## Facts

- Standard Oil Company of Texas owned Pasotex Pipe Line Company, a Texas common-carrier pipeline that gathered and transported crude oil, including to Standard’s El Paso refinery.
- Federal prosecutors charged Standard and Pasotex under the Connally Hot Oil Act for transporting (or causing the transportation of) “contraband oil” in interstate commerce and for inaccurate or missing required records.
- The government proved that employees and field personnel used Pasotex’s pipeline operations and record systems to move oil that did not comply with state prorationing limits.
- The employees acted in secret cooperation with an independent third oil company to divert and steal oil from Standard and route it through Pasotex facilities.
- After a bench trial, the district court convicted both corporations and imposed fines.
- The corporations appealed, arguing the scheme was a faithless employee operation benefiting outsiders, not the corporate defendants, and sometimes involved theft from the corporations.

## Issues

1. Whether a corporation may be held criminally liable under the Connally Hot Oil Act for employee acts committed in the course of assigned duties and corporate operations when employees secretly act for a third party, provide no corporate benefit, and harm the corporation.
2. Whether the recordkeeping count was defective for failing adequately to allege that the recordkeeping violation was committed “knowingly,” as required by statute.

## Decision

- The Fifth Circuit affirmed all convictions and fines.
- The court held the corporations were criminally liable because the employees’ acts occurred within the scope of their jobs and in connection with the corporations’ pipeline and oil-transport business, even if unauthorized and contrary to corporate interests.
- The court rejected the argument that corporate criminal liability required proof the corporation benefitted from the wrongdoing.
- The court held the indictment adequately alleged the “knowingly” element for the recordkeeping offense when read as a whole and provided sufficient notice.

## Legal Principles

- A corporation may be held criminally responsible for offenses committed by employees acting within the scope of employment and in connection with corporate business, even if the conduct is unauthorized, violates instructions, or is undertaken in secret collusion with outsiders.
- Corporate criminal liability under a regulatory statute does not depend on whether the corporation received a net benefit from the employee misconduct; corporate victimization by theft does not bar liability.
- For a mens rea element such as “knowingly,” an indictment is sufficient if, read in its entirety, it fairly alleges the required mental state and provides adequate notice to prepare a defense.

## Conclusion

The Fifth Circuit sustained Connally Hot Oil Act convictions against a refinery owner and its pipeline subsidiary, ruling that employee misconduct intertwined with pipeline operations could be attributed to the corporations for criminal liability purposes even when the employees acted for outsiders and against the corporations’ interests, and it upheld the challenged recordkeeping count as adequately pleading the statute’s knowledge requirement.


Standard Oil Co. of Tex. v. United States, 307 F.2d 120 (5th Cir. 1962)