Originally published at the Cato Institute Nov 2, 2020 by Ilya Shapiro and William Yeatman
To an unfortunate extent, the modern administrative state has expanded into criminal law enforcement. Many federal regulatory statutes—including those governing antitrust, securities, and the environment—authorize agencies to pursue both civil and criminal penalties. Thus, more than 300,000 federal regulations have been criminalized.
William Huntress became ensnared in such a “hybrid” civil‐criminal regulatory regime. He alleges that the U.S. Environmental Protection Agency (EPA) brought felony criminal charges against him in order to increase the government’s leverage in a regulatory dispute over the reach of the Clean Water Act. For almost two decades, this controversy has consumed Mr. Huntress’s life, including more than four years of living as an accused felon. All along, he has maintained that the government has no jurisdiction over the putative “wetlands” on his property—seasonal puddles, really—and that he’s being bullied by an overbearing bureaucracy.
After the government’s felony charges against him were dismissed, Mr. Huntress decided to push back. He filed a lawsuit in federal district court, alleging that the government committed malicious prosecution. The district court, however, refused to hear Mr. Huntress’s claim, finding that sovereign immunity shields the EPA’s conduct from judicial scrutiny. The Second Circuit upheld the district court, and thereby deepened a circuit split over how to interpret the Federal Tort Claims Act’s waiver of sovereign immunity. Now, Mr. Huntress seeks Supreme Court review.
The Cato Institute, joined by the NFIB Small Business Center, Rutherford Institute, Mackinac Center for Public Policy, Competitive Enterprise Institute, and Center for Constitutional Jurisprudence, filed a brief in support of Mr. Huntress’s petition. The brief urges the Court to use this case to affirm that the Federal Tort Claims Act remains a viable check on the worst excesses of the administrative state.
Joseph Robertson was a property owner in Montana who sometimes dug ditches from a rivulet to collect water into ponds on his property. In the course of that work, according to the Cato Institute description of the case, “some dirt got into the rivulet, which emptied into a local stream, which emptied into a state river, which entered a river that crossed state lines.” This led the Army Corps of Engineers to criminally charge Robertson with criminal sanctions for failing to get the appropriate permit for his actions under the Clean Water Act.
Robertson’s ponds hardly qualified as navigable waterways of interstate commerce, which is the general rationale that gives the federal government the constitutional authority to regulate such matters. But the government’s theory of the case was so sweeping that Robertson’s manipulation of the dirt on his own property that may have eventually crossed state lines in a river justified a criminal prosecution. This is textbook overcriminalization.
Robertson was convicted, sentenced to 18 months in prison, and ordered to pay a $180,000 fine. He appealed his case all the way to the Supreme Court, challenging the overbroad reading of the Clean Water Act’s language. Sadly, Robertson passed away while his case was under review. The Supreme Court sent the case back to the appeals court, which eventually threw out his conviction and the fine.
You can read the Cato Institute’s amicus brief in support of Robertson here. You can also read an op-ed about the case written by one of Robertson’s attorneys in The Hill .
In
2012, Lawrence Lewis, an engineer from
Washington D.C., was arrested after unknowingly violating the Clean Water Act
while doing his job. While most people know when they commit a crime, there are
also countless instances where Americans unknowingly break the law while
performing what they assume are normal everyday tasks. Worse still, there have
been few attempts to stop this type of over-criminalization through reform.
Lawrence Lewis
At the
time of his unwitting violation of the Clean Water Act, Lewis was working at a
military retirement home, where he had to handle its backed-up sewage system.
When Lewis was first hired at the home, he had been taught to divert the backed-up
sewage system to a nearby storm drain, which was thought to empty into the
city’s sewer system. Lewis and his staff were misinformed. In fact, the
diverted waste ended up in a creek that flowed into the Potomac River,
violating the Clean Water Act.
Lawrence
Lewis, who had worked hard to escape life in the inner city, wound up facing
jail time for performing an everyday task. As Lewis put it: “I couldn’t believe
that I was born and raised in the projects and I worked so hard to get out that
situation and build a professional career and here I am at work getting
arrested for something I had no idea was wrong.” It is a sad reality that Lewis
and countless other Americans continue to suffer as a result of
overcriminalization. The criminal-justice system should be used to protect the
lives, liberty, and property of all Americans and punish truly dangerous
offenders, who commit crimes that deserve punishment. The system should not be
used to make good, upstanding citizens look and feel like criminals.
Recent Case Update: On January 20, 2021, Todd Farha and other WellCare executives were pardoned by President Trump.
Due to a change in Department of Justice Policy, the WellCare case would not even be charged today. In 2018, DOJ revised its charging decision policies to reflect that criminal enforcement actions must be based on violations of applicable legal requirements, and not, as in the WellCare case, based “solely on allegations of noncompliance with guidance documents.” In the WellCare case, prosecutors relied heavily on informal and non-binding state agency “guidance” letters interpreting the 80/20 statute that were issued by AHCA. The prosecution treated these letters as if they constituted the law and as if failing to follow them were a crime. The indictment quoted the letters at length, and the prosecution relied on them in their opening arguments to contend that the WellCare executives had committed a crime – even though the letters were nothing more than AHCA’s position on a disputed issue of law.
United States v. Clay is a 2013 case that demonstrates the troubling effects of overcriminalization. The case revolves around WellCare, a health care company that provided, among other things, behavioral health services to Medicaid patients in Florida. At the time, the state had what was known as the 80/20 statute, which required these providers to spend 80 percent of their funding for the “provision of care.” However, the law provided no guidance as to which expenses fell into the category of providing “care.” This ambiguity, and the lack of clarifying state regulations, served as the basis for federal prosecutors to bring serious criminal charges for what was, at most, a regulatory dispute: Overcriminalization.
Like many other healthcare providers in Florida, WellCare established a subsidiary – Harmony – that delivered services to patients. WellCare included payments to its subsidiary, a practice that was common among providers with similar structures in its reporting for 80/20 purposes. It was never disputed that these payments were at market rates, nor were there any claims that the subsidiary provide substandard care. In fact, a state audit of Harmony detailed that Harmony “exceeded requirements” in its care delivery.
Todd Farha
In 2007, after a whistleblower complaint, the FBI raided the company, confiscating records and computers, and the government charged five of the organization’s executives.
The WellCare executives argued at trial that they had interpreted Florida’s ambiguous 80/20 law in a way that was reasonable. In fact, their lawyers had advised them that their interpretation was an available one and was reasonable. Even government officials testified that their interpretation of the law was reasonable. Moreover, the case United States v. Whiteside set a precedent that a statement is not considered false if it is made based on an “objectively reasonable interpretation” of a law. This precedent was not properly applied in United States v. Clay.
The case against WellCare grew murkier when the district court essentially asked the jury to interpret the complexities of the vague 80/20 statute—when typically, judges decide answers to legal questions and juries decide answers to factual questions. In the end, the WellCare executives were convicted of health care fraud and related offenses, and they received jail time.
Even more troubling was the fact that the prosecution based its case on informal state agency “guidance” letters interpreting the 80/20 statute — even though such guidance is not binding under state law and under current DOJ regulations cannot be used as a basis for prosecution. On January 25, 2018, the U.S. Department of Justice issued a policy memorandum stating that the department “may not use its enforcement authority to effectively convert agency guidance documents into binding rules.” From that date on, federal prosecutors are no longer permitted to “use noncompliance with guidance documents as a basis for proving violations of applicable law.” Thus, this prosecution, which was inextricably bound up with the theory that the WellCare executives had violated the state agency’s interpretation of the 80/20 statute, as expressed in a guidance document, would never have been brought today.
Another troubling factor is that in the WellCare case, the trial and appellate courts reduced the standard for “knowledge.” The jury was allowed to convict, not if the executives knew their approach was incorrect, but if the jury believed the executives simply had “deliberate indifference” to the interpretation of the 80/20 requirements. That level of knowledge standard (or mens rea) was essentially a negligence standard, one that was rejected by the Supreme Court even in a civil patent dispute case as insufficient to show intentional conduct. Unfortunately, the Supreme Court declined to hear the case despite supporting briefs filed by public policy organizations and over a dozen noted criminal law professors.
This case has been highlighted by public policy organizations, defense lawyers and criminal law professors as a case of overcriminalization for many reasons:
The Federal Prosecutor applied
criminal law to solve a regulatory interpretive matter.
The state was required to issue clarifying
implementing regulations, but never did.
The state regulator discussed
clarifying the 80/20 requirements but never did.
The prosecution was based on
informal state agency “guidance” even though such guidance is not is not
binding under state law – and under current DOJ regulations cannot be used as a
basis for prosecution.
Lawyers for the company approved and
structured the transaction in question.
The Government could not point to
any law or regulation that prohibited the company’s interpretation of the 80/20
law.
In short, CEO Todd Farha and the WellCare executives were prosecuted and convicted for a crime the federal government created, after the state agency failed to fulfill its obligation to provide clear regulation as to what the statute required. They acted consistent with counsel’s advice and consistent with the practice of competitors, none of whom was prosecuted or even sanctioned. This case demonstrates the troubling ramifications of overcriminalization by highlighting the government’s ability to punish people for their interpretations of complex, vague laws—even when their interpretations of these laws are reasonable and there is no willful or corrupt intent.
There is such an
unbelievable proliferation of legislation and regulations across the United
States, whether federal or state-based, that it can be difficult for companies
to know when they might be running afoul of the law. It could be a relatively
new piece of legislation that businesses are not aware of, or an obscure law
that’s been on the books for some time but is unknown to most CEOs. In
addition, some laws and regulations actually don’t require knowledge or
intention for a finding of guilt.
Even if they
follow due diligence by following the advice of counsel, or interpreting the
law the way others in their industry have done, heads of companies are still not
assured that prosecutors will interpret the law in the same way. Prosecutors
may still decide to charge company leaders with violations—which, of course,
can have serious consequences and even result in jail time.
Let’s take a look
at the experience of Howard Root and Vascular Solutions.
How it began
Howard Root
Howard Root was
the CEO of Vascular Solutions, a highly successful business that created over 100
medical devices and employed well over 500 Americans. During their 20 years in
business, the company’s inventions had saved and improved the lives of
countless patients. In 2011, a whistleblower came forward to the United States
Department of Justice (DOJ) and suggested that Vascular Solutions was
fraudulently marketing one of their products: the Vari-Lase Short Kit. The
individual was an ex-employee who went to work for a competitor and
subsequently alleged that Vascular Solutions was promoting the FDA-approved
product for an off-label use.
In 2009, Root had
sent this former employee a cease-and-desist letter in relation to breaching
the non-compete clause in his contract in his new position. Shortly thereafter,
the former employee wrote back claiming that Vascular Solutions was promoting
off-label use of the product in question. Root looked into the matter and found
the allegation false. He secured and followed the advice of in-house counsel.
Baseless
allegations
Doctors are able
to prescribe drugs and employ medical devices for uses other than what the FDA
has approved—this is an extremely common and legal practice. According to
WebMD, more than one in five outpatient prescriptions in the US are for an off-label
use. In addition, Vascular Solutions sales representatives were legally
permitted to describe the helpful off-label uses of their products, and the
company was allowed to ship products to doctors for off-label use. Federal
prosecutors acknowledged these facts. Even so, the matter did not end there.
Despite the
evidence that the allegations levelled against the business were ill-conceived
and had no substance, federal prosecutors persisted to launch a case against
Vascular Solutions. The Vari-Lase Short Kit represented less than 1% of the
company’s sales—and more importantly, it had never harmed one patient. Moreover,
there were no claims made by federal prosecutors that patients were ever
harmed. The product was used by doctors in their offices to treat patients with
varicose veins. The marketing question centered around how a varicose vein was
defined.
Legal
consequences
It’s critical to
understand that most companies faced with the predicament of being criminally
charged in similar circumstances opt for a plea bargain to keep the matter out
of court. Not only is going to court cost-prohibitive for most CEOs, but the
resulting publicity can have an incredibly negative impact on business.
However, Howard Root was in a financial position to choose a different path,
and that’s just what he did. All told, it cost him $25 million in legal fees,
the efforts of 121 lawyers, and five years to take the legal battle to a jury
trial.
What was on the
line for Vascular Solutions and its CEO was significant. If convicted, Howard
Root was facing years in prison, and the company would have been out of
business—a human cost not only for the CEO, but also for the many patients for
whom the company’s devices were a lifeline. Furthermore, continued research and
invention of products would have halted. It’s also pertinent to note that if Root
was found guilty, the whistleblower stood to gain approximately $5 million of
the $20 million the government claimed it had been defrauded of with false
claims. This would have been a substantial windfall for the former employee.
Fortunately, after
only one day of deliberation, the jury returned with a not guilty verdict,
meaning that Root and his company were acquitted of all wrongdoing. The
prosecution was covered by The Wall
Street Journal and commenters expressed outrage at the federal prosecutors.
A congressional investigation was convened. Since that time, Root has sold
Vascular Solutions for $1 billion, which has paved the way for the good work of
the company to continue. He now writes articles and speaks widely on his
experiences, to raise awareness of the issue of unchecked prosecutorial
misconduct within the DOJ.
“When
prosecutors can use false criminal charges to destroy everyone except the few
wealthy and unbroken defendants like me, then virtually everyone is in
danger—even if you’ve done nothing wrong,” he has said.
Originally published at Cato Institute by Ilya Shapiro and Reilly Stephens | March 14, 2018
Case: Ellison v. US
Can the government convict you of a crime without showing you had any understanding of the wrongdoing? Mark Ellison was convicted without any such showing and is asking the Supreme Court to take his case.
The case arises out of the tumult of 2008. A real estate company called DBSI went under during the Great Recession, like many other real estate companies at the time. But while for many this unhappy moment meant solely financial losses, for Ellison and his codefendants it meant criminal charges. Section 10(b) of the federal securities law outlaws “any manipulative or deceptive device” used to sell securities. Combined with SEC Rule 10(b)-5, this provides the primary avenue by which the government punishes securities fraud.
The government claims that Ellison and his coworkers defrauded DBSI’s customers in selling them the real-estate investment vehicles that ultimately went bust. But the jury found each innocent on most of the charges, convicting only under the “catch-all” provision of Rule 10(b)-5(c), which outlaws any fraud done “willfully”—but according to the Ninth Circuit ‘willfully’ in this context “does not require that the defendant know that the conduct was unlawful.”
This runs contrary to traditional principles of criminal law. Normally crimes require not just a bad act but also a culpable mental state, what lawyers call mens rea. The difference between murder and manslaughter, for example, is typically whether the perpetrator intended to cause the death or not. But too often these days the government has dispensed with or watered down this traditional requirement, exposing more and more citizens to criminal liability for conduct it is less and less clear should be criminalized.
In addition to watering down the mens rea requirement, the court of appeals determined that the threshold for what did or did not rise to the level of fraud depended on an open-ended test of whether a hypothetical reasonable investor might consider the information “important” in making an investment decision. The Supreme Court and most other circuits, however, have maintained that courts must consider whether, after considering the “total mix” of all the information provided in a case-specific context, the piece of information at issue was “material” to an actual investor’s actual investment decision. Following a test of materiality based on whether some theorized investor might possibly sorta-kinda-coulda thought the information was maybe material expands criminal liability past the horizon.
This case represents yet another example of the overcriminalization that has run rampant throughout our legal system. Defense lawyer and Cato adjunct scholar Harvey Silverglate has estimated that each of us unwittingly commits three felonies a day. When criminality is that capricious, the government can exploit it at its whim, punishing those who displease it through selective prosecution. This is an arrangement more befitting a banana republic than the land of the free.
Cato, joined by the Reason Foundation and law professors Julie Rose O’Sullivan, Ira P. Robbins, Jeffrey S. Parker, and Gideon Yaffe, has filed a brief authored by Paul Kamenar supporting Ellison’s petition. The Supreme Court should take Ellison v. United States and begin to roll back the rising tide of overcriminalization that threatens the liberty of every citizen.
It isn’t every day that a person can go to his or her job, work, not participate in any criminal activity, and still get a prison sentence. At least, that used to be the case: the overcriminalization of regulatory violations has unfortunately led to the circumstance that corporate managers now face criminal—not just civil—liability for their business operations’ administrative offenses.
Jack DeCoster
Take Austin and Peter DeCoster, who own and run an Iowa egg‐producing company called Quality Egg. The DeCosters plead guilty to violating certain provisions of the Food, Drug, and Cosmetic Act because some of the eggs that left their facilities contained salmonella enteritidis, a bacterium harmful to humans. They were sentenced to 90 days in jail and fined $100,000 for the actions of subordinates, who apparently failed, also unknowingly, in their quality‐control duties. In other words, the “crime” that the DeCosters were convicted of didn’t require them to have put eggs with salmonella into interstate commerce, or even to have known (or reasonably been able to foresee) that Quality Egg was putting such eggs into interstate commerce. It didn’t even require the quality‐control operator(s) most directly involved in putting the contaminated eggs into interstate commerce to have known that they were contaminated. Yet nearly a century of jurisprudence has held that imprisoning corporate officers for the actions of subordinates is constitutionally suspect, given that there’s neither mens rea (a guilty mind) nor even a guilty act—the traditional benchmarks of criminality since the days of Blackstone.
It turns out that there are about 300,000 regulations that can trigger criminal sanctions. These rules are too often ambiguous or arcane, and many lack any requirement of direct participation or knowledge, imposing strict liability on supervisors for the actions (or inactions) of their subordinates. In United States v. Quality Egg, the district court ruled that courts have previously held that “short jail sentence[s]” for strict‐liability crimes are the sort of “relatively small” penalties that don’t violate constitutional due process. Such a sentence has only been imposed once in the history of American jurisprudence, however, and for a much shorter time on defendants with much more direct management of the underlying bad acts.
Additionally, prison is not the sort of “relatively small” penalty—like a fine or probation—that the Supreme Court has allowed for offenses that lack a guilty mind requirement. Joining the National Association of Manufacturers, Cato points out in an amicus brief supporting the DeCosters’ appeal that this case presents an opportunity for the U.S. Court of Appeals for the Eighth Circuit to join its sister court, the Eleventh Circuit, in holding that prison sentences constitute a due‐process violation when applied to corporate officers being charged under a strict‐liability regulatory regime.
UPDATE: The Eighth Circuit upheld the conviction and sentence and the Supreme Court denied review. Jack DeCoster, age 83 with medical issues, was subsequently sent to prison.
Originally published at National Review by Jonathan Keim | June 3, 2015
On Monday the Supreme Court did something interesting in Elonis v. United States, a case about the interstate threat statute and its application to Facebook status messages. Although widely viewed as a case with great significance for the First Amendment’s application to social networking, the Court sidestepped the constitutional question and dove straight for the overcriminalization issue: default mens rea. A 7-2 majority lined up behind the Chief Justice to strike down the conviction, with Justices Thomas and Alito writing separately.
Mens rea – the criminal law’s requirement of a guilty mind – is usually the sine qua non of a typical criminal offense. In most cases, the mens rea is the difference between a tort and a crime: Negligently hitting someone with a baseball bat might subject you to money damages from the victim, but you won’t go to jail unless you fight the sheriff who comes to attach your car (or home) to pay the judgment. If you hit the victim knowingly or intentionally, however, you’ll probably go to jail. Of course, the lines between criminal and non-criminal acts are somewhat blurrier in practice. Some statutes create “strict liability” crimes, which require no proof whatsoever of a guilty mind, while others penalize various types of accidents.
Elonis was originally briefed with two questions in mind (one statutory, one constitutional) about what mens rea attaches to the interstate threat. The two questions presented focused on whether a subjective intent to threaten is necessary for a conviction under 18 U.S.C. § 875(c). The defendant argued that the meaning of the word “threat” implies an intentional act and that in any event, Virginia v. Black (2003) requires the charged communication to be a “true threat.” The government responded that the statute doesn’t state a mental state with respect to the nature of the threat, so it should be construed as imposing a much lower standard than several similar statutes.
The majority (with the Chief writing) tossed the conviction, rejecting the government’s statutory argument that the mens rea for the crime was strict liability or negligence (citations omitted):
We have repeatedly held that “mere omission from a criminal enactment of any mention of criminal intent” should not be read “as dispensing with it.” This rule of construction reflects the basic principle that “wrongdoing must be conscious to be criminal.” As Justice Jackson explained, this principle is “as universal and persistent in mature systems of law as belief in freedom of the human will and a consequent ability and duty of the normal individual to choose between good and evil.” The “central thought” is that a defendant must be “blameworthy in mind” before he can be found guilty, a concept courts have expressed over time through various terms such as mens rea, scienter, malice aforethought, guilty knowledge, and the like. Although there are exceptions, the “general rule” is that a guilty mind is “a necessary element in the indictment and proof of every crime.” We therefore generally “interpret[] criminal statutes to include broadly applicable scienter requirements, even where the statute by its terms does not contain them.”
This is not to say that a defendant must know that his conduct is illegal before he may be found guilty. The familiar maxim “ignorance of the law is no excuse” typically holds true. Instead, our cases have explained that a defendant generally must “know the facts that make his conduct fit the definition of the offense,” even if he does not know that those facts give rise to a crime.
But
Elonis’s conviction, however, was premised solely on how his posts would be understood by a reasonable person. Such a “reasonable person” standard is a familiar feature of civil liability in tort law, but is inconsistent with “the conventional requirement for criminal conduct— awareness of some wrongdoing.” Having liability turn on whether a “reasonable person” regards the communication as a threat—regardless of what the defendant thinks— “reduces culpability on the all-important element of the crime to negligence,” and we “have long been reluctant to infer that a negligence standard was intended in criminal statutes.” Under these principles, “what [Elonis] thinks” does matter.
Though the majority rejected negligence as the mens rea, the Court stopped short of specifying what mens rea was the right one. Justice Alito objected to this omission, concurring with the majority’s reasoning but dissenting from its refusal to establish “recklessness” as the appropriate standard. On this point, Justice Alito agreed with Justice Thomas’s dissent that “recklessness” was both a constitutionally permissible mens rea under the First Amendment for this case and the proper minimum mens rea under the case law. Justice Thomas likewise criticized the majority’s failure to articulate the applicable standard, but directed most of his vigorous dissent at the majority’s articulation of the appropriate common law background standards.
Elonis is more important for what it leaves open than what it resolves. The Court didn’t supply an answer to what minimum mens rea would apply generally to federal criminal statutes under the background principles for interpretation of criminal statutes. This leaves the door wide open for Congress to pick up where the Court left off and pass its own default mens rea statute. In that respect, Elonis leaves primary responsibility for scaling back the mens rea problem right where it should be: Congress.
Originally published at ALEC.org | February 25, 2015
In early 2015, the Supreme Court issued a decision in the case of Yates v. United States. Previously written about on these pages, the case arose when Mr. Yates was accused of violating the anti-document shredding provision of the Sarbanes-Oxley Act, legislation passed shortly after the 2001 Enron scandal, for throwing three undersized red grouper overboard after an encounter with Florida Fish and Wildlife.
In a 5-4 decision, the Court rejected the government’s broad interpretation of the anti-shredding statute (18 U.S.C § 1519) and held that a “tangible object” within §1519’s compass is one used to record or preserve information and does not apply to all objects in the physical world, including fish. Further, the Court found that if traditional tools of statutory construction left any doubt to the meaning of “tangible object,” it would be appropriate to invoke the rule of lenity, which requires that ambiguities in a criminal statute be resolved in favor of the defendant.
Although the dissent differed in its statutory interpretation of the anti-shredding language at question in the case, the dissenting opinion noted that the case “brings to the surface the real issue: overcriminalization and excessive punishment in the U.S. Code.”
Yates v. United States was decided upon grounds of statutory construction, but serves to highlight the problem of the vast and increasing size and scope of criminal law in America. As it did with Mr. Yates, the network of ambiguous and complex criminal laws threatens to place any law-abiding American on the wrong side of the justice system.
