Not Exactly a Gift

Sue Reisinger

Corporate Counsel

2012-11-01 00:00:00.0

In July a federal appeals court upheld the unprecedented debarment from health care work of ex–Purdue Pharma general counsel Howard Udell. Though the court overturned the 12-year term of the penalty until the U.S. Department of Health and Human Services explains why it was so long, the most important part of the ruling upheld the so-called responsible corporate officer doctrine, a form of strict liability for executives.

The ruling by the U.S. Court of Appeals for the D.C. Circuit was a key test of the doctrine, and it gives federal prosecutors a powerful tool to wield. It came five years after Udell and two other former Purdue executives—CEO Michael Friedman and chief medical officer Paul Goldenheim—pled guilty to a criminal misdemeanor for failing to properly supervise the marketing of Oxycontin. Their penalty excluded them for 12 years from government contracts, such as Medicare—in effect, ending their careers in health care.

The trio then sued HHS for reinstatement, but lost in U.S. district court in Washington. They appealed last year.

Udell had argued that exclusion was intended to be used only when there is evidence of fraud. The former GC and the others said they were guilty of omissions, not acts of fraud, and there was no falsity or intent to deceive on their part. Udell could not be reached for comment.

In the 2-to-1 ruling, the appeals court said the exclusion was proper because the execs' supervisory responsibilities were related to the company's misconduct in misbranding Oxycontin. The court did, however, overturn the 12-year term of the penalty as arbitrary and sent it back to HHS for reconsideration. The agency must provide a reasonable explanation for the length of any debarment it imposes, according to the ruling.

"We do not suggest the appellant's exclusion for 12 years based upon a conviction for misdemeanor misbranding might not be justifiable; we express no opinion on that question," the court said. "Our concern here is that the [Departmental Appeals Board] did not justify it in the decision under review."

Overall, the ruling was a setback for the pro-business Washington Legal Foundation, which had argued in a brief that Congress never intended for the law to punish an executive who had not taken part in the underlying crime. WLF chief counsel Richard Samp said in a statement that the decision cries out for further review.

"Irresponsible officials at HHS . . . have given every indication that they view the draconian penalties imposed in this case as a model for other cases," Samp said. "They either don't understand the limited nature of an RCO [responsible corporate officer] offense, or they are deliberately acting in violation of their statutory mandate." (HHS spokesman Michael Robinson said that department attorneys involved with the case declined to comment.)

Samp may lose his wish for further review. In September a motion for rehearing was delayed "due to settlement discussions," a court order said. At press time the matter was still on hold.