Justices Halt DOJ's Broad Application Of Criminal Provision of Sarbanes-Oxley Act

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By Hugh Kaplan

Feb. 25 — A Sarbanes-Oxley Act provision that criminalizes destroying or concealing “any record, document, or tangible object” with an intent to obstruct justice applies only to objects that are “used to record or preserve information,” a divided U.S. Supreme Court concluded Feb. 25.

The court's 4-1-4 decision overturned the criminal conviction of a commercial fisherman whose catch included an undersized fish in violation of federal conservation laws. Contrary to a federal agent's instruction, the boat captain tossed the fish overboard.

The controversy attracted a diverse list of business groups and other amici curiae who used it as a rallying point to express their distress over what they saw as a trend toward “overcriminalization.”

Justices on both sides of the decision appeared sympathetic to their concerns. For example, Justice Elena Kagan wrote the dissenting opinion on behalf of herself and three of her colleagues that favored the Justice Department's broader, more traditional understanding of the term “tangible object” in 18 U.S.C. §1519. She observed, however, that the case “brings to the surface the real issue: overcriminalization and excessive punishment in the U.S. Code.”

`Meaningful and Important' Decision 

In an interview with Bloomberg BNA, William N. Shepherd of Holland & Knight LLP, West Palm Beach, Fla., said the court's decision represents the justices “weighing in on the ongoing debate that Congress is having about overcriminalization.”

Shepherd filed a joint amicus brief in the case for the American Fuel & Petrochemical Manufacturers and the National Association of Criminal Defense Lawyers.

“The House has its Over-Criminalization Task Force and now the Supreme Court has issued a strong opinion in Yates,” Shepherd observed. “The fact that Congress has a bipartisan task force that is going forward and is holding hearings—and has been for months—shows that there is a genuine concern about over-criminalization, and the erosion of mens rea,” Shepherd said.

“Hammurabi put a public list out in the square so everybody could know what the rules were and what the punishments were for breaking them. Today, that list would reach from here to the moon,” Shepherd quipped.

In a joint amicus brief, the U.S. Chamber of Commerce and the National Association of Manufacturers argued that the government's literal interpretation of the statutory text would result in “heavy compliance costs for American businesses and risks for the public generally.”

The brief states that the government's reading of the statute in this case, which was approved by the U.S. Court of Appeals for the Eleventh Circuit, “could expose companies to significant liability for otherwise run-of-the-mill inventory management in situations where the company faces an investigation that is expressly or even tangentially related to its inventory.”

Jeffrey A. Rosen, of Kirkland & Ellis LLP, Washington, represented the Chamber and NAM. He said in an e-mail to Bloomberg BNA that the court's decision means that “businesses and the public no longer have to be concerned that this part of the Sarbanes-Oxley investor protection statute would be misapplied by the government to consumer products, food, motor vehicle inventories, imported garments, and other objects that have no record-keeping function.”

“The majority’s interpretation avoided some foolish results that Congress would not have intended,” Rosen said.

Cory L. Andrews, senior litigation counsel for the Washington Legal Foundation in Washington, acknowledged in an e-mail to Bloomberg BNA that the court's specific holding is limited to the scope of Sarbanes-Oxley's “anti-shredding” provision, but he was quick to add that, despite the narrowness of the court's decision, it is a “meaningful and important holding.”

“Interestingly, even the dissent acknowledges that overcriminalization and excessive punishment in the U.S. Code are real problems, and that §1519 ‘is a bad law—too broad and undifferentiated, with too-high maximum penalties, which give prosecutors too much leverage and sentencers too much discretion,' ” Andrews said, quoting Kagan's dissenting opinion.

Statute Was Reaction to Enron 

Justice Ruth Bader Ginsburg wrote a plurality opinion joined by Chief Justice John G. Roberts Jr., and Justices Stephen G. Breyer and Sonia Sotomayor. Justice Samuel A. Alito Jr. added the critical fifth vote to limit the scope of Section 1519.

Alito, the plurality and the dissent all disagreed about how to apply the traditional canons of statutory construction to the text of Section 1519. The plurality, however, emphasized that lawmakers enacted the statute as part of the Sarbanes-Oxley Act to respond to the type of document shredding involved in the Enron scandal.

Viewed against this backdrop, the government's traditional, literal interpretation of the term “tangible object” is not the correct one, the plurality decided.

“[W]e resist reading §1519 expansively to create a coverall spoliation of evidence statute, advisable as such a measure might be. Leaving that important decision to Congress, we hold that a `tangible object' within §1519’s compass is one used to record or preserve information,” the plurality concluded.

The plurality further relied upon Congress's placement of Section 1519 among pre-existing provisions that address “obstructive acts in specific contexts.” It also noted the government's concession that its broad reading would make Section 1519 overlap with another obstruction statute. The more “moderate” interpretation also accords with the verbs used in the statute, such as “make a false entry in,” the plurality said.

The plurality decided that, if there is any lingering doubt that this is what Congress meant, the rule of lenity requires the court to adopt the interpretation that favors the accused.

Alito agreed in his concurring opinion that “tangible object” is limited to “something similar to a ‘record' or ‘document.' ” He pointed out that this conclusion leaves some gray area, such as whether an e-mail message qualifies as a record or document or both.

Anti-Legislation Legislation?

Some of the strongest language supporting the defendant's and amici's concerns about overcriminalization appears in Kagan's dissenting opinion. All of the experts contacted by Bloomberg BNA were impressed by her lament that Section 1519 is “not an outlier, but an emblem of a deeper pathology in the federal criminal code.”

“Hopefully, that unanimous view will catch the eye of Congress (and Congressional staff), who should exercise renewed prudence and restraint (and much needed clarity) when enacting such criminal penalties in the future,” WLF's Andrews said.

“The front in the ongoing battle against overcriminalization is a vast and quickly moving one. That battle is being fought at both the state and federal level,” Andrews said.

As a former prosecutor and defense attorney, Shepherd expressed hope that the language in the opinion, especially Kagan's comments, will become part of the difficult job of teaching discretion to prosecutors. “This is an opportunity for a robust discussion in the prosecutor community about `How do we use our discretion appropriately?' ” Shepherd said.

Roman Martinez, of the U.S. Solicitor General's Office, Washington, appeared for the government. John L. Badalamenti, of the Federal Defender's Office, Tampa, Fla., represented the defendant at oral argument.

To contact the reporter on this story: Hugh B. Kaplan in Washington at hkaplan@bna.com

To contact the editor responsible for this story: C. Reilly Larson at rlarson@bna.com

Full text at http://www.bloomberglaw.com/public/document/Yates_v_United_States_No_137451_US_Feb_25_2015_Court_Opinion.