RESPONSIBLE
CORPORATE
OFFICER DOCTRINE
THE
EXPANSION
OF
CRIMINAL
LIABILITY FOR CORPORATE OFFICERS
JANE FERGASON
JFERGASON@GARDERE.COM
PARTNER
GARDERE WYNNE SEWELL LLP
Responsible Corporate Officer
or “RCO” Doctrine
• Who: Responsible Corporate Officer
‒ Holds position of responsibility
‒ Ability to prevent the violation
‒ Failed to prevent the violation
• What: Strict Liability
• Ramifications: Criminal Liability
Genesis of the RCO Doctrine
United States v. Dotterweich (1943)
•
Prosecution against pharmaceutical company under Federal, Food,
Drug and Cosmetic Act (“FDCA”) for mislabeling
•
President found guilty, company found not guilty
•
•
President had no knowledge but the greater public good was served
Supreme Court concluded that FDCA is of “a now familiar type” of
legislation which “dispenses with the conventional requirement for
criminal conduct—awareness of some wrongdoing. In the interest of the
larger good, it puts the burden of acting at hazard upon a person
otherwise innocent but standing in responsible relation to a public
danger” 320 U.S. at 280-81
•
Court left open which employees fell within the zone of “responsible
relation”
United States v. Park
• John Park was the president of Acme Markets
Inc., a national retail food chain with
approximately 36,000 employees, 874 retail
outlets and 16 warehouses
• FDA found unsanitary conditions including
rodent infestation at Acme’s Philadelphia
warehouse in 1970 and similar conditions at
Acme’s Baltimore facility. Mr. Park was informed
of the findings
United States v. Park
• Mr. Park consulted with Acme’s legal counsel who
advised that the employee in charge of the Baltimore
warehouse was investigating and taking all
appropriate remedial action
• In March 1972, FDA re-inspected the Baltimore facility
and still found evidence of rodent infestation
• The government charged Acme and Mr. Park with
misdemeanors under 21 U.S.C. §§ 331(k) and 333(a),
for causing food shipped in interstate commerce to
become adulterated while it was held at the Baltimore
warehouse
United States v. Park
• Mr. Park testified that he did not “believe there
was anything [he] could have done more
constructively than what [he] found was being
done” 421 U.S. at 664
• The U.S. Supreme Court ruled that: “The [FDCA]
imposes not only a positive duty to seek out and
remedy violations when they occur but also, and
primarily, a duty to implement measures that will
insure that violations will not occur” 421 U.S. at
672
United States v. Park
• It also concluded that: “The requirements of
foresight and vigilance imposed on responsible
corporate
agents
are
beyond
question
demanding, and perhaps onerous, but they are no
more stringent than the public has a right to
expect of those who voluntarily assume positions
of authority in business enterprises whose
services and products affect the health and wellbeing of the public that supports them” 421 U.S.
at 672
United States v. Park
• The Court did recognize that the FDCA “does
not require that which is objectively
impossible.” “[t]he theory upon which
responsible corporate agents are held
criminally accountable for ‘causing’ violations
of the Act permits a claim to be raised
defensively that a defendant was ‘powerless’
to prevent or correct the violation” 421 U.S.
at 673
United States v. Park
• “Assuming, arguendo, that it would be
objectively impossible for a senior corporate
agent to control fully day-to-day conditions in
874 retail outlets, it does not follow that such
a corporate agent could not prevent or
remedy promptly violations of elementary
sanitary
conditions
in
16
regional
warehouses” 421 U.S. at 677
• An executive cannot be convicted solely
because of the person’s title at the company
United States v. Park
• In the case of Park, “[T]he [FDCA] imposes the
highest standard of care and permits conviction of
responsible corporate officials who, in light of this
standard care, have the power to prevent or correct
violations of its provisions” Park, 421 U.S. at 676
• The government can seek to obtain misdemeanor
convictions of a company official for alleged violations
of the FDCA or other federal acts—even if the
corporate official was unaware of the violation—if the
official was in a position of authority to prevent or
correct the violation and did not do so
Statutory Basis for Criminal
Prosecutions Under FDCA
• 21 U.S.C. § 333(a)(1) – “Any person who
violates a provision of [21 U.S.C. § 331
(“prohibited acts”)] shall be imprisoned for
not more than one year or fined... Or both.”
• No “knowledge” or “intent” requirement
Lower courts have subsequently ruled that
an officer demonstrates that compliance is
objectively impossible when it is shown that
the officer took “extraordinary care” to
comply with the FDCA
Use of RCO Doctrine After Park
• Cases typically arose from:
– Violations under FDCA
– Persistent violations observed during FDA
inspections where violations were not
remedied
– Instances where a regulatory violation had
allegedly caused injuries to consumers or
animals
Use of RCO Doctrine After Park
• Generally, the FDA’s decision to seek prosecution
depended on whether:
– The violations were of a continuing nature
– Management must have known of the violations or
could have prevented them
– The violations were life threatening or resulted in
injuries
– A prosecution would likely affect future compliance by
the company and other similarly-situated companies
– FDA had enough resources to bring a case
Results of Actions
• Most RCO cases were misdemeanor
prosecutions
• Few cases were referred to Department of
Justice because of the lack of evidence of
intent to defraud or mislead
• Small fines and no jail time
• Typically rejected “objectively Impossible”
defense
Results of Actions
• United States v. Y. Hata & Co., 535 F.2d 508
(9th Cir. 1976) Rejected the defense because
“one maintaining far less than the requisite
‘highest standard of foresight and vigilance’
would have recognized... that implementation
of a wire cage system would substantially, if
not completely, prevent access by thieving
and untidy birds.”
Results of Actions
• United States v. Starr, 535 F.2d 512 (9th Cir.
1976) Rejected impossibility of avoiding
mouse infestation because anyone with
“minimum foresight” would anticipate the
migration of rodents from newly plowed
fields, and because the defendant failed to
follow up on his delegation of duty to a janitor
and could have anticipated and remedied the
failure of his subordinate
Results of Actions
• United States v. General Nutrition Inc., 638 F.
Supp. 556 (W.D.N.Y. 1986). Retail managers
and store clerks who had no role in choosing
claims or devising promotional materials for
a dietary supplement alleged by FDA to be a
drug were prosecuted for misbranding
because “[t]he Act provided that ‘[a]ny
person’ who violates section 331 shall be
liable... [and] ‘Any’ means any.”
305 Hearings
• Almost all criminal prosecutions during the
height of use the RCO doctrine were
preceded by a “305 hearing”
‒ “Before a violation... is reported... to any
United States attorney for institution of a
criminal proceeding, the person against
whom such a proceeding is contemplated
shall be given appropriate notice and an
opportunity to present his views.” 21 U.S.C.
§ 335
305 Hearings
• Such hearings gave targets and their
attorneys a direct opportunity to argue to
FDA why a case should not be brought.
• Courts have held that FDA is not required
to hold “305 hearings”
• In the past 20 years, such hearings have
been almost nonexistent.
Renewed Use of the RCO Doctrine
2009
• Chemnutra Inc. Two corporate officers
pleaded guilty to two counts of strict
liability
misdemeanors
of
selling
adulterated food and one of selling
misbranded food for shipping wheat
gluten tainted with melamine, destined
for pet food…
Renewed Use of the RCO Doctrine
2009
• Syntheses Inc. Executives were indicted for
the off-label promotion of a bone void filler
with a single misdemeanor count of shipping
adulterated and misbranded product. Both
the company and the officers pleaded guilty.
The officers received five to eight months in
prison and each were fined $100,000
FDA’s Position
2010
• FDA Commissioner Hamburg announced
that criteria had been developed for
selection of misdemeanor prosecution
cases and these would be incorporated
into revised policies and procedures
addressing
appropriate
use
of
misdemeanor prosecutions
FDA’s Position
• Eric M. Blumberg, FDA Deputy Chief
Counsel for Litigation, warned company
officials about impending misdemeanor
prosecutions when he stated: “Very
soon, and I have no one particular[ly]
in mind, some corporate executive is
going to be the first in a long line.”
FDA’s Recent Priorities
• Off label promotions
• Health scares in the public eye
• Industry practices under scrutiny
Friedman et. al. v. Kathleen Sebelius
Exclusion
• Fraudulent misbranding of OxyContin
manufactured
by
Purdue
Frederick
Company—stated it was less addictive and
less subject to abuse
• 400 hours of community service
• Three years probation
• $5,000 fine
• Repay $34.5 million in compensation
• 12-year exclusion
Friedman et. al. v. Kathleen Sebelius
Exclusion
• In July 2012, the D.C. Court of Appeals
found that pharmaceutical executives
found
guilty
of
misdemeanor
“misbranding” under RCO doctrine was a
misdemeanor relating to fraud, subjecting
them to exclusion from federal health care
programs
• No intent required
Friedman et. al. v. Kathleen Sebelius
Exclusion
• Office of Inspector General within the
Department of Health & Human Services
can exclude pharmaceutical, medical
device and other health care executives
from their industries
• Can’t engage any work that may involve
Medicaid or Medicare reimbursement or
other federal health care related services
Exclusion Theory
• 42 U.S.C. §1320a-7 “exclusion”—federal
government will not pay—through Medicare,
Medicaid or any other directly—or indirectly—
funded federal program—for any items or
services furnished, ordered or prescribed by
the excluded individual, anyone who employs
or contracts with the excluded individual, and
any hospital or provider where that person
provides services.
Exclusion Theory
• “Debarment”—prohibits individual from
“providing services in any capacity” to a
company or individual that has an
approved or pending drug product
application
Current Factors FDA Considers
• The individual’s position in the company and
relationship to the violation
• Whether the official had the authority to
correct or prevent the violation
• Knowledge of and actual participation in the
violation are not a prerequisite but are
factors that may be relevant when deciding
whether to recommend charging a
misdemeanor violation
Current Factors FDA Considers
• Did the violation involve actual or potential harm
to the public?
• Whether the violation is obvious
• Does the violation reflect a pattern of illegal
behavior and/or failure to heed prior warnings?
• Whether the violation is widespread or serious
• The quality of the legal and factual support for the
proposed prosecution
• Whether the proposed prosecution is a prudent
use of agency resources
Future Use
• Federal and state courts have expanded beyond
FDCA to other “public-welfare statutes”
–
–
–
–
–
Clean Water Act
Clean Air Act
Federal Meat Transportation Act
Resource Conservation and Recover Act
Federal Anti-Kick-Back Statute
• Federal employees are being trained on using the
RCO Doctrine
Corporate Strategies
• Determine what corporate functions are
susceptible to RCO scrutiny
• Be pro-active rather than reactive to
regulatory compliance
• Hire qualified and competent employees
– Background checks
– Certifications
Corporate Strategies
• Incorporate, document and monitor a
robust corporate compliance program:
– Training programs
– Reporting mechanisms
– Internal monitoring
– Audit
– Disciplinary action
– Supplemental insurance coverage
Corporate Strategies
• Document attempts to comply with
regulatory requirements and to remedy
issues
• Cautiously interact with the FDA—avoid
giving ammunition