United States v. Ihenacho

United States Court of Appeals
For the First Circuit
No. 12-1278
UNITED STATES,
Appellee,
v.
BALDWIN IHENACHO,
Defendant, Appellant.
No. 12-1661
UNITED STATES,
Appellee,
v.
GLADYS IHENACHO,
Defendant, Appellant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Lynch, Chief Judge,
Selya and Howard, Circuit Judges.
Michelle L. Dineen Jerrett, Assistant United States Attorney,
with whom Carmen M. Ortiz, United States Attorney, and Shelbey D.
Wright, Assistant United States Attorney, were on brief, for
appellee in No. 12-1278.
David M. Lieberman, Attorney, U.S. Department of Justice, with
whom Carmen M. Ortiz, United States Attorney, Shelbey D. Wright,
Assistant United States Attorney, Michelle L. Dineen Jerrett,
Assistant United States Attorney, Mythili Raman, Acting Assistant
Attorney General, U.S. Department of Justice, and Denis J.
McInerney, Acting Deputy Assistant Attorney General, U.S.
Department of Justice, were on brief, for appellee in No. 12-1661.
Brian M. LaMacchia, with whom David J. Apfel and Goodwin
Procter LLP were on brief, for appellant Baldwin Ihenacho.
Daniel J. Cloherty, with whom Victoria L. Steinberg and
Collora LLP were on brief, for appellant Gladys Ihenacho.
June 17, 2013
LYNCH, Chief Judge. Baldwin and Gladys Ihenacho are
husband and wife, and were the owners and operators of a
neighborhood pharmacy in Dorchester, Massachusetts. Baldwin and
Gladys were convicted of dispensing and shipping drugs to customers
pursuant to invalid online prescriptions for Internet pharmacy
operations over a period from 2006 to 2008. Those operations were
headquartered in the Dominican Republic.
Baldwin pled guilty to nearly all of the charges against
him (the remaining charge was dismissed) and was sentenced to 63
months in prison. On appeal, he challenges the application of the
fraud sentencing guideline to him. The most serious challenge,
which we ultimately reject, is to the district court's calculation
of the loss caused by his offenses. That calculation goes to the
applicable guideline sentencing range and increased the length of
his sentence.
Gladys went to trial and a jury convicted her of eight
counts, including for distributing controlled substances,
international money laundering, and conspiracy. She was then
sentenced to thirty days' imprisonment. On appeal, she challenges
the sufficiency of the evidence supporting her convictions,
particularly disputing whether the government proved that she knew
her pharmacy was dispensing drugs pursuant to invalid
prescriptions. The evidence was ample.
We affirm Baldwin's sentence and Gladys's convictions.
-3-
I.
In considering a sentencing appeal that follows after a
guilty plea, we take the relevant facts from the plea agreement,
the change-of-plea colloquy, the presentence investigation report
(PSR), and the transcript of the sentencing hearing. United States
v. Fernández-Cabrera, 625 F.3d 48, 50 (1st Cir. 2010). In
contrast, in evaluating a claim that the evidence was insufficient
to support a conviction after trial, we consider "the facts in the
light most favorable to the verdict." United States v. Poulin, 631
F.3d 17, 18 (1st Cir. 2011). We describe the facts relevant to
Baldwin's guilty plea and sentence. We recount the relevant facts
from Gladys's trial in the light most favorable to the jury's
verdict.
A. Facts Relevant to Baldwin's Guilty Plea and Sentence
Baldwin was born in Nigeria in 1953 and immigrated to the
United States, became a U.S. citizen, and obtained his pharmacist's
license in Massachusetts. He owned and operated Meetinghouse
Community Pharmacy ("Meetinghouse"), a building containing a
pharmacy in Dorchester, from 1994 to 2008.
1. Baldwin's Agreements with Global Access Group and
Golden Island Investment
Between September 2006 and November 2008, Meetinghouse
filled thousands of online drug orders for several Internet
pharmacy operations, including two located in the Dominican
Republic: Global Access Group ("Global Access") and Golden Island
-4-
Investment ("Golden Island"). Baldwin conspired with Jack Palasy
and Tony Reyes as to Global Access, and Reyes and others as to
Golden Island, to distribute controlled and non-controlled
substances to persons who ordered them online by filling out
questionnaires via these Internet pharmacies. The pharmacies
provided drugs without valid prescriptions.
Under federal Drug Enforcement Administration
regulations, prescriptions for controlled substances are not
effective unless "issued for a legitimate medical purpose by an
individual practitioner acting in the usual course of his
professional practice." 21 C.F.R. § 1306.04(a). A pharmacist has
a corresponding responsibility for the proper dispensing of
controlled substances. Issuing prescriptions based solely on
online questionnaires falls outside the usual course of medical
practice, making such prescriptions invalid. See United States v.
Lovern, 590 F.3d 1095, 1101 (10th Cir. 2009) (collecting cases).
As to penalties, a "person knowingly filling such a
purported prescription . . . shall be subject to the penalties
provided for violations of the provisions of law relating to
controlled substances." 21 C.F.R. § 1306.04(a). These provisions
of law make it "unlawful for any person knowingly or intentionally
. . . to manufacture, distribute, or dispense, or possess with
intent to manufacture, distribute, or dispense, a controlled
substance." 21 U.S.C. § 841(a)(1). For offenses, such as
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Baldwin's, involving "any controlled substance in schedule III,
such person shall be sentenced to a term of imprisonment of not
more than 10 years." Id. § 841(b)(1)(E)(i).
Baldwin dispensed both controlled substances and non-
controlled substances based on Internet orders. With respect to a
drug, whether controlled or non-controlled, which is "not safe for
use except under the supervision of a practitioner licensed by law
to administer such drug," the act of dispensing a drug without a
valid prescription "shall be deemed to be an act which results in
the drug being misbranded while held for sale" under 21 U.S.C.
§ 353(b)(1). Section 331(a) prohibits "[t]he introduction or
delivery for introduction into interstate commerce of any . . .
drug . . . that is adulterated or misbranded." If any person
"commits such a violation with the intent to defraud or mislead,
such person shall be imprisoned for not more than three years."
Id. § 333(a)(2).
2. The Internet Pharmacies' Operations
To purchase drugs by way of Global Access or Golden
Island, customers would go to Internet pharmacy websites operated
by Global Access or Golden Island and enter their names, addresses,
and credit card information, and answer a limited online
questionnaire.1 Each website's operator would then either (1)
1
This questionnaire asked for information such as age,
weight, height, medical allergies, other medications being taken,
and whether the customer was pregnant.
-6-
forward this information to doctors who would, without seeing the
customer, approve the orders for a fee, or (2) use the names and
electronic signatures of a doctor or doctors to indicate approval
of the orders, even though the approval was without these doctors'
authorization.2 Customers submitting orders to Global Access and
Golden Island were not seen by and had no interaction with the
doctors who purportedly approved their orders.
The "approved" orders were then sent to pharmacies,
including Meetinghouse, for the prescription drugs to be dispensed.
For each customer, Meetinghouse would download from the Global
Access and Golden Island websites: (1) a mailing label; (2) a drug
information label; and (3) a drug order that would remain with the
pharmacy. The drug information labels included the name of the
dispensing pharmacy and of the physician who had purportedly
prescribed the drug. Once the pharmacy filled the vials for an
order, it would affix the drug information labels to the vials and
place the vials in an express mail package along with an insert
concerning the medication that was provided by Global Access or
2
At Baldwin's change-of-plea hearing, he conceded that he had
constructive knowledge "that it was highly, highly unlikely that a
doctor who . . . is a legitimate doctor in one state could
prescribe drugs in 50 states," and that doctors "were not actually
visiting with or seeing the patients for whom they were making the
prescriptions." He denied having constructive or actual knowledge
that "doctors' identities [were] being used where the doctors
themselves were not signing off" on prescriptions for Global Access
and Golden Island.
-7-
Golden Island. The pharmacy would then attach the mailing label
and send the package to the customer.
Many customers of online pharmacies could not obtain
these medications by valid prescriptions and so choose these
pharmacies. Many of Meetinghouse's Internet customers had drug
addictions that were exacerbated by the easy availability of
prescription drugs that could be purchased via the Internet without
valid prescriptions from a physician.
At Meetinghouse, Baldwin, three regular employees, and
several temporary employees dispensed and distributed prescription
drugs for Global Access and Golden Island customers. Baldwin
exercised decision-making authority over how drug orders would be
filled and how much Meetinghouse would accept from the Internet
pharmacies for dispensing drugs. The drugs Meetinghouse shipped to
customers were not adulterated or counterfeit and were chemically
consistent with the substances that they purported to be.
Meetinghouse purchased the drugs wholesale from manufacturers, and
received both a dispensing fee from Global Access and Golden Island
of between $5.25 and $30 per order, and reimbursement for the cost
of the drugs prescribed.
3. The Scale of Meetinghouse's Internet Operations
At the height of Meetinghouse's Internet operations, it
filled twenty-five percent of its prescriptions for walk-in
customers, while seventy-five percent of its drug orders were for
-8-
Internet pharmacies. According to Meetinghouse's records, it
dispensed over a million pills to Global Access and Golden Island
customers -- including more than 900,000 pills of Schedule III or
Schedule IV controlled substances -- and about 3.4 million pills to
Internet customers in general.
To pay the Ihenachos for dispensing drugs pursuant to
online orders, Global Access wired $1,883,950 to Meetinghouse bank
accounts and Golden Island wired $311,221.27 into accounts
registered to Meetinghouse or to Gladys. These wire payments
originated in the Dominican Republic. Three other Internet
pharmacies, for whose activities the Ihenachos were not charged but
which constituted relevant conduct, wired $1,039,677.63 to Baldwin,
Baldwin's brother in Nigeria (upon the Ihenachos' instructions),
and Meetinghouse as payment for filling online orders for
controlled and non-controlled substances. The Ihenachos or their
designees thus received $3,234,848.90 in total from all of the
Internet pharmacy operations with which they were involved.3
When several banks closed bank accounts registered to the
Ihenachos or Meetinghouse because of suspicious activity, the
Ihenachos opened new accounts at different banks and instructed
their co-conspirators at Internet pharmacy operations to structure
transfers of money so as to attract less attention from the banks.
3
Baldwin emphasized at his plea hearing that "the lion's
share of this money is money that's actually used to buy the
pharmaceuticals that are then dispensed."
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4. Baldwin's Knowledge of the Illegality of the
Operations of Global Access and Golden Island
Baldwin was aware that the drugs that Meetinghouse
dispensed for Global Access and Golden Island were being sold via
the Internet. Indeed, Baldwin and his employees logged onto the
Global Access and Golden Island websites to download orders for
customers.
While Baldwin raised some questions about the legitimacy
of the operations, he continued to fill prescriptions. In
September 2006, Baldwin noted in an email to Palasy the fact that
only one doctor appeared to be approving orders for all of Global
Access's customers "no matter [in] which state the patient is
located," and that this violated federal law unless "this doctor is
registered in all USA states." He nonetheless continued to fill
prescriptions. In a November 2006 email to Palasy, Baldwin stated
that he had been informed by "the DEA [Drug Enforcement
Administration] and the Massachusetts Board of Pharmacy . . . that
Internet prescription is illegal" because "[t]here is no doctor
patient contact." Baldwin continued asking Palasy questions about
Global Access's operations until the spring of 2007, but then
ceased questioning Palasy while continuing to dispense drugs for
Global Access. Baldwin made no attempt to verify that the
prescriptions Meetinghouse was filling for Global Access and Golden
Island were valid.
-10-
Between the summer of 2007 and the summer of 2008,
Baldwin received letters from the DEA and the states of New
Hampshire, Arkansas, Missouri, and Utah, each of which warned him
that Internet pharmacy operations were illegal. Baldwin also
received a letter from individuals in Hawaii stating that they were
going to report him to the Attorney General of Massachusetts for
his Internet pharmacy activities. Baldwin ordered his employees at
Meetinghouse to stop shipping to all six of these states, but only
those states. He otherwise continued filling Internet orders for
controlled substances for Global Access and Golden Island even
after receiving these letters.
B. Additional Facts Relevant to Gladys's Convictions
Gladys, born in 1966, is also a native of Nigeria. She
married Baldwin in 1984, immigrated to the United States, obtained
a nursing license, and became a U.S. citizen.
1. Golden Island's Operations
At Gladys's trial, the government presented evidence as
to the Internet pharmacy operations of Global Access, Golden
Island, and Meetinghouse that mirrored the information presented in
Baldwin's guilty plea hearing, PSR, and sentencing hearing.
Because Gladys was ultimately only convicted of offenses involving
Golden Island (and not those involving Global Access), we focus on
that evidence.
-11-
Tony Reyes was the CEO of Golden Island Investments, and
Golden Island ran a website through which customers could order
prescription drugs without interacting with or being examined by a
physician. Every Golden Island prescription had purportedly been
approved by the same physician: a Dr. Naomi Burr. However, Dr.
Burr testified at trial that she had never worked for Golden
Island, approved prescriptions for Golden Island, or examined
Golden Island customers.
2. The Agreement Among Baldwin, Gladys, and Reyes
The government introduced an email from Baldwin, and
referring to Gladys, which described Meetinghouse's agreement with
Golden Island:
You see, Tony had told me even before he left Jack
[Palasy] that he wanted to open his own business and that
he wanted my help in buying and shipping orders for him.
. . . In fact, I told Tony that I will get back to him
because I needed to consult with my partner in this
business, my wife who owns 60 percent of the shares of
our pharmacy. I did not get back to Tony and I did it on
purpose because I wanted to see how serious he was. He
more like called me everyday regarding this issue. I
eventually spoke with my wife who vehemently refused to
do anything with anyone who knows Jack Palasy.[4] I did
my best to convince her that it is not fair to prejudge
anyone or get the impression that because A and B are
related, therefore, if A is bad then B must be bad. I
put up a good argument and eventually convinced my wife.
Meanwhile, Tony kept calling and in several of our
conversations, he said to me: I am not Jack, and I will
never treat you the same way Jack treated you. Just ship
4
There was evidence that Gladys was upset with Palasy because
he sometimes failed to pay Meetinghouse for dispensing and shipping
Global Access's Internet drug orders.
-12-
30 orders per day for me, and I will pay you $55 per
order.
Meetinghouse dispensed and shipped hundreds of packages of
prescription drugs on behalf of Golden Island.
3. Gladys's Management and Ownership of Meetinghouse
and Involvement in its Internet Operations
Gladys incorporated and opened Meetinghouse with Baldwin
in 1994. At that time, she owned a 50% stake in the corporation
and was listed on its articles of incorporation as treasurer and
co-director. Gladys later increased her ownership of Meetinghouse
to 60%. Though Gladys relinquished her position as an officer of
Meetinghouse in 2001, she continued to present herself as an
officer in corporate resolutions and signature cards for
Meetinghouse bank accounts.
Gladys was involved in Meetinghouse operations before it
began dispensing drugs through online orders. She sometimes signed
employee paychecks, and was in charge of the pharmacy when Baldwin
traveled overseas. Baldwin traveled overseas on several occasions,
including to Nigeria, between September 2006 and November 2008.
Once Meetinghouse began filling Internet orders in 2005, Gladys's
involvement in its operations increased. She visited Meetinghouse
more frequently, called to make sure Internet prescriptions had
been filled, and told employees not to ship Internet prescriptions
to certain people or states. She also counted pills and put them
in vials to fill Internet orders.
-13-
Gladys had a prominent role in managing Meetinghouse's
Internet business, including its operations for Golden Island.
Between late August and early October 2008, Gladys sent four
different emails to Reyes concerning Golden Island in which she
complained that wire payments to Meetinghouse had been delayed,
demanded that more payments be made, and threatened to delay
shipment of orders if payments were not received.
Moreover, in emails to Reyes concerning Golden Island,
Baldwin referred to Gladys as his "partner in this business." He
explained that in his absence she would "run the financial aspects
of my business as well as helping out with making sure that your
orders are filled and shipped." Baldwin instructed Reyes that
Golden Island payments should be sent both to Gladys's account and
Baldwin's business account.
Between 2006 and 2008, Golden Island wired a total of
$311,221.27 into accounts held by Meetinghouse, Baldwin, and
Gladys, including $10,000 wired directly into Gladys's personal
account on September 19, 2008. Between October 2006 and October
2008, Gladys personally received $272,795 from Meetinghouse
accounts and receipts.
4. Gladys's Receipt of the Missouri Warning
As said, several states sent warnings to Meetinghouse
stating that Internet pharmacy operations were illegal. These
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included an August 12, 2008 cease and desist warning from the
Missouri Board of Pharmacy, which said:
The Missouri Board of Pharmacy is in receipt of an
investigation report involving Meeting House Community
Pharmacy, 248 Bowdoin Street, Dorchester, MA 02122, based
on a Missouri consumer's on-line purchase of a
prescription drug via the Internet. Specifically, a
Missouri consumer completed a patient questionnaire on
the "www.pillsless.net" website, and subsequently
received #90 Carisoprodol 350 mg. The prescription label
and enclosed receipt showed the prescription was
dispensed by Meeting House Community Pharmacy, 248
Bowdoin Street, Dorchester, MA 02122.
. . .
Meeting House Community Pharmacy is, or was, actively
engaged in a continuing course of conduct whereby
prescription drug orders ("prescriptions") are dispensed
based solely on an on-line questionnaire, with no
physician-patient relationship. There was no physical
evaluation of the individual seeking the drug product,
nor was there any direct communication between that
individual and the prescriber.
The pharmacist-in-charge of the pharmacy and/or owner of
the pharmacy knew or should have known that prescriptions
obtained in this manner are not created pursuant to a
valid prescriber/patient relationship. Therefore, such
prescriptions are invalid.
Baldwin was traveling when Meetinghouse received the
Missouri cease and desist warning. Gladys was informed that the
warning letter had arrived, and came and picked it up from the
pharmacy. On the envelope in which the Missouri warning was
enclosed, Gladys wrote the following5:
5
At trial, the government surmised in its closing argument
that Gladys had written these notes during a phone conversation
with Baldwin.
-15-
Communicate to the sender of this letter to inform that
pharmacist not available until next wk tuesday so they
can note & give more time to respond to letter
. . .
(1) which state DR writes from
(2) Contact Matt or Paul or Tom & fax letter to them
(3) Have all displayed medicines for online & put them
away[;] Can display Motrin antibiotics on
counter[;] Put away all the on line meds out of
site [sic]
(4) Pack box all rejected envelops [sic] & label for
credit send down stairs
Gladys wrote to the Missouri Board of Pharmacy on August 18, 2008,
asking for an extension of time to respond to the warning. On
August 20, 2008, Baldwin sent a letter to the Board stating that he
had "immediately ceased any kind of pharmacy practice to any
Missouri resident what so ever."
Until November 2008, Meetinghouse continued to ship
orders for Internet pharmacies to states as to which it had not
received warning letters. In particular, Meetinghouse sent
prescription medications to five Golden Island customers in
September 2008. After receiving the warning letter from the
Missouri Board of Pharmacy, Gladys sent emails to Reyes demanding
payment from Golden Island, and received a wire payment of $10,000
from Golden Island.
-16-
II.
On March 31, 2011, a grand jury returned a third
superseding indictment against Baldwin, Gladys, and five other
defendants. With respect to Global Access, Baldwin and Gladys were
charged with: one count of conspiracy to misbrand drugs, in
violation of 18 U.S.C. § 371; and five counts of misbranding drugs,
in violation of 21 U.S.C. §§ 331(k), 333(a)(2), and 353(b)(1).
With respect to Global Access and Golden Island, Baldwin and Gladys
were charged with the following counts for each Internet operation:
one count of conspiracy to distribute and dispense controlled
substances, in violation of 21 U.S.C. § 846; five counts of
distributing and dispensing controlled substances, in violation of
21 U.S.C. § 841(a)(1); one count of conspiracy to commit
international money laundering, in violation of 18 U.S.C.
§ 1956(h); and five counts of international money laundering, in
violation of 18 U.S.C. § 1956(a)(2). Gladys and Baldwin were also
charged with one count of engaging in a continuing criminal
enterprise, in violation of 21 U.S.C. § 848.
A. Baldwin's Guilty Plea and Sentence
On August 18, 2011, Baldwin pled guilty to all charges
except for the count of conducting a continuing criminal
enterprise. At Baldwin's sentencing, the court applied an 18-level
enhancement for fraud to Baldwin's base offense level, using the
"gross figure" for the revenues Baldwin received from his offenses
-17-
rather than "adjust[ing] to reflect . . . the cost of doing
business." Baldwin challenged whether the fraud guideline was
applicable to his offenses at all, and if so whether gross revenues
were an appropriate basis for applying the guideline, but the court
rejected his objections. The court applied two more enhancements
urged by the government and rejected two other proposed
enhancements. It applied a two-level adjustment downward for
acceptance of responsibility, and stated that it was "puzzled by
the government's insistence that the one point additional
adjustment downward for acceptance of responsibility not be
awarded."
The court then pronounced sentence:
So if I applied my calculation to the Guidelines, they
actually come out pretty much where I would come out
under 3553(a); that is, a sentencing range based on an
offense level adjusted, as I see it, of 26, which would
counsel a 63- to 78-month sentence.
I cannot award the additional point, which I otherwise
would have, for acceptance of responsibility, but I can
sentence at the lowest end of the guideline range, and
that is the sentence I am going to impose; that is, a
sentence of 63 months.
Baldwin timely appealed the court's judgment.
B. Gladys's Trial, Conviction, and Sentence
Following a fourteen-day trial, a jury convicted Gladys
of one count of conspiracy to distribute, dispense, and possess
with the intent to distribute controlled substances; five counts of
distributing and dispensing controlled substances; one count of
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conspiracy to commit international money laundering; and one count
of international money laundering. Each of these counts concerned
the Golden Island Internet pharmacy and involved offenses that took
place at least in part after August 2008, when Gladys received the
Missouri warning letter. The jury found Gladys not guilty of all
the remaining counts, which concerned the other Internet pharmacy,
Global Access.6 Gladys filed a post-trial motion for acquittal or,
in the alternative, for a new trial, which the district court
denied.
The court sentenced Gladys to 30 days of confinement --
with 20 days deemed served and the remaining 10 days to be
satisfied by home detention -- and 3 years of probation. Gladys
timely appealed the judgment of conviction. She does not appeal
from her sentence.
III.
Baldwin challenges his sentence on two separate grounds:
(1) the district court should not have sentenced him under the
fraud guideline, and (2) the court erred in determining the amount
of loss for purposes of the fraud guideline.
6
At the close of the government's evidence, the district
court granted Gladys's motion for acquittal on the count of
conducting a continuing criminal enterprise.
-19-
A. Application of the Fraud Guideline
We review the court's interpretation and application of
the Guidelines de novo. United States v. Innarelli, 524 F.3d 286,
290 (1st Cir. 2008). Baldwin concedes that the fraud guideline,
U.S.S.G § 2B1.1, "applied as a technical matter" to his case, but
argues that the court erred in applying the guideline because his
case was "never about fraud." He is wrong.
Baldwin pled guilty to violations of 21 U.S.C. §§ 331(k)
and 333(a)(2). Appendix A to the U.S. Sentencing Guidelines
prescribes that the appropriate guideline for these offenses is
either U.S.S.G. §§ 2N2.1 or 2B1.1. In turn, § 2N2.1 provides that
"[i]f the offense involved fraud, apply § 2B1.1." U.S.S.G.
§ 1B1.2(a) states that a court should "[d]etermine the offense
guideline section in Chapter Two (Offense Conduct) applicable to
the offense of conviction (i.e., the offense conduct charged in the
count of the indictment or information of which the defendant was
convicted)."
As we explained in United States v. Almeida, 710 F.3d 437(1st Cir. 2013), "where the guidelines specify more than one
offense guideline for a particular statutory offense and no plea
agreement stipulates to a more serious offense, the district court
must select the most appropriate guideline based only on conduct
charged in the indictment," id. at 438. We reject Baldwin's
assertion that the court should have ignored the indictment and
-20-
instead focused on his version of "the facts of the case" in
selecting the applicable guideline. The third superseding
indictment charged that Baldwin, "with intent to defraud and
mislead, misbranded drugs while held for sale after shipment in
interstate commerce, and caused the misbranding of drugs while held
for sale after shipment in interstate commerce" (emphasis added).
The district court did not err in applying U.S.S.G. § 2B1.1 based
on the conduct charged in the indictment.
B. Calculating Loss for Purposes of the Fraud Guideline
Baldwin next argues that the district court erred in (1)
finding that his offenses had caused a "loss" within the meaning of
U.S.S.G. § 2B1.1(b)(1), and (2) calculating the amount of this loss
based on Meetinghouse's gross receipts from the Internet pharmacy
operations. We review the court's findings of fact at sentencing,
including its calculation of the amount of loss, for clear error,
Innarelli, 524 F.3d at 290, but review the court's definition of
"loss" and its determination of the appropriate method for
calculating loss de novo, United States v. Antonakopoulos, 399 F.3d
68, 82 (1st Cir. 2005).
1. Determining That Victims Suffered a Loss
U.S.S.G. § 2B1.1(b)(1) provides that a defendant's
offense level should be increased based on the amount of loss.
Baldwin argues that the government failed to show that his victims
-- the customers to whom Meetinghouse dispensed drugs pursuant to
-21-
Internet orders -- suffered any loss, since the drugs dispensed
were not counterfeit and his customers did not expect the drugs to
be dispensed pursuant to a valid prescription.
We reject this argument, as have other courts. The
victims did suffer a loss. Meetinghouse dispensed drugs to
Internet customers in vials with labels bearing the name of a
licensed pharmacy -- i.e., Meetinghouse -- and the name of the
purported prescribing physician, along with inserts concerning the
medication. From the face of it, the consumers had received
entirely legally prescribed drugs. But in fact, they had not. See
United States v. Bhutani, 266 F.3d 661, 670 (7th Cir. 2001)
("[T]here was indeed loss to consumers because consumers bought
drugs under the false belief that they were in full compliance with
the law."); see also United States v. Chatterji, 46 F.3d 1336, 1342
(4th Cir. 1995) (explaining that "[w]e have little doubt that
economic loss would exist" where "a drug . . . is something less
than it is represented to be").
In addition, from the record and the PSR, it is clear
that many of these transactions would never have taken place in the
absence of the fraud because the patients could not and would not
have received a prescription had they seen a legitimate physician.
The government sent out potential victim letters to 21,122 separate
Meetinghouse customers. Responding victims or family members
reported that many victims had histories of drug addiction which
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had been made worse by the ease with which they could order drugs
from Internet pharmacies. The PSR took the position that Internet
"pharmacies lack quality assurance and accountability and their
products pose a serious danger to the buyers/customers, who are
often addicted to the medications they seek and for which they
could not obtain a valid prescription." The government took the
same position in its sentencing memorandum.
2. Determining the Loss Amount
The PSR took the position that the loss could be
reasonably determined and that it was the $3.2 million paid to the
Ihenachos by Internet pharmacies, without a discount for the sums
defendants paid to drug wholesalers to procure the drugs. It also
noted that if "gain" to the defendant were used, the sum would be
less (and the guidelines range less).
Application Note 3(B) to U.S.S.G. § 2B1.1 states that
"[t]he court shall use the gain that resulted from the offense as
an alternative measure of loss only if there is a loss but it
reasonably cannot be determined" (emphasis added). There was no
-23-
discussion of use of loss versus gain at the sentencing hearing.7
The court held that:
I do agree with Probation that the gross figure is the
appropriate figure, rather than one adjusted to reflect,
as we would if this were a tax issue, the cost of doing
business. And I say that in the sense that all of the
sales were fraudulent, at least insofar as the drugs that
were distributed that were represented to be lawfully
branded and lawfully distributed, when the defendant knew
well that they were not, knew that that was not the case.
We read this as an acceptance of the PSR's loss determination,
based on all sales being fraudulent.
Baldwin argues that "it is possible the district court
used a calculation of Ihenacho's purported 'gain' as a surrogate
for 'loss,'" and that "the district court erred by treating
Ihenacho's gross receipts rather than his net profits as the
measure of 'gain.'"8 The difference in figures affects which
7
After sentencing, defense counsel stated:
If you apply the fraud guideline, by virtue of the cross-
reference in 2N2.1, and you go back to 2B1.1, you have
applied an 18-point enhancement by virtue of a gain in
excess of $3 million. Passing for the moment even on
whether or not -- whether that's appropriate, which I
think that's an inappropriate measure of gain as a matter
of law, you don't get to gain -- you can't use gain under
2B1.1 --
The court, in response, stated that it had made its decision.
8
The cost of ordering drugs from wholesalers is the only cost
Baldwin seeks to have deducted from the gross receipts. He asserts
that using this method, his profits were between $557,951.80 and
$948,360. The government asserted before the district court that
the proper amount of Baldwin's profits was actually $1.2 million.
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guidelines range is applicable.9 As said, the court did not
purport to use gain. The fact that the court used gross receipts
does not itself mean the court used gain.
The government defends on two grounds. The first is that
there was no clear error in the district court's use of a loss
figure of the $3.2 million the Ihenachos received, by way of the
Internet pharmacies, from the customers whose prescriptions their
pharmacy had filled. See Innarelli, 524 F.3d at 290. The court
need only make a reasonable estimate of the loss. U.S.S.G. § 2B1.1
cmt. n.3(C).
The second argument is that even if the court used "gain"
to the defendant as the measure, the $3.2 million may be thought to
be the appropriate gain. That line of argument is, of course,
undercut by the statement in the PSR that if gain were used it
would be less than the loss. We have no need to reach the
argument.
The Guidelines say, at Application Note 3(A)(i) to
U.S.S.G. § 2B1.1, that "loss is the greater of actual loss or
intended loss," and that "'[a]ctual loss' means the reasonably
9
If we accept that profits and not gross receipts are the
proper measure of loss in this case and use Baldwin's calculations,
a 14-level enhancement should have applied under U.S.S.G.
§ 2B1.1(b)(1), leaving Baldwin with a sentencing range of 41 to 51
months. Using profits and the government's calculation, a 16-level
enhancement would have applied under § 2B1.1(b)(1) and Baldwin's
sentencing range would have been 51 to 63 months.
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foreseeable pecuniary harm that resulted from the offense."10 We
have endorsed a pragmatic, fact-specific approach, stating that
"loss should be calculated using the entire price paid for the
product, unreduced by any offsetting value," if "the product
misrepresented by the defendant is worthless." United States v.
Gonzalez-Alvarez, 277 F.3d 73, 77 (1st Cir. 2002) (applying
U.S.S.G. § 2F1.1, the former fraud guideline).
Following on this theme of worthlessness, the government
cites to cases which involve goods or services that were determined
to have no value. See United States v. Byors, 586 F.3d 222, 226
(2d Cir. 2009) (in investment fraud case, deducting defendant's
costs inappropriate where his "expenditures, legitimate or not,
conferred nothing of value and no benefit on his victims, who were
10
Application Note 3(F) to U.S.S.G. § 2B1.1 provides, in
relevant part, as follows:
(v) Certain Other Unlawful Misrepresentation Schemes.
-- In a case involving a scheme in which (I)
services were fraudulently rendered to the victim
by persons falsely posing as licensed
professionals; (II) goods were falsely represented
as approved by a governmental regulatory agency; or
(III) goods for which regulatory approval by a
government agency was required but not obtained, or
was obtained by fraud, 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.
The government refers to this but does not argue to us, and did not
argue before the district court, that Baldwin's offenses involved
any of these schemes. We do not reach the issue of whether this
application note applies to these facts.
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his investors and creditors"); United States v. Milstein, 401 F.3d
53, 74 (2d Cir. 2005) (per curiam) ("The district court may
permissibly reason that contaminated medicine is worthless to the
consumer."); United States v. Schaefer, 291 F.3d 932, 944 (7th Cir.
2002) (defendant entitled to no credit for value of misrepresented
artwork where "the frame and matting surrounding counterfeit or
misrepresented cheap cels have no market value other than scrap
value"); Gonzalez-Alvarez, 277 F.3d at 78 (where milk had been
adulterated by adding contaminated ground water and salt, "the
value of the milk . . . was zero as a matter of law"); United
States v. Marcus, 82 F.3d 606, 610 (4th Cir. 1996) (drug worthless
where its formula had been altered, potentially "affect[ing] the
bioequivalence or therapeutic value of the drug," "[g]iven the
unchallenged finding that consumers would not purchase a drug of
unknown safety and efficacy at any price").
The issue is complex because the victims of the scheme
got exactly what they wanted -- prescription drugs for which they
had not received proper prescriptions. They were complicit in the
fraud and, in that sense, the drugs were not worthless to them.
Nonetheless, we find the loss calculation to be reasonable for two
interrelated reasons.
To the extent that the drugs had value at all in this
context, it was quite limited. There is the dangerous and harmful
nature of medications dispensed without valid prescriptions. There
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is no reason to think these vials of drugs with labels had an
after-sale retail value.
Moreover, it is reasonable to think that, but for the
existence of these Internet pharmacies allowing customers to obtain
drugs without valid prescriptions, these payments (or most of them)
would not have been made at all. Many of Meetinghouse's customers
online could not have gotten prescriptions for these drugs
otherwise. Many had histories of drug addiction. Their abuse was
made easier and more serious due to the easy availability of
prescription drugs that could be purchased via the Internet without
a valid prescription from a physician. At least some of
Meetinghouse's Internet customers had been unable to obtain valid
prescriptions from their physicians for the drugs they ordered. In
general, many customers of Internet pharmacies would be unable to
obtain valid prescriptions for the drugs they order. That being
so, it was reasonable for the district court to use the $3.2
million figure as a loss amount to determine the guidelines range.
See United States v. Munoz, 430 F.3d 1357, 1371 (11th Cir. 2005)
(court need not reduce loss amount by proportion of satisfied
customers where "the number of individual victims who were
satisfied was arguably difficult to determine").
IV.
Gladys challenges the sufficiency of the evidence
supporting her convictions for distributing controlled substances,
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conspiracy, and money laundering. We review a preserved challenge
to the sufficiency of evidence de novo, considering "whether any
rational factfinder could have found that the evidence presented at
trial, together with all reasonable inferences, viewed in the light
most favorable to the government, established each element of the
particular offense beyond a reasonable doubt." United States v.
Willson, 708 F.3d 47, 52 (1st Cir. 2013) (quoting Poulin, 631 F.3d
at 22) (internal quotation marks omitted).
A. The Sufficiency of the Evidence Supporting the
Convictions for the Substantive Distribution Offenses
The jury convicted Gladys of five counts relating to the
distribution of controlled substances to Golden Island customers on
five occasions in September 2008. Gladys argues that the evidence
was insufficient to show that she knew that Golden Island was
issuing invalid prescriptions for Meetinghouse to dispense, and
that she dispensed these prescriptions herself. To the contrary,
a reasonable jury could easily conclude the evidence was sufficient
on both points.
1. Gladys's Knowledge that the Golden Island
Prescriptions Were Invalid
The relevant statute, 21 U.S.C. § 841(a)(1), makes it
"unlawful for any person knowingly or intentionally . . . to
manufacture, distribute, or dispense, or possess with intent to
manufacture, distribute, or dispense, a controlled substance."
There was evidence sufficient to conclude that Gladys knew, at
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least by August 2008, that Golden Island's prescriptions filled by
Meetinghouse were not issued in the usual course of professional
practice.
Gladys played an important role in managing
Meetinghouse's operations. She was Meetinghouse's majority owner,
presented herself as an officer of the corporation, and Baldwin
referred to her as his "partner in this business." When Baldwin
was away, Gladys was in charge of Meetinghouse.
Gladys was aware that Meetinghouse was dispensing
prescriptions for Internet pharmacies, and participated in this
activity. A Meetinghouse employee specifically testified at trial
that Gladys "ma[d]e sure that we did the Internet prescriptions"
when Baldwin was away, issued "instructions about whether to ship
the Internet pharmacy packages as well as when not to ship them,"
and counted pills "[f]or the Internet" business. Gladys received
the warning letter from the Missouri Board of Pharmacy stating that
Meetinghouse was "engaged in a continuing course of conduct whereby
prescription drug orders . . . are dispensed based solely on an on-
line questionnaire," and in her handwritten notes regarding this
warning she specifically referred to the "medicine for online" and
"on line meds."
At least by the time Gladys received this warning in
August 2008, if not earlier, she knew that these Internet
prescriptions were invalid. The warning stated that "prescriptions
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obtained in this manner are not created pursuant to a valid
prescriber/patient relationship," so that "such prescriptions are
invalid." Gladys argues that this warning put her on notice only
that Meetinghouse could not dispense Internet prescriptions to
Missouri for the particular website identified in the warning,
www.pillsless.net. But in her notes, Gladys wrote that she needed
to "[h]ave all displayed medicines for online & put them away," and
to "[p]ut away all the on line meds out of site [sic]." A
reasonable jury could have concluded from these notes that Gladys
knew in August 2008 that all Internet prescriptions Meetinghouse
was filling were invalid and hence she had an interest in hiding
the evidence.
There was also ample evidence that Gladys was integrally
involved in and knew of the arrangements with Golden Island. In an
email, Baldwin stated that he "put up a good argument and
eventually convinced my wife" to work with Golden Island, and later
told Reyes that in his absence Gladys would "run the financial
aspects of my business as well as helping out with making sure that
your orders are filled and shipped." Beyond that, Gladys sent
emails to Reyes demanding that Golden Island wire payments to
Meetinghouse for shipments and threatening to delay shipments until
payment was received. Gladys knew that Meetinghouse was filling
Internet prescriptions for other online pharmacies, Meetinghouse
shipped hundreds of packages of prescription drugs on behalf of
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Golden Island, and Gladys came to Meetinghouse "[a]lmost everyday"
after its Internet business began.
2. Gladys's Commission of the Substantive Offense of
Distributing Controlled Substances
Gladys also argues that even if she knew that Golden
Island prescriptions were invalid, the government failed to prove
that she actually participated in transferring a controlled
substance to another person pursuant to these prescriptions.
"'[D]istribute' is defined broadly under § 841(a)(1)," United
States v. Cortés-Cabán, 691 F.3d 1, 17 (1st Cir. 2012), to include
"not only the transfer of physical possession, but also other acts
perpetrated in furtherance of a transfer or sale, such as arranging
or supervising the delivery, or negotiating for or receiving the
purchase price," id. at 19 (quoting United States v. Luster, 896
F.2d 1122, 1127 (8th Cir. 1990)) (internal quotation mark omitted).
After Gladys was put on explicit notice from the Missouri
letter that Internet prescriptions were invalid and that Golden
Island was issuing such prescriptions, her primary concern was
getting paid. She sent four emails to Reyes demanding that Golden
Island wire payments to Meetinghouse. Moreover, Meetinghouse sent
prescription medications to five Golden Island customers in
September 2008, and Golden Island wired $10,000 directly into
Gladys's personal account on September 19, 2008. This evidence,
together with the other evidence that Gladys managed shipment of
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Golden Island orders, supported the conclusion that Gladys
distributed controlled substances under § 841(a)(1).
B. The Sufficiency of the Evidence Supporting the Conviction
for Conspiracy to Distribute Controlled Substances
The jury convicted Gladys as well of conspiracy with
Reyes and Baldwin to fill invalid prescriptions for Golden Island
between October 2007 and October 2008. Gladys contends that the
government failed to prove either the existence of the Golden
Island conspiracy, or that she ever joined this conspiracy. "[T]o
sustain a conviction for conspiracy under 21 U.S.C. § 846, the
evidence must show that (1) a conspiracy existed, (2) the defendant
had knowledge of the conspiracy, and (3) the defendant knowingly
and voluntarily participated in the conspiracy." United States v.
Dellosantos, 649 F.3d 109, 116 (1st Cir. 2011). The government
presented evidence that Baldwin, Gladys, and Reyes agreed that
Meetinghouse would fill prescriptions for Golden Island, and that
Gladys participated in this conspiracy despite knowing that Golden
Island was issuing Internet prescriptions and that such
prescriptions were invalid.
C. The Sufficiency of the Evidence Supporting the
Convictions for the Money Laundering Offenses
The jury also convicted Gladys of conspiring with Baldwin
and Reyes to commit international money laundering between March
and October 2008, and of committing international money laundering
on September 19, 2008, by receiving a wire transfer of $10,000 from
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the Dominican Republic. Gladys argues that (1) because she did not
know the Golden Island prescriptions were invalid, she lacked the
mens rea needed to support these convictions, and (2) there was no
evidence that she was personally involved in the transfer that
formed the basis for the substantive conviction.
We have rejected the first argument. The government
presented evidence that (1) in late August 2008, Gladys demanded
that Reyes "send substantial money or I will stop [Baldwin] from
shippinh [sic]," and (2) on September 19, 2009, $10,000 was wired
from the Dominican Republic to Gladys's personal account. We
reject the latter argument, as well.
V.
We affirm the sentence of Baldwin Ihenacho and the
convictions of Gladys Ihenacho.
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