The continued willingness of federal courts to apply the harsh Responsible Corporate Officer Doctrine (RCOD) presents particular compliance—and executive retention—challenges for boards of certain types of life sciences and health care companies. A recent decision of the Eighth Circuit, upholding prison sentences for executives held to have committed misdemeanor violations of federal food and drug laws, confirms the continued viability of this enforcement theory as part of the government’s enhanced efforts to hold individuals responsible for corporate wrongdoing.
The Eighth Circuit’s July 6, 2016 opinion in U.S. v. DeCoster upheld three month prison sentences for two commercial farm executives who had pled guilty to misdemeanor violations of the Food Drug & Cosmetic Act (FDCA) for introducing into interstate commerce salmonella-tainted eggs. The executives had appealed their sentences, arguing that the RCOD is unconstitutional and that the sentences were unreasonable on procedural and substantive bases.
The Court of Appeals concluded that the defendants were not required to have known that they violated the FDCA in order to be subject to the criminal penalties, nor were they required to have actual knowledge of the wrongful conduct [emphasis added]. The inference (supported more clearly by the Concurring Opinion) was that the defendants’ responsibility was grounded in negligence--their failure to exercise sufficient care to prevent the introduction of the spoiled eggs into commerce.
Harsh enforcement theories such as RCOD [and certain elements of and OIG’s permissive exclusion authority] reflect extreme extensions of the current federal focus on individual accountability for corporate wrongdoing. As such, they present unique governance and executive retention challenges to the boards of life sciences and health care companies. These challenges may be met, in part, in two ways: first, by enhancing the efforts of senior executives to support compliance measures (helping to rebut suggestions that executives were negligent in their supervision of the organization and its commitment to legal and regulatory compliance); and second, by increasing personal liability protections available to those executives.