Tuesday, September 30, 2008

USA v. Hagerman

Sep 26: In the U.S. Court of Appeals, Seventh Circuit, Case No. 08-2670. The defendants, Hagerman and Wabash Environmental Technologies were convicted of criminal violations of the Clean Water Act, and the company Wabash was ordered to pay $250,000 in restitution to a federal Superfund account and was placed on probation for five years. Corporate probation has been called “a flexible vehicle for imposing a wide range of sanctions having the common feature of continued judicial control over aspects of corporate conduct.”

The district court dismissed the petition after the government and Wabash resolved their differences by Wabash’s agreeing to start paying restitution and to furnish specified information concerning the company’s finances. Nevertheless, Wabash filed an appeal from the order of dismissal, as has its codefendant, Hagerman.

The Appeals Court rules, "Hagerman’s appeal must be dismissed because he was not a party to the probation-violation proceeding and no order naming him was entered. Wabash’s appeal must also be dismissed, apart from doubts that Wabash was aggrieved by the dismissal of the probation-violation proceeding. Wabash has no lawyer in this court (it was represented in the district court by a lawyer who has since withdrawn)." Hagerman, who is not a lawyer, claims the right to represent Wabash because he “is not only a major stockholder [presumably he means ‘member,’ since Wabash is an LLC, not a corporation] but is [also the] current President of [Wabash]. And it was Hagerman who filed the appeal on behalf of Wabash as well as himself." The Appeals Court said, "He complains about the deal that Wabash struck with the government, making this like an appeal by a party that agrees to a settlement but later thinks better of his decision and tries to get the appellate court to rescind it."

The Appeals Court notes that a corporation is not permitted to litigate in a federal court unless it is represented by a lawyer licensed to practice in that court and then determines that an LLC also comes under that rule. In dismissing the case, the Appeals Court ruled, ". . .the right to conduct business in a form that confers privileges, such as the limited personal liability of the owners for tort or contract claims against the business, carries with it obligations one of which is to hire a lawyer if you want to sue or defend on behalf of the entity. Pro se litigation is a burden on the judiciary . . . and the burden is not to be borne when the litigant has chosen to do business in entity form. From that standpoint there is no difference between a corporation and a limited liability company, or indeed between either and a partnership, which although it does not provide its owners with limited liability confers other privileges, relating primarily to ease of formation and dissolution. That is why the privilege of pro se representation is, as we noted, denied to partnerships too."

Access the complete opinion (
click here).