United States v. Paul Elmer ( 2020 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 19-2890
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
PAUL ELMER,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:17-cr-113 — James R. Sweeney, II, Judge.
____________________
ARGUED SEPTEMBER 16, 2020 — DECIDED NOVEMBER 19, 2020
____________________
Before EASTERBROOK, MANION, and SCUDDER, Circuit
Judges.
SCUDDER, Circuit Judge. Paul Elmer owned and operated
multiple healthcare-related companies including Pharmakon
Pharmaceuticals. His pharmacy produced and distributed
drugs that Elmer knew were dangerous. Rather than halting
manufacturing or recalling past shipments, sales continued
and led to the near death of an infant. Federal charges fol-
lowed for Elmer’s actions in preparing and selling drugs that
2 No. 19-2890
contained more or less of their active ingredient than adver-
tised. A jury returned a guilty verdict on all but one count.
Elmer now appeals several of the district court’s rulings re-
lated to the evidence admitted at trial and his sentence. The
evidence before the jury overwhelmingly proved Elmer’s
guilt. And the district court’s imposition of a sentence of 33
months’ imprisonment was more than reasonable given the
gravity of Elmer’s crimes. We therefore affirm.
I
Through a process known as compounding, Pharmakon
mixes and distributes drugs—including potent opioids like
morphine and fentanyl—to hospitals across the United States.
Federal regulations require such compounding pharmacies to
comply with “Good Manufacturing Practices” regarding the
potency of drugs and the sterility of the mixing and manufac-
turing process. Potency refers to the amount of the active in-
gredient in the drug. By way of an everyday example, con-
sider Tylenol. The potency of Tylenol advertised as having
500mg of its active ingredient—acetaminophen—refers to
whether each pill contains that precise amount of acetamino-
phen. Industry standards generally require compounded
drugs like the ones Pharmakon produced to be within a po-
tency range of 90–110%. Taking our Tylenol example, a 500mg
pill would need to have between 450mg and 550mg of aceta-
minophen to comply with federal regulations. Test results
showing compounded drugs outside of the required potency
range are considered “out of specification.”
Pharmakon conducted its own internal potency testing
and contracted with a third party to perform additional test-
ing to evaluate whether its compounded drugs had too little
of the active ingredient (called “under-potent” drugs) or too
No. 19-2890 3
much (called “over-potent” drugs). Between 2014 and 2016,
testing showed 134 instances of under- or over-potent drugs
being distributed to customers.
The sale of these out-of-specification drugs risked disas-
trous consequences. In March 2014 Pharmakon shipped a sed-
ative called Midazolam to a Community Health Network hos-
pital in Indianapolis. The drug was twice as potent as indi-
cated on the label, and before anyone caught the error, Com-
munity Health staff gave the drug to 13 infants in the hospi-
tal’s neonatal intensive care unit. The administration of the
overly potent Midazolam risked causing severe respiratory
distress, as the infants who received the drug were already on
ventilators. Fortunately, none of the babies died or went into
respiratory arrest.
Two years later, in February 2016, Pharmakon again sent
Community Health an over-potent batch of drugs—this time
morphine sulphate. The doses contained 25 times the amount
of morphine indicated on the label. Once again unaware of
Pharmakon’s egregious compounding error, a Community
Health nurse gave this ultra-concentrated morphine to a 12-
month-old child. The infant immediately went into respira-
tory arrest and survived only because doctors were able to ad-
minister three different doses of Narcan, a medication for re-
versing the effects of opioid overdose.
These events did not go unnoticed. Community Health re-
ported the incidents to the Food and Drug Administration.
Upon receiving the first of these reports in April 2014, the
FDA sent investigators to Pharmakon, despite having just
completed a routine inspection the prior month. During the
inspection Caprice Bearden, Pharmakon’s Director of Com-
pliance, lied to FDA officials when telling them that the
4 No. 19-2890
company had not received any out-of-specification test re-
sults. Bearden, in turn, told Elmer of this deception, and he
too lied to the inspectors during the April investigation.
Bearden and Elmer repeated the falsehoods multiple times,
all as part of seeking to conceal the existence of out-of-speci-
fication results.
After Pharmakon’s over-potent morphine nearly killed
the infant in February 2016, the FDA once again sent inspec-
tors to the company’s Indiana campus. This time Elmer took
a more active role in misleading the agency. He told Michelle
Beland, a pharmacist at a related Pharmakon entity, to lie to
the inspectors and pretend that she was the pharmacist at the
facility under inspection. He also convinced Beland to try to
prevent the actual pharmacist for that facility, Marcus Fields,
from speaking to the inspectors, for Elmer worried that Fields
would report Pharmakon’s recurring issues with producing
and shipping over- and under-potent drugs.
Elmer’s efforts to hide the truth ultimately failed. After
Fields came clean to the FDA inspectors, Bearden and Beland
followed suit and eventually provided documentation reveal-
ing Pharmakon’s misconduct, foremost the out-of-specifica-
tion test results. Confronted with this evidence, Elmer still re-
fused to recall Pharmakon’s compounded drugs. The FDA re-
sponded by issuing a public safety alert and referred the case
to the Department of Justice for criminal investigation.
In June 2016 a federal grand jury issued a ten-count indict-
ment charging Elmer with conspiracy to defraud the FDA
(18 U.S.C. § 371); introducing adulterated drugs into inter-
state commerce (21 U.S.C. §§ 331(a), 333(a)(1) & 351); and
adulterating drugs being held for sale in interstate commerce
(21 U.S.C. §§ 331(k), 331(a)(1) & 351). A superseding
No. 19-2890 5
indictment added a charge for obstructing justice (28 U.S.C.
§ 1505). Elmer chose to go to trial on all charges.
Several Pharmakon employees (including Bearden,
Beland, and Fields) testified against him. So too did various
FDA inspectors and Community Health Network medical
staff testify at trial. The government also introduced emails
from a Pharmakon employee who conducted internal testing.
These emails showed Elmer being urged to address multiple
instances of out-of-specification test results. He never did so.
In short, the evidence that Elmer was aware of and directed
the efforts to conceal out-of-specification test results from the
FDA was overwhelming.
The trial ended with the jury returning guilty verdicts on
the conspiracy count and all nine counts related to the adul-
terated drugs. The jury acquitted Elmer on the obstruction
count. The district court later sentenced him to 33 months’ im-
prisonment. Elmer now appeals.
II
Elmer challenges two of the district court’s evidentiary
rulings. First, he contends the government, as part of proving
the adulteration charges alleged in counts three through
eleven, should not have been allowed to introduce evidence
of 73 separate instances of out-of-specification test results.
Second, he argues that the district court should never have al-
lowed the jury to learn about the personal relationship he had
with Pharmakon pharmacist Michelle Beland. We disagree on
both fronts and see no abuse of discretion in the district
court’s evidentiary rulings. See United States v. Buncich,
926 F.3d 361, 367 (7th Cir. 2019) (explaining that abuse of dis-
cretion review is highly deferential and requires us to defer to
6 No. 19-2890
the district court absent any reasonable basis supporting its
view).
A
We start with Elmer’s challenge to the 73 out-of-specifica-
tion test results. He insists these tests were evidence of prior
bad acts inadmissible under Federal Rule of Evidence 404(b)
and unrelated to the nine counts of making or distributing
adulterated drugs. Had Elmer been charged with only those
nine counts, he might have a point. What he overlooks, how-
ever, is the indictment’s conspiracy charge. The indictment al-
leged that Elmer’s efforts to hide these out-of-specification re-
sults were an object of the conspiracy. In clear and precise
terms, count one alleged that the conspiracy aimed to conceal
from the public that “Pharmakon was compounding and dis-
tributing numerous drugs that were under- and over-potent.”
And therein lies the nexus with the evidence presented at
trial: Elmer’s concealment of the 73 out-of-specification test
results from the FDA were overt acts taken in furtherance of
the charged conspiracy.
The government stood on firm ground approaching proof
of the charged conspiracy this way. Time and again we have
said that “Rule 404(b) does not apply to direct evidence of the
crime charged.” United States v. Ferrell, 816 F.3d 433, 443 (7th
Cir. 2015). Even more, we have noted “[s]pecifically, evidence
directly pertaining to the defendant’s role in a charged con-
spiracy is not excluded by Rule 404(b).” United States v. Adams,
628 F.3d 407, 414 (7th Cir. 2010). In no way were these out-of-
specification test results prior bad act evidence: they consti-
tuted direct evidence of the conspiracy. The district court
properly admitted this evidence.
No. 19-2890 7
B
Elmer fares no better in his challenge to Michelle Beland’s
testimony. Recall that Beland worked as a Pharmakon phar-
macist and testified that Elmer instructed her to lie to FDA
inspectors. Beland testified that Elmer told her to pretend to
be sick so she would not have to speak to the inspectors dur-
ing the March 2014 inspection. He also directed her to hide
the fact that she did not work in the exact facility under in-
spection. Finally, Elmer implored Beland to ask Marcus Fields
to also lie to the FDA—urging him to tell the inspectors that
Beland was the lead pharmacist at the facility being inspected
and to make no mention of the related facility where Beland
actually worked.
Elmer does not challenge the admissibility of this testi-
mony. Nor does he argue that the district court should have
barred Beland from testifying altogether. He instead contends
that the district court abused its discretion by allowing the
government to elicit testimony of Beland’s personal relation-
ship with him. In the days leading to the February 2016 in-
spection, and for a few months afterwards, Beland and Elmer
communicated frequently through text messages and phone
calls. Some of these communications contained “sexual talk”
and “dirty jokes.”
Elmer moved before and during trial to exclude any refer-
ence to the nature of these communications, asking the district
court to limit the government’s description of his relationship
with Beland to that of a mentor or father figure. The govern-
ment defended the admission of this testimony on the
grounds that it was necessary to show why Beland was will-
ing to follow Elmer’s instructions to lie to the authorities. The
district court allowed Beland to offer limited testimony about
8 No. 19-2890
these personal messages with Elmer. But the court prevented
her from reading the content of any particular message. The
government complied with the district court’s instructions
and only generally referenced the personal and sexual content
of some of the messages. The court likewise barred prosecu-
tors from discussing any “salacious” details provided by
Beland in a pre-trial interview.
We cannot say the district court abused its discretion in
allowing but limiting Beland’s testimony this way. To be sure,
the safer course would have been to prohibit the government
from making any reference to the sexual banter. But Beland’s
testimony on this topic was very general, lacking in prejudi-
cial details and occupying less than ten pages in a 1,700-page
trial transcript. See United States v. Miller, 688 F.3d 322, 329–30
(7th Cir. 2012) (concluding that a “brief reference” to prejudi-
cial evidence did not amount to an abuse of discretion). Even
if this was an abuse of discretion, any error was harmless in
light of the overwhelming evidence of Elmer’s guilt. See
United States v. Taylor, 522 F.3d 731, 735 (7th Cir. 2008).
III
We come in closing to Elmer’s challenge to his sentence.
He asserts the district court, in computing the advisory sen-
tencing range under the Sentencing Guidelines, improperly
applied certain enhancements while also refusing to award
him credit for accepting responsibility for his offense conduct.
Elmer also argues that the sentence was substantively unrea-
sonable given his health issues and family obligations.
The district court committed no error in applying a two-
level vulnerable victim enhancement under U.S.S.G.
§ 3A1.1(b)(1). Elmer posits that the only victim of the charged
No. 19-2890 9
conspiracy was the FDA. Not so. Elmer ignores the way the
Guidelines and our case law have defined “victim.” The
Guidelines commentary advises district courts that the en-
hancement applies to victims of “any conduct for which the
defendant is accountable under § 1B1.3” if that victim is “un-
usually vulnerable due to age, physical or mental condition,
or who is otherwise particularly susceptible to the criminal
conduct.” U.S.S.G. § 3A1.1 cmt. 2. Our case law has clarified
that a person who has “experienced some actual or intended
harm” from the relevant conduct qualifies as a vulnerable vic-
tim. United States v. Johns, 686 F.3d 438, 460 (7th Cir. 2012).
Multiple infants suffered actual harm and others faced as-
tronomical risk as a result of Elmer’s deception. It affronts re-
ality to suggest an absence of vulnerable victims. Elmer was
on notice, moreover, that infant patients could (and did) re-
ceive his company’s drugs by no later than April 2014, when
Community Health filed its first report of over-potency at-
tributable to Pharmakon medications. Because these infant
victims were “unusually vulnerable due to age,” the district
court had more than enough to impose the two-level vulner-
able-victim enhancement.
Nor do we see any error with the district court’s applica-
tion of a two-level enhancement for Elmer’s abusing a posi-
tion of trust or using a special skill. See U.S.S.G. § 3B1.3. Elmer
bases his objection on the view that his role in the conspiracy
did not require any of the special skills he possessed as a li-
censed pharmacist. While that point is debatable—for exam-
ple, Elmer often relied on his pharmaceutical knowledge in
rebuffing inquiries from regulators and his staff—his larger
problem is that the district court did not apply the two-level
enhancement based on any use of a “special skill,” but rather
10 No. 19-2890
because Elmer abused a “position of trust.” Elmer entirely
misses this point, even after the government pointed out this
lapse in its briefing. Any challenge to the position-of-trust en-
hancement is therefore waived. See United States v. Cook,
406 F.3d 485, 487 (7th Cir. 2005) (“[A] waiver is a deliberate
decision not to present a ground for relief that might be avail-
able in the law.”).
The district court stood on equally sound ground in deny-
ing Elmer’s request for acceptance of responsibility credit.
Elmer never admitted wrongdoing or accepted responsibility
for his grievous offense conduct. To the contrary, he chose to
contest his guilt at trial, all along continuing to blame every-
one around him, including at sentencing and indeed through-
out this appeal. Refusing to find that Elmer accepted respon-
sibility under these circumstances is not clear error and comes
nowhere close, as Elmer claims, to imposing a “trial tax” in
violation of the Sixth Amendment right to a speedy and pub-
lic trial. See United States v. Saunders, 973 F.2d 1354, 1363 (7th
Cir. 1992) (“As long as the leniency decision is an individual-
ized one, not based merely on the defendant’s decision to go
to trial, a defendant’s constitutional rights are not impaired.”).
Finally, the district court’s imposition of a 33-month sen-
tence was in no way substantively unreasonable. The sentence
matched the low end of the advisory range and reflected the
district court’s application of the mitigating factors required
by 18 U.S.C. § 3553(a), including Elmer’s health conditions
and his role as the sole caretaker for his wife who also suffers
from serious medical conditions. The law required no more of
the district court. If anything, Elmer’s sentence strikes us as
meaningfully lower than the district court could have
No. 19-2890 11
imposed given the extreme risks, including to infant patients,
posed by his offense conduct.
For these reasons, we AFFIRM.