Over the past year, the Department of Justice has lost three major cases against corporate defendants, in what critics argue were examples of over-criminalization by prosecutors.

Over-criminalization in the context of prosecutorial discretion occurs when prosecutors unreasonably or unjustifiably bring cases that should not be brought at all. But exactly what are the limits of federal criminal law and prosecutions? Does the Department of Justice sometimes overstep its prosecutorial boundaries?

In a unique and rare face-off, Leslie Caldwell, assistant attorney general for the Justice Department’s Criminal Division and the defense attorneys for the three companies at issue—FedEx, Vascular Solutions, and Warner Chilcott—debated these issues and more on Dec. 8 at the National Press Club in Washington, D.C.

Although Caldwell would not comment on any of the three cases at issue because they preceded her time at the Criminal Division, she did acknowledge that “there are cases that get filed that shouldn’t be filed.” Part of the issue is that, among all the U.S. Attorneys’ offices scattered across 94 federal judicial districts, “there are districts where the oversight is not where it should be, the experience level is not where it should be,” she said.

Caldwell in a letter issued last week has since apologized to fellow prosecutors for her remarks. “I overreacted to the criticisms—which I strongly believe were not an accurate reflection of the Department’s work—by defending the Department in a way that inappropriately suggested that the care taken by U.S. Attorney’s Offices and others in making prosecutorial decisions was less than that taken by attorneys in the Criminal Division.”

The troubling reality, however, is that companies can—and sometimes do—face significant and unnecessary financial and reputational harm when U.S. Attorneys’ bring what are later arguably determined to be meritless cases.

Vascular Solutions. Medical-device maker Vascular Solutions and its CEO, Howard Root, for example, spent $25 million on more than 100 lawyers in 14 different law firms over the course of a five-year criminal investigation to contest a government indictment concerning off-label promotion allegations of the cleared medical device, “Vari-Lase Short Kit,” used in the treatment of varicose veins.

According to the government, the conduct of sales representatives in promoting the medical device to doctors for the treatment of a specific type of vein constituted off-label promotion in violation of the Food, Drug & Cosmetic Act. The government charged Vascular Solutions and Root with conspiring to defraud the Food and Drug Administration for failing to disclose the alleged off-label promotion.

The labeling of the medical device approved by the FDA “could easily be construed to encompass the very use that was at issue in the case,” John Richter, a partner at law firm King & Spalding, who represented Vascular Solutions, said during the panel discussion. Moreover, all of the government’s 18 witnesses confirmed that no patient had been harmed, no doctor had been misled, and that the device has been effective and useful, he said.

“If FedEx itself had made an incendiary statement about itself on Monday, and then reversed itself entirely on Friday, it would have been investigated for securities fraud.”
Cristina Arguedas, Partner, Arguedas, Cassman & Headley

Instructions to the jury may have harmed the government’s case further. Those instructions stated, “It is not a crime for a device company or its representative to give doctors wholly truthful and non-misleading information about the unapproved use of a device.” Ultimately, the jury acquitted Vascular Solutions and Root on all counts.

In the context of over-criminalization, Richter said it’s important to draw a distinction between “morally culpable crimes”—conduct that everybody knows is wrong—versus conduct that Congress deems as wrong based on regulatory consensus. “A conversation that a sales rep has with a doctor about the use of a medical device potentially designed to help patients would not be the type of conduct that the average person would deem criminal,” he said.

Moreover, the manner of the investigation did not suggest that these prosecutors were simply trying to get to the truth, “but rather they came in—as, unfortunately, is sometimes the case—with their minds made up,” Richter said. They issued grand jury subpoenas, which they used to induce witnesses to agree to private interviews with the government. For most life sciences companies, “frankly, a letter or phone call … can affect great change,” he said.

FedEx. FedEx is another example of a company victimized by over-criminalization. As Compliance Week previously reported, the Department of Justice in a first-of-its-kind criminal case in 2014 indicted FedEx for distributing controlled substances and prescription drugs for illegal online pharmacies.

In June 2016, during opening statements, the lead federal prosecutor in the case, now-former U.S. Attorney Melinda Haag for the Northern District of California, compared FedEx to a “drug dealer that delivered drugs in large quantities.”

Cristina Arguedas, a partner at law firm Arguedas, Cassman & Headley, who represented FedEx, said FedEx’s list of challenges against the government’s allegations during the trial were so long that her opening statement alone lasted four hours. Among the many arguments made: Each illegal online pharmacy in question was licensed by the Justice Department’s Drug Enforcement Administration (DEA), the same agency that brought the charges.

Secondly, Arguedas said, FedEx repeatedly asked the DEA for a list of pharmacies engaging in illegal activity that it didn’t want FedEx to ship to. “The DEA refused to give them a list,” she said. Thirdly, FedEx was helping the DEA all over the country when the agency wanted to investigate what they thought were illegal online pharmacies by offering the DEA use of their trucks and giving them any information they could provide.

Just four days into the trial, the U.S. Attorney’s Office abruptly moved to dismiss the indictment; Judge Charles Breyer of the U.S. District Court for the Northern District of California granted the motion and dismissed, stating that it was clear FedEx was “factually innocent.”

Although the U.S. Attorney’s Office didn’t reveal its reasons behind the dismissal, Arguedas reasoned that the case was a “disaster” for federal prosecutors from the get-go. “If FedEx itself had made an incendiary statement about itself on Monday, and then reversed itself entirely on Friday, it would have been investigated for securities fraud,” she commented during the panel discussion.


Below is a copy of Leslie Cadwell’s apology letter.
Dear Friends and Colleagues:
I write to apologize to each of you for the remarks I made during a recent panel at a Federalist Society event. My remarks followed statements by my co-panelists in which they expressed their strong views about specific cases which they believed were mishandled by the Department. I did not have prepared remarks for the event, and I certainly should have. Instead, I overreacted to the criticisms, which I strongly believe were not an accurate reflection of the Department’s work, by defending the Department in a way that inappropriately suggested that the care taken by U. S. Attorney’s Offices and others in making prosecutorial decisions was less than that taken by attorneys in the Criminal Division. And by making unscripted references to isolated issues in my recent experience, I realize that, rather than defending the reputation of the entire Department, I appeared to be criticizing U.S. Attorney’s Offices, Assistant U.S. Attorneys and other components. I deeply regret my remarks and the genuine hurt that they have caused. As a federal prosecutor for 19 years, including 16 years as an Assistant U.S. Attorney in two different districts, I know better.
Over the course of my career, I have worked with hundreds of dedicated prosecutors, and supervised many hundreds more. I know from personal experience that these prosecutors are committed public servants who have, in many cases, devoted their careers to protecting the innocent, to providing fair and due process to the accused, and promoting the cause of justice, almost always for far less compensation than they could obtain in the private sector. I also know first-hand that prosecutors across the Department care equally about upholding the Department’s values and the Constitution’s mandates in prosecuting crimes ranging from gang violence to white collar fraud. As I said at the event, I wish the American public could see what I have seen every day for nearly 20 years: the level of care and thought given by Department attorneys to prosecutorial decisions both large and small. I also wish the public could see the way in which Department prosecutors consistently hold themselves to the highest standards, embracing both the enormous responsibility and scrutiny that their positions place on them. The public would be impressed, as I am.
I have tremendous respect for the U.S. Attorneys and fully recognize that the hard work of Assistant U.S. Attorneys is what leads to most of the Department’s successes. Indeed, that is why, as Assistant Attorney General , one of my highest priorities has been to strengthen and broaden t he already deep relationship between the Criminal Division and the U.S. Attorney’s Offices. In my view, the Division’s greatest strength is our partnership with the U.S. Attorney’s Offices. Working together, we have been able to achieve extraordinary results in many significant cases, ranging from major gang prosecutions, to cutting-edge cyber cases, to some of the most complicated fraud cases ever handled by the Department. Our partnership is strong, and getting stronger. And for that reason , I regret even more deeply any negative impact my unscripted comments might cause. I also want to add a word to the Criminal Division personnel who saw and were upset by my remarks. These trial attorneys and supervisors spend their days working alongside colleagues in other components even more regularly than I do, and I know how much they respect their colleagues and enjoy building relationships at the same time as building cases. My remarks should not for a second be taken to reflect their views .
Last week, I addressed a group of new DOJ attorneys, and when they asked for career advice , I told them something that I am now going to apply to myself: Admit your mistakes, deal with the consequences, and learn.
I love the Department of Justice and deeply respect our values, the work we do, and the way we do it, both in the U.S. Attorney’s Offices and at Main Justice. That by my own remarks I suggested otherwise pains me deeply. I made a mistake, and I am sorry.
Source: Leslie Caldwell.

FedEx wasn’t the first delivery services company to face such charges. In March 2013, UPS agreed to forfeit $40 million in payments from illegal online pharmacies and entered into a non-prosecution agreement (NPA) with the Justice Department to resolve similar allegations.

The only difference between FedEx and UPS is that FedEx called the government’s bluff. “They were not going to let the government invade what would have affected their entire business model,” Arguedas said. “They had the resources, and they were willing to commit them to fight.”

Arguedas recalled a phone call with Haag in which Haag warned that FedEx would be indicted the following week if the company refused to sign an NPA and pay millions of dollars. “I called and asked, ‘What time is the arraignment?’ The indictment didn’t come for several more weeks, because I think they never expected them to say ‘not guilty.’ They expected them to negotiate.”

The legal practice of threatening companies with prosecutions unless they pay huge sums of money is little more than a form of extortion, Arguedas argued. The Justice Department kids itself that an NPA is an admission of wrongdoing, she said. “In some cases, it may be,” she said, but in other cases it’s a ‘go away fee’.”

Warner Chilcott. A third case debated among the panel concerned W. Carl Reichel, the former president of Warner Chilcott, who was indicted in October 2015 and charged with a single count of conspiring to pay kickbacks to physicians to induce them to prescribe Warner Chilcott’s drugs in violation of the Anti-Kickback Statute (AKS).

The alleged kickbacks were in the form of sham “medical education events,” held at expensive restaurants, that often contained minimal or no educational component and “speaker fees” paid for speeches never given.

The Department of Justice announced Reichel’s indictment the same day that it announced that Warner Chilcott U.S. Sales, a subsidiary of Warner Chilcott, agreed to a $125 million settlement and agreed to plead guilty to resolve criminal and civil liability charges arising from the company’s illegal marketing of several of its drugs.

Reichel pleaded not guilty. “The government believed they had a very clear case,” said Joseph Savage, a partner at law firm Goodwin Proctor, who represented Warner Chilcott.

Where over-criminalization comes into play in Reichel’s case, Savage argued, has to do with the nature of the statute drafted by Congress. “It would be very simple to say that if you’re a drug company, you can give nothing of value to a doctor—but that’s not what the Anti-Kickback statute says,” he said.

It prohibits kickbacks, yes, but it also has multiple safe harbors, “so there are multiple exceptions to a statute that is facially confusing,” Savage added. Even the “intent” provision of the statute—whether you had to “willfully” violate it or whether knowledge of the conduct is enough—is unclear and has been the subject of a circuit split, he said. In June 2016, Reichel was acquitted of any wrongdoing.

More accountability?

For all the speeches that Justice Department staff make about the importance of corporate compliance and accountability, a lot more can be done on the part of the agency to practice what it preaches.

A good starting point might be the Office of Professional Responsibility, an arm of the Justice Department responsible for investigating prosecutors who have been accused of misconduct or crimes in their professional functions. “The reality is that the Office of Professional Responsibility is not transparent at all,” Richter said.

In addition, Arguedas said she has “many stories of prosecutors who suffer from myopia.” As a result, they don’t often see what material is “Brady and, therefore, I’m supposed to guess,” she said. “That is huge problem.” (The term “Brady” material derives from the U.S. Supreme Court case, Brady v. Maryland, in which the court ruled that suppression by the prosecution of evidence favorable to a defendant who has requested it violates due process.)

Relying simply on good faith isn’t good enough for an agency that has the kind of immense power that the DoJ has, Richter agreed. As with companies, proper tone-at-the top and proper training within the Department of Justice is needed, he said, “but you also need actual accountability and transparency that goes with that accountability.”