Wednesday, August 24, 2011

Crime without intent? Yes, but only if you are in business. 

Occasionally my friends with little or no exposure to the business world ask me for examples of the Obama administration's anti-business attitude, or ways in which it actively discourages talented people from going in to business, or how it promotes defensive behavior that limits liability rather than innovation and the taking of risk. Well, here is a just one little example in a single industry, courtesy of my old law firm, Latham & Watkins:

The Food and Drug Administration (FDA) has released aggressive guidelines for prosecutions under the Food, Drug, and Cosmetic Act(FDCA)that put corporate officers at risk of criminal liability merely because of their position within a violating company. The guidelines reinvigorate the long dormant Park doctrine, which allows corporate officers to be held criminally responsible for corporate violations of the FDCA and convicted of a misdemeanor even if — unlike virtually all other criminal laws — they had no knowledge of the illegal conduct.

For years Park prosecutions were rare, but regulators see the Park doctrine as a potentially powerful enforcement tool that “can have a strong deterrent effect on the defendants and other regulated entities.” The release of Park prosecution guidelines by the FDA follows a series of statements by FDA officials that enforcement efforts — and Park prosecutions in particular — are set to increase, and executives in industries subject to the jurisdiction of FDA cannot afford to ignore this trend. Park exposes corporate officers to criminal liability for FDCA violations based solely upon their position of responsibility within the company, and penalties can be harsh — including large fines, debarment (prohibiting executives from providing services to a regulated company), individual and corporate exclusion from participation in federal health care programs, as well probation and jail time. And exposure is broad: any employee in the chain of command with authority to correct or prevent a violation could potentially be prosecuted.

Crime without mens rea, specifically and only for executives. Just what we need to attract our best people to companies that make unimportant things like food, drugs, and medical devices.


By Anonymous Anonymous, at Wed Aug 24, 11:58:00 PM:

Perhaps the goal is to prevent individuals in a position of influence in dealing with, for example drug manufacturing, from Being willfully ignorant. It counters the pure heart, empty head defense and is designed to create a significant incentive for an executive to know what is going on in their plant.  

By Anonymous Anonymous, at Thu Aug 25, 12:10:00 AM:

You fail to mention that all documents filed by these corporate evil doers must be submitted with ten copies, each certified by a local priest/imam and the great-grand parents of all male folks.  

By OpenID KarenT, at Thu Aug 25, 02:27:00 AM:

The theoretical threat of debarment (published in the Federal Register) was pretty intimidating to me when I was a lowly Regulatory Affairs analyst years ago. FDA agents sometimes showing up with guns and/or in formal military-type attire increased the intimidation factor. Not to mention the elaborate identification procedures for people who supplied data or other information during their inspections.

But we weren't held responsible for the actions of others even if we had no knowledge of those actions, like the executives potentially were. A lot of effort went into setting up procedures to limit their exposure to such a possibility, even though the possibility was relatively remote at that time.

I wonder if the administration considers how much its aggressive new guidelines for prosecution will add to the cost of pharmaceutical products? Or how many potentially useful new products may be scrapped as a result of the tendency of enforcing entities to hold executives responsible for risks during development?

These aggressive guidelines for prosecution sound like another single-minded effort to demonize "corporate fat-cats" to me. I'll be waiting to hear if they plan to hold the top people responsible for government scientific research or analysis to similar standards. Bet not. The risk even of being fired for incompetence or deliberate malfeasance appears to be very low for federal employees, if you believe recent statistics.  

By Blogger TigerHawk, at Thu Aug 25, 06:47:00 AM:

Anon 11:58 - That is of course the objective, and who is to argue with that as a worthy goal? However, the questions for policy-makers -- and American voters -- are this: How much effort do we want to expend on process, and do we want experts in process (lawyers and regulatory people and such) to dominate the cultures of our business corporations? In the last decade, the portion of my job that is simply process, often driven by liability considerations of one sort or another, has made it much harder to devote time to the actual business. This is true for virtually every staff executive in public companies since SOX, and under Obama and the Democrats it has taken a quantum leap again. This emphasis on process means that people who are skilled at it rise in the organization. People who have great actual business intuition may not. That keeps us all safe as can be (in the abstract), but it sucks the "animal spirits" out of the enterprise. We are killing the goose the laid the golden egg in the name of paranoia.

Also, I am unaware of any surge in FDCA violations that might drive this. The FDA covers a huge portion of the economy (food, pharma, and medical technology). There may be more violations than there were years ago (and inadvertent violations are much easier to commit as all the regulation has gotten much more complicated), but are there a higher proportion? I doubt it, but that is not the way regulators, who advance their careers through enforcement, think about it.  

By Anonymous E Hines, at Thu Aug 25, 07:29:00 AM:

Maybe we could apply the Park Doctrine to Eric Holder vis-a-vis oh, say, Fast and Furious. Oh, wait....

TH, with regard to your 0647: This emphasis on process...keeps us all safe as can be (in the abstract)....

With respect, it does not. It interferes, as you and others have already pointed out, with the development of products that would make us safer.

Eric Hines  

By Anonymous Anonymous, at Thu Aug 25, 08:48:00 AM:

My great fear is that the regulatory focused administrative state is too strong for a change in political power, from Democrat to Republican, to dismantle.  

By Anonymous ScottJ, at Thu Aug 25, 09:33:00 AM:

Or that the Republican we elect does not have the will to confront and dismantle the bureaucracy.  

By Blogger Georgfelis, at Thu Aug 25, 09:41:00 AM:

E. Hines has a point, and AG Holder is a good example to use. In all probability, from the leaks that have come out and from the general obsessive-compulsive nature of Federal law enforcement, Eric Holder *had* to know about Fast and Furious. But giving him the benefit of the doubt, it was probably explained to him as a legit program, i.e. “We’re using undercover agents to track gun purchases in the US so we can roll up the suppliers to the cartels” leaving out the “and then leaving the guns walk into Mexico where we promptly lose track of them. Oh, and we’re doing this with thousands of high-powered firearms including .50cal sniper rifles.”

Under the Park Doctrine, Holder would not only face jail time, but his boss too. “You may not have known what was going on, but you *should* have known, therefore you get 8-10 years in the pokey as an example to future people in your position.”

It opens an insane amount of legal liability for anybody at the top of an organization to be held liable for any illegal actions of any subordinate. And if the government wants to apply this to business, it only makes sense to apply this to government. Sauce for the goose….  

By Anonymous Anonymous, at Thu Aug 25, 10:24:00 AM:

"The Park doctrine originated in Dotterweich v. United States, a 1943 case in which the US Supreme Court held that individuals could be prosecuted under the FDCA and affirmed the conviction of a drug company’s president for misdemeanor misbranding, even though there was no evidence that he participated in the misbranding or knew that it was occurring....The Supreme Court affirmed and clarified Dotterweich in the 1975 case of United States v. Park....explaining that a corporate officer or manager can be found guilty of a misdemeanor FDCA violation “by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of….”

IOW, the FDA is going to enforce the Supreme Court decision? Shocking  

By Anonymous Ignoramus, at Thu Aug 25, 11:12:00 AM:

(1) "Eric Holder *had* to know about Fast and Furious. But giving him the benefit of the doubt, it was probably explained to him as a legit program"

Then why the collective stonewalling? Also if Holder "knew" then he's already perjured himself.

(2) The new FDA regs are part of a federal takeover of Healthcare. You can be nominally private, but "controlled". Am I wrong?

(3) The Foreign Corrupt Practices Act is a great example of how federal enforcement can run amok. The FCPA has actually turned into a huge profit center for the DOJ and SEC, and a lucrative business line for the private defense bar. Given just a little time, other federal enforcement efforts will follow.

(4) "dismantling the regulatory state" We need to take down whole agencies and start over. I pick the EPA to go first. WIth a strong enough mandate, I can see Perry or Palin doing it.  

By Anonymous Anonymous, at Thu Aug 25, 12:17:00 PM:

IOW, the FDA is going to enforce the Supreme Court decision? Shocking"

Anon: I don't TH was saying anything at all about the legitimacy of the rule, your observation is really completely beside the point (though you get Google research points!).

Sophistry aside, his (paraphrased) question to you was "do you think this is good policy?" Are we as a nation OK with the obvious diminution of innovation and competitiveness with world business that rules like this bring? Since you are so evidently a supporter of this kind of aggressive regulatory action, how would you answer those questions?

After all, if you dont mind a little rhetorical exaggeration to make a point, the answer could quite literally mean that some medical innovation you yourself might someday need will not be available to you, so you have a vested personal interest in the answers to questions like these.  

By Anonymous Anonymous, at Thu Aug 25, 12:23:00 PM:

You know I do take back one thing I just said: since the Government is choosing to use a different discretionary approach now, under Obama, and rewrite 40 years of precedent unilaterally, TH was at least implicitly complaining about the legitimacy of their actions. The basis in law is still beside the point though.  

By Anonymous Anonymous, at Thu Aug 25, 01:35:00 PM:

Here's the definitive word: Kinky Friedman, the famous Texas Jewboy, is in full voice today in his endorsement of Rick Perry for Prez. In his article he says the following, which pertains to the questions here at hand,

"As the last nail that hasn’t been hammered down in this country, I agree with Rick that there are already too damn many laws, taxes, regulations, panels, committees, and bureaucrats. While Obama is busy putting the hyphen between “anal” and “retentive” Rick will be rolling up his sleeves and getting to work."

In other words, Kinky wants less Park enforcement, more innovation, and he's willing to vote that way. He explicitly wants jobs over bullshit regulatory enforcement actions, and he is willing to say so in public. Good for the Kinkster.

As a Kinky fan ever since his release of "They ain't making Jews like Jesus Anymore", and being a fan of his detective series, I welcome Kinky to the side of limited government!  

By Anonymous Anonymous, at Thu Aug 25, 05:39:00 PM:

Why stop with Holder? The "Unitary Executive" is responsible.  

By Anonymous Anonymous, at Thu Aug 25, 05:44:00 PM:

Fair enough, but ONLY if Administration officials also waive their personal sovereign immunity from civil and criminal liability for wrongful acts done in the line of duty. For example, everyone from the head of the Phoenix BATF to the Attorney General would be responsible for answering to the families of shooting victims as to why they intentionally allowed sales of assault rifles to felons and known cartel agents in Operation Fast and Furious.


By Blogger M. Simon, at Thu Aug 25, 05:54:00 PM:

Business is seen as an inherently criminal enterprise.  

By Blogger Darren Duvall, at Thu Aug 25, 05:59:00 PM:

Do you ever wonder if there was someone in the room during the pitch for the Fast & Furious program who raised an objection?

Agent GungHo: "Okay, first we sell assault weapons to Mexican drug gangs. Then, we follow those guns through the organizations and prosecute everyone we can document with them under federal firearms laws." *cat-got-canary grin*

Director Blathermore: "Why, that's brilliant! And no technical issue could possible foil such a great plan." *I'm-going-up-a-GS-level-grin*

Agent Obvious: "It sounds great, except for that first part where we, um, you know...sell weapons to Mexican drug gangs. Could you tell me why that's a good idea, again?"

ADA Knowsthelaw: "Well, we can't actually prosecute them for violating gun laws unless they buy them."

Agent Obvious: "Naturally. It's a very hard case to make. I just keep coming back to the part where we, the federal government, sell assault weapons to Mexican drug gangs. There's something there that seems, I don't know, off."

Director Blathermore: "That's not 'off', that's what we call 'outside the box' thinking. We've been going at this all wrong. We've been trying to enforce the laws preventing these people from getting weapons, when all along what we should have been doing is making it easier and then prosecuting them for it. I don't know how I could have missed it. Fine work, GungHo."

Agent Obvious: "Yeah, that's innovative thinking all right. I guess it just strikes me as odd that we would aid and abet the very people these gun laws seem to be aimed at, so to speak. I'm sure if I think about it some more it will make sense."

Director Blathermore: "You do that, Obvious. As for you GungHo, I want you to head up this operation personally and report directly to me."

Agent GungHo: "Of course, sir. I can't see how this could go wrong."  

By Anonymous Trading Pro, at Thu Aug 25, 06:10:00 PM:

Another opportunity to drive businesses and jobs out of the country.  

By Anonymous Whitehall, at Thu Aug 25, 06:16:00 PM:

Our only remedy is through the ballot box next November.

Don't sit in front of your computer and complain. If you think this matters, get out and explain the issue to your neighbors and ask pointed questions to those who stand for election.

But you all knew that.  

By Blogger Mike Chamberlain, at Thu Aug 25, 07:03:00 PM:

"regulators see the Park doctrine as a potentially powerful enforcement tool that 'can have a strong deterrent effect on the defendants and other regulated entities.'"

So it's supposed to deter people from doing things they don't even know they're doing. Nice.

Maybe next they'll start prosecuting people for thinking about doing something that someone else thinks should be illegal.

But not anyone in government, of course. We can't allow them to be liable for anything. Because that may deter the government from deterring private actors from doing things they don't even know they're doing.

I guess the only way to be safe is to do nothing. And that's where we headed, if we're not already there.  

By Anonymous Anonymous, at Thu Aug 25, 07:41:00 PM:

Anon at 11:58. We can forgive the statist impulse to control/punish everything, if you have never held a position of responsibility over other corporate actors....but yours is classic "we had to destroy the village in order to save it" thinking  

By Blogger ruralcounsel, at Tue Aug 30, 06:13:00 PM:

"regulators see the Park doctrine as a potentially powerful enforcement tool that 'can have a strong deterrent effect on the defendants and other regulated entities.'"

"So it's supposed to deter people from doing things they don't even know they're doing. Nice. "

Hey, Mike, nobody said it was supposed to be a deterrent for the behavior they are being charged with! More like a deterrent for being a thorn in the Administration's side, or for joining in a business lobbying group, or not being supportive enough at the last party fundraiser.

The people that support this kind of "legal action" should be disbarred.  

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