Federalist Society Briefing Panel Regarding Legislation That Would Impose Criminal Penalties For The Sale And Distribution of Defective Consumer Products Into Interstate Commerce

October 5, 2000

Here is the lead paragraph of a news story that this legislation could produce:

“Sharon Smith, an engineer in Rolling Free Motors’ product safety department, tearfully kissed her three children goodbye this morning in Detroit as she surrendered to U.S. Marshals to begin service of her ten year prison sentence for federal product safety criminal violations.  A federal district court jury in Washington, D.C. had convicted Smith of failing to disclose defects in tie rods on Rolling’s late model SUVs, which tend to break when used in extreme off-road conditions.  A low level Rolling designer, who cooperated with federal prosecutors, said he had warned Smith that the tie rods would fail when the vehicle was used in extreme conditions, such as a rocky environment.  Court observers believe Smith’s conviction was sealed by evidence of an aggressive Rolling marketing campaign that featured the SUV’s off-road capabilities.  Five persons have died and scores have been injured in off-road accidents allegedly related to the tie rod failures.  Smith will serve her sentence at the federal prison in Alderson, West Virginia.”

Let me understate the case: the proposal to criminalize consumer product safety defects is one of the more ill-advised ideas to come down the pike in quite some time.  Although one can sympathize, if not agree, with the strong emotional reaction that “something must be done” to prevent the widely reported tragedies that have resulted from defective tires, the criminalization of products liability is not the answer.  If our goal is to create federal law that will actually increase product safety, we ought to use caution and restraint before concluding that expanding federal criminal law will help.

There are several bedrock principles that argue against the criminalization of alleged product defects as contemplated in pending legislation:

1. A primary role of the federal government is to enable commerce.  Any legislative initiative, therefore, which would have the likely effect of inhibiting commerce – of making it more risky to make and sell goods and perform services – should be closely examined.
2. The federal role of enabling commerce and the parallel role of providing for the common welfare embrace a legitimate concern for product safety.  Unsafe products can endanger commerce by creating disincentives to purchasers.
3. Determining what course of legislation will best facilitate commerce is often a difficult exercise; that is surely the case where one attempts to legislatively define a contested concept such as what constitutes a defective product.
4. The core purpose of federal criminal law, and prosecutions brought thereunder, is to secure only core federal interests.  Because criminal law is a very blunt tool – i.e., one that tends to affect and discourage conduct that is outside the immediate range of the narrow criminal prohibition – it should not be the first tool of choice to address issues of commerce.
5. Civil regulatory schemes are generally adequate to secure the federal interest in matters of commerce.
6. By definition, if criminal penalties are needed to alter commercial behavior, they must be narrowly tailored to avoid unintended and overly broad effects on commerce.
7. Most criminal statutes punish only where there is evidence beyond a reasonable doubt that a prohibited act was performed with mens rea, the guilty mind.The most troublesome issues of the criminal law involve questions of knowledge and state of mind.Any proposed criminal statute that can be read to punish without such evidence should be viewed with skepticism.
8. Finally, the criminal law, both at the federal and state levels, already has ample tools to address egregious instances of commercial misconduct, including the knowing manufacture and sale of products having concealed defects which are likely to cause harm.

The fundamental problem with the proposed legislation is that it would use the criminal law for a purpose well-beyond that for which it is best suited and, in so doing, would run the risk of creating significant disincentives to lawful commercial activities.  Far from adopting a narrow approach, the proposed legislation is broad in its importation into penal law of the state of mind and knowledge standards of civil products liability law.The danger of inappropriately limiting commerce and thus undermining the federal interest is plain.

The proposed legislation may yet die aborning.  You who work on Capitol Hill know better than I that a great many legislative initiatives are abandoned in light of rethinking and reconsideration. 

To that end, let me suggest two points for further analysis and discussion.  First, it is worth pausing to consider how far we have already gone in expanding the scope and jurisdiction of federal criminal law in commercial matters and to evaluate that expansion in light of the core functions of the federal government. 

Second, I suggest that the criminal provisions of the proposed legislation are, at best, unwise.  This is particularly true in light of the preexisting means to address the federal interest in automotive product safety, including existing criminal laws.  These existing legal regimes deserve a serious look before creating a new set of crimes for what is, in essence, a violation of a civil duty of care concerning product safety.

The Federal Role Concerning Commerce

The original impetus for the federal Constitution was a desire to better ensure the free flow of commerce among the States.  In the Commerce and Supremacy Clauses, the Framers created a means whereby Congress could act to break down barriers to commerce.

The importance of commercial activity to the Framers is illustrated by a passage from Federalist 12 in which Alexander Hamilton observed:

The prosperity of commerce is now perceived and acknowledged by all enlightened statesmen to be the most useful as well as the most productive source of national wealth, and has accordingly become a primary object of their political cares.

Through much of our history, Congress’ use of this power was limited to affirmative acts designed to facilitate commerce: the construction and improvement of roads and other means of transportation, later the means of interstate communication and the widespread availability of power and energy.  A prime example of this was the enactment of legislation following the Civil War to enable the construction of the Transcontinental Railroad which facilitated the settlement of the West. 

Among our earliest criminal statutes was one specifically designed to protect commerce.  In 1872, Congress adopted the ancestor of our present 18 U.S.C. 1341, the mail fraud statute designed to protect the mails, then a vital instrumentality of commerce, from being used in furtherance of schemes to defraud.  As the House sponsor of the legislation stated, the intent was to enact legislation “to prevent the frauds . . . by thieves, forgers, and rapscallions generally, for the purpose of deceiving and fleecing the innocent people of the country.”

As the nation developed and the economic system became more sophisticated, Congress again invoked federal criminal jurisdiction to protect the channels of commerce. This included an extensive system of criminal protections for banks, an engine of commerce. Indeed, bank fraud statutes were modeled after laws prohibiting mail fraud.

The expansion of criminal laws applicable to banks continued to recent times when Congress responded to threats against savings and loan institutions by expanding criminal banking laws to enable prosecutions where the depositories were victimized by unscrupulous insiders and others.  Penalties for the operation of a “continuing financial crimes enterprise” under these laws range from ten years to life imprisonment.

Congress has also used criminal statutes to protect the fuel of national commerce: capital formation. Thus, it enacted criminal sanctions to address conduct that would threaten investor confidence in the securities market and thereby impair the formation of capital necessary to economic growth and stability.

In 1890, Congress adopted the Sherman Act, an antitrust law with criminal provisions designed to protect markets from trade practices that inhibit free market principles. Other federal statutes have since been enacted to deter and redress more systemic and corrupt threats to commerce. These include criminal RICO provisions, as well as various interstate theft, transportation and electronic communication statutes.

What all these criminal statutes have in common is a focus on protecting the integrity of the means by which business is conducted.

Of course, this brief review of Congress’ use of the Commerce Clause is somewhat oversimplified.  But it illustrates a point: criminal statutes which go beyond the protection of the means of commerce to criminalize ordinary commercial activity cross an important line.  When Congress steps over that line and begins to use the criminal law to regulate the substance of commerce it enters a new field, one in which it must be careful not to wound or even kill commerce in order to save it.

Indeed, the few early uses of the criminal law to regulate a particular type of commerce directly, as opposed to the protection of the means of commerce illustrate just how far we have come.  Such early statutes were limited to the regulation of commerce which was found to be highly objectionable on moral grounds.  These included the statutes regulating peonage and slavery, the manufacture and transportation of alcohol, and the Mann Act which addressed the infamous “white slave” trade.  Compared with the modern regulatory state, these early prohibitions seem almost quaint.

Protecting Federal Functions

Another venerable role for federal criminal law is the protection of the functions and processes of federal government itself.  An example that covers a broad range of interests is the federal false statement statute. It renders criminal any false or misleading statement to any federal agency that is material to that agency’s functions.  Government cannot function without the ability to punish falsehoods that undermine the integrity of its core functions.

Other criminal statutes protect various aspects of federal interests, such as the national defense, which is protected by several criminal statutes including those dealing with espionage (18 U.S.C. 793 et seq.).  Interestingly, the mail fraud statute has the dual purpose of protecting the core governmental interest in the integrity of the mails and the commercial interest discussed above. 

Other statutes with criminal provisions protect the integrity of commerce, such as the Food, Drug & Cosmetic Act, which defines requirements for truthful labeling of food ingredients and the Federal Trade Commission Act, which has the purpose of addressing deceptive practice in many areas of commerce, including advertising.

Twentieth Century Expansion of Federal Functions

Thus, Congress historically has used the criminal law to protect both commerce and government functions.  These parallel functions of, and limitations on federal criminal jurisdiction remained largely intact through the first part of the twentieth century.  Federal criminal law protected both commerce and those federal functions that were at the core of federal government operations.  However, as these federal functions (i.e. the scope of federal interests) expanded first to include increased business regulation, then social entitlement programs and finally nearly every aspect of national activity, federal criminal jurisdiction expanded apace.

A key stage in this evolution was the development of corporate criminal liability.  Prior to the first decade of the twentieth century, only natural persons considered subject to the criminal law.  Corporations, trusts and the like were mere fictions and thus were generally held to be not answerable to the criminal law.Then in 1903, Congress adopted the Elkins Act dealing with tarriffs and provided for criminal liability for corporations directly.  The constitutionality of the act was upheld in 1909 by the Supreme Court in New York Central and Hudson River Railroad. v. United States, 212 U.S. 481 (1909).  That case held that corporations could be held liable for general but not specific intent crimes.  The Court’s ruling stemmed from the development of modern business.  As it stated:

While the law should have regard to the rights of all, and to those of corporations no less than to those of individuals, it cannot shut its eyes to the fact that the great majority of business transactions in modern times are conducted through these bodies, and particularly that interstate commerce is almost entirely in their hands, and to give them immunity from all punishment because of the old and exploded doctrine that a corporation cannot commit a crime would virtually take away the only means of effectually controlling the subject-matter and correcting the abuses aimed at.

The creation of corporate criminal liability also facilitated another movement, one away from the traditional concept of mens rea and toward so-called strict liability. At the outset, corporate criminal liability required proof of general intent, even if only the intent of a single employee to benefit the corporation.  Of course, it is somewhat odd to speak of the mental state of a fictional entity and problems of proof of mental state are often multiplied in the corporate context.  Thus, it was an easy step to the framing of criminal statutes (environmental law provides several examples) for which mens rea was not required.  By the middle of the twentieth century corporations faced criminal liability for a myriad of activities that arose from their interactions with an expanding and -- by the 1970s -- rather bewildering array of federal regulatory mechanisms.  Significantly -- especially to the topic today -- many of these federal functions have little or nothing to do with enabling commerce.  Indeed, most are perceived as being in opposition to the free flow of commerce.

To be sure, there is almost always some nexus between the conduct regulated and the need to ensure the integrity of a particular area of commerce, just the mail fraud statute protects the integrity of the mails as an instrument of commerce.  But we should not fool ourselves into believing that any regulatory scheme that has a nodding acquaintance with commerce is advisable.  No responsible citizen is in favor of dirty water. But many commentators have questioned the effectiveness of putting people in jail and subjecting corporations to expensive criminal investigations and draconian fines for exceeding a permitted level of pollutant discharge and like “crimes.”  Polluting pursuant to a permit from the government is legal, but polluting too much can be a crime.

From Protection of Federal Functions to Regulatory Crimes

The modern expansion of federal regulatory jurisdiction has resulted in the crossing of another significant line.  Without much fanfare, federal criminal jurisdiction is evolving to embrace crimes defined, not be statute, but by regulations alone.  As Congress created regulatory agencies and empowered them to write detailed and complex systems of business regulation, it quietly added statutory provisions providing criminal penalties for conduct not proscribed by the statute, but rather to be defined by regulations an agency writes under the authority of the statute.

For example, employers may be charged with criminal penalties for failing to comply with cumbersome regulations promulgated by the Immigration and Naturalization Service regarding the employment verification for immigrant workers, thus discouraging those employers from hiring minority workers.  Corporations may also face criminal penalties for violations of regulations promulgated by the Occupational Safety & Health Administration regarding workplace safety or those promulgated by the Food & Drug Administration regarding the sale of various food items.

Several of the current legislative proposals would permit the National Highway Traffic Safety Administration (NHTSA) to determine what information should be reported to it.  The failure to report such information completely and accurately (in the view of the agency, of course) would be a criminal offense.

Federal criminal jurisdiction has expanded so far beyond the purposes of protecting commerce and the integrity of federal functions that those notions seem almost quaint . . . except that they are not.  In fact, they are solid principles rooted in the core constitutional powers and purposes of the central government. As such, they remain a sure guide to principled formation of public policy in general and criminal law in particular. That brings us directly to the matter at hand.

Having made the subtle transition from using the criminal law to protect the means of commerce to regulating commerce itself we are now ready to consider legislation that would specifically criminalize the decisions of product engineers, such as my fictional Sharon Smith, whose job it is to get products ready for market.  And, having already tossed over the side the requirement of the ancient criminal law that the wrongdoer have a “guilty mind” in favor of “strict liability” offenses, we are now ready to impose on Engineer Smith and her brothers and sisters what amounts to a strict criminal liability based on a nebulous tort standard.

A brief description of the proposed legislation is in order.   As you know, several bills have been introduced.  Those which appear at the moment to be moving forward are S. 3059 and H.R. 5164.  These bills criminalize the failure of automobile and automobile parts manufacturers or their employees to report suspected or possible defects in their products, both at home and abroad, levying prison terms of up to fifteen years. Several  proposals also increase the civil penalties that can be imposed upon the automotive industry for reporting failures – in the case of S. 3059 and H.R. 5164, from the current limit of $800,000 to $15 million.

Other provisions of these bills which impact the automotive industry’s potential exposure to criminal liability include the imposition of a manufacturer’s “duty to learn of potential defects” in its products and the prohibition of confidentiality agreements as part of settlements in civil cases.  Yet another provision would allow the federal government to disclose to foreign governments confidential business information required to be submitted by manufacturers to NHTSA.

Another bill, S. 3070 would up the ante considerably by creating a criminal products liability standard for all products.

I want to be clear that I am in complete sympathy with what are undoubtedly the ends sought by the sponsors of this legislation.  We all want safer products.  No one wants their family driving around on unsafe tires or fixing breakfast with unsafe toasters.  I disagree only with the selection of the criminal law as means to accomplish those ends. 

The Case Against This Legislation

Let me now turn to my case against this legislation.  Many of the observations I will make here are not original to me, but have been made in various forums by several commentators on the proposed legislation.  To these trenchant commentaries I add my own experience as a career federal prosecutor and Department of Justice official and, more recently, as defense counsel in white collar criminal matters.

My first criticism of the legislation is that it is a regrettable further step along the road toward using the criminal law to punish commerce rather than to protect it.I realize that the intent of the statute may be characterized as furthering commerce by increasing public confidence that the products sold on the market are safe.  But the criminal law is, not to put too fine a point on it, a rather blunt tool for this purpose. Legislation that provides for punishment including imprisonment up to 15 years in a federal penitentiary is likely to deter conduct far beyond that which all would agree is wrong.

An additional obvious criticism of the legislation from the standpoint of the criminal law is that it is hopelessly, and likely unconstitutionally, vague.  If a criminal statute is to perform its function and deter bad conduct, it must give a potential wrongdoer adequate notice regarding what conduct is prohibited.   For example, one proposal, S. 3070, defines a defective product as one having “some flaw in design, manufacture, assembly or instruction that renders the product dangerous to human life and limb beyond the reasonable and accepted risk associated with such or similar products lacking such a flaw.”  One obvious question is then: what is a “reasonable and accepted risk”?  How are manufacturers to interpret such a requirement?  What of the crime of selling products with flawed instructions?  Anyone who has tried to assembly almost anything, such as a backyard grill, may have a case to refer to federal prosecutors.

In a more serious vein, the difficulty of determining what is “defective” is highlighted by the enormous amount of research and testing already conducted by industry and independent labs, as well as by federal regulators such as NHTSA and even state regulators.  Each year, thousands of products are put to tests designed to ferret out problems that might develop under normal conditions of use and even under severe misuse.  This process is not only very expensive; it is also time-consuming.  NHTSA’s administrator has acknowledged that it takes the agency an average of 16 months to determine if a safety-related defect exists.

Despite this extensive research and analysis, it is often difficult to determine what is causing a problem, how often and in what manner.  If it is so difficult for this massive testing apparatus to confidently determine that a product is faulty, how much harder is it for the individual product engineer in most cases to know whether her product is not only defective, but defective in such a manner as to be “beyond a reasonable and accepted risk”?

Another limitation upon such criminal liability is reflected in S. 3059, which establishes criminal penalties for safety-related defects that cause grievous bodily injury or death, but only if the manufacturer “knows of the defect at the time the vehicle or equipment is introduced into interstate commerce.”

This legislation also continues the worrisome evolution toward the creation of “administrative crimes” which rely upon regulatory interpretation of inadequate statutory guidance to support criminal prosecutions.To be sure, the flexibility afforded by regulatory interpretation may be said to be beneficial in that it enables the “expert” agencies to fashion quick responses to perceived gaps in criminal standards.  This flexibility comes, however, with a great cost: The sacrifice of both certainty and deliberateness in the creation of sanctions that can result in criminal punishment.  In the criminal law, such “flexibility” can be unfair and may even violate constitutional minima.

Statutes specifically making commerce in defective products a crime also carry their own unique set of challenges to the already difficult exercise of prosecutorial discretion.  Not the least of these is the likely pressure from multiple sources to bring cases where the facts show tragic consequences but the cause of them is subject to considerable debate even among experts.  The danger here is that even non-meritorious cases arousing public outrage will be indicted, because it is easier for the prosecutor to charge and lose rather than to decline and explain restraint.

These legislative proposals also offer prosecutors some powerful – in my view, too powerful – tools to be used against corporations.  For example, the imposition of liability on any “officer or employee of a manufacturer” for “concealment of a material fact” related to the proposed reporting requirements presents the possibility that literally thousands of lower-level employees with no decision-making authority for their companies can subject the corporations and themselves to prosecution.  Yet this is exactly what many of these bills do.  They also present the possibility that these lower-level employees – frightened at the suggestion that they will face up to 15 years imprisonment for any involvement in safety testing for products – will make a deal with prosecutors to implicate the corporation early for possible problems rather than work with the corporation to address safety concerns before they become an issue.

Finally, the criminal provisions are counterproductive to the overall goals of the legislation.  The threat of criminal penalties virtually guarantees that some corporations will be less forthcoming concerning product defects.  A businesswoman faced with a decision between the choices “disclose and maybe go to jail” versus “don’t disclose and maybe avoid any punishment” may be tempted to take the second route.  The threat of criminal fines or, worse, imprisonment causes an understandable tendency to involve defense counsel who frequently advise clients not to disclose any information.

Even the civil provisions of the bills are problematic from the standpoint of criminal defense.  For example,  S.3070 would prohibit federal courts from approving nondisclosure provisions as part of settlement agreements in civil cases where issues “relevant to the protection of public health or safety” or in the public interest of “disclosure of potential health or safety hazards” arise.  These provisions would strip corporations of their ability to negotiate settlements.  They would thus provide prosecutors with ready evidence of so-called defects.  Prosecutors could then proceed to use this evidence – which is relevant to a civil strict liability case – to bootstrap another wise weak criminal case, threatening corporations with indictment for knowledge of these vaguely-defined defective products.

Looking to Alternatives

Perhaps the most important problem with these bills is that they ignore ample alternative means under existing law to address the same concerns.

Of course, one logical starting point is NHTSA’s existing regulatory authority.  The agency already has extensive powers to review safety issues. It is even empowered to levee substantial civil fines against manufacturers who fail to report safety defects.  The potential applicability of these provisions has been swept hastily aside in favor of criminal sanctions.  Before proceeding headstrong into the adoption of criminal penalties, I would suggest that it is prudent to consider how existing avenues – such as the NHTSA complaint review process – already provide an opportunity to confront potentially dangerous products.

Second, should criminal sanctions be necessary to address a particularly egregious case, several existing federal laws provide a means to accomplish that result.  Not the least of these is the provision of 18 U.S.C. § 1001 which provides for a fine and imprisonment of up to 5 years for making false statements to the government in any matter over which any of its branches have jurisdiction.  This statute is an example of that which effects compliance with federal programs initiated by Congress rather than that which merely leaves to the bureaucracy the responsibility for determining what is criminal.  Similarly both the wire and mail fraud statutes are broad enough to be used against any truly nefarious effort to conceal dangerous safety defects.

Another particular useful relevant statute in this context is the general conspiracy statute which has been held to apply to conspiracies to thwart the proper functions of federal agencies. 

The list could go on and on. 

Moreover, in a meeting sponsored by the Federalist Society we should not overlook the fact that the Framers intended that the states, not the federal government, would be the primary sources of criminal law.  In fact, many states have criminal statutes that are directly relevant to the issue of product safety.  For example, the California Corporate Criminal Liability Act imposes personal, criminal liability upon managers as well as corporations that conceal product defects from regulators.

Of course, in some cases criminal sanctions will be necessary.  In such cases criminal prosecutions can be sought under a wide range of statutes ranging from the aforementioned state law provisions to the big gun of the federal law enforcement to fight organized crime, the Racketeer Influenced and Corrupt Organizations Act (RICO).

Finally, if legislation is needed to address these issues, I would suggest that we concentrate first on strengthening the civil law infrastructure to encourage more voluntary testing and reporting of possible defects.  One solution may be found in the simple ­­­carrot-rather-than-stick approach.  What is needed to discover defects – which, after all are the inevitable consequence of a robust market for complex products – is a means to encourage all of the interested parties to work towards the same goal.  Often overlooked in the debate regarding this legislation is the need to encourage manufacturers and their employees to disclose potential problems and work to remedy them without fear of criminal repercussions.  One solution is to adopt statutory provisions to provide immunity and reductions in civil liability for voluntary disclosures and remedial actions taken by manufacturers to assist in the development and use of safe products.

[1] Mr. Terwilliger is a partner in the Washington, D.C. office of White & Case LLP.  He previously served as Deputy Attorney General of the United States, the number two position in the Department of Justice, and prior to that as United States Attorney for Vermont.