United States v. Goldberg ( 2008 )

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
8-8-2008
USA v. Goldberg
Precedential or Non-Precedential: Precedential
Docket No. 07-1048
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 07-1048
UNITED STATES OF AMERICA
v.
MARVIN GOLDBERG,
Appellant
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Criminal Action No. 05-cr-00157)
District Judge: Honorable J. Curtis Joyner
Argued June 10, 2008
Before: AMBRO, CHAGARES and
GREENBERG, Circuit Judges
(Opinion filed: August 8, 2008)
Maureen Kearney Rowley
Chief Federal Defender
Brett G. Sweitzer (Argued)
Assistant Federal Defender
David L. McColgin
Assistant Federal Defender
Defender Association of Philadelphia
Federal Court Division
601 Walnut Street
The Curtis Center, Suite 540
Philadelphia, PA 19106-0000
Counsel for Appellant
Patrick L. Meehan
United States Attorney
Robert A. Zauzmer
Assistant United States Attorney
Chief of Appeals
Anita D. Eve
Assistant United States Attorney
Catherine Votaw (Argued)
Assistant United States Attorney
Office of the United State Attorney
615 Chestnut Street, Suite 1250
Philadelphia, PA 19106-0000
OPINION OF THE COURT
2
AMBRO, Circuit Judge
Marvin Goldberg ran an outfit called Equihealth Products
that sold veterinary grade prescription drugs to horse owners so
long as they affirmed that they were using the drugs to treat their
own horses and that under their state’s law owners treating their
own horses were considered veterinarians. Because his clientele
made these affirmations, Goldberg argued that Equihealth could
legally dispense these drugs without proof of prescription, a
proposition he supported by citation to Food, Drug, and
Cosmetic Act (F.D.C.A.) provisions permitting veterinarians to
transfer prescription drugs to other veterinarians without a
prescription. Specifically, Goldberg argued that since
Equihealth, which had a veterinarian on staff, was selling to
owners who were recognized as veterinarians under their states’
laws, Equihealth’s activities involved a legal vet-to-vet transfer,
and thus were exempt from the F.D.C.A.’s prescription
requirement.
The Food and Drug Administration (F.D.A.) and its state
counterparts took a dim view of Goldberg’s argument,
repeatedly notifying him that this explanation was nothing more
than an excuse for dispensing prescription drugs illegally.
Because Equihealth continued to rely on this vet-to-vet transfer
rationale even after hearing from these agencies, and thus
continued to dispense drugs without the required prescription,
the Federal Bureau of Investigation (F.B.I.) launched an
investigation that eventually led to Goldberg’s indictment for
3
crimes related to Equihealth’s operations, as well as for crimes
related to his role in supplying his brother, a race horse trainer,
with anabolic steroids for use in the brother’s training operation.
At trial, the jury rejected Goldberg’s theory as to the legality of
Equihealth’s actions– finding instead that he was in the business
of illegally dispensing prescription drugs – and further found
him guilty on all the steroid-related counts.1
On appeal, Goldberg accepts that Equihealth’s activities
were illegal, but argues that his conviction was nonetheless
flawed and that the District Court erred in calculating his
sentence. For the reasons stated below, we affirm in part,
reverse in part, and vacate Goldberg’s sentence.
I. Factual and Procedural Background
This case stems from the formation of Equihealth
Products,2 which was an operation dedicated to circumventing
1
As a result, this opinion recounts the relevant facts in the
light most favorable to the verdict. United States v. Cartwright,
359 F.3d 281, 285-86 (3d Cir. 2004).
2
Although this entity was initially called “Equirace Health
& Speed Products,” both parties refer to it exclusively as
Equihealth or Equihealth Products and we follow suit. That
said, references to Equihealth may include activities taken under
its former name.
4
the F.D.C.A.’s general ban on dispensing certain drugs without
a prescription and to circumventing the agreements Equihealth
had with some of its suppliers not to distribute commercially the
drugs that it received.
Although he never explained why it was permissible to
mislead his suppliers, at trial Goldberg contended that
Equihealth’s activities were legal under the F.D.C.A. because “it
is perfectly permissible for veterinarians to transfer drugs
amongst themselves without prescriptions [and] the definition
of ‘veterinarian’ is governed by state law, which generally
permits animal owners to practice veterinarian medicine on their
own animals, without the need for an educational degree or
license,” propositions that he took to mean that “transfers of
drugs from Equihealth to animal owners, for use exclusively on
their own animals, are veterinarian-to-veterinarian transactions
that need not be accompanied by a prescription.” Goldberg Op.
Br. 7-8.
Relying on this view of the law, Goldberg repeatedly sold
prescription veterinary drugs to any visitor to his website who
affirmed that, where he or she lived, owners treating their own
horses were considered veterinarians and that these drugs were
to be used accordingly. From the outset, the F.D.A. was aware
of Equihealth’s operations and its purported justification –
indeed, Goldberg actually called the F.D.A. to get its approval
for the vet-to-vet transfer theory on which Equihealth was
relying. But despite these overtures, the F.D.A. never approved
5
the operations of Equihealth or its view of the law; to the
contrary, it told Goldberg on multiple occasions that
Equihealth’s activities were illegal. Indeed, the F.D.A. twice
warned Equihealth that it was violating the F.D.C.A. because, as
Goldberg charitably puts it, the agency “disagreed with the
notion that animal owners are veterinarians with respect to their
own animals, and viewed Equihealth as dispensing drugs
without the requisite prescription from a veterinarian.” Id. at 8.
Various state boards of veterinary medicine also wrote
Equihealth to tell it the same thing: this was not a permissible
way to dispense prescription drugs. Unwilling to cede to the
federal and state agencies’ views, Goldberg and/or his counsel
“responded in writing to each of these []administrative
warnings,” restating the argument that Equihealth’s activities
were legal under the vet-to-vet transfer exception, and thus that
it would continue to sell drugs without proof of prescription. Id.
at 8-9. While he was battling with the F.D.A. and its state
counterparts, Goldberg used his position at Equihealth to obtain
anabolic steroids for his brother, a race horse trainer who used
them in his training operation. One such transaction involved
the purchase of Stanozolol, an anabolic steroid marketed as
Winstrol. According to Goldberg’s version of events,
Equihealth resident veterinarian Dr. Jack Wilkes ordered the
drugs, had them sent to Equihealth’s main office (Goldberg’s
home), and then, once they arrived, Goldberg sent them on to his
brother. However, on a call recorded by F.B.I. Agent Greg
Tremaglio, with whom Dr. Wilkes was cooperating, the
veterinarian offered a very different version of events, accusing
6
Goldberg of stealing his (Wilkes’) Drug Enforcement
Administration (D.E.A.) number and placing the order without
his knowledge.
A jury convicted Goldberg of: (1) wire and mail fraud
based on his transactions with Luitpold Pharmaceuticals, an
Equihealth supplier with whom Goldberg had an agreement not
to resell commercially the drugs that he received (Counts 1-28);
(2) possession with intent to distribute Stanozolol, an anabolic
steroid (Counts 29-36); (3) two counts of introducing
misbranded drugs into interstate commerce (Counts 37 and 39);
and (4) misbranding (Counts 38 and 40). He now appeals.3
II. Merits
A. The Response to the Jury’s Question
3
Our Court has jurisdiction pursuant 28 U.S.C. § 1291 and 18
U.S.C. § 3742(a). On appeal, the jury’s findings will not be
disturbed unless no “rational trier of fact could have found the
essential elements of the crime beyond a reasonable doubt,” and
the District Court’s factual findings will be credited unless they
appear to be clearly erroneous. United States v. Lloyd, 469 F.3d
319, 321 (3d Cir. 2006); United States v. Cartwright, 359 F.3d
281, 285-86 (3d Cir. 2004). The District Court’s legal
conclusions are reviewed without deference. United States v.
Myers, 308 F.3d 251, 255 (3d Cir. 2002).
7
We turn first to Goldberg’s claim that the District Court
erred in responding to a question posed by the jury concerning
the possession with intent to distribute charges. During
deliberations, the jury asked if they had to find that the events
recounted in the indictment’s second paragraph – namely that
“Defendant Marvin Goldberg used Dr. [Wilkes’] Drug
Enforcement Administration (‘DEA’) number to order and
receive controlled substances from Pet Health Pharmacy in
Youngstown, Arizona . . . . without the knowledge and consent
of Dr. [Wilkes]” – in order to convict, asking:
For counts 29 through 36 [the counts related to
the Stanozolol possession], does Paragraph 2 of
the indictment . . . count as an element of the
charges, or do we need to only consider elements
pertaining to distribution and possession? In other
words, do we need to find guilty on all four
elements for an overall guilty verdict on Counts
29 through 36.
Goldberg wanted the District Court to respond by instructing the
jury that “it must find that [he] illegally possessed the
Stanozolol” because “implied in the term possession is illegal
possession.” The District Court refused, concluding that by
giving Goldberg’s proposed instruction it would erroneously add
another element to the crime, illegal possession, when under the
law either legal or illegal possession would suffice. After so
ruling, the District Court made the following statement to the
8
jury about the elements needed to convict:
One, that the defendant, Marvin Goldberg,
possessed Stanozolol, the controlled substance
described in the indictment.
Two, that the defendant knew that the substance
charged in the indictment was a controlled
substance.
And, three, that the defendant intended to
distribute the controlled substance alleged in the
indictment.
Those are the three essential elements for each of
these offenses.
Paragraph 2 of the indictment is, as I indicated
from the outset, the indictment is not evidence.
It’s what the government is alleging that took
place. It’s not an element of the offense charged.
So you have to determine whether or not the
government has proven these three elements on
each of these three counts. These are the most
crucial factors.
On appeal, Goldberg argues that the District Court’s failure to
9
give his proposed instruction led the jury to convict even though
a critical element, illegal possession, was absent.4
Although we are not certain that Goldberg’s proposed
instruction was appropriate given its attenuated relationship with
the question, we put this aside to focus on the larger issue:
whether “possession,” as it is used in “possession with intent to
distribute,” is limited to instances of illegal possession.
Goldberg cites no law in support of his argument that it is, and
our own survey has not found any either. That said, we have
found an abundance of precedent to the contrary, generally
involving pharmacists facing charges of possession with intent
to distribute after being caught moonlighting as drug dealers. In
this context, the earliest case where we found an argument
equivalent to Goldberg’s was United States v. Goldfine, where
one such pharmacist argued that because his possession was
legal, he could not be convicted of possession with the intent to
distribute. 538 F.2d 815, 819-20 (9th Cir. 1976). The Court of
4
In his reply brief, Goldberg for the first time advances an
alternative argument: that he was seeking a defense instruction
to the effect that his possession would have been permissible
had the prescription been valid. Such an instruction would have
been inappropriate because Goldberg had not produced any
evidence that his possession was permissible under 21 U.S.C.
§ 822, which covers the limited circumstances where one can
legally possess controlled substances. Accordingly, we do not
deal with this argument.
10
Appeals for the Ninth Circuit flatly rejected this argument,
explaining that possession, when used in this context,
encompasses both its legal and illegal variants, a proposition
that every other Court of Appeals confronting this issue over the
past 30-plus years has either explicitly or implicitly agreed with.
See, e.g., United States v. Gurgiolo, 894 F.2d 56, 58 (3d Cir.
1990) (reviewing the case of a pharmacist convicted of
possession with intent to distribute after he admitted selling to
individuals who lacked valid prescriptions); United States v.
Lartey, 716 F.2d 955, 967 (2d Cir. 1983).
As a result, we believe that possession – not “illegal”
possession – is all that is required to sustain a charge of
possession with intent to distribute. Therefore, we conclude that
the District Court’s refusal to give Goldberg’s proposed
response was entirely proper.
B. Whether Hearsay Testimony Introduced at Trial Violated the
Constitution’s Confrontation Clause
The irrelevance of the illegal/legal possession distinction
ties directly into the next issue we consider: whether the
admission of Dr. Wilkes’ hearsay testimony suggesting that
Goldberg’s possession of the steroids was illegal violated the
Confrontation Clause of the Constitution.
During the course of its investigation of Equihealth, the
Government reached out to Dr. Wilkes, Equihealth’s then in-
11
house veterinarian who was weakened by illness and unable to
care for himself at the time that the F.B.I. spoke with him. As
a result of his circumstances, we surmise that Wilkes was more
than willing to cooperate with the F.B.I.’s investigation in order
to avoid arrest and/or incarceration for his role in Equihealth’s
operations, and accordingly view his statements made under the
circumstances with a degree of suspicion.
During the course of his interview, Wilkes told the agent
what he did for Equihealth on a day-to-day basis, and then
disclosed an incident where Goldberg obtained Stanozolol for
his brother to use on racehorses in his care. In order to prove
that his story was true, Wilkes agreed to place a call to Goldberg
that would be surreptitiously recorded. During that
conversation, Goldberg freely admitted that he had obtained
steroids for his brother after a three-way call involving Wilkes,
Goldberg, and Goldberg’s brother. In response, Wilkes told
Goldberg that he did not remember that call, implying instead
that Goldberg had actually obtained the prescription by forging
his signature and D.E.A. number on the order form submitted to
the wholesaler. Wilkes stated, “I don’t understand . . . how you
got . . . my DEA number.” In response, Goldberg recounted to
Wilkes the following chain of events: “You called Pet Health
and gave it to them . . . . I called you and told you that I wanted
to use it for, uh, my brother’s horses, and you said okay[;] you
called [P]et [H]ealth, and you gave them the number, you never
gave the number to me.”
12
Later in the same conversation, Wilkes accused Goldberg
of lying about his qualifications, saying, “you told me you had
a license to practice in Pennsylvania[,] [t]o sell drugs in
Pennsylvania.” Again, Goldberg responded with his version of
events: “Naw, I didn’t, I am not a Vet, Doc,” and further
explained that he had no license to dispense drugs at the behest
of a veterinarian, saying, “I never told you I am a pharmacist, I
don’t have a pharmacy.” Wilkes retorted, “Well that’s . . . what
I was led to believe, that’s all.”
Although Wilkes died before trial, the Government
sought to introduce the tape (and succeeded in doing so), which
it relied on during its closing argument to prove that Wilkes “did
not know that Marvin Goldberg had his DEA number,” that he
“didn’t know that Marvin Goldberg was repeatedly using that
number in order to obtain Stanozolol from Pet Health
Pharmacy,” and that Goldberg had lied to Wilkes about being
licensed. Put another way, the Government offered Wilkes’
self-interested, out-of-court statement to prove the matters
asserted. The parties (and we) agree that this amounted to a
violation of Goldberg’s rights guaranteed by the Confrontation
Clause. As a result, we are only concerned with the harm visited
by this event, and will reverse unless the Government proves
this misstep was harmless beyond a reasonable doubt. E.g.,
United States v. Toliver, 330 F.3d 607, 612 (3d Cir. 2003).
The steroids transaction that we are concerned with here
is the same one that is discussed above, the Stanozolol
13
transaction that led to the possession with intent to distribute
charges. Relevant to our analysis, we note that the elements of
the offense are: (1) “knowing or intentional” (2) “possession”
(3) “with intent to distribute” of (4) “a controlled substance.”
United States v. Lacy, 446 F.3d 448, 454 (3d Cir. 2006). For the
same reasons that we disagreed with Goldberg’s claim that the
jury had to be told that “possession” really meant “illegal
possession,” we disagree with his claim that “the salient issue”
was “whether Dr. Wilkes prescribed the Stanozolol in the
amounts ordered, and whether he used his DEA number to
obtain it.” Goldberg Op. Br. 38. Instead, we view the key issue
to be whether Goldberg possessed (legally or illegally) a
controlled substance with the intent to distribute it.
The conflict between Wilkes’ statement and Goldberg’s
version of events centers solely on the legality of his possession,
which, as we explained above, has no bearing since a conviction
for possession with intent to distribute can stand whether it is
predicated on legal or illegal possession. Because Wilkes’
statements are irrelevant to whether he had committed this
crime, its admission into the mix of information the jury was
considering in relation to this charge was harmless. Government
of Virgin Islands v. Joseph, 964 F.2d 1380, 1390 (3d Cir. 1992).
That said, we do consider the effect that Wilkes’
statements, which undoubtedly impugned Goldberg’s credibility,
could have had on the trial as a whole. To that end, we note that
Goldberg’s credibility is simply not at issue in this case – the
14
balance of the charges can be grouped into two categories, those
based on false certifications that the drugs would not be resold
and those based on dispensing prescription drugs without a
veterinarian’s order. At trial, the evidence supporting the jury’s
finding that Goldberg lied about his intention not to resell the
drugs was overwhelming, so these twenty-eight convictions still
stand. Further, the remaining charges stem from dispensing
drugs without a prescription, which is something that Goldberg
readily acknowledges that he did, meaning that there were no
credibility determinations that needed to be made as to these
counts. In this context, the Government’s error was harmless.
See Joseph, 964 F.2d at 1390.
C. The Felony Misbranding Convictions
Counts 37-40 deal with Goldberg’s misbranding
activities, and specifically Equihealth’s filling of two orders
submitted by F.B.I. Agent Tremaglio. While Goldberg admits
selling these drugs to Tremaglio, he argues that he cannot be
convicted of misbranding because the drugs were not
misbranded, and in any event not misbranded before they were
sold. Further, he argues that even if what he did was
misbranding, it was misdemeanor misbranding because there
was no evidence that he acted with any intent to defraud or
mislead. Accordingly, his appeal raises two issues: (1) was
there sufficient evidence for a reasonable juror to conclude that
Goldberg misbranded these drugs and/or held them for sale
while they were misbranded; and if so, (2) was there sufficient
15
evidence for a reasonable juror to conclude that he acted with an
intent to defraud or mislead (so as to make the convictions
felonies)? We consider each issue in turn.
1. Misbranding
Misbranding is governed by 21 U.S.C. § 331(k), which
in pertinent part prohibits “the doing of any . . . act with respect
to . . . a food, drug, device, or cosmetic, if such act is done while
such article is held for sale (whether or not the first sale) after
shipment in interstate commerce and results in such article being
adulterated or misbranded.”
Although Goldberg admits selling these drugs without a
valid prescription, he argues that he did not misbrand them,
since (as a technical matter) he never “misbranded or adulterated
the drugs in question.” Goldberg Op. Br. 21. In other words,
Goldberg argues that misbranding prohibits “alter[ing] the
product in some way – not merely dispensing to an end-user
without a prescription.” Id. at 45 (emphasis deleted). However,
Goldberg is a bit loose in his argument, because two paragraphs
later he admits that “dispensing a drug without a prescription is
‘misbranding.’” Id. at 46. And his second instinct is the correct
one: misbranding does encompass dispensing these drugs
without a prescription. 21 U.S.C. § 353(b)(1); see, e.g., United
States v. Arlen, 947 F.2d 139, 141 n.2 (5th Cir. 1991) (“Any
prescription drug that is dispensed without a prescription is
deemed ‘misbranded’ as a matter of law.”); United States v.
16
Bradshaw, 840 F.2d 871, 872 n.2 (11th Cir. 1988).5
However, Goldberg stands by his argument that “there is
a temporal problem” because a drug cannot be “dispensed
‘while’ it is held for sale, because it cannot be ‘delivered’ and
‘held for sale’ at the same time.’” Goldberg Op. Br. 46. This
argument gets him nowhere because the statute clearly states
that “[t]he act of dispensing a drug contrary to the provisions
[requiring a prescription] shall be deemed to be an act which
results in the drug being misbranded while held for sale.” 21
U.S.C. §353(f)(1)(C). As a result, whatever temporal confusion
comes with the misbranding provision, it is resolved by the
relatively straightforward declaration that dispensing drugs
without a prescription means that those drugs were misbranded
while they were held for sale. Id.
We also reject Goldberg’s argument that he cannot be
properly convicted under § 331(k) because this provision “was
enacted to regulate the drug distribution chain, not dispensing to
the end user.” Goldberg Op. Br. 47. To the contrary, the
Supreme Court’s ruling in United States v. Sullivan notes that
5
Apparently, Goldberg too arrived at this conclusion,
admitting that he was “properly convicted” of misbranding
based on these activities. Goldberg Reply Br. 18. That said, his
opening brief takes the opposite tack. We deal with this issue
because we cannot find any precedent from our Court on point.
17
the purpose of § 331(k)’s misbranding prohibition was to
“extend the Act’s coverage to every article that had gone
through interstate commerce until it finally reached the ultimate
consumer.” 332 U.S. 689, 696-97 (1948) (discussing H.Rep.
2139, 75th Cong., 3d Sess., 3.). Accordingly, there is no reason
grounded in legislative intent not to apply § 331(k) to
Goldberg’s sales to end users.
Based on the analysis above, we affirm Goldberg’s
misbranding convictions.
2. Requisite Intent
Because we conclude that Goldberg was properly
convicted of misbranding, we turn to whether the evidence
shows that he acted with an intent to defraud or mislead as he
conducted these misbranding activities. The presence or absence
of intent is important since willful misbranding is only a
misdemeanor unless there is “the intent to defraud or mislead.”
21 U.S.C. § 333(a). Then it is a felony.
Although the jury found such an intent, Goldberg claims
that this finding has to be wrong. There was, he contends,
undisputed evidence showing that “[f]ull disclosure was given
to Equihealth’s customers about the drugs sold, the nature of the
transaction, and Equihealth’s status as a non-prescribing party,”
and he “was open and transparent with the FDA and the various
state agencies that inquired about Equihealth.” Goldberg Op.
18
Br. 42-43.
The Government offers three reasons to affirm on this
issue. First, it claims that the “Product and Use Disclaimer,”
which customers signed and supplied to Goldberg, was
misleading as to, among other things, the rights of the customer
to treat his or her own animal under the various state law
provisions governing the practice of veterinary medicine. In
making this argument, the Government overlooks that the
Disclaimer is not an affirmative representation by Goldberg, but
rather by the customer, meaning that any misrepresentation
occasioned by the statements was caused by the customer lying
about the applicable law in his or her home state, not the
misbrander (Goldberg) that merely received the statement. As
a result, it cannot be said that Goldberg misled anyone via the
statements his customers made.
Next, the Government points to “[s]ales literature
assert[ing] that the company veterinarian actually would
prescribe the drugs.” Government Br. 55. This is easily dealt
with, as the literature in question has no tie to the four counts of
misbranding that Goldberg was charged with. Agent Tremaglio
was repeatedly told that the drugs he was ordering would not be
provided pursuant to a prescription, were not prescribed by a
veterinarian, and that he would not be able to consult directly
with one either before or after he placed his order. As a result,
the only way that we could deem Goldberg’s conduct misleading
would be to hold that when a vendor permits outdated sales
19
literature to continue to exist in some form, even though it told
customers not to rely on the representations therein, the vendor
has misrepresented its activities. We are not prepared to do this,
and therefore we deem that this argument does not justify
Goldberg’s felony convictions.
Finally, the Government argues that by “having [his
suppliers] believe that they were sending him drugs pursuant to
valid prescriptions, and that he would not resell the drugs,”
Goldberg acted with deception or an intent to mislead in his
misbranding activities. Id. at 52. Whatever the merits of this
argument, there is no factual basis for it. Nothing in the record
shows that Goldberg made those statements (or implied them)
in relation to the drugs he sold to Tremaglio. As a result, this
argument, unsupported by any evidence we found, cannot justify
Goldberg’s felony misbranding convictions.
This leaves the Government without any persuasive
argument in favor of sustaining Goldberg’s felony conviction
for misbranding. Beyond that, our own independent review of
the record has not yielded any trace of an intent on Goldberg’s
part to avoid detection or misrepresent what he was up to.
Instead, the evidence demonstrates that Goldberg conducted his
admittedly illegal ventures in the open, and (at least as far as the
drugs that led to the misbranding counts with which he was
charged) in accordance with all the agreements he made. As a
result, we vacate his felony misbranding convictions, making
these convictions instead misdemeanors.
20
D. The Sentencing Challenges6
Goldberg raises two challenges to his sentence, arguing
that the District Court erred (1) in the way it calculated the
losses associated with Equihealth’s conduct, and (2) in imposing
an enhancement based on his disregard of numerous agency
letters that informed him of the illegal nature of Equihealth’s
activities. We address each in turn.
1. Loss Calculation
The District Court enhanced Goldberg’s sentence by
sixteen levels pursuant to U.S.S.G. § 2B1.1(b)(1), providing for
such an enhancement when the losses associated with the
conduct in question are between $1 and $2.5 million. While
Goldberg does not contest the general applicability of
§ 2B1.1(b)(1) to his situation, he argues that the District Court
erred when it used Equihealth’s $1.1 million in total gross
profits as a proxy for the losses suffered, and thus erred in
relying on those profits to calibrate the § 2B1.1(b)(1)
enhancement.
6
While we acknowledge that Goldberg will have to be
resentenced based on our decision to overturn his felony
convictions on the misbranding counts, we have no doubt that
these same issues will arise again on remand, and thus we will
address them now.
21
To this end, Goldberg correctly argues that § 2B1.1(b)(1)
calls for a calculation based on the actual loss occasioned by his
conduct, unless “there is a loss but it reasonably cannot be
determined.” Id. cmt. 3(B). Further, he is correct insofar as he
argues that the record produces scant, if any, evidence of actual
harm, and further provides little reason to suspect that the losses
occasioned by his fraudulent conduct “bear[] a logical
relationship to Equihealth’s gross profits.” Goldberg Op. Br.
53.
That said, he fails to appreciate that these provisions are
not designed for offenders like him. Instead, the way to account
for his conduct is established by § 2B1.1 cmt. 3(F)(v), which
reads:
(v) Certain Other Unlawful Misrepresentation
Schemes.--In a case involving a scheme in which
. . . . (III) goods for which regulatory approval by
a government agency was required but not
obtained . . . [,] loss shall include the amount paid
for the property, services or goods transferred,
rendered, or misrepresented, with no credit
provided for the value of those items or services.
As admitted by Goldberg and established by the numerous
agency letters, F.D.A. approval was required for these drugs to
be sold – they were prescription drugs after all. There was no
such approval because the drugs were misbranded. This means
22
Goldberg was selling goods for which regulatory approval was
required but not obtained. Therefore, under cmt. 3(F)(v), the
District Court’s gross profits methodology was proper.
2. Administrative Order Enhancement
Turning to Goldberg’s alternative sentencing objection,
we agree that the two-level enhancement pursuant to U.S.S.G.
§ 2B1.1(b)(8) – violating a “prior, specific judicial or
administrative order, injunction, decree, or process not
addressed elsewhere in the guidelines” – was unwarranted.
As a general rule, federal courts of appeals considering
the issue have been willing to impose the enhancement after a
meaningful negotiation or interaction led the agency to issue a
directive that the defendant subsequently violated. For example,
the Second Circuit held that a defendant who failed to abide by
a negotiated consent decree was subject to the enhancement, a
proposition that the Seventh Circuit also agreed with. See
United States v. Mantas, 274 F.3d 1127, 1132-33 (7th Cir.
2001); United States v. Spencer, 129 F.3d 246, 252 (2d Cir.
1997). Going even further, the Seventh Circuit in United States
v. Mantas held that the enhancement was merited after the
Illinois Department of Agriculture (the U.S.D.A.’s state
counterpart) inspected a meat packing plant, discussed the
situation with the owner face to face, proposed a possible
remedy, and then officially seized the meat products at issue (the
owner then sold the meat in question nonetheless).
23
That said, no court of appeals has held that a mere
warning letter, without more, can justify the enhancement. To
the contrary, the Seventh Circuit, in United States v. Wallace, a
post-Mantas decision, held that the enhancement should not be
applied “to every situation where a defendant knew or was told
by someone in authority that what she was doing was illegal.”
355 F.3d 1095, 1097-1098 (7th Cir. 2004). The Ninth Circuit
also adopted this view in United States v. Linville, saying,
“[T]he Guideline speaks of ‘violations.’ That is a perfectly
intelligible usage as it applies to an ‘order, injunction [or]
decree’ . . . . . It is considerably less intelligible if process is
taken to mean a mere letter or . . . warning.” 10 F.3d 630, 633
(9th Cir. 1993).
We agree with the analysis of our sister circuit courts to
the extent that they deem administrative orders, injunctions,
decrees, and processes as flexible concepts. Cf. Morrissey v.
Brewer, 408 U.S. 471, 481 (1972) (“[D]ue process is flexible
and calls for such procedural protections as the particular
situation demands.”). We also agree that even this flexible
approach cannot permit a district court to impose the
enhancement for no other reason than that the defendant
continued to engage in certain conduct after the agency
questioned its legality. As a result, we hold that imposing the
two-level enhancement requires an interaction between the
agency and defendant that allowed the defendant to participate
in some meaningful way (if he elected to do so), and that led to
a definite result, like a consent decree or a seizure. See Wallace,
24
355 F.3d at 1097-1098; United States v. Thayer, 201 F.3d 214,
227-28 (3d Cir. 1999).
The question then is whether this happened here. The
Government argues that the F.D.A.’s repeated dealings with
Goldberg were sufficient because it notified Goldberg (by a so-
called “Section 305 Notice”) that he had engaged in prohibited
conduct, that he had the opportunity to attend a meeting with
agency officials where he could “present [his] views on this
matter,” and that the next step was to refer the matter to the
Department of Justice for possible criminal prosecution. This,
the Government contends, represented “the final agency action,
a precursor to criminal proceedings.” Government Br. 89. In
doing so, it equates § 2B1.1(b)(8)’s “prior, specific . . .
administrative order, injunction, decree, or process” language
with any “final agency action,” citing 21 U.S.C. § 335,
governing the F.D.C.A., which provides that “[b]efore any
violation of this chapter is [referred] for institution of a criminal
proceeding, the person against whom such proceeding is
contemplated shall be given appropriate notice and an
opportunity to present his views, either orally or in writing, with
regard to such contemplated proceeding.”
We disagree. Just because the agency believes it has
enough information to act – and thus believes itself finished
with this part of the process – it has not a fortiori issued a
“specific . . . administrative order, injunction, decree, or
process” sufficient to trigger § 2B1.1(b)(8). Instead,
25
§ 2B1.1(b)(8) requires some specific directive that the defendant
can defy. In other words, like the defendant in Mantas whose
meat products were seized (and thus who had the option of
either respecting the seizure or defying it), or the defendant in
the Second Circuit’s Spencer case who entered into a consent
decree, in order to subject Goldberg to this enhancement, he had
to be ordered to stop. To that end, there is no dispute that the
F.D.A. never issued any definitive order telling Goldberg that he
had to stop. This makes the F.D.A.’s notice insufficient for
these purposes.7
In the alternative, the Government argues that the
enhancement is proper in light of the letter Goldberg received
from the Kentucky Board of Veterinary Examiners stating that
he should “CEASE AND DESIST from engaging in the practice
of veterinary medicine (emphasis in original).” 8 While this
7
We acknowledge that this is a highly formalistic
interpretation. As the District Court observed, the F.D.A.’s
notice said “you are dispensing illegal drugs. Does a person
have to say the word ‘desist’ on that same line to tell him to
stop?” Our answer is yes: if we are going to enhance a sentence
based on a failure to comply with a directive, we do not think
that it is too much to ask the directive be definitive in nature.
8
While the Government argues that a similar letter was sent
by California authorities, the record does not show that
Goldberg did any further business in California after receiving
it. As a result, there is no evidence that Goldberg violated the
26
contains the explicit directive that we are looking for, it fails
because the other required element is missing – Goldberg was
not offered the chance to participate in the process in any
meaningful way. The Kentucky letter starts out by stating that
the Board has already “referred the . . . matter to the Office of
the Attorney General” for possible enforcement proceedings
(e.g., injunctive relief and/or criminal sanctions), and threatens
to “pursue all available legal remedies” unless Goldberg
“CEASE[S] AND DESIST[S] from engaging in the practice of
veterinary medicine or consulting with unlicensed animal
owners in the Commonwealth.” There is no invitation for
Goldberg to state his case, or to come to a resolution with the
Board. Instead, he has two choices, stop or be subject to further
proceedings. This is the quintessential warning letter saying
nothing more than stop or else. As a result, it cannot provide the
basis for the two-level enhancement pursuant to § 2B1.1(b)(8).
terms of the California letter, whatever its characterization may
be. See App. at 327-29. Therefore, it cannot serve as the basis
of the enhancement. By the same token, we set aside the more
general warnings issued by remaining states because none of
them contains sufficiently explicit language (e.g., cease and
desist) to merit consideration of the enhancement. See, e.g.,
App. at 285 (letter from the Pennsylvania Department of
Health); 289-90 (letter from the Maryland State Board of
Veterinary Medical Examiners); 315-16 (letter from the Texas
Board of Veterinary Medical Examiners); 317-18 (letter from
the Texas State Board of Pharmacy).
27
Therefore, we find nothing in the record justifying the
two-level enhancement.
VI.
For the reasons stated above, we affirm Goldberg’s
convictions in all respects except that we reverse his convictions
for felony misbranding, as set forth in counts 37-40, and vacate
his sentence. As a result, we remand to the District Court with
instructions to enter a judgment of conviction for the
misdemeanors corresponding to each of the felony misbranding
convictions in counts 37-40 and for resentencing consistent with
this opinion.
28