In these days of corporate accounting scandals, with the U.S. Department of Justice seeking criminal indictments against corporations, some curious folk might be asking how the government can send a corporation to jail. The answer is that the state cannot send a corporation to jail; however, the state certainly can send its officers, directors, or agents to jail, and the state can hurt the corporation in the wallet.
In Pennsylvania, the Crimes Code sets out the standards under which a corporation can be liable in general. 18 Pa.C.S.A. § 307 (Liability of organizations and certain related persons), instructs that:
- Corporations generally.--A corporation may be convicted of the commission of an offense if:
- the offense is a summary offense or the offense is defined by a statute other than this title in which a legislative purpose to impose liability on corporations plainly appears and the conduct is performed by an agent of the corporation acting in behalf of the corporation within the scope of his office or employment…
- the offense consists of an omission to discharge a specific duty of affirmative performance imposed on corporations by law; or
- the commission of the offense was authorized, requested, commanded, performed or recklessly tolerated by the board of directors or by a high managerial agent acting in behalf of the corporation within the scope of his office or employment.
- Corporations, absolute liability.--When absolute liability is imposed for the commission of an offense, a legislative purpose to impose liability on a corporation shall be assumed, unless the contrary plainly appears.
- Unincorporated associations.--An unincorporated association may be convicted of the commission of an offense if:
- the offense is defined by a statute other than this title which expressly provides for the liability of such an association and the conduct is performed by an agent of the association acting in behalf of the association within the scope of his office or employment, except that if the law defining the offense designates the agents for whose conduct the association is accountable or the circumstances under which it is accountable, such provisions shall apply; or
- the offense consists of an omission to discharge a specific duty of affirmative performance imposed on associations by law.
Corporations may escape liability by establishing a defense. Unless the offense is one for which absolute liability has been imposed, the corporation may be able to establish a defense if it can prove by a preponderance of evidence that the high managerial agent having supervisory responsibility over the subject matter of the offense employed due diligence to prevent its commission. 18 Pa.C.S.A. § 307(d).
Of course, persons committing crimes in the name of a corporation cannot escape criminal liability for their actions. Subsection (e) provides that
- A person is legally accountable for any conduct he performs or causes to be performed in the name of a corporation or an unincorporated association or in its behalf to the same extent as if it were performed in his own name or behalf.
- Whenever a duty to act is imposed by law upon a corporation or an unincorporated association, any agent of the corporation or association having primary responsibility for the discharge of the duty is legally accountable for a reckless omission to perform the required act to the same extent as if the duty were imposed by law directly upon himself.
- When a person is convicted of an offense by reason of his legal accountability for the conduct of a corporation or an unincorporated association, he is subject to the sentence authorized by law when a natural person is convicted of an offense of the grade and the degree involved.
The Pennsylvania Corporation Law also provides that a corporation cannot exculpate or indemnify the personal liability of its directors for criminal acts. 15 Pa.C.S.A. §§ 513 and 1713.
Most laws outside of the Crimes Code which provide for corporate liability do so because of the overwhelming interest of the state to protect the public health, safety, or welfare. For instance, the Banking Code of 1965 provides for criminal penalties for violations of its mandates, and the Code itself defines a person as “an individual, partnership, association or corporation.” 7 P.S. § 102(s). The Controlled Substance, Drug, Device and Cosmetic Act defines a person as “individual, corporation, government or governmental subdivision or agency, business trust, estate, trust, partnership or association, or any other legal entity.” 35 P.S. § 780-102.
There are many specific cases in which criminal liability has been imposed on corporations. The three examples below illustrate how criminal liability can be imposed to ensure the governmental interest in promoting public safety.
In Com. v. Farmer, 750 A.2d 925 (Pa.Cmwlth. 2000), Michael W. Farmer and M.W. Farmer Company, of which Michael Farmer was president and sole shareholder, were charged with violating provisions of the Solid Waste Management Act (SWMA), Act of July 7, 1980, P.L. 380, as amended, 35 P.S. §§ 6018.101-6018.1003. Specifically, Michael Farmer and his company were found guilty of owning and operating a residual waste processing facility without a permit; owning or operating a hazardous waste storage, treatment or disposal facility without a permit; failing to label certain drums as hazardous waste; unlawfully dumping or disposing of solid waste; transporting hazardous waste without a license; and causing or assisting in the violation of an order of the Department of Environmental Protection. The trial court sentenced Mr. Farmer to an aggregate period of five years probation and payment of a fine of $18,000. The court sentenced the company to pay an aggregate fine of $67,000. Together they were ordered to pay $5,916.68 for the costs of prosecution.
Like the Solid Waste Management Act, the Clean Streams Law at 35 P.S. § 691.602 imposes penalties for violations of any of the law’s provisions. The least stringent of the penalties is the following:
(a) Any person or municipality who violates any provision of this act, any rule or regulation of the department, any order of the department, or any condition of any permit issued pursuant to this act is guilty of a summary offense and, upon conviction, such person or municipality shall be subject to a fine of not less than one hundred dollars ($100) nor more than ten thousand dollars ($10,000) for each separate offense, and, in default of the payment of such fine, a person shall be imprisoned for a period of ninety days.
Of course, this Act also defines a “person” as including any natural person, partnership, association or corporation or any agency, instrumentality or entity of Federal or State Government. In fact, the definition makes it quite clear that even officers and directors can be held criminally liable: “Whenever used in any clause prescribing and imposing a penalty, or imposing a fine or imprisonment, or both, the term ‘person’ shall not exclude the members of an association and the directors, officers or agents of a corporation.” 35 P.S. § 691.1. In Com., Dept. of Environmental Resources v. Fleetwood Borough Authority, 21 Pa.Cmwlth. 349, 346 A.2d 867, (1975), the Fleetwood Borough Authority was fined $300 by the Court of Common Pleas of Berks County as a result of a violation of Section 202 of the Clean Streams Law, because it had not properly treated the water which was discharged from its sewers into the waters of the Commonwealth.
Similarly, section 2504(a)(2) of the Fish and Game Code, Act of October 16, 1980, P.L. 996, provides in pertinent part: “no person, regardless of intent, shall allow any substance, deleterious, destructive or poisonous to fish, to be turned into or allowed to run, flow, wash or be emptied into any waters within or bordering on this Commonwealth.” 30 Pa.C.S. § 2504(a)(2). A violator of the Pollution of Waters section of the Fish and Game Code is subject to one or all of the following: a fine of not less than $250 nor more than $5,000, imprisonment of up to 90 days and a fine of $10 per fish killed. In Com. v. CSX Transp., Inc., 653 A.2d 1327 (Pa.Cmwlth.1995), the court imposed a fine of $10 per fish against CSX Corporation. On August 23, 1989, two CSX freight trains were traveling on adjacent railroad tracks in Westmoreland County. Because of heavy rainfall and flooding in the area undermining the roadbed, the tracks collapsed and the trains derailed while passing each other. As a result of the derailment, one of the train cars broke open and corn syrup leaked out and flowed into the nearby Youghiogheny River, killing approximately 10,000 fish. In a split opinion, the Commonwealth Court instructed that “public welfare” statutes “often dispense with the intent requirement imposing, instead, absolute liability. Absolute liability is imposed in these types of statutes because the proscribed conduct is subject to stringent public regulation and may seriously threaten the community's health or safety.” Com. v. CSX Transp., Inc., 653 A.2d at 1331 (citations omitted).
The moral of the story is that even corporations, in some cases corporations above all, cannot escape the long arm of the law when it comes to criminal conduct. Officers, directors, agents, and employees must do their best to ensure that their conduct, and the collective conduct of the corporations they represent, is within the bounds of the law.
The attorneys at Wolf, Baldwin & Associates, P.C. can answer your questions regarding corporate criminal liability, and the potential liability of officers and directors of corporations. To learn your rights, click here now to contact us and to schedule an appointment.
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