FDA States that All Misbranded and Adulterated Foods, Drugs, Devices, and Cosmetics Should be Deemed Worthless for Purposes of the U.S. Sentencing Guidelines

Yesterday, we reported that two Hyman, Phelps & McNamara, P.C. attorneys appeared on February 13, 2008, before the United States Sentencing Commission (“Commission”) regarding possible changes to the Sentencing Guidelines (“Guidelines”) that are applicable to certain FDA criminal offenses.  That same day, three FDA officials testified at the same Sentencing Commission public briefing.  Their testimony is available here (William McConagha), here (Robert Perlstein, M.D.), and here (Special Agent Alex Davis).  

In its testimony, FDA asked the Commission to alter the Guidelines by declaring that for criminal offenses involving any FDA-regulated product where “loss” is relevant to the sentence to be imposed, loss will be determined by calculating the full amount paid (by consumers and others) for the adulterated or misbranded product, without any deduction or subtraction for the value of the product.  Thus, FDA is in effect stating that for sentencing purposes where “loss” is an issue, the misbranded or adulterated products involved have a value of zero.

This suggestion, if adopted, raises many questions and concerns.  First, creative lawyers in the context of civil litigation may try to employ FDA’s proposed finding to seek a monetary recovery based on that calculation.  Second, the change would almost certainly dramatically increase sentences to be imposed in cases where “loss” is at issue (which is in at least all felony cases).  Third, if adopted, it may make it very difficult for companies and individuals to work our guilty pleas with the Government because the Guidelines will warrant a sentence that the defense will find intolerable.

FDA’s position is breathtaking in its scope.  An FDA-regulated product is deemed misbranded for instance if the product was manufactured at a registered facility, but the particular product was not properly listed, or the labeling is false or misleading.  Many FDA-regulated products are deemed adulterated if, for instance, they have been manufactured outside the very general “current good manufacturing practices” requirements. 

Every day, many manufacturers distribute products that are not in full compliance with all of the FDC Act’s mandates (and thus those products are technically adulterated and misbranded).  This routinely occurs with FDA’s knowledge.  To say that all misbranded and adulterated products are worthless, raises serious legal and policy issues that the Commission should fully explore before adopting FDA’s suggestion.  That was exactly the course suggested by Hyman, Phelps & McNamara, P.C. at the February 13th Commission briefing, when this suggestion was first made public.  The affected industry – all FDA-regulated manufacturers and marketers – should urgently comment on the impropriety of the approach put forth by FDA.  Comments should be sent to the Commission and are due by March 28, 2008.