Source: https://www.fdli.org/2018/11/the-responsible-corporate-officer-doctrine-protections-are-needed-despite-dojs-cautious-approach/
Timestamp: 2019-04-26 16:18:09+00:00

Document:
The responsible corporate officer (RCO) doctrine—which allows for criminal prosecution and imprisonment of an individual who was not personally involved in or aware of corporate misconduct—has been the subject of heated discussion in light of Food and Drug Administration (FDA) and Department of Justice (DOJ) officials’ threats of impending RCO prosecutions. This article examines how the RCO doctrine has been applied in practice and observes that prosecutors largely have limited enforcement actions to individuals with alleged knowledge of or involvement in corporate misconduct. Nevertheless, the risk of enforcement overreach remains, and formal safeguards are needed to ensure that criminal liability—and the significant consequences that follow—are fairly and justly imposed.
for misdemeanor violations of the Federal Food, Drug, and Cosmetic Act (FDCA).1 The doctrine’s name comes from the last case in which the Supreme Court meaningfully reviewed the doctrine, more than forty years ago. In United States v. Park,2 John R. Park, the president of a national food store chain, was convicted of a misdemeanor FDCA violation predicated on rodent contamination in the company’s warehouses.3 Park was not alleged to have had direct responsibility for sanitation but, as president, was indirectly responsible for overall operations.
This announced shift in priorities generated renewed debate about the RCO doctrine’s boundaries and predictions that it would be used to convict corporate officers with no personal knowledge of the FDCA violations. However, a review of individual prosecutions of officers in FDA-regulated industries over the past ten years shows that, in practice, the government primarily has pursued corporate officers with alleged knowledge of, and sometimes even involvement in, the FDCA violations at hand.
In a more recent promotional misbranding case, prosecutors alleged that the CEO and VP of Sales for Acclarent, Inc., a medical device company, illegally marketed a nasal sinus device in a false and misleading manner.21 The government charged the corporate officers with multiple felony violations, including adulteration and misbranding, securities fraud, and conspiracy. Citing emails to and from the corporate officers, the government alleged that they actively led or participated in marketing and distributing the device for an unapproved use, including conducting unauthorized clinical trials, all in an attempt to boost revenue and attract potential purchasers.22 A jury acquitted the corporate officers of the felony charges but convicted them of ten misdemeanor adulteration and misbranding offenses.23 Thus, like Synthes, Acclarent is a case in which the government alleged that the corporate officers possessed knowledge and/or involvement in the underlying violation, even though they ultimately were convicted of misdemeanors.
Even in cases charged as misdemeanors, the government largely appears to have pursued individuals who allegedly contributed to an environment in which they should have known that violations were likely to occur or knew of some related underlying wrongdoing. In 2011, for instance, the government pursued misdemeanor charges against Mark Hermelin, the CEO, controlling shareholder, and former Chairman of KV Pharmaceutical in connection with KV’s manufacture and distribution of oversized (and therefore super-potent) morphine tablets.24 The government alleged that, during Hermelin’s tenure as CEO, the company had a history of misbranding and adulteration issues, including a prior misdemeanor conviction.25 It further alleged that, upon discovering that the company had manufactured super-potent tablets, Hermelin instructed his employees to minimize written communication about the problem and attempted to usurp the role of his quality control team.26 Thus, although the government did not allege that Hermelin knew the tablets were oversized at the time of distribution, it did allege that Hermelin had substantial control over the relevant manufacturing processes and demonstrated disregard for compliance.
Another recent food prosecution, this one brought against Quality Egg LLC and its officers, father and son Jack and Peter DeCoster (the DeCosters), resulted in significant examination of the implications of RCO prosecutions. Quality Egg and the DeCosters were charged in connection with the company’s sale of salmonella-contaminated eggs that sickened thousands of people nationwide.30 The DeCosters eventually pled guilty to misdemeanor FDCA violations, admitting only that Quality Egg had shipped thousands of adulterated eggs and that they held positions of authority within the company.31 Although the government did not allege that either of the officers were aware of the specific violations, it sought imprisonment at sentencing, pointing to evidence that each knew of the company’s sanitation deficiencies, including salmonella contamination throughout its barns and flocks, and ignored the “obvious and serious risk that the contamination would spread” to the eggs being sold.32 At sentencing, each of the DeCosters was sentenced to a three-month term of imprisonment.
As the cases above indicate, the consequences of RCO charges are significant. A conviction or plea to a misdemeanor count can result in incarceration, as in the Synthes, Jensen, and DeCoster cases. While Osborn may be an outlier and distinguishable given Osborn’s dominant control over a small organization, the case demonstrates that the government can and may advocate for incarceration as punishment, even absent allegations that the officer had knowledge of the underlying violation. And, as demonstrated in Purdue, the ramifications of a conviction are not limited to incarceration or probation, but also include costly collateral consequences, such as substantial monetary fines or exclusion from federal health care programs.
In first recognizing the RCO doctrine, the Supreme Court acknowledged that just the application of the RCO doctrine depended on sound prosecutorial discretion—“on conscience and circumspection in prosecuting officers.”41 While our review found that DOJ has pursued RCO prosecutions sparingly in recent years, this is of little solace to executives working in FDA-regulated industries who must rely on DOJ’s “trust us” approach to prosecutorial discretion. It also is not possible to survey the extent to which DOJ has threatened prosecution in cases that are ultimately declined or result in pleas to non-FDCA charges. The fact remains that RCO prosecutions—where an individual can be prosecuted, imprisoned, and subject to significant collateral consequences with no showing of knowledge or involvement in the misconduct—should be subject to greater procedural safeguards than currently exist. DOJ should issue written (and public) standards governing RCO actions, including adequate pre-indictment notice to the individual, an opportunity to present mitigating evidence, and procedures for internal appeal to more senior personnel within the department to ensure that prosecutors exercise their discretion in a fair, just way.
421 U.S. at 672 (internal quotation marks and citations omitted).
Those that did focused primarily on the “objective impossibility” defense set out in Park. See, e.g., United States v.Y. Hata & Co., 535 F.2d 508, 510 (9th Cir. 1976) (rejecting the defendant’s argument that he was entitled to an objective impossibility jury instruction because someone “maintaining far less than the requisite ‘highest standard of foresight and vigilance’ would have recognized that contamination was preventable”).
The pleas arose in connection with allegations that Purdue had engaged in unlawful marketing of its opioid medications. See Plea Agmts., United States v. The Purdue Frederick Co. et al., No. 07-00029 (W.D. Va. May 10,2007), ECF Nos. 7-9.
110-479 Before the S. Comm. on the Judiciary, 110th Cong. 10-11 (2007) (statement of John L. Brownlee, U.S. Attorney, Western District of Virginia) (“[T]he charges that we came up with were the appropriate charges under this evidence, with this evidence.”).
Agreed Stmt. of Facts at 14-15, Exh. B to Information, Purdue, No. 07-00029 (May 10, 2007); see also Information at 1-2 et seq., id.
See, e.g., GlaxoSmithKline to Plead Guilty and Pay $3 Billion to Resolve Fraud Allegations and Failure to Report Safety Data, DOJ Press Release, https://www.justice.gov/opa/pr/ glaxosmithkline-plead-guilty-andpay-3-billion-resolve-fraud-allegationsand-failure-report (July 2, 2012). No executives were prosecuted.
In a 2009 speech, for instance, the Head of DOJ’s Civil Division emphasized that the reach of DOJ’s healthcare fraud enforcement priorities would “not be limited to corporate actors.” Instead, DOJ’s priorities would include “criminal cases against individuals responsible for illegal conduct.” DOJ Officials Outline Enforcement Preventative Initiatives to Tackle Fraud, Health Care Daily Rep. (BNA) (Nov.16, 2009) (comments attributed to Tony West). The next year, in a letter to Senator Charles Grassley, then-FDA Commissioner Margaret Hamburg wrote that FDA intended to “increase the appropriate use of misdemeanor prosecutions, a valuable enforcement tool, to hold responsible corporate officials accountable.” Letter from Margaret A. Hamburg, M.D., FDA, to The Honorable Charles E. Grassley, Senate Cmte. on Fin. (Mar. 4, 2010). In 2011, FDA followed through and released a broad set of criteria the agency would consider when deciding whether to recommend individual prosecutions to DOJ. See Special Procedures and Considerations for Park Doctrine Prosecutions, FDA Regulatory Procedures Manual, https://www.fda.gov/iceci/compliancemanuals/ regulatoryproceduresmanual/(Aug. 2018).
Individual Accountability for Corporate Wrongdoing, DOJ Memorandum from Sally Quillian Yates (Sept. 9, 2015), https://www.justice.gov/archives/dag/file/769036/download.
Id. at 1. That same year, Senators Orrin Hatch and Martin Heinreich sent a letter to then-Attorney General Loretta Lynch urging the DOJ to use the RCO doctrine to pursue corporate officers of dietary supplement manufacturers “as part of a focused-deterrence and selective targeting strategy against current and would-be transgressors.” Hatch, Heinrich Urge DOJ to Enforce Dietary Supplement Rules, Press Release (May 19, 2015), https://www.hatch.senate.gov/public/index.cfm/2015/5/joint-release-hatch-heinrich-urge-doj-to-enforce-dietary-supplement-rules.
Discussion of RCO prosecutions often include the prosecution of Stuart and Michael Parnell (collectively, “the Parnells”) and other corporate officers of the Peanut Corporation of America for their roles in a salmonella outbreak that killed nine and sickened hundreds. However, the record shows this is not an RCO case. The Parnells were convicted at trial of multiple felonies after the government presented extensive evidence that they had fabricated certifications stating the company’s food products were safe even though testing either was never performed or had revealed contamination. See Former Peanut Company President Receives Largest Criminal Sentence in Food Safety Case, DOJ Press Release (Sept. 21, 2015), https://www.justice.gov/opa/pr/former-peanut-company-president-receives-largest-criminal-sentence-food-safety-case-two.
See generally, e.g., United States’ Resp. to Defs.’ Objs. to Presentence Reports, United States v. Norian Corp. et al., No. 09-cr-403 (E.D. Pa. Apr. 22, 2011). The clinical trials ultimately resulted in three patient deaths. Id. at 24.
United States v. Huggins, 09-403-3, 2011 WL 6180623, at *1 (E.D. Pa. Dec. 13, 2011).
United States’ Resp. to Defs.’ Objs. to Presentence Reports at 4, Norian Corp., No. 09-cr-403 (Apr. 22, 2011).
See generally Indictment, Unites States v. Facteau et al., No. 15-cr-10076 (D. Mass Apr. 8, 2015).
Id. at 8-14. The government further alleged that the officers committed securities fraud by concealing the company’s unlawful conduct and making misrepresentations to the purchaser during the merger process. Id. at 14-16.
See Jury Verdict, id. (July 2, 2016).
See generally, Information, United States v. Hermelin, No. 11-00085 (E.D. Mo. Mar. 10, 2011).
See generally, Information, United States v. Jensen, No. 13-1138 (D. Colo. Sept. 24, 2013).
See Plea Agmt. at 7, id. (Oct. 22, 2013).
Gov’t. Sentencing Stmt. at 14, id. (Jan.17, 2014) (“[T]he seriousness of the offense is tempered in this case by the lack of a willful, intentional, or knowing state of mind. These defendants were at worst negligent or reckless in their acts and omissions.”).
United States v. DeCoster, 828 F.3d 626 (8th Cir. 2016), cert. denied, 137 S. Ct. 2160 (May 22, 2017).
Plea Agmts, Unites States v. DeCoster, No. 14-3024 (D. Iowa June 2, 2014), ECF Nos. 16-17.
Gov’t. Brief Opp. Defs.’ Mot. on Sentencing at 2, id. (Oct. 23, 2014).
DeCoster, 828 F.3d at 631, 636.
Gov’t Opp. Brief at 9, DeCoster v. United States, No. 16-877 (Apr. 12, 2017), http://www.scotusblog.com/case-files/cases/decoster-v-united-states/.
See generally, Information, United States v. Osborn et al., No. 12-00047 (N.D. Tex. Feb. 10, 2012).
See Tr. of Oct. 3, 2012 Sentencing Hr’g at 21:24-22:1, id. (Jan 10, 2013).
United States v. Dotterweich, 320 U.S. 277, 285 (1953).

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.