On November 29, 2012, the D.C. Court of Appeals issued Friedman v. Sebelius, No. 11-5028, Doc. No. 1407354 (D.C. Cir. Nov. 29, 2012), the latest decision in a line of “responsible corporate officer” or “Park Doctrine” strict criminal liability cases.  The decision in Friedman expands the reach of the Park Doctrine, and potentially subjects corporate executives to exclusion from federal health care programs for failure to prevent violations of the Food, Drug, and Cosmetic Act (FDCA).

The “responsible corporate officer” doctrine, also known as the “Park Doctrine,” has been widely recognized as creating strict liability for corporate agents for violations of the FDCA.  U.S. v. Park, 421 U.S. 658, 673-74 (1975).  A corporate agent can be criminally liable for such violations if the agent “had a responsible relation to the situation” that gave rise to the violation, and he was in a position of “authority and responsibility to deal with the situation.”  Id. at 674.  Such liability does not require that the corporate agent have personal knowledge of the violation or have personally participated in the criminal act.  Id.  The agent’s omission or failure to act is “a sufficient basis for a responsible corporate agent’s liability.”  Id. at 671.  The government need only prove that the corporate agent was “vested with the responsibility, and power commensurate with that responsibility, to devise whatever measures are necessary to ensure compliance with the [FDCA].”  Id. at 672.  Under this doctrine, many corporate officers have personally faced criminal prosecution for FDCA violations that occur within the officers’ company.

In Friedman, the D.C. Court of Appeals rejected the pleas of Purdue Frederick Co.’s (Purdue) former chief executive officer, former chief medical officer and former general counsel asking the court to hold that an exclusion period from participation in federal health programs could not be imposed on a corporate officer found guilty of a misdemeanor violation under the Park Doctrine.  The court affirmed the Secretary of the U.S. Department of Health and Human Services’ (HHS) authority to impose such exclusions, effectively ending the three men’s careers.  

In the underlying criminal litigation, Purdue pled guilty to one felony count of misbranding for misrepresentations in its marketing regarding OxyContin.  See Friedman v. Sebelius, No. 11-5028, Doc. No. 1386058, at 3-4 (D.C. Cir. July 27, 2012) (citing United States v. Frederick Perdue Co., 495 F. Supp. 2d 569, 571 (W.D. Va. 2007)).  Purdue had promoted and marketed the product as less subject to abuse or addiction than other pain management medications.  Id.  The three senior corporate executives, Michael Friedman, Paul Goldenheim and Howard Udell, had each pled guilty to one misdemeanor count of misbranding a drug.  Id. at 4.  Each was sentenced to community service, fined, put on probation and required to disgorge millions in compensation.  Id.

On the basis of the executives’ guilty pleas, the Secretary of HHS excluded each of the former executives from participating in federal health care programs for a period of 12 years.  Id. at 2-3, 8.  Under the Park Doctrine, the executives admitted that they were responsible for, and had the authority to prevent, illegal activity, but failed to do so.  The defendants denied knowledge of any illegal activity.   Indeed, under the Park Doctrine, actual knowledge of violations of the FDCA is not required for misdemeanor convictions.  See id. at 4.

On July 27, 2012, the D.C. Court of Appeals upheld the applicability of the exclusion to these executives.  Id. at 2.   Friedman, Goldenheim and Udell appealed the HHS’s decision on the grounds that although the exclusion is permitted for misdemeanor convictions based on fraud, 42 U.S.C. § 1320a-7(b)(1)(a), the exclusion was not authorized by the executives’ misdemeanor convictions because the underlying violation—misbranding—was predicated on the responsible corporate officer doctrine, and therefore did not require a culpable mental state to qualify as a misdemeanor relating to fraud.  Id. at 8.  The D.C. Court of Appeals rejected the executives’ position, finding that “the conduct underlying [the misdemeanor] conviction is factually related to fraud.”  Id. at 18.  Notably, the court rejected the executives’ plea that applying the exclusion statute to convictions made using the Park Doctrine—i.e., those convictions obtained without proof of the corporate agent’s criminal intent—violated the executives’ Due Process rights.  Id.  Despite holding that the executives’ exclusions on the basis of the misdemeanor misbranding convictions were authorized pursuant to 42 U.S.C. § 1320a-7(b)(1), the D.C. Court of Appeals reversed the imposition of the 12-year exclusion and remanded to the district court with instructions to  remand to the agency for further consideration.  The court required this action because the Secretary failed to provide an explanation for its “apparent” departure from established precedent, and therefore the decision was arbitrary and capricious.  Id. at 26-27. 

The executives subsequently petitioned the D.C. Court of Appeals for a rehearing en banc, arguing, in relevant part, that the majority’s interpretation of 42 U.S.C. § 1320a-7(b)(1) was too expansive and incorrectly considered the underlying facts of the misdemeanor rather than the required elements of the crime.  Friedman v. Sebelius, No. 11-5028, Petition for Re-Hearing, Doc. No. 1399673, at 4-13 (D.C. Cir. Oct. 15, 2012).  On November 29, 2012, the D.C. Circuit issued a per curiam decision denying that request, Friedman, No. 11-5028, Doc. No. 1407354, and no member of the court requested a vote on the petition, indicating that no judge was interested in rehearing the case.  Id. 

Friedman confirms the court’s belief that HHS has the authority to exclude corporate executives from federal health care programs, even if they have no knowledge of the violations of the FDCA forming the basis of the convictions. Friedman also makes this exclusion authority available when the underlying violations are outside the government’s typical target area (i.e., manufacturing practice violations) for misdemeanor prosecutions under Park. Friedman serves as an urgent reminder to corporate managers to implement, maintain and monitor systems for ensuring compliance with the FDCA.

What can senior managers do?  We recommend a review of your compliance program to ensure that:

  • senior management and the board are committed to full compliance;
  • the compliance program contains all elements set forth in OIG guidance;
  • the respective roles of senior management and the board regarding oversight of compliance are clear;
  • direct and regular reporting mechanisms are in place to ensure that senior management and the board will be briefed on key matters, including compliance with all applicable FDA requirements;
  • there are regular briefings to senior management and the board on areas of risks in the industry and actions to minimize risks;
  • problems and high-risk areas previously identified are addressed in a timely manner; and
  • key results of internal and external audits and recommended corrective measures for any identified problem areas are circulated among senior management.

While the existence of a compliance program does not insulate senior managers from prosecution under Park, a meaningful compliance program gives managers the tools and information they require in order to ensure compliance with the FDCA.