Yesterday’s Wall Street Journal ran a story (password required) on federal prosecutors using the “responsible corporate officer” doctrine to impose personal liability on the officers and directors of drug companies for violations of food & drug laws.

This revives an obscure doctrine that I wrote about a few years ago (see here, pages 313-318) for a book that compared director liability for corporate actions across countries. The responsible corporate officer is understandably extremely worrying for corporate boards and executives because it means civil and even criminal liability when a corporation violates a law absent a director or officer knowing about the violation.

It is important to note that the scope of the doctrine is limited. It sprang forth in the 1943 Supreme Court case U.S. v. Dotterweich which interpreted the Federal Food, Drug and Cosmetic Act. The Court upheld the application of the doctrine to the same statute in 1975 in U.S. v. Park. In the 2003 case Meyer v. Holley, the Court revisited the doctrine and stated that Congress must be fairly explicit in a statute that it intends the doctrine to apply. And the current Supreme Court is unlikely to reverse course on this. The responsible corporate officer doctrine is unlikely to apply to new statutes absent explicit Congressional language.

Even so, the doctrine does apply to more than one federal food & drug statute. I list a number of federal cases in that book chapter I mention above. Moreover, state legislatures and courts have also applied the statute to state laws (and Meyer v. Holley does not necessarily constrain the ability of state courts to apply the doctrine to state statutes more liberally). So this dormant doctrinal strain should only give pause to boards and executives in certain heavily regulated industries that are subject to certain statutes. The doctrine is more limited, but potentially vastly more powerful – because lack of knowledge is not a defense -- than other sources of liability for directors that have been much more analyzed in recent years (for example, securities laws and Disney/Caremark/Stone v. Ritter).

Corporate Governance, Corporate Law, Crime and Criminal Law, Disney, Food and Drink, Supreme Court, White Collar Crime | Bookmark

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