French Court Rules On Corporate Liability For Criminal Acts Committed By Executive

Author:Ms Bénédicte Graulle, Audrey A. Bontemps, Cyril Philibert and Elie Kleiman
Profession:Jones Day
 
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In Short

The Situation: A chief executive officer in France convicted of misusing corporate assets, and required to pay damages plus interest to the victim of his offense, sued to force the company to reimburse him for this amount, on the grounds that, in committing the offense, he was acting within the scope of his official duties.

The Result: The French Court of Cassation (la Cour de cassation) squarely rejected the CEO's claim for reimbursement, holding that the CEO's intentional criminal acts were separate from his official corporate duties and that the company therefore was not liable for the criminal penalties attributable to those acts.

Looking Ahead: As the law regarding corporate liability for the criminal acts of corporate personnel continues to develop in France and elsewhere, companies and their executives will need to be mindful of established and emerging legal principles in this area.

On September 18, 2019 (n° 16-26962), the commercial chamber of the French Court of Cassation (la chambre commerciale de la Cour de cassation) issued its ruling in a closely followed case in which a corporate officer convicted of a criminal scheme sought to recover from the company a sum that he had been ordered to pay the victim of the scheme. The executive maintained that he had committed the criminal offense in connection with his official corporate duties. In this case of first impression, the Court of Cassation ruled against the executive, holding, in part, that for purposes of assessing whether the executive has a legal right to such recovery, the executive's intentional criminal conduct was separate from his official responsibilities vis-à-vis the company.

Context

In the early 2000s, a real estate promotion company acquired a major player in the French real estate market. Post-acquisition, after the successor company had undergone various restructurings, it was discovered that the former CEO and majority shareholder of the acquired company had paid secret commissions in connection with the sale of a parcel of property in the early 1990s. These commissions, paid out of funds from one of the companies the former CEO was then managing, had the effect of reducing the sale price of the property, to the detriment of the seller.

After this conduct was discovered, the former CEO was charged with, and convicted of, complicity in the misuse of corporate assets. As part of his sentence, he was required to pay damages to the victim of his scheme...

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