Park Doctrine Prosecutions of Corporate Officers Continue: Stay Alert!

The Supreme Court found in Park that the focus of responsible corporate officer liability lies not in where a corporate defendant's position is within the corporate hierarchy, but rather if the corporate defendant had, “by reason of his position in the corporation, 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.” Id. at 673-674.The Park Doctrine provides that a responsible corporate officer can be held criminally liable for a violation of the FDCA without proof that the corporate officer acted with intent or even negligence, and even if such corporate officer did not have any actual knowledge of, or participation in, the specific offense. See FDA Regulatory Procedures Manual, Section 6-5-3 – Special Procedures and Considerations for Park Doctrine Prosecution, http://1.usa.gov/1mo3FGK. Such violations often include unlawful marketing of drugs and devices and distribution of adulterated or misbranded products.

The FDA uses a set of non-binding criteria to evaluate liability for corporate officers in connection with the Park Doctrine. Id. When considering whether to recommend a prosecution against a corporate officer, the FDA will consider the individual's position in the company and relationship to the violation, and whether the officer had the authority to correct or prevent the violation. Id. Knowledge of and actual participation in the violation are not prerequisites to a prosecution.

Other factors the FDA will consider in determining whether to recommend a prosecution against a corporate officer include: 1) whether the violation involves actual or potential harm to the public; 2) whether the violation is obvious; 3) whether the violation reflects a pattern of illegal behavior and/or failure to heed prior warnings; 4) whether the violation is widespread; 5) whether the violation is serious; 6) the quality of the legal and factual support for the proposed prosecution; and 7) whether the proposed prosecution is a prudent use of agency resources. The penalties for corporate officers prosecuted under the Park Doctrine include jail time, probation, fines, FDA debarment, and exclusion from Medicare, Medicaid, or other governmentally funded programs.

Recent Park Doctrine Prosecutions

There has been a steady stream of recent Park Doctrine prosecutions, and they are worth looking at.

On Feb. 25, 2013, the U.S. Attorney for the Middle District of Georgia filed charges against the President, Vice President, and Office Manager/Quality Assurance Manager of the Peanut Corporation of America (PCA). USA v. Stewart Parnell, et al., 1:13-cr-00012-WLS-TQL, Indictment, ECF No. 1 (M.D. Ga. Feb. 13, 2013). The government alleged that the officials participated in a scheme to manufacture and ship salmonella-contaminated peanuts and peanut products. See Department of Justice News Release: “Former Officials and Broker of Peanut Corporation of America Indicted Related to Salmonella-Tainted Peanut Products” (Feb. 21, 2013), http://1.usa.gov/1QnyMKK. The government relied on the Park Doctrine to support its allegations that the officials defrauded PCA customers about the quality and purity of their peanut products, and specifically misled PCA customers about the existence of food-borne pathogens in the peanut products PCA sold to them. The officials were charged with conspiracy, introduction of adulterated food into interstate commerce with intent to defraud or mislead, interstate shipments fraud, wire fraud and obstruction of justice.

After a seven-week trial, during which prosecutors presented the testimony of 45 witnesses and introduced 1,001 documents into evidence, a federal jury found the officials guilty. See Department of Justice News Release: “Peanut Corporation of America Former Officials and Broker Convicted on Criminal Charges Related to Salmonella-Tainted Peanut Products” (Sept. 19, 2014), http://1.usa.gov/20G0JYW. The President and Vice President were convicted of conspiracy, mail and wire fraud, and the introduction of misbranded food into interstate commerce; the President was also convicted of the introduction of adulterated food into interstate commerce; the President and the Quality Assurance Manager were convicted of obstruction of justice. Last month, the President of PCA was sentenced to 28 years in prison, followed by three years of supervised release. See Department of Justice News Release: “Former Peanut Company President Receives Largest Criminal Sentence in Food Safety Case; Two Others also Sentenced for Their Roles in Salmonella-Tainted Peanut Product Outbreak” (Sept. 21, 2015), http://1.usa.gov/21G6VNL.

The Vice President of PCA was sentenced to 20 years in prison, followed by three years of supervised release. The quality assurance manager was sentenced to five years in prison, followed by two years of supervised release. Two additional officials who served as Operations Managers at PCA pleaded guilty to a variety of charges ' and testified in the trial of the other three officials ' in exchange for reduced sentencing recommendations. One of the cooperating Operations Managers was sentenced to three years in prison, followed by three years of supervised release; the other cooperating Operations Manager was sentenced to six years in prison, followed by supervised release. See Department of Justice News Release: “Former Peanut Company Officials Sentenced to Prison for Their Roles in Salmonella-Tainted Peanut Product Outbreak” (Oct. 1, 2015), http://1.usa.gov/1ngZaON.

On May 21, 2014, the United States Attorney for the Northern District of Iowa filed charges against Quality Egg and its Owner and the Chief Operating Officer. USA v. Quality Egg, LLC, et al., No. 14-CR-3024, Information, ECF No. 4 (N.D. Iowa May 21, 2014). Quality Egg was charged with bribery of a public official and introducing misbranded food into interstate commerce with intent to defraud or mislead. The Owner and the Chief Operating Officer were charged, along with Quality Egg, with introducing adulterated food into interstate commerce. The charges stemmed from a salmonella outbreak from eggs traced back to Quality Egg.

Quality Egg pleaded guilty to bribery of a public official, introducing a misbranded food into interstate commerce with intent to defraud, and introducing adulterated food into interstate commerce. See Department of Justice News Release: “Iowa Company and Top Executives Plead Guilty in Connection with Distribution of Adulterated Eggs” (June 3, 2014), available at http://1.usa.gov/1ngZSf0. The Owner and Chief OO each pled guilty to one count of introducing adulterated food into interstate commerce, though they indicated they had no knowledge the eggs distributed by Quality Egg were contaminated; actual knowledge is not required for a Park Doctrine prosecution. Id. They were each sentenced to three months in prison, followed by a year of supervised release and each fined $100,000. See Department of Justice News Release: “Quality Egg, Company Owner and Top Executive Sentenced in Connection with Distribution of Adulterated Eggs” (Apr. 13, 2015), http://1.usa.gov/1L2VN9D. Quality Egg was sentenced to pay a fine of $6.79 million and placed on probation for three years. Id.

On Dec. 8, 2014, the United States Attorney for the District of New Jersey filed charges against OtisMed Corporation and its founder and CEO. USA v. OtisMed Corporation, 2:14-cr-00688-CCC, Information, ECF No. 1. (D. N.J. Dec. 8, 2014); USA v. Charlie Chi, 2:14-cr-00687-CCC, Information, ECF No. 1 (D. N.J. Dec. 8, 2014). OtisMed was charged with introduction of adulterated medical devices into interstate commerce with intent to defraud and mislead. OtisMed's CEO was charged with three counts of introduction of adulterated medical devices into interstate commerce. Id. The CEO founded OtisMed and developed the OtisKnee orthopedic cutting guide, used by surgeons during knee replacement to ensure that surgical cuts were made at a precise angle. See Department of Justice News Release: “OtisMed Corporation and Former CEO Plead Guilty to Distributing FDA-Rejected Cutting Guides for Knee Replacement Surgeries” (Dec. 8, 2014), http://1.usa.gov/1OMuB9S. Over a three-year period, OtisMed sold more than 18,000 OtisKnee devices, generating revenue of approximately $27.1 million, without having sought or received any approval or clearance from the FDA to market the OtisKnee. Id.

OtisMed had falsely represented to purchasers of the device that it was exempt from such pre-market requirements. Id. Once OtisMed submitted a 510(K) application for clearance of the OtisKnee, FDA denied clearance and warned OtisMed that any distribution prior to obtaining clearance would be an FDCA violation. Id. Legal and regulatory counsel informed the CEO it would be unlawful for OtisMed to continue distributing the OtisKnee. Id. Yet, the CEO directed OtisMed employees to organize a mass shipment of OtisKnee devices and suggested ways for the employees to hide the shipment from the FDA. Id. OtisMed pled guilty to the charges and was fined $34.4 million and ordered to pay $5.16 million in criminal forfeiture, as well as $40 million plus interest to resolve its civil liability. Id. OtisMed also agreed to be excluded from participating in all federal health care programs for a period of 20 years. Id. The CEO pleaded guilty to three counts introducing adulterated medical devices in interstate commerce and was sentenced to two years in prison, one year of supervised release, and a fine of $75,000. See Department of Justice News Release: “Former OtisMed CEO Sentenced for Selling Unapproved Surgical Devices” (June 26, 2015), http://1.usa.gov/1SfM0OW.

The Government's Continued Focus on Prosecution of Individuals

The Department of Justice (DOJ) has made clear through its recent prosecutions and promises for future prosecutions that it will remain focused on individual corporate officer liability. As set forth by Deputy Attorney General Sally Quillian Yates: “[It] is our obligation at the Justice Department to ensure that we are holding lawbreakers accountable regardless of whether they commit their crimes on the street corner or in the boardroom ' Our mission here is not to recover the largest amount of money from the greatest number of corporations; our job is to seek accountability from those who break our laws and victimize our citizens. It's the only way to truly deter corporate wrongdoing.” See Department of Justice Speech: “Deputy Attorney General Sally Quillian Yates Delivers Remarks at New York University School of Law Announcing New Policy on Individual Liability in Matters of Corporate Wrongdoing” (Sept. 10, 2015), http://1.usa.gov/1T0TKE5. Last fall, the DOJ issued a memorandum to all U.S. Attorneys and Assistant Attorneys General, giving a new set of directives for investigations and prosecutions of corporate wrongdoing. Among other directives, the DOJ told its prosecutors, “If a company wants any credit for cooperation, any credit at all, it must identify all individuals involved in the wrongdoing, regardless of their position, status or seniority in the company and provide all relevant facts about their misconduct ' it must give up the individuals, no matter where they sit within the company.” Id.

The DOJ also advised its prosecutors that: 1) criminal and civil corporate investigations should focus on individuals from the inception of the investigation; 2) criminal and civil government attorneys handling corporate investigations should be in routine communication; 3) DOJ will typically not release culpable individuals from civil or criminal liability when resolving a matter with a corporation; 4) DOJ attorneys should not resolve matters with a corporation without a plan to resolve related individual cases; and 5) pursuit of civil actions against culpable individuals should not be governed solely by those individuals' ability to pay the appropriate fine for the crime. See Memorandum from Deputy Attorney General to all Assistant Attorneys General and all U.S. Attorneys (Sept. 9, 2015), http://1.usa.gov/1iyk5dI. It is the DOJ's position that seeking accountability from individuals in corporate cases deters future illegal activity, incentivizes changes in corporate behavior, ensures that the proper parties are held responsible for their actions, and promotes public confidence. Id.

Tips for Avoiding Liability

As the government continues its prosecution of individual corporate officers, company executives need to be made aware of their potential liability under the FDCA and the Park Doctrine. All employees, including all corporate officers, should be trained on the personal civil and criminal liability they could incur by falling below these standards. A company should set up a culture of compliance, where employees at all levels understand applicable laws and regulations, and understand the discipline that could result from violation of those laws and regulations. It should have set compliance policies and a tracking system to ensure that those policies are being followed. A company should analyze its areas of compliance risk and set in place a specific plan within a set time-frame to reduce risk in those areas. The compliance department should be intimately familiar with the FDCA and the standards and practices of the FDA, and work with the business side of the company to ensure that those standards and practices are maintained.

If a company discovers an issue that may run afoul of the FDCA, it is incentivized to disclose it the FDA or a governmental organization, rather than passively waiting to be investigated. However, and in particular given DOJ's new guidances for prosecutors, the company must be prepared to cooperate fully, including in identifying the individuals involved with the wrongdoing, if it expects to receive any credit for cooperation. It is in a company's best interest to cooperate fully and early with the government, and to be precise and accurate in statements made to the governmental organization. A company should also keep in mind that the outcome of any investigation ' whether it be no action, a consent decree, a corporate integrity agreement, a fine, a prosecution of its officials, a conviction of its officials, or other result ' will have implications in its portfolio of civil product liability litigation, even if entirely unrelated to the pharmaceutical or medical device at issue in the civil products liability litigation.

Marcella C. Ducca is a Senior Associate at Greenberg Traurig.