Michael Friedman v. Kathleen Sebelius ( 2012 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued December 6, 2011 Decided July 27, 2012
No. 11-5028
MICHAEL FRIEDMAN, ET AL.,
APPELLANTS
v.
KATHLEEN SEBELIUS, IN HER OFFICIAL CAPACITY AS
SECRETARY, DEPARTMENT OF HEALTH AND HUMAN SERVICES
AND DANIEL R. LEVINSON, IN HIS OFFICIAL CAPACITY AS
INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND HUMAN
SERVICES,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:09-cv-02028)
Carter G. Phillips argued the cause for appellants. With
him on the briefs were Matthew D. Krueger, Joseph R.
Guerra, Anand H. Das, Jonathan L. Abram, and Jonathan L.
Diesenhaus.
Lisa S. Blatt, Jeffrey L. Handwerker, and Dirk C. Phillips
were on the brief for amicus curiae Pharmaceutical Research
and Manufacturers of America in support of appellants.
2
Amar D. Sarwal was on the brief for amicus curiae
Association of Corporate Counsel in support of appellants.
Michael A. Carvin, Daniel J. Popeo, and Richard A.
Samp were on the brief for amicus curiae Washington Legal
Foundation in support of appellants.
Robin M. Meriweather, Assistant U.S. Attorney, argued
the cause for appellees. With her on the brief were Ronald C.
Machen Jr., U.S. Attorney, and R. Craig Lawrence, Assistant
U.S. Attorney.
Before: SENTELLE, Chief Judge, WILLIAMS and
GINSBURG, Senior Circuit Judges.
Opinion for the Court by Senior Circuit Judge
GINSBURG.
Opinion concurring in part, dissenting in part, and
dissenting from the judgment filed by Chief Judge SENTELLE.
Opinion dissenting in part, concurring in part, and
concurring in the judgment filed by Senior Circuit Judge
WILLIAMS.
GINSBURG, Senior Circuit Judge: Michael Friedman,
Paul Goldenheim, and Howard Udell were executives at the
Purdue Frederick Company when it misbranded a drug, to
wit, the painkiller OxyContin, a schedule II controlled
substance. The Company was convicted of fraudulent
misbranding, a felony, whilst the executives were convicted
under the “responsible corporate officer” doctrine of the
misdemeanor of misbranding a drug. Based upon their
convictions, the Secretary of Health and Human Services later
excluded the individuals from participation in Federal health
3
care programs for 12 years, pursuant to 42 U.S.C. § 1320a-
7(b). They sought review of the Secretary’s decision in the
district court, arguing section 1320a-7(b) does not authorize
their exclusion and, in any event, the Secretary’s decision was
unsupported by substantial evidence and was arbitrary and
capricious because she failed to give a reasoned explanation
for the allegedly unprecedented length of their exclusions.
The district court granted summary judgment for the
Secretary.
We hold the statute authorized the Secretary’s exclusion
of the three executives but her decision was arbitrary and
capricious for want of a reasoned explanation for the length of
their exclusions. We therefore reverse the judgment of the
district court and direct it to remand the matter to the
Secretary for further proceedings.
I. Background
The Appellants were senior corporate officers at Purdue
when the Company developed and marketed OxyContin.
According to the Information initiating the criminal cases
against the Appellants and the Company, the “misbranding”
occurred when unnamed employees at Purdue, “with the
intent to defraud or mislead, marketed and promoted
OxyContin as less addictive, less subject to abuse and
diversion, and less likely to cause tolerance and withdrawal
than other pain medications.” United States v. Purdue
Frederick Co., 495 F. Supp. 2d 569, 571 (W.D. Va. 2007).
Purdue pleaded guilty to felony misbranding, in violation of
21 U.S.C. § 331(a) and § 333(a)(2). Id. at 570. Pursuant to
the plea agreement, the district court put the Company on
probation for five years, fined it $500,000, and imposed other
monetary sanctions totaling approximately $600 million, of
which approximately $160 million was earmarked for
4
restitution to Federal and State health care agencies, which
had been large buyers of the misbranded drug. Id. at 572. At
the same time, the Appellants pleaded guilty to misdemeanor
misbranding, in violation of 21 U.S.C. § 331(a) and §
333(a)(1), for their admitted failure to prevent Purdue’s
fraudulent marketing of OxyContin; each was sentenced to do
400 hours of community service, fined $5,000, and put on
probation for three years. The sentencing court also ordered
the Appellants to disgorge compensation they had received
from Purdue totaling approximately $34.5 million.
Under the “responsible corporate officer” (RCO)
doctrine, a “corporate agent, through whose act, default, or
omission the corporation committed a crime” in violation of
the Food, Drug, and Cosmetic Act may be held criminally
liable for the wrongdoing of the corporation “whether or not
the crime required ‘consciousness of wrongdoing’” by the
agent. United States v. Park, 421 U.S. 658, 670 (1975).
Criminal liability under the RCO doctrine extends “not only
to those corporate agents who themselves committed the
criminal act, but also to those who by virtue of their
managerial positions or other similar relation to the actor
could be deemed responsible for its commission.” Id. A
corporate officer may therefore be guilty of misdemeanor
misbranding without “knowledge of, or personal participation
in,” the underlying fraudulent conduct. Id. The Appellants,
as part of their plea agreements, admitted having
“responsibility and authority either to prevent in the first
instance or to promptly correct” the misrepresentations certain
unnamed Purdue employees made regarding OxyContin and
thereby, under the RCO doctrine, admitted being guilty of
misdemeanor misbranding.
Several months after the Appellants had been convicted,
the Office of the Inspector General (OIG) of the Department
5
of Health and Human Services determined the Appellants
should be excluded from participation in Federal health care
programs for 20 years, pursuant to 42 U.S.C. § 1320a-7(b)(1)
and (3). * The OIG based the length of the Appellants’
exclusion upon three aggravating factors listed in the
Department’s published regulations — the conduct underlying
the convictions lasting more than one year, the amount of the
financial loss, and the significant adverse physical or mental
impact upon program beneficiaries. See 42 C.F.R. §
1001.201(b)(2)(i)–(iii); id. § 1001.401(c)(2)(i)–(ii).
The executives appealed the OIG’s determination to an
Administrative Law Judge and ultimately to the Departmental
Appeals Board, to which the Secretary had delegated
authority to review decisions to exclude an individual.
During the pendency of the appeal to the ALJ, the OIG
reduced the length of the exclusion to 15 years because the
*
Section 1320a-7(b)(1)(a) authorizes the Secretary to exclude any
“individual ... [who] has been convicted ... of a criminal offense
consisting of a misdemeanor relating to fraud, theft, embezzlement,
breach of fiduciary responsibility, or other financial misconduct ...
in connection with the delivery of a health care item or service.”
Section 1320a-7(b)(3) authorizes the Secretary to exclude any
“individual ... [who] has been convicted ... of a criminal offense
consisting of a misdemeanor relating to the unlawful manufacture,
distribution, prescription, or dispensing of a controlled substance.”
The length of an exclusion predicated upon a conviction for a
misdemeanor “shall be 3 years, unless the Secretary determines in
accordance with published regulations that a shorter period is
appropriate because of mitigating circumstances or that a longer
period is appropriate because of aggravating circumstances.” 42
U.S.C. § 1320a-(7)(c)(3)(D). 42 C.F.R. § 1001.2 provides “items
and services furnished, ordered, or prescribed by [an excluded
person] will not be reimbursed under Medicare, Medicaid and all
other Federal health care programs until [that person] is reinstated
by the OIG.”
6
Appellants had assisted law enforcement authorities to
combat abuse of OxyContin, a mitigating factor. The ALJ
affirmed the 15-year exclusion as being within a “reasonable
range.” The DAB affirmed that decision, interpreting the
statute to authorize the exclusion of an individual convicted of
a misdemeanor when the facts underlying that conviction
have a “nexus or common sense connection” either to fraud or
to the distribution of a controlled substance. The DAB found
the Appellants’ “misdemeanor misbranding offense” had the
requisite connection to fraud because “[t]he actual
misbranding that resulted in [their] conviction was the
[Company’s] fraudulent misbranding of OxyContin.” The
DAB further reduced the length of the exclusion to 12 years
on the ground the “ALJ’s finding that [the Appellants’]
crimes had an adverse impact on program beneficiaries and
others is not supported by substantial evidence” because there
is no evidence the misbranded Oxycontin had any adverse
effect.
The Appellants sought review in the district court, which
held the statute authorized their exclusion because, “by its
plain terms, section 1320a-7(b)(1) appears to permit the
exclusion of anyone convicted of an offense ‘having a
connection with or reference to’ fraud or financial misconduct
in the delivery of a health care item or service.” Friedman v.
Sebelius, 755 F. Supp. 2d 98, 107–08 (D.D.C. 2010) (quoting
Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384
(1992)). * The district court upheld the length of the exclusion
because it concluded the DAB’s application of the
aggravating and mitigating factors was supported by
substantial evidence. Id. at 117.
*
Because we hold the exclusion was lawful under section (b)(1),
we do not pass upon the parties’ dispute over whether the
Appellants could be excluded pursuant to section (b)(3).
7
II. Analysis
We review the judgment of the district court de novo. Se.
Ala. Med. Ctr. v. Sebelius, 572 F.3d 912, 916 (D.C. Cir. 2009)
(“In reviewing HHS’s actions on appeal from the district
court, this court addresses the issue de novo, without
deference to the decision of the district court” (internal
quotation marks and citation omitted)). We are to uphold the
Secretary’s decision to exclude the Appellants if it was “based
on substantial evidence in the record and correctly applie[d]
the relevant legal standards.” Rosello v. Astrue, 529 F.3d
1181, 1184 (D.C. Cir. 2008) (internal quotation marks and
citation omitted); see also 42 U.S.C. § 1320a-7(f) (providing
for review pursuant to 42 U.S.C. § 405(g) of the Secretary’s
decision to exclude an individual); id. § 405(g) (“The findings
of the [Secretary of Health and Human Services] as to any
fact, if supported by substantial evidence, shall be
conclusive”). We will defer to the Secretary’s reasonable
interpretation of the statute she administers. Sullivan v.
Everhart, 494 U.S. 83, 88–89 (1990) (applying Chevron
deference in reviewing per § 405(g) Secretary’s interpretation
of the Social Security Act).
The Appellants contend section 1320a-7(b)(1) does not
authorize their exclusion because misdemeanor misbranding
is not a “misdemeanor relating to fraud.” They also argue
that, even if the statute authorizes their exclusion, the
Secretary’s decision to exclude them for 12 years was
unsupported by substantial evidence and was arbitrary and
capricious.
A. Statutory Grounds for the Appellants’ Exclusion
The Appellants first argue misdemeanor misbranding is
not a “criminal offense consisting in a misdemeanor relating
8
to fraud” because it lacks the allegedly requisite “‘generic’
relationship to fraud.” On their view, it is not enough for the
conduct underlying a particular conviction to be factually
related to fraud; the generic misdemeanor must comprise the
“core elements” of fraud, one of which is scienter.
Misdemeanor misbranding does not necessarily require a
culpable mental state because a conviction for the offense
may be, and in this case was, predicated upon the responsible
corporate officer doctrine, which entails strict liability. The
Secretary defends her interpretation by arguing that under the
DAB’s “‘intuitive, ordinary reading’ of the statute, [the
Appellants’] convictions ... ‘relate to’ fraud or unlawful
distribution of a controlled substance [because] there is a
‘nexus’ or ‘common sense connection’ between their
convictions and those statutory bases for exclusion.”
This case therefore presents the question whether the
phrase “misdemeanor relating to fraud” in section 1320a-
7(b)(1)(A) refers to a generic criminal offense or to the facts
underlying the particular defendant’s conviction. As the
Supreme Court has pointed out, “in ordinary speech words
such as ‘crime,’ ‘felony,’ ‘offense,’ and the like sometimes
refer to a generic crime, say, the crime of fraud or theft in
general, and sometimes refer to the specific acts in which an
offender engaged on a specific occasion, say, the fraud that
the defendant planned and executed last month.” Nijhawan v.
Holder, 557 U.S. 29, 33–34 (2009). The “categorical
approach,” according to which the statutory term refers to the
generic criminal offense, “prohibits the later court from
delving into particular facts disclosed by the record of
conviction” and directs that court to “look only to the fact of
conviction and the statutory definition of the prior offense,”
including the elements of that offense. Shepard v. United
States, 544 U.S. 13, 17 (2005) (internal quotation marks and
citation omitted). Under the “circumstance-specific”
9
approach, by contrast, the statutory term refers to the
particular conduct giving rise to the conviction and so the
court “must look to the facts and circumstances underlying an
offender’s conviction” to determine whether that conviction is
covered by the statute. Nijhawan, 557 U.S. at 34. Whether
the Congress intended the categorical or the circumstance-
specific approach is to be discerned from the text, structure,
and purpose of the particular statute at issue. Compare Taylor
v. United States, 495 U.S. 575, 600–602 (1990) (applying
“formal categorical approach” to phrase “any crime ... that ...
is burglary” in statute providing for sentencing enhancement
based upon defendant’s prior convictions), with Nijhawan,
557 U.S. at 36 (applying circumstance-specific approach to
phrase “fraud or deceit in which the loss to the victim or
victims exceeds $10,000” in statute providing for
deportation).
Although a reviewing court proceeding under section
405(g) generally defers to the Secretary’s interpretation of an
ambiguous provision of a statute she administers, see
Everhart, 494 U.S. at 88–89, the Appellants argue her
interpretation of section 1320a-7(b)(1)(A) in this case does
not warrant deference: “Nothing in the exclusion statute
evinces Congress’ intent to empower the agency to ‘speak
with the force of law’ ... when addressing ambiguities in the
phrase[] ‘misdemeanor relating to fraud.’” Brief at 20,
quoting United States v. Mead Corp., 533 U.S. 218, 229
(2001). They contend the Congress did not delegate authority
to interpret the phrase “misdemeanor relating to fraud”
because that phrase is a term of art in criminal law and
therefore outside the scope of the Secretary’s subject-matter
expertise and more suited to judicial interpretation.
Courts defer to an agency’s interpretation of a law it
administers only to the extent the Congress has delegated
10
interpretive authority to the agency. Adams Fruit Co. v.
Barrett, 494 U.S. 638, 649 (1990). * With respect to section
1320a-7(b)(1), however, we need not decide whether the
Congress authorized the Secretary “to speak with the force of
law when [she] addresses ambiguity in the statute,” Mead
Corp., 533 U.S. at 229, because the statute unambiguously
authorizes her to exclude the Appellants. The text, structure,
and purpose of the statute, viz., to protect Federal health care
programs from financial harm wrought by untrustworthy
providers, all indicate the Secretary’s circumstance-specific
approach is proper; i.e., the statute authorizes exclusion of an
*
There appears to be a split in authority on the question whether to
defer to an agency’s interpretation of a term drawn from criminal
law but used in a statute the agency administers. Compare, e.g.,
Wong Park v. Att’y Gen., 472 F.3d 66, 70 (3d Cir. 2006) (“[N]either
the Attorney General nor the BIA ... is entitled to Chevron
deference as to whether a particular federal offense is an aggravated
felony [as that term appears in the Immigration and Naturalization
Act]” (internal quotation marks and citation omitted)), with James
v. Mukasey, 522 F.3d 250, 254 (2d Cir. 2008) (“we defer to the
BIA’s interpretation of [the INA] in determining the meaning of
‘sexual abuse of a minor’” as it appears in the INA but not to its
“interpret[ation] of state or federal criminal laws” themselves), and
Mugalli v. Ashcroft, 258 F.3d 52, 56 (2d Cir. 2001) (“[W]e defer to
the BIA’s interpretation of [the INA] in determining the meaning of
‘sexual abuse of a minor’”). In Nijhawan the Supreme Court,
neither deferring nor mentioning the Government’s argument for
deferring to the BIA’s interpretation of the INA, decided the term
“fraud or deceit in which the loss to the victim or victims exceeds
$10,000” calls for the circumstance-specific approach, 557 U.S. at
36, even though the Court had only recently made clear that,
“[c]onsistent with the rule in Chevron ..., the BIA is entitled to
deference in interpreting ambiguous provisions of the INA,”
Negusie v. Holder, 555 U.S. 511, 516 (2009) (denying Chevron
deference where BIA decision was based upon “mistaken legal
premise” regarding a prior decision of the Court).
11
individual whose conviction was for conduct factually related
to fraud.
Section 1320a-7(b)(1)(A), 42 U.S.C. § 1320a-7(b)(1), *
provides:
(b) Permissive exclusion
The Secretary may exclude ... from participation in
any Federal health care program ...
(1) Conviction relating to fraud
Any individual or entity that has been
convicted ...
(A) of a criminal offense consisting of
a misdemeanor relating to fraud, theft,
embezzlement, breach of fiduciary
responsibility, or other financial
misconduct ....
The key phrase in this provision is “relating to,” the
“ordinary meaning of [which] is a broad one — ‘to stand in
some relation; to have bearing or concern; to pertain; refer; to
bring into association with or connection with.’” Morales,
504 U.S. at 383 (quoting BLACK’S LAW DICTIONARY 1158
(5th ed. 1979)); see also Metropolitan Life Ins. Co. v. Mass.,
471 U.S. 724, 739 (1985) (“The phrase ‘relate to’ [has a]
broad common-sense meaning” and a statutory provision
containing the phrase therefore has “broad scope”).
Accordingly, just as the Secretary contends, a misdemeanor
“relat[es] to” fraud “in the normal sense of the phrase, if it has
a connection with, or reference to” fraud, Ingersoll-Rand Co.
v. McClendon, 498 U.S. 133, 139 (1990). The established
meaning of these “deliberately expansive” words, Pilot Life
*
The full text of the relevant sections of the permissive exclusion
statute, 42 U.S.C. § 1320a-7(b)(1)–(3), is set out in the Appendix.
12
Ins. Co. v. Dedeaux, 481 U.S. 41, 46 (1987), is therefore at
odds with the Appellants’ crabbed and formalistic
interpretation. Rather than referring only to generic
misdemeanor offenses that share all the “core elements” of
fraud, the capacious phrase includes any criminal conduct that
has a factual “connection with” fraud. Cf. Morales, 504 U.S.
at 388–89 (“compelling or restricting ‘[p]rice advertising
surely ‘relates to’ price’” because “it is clear as an economic
matter that state restrictions on fare advertising have the
forbidden significant effect upon fares” (citation omitted)).
The rest of section 1320a-7(b)(1)(A) confirms its broad
scope. It authorizes the Secretary to exclude not only a
person convicted of “a criminal offense consisting of a
misdemeanor relating to fraud” but also one convicted of “a
criminal offense consisting of a misdemeanor relating to ...
theft, embezzlement, breach of fiduciary duty, or other
financial misconduct.” The residual clause “other financial
misconduct” expressly refers to a type of “conduct,” not to a
genus of criminal offense. The relationship of a
“misdemeanor” to “other financial misconduct” must
therefore be a factual one. The term “misdemeanor”
accordingly refers to the particular circumstances of an
individual’s conviction, and “relating to” must denote a
factual relationship between the conduct underlying the
misdemeanor and the conduct underlying a “fraud.”
The heading of section 1320a-7(b)(1) (“Conviction
relating to fraud”) further supports this reading of the
provision. “Although the title of a statute and the heading of
a section cannot limit the plain meaning of the text, they
remain tools available for the resolution of a doubt about
statutory meaning.” Hays v. Sebelius 589 F.3d 1279, 1282
(D.C. Cir. 2009) (internal quotation marks and citation
omitted); see also INS v. Nat’l Ctr. for Immigrants’ Rights,
13
Inc., 502 U.S. 183, 189 (1991) (“[T]he title of a statute or
section can aid in resolving an ambiguity in the legislation’s
text” (citations omitted)). In the heading to section 1320a-
7(b)(1) as enacted, “relating to fraud” modifies
“[c]onviction.” See Medicare and Medicaid Patient Program
Protection Act of 1987, Pub. L. No. 100-93, 101 Stat. 680(1987) (codified at 42 U.S.C. § 1320a-7). In the provision
itself, of course, “relating to fraud” modifies “misdemeanor.”
Thus, we see the Congress used “conviction” and
“misdemeanor” interchangeably, and a “conviction,” is, of
course, a particular event on a particular occasion and so
refers to a set of facts, and not to a generic crime. Hence, the
parallel between the heading of section 1320a-7(b)(1) and the
text of section 1320a-7(b)(1)(A) implies the word
“misdemeanor” also refers to the facts underlying a particular
conviction.
The text and structure of the provisions adjoining section
1320a-7(b)(1)(A) further confirm this interpretation. In both
section (b)(1)(B) and section (b)(2), the phrase “relating to”
denotes a factual relationship. The former provision
authorizes the Secretary to exclude a person convicted of “a
criminal offense relating to fraud ... with respect to any act or
omission in a program (other than a health care program)
operated by or financed in whole or in part by any Federal,
State, or local government agency.” The phrase “fraud ...
with respect to any act or omission in a program” does not
refer to a generic offense but rather to criminal conduct that,
as a matter of fact, relates to a program financed by a
government agency. Addressing an analogous phrase in an
immigration statute providing for deportation, the Supreme
Court explained:
[The phrase] “falsely making, forging, counterfeiting,
mutilating, or altering a passport ... except in the case
14
of a first offense for which the alien ... committed the
offense for the purpose of assisting ... the alien’s
spouse, child, or parent” ... cannot possibly refer to a
generic crime. That is because there is no such
generic crime; there is no criminal statute that contains
any such exception. Thus if the provision is to have
any meaning at all, the exception must refer to the
particular circumstances in which an offender
committed the crime on a particular occasion.
Nijhawan, 557 U.S. at 37–38 (quoting 8 U.S.C. §
1101(a)(43)(P)).
Like the exception in the immigration statute analyzed in
Nijhawan, the limiting clause in section (b)(1)(B) does not
pick out a generic class of offenses because there is no
generic crime of defrauding a program other than a health
care program financed in whole or in part by a government
agency. Again like the exception in the immigration statute,
the limiting clause in section (b)(1)(B), therefore, restricts the
scope of the named offense – fraud – to frauds committed in
certain factual circumstances. It follows that the “criminal
offense” listed in section (b)(1)(B) must “relat[e] to fraud”
because it has a factual relationship to conduct committed on
a particular occasion.
Section 1320a-7(b)(2)(ii) similarly authorizes the
Secretary to exclude from participation in Federal health care
programs any individual “convicted ... in connection with the
interference with or obstruction of any investigation or audit
related to ... the use of funds received ... from any Federal
health care program.” The phrase “the use of funds” does not
refer to a generic offense and therefore must refer to specific
facts on a particular occasion. As a result, “related to” in this
provision denotes a factual connection between an
15
“investigation or audit” and “the use of funds.” It is simply
implausible that the Congress used “relating to” in section
1320a-7(b)(1)(B) and the functionally identical phrase
“related to” in section 1320a-7(b)(2) to denote a relationship
between factual situations but used the same phrase in section
1320a-7(b)(1) to denote a relationship between generic
offenses. The only reasonable interpretation is that in all
three provisions the phrases refer to a factual relationship.
See Mohamad v. Rajoub, 634 F.3d 604, 608 (D.C. Cir. 2011)
(“the same word[s] appearing in different portions of a single
provision or act [are] taken to have the same meaning in each
appearance” (internal quotation marks and citation omitted)).
The Appellants offer several arguments for a contrary
reading. First, they argue applying the circumstance-specific
approach gives no separate meaning to the phrase “relating
to” in section (b)(1)(A) and the phrase “in connection with” in
sections (b)(1)(A)(i) and (b)(2). According to the Appellants,
because “in connection with” denotes a factual relationship
between the conviction and “the delivery of a health care item
or service” in section (b)(1)(A)(i) and between the conviction
and “the interference with or obstruction of any investigation
or audit” in section (b)(2), “relating to” in section (b)(1)(A)
must denote a generic, not a factual relationship. The
Appellant’s interpretation of section (b)(1)(A)(i)
(“misdemeanor relating to fraud ... in connection with the
delivery of a health care service or item”) is implausible.
Under that interpretation, “fraud” would refer in section
(b)(1)(A) to a generic criminal offense, to which the
“misdemeanor” must “relat[e]” generically, but the same
appearance of the same word would refer in section
(b)(1)(A)(i) to the facts underlying the defendant’s conviction,
to which the delivery of a health care item or service must be
“connect[ed]” factually. An interpretation that requires a
single instance of a single word to carry two different
16
meanings in two consecutive clauses of a single sentence
simply cannot stand. Far more plausible is the Secretary’s
reading that the Congress used “relating to” and “in
connection with” each to denote a factual relationship –
respectively, the relationship between the facts underlying a
person’s conviction and conduct that would qualify as
“fraud”; and the relationship between that conduct and the
delivery of health care. The use of the phrases “relating to”
and “in connection with,” therefore does not imply “relating
to” must denote a non-factual, generic relationship. *
Next, the Appellants analogize the text of section
(b)(1)(A) to a provision of the Immigration and Naturalization
Act which authorized the deportation of an alien “convicted
of a violation of ... any law or regulation relating to the
possession of or traffic in narcotic drugs.” 8 U.S.C. §
1227(a)(b)(i) (1976). The Appellants, citing Castaneda de
Esper v. INS, 557 F.2d 79 (6th Cir. 1977), contend the
Congress “used a verbal formulation – ‘relating to [specified
offenses]’ – that had long been used in the INA, and already
had a settled meaning” denoting a generic, non-factual
relationship. The Secretary effectively counters that “relating
to” in the INA has no such settled meaning, contrasting
Castaneda, which held a conviction for misprision is not a
violation of a law “relating to the illicit possession of or
traffic in narcotic drugs” because misprision is “a criminal
offense separate and distinct from the particular felony
*
The Appellants also make passing reference to the legislative
history of the exclusion statute, which they claim “draws a clear
distinction between the generic relationship that the misdemeanor
must have to fraud, and the circumstance-specific relationship that
the conviction must have to a health-care related item, service, or
program,” but the quoted snippets of that history merely repeat the
text of the statute and therefore cast no light upon its proper
interpretation.
17
concealed,” 557 F.2d at 83, with Urena-Ramirez v. Ashcroft,
341 F.3d 51 (1st Cir. 2003), which held the defendant’s
violation of the Travel Act was a “violation of ... any law or
regulation ... relating to a controlled substance” because the
“conduct underlying the proscribed travel ... was tantamount
to aiding and abetting the distribution of narcotics,” id. at 54–
55, 57. See also Johnson v. INS, 971 F.2d 340, 342–43 (9th
Cir. 1992) (holding defendant’s violation of the Travel Act
was “violation of ... any law or regulation ... relating to a
controlled substance” because the “criminal conduct involved
narcotics and controlled substances”).
Moreover, we note the wording of the INA supports the
application of the categorical approach much more readily
than does the text of section (b)(1)(A). The Appellants err by
focusing narrowly upon the phrase “relating to” in the INA,
paying no heed to the words connected by that phrase — “law
or regulation” and “the possession of or traffic in narcotic
drugs.” A “law or regulation,” unlike a “misdemeanor,”
cannot refer to the facts of a particular incident.
The Appellants also argue the circumstance-specific
approach leads to an “absurd result,” to wit: “Individuals who
negligently submit false or fraudulent claims ... are not subject
to exclusion under [42 U.S.C. § 1320a-7a(a)]” whereas, under
the Secretary’s approach to section 1320a-7(b), one “who
pleads guilty of a strict liability misdemeanor offense that
requires no proof of conscious wrongdoing, fraud, or
falsehoods is excludable based on misconduct by others that
he had no knowledge of.” Viewed in context, however, there
is no absurdity. Section 1320a-7a(a) gives the Secretary
discretion whether to exclude the individual from
participation in Federal health care programs but makes a fine
mandatory. The statute at issue here similarly authorizes
exclusion but neither requires nor authorizes a fine; for a
18
lesser penalty, a lesser mens rea requirement, or indeed no
mens rea requirement at all, is not illogical.
Finally, the Appellants and their amici argue, because the
Secretary’s interpretation permits her to impose “career-
ending disabilities” upon someone whose criminal conviction
required no mens rea, it raises a serious question of validity
under the Due Process Clause of the Fifth Amendment to the
Constitution of the United States. Quoting Morrisette v.
United States, 342 U.S. 246, 256 (1952), they note the
Supreme Court upheld the constitutionality of strict liability
crimes “in part, because their associated penalties ‘commonly
are relatively small, and conviction does no grave damage to
an offender’s reputation.’” Section 1320a-7(b)(1), however,
is not a criminal statute and, although exclusion may indeed
have serious consequences, we do not think excluding an
individual under 42 U.S.C. § 1320a-7(b) on the basis of his
conviction for a strict liability offense raises any significant
concern with due process. Exclusion effectively prohibits one
from working for a government contractor or supplier. Surely
the Government constitutionally may refuse to deal further
with senior corporate officers who could have but failed to
prevent a fraud against the Government on their watch.
For the foregoing reasons, we hold section 1320a-
7(b)(1)(A) authorizes the Secretary to exclude from
participation in Federal health care programs an individual
convicted of a misdemeanor if the conduct underlying that
conviction is factually related to fraud. The Appellants do not
dispute they are excludable under this circumstance-specific
approach: Their convictions for misdemeanor misbranding
were predicated upon the company they led having pleaded
guilty to fraudulently misbranding a drug and they admitted
having “responsibility and authority either to prevent in the
first instance or to promptly correct” that fraud; they did
19
neither. * Accordingly, section 1320a-7(b)(1)(A) authorized
the Secretary to exclude them for a time from participation in
Federal health care programs.
*
JUDGE WILLIAMS objects (at pages 4–5 of his opinion) that the
interpretation of section 1320a-7(b) proposed by the Secretary and
adopted by the Court does not “articulate” the type or limit of the
factual relationships sufficient to support an individual’s exclusion.
This objection is misplaced for two reasons. First, as explained
above, the Appellants do not dispute they are subject to exclusion
under the circumstance-specific approach; they argue only that the
categorical approach applies. They never raised, either before the
district court or before this court, an argument of the sort advanced
by Judge Williams; any such argument is therefore not properly
before the Court. See Benoit v. Dep’t of Agric., 608 F.3d 17, 21
(D.C. Cir. 2010) (arguments not raised in district court are forfeit).
Second, there is nothing unusual or improper in a court adopting an
interpretation of a statute that does not settle every case that might
arise in the future. See, e.g., Morales, 504 U.S. at 390 (declining to
decide whether “nonprice aspects of fare advertising ... ‘relat[e] to’
rates,” regarding which “the connection would obviously be far
more tenuous. ... ‘[T]he present litigation plainly does not present a
borderline question, and we express no views about where it would
be appropriate to draw the line.’” (quoting Shaw v. Delta Air Lines,
Inc., 463 U.S. 85, 100 n.21 (1983))). If there is ever a case of the
sort that concerns Judge Williams — one in which the Secretary
excludes a person based upon the view that “virtually any overlap
between the facts required for fraud and those involved in (or
required for) the offense of conviction is enough,” (Opinion of
Williams, J., at 3) — then the court shall at that time have the
occasion and the duty to resolve that issue. The Appellants’
convictions under the responsible corporate officer doctrine,
however, were manifestly “related to” a fraud. So too would be a
conviction for other respondeat superior criminal offenses,
attempted fraud, conspiracy to commit fraud, and the like — no one
of which need share all the “core elements” of fraud.
20
B. Length of the Appellants’ Exclusion
The Appellants also challenge the Secretary’s decision to
exclude them for fully 12 years, four times as long as the
presumptive baseline in the statute: “the period of exclusion
shall be 3 years” unless the Secretary adjusts the length of
exclusion on the basis of aggravating or mitigating factors “in
accordance with published regulations.” 42 U.S.C. § 1320a-
7(c)(3)(D). The Appellants argue the Secretary took into
account two aggravating factors for which there was not
substantial evidence, failed to take into account one
mitigating factor without substantial evidence for so doing,
and gave them too little credit with respect to a second
mitigating factor. They also argue the Secretary erred by
failing to reconcile the length of their exclusion with the
agency’s prior decisions.
1. Aggravating and mitigating factors
First the Appellants claim the Secretary improperly
applied the aggravating factor of their being responsible for a
financial loss in excess of $5,000 because, they allege, there is
no evidence in the record of any actual financial loss. The
pertinent regulation establishes an aggravating factor when
“[t]he acts resulting in the conviction ... caused ... a financial
loss of $5,000 or more to a Government program or to one or
more other entities, or had a significant financial impact on
program beneficiaries or other individuals.” 42 C.F.R. §
1001.201(b)(2)(i). The Appellants’ argument is frivolous.
They admitted responsibility for a crime, misdemeanor
misbranding, that caused, at least in part, financial losses for
which Purdue paid $160 million in “restitution.” Specifically,
Purdue falsely portrayed OxyContin to be less addictive, less
subject to abuse and diversion, and less likely to cause
tolerance and withdrawal than other painkillers on the market,
21
which misrepresentation certainly led some doctors to
prescribe it when they would otherwise have prescribed a
different painkiller or none at all. Purdue had almost $3
billion in revenues from OxyContin during the time it
misbranded the drug, much of it from Federal and state health
care programs which paid for prescriptions for OxyContin,
some of which would not have been written but for the
misbranding. Even if the amount of restitution to which
Purdue agreed was the product of a negotiation unbounded by
forensic accounting, as the Appellants claim, their suggestion
the losses they caused did not exceed a mere $5,000 is
preposterous. Accordingly, the Secretary’s application of this
aggravating factor was supported by substantial evidence.
Second, the Appellants argue the same regulation, and
another which establishes an aggravating factor based upon
the duration of the excluded person’s criminal conduct, refer
only to “acts” whereas the Appellants’ violations consisted
solely of omissions. See 42 C.F.R. § 1001.201(b)(2)(i) (“The
acts resulting in the conviction ... caused ... a financial loss”);
id. at § 1001.201(b)(2)(ii) (“The acts that resulted in the
conviction ... were committed over a period of one year or
more”). The Secretary replies the “regulatory phrase ‘acts that
resulted in the conviction’ is used to describe the wrongful
conduct considered when setting an appropriate exclusion
period.” As the Appellants point out, however, the
regulations elsewhere distinguish between “acts” and
“omissions,” see 42 C.F.R. § 1001.201(a)(1)(ii) (“With
respect to any act or omission in a health care program ....”).
Still, nothing turns upon the distinction where it is made, and
in light of the deference due the Secretary’s interpretation of
her own regulation, see Auer v. Robbins, 519 U.S. 452, 461
(1997), we conclude her interpretation equating the two terms
when only “acts” are proscribed is a permissible one.
22
Third, the Appellants argue the Secretary erred in failing
to take into account their lack of “conscious wrongdoing.”
The pertinent regulation establishes as a mitigating factor
“that the individual has a mental, physical, or emotional
condition ... that reduced the individual’s culpability.” 42
C.F.R. § 1001.201(b)(3)(ii). The Appellants argue their “lack
of any awareness of wrongdoing” is one such “mental
condition,” and the Secretary therefore erred in failing to give
them credit for this mitigating factor. The regulation plainly
refers to mental, physical, or emotional illness or disability,
and the Appellants have not alleged they are afflicted by any
such condition. Accordingly, the Secretary’s decision not to
apply this mitigating factor is supported by substantial
evidence.
Fourth, the Appellants argue the Secretary gave
insufficient weight to their cooperation with law enforcement
agencies, notwithstanding that she reduced the period of their
exclusion by five years for this reason. Determining the
precise weight to be given an aggravating or mitigating factor
in setting the period of an exclusion is within the Secretary’s
discretion, which the Appellants have not shown she abused.
2. Departure from precedent: Review under the arbitrary
and capricious standard?
We turn finally to the Appellants’ only substantial
objection: That the Secretary failed to justify the length of
their exclusion in light of the agency’s prior decisions, as
required by the Administrative Procedure Act. See
Ramaprakash v. FAA, 346 F.3d 1121, 1125 (D.C. Cir. 2003)
(“An agency’s failure to come to grips with [its] conflicting
precedent constitutes an inexcusable departure from the
essential requirement of reasoned decision making” (internal
quotation marks and citation omitted)).
23
The Secretary claims she was not required to do so
because the APA is not applicable to the decision under
review; as we explained in National Kidney Patients
Association v. Sullivan, 958 F.2d 1127, 1130 (D.C. Cir.
1992), “Section 405(h) [of 42 U.S.C.] ... makes [42 U.S.C.] §
405(g) the exclusive avenue for judicial review of
administrative decisions,” and review under section 405(g),
according to the Secretary, precludes application of the APA.
The APA provides a “[s]ubsequent statute may not be
held to supersede or modify [the APA] except to the extent
that it does so expressly.” 5 U.S.C. § 559. The exclusion
statute, including section 1320a-7(f)(1), postdates the APA
but section 405(g) predates it; therefore it is not immediately
clear whether the limitation in section 559 — and therefore
the APA — applies here. Regardless whether we look to
section 1320a-7(f)(1) or to section 405(g), however, we agree
with the Appellants that the statute authorizes review under
the arbitrary and capricious standard.
Section 1320a-7(f)(1) does not expressly purport to
supersede the APA and therefore does not preclude review
under the arbitrary and capricious standard of the APA. The
Secretary would instead have us focus upon section 405(g),
which section 1320a-7(f)(1) incorporates by reference and
which, because it predates the APA, need not “expressly”
purport to supersede the APA in order to provide the
exclusive standard for our review. Looking to section 405(g),
however, we see the pertinent provision is virtually identical
to the corresponding provision in the National Labor
Relations Act. Compare 42 U.S.C. § 405(g) (“The findings of
the Commissioner of Social Security as to any fact, if
supported by substantial evidence, shall be conclusive”), with
29 U.S.C. § 160(e) (“The findings of the [National Labor
24
Relations Board] with respect to questions of fact if supported
by substantial evidence on the record considered as a whole
shall be conclusive”). Neither statute expressly calls for any
review other than review of findings of fact for substantial
evidence. The Supreme Court has nonetheless construed the
NLRA to incorporate review under the arbitrary and
capricious standard of the APA. Universal Camera Corp. v.
NLRB, 340 U.S. 474, 487 (1951); Linden Lumber Div.,
Summer & Co. v. NLRB, 419 U.S. 301, 309–10 (1974); see
also Diamond Walnut Growers, Inc. v. NLRB, 113 F.3d 1259,
1266 (D.C. Cir. 1997) (en banc). Considering that section
405(g), like section 160(e) of the NLRA, is silent regarding
the standard of review except with regard to questions of fact,
we see no reason to depart from the path indicated by the
Supreme Court. We therefore review the Secretary’s decision
to exclude the Appellants according to the arbitrary and
capricious standard, which requires that the Secretary provide
a reasoned explanation for departing from agency precedent.
3. Applying the arbitrary and capricious standard of
review
The Appellants may overstate their case by claiming their
12-year exclusion is “unprecedented”; the DAB cited a
number of prior decisions in which it had excluded
individuals for more than 10 years. The DAB’s mere citation
of these cases, however, does not stand as a reasoned
explanation if, as the Appellants argue, those cases are
materially different. And so it seems they are: As the
Appellants point out, every one of the cases cited by the DAB
involved a mandatory exclusion with a presumptive baseline
of five years, not a discretionary exclusion with a presumptive
baseline of three years; in addition, every cited case involved
either a felony conviction or a conviction for Medicare fraud
for which the defendant was incarcerated, none of which
25
factors is present in this case. * In fact, none of the cases cited
by the DAB even concerned an exclusion under section
*
See Marcia C. Smith a/k/a Marcia Ellison Smith, DAB No. 2046
(2006) (12-year exclusion: mandatory five-year exclusion for a
conviction resulting in incarceration, plus three aggravating factors
and no mitigating factors); Russell Mark Posner, DAB No. 2033
(2006) (14-year exclusion: mandatory five-year exclusion for three
felony convictions resulting in incarceration, plus three aggravating
factors and no mitigating factors); Stacy R. Gale, DAB No. 1941
(2004) (15-year exclusion: mandatory five-year exclusion for
conviction resulting in incarceration, plus three aggravating factors
and no mitigating factors); Jeremy Robinson, DAB No. 1905
(2004) (15-year exclusion: mandatory five-year exclusion for
felony conviction resulting in incarceration, plus three aggravating
factors and no mitigating factors); Thomas D. Harris, DAB No.
1881 (2003) (15-year exclusion: mandatory five-year exclusion for
felony conviction resulting in deferred incarceration, plus two
aggravating factors and no mitigating factors); Stacy Ann Battle,
D.D.S., DAB No. 1843 (2002) (10-year exclusion: mandatory five-
year exclusion for conviction for Medicare fraud resulting in
incarceration, plus three aggravating factors and no mitigating
factors); Joann Fletcher Cash, DAB No. 1725 (2000) (15-year
exclusion: mandatory five-year for conviction for Medicare fraud
resulting in incarceration, plus three aggravating factors and no
mitigating factors); see also (cases not cited by the DAB) John D.
Strom, DAB No. CR 1056 (2003) (15-year exclusion: mandatory
five-year exclusion for felony conviction resulting in incarceration,
plus three aggravating factors and no mitigating factors);
Natawadee Steinhouse, M.D., DAB No. CR 859 (2002) (15-year
exclusion: mandatory five-year exclusion for felony convictions
resulting in incarceration, plus four aggravating factors and one
mitigating factor); Ruth Ferguson, DAB No. CR 725 (2000) (15-
year exclusion: mandatory five-year exclusion for conviction for
Medicare fraud resulting in incarceration, plus three aggravating
factors and no mitigating factors); Gregory D. Wells, M.D., DAB
No. CR 723 (2000) (15-year exclusion: mandatory five-year
exclusion for conviction for Medicare fraud by offender with prior
26
1320a-7(b)(1); it appears the Secretary has never excluded
anyone for more than ten years under that provision of the
statute. Research reveals the longest period of exclusion the
DAB had ever approved under section 1320a-7(b)(1) was four
years. See Paulette White Jackson, DAB No. 1915 (2004);
Roberto Kutcher-Olivio, DAB No. 1837 (2002). When the
DAB affirmed the Appellants’ 12-year exclusion the agency
had never excluded anyone for more than ten years based
upon a misdemeanor — a departure the agency does not even
acknowledge, much less explain.
We do not suggest the Appellant’s exclusion for 12 years
based upon a conviction for misdemeanor misbranding might
not be justifiable; we express no opinion on that question.
Our concern here is that the DAB did not justify it in the
decision under review. Simply pointing to prior cases with
the same bottom line but arising under a different law and
involving materially different facts does not provide a
reasoned explanation for the agency’s apparent departure
from precedent. Therefore we hold the decision of the DAB
was arbitrary and capricious with respect to the length of the
Appellants’ exclusion.
III. Conclusion
For the reasons set out above, we hold section 1320a-
7(b)(1) authorizes the exclusion of the Appellants on the basis
of their convictions for misdemeanor misbranding. The
Secretary’s decision, however, was arbitrary and capricious
with respect to the length of their exclusion because it failed
to explain its departure from the agency’s own precedents.
The judgment of the district court is therefore reversed and
record of criminal and administrative sanctions, plus three
aggravating factors and no mitigating factors).
27
the matter shall be remanded to the district court with
instructions to remand it to the agency for further
consideration consistent with this opinion.
So ordered.
Appendix
42 U.S.C. § 1320a-7(b)(1)–(3)
(b) Permissive exclusion
The Secretary may exclude the following individuals and
entities from participation in any Federal health care program
(as defined in section 1320a-7b(f) of this title):
(1) Conviction relating to fraud
Any individual or entity that has been convicted for an
offense which occurred after August 21, 1996, under Federal
or State law—
(A) of a criminal offense consisting of a misdemeanor
relating to fraud, theft, embezzlement, breach of
fiduciary responsibility, or other financial
misconduct—
(i) in connection with the delivery of a health
care item or service, or
(ii) with respect to any act or omission in a
health care program (other than those
specifically described in subsection (a)(1) of
this section) operated by or financed in whole
or in part by any Federal, State, or local
government agency; or
28
(B) of a criminal offense relating to fraud, theft,
embezzlement, breach of fiduciary responsibility, or
other financial misconduct with respect to any act or
omission in a program (other than a health care
program) operated by or financed in whole or in part
by any Federal, State, or local government agency.
(2) Conviction relating to obstruction of an investigation or
audit
Any individual or entity that has been convicted, under
Federal or State law, in connection with the interference with
or obstruction of any investigation or audit related to—
(i) any offense described in paragraph (1) or in
subsection (a); or
(ii) the use of funds received, directly or indirectly,
from any Federal health care program (as defined in
section 1320a-7b(f) of this title).
(3) Misdemeanor conviction relating to controlled substance
Any individual or entity that has been convicted, under
Federal or State law, of a criminal offense consisting of a
misdemeanor relating to the unlawful manufacture,
distribution, prescription, or dispensing of a controlled
substance.
SENTELLE, Chief Judge, concurring in part and dissenting
part and dissenting in the judgment: At the outset, I have no
quarrel with the majority’s decision that the statute authorized
the Secretary’s exclusion of the three executives, and I will not
re-hash the factual background of the case or the reasoning
leading to that conclusion. I do, however, dissent from the
majority’s reversal of the Secretary’s decision on the length of
the assigned exclusions.
Anyone engaged in the practice of appellate law, especially
on the administrative side, knows that the standard of review
may be determinative of an appellate proceeding. Because the
majority today applies the wrong standard of review, it reaches
an incorrect result. As the majority acknowledges, Congress has
provided for review of an exclusion such as those under review
here by specific statutory provision: 42 U.S.C. § 1320a-7(f).
That section provides for “judicial review of the Secretary’s
final decision after such hearing as is provided in section 405(g)
of this title . . . .” Section 405(g), made applicable to the
exclusions by § 1320a-7(f), does not authorize review by
“arbitrary and capricious” or “abuse of discretion” standards.
See Morris v. Shalala, 207 F.3d 744, 745 (5th Cir. 2000). Under
the limited review afforded by § 405(g), we are to affirm the
decision of the Departmental Appeals Board so long as it was
“based on substantial evidence in the record and correctly
applies the relevant legal standards.” Rossello v. Astrue, 529
F.3d 1181, 1184 (D.C. Cir. 2008). The majority points to no
finding lacking substantial evidentiary support and no departure
from law. Therefore, the statute should compel a result
affirming the Board, as was entered by the district court. That
should leave us no avenue but affirmance of the district court.
I am concerned about the further implications of the
majority’s expansion of § 405(g) review. That section governs
review of the final decisions of the Commissioner of Social
2
Security. While not a part of our daily fare, such decisions,
especially in the case of disability claims, commonly come
before the courts of the United States. The total number of
disability claims, supplemental security income claims,
retirement and survivor benefit claims, and other claims
governed by § 405(g) reached 15,705 in the calendar year 2011.
Administrative Office of the U.S. Courts, Judicial Business of
the U.S. Courts (2012), available at
http://www.uscourts.gov/statistics/JudicialBusiness.aspx (Table
C-10). It is not surprising that Congress would dictate a
confined standard of review for claims so numerous and so
committed to a single agency. By expanding the applicable
standard of review in the present application of § 405(g), we
invite unanticipated consequences in the application of this
erroneous precedent to Social Security claims.
For the reasons set forth above, I respectfully dissent. I
would affirm.
WILLIAMS, Senior Circuit Judge, dissenting in part,
concurring in part, and concurring in the judgment: I cannot
agree that the Secretary’s interpretation of 42 U.S.C. § 1320a-
7(b) is valid, and accordingly would remand the case to the
district court for remand to her for a permissible
interpretation. If her action is valid on its own terms,
however, as the court holds, I agree on the remand for the
purposes stated by Judge Ginsburg—for the Secretary to
explain the departure from prior precedents in fixing the terms
of exclusion.
As the panel correctly notes, the appellants argue that the
clause requires a “‘generic’ relationship to fraud,” Maj. Op. at
7-8, or, as a practical matter, that convictions triggering a
sanction based on the “fraud” element of § 1320a-7(b)(1)
must have been based on findings of all the regular elements
of the traditional crime of fraud. Most notably, they argue,
scienter must have been an element of the crime—an element
conspicuously missing from appellants’ convictions, which
depended on the “responsible corporate officer” doctrine. The
Secretary argues instead for a “circumstance-specific”
approach, id. at 8-9, which, as she explains, means that the
“relation” requirement is satisfied if there is a “nexus or
common sense connection between . . . the conduct giving rise
to the offense and the fraud in connection with the delivery of
the health care item or service.” Goldenheim v. Inspector
General, Dec. No. CR1883, 2009 WL 1176331 (HHS Dept.
App. Bd. Jan. 9, 2009), Joint Appendix (“J.A.”) 590; see also
Appellees’ Br. 22-23.
The court upholds the Secretary’s view, evidently finding
it “unambiguously” supported by the statute regardless of
whether Chevron v. Natural Resources Defense Council, 467
U.S. 837 (1984), applies. See Maj. Op. at 10; see also id. at
2
18-19. The court quite correctly notes that the phrase
“relating to” is extraordinarily broad, quoting dictionary
paraphrases such as “to stand in some relation.” Id. at 11. In
fact a “relationship” can be one of hostility or enmity, or can
be orthogonal, so that for a literalist the statute is virtually
meaningless. Taken literally, the provision does not even ask
for a “substantial relationship” or a “close relationship”; it
calls only for a “relationship,” however attenuated. Happily,
the parties in fact appear to agree on narrowing the field a
little, both assuming that the relationship must be one of
overlap between the crime of fraud and the facts shown (or
necessary to be shown 1) in appellants’ conviction of
misdemeanor misbranding. Indeed, the context compels that
narrowing of the range—and more.
Appellants state what they view as the required overlap
fairly clearly: just as common law fraud requires a showing
of scienter, the crime of conviction must have required proof
of such an element. The Secretary’s idea of the necessary
1
This situation is somewhat analogous to the provisions of the
sentencing guidelines governing “career offenders,” which provide
for a heightened sentence if a defendant has previously committed a
“crime of violence”—the definition of which term requires that the
previous crime have as an element the “use, attempted use, or
threatened use of physical force against the person of another.”
U.S. SENTENCING GUIDELINES § 4B1.1; id. § 4B1.2. Compare with
id. § 4B1.5(b) (sentencing enhancement where “defendant engaged
in a pattern of activity involving prohibited sexual conduct” even if
that conduct was not an element of previous convictions or was
established by previous convictions); United States v. Phillips, 431
F.3d 86, 90 (2d Cir. 2005). We need not consider whether evidence
of scienter, even evidence beyond a reasonable doubt, would be
sufficient in the case of a crime not requiring proof of scienter; the
government does not remotely suggest scienter could be proven.
3
overlap is more free-floating—some sort of “nexus” between
the convictions and fraud (or the other bases for exclusion).
But even this free-floating overlap (if it is to have any
boundaries at all) requires some concept of “fraud, theft,
embezzlement . . . or other financial misconduct.” Suppose,
for example, that the Secretary was acting under the last and
vaguest of these terms, and the individuals had been convicted
of filing false environmental reports. To prevail, the Secretary
surely would have to offer a concept of financial misconduct
that embraced such filings. One can talk of “circumstance-
specific” relationships till one is blue in the face, but in the
end deciding whether the necessary overlap exists requires a
definition (or at least an idea) of the types of conviction
triggering § 1320a-7(b)(1)(A). The conceptual battle cannot
be avoided.
The parties’ somewhat synthetic battle between “generic
fraud” and the “circumstance-specific” approach leads the
court into an extensive showing that the statute is laced with
requirements that in the end will require burrowing into facts.
See Maj. Op. at 11-15. The court argues that a statute rife
with such intellectual exercises is not very likely to have
clearly limited the Secretary to “generic fraud” for the fraud
aspect of § 1320-7(b)(1)(A). But the sense of all those
“factual relationships” depends on conceptual relationships—
exemplified in the question whether the “financial
misconduct” criterion would allow exclusion for a conviction
for false environmental filings. If the Secretary’s view is
correct, virtually any overlap between the facts required for
fraud and those involved in (or required for) the offense of
conviction is enough.
The meaning of a statute must not be confused with its
simple linguistic potential. As we’ve seen, the linguistic
potential of crime or “misdemeanor relating to fraud” is
4
almost infinite. The Secretary, though on common ground
with appellants in understanding that the relation must be one
of overlap, purports to see no other limit. But this is not the
way lawyers read a statute. They put it into context. Here the
context suggests a requirement of at least some approximation
of the moral turpitude associated with “fraud” itself. Thus
Justice Cardozo, construing § 9(c) of the National Recovery
Act in Panama Refining Co. v. Ryan, 293 U.S. 388, 433
(1935), acknowledged that § 9(c) alone was inadequate to
supply an intelligible answer to the question of when the
President was to exercise the delegated power to interrupt
interstate oil transportation, but he went on to examine the
statute as a whole and concluded that the power could be
exercised only for “hot oil,” i.e., oil produced in excess of
statutory quotas. Id. at 435-46. Thus the context compelled a
non-literal, relatively narrow interpretation. For similar
context-based narrowings, see, e.g., Owens v. Republic of
Sudan, 531 F.3d 884, 893 (D.C. Cir. 2008); Phelps Dodge
Corp. v. Federal Mine Safety and Health Review Commission,
681 F.2d 1189, 1192 (9th Cir. 1982). So too here. Very
troublingly, without such an effort at seeking the legal
meaning of the disputed clause, we have a reading by the
Secretary that offers none of the “precision and guidance
[that] are necessary so that those enforcing the law do not act
in an arbitrary or discriminatory way.” FCC v. Fox Television
Stations, Inc., 132 S. Ct. 2307, 2317 (2012). That failing is
especially acute for an action that excludes appellants from
pursuing careers in the pharmaceutical industry—where
they’ve spent their lifetimes accumulating industry-specific
human capital. See J.A. 390, 428, 483. Compare Greene v.
McElroy, 360 U.S. 474, 492 (1959).
“Misdemeanor” and “fraud” have well-established
meanings. The Secretary need only prescribe some specific
meaning for the word “related.” It might require that an
excluded individual’s conviction rest on findings of all the
5
elements of fraud, as the appellants argue; or it might require
only that it rest on findings of the person’s culpable
responsibility for a material misrepresentation. It is for the
Secretary to say, subject of course to judicial review. But an
invocation of “nexus,” though it fits linguistically, is simply
not a legal interpretation as that process is normally
understood. It’s more accurately seen as a refusal to interpret.
Given the absence of an analytically reasonable
interpretation by the Secretary, and the Secretary’s leeway
under Chevron to reject appellants’ proposed interpretation, I
would remand to the district court to remand to the Secretary
to articulate a meaning of 42 U.S.C. § 1320a-7(b) that is
consistent with standard principles of legal interpretation.