Vicarious criminal liability in the executive suite for problems on the manufacturing floor

Pharmaceutical executives who bear ultimate re- sponsibility for product safety must beware of a unique occupational hazard—the risk of criminal prosecution as a responsible corporate officer (‘‘RCO’’) resulting from violations of Current Good Manufactur- ing Practice (‘‘cGMP’’) regulations. As set forth in the Supreme Court’s seminal decision in United States v. Park, 421 U.S. 658 (1975), an executive can be subject to liability as an RCO (often termed Park liability) if he or she was in a position to prevent a violation of the Food Drug & Cosmetic Act (‘‘FDCA’’), including distri- bution of adulterated products—regardless of whether he or she knew about the violation. Indeed, criminal li- ability can result from infractions in a manufacturing facility thousands of miles away from headquarters. This article prescribes steps that companies can take to reduce the risk that their senior leaders will be held per- sonally liable under a ‘‘captain of the ship’’ theory of li- ability for cGMP violations that are unrelated to their personal conduct.

Mark P. Goodman, Maura K. Monaghan, Kris- tin D. Kiehn, Jacob W. Stahl, and Cari A.

Wint are attorneys with Debevoise & Plimpton LLP.

Although the theoretical risk of a Park prosecution for an FDCA violation has existed for decades, the in- tersection of two recent trends creates a clear and pres- ent threat for executives, including the CEO, who have ultimate responsibility for ensuring product safety: (1) the government’s increased use and threatened use of Park prosecutions against executives at pharmaceutical and medical device companies, and (2) several high- profile corporate felony plea agreements involving cGMP violations that resulted in steep fines. The Food and Drug Administration (‘‘FDA’’) also cited Park in discussing cGMP violations in eight warning letters is- sued in 2013 to dietary supplement manufacturers – a clear reminder that cGMP violations can implicate Park liability. Being subjected to Park liability can have cata- strophic consequences, including reputational harm; large fines; jail time; and exclusion from federal health care programs—making it virtually impossible to con- tinue working in the health care industry.

What should a CEO and other executives with ulti- mate responsibility for product safety do to protect themselves from being charged with a crime to which there may be no viable defense? In 2011, the FDA is- sued guidelines setting forth the circumstances under which it believes that Park prosecutions are appropriate—in which the FDA confirmed that knowl- edge of wrongdoing is not a prerequisite to prosecution—but provided little meaningful guidance as to how executives can avoid prosecution in the first place. Although there are no foolproof solutions to this dilemma, there are steps that companies can take to

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limit the risk to their executives, including establishing rigorous and comprehensive compliance policies de- signed to facilitate the flow of information to and from senior management, ensuring that appropriate report- ing channels are in place, setting a strong tone at the top emphasizing the importance of compliance to the company’s business mission, and ensuring that execu- tives have appropriate visibility into manufacturing pro- cesses and performance. Companies also should con- sider hiring experienced outside counsel to conduct a thorough examination  of  the  company’s  compliance processes to ensure that executives are receiving the

partment of Justice as ‘‘dirty warehouse’’ cases.5 Most of the convicted executives in such cases, however, had some degree of awareness or notice of the underlying activity or conditions.

The government’s use of the Park doctrine took a dif- ferent turn in 2007, when three executives of the Pur- due Frederick Company, Inc. (‘‘Purdue’’) pled guilty to misdemeanor counts of misleading the public about the safety of OxyContin. Collectively, the executives were ordered to disgorge $34.5 million in personal funds and were subsequently excluded from federal health care

6

type of information they need to insulate themselves

programs for 12 years.

What was remarkable about the

from possible Park liability.

Intensified Government Focus on Criminal Strict and Vicarious Liability

Section 333 of the FDCA criminalizes the distribution of adulterated or misbranded food, drugs, or devices in interstate commerce. A misdemeanor violation under Section 333(a)(1) requires no intent or even awareness of the underlying conditions or wrongdoing, reflecting legislative intent to impose a high standard of care in the name of deterring actions or conditions that may endanger public safety.

In United States v. Dotterweich, the Supreme Court sanctioned holding ‘‘responsible officers’’ strictly liable for the acts of a corporation, irrespective of the employ- ee’s knowledge or personal involvement in any wrong- doing.1 In United States v. Park, the case for which the Park doctrine is named, the Court upheld a misde- meanor conviction under Section 333(a)(1) of the presi- dent and CEO of a national retail food chain that dis-

Purdue case was that, although the government had

previously assured the Supreme Court in its Park brief- ing that officials ‘‘who were totally unaware of any problem and could not have been expected to be aware of it in the reasonable exercise of their corporate du- ties’’ would not be subject to criminal prosecution—the government admitted that it was not aware of any evi- dence that the Purdue executives had any knowledge of the sales practices in dispute.7

Following the Purdue case, there have been a number of Park prosecutions of executives at drug and medical device companies. These include:

s In 2009, four executives at a biotechnology com- pany were charged, among other things, as RCOs based on alleged underlying acts of off-label pro- motion of a medical device.8 The government sub- sequently dismissed the charges against the defen- dants.9

s In 2010, three executives at a medical device com- pany were charged, among other things, as RCOs for conduct involving the importation of adulter-

tributed adulterated products. Expanding on the Dotter-                                

weich decision, the Court concluded that the FDCA ‘‘imposes not only a positive duty to seek out and rem- edy violations when they occur but also, and primarily, a duty to implement measures that will insure that vio- lations will not occur.’’2 The only potential defense the Park Court recognized were instances where the corpo- rate agent was ‘‘powerless to prevent or correct the vio- lation.’’3 Thus, under the Park doctrine, guilt can be im- puted to anyone who, by reason of her position, has the ‘‘authority and responsibility’’ to prevent or correct vio- lations, and fails to do so, even if she did not participate in any wrongdoing or had no personal knowledge of the underlying acts or conditions.4

From the 1960s through the 1980s, misdemeanor RCO prosecutions were pursued with some frequency, primarily in adulterated food cases known to the De-

1 320 U.S. 277 (1943).

2 421 U.S. 658, 672 (1975) (emphasis added).

1. Id. at 673.
2. Id. at 674.

1. John R. Fleder, The Park Criminal Liability Doctrine: Is it Dead or is it Awakening?, FDLI UPDATE, 48, 49 (Sept./Oct. 2009).
2. In July 2012, the Court of Appeals for the D.C. Circuit held that the length of the exclusion was arbitrary and capricious and remanded the matter to the Department of Health and Hu- man Services for further proceedings. See Friedman v. Sebe- lius, 686 F.3d 813 (D.C. Cir. 2012). There is no further publicly available information regarding the exclusions in that matter.
3. Evaluating the Propriety and Adequacy of the OxyContin Criminal Settlement: Hearing Before the S. Comm. on the Ju- diciary, 110th Cong. 11, 21 (July 31, 2007) (former U.S. Attor- ney John Brownlee, in sworn testimony before the Senate Ju- diciary Committee, acknowledged that he had not found any evidence that the Purdue executives had personal knowledge of any wrongdoing).
4. DOJ Press Rel., Stryker Biotech and its Top Management Indicted for Illegal Promotion of Medical Devices Used in In- vasive Surgeries (Oct. 28, 2009), http://www.fda.gov/ICECI/ CriminalInvestigations/ucm271714.htm.
5. David Voreacos & Janelle Lawrence, Health Care Pros- ecution Losses Mar U.S. Marketing Probe, BLOOMBERG NEWS, Mar. 14, 2012, http://www.bloomberg.com/news/2012-03-14/ health-care-prosecution-losses-mar-u-s-marketing-probe.html.

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ated medical devices.10 Two executives were sub- sequently acquitted at trial of the RCO charges and the government subsequently dismissed charges against the other executive.11

s In 2011, the chairman and CEO of a pharmaceuti- cal company pled guilty as an RCO based on al- leged underlying conduct involving the production of oversized tablets. He was sentenced to 30 days in jail, paid a $1 million fine, and was required to forfeit $900,000.12

s In 2011, four executives at a medical device com- pany pled guilty as RCOs based on alleged under- lying conduct involving unauthorized clinical trials relating to a medical device that resulted in three deaths. They received prison sentences ranging from five to nine months and were each fined

$100,000.13

s In 2012, the head of compounding pharmacy pled guilty as an RCO based on alleged underlying con- duct involving the shipment of a drug with varying levels of potency, resulting in three deaths. He was sentenced to 90 days of home confinement and was fined $100,000.14

Prosecutors continue to threaten Park prosecutions, particularly by suggesting that companies are not suffi- ciently incentivized to ensure compliance, but instead view fines and settlements as merely a cost of doing business. For example, in October 2013, Zane David Memeger, the U.S. Attorney for the Eastern District of Pennsylvania, expressed just such a sentiment at a pub- lic conference, characterizing the Park doctrine as an effective yet underutilized tool for addressing miscon- duct.

Government Focus on Steep Criminal Penalties for cGMP Violations

In recent years, the government has entered into two high-profile felony plea agreements with pharmaceuti- cal manufacturers – one branded and one generic – for misconduct involving cGMP violations. The generic manufacturer, admitted that an overseas facility vio- lated cGMP due to, among other things, incomplete testing records, an inadequate program to assess the stability characteristics of manufactured drugs, and the

1. DOJ Press Rel., Spectranetics Executives Indicted for Conspiracy, False Statements, Import Violations and Introduc- tion and Receipt of Misbranded Medical Devices (Aug. 30, 2010), http://www.fda.gov/ICECI/CriminalInvestigations/ ucm226466.htm.
2. Wayne Heilman, Former Spectranetics CEO  Acquitted On All But One Charge, THE GAZETTE, Mar. 1, 2012, http:// gazette.com/article/134422.
3. DOJ Press Rel. 11-306, Former Drug Company Executive Pleads Guilty in Oversized Drug Tablets Case (Mar. 10, 2011), http://www.justice.gov/opa/pr/2011/March/11-civ-306.html. (09

PLIR 328, 3/18/11)

1. DOJ Press Rel., Former Executives of International Medi- cal Device Maker Sentenced to Prison in Unlawful Clinical Tri- als Case (Nov. 21, 2011), http://www.fda.gov/ICECI/ CriminalInvestigations/ucm280937.htm.
2. DOJ Press Rel. 12-526, Dallas Compounding Pharmacy Owner Pleads Guilty in Connection with Misbranded Drug Shipment (Apr. 24, 2012), http://www.justice.gov/opa/pr/2012/

April/12-civ-526.html. (10 PLIR 586, 5/4/12)

company’s disregard of a report from a consulting firm that identified cGMP violations in the company’s facili- ties.15 The branded manufacturer, admitted that a facil- ity in a U.S. territory failed to ensure that certain drugs were free of contamination from microorganisms; that a manufacturing process caused certain tablets to split, destroying the therapeutic effect of the medication; that other tablets did not always have the FDA-approved mix of ingredients; and that there were drug mix-ups, resulting in different drugs being commingled.16 In both cases, the consequences were severe: the manu- facturers each pled guilty to a felony information and each paid $150 million in criminal fines and forfeiture, as well as hundreds of millions of dollars more to re- solve civil claims under the False Claims Act and re- lated state laws.

Federal prosecutors continue to pursue alleged cGMP violations. A pharmaceutical company received a subpoena from the U.S. Attorney’s Office in Boston in March 2013 regarding manufacturing practices at an overseas facility.17 In a speech last year, Deputy Assis- tant Attorney General Maame Ewusi-Mensah Frimpong warned that the Department of Justice would ‘‘be tak- ing an especially hard look whenever patients are placed at an unacceptably high risk of harm by . . . vio- lations of current good manufacturing practices.’’ Simi- larly, Susan Winkler, an Assistant U.S. Attorney in Bos- ton who has led many health care fraud prosecutions, warned in an October 2013 panel discussion that there will be more prosecutions involving cGMP violations, particularly in cases involving safety issues or fraud.

Intersection of Enforcement Trends: Park Liability for cGMP Violations

Eight warning letters issued by the FDA last year sug- gest a continued focus on Park liability in the context of cGMP violations. Each of these letters, which were is- sued to dietary supplement manufacturers, included the following language:

Although your firm may contract out certain dietary supplement manufacturing operations, it cannot, by the same token, contract out its ultimate responsibility to ensure that the dietary supplement it places into com- merce (or causes to be placed into commerce) is not adulterated for failure to comply with dietary supple- ment CGMP requirements (see United States v. Dotter- weich, 320 U.S. 277, 284 (1943)) (explaining that an of- fense can be committed under the Act by anyone who has ‘‘a responsible share in the furtherance of the trans- action which the statute outlaws’’); United States v. Park, 421 U.S. 658, 672 (1975) (holding that criminal li-

1. DOJ Press Rel., 13-542, Generic Drug Manufacturer Ran- baxy Pleads Guilty and Agrees to Pay $500 Million to Resolve False Claims Allegations, cGMP Violations and False State- ments to the FDA (May 13, 2013), http://www.justice.gov/opa/ pr/2013/May/13-civ-542.html. (11 PLIR 626, 5/17/13)
2. DOJ Press Rel., 10-1205, GlaxoSmithKline to Plead Guilty & Pay $750 Million to Resolve Criminal and Civil Liabil- ity Regarding Manufacturing Deficiencies at Puerto Rico Plant (Oct. 26, 2010), GlaxoSmithKline to Plead Guilty & Pay $750 Million to Resolve Criminal and Civil Liability Regarding Manufacturing Deficiencies at Puerto Rico Plant.
3. AstraZeneca gets U.S. subpoena over UK drug factory, REUTERS (April 25, 2013), http://uk.reuters.com/article/2013/04/ 25/us-astrazeneca-results-factory-idUKBRE93O0BM20130425.

ability under the Act does not turn on awareness of wrongdoing, and that ‘‘agents vested with the responsi- bility, and power commensurate with that responsibil- ity, to devise whatever measures are necessary to en- sure compliance with the Act’’ can be held accountable for violations of the Act).

To our knowledge, these eight warning letters repre- sent the first time that the FDA has referenced Park and Dotterweich in its public correspondence with regu- lated entities. Although the context of these references is entity liability—not individual liability—the FDA is fully aware that its warning letters are carefully scruti- nized and will be read by industry as confirmation of the FDA’s position that, in appropriate cases, it will en- courage the Department of Justice to seek RCO pros- ecutions for cGMP violations.

Lack of Clear Guidance About How Executives Can Protect Themselves Against Liability

In 2011, the FDA issued special procedures and con- siderations for agency  personnel  considering  whether to recommend a Park prosecution (the ‘‘Guidelines’’).18 The Guidelines emphasize that knowledge of or partici- pation in a violation is not required for a Park prosecu- tion, and instead instruct agency personnel to consider three primary factors: first, the individual’s position in the company; second, the individual’s  relationship  to the violation; and third, the individual’s authority or ability to correct or prevent the violation. The Guide- lines identify additional factors that agency personnel should consider, including:

s Whether the violation involves actual or potential harm to the public;

s Whether the violation is obvious;

s Whether the violation reflects a pattern of illegal behavior and/or failure to heed prior warnings;

s Whether the violation is widespread;

s Whether the violation is serious;

s The quality of the legal and factual support for the proposed prosecution; and

s  Whether the proposed prosecution is a prudent use of agency resources.

Although the Guidelines make clear that the FDA will seek to hold executives liable for violations of the FDCA solely by virtue of their company positions, the Guide- lines offer virtually no concrete guidance or instruction about how executives can protect themselves from indi- vidual liability.

What Companies and Executives Can Do to Minimize  Personal  Liability  for  cGMP Violations

What can an executive do to minimize the potential for personal liability? The short answer is be an active

1. FDA Regulatory Procedures Manual, § 6-5-3, Special Pro- cedures and Considerations for Park Doctrine Prosecutions (2011),               available  at         http://www.fda.gov/ICECI/ ComplianceManuals/RegulatoryProceduresManual/ ucm176738.htm#SUB6-5-3.

leader and take ownership of his or her company’s com- pliance program. More specifically, senior executives should consider taking the following protective mea- sures, at a minimum:

s Ensure that the company’s corporate compliance program is sufficiently broad in focus. Corporate compliance programs should include some degree of oversight over manufacturing quality, clinical trials, and foreign operations, in addition to the U.S.-based sales and marketing practices that have dominated government investigations in re- cent years. Although the involvement of corporate compliance personnel obviously cannot and should not replace experts in cGMP quality com- pliance, a highly technical and specialized area, corporate compliance personnel can provide a valuable          additional layer of oversight and company-wide  perspective.

s Set a ‘‘tone from the top’’ that compliance is a top priority for the company, takes precedence over profits, and that all personnel are expected to play a role in ensuring compliance. Leaders should em- phasize publicly and regularly the company’s com- mitment to quality, compliance, and integrity, and develop effective lines of communication to ensure that the message gets to employees at all levels. For example, executives can emphasize the impor- tance of quality and compliance in speeches, train- ing, and/or written communications to employees. Leaders can also hold meetings, such as town halls, with manufacturing employees and middle managers to emphasize the importance of compli- ance and to allow employees to voice concerns about quality operations. If there is a compliance or quality incident, executives should address the incident publicly and be visibly active in remedia- tion efforts.

s Create appropriate reporting channels and an en- vironment in which employees feel comfortable reporting potential issues. At a minimum, compa- nies should have a compliance hotline through which employees can report possible compliance and  quality issues anonymously or semi- anonymously, and a strong anti-retaliation policy that prohibits any form of retaliation or adverse consequences for employees who report potential compliance issues in good faith. Companies should regularly publicize the compliance hotline and the anti-retaliation policy. Executives should publicly encourage employees to use the reporting hotline and convey to line employees as well as managers that the company has zero tolerance for retaliation. Executives can also consider schedul- ing plant visits or tours to further emphasize to employees that quality and compliance are top pri- orities for the company.

s Ensure that senior leadership has appropriate vis- ibility into manufacturing processes. It is not enough that senior leaders talk about manufactur- ing compliance. Companies should ensure that leaders receive clear and reliable metrics and indi- cators on manufacturing functions that show past trends and predict future compliance issues before they occur. Executives should also consider join- ing compliance committee meetings and/or hold-

ing regular meetings with manufacturing manag- ers to discuss these metrics, manufacturing perfor- mance, and the risks facing the company. Gaining sufficient knowledge of cGMP performance not only places executives in a position to remediate or take precautionary measures when necessary, but allows leaders to make informed decisions about appropriate resource allocation.

s Commission rigorous outside reviews to identify potential weaknesses in the company’s cGMP pro- cesses. Executives should not rely on internal au- dits and data alone, but should also enlist objective experts to conduct in-depth reviews and audits of various manufacturing and other processes. Ex- ecutives should review the findings of those evalu- ations, ask questions, and ensure that they under- stand their significance.

s Engage experienced outside counsel to conduct a rigorous examination of the company’s compli- ance program, policies and procedures, and, spe- cifically, the flow of information up and down the chain to identify where executives may be vulner- able to Park liability and to identify constructive ways to address those vulnerabilities.

s Address any identified deficiencies. Perhaps most importantly, executives should not ignore warning signals or signs of trouble. Once made aware of a potential issue, executives should investigate the cause of the problem, take steps to remediate it, and continue to follow up until satisfied that the is- sue has been addressed.