Strict Criminal Liability of 'Responsible Corporate Officers'

The Supreme Court has upheld such strict-liability convictions since United States v. Dotterweich, 320 U.S. 277, 284 (1943). Nevertheless, there are at least four ways they can be challenged:

• The government needs to prove more than that the defendant was a corporate officer at the time of the corporate offense. Personal strict liability applies only to employees in a position to prevent a violation; executives are not vicariously liable.
• Conviction requires proof of some knowledge of a problem and a failure to act.
• The government must follow guidelines that ' as it assured the Supreme Court ' would limit such prosecutions to certain serious cases.
• Only negligent officers can be prosecuted as “responsible corporate officers” (otherwise, the criminal definition would be unconstitutionally vague).

Elements of RCO Strict Liability

The leading cases affirming conviction of executives as “responsible” for corporate crimes are U.S. v. Dotterweich and U.S. v. Park, 421 U.S. 658 (1975). In Dotterweich, the Buffalo Pharmacal Company, Inc. and Dotterweich, its president and general manager, were charged with misbranding drugs. Though Dotterweich had not personally shipped the drugs, he was responsible for the firm's system of operations. Packing and shipping employees followed established company procedures, according to a government brief. The Supreme Court approved an instruction that the jury had only to find that Dotterweich was “responsible” for the shipments and that the shipments were “under his supervision.”

In Park, Acme Markets, Inc. and its CEO John Park were charged with adulterating food. Park had received FDA warnings about warehouse conditions, was aware that his system was not working properly, and acknowledged that as president, he was responsible. The Supreme Court upheld instructions to the jury that all it needed to convict Park was to find that he had a “responsible relationship to the issue,” i.e., that he was in a position of authority and responsibility over the situation. This, however, required more than a mere finding that he was the CEO. Park's defense was that he relied on subordinates, and the government agreed that he would not be guilty if he had delegated the issue to subordinates and “had no reason to suspect they were failing to get the job done.” A conviction cannot be obtained simply by proving someone holds a particular position in the company.

Requiring Proof

Since Dotterweich, all reported decisions convicting an individual as an RCO have involved proof beyond the defendant's corporate position. For example, in U.S. v. Freed, 189 Fed. Appx. 888 (11th Cir. 2006), the Forest Service sent Freed, the incorporator and trustee of a campground, letters that the campground violated regulations; when conditions did not change, Freed was found guilty as a responsible corporate officer. Similarly, in U.S. v. Iverson, 162 F.3d 1015 (9th Cir. 1998), the court upheld a jury instruction that Iverson, founder, President and Chairman of the Board, could only be found guilty if it found that he knew pollutants were discharged, had the authority and capacity to prevent the discharge, and failed to act. Iverson was sentenced to a year in jail. Similarly, the Fourth Circuit affirmed the conviction of the owner of a corporation who had been involved in the purchase of an insufficient purifying system, controlled the company's finances, and was present when discharges were made. U.S. v. Ming Hong, 242 F.3d 528 (4th Cir. 2001).

Prosecutors need to be reminded that it is knowledge and inaction, not simply the corporate job title, that constitutes an offense.

Agency Guidelines Target Serious Repeat Offenders

In Park, the Supreme Court relied upon a promise by the Department of Justice (DOJ) that it would limit strict liability prosecutions to extreme cases, and the Court expressly decided to rely on the “good sense of prosecutors.” 421 U.S. at 669, quoting Dotterweich, 320 U.S. at 285. The government assured the Court: “Even if investigation discloses the elements of liability, and indicates that an official bears a responsible relationship to them, the agency will not ordinarily recommend prosecution unless that official, after becoming aware of possible violations, often (as with Park) as a result of notification by FDA, has failed to correct them or to change his managerial system so as to prevent further violations.” Government's Supreme Court brief, Park at 31-32.

The present FDA guidance is substantially in accord with this promise. See FDA Regulatory Procedures Manual, ' 6-5-1 (March 2009) (prosecution priorities are individuals with a history of violative conduct and prior warnings). EPA has similar guidance. See Memorandum from Earl E. Devaney, Director, EPA Office of Criminal Enforcement, to EPA Employees in the Criminal Enforcement Program (Jan. 12, 1994) (prosecution priorities involve culpable conduct, such as a history of violations, deliberate misconduct, or falsification of records). The FDA is developing additional criteria for misdemeanor prosecution that will be incorporated into its policies and procedures as part of its response to recent criticism about the oversight of its Office of Criminal Investigations and its plan to increase the use of misdemeanor prosecutions of RCOs.

In pre-charging negotiations with prosecutors, defense counsel should remind them of government promises to the Supreme Court and the various agency limitations.

Void for Vagueness?

The Supreme Court this term has focused on the right of citizens to fair notice of what constitutes criminal activity. It is widely believed that the Supreme Court will find the broadest interpretations of the honest-services fraud statute to fail this test, i.e., that they are unconstitutionally vague. Similarly, the RCO statutes are wholly devoid of notice about what it means to be “responsible.” The Supreme Court recognized that it would be “too treacherous to define or even to indicate by way of illustration the class of employees which stands in such a responsible relation.” Dotterweich, 320 U.S. at 285. So it simply gave up and said, “the good sense of prosecutors, the wise guidance of trial judges, and the ultimate judgment of juries must be trusted.” The four dissenting justices found this troubling, because “reliance on the legislature to define crimes and criminals distinguishes our form of jurisprudence from certain less desirable ones. The legislative power to restrain the liberty and to imperil the good reputation of citizens must not rest upon the variable attitudes and opinions of those charged with the duties of interpreting and enforcing the mandates of the law.” The dissenting justices in Park, three decades after Dotterweich, still found the statute troubling because the predicate for conviction ' “responsibility” ' had “whatever meaning the jury in its unguided discretion chose to give it”; what it means to be “responsible” is so amorphous that the jury was, in essence, told: “You must find the defendant guilty if you conclude that he is guilty.” 421 U.S. at 679 (Stewart, J., dissenting). The way to cure this ambiguity, the dissenters concluded, was to require that “before a person can be convicted of a criminal violation of this Act, a jury must find ' evidence beyond a reasonable doubt that he engaged in wrongful conduct amounting at least to common-law negligence.”

The lack of definition permitted by Park and Dotterweich should no longer survive. Prosecutors should be urged to consider that only with proof of affirmative negligence can the statute pass constitutional muster.

Conclusion

While the RCO doctrine is broad to the point of being harsh and unfair, there are limits ' constitutional, statutory, and those based on government guidelines. Defense counsel need to bring these limits to prosecutors' attention to avoid misuse of strict liability statutes.

Joseph F. Savage, Jr. ([email protected]), a member of this newsletter's Board of Editors, is a partner in the Boston office of Goodwin Procter LLP and a former federal prosecutor. Marcy D. Smirnoff and Elianna J. Nuzum are associates in the firm's White Collar Crime and Government Investigations group.

Many lawyers think it's black-letter law that prosecutors can't convict a criminal defendant without proving mens rea. This is not so, however, for “Responsible Corporate Officers” (RCOs) in businesses that affect public health and safety. A recent, controversial decision by the Food and Drug Administration (FDA) to step up misdemeanor prosecutions of RCOs whose conduct amounts at most to managerial negligence should ring alarm bells for defense counsel and put them on the alert to challenge these prosecutions.

The Challenges

When executives of Purdue Frederick Co., Inc., pleaded guilty in 2007, one Purdue defendant's attorney explained that the guilty pleas were to a “strict liability, no intent misdemeanor resulting solely from their status as officers of Purdue at a time when others engaged in conduct of which they were unaware.” Sue Reisinger, Ex-Purdue Pharma Lawyer Asks Court: Give Me Back My Career, Corporate Counsel, Dec. 22, 2009. Likewise, the lawyer for an executive of C.R. Bard, Inc., convicted in a health-care case in Massachusetts, noted that, despite the “deeply held (and legally correct) belief that he had committed no crime,” Leichter agreed to plea guilty to a “strict liability misdemeanor.” Harvey Silvergate, “Three Felonies a Day,“ 75, 85 (Encounter Books 2009).

The Supreme Court has upheld such strict-liability convictions since United States v. Dotterweich , 320 U.S. 277, 284 (1943). Nevertheless, there are at least four ways they can be challenged:

• The government needs to prove more than that the defendant was a corporate officer at the time of the corporate offense. Personal strict liability applies only to employees in a position to prevent a violation; executives are not vicariously liable.
• Conviction requires proof of some knowledge of a problem and a failure to act.
• The government must follow guidelines that ' as it assured the Supreme Court ' would limit such prosecutions to certain serious cases.
• Only negligent officers can be prosecuted as “responsible corporate officers” (otherwise, the criminal definition would be unconstitutionally vague).

Elements of RCO Strict Liability

The leading cases affirming conviction of executives as “responsible” for corporate crimes are U.S. v. Dotterweich and U.S. v. Park , 421 U.S. 658 (1975). In Dotterweich, the Buffalo Pharmacal Company, Inc. and Dotterweich, its president and general manager, were charged with misbranding drugs. Though Dotterweich had not personally shipped the drugs, he was responsible for the firm's system of operations. Packing and shipping employees followed established company procedures, according to a government brief. The Supreme Court approved an instruction that the jury had only to find that Dotterweich was “responsible” for the shipments and that the shipments were “under his supervision.”

In Park, Acme Markets, Inc. and its CEO John Park were charged with adulterating food. Park had received FDA warnings about warehouse conditions, was aware that his system was not working properly, and acknowledged that as president, he was responsible. The Supreme Court upheld instructions to the jury that all it needed to convict Park was to find that he had a “responsible relationship to the issue,” i.e., that he was in a position of authority and responsibility over the situation. This, however, required more than a mere finding that he was the CEO. Park's defense was that he relied on subordinates, and the government agreed that he would not be guilty if he had delegated the issue to subordinates and “had no reason to suspect they were failing to get the job done.” A conviction cannot be obtained simply by proving someone holds a particular position in the company.

Requiring Proof

Since Dotterweich, all reported decisions convicting an individual as an RCO have involved proof beyond the defendant's corporate position. For example, in U.S. v. Freed , 189 Fed. Appx. 888 (11th Cir. 2006), the Forest Service sent Freed, the incorporator and trustee of a campground, letters that the campground violated regulations; when conditions did not change, Freed was found guilty as a responsible corporate officer. Similarly, in U.S. v. Iverson , 162 F.3d 1015 (9th Cir. 1998), the court upheld a jury instruction that Iverson, founder, President and Chairman of the Board, could only be found guilty if it found that he knew pollutants were discharged, had the authority and capacity to prevent the discharge, and failed to act. Iverson was sentenced to a year in jail. Similarly, the Fourth Circuit affirmed the conviction of the owner of a corporation who had been involved in the purchase of an insufficient purifying system, controlled the company's finances, and was present when discharges were made. U.S. v. Ming Hong , 242 F.3d 528 (4th Cir. 2001).

Prosecutors need to be reminded that it is knowledge and inaction, not simply the corporate job title, that constitutes an offense.

Agency Guidelines Target Serious Repeat Offenders

In Park, the Supreme Court relied upon a promise by the Department of Justice (DOJ) that it would limit strict liability prosecutions to extreme cases, and the Court expressly decided to rely on the “good sense of prosecutors.” 421 U.S. at 669, quoting Dotterweich, 320 U.S. at 285. The government assured the Court: “Even if investigation discloses the elements of liability, and indicates that an official bears a responsible relationship to them, the agency will not ordinarily recommend prosecution unless that official, after becoming aware of possible violations, often (as with Park) as a result of notification by FDA, has failed to correct them or to change his managerial system so as to prevent further violations.” Government's Supreme Court brief, Park at 31-32.

The present FDA guidance is substantially in accord with this promise. See FDA Regulatory Procedures Manual, ' 6-5-1 (March 2009) (prosecution priorities are individuals with a history of violative conduct and prior warnings). EPA has similar guidance. See Memorandum from Earl E. Devaney, Director, EPA Office of Criminal Enforcement, to EPA Employees in the Criminal Enforcement Program (Jan. 12, 1994) (prosecution priorities involve culpable conduct, such as a history of violations, deliberate misconduct, or falsification of records). The FDA is developing additional criteria for misdemeanor prosecution that will be incorporated into its policies and procedures as part of its response to recent criticism about the oversight of its Office of Criminal Investigations and its plan to increase the use of misdemeanor prosecutions of RCOs.

In pre-charging negotiations with prosecutors, defense counsel should remind them of government promises to the Supreme Court and the various agency limitations.

Void for Vagueness?

The Supreme Court this term has focused on the right of citizens to fair notice of what constitutes criminal activity. It is widely believed that the Supreme Court will find the broadest interpretations of the honest-services fraud statute to fail this test, i.e., that they are unconstitutionally vague. Similarly, the RCO statutes are wholly devoid of notice about what it means to be “responsible.” The Supreme Court recognized that it would be “too treacherous to define or even to indicate by way of illustration the class of employees which stands in such a responsible relation.” Dotterweich, 320 U.S. at 285. So it simply gave up and said, “the good sense of prosecutors, the wise guidance of trial judges, and the ultimate judgment of juries must be trusted.” The four dissenting justices found this troubling, because “reliance on the legislature to define crimes and criminals distinguishes our form of jurisprudence from certain less desirable ones. The legislative power to restrain the liberty and to imperil the good reputation of citizens must not rest upon the variable attitudes and opinions of those charged with the duties of interpreting and enforcing the mandates of the law.” The dissenting justices in Park, three decades after Dotterweich, still found the statute troubling because the predicate for conviction ' “responsibility” ' had “whatever meaning the jury in its unguided discretion chose to give it”; what it means to be “responsible” is so amorphous that the jury was, in essence, told: “You must find the defendant guilty if you conclude that he is guilty.” 421 U.S. at 679 (Stewart, J., dissenting). The way to cure this ambiguity, the dissenters concluded, was to require that “before a person can be convicted of a criminal violation of this Act, a jury must find ' evidence beyond a reasonable doubt that he engaged in wrongful conduct amounting at least to common-law negligence.”

The lack of definition permitted by Park and Dotterweich should no longer survive. Prosecutors should be urged to consider that only with proof of affirmative negligence can the statute pass constitutional muster.

Conclusion

While the RCO doctrine is broad to the point of being harsh and unfair, there are limits ' constitutional, statutory, and those based on government guidelines. Defense counsel need to bring these limits to prosecutors' attention to avoid misuse of strict liability statutes.

Joseph F. Savage, Jr. ([email protected]), a member of this newsletter's Board of Editors, is a partner in the Boston office of Goodwin Procter LLP and a former federal prosecutor. Marcy D. Smirnoff and Elianna J. Nuzum are associates in the firm's White Collar Crime and Government Investigations group.