For ECOA speakers and ethics and compliance contact list
I noticed the below September 13, 2011 Wall Street Journal article reporting further on the Obama administration trying to hold executives personally and criminally responsible for corporate violations of U.S food and drug laws. I continue very interested in what last week's ECOA speakers think about the question of entity level liability versus officer and employee individual liability for deterring corporate wrongdoing. I also hope this was a topic of interest and informal discussion among attendees at the conference last week.
Thanks.
Rob Shattuck
U.S. Targets Drug Executives
Law Allows Courts to Hold Corporate Officials Responsible for Pharma Violations
By VANESSA O'CONNELL And MICHAEL ROTHFELD
U.S. authorities are stepping up enforcement of a little-used law—the so-called "responsible corporate officer doctrine"—to hold executives personally and criminally responsible for corporate violations of U.S. food and drug laws.The development has triggered a new wave of worry among defense lawyers representing health-care executives.
Congress authorized criminal sanctions against corporate officers in 1938 under the Food, Drug and Cosmetic Act.
The Supreme Court has since interpreted the law to allow prosecutions without evidence that executives knew a crime was committed—a lower standard than for other industries — because of the potential for health-care and food products to cause death and injury.
The doctrine is the prosecutors' "ticket around the need to prove criminal intent," says Michael W. Peregrine, a lawyer at McDermott Will & Emery LLP. "It puts the pistol to the head of the very senior executives." The government responds that the Justice Department looks for cases where it believes the executives truly bear responsibility for the wrongdoing.
During the 1960s and 1970s, the government used the doctrine in a series of liability cases involving dirty food warehouses. But by the late 1980s, its use had declined.
Earlier this year, however, Marc Hermelin, the former chief executive of a Bridgeton, Mo., pharmaceutical maker, pleaded guilty to two misdemeanor violations of the food and drug laws as a "responsible corporate officer" in a case involving KV Pharmaceutical Co.'s production and distribution of two oversized morphine sulfate tablets.
A judge ordered Mr. Hermelin to pay a $1 million fine, forfeit $900,000 and serve a sentence of less than 30 days in jail. His lawyer, Jeffrey McFadden, of Steptoe & Johnson LLP in Washington, D.C., declined to comment.
Lawyers concerned about the revival of the so-called "corporate-officer responsibility doctrine" cite other recent health-sector cases, including one in Philadelphia involving medical-device maker Synthes Inc. and Norian Corp., a subsidiary.
In 2009, federal prosecutors accused the two companies of running an unauthorized trial of a bone filler in spinal procedures. Three patients died, although prosecutors said they couldn't prove the Synthes product was the cause. The companies pleaded guilty and agreed to pay more than $23 million to settle with the government.
Four Synthes executives were accused of wrongdoing. Acknowledging that they were "responsible corporate officers," the employees each pleaded guilty in federal court to a misdemeanor associated with shipping the misbranded product, Norian XR, across state lines.
The four didn't admit involvement in or knowledge of criminal activity, and no agreement was made on whether the allegations that they intentionally committed crimes could be taken into account in their sentencing.
But prosecutors and defense lawyers are now fighting over what they can introduce in their arguments to the judge about sentencing, which could come as soon as this fall. Under current law, misdemeanor cases carry sentences for company executives of up to a year in prison and a maximum fine of $100,000 per count.
"If the government asks the court to impose jail time in this case, it will have a chilling effect on future 'responsible corporate officer' pleas," said Adam Hoffinger of Morrison & Foerster LLP, lead attorney for Thomas Higgins, a former Synthes division president, who is one of the defendants. The lawyers for the other three defendants declined to comment.
A spokesperson for Synthes, which is headquartered in West Chester, Penn., and listed on the Swiss stock exchange, couldn't be reached for comment. Johnson & Johnson has agreed to acquire Synthes for about $21.3 billion in a transaction that is expected to close early next year.
Prosecutions of "responsible" officers trouble defense lawyers in the health sector because the Department of Health and Human Services, citing Medicare law, has sometimes sought to exclude the convicted executives from future participation in Medicare and Medicaid, which can be a career-ending punishment.
Last December, the U.S. District Court in Washington affirmed a federal health-care program exclusion of three Purdue Frederick Co. executives who had earlier pled guilty to misdemeanor violations of the food and drug laws associated with the misbranding of the drug OxyContin.
The Justice Department didn't allege that the three officers participated in or were even aware of the misbranding, but rather that they were "responsible" corporate officers at the time the conduct occurred.
"The exclusion of these individuals by HHS is unprecedented and unjust," said Andrew Good of Good & Cormier, the lawyer for one of the three executives. The exclusions have been appealed to the D.C. Circuit Court of Appeals, he added.
"You're going after defendants who by definition had no idea they [were] committing a violation," said Robert J. Becerra, a Miami-based lawyer who represented ChemNutra Inc., a Nevada pet-food company, and one of the two executives who pleaded guilty to a misdemeanor and got three years' probation in connection with the import of tainted wheat gluten that killed thousands of dogs and cats.
To be sure, the responsible corporate officer doctrine is just one of several legal tools that the government has used—with mixed success—against health-care executives in recent years.
"There's more focus now on trying to identify whether it's a case where it's appropriate to charge corporate officials with wrongdoing," said John J. Pease, chief of the health-care fraud unit in the U.S. Attorney's Office in Philadelphia, which brought one of the recent prosecutions.
In May, a federal trial judge acquitted a former GlaxoSmithKline PLC lawyer in a high-profile corporate misconduct case, saying prosecutors shouldn't have brought the case.
This year, the U.S. also used another little-used law to try to force the resignation of Forest Laboratories Inc.'s longtime leader even though he wasn't personally accused of any wrongdoing.
But it ultimately dropped its efforts amid protests from the company and major business groups. The agency said it "considered the information provided by [the executive's] attorneys" in its ultimate decision not to exclude him.
Write to Vanessa O'Connell at vanessa.o'connell@wsj.com and Michael Rothfeld at michael.rothfeld@wsj.com
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