One of the key factors in the Antitrust Division’s recent string of high-profile successes in criminal cartel enforcement undoubtedly has been its Corporate Leniency Program.  Under this program, a corporation and its cooperating executives can receive complete immunity from criminal prosecution if, among other things, they are the first to report valuable information regarding criminal antitrust activity.  In Stolt-Nielsen, S.A. v. United States, 2006 U.S. App. LEXIS 7203 (3rd Cir. March 23, 2006), a two-judge panel of the Third Circuit (the third judge, now Justice, Alito was elevated to the Supreme Court after argument) reversed a January 2005 district court decision that had permanently enjoined the government from indicting Stolt-Nielsen, S.A., a leading supplier of parcel tanker shipping services, as well as its subsidiary and an individual corporate executive, following the DOJ’s revocation of an amnesty agreement with the company under the Corporate Leniency Program.  In holding that federal courts generally cannot enforce immunity agreements pre-indictment, the Third Circuit helped clarify the procedures for enforcing amnesty contracts, but it dodged the question at the heart of the case and decided by the district court, i.e., whether Stolt-Nielsen breached its obligations under its immunity agreement with the DOJ.

This action was originally spawned by collusive trading practices between Stolt-Nielsen and two of its competitors in the parcel tanker shipping industry.  In March 2002, Stolt-Nielsen’s general counsel resigned, and in November of that year, filed a complaint against the company alleging that he had advised his superiors of the collusive conduct and resigned after the company failed to take action to resolve the problem.  Shortly thereafter, the company hired a former Deputy Assistant Attorney General in the Antitrust Division to conduct an internal investigation of possible antitrust violations by the company and to advise it regarding any criminal liability.  The investigator was advised that the former general counsel had "raised some antitrust concerns" in early 2002, and that in response Stolt-Nielsen revised its antitrust compliance policy and disseminated it to its employees and competitors.

With the company’s permission, the investigator inquired about possible protection for Stolt-Nielsen and its officers under the Antitrust Division’s Corporate Leniency Policy.  Under this Policy, the Government agrees "not to charge a firm criminally for the activity being reported" if (in the case of an applicant who comes forward after an investigation has begun) seven conditions are met: (1) the applicant is the first to report the illegal activity; (2) the Government does not, at the time the applicant comes forward, have enough information to sustain a conviction; (3) the applicant, "upon its discovery of the illegal activity being reported, took prompt and effective action to terminate its part in the activity"; (4) the applicant’s report is made "with candor and completeness and provides full, continuing and complete cooperation" with the Government’s investigation; (5) the applicant confesses to illegal anticompetitive conduct as a corporation and not merely through individual confessions by corporate officers; (6) the applicant makes restitution where possible; and (7) the Government determines that granting leniency to the applicant would "not be unfair to others." See Stolt-Nielsen, 2006 U.S. App. LEXIS 7203, at *4-5.  The officers and directors of the corporation who assist with the investigation are considered for immunity from prosecution on the same basis as if they had come forward individually.

In January 2003, Stolt-Nielsen entered into a fully integrated amnesty agreement with the Antitrust Division providing, subject to the foregoing conditions, that the company would be immune from prosecution for all conduct in furtherance of the conspiracy prior to the date of execution of the agreement.  Pursuant to the agreement, Stolt-Nielsen and its executives provided information that led to guilty pleas by the co-conspirators, resulting in prison sentences for individual executives and fines totaling $62 million.  However, in the weeks following execution of the immunity agreement, the DOJ discovered that Stolt-Nielsen’s illegal activity had not ceased upon first report by the former general counsel in early 2002, but in fact had continued until November 2002.  Claiming that the company had not taken "prompt and effective action to terminate its part in the anticompetitive activity being reported upon discovery of the activity," as required by the agreement, the Antitrust Division suspended Stolt-Nielsen’s obligations under the agreement in April 2003.  In June 2003, DOJ charged (but did not indict) one of the company’s cooperating executives with violating the Sherman Act, and in March 2004 withdrew its grant of conditional leniency to Stolt-Nielsen.

Instead of waiting for indictments, Stolt-Nielsen and the executive filed civil complaints in federal district court demanding enforcement of the immunity agreement and an injunction against the government prohibiting indictments against them.  They argued, among other things, that the immunity agreement was a fully integrated contract that provided amnesty for all illegal conduct prior to January 2003.  The district court agreed and issued the requested injunction. See Stolt-Nielsen, S.A. v. United States, 352 F.Supp.2d 553, 563 (E.D. Pa. 2005).  The court concluded that the DOJ could not unilaterally rescind the agreement without a judicial determination that Stolt-Nielsen and the executive had breached it, an issue appropriate for consideration before indictment "because if an indictment were later determined to have been wrongfully secured, it would be too late to prevent the irreparable consequences."  The Court further found that there had not been a breach of the agreement by virtue of the collusive conduct continuing to November 2002 because (1) the agreement did not specify a discovery date and instead granted amnesty for activity before January 15, 2003, the date on which it was signed; and (2) the government had received the benefit of its bargain, i.e., the evidence used to prosecute the co-conspirators.

The Third Circuit reversed, holding that, with limited exceptions such as those involving First Amendment issues, the executive branch "has exclusive authority and absolute discretion to decide whether to prosecute a case." 2006 U.S. App. LEXIS 7203, at *14.  After analyzing other immunity agreement decisions, the Court concluded that, despite the DOJ’s commitment "not to bring any criminal prosecution" against the company, the amnesty agreement only protected against conviction, not indictment and trial. See id., at *19-20 ("This distinction is grounded in the understanding that simply being indicted and forced to stand trial is not generally an injury for constitutional purposes but is rather ‘one of the painful obligations of citizenship.’)."  Therefore, the Court held, the district court was without authority to enjoin the government from indicting either Stolt-Nielsen or the company executive.  Based on this holding, the Third Circuit left for another day and a future action the underlying question of whether the immunity agreement had been breached, noting that the district court’s finding on this point, having been reversed, was not entitled to any preclusive effect. Id., at *28, n.7.

The Third Circuit’s decision thus denies observers important guidance as to what may constitute a breach of an immunity agreement under the Antitrust Division’s Corporate Leniency Program. Although the Third Circuit’s opinion provides helpful clarification as to when and how a defense based on an immunity agreement should be raised—in a post-indictment pre-trial motion—it studiously avoided commentary interpreting the obligations of the Antitrust Division and Stolt-Nielsen under the amnesty agreement.


Authored by:
Michael W. Scarborough