Source: https://www.cadwalader.com/resources/clients-friends-memos/the-responsible-corporate-officer-doctrine-in-the-wake-of-decoster
Timestamp: 2019-04-25 01:16:10+00:00

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Executive Summary: The most important Park doctrine case in over forty years may be heading to the Supreme Court – but not if the federal government has its way. The Responsible Corporate Officer doctrine (“RCO doctrine”), commonly referred to as the Park doctrine, permits the government to prosecute employees for corporate misconduct when they are in a “position of authority” and fail to prevent or correct a violation of the Food, Drug and Cosmetic Act (“FDCA”).1 Not only is it a strict liability offense, it is a vicarious liability offense and is rarely used by the Department of Justice (“DOJ”) to seek prison time for supervisory employees.2 However, an important Park doctrine case, United States v. DeCoster, is pending potential review by the U.S. Supreme Court and might provide long-sought-after guidance for corporate executives in the food and drug industries.
As evidence that the DOJ will continue to focus on prosecuting individuals for corporate misconduct, the Fraud Section recently released its Evaluation of Corporate Compliance Programs (“the Evaluation Program”). The 11 topics and list of questions provide insight into how the Department intends to judge compliance programs. Importantly, a company should use the Evaluation Program to strengthen its compliance program so the company and its supervisory employees stay out of the crosshairs of government enforcement actions.
The RCO doctrine targets employees for their company’s misconduct. In our increasingly regulated world, the RCO doctrine is a powerful tool for prosecutors to use as a basis for civil and criminal convictions in their quest for individual accountability. Accordingly, health care companies and their executives must be cognizant that misconduct at any level might result in jarring penalties.
At the same time, prosecutors do not have free rein to indict individuals for their company’s illegal conduct. Because Park doctrine cases have “nationwide implications,” the United States Attorneys’ Manual states that United States Attorney Offices “must notify and consult with” the Consumer Protection Branch of the Civil Division (“CPB”) before pursuing a Park doctrine investigation.6 Main Justice asserts centralized control over the Park doctrine to ensure consistency in cases that do not require personal knowledge to secure convictions.
If the CPB permits prosecutors to use the Park doctrine, prosecutors have a fairly easy road to convict executives.7 On the other hand, a corporate officer might avoid liability where he or she is “powerless to prevent or correct the violation.”8 However, executives who are not aware of or turn a blind eye to wrongdoing are unlikely to skirt liability given the government’s low bar for a proper conviction.
The bedrock cases establishing the RCO doctrine are Dotterweich and Park.
John Park was the President of Acme Markets–a national food store chain–and the government alleged the FDA had repeatedly notified Mr. Park and the company of food safety violations at the company’s warehouses.23 On that basis (detailed below), he was found guilty of violating the FDCA for failing to correct food safety issues at the warehouses and shipping food from those facilities.
Relying on Dotterweich, the Court fined Mr. Park $250 for FDCA violations because he had the “responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and that he failed to do so.”27 In other words, Mr. Park was liable because he had at least some control over Acme’s misconduct.
Hermelin pleaded guilty to misdemeanor misbranding charges, and he was sentenced to 30 days’ imprisonment and ordered to pay a $1.9 million fine.38 In addition, Hermelin was prohibited from doing business with federal health care programs.
Osborn was responsible for Apothécure’s employee training and product quality control, but there was no evidence Osborn engaged in illegal conduct.42 Indeed, the Information did not allege that Osborn knew the drugs were illegal.
Defendants have not been sentenced, and they filed their motion for judgment of acquittal or, alternatively, a new trial. The post-trial motions are pending the Court’s review.
If the Supreme Court reviews DeCoster, it will part with decades of precedence that relied on “the good sense of prosecutors, the wise guidance of trial judges, and the ultimate judgment of juries” to guide the Park doctrine.68 Its review and subsequent decision will be a breath of fresh air for industry advocates who have longed for a precise guide to ensure corporate executives are not at the mercy of prosecutors and juries.
Although an evaluation of Quality Egg’s compliance program is outside the scope of the Supreme Court’s potential review of DeCoster, Quality Egg can look to the DOJ’s new guidance to tighten its compliance controls. Fundamentally, Quality Egg, along with all companies wishing to prevent corporate misconduct, should use the DOJ’s new guidance to assess their current compliance program and to determine if the program has an adequate early detection system in place to identify misconduct and prevent future bad acts.
The DOJ does not outline the perfect “one size fits all” compliance program. However, the Evaluation Program constructs its review model around 11 key areas and asks nuanced questions to guide companies within each topic.
The DOJ aims to identify the root cause of the misconduct. Consequently, an airtight compliance program detects potential misconduct and alerts appropriate personnel.
The Fraud Section expects best practices to begin with management. Accordingly, senior leaders and business departments responsible for best practices should commit equally to building and maintaining an environment that promotes good behavior. Importantly, the Department’s new guidance highlights the need for having policies and procedures that discourage misconduct, as well as ensuring that a company’s compliance program can adequately monitor senior management’s behavior.
The freedom of the company’s compliance department to investigate misconduct is a pillar of any effective compliance program. Thus, the company’s compliance department must have autonomy to monitor behavior and regularly meet with management to review performance. Of course, the company should provide the resources necessary to monitor corporate behavior.
The DOJ attacks policies and procedures on two fronts: design and accessibility, and operational integration.
Design and Accessibility: The company should employ a flexible approach when evaluating its compliance program–it must understand its current policies, identify the missing processes required by the current and future business environments, and implement procedures to mitigate risk. Also, “gatekeepers” should have the training to control misconduct, and employees should understand how the company expects them to act.
Operational Integration: The DOJ expects companies to integrate new or amended policies into its existing framework. This means identifying who is responsible for rolling out policies and ensuring that those responsible understand how to remedy control failures and misconduct.
Here, inquiries ask how the company identifies and addresses risks, the types of information the company collects to enhance its compliance program, and whether the company’s current “risk assessment process” contributed to misconduct.
Effective employee training programs fuel a bulletproof compliance system. Thus, the Fraud Section focuses on specific training for “high-risk and control employees” where misconduct might occur, the availability of training programs, and management conveying to employees that it will not tolerate bad acts.
This area evaluates the company’s appetite and tolerance for misconduct. The DOJ asks what information the company collects to investigate misconduct, its measures to certify the breadth and scope of investigations, and the system’s ability to detect wrongdoing.
The Fraud Section asks that a company’s compliance program promote a level playing field. This means holding employees at all levels accountable for misconduct and crafting an incentive-based system that rewards good behavior and punishes bad acts.
A static compliance program is ineffective because business environments change often and rapidly. The model program uses audits, testing, and monitoring to evaluate risk and mobilize change. In turn, the company’s program will implement the modifications necessary to thwart internal and external risks.
Business environments in which most companies work are complex and require third-party assistance. Therefore, the company should understand when to use third parties and which third parties to hire. Once the company engages a third party, the company must manage and monitor the third party to mitigate risks by certifying it complies with the company’s compliance standards.
Issues arise in mergers and acquisitions because compliance systems oftentimes cannot detect the acquired company’s misconduct. Thus, the acquiring company should identify risks during the due diligence phase and incorporate the more sound policies into the newly formed entity.
Following the Yates Memo,71 the RCO doctrine takes on heightened importance because there is greater tension between, on the one hand, the policy of encouraging a corporation’s executive staff to identify and report the actual corporate wrongdoers to the government, and, on the other hand, the risk of imprisonment to the same staff for the reported misconduct simply because it occurs under their watch. The latter outcome might be viewed as a disincentive for the kind of cooperation the DOJ is expecting of corporations, including pharmaceutical and medical device manufacturers, if it could result in vicarious, individual criminal liability under the FDCA. The Yates Memo highlights this point because, if corporate officers come clean and identify the bad actors, the government can immediately find the officer liable by virtue of an officer being a supervisory employee. Concomitantly, perhaps the Supreme Court’s review of DeCoster will limit liability by prohibiting the government from seeking imprisonment for employees who have no knowledge of their company’s illegal conduct. In the interim, corporate compliance departments should proactively use the Fraud Section’s new guidance to implement stronger compliance programs so that companies and supervisory employees stay out of the crosshairs of government enforcement actions.
1 United States v. Park, 421 U.S. 658 (1975); see also Jose P. Sierra, The Park Doctrine: All Bark and No Bite, pharmarisc (Apr. 6, 2012), http://www.pharmarisc.com/2012/04/the-park-doctrine-all-bark-and-no-bite/.
2 21 U.S.C. § 301 et seq.
3 United States v. DeCoster, 828 F.3d 626, 629, 631 (8th Cir. 2016).
4 Petition for a Writ of Certiorari, DeCoster v. United States (filed Jan. 10, 2016).
5 Brent J. Gurney et al., The Crime of Doing Nothing: Strict Liability for Corporate Officers Under the FDCA, WilmerHale, https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0ahUKEwib1qGDg8zRAhWFMyYKHdjWBJ0QFggcMAA&url=http%3A%2F%2Fwww.wilmerhale.com%2FuploadedFiles%2FWilmerHale_Shared_Content%2FFiles%2FEditorial%2FPublication%2FThe_Crime_of_Doing_Nothing.pdf&usg=AFQjCNHJbTLNIeieLVLFta3rIxId5ruQzA&cad=rja [hereinafter The Crime of Doing Nothing].
6 4-8.200 - Federal Food, Drug, and Cosmetic Act Litigation, https://www.justice.gov/usam/usam-4-8000-consumer-protection#4-8.200 (last visited Apr. 28, 2017).
7 United States v. Iverson, 162 F.3d 1015, 1025 (9th Cir. 1998) (“[A] person is a ‘responsible corporate officer’ if the person has authority to exercise control over the corporation’s activity that is causing the [violation].”).
8 Park, 421 U.S. at 673.
9 21 U.S.C. § 331(a), (b), (k) (2016).
10 21 U.S.C. § 333(a)(1) (2015).
11 21 U.S.C. § 333(a)(2).
13 Section 331 of the FDCA lays out dozens of prohibited acts, including (1) introducing or delivering into interstate commerce an adulterated or misbranded drug or device, (2) making or dispensing counterfeit drugs, (3) altering or removing any food or drug label, if the product is for sale and removing the label results in the product being adulterated or misbranded, (4) operating a food processing or holding facility with foreseeable hazards, or the owner fails to implement and monitor preventative controls.
14 See United States v. Park, 421 U.S. 658 (1975) (finding the CEO of a national grocery store chain liable for food safety violations at a company warehouse, even though the CEO was generally unaware of the violations); United States v. Purdue Frederick Co., Inc., 495 F. Supp. 2d 569 (W.D. Va. 2007) (holding that three executives who were not personally aware of Purdue’s misbranding of OxyContin pleaded guilty to violating the FDCA). See also The Crime of Doing Nothing, supra note 5. But see Lady J. Lingerie, Inc. v. City of Jacksonville, 176 F.3d 1358 (11th Cir. 1999) (striking down the validity of a Jacksonville, Florida ordinance “at least to [the] extent” the government sought imprisonment for a Park doctrine offense, because “criminal liability based on respondeat superior is acceptable if the defendant is in a ‘responsible relation’ to the unlawful conduct or omission, but only if the penalty does not involve imprisonment.”).
15 Meyer v. Holley, 537 U.S. 280, 287 (2003) (noting that Dotterweich and the responsible corporate officer doctrine was “intended” to cover vicarious liability).
16 United States v. Dotterweich, 320 U.S. 277 (1943).
18 Id. at 286 (Murphy, J., dissenting).
20 Id. at 285; Stephen Crane & Paige Bennett, Jail Time for Not Knowing: Strict Liability for Executives Under the Park Doctrine, Corporate Compliance Insights (July 18, 2016), http://www.corporatecomplianceinsights.com/jail-time-not-knowing-strict-liability-executives-park-doctrine/ [hereinafter Jail Time for Not Knowing].
21 United States v. Dotterweich, 320 U.S. 277, 280-81 (1943).
22 United States v. Park, 421 U.S. 658 (1975).
24 Id. at 661, 663.
27 Id. at 674; Jail Time for Not Knowing, supra note 20.
28 United States v. Purdue Frederick Co., Inc., 495 F. Supp. 2d 569 (W.D. Va. 2007).
32 Brent J. Gurney et al., The Crime of Doing Nothing: Strict Liability for Corporate Officers Under the FDCA, Andrews Litigation Reporter (Dec. 2007), https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0ahUKEwiNv8y3razTAhUKKyYKHbgeDqUQFggzMAI&url=http%3A%2F%2Fwww.wilmerhale.com%2FuploadedFiles%2FWilmerHale_Shared_Content%2FFiles%2FEditorial%2FPublication%2FThe%2520Crime%2520of%2520Doing%2520Nothing.pdf&usg=AFQjCNGOCW0ZSVyjOd1ihAFdwSBHaYOokA&cad=rja.
33 United States v. Hermelin, No. 4:11-CR-00085-ERW (E.D. Mo. 2011).
34 Former Drug Company Executive Pleads Guilty in Oversized Drug Tablets Case, Dep’t of Justice (Mar. 10, 2011), https://www.justice.gov/opa/pr/former-drug-company-executive-pleads-guilty-oversized-drug-tablets-case [hereinafter Hermelin DOJ Press Release].
35 Information at 7, United States v. Hermelin, No. 4:11-CR-00085-ERW (E.D. Mo. Mar. 10, 2011), ECF No. 1.
36 Id. at 3, 6.
38 Hermelin DOJ Press Release, supra note 34.
39 United States v. Osborn, No. 3:12-cr-00047-M (N.D. Tex. 2012).
43 Dallas Compounding Pharmacy Owner Pleads Guilty in Connection with Misbranded Drug Shipment, Dep’t of Justice (Apr. 24, 2012), https://www.justice.gov/opa/pr/dallas-compounding-pharmacy-owner-pleads-guilty-connection-misbranded-drug-shipment.
45 United States v. Facteau et al., No. 1:15-CR-10076-ADB (D. Mass. 2016).
46 Former Acclarent, Inc. Executives Convicted of Crimes Related to the Sale of Medical Devices, Dep’t of Justice (July 20, 2016), https://www.justice.gov/usao-ma/pr/former-acclarent-inc-executives-convicted-crimes-related-sale-medical-devices.
47 Indictment at 9, United States v. Facteau, No. 1:15-CR-10076-ADB (D. Mass. Apr. 8, 2015), ECF No. 1.
48 Brandon Lowrey, Minor Convictions In Acclarent Trial Raise Major Questions, Law 360 (July 22, 2016, 11:29 PM), https://www.law360.com/articles/820531/minor-convictions-in-acclarent-trial-raise-major-questions/.
49 Joseph F. Savage, Jr. & Kate E. MacLeman, The Responsible Corporate Officer Doctrine, Law Journal Newsletters (Dec. 2016), http://www.lawjournalnewsletters.com/sites/lawjournalnewsletters/2016/12/01/the-responsible-corporate-officer-doctrine-2/?slreturn=20170318090824.
50 United States v. DeCoster, 828 F.3d 626, 629 (8th Cir. 2016).
54 Id. at 629, 631.
59 Id. at 629, 631.
60 Petition for a Writ of Certiorari at *12-16, DeCoster v. United States (filed Jan. 10, 2016).
66 Brief for the United States in Opposition, DeCoster v. United States, at *10 (filed Apr. 12, 2017).
68 United States v. Dotterweich, 320 U.S. 277, 285 (1943).
69 U.S. Department of Justice Criminal Division Fraud Section Evaluation of Corporate Compliance Programs (2017), https://www.justice.gov/criminal-fraud/page/file/937501/download.
71 On September 9, 2015 the DOJ issued a memorandum titled, Individual Accountability for Corporate Wrongdoing, which is commonly referred to as the “Yates Memo.” See New DOJ Policy Regarding Individual Accountability for Corporate Wrongdoing, Cadwalader (Sept. 10, 2015), http://www.cadwalader.com/resources/clients-friends-memos/new-doj-policy-regarding-individual-accountability-for-corporate-wrongdoing.

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