior. A number of Federal and State courts have been experimenting with pretrial diversion or intervention programs in which prosecution of a certain category of defendants is held in abeyance on the condition that the defendant participate in a social rehabilitation program. If the defendant succeeds in the program, charges are dropped. Such diversion programs have been quite successful with first offenders in Washington, D.C. (Project Crossroads) and in New York City (Manhattan 2 Court Employment Project). Some success has also been noted in programs where the defendantʹs alleged criminality is related to a specific social problem such as prostitution or heroin addiction. Of course, in the absence of a provision allowing the tolling of the speedy trial time limits, prosecutors would never agree to such diversion programs. Without such a provision the defendant could automatically obtain a dismissal of charges if prosecution were held in abeyance for a period of time in excess of the time limits set out in section 3161 (b) and (c). This section of S. 754 differs from its counterpart in S. 895. It now requires that exclusion for diversion only be allowed where deferral of prosecution is conducted “with approval of the court.”   This assures that the court will be involved in the decision to divert and that the procedure will not be used by prosecutors and defense counsel to avoid the speedy trial time limits.

S. Rep. No. 93–1021, at 36–37 (1974)).

The two programs mentioned in the legislative history, Project Crossroads and the Manhattan Court Employment Project, were pretrial diversion programs aimed at helping individual defendants avoid the collateral consequences of a criminal conviction through programs that included education, job training, and substance abuse treatment. See, e.g., Note, Pretrial Diversion from the Criminal Process, 83 Yale L.J. 827 (1974). The programs were viewed as “a functional equivalent of a sentence to pretrial probation,” id. at 843, and were staffed with paraprofessionals overseeing individuals in what was, “in effect a probationary‐ type of supervision and control,” id. at 845.

In recent years, however, DPAs increasingly are used not to divert individual defendants but rather to divert corporations from criminal charges. Unlike individuals, corporations are not diverted into probation‐like programs supervised by paraprofessionals. Rather, they enter into negotiated agreements with prosecutors that set forth the facts to which the corporation admits and a remedy that typically includes both a fine and an agreement for the corporation to make structural changes. The prosecution retains sole discretion to decide if the corporation adequately complied with the agreement, allowing the prosecution to act as prosecutor, jury, and judge. Prosecutors can enforce legal theories without such theories ever being tested in a court proceeding.

Using DPAs in this manner is neither improper nor undesirable. An indictment alone can deal a death blow to a corporation, with severe collateral consequences for blameless employees and shareholders. As the law governing DPAs stands now, however, the prosecution exercises the core judicial functions of adjudicating guilt and imposing sentence with no meaningful oversight from the courts.

I respectfully suggest it is time for Congress to consider implementing legislation providing for such review. See United States v. Saena Tech Corp., 140 F. Supp. 3d 11, 30 n.9 (D.D.C. 2015) (“This ambiguity, combined with the fact that Congressʹs original purpose had nothing to do with the broad‐ranging corporate deferred‐prosecution agreements that have become commonplace, suggests that congressional action to clarify the standards a court should apply when confronted with a corporate deferred‐prosecution agreement may be appropriate.”).

A bill introduced in the House in 2014 would, among other things, require the development of public, written guidelines for DPAs;  require the text of DPAs to be placed on a Justice Department website; and require DPAs to be submitted to district courts for review. Accountability in Deferred Prosecution Act of 2014, H.R. 4540, 113th Cong. (2014). Courts would be charged with “approv[ing] the [DPA] if the court determines the [DPA] is consistent with the guidelines for such agreements and is in the interests of justice.” Id. at § 7(a). In addition, the parties and any monitors would be required to file quarterly reports regarding the progress toward completions of the DPA with the court. Id. at § 7(b). Finally, the court would be charged with “review[ing] the implementation or termination of the [DPA], and take any appropriate action, to assure that the implementation or termination is consistent with the interests of justice.” Id. at § 7(c).  Legislation along the lines of this proposed act would restore some balance in the DPA process.”

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