A severe United States Supreme Court doctrine imposes criminal liability on corporate managers under circumstances ignored by traditional criminal theory. As a result, corporate managers may be easy criminal targets. Criminal intent is not required. Participation in the criminal act is not required. Even a minimal showing that the manager was aware of the criminal activity is not always required for a conviction. Instead, criminal liability under this "responsible share" doctrine requires only that the corporate manager be found to have a "responsible share in the furtherance of the [criminal] transaction." United States v. Dotterweich, 320 U.S. 277, 284 (1943).
The Supreme Court left few instructions with this doctrine. It, instead, assigned development of the doctrine to the "wise guidance" of future courts and prosecutors. Id. at 285. It is in these subsequent cases where the doctrine has taken form.
This article describes the responsible share doctrine and surveys some of the cases decided since its creation.
1. The Responsible Share Doctrine
Traditional criminal and civil theory requires some degree of participation before finding a manager vicariously liable for a subordinate’s act. A corporate manager, under traditional theory, would not be held criminally liable solely because one of his subordinates commits a criminal act during his employment.
Five decades ago, the United States Supreme Court moved away from traditional theory and steered criminal vicarious liability in a direction opposite that of civil law.
The circumstances for this change presented themselves in United States v. Dotterweich, 320 U.S. 277 (1943). The president of a corporate pharmaceutical distributor was charged, along with the corporation, with misbranding and adulterating drugs under the Federal Food, Drug and Cosmetic Act. There was no proof offered to suggest that the president knew that the drugs had been adulterated or mislabelled and no evidence that he had participated in any criminal conduct. Id. at 286. Despite this, the majority held the president criminally liable for the actions of his subordinates.
After pointedly disavowing the distinction between a corporation and its officers, the U.S. Court of Appeals had refused to impose liability on the manager because he was not operating the corporation as his alter ego.
The Supreme Court refused this veil position because: "the only way in which a corporation can act is through the individuals who act on its behalf." Id. at 281. The Court stated that the president and anyone who "shares responsibility in the business process resulting in the unlawful distribution" is criminally liable as an aider and abettor. Id. at 284.
The Court deferred on defining the class of managers who share responsibility: "It would be too treacherous to define or even to indicate by way of illustration the class of employees which stands in such a responsible relation. To attempt a formula embracing the variety of conduct whereby persons may responsibly contribute in furthering a transaction forbidden by an Act of Congress . . . would be mischievous futility. In such matters the good sense of prosecutors, the wise guidance of trial judges and the ultimate judgment of juries must be trusted."
The Court was willing to force-fit an aider and abettor label on this unaware and non-participating individual because of the overriding public interest protected by the strict liability statute: "The purpose of this legislation [F.D.A.] thus touches phases of the lives and health of people, which, in the circumstances of modern industrialism, are largely beyond self protection. Regard for these purposes should infuse construction of the legislation if it is to be treated as a working instrument of government and not merely as a collection of English words." Id. at 280.
The Supreme Court reaffirmed its position in United States v. Park, 421 U.S. 658 (1975) under circumstances similar to those in Dotterweich. Park was president of a large national food chain, Acme. He and Acme were charged with violating the Federal, Food, Drug and Cosmetic Act because certain of Acme’s food warehouses were contaminated by rodents and the conditions had not been remedied after warning. Park was aware of the incident and had been informed that one of the corporate vice presidents was investigating and correcting the problem. Id. at 664. Park contended that he had no reason to distrust the vice president’s ability to remedy the problem, but he did concede that as chief executive officer he had ultimate responsibility for sanitation in the warehouses. Id. at 665.
This time the Supreme Court was not willing to attach the ill-fitting aider and abettor label to Mr. Park. It was, however, still willing to affirm his conviction. Like Dotterweich, the Court turned its decision on the strict liability policy of ensuring pure food, but it also stated that corporate managers "voluntarily" assume such risk by accepting responsible positions:
"The Act imposes not only a positive duty to seek out and remedy violations when they occur but also, and primarily, a duty to implement measures that will insure that violations will not occur. The requirement of foresight and vigilance imposed upon responsible corporate agents are beyond question demanding and perhaps onerous, but they are no more stringent that the public has a right to expect of those who voluntarily assume positions of authority in business enterprises whose service and products affect the health and well-being of the public that supports them." Id. at 672.
The Court held that the jury could find liability if Park had authority to prevent or correct the prohibited condition but failed to exercise such authority. Id. at 674. Park could not be held liable solely because of his position in the corporation. Id. Moreover, the Court stated that corporate managers may avoid liability by affirmatively establishing that it was objectively impossible to prevent the criminal condition. Id. at 673.
Park and Dotterweich recognize that strict liability crimes do not require criminal intent. But, they leap further and hold that strict liability crimes do not require "personal participation." Park, supra at 670.
2. Actions Which Constitute a Responsible Share in the Prohibited Conduct
The focus of much of the litigation under the responsible share doctrine has been the level of responsibility necessary to trigger liability for a corporate manager. There have been divergent views.
a. Corporate Manager Authorizes the Prohibited Conduct
Some courts have indicated that a corporate manager has a responsible share only if he authorizes the prohibited conduct. In State v. Kailua Auto Wreckers, Inc., 615 P.2d 730 (Hawaii 1980) a corporation and two of its officers were convicted of violating a state public health regulation because the business openly burned automobiles. The conviction against one of the officers was affirmed because he authorized performance of the unlawful acts and was present during at least one of the incidents. Similarly, in United States v. Cattle King Packing Co., Inc., 793 F.2d 232 (10th Cir. 1986), the president of a meat packing company was convicted of misbranding and adulteration of meat committed at his direction and pursuant to policies he affirmatively established. Cattle King appears to be one of the few instances where the responsible share doctrine has been successfully used for a felony conviction.
Federal prosecutors have attempted to apply the doctrine in felony cases. In United States v. Industrial Laboriatories, Co., 456 F2d 908 (10th Cir. 1972) the court rejected felony liablity under the responsible share doctrine because the predicated FDA violation required proof of specific intent. Likewise, in United States v. Alra Laboratories, Inc., 93 CR 585 (N.D. Ill 1996) responsible share was rejected in a criminal fraud prosecution requiring specific knowledge of the scheme.
b. Awareness of the Prohibited Conduct
Other courts find that corporate manager’s have a responsible share if they are actually aware of the prohibited conduct at the time it occurred or shortly thereafter. The view of these courts is that once the manager becomes aware of the problem he is bound to correct it. In The Matter of Dougherty and MCM Industries, Inc., 482 N.W.2d 485 (Minn. 1992) a corporation and its president were convicted of spilling hazardous materials during production. The officer, Dougherty, unsuccessfully appealed his conviction. The court reasoned that Dougherty’s position placed him as being ultimately responsible for operations at the facility, and also indicated that the state inspectors had specifically notified Dougherty of the condition and warned him that it be remedied. In United States v. Park, supra at 678, the Supreme Court similarly turned its finding of a responsible share on Park’s receipt of notice that the unlawful condition existed and his failure to assure its correction. In United States v. Y. Hata & Co., Ltd., 535 F.2d 508 (9th Cir. 1976) the defendant corporate manager was found responsible for criminal FDA violations because he was aware of the illegal condition, was aware of a remedy to the condition and failed to assure that the remedy was implemented.See also United States v. Starr, 535 F.2d 512 (9th Cir. 1976)(corporate officer convicted because he was aware of rodent infestation of warehouse); United States v. Abbott Laboratories, 505 F.2d 565, 573 (4th Cir. 1974)(responsible share doctrine requires that the individual be aware of the criminal conduct).
c. Holds a High-Level Position in the Corporation
In Park the Supreme Court states that corporate position alone is not a sufficient basis for finding a responsible share. Despite this warning, there are decisions which apply the doctrine based only on the manager’s position.
One of the corporate officers charged with violating the open burning laws in State v. Kailua Auto Wreckers, supra, was a housewife, Mrs. Weber, who did not take any active role in the running of the business. Mrs. Weber never set policy or issued orders on corporate operations. Yet, despite her very remote relationship to the illegal activities, the court recognized that the sweep of the responsible share theory was wide enough to catch her. In People v. Matthews, 7 Cal. App. 4th 1052, 9 Cal. Rptr. 2d 348 (1992) the corporation and a manager/owner were convicted of illegal hazardous waste disposal. Although the corporate manager was rarely present at the site of the violation, was unaware of the problem and was four levels removed from direct responsibility over the operations at the site, his conviction was affirmed. The appellate court reasoned that the manager had a responsible share in the illegal dumping because he had the power to hire and fire individuals or shut the plant down. Id. at 1061. In People v. Byrne, 128 Misc. 2d 448, 494 N.Y.S.2d 257 (1985) the defendant corporation and its president were charged with serving liquor to a minor. The trial court refused to convict the president because he was not in the bar at the time of the incident. The Appellate Court reversed: "The defendant, if adjudged a responsible officer of the corporate licensee, may be held criminally liable notwithstanding his lack of knowledge of, or participation in, the criminal act." Id. at 258. See also People v. Durch, 140 Misc.2d 353, 530 N.Y.S.2d 956 (1988) (individual could be held liable for building code violations based on his position as president of the corporation which owns the building); and Liquid Chemical Corporation v. Department of Health Services, 227 Cal. App.3d 1682, 279 Cal. Rptr 103, 115 (5th Dist 1991).
3. Defenses to Responsible Share
The Supreme Court did place two limits on the responsible share doctrine. If it was "objectively impossible" for the corporate manager to prevent or correct the prohibited conduct through extraordinary care, there will be no liability. "The Act . . . does not require that which is objectively impossible. The theory upon which responsible corporate agents are held criminally liable for `causing’ violations of the Act permits a claim that the defendant was `powerless’ to prevent or correct the violation to `be raised defensively at a trial on the merits.’" Park, supra at 673.
Additionally, the Supreme Court limited the doctrine to strict liability crimes. Park, supra at 672.
1. Objective Impossibility Defense
In United States v. Starr, supra, the manager argued that the rodent infestation was impossible for him to prevent because his subordinate failed to follow his orders and sabotaged the warehouse. The court refused this argument. It ruled that reasonable vigilance required the manager to anticipate the shortcomings of his subordinates. In United States v. Y. Hata & Co., Ltd., 535 F.2d 508 (9th Cir. 1976) the defendant argued that it was objectively impossible to remedy a bird infestation problem because the necessary materials to construct a wire cage had not yet arrived. Again, the defense was rejected. The court ruled that there was inadequate evidence to support the defense and no evidence to indicate that the defendant could not have acted more promptly to order the materials and thereby avoid the delay.
2. Strict Liability Crimes
The Supreme Court has also limited the responsible share doctrine to strict liability crimes. In United States v. O’Mara, 963 F.2d 1288, 1294-95 (9th Cir. 1992) the Ninth Circuit refused to interpret a statute as creating strict liability so it could avoid the responsible share doctrine
In United States v. MacDonald & Watson Waste Oil Co., 933 F.2d 35 (1st Cir. 1991) the court refused to apply the responsible share doctrine to crimes requiring knowledge or scienter as an express element of the crime. Similarly, in United States v. White, 766 F. Supp. 873 (E.D. Wa.1991) the court held that the corporate manager could not be held liable under the responsible share doctrine because the crime required a knowing action.
To the contrary is United States v. Johnson & Towers, Inc., 741 F.2d 662 (3d Cir. 1984). The corporation and two of its employees, a foreman and a service manager, were charged under the responsible share doctrine with criminal violations of the Resource Conservation and Recovery Act. The government claimed that workers pumped waste chemicals from a tank into a trench which fed into a natural waterway without a permit. The court ruled that the individuals could be held liable under the responsible share doctrine for this crime. The court made this ruling even though the statute was not a strict liability statute; it required that the individuals have knowledge of the wrongdoing and the court was willing to infer such knowledge because of the individual’s responsible position. Id. at 669. The predicate of a strict liability crime was also ignored in United States v. Hodges X-Ray, Inc., 759 F.2d 557 (6th Cir. 1985).
The absence of Supreme Court direction has left the responsible share doctrine with a rainbow of different interpretations. Corporate managers should be aware of the uncertain potential criminal liability which the responsible share doctrine creates.
Stephen N. Landsman is Senior Attorney at Nalco Chemical Company, Naperville. He is a member of the Editorial Board of the Brief. He received his Undergraduate Degree in 1981 and his Law Degree in 1984 from the University of Illinois-Urbana.
The author thanks Steven M. Kowal for his assistance in the preparation of this article.