Friday, March 21, 2008

"Stiff" Penalty?

Today's Omaha World-Herald features an article describing a fine levied against a local car dealership for engaging in title fraud. The scheme involved allowing car dealers in Missouri to sell Hummers and the fraud involved making it appear as if the local dealership had sold the vehicles. The dealership benefitted because it received manufacturer's incentives for "selling" these vehicles when they were actually sold in various other locations.

According to the article:

A state vehicle licensing board fined Huber Hummer of Omaha $100,000 Thursday, nearly seven times the previous largest penalty given to a car dealership in Nebraska. The fine was part of a consent agreement between the Nebraska Vehicle Industry Licensing Board and Huber to settle a case in which Huber was accused of falsifying 214 new vehicle titles — mostly for Hummers — to gain $300,000 in incentive payments from General Motors.

Dealership owner Ron Huber and his Omaha attorney, Ed Warin, made no comment during Thursday's hearing and declined to comment afterward. The consent agreement — similar to a no-contest plea in court — involved no admission or denial of guilt by the Huber franchise, according to the board's chairwoman, Beverly Neth.

The fine was the result of negotiations initiated by the Huber franchise after raids on the company's records by law enforcement investigators 16 months ago. "This stiff penalty sends a message to dealers that the licensing board is watching," Neth said

But, let's think about this for a moment: the dealership stood to gain $300,000 if the scheme had worked. Because it got caught , it had to pay $100,000. A few low-level employees, the salespeople, were fired but management was left untouched.

I wonder if I can use this example the next time I represent someone in court, arguing that it would be a "stiff" penalty to simply fine my client for 1/3 the amount he stood to gain if his scheme worked?

Picture the prosecutor, speaking to the press afterwards, describing the penalty as "send[ing] a message to [criminals] that the [government] is watching."

Would the press allow the prosecutor to describe the penalty this way or would it lambaste him for being soft on crime?

Imagine if judge had followed such a plea agreement in criminal court. Wouldn't the press criticize the judge for being soft, point out the message this sent, and rightly observed that there is no incentive to stop from committing crimes when the penalty you face is much less costly than what you stood to gain if it worked?

This reminds me of the exploding gas tanks on the Ford Pinto. According to the link to the Safety Forum website, "in Grimshaw v. Ford Motor Company (1981) 119 Cal. App. 3d 757 a crashworthiness case involving a 1972 Pinto hatchback, the jury rendered a substantial punitive damages award against the manufacturer. On appeal, Ford contended that the evidence was insufficient to support a finding of malice. The California appellate court disagreed, stating:"

"Through the results of the crash tests Ford knew that the Pinto's fuel tank and rear structure would expose consumers to serious injury or death in a 20 to 30 mile per hour collision. There was evidence that Ford could have corrected the hazardous design defects at minimal cost but decided to defer correction of the shortcomings by engaging in a cost-benefit analysis balancing human lives and limbs against corporate profits. Ford's institutional mentality was shown to be one of callous indifference to public safety. There was substantial evidence that Ford's conduct constituted ‘conscious disregard' of the probability of injury to members of the consuming public." (119 Cal. App. 3d at 813)

As the chart above and the case illusrates, these companies simply undertake a cost benefit analysis. Until it doesn't add up, they'll keep doing it.

As Anatole France said, "The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread."

No comments: