Rx - For The Defense

On July 24, 2020, the Supreme Court of Canada (SCC) finally put the matter to rest in Atlantic Lottery Corp. v. Babstock, holding that the doctrine of “waiver of tort” is not an independent cause of action in Canadian law and cannot be the basis on which a class action is certified. 2020 SCC 19 (Can.). While the SCC did not foreclose the possibility of disgorgement as a restitutionary remedy for negligence, courts have since refused to certify disgorgement common issues in product liability cases, with one noting that disgorgement is only available in negligence if the plaintiff is able to first prove specific causation and damages. See Williamson v. Johnson & Johnson Inc., 2020 BCSC 1746 (Can.) [Williamson].  In that case, the Court found that such issues could not be determined commonly, and would have to be resolved at the individual issues stage; therefore, the disgorgement issues could not be certified as common issues.

The Origins of Waiver of Tort

Like many artifacts in Canadian law, waiver of tort is a vestige of centuries-old English case law. Waiver of tort originated in the writ of assumpsit (quasi-contract), a proprietary doctrine and a close cousin of conversion. Waiver of tort created the legal fiction of an implied contract, preventing the tortfeasor from profiting from the use of the plaintiff’s property as the plaintiff’s agent, and allowing recovery of profits earned with the plaintiff’s goods. Where a tort was made out, but the plaintiff chose to pursue a claim in assumpsit to recover the defendant’s ill-gotten gains instead of the plaintiff’s losses, the plaintiff was said to “waive the tort.” The plaintiff was entitled to this relief even if he suffered no harm, because the right to profit from his property was his own.

Waiver of tort was first introduced into Canadian class proceedings in Serhan Estate v. Johnson & Johnson, a case in which the plaintiffs complained of an allegedly defective medical product, but only had nominal damages available to them because their provincial health insurers were the ones that actually paid for the item. [2004] O.J. No. 2904 (Can.) [Serhan Estate], aff’d [2006] O.J. No. 2421 (Div. Ct.). Leave to appeal to the Ontario Court of Appeal refused without reasons (16 October, 2006); leave to appeal to the Supreme Court of Canada refused (12 April 2006). Even though the plaintiffs could not prove actual loss, the Ontario Superior Court certified the class action on the basis that it was not plain and obvious that waiver of tort as a cause of action would fail. Three years later, waiver of tort was certified for the first time in a pharmaceutical class action, Heward v. Eli Lilly & Co. [2007] O.J. No. 424 (S.C.J.) (Can.) [Heward], aff’d, [2008] O.J. No. 2610 (Div. Ct.) (Can.). There, the plaintiffs alleged harmful side effects of the anti-psychotic drug, Zyprexa, and as an alternative to damages in negligence, elected to claim disgorgement of revenues collected by the defendant.

What followed were numerous pharmaceutical and medical device class proceedings across Canada that certified waiver of tort as a common issue, without any proof of loss. See e.g., Serhan; Heward; Peter v. Medtronic, [2007] O.J. No. 4828 (Can.), leave to appeal den’d [1008] O.J. No. 1916 (Div. Ct.) (Can.); LeFrancois v. Guidant Corp., [2008] O.J. No. 1397 (S.C.J.) (Can.), leave to appeal den’d [2009] O.J. No. 4464 (Can.), Tiboni v. Merck Frosst Canada Ltd., [2008] O.J. No. 2996 (S.C.J.) (Can.).  Notwithstanding, many legal commentators noted that waiver of tort did not permit a plaintiff to seek disgorgement of profits from a defendant’s wrongful act without having a proprietary right to those profits. A great deal of debate and confusion remained in Canadian jurisprudence about the doctrine. Indeed, no Canadian authority had ever recognized waiver of tort as a cause of action, and yet plaintiffs relied on a line of class action certification decisions in which courts had refrained from finding that it was plain and obvious that such an action did not exist. In Pro-Sys Consultants Ltd. v. Microsoft Corp., the Supreme Court of Canada refused to strike a waiver of tort claim because it found that a pleadings motion was not the proper place to resolve the uncertainties surrounding the doctrine. [2013] 3 S.C.R. 477 (Can.) [Pro-Sys]. The first case to try the issue on the merits was Andersen v. St Jude, a common issues trial involving the safety of mechanical prosthetic heart valves. See J. Melnitzer, Judge allows expert evidence to consider waiver of tort doctrine, (July 6, 2011). However, the Court found in favor of the defendants and therefore declined to consider the waiver of tort issue given that there was no liability. 2012 ONSC 3660 [Andersen]. See also Judge rules in favor of St. Jude Medical, (June 26, 2012). The recognition (or not) of the doctrine therefore remained unanswered.

Babstock Decision

The plaintiffs in Babstock alleged that the defendant lottery corporation breached a duty to warn of the inherent dangers associated with video lottery terminal games, including the risk of addiction and suicidal ideation. The plaintiffs sought to rely on the doctrine of waiver of tort as an independent cause of action for disgorgement, which permitted the plaintiff to “waive” the tort of negligence in favor of claiming the gains acquired by the defendant rather than the harm suffered by the plaintiff. As such, the plaintiffs asserted that a disgorgement remedy could be “determined at trial on the common issues without the involvement of any individual class member.”

ALC brought an application to strike the plaintiffs’ claims on the basis that they disclosed no reasonable cause of action. The decision made its way up to Canada’s highest court.

The SCC Decision

In a 5–4 decision, the SCC struck all the plaintiffs’ claims and set aside the certification order. The SCC was unanimous in its decision that the plaintiffs could not rely on the doctrine of waiver of tort as an independent cause of action for disgorgement and confirmed that the claim had no reasonable chance of succeeding at trial. The minority found that common issues relating to breach of contract, punitive damages, and the availability of disgorgement of ALC’s gains as a remedy were properly certified.

Justice Brown, writing for the majority, held that the term “waiver of tort” was apt to generate confusion and should therefore be abandoned. He explained that restitution for unjust enrichment and disgorgement for wrongdoing are two types of gain-based remedies. Each is distinct from the other. Restitution is awarded in response to the causative event of unjust enrichment where there is correspondence between the defendant’s gain and the plaintiff’s deprivation. Disgorgement, on the other hand, refers to awards that are calculated exclusively by reference to the defendant’s wrongful gain, irrespective of whether it corresponds to damage suffered by the plaintiff, or whether the plaintiff suffered damage at all.

Here, the plaintiffs sought disgorgement, not restitution. They said they were entitled to a remedy quantified solely on the basis of ALC’s gain, without reference to any damage that any of them had suffered. By pleading disgorgement as an independent cause of action, the Court held that the plaintiffs were seeking to establish an entirely new category of wrongful conduct – one that was akin to negligence but did not require proof of damage.

Justice Brown commented that disgorgement should be viewed as an alternative remedy for certain forms of wrongful conduct, not as an independent cause of action. To make out a claim for disgorgement, a plaintiff must first establish actionable misconduct. Justice Brown acknowledged that disgorgement might be available as an exceptional remedy for some forms of wrongdoing without proof of damage (i.e., breach of fiduciary duty), but it would be a far leap to find that disgorgement without proof of damage is available in response to a defendant’s negligent conduct. Granting disgorgement without proof of damage would result in a remedy arising out of “legal nothingness” and would be an uncharted development.

Against that background, the SCC set aside the certification order and struck the plaintiffs’ waiver of tort and other claims in their entirety, ruling definitively that there is no such cause of action under the law of Canada.

The Status of Waiver of Tort

The implications of the Babstock decision are already being seen in Canadian class proceedings. In MacInnis v. Bayer, the plaintiff asserted that the defendant’s non-surgical form of birth control was harmful, and that class members were entitled to an accounting of the defendant’s revenues from selling the product in Canada. 2020 SKQB 307 (Can.). The Court held that whether disgorgement is available as an alternative remedy for a proper claim in negligence was left unsettled by the Babstock decision. However, given that the only cause of action for which restitution could be ordered in this case was waiver of tort, the plaintiff’s proposed common issue relating to disgorgement could not be certified.

In Williamson v. Johnson & Johnson Inc., the plaintiff conceded that she could not pursue a claim in waiver of tort in light of Babstock, but argued that the Supreme Court did not foreclose the possibility of disgorgement as a restitutionary remedy for negligence. 2020 BCSC 1746 (Can.). She argued that disgorgement remained an available remedy in the circumstances of the case, which entitled her to an accounting of the defendants’ revenues without any proof of actual damages.

The defendants argued that negligence requires a person to prove specific causation and damages, both of which are individual issues, before any potential disgorgement remedy can even be considered; accordingly, negligence could not provide a basis for the plaintiff’s proposed disgorgement common issue.

The B.C. Supreme Court agreed with the defendants. Citing Babstock, the Court confirmed that disgorgement is not an independent cause of action; rather, it is an alternative remedy for certain wrongs. The Court held that the plaintiff was required to prove causation and damages before a disgorgement remedy would be available to her. Here, specific causation and damages could not be determined until after determination of the individual issues, and so it would not be proper to certify a claim for disgorgement.

The Williamson decision confirms that Canadian plaintiffs are not only barred from pleading waiver of tort in their claims, but they also cannot rely on disgorgement as a remedy for negligence absent proof of damages and seek to have a class action certified from “legal nothingness.”

Jessica Lam is a senior associate in the Toronto, Canada office of Blake, Cassels & Graydon LLP. Her litigation practice focuses on the defence of class actions and other complex claims related to product liability, consumer protection, and negligence. She regularly acts for leading manufacturers and distributors of pharmaceutical medicines, medical devices, and other health products. Jessica is an active member of DRI.

Gord McKee is a senior litigation partner in the Toronto, Canada office of Blake, Cassels & Graydon LLP. He has a national practice leading the defense of class actions and product liability claims for some of the world’s largest manufacturers of medicines, medical devices, consumer goods and equipment. He has been a longstanding and active member of the DRI Drug and Medical Device Steering Committee, IADC (past board member) and PLAC.

Hubbard and the Learned Intermediary Doctrine

The learned intermediary doctrine on which Hubbard relies was established by the Georgia Supreme Court in 2003 with McCombs v. Synthes (U.S.A.), 587 S.E.2d 594 (Ga. 2003). McCombs established that, “under the learned intermediary doctrine, the manufacturer of a prescription drug or medical device does not have a duty to warn the patient of the dangers involved with the product, but instead has a duty to warn the patient’s doctor.” Id. at 594 (emphasis added). The rationale for this doctrine is that “the treating physician is in a better position to warn the patient than the manufacturer, in that the decision to employ prescription medication involves professional assessment of medical risks in light of the physician’s knowledge and the patient’s particular need and susceptibilities.” Id. Courts interpreting Georgia’s learned intermediary doctrine consistently refer to McCombs for this standard, including Hubbard. Hubbard v. Bayer HealthCare Pharms. Inc., 983 F.3d 1223, 1231 (11th Cir. 2020).

The Hubbard case originated in the Northern District of Georgia before it was appealed to the Eleventh Circuit. Hubbard v. Bayer HealthCare Pharms. Inc., 407 F. Supp. 3d 1317 (N.D. Ga. 2019). Plaintiff Karen Hubbard tragically suffered a severe stroke, which left her paralyzed and her cognitive functions severely impaired. 983 F.3d at 1225. Ms. Hubbard claimed that the cause of her stroke was the oral contraceptive drug she was taking, Beyaz. Id. Since the 1960s, the medical community has been aware that certain oral contraceptive drugs are associated with an increased risk of blood clots. Id.

Defendant Bayer moved for summary judgment on the plaintiff’s claim for failure to warn, arguing that Karen Hubbard’s prescribing physician, Dr. Rowley, “had actual knowledge of the risks,” and that he provided “explicit, uncontroverted testimony that he was aware of the potentially higher risk of VTE [blood clots]…long before he wrote Karen Hubbard’s final prescription.” Id. The Hubbards countered with two arguments: first, that the warnings available to Dr. Rowley in December 2011 were inadequate and lacked information made available in the 2012 label update, and second, that Dr. Rowley’s testimony on his December 2011 knowledge of the increased VTE risk associated with the drug was “equivocal.” Id. The Northern District of Georgia ruled in favor of Defendant, determining that Dr. Rowley’s testimony established “that no different warning would have changed the prescribing decision and avoided the injury.” Id.

The Eleventh Circuit reviewed the facts de novo and affirmed the District Court’s conclusion. Id. at 1232. Though proximate cause is an issue of fact normally reserved for a jury, Georgia law provides that a court may decide proximate cause questions as a matter of law “if the evidence is plain and undisputed.” Id. The court determined that Dr. Rowley “provided explicit, uncontroverted testimony that, even when provided with the most current research and FDA mandated warnings, he still would have prescribed the drug to Karen Hubbard.” Id. at 1233.

Dr. Rowley’s testimony stated, in relevant part:

Q: Okay. I believe you said you recall that there may have been a new label issued sometime in 2012…when that happened, did you alert your patients?
A: No.
Q: Why not?
A: Once again, the relative risk that was discussed was actually very small versus the fact that people have been on it for—have taken it, they’re happy with it, that they have not had any complications with it.

Id.

Dr. Rowley testified that he did not change the way he prescribed birth control to patients after April 2012. Id. Further, and most notably, he testified that he would have prescribed Beyaz to Karen Hubbard in December 2011 even if he had the 2012 Beyaz label in hand.

Hubbard is most notable because it solidifies that a plaintiff claiming a manufacturer’s warning was inadequate bears the burden of establishing that an improved warning would have caused her doctor not to prescribe her the drug. The case further reaffirms that the learned intermediary doctrine provides the duty to warn runs to the prescribing physician only, and that if the physician would not have changed his or her prescribing decisions with a different warning, Plaintiff cannot prove proximate cause.

Since Hubbard was decided in late 2020, District Courts have already turned to its guidance. In Swintelski v. Am. Med. Sys., Inc., No. 20-60410-CIV-CANNON/Hunt, 2021 WL 687202 (S.D. Fla. Feb. 22, 2021), the plaintiff underwent a procedure implanting a pelvic mesh product called SPARC Mesh Sling and brought a claim against her surgeon for failure to warn. Id. at *1. The implanting physician, Dr. Kahn, provided persuasive testimony affirming that he would have still prescribed and used the device even if he had been in possession of more detailed warnings about elevated risks. Id. at *5. He stated that his decision to implant the product was the “right thing to do,” that the product was a “good product,” that the operation is a “great operation” that he continues to perform with only occasional minor complications, and, most importantly, that knowing what he knows today, he would have persisted in his decision to prescribe the use of the device in the patient’s operation. Id. at *4.

The court determined that the prescribing physician’s testimony defeated the plaintiff’s argument of proximate causation under failure to warn. The court relied on Hubbard for this conclusion, stating that:

the critical inquiry is not whether Dr. Kahn would have communicated more information to his patient who then perhaps would have altered her decision to undergo surgery. Instead, the relevant question is whether the additional risk information would have impacted the implanting physician’s decision to implant the product at issue.

Id.

This case and its progeny demonstrates that it is vitally important for defendant manufacturing companies seeking summary judgment on failure to warn to obtain very clear, unequivocal testimony that the prescribing physician would have made the same prescribing decision even given an updated warning.

Other Jurisdictions Adopting the Same Hubbard Principles

Hubbard is just one of many recent decisions across the United States to adopt and solidify the learned intermediary doctrine and the physician testimony required for a defendant to rely upon the doctrine to defeat a failure to warn claim. In 2014, the Ninth Circuit, applying Washington law, also affirmed summary judgment on the basis of the learned intermediary doctrine in Luttrell v. Novartis Pharms. Corp., 555 F. App’x 710 (9th Cir. 2014). The decision affirmed that “the learned intermediary doctrine requires a showing that the prescribing physician, not the patient, would have taken a different course of action if better warnings had been issued.” Id. at 710.

Numerous district courts have also recently affirmed the principle and discussed the physician testimony required for a plaintiff to prove causation for failure to warn. In In re Avandia Mktg., Sales Practices & Prods. Liab. Litig., the court denied summary judgment because the prescribing physician did not testify that a different warning from a drug manufacturer would have altered his decision to prescribe the drug for the patient, similarly to Hubbard. 2015 WL 1383070, at *3 (E.D. Penn. Mar. 24, 2015). A recent case in the District of New Mexico, Nowell v. Medtronic Inc., cites to numerous other district courts that consistently determined that “a prescription-drug manufacturer’s alleged failure to warn a prescribing physician cannot be the proximate cause of injury unless the plaintiff can establish that a different warning would have changed the physician’s decision to prescribe the drug, i.e., that, but for the alleged inadequate warning, the physician would not have prescribed the product.” 372 F. Supp. 3d 1166, 1234 (D.N.M. 2019), citing Willett v. Baxter Int’l, Inc., 929 F.2d 1094, 1099 (5th Cir. 1991); Odom v. G.D. Searle & Co., 979 F.2d 1001, 1003-04 (4th Cir. 1992) (upholding summary judgment where the prescribing physician testified that a different warning would not have changed his decision to prescribe an intrauterine device); Plummer v. Lederle Labs., 819 F.2d 349, 358 (2d Cir. 1987) (holding that there was no proximate cause in absence of evidence that different warning would have caused physician to act differently); Fisher v. Bristol-Myers Squibb Co., 181 F.R.D. 365, 370 (N.D. Ill. 1998) (“In a prescription drug failure-to-warn case, the plaintiff must establish that an adequate warning would have convinced the treating physician not to prescribe the product for the plaintiff.”) (internal quotation marks omitted); In re Norplant Contraceptive Prods. Liab. Litig., 955 F. Supp. 700, 710 (E.D. Tex. 1997) (stating that the plaintiffs have the burden of proving that a different warning would have changed the decision of the prescribing physician); Krasnopolsky v. Warner-Lambert Co., 799 F. Supp. 1342, 1347 (E.D.N.Y. 1992) (noting that any alleged inadequacy of the manufacturer’s warning was not, as a matter of law, the proximate cause of the plaintiff’s injuries where the physician testified he would have prescribed the drug even if the warnings had been different); Windham v. Wyeth Lab., Inc., 786 F. Supp. 607, 612 (S.D. Miss. 1992) (granting summary judgment on failure-to-warn claim where the prescribing physician testified that he still would have prescribed a medication even if he had received additional information.).

The principles from Hubbard have been adopted across the country, and thus its lessons are widely applicable.

Implementing the Hubbard Principles During Deposition of the Prescribing Physician

As demonstrated by the court’s focus on this issue in Hubbard, the testimony of the prescribing physician is of utmost importance in cutting off proximate causation for a failure to warn claim. The substance and format of the prescribing physician’s deposition testimony is the bedrock foundation of a motion for summary judgment on a plaintiff’s claim for failure to warn. A well thought-out and executed deposition can not only springboard a piercing cross-examination at trial, but also create the foundation needed for a successful motion. So how can defense counsel ensure that the deposition testimony they will need for their motion for summary judgment is obtained?

First, Hubbard provides excellent guidance on the type of admissions defense counsel should seek from the prescribing physician during the deposition. As explained earlier in this article, in Hubbard, the Eleventh Circuit focused on the prescribing physician’s testimony that, “even now that he kn[ew] exactly what was included” in the later updated label to the pharmaceutical he prescribed, the physician stood by his decision to prescribe the medication:

Lawyer: Do you believe today that your decision to prescribe Beyaz for Mrs. Hubbard was appropriate?
Prescribing doctor: Yes.

Hubbard, 983 F.3d at 1233 (11th Cir. 2020). Other questions to help close out this topic may be:

(1) “Do you stand by your decision today to prescribe [insert treatment] to plaintiff?”;
(2) “Now that you are aware of the new information included on the warning label for [insert pharmaceutical or medical device product], would you still prescribe that treatment to plaintiff?”; or
(3) “You’ve been asked a lot of questions today about various different warnings and risks by plaintiff’s counsel. Sitting here today, taking into account all of the warnings and risks mentioned by counsel, would you still choose to prescribe the [insert pharmaceutical or medical device product] to plaintiff?”

By securing testimony from the prescribing physician that he or she stands by his or her decision to prescribe the treatment, even with knowledge of an updated warning label or new risks that the plaintiff asserts should have been included in an adequate label, defense counsel can create a solid record upon which a Hubbard-focused motion for summary judgment can be based.

Second, the plaintiff’s argument in Hubbard identifies common techniques and strategies plaintiffs’ counsel use to try and obtain admissions to avoid summary judgment. However, when looked at closely, these strategies and arguments are truly red herrings that should not be able to defeat Hubbard’s clear guidance as to what testimony from the prescribing physician is needed to win summary judgment. For example, in Hubbard, the plaintiff argued that, because the prescribing physician changed the way he counseled patients after the label to the pharmaceutical was changed, this was enough to overcome summary judgment. 983 F.3d at 1236. This same tactic was used by the plaintiff in Swintelski. 2021 WL 687202, at *1. The plaintiff pointed to the prescribing physician’s “testimony that he would have communicated additional risk information to his patients about the product had he received such additional information”:

Lawyer: [I]f that information had been made available to you back in 2012, certainly, you would have relayed that to your patients at that time....?
Doctor: Yes, I think that goes without saying. The more information the doctor has to pass on to a patient, the more likely he is to pass it on.

Id. at *4.

But as the Hubbard court made clear, this fact does not overcome summary judgment as “a change in communication practices says nothing about the [updated] label’s impact on [the prescribing physician’s] decisionmaking regarding whether to prescribe.” Hubbard, 983 F.3d at 1236 (emphasis in original). Citing Hubbard, the Swintelski court agreed, and found that a change in communication behavior by the prescribing physician did not defeat summary judgment if that same physician testified that he would still prescribe the treatment at issue. 2021 WL 687202, at *5.

Defense counsel should be aware of these tactics and listen for these types of questions to be asked by plaintiffs’ counsel during the deposition of the prescribing physician. If such questions are asked, defense counsel should follow up with questions to rebut, such as: (1) “Doctor, even if you may have communicated information differently to patients in light of the updated label, do you still stand by your decision today to prescribe the [insert treatment]?”; (2) “Although you may have changed the way you discuss the [insert treatment] with plaintiff, would you still have prescribed [insert treatment]?”  By following up with these types of questions, defense counsel can shore up the prescribing physician’s testimony in preparation for arguments against summary judgment like the ones made by the plaintiffs in Hubbard and Swintelski.

By implementing the winning strategies identified in Hubbard, and by preparing to rebut against the plaintiffs’ usual tactics, defense counsel can ensure that the prescribing physician’s deposition testimony is strong evidence for the granting of summary judgment.

Brett A. Tarver is a health sciences associate in the Atlanta office of Troutman Pepper Hamilton Sanders, LLP. Her practice focuses on the defense of pharmaceutical and medical device manufacturers in products liability litigation. She has served as trial counsel in numerous cases to verdict from Massachusetts to the U.S. Virgin Islands, and is regarded as an up-and-coming trial lawyer in the defense of products. Brett is currently the Second Vice Chair of the Young Lawyers Committee, and is an active member of the Drug and Medical Device and Product Liability Committees.

Alex Lilly is an associate in Troutman Pepper’s Atlanta office in the Health Sciences litigation practice group. Her practice focuses on product liability litigation, specifically defending medical device manufacturers. Alex currently serves as the Vice Chair of Membership for the DRI Young Lawyers Committee.

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, 320 U.S. at 279. In identifying Buffalo Pharmacal Company 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. Id. 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. Under 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.

Conclusion

A line from the 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.” Memorandum from Sally Q. Yates, Deputy Attorney Gen., U.S. Dep’t of Justice, to All Component Heads and United States Attorneys, at 2 (Sept. 9, 2015). 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?

Dean Balaes is a member in the Life Sciences Health Industry Group at Reed Smith LLP’s New York office. Dean’s practice involves advising health care institutions on how to respond to the fluid regulatory and legal landscape in which they operate.