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29.

Sample Memorandum re applying the "intent to defraud FDA" felony theory to an animal drug prosecutions

GOVERNMENT'S OPPOSITION TO

DEFENDANT'S THIRD MOTION IN LIMINE

I. INTRODUCTION

In his Third Motion in Limine, defendant argues that, because he is charged with feloniously acting with an "intent to defraud or mislead," he can only be convicted if the United States or an individual victim were defrauded of money. Defendant states that the United States has no proof of any monetary fraud, and should be precluded from arguing that defendant may be convicted of a felony unless and until it introduces such evidence.

This argument is meritless and must be rejected.

II. BACKGROUND

The government will stipulate at the outset that this case does not involve evidence of monetary loss to the government or to any consumer. No such proof, however, is required. The defendant's motion is not supported by either the language of the statute or the four appellate courts that have considered this particular issue.

As is outlined in more detail in the United States' trial memorandum (at pages 9 - 15), the government's proof in this case will establish that defendant XXXX XXXXXXXX or his coconspirators took active steps designed to avoid detection by the FDA and other regulatory authorities while illegally purchasing and distributing adulterated and misbranded bulk animal drugs. Among other things, the defendant on various occasions affirmatively misrepresented the nature of his business to an FDA investigator; used multiple delivery sites to obtain smuggled, unlabeled bulk drugs; maintained no records of his purchases or sales of these illegal drugs; and used coded invoices to represent products he sold to customers. Such evidence is more than sufficient to support a determination that the defendant acted with felonious "intent to defraud or mislead" pursuant to 21 U.S.C. § 333(a)(2).[FN1] See United States v. Arlen, 947 F.2d 139 (5th Cir. 1991), cert. denied, 112 S. Ct. 1480 (1992);[FN2] United States v. Bradshaw, 840 F.2d 871 (11th Cir.), cert. denied, 488 U.S. 924 (1988);[FN3] see also United States v. Cambra, 933 F.2d 752, 755 (9th Cir. 1991) (defendant had "the intent that the FDA not realize what he was doing, and he certainly was trying to hide his activities from the FDA because he was worried that they certainly wouldn't approve what he was doing").

FN1. Prior to July 22, 1988, 21 U.S.C. § 333(a)(2) had been codified at 21 U.S.C. § 333(b).

FN2. In Arlen, the defendant took "active steps . . . to avoid detection and regulation by the FDA." Id. at 144. Evidence established that the defendant did not generate or maintain records of his drug dealings, stopped using blank money orders because they created a record, rented a private postal box under a fictitious name, and used fictitious names and addresses when mailing steroids. Id. at 143-44.

FN3. In Bradshaw, evidence of the defendant's intent to defraud was established through proof that the defendant moved from state to state, used mail drops rather than his home address, used false names, mislabeled his products, and used others to pick up and deliver the packages. 840 F.2d at 873.

III. DISCUSSION

Title 21, United States Code, Section 333(a)(1) provides that any person who violates a provision of 21 U.S.C. § 331 is guilty of a misdemeanor.[FN4] Section 333(a)(2) provides that such violations, committed with "the intent to defraud or mislead," are felonies. 21 U.S.C. § 333(a)(2).[FN5] Significantly, the latter provision states that a felony may be based on either intent to defraud or mislead, and an intent to mislead anyone -- whether the government or private individuals -- does not require any monetary loss. On its face, therefore, the statute does not require proof of monetary loss.

FN4. Prior to July 22, 1988, 21 U.S.C. § 333(a)(1) had been codified at 21 U.S.C. § 333(a).

FN5. See footnote 1, supra.

As the defendant recognizes, four different courts of appeals have considered this issue, and all have held that the type of fraud intended by 21 U.S.C. § 333(a)(2) includes not only fraud involving monetary loss, but also fraud involving the regulatory authority of government agencies. United States v. Arlen, 947 F.2d at 142-44; United States v. Mitcheltree, 940 F.2d 1329, 1347, 1352 (10th Cir. 1991); United States v. Cambra, 933 F.2d at 755; United States v. Bradshaw, 840 F.2d at 874-75. No court has reached a contrary result.

Defendant places principal reliance on McNally v. United States, 483 U.S. 350 (1987). In McNally, the Supreme Court reversed convictions under the mail fraud statute, 18 U.S.C. § 1341. The defendants had been convicted of using the mail to defraud citizens of their intangible right to honest and impartial government in connection with a scheme involving the sharing of commissions for workmen's compensation insurance. The Supreme Court examined the history of the mail fraud statute and concluded that it was intended only to protect against the use of the post office in schemes to deprive property rights, not the intangible right to good government.

After McNally, courts have recognized that an interpretation of a statutory "defraud" element must be determined in light of the structure, purpose, and history of the statute in question. In so doing, courts have not hesitated to reject the suggestion that congressional inclusion of the word "defraud" in a statute inexorably mandates evidence of a monetary loss. See, e.g., United States v. Murphy, 957 F.2d 550, 553 (8th Cir. 1992) (affirming conviction of conspiring to defraud the government under 18 U.S.C. § 371 in connection with the leaking of information about an FBI investigation); United States v. Elkins, 885 F.2d 775, 781 (11th Cir. 1989) (conspiracy to defraud the government of its right to implement foreign policy), cert. denied, 494 U.S. 1005 (1990); United States v. Kato, 878 F.2d 267, 270 (9th Cir. 1989) ("[C]onspiracy to defraud the United States under 18 U.S.C. § 371 does not require an agreement to defraud the government of money or property").

Four different courts of appeals have recognized that the structure, purpose, and history of the Food, Drug, and Cosmetic Act ("FDCA") is far different from the structure, purpose, and history of the mail fraud statute at issue in McNally. As a result, in decisions all rendered after McNally, these courts have unanimously concluded that the "intent to defraud or mislead" requirement in the FDCA includes an intent to defraud a government regulatory agency of its oversight abilities. See Arlen, 947 F.2d at 143; Mitcheltree, 940 F.2d at 1349; Cambra, 933 F.2d at 755; Bradshaw, 840 F.2d at 874-75 & n.8.

In Arlen and Bradshaw, both the Fifth and Eleventh Circuits examined the FDCA's language and purpose. The courts observed that, given the statutory language of 21 U.S.C. § 333(a) [now 21 U.S.C. § 333(a)(1)], a violation of any of the prohibitions of 21 U.S.C. § 331 constitutes a misdemeanor, and that, pursuant to the language of 21 U.S.C. § 333(b) [now 21 U.S.C. § 333(a)(2)], any such act done with intent to defraud or mislead constitutes a felony. Arlen, 947 F.2d at 142; Bradshaw, 840 F.2d at 874.

Both courts further observed that several of the acts proscribed by 21 U.S.C. § 331 concern only the government. For example, 21 U.S.C. § 331(e) prohibits regulated individuals and entities from refusing to permit FDA access to records; 21 U.S.C. § 331(f) prohibits regulated individuals or entities from refusing to permit FDA inspections; and 21 U.S.C. § 331(p) requires regulated individuals and entities to register with the FDA.

In light of these provisions directly related to the FDA's oversight of the food, drug, device, and cosmetic industries, both courts recognized the anomaly that would be created were they to hold that the government could not be a defrauded victim: such a result "would lead to the conclusion that there could never be a felonious violation of §§ 331(e), (f), or (p)." Arlen, 947 F.2d at 142; see Bradshaw, 840 F.2d at 874-75. Because "the plain inclusive language of § 333(b) . . . contemplates both misdemeanor and felony violations for all § 331 offenses," Arlen, 947 F.2d at 142 (emphasis added), the courts concluded that Congress meant to punish, within the FDCA framework, conduct intended to defraud government agencies of their oversight authority.[FN4]

FN4. Wholly misplaced is the defendant's suggestion that Marchetti v. United States, 390 U.S. 39 (1968) and Grosso v. United States, 390 U.S. 62 (1968) bar any potential felony violations of these various requirements, which pertain solely to an individual or entity's interaction with the FDA. (Defendant's Combined Memorandum in Support of Defendant XXXXXXX's Pending Pretrial Motions in Limine, at 7 n.4). Unlike the statutes at issue in Marchetti and Grosso, it can hardly be said that statutory requirements designed to regulate legitimate conduct in the food, drug, and cosmetic industries are designed solely to prevent criminal behavior. See, e.g., United States v. Reiff, 435 F.2d 257 (7th Cir. 1970), cert. denied, 401 U.S. 938 (1971); United States v. Malcouronne, 283 F. Supp. 87, 88 (D. Mass. 1968); see also In re Grand Jury Proceedings (John Doe, M.D.), 801 F.2d 1164, 1168 (9th Cir. 1986); see generally Shapiro v. United States, 335 U.S. 1 (1948).

To superimpose upon section 333(a)(2)'s mens rea requirement of "intent to defraud or mislead" proof of a monetary loss to the FDA, as XXXXXXXX suggests, would be wholly inconsistent with the FDCA's statutory purpose. As the Eighth Circuit has recognized, "[i]t is difficult to overstate the urgent nature of the public-health interests served by effective regulation of our nation's drug-manufacturing industry." United States v. Jamieson-McKames Pharmaceuticals, 651 F.2d 532, 537 (8th Cir. 1981), cert. denied, 455 U.S. 1016 (1982). Unlike the mail fraud statute, 18 U.S.C. § 1341, the FDCA's primary objective is not in protecting monetary or property interests:

The general scheme of the Act and its legislative history indicate that the overriding congressional purpose was consumer protection -- the protection of the public against any misbranded or adulterated food, drug, device, or cosmetic. When [a defendant] misle[ads] the governmental agencies, thereby frustrating their efforts to protect the public, he indirectly misle[ads] and defraud[s] the public.

Bradshaw, 840 F.2d at 874.

As discussed, many acts prohibited by 21 U.S.C. § 331 are exclusively directed at facilitating the FDA's ability to fulfill its regulatory mission. Violations of these provisions directly impair the FDA's ability to regulate; moreover, they have absolutely no relationship to the exchange of money or property. To construe the FDCA's "intent to defraud" language as precluding felony charges absent proof of monetary loss would thus render it impossible to ever establish this class of violations as felonies.

One example of the problems created by imposing such a limitation can be found in Arlen, where the Fifth Circuit describes the difference between a misdemeanor violation of 21 U.S.C. § 331(f) and a felony violation of the same provision:

[A]n operator of a drug storage facility must permit inspection of his premises when FDA personnel present him with proper credentials and written notice of inspection. If the operator refuses to permit the inspection of his facility because he feels it is an inconvenient time for an inspection, he has committed a willful violation of § 331(f) (failure to permit inspection by FDA), even if his facility fully complies with all FDA regulations. This violation would be punished as a misdemeanor under § 333(a). If, however, the operator refuses inspection because he wants time to clean up his contaminated facility, he has willfully violated § 331(f) with the intent to defraud or mislead the government. This violation would be punished as a felony under § 333(b).

Arlen, 947 F.2d at 143. In this context, considerations of a monetary loss are not only irrelevant, but are incompatible and inconsistent with the FDCA.[FN5]

FN5. Such an approach would also be at odds with the Supreme Court's admonition that the provisions of the FDCA are to be construed liberally so as to further the Act's public health and safety concerns. See, e.g., United States v. Park, 421 U.S. 658, 672-73 (1975); United States v. Wiesenfeld Warehouse Company, 376 U.S. 86 (1964); Kordel v. United States, 335 U.S. 345, 348-49 (1948); United States v. Sullivan, 332 U.S. 689, 692 (1948); United States v. Dotterweich, 320 U.S. 277, 280 (1943); see also Master Insulators of St. Louis v. International Ass'n of Heat and Frost Insulators and Asbestos Workers, Local No. 1, 925 F.2d 1118, 1121 (8th Cir. 1991) (statutory provisions should be interpreted in a manner that will "preserve the object and policy of the entire statute").

Thus, defendant's interpretation of section 333(b) goes well beyond merely "strict" construction or "rational interpretation"; it effectively construes a sizeable portion of the statute right out of existence. Such a result transgresses the well-established principle of statutory construction that "[a] statute should be construed so that effect is given to all its provisions, so that no part of it will be inoperative or superfluous, void or insignificant." Gonzalez v. McNary, 980 F.2d 1418, 1420 (11th Cir. 1993); see also Weinberger v. Hynson, Westcott and Dunning, Inc., 412 U.S. 609, 633 (1973) ("well-settled rule of statutory construction that all parts of a statute, if at all possible, are to be given effect" applied to FDCA's "new drug" definition).

In short, both the language and purpose of the FDCA lead to the conclusion that it applies to any activities that are fraudulent and misleading, including activities aimed at defrauding or misleading a government regulatory agency, without any requirement of monetary loss. The defendant's argument that McNally requires a different result flies in the face of the FDCA's language and purpose, as well as opinions from four courts of appeals, and therefore must be rejected.

III. CONCLUSION

For the foregoing reasons, the defendant's Third Motion in Limine should be denied.

Dated: February __, 1994

Respectfully submitted,

STEPHEN JOHN RAPP
United States Attorney

GREGORY T. EVERTS

JAMES E. ARNOLD

Attorneys
Office of Consumer Litigation
U.S. Department of Justice
P.O. Box 386
Washington, D.C. 20044
(202) 514-0516/(202) 307-01744

[cited in Civil Resource Manual 15]