'Simple' Statute and 'Affirmative Defense' Lead to Another Dismissed Indictment

'Clear-Cut Case' Proves Anything But

The Stevens prosecution focused on GSK's off-label promotion of its anti-depressant drug Wellbutrin. During the investigation, the FDA requested that GSK provide the agency with all Wellbutrin promotional materials, “including copies of all slides, videos, handouts, and other materials.” Stevens, 2011 WL 1033707, at *2.

Stevens, who was in charge of GSK's response to the FDA inquiry, allegedly concealed responsive material and submitted false statements to the FDA. In particular, the allegations relevant to the ' 1519 charge included claims that Stevens had gathered specific documents responsive to the FDA's request, marked these documents as incriminating, and then purposely failed to produce them while representing that GSK's production was “final” and “complete.” Id. at *4. She was also accused of denying, among other things, that doctors were paid to recommend Wellbutrin for unapproved uses, despite her knowledge of documents allegedly showing such payments.

Experienced defense lawyers smelled something fishy in this prosecution. Off-label marketing allegations are ubiquitous. They have hardly proved to present enterprise-level risk to pharmaceutical companies, which settle such allegations with stunning regularity. Why would a well-regarded lawyer risk a successful legal career to withhold documents from the FDA? Would the in-house lawyer micro-manage the process at all? Even if she did, wouldn't she consult other in-house lawyers, experienced outside counsel, and senior management? The prosecution's theory simply did not comport with common experience in these situations.

Not surprisingly, Stevens' primary defense was that she relied on the advice of counsel, arguing that “such reliance negated the requisite intent” for the charges. Id. When the government presented its evidence to a grand jury, a grand juror directly asked prosecutors whether Stevens' potential reliance on the advice of counsel was relevant to their considerations. The prosecutors answered that such advice was not relevant “at the charging stage,” but instead would only be relevant as a defense at trial. Id. at *6.

In pretrial motions, Stevens argued successfully that the court should review, and thereafter produce to Stevens' counsel, the government's legal instruction. After reviewing the legal instruction, the court agreed it was deficient and was a ground for dismissal. Why? The “advice of counsel defense” was a misnomer; with a “specific intent” crime, the government was required to prove the defendant knowingly violated the law. The court concluded that “advice of counsel [c]ould negate []wrongful intent.” Id. Accordingly, the court dismissed without prejudice, due to its “grave doubts” that the grand jury's decision was not “free from the substantial influence of the improper advice of counsel instruction.” Id. at *18.

The “day of accountability” was, for now, delayed.

The Best Defense Is a Good Offense

Given prior case law, it is hard to understand how the DOJ got the legal instruction wrong in Stevens.

The American judicial system traditionally does not provide for “ignorance of the law or a mistake of the law” as a defense in criminal prosecution. Cheek v. U.S., 498 U.S. 192, 199 (1991). However, Congress will often import a scienter of specific intent ' requiring the conduct be done with the intent to violate the law ' for those statutes that could potentially criminalize otherwise innocuous activity. In relevant part, ' 1519 provides: “Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes false an entry in any record, document, or tangible object with the intent to impede, obstruct, or influence,” violates the law. Stevens determined that the statutory language, on its face, does indeed require a specific intent to violate the law.

Several prior cases support the Stevens court's determination that Congress' use of the term “knowingly” in ' 1519 creates a specific-intent crime. For example, in U.S. v. Moyer (a case involving the falsification of police records), the Middle District of Pennsylvania found that “evil intent” was a requirement under ' 1519 and, without it, there would be danger in “both lack of notice and criminalization of innocent actions.” 726 F. Supp.2d 498, 506 (M.D. Pa. 2010). Moreover, in U.S. v. Kun
Yun Jho, the court noted that the defendant would be guilty under ' 1519 if the jury found that the defendant “beyond a reasonable doubt ' conspired to knowingly falsify [] entries ' with the specific intent” required under the statute. 465 F. Supp.2d 618,636-37 (E.D. Tex. 2006) (emphasis added).

Notably, the government itself has also argued that ' 1519 is a specific intent crime. In U.S. v. Velasco, the defendant, who was charged for obstruction under ' 1519 for allegedly falsifying and back-dating an employment contract, argued that the statute was “vague and overbroad.” 2006 WL 1679586, at *3 (M.D. Fla. June 14, 2006). In the Velasco case, the government “point[ed] out that the statute ' has a specific [intent] scienter requirement” that mitigated the law's vagueness. Id. at *4. The court there agreed, finding that because the government will have to prove defendants' specific intent to violate the statute, “any alleged 'vagueness' or ambiguity ' will be cured[.]” Id. at *5.

Contrary to the government's position in Velasco, the government in Stevens argued that ' 1519 was for a general intent crime. However, consistent with every case interpreting ' 1519, and consistent with the government's own position in Velasco, the Stevens court rejected the government's argument. If a showing of specific intent can shield the statute's constitutionality, the court reasoned, then additional safeguards for the defendant must come with it ' namely, the advice of counsel defense.

Indeed, in holding that specific intent is required under ' 1519, the Stevens court created an additional hurdle for federal prosecutors at the indictment stage. Because the advice of counsel defense insulates defendants accused of specific intent crimes, those who can prove they relied on counsel's advice can fall short of the proof required to indict because they “lack[] the requisite intent to violate the law.” U.S. v. Traitz, 871 F.2d 368, 382 (3d Cir. 1989).

Another Frustration for Congress

Congress adopted ' 1519 as part of the Sarbanes-Oxley Act after the widely publicized scandals within Arthur Andersen and Enron. It was intended to “remedy the loopholes” due to the “patchwork” of other obstruction-of-justice statutes under Title 18. Kun Yun Jho, 465 F. Supp.2d at 635. The then-Chairman of the Senate Committee on the Judiciary, Sen. Patrick Leahy (D-VT), who was a co-sponsor and drafter of the bill, described Congress's intent as “simple[:] people should not be destroying, altering or falsifying documents to obstruct any government function.” 148 Cong. Rec. S7418, at S7419 (daily ed. July 26, 2002) (statement of Sen. Leahy).

Although legislative history dictates that ' 1519 was intended “to apply broadly to any acts ' so long as they are done with the intent to obstruct,” Congress was focused on drafting the law so as to capture all acts of destruction or concealment, whether or not the defendant was specifically aware of a pending investigation. Indeed, Sen. Leahy clarified this requirement, stating that “[t]his statute is specifically meant not to include any technical requirement, which some courts have read into other obstruction-of-justice statutes, to tie the obstructive conduct to a pending or imminent proceeding or matter by intent or otherwise.” Id. (emphasis added).

However, in its attempt to broaden the applicability of ' 1519, Congress failed to clarify its “intent” requirement. Therefore, even though some courts have examined the legislative history when interpreting the statute ' namely, the Moyer and Jho courts ' they continue to reach the conclusion that specific intent is required. Indeed, this finding does not appear to be contrary to legislative history. Although Congress aimed for a simple statute, free from “technicalities,” it failed to include the necessary language clarifying it to be a general intent crime.

Another Challenge for DOJ

Despite the Stevens court's determination that ' 1519 is a specific-intent crime, it is axiomatic that dismissal of an indictment is an “extraordinary remedy.” See, e.g., U. S. v. De La Pava, 268 F.3d 157, 165 (2d Cir. 2001). Very few courts have found it appropriate to dismiss an indictment based on an erroneous legal instruction to the grand jury, particularly on an issue as nuanced as advice of counsel (which, as its name suggests, is commonly perceived as an affirmative defense).

In finding dismissal appropriate, the Stevens court relied heavily on U.S. v. Peralta, 763 F. Supp. 14 (S.D.N.Y. 1991), claiming the case to be “highly analogous.” Stevens, WL 1033707, at *16. In Peralta, a case involving the use of a firearm in connection with a drug trafficking offense, the prosecutors relied on a theory of constructive possession as the “lynchpin to its entire case” against the defendants. Peralta, 763 F. Supp. at 19. After examining the government's instructions, however, the court found it “entirely possible” that the grand jury thought constructive possession amounted to the “mere physical possibility” or the defendants' “ mere proximity” to the weapon. Id. at 20 (emphasis in original). Meanwhile, the proper instruction for constructive possession says the government must show that a defendant “knowingly has the power and intention at a given time to exercise dominion and control over [the] object[.]” Id. at 19. Thus, the Peralta prosecutors completely mischaracterized an essential element of the crime.

Although contextually different, Peralta was a perfect parallel for the Stevens court in a fundamental regard: Just as possession was the very essence of the crime alleged in Peralta, intent is the fundamental crux of a ' 1519 prosecution. Obstruction-of-justice statutes rise and fall with the government's ability to prove pernicious intent, and the instructions on this issue need to be right. Many factors and issues can cause a corporate executive to withhold a document from the government, including, but not limited to, the arguable protections of the attorney-client and work product privileges covering otherwise responsive documents.

Because of such complexities, corporate executives, including the General Counsel, usually seek advice from members of the in-house legal staff and outside lawyers concerning whether production of certain documents is required by law. Felony charges against a corporate official who relied on legal advice without informing the grand jury of the nature of that advice ' and providing correct instructions on the relevance of that advice to mens rea ' is a fundamental miscarriage of justice, much like the botched “constructive possession” charge in Peralta.

Live to Fight Another Day

When the Stevens court dismissed the indictment without prejudice, few thought the DOJ would drop the case easily. However, many expected high-level personnel in the DOJ to vet Ms. Stevens' legal advice to assure that a second indictment did not end in an even more spectacular failure.

It seems reasonable minds did not prevail.

Less than a month after the dismissal, prosecutors brought the same charges against Stevens. On April 14, 2011, the DOJ announced that Lauren Stevens was re-indicted. No doubt, a scrupulous review of the new Grand Jury minutes may have cured the error.

Of course, it is a cardinal rule in obstruction-of-justice prosecutions that it is not the underlying crime but the cover-up that is the investigation's focus. In fact, this is what makes obstruction prosecutions so appealing. However, the complexity that has surfaced from a once-touted “simple” statute requires a carefully revised prosecutorial approach. Only time and another jury trial will uncover whether there was another error in Ms. Stevens' case. Indeed, one would hope that the government's instructions this time around not only will properly guide the grand jury in Stevens, but will serve the same function for future government prosecutions globally.

Jim Walden ([email protected]), a member of this newsletter's Board of Editors and former federal prosecutor, is the co-Chair of the White Collar Defense & Investigations Group at Gibson, Dunn & Crutcher. Kimberly Yuhas is a litigation associate at the firm.

Adding to the long list of failed prosecutions, which have been the subject of many prior articles in this newsletter, the United States District Court for the District of Maryland dismissed an indictment against Lauren Stevens, former in-house counsel for GlaxoSmithKline (GSK). Stevens was the lawyer responsible for certifying and supervising document production for a subpoena issued by the Food and Drug Administration (FDA). She was charged with (among other counts) concealment of documents, in violation of 18 U.S.C. ' 1519.

In U.S. v. Stevens, 2011 WL 1033707, (D. Md. Mar. 23, 2011), the prosecution was upended (at least temporarily) by an “affirmative defense,” that proved to be something quite different. The court held that prosecutors failed to properly instruct the Grand Jury about the significance of the legal advice Ms. Stevens obtained when supervising and certifying the document production. The error led to dismissal of the indictment.

Section 1519 was supposed to be a “simple” statute, devoid of technical defenses, and thus was intended to add a powerful weapon to the government's war on corporate crime. However, its interpretation and implications have become extraordinarily complicated. Indeed, this little case now presents serious challenges to Congress and the Department of Justice (DOJ).

'Clear-Cut Case' Proves Anything But

The Stevens prosecution focused on GSK's off-label promotion of its anti-depressant drug Wellbutrin. During the investigation, the FDA requested that GSK provide the agency with all Wellbutrin promotional materials, “including copies of all slides, videos, handouts, and other materials.” Stevens, 2011 WL 1033707, at *2.

Stevens, who was in charge of GSK's response to the FDA inquiry, allegedly concealed responsive material and submitted false statements to the FDA. In particular, the allegations relevant to the ' 1519 charge included claims that Stevens had gathered specific documents responsive to the FDA's request, marked these documents as incriminating, and then purposely failed to produce them while representing that GSK's production was “final” and “complete.” Id. at *4. She was also accused of denying, among other things, that doctors were paid to recommend Wellbutrin for unapproved uses, despite her knowledge of documents allegedly showing such payments.

Experienced defense lawyers smelled something fishy in this prosecution. Off-label marketing allegations are ubiquitous. They have hardly proved to present enterprise-level risk to pharmaceutical companies, which settle such allegations with stunning regularity. Why would a well-regarded lawyer risk a successful legal career to withhold documents from the FDA? Would the in-house lawyer micro-manage the process at all? Even if she did, wouldn't she consult other in-house lawyers, experienced outside counsel, and senior management? The prosecution's theory simply did not comport with common experience in these situations.

Not surprisingly, Stevens' primary defense was that she relied on the advice of counsel, arguing that “such reliance negated the requisite intent” for the charges. Id. When the government presented its evidence to a grand jury, a grand juror directly asked prosecutors whether Stevens' potential reliance on the advice of counsel was relevant to their considerations. The prosecutors answered that such advice was not relevant “at the charging stage,” but instead would only be relevant as a defense at trial. Id. at *6.

In pretrial motions, Stevens argued successfully that the court should review, and thereafter produce to Stevens' counsel, the government's legal instruction. After reviewing the legal instruction, the court agreed it was deficient and was a ground for dismissal. Why? The “advice of counsel defense” was a misnomer; with a “specific intent” crime, the government was required to prove the defendant knowingly violated the law. The court concluded that “advice of counsel [c]ould negate []wrongful intent.” Id. Accordingly, the court dismissed without prejudice, due to its “grave doubts” that the grand jury's decision was not “free from the substantial influence of the improper advice of counsel instruction.” Id. at *18.

The “day of accountability” was, for now, delayed.

The Best Defense Is a Good Offense

Given prior case law, it is hard to understand how the DOJ got the legal instruction wrong in Stevens.

The American judicial system traditionally does not provide for “ignorance of the law or a mistake of the law” as a defense in criminal prosecution. Cheek v. U.S. , 498 U.S. 192, 199 (1991). However, Congress will often import a scienter of specific intent ' requiring the conduct be done with the intent to violate the law ' for those statutes that could potentially criminalize otherwise innocuous activity. In relevant part, ' 1519 provides: “Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes false an entry in any record, document, or tangible object with the intent to impede, obstruct, or influence,” violates the law. Stevens determined that the statutory language, on its face, does indeed require a specific intent to violate the law.

Several prior cases support the Stevens court's determination that Congress' use of the term “knowingly” in ' 1519 creates a specific-intent crime. For example, in U.S. v. Moyer (a case involving the falsification of police records), the Middle District of Pennsylvania found that “evil intent” was a requirement under ' 1519 and, without it, there would be danger in “both lack of notice and criminalization of innocent actions.” 726 F. Supp.2d 498, 506 (M.D. Pa. 2010). Moreover, in U.S. v. Kun
Yun Jho, the court noted that the defendant would be guilty under ' 1519 if the jury found that the defendant “beyond a reasonable doubt ' conspired to knowingly falsify [] entries ' with the specific intent” required under the statute. 465 F. Supp.2d 618,636-37 (E.D. Tex. 2006) (emphasis added).

Notably, the government itself has also argued that ' 1519 is a specific intent crime. In U.S. v. Velasco, the defendant, who was charged for obstruction under ' 1519 for allegedly falsifying and back-dating an employment contract, argued that the statute was “vague and overbroad.” 2006 WL 1679586, at *3 (M.D. Fla. June 14, 2006). In the Velasco case, the government “point[ed] out that the statute ' has a specific [intent] scienter requirement” that mitigated the law's vagueness. Id. at *4. The court there agreed, finding that because the government will have to prove defendants' specific intent to violate the statute, “any alleged 'vagueness' or ambiguity ' will be cured[.]” Id. at *5.

Contrary to the government's position in Velasco, the government in Stevens argued that ' 1519 was for a general intent crime. However, consistent with every case interpreting ' 1519, and consistent with the government's own position in Velasco, the Stevens court rejected the government's argument. If a showing of specific intent can shield the statute's constitutionality, the court reasoned, then additional safeguards for the defendant must come with it ' namely, the advice of counsel defense.

Indeed, in holding that specific intent is required under ' 1519, the Stevens court created an additional hurdle for federal prosecutors at the indictment stage. Because the advice of counsel defense insulates defendants accused of specific intent crimes, those who can prove they relied on counsel's advice can fall short of the proof required to indict because they “lack[] the requisite intent to violate the law.” U.S. v. Traitz , 871 F.2d 368, 382 (3d Cir. 1989).

Another Frustration for Congress

Congress adopted ' 1519 as part of the Sarbanes-Oxley Act after the widely publicized scandals within Arthur Andersen and Enron. It was intended to “remedy the loopholes” due to the “patchwork” of other obstruction-of-justice statutes under Title 18. Kun Yun Jho, 465 F. Supp.2d at 635. The then-Chairman of the Senate Committee on the Judiciary, Sen. Patrick Leahy (D-VT), who was a co-sponsor and drafter of the bill, described Congress's intent as “simple[:] people should not be destroying, altering or falsifying documents to obstruct any government function.” 148 Cong. Rec. S7418, at S7419 (daily ed. July 26, 2002) (statement of Sen. Leahy).

Although legislative history dictates that ' 1519 was intended “to apply broadly to any acts ' so long as they are done with the intent to obstruct,” Congress was focused on drafting the law so as to capture all acts of destruction or concealment, whether or not the defendant was specifically aware of a pending investigation. Indeed, Sen. Leahy clarified this requirement, stating that “[t]his statute is specifically meant not to include any technical requirement, which some courts have read into other obstruction-of-justice statutes, to tie the obstructive conduct to a pending or imminent proceeding or matter by intent or otherwise.” Id. (emphasis added).

However, in its attempt to broaden the applicability of ' 1519, Congress failed to clarify its “intent” requirement. Therefore, even though some courts have examined the legislative history when interpreting the statute ' namely, the Moyer and Jho courts ' they continue to reach the conclusion that specific intent is required. Indeed, this finding does not appear to be contrary to legislative history. Although Congress aimed for a simple statute, free from “technicalities,” it failed to include the necessary language clarifying it to be a general intent crime.

Another Challenge for DOJ

Despite the Stevens court's determination that ' 1519 is a specific-intent crime, it is axiomatic that dismissal of an indictment is an “extraordinary remedy.” See, e.g., U. S. v. De La Pava , 268 F.3d 157, 165 (2d Cir. 2001). Very few courts have found it appropriate to dismiss an indictment based on an erroneous legal instruction to the grand jury, particularly on an issue as nuanced as advice of counsel (which, as its name suggests, is commonly perceived as an affirmative defense).

In finding dismissal appropriate, the Stevens court relied heavily on U.S. v. Peralta, 763 F. Supp. 14 (S.D.N.Y. 1991), claiming the case to be “highly analogous.” Stevens , WL 1033707, at *16. In Peralta, a case involving the use of a firearm in connection with a drug trafficking offense, the prosecutors relied on a theory of constructive possession as the “lynchpin to its entire case” against the defendants. Peralta, 763 F. Supp. at 19. After examining the government's instructions, however, the court found it “entirely possible” that the grand jury thought constructive possession amounted to the “mere physical possibility” or the defendants' “ mere proximity” to the weapon. Id. at 20 (emphasis in original). Meanwhile, the proper instruction for constructive possession says the government must show that a defendant “knowingly has the power and intention at a given time to exercise dominion and control over [the] object[.]” Id. at 19. Thus, the Peralta prosecutors completely mischaracterized an essential element of the crime.

Although contextually different, Peralta was a perfect parallel for the Stevens court in a fundamental regard: Just as possession was the very essence of the crime alleged in Peralta, intent is the fundamental crux of a ' 1519 prosecution. Obstruction-of-justice statutes rise and fall with the government's ability to prove pernicious intent, and the instructions on this issue need to be right. Many factors and issues can cause a corporate executive to withhold a document from the government, including, but not limited to, the arguable protections of the attorney-client and work product privileges covering otherwise responsive documents.

Because of such complexities, corporate executives, including the General Counsel, usually seek advice from members of the in-house legal staff and outside lawyers concerning whether production of certain documents is required by law. Felony charges against a corporate official who relied on legal advice without informing the grand jury of the nature of that advice ' and providing correct instructions on the relevance of that advice to mens rea ' is a fundamental miscarriage of justice, much like the botched “constructive possession” charge in Peralta.

Live to Fight Another Day

When the Stevens court dismissed the indictment without prejudice, few thought the DOJ would drop the case easily. However, many expected high-level personnel in the DOJ to vet Ms. Stevens' legal advice to assure that a second indictment did not end in an even more spectacular failure.

It seems reasonable minds did not prevail.

Less than a month after the dismissal, prosecutors brought the same charges against Stevens. On April 14, 2011, the DOJ announced that Lauren Stevens was re-indicted. No doubt, a scrupulous review of the new Grand Jury minutes may have cured the error.

Of course, it is a cardinal rule in obstruction-of-justice prosecutions that it is not the underlying crime but the cover-up that is the investigation's focus. In fact, this is what makes obstruction prosecutions so appealing. However, the complexity that has surfaced from a once-touted “simple” statute requires a carefully revised prosecutorial approach. Only time and another jury trial will uncover whether there was another error in Ms. Stevens' case. Indeed, one would hope that the government's instructions this time around not only will properly guide the grand jury in Stevens, but will serve the same function for future government prosecutions globally.

Jim Walden ([email protected]), a member of this newsletter's Board of Editors and former federal prosecutor, is the co-Chair of the White Collar Defense & Investigations Group at Gibson, Dunn & Crutcher. Kimberly Yuhas is a litigation associate at the firm.