Beyond All Bounds of Civility: An Analysis of Administrative Sanctions Against Responsible Corporate Officers.

• Author: Schnell, Nicholas T.

1. INTRODUCTION II. BACKGROUND A. Brief Summary of the Responsible Corporate Officer Doctrine 1. The Origins of RCO 2. Expansion of RCO B. The Fine Line Between Civil and Criminal Punishments and Its Relevance to RCOs 1. The Mendoza-Martinez Test 2. A More Precise View of Judicial and Regulatory Sanctions: The Tripartite Framework III. ANALYSIS A. How RCO's Resurgence Presents a Duplicative Punishment Problem B. Shortcomings of the Mendoza-Martinez Analysis C. Mendoza-Martinez Application to Exclusions 1. Legislative Text 2. Affirmative Disability or Restraint 3. Historically Regarded as a Punishment 4. Scienter Requirement 5. Promotion of Traditional Aims of Punishment 6. Is the Behavior Already a Crime? 7. Alternative Purpose IV. RECOMMENDATION A. General Adjustments to the Mendoza-Martinez Analysis 1. Eliminate the "Clearest Proof" Standard 2. Direct Comparisons with Criminal Punishments for Behavior that is Already a Crime B. Certain Factors Should be Adjusted for Public Welfare Crimes V. CONCLUSION I. INTRODUCTION

   The corporate business form functions to limit individual liability; in recent years, however, it has been doing just the opposite for some corporate executives. (1) Expanded use of the Responsible corporate officer (Rco) doctrine has caused this increased, individual liability. (2) This doctrine, and its subsequent growth, arose from the basic need to hold individuals--generally a malfeasant corporation's executives--accountable for a corporation's criminal offenses. Historically, high fines against these entities failed to deter hazardous yet lucrative behavior because the risk of monetary sanctions failed to offset the potential profits. (3) From the corporation's perspective, these fines and other sanctions were reduced to nothing more than another "cost of doing business" (4) in its accounting books. Administrative agencies and courts have adjusted accordingly and shifted their focus to prosecuting and punishing executives in charge of corporations that violate criminal laws. (5) This Note seeks to illustrate how the increased effort to hold these individuals liable for corporate actions has blurred the basic legal distinction between civil and criminal law. Specifically, it will emphasize how duplicative punishment of RCOs offends the Fifth Amendment's double jeopardy clause. Part II of this Note will discuss the history of the Responsible corporate officer doctrine, which has been employed to hold corporate executives criminally liable for a corporation's transgressions. It will also introduce the analytical framework courts employ to analyze whether a legal sanction is civil or criminal. Part III will illustrate how courts and regulatory agencies have created a de facto system of duplicative, punitive punishments against Rcos. Finally, Part IV recommends adjustments to the analytical framework courts use to determine the nature of a legal sanction.

2. BACKGROUND

   The Responsible Corporate Officer doctrine's resurgence illustrates the recent paradigm shift toward individual liability for corporate wrongdoing. The RCO doctrine allows courts to punish individuals who hold positions of responsibility within a corporation, rather than punishing the corporation itself. (6) Importantly, under this doctrine, corporate officers who neither knew of nor played an active role in a corporation's illegal behavior can be held criminally liable. (7) This Part will provide a brief overview of the RCO doctrine's evolution since its origins in the 1930s. Then, this Part will introduce how RCO prosecutions and regulatory punishments have eroded the foundational, legal distinction between civil and criminal sanctions.

   1. Brief Summary of the Responsible Corporate Officer Doctrine

      Legislators justify the RCO doctrine as a method to bridge the liability gap caused by corporate wrongs. (8) Simply put, it resolves the predicament created by the absence of an identifiable individual who is culpable for a corporation's actions by holding its executives responsible. (9) This doctrine, when paired with the public welfare doctrine, presents a legal paradox by allowing courts to hold individuals criminally liable for corporate wrongs without proving two of the four essential elements of most crimes--mens rea and actus reus. (10) The following Sections discuss how the recent, strict application of the RCO doctrine against healthcare executives illustrates a significant divergence from the doctrine's humble beginnings. (11)

      1. The Origins of RCO

         The history of the RCO doctrine begins with the Supreme Court's interpretation of the Food, Drug, and Cosmetic Act of 1938's (FDCA) public welfare crime (12) in two seminal cases. (13) Among many things, the FDCA prohibits corporations and individuals from introducing adulterated or misbranded food or drugs into interstate commerce. (14) This legislation plays a prominent role in prosecuting corporate crimes in the food and drug industry.

         In United States v. Dotterweich, the Supreme Court held a pharmaceutical company's president liable for the introduction of mislabeled drugs into interstate commerce. (15) The Court found that the defendant, as president of the company, was "standing in responsible relation to a public danger." (16) Importantly, the Court held Dotterweich liable despite a lack of evidence that he had any knowledge of the mislabeling. (17) The Court reasoned that Congress passed the FDCA to protect the public from certain health hazards; in this case, the public welfare concerns outweighed the need to find any scienter or a direct linked between this executive's actions and the corporation's transgressions. (18) The Court concluded: "Such legislation dispenses with the conventional requirement for criminal conduct--awareness of some wrongdoing." (19) The Court upheld Dotterweich's sentence of 60 days of probation and a $750 fine in a five-to-four decision. (20) Not only did this case establish vicarious liability for all executives who were "standing in responsible relation to a public danger," but it also created a reduced mens rea requirement for RCOs, which is akin to strict liability. (2) 1 Courts refer to this mens rea reduction as the public welfare doctrine. (22)

         More than three decades later, in 1975, the Supreme Court revisited the RCO doctrine in United States v. Park. (23) Park cemented the proposition that an individual's criminal liability can depend almost entirely on his or her corporate officer position. (24) Instead of an executive "standing in responsible relation to a public danger," (25) the Court defined RCOs' scope of individual, criminal liability to all executives who have "responsibility and authority either to prevent ... or promptly to correct, the violation complained of." (26) Some justices cautioned against using such a broad scope of potential, criminal liability for corporate executives. (27) Justice Stewart warned that, while this form of vicarious liability appeared justified when courts handed out insignificant sanctions such as monetary fines, the same cannot be said for greater sanctions:

         [T]he standardless conviction approved today can serve in another case tomorrow to support a felony conviction and a substantial prison sentence. However highly the court may regard the social objectives of the Food, Drug, and Cosmetic Act, that regard cannot serve to justify a criminal conviction so wholly alien to fundamental principles of our law. (28) This plea for caution did not fall on deaf ears. Until recently, criminal sanctions associated with RCO cases were limited to monetary fines. (29) Courts were hesitant to exercise their statutory authority to incarcerate individuals who violated the FDCA without any proof of conscious wrongdoing. (30)

      2. Expansion of RCO

         In the decades preceding Park, prosecutors employed RCO sparingly--with the exception of environmental claims. (31) RCO-related criminal penalties exacted on healthcare executives for FDCA violations were monetary fines. (32) However, recent efforts to strengthen regulatory enforcement are challenging the once well-accepted custom that vicariously liable RCOs should only be subject to monetary fines. (33)

         In 2010, a report from the Government Accountability Office (GAO) implored administrative agencies and the Department of Justice (DOJ) to increase efforts to enforce Federal Drug Administration (FDA) regulations and statutes, namely the FDCA. (34) Accordingly, this has and will result in punishing more RCOs. (35) Advocating for greater individual liability for corporate wrongs, Lewis Morris, Chief Counsel for the Department of Health and Human Services (HHS), explained how corporations and RCOs that commit public welfare crimes consider civil penalties and criminal fines a "cost of doing business." (36) Although the fines handed to corporations and RCOs were far from slaps on the wrist, (37) historical corporate practice has illustrated that businesses will continue to violate laws even after receiving hefty fines. (38) These efforts to expand liability led administrative agencies to develop new protocols for stricter enforcement of public welfare crimes, like the FDCA. (39)

         The primary regulatory tool used to enforce public welfare crimes in the healthcare industry is the HHS's exclusion authority. (40) The exclusion authority allows the Office of the Inspector General (OIG (41) to withhold federal healthcare program payment to any party that employs or contracts with an officer held individually liable for his corporation's wrongs (i.e., an excluded individual). (42) Excluded individuals are virtually unemployable because any healthcare company that works with one will be prohibited from conducting business affecting prevalent government programs like Medicare and Medicaid. (43)

         The OIG uses its exclusion authority on a case-by-case basis. (44) Some regulatory violations mandate exclusions, while other, less serious offenses may result in permissive...