L-R Laurel Gift and Danielle Bruno, Schnader Harrison Segal & Lewis.

What are the limits of criminal liability for corporate entities in the Pennsylvania courts? Can a business be banned from the state?

These questions were raised in a recent decision by the Pennsylvania Superior Court in the case of Commonwealth v. Pi Delta Psi. One of the crucial lessons of this case is that businesses should protect themselves by assessing potential vulnerability to litigation and enacting internal controls to promote ethical behavior.

The Banning of a Business From Pennsylvania

Pi Delta Psi is a national nonprofit corporation based in New York with fraternity chapters throughout the country. In 2013, a New York college chapter of the fraternity held a hazing event called “the Crossing” at a rented house in the Pocono Mountains in Pennsylvania. During the event, soon-to-be members were tackled by existing members, but in this instance the ritual was excessively rough and led to the death of a pledge. The national corporation as well as involved individuals were tried by a jury in Monroe County, Pennsylvania. The fraternity itself was found guilty of a variety of charges, including involuntary manslaughter.

Following conviction, the trial court imposed a sentence at the prosecution's request mandating that the fraternity would be prohibited from conducting any business within Pennsylvania for 10 years. This “probation period” included a prohibition against maintaining, creating, endorsing or hosting any chapter of the fraternity, and from hosting events and activities within the commonwealth. Essentially the trial court imposed a sentence outlawing the Pi Delta Psi corporate entity, in its entirety, from existing or operating within Pennsylvania for 10 years.

A Partial Reversal on Appeal

Pi Delta Psi fought the criminal charges brought by the Monroe County district attorney, both at trial and on appeal. The national corporation challenged various evidentiary rulings by the trial court and raised 10 appellate issues. The Superior Court declined to review many of the issues raised by Pi Delta Psi, finding the corporation had waived these issues or had failed to cite to any legal authority. Other issues raised on appeal were found by the court to be meritless.

However, the court raised its own issue on appeal, concerning whether the portion of the trial court's sentence banning the business from operating in Pennsylvania was illegal. Pennsylvania appellate courts are required to vacate illegal sentences, even if the issue is not raised by the appellant. News reports highlighting this case also questioned whether Pennsylvania courts are authorized to criminally sentence a business to exile from the state.

The Superior Court found this to be an illegal sentence for a variety of reasons. First, no statutory authority exists for such a sentence. The penal code must be strictly construed, such that a trial court may not deduce that it possesses the authority to do something from legislative silence, as it had done in this case. Second, the sentence unjustly punished student members of the fraternity at Penn State University, who had nothing to do with the hazing death in this case, but would have been prohibited from continuing fraternal activities under the sentence.

The Superior Court also explained that attempting to outlaw a business in this manner “flies in the face of the common law of corporations.” The court cited English common law dating back four centuries and referred to The Case of Sutton's Hospital (1612), which stated that corporations “may not commit treason, nor be outlawed, nor excommunicated, for they have no souls … .” Banning a business will not result in it feeling the guilt of the harm it caused, because corporations do not feel. Further, it does not make sense to attempt to punish a business in this manner because the corporate entity, like any tool, is “no more morally accountable than a hammer or a sword or a firearm. It is the wielder who sins; not his or her weapon.”

Since the trial court's original sentence banning Pi Delta Psi was found to be illegal and unauthorized, the Superior Court remanded the case for resentencing. The court identified other options for the lower court to consider to promote the goal of rehabilitating the fraternity's culture and “transfer the tool into the hands of agents who will wield it for good.” The trial court has not yet resentenced Pi Delta Psi in this matter.

Practical Takeaways for Businesses and Organizations

This case raises several important legal and practical issues for all businesses. Corporations can be indicted and tried in Pennsylvania courts for alleged crimes. Corporate entities can also face criminal prosecution by the Department of Justice for federal crimes. This is in addition to the potential for prosecution of individuals employed in the business or serving on the board of directors.

But even though the metaphysical corporation certainly can cause actual, physical harm and be found guilty of crimes, it may not be entirely exiled or banned from the state. Given a finding of criminal liability, courts can sentence a business to perform actions related to correcting systemic issues and ensuring similar misconduct is not repeated. Such penalties can include fines.

Corporations should certainly consider taking proactive steps to prevent potential criminal liability. Demonstrating responsibility through dynamic compliance systems, internal investigations, staff training and discipline, and prompt and effective reforms may prevent the business entity from being charged with crimes. If nevertheless charged in court, the business can evidence its proven capacity for accountability and internal controls to argue effectively against liability and excessive penalties. These kinds of accountability and compliance actions can also serve to protect the public image of the business and its leaders.

In Pi Delta Psi, the organization failed to recognize the dangerous culture that was being cultivated, which resulted in criminal liability. Once charged, the organization attempted to make creative and novel arguments as to why it should be found not guilty, and later, why its conviction and sentence should have been reversed, but these attempts largely failed. The outcome of this case illustrates precisely why businesses and organizations must be diligent in identifying areas of liability before disaster strikes, instead of trying to defend against allegations after a tragedy occurs.

Danielle T. Bruno is an associate with Schnader Harrison Segal & Lewis in the firm's litigation services department, focusing on criminal defense and internal investigations, ethics and compliance issues.

Laurel Gift chairs the firm's criminal defense practice group and the Internal Investigations, ethics and compliance practice group. Before entering private practice, Gift served as a senior deputy attorney general for the Pennsylvania Office of Attorney General and as an assistant district attorney in Allegheny County.