## Facts

- Purdue Frederick Company developed and marketed OxyContin, a Schedule II controlled substance.
- Purdue pleaded guilty to felony fraudulent misbranding under the Food, Drug, and Cosmetic Act based on misleading marketing claims about addiction, abuse potential, and withdrawal effects.
- Three Purdue executives (Friedman, Goldenheim, and Udell) pleaded guilty to misdemeanor misbranding under the responsible corporate officer doctrine, which does not require proof of personal knowledge or participation if the officer had authority to prevent or correct the violation.
- HHS’s Inspector General, under delegated authority from the Secretary, excluded the executives from participation in federal health care programs under 42 U.S.C. § 1320a-7(b).
- The Inspector General set 20-year exclusions; on administrative appeal, the HHS Departmental Appeals Board reduced each exclusion to 12 years.
- The executives sought judicial review, arguing (1) § 1320a-7(b) did not authorize exclusion based on their misdemeanor convictions and (2) the 12-year lengths were unsupported and inadequately explained, especially given the agency’s prior practice.
- The district court granted summary judgment to the government; the executives appealed.

## Issues

1. Whether 42 U.S.C. § 1320a-7(b) authorized HHS to exclude corporate executives from federal health care programs based on misdemeanor misbranding convictions entered under the responsible corporate officer doctrine.
2. Whether imposing 12-year discretionary exclusions—well above the regulatory three-year baseline and beyond prior agency practice—was arbitrary and capricious under the Administrative Procedure Act for lack of a reasoned explanation.

## Decision

- The D.C. Circuit held § 1320a-7(b) authorized exclusion based on the executives’ misdemeanor misbranding convictions.
- The court held the 12-year exclusion terms were arbitrary and capricious because the agency failed to give a reasoned explanation for selecting an allegedly unprecedented length and for departing from prior agency decisions.
- The court reversed the district court’s judgment and remanded with instructions to remand the matter to the Secretary for further proceedings.

## Legal Principles

- Section 1320a-7(b) permits discretionary exclusion from federal health care programs based on qualifying misdemeanor drug-related convictions, and the statute does not require proof of personal knowledge or intent beyond what the conviction establishes.
- Under APA arbitrary-and-capricious review, an agency must articulate a rational connection between the facts found and the sanction imposed, including the duration selected.
- When an agency departs from prior practice or precedent in setting a sanction—especially where regulations establish a baseline term—its explanation must address the departure and justify the selected term.
- A court may set aside an inadequately explained sanction term and remand to the agency without deciding whether the same term could be justified on a fuller explanation.

## Conclusion

The court upheld HHS’s statutory power to exclude the executives based on their misdemeanor misbranding convictions, but required the agency to reconsider or better justify the 12-year exclusion periods because the agency did not adequately explain the length or its departure from prior practice.


Friedman v. Sebelius, 686 F.3d 813 (D.C. Cir. 2012)