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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]
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