Second Circuit Limits Judicial Scrutiny of Deferred Prosecution Agreements

by John F. Savarese, Ralph M. Levene, David B. Anders, Marshall L. Miller, and Christopher R. Deluzio

In an anticipated and important decision, the Second Circuit Court of Appeals overturned a district court’s order requiring the unsealing of an independent monitor’s report detailing HSBC’s compliance with a deferred prosecution agreement. United States v. HSBC Bank USA, N.A. (PDF: 284 KB) (Nos. 16-308, 16- 353, 16-1068, 16-1094, July 12, 2017). In so doing, the Second Circuit substantially limited a district court’s power to scrutinize DPAs, thereby following a course similarly embraced by the D.C. Circuit (as discussed in our prior memo (PDF: 27 KB).

In the district court, Judge Gleeson granted the joint request by DOJ and HSBC to approve the DPA, subject to the Court’s ongoing oversight of the DPA’s implementation pursuant to the Court’s asserted “supervisory authority”—a decision we discussed in our earlier memo (PDF: 21 KB). As part of its oversight, the Court ordered the government to file under seal an independent monitor’s report, which eventually led to a member of the public requesting access to the report. Construing that request as a motion to unseal, the Court granted the motion, finding that the monitor’s report was a “judicial document” subject to the public’s qualified First Amendment right of access. The government and HSBC appealed.

The Second Circuit’s reversal was decisive, and grounded in the fundamental constitutional theory of separation of powers: “the district court impermissibly encroached on the Executive’s constitutional mandate to ‘take Care that the Laws be faithfully executed.’” In rejecting the district court’s assertion of its supervisory authority to monitor implementation of the DPA, the Second Circuit found that such an assertion was inconsistent with the “presumption of regularity … ascribe[d] to prosecutorial conduct and decisionmaking.” The Second Circuit flatly rejected the existence of any “freestanding supervisory power” and observed that “a federal court has no roving commission to monitor prosecutors’ out-of-court activities just in case prosecutors might be engaging in misconduct.”

The Second Circuit further rejected several other proffered grounds for the district court’s authority to supervise the DPA. Citing the D.C. Circuit’s decision in Fokker Services, the Second Circuit refused to interpret the Speedy Trial Act’s “vague ‘approval’ requirement as imbuing courts with an ongoing oversight power” and instead limited the court’s role to determining whether “a DPA is bona fide before granting a speedy trial waiver.” The Second Circuit also rejected as unripe and overly speculative the argument that the monitor’s report is a judicial document—and, thus, subject to a qualified public right of access—by virtue of the potential future relevance of the report to resolving a motion to dismiss the criminal information or to adjudicating an asserted breach of the DPA.

The decision in HSBC should further alleviate concerns that prosecutors and corporate defendants seeking to resolve investigations through DPAs may face unpredictable judicial second-guessing and the specter of public docketing of sensitive reports about DPA compliance. Although the Second Circuit identified certain hypothetical situations that might necessitate judicial scrutiny of DPAs—e.g., where misconduct in the implementation of a DPA comes to the court’s attention or where judicial adjudication of a claimed breach of a DPA is necessary—the Second Circuit’s clear message is that judicial scrutiny and monitoring would be inappropriate in all but the rarest of cases. The Second Circuit’s decision thus maintains and reinforces the usefulness of DPAs as a means, in appropriate cases, for DOJ and corporations to resolve complex investigations without the uncertainty that a district court’s differing views might interfere with the parties’ carefully negotiated and agreed-upon course of action.

The above post is adapted from a client memo issued by Wachtell, Lipton, Rosen & Katz, authored by John F. Savarese, Ralph M. Levene, David B. Anders, Marshall L. Miller, and Christopher R. Deluzio.

John F. SavareseRalph Levene and David Anders are partners in the Litigation Department of Wachtell, Lipton, Rosen & Katz.  Marshall L. Miller is of counsel in the Litigation Department at Wachtell, Lipton, Rosen & Katz. Christopher R. Deluzio is an associate in the Litigation Department at Wachtell, Lipton, Rosen & Katz.


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