Judicial and Crime Victim Scrutiny of Binding Plea Agreements

, New York Law Journal


Steven M. Witzel

In an attempt to resolve a high-profile insider trading indictment filed in July 2013, S.A.C. Capital Advisors and its related entities (SAC) entered into a binding plea agreement with the government. Under that agreement, which is subject to court approval, SAC is required to pay a cumulative fine of $1.8 billion (including $616 million previously paid to settle two parallel SEC actions), plead guilty to all five counts in the indictment, and terminate its investment advisory business. In light of the unprecedented financial penalty, coupled with the requirement that each defendant admit that at least one employee engaged in insider trading, court approval of the agreement would appear to be a foregone conclusion. U.S. District Judge Laura Taylor Swain, however, in considering the portion of the plea agreement relating to the criminal fine, decided that she would defer judgment on whether or not to accept the plea until March 2014 in order to have additional time to review the plea agreement and allow a pre-sentence report to be filed before rendering her decision.1 Judge Swain's decision to postpone her ruling likely stems in part from the fact that the parties presented her with a binding plea agreement under Rule 11(c)(1)(C) of the Federal Rules of Criminal Procedure. Swain can only accept or reject the binding plea agreement, and if she decides to accept the plea agreement she cannot alter the penalties imposed on SAC.

Further complicating Judge Swain's decision is the fact that SAC's plea agreement has come under criticism by purported victims of SAC's alleged insider trading. These alleged victims initiated civil securities class actions related to SAC's alleged trading in the stock of two pharmaceutical companies. These individuals opposed the plea agreement on the grounds that SAC should be required to explicitly admit to insider trading in connection with the trading of those two stocks and claimed to have standing to be heard by Judge Swain under the Crime Victims' Rights Act (CVRA). SAC's prosecution, thus, provides an opportunity to examine the ability of prosecutors to negotiate and secure approval for binding plea agreements that may provide less harsh penalties than if the government were to secure a victory at trial and to examine the parameters of judicial review of binding plea agreements, especially when faced with objections from purported victims.

Binding Plea Agreements Under Rule 11(c)(1)(C). Rule 11(c)(1)(C) provides that a prosecutor and defendant may "agree that a specific sentence or sentencing range is the appropriate disposition of the case, or that a particular provision of the Sentencing Guidelines, or policy statement, or sentencing factor does or does not apply (such a recommendation or request binds the court once the court accepts the plea agreement)."2 Prior to the use of mandatory sentencing guidelines, binding plea agreements were controversial because they intruded on the near absolute discretion district court judges had at sentencing.3 During the era of mandatory sentencing guidelines, the use of binding plea agreements waned due to a Sentencing Guidelines policy statement that permitted a binding plea agreement to be accepted only if the court determined that it could have imposed the sentence under the then-mandatory guidelines.4

Following the Supreme Court's decision in United States v. Booker, use of binding plea agreements gained renewed vitality.5 That Booker has ushered in an increase in binding plea agreements is not entirely surprising. From the defendant's perspective, post-Booker sentencing—while far better than that under the mandatory guidelines regime—lacks the certainty that was provided under the mandatory guidelines. Binding plea agreements can restore that certainty. The increased use and acceptance of binding plea agreements also appeals to the government in that it enables prosecutors to more freely "exercise their expertise in assessing the strength of a case, their interest in best allocating their resources, and their superior ability to weigh the crime control implications of their actions."6

The main hurdle in being sentenced pursuant to a binding plea is securing court approval of the plea agreement. Given that the judiciary is required to take into account "'the exigencies of plea bargaining from the government's point of view,' including 'limited resources and uncertainty of result,'"7 one would expect that the cases in which a binding plea agreement is ultimately rejected by the court would be rather limited. Instead of deferring to the prosecutorial discretion that is embodied in binding pleas, however, district court judges have begun to subject these binding plea agreements to increased scrutiny,8 and have rejected some of them.9

Crime Victims and Binding Plea Agreements. Legal commentators have posited that crime victims may be inclined to support negotiated sentences because "a settlement provides more finality for victims than the uncertainty of judicial determination that may differ from the preferences of the parties."10 This, however, appears only to be true to the extent that a binding plea agreement comports with a victim's sense of justice for the wrong committed. In many cases, there are hundreds of victims whose sense of right and wrong not only has been tested, but who have been harmed to varying degrees, resulting in some victims invariably feeling the prosecutor was too lenient when agreeing to a particular sentence.11

In such cases, alleged victims have sought to assert rights afforded under the CVRA to oppose binding plea agreements. The CVRA was passed by Congress in 2004 to ensure that "crime victims"12 had "the right to participate in the system."13 Expanding on protections afforded to crime victims under other statutes, the CVRA includes broad rights, such as, "the right to be reasonably heard at any public proceeding in the district court involving release, plea, sentencing, or any parole proceeding" and "the reasonable right to confer with the attorney for the Government in the case."

The SAC prosecution is not the first time individuals opposed to a plea agreement sought to use the CVRA to voice opposition to a binding plea agreement. The most comprehensive opinion addressing the opposition of victims to a negotiated plea agreement arose out of the resolution of criminal charges against BP Products related to an explosion at its Texas City plant in 2005 that killed 15 and injured many more.14 Under the terms of the plea agreement in that case, BP Products agreed to a $50 million fine and three years of probation. Despite the fact that the $50 million fine was the largest criminal fine imposed against a corporation under the Clean Air Act, numerous victims opposed the plea agreement as too lenient—even though the government had worked closely with the victims' attorneys in developing evidence. Over the victims' objections, however, the court ultimately approved the negotiated sentence contained in the plea agreement.

The developments in the SAC prosecution further illustrate the potential limited efficacy of using the CVRA to challenge binding plea agreements. Although investors in the two pharmaceutical companies whose stock formed the basis of certain insider trading charges against SAC sought to assert their right to be heard under the CVRA, Judge Swain instead permitted the investors' attorney to be heard under Rule 60(a)(3) of the Federal Rules of Criminal Procedure, which requires that the court permit a victim to be reasonably heard at any public proceeding concerning release, plea, or sentence. The government opposed the investors' request to be heard under the CVRA on the grounds that the investors were not victims, because an individual who happens to buy or sell securities at the same time as insider trading is occurring in a large, fluid market is merely "denied the opportunity to make the same illegal profits obtained by the defendant."15 The government, however, did not oppose Swain's decision to allow the investors' attorney to be heard under Rule 60.16

Binding Pleas: Creating and Alleviating Tensions. Objections to binding plea agreements by alleged crime victims—whether permitted under the CVRA or Rule 60—heighten already existing tensions with respect to the judicial review of binding plea agreements. Although a court is supposed to take into account the government's limited resources and the uncertainties of proceeding to trial, courts have grown increasingly hesitant to approve agreements where the court perceives itself as merely a "rubber stamp"—especially in high profile criminal prosecutions and regulatory actions.17 Whether in the context of approving binding plea agreements or SEC settlements, the government can no longer be assured of judicial deference merely by citing the opportunity costs and the uncertainties of pursuing a case to trial.

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