Respondeat Superior and Compliance

oil tanker

Back in January, a company was found criminally liable for the action of its employees. (Second Circuit Affirms Ionia Management Case.) Under respondeat superior (Latin for “let the master answer”) a company can be held vicariously liable for crimes committed by employees acting within the scope of their employment.

Ionia operates and manages shipping vessels which transport oil to the United States. These ships produce oil-contaminated bilge waste, which they have to store for proper disposal. The Act to Prevent Pollution from Ships, makes it a crime to knowingly dispose of this waste improperly.

Ionia’s engine room crew, under the direction and participation of the Chief Engineers and Second Engineer, routinely discharged oily waste water into the high seas through a “magic hose” designed to bypass the vessel’s Oily Water Separator, which would have cleaned the waste to prepare it for disposal as required by law. Furthermore, the Kriton’s crew made false entries in the ORB to conceal such discharges, and obstructed a federal investigation (a) by hiding the “magic hose” from Coast Guard inspectors during a March 20, 2007, inspection and (b) by lying to Coast Guard officials.

There was some hope that the court would alter the doctrine of respondeat superior and include a good faith defense or limit the doctrine to higher level employees. A company can be brought down by lower level employees violating company policies.

In One Rogue Worker Can Take an Entire Company Down Stanley A. Twardy Jr. and Daniel E. Wenner wrote that “the trial court charged the jury that a corporate defendant could be held criminally responsible for the conduct of a single low-level employee, even if that employee acted in direct contravention of corporate policy and a robust compliance program.”

I didn’t read the case as taking that position and I still don’t.

First, there was a structural problem in the appeal. Ionia did not challenge the jury instruction at trial, so the Second Circuit was limited to a review for plain error.

Second, Ionia took the position that corporate criminal liability can “can only stem from the actions of so-called ‘managerial’ employees.” That contention seems at odds with United States v. Twentieth Century Fox Film Corp., 882 F.2d 656, 660 (2d Cir.1989) In the Second Circuit, “[i]t is settled law that a corporation may be held criminally responsible for [criminal] violations committed by its employees or agents acting within the scope of their authority.” United States v. Twentieth Century Fox Film Corp., 882 F.2d 656, 660 (2d Cir. 1989). Regardless, evidence show that the Chief Engineers specifically directed the deck hands to commit the criminal acts.

Third, the prosecution does not need to prove as a separate element that the corporation lacked effective policies and procedures to deter and detect criminal actions by its employees. “A corporate compliance program may be relevant to whether an employee was acting in the scope of his employment, but it is not a separate element.” The mere existence of contrary company policies is not by itself a defense to criminal liability. Whether a company has an official position on the course of conduct undertaken by its agents is merely one factor to be considered when assessing whether to impose vicarious liability.

I think this case show the importance of a compliance program. Merely having policies in place in not enough to defend the company from criminal liability. Policies alone are not enough to cause employee behavior to conform to policy. Compliance programs need training, procedures and enforcement to be effective.

I am sure it was Ionia’s policy to not dump the untreated bilge water in violation of the law.  They just were not doing enough to prevent it.