Last month, we reported on a Massachusetts federal court jury’s decision to acquit the former CEO of Warner Chilcott in one of the first prosecutions of a health care executive following the Department of Justice’s (“DOJ”) Yates Memo. Last week, another Massachusetts federal court jury acquitted two more former health care executives of felony charges following another closely watched post-Yates-Memo prosecution. This time, the jury found William Facteau, the former CEO of Acclarent, and Patrick Fabian, Acclarent’s former Vice President of Sales, not guilty of 14 counts of felony fraud related to Acclarent’s off-label promotion of a medical device (although the jury did find them guilty of related misdemeanor charges).
This case began as a qui tam suit filed under the federal False Claims Act (“FCA”) by a sales representative who worked for Acclarent from 2007 to 2011. In 2006, Acclarent received FDA clearance for its Relieva Stratus MicroFlow Spacer (“Stratus”) device, a spacer that was inserted into a patient’s head to maintain sinus openings after surgery using saline. The device was cleared through the FDA’s 510(k) process. The relator alleged that while the Stratus device was cleared by the FDA to maintain sinus openings, Facteau and Fabian really intended to use Stratus as a drug-delivery device for prescription corticosteroids and marketed it for that purpose even after the FDA rejected a 2007 request to promote the Stratus for such additional uses. This latter use would require FDA approval as a Class III device (which would require intensive safety studies).
Facteau and Fabian were accused of engaging in a scheme between 2008 and 2011 to develop and market Stratus quickly (and for purposes not approved by the FDA) in order to generate sales and make Acclarent a desirable target for acquisition or an initial stock offering. Part of this alleged scheme included training sales employees only on off-label uses of the device and to encourage physicians to talk about the off-label use of the device with steroids. Facteau and Fabian were also alleged to have lauded sales employees who prepared presentations that explicitly promoted the Stratus for off-label use. In 2010, Johnson & Johnson acquired Acclarent for $785 million. After the sale, and even after being instructed to stop marketing the Stratus device for unapproved uses, Acclarent management continued to do so (which allegedly caused doctors and other health care providers to bill federal health care programs for the device for unapproved uses). In May 2013, Acclarent discontinued use of the Stratus device.
Facteau and Fabian were indicted for felony wire fraud and conspiracy, as well as a number of misdemeanor counts related to introducing a misbranded and adulterated device into interstate commerce. They were also charged with securities-related violations (but those charges were dropped before this case went to trial). At trial, the government alleged that Facteau and Fabian hid their intentions of using the Stratus device with steroids from the FDA, but Facteau and Fabian argued that their plans for the Stratus device were not a secret because they had tried for years to get FDA approval and, like many other companies, had first gotten their device approved for one use before trying to build on that approval. The defendants’ arguments prevailed and the jury acquitted them of felony charges.
Facteau and Fabian did not escape trial unscathed, however, and were convicted on 10 misdemeanor counts of introducing a misbranded and adulterated device into interstate commerce in violation of the Federal Food, Drug and Cosmetic Act. On these charges, the government had to prove that Facteau and Fabian violated the law if they were responsible corporate officials who could have stopped the conduct at issue but failed to do so – even if they did not know the conduct was occurring (a strict liability standard). Their attorneys have already indicated that they intend to move for a judgment of acquittal with the trial court or, if necessary, appeal to a higher court. After the verdict, a Johnson & Johnson unit agreed to pay $18 million to resolve civil allegations that it caused health care providers to submit false claims to federal health care programs, which had paid for a device that was marketed for use as a drug delivery device without FDA approval for that use.
Although the jury did not entirely side with Facteau and Fabian in this case, its decision to acquit on felony fraud charges, considered together with the acquittal of another health care executive in the Warner Chilcott case, raises questions about the willingness of juries to hold individuals personally responsible for corporate wrongdoing, despite the government’s re-commitment to prosecuting individuals as professed in the Yates Memo.