In the Courts

A key issue in the case was whether the government could rely on the “collective knowledge” of various employees to establish a “willful” criminal violation. Collective knowledge differs from the traditional respondeat superior doctrine, under which a corporation may be held liable for the illegal actions of an employee acting within the scope of his or her employment for the benefit of the company. See, e.g., N.Y. Cent. & Hudson River R.R. v. United States, 212 U.S. 481 (1909). In contrast, the “collective knowledge” theory pursued in PG&E did not seek to establish the “willfulness” of any individual company employee in violating the PSA. Instead, the government focused on the combined knowledge of various PG&E employees who possessed information about the company's deficiencies in complying with the required federal safety standards. PG&E at paras. 23 and 24 (Jul. 30, 2014) (superseding indictment).

The defendant challenged this “collective knowledge” theory in its motion to dismiss for erroneous legal instructions to the grand jury. PG&E (Sept. 7, 2015) (Motion to Dismiss for Erroneous Legal Instructions). PG&E's challenge is summarized by its statement that “[t]he government cannot instruct the grand jury that it may aggregate the innocent [i.e., non-willful,] conduct of (unnamed) employees to manufacture a corporate criminal.” Id. at paras. 15'17.

The trial court dismissed PG&E's motion and allowed the government's “collective knowledge” theory to proceed to trial. The court first affirmed that the “knowing” prong of section 60123 may be established by the aggregate knowledge of various employees, stating that “[t]here is ample persuasive precedent and widespread acceptance of legal treatises that define a 'collective knowledge' theory to prove that a corporate defendant acted 'knowingly.'” The Order at 5.

Turning to the “willfulness” prong, the court relied on a 1974 case from the U.S. District Court for the Western District of Virginia, United States v. T.I.M.E.-D.C. Inc., 381 F.Supp. 730, 738 (W.D. Va. 1974) ( T.I.M.E. ). In that case, the court approved a theory of corporate collective knowledge as sufficient to prove a knowing and willful violation of certain federal regulations related to in-state motor carriers. However, the PG&E court recognized that the U.S. Court of Appeals for the Ninth Circuit has distinguished T.I.M.E. in prior cases. The Order at 8 (citing Kern Oil & Refining Co. v. Tenneco Oil Co., 792 F.2d 1380, 1386-87 (9th Cir. 1986)). Citing the relevant language by the Ninth Circuit, the PG&E court limited its approval of the corporate collective knowledge theory, as regards the “willful” mental state, to cases “where a corporation has a legal duty to prevent violations, and the knowledge of that corporation's employees collectively demonstrates a failure to discharge that duty ' .” Id. Potentially complicating matters, the final jury instructions defined the “willful intent of a corporation” as follows, raising a question about whether an individual employee's “willfulness” is required to impute a “willful” intent to the corporation:

The willfulness of corporate employees acting within the scope of their employment is imputed to the corporation. Accordingly, if a specific employee acted willfully within the scope of his or her employment, then the corporation can be said to have acted willfully.

PG&E (filed Aug. 10, 2016) (Jury Instructions).

PG&E has filed a motion for a judgment of acquittal. Regardless of the outcome of that Motion ' or any subsequent appeal ' the case highlights the serious risks facing companies in heavily regulated industries in their routine operations.

In the Courts and Business Crimes Hotline were written by Mayer Brown Associate Jing Zhang.