FDA's Strict Criminal Liability Standard has Far-Reaching Consequences

The Federal Food, Drug, and Cosmetic Act (FD&C Act)[1] of 1938 imposes a strict standard of criminal liability that has been affirmed and expanded upon by the courts since its passage. Notably, courts have held that corporate officers may be found strictly liable for the criminal actions of others within the organization, even in the absence of actual knowledge of the event having taken place, if they stand in "responsible relation" to the criminal actions.

In United States v. Dotterweich,[2] the government charged Buffalo Pharmacal Company, Inc., a repacker of drugs, and Dotterweich, its president, with violating the FD&C Act by shipping adulterated drugs in interstate commerce. There was no evidence that Dotterweich ever knew of the introduction of the drugs into commerce, much less that he actually participated in their introduction. Yet, Dotterweich was convicted and the U.S. Supreme Court upheld that conviction. Although the strict liability standard set by Dotterweich has often been criticized, it has been followed consistently and has been applied by the government and by the courts.

The Supreme Court again articulated its strict criminal liability standard for corporate officers and executives for actions conducted by their subordinates in violation of the FD&C Act in 1975. In United States v. Park,[3] Acme Markets, a large national supermarket chain, and Park, its president, were charged with violating the FD&C Act by holding food in insanitary conditions in the firm's Baltimore warehouse. After Park received a letter from the U.S. Food and Drug Administration (FDA) about the conditions observed during an inspection at the warehouse, he was informed by subordinates who handled sanitation that personnel in Baltimore were remedying the situation. But a subsequent FDA inspection months later found that the improvements were not sufficient to remedy the insanitary conditions.

In United States v. Park, the Supreme Court reversed a dismissal by the Court of Appeals and reinstated the conviction by a lower court. Chief Justice Burger wrote:

[T]he Act imposes not only a positive duty to seek out and remedy violations when they occur but also, and primarily, a duty to implement measures that will insure that violations do not occur. The requirements of foresight and vigilance imposed on responsible corporate agents are beyond question demanding, and perhaps onerous, but they are no more stringent than the public has a right to expect of those who voluntarily assume positions of authority in business enterprises whose services and products affect the health and well-being of the public that supports them.[4]

The Dotterweich and Park standards are strict and rigorous and, if widely enforced, could result in numerous criminal prosecutions each year. However, after Park, FDA generally avoided bringing criminal charges unless it had evidence that the defendant had some degree of "fault" in the traditional sense. Political motivations may have played a part because, on several occasions since 1975, Congress has considered amendments to the FD&C Act that would require proof that an individual knowingly, willfully or negligently violated the law in order to incur criminal liability.

Responsibility of Organizations Expanded

A recent decision by the United States Court of Appeals for the District of Columbia broadened the scope and strict criminal liability standard of the Park Doctrine. The court's July 27, 2012, decision in Friedman v Sebelius[5] not only reaffirmed that FDA-regulated corporate officers can be deemed accountable for criminal acts of subordinates, but held that the reverse also may be true – an organization may bear the consequences of the acts of the individual.

Defendants Michael Friedman, Paul Goldenheim and Howard Udell, all executives at the Purdue Frederick Company, were found strictly liable under the Park Doctrine for the misbranding of the drug OxyContin by unnamed employees of the company. The misbranding occurred when these employees, "with the intent to defraud or mislead, marketed and promoted OxyContin as less addictive, less subject to abuse and diversion, and less likely to cause tolerance and withdrawal than other pain medications."[6] The Company pled guilty to felony misbranding in violation of the FD&C Act and agreed to pay $600 million in monetary sanctions. Under a plea agreement, the three corporate officers pled guilty to the lesser misdemeanor of misbranding for failing to prevent Purdue's fraudulent marketing of OxyContin. Each officer was sentenced to a $5,000 fine, community service and retribution of approximately $34.5 million in past-compensation.

Shortly afterward, the three officers were notified by the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS) that, as a result of their convictions, each officer also would be excluded from participation in federal health care programs for 20 years.

Upon unsuccessful appeal to the HHS Departmental Appeals Board (DAB), the executives brought an action before the U.S. District Court for the District of Columbia, challenging the authority of the Secretary to exclude the three officers from participation in federal health care programs, and arguing that the length of time for which the exclusion was imposed was arbitrary and capricious.[7] The District Court held for HHS, and the executives appealed to the U.S. Court of Appeals for the D.C. Circuit. The Court of Appeals upheld the exclusion as proper, but agreed that the Secretary "failed to justify the length of the executives' exclusions in light of the agency's prior decisions, as required by the Administrative Procedure Act," remanding to the District Court and the Agency for further consideration.[8]

The strict liability standard of Park was intended to remind corporate officers of their substantial responsibility with regard to ensuring the safety of the food supply. The Friedman decision not only reaffirmed this standard of strict liability, it further expanded it to encompass ancillary, and potentially far-reaching consequences that may result from the conviction – even in the event of a misdemeanor. Specifically, the court found that the strict liability standard, and by implication, a resulting guilty felony or misdemeanor plea by the executive, would not serve as a barrier to other penalties authorized by statute. These penalties, in turn, could be imputed to the organization by virtue of the continued employment of the executive following conviction.

The Friedman court addressed the broad expansion of the scope of the Park Doctrine as it pertains to personal liability under the Due Process Clause of the Fifth Amendment to the Constitution of the United States. In so doing, the court left the organization vulnerable to the consequences of the executives' convictions. For example, the court recognized that the penalty authorized in the present case – exclusion from participation in federal programs – "effectively prohibits one from working for a government contractor or supplier."[9] The court found this penalty to be constitutional, in stating that, "surely the Government constitutionally may refuse to deal further with senior corporate officers who could have but failed to prevent a fraud against the Government on their watch."

Nevertheless, while the exclusion pertains mainly to the individual executive officer, the consequences of such exclusion also are imputed to the company by virtue of the executive's role as agent for the company. Ultimately, the organization will be faced with deciding whether to accept the consequences that follow from the strict liability of the executive, or to replace the executive to avoid potentially severe and far-reaching regulatory and financial consequences. Hence, the Friedman decision not only affirms the strict liability standards of Park and Dotterweich, but significantly expands upon the broad and sweeping consequences that may flow through to the organization as a result of the conviction of an executive in his or her capacity as agent.