Here’s another quasi-guest post by Reed Smith’s blogger-in-training Dean Balaes. This one provides a critique of the scary Park doctrine, aptly described here as “Frankenstein’s Monster,” that allows imposition of criminal liability on corporate officers for illegality they didn’t even know about.
In 1816, Mary Shelley and Lord Byron entered into a wager to see who could create the greatest horror story. Shelley envisioned a scientist who was determined to create life yet was horrified by what he had made. The story of Frankenstein’s monster illustrates how even the most well-intentioned moral intuitions dance on the precipice of becoming total abominations. Enter the Park doctrine—a protean attempt at limitless liability.
Prosecutors tend to make the claim that the problem with corporate social responsibility is that there is not enough of it. Those opposing them argue that Park is a legal abomination because an individual can be held liable without prosecutors establishing proof that he or she acted with intent or negligence, and indeed even if such corporate official did not have any actual knowledge at all of, or participation in, the charged offense. See FDA Regulatory Procedures Manual, section 6-5-3. The ramifications of such a conviction include substantial monetary fines and exclusion from federal health care programs. With stakes this high and Constitutional concerns at play, greater limitations should be imposed on Park—namely, a strict constructionist approach.
The Origins of the Park Doctrine
Most commentators trace the roots of Park to a 1943 criminal doctrine espoused in United States v. Dotterweich, 320 U.S. 277, 281 (1943). In Dotterweich, the government charged Buffalo Pharmacal Company, Inc. and Joseph Dotterweich, its general manager, under strict liability provisions of the FDCA. Id. “For some unexplainable reason[,]” the jury did not find the corporation guilty, but only the officer acting on its behalf, even though no evidence of the officer’s guilt was presented. United States v. Buffalo Pharmacal Co., 131 F.2d 500, 501 (2d Cir. 1942). After reviewing the FDCA’s liability provisions, the Act’s definition of “person,” and congressional intent, the Second Circuit overturned the conviction. Dotterweich, at 279. In identifying Buffalo Pharmacal Company, Inc. as the “person” who committed the harm, the Second Circuit understood that only the corporate, non-natural person sold the adulterated and misbranded goods. Id.
The Supreme Court disagreed and interpreted the statutory definition of “person” to also mean a corporation’s officers. Dotterweich, at 278. In disregarding contemporary notions of criminal justice and the corporate form, Dotterweich relied on the public welfare nature of the FDCA to impose a general and heightened duty on officers. “[T]he only way in which a corporation can act is through the individuals who act on its behalf.” Id. Consequently, Dotterweich allowed criminal liability even when there is no proof of an individual’s wrongdoing, reasoning that, if the corporation is found guilty so too must be its employees. Doubling down on Dotterweich, United States v. Park relied on Dotterweich’s “responsible relation” test and held that strict liability under the FDCA may be imputed to a corporate officer who “had, by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and that he failed to do so.” 421 U.S. 658, 674 (1975); see also United States v. Brittain, 931 F.2d 1413, 1419 (10th Cir. 1991) (stating in dicta that Park may apply to officers even in the absence of mens rea because the “willfulness or negligence of the [subordinate] would be imputed to [the officer] by virtue of his position of responsibility”).
Limiting Park Through Statutory Construction
The Park doctrine inflates the boundaries of statutorily imposed duties applied to corporations that are normally the entities responsible for compliance therewith. Consequently, instead of the corporation being held responsible for alleged violations, the doctrine extends statutory duties to a new class of defendants not mentioned in the statute: the “responsible corporate officer.” Because of this expansion, one should ask whether statutes expressly contemplate responsible corporate officers.
Since 1943 when Dotterweich was handed down, cases have mirrored the approach in Dotterweich to increase statutory liability under a variety of statutes. See People v. Roscoe, 87 Cal. Rptr. 3d 190 (Cal. App. 2008) (interpreting “[a]ny operator of an underground tank system” to also include an officer “even where the corporation itself is also found to be the operator”); see also United States v. Hodges X-Ray, Inc., 759 F.2d 557, 560-61 (6th Cir. 1985) (relying on the definition of “manufacturer” under the RCHSA as “any person engaged in the business of manufacturing, assembling, or importing of electronic products” and arguing that because the individual defendant was the major shareholder of the company, it was “self-evident” that he was included in the definition).
A strict construction of the California Health and Safety Code in Roscoe, however, would suggest that the statute does not contemplate a legislative intent to permit liability for responsible corporate officers. 87 Cal. Rptr. 3d at 194 (“[S]ection 25299, subdivision(a)(6) does not limit liability to a single operator; rather it imposes liability on ‘[a]ny operator.’”) Still, the court felt free to expand the definition of “operator” and determined that “[t]his broad language could be read as supporting imposition of liability on both the corporate officer and the corporation when appropriate.” Id.
The “when appropriate” language is worrisome because it relies on prosecutorial and judicial benevolence. Prosecutors often cite the aphorism that “ignorance of the law” is no excuse, but how could this be fair when innocent individuals are faced with a doctrine as arbitrary as prosecutorial discretion? Remember another aphorism: “a grand jury would indict a ham sandwich, if that’s what the prosecutor wanted.”
In the absence of express statutory language, relying on prosecutorial and judicial restraint is a dicey proposition for well-intentioned (and innocent) individuals hoping to protect their liberty interests. For this reason, courts should be limited in applying Park to statutes that expressly contemplate responsible corporate officers. For example, the Clean Water Act states that “[f]or the purpose of this subsection, the term ‘person’ means, in addition to the definition contained in section 1362(5) of this title, any responsible corporate officer.” 33 U.S.C. § 1319(c)(6) (2006). In Clean Water Act cases, there is an obvious signal to courts (and individuals working in that sector) that the imposition of responsible corporate officer liability is applicable. Legislatures know how to enact a responsible corporate officer doctrine, if and when they intend to do so.
Without clear boundaries on how Park is applied, continued expansion of the doctrine means a greater expansion of what is a “public welfare offense.” Prosecutors will maintain that everything can be a public welfare offense and wait for egregious instances where the doctrine can be applied (and expanded). This expansion strains fiduciary duties imposed on officers under the seminal Caremark decision. In In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 967, 971 (Del. Ch. 1996), an individual will incur liability for failing to prevent compliance breaches where he or she knowingly failed to discharge fiduciary obligations. Directors must take steps to insure reporting systems exist in the organization that are designed to provide timely and accurate information so that the board may make informed judgments. Caremark understands directors must delegate monitoring tasks, and therefore, be protected from reliance on bad acts and insufficient reports by subordinates.
Park disregards this notion. In Park, the Court emphasized a “positive duty” on “individuals who execute the corporate mission” to “seek out and remedy violations” and “a duty to implement measures that will insure that violations will not occur.” Park, 421 U.S. at 672. As a result, under Caremark, an officer may be deemed to be responsible and free from civil liability in the exercise of his or her internal oversight duties, yet at the same time be deemed irresponsible and subject to criminal prosecution under Park, when in both instances the officer did not know or could not have prevented a subordinate’s public welfare offense.
A line from the notorious Yates Memo is salient here because it attempts to justify the Park doctrine in light of Constitutional due process concerns by bemoaning the difficulty of criminalizing individuals: “In large [institutions] where responsibility can be diffuse and decisions are made at various levels, it can be difficult to determine if someone possessed the knowledge and criminal intent necessary to establish their guilt beyond a reasonable doubt.” In other words, Park is an end run around the “reasonable doubt” standard itself. The one-sided applicability of Park responsibility rings hollow when one considers the fact that the same complaint can be made about government agents. When in law school, this author was struck by a remark from an Assistant United States Attorney who was asked: “What is justice?” He responded: “Whatever I think is justice.” In the spirit of fairness, should the shroud of Park be expanded to government actors too?