United States v. Orthofix, Inc.

Decision Date26 July 2013
Docket NumberCriminal Action No. 12–10169–WGY, 12–10374–WGY.
Citation956 F.Supp.2d 316
PartiesUNITED STATES of America, v. ORTHOFIX, INC., Defendant. United States of America, v. APTx Vehicle Systems Limited, Defendant.
CourtU.S. District Court — District of Massachusetts

OPINION TEXT STARTS HERE

David S. Schumacher, Jeremy M. Sternberg, United States Attorney's Office, Boston, MA, for United States of America.

Brien T. O'Connor, Kirsten V. Mayer, Nicholas J. Linder, Andrew O'Connor, Ropes & Gray, Boston, MA, for Defendant.

MEMORANDUM

YOUNG, District Judge.

I. INTRODUCTION

For seventeen years, this Court unconstitutionally sentenced offenders in accordance with an oxymoron—mandatory guidelines. Even after the Supreme Court finally put paid to this practice, United States v. Booker, 543 U.S. 220, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005), and recalled district judges to their duty to exercise wise discretion in sentencing offenders, I continued, rather reflexively,1 to accept “take it or leave it” pleas from corporate criminals in accordance with Federal Rule of Criminal Procedure 11(c)(1)(C) (known commonly as (C) pleas”). See, e.g., United States v. TAP Pharm. Prods., Inc., No. 01–10354–WGY, ECF No. 6 (tendering under Rule 11(c)(1)(C) a plea of guilty to the crime of conspiracy to violate 21 U.S.C. sections 331(t) and 333(b) by causing the sale of drug samples, all in violation of 18 U.S.C. section 371); Elec. Clerk's Notes, Oct. 16, 2011, No. 01–10354–WGY (accepting the aforementioned plea without inquiry). After all, I reasoned—shallowly, as it now turns out—such pleas are closely akin to contracts, the government law enforcers obviously are satisfied, and what more is required?

Then, at 2 PM on Monday, July 23, 2012, Orthofix, Inc. (Orthofix) appeared before the Court prepared to plead to a one-count information charging it with obstruction of a federal audit in violation of 18 U.S.C. section 1516, see Hr'g Tr. (“July 23, 2012, Hr'g Tr.”), July 23, 2012, No. 12–10169–WGY, ECF No. 10,2 and expecting immediately to be sentenced 3 pursuant to a (C) plea deal in which Orthofix would pay $7,765,737 in criminal fines and $400 for a mandatory special assessment and the United States would agree to seek neither a separate restitution order nor a term of probation (due to Orthofix's entering into a Corporate Integrity Agreement with the Office of Inspector General of the Department of Health and Human Services),4 Plea Agreement Orthofix, Inc. (“Orthofix's Original Plea”) ¶ 5(a)-(d), No. 12–10169–WGY, ECF No. 2. Here, for the first time, this Court expressed its concerns regarding its acceptance of a (C) plea. See July 23, 2012, Hr'g Tr. 10:13–11:2. This caught all parties flat footed. Quickly regrouping, counsel talked the Court into holding a further hearing on September 6, 2012. See id. at 4:22–5:7. The Court reiterated its concerns at this hearing. See Hr'g Tr. 3:1–14, Sept. 6, 2012, No. 12–10169–WGY, ECF No. 19. True to its word, this Court rejected Orthofix's tender of a (C) plea on September 13, 2012, see Status Conference Tr. 3:15–17, Sept. 13, 2012, No. 12–10169–WGY, ECF No. 24, and again on December 13, 2012, after carefully considering the entire record (now including a thorough presentence report) and entertaining extensive argument by counsel, see Hr'g Tr. 36:8–20, Dec. 13, 2012, No. 12–10169–WGY, ECF No. 36.

The following day, the Court accepted a guilty plea from Orthofix tendered under Federal Rule of Criminal Procedure 11(c)(1)(B) (a (B) plea”). 5See Elec. Clerk's Notes, Dec. 14, 2012, No. 12–10169–WGY, ECF. No. 38 (noting the Court's acceptance of the parties' revised plea agreement tendered under Rule 11(c)(1)(B)); see also Revised Plea Agreement (“Orthofix's Revised Plea”), No. 12–10169–WGY, ECF No. 41.

Four months later, in a different case, APTx Vehicle Systems Limited (APTx) sought to tender a (C) plea to an information charging it with wire fraud, Information 1, No. 12–10374–WGY, ECF No. 1. Elec. Clerk's Notes, Apr. 11, 2013, No. 12–10374–WGY, ECF No. 11. APTx, a British company with a Norwegian principal, contracted with the government to construct fifty specialized vehicles 6 to be turned over to the Iraqi police in connection with the government's reconstruction efforts in Iraq. APTx subcontracted the work to a Russian factory. The contract price of $5.7 million was to be paid, as is common in international transactions, through a letter of credit, upon receipt of a proper bill of lading and shipping documents confirming that the vehicles were pierside, ready for shipment to Iraq. The documents were presented and the letter of credit paid. There were, however, no vehicles at pierside or anywhere else, the documents presented were fraudulent, and the American taxpayers were snookered out of $5.7 million.7 In the period following APTx's submission of the allegedly fraudulent shipping documents, APTx was acquired by a Russian company, ETP Specialist Vehicle Systems, Ltd. (“ETP”). See Gov't's Mem. Supp. Acceptance Plea (“Gov't's Mem. Supp. APTx”) 3, No. 12–10374–WGY, ECF No. 8. Appended to APTx's (C) plea was a sentencing recommendation for a $1 million fine and a $2 million civil settlement to which the United States had agreed in consultation with APTx.8See Plea Agreement APTx Vehicle Systems Limited (“APTx's Plea”) ¶ 5(a), ECF No. 3; APTx's Plea, Ex. A, Settlement Agreement (“APTx's Civil Settlement Agreement”) ¶ 1, ECF No. 3–1.

At the APTx plea hearing, it appeared through Lomakina Marianna Olegovna, Esq. (“Ms. Marianna”), a Russian attorney who possessed what (in English translation) appeared to be a power of attorney authorizing her to tender the agreed-upon (C) plea on behalf of APTx. Ms. Marianna had utterly no knowledge of any of the affairs of APTx, did not personally know the sole director who signed her power of attorney nor could she recognize his signature, and of course she knew nothing of the underlying fraud. Pleasant and responsive throughout, she appeared somewhat bemused by our plea procedures. See Plea Hr'g (“APTx's Plea Hr'g”) 3:23–18:2, Apr. 11, 2013, No. 12–10374–WGY, ECF No. 15.

Just as this Court had rejected Orthofix's (C) plea, so too this Court, on April 11, 2013, saw fit to reject APTx's (C) plea, together with its recommended sentence. Id. at 23:17–24:17, 25:14–26:11. APTx was allowed to withdraw its guilty plea, and the case presently stands for trial.

The Court's decisions in these two cases mark a decided contrast to its previous—rather supine—behavior, and a due regard for the hardworking, professional bar that must plan for and accommodate this Court's jurisprudence requires the Court to make some explanation. Here it is.

This memorandum sets out the Court's reasons for rejecting each of the (C) pleas from these two corporate criminal defendants. In many ways, the Court's decision to reject Orthofix's (C) plea stands as the better subject for elucidation of the Court's principled objection toward accepting (C) pleas from corporate criminals. This is because, in contrast with the wholly unsatisfactory settlement proffered by APTx, see APTx's Plea Hr'g 18:13 ([T]his is a strikingly below guidelines sentence....”), Orthofix's plea was tendered as part of what was, substantially, “a fair and appropriate settlement,” Tr. Arraignment, Plea & Sentencing (Orthofix's Sentencing) 25:8, Dec. 14, 2012, No. 12–10169–WGY, ECF No. 39. This memorandum articulates the Court's view of the unusually complex considerations posed by the sentencing of corporate criminals and lays out the Court's interpretation of the duties it must discharge, with prudence and circumspection, in performing its sentencing function. The Court concludes that, in light of these considerations, it would be rare indeed for a corporate criminal to persuade this Court that its guilty plea is an appropriate candidate for acceptance under the fetters of Rule 11(c)(1)(C).

II. ANALYSIS
A. Sentencing and the Public Interest

Sentencing offenders is one of the two core responsibilities assumed by a federal district judge.9See, e.g.,Fed.R.Crim.P. 32(b)(1) (“The court must impose sentence without unnecessary delay.”); United States v. Cruz, 120 F.3d 1, 3 n. 4 (1st Cir.1997) (en banc) (“The sentencing judge has the ultimate responsibility for the sentence and may decide to pursue matters in the teeth of an agreement by both sides to go in a different direction.”) (citing United States v. Vaknin, 112 F.3d 579, 585 (1st Cir.1997), abrogated by Booker, 543 U.S. 220, 125 S.Ct. 738). Indeed, judges have historically enjoyed wide discretion in determining the appropriate sentence to apply to particular individuals. See United States v. Mueffelman, 327 F.Supp.2d 79, 82–83 (D.Mass.2004) (Gertner, J.) (noting that judges once “enjoyed wide discretion to sentence within the broad punishment ranges, based on a host of issues, including rehabilitation, almost like a doctor or social worker exercising clinical judgment,” id. at 83); Susan R. Klein, The Return of Federal Judicial Discretion in Criminal Sentencing, 39 Val. U.L.Rev. 693, 697 (2005) (noting that the early nineteenth-century regime “granted judges enormous and essentially unbridled authority to impose a sentence anywhere within the legislatively prescribed range, as sentences could not be appealed”). Such discretion, however, is no historical artifact; even today, sentencing remains squarely within the federal district judge's institutional competence.10

Notwithstanding Congress's attempts to curb the judiciary's discretion in the Sentencing Reform Act of 1984 (“SRA”), Pub. L. No. 98–473, 98 Stat. 1987 (codified as amended at 18 U.S.C. §§ 3551–3742; 28 U.S.C. §§ 991–998), by establishing the United States Sentencing Commission (the Sentencing Commission) to promulgate Federal Sentencing Guidelines (the “Guidelines”), the Supreme Court has held that these Guidelines are advisory rather than mandatory,11see Booker, 543 U.S. 220, 125 S.Ct. 738. In addition and correlative to federal...

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