When are corporate officers subject to criminal convictions, and for what actions (or inaction)? The inaction part can be the more troubling in some settings, and the issues are highlighted in the recent criminal convictions and appeal arising out of the s0-called salmonella egg cases. A July 12, 2016 post at D&O Diary explores some of the issues and provides links.
One take away. These topics will become increasingly important as science races forward, and corporate officers and managers take action (or not) to be aware of the advances in science and to respond (or not) in appropriate ways. Documenting the reasons for non-action could well help avoid future problems. This case, however, may not be the vehicle since the facts seem relatively extreme, judging by a July 7, 2016 Bloomberg article. That article starts as follows; read it all for more specifics and perspective:
“The legal troubles of the father and son executives of an Iowan egg farm could have repercussions for businesses everywhere: In a case involving a 2010 salmonella outbreak, an appeals court has decided that you can get prison time for violating federal regulations, even if you didn’t know you were breaking the rules.
It’s a unique decision, and one that the Supreme Court should examine.
The defendants — Jack DeCoster, owner of Quality Egg LLC, and his son Peter, the CEO — are hardly sympathetic. The Food and Drug Administration identified their facilities as the source of a July 2010 salmonella outbreak that sickened some 56,000 people nationwide. An FDA search found live and dead rodents and frogs, manure piled to the ceiling, and other things that you don’t want to hear about but that might make you stop eating eggs unless you buy them from the farmer yourself. The salmonella infection rate at their facilities was 39 times the national average.
A criminal investigation found that Quality Egg had failed to follow its own food safety and pest control measures, lied to auditors, falsified packing dates, and bribed a federal inspector to release eggs that were red-flagged for safety violations. The company pleaded guilty to three felonies and paid a fine of $6.8 million. The DeCosters personally pleaded guilty to federal misdemeanors under the Food and Drug Cosmetic Act and were fined $100,000 each.
A federal trial judge, though, went one step further: On the grounds that the DeCosters were not “mere unaware” corporate executives, he sentenced them to three months each in federal prison. This was a bold move, because they argued that under Supreme Court precedent, they shouldn’t be imprisoned if they were merely negligent in their failure to establish an effective salmonella protection regime. They had to have meant to commit a crime.
Until July 2010, there was no legal obligation to test eggs for salmonella, even after a company detected the bacterium in its egg-laying environment. (You read that right. Ugh.) Quality Egg did occasionally test its facilities before July 2010, and it did occasionally get positive results for salmonella. But it didn’t test its eggs, because it wasn’t required to.”