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December 12, 2016

Panel Presents “Myopic Disaster” of Federal Over-Prosecutions

DoJ official acknowledges: ‘There are cases that get filed that shouldn’t’

By the time Leslie Caldwell took the podium at the National Press Club last week, federal criminal prosecutors and their tactics had been lambasted as a “disaster”… a “plane crash” and “myopic” by defense attorneys who had all won court cases representing corporate defendants.

Caldwell, the Assistant Attorney General for the Criminal Division at the U.S. Department of Justice, was the final panelist to speak at The Federalist Society’s symposium, “The Limits of Federal Criminal Law.”

Cristina C. Arguedas, partner, Arguedas, Cassman & Headley LLP, had perhaps the harshest critique of federal prosecutors as she described her experience representing FedEx in its successful fight against a DoJ prosecution. She said federal prosecutors, in their opening court statement, compared the shipping company to a common “drug courier that now believes it was above the law.”

FedEx was accused of shipping legal drugs from licensed pharmacies, but that weren’t properly prescribed by doctors, something FedEx could not know unless short of opening and inspecting its customers’ packages. For this, the DoJ sought $1.6 billion in penalties and spent nearly a decade investigating FedEx and preparing the case for trial.

But less than a week into what was expected to be a months-long case, the DoJ summarily dropped all charges. The judge in the case said “the act of dismissal is entirely consistent with government’s overarching obligations to seek justice, even at the cost of some embarrassment.”

“FedEx spent millions defending the case, untold hours of employees’ time, risked reputation damage and faced an alleged punishment that could have been $1.6 billion,” said Arguedas. 

Despite the successful outcome for FedEx, the defense attorney was not pleased. “This did not end happily, it was a disaster,” lamented Arguedas who cited the years and millions the company spent defending the charges.

Panelist John Richter, a partner at King & Spalding and a former U.S. Attorney in Oklahoma, had similar experiences in his representation of Minnesota-based medical device manufacturer Vascular Solutions against another failed government prosecution.

In that case, the company and its CEO, Howard Root, were acquitted on all counts of criminal conspiracy to advance illegal off-marketing claims about its varicose vein treatment device, Varilase.

The company earlier agreed to pay a $520,000 civil settlement to resolve related allegations (while denying wrongdoing), but was then criminally indicted. Root and his company spent $25 million to beat the charges.

During the course of the trial, prosecutors engaged in what Root has described as “repulsive conduct,” including, “use of grand jury subpoenas to induce questioning outside the presence of a jury, divulging secret grand jury testimony to other witnesses, and telling witnesses to change their testimony or face a threat of firing and exclusion from working at any company that does business with Medicare,” reported the Minneapolis Star-Tribune.

At the Federalist Society event, Richter said that the investigation tactics of federal prosecutors “left a lot to be desired” and were conducted in a manner that “did not suggest prosecutors were trying to get to the truth or the facts.

“They came in with minds made up when they met with witnesses,” said Richter.

Richter added that the failed prosecution even spurred U.S. Senate Judiciary Chairman Charles Grassley (R-IA) to send a letter to Deputy U.S. Attorney General Sally Yates asking about the “questionable actions of federal prosecutors” in the case.

The DoJ’s response, said Richter was “disrespectful.”

Richter was joined by Joseph Savage, partner, Goodwin Proctor, who defended Carl Reichel, former president of Warner Chilcott’s pharmaceutical division, from a failed prosecution over allegations of kickbacks paid to doctors.

As with FedEx and Vascular Solutions, Reichel was also acquitted.

Government prosecutors, said Savage, “are living in a bubble and that has an effect on that they’re doing.

“They’re not bad people, but they’ve completely lost perspective,” he said, adding that, after awhile, “you stop being a lawyer and start becoming a cop.”

Former federal prosecutor Benjamin Hatch, now a partner at McGuireWoods, offered a statistical defense of DoJ’s federal prosecution rates, stating that since 2007 approximately 90-91 percent were either found guilty or pled guilty.

He acknowledged, however, that “the scope of criminal law has uniformly expanded in recent years” and that expansion has increased the “range of prosecutorial discretion.”

And then there was Leslie Caldwell.

After the case against the DoJ’s tactics went on for nearly an hour, one might have expected Caldwell to mount a vigorous defense of her agency — but that didn’t quite happen.

While Caldwell noted that federal prosecutors are, “in tune with our ethical obligations and we take them very seriously,” she also repeatedly drew a distinction between Main Justice and “the field.”

“Having been in this job for two and a half years and having previously been a federal prosecutor and also having been a partner at a law firm where I specialized in white collar crime, I have seen a wide variation around the country among U.S. Attorney offices in their experience level, the quality of the lawyers that they have, the resources they have to investigate cases,” added Caldwell.

She added: “I acknowledge that there are cases that get filed that shouldn’t be filed.”

For example, she cited a Chicago case in which the U.S. Attorney wanted to indict two partners at a law firm for obstruction of justice after they requested a time extension to file the requested documents in the subpoena because they were just hired by the defendant.

“I’ve had that (similar) discussion as a defense lawyer 50 to 100 times,” explained Caldwell.  “But that prosecutor didn’t know that’s how things work. That prosecutor had never had that discussion with a defense lawyer. This was no obstruction of justice.”

The Criminal Division prevented that indictment from taking place, she said.

She also acknowledged that the cases discussed by the other panelists sounded egregious and noted that they were filed by U.S. Attorney offices in the field – not Main Justice Criminal Division.

Nor did she attempt to defend what the DoJ does when a prosecutor violates the US Attorney’s manual.

Caldwell’s lukewarm defense of federal prosectutors’ aggressive and at-times abusive tactics was as notable as the stories of abuse themselves.

Perhaps Arguedas summed up the day best in her description of federal prosecutors’ increasingly aggressive attempts to get corporations to sign “Non-Prosecution Agreements” to pay large settlements without going to trial.

In these NPA’s, she said, “What usually happens is that the Department of Justice threatens, the corporation capitulates and the public only knows the information that the company and the prosecutors agreed to put in the press release.”

She added, “It’s been described as an extortion racket.”

Even though they ultimately prevailed, the experiences of FedEx, Vascular Solutions and Carl Reichel were daunting. But their decisions to fight the government rather than settle has helped shine a bright spotlight on this growing threat to Americans and businesses and perhaps has opened the door to fixing it.

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