Wednesday, May 11, 2005

What Kind of a Business Is It?

How one chooses to organize a business is usually of concern primarily for tax and regulatory purposes, and only rarely is it an issue in the criminal law.  Two areas that I can think of where the particular legal form under which a business operates will be important are for the privilege against self-incrimination (only a sole proprietorship can assert the Fifth Amendment for the act of production) and sentencing.  The Organizational Sentencing Guidelines do not apply to sole proprietorships, which are viewed merely as extensions of the individual owner, in much the same way that the sole owner can assert the Fifth Amendment on behalf of the business.  The issue was important in the sentencing context in United States v. Helmos Foods Product, Inc. (here), which was convicted along with its owner, Theodore Mantas , of improperly storing adulterated meat and poultry.  At trial, there was considerable confusion about the legal status of the business, which had been incorporated but the corporation had been dissolved by the state before the criminal conduct.  Both sides believed that it was a partnership of Mantas and his wife, but in fact it was a sole proprietorship.  Upon conviction, the judge imposed a $250,000 fine on the company, and it filed for a writ of coram nobis to lift the fine because the Organizational Sentencing Guidelines do not apply to sole proprietorships.  Unfortunately, the mistake in the initial proceeding cannot be undone in a coram nobis if the issue could have been argued in the direct appeal.  For example, a number of coram nobis writs were issued in the wake the Supreme Court's decision in 1987 in McNally v. United States that (briefly) rejected the right of  honest services theory for mail/wire fraud convictions, former Maryland Governor Marvin Mandel being among the most famous to have their convictions vacated.  The Seventh Circuit found that the information to avoid the error was available while the case proceeded on direct appeal:

But the confusion has considerable relevance as to whether the issue that Helmos Food was a sole proprietorship could have been raised on direct appeal. At both trial and sentencing, attention was directly focused on Helmos Food’s status, and it was quite clear that Mr. Mantas was going to be responsible for the fine. Counsel should have been alerted that if there was a way to prevent the imposition of a fine—by proving that Helmos Food was a sole proprietorship, for instance—there was no time like the present. In addition, at sentencing, both parties had available Mantas’s 1997 and 1998 tax returns, specifically schedule C to form 1040, which is entitled "Profit or Loss from Business (Sole Proprietorship)." The information from which to argue that Helmos Food was not subject to guideline § 8A1.2 was available; it just was not used at trial or on direct appeal.

Those minor little technicalities, like how a business is organized legally, can have great importance. (ph)

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Judicial Opinions, Sentencing | Permalink

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