Tainted Egg Cases Test Limits of Corporate Criminal Liability

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By Steven M. Sellers

May 16 — Corporate misdeeds can lead to strict criminal liability for executives in FDA-regulated industries—even when they have no knowledge of the underlying crimes.

But the Eighth Circuit is set to decide whether that includes prison time.

Austin and Peter DeCoster, executives of a commercial farm in Iowa, pleaded guilty in 2014 to shipping salmonella-tainted eggs that sickened thousands of people.

They now assert, though, their three-month sentences for a misdemeanor food safety crime are unconstitutional.

And their arguments in favor of overturning their sentences have support from groups associated with the food and drug industry (United States v. DeCoster, 8th Cir., No. 15-1890, 15-1891).

Amicus curiae briefs filed by the U.S. Chamber of Commerce and other groups contend that jailing corporate officers without any showing of individualized criminal intent is unlawful and will spawn executive decisions driven more by fear of prison than sound business principles.

“Every food producer is paying a lot of attention not just to the DeCoster [appeals], but to the ramp-up of criminal investigations and prosecutions,” plaintiffs' attorney William Marler, of Marler Clark in Seattle, recently told Bloomberg BNA.

Marler has litigated numerous foodborne illness cases since 1993, and frequently writes and lectures on the topic.

“I think the big problem here, if you take out all of the legal arguments in the amicus briefs and focus on the nub of their argument, is that you shouldn’t put people in jail for a non-intent crime,” Marler said.

The decision by the U.S. Court of Appeals for the Eighth Circuit, which heard oral arguments in the case in March, may turn on its view of the nature of the DeCosters' involvement in the misconduct.

Tainted Eggs, Prison Terms

The appeals stem from a salmonella outbreak in 2010 traced to Quality Egg LLC, a company owned and operated by the DeCosters.

The executives pleaded guilty in 2014 to strict liability misdemeanor violations of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. §331(a),§333(a)(1)) for the introduction of adulterated eggs into interstate commerce.

The plea deals included an agreement that the DeCosters didn't know the eggs sold by Quality Egg were in fact contaminated with salmonella during the time in question, the court said in its sentencing decision.

That agreement, however, didn't change the evidence that the DeCosters knew about salmonella contamination at the farm as early as 2006 and failed to take adequate steps to remedy it, the U.S. District Court for the Northern District of Iowa said.

The DeCosters “presided over a corporate culture in which employees routinely disregarded food-safety practices and, at times, took affirmative steps to mislead regulators and customers,” the Justice Department argued in its Eighth Circuit brief.

The evidence supported the strict liability convictions, the district court said, and it rejected defense arguments that the jail terms violated their due process and Eighth Amendment rights.

‘Responsible Corporate Officers.'

The appeals challenge the district court's reliance on the “responsible corporate officer” doctrine, also known as the Park doctrine, in sending the DeCosters to jail.

The doctrine makes executives criminally liable by virtue of their oversight of company activities, without proof of an the intent to commit the company's underlying strict liability crimes.

The rule stems from two decisions, United States v. Dotterweich, 320 U.S. 277 (1943), and United States v. Park, 421 U.S. 658 (1975).

The U.S. Supreme Court, in those two cases, upheld executives' liability for employees' violation of misdemeanor public welfare statutes that lacked an intent requirement.

“What Park said is that even if an individual didn't commit the violation, if they were in a management position wherein they could have or should have known about the wrongdoing, they can be held strictly and vicariously liable,” Jennifer Bragg, a defense attorney with Skadden, Arps, Meagher & Flom in Washington, D.C., recently told Bloomberg BNA.

The DeCosters say jail time for the FDCA misdemeanor is a punishment different in kind from the fines and probation considered in Park and Dotterweich.

But Rena Steinzor, a professor at the University of Maryland School of Law in Baltimore, told Bloomberg BNA the notion that the responsible corporate officer doctrine excludes prison sentences is “a misreading of the case law.”

Steinzor has written extensively on the criminal prosecution of environmental and food safety cases.

“Nothing in the Supreme Court's case law—Dotterweich and Park—indicates any effort to affect sentencing, which is generally distinct from a finding of culpability,” Steinzor said in an e-mail.

More Outbreaks, More Prosecutions

Strict liability crimes under the FDCA have been around for decades, but the rate of prosecutions of individuals for foodborne outbreaks has picked up, according to Marler, the plaintiffs' attorney.

“We had a series of [foodborne illness] outbreaks starting in 2006 to the present,” Marler said.

“There’s lots of public interest and, unfortunately, lots of people sick and dead, and billions of dollars of product being recalled,” he said.

Bragg, of Skadden Arps, formerly an assistant chief counsel with the FDA's office of chief counsel from 1998 to 2003, agreed there has been an enforcement uptick.

“Broadly speaking, there is an increased desire by the federal government to hold individuals responsible when there is wrongdoing within an organization,” Bragg said.

The focus on individual liability in food safety and other corporate prosecutions gained steam as a result of a Justice Department memorandum on corporate prosecutions issued last year (42 PSLR 1377, 11/24/14).

That directive, issued by Deputy Attorney General Sally Yates, urged assiduous investigation of alleged corporate misconduct in “seeking accountability from the individuals who perpetrated the wrongdoing.”

Comparing Cases

The boundary between what warrants a corporate fine or a prison term depends in part on an executive's participation in, knowledge of, or indifference to company misconduct.

Marler cited the case of Stewart Parnell, an executive with the now-defunct Peanut Corp. of America, as an example. Parnell received a 28-year sentence on felony counts as a result of PCA's sales of salmonella-laced peanuts linked to hundreds of illnesses and nine deaths (United States v. Parnell, M.D. Ga., No. 13-cr-00012, sentencing 9/21/15) (43 PSLR 1164, 10/5/15).

“That was an easy one because he was shipping contaminated product and was covering up the information, and falsified documents, and nine people died,” Marler said.

Yet, the FDCA misdemeanor prosecution of Eric and Ryan Jensen, the owner and operator of a Colorado farm that shipped listeria-tainted cantaloupes linked to dozens of deaths, resulted in six months of home detention, five years of probation and a fine (United States v. Jensen, D. Colo., No. 13-mj-01138, 9/13/14).

That case, filed under 21 U.S.C. §331(a), lacked the pervasive misconduct alleged in the PCA prosecution, Marler said.

Worried Industries

The prosecution trend—and its relationship to the responsible corporate officer doctrine—has the food and drug industry worried (43 PSLR 694, 6/8/15).

As many as 300,000 federal regulations could trigger criminal sanctions against companies and their executives, according to an amicus brief filed by the National Association of Manufacturers and the Cato Institute, a libertarian public policy think tank.

And one rationale for the Park doctrine—deterrence of corporate misconduct—is misplaced when employee violations of company compliance systems send an executive to jail, according to some of the amicus briefs.

The U.S. Chamber of Commerce and the Pharmaceutical Research and Manufacturers of America argue that “little in the way of deterrence is accomplished by imprisoning individuals who use their best efforts to maintain and enforce such systems and who themselves act in entirely appropriate ways merely because a violation happens on their watch.”

The Washington Legal Foundation, a non-profit public interest law firm with a free-market orientation, adds that if the use of the Park doctrine continues in this manner, “it will become intolerably risky to be an executive in the food and drug industries in the United States.”

It isn't clear, however, the Eighth Circuit will see the legal issues in the same light.

The Justice Department argued in its brief that the defendants' vicarious liability arguments don't even apply.

“The DeCosters are not being held ‘vicariously' liable for the conduct of their employees; they are being held accountable for their own acts and omissions in causing a massive, nationwide outbreak of food-borne illness,” the government contends.

It adds that “[t]he Constitution does not prohibit custodial sentences against persons who know that a business under their direction is creating a serious risk to the public health and safety, yet fail to take the steps necessary to prevent this risk from manifesting itself in injuries to tens of thousands of people.”

A decision in the appeals isn't expected for several months.

The law offices of Sidley Austin represent Austin DeCoster, while Dornan, Lustgarten & Troia represent Peter DeCoster.

Wilmer Cutler Pickering Hale & Dorr represent amici parties Pharmaceutical Research and Manufacturers of America and the Chamber of Commerce for the United States.

Kaiser, LeGrand & Dillon represent amici parties National Association of Manufacturers and the Cato Institute.

The Washington Legal Foundation filed an amicus brief on its own behalf.

To contact the reporter on this story: Steven M. Sellers in Washington at ssellers@bna.com.

To contact the editors responsible for this story: Steven Patrick at spatrick@bna.com and Peter Hayes at phayes@bna.com