The Government Really Means It This Time

By Anne K. Walsh & John R. Fleder –

The government has long repeated the mantra that it will hold individuals personally liable for the activities of their corporate employer.  In the FDA-regulated arena, the government has been bolstered by the U.S. Supreme Court precedents set in United States v. Dotterweich, 320 U.S. 277 (1943), and United States v. Park, 421 U.S. 658 (1975), and corporate officials have been well-trained to understand the potential exposure they face from their positions under the Park Doctrine.  In the 1960s to the mid-1980s, FDA requested the Department of Justice to prosecute numerous individuals, which it did mostly in cases involving egregious conduct, such as persistent violations in the face of notice from FDA, or serious injury to the consumers.  Between the mid-1980s and the early 2000s, the government’s focus on individuals languished, except for cases involving allegations of clear fraud, for many reasons described here, but no more.  In the last year alone, several high-level government officials have repeated the clear message that responsible corporate officers are in the crosshairs of DOJ and FDA in both misdemeanor and felony situations.

The latest missive is the strongest statement by DOJ.  In a seven-page memorandum, announced during a highly publicized speech at NYU School of Law, Deputy Attorney General Sally Quillian Yates explicitly revises the “Principles of Federal Prosecution of Business Organizations,” set forth in the U.S.A.M. 9-28.700 et seq. and the civil litigation provisions in USAM 4-4.000 et seq.  It is unclear how these changes will be formally documented in the U.S. Attorney’s Manual, but Ms. Yates makes clear that the guidance will apply immediately, even “to those matters pending as of the date of this memo.”

The memo is not long, and should be required reading for anyone who defends companies and individuals in civil and criminal enforcement actions taken by the government.  The new policy does not reference and is thus not limited to FDA-regulated entities, but applies broadly to “any investigation of corporate misconduct.”  And unlike earlier memoranda addressed at criminal prosecutions, like the 2008 Filip memo, Ms. Yates makes clear that there will be changes to the way the government considers civil corporate matters.  Taking that to the extreme, even a simple negotiation with the government on an FDA regulatory matter could result in potentially implicating individuals before the company can achieve resolution.

And that’s the point of the Yates memo.  The government appears to mean business that it will pursue individuals, and it will incentivize (or penalize, depending how one stands on the issue) companies to turn over facts to help the government with the witch hunt.

Below are each of the six principles and some questions for consideration:

• Companies will not receive any credit for cooperating with the government unless that cooperation includes producing facts relating to the individuals involved in the alleged misconduct.  How many facts are enough?  How many individuals are enough?  How much investigation must a company do before turning over its facts?  What impact will there be on the attorney-client privilege governing that investigation?
• The government is required to focus on potential individual culpability from the inception of an investigation.  Will all involved individuals need to retain separate counsel?  How will that affect the company’s own internal investigation?  And when will the government notify individuals or the company that a particular person is not a focus?
• Civil and criminal government attorneys should be in routine communication about potential conduct that might give rise to culpability.  How will material governed by grand jury secrecy rules be shared?  Will a company have to jointly communicate with both the civil and criminal sides of DOJ?
• The government will not release an individual from liability as part of a corporate resolution.  This appears to document what we have seen as existing practices by government lawyers, so this is not to change the policy.
• Companies cannot resolve a matter until there is a plan to resolve investigations of any individuals.  This could seriously delay corporate resolutions, but of course, that is the stick the government is holding to urge companies to assist with the individual case.
• Government lawyers handling civil cases cannot use an individual’s inability to pay as a factor in deciding whether to bring a case against an individual.  Ms. Yates recognizes that these cases “may not provide as robust a monetary return on the Department’s investment,” but focuses on the long-term deterrent effect of these cases.

As noted earlier, this new policy applies immediately, even to pending matters.  We will just have to see if those in the unfortunate circumstance of being involved in a negotiation that is close to resolution would serve as the guinea pigs for fleshing out how this guidance will be applied.