One of the bedrock principles of our legal system is that criminal liability attaches only to those who act with intent or knowledge – that is, as the legal scholars say, with mens rea (or a guilty mind). The “responsible corporate officer doctrine” sits uneasily with these notions, imposing liability as it does on corporate officers not for their involvement in or even awareness of wrongdoing, but simply for their status as persons responsible for the company involved. A recent decision from the Eighth Circuit, in which each judge on the three-judge panel that heard the case wrote a separate opinion, underscores the tensions the responsible corporate officer doctrine presents within our system of justice, and potentially sets the stage for further consideration of these issues. The Eighth Circuit’s July 6, 2016 opinion in U.S. v. DeCoster can be found here.
The “responsible corporate officer doctrine” (or, as it is sometimes known, the Park Doctrine, in reference to the U.S. Supreme Court’s 1975 decision in U.S. v. Park, in which the Court analyzed the doctrine), holds corporate officers in positions of authority personally (and in some cases, criminally) liable for violating strict liability statutes protecting the public welfare. The responsible corporate officer doctrine has been absorbed into environmental law as well, and, as discussed here, and has served as the basis of imposing liability in environmental enforcement actions. More recently, it has been expanded to other contexts as well, as discussed here. The expansion of these principles reflects a growing willingness of government regulators and prosecutors to try to impose liability on corporate officials without regard to their involvement with or even awareness of the alleged wrongdoing.
The recent Eighth Circuit case involved the prosecution of two officers of Quality Egg LLC in reliance on the Responsible Corporate Officer doctrine. Austin “Jack” DeCoster and Peter DeCoster, the chief operating officer, pled guilty to misdemeanor violations of the Food Drug & Cosmetic Act (FDCA), in connection with Quality Egg’s introduction of eggs into interstate commerce that had caused a salmonella outbreak. The two DeCosters were sentenced to three-month prison terms and $100,000 fines. The DeCosters appealed their sentences, arguing that their prison sentences and the statutory provisions of the FDCA embodying the responsible corporate officer doctrine were unconstitutional and that their sentences were procedurally and substantively unreasonable.
The July 6 Opinions
In a July 6, 2016 decision, a divided Eighth Circuit panel upheld the DeCosters’ convictions. Judge Diane E. Murphy wrote the opinion for the 2-1 majority, with Judge Raymond Gruender writing a separate concurring opinion. Judge Clarence Beam wrote separately in dissent.
In her majority opinion, Judge Murphy wrote, in a proposition on which all three judges seemed to agree, that it would violate due process for a prison term to be imposed for vicarious liability crimes, without some proof of some form of personal blameworthiness more than a responsible relationship. But the officer liability under the FDCA, Judge Murphy wrote, is not the equivalent of vicarious liability. Rather, a corporate officer is held accountable under the FDCA not for the acts or omission of others, but rather for “his own failure to prevent or remedy the conditions which gave rise to the charges against him.” The defendants, Judge Murphy wrote, “knew or should have known” of the risks posed by the insanitary conditions at Quality Egg.
Judge Murphy added that the language in the FDCA and Supreme Court precedent interpreting the statute support the conclusion that the defendants are not required to have known that they violated the FDCA to be subject to statutory penalties. He concluded that the DeCosters’ sentences did not violate the Due Process Clause even though mens rea was not an element of their misdemeanor offenses.
In his concurring opinion, Judge Gruedner, went further to distinguish the Decosters’ case from one involving “vicarious liability,” based on the district court’s finding that the Decosters were negligent and therefore responsible for their own failures to exercise reasonable care to prevent the introduction of adulterated food.
In dissent, Judge Beam noted that the DeCosters’ “very limited guilty pleas amounted to crimes and sentences based upon almost wholly nonculpable conduct.” The DeCosters, he said, “lacked the necessary mens rea or ‘guilty mind’”. The majority, Judge Beam said, “validates the district court’s prison sentence based upon the DeCosters’ supposed negligence in performing executive functions on behalf of Quality Egg”; however, he added, “there is no precedent that supports imprisonment without establishing some measure of guilty mind on the part of these two individuals, and none is established in this case.” The prison sentences, he concluded “clearly … were due process violations.”
The DeCosters’ appeal had drawn a great deal of attention and interest. A variety of different industry groups and associations had filed amicus briefs on the DeCosters’ behalf. As the FDA Law Blog noted in a July 6, 2016 post about the case, given the high-profile nature of the case and given the appellate panel’s sharp split, it is “highly likely that the DeCosters will seek en banc review of the decision and/or petition the Supreme Court for a writ of certiorari.” In other words, this case, and the scrutiny of the Responsible Corporate Officer doctrine, could have much further to run.
In numerous prior posts on this blog (most recently here), I have noted my concern over the growing tendency of regulators and prosecutors to try to hold corporate officials liable not because they were involved in or even aware of corporate wrongdoing, but simply by reason of their status as company officials. My concerns in this regard are increased by the increasing willingness of Congress and other legislatures to create criminal liability for corporate officials in a broad variety of contexts similarly based on corporate office rather than personal culpability. As I noted here, this growing tendency to try to impose liability without culpability is a “deeply troubling trend.” Judge Beam’s dissent in this case echoes these concerns.
The stakes involved for the individuals caught up in these kinds of enforcement proceedings are enormous. As I noted in a prior post discussing a Responsible Corporate Officer ruling out of the D.C. Circuit (here), a misdemeanor conviction based on the Responsible Corporate Officer doctrine can not only result in criminal penalties but can also include “career-ending” consequence – for example, in the form of a lengthy ban from participating in governmental programs.
Given the magnitude of the stakes and the degree of the divisions within the three-judge panel that heard the DeCosters’ appeal, this would seem to represent a case in which an en banc review would be appropriate. Whether or not the Eighth Circuit as a whole agrees to take up this case, the case could well be on its way to the U.S. Supreme Court. In my view, the importance of the issues warrants this further judicial scrutiny.
It is worth noting in closing that responsible corporate officer enforcement actions or prosecutions may raise D&O insurance coverage issues. Corporate officials in most instances would not have insurance coverage for the various fines and penalties imposed in these actions. But the executives might well seek insurance coverage of their legal fees incurred in defending themselves in these actions. One question that might be asked in many of these types of cases is whether or not the proceedings involve an alleged “Wrongful Act” as is required to trigger coverage. Should these questions arise, these executives will want to be able to argue that the applicable D&O policy in any event covers them for allegations against them in their capacities as directors and officers “by reason of their status as such.”