Corporate compliance gone awry "its like the mob" .

Keywords: FDCA , Park doctrine, mens rea, Litigation intelligence #CorporateLaw

The context: When the US Supreme Court in year 2017, denied certiorari to DeCoster, the Iowa egg company responsible for Salmonella outbreak impacting 56K lives in America, it sent a message to the FDA regulated market - that the Parks Doctrine is the law of the American land ( and CEOs assume the ominous perils of this doctrine).

The Decoster case sent the Father-Son owned Salmonella tainted egg company to prison while FDA recalled 550 million eggs to protect the public.( US population 328 million). In pressing charges against the egg company in United States v. Quality Egg, LLC, No. C 14-3024, (N.D. Iowa), the trial court made a very interesting observation:

" ..Decosters..created a work environment where employees not only felt comfortable disregarding regulations... but may have even felt pressure to do so. Because the offending parties were never disciplined for their actions,.. it does appear that their conduct was condoned."

The DeCoster case should have signalled businesses factors DOJ considers in evaluating corporate compliance in the context of criminal investigations and the rarely deployed weapon in its arsenal - the Parks Doctrine when corporations go out of compliance.

Well, DOJ has just done just that - unleashed Parks Doctrine, against Indivior, the FDA regulated Opioid use disorder manufacturer [https://www.indivior.com/.] leading to sentencing its CEO, Shaun Thaxter to the custody of Bureau of Prisons [1]. Unsealed court documents reflect concerns voiced by employees and several serious violations.[ https://www.dhirubhai.net/posts/kumar07_usa-v-thaxter-activity-6727797670104055808-Rt6d ]. Several employees were visibly alarmed as is now known from court documents but they chose to ride along.

Indivior sales reps knew that their actions (or their company's) were "criminal" and that their conduct was "like a mob". What should a reasonable employee do in such circumstances - protect their employment , aid and abet crime or do what is right ? The least one could do, if employed at a FDA regulated firm is to be aware of Parks Doctrine.

The Parks Doctrine : Under the Park Doctrine, any person who “by reason of position” in the company has “responsibility and authority” to take measures to prevent FDCA violations, may be held criminally liable and imprisoned .. even when unawares of the violation..Ignorance is punishable.[2].

 The Parks Doctrine draws its name from a 1975 Supreme Court decision: United States v. Park, 421 U.S. 658 (1975). In this case, John Parks, President and CEO of Acme Markets Inc, a national grocery chain, was held personally responsible for storing rodent contaminated food -specifically FDA inspectors noticed mouse droppings on the floor of the hanging meat room and holes chewed by a rodent in a bale of Jell-O. The CEO, also a US Navy vet appealed his conviction and prevailed, but the Supreme Court reinstated the conviction justifying “..duty to implement measures that will insure that violations will not occur.” and “public interest ..". FDA did provide a three months notice before a second follow up inspection was carried out - Acme chose not to rectify the violations.

What crime did CEO, Shaun Thaxter commit ?

Shaun failed to prevent and correct distribution of false and misleading pediatric exposure data to the Medicaid program and misbranded drugs into interstate commerce- Violation of Title 21 of the United States Code, articles 331(a), 333(a)(1), and 352(a). 

Take aways :FDA regulated firms may revisit their corporate compliance chain of command and governance in light of Parks and Mr.Thaxters plight - the United States government seeks imprisonment for employees who have no knowledge of their company’s illegal conduct. RCO doctrine is controversial, tad bit draconian - executives can be held criminally culpable even though they may claim "moral innocence" ( lacking intent to cause harm is not innocence under the FDCA gamut. Causing harm without intent is enough to be charged). 

I don't know - I did not do it - I did not ask anyone to do any wrong etc etc etc will not survive DOJs bazooka - Parks doctrine is primed to not fail. Meanwhile, intent of DOJ to bite hard is clear - strict liability criminal statute is a reality of the times, at least until such time Parks doctrine is not overturned.  

How does then one stay out of DOJ's crosshair ? There are two clear routes. One - don't work at a company where FDCA violations could conceivably occur or are occurring ! The second is the obvious and achievable - implement stronger compliance programs.(its not that difficult to establish programs and procedures that ensure external communications are not false, misleading or fraudulent)

How could CEOs protect themselves from being hauled into prison in future for a crime they never knew about or intended ? For an act to labelled as crime and the actor as criminal, there needs to be at least two elements:1. A wrongdoing and 2. the intent to commit that wrongdoing. The Food, Drug and Cosmetics Act FDCA is silent on the second element - to be found guilty of a crime, a wrong doing shall suffice - intent not necessary. Awareness that the letter of law lacks the intent element may assist CEOs in instituting necessary governance and potentially prevent or reduce criminal liability.

As long as the FDCA statute does not get amended to accommodate mens rea, the only other hope is to overturn the precedent Parks decision ( if convicted, do appeal to SCOTUS). The Supreme Court reiterated the Responsible Corporate Officer doctrine in U.S. v. Park (1975). The Park Court expressly ruled that a criminal conviction based on strict-liability was not unconstitutional.

Present day CEOs may wish that bad egg CEO's appeal had gone through. That the Supreme Court denied certiorari to Decoster should send a message to the CEOs - Park Doctrine is the law of the land. The Board and executives must understand that despite explicit mens rea clause in the text - intent is not needed , harm caused sufficient to nail wrongdoer.

Past efforts to reform federal mens rea did not go anywhere. It is unlikely that feds would want to lose their grip on corporate wrongdoing - don't expect federal mens rea reform. Current laws,case laws, precedents and DOJ stance does not favor the "morally innocent". Wrongdoer CEO unlikely to be acquitted even if morally innocent - whether gloves fit or, not fit, CEO will be convicted. 

Reference(s): 

[1] Criminal case Number 1:20-CR-24, USA v. Thaxter https://www.dhirubhai.net/posts/activity-6727797670104055808-5cN5

[2]https://en.wikipedia.org/wiki/United_States_v._Park

Disclosure: Author is not affiliated with any party,the government or bad egg. As recent as 2H2020, author did conduct internal audit of FDA regulated firm and is readily familiar with FDCA compliance procedures. This article does not represent any work performed for my past or present employers. Article does not constitute legal,medical or investment advice.