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Criminalizing Management Decisions: Prosecuting the Responsible Corporate Officer

By Lisa Krigsten – December 22, 2010


In March 2010, the U.S. Food and Drug Administration (FDA) revealed that it had created new case-selection criteria for the prosecution of responsible corporate officers. This indicates a likely shift in agency priorities. Accordingly, the announcement has created a revived interest in the responsible-corporate-officer doctrine.


It is widely assumed that an indictment for corporate misconduct must involve either the corporation itself or the “bad actors” therein. There is a presumption that a criminal defendant must, at the very least, have some consciousness of the alleged wrongdoing. Painting in such broad strokes, though, misses an important theory of corporate criminal liability.


The responsible-corporate-officer doctrine upends the traditional theories of culpability. It provides that simply by virtue of a person’s responsibility within a company, he or she may be prosecuted for criminal violations of law. In other words, corporate presidents and CEOs may be convicted and potentially sentenced to a term of imprisonment without committing a knowing, reckless, or even intentional act. The conviction can be premised simply on the officer’s job description in the corporate bylaws.


For companies within the FDA’s reach, the new criteria should lead to a renewed focus on effective corporate compliance.


The Principles Behind Prosecuting Corporate Officers

The responsible-corporate-officer doctrine provides that a defendant may be guilty if he or she had, “by reason of his [or her] position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct,” the alleged violations of law. United States v. Park, 421 U.S. 658, 673–74 (1975). Notably, the law does not require a corporate officer to be aware of wrongdoing within the company. Instead, the officer is culpable simply because he or she had the authority either to prevent or to remedy the criminal violation.


The doctrine originated with a 1943 case brought under the Food, Drug, and Cosmetics Act. See United States v. Dotterweich, 320 U.S. 277 (1943). In Dotterweich, a drug company and its president were prosecuted for the shipment of misbranded and adulterated drugs. The company was acquitted, but the jury convicted the company’s president. In affirming the Dotterweich conviction, the U.S. Supreme Court acknowledged that the president had no role in or knowledge of the company’s wrongful acts. Nonetheless, the Court determined that it was “in the interests of the larger good” to place “the burden of acting at hazard upon a person otherwise innocent but standing in responsible relation to a public danger.” Dotterweich, at 281.


The concept of public danger is the underpinning of all responsible-corporate-officer doctrine prosecutions. Use of the doctrine has been limited to cases involving regulatory or public-safety crimes that do not have a mens rea element. As explained by the U.S. Supreme Court,

 

[m]any of these offenses are not in the nature of positive aggressions or invasions, with which the common law so often dealt, but are in the nature of neglect where the law requires care, or inaction where it imposes a duty. Many violations of such regulations result in no direct or immediate injury to person or property but merely create the danger or probability of it which the law seeks to minimize.

 

Morrissette v. United States, 342 U.S. 246, 255–56 (1952). In other words, the doctrine punishes corporate officers regardless of whether any harm actually occurred or whether the officer acted with any other bad purpose.

 

The Classic Cautionary Tale
Nearly 30 years ago, John Park was the CEO of a national retail food chain with more than 36,000 employees operating out of 874 retail establishments. See United States v. Park, 421 U.S. 658, 660 (1975). The company also had 16 warehouses that held food destined for sale. Over the course of several months, FDA inspectors discovered numerous sanitation violations, including rodent infestation, in a handful of the warehouses. To be sure, the description of the infestation is less than appetizing; investigative reports state that “. . . rodent gnawed holes were noted among bales of flour. . .” and that ample evidence existed of “potential rodent harborage” in debris piled near bakery and warehouse doors.


In correspondence with the company, the FDA expressed frustration that unsanitary conditions had “existed for a prolonged period of time without any detection” or had been “completely ignored.” Although there was ample basis for the FDA’s concern, Park had not been personally involved with the sanitation issues. He was not present in the warehouses, nor did he actively or implicitly encourage employees to disregard sanitation regulations. Instead, it appears Park acted with modern executive efficiency. Upon learning of the sanitation issues, a company vice president was assigned to “investigat[e] the situation immediately” and report back regarding the corrective action taken in response to the unsanitary conditions.


Regardless, the government indicted both Park and the company for violations of the Federal Food, Drug, and Cosmetic Act. Park’s indictment was based on a responsible-corporate-officer doctrine theory of liability. At trial, the company’s corporate secretary testified for the government. He read to the jury the corporate bylaw describing Park’s responsibilities. He further testified about Park’s delegation style, described as follows, “[Park] functioned by delegating ‘normal operating duties,’ including sanitation, but that he retained ‘certain things, which are big, broad, principles of the operation of the company,’ and had ‘the responsibility of seeing that they all work together.’”


For his part, Park reminded jurors that, as CEO, he was responsible for the “entire operation of the company.” He testified that he relied on “dependable subordinates” to assist in operating many parts of the company, including sanitation. Park also testified that he had done everything possible to remedy the problem.


The jury apparently was not sufficiently convinced by Park’s testimony, though, as Park was found guilty on all counts. Initially, Park’s conviction was reversed on the basis that he personally had not taken any “wrongful action.” Following an appeal to the U.S. Supreme Court, however, the conviction was reinstated. In its opinion, the Court declined to adopt any requirement that a defendant must be aware of or take part in a wrongful act to be convicted of a strict liability regulatory offense.


The Court acknowledged that the law might sweep in individuals “remotely entangled” in the offense. Nevertheless, in language destined for corporate-compliance manuals, the Court noted that: “. . . those corporate agents vested with the responsibility, and power commensurate with that responsibility, to devise whatever measures are necessary to ensure compliance with the [law] bear a ‘responsible relationship’ to, or have a ‘responsible share’ in, violations.” Park, 421 U.S. at 672. In other words, despite hiring a dependable management team to help operate a large national company, Park was guilty because ultimate responsibility for sanitation compliance stopped at his desk.


The Contours of a Responsible-Corporate-Officer Prosecution
Historically, the doctrine has been used judiciously by prosecutors. This presents challenges in determining how to properly instruct a jury. At least one federal circuit, though, has developed a pattern instruction that encompasses a responsible-corporate-officer theory; the Third Circuit has approved the following:

 

. . . [an employee] is not criminally responsible for illegal acts committed on behalf of that corporation merely because of [his or her] status as an [employee] of the corporation unless the defendant had, by reason of his or her position in the corporation, responsibility and authority either to prevent in the first instance, or promptly correct, the violation complained of, and failed to do so.

Model Third Circuit Jury Instructions: Criminal § 7.07 (2009) (emphasis added).


While other circuits have pattern instructions on corporate-officer responsibility, such instructions tend not to reflect the idea of responsible-corporate-officer culpability. Instead, most indicate that officers are responsible only for acts that they performed personally, as an aider and abettor, or as a coconspirator. The doctrine, though, is not premised on any of those theories. For example, there does not have to be evidence that the officer “counsel[ed], command[ed], induce[d], or procure[d]” the commission of any act or omission to sustain a conviction. See 18 U.S.C. § 2 (defining aiding and abetting).

 

Similarly, the doctrine is distinguishable from conspiracy. While conspirators may be unaware of each act taken in furtherance of the conspiracy, the crime of conspiracy is predicated on a meeting of the minds regarding criminal activity. There must be evidence that each defendant reached an agreement or understanding with one other person involved in the conspiracy. By contrast, responsible-corporate-officer cases do not rely on any agreement—implicit or explicit—within the organization. In fact, the officer may be the only name on an indictment; charges against the officer are wholly independent of charges against the company or its other employees.


There are, however, some limitations on the types of cases in which the doctrine may be invoked. First, the case must involve a strict-liability offense. The following are generally accepted criteria for determining whether a statute provides for strict liability: (1) The statute does not mention intent; (2) the penalty for a violation is “relatively small;” (3) a conviction under the statute would not “gravely” damage a defendant’s reputation; and (4) congressional history does not indicate a desire to include an intent element. See Holdridge v. United States, 282 F.2d. 302, 310 (8th Cir. 1960). Of course, as a conviction may result in a jail sentence, vantage point plays a role in evaluating the penalty size and potential reputational damage.


Second, the corporate officer must have been aware that the company placed him or her “in a responsible relation to a public danger.” Staples v. United States, 511 U.S. 600, 607 (1994) (citing Dotterweich, 320 U.S. at 281). Put another way, the doctrine may be used in cases in which “a reasonable person should know that the conduct is subject to stringent regulation and may seriously threaten a community’s health and safety.” United States v. Unser, 165 F.3d 755, 762 (10th Cir. 1999) (citing Liparota v. United States, 471 U.S. 419, 433 (1985)). In such situations, the burden is on a defendant “to ascertain at his peril whether [his conduct] comes within the inhibition of the statute.” Staples, 511 U.S. at 607 (citing United States v. Balint, 258 U.S. 250, 258 (1922)). This limitation is designed to address due-process concerns about using the doctrine against an otherwise innocent corporate officer.


In addition to these limitations, courts have recognized an affirmative defense in responsible-corporate-officer cases. The affirmative defense of “impossibility” permits a defendant to demonstrate that it would have been impossible to remedy the regulatory violations. The defense stems from the Supreme Court’s opinion in United States v. Park, in which the Court mused whether Park could have prevailed upon proving that, despite his position, he actually lacked the power to change the conditions at the warehouses. In cases since Park, defendants have argued that, notwithstanding having exercised “extraordinary care,” it was impossible for them to have stopped the violation. See United States v. New England Grocers Supply Co, 488 F. Supp. 230, 235 (D. Mass. 1980).

 

Corporate Compliance and the Responsible-Corporate-Officer Doctrine

Compliance is the key to avoiding responsible corporate officer liability. An effective compliance program both prevents violations as well as alerts corporate officers of violations as soon as they occur. The following two guideposts should be used in evaluating the strength of a company’s compliance efforts.


Understand the Company’s Regulatory Environment
Companies in every regulated industry are vulnerable to a prosecution under the responsible-corporate-officer doctrine. To provide effective counsel, attorneys must understand which public-health and -safety regulations may be applicable to a client’s industry. Compliance efforts then can be specifically tied to those violations.


Some strict-liability statutes are industry-specific. For example, the pharmaceutical, medical-device, and retail-food industries, all of which come under the auspices of the FDA, must comply with the Federal Food, Drug, and Cosmetic Act. That act penalizes, inter alia, introducing or delivering an “adulterated or misbranded” food, drug, device, or cosmetic into interstate commerce. See 21 U.S.C. § 331 (providing a list of prohibited acts). A misdemeanor violation of the act does not require that the defendant acted knowingly, willfully, or even in reckless disregard.


In addition, the agricultural sector of the food industry must be concerned with strict liability prosecutions under a variety of statutes. Recent headlines about food contamination may implicate statutes enforced by the U.S. Department of Agriculture. This includes the Federal Meat Inspection Act’s adulterating and misbranding provisions, which outline strict-liability violations. See 21 U.S.C. §§ 610 and 676(a). It also includes egg- and poultry-inspection statutes.


Other strict-liability statutes are not tied to a specific industry. For instance, both the Clean Water Act and the Clean Air Act contain language about holding “responsible corporate officers” accountable. In fact, the statutes appear to go further than the traditional use of the doctrine; they permit willful acts to be “imputed” to the corporate officer. See United States v. Brittain, 931 F.2d 1413, 1419 (10th Cir. 1991) (finding that under the Clean Water Act, “a ‘responsible corporate officer,’ to be held criminally liable, would not have to ‘willfully or negligently’ cause a permit violation. Instead, the willfulness or negligence of the actor would be imputed to him by virtue of his position of responsibility.”)


This is far from a comprehensive list of federal strict-liability regulatory violations. There also are several states that use the doctrine in criminal prosecutions involving environmental and other public-welfare statutes. The initial challenge in evaluating compliance programs, therefore, is identifying the criminal statutes upon which a prosecution could be based.


Understand the Company’s Compliance Chain of Command
Most company presidents no longer can step out of their office and into the warehouse or onto the plant floor. Even with the ubiquity of smart phones, video conferencing, and low-cost air travel, corporate executives can be layers removed from the day-to-day regulatory issues facing the company. This reality presents challenges to building an effective compliance program.


Particularly in highly regulated industries, company executives need to remain personally engaged in some of the company’s public-safety and public-welfare activities. To begin, executives should be encouraged to carefully review the chains of command within the organization. This review would involve determining precisely how potential regulatory violations should be reported to the management team. For instance, individuals working on environmental and product-safety issues should have a clear line of report to the executive suite. This also would involve an analysis of corporate-governance documents to ensure that they accurately outline the responsibilities of each position.


Once the review is complete, the company must have a process by which employees are encouraged to give management notice of potential issues. Everyone in the company needs to be held accountable not just for preventing violations, but also for promptly reporting violations through the chain of command. This internal culture of openness and accountability gives corporate officers ample time to implement measures to remedy violations and, better yet, keep additional violations from occurring.


Finally, executives need to understand which issues should trigger their personal involvement. For example, the results of an FDA inspection not only should immediately reach the executive management, but also such management should be actively involved in responding to any alleged deficiencies. A key to avoiding problems for the company, as well as for the corporate officers, is quickly identifying incidents that demand personal attention.


Conclusion

In corporate America, accepting responsibility for wrongdoing often is the mark of strong leadership. Much like the famous “The Buck Stops Here” sign that President Truman kept on his desk, corporate presidents often publicly take responsibility for their company’s shortcomings. For corporate leaders in regulated industries, though, the FDA’s recent announcement means that accepting such responsibility is likely to become less metaphor than reality.


Keywords: responsible corporate officer doctrine, Morrissette, Park, FDA


Lisa Krigsten is a partner with Husch Blackwell LLP in Kansas City, Missouri.


 
 
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