United States v. Cadden

United States Court of Appeals
For the First Circuit
Nos. 17-1694, 17-1712, 17-2062
UNITED STATES OF AMERICA,
Appellee, Cross-Appellant,
v.
BARRY J. CADDEN,
Defendant, Appellant, Cross-Appellee.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Barron, Stahl, and Lipez,
Circuit Judges.
Bruce A. Singal, with whom Michelle R. Peirce, Lauren E.
Dwyer, and Barrett & Singal, P.C. were on brief, for
appellant/cross-appellee.
David M. Lieberman, Attorney, Criminal Division, Appellate
Section, United States Department of Justice, with whom Andrew E.
Lelling, United States Attorney, Amanda P. Strachan, Assistant
United States Attorney, George P. Varghese, Assistant United
States Attorney, Brian A. Benczkowski, Assistant Attorney General,
and Matthew S. Miner, Deputy Assistant Attorney General, were on
brief, for appellee/cross-appellant.
July 9, 2020
BARRON, Circuit Judge. For years, the New England
Compounding Center ("NECC") was a growing pharmacy business
engaged in the practice of "compounding," which involves combining
drugs with other substances to produce specialized medications for
use by patients. In the fall of 2012, however, patients across
the country became seriously ill -- and many eventually died --
after receiving injections of NECC-compounded medications that had
been contaminated by fungi and bacteria. A federal criminal
investigation into NECC's compounding practices soon followed,
which then led to the convictions and punishments that are at issue
in the two related appeals that are now before us.
The first of these appeals is brought by Barry Cadden,
who was the founder and part-owner, as well as the president, of
NECC at the time that the company manufactured and distributed the
contaminated medications from its facilities in Framingham,
Massachusetts. He challenges his 2017 federal convictions in the
United States District Court for the District of Massachusetts for
one count of racketeering, see 18 U.S.C. § 1962(c); one count of
racketeering conspiracy, see id. § 1962(d); fifty-two counts of
mail fraud, see id. § 1341; and three counts of violating the
Federal Food, Drug, and Cosmetic Act, see 21 U.S.C. §§ 331(a),
333(a). He also challenges the $7.5 million forfeiture order that
the District Court imposed on him. The other appeal that we
address is brought by the government. It takes aim at both the
- 3 -
District Court's forfeiture order against Cadden and the 108-month
prison sentence that he received.
We affirm each of the convictions that Cadden challenges
on appeal. We vacate and remand his prison sentence due to the
errors that the government correctly points out that the District
Court made in calculating Cadden's recommended sentencing range
under the United States Sentencing Guidelines ("Guidelines"). We
also vacate and remand the forfeiture order in consequence of
separate errors that Cadden and the government, respectively,
identify in the way that the District Court determined the amount
of the forfeiture.
I.
For years, NECC produced large volumes of compounded
medications and sold them without incident to hospitals and other
medical facilities throughout the United States. In the early
fall of 2012, however, patients across the country started to fall
sick with fungal meningitis, spinal or paraspinal infections, and
other seemingly related illnesses. Over time, additional cases of
patients suffering from these illnesses arose throughout the
United States that seemed to be tied to the earlier ones.
A federal investigation into this unusual outbreak of
seemingly related illnesses ensued. It traced the outbreak's cause
to patients having been injected with a heavily contaminated
medication that NECC had compounded. That medication was
- 4 -
methylprednisolone acetate ("MPA"), which is a steroid that is
injected primarily into the backs or knees of patients to help
them to alleviate their pain.
At that point, federal investigators began looking into
NECC's compounding practices. The investigators discovered what
they determined were significant deficiencies in the clean room
where NECC had compounded the contaminated MPA as well as in other
aspects of NECC's operations. Among the deficiencies were apparent
violations of Chapter 797 of the "United States Pharmacopeia," or,
as it is otherwise known, "USP-797," which the Massachusetts
Pharmacy Board requires pharmacists to follow, see 247 Mass. Code
Regs. 901(3), and which regulates the compounding of "high-risk"
sterile medications like MPA. Such medications are so deemed due
to the nature of the harm that can befall patients who use them if
they have not been properly prepared. The investigation also
revealed that NECC had employed a pharmacy technician, Scott
Connolly, who did not have a license that the Massachusetts
Pharmacy Board required in order for him to be permitted to engage
in the compounding work that he performed for the company.
Based on the investigation, a federal grand jury
indicted Cadden on December 16, 2014, in the District of
Massachusetts for a broad range of criminal conduct. These charges
included fifty-three counts of mail fraud in violation of 18 U.S.C.
§ 1341, one count of racketeering in violation of 18 U.S.C.
- 5 -
§ 1962(c), one count of racketeering conspiracy in violation of 18
U.S.C. § 1962(d), one count of conspiracy to defraud the United
States in violation of 18 U.S.C. § 371, and forty-one counts of
Federal Food, Drug, and Cosmetic Act ("FDCA") violations, see 21
U.S.C. §§ 331(a), 333(a).
Many of the charges centered on fraudulent
representations that NECC representatives had allegedly made to
customers about the safety standards that the company followed in
compounding various medications -- including the contaminated MPA
-- that were shipped to customers between March 25, 2010, and
September 27, 2012. In particular, each of the fifty-three mail
fraud counts identified a specific shipment of compounded
medications that NECC sent to one of its customers after having
made inaccurate representations to that customer about the
standards NECC would adhere to in preparing those medications.
The racketeering and racketeering conspiracy charges,
too, were based on a "pattern of racketeering activity," 18 U.S.C.
1961(5), that centered on mail fraud, see id. § 1961(1)(B)
(defining mail fraud as a "racketeering activity"). The
racketeering offense itself alleged seventy-eight separate acts of
racketeering as part of that pattern, of which the lion's share
-- fifty-three acts -- were mail fraud acts that matched the
alleged mail fraud acts set forth in the corresponding counts that
charged Cadden with mail fraud as a stand-alone offense. The
- 6 -
racketeering conspiracy charge, moreover, alleged that Cadden
conspired with others to commit a racketeering violation involving
a pattern of racketeering activity consisting of predicate acts of
racketeering involving mail fraud, although it did not identify
any of those acts of mail fraud specifically.
Even though many of the charges against Cadden centered
on alleged misrepresentations about NECC's compounding practices
to its customers, the one for racketeering was not based only on
such allegations. And, as we will explain, a number of the issues
that Cadden raises on appeal concern the fact that the racketeering
charge alleged not only that Cadden's pattern of racketeering
activity involved fifty-three predicate acts of mail fraud but
also that it involved twenty-five predicate acts of second-degree
murder, which is itself a racketeering activity. See id.
§ 1961(1)(A). Each of these alleged predicate acts of second-
degree murder was associated with a death of a patient that
allegedly had been caused by that individual having been injected
with the contaminated MPA that NECC had compounded. (By the time
of Cadden's trial, 753 patients had been identified as having been
afflicted in the outbreak that had been traced to NECC's
contaminated MPA, of whom sixty-four had died in consequence of
having been injected with that medication.)
The indictment charged thirteen others along with Cadden
for their roles in alleged criminal conduct connected to NECC's
- 7 -
compounding operations. The District Court severed Cadden's
trial, however, from those for the others. Moreover, near the end
of Cadden's ten-week trial, the District Court dismissed one of
the stand-alone mail fraud counts that Cadden faced, as well as
the alleged predicate act of racketeering involving mail fraud
that corresponded to that stand-alone mail fraud count.
The jury ultimately found Cadden guilty of the
racketeering and racketeering conspiracy counts, all fifty-two of
the remaining stand-alone mail fraud counts, and three of the FDCA
violations, each of which related to the introduction of misbranded
drugs into interstate commerce. Cadden was found not guilty both
of conspiring to defraud the United States and of the other FDCA
counts. In a special verdict form, moreover, the jury indicated
that, with respect to the racketeering charge, it did not
unanimously find beyond a reasonable doubt any of the alleged
predicate acts of racketeering involving second-degree murder.
The special verdict form further indicated that the jury found
forty-seven of the fifty-two alleged predicate acts of
racketeering involving mail fraud, and thus it was on the basis of
those mail-fraud-based predicate acts of racketeering alone that
the jury's finding that there was a "pattern of racketeering
activity" depended.
The District Court entered judgments of conviction and
sentenced Cadden to a prison term that was at the very high end of
- 8 -
the range that it had calculated under the Guidelines: 108 months'
imprisonment. Based on Cadden's racketeering and racketeering
conspiracy convictions, the District Court also imposed a
forfeiture order on him in the amount of $7,545,501. Cadden's
appeal and the government's appeal followed.
II.
Cadden first takes aim at the sufficiency of the evidence
to support the allegations of mail fraud that underlie thirty of
his fifty-two stand-alone mail fraud convictions1 as well as his
two convictions for, respectively, racketeering2 and racketeering
1 The federal criminal statute outlining the crime of mail
fraud reads as follows:
Whoever, having devised or intending to devise any
scheme or artifice to defraud, or for obtaining money or
property by means of false or fraudulent pretenses,
representations, or promises . . . for the purpose of
executing such scheme or artifice or attempting so to
do, places in any post office or authorized depository
for mail matter, any matter or thing whatever to be sent
or delivered by the Postal Service, or deposits or causes
to be deposited any matter or thing whatever to be sent
or delivered by any private or commercial interstate
carrier, or takes or receives therefrom, any such matter
or thing, or knowingly causes to be delivered by mail or
such carrier according to the direction thereon, or at
the place at which it is directed to be delivered by the
person to whom it is addressed, any such matter or thing,
shall be fined under this title or imprisoned not more
than 20 years, or both.
18 U.S.C. § 1341.
2 The provision of the racketeering statute that Cadden was
alleged to have violated states that
- 9 -
conspiracy.3 In challenging these convictions on this ground,
Cadden zeroes in on whether the evidence sufficed to support, with
respect to any of these convictions, a finding beyond a reasonable
doubt that the alleged fraudulent representation by an NECC
representative on which each conviction depended in fact had been
made. In the alternative, he contends that the evidence did not
suffice to show that the representation -- even if made -- was
material, as it must have been for the government to prove the
alleged mail fraud. Thus, he contends on the basis of these
arguments that each of these convictions must be reversed.
We begin our analysis with the challenges that Cadden
brings to the stand-alone mail fraud convictions. We then turn to
the essentially identical challenges that Cadden makes to his
racketeering and racketeering conspiracy convictions. We find no
merit to any of them.
[i]t shall be unlawful for any person employed by or
associated with any enterprise engaged in, or the
activities of which affect, interstate or foreign
commerce, to conduct or participate, directly or
indirectly, in the conduct of such enterprise’s affairs
through a pattern of racketeering activity or collection
of unlawful debt.
18 U.S.C. § 1962(c).
3
The racketeering conspiracy statute states that "[i]t shall
be unlawful for any person to conspire to violate any of the
provisions of subsection (a), (b), or (c) of this section." 18
U.S.C. § 1962(d). Cadden was alleged to have conspired to violate
18 U.S.C. § 1962(c).
- 10 -
A.
For the thirty stand-alone mail fraud convictions at
issue, the government needed to prove beyond a reasonable doubt:
"(1) a scheme to defraud based on false pretenses; (2) [Cadden's]
knowing and willing participation in the scheme with the intent to
defraud; and (3) the use of interstate mail . . . communications
in furtherance of that scheme." United States v. Soto, 799 F.3d
68, 92 (1st Cir. 2015) (alteration in original) (quoting United
States v. Hebshie, 549 F.3d 30, 35 (1st Cir. 2008)); see also 18
U.S.C. § 1341.4 We start with the ten stand-alone mail fraud
convictions that concern, respectively, ten separate shipments of
cardioplegic solution that NECC had made between March 25, 2010,
and August 8, 2012, and that had been produced with the assistance
of the NECC pharmacy technician, Scott Connolly, who lacked a
license from the Massachusetts Board of Pharmacy that
Massachusetts law required him to have to engage in the work that
he performed for the company. We then address the twenty other
stand-alone mail fraud convictions that Cadden challenges. Each
of these convictions is for a count that rests on alleged
fraudulent representations concerning other shipments that NECC
4While the jury convicted Cadden on all fifty-two of the mail
fraud counts and found that he committed forty-seven of the
corresponding predicate acts, it did not find that he committed
five charged predicate acts of mail fraud relating to shipments of
expired drugs -- even though it found Cadden guilty of the five
mail fraud counts relating to those same shipments.
- 11 -
made to its customers between July 7, 2011, and September 27, 2012.
These convictions were premised on allegedly fraudulent
representations that NECC's representatives made to customers of
the company that have nothing to do with either Connolly's
involvement in the compounding process or technician licensure at
the company more generally. Instead, these convictions were
premised on alleged fraudulent representations about, among other
things, the company's compliance with USP-797.
1.
Cadden's challenges to each of the ten Connolly-related
convictions rest on the contention that the evidence in the record
does not suffice to show that NECC had falsely represented to the
customer that received any of the shipments associated with these
convictions that only licensed pharmacy technicians were involved
in compounding them. Cadden acknowledges that Connolly, who was
not licensed, helped in compounding the medications contained in
those shipments. But, he contends that there is no basis for
finding that each of the shipments had been distributed pursuant
to a scheme to defraud. That is so, he contends, because, by the
government's own account, the fraudulent scheme alleged in these
ten mail fraud counts involved as a necessary component the company
falsely representing to its customers that only licensed
technicians had been used in compounding its medications.
- 12 -
Our review of this preserved challenge is de novo. See
United States v. Diaz, 300 F.3d 66, 77 (1st Cir. 2002). In
undertaking this review, though, we must assess the record evidence
"in the light most favorable to the prosecution" and affirm so
long as the "body of proof, as a whole, has sufficient bite to
ground a reasoned conclusion that the government proved each of
the elements of the charged crime beyond a reasonable doubt."
United States v. Lara, 181 F.3d 183, 200 (1st Cir. 1999).
Cadden's sufficiency challenge plainly fails as to the
three Connolly-related convictions that were based on the
shipments of cardioplegic solution that NECC sent to Sunrise
Medical Center. The record includes the testimony of Wilson Chu,
the pharmacy director at Sunrise Medical Center. Chu testified
that NECC's use of an unlicensed pharmacy technician would have
been a "red flag" if he had known about it and his employer would
not have done business with NECC in consequence. The record also
includes Chu's testimony that communications from NECC led him to
"[d]efinitely" think that such technicians would be licensed while
working there. No more was needed to permit a juror reasonably to
find the allegedly fraudulent representations about technician
licensure on which these three convictions depend had been made.
Representatives of the customers who received the
shipments at issue in the seven remaining Connolly-related
convictions did not testify -- in the way that Chu had testified
- 13 -
with respect to the shipments to Sunrise Medical Center -- about
what NECC had represented to them about technician licensure. But,
we conclude, the circumstantial evidence in the record was strong
enough to make up for that evidentiary gap. We thus reject
Cadden's sufficiency challenges to these convictions, too.
Kenneth Boneau, a salesperson for NECC, testified that
the company was keenly aware in making its pitches to prospective
customers that they might be reluctant to purchase from a
compounding pharmacy like NECC, due in part to concerns about price
and in part to concerns about the need for every medication ordered
from NECC to be matched to a patient who would be receiving a
requested medication that the company would compound. Thus, Boneau
testified, an important part of NECC's pitch to its prospective
customers was that, as an outside pharmacy, it had a "commitment
to quality" that better ensured that the products that it produced
would not be contaminated than the hospitals or medical facilities
could ensure if they were to make such products on their own. In
fact, to that end, Boneau testified, NECC presented itself to
prospective customers as "the Rolls-Royce of compounding."
In addition, the government put forth evidence that
directly addressed the representations that the company made -- in
making this pitch about quality control -- to prospective customers
about pharmacy technician licensure. Here, the government's case
consisted not only of the testimony from Chu described above but
- 14 -
also of Boneau's testimony about a particular exhibit that the
government introduced at trial and in which he described the
exhibit as "our marketing material . . . for hospitals."
The cover page of that exhibit was labeled with the NECC
logo and the word "Hospital," and the material inside indicated
that it included a "Company Overview" of NECC. Boneau also
explained in his testimony that he personally "would bring" this
material with him on visits to potential customers and that, over
the course of his time working for NECC, he "[l]eft it behind . . .
probably hundreds of times." He further testified that while
"oftentimes" he left it at "an ophthalmology department or a pain
department within a hospital . . . most of the time" he left it at
a hospital's "inpatient pharmacy."
Significantly, this marketing material, as part of the
"Company Overview," made representations about the qualifications
of NECC's "Personnel." Those representations included the
statement that NECC's personnel included "Highly Specialized and
Extensively Trained Compounding Pharmacists and Certified
Technicians." (emphasis added).
The reference to the use of "Certified Technicians"
permitted the inference that those technicians, because they were
certified, would have had a license that a state pharmacy board
required them to have. Nor does Cadden dispute that the customers
who received the shipments on which these seven convictions
- 15 -
depended were "hospitals" within the meaning of Boneau's
testimony.
Thus, we conclude that a juror reasonably could find
that there was a sufficient circumstantial basis to draw the
inference that the allegedly fraudulent representations concerning
technician licensure had been made in each instance for these seven
convictions, notwithstanding the absence of direct evidence to
that effect. See United States v. Ridolfi, 768 F.3d 57, 61 (1st
Cir. 2014) (noting that a jury may make "reasonable, common sense
inferences drawn from the evidence"). Accordingly, Cadden's
sufficiency challenge to these seven Connolly-related convictions
for the stand-alone offense of mail fraud fails, just as it fails
as to the other three Connolly-related stand-alone mail fraud
convictions.
Cadden does separately contend that the evidence did not
suffice to show that any of the customers who received shipments
on which the ten Connolly-related convictions depend -- Sunrise
Medical Center included -- received the supposedly fraudulent
representation about technician licensure after NECC had hired
Connolly. But, Cadden identifies no evidence to indicate that,
once Connolly came on board, NECC, through any of its
representatives (including Cadden himself), corrected any prior
representation that licensed pharmacy technicians would be used
even though Connolly was not licensed. A juror reasonably could
- 16 -
find, therefore, that NECC's decision to produce and ship
medications compounded by someone who was not a licensed pharmacy
technician after the company had represented otherwise to its
customers itself constituted a use of the mails in furtherance of
a fraudulent scheme.
Finally, Cadden shifts his angle of attack and focuses
on what he contends is the lack of record evidence sufficient to
show that any of the misrepresentations concerning technician
licensure induced any customer to make a purchase from NECC. But,
there is no force to this contention, which takes aim at the
evidentiary support for the materiality element of mail fraud.
See United States v. Prieto, 812 F.3d 6, 13 (1st Cir. 2016) (noting
the existence of a materiality requirement).
To secure a mail fraud conviction, the government "need
not prove that the decisionmaker actually relied on the falsehood,"
so long as the falsehood that was made is a "material" one. Id.
(first quoting United States v. Appolon, 715 F.3d 362, 368 (1st
Cir. 2013)). To prove materiality, the government need only show
that the false statement "had 'a natural tendency to influence, or
[was] capable of influencing'" its target's decision. Id. (quoting
Appolon, 715 F.3d at 368); see also United States v. Berroa, 856
F.3d 141, 149-50 (1st Cir. 2017) (explaining that, under the mail
fraud statute, the defendant's fraud must be "the mechanism
- 17 -
naturally inducing" the victim to act (quoting Loughrin v. United
States, 573 U.S. 351, 363 (2014))).
Reviewing the sufficiency of the evidence of materiality
de novo, see United States v. Sebaggala, 256 F.3d 59, 63 (1st Cir.
2001), we find that the evidence sufficed here. Chu's testimony
about the importance of pharmacy technician licensure to his
hospital's purchasing decisions clearly permitted a reasonable
juror to find the materiality element satisfied as to the three
Connolly-related convictions that involved shipments of NECC
medications to Sunrise Medical Center. But, that same testimony
-- in combination with the emphasis placed on "Certified
Technicians" in the marketing materials that Boneau testified that
NECC routinely used to pitch its products to hospitals -- also
supported the reasonable inference that a representation about
pharmacy technician licensure would have mattered to such NECC
customers generally. Accordingly, we reject Cadden's materiality
challenge to these ten convictions.
2.
Having rejected Cadden's challenges to the ten Connelly-
related convictions, we now come to his challenges to the twenty
other stand-alone mail fraud convictions that he asks us to reverse
for insufficient evidence. Here, too, his contention is that the
- 18 -
evidence did not suffice to show that the fraudulent
representations on which they depended had been made.5
The government contends that our review is only for
plain error, but Cadden's reply below to the government's
opposition to the motion for judgment of acquittal raised these
same challenges. Thus, our review is de novo, although we still
must review the evidence in a verdict-friendly light. See Diaz,
300 F.3d at 77; Lara, 181 F.3d at 200.
The government identifies a range of allegedly
fraudulent representations for each of these twenty convictions
that it contends were adequately supported by the record evidence.
But, we need not focus on what the evidence showed as to whether
each of those allegedly fraudulent representations had been made.
It is enough, as we will explain, that the evidence sufficed to
support a juror finding that the allegedly fraudulent
representations concerning NECC's compliance with USP-797 had been
made. And that is because, as Cadden does not dispute, the mail
fraud count for each of these twenty convictions alleged that such
a representation had been made to the customer who received the
5
Cadden does not contest that the record evidence supportably
showed that each customer involved in the remaining twenty-two
mail fraud counts received a fraudulent representation. He limits
his challenge to the twenty counts he identifies because no
representatives from customers of shipments identified in these
counts testified at trial about the representations they received
from NECC.
- 19 -
shipments referenced in each of those counts. See United States
v. Gaw, 817 F.3d 1, 5 (1st Cir. 2016) (holding that where
"alternative, independently sufficient grounds" exist for
upholding a conviction, "adequate proof of one obviates any need
for proof of the other" and the conviction can be affirmed on one
ground alone (quoting United States v. Cruz–Arroyo, 461 F.3d 69,
73 (1st Cir. 2006))).
Specifically, the record shows that numerous NECC
salespersons testified that NECC touted the company's adherence to
the USP-797 standards in their communications with customers, and
that one salesperson, Boneau, even testified that USP-797
compliance was "a big selling point" for NECC that Cadden himself
had emphasized. In addition, the evidence contained NECC marketing
materials that highlighted the company's supposed compliance with
USP-797, and several NECC customers testified that they received
representations from marketing materials and company
representatives that indicated that NECC was following the
standards laid out in USP-797.
We thus reject Cadden's contention that the evidence
failed to suffice to permit a juror reasonably to find that a
fraudulent representation concerning USP-797 compliance had been
made to each of the customers, for each of the referenced
shipments, for these twenty stand-alone mail fraud convictions.
Instead, we conclude that the evidence sufficed to permit a juror
- 20 -
to draw such an inference in finding Cadden guilty of each of the
twenty counts on which these twenty convictions were based. See
Ridolfi, 768 F.3d at 61 (expressing approval of the jury's use of
"reasonable, common sense inferences drawn from the evidence").
Cadden does also contend that these twenty convictions
must be reversed because the evidence did not suffice to show that
the false representation about USP-797 compliance -- even if made
-- was material as to any of the shipments involved. But, here,
too, the record shows otherwise.
Many NECC customers testified that they relied on the
company's representations that it was producing quality products
that were USP-compliant, and the evidence made clear that such
representations were a "big selling point." We thus have no
trouble concluding that a juror reasonably could find that the
representations regarding USP-797 compliance had a natural
tendency to induce NECC's customers to purchase its products,
especially given that this particular safety standard applied to
those compounded medications that -- if prepared improperly --
posed such a risk of harm to patients.
B.
That leaves only Cadden's sufficiency challenges to his
racketeering and racketeering conspiracy convictions, insofar as
these challenges also take aim at whether there was adequate
evidence that the fraudulent representations on which these
- 21 -
convictions depended -- given that they were for a pattern of
racketeering activity based on mail fraud -- had been made. Cadden
does not contend, however, that the mail fraud alleged to support
these racketeering-related convictions is any different from the
mail fraud alleged to support the thirty stand-alone mail fraud
convictions that we have just addressed. Thus, because the only
arguments that Cadden makes to us as to why the evidence did not
suffice to support those allegations of mail fraud are without
merit, we must reject his sufficiency challenges to these two
convictions as well.
III.
Cadden has one last set of sufficiency challenges to his
convictions that we need to address. This set concerns only his
convictions for racketeering and racketeering conspiracy. As to
the racketeering conviction, Cadden contends that, even if the
evidence sufficed to support the predicate acts of racketeering
involving mail fraud that underlie it, it still must be reversed
because the evidence did not supportably show that those mail-
fraud-based predicate acts of racketeering, taken together, formed
a "pattern of racketeering activity." 18 U.S.C. § 1962(c). He
then further contends that this same weakness in the government's
case also renders his racketeering conspiracy conviction
insufficiently supported. But, we do not agree.
- 22 -
A.
For there to be a "pattern of racketeering activity"
there must be "at least two acts of racketeering activity." Id.
§ 1961(5). In addition, those predicate acts, each of which must
have occurred within ten years of one another, see id., (1) must
be "related" to each other, and (2) must "amount to or pose a
threat of continued criminal activity." H.J. Inc. v. Nw. Bell
Tel. Co., 492 U.S. 229, 239 (1989).
Cadden argues that the evidence did not suffice to show
that the predicate acts of racketeering that the jury found
satisfied, when considered together, either the "relatedness" or
the "continuity" requirements. He thus contends his racketeering
conviction must be reversed because the evidence did not suffice
to satisfy the "pattern" element of that racketeering offense.
We first address the proper standard of review. We then
consider, in turn, his contentions regarding what the record shows
about relatedness and continuity. We conclude, as we will explain,
that there is no merit to any of them.
1.
The government contends that our review is only for plain
error because Cadden failed to raise his "pattern of racketeering
activity"-based challenge that he now presents to us on appeal in
the motion for acquittal that he made below pursuant to Federal
Rule of Criminal Procedure 29. But, Cadden's post-verdict motion
- 23 -
for judgment of acquittal incorporated by reference his challenge
to "the lack of relatedness or continuity of the remaining isolated
mailings," which he had previously aired to the District Court in
his motion to dismiss each of these racketeering-related counts.
Our review of this challenge, therefore, is de novo, though, of
course, we still must consider the evidence in the light most
favorable to the verdict. See Diaz, 300 F.3d at 77; Lara, 181
F.3d at 200.
2.
We begin with Cadden's arguments about the insufficiency
of the evidence as to the relatedness requirement. The test for
showing relatedness, however, "is not a cumbersome one." Feinstein
v. Resolution Tr. Corp., 942 F.2d 34, 44 (1st Cir. 1991). It
merely requires "[a] showing that predicate acts 'have the same or
similar purposes, results, participants, victims, or methods of
commission, or otherwise are interrelated by distinguishing
characteristics and are not isolated events.'" Id. (quoting H.J.,
492 U.S. at 240). We conclude that the evidence sufficed to show
that test was met here.
Cadden argues otherwise, first, by pointing to what he
contends is an inconsistency in the state of mind of the defendant
that the government was required to prove for second-degree murder
compared to mail fraud. But, while it is true that the indictment
alleged both types of predicate acts of racketeering activity in
- 24 -
the racketeering charge, the special verdict form makes clear that
the jury did not rely on the alleged predicate acts of racketeering
activity based on second-degree murder to find the requisite
"pattern of racketeering activity." See United States v. Torres
Lopez, 851 F.2d 520, 523 (1st Cir. 1988) (using a special jury
form to determine which predicate acts the jury found for the
purposes of a federal racketeering conviction).
Thus, we do not see how the mere fact that predicate
acts of racketeering involving second-degree murder were alleged
bears on whether the evidence sufficed to satisfy the relatedness
test based on the predicate acts of racketeering involving mail
fraud that the jury actually found. Nor does Cadden develop any
argument as to how they might. As a result, the key question for
us concerns only whether the evidence sufficed to permit a juror
reasonably to find that the predicate acts of mail fraud that the
jury found were themselves related to one another.
Cadden contends that the evidence did not so suffice
because those predicate acts of mail fraud included both some that
were based on fraudulent representations about technician
licensure -- mirroring the mail fraud allegations set forth in the
ten Connolly-related, stand-alone mail fraud counts that we
earlier addressed -- and some based on fraudulent representations
that involved NECC's failure to produce these drugs in compliance
with USP-797. But, even if we assume that it would not be enough
- 25 -
for two or more of the predicate acts within one of these distinct
sets of predicate acts of mail fraud to be related to one another,
the argument that Cadden advances still lacks merit.
These predicate acts -- even though involving
fraudulent representations concerning technician licensure and
compliance with the USP -- all reflect the same crime (mail fraud),
the same category of victims (medical providers), the same purpose
(profit), similar fraudulent misrepresentations (claims of
compliance with regulatory schemes), similar methods of
communicating those representations (NECC marketing materials),
similar participants (employees of NECC), and the same method of
commission (medication sales through NECC). They also all occurred
within the same time frame. Thus, a juror reasonably could find
that they were related, despite their differences. See Feinstein,
942 F.2d at 44 (recognizing that predicate acts with the "same or
similar purposes, results, participants, victims, or methods of
commission" or that are "otherwise . . . interrelated by
distinguishing characteristics and . . . not isolated events" are
related (quoting H.J., 492 U.S. at 240)).
3.
We proceed, then, to consider Cadden's contention that
the evidence did not suffice to permit a juror reasonably to find
the continuity requirement met. Once again, though, we are not
persuaded.
- 26 -
The government may satisfy the continuity requirement by
demonstrating either closed-ended continuity, which refers to "a
closed period of repeated conduct," or open-ended continuity,
which encompasses "past conduct that by its nature projects into
the future with a threat of repetition." H.J., 492 U.S. at 241.
Cadden contends that the evidence did not suffice on either score.
But, even assuming that it did not suffice to show closed-ended
continuity, we find that it did suffice to show open-ended
continuity.
There are at least two types of racketeering enterprises
that, by their nature, extend into the future and therefore
demonstrate open-ended continuity: those that "involve a distinct
threat of long-term racketeering activity, either implicit or
explicit" and those where "the predicate acts or offenses are part
of an ongoing entity's regular way of doing business." Id. at
242. The latter type not only includes enterprises that are wholly
criminal but also those in which the predicate acts of racketeering
"are a regular way of conducting defendant's ongoing legitimate
business." Id. at 243.
The record suffices to permit a juror reasonably to find
that, at least as of 2012, it was "business as usual" at NECC to
distribute medications to customers by representing to them that
the medications had been compounded in compliance with standards
- 27 -
that the company was not meeting. Thus, the record suffices to
establish open-ended continuity.
Specifically, the record shows that NECC employees
testified that the company "[r]outinely" sent out medications
subject to USP-797 to customers prior to testing them, even though
USP-797 forbade that practice; that the practice of "botching lots"
to mix old, tested medications with new, untested ones and labeling
the resulting USP-797-covered mixture with the old label was
"prevalent" as of 2012 and occurred prior to that time, even though
USP-797 required otherwise; and that "[i]t was kind of protocol"
for NECC to ship even USP-797-covered medications that used expired
ingredients, despite USP-797's contrary command. Evidence also
showed that NECC had sterilized its compounded medications subject
to USP-797 for an insufficient amount of time under that standard
since at least 2009, and that it had a practice of failing to use
biological indicators for those compounded medications, when USP-
797 dictated otherwise.
Moreover, these facts and others led the government's
expert witness to testify that he had concluded that NECC's method
for sterilizing large lots of MPA was "completely inconsistent
with the requirements of" USP-797. In addition, the evidence
sufficed to permit a reasonable juror to find, for the reasons set
forth above, see supra at 19-21, that, despite this evidence of a
pattern of NECC failing to adhere to USP-797, NECC routinely
- 28 -
advertised to customers through its sales staff and standard
marketing materials that it was in compliance with that standard
when it was not.
As we also have explained, the record supportably shows
that, during this same time period, NECC had permitted some of its
products to be compounded by an unlicensed pharmacy technician in
violation of state law. Yet, the record also supportably showed,
as we have explained, that NECC routinely represented to customers
during this time that it was permitting only certified technicians
to engage in such work, given the marketing materials that Boneau,
the sales representative for NECC, had described in his testimony.
A juror thus could reasonably find from such evidence
that, as of 2012, the mail fraud alleged in each of the predicate
acts of racketeering that the jury found was "part of an ongoing
entity's regular way of doing business." H.J., 492 U.S. at 242.
Accordingly, a juror reasonably could find that the evidence
demonstrated open-ended continuity.
Cadden does stress that, at least on his account of the
record, the company had regularly produced safe products prior to
2012. But, because the evidence that it was a routine business
practice of NECC to market its medications through fraudulent
misrepresentations about the standards that its operations met was
strong, a juror reasonably could find that the company's pattern
of conduct as of 2012 would continue into the future.
- 29 -
Cadden does also contend that his acquittal on most of
the FDCA counts and the conspiracy to defraud the United States
count indicates that the jury found him not guilty of participating
in an open-ended racketeering operation. To make that case, he
urges us to infer from those acquittals that the jury necessarily
found that Cadden lacked the mens rea necessary to commit fraud.
But, the jury necessarily found that Cadden intended to defraud
when it found that he committed the mail fraud alleged in the mail-
fraud-based predicate acts of racketeering. And, Cadden does not
dispute that the evidence sufficed to permit a reasonable juror to
so find. Nor is there any inherent inconsistency in the jury
having made such findings while acquitting him of the FDCA counts
and the conspiracy to defraud the United States count, given that
the elements of those distinct crimes differ from the elements of
mail fraud. See 18 U.S.C. § 371; 21 U.S.C. §§ 331(a), 333(a)(2),
351(a)(2)(A).
B.
For these reasons, we reject Cadden's sufficiency-of-
the-evidence challenges to his racketeering conviction insofar as
he challenges the sufficiency of the evidence to support the
"pattern of racketeering" element of that offense. And, because
his sufficiency-of-the-evidence challenges to his racketeering
conspiracy conviction rely on the same unpersuasive arguments, we
reject them, too.
- 30 -
IV.
We next consider a set of challenges in which Cadden
takes aim at each of his convictions, rather than only a subset of
them. Moreover, in these challenges, he seeks merely to vacate
-- rather than to reverse -- each of these convictions, as he
contends that each was tainted by a trial error that so prejudiced
the jury's finding of guilt in each instance that the resulting
conviction cannot stand.
Cadden's focus here is on what he contends was the unduly
prejudicial effect of certain evidence that the government
introduced at trial that related to the persons who died, or fell
ill, from using the contaminated MPA that NECC had shipped to its
customers. That evidence includes photographs of patients who
died after having been injected with the contaminated MPA, which
the government displayed during opening and closing arguments,
testimony given by three family members of such patients, and
graphic testimony and photographs illustrating the harm that the
MPA did to the patients.
Cadden does not clearly spell out the legal authority
that grounds these challenges in his briefing to us. But, he does
appear to be challenging the admission of this evidence under
Federal Rule of Evidence 403. See Fed. R. Evid. 403 ("The court
may exclude relevant evidence if its probative value is
substantially outweighed by a danger of . . . unfair prejudice
- 31 -
. . . ."). Insofar as the government disputes whether Cadden has
in fact advanced this argument on appeal, we may proceed on the
assumption that he did. For, even if this Rule 403 challenge is
properly before us and was preserved below, such that our review
is for abuse of discretion, see United States v. Merritt, 945 F.3d
578, 586 (1st Cir. 2019), we find no merit to it.
A.
Cadden argues that the patient-related evidence, which
he contends bore at most on the alleged predicate racketeering
acts involving second-degree murder, lacked enough probative value
to outweigh its obvious prejudicial effect. In pressing this
contention, Cadden at various points actually goes so far as to
assert that there was not enough evidence of either the causation
or mens rea elements of second-degree murder to support a finding
of that offense at all and that the patient-related evidence could
not itself make up for those fatal evidentiary gaps in the
government's case on that score. Notably, that contention would
suggest that there was no probative value to the patient-related
evidence, such that there would be no need to engage in the
traditional weighing of the probative value of evidence against
its prejudicial impact. See Fed. R. Evid. 104(b) ("When the
relevance of evidence depends on whether a fact exists, proof must
be introduced sufficient to support a finding that the fact does
exist."). But, as we will explain, that contention is not
- 32 -
supported by the record. In fact, it is evident that the patient-
related evidence was quite probative of at least the mens rea
element of second-degree murder. We then go on to explain why, in
light of the probative value of this evidence, the District Court
did not err under Rule 403 in permitting the jury to hear it,
notwithstanding the danger of unfair prejudice.
1.
Although Cadden asserts that sufficient evidence to
permit a finding as to the causation element of second-degree
murder was lacking, we fail to see why. He concedes that the MPA
that NECC compounded caused the deaths associated with the alleged
predicate acts of racketeering involving second-degree murder. In
fact, he offered to stipulate as much and then conceded that aspect
of causation at trial. Cadden also does not dispute that the
record shows that deficient means were used by NECC in compounding
the contaminated MPA that led to the deaths at issue in those
alleged predicate acts. Nor does he dispute that the evidence
presented at trial sufficed to permit a reasonable juror to find
that the risks of contamination associated with the poor practices
that NECC engaged in were high even compared to other non-USP-797-
compliant compounding pharmacies.6
6 Consider in this regard that there was substantial expert
witness testimony that NECC's operations were "completely
inconsistent with the requirements" imposed by USP-797, the
- 33 -
Against that evidentiary backdrop, a juror could
reasonably infer that the deficient compounding practices by NECC
must have been the cause of such a singular mass casualty outbreak
as the one that occurred here. After all, an official with the
United States Centers for Disease Control testified at trial that
the outbreak caused by the contaminated MPA compounded by NECC was
a "public health tragedy" that in his fifteen years of work
investigating outbreaks had only been matched by the Ebola epidemic
-- and was unmatched (at least at that time) in terms of
consequences within the United States. See United States v.
O'Brien, 14 F.3d 703, 708 (1st Cir. 1994) ("[I]n . . . choosing
from among competing inferences, jurors are entitled to take full
advantage of their collective experience and common sense. There
are limits to coincidence." (internal citations omitted)).
Cadden does contend that the evidence still failed to
suffice to show that he personally took any action that resulted
governing rules for sterile compounding facilities, and that the
company "repeatedly, week after week after week . . . had
excursions and data that told them that their facility was out of
a state of control" but nevertheless "ignored that for weeks and
weeks and weeks on end." Consider, too, that there was also expert
testimony that asserted that the USP standards that the evidence
supportably showed that Cadden was consciously flouting were of
the utmost importance because "in the event there is a nonsterile
event . . . it can harm a lot of patients," possibly leading to
"[m]ass casualty." In fact, still other expert testimony stated
that the USP-797 cleaning requirements that NECC was not adhering
to were necessary because "contamination" of the clean room
environment "can make its way into the final preparation and harm
or kill patients."
- 34 -
in the contamination of the MPA with which those patients were
injected. But, he does not dispute that he knew of the alleged
deficiencies with NECC's compounding practices. In addition, the
record supportably shows that Cadden claimed to have "direct[ed]
sales" for NECC and to have made "every important decision [for
the company] on a daily basis." The record further suffices to
illustrate specific instances of his directing the shipment of
orders. Thus, a reasonable juror could conclude that Cadden caused
the deaths of patients by directing the shipment of the deficiently
prepared medications that caused the deaths, even though a juror
reasonably could also find otherwise.
2.
The evidence as to the mens rea element also sufficed,
contrary to Cadden's contention. Regarding this element, the
District Court provided the jury with seven different sets of
instructions on the state of mind necessary for second-degree
murder -- one for every state where a patient identified in a
murder allegation was located -- and asked the jury to apply to
each murder allegation the mens rea standard of the state in which
the patient had resided. Nevertheless, despite the distinct
language used in the seven separate instructions, the District
Court concluded that the mens rea standard was functionally
identical between the states, and neither party on appeal
identifies any material differences between the standards.
- 35 -
In fact, in its briefing to us, the government presents
the Michigan second-degree murder standard, applicable to eight of
the murder charges, as representative of the appropriate mens rea
standard for all twenty-five instances of second-degree murder,
and Cadden does not contend otherwise. Under Michigan law, a
defendant must act with "malice" to be guilty of second-degree
murder, which requires, for our purposes, a showing that the
defendant "inten[ded] to do an act in wanton and wilful disregard
of the likelihood that the natural tendency of such behavior is to
cause death or great bodily harm." People v. Goecke, 579 N.W.2d
868, 878 (Mich. 1998). We thus apply the Michigan standard in
reviewing Cadden's challenge to the sufficiency of the evidence of
mens rea, and we find that the evidence sufficed to meet it.
In addition to the expert testimony described above
concerning the risks associated with not complying with USP-797,
other testimony indicated that in 2002, Cadden was informed by an
investigator for the United States Food and Drug Administration of
the risk that, if NECC's compounded medications were contaminated,
"people can get really sick or die." This testimony provided
support for a finding that Cadden was well aware of the type of
risk that he was running by operating NECC in an unsafe manner and
then permitting a high-risk sterile compounded medication like MPA
to be distributed under the false representation that it had been
compounded in accord with USP-797. So, too, did the extensive
- 36 -
number of people potentially endangered by Cadden's conduct over
a lengthy period of time, cf. 2 Wayne R. LaFave et al., Substantive
Criminal Law § 14.4(a) (3d ed. 2019) ("[T]he situation may be such
that the risk of death is too slight for murder where only one
person is endangered by defendant's conduct, whereas the risk is
sufficient where several are thus hazarded . . . ."), and the vivid
accounts of the suffering endured by those who received injections
of the contaminated MPA, as those accounts permitted a juror to
assess Cadden to have been indifferent to the harm that such
fraudulent shipping of such a deficiently compounded, high-risk
sterile compounded medication could have caused.
Cadden does point to evidence that showed that NECC had
produced MPA and other similar steroids in large quantities since
2006 without problems. But, as Cadden concedes, the evidence
supportably showed that problems at NECC had gotten significantly
worse by 2012, as NECC increased its production. For instance, an
NECC employee testified that the practice of mislabeling lots to
cover up the use of untested medications became much more prevalent
in 2012, and cleaning became much less frequent. The evidence
also showed that, in 2012, NECC sent eye-block to a hospital that
contained insufficient anesthetic, leading to pain and headaches.
A juror thus would have been justified in concluding from this
evidence that NECC's record prior to 2012 was of limited relevance
to Cadden's mens rea during that year.
- 37 -
3.
In finding that the evidence sufficed to permit a
reasonable juror to find the predicate acts of racketeering
involving second-degree murder, we in no way mean to second-guess
the jury's determination, made apparent on the special verdict
form, that the government did not prove them. Such a determination
by the jury was based on a consideration of a wealth of evidence
during an extensive trial that lasted more than two months. It is
also the final word as to whether the government proved the serious
allegations contained in the racketeering count that sets forth
the alleged predicate acts involving second-degree murder. But,
while there is no question the jury's actual finding on that score
was that the government had not proved its case against Cadden,
that finding is not determinative of whether he is right in
pressing his Rule 403 challenge. For, in the aspect of that
challenge at issue, he contends that a juror would not have had a
sufficiently supportable evidentiary basis for finding second-
degree murder on this record given the lack of evidence of
causation and mens rea and thus that the patient-related evidence
offered in support of it was simply not probative at all because
it could not itself fill in those evidentiary gaps. The jury's
finding does not speak to that issue.
Similarly, we are aware that, at sentencing, the
District Court commented on the weakness of the government's case
- 38 -
for finding that Cadden's conduct constituted second-degree
murder. But, the District Court was not addressing whether the
evidence of the second-degree murder predicate acts was so
inadequate that it precluded a juror from finding them as a matter
of law. Thus, the District Court was not addressing the contention
that Cadden now makes in pressing his Rule 403 challenge about the
probative value of the patient-related evidence.7
B.
That the murder predicates were sufficiently supported,
and that the patient-related-evidence offered to prove those
predicates had probative value because of its capacity to show his
mens rea, does not, of course, determine in and of itself whether
the District Court violated Rule 403 by admitting that evidence.
There remains the question whether the prejudicial impact of that
evidence so outweighed its probative value that it should have
7For these same reasons, we reject Cadden's challenge insofar
as he means to make a claim of retroactive misjoinder -- as the
government understands him to be making. For, even assuming there
are no other obstacles to that argument, it is premised on the
evidence of second-degree murder having been insufficient, which
we conclude it was not. See United States v. Jones, 16 F.3d 487,
493 (2d Cir. 1994) (explaining that "'[r]etroactive misjoinder'
arises where joinder of multiple counts was proper initially, but
later developments -- such as a district court's dismissal of some
counts for lack of evidence . . . -- render the initial joinder
improper"); cf. United States v. Mubayyid, 658 F.3d 35, 72 n.39
(1st Cir. 2011) ("Retroactive misjoinder occurs where joinder was
proper initially because of a conspiracy allegation, but where
later developments . . . appear to render the initial joinder
improper." (quoting United States v. Deitz, 577 F.3d 672, 693 (6th
Cir. 2009))).
- 39 -
been excluded nonetheless. But, we conclude that the District
Court did not abuse its discretion in answering that question as
it did.
Cadden is right that he conceded at trial -- after
offering to make a stipulation -- that each of the twenty-five
patients tied to each of the alleged second-degree murder predicate
acts of racketeering was injected with MPA from one of the
contaminated lots compounded by NECC, that each of those patients
received at least one contaminated injection, and that each of
those patients died from receiving a contaminated injection of
MPA. We thus agree with Cadden that, in consequence, the patient-
related evidence could have at the most only marginal probative
value to the causation showing that the government had to make to
prove the second-degree-murder-based predicate acts of
racketeering. Moreover, while the government is right that the
United States Supreme Court has recognized that "the availability
of alternative proofs of [an] element . . . , such as an admission"
by the defendant that the element exists, does not make direct
evidence of that element wholly irrelevant, Old Chief, 519 U.S. at
179, Cadden is also right to point out that "a lack of dispute or
concession of a central allegation may significantly reduce the
probative value of particular evidence," Kilmartin, 944 F.3d at
335; see also Old Chief, 519 U.S. at 184 (concluding that "what
counts as the Rule 403 'probative value' of an item of evidence
- 40 -
. . . may be calculated by comparing evidentiary alternatives").
Indeed, given the "delicate balance between" the "probative value"
of evidence and "the risk that the evidence will inflame the
jurors' passions," Kilmartin, 944 F.3d at 336, we have recognized
that agreement between the parties on a key fact might sometimes
tip the balance against admissibility of evidence of that fact, at
least where the risk of unfair prejudice is especially high, see
United States v. Ford, 839 F.3d 94, 109-10 (1st Cir. 2016).
Nonetheless, largely for the reasons we have already
explained, we agree with the argument that the government made in
its opposition to Cadden's motion in limine below, though, oddly,
not in its brief to us on appeal: the patient-related evidence
was "highly probative" of Cadden's "extremely reckless behavior."
See United States v. Brown, 669 F.3d 10, 21 (1st Cir. 2012) ("[W]e
may affirm a district court's evidentiary ruling on any ground
apparent in the record . . . ."). Testimony from the patients'
family members, for example, explained why the patients were
reliant on the drugs compounded by NECC and the pain and suffering
caused by the contaminated drugs that were injected into their
bodies. In contrast, the concession mirroring the bare-bones
stipulation was not a complete substitute for one of the
government's primary instruments for explaining the danger that an
experienced pharmacist like Cadden was disregarding by operating
his pharmacy in an unsafe manner. See United States v. Balsam,
- 41 -
203 F.3d 72, 84 (1st Cir. 2000) (explaining that the government is
usually entitled to present "evidence creating a coherent
narrative of [the defendant's] thoughts and actions in
perpetrating the offense for which he is being tried" (quoting Old
Chief, 519 U.S. at 192)); see also United States v. Morales-
Aldahondo, 524 F.3d 115, 120 (1st Cir. 2008) ("The court is not
required to scrub the trial clean of all evidence that may have an
emotional impact, where the evidence is 'part of the Government's
narrative.'" (quoting United States v. Dean, 135 F. Supp. 2d 207,
209-10 (D. Me. 2001))).
To be sure, the District Court was obliged to take
account of the potential prejudicial impact of the patient-related
testimony, which was sure to pack an emotional punch. But, the
District Court was not insensitive to this concern. In fact, it
limited the government to presenting only three family members of
patients as witnesses and precluded the government from
introducing graphic autopsy photographs of the patients to
mitigate the risk of prejudice.
Thus, keeping in mind that "the district court must be
ceded considerable latitude in steadying the balance which Rule
403 demands," United States v. Rodriguez-Estrada, 877 F.2d 153,
156 (1st Cir. 1989), we identify no abuse of discretion in the
District Court's balancing under Rule 403 of the probative value
- 42 -
of the evidence against its potential for prejudice. We thus
reject this ground for overturning Cadden's convictions.
V.
Cadden next seeks to vacate his convictions based on
another claimed trial error -- the District Court's partial denial
of his pre-trial motion to "preclude [the] government from relying
on environmental monitoring requirements other than those in USP
797."8 But, here, too, we find no error.
A.
The motion at issue related to environmental monitoring
data that NECC collected from its clean rooms during the period
that the contaminated lots of MPA were produced. NECC gathered
this data by measuring the level of microbial growth in different
parts of its clean rooms.
At trial, the government repeatedly compared the results
of this measuring to particular "alert" and "action" levels for
microbial activity laid out in NECC's Standard Operating
Procedures ("SOPs"). The government asserted that those levels
signaled the possibility of a "drift from normal operating
conditions" concerning the cleanliness of the clean rooms.
For example, during closing argument, the government
presented a PowerPoint slideshow that highlighted each week in
8 The District Court granted the motion as to requirements
predating January 2012.
- 43 -
2012 in which either air or surface monitoring results exceeded
the action or alert levels in the SOPs. The evidence supportably
showed that NECC did not take responsive action.
Cadden's motion below asked the District Court to
preclude the government from making arguments that relied on this
comparison between the environmental monitoring results in one of
NECC's clean rooms and the alert and action levels of the SOPs.
In support of that motion, Cadden contended to the District Court
-- as he contends to us -- that he was charged with making
fraudulent representations related to compliance with USP-797, not
the SOPs. Cadden thus argued below -- as he does to us -- that he
was not charged with falsely claiming to comply with the SOPs in
connection with any of the mail fraud allegations underlying any
of the counts he faced. He also argues that, under the terms of
the SOPs themselves, the levels set out in the SOPs were not
operative in 2012, given that NECC had recently transferred many
of its operations to a new clean room and that it needed time
before establishing new levels specific to that clean room.
Rather, he asserts that, until NECC had gathered enough data to
establish a baseline tailored to its new facilities, the SOPs
designated the less stringent action levels outlined in the USP-
797 as the operative levels.
As a result, according to Cadden, the government's
repeated references to the triggering of the SOP "alert" and
- 44 -
"action" levels were problematic in two respects. They were
irrelevant to any material issue in the case and were unfairly
prejudicial, and they also were likely to mislead the jury into
thinking there was a failure to comply with the SOPs when, because
they were not operative, there was not.
At oral argument, Cadden's attorney characterized his
challenge to the denial of the motion as one that concerned the
relevance and unfairly prejudicial nature of certain of the
evidence that had been admitted. But, Cadden's motion to the
District Court was styled as a motion to "preclude the government
from relying on" certain "environmental monitoring requirements,"
not one to exclude any evidence. As we read Cadden's brief to us,
moreover, he does not appear to be challenging the admission of
evidence regarding the SOPs or the environmental monitoring
results. Rather, he challenges the government's repeated
references to, and reliance on, the SOPs, particularly in opening
and closing argument.
We need not resolve the precise nature of the challenge,
though. The government does not dispute Cadden's contention that
we should review the District Court's denial of the motion as if
it had been properly preserved or that we should review its denial,
as Cadden contends we must, for an abuse of discretion. We thus
proceed on the basis of that shared view in reviewing Cadden's
challenge as, even if we do, it fails. The reason is that, as we
- 45 -
will explain, the challenge -- however it is best characterized
-- rests on a fatally mistaken premise about what the government
was trying to prove by referencing the deviations from the SOPs.
B.
In front of the District Court, the government argued
that the comparison between NECC's environmental monitoring
results and the standards outlined in the SOPs was probative not
just of Cadden's commission of mail fraud, but also of his "extreme
recklessness" -- the mens rea standard it needed to show to prove
the second-degree murder predicate acts. And, notably, even on
Cadden's own account, the action and alert levels set forth in the
SOPs were the ones used in NECC's old clean room. Thus, even if
we accept Cadden's contention that the SOPs were not formally in
effect in 2012, the District Court did not err in permitting the
government to make the case to the jury that those levels set a
reasonable benchmark by which to assess the cleanliness of a
compounding facility, that Cadden himself was well aware of them
at the time NECC made the fatal shipments of contaminated MPA, and
thus that deviations from them were probative of his reckless state
of mind. For, even if NECC had not yet collected enough data to
determine baseline measurements for the new facility, it was
entirely reasonable for the government to turn to the action and
alert levels that NECC had relied on for its old clean room to
- 46 -
make the case to the jury that Cadden was aware its new one was
unsanitary.
As the government put it to the District Court,
Cadden's failure to properly monitor his clean
room or come up with a plan for doing so
effectively, as he was required to do by the
USP, should hardly be the basis for an order
excluding the [environmental monitoring]
results showing contamination in his clean
rooms from evidence; he simply should not be
allowed to pretend that his consistent
violations of his own policies, especially
beginning in early 2012, did not happen.
Nor does Cadden develop any argument to the contrary, as he makes
no contention that the content of the SOP-standards reference was
so obviously misleading as a measure of the state of NECC's new
clean room as to require the District Court to exclude all mention
of those standards even if they could have been probative of the
second-degree murder predicate acts. Thus, his challenge
necessarily fails. See United States v. Zannino, 895 F.2d 1, 17
(1st Cir. 1990) ("[I]ssues adverted to in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are
deemed waived.").
VI.
Cadden's final set of challenges to his convictions
targets the District Court's denial of his motion for a new trial
based on allegations of prosecutorial misconduct at trial. In
seeking to vacate his convictions on this basis, Cadden first
- 47 -
argues that, in several instances, the government presented false
evidence to the jury that suggested that he had failed to take
adequate action even after he learned about the existence of the
contaminated MPA that caused the 2012 outbreak. He next takes
issue with a binder of evidence that the government gave to the
jury without either his or the District Court's knowledge. Our
review of the District Court's denial of his motion for a new trial
on these grounds is for abuse of discretion, see United States v.
Casas, 425 F.3d 23, 39 (1st Cir. 2005), and we see none.
A.
We have held that "a prosecutor 'may not knowingly use
false evidence, including false testimony, to obtain a tainted
conviction regardless of whether the prosecutor solicits false
evidence or . . . allows false evidence to go uncorrected when it
appears.'" United States v. Flores-Rivera, 787 F.3d 1, 31 (1st
Cir. 2015) (alteration in original) (quoting United States v.
Mangual–Garcia, 505 F.3d 1, 10 (1st Cir. 2007)). Such a conviction
"must be set aside if there is any reasonable likelihood that the
false testimony could have affected the judgment of the jury."
United States v. Bulger, 816 F.3d 137, 158 (1st Cir. 2016) (quoting
United States v. Agurs, 427 U.S. 97, 103 (1976)).
The most troubling allegations concern the testimony of
Wendy Huffman, the director of an entity -- the South Bend Clinic
-- that purchased medications from NECC. We thus begin with those
- 48 -
allegations. We then consider two other alleged uses of false
evidence by the government that Cadden identifies.
1.
Huffman testified at trial that, on September 21, 2012,
she received a call from Cadden, in which he allegedly told her
that she should pull the MPA that NECC had sold to the South Bend
Clinic from its shelves. The government put forth Huffman's
testimony to show that Cadden had known about the contamination on
September 21 and thus well before September 26, when other evidence
showed that he notified his other customers of the problem.
The Huffman testimony was potentially damning. It
suggested that Cadden attempted to conceal evidence of the
contamination from his other customers, which in turn supported
the government's theory that he possessed the state of mind
necessary for second-degree murder.
On February 5, 2017, shortly after Huffman testified,
Cadden moved to strike Huffman's testimony on the ground that it
was clearly false. Cadden based his motion, in part, on telephone
records that indicated that Huffman had not received a call from
Cadden on the date that she testified she had and on what he
contended was the inconsistency between her testimony and other
evidence about NECC's response to the outbreak.
The District Court denied that motion on the ground
that it was the jury's responsibility to sort through the parties'
- 49 -
factual dispute on the issue. On March 3, 2017, however, near the
close of the government's case, the District Court held a
conference with counsel. At the conference, the District Court
asked counsel for the government whether it "shouldn't consider
withdrawing [Huffman's] substantive testimony about a call on the
21st of September," as "[n]one of your other evidence is consistent
with" Huffman's receipt of a recall notice on that date.
In response, on March 7, the government filed a brief
that opposed Cadden's earlier motion to strike the Huffman
testimony and requested that the District Court strike Cadden's
evidence on this point. On March 8, the District Court again
concluded that "whatever its private opinion may be, contested
issues of fact are for the jury" and declined to strike any of the
contested evidence.
At the close of the defense's case on March 13, though,
Cadden once again moved to strike evidence relating to the Huffman
call. Again, the District Court denied the motion, noting to
Cadden that "[y]ou have an awfully strong argument, I think, on
the point to the jury," but concluding that "it's a factual issue
that I don't think I have the power to shape at this point."
Finally, Cadden in his post-verdict motion for judgment
of acquittal moved for a new trial based on the government's
putting forth the Huffman testimony despite the evidence
indicating that it was false. This time, the District Court
- 50 -
rejected Cadden's argument on somewhat different grounds. It held
that any misconduct that the government committed did not prejudice
Cadden and so did not warrant a new trial.
Before reaching that conclusion, however, the District
Court found that it was "clear that . . . [Huffman] had confused
a call from a patient advocate inquiring about an appointment . . .
with the warning call she did receive from Cadden the following
week." And while the District Court did not make an express
finding of misconduct by the government in relying on the evidence
despite the indications that it was false, it stated that the
government's "persistence in defending the Huffman testimony," in
spite of Cadden's repeated objections and its own explicit
suggestion that the government retract the evidence, was
"perplexing at best, and at worst, inconsistent with the obligation
of the government to serve the higher interest of justice."
We share the District Court's concern about the
government's conduct. In fact, the government does not attempt on
appeal to rebut the substance of Cadden's objections to the
accuracy of Huffman's testimony. The government notes instead
only that it "is not forbidden to call witnesses whose reliability
in one or many particulars is imperfect or even suspect." United
States v. McGovern, 499 F.2d 1140, 1143 (1st Cir. 1974). But, the
leeway afforded the government to present flawed testimony does
not sanction its "knowing reliance upon false evidence." Id.
- 51 -
Nonetheless, like the District Court, we may resolve this challenge
without deciding whether the government's conduct was proper,
because Cadden has not shown the requisite prejudice.
Huffman's testimony was introduced to prove Cadden's
state of mind for the purpose of proving only the second-degree-
murder-based predicate acts of racketeering. The government made
no argument that her testimony was otherwise probative. Yet, the
jury, after having heard all the competing evidence that Cadden
relies on concerning Huffman's testimony, did not find those
predicate acts of racketeering proved.
At the very least, then, we find no indication in the
jury verdict that the jury disagreed with what we read the
overwhelming weight of the evidence to indicate about Huffman's
testimony -- it was inaccurate. We thus have no reason to be
concerned that, despite having been extensively rebutted, her
testimony influenced the jury with respect to the only issue for
which it was put forward by the government.
Nor is the Huffman testimony the sort of evidence that
in its nature is likely to spill over and interfere with the jury's
deliberations over the other counts (or predicate acts), such as
those concerning mail fraud, that it was not put forward to prove.
The straightforward testimony of Huffman, about a phone call that
she allegedly received, was not likely -- at least after having
been so thoroughly undermined -- to "'evoke an improper emotional
- 52 -
response' and distract[] 'from careful consideration of the
relevant issues.'" Kilmartin, 944 F.3d at 335 (quoting United
States v. Fulmer, 108 F.3d 1486, 1498 (1st Cir. 1997)). That being
so, it would be too speculative to conclude, contrary to the
District Court, that the Huffman testimony so tainted the trial
that the verdicts for which the evidence was not presented must be
overturned.
Cadden contends that his ability to introduce evidence
that Huffman's testimony was false does not wipe away the
possibility of prejudice. He points out that much of the evidence
supporting his rebuttal of Huffman's testimony only came out six
weeks later during the presentation of his evidence. Cadden
presents no support, however, for the notion that a delay between
the government's case and the defense's case -- a standard feature
of criminal trials -- prejudices defendants by making their case
less persuasive in the eyes of the jury. We thus decline to base
a prejudice finding on such an assertion.
2.
The two other incidents in which Cadden alleges that the
government relied on false testimony are less concerning. We
consider each in turn.
First, at trial, Annette Robinson, an NECC employee,
testified that Cadden instructed her to do fungal testing, a
request he had not made before, "a few weeks before the outbreak."
- 53 -
Cadden contends that the testing records show that testing only
began on September 27, 2012, however, which could suggest that
Robinson was wrong that testing had begun earlier than the date of
the outbreak.
But, it was not clear precisely when "the outbreak"
occurred or how long "a few weeks" might be. There was also a
lack of evidence about how long it took NECC to ship medications
to the testing facility. We thus cannot conclude that Robinson's
testimony was false, let alone that the government relied on it
while knowing that it was.
Second, two witnesses from another clinic that had
purchased medications that NECC compounded -- Michigan Pain
Specialists -- testified at trial that Cadden had failed to notify
their clinic on September 26, when he recalled the contaminated
MPA from NECC's other customers. The testimony suggested that
there was a gap between when Cadden was aware of the contamination
-- even assuming that he first became aware of it on September 25
-- and when he took action to notify at least one of his customers.
Contrary to the witnesses' testimony, however, a
document admitted at trial showed that NECC had faxed over a recall
notice to Michigan Pain Specialists on September 26. Cadden
contends on that basis that the testimony from the Michigan Pain
Specialists witnesses was false and that the government committed
misconduct by advancing it at trial.
- 54 -
But, Cadden concedes that, at trial, his attorney
succeeded in "surpris[ing]" one of the clinic's witnesses with a
copy of the fax. There is no indication that the government knew
of this document when it presented the witness, thus making it
hard to see how there is a basis for finding that the government
engaged in misconduct.
In any event, the jury heard the same evidence that
would allow us to conclude that the government's evidence was
false. The special verdict form also shows that the jury did not
accept the government's theory of second-degree murder. Yet the
contested testimony was admissible to prove the alleged predicate
acts of racketeering based on that racketeering activity. Thus,
for substantially the same reasons that lead us to find that the
admission of Huffman's testimony does not provide grounds for a
new trial, we reject Cadden's challenge regarding the Michigan
Pain Specialists testimony as well, given the minimal inherent
risk of prejudice that it posed once undermined.
B.
Cadden also brings a misconduct-based challenge to his
convictions because the prosecution gave the jury, without his
knowledge or the knowledge of the District Court, a binder of
admitted evidence that the government assembled. It is troubling
that this binder, which was not itself admitted into evidence
though the exhibits within it were, made its way to the jury for
- 55 -
deliberations unbeknownst to Cadden or the District Court until
after the jury had rendered its verdict. The District Court
acknowledged as much. But, we conclude that the District Court
did not err in determining that, due to a lack of prejudice, there
was no ground for a new trial.
1.
The binder compiled evidence that had already been
introduced throughout the trial, and it purported to prove
deficiencies in the medications that corresponded to many of the
stand-alone mail fraud counts and predicate acts of racketeering
involving mail fraud. The binder was divided into three parts.
Each part related to a different set of the stand-alone mail fraud
counts that Cadden was charged with committing. Each part also
contained admitted exhibits that related to test results that
indicated that shipments that were at issue in each of those mail
fraud counts were nonsterile or subpotent. The binder did not
include evidence that Cadden had introduced at trial to prove that,
contrary to the government's allegations, some of the shipments at
issue contained medications that were in fact sterile.
The first mention of this binder at trial occurred during
closing argument. That is when the government highlighted the
existence of a government-created binder to the jury by describing
it as "a binder that we put together for you where we've collected
- 56 -
the test results that are in evidence for these [fraudulent]
shipments."
Cadden apparently did not notice or object to the binder
when the government referred to it, even though no such binder had
been admitted into evidence or had otherwise been approved to go
the jury. The government then provided the binder to the court
clerk, who transmitted it to the jury room without giving any
additional notice to Cadden or the District Court.
On the third day of jury deliberations, the jury
requested exhibits that related to ten of the predicate acts of
racketeering involving mail fraud, some of which the binder
contained. At the District Court's request, the parties assembled
responsive exhibits. The District Court organized these exhibits
and submitted them to the jury.
On the same day, during a conversation between counsel
and the District Court about a response to a different jury
question, Cadden's counsel objected to the government's
transmission of the binder and the jury's reliance on it. By then,
he apparently had learned that the jury had obtained a binder
filled with exhibits of government-friendly test results.
In response, counsel for the government claimed not to
be aware of the location of the binder. The District Court relied
on that representation in mistakenly concluding that the binder
- 57 -
had not been sent to the jury and declining to take additional
action at the time.
After the jury returned its verdict, however, it became
clear that government attorneys had, in fact, provided the binder
to the jury. The government later conceded the same.
Cadden now argues, as he did to the District Court in a
motion for a new trial, that the government's provision of the
binder to the jury and denial that it had done so constitutes
misconduct that warrants a new trial. The District Court denied
Cadden's motion.
The District Court conceded that the binder's presence
in the jury room without court approval was a "mistake." However,
the District Court did not find that it was the product of
intentional misconduct by the government. Rather, the District
Court bypassed a definitive ruling on that issue and found that
the binder, even though received by the jury without the knowledge
of Cadden or the District Court, was not so prejudicial as to
require a new trial. Among the District Court's reasons for so
finding were that all of the documents contained in the binder had
been admitted into evidence and that the District Court would have
admitted the completed binder into evidence if the government had
requested that it do so.
- 58 -
2.
In general, government "misconduct alone is insufficient
to reverse a conviction absent a showing of prejudice." United
States v. Gentles, 619 F.3d 75, 81 (1st Cir. 2010); see also United
States v. Best, 939 F.2d 425, 429 (7th Cir. 1991) (en banc)
(asking, in a similar situation, whether "there was some prejudice
or substantial right affected by the presence of the binders in
the jury room during deliberations"). Nor does Cadden argue that
the provision to the jury of a government binder that had not
itself been admitted into evidence is presumptively prejudial to
the defendant, let alone that one that contains only documents
that themselves have been admitted into evidence is.9 See Best,
939 F.2d at 430. Instead, he contends that the binder presented
the evidence that it contained in a manner favorable to the
government's position and, for that reason, caused prejudice that
necessitates a new trial.
To support this challenge, Cadden highlights the title
of the binder, "Nonsterile and Sub/Super-Potent Results." He
contends that title could be read to suggest that the binder
9 Cadden also does not frame his claim as one rooted in the
jury's "improper exposure to extrinsic material," United States v.
Pagán-Romero, 894 F.3d 441, 446 (1st Cir. 2018), and the District
Court did not treat it as one. We thus apply the standards that
have been developed for reviewing claims of prosecutorial
misconduct rather than the somewhat distinct standards for
reviewing claims of exposure to extrinsic evidence. See id. at
446-47.
- 59 -
included all the relevant test results, rather than only the
government's preferred evidence concerning testing.
As the District Court itself noted, however, the jury
specifically requested "exhibits already allegedly included in the
binder." The jury's request strongly suggests that it did not
rely on the binder to the exclusion of other evidence, or assume,
as Cadden's argument for prejudice would imply, that the
government's binder contained the only exhibits about testing
relevant to the mail fraud counts in question.
Moreover, the very title of the binder that Cadden
complains of implies, not, as he suggests, that the binder includes
all test results that relate to the shipments at issue in the mail-
fraud-based counts, but rather, that it includes only all
"Nonsterile and Sub/Super-Potent Results" that relate to those
counts. Cadden's evidence of competing test results, however, was
also introduced. Those results purported to show that the
shipments contained medications that were sterile. It would be
too speculative to conclude that the jury would have assumed a
binder explicitly labeled as including "Nonsterile . . . Results"
would have been the sole place to look to find the non-trivial
number of exhibits that showed that the medications were sterile,
especially when Cadden repeatedly had highlighted those exhibits
at trial and when the jury requested exhibits concerning test
results that were in the binder.
- 60 -
We note, too, that the government flagged the existence
of the government-produced binder for the jury during closing
argument and described it as presenting its evidence. Thus, the
jury was on notice that it would have access to a binder produced
by the government that contained evidence of test results
introduced to prove the instances of mail fraud alleged in the
indictment. In fact, the binder had the United States Department
of Justice seal on the front cover, and the District Court
reasonably found the presence of the seal "would have made it clear
to the jury that the exhibits had been assembled by the
government."
Further supporting the District Court's no-prejudice
finding is the fact that Cadden, when faced at closing argument
with the government's assertion that it intended to present the
jury with a binder full of government evidence regarding the
fraudulent shipments of medications, neither objected nor took the
opportunity to assemble a comparable binder of defense evidence.
Cadden asserts that his counsel believed that the government was
alluding to other binders that had been admitted into evidence
during trial. But, he identifies no other binders that match the
description offered by the government. The silence by Cadden's
counsel at that moment thus accords with the District Court's
assessment that the binder was not of a sort that would cause
- 61 -
prejudice merely by having been given to the jury for its
deliberations.
The District Court's determination as to prejudice also
accords, as the government contends, with the most analogous
precedent: Best. There, a sharply divided Seventh Circuit held
en banc that, under somewhat similar circumstances, improper entry
of a binder of admitted evidence into the jury room was not
prejudicial. See 939 F.2d at 430-31. In fact, the record here
reveals, if anything, less prejudice than was present there.
The dissenters in Best were understandably concerned
that the binder at issue there was "a roadmap to a guilty verdict,"
id. at 433 (Posner, J., dissenting), and we see much force in their
views. But, this binder was different. It merely grouped the
admissible evidence that it contained by shipment and thus deployed
a commonsense -- rather than a tendentious -- organizational
scheme. In fact, the District Court itself expressed concern about
"the confusion that the erratic numbering of government and defense
exhibits caused during the trial," urged the parties to organize
the evidence into binders, and indicated that, notwithstanding the
structure of the binder, it would have allowed it into evidence
anyway.
The dissenters in Best also emphasized that the record
there strongly suggested that the jury relied heavily, although
perhaps not exclusively, on the government's binder of evidence.
- 62 -
Id. at 432-35. But, nothing in the record suggests comparable
reliance on the binder by the jury in this case. In fact, the
jury's request for exhibits that related to each of several counts
addressed by the binder suggests the exact opposite.
To be sure, Cadden was deprived of knowing that the
binder went to the jury and thus of choosing how to respond to
that fact. But, he has not explained, and we do not see, what
responsive action he could have taken that would show that he was
so prejudiced by being denied the chance to take it that the
District Court acted beyond its discretion in denying the motion
for new trial. In fact, the record shows that the jury was aware
that the binder was produced by the government and contained its
evidence and that his counsel made no objection to the jury being
provided the binder when the government first stated its intention
to provide it.10
10 Aside from the false testimony and the binder incident,
Cadden identifies a slew of other examples of what he deems to be
government misconduct. However, as stated in Cadden's opening
brief, he only "summarized" these events "briefly" in order to
show that "the government's behavior" regarding the primary
incidents "was not an aberration." In his reply brief, he
reiterated that he "points to this litany [of alleged instances of
misconduct] to demonstrate the pattern [of misconduct] and that
the pattern was deliberate." Because we do not resolve the
question of what state of mind the government attorneys possessed
in taking the primary actions Cadden complains of, as Cadden has
not demonstrated that any instances of potential misconduct
resulted in prejudice, we do not need to address the other
incidents that Cadden highlights that allegedly show their
behavior was deliberate. Even to the extent that Cadden does mean
- 63 -
VII.
We have, to this point, addressed and rejected all the
challenges that Cadden brings to his convictions. We thus now
turn to the challenges that concern his punishment. We begin with
the challenges to his prison sentence, which are brought solely by
the government in its appeal. We then turn to the challenges that
Cadden, in his appeal, and the government, in its, bring to the
order of forfeiture.
A.
The District Court determined that Cadden's total
offense level under the Guidelines was twenty-nine. Based on that
determination and Cadden's lack of any prior criminal history, the
District Court calculated a sentencing range under the Guidelines
of 87-to-108 months' imprisonment and handed down a sentence at
the top end of that range.
for these other incidents to serve as distinct grounds for a new
trial, he has not developed any of the arguments or their
prejudicial effects in sufficient detail, either in front of the
District Court or in front of us, and has thus waived them. See
Zannino, 895 F.2d at 17 ("[I]ssues adverted to in a perfunctory
manner, unaccompanied by some effort at developed argumentation,
are deemed waived.").
We also reject Cadden's suggestion that, even if none of the
alleged instances of misconduct prejudiced him in isolation, the
sum total of the alleged misconduct amounts to cumulative prejudice
warranting a new trial. For the reasons already discussed, none
of the instances of possible misconduct Cadden identifies resulted
in prejudice. Thus, even when combined with one another, they do
not require vacatur of any of Cadden's convictions.
- 64 -
The government contends that the District Court erred by
understating the loss attributable to Cadden's offenses, see
U.S.S.G. § 2B1.1(b)(1), and by failing to apply two enhancements
that would have increased Cadden's total offense level, see id. §§
2B1.1(b)(16), 3A1.1(b). We review the District Court's
"interpretation and application of the sentencing guidelines" de
novo, United States v. Flores-Machicote, 706 F.3d 16, 20 (1st Cir.
2013), and factual findings, including the District Court's
"calculation of the amount of loss, for clear error," United States
v. Ihenacho, 716 F.3d 266, 276 (1st Cir. 2013).
1.
The District Court calculated the loss attributable to
Cadden's offenses as $1,427,000, which led to a fourteen-level
increase in Cadden's total offense level. See U.S.S.G.
§ 2B1.1(b)(1)(H). The calculation was based on the "[a]ctual loss"
suffered by victims, which refers to "the reasonably foreseeable
pecuniary harm that resulted from the offense." See U.S.S.G.
§ 2B1.1 cmt. n.3(A)(i).
The District Court limited the loss calculation to the
total value of shipments of medications that had been identified
as deficient in some manner and that were listed in five trial
exhibits. These shipments were deficient either because the
medications were expired, contaminated, nonsterile, sub-potent,
super-potent, or compounded by an unlicensed technician.
- 65 -
The government contends, however, that all NECC sales of
medications during the period in question constituted pecuniary
harm suffered by NECC's customers. For that reason, the government
contends that the loss amount should have been at least $75.6
million. If the loss amount were that high, then the loss
enhancement would have increased Cadden's total offense level an
additional ten levels from twenty-nine to thirty-nine. See id.
§ 2B1.1(b)(1)(M). That increase would have shifted his Guidelines
sentencing range upward dramatically. See id. ch. 5, pt. A.11
Insofar as NECC sold a product using a fraudulent
representation, there is a strong argument that the entire value
of the product constituted a "loss" for Guidelines purposes. See
U.S.S.G. § 2B1.1 cmt. n.3(F)(v) ("In a case involving a scheme in
which . . . goods for which regulatory approval by a government
agency was required but not obtained . . . loss shall include the
amount paid for the property . . . with no credit provided for the
value of those items . . . ."); United States v. Gonzalez-Alvarez,
277 F.3d 73, 80 (1st Cir. 2002) ("[C]onsumers here who reasonably
believed they were purchasing milk compliant with all government
health regulations, but in fact received a different product of
11 While the government initially took issue with the time
period adopted by the District Court, in its reply brief, the
government concedes that, at least for purposes of this appeal, it
merely argues that "the racketeering period started no later than
2010 -- as the district court's written orders contemplate." Thus,
we do not address its arguments on this point.
- 66 -
unknown safety, were denied the benefit of their bargain and
suffered an actual loss."). But, trial evidence showed that NECC
produced a number of products in a separate area from the area in
which NECC's sterile compounding took place. The government makes
no developed attempt to explain how conditions were such in other
areas in NECC's facilities that sales of all the products produced
in those areas also were fraudulently sold. Thus, we do not see
how the District Court erred in finding that not all products sold
by NECC were sold fraudulently.
The government separately appears to argue that, even if
some of NECC's sales were not made via fraudulent representations,
those sales would still constitute a "loss." The government's
theory is that if these customers had "known that NECC's production
methods violated the USP and NECC's safety assurances, they would
have never purchased the drugs." But, the cases that the
government relies are ones in which the buyer did not receive the
benefit of the anticipated bargain. See Gonzalez-Alvarez, 277
F.3d at 80 ("Where a product has a value of zero as a matter of
law, but consumers pay for the product as if it had value, the
buyers have been robbed of the benefit of their bargain."); 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.");
United States v. Marcus, 82 F.3d 606, 610 (4th Cir. 1996) ("Given
- 67 -
the unchallenged finding that consumers would not purchase a drug
of unknown safety and efficacy at any price, the district court
correctly concluded that [the company's] gross sales were the
appropriate measure of the actual loss suffered by consumers
. . . ."). Those precedents provide no support for finding that
a customer has experienced a pecuniary loss when, as here, he gets
exactly what he was told he was paying for from the seller but he
might have reconsidered the choice to become a customer at all if
he had been aware of the seller's other fraudulent sales. See
U.S.S.G. § 2B1.1 cmt. n.3(A)(iii) ("'Pecuniary harm' means harm
that is monetary or that otherwise is readily measurable in
money.").
The government also contends that the District Court's
loss amount fails to account for even all of the medications that
NECC shipped that, at a minimum, were made with false
representations concerning compliance with USP-797. The District
Court perhaps could have swept up additional sales in its
calculation of loss for this reason, just as the government
contends. But, the record shows that the government only advanced
at sentencing its flawed theory that all NECC sales in the relevant
period should be included in the loss calculation, even including
those that were not sold fraudulently. The government did not
identify or attempt to document a narrower loss figure that would
reflect the actual losses suffered by fraud victims but that would
- 68 -
have been greater than the loss amount that the District Court
calculated.
Thus, given the information presented to the District
Court, it did not commit clear error in relying on the value of
the shipments that it could pin down with reasonable certainty as
fraudulent to determine the "loss" amount.12 See U.S.S.G. § 2B1.1
cmt. n.3(C) ("The court need only make a reasonable estimate of
the loss . . . . [T]he court's loss determination is entitled to
appropriate deference."); United States v. Flete-Garcia, 925 F.3d
17, 28 (1st Cir. 2019) ("[A] loss calculation need not be precise:
the sentencing court need only make a reasonable estimate of the
range of loss."). We note in this regard that, even on appeal,
the government still has not identified that amount. Nor has it
explained how it was denied a fair opportunity to provide that
amount below. We thus reject the suggestion that the government
made in its briefing to remand Cadden's sentence for the District
Court to redo the loss calculation to account for potential
12Contrary to the government's suggestion that the District
Court demanded proof that medications contained in the shipments
were "defective or dangerous" before it included them in the loss
calculation, the District Court included in the loss amount the
value of shipments of medications that were compounded by an
unlicensed technician, even though there was no evidence that all
of the medications he compounded were in some way defective or
dangerous. This conclusion aligns with the District Court's
statement that it included all shipments that were "potentially
contaminated or degraded," not merely those that were shown to be.
(emphasis added).
- 69 -
additional fraudulent sales. See United States v. Mayendía-
Blanco, 905 F.3d 26, 34 (1st Cir. 2018) (applying plain error
review to a challenge to a loss calculation not made below);
Zannino, 895 F.2d at 17 ("It is not enough merely to mention a
possible argument in the most skeletal way, leaving the court to
do counsel's work, create the ossature for the argument, and put
flesh on its bones.").
2.
We next take up the government's challenge to the
District Court's refusal, at sentencing, to apply a two-level
enhancement because Cadden's "offense involved . . . the conscious
or reckless risk of death or serious bodily injury." U.S.S.G.
§ 2B1.1(b)(16).13 The District Court reasoned that this
enhancement was only based on "the offense of conviction" and not
"on acquitted or even relevant conduct." Thus, to find the
enhancement applicable, the District Court concluded that, given
the nature of the offense of mail fraud, it would have to find
that Cadden had committed second-degree murder, and although
Cadden may have been "negligen[t]" or "even gross[ly]
negligen[t]," the evidence did not "c[o]me close to establishing
. . . that he acted with [the] state of knowledge that a conviction
for second-degree murder under relevant state law requires."
13
At the time of sentencing, the enhancement was codified at
U.S.S.G. § 2B1.1(b)(15).
- 70 -
The government now challenges that determination on the
ground that the District Court incorrectly focused on whether
Cadden had committed second-degree murder, instead of whether his
"relevant conduct" in the commission of his mail fraud offense
carried with it the requisite risk of death under the Guidelines.
See U.S.S.G. § 2B1.1(b)(16). We agree.
For the purpose of determining whether Cadden's
"offense" involved the requisite risk under § 2B1.1(b)(16), the
District Court should have looked at not only Cadden's "offense[s]
of conviction" -- which included mail fraud and racketeering
premised on mail fraud -- but also at all of his "relevant conduct"
as defined by the Guidelines. Id. § 1B1.1 cmt. n.1(I) (defining
"offense"). Under the Guidelines, the "relevant conduct" for which
Cadden is held accountable includes "all acts and omissions
committed, aided, abetted, counseled, commanded, induced,
procured, or willfully caused by the defendant . . . that occurred
during the commission of the offense of conviction." Id.
§ 1B1.3(a)(1)(A). The Guidelines base a defendant's sentence on
a range of actions that may extend beyond those the government
must prove to secure a conviction because "[t]he focus [of the
Sentencing Guidelines] is on the specific acts and omissions for
which the defendant is to be held accountable . . . rather than on
whether the defendant is criminally liable for an offense . . . ."
Id. § 1B1.3 cmt. n.1.
- 71 -
Thus, if Cadden's acts during the commission of mail
fraud -- for instance, by directing the shipment of medications he
knew to be substandard and highly dangerous in consequence --
"involved . . . the conscious or reckless risk of death or serious
bodily injury," id. § 2B1.1(b)(16), then the District Court should
have found that the enhancement applied.14 That is true even if,
as the District Court apparently found, his "offense of conviction"
did not itself inherently involve that risk.
We also cannot accept Cadden's contention that we may
treat the District Court as having concluded that the relevant
conduct associated with the mail fraud did not involve a
"conscious" or "reckless" risk of death or serious bodily injury.
The District Court did state that the evidence did not establish
that Cadden had the requisite mens rea for second-degree murder.
But, in so concluding, the District Court stated that Cadden did
not act "with actual knowledge that his acts, or more accurately
his failures to act, were almost certain to result in the death of
another." (emphases added). As the government points out, the
District Court in doing so at no point directly addressed in
sentencing whether a preponderance of the evidence nonetheless
established that Cadden's relevant conduct associated with the
14The government has made no argument that any actions Cadden
took in relation to his convictions for introducing misbranded
drugs into commerce carried the requisite risk for the risk-of-
death enhancement to apply.
- 72 -
mail fraud involved a "conscious or reckless risk of death or
serious bodily injury." U.S.S.G. § 2B1.1(b)(16); cf. United
States v. Lucien, 347 F.3d 45, 56-57 (2d Cir. 2003) (concluding
that a conscious risk is one "known to the defendant" while a
reckless risk is "the type of risk that is obvious to a reasonable
person and for which disregard of said risk represents a gross
deviation from what a reasonable person would do"). To be sure,
the District Court found that the government was not "close" to
showing the mens rea required for second-degree murder. But, here,
too, the District Court did so without directly referencing the
Guidelines standard in connection with Cadden's relevant conduct
in committing the mail fraud.
Thus, we remand for the District Court to do what it has
not yet done: directly address the narrow issue of whether
Cadden's actions warranted the application of the risk-of-death
enhancement based on the appropriate mens rea standard and scope
of relevant conduct. In doing so, we pass no judgment on whether
Cadden did in fact possess the state of mind necessary for the
enhancement to apply, or whether any other barriers to the
application of the enhancement might exist.15
15The government additionally argues that the District Court
mistakenly held that the only "victims" that could matter for the
purpose of the risk-of-death enhancement were the direct victims
of Cadden's mail fraud crimes, namely the hospitals who purchased
drugs from NECC. We are not convinced that the District Court
- 73 -
3.
We come, then, to the government's last challenge to the
sentence imposed by the District Court. It concerns another
enhancement that the District Court declined to apply: the
"vulnerable victim" enhancement. This enhancement bumps up the
offense level by two "[i]f the defendant knew or should have known
that a victim of the offense was a vulnerable victim," U.S.S.G.
§ 3A1.1(b)(1), and raises it by another two if "the offense
involved a large number of [such] vulnerable victims," id.
§ 3A1.1(b)(2).
The District Court declined to apply the enhancement.
It ruled that, for the purposes of the Guidelines provision in
question, "the victims at issue, given the nature of the jury's
verdict, were the purchasers of the drugs," rather than the
patients who received the drugs.
The Guidelines do not define the word "victim" as it is
used in the vulnerable victim enhancement. But, they do make clear
that a "victim" means "a person . . . who is a victim of the
offense of conviction and any conduct for which the defendant is
rested its holding on this alternative ground. However, insofar
as it matters on remand, we agree with the government that nothing
in the Guidelines restricts the scope of the relevant "risk of
death or serious bodily injury" analysis to those individuals who
were directly defrauded by a defendant's illegal scheme. See
U.S.S.G. § 2B1.1(b)(16).
- 74 -
accountable under § 1B1.3 (Relevant Conduct)." U.S.S.G. § 3A1.1
cmt. n.2.
We have previously read this language to indicate that
"[t]o come within the guidelines' definition" of "victim," "one
need not be a victim of the charged offense so long as one is a
victim of the defendant's other relevant conduct." United States
v. Souza, 749 F.3d 74, 86 (1st Cir. 2014). As we have previously
explained, Cadden's "relevant conduct" included, among other
things, any actions that he took to direct the shipment of
contaminated medications to hospitals during the commission of
mail fraud.16 The "victims" of that conduct could plausibly include
the patients who foreseeably would use those contaminated
medications. Thus, we agree with the government that the District
Court committed an error of law in holding that, due to the nature
of Cadden's convictions, the reach of the vulnerable victim
enhancement is necessarily limited to those "victims" who were
defrauded -- namely, the customers of NECC itself. See United
States v. Sidhu, 130 F.3d 644, 655 (5th Cir. 1997) ("[A]
physician's patients can be victimized by a fraudulent billing
scheme directed at insurers or other health care providers.").
16
The government does not argue that any of Cadden's conduct
during the commission of his FDCA offenses for introducing
misbranded drugs into commerce harmed any vulnerable victims.
- 75 -
Cadden argues that, in any event, we may affirm the
District Court's determination on the alternative ground that the
patients, even if "victims," were not "vulnerable." But the
District Court determined that the patients were necessarily not
"victims" at all. So, it has not yet passed on the question of
their vulnerability. We thus decline to do so in the first
instance. Instead, we leave it for the District Court to
determine, on remand, whether, for example, Cadden is comparably
situated to a defendant who "market[s] an ineffective cancer cure"
and who would warrant the enhancement, U.S.S.G. § 3A1.1 cmt. n.2,
and what effect, if any, the presence of the intermediary medical
facilities who purchased the medications on behalf of their
patients should have on the assessment of the patients'
vulnerability.
4.
Because we find that the District Court's reasons for
declining to apply two enhancements were legally erroneous, the
District Court may on remand find that the enhancements should
have been applied and that the Guidelines range it originally
calculated requires modification. If it updates the Guidelines
range to account for the application of one or both of these
enhancements, it should of course consider the parties' updated
arguments for what Cadden's sentence should be in light of the
modified range. The District Court may not, however, reconsider
- 76 -
on remand other enhancements or aspects of its initial sentencing
calculation beyond those issues narrowly required by its
reconsideration of the two enhancements that we have identified.
B.
We turn, finally, to the challenges that are before us
that concern the forfeiture order of $7,545,501 that the District
Court imposed pursuant to 18 U.S.C. § 1963(a)(3). That provision
requires defendants convicted of racketeering offenses to forfeit
"any property constituting, or derived from, any proceeds which
the person obtained, directly or indirectly, from racketeering
activity." The District Court determined the forfeiture amount
based on "the total amount of NECC proceeds that were paid to Barry
Cadden personally during the life of the racketeering enterprise,
that is, from March 26, 2010 to October 31, 2012."
We start with the government's challenges and then
consider Cadden's. "[W]e review pure 'questions of law de novo,
but, to the extent factual issues are intermingled, consider mixed
questions of law and fact under the more deferential clear error
standard.'" United States v. Ponzo, 853 F.3d 558, 589 (1st Cir.
2017) (quoting United States v. Ferrario-Pozzi, 368 F.3d 5, 8 (1st
Cir. 2004)).
1.
Cadden contends that the District Court erred in finding
that all NECC proceeds obtained during the relevant period were
- 77 -
"obtained" "from racketeering activity." When property interests
are "in a" racketeering enterprise, they are subject to forfeiture
"in their entirety, regardless of whether some portion of the
enterprise is not tainted by the racketeering activity." United
States v. Angiulo, 897 F.2d 1169, 1211 (1st Cir. 1990). Property
interests "outside the enterprise," on the other hand, are "subject
to a rule of proportionality," and are only forfeitable "to the
extent they are tainted by the racketeering activity." Id. at
1211-12.
We have held that "proceeds or profits" of racketeering
activity are "outside interests . . . subject to a rule of
proportionality."17 Id. at 1212. Thus, their treatment "is in
17 The racketeering statute has been modified from the one
applied by the Angiulo court. At the time the forfeiture order at
issue in Angiulo was issued, racketeering proceeds were treated as
forfeitable because they were considered to be "interest[s]" that
the defendant "has acquired or maintained in violation of section
1962," which laid out the substantive racketeering offenses. 18
U.S.C. § 1963(a)(1) (1982); see Angiulo, 897 F.2d at 1211-12.
Today, however, "property constituting, or derived from, any
proceeds which the person obtained, directly or indirectly, from
racketeering activity . . . in violation of section 1962" is
explicitly identified as a ground for forfeiture under the statute.
18 U.S.C. § 1963(a)(3). Neither party argues that Congress's
decision to explicitly identify "proceeds" as a type of forfeitable
property has any practical effect on the analysis. But, to the
extent it matters, the current statute presents a stronger case
for imposing a proportionality rule on proceeds, as it limits
forfeiture to "proceeds which the person obtained . . . from
racketeering activity," id. (emphasis added), not the broader
racketeering enterprise.
- 78 -
contrast to the treatment of interests in an enterprise, which are
forfeitable regardless of percentage of taint." Id.
The government suggests, based on Angiulo, that Cadden's
proceeds may constitute interests in the racketeering enterprise
rather than interests outside of it. But, the government offers
no support for this broad definition of interests in an enterprise,
particularly given that the government's authority to seek and
obtain "interests in" the enterprise arises from a distinct
statutory provision that the government did not rely on in seeking
a forfeiture order against Cadden. See 18 U.S.C. § 1963(a)(2)(A)
(requiring the forfeiture of "any interest in . . . any enterprise
which the person has established, operated, controlled, conducted,
or participated in the conduct of, in violation of section 1962").
Nor does the government explain how we may ignore the clear command
of Angiulo that "proceeds . . . are only subject to forfeiture to
the extent they are tainted by the racketeering activity." 897
F.2d at 1212.
In the alternative, the government contends as follows.
Even if a proportionality rule should have been applied, as Cadden
argues, it was harmless not to apply it. The government argues
that all the medications that NECC manufactured during the relevant
period were subject to forfeiture, as they were all tainted by
racketeering activity.
- 79 -
In making this argument, the government contends that
all of NECC's medications were produced fraudulently and that,
even if they were not, customers would not have purchased the
legitimately produced medications had they known about NECC's
history of fraud. As we have already explained, however, the
District Court supportably found at sentencing that the government
failed to prove that all of NECC's sales over the period in
question were generated by fraud. The government likewise presents
no authority for the proposition that profits from non-fraudulent
sales of NECC could be considered "proceeds which [a] person
obtained, directly or indirectly, from racketeering activity." 18
U.S.C. § 1963(a)(3). Given that these profits were not obtained
from the racketeering activity of mail fraud that formed the basis
of Cadden's convictions, but rather from legitimate, non-
racketeering activity, we see no reason to adopt the government's
expansive reading of the forfeiture statute. Nor did the
government develop an argument below for why all the proceeds of
Cadden's from NECC were tainted by racketeering activity, and thus
the District Court made no findings on this precise point.
Accordingly, while we do not make a finding about what specific
amount of Cadden's proceeds were tainted by racketeering activity,
we cannot agree with the government on the basis of this record
that all of them were, and we are thus unable to affirm the District
Court on this alternative basis. We therefore vacate and remand
- 80 -
for the District Court to assess in the first instance the
arguments of Cadden and the government, based on this record, about
the portion of Cadden's earnings from NECC over the relevant time
period that were tainted by racketeering activity and therefore
subject to forfeiture.
2.
Next, we consider Cadden's contention that the District
Court erred in calculating the forfeiture amount without deducting
the amount in taxes that he paid on those proceeds. We disagree.
In general, the word "proceeds" in the forfeiture
statute refers to gross proceeds, not net profits. United States
v. Hurley, 63 F.3d 1, 21 (1st Cir. 1995). In addition, per the
statute, "property should be regarded as 'obtained' . . . when it
has merely been held in custody" before being "passed along to its
true owner." Id. Cadden clearly "obtained" the amount of funds
subject to forfeiture before they were subject to taxation. We
thus do not see why that gross amount is not subject to forfeiture,
even though the amount he obtained was itself taxable.
Cadden does argue that the ease of calculating Cadden's
net proceeds, because of the clear evidence of his tax liability,
renders this case one in which his forfeiture should be based on
net proceeds instead of gross proceeds. But, Hurley did not merely
establish a fallback procedure for estimating the value of proceeds
in the face of a messy factual record. It purported to interpret
- 81 -
the words "proceeds" and "obtain[]" in a statute, 18 U.S.C. § 1963.
See 63 F.3d at 21. Thus, while Hurley noted the concern that net
proceeds would be difficult to calculate, we read it to have based
its reading of the statute on other rationales -- including the
legislative history indicating Congress's desire to give the
statute a broad reach, among others -- that are no less relevant
when applied to the circumstances of Cadden's gains. See 63 F.3d
at 21; see also Clark v. Martinez, 543 U.S. 371, 380 (2005) ("It
is not at all unusual to give a statute's ambiguous language a
limiting construction called for by one of the statute's
applications, even though other of the statute's applications,
standing alone, would not support the same limitation. The lowest
common denominator, as it were, must govern.").
Finally, Cadden points to Seventh Circuit cases that, he
contends, "used a net proceeds approach when the relevant figures
were readily ascertainable." See United States v. Genova, 333
F.3d 750, 761 (7th Cir. 2003) (defining "proceeds" as "profits net
of the costs of the criminal business"); United States v. Masters,
924 F.2d 1362, 1369-70 (7th Cir. 1991) ("[T]he proceeds to which
the statute refers are net, not gross, revenues . . . ."). We
have previously recognized, however, that in this respect, the
Seventh Circuit's precedent is in conflict with our own. See
United States v. Iacaboni, 363 F.3d 1, 4 (1st Cir. 2004). Because
- 82 -
these cases reach a different conclusion than what our own
precedent requires, they are of no assistance to Cadden.18
3.
The government, for its part, takes issue with another
aspect of the District Court's forfeiture calculation. Cadden's
wife Lisa, like Cadden, was a part-owner of NECC, and, like Cadden,
she received proceeds in consequence of her ownership stake in the
company. These proceeds were deposited in a bank account that
Lisa Cadden jointly controlled with Cadden. The District Court
declined to require Cadden to forfeit the amounts attributable to
his wife's earnings, however, reasoning that the sought-after
forfeiture order would impermissibly claw back from Cadden gains
that were properly attributable to someone else -- his wife.
So long as the proceeds in question were tainted by
racketeering activity, we agree with the government that the
forfeiture amount should not have been limited to the NECC-derived
proceeds that were attributable to Barry rather than Lisa Cadden.
While Barry Cadden may not have personally earned any of the
18 Cadden does not argue that our conclusion in Hurley is
affected by United States v. Santos, 553 U.S. 507 (2008),
superseded by statute, Fraud Enforcement and Recovery Act of 2009,
Pub. L. No. 111-21, § 2(f)(1), 123 Stat. 1617, 1618, in which five
justices of the Supreme Court agreed that the word "proceeds" in
a different forfeiture statute, 18 U.S.C. § 1956, did not mean
"gross profits." Cf. United States v. Bucci, 582 F.3d 108, 122-
24 (1st Cir. 2009) (considering whether Santos affects the "gross
profits" issue in another forfeiture statute). We thus assume
Hurley remains good law.
- 83 -
tainted proceeds stemming from his wife's involvement in NECC, he
"obtained" them "from racketeering activity" within the meaning of
18 U.S.C. § 1963(a)(3).
The key preliminary question is whether Cadden
"obtained" the NECC earnings that Lisa Cadden deposited in their
joint account at all. And, on this point, we see little doubt.
The Supreme Court has noted that, during the time period in which
§ 1963(a)(3) was enacted, "the verb 'obtain' was defined as 'to
come into possession of' or to 'get or acquire,'" and "[t]hat
definition persists today." Honeycutt v. United States, 137 S.
Ct. 1626, 1632 (2017) (quoting Random House Dictionary of the
English Language 994 (1966)). And, we have held that a person
obtains property even when the property is merely "held in custody"
before being "passed along to its true owner." Hurley, 63 F.3d at
21. Given Barry Cadden's status as a party to the joint account
he shared with his wife, he had "the right to withdraw all the
funds" from the account, "or any portion of them," and therefore
could "effectively exercise control over the entire interest, or
any part of it, and divest totally or partially, the interest of"
his wife. United States v. U.S. Currency, $81,000.00, 189 F.3d
28, 34 (1st Cir. 1999) (quoting Heffernan v. Wollaston Credit
- 84 -
Union, 567 N.E.2d 933, 937 (Mass. App. Ct. 171)).19 This was more
than sufficient for acquisition purposes.
It is true that a racketeering offender is not required
to forfeit all of the "proceeds" he "obtained," but only those
that he "obtained, directly or indirectly, from racketeering
activity." 18 U.S.C. § 1963(a)(3). It is also true that the
racketeering activity itself must have led to the acquisition of
the proceeds. See Angiulo, 897 F.2d at 1213 (noting that
"defendants' racketeering activities must be shown to be 'a cause
in fact of the acquisition or maintenance of [forfeitable]
interests,'" including proceeds (quoting United States v. Horak,
833 F.2d 1235, 1243 (7th Cir. 1987))). But, even accepting,
favorably to Cadden, that the forfeiture statute imposes not merely
a but-for causation requirement but a proximate causation
requirement as well, we do not see how this additional limitation
would support the District Court's holding.
The District Court has not yet determined what amount of
the NECC proceeds Lisa Cadden obtained were tainted by racketeering
activity -- an issue that, as noted, it will need to resolve on
remand -- but we may assume that at least some of her earnings can
19
The government asserts that Massachusetts law governs, and
Cadden does not dispute this assertion. In any case, however, we
see no reason to think that Cadden would not have "obtained" the
funds deposited in his jointly controlled account regardless of
which state's law applied, given his ability to withdraw and spend
the funds.
- 85 -
be traced to fraudulent NECC sales. Insofar as that is the case,
the record shows that Cadden would have been well aware that the
mail fraud would generate profits that would accrue to him via his
wife's ownership share in NECC. Lisa Cadden had been a co-owner
of the company since its inception in 1998, and the record shows
that over that time period, she deposited the shareholder
distributions that she received into bank accounts she jointly
owned with her husband. There is little doubt that, as her husband
and the head of NECC, Barry Cadden would have been aware of this,
and he does not contend otherwise. Thus, it was a direct and
foreseeable consequence of Barry Cadden's mail fraud activity that
some NECC earnings attributable to that fraud would pass on to
Lisa Cadden and into the bank account she shared with him, such
that any proximate cause limitation imposed by the forfeiture
statute is satisfied here. See CSX Transp., Inc. v. McBride, 564
U.S. 685, 701 (2011) (discussing different definitions of
proximate cause).
Cadden's arguments to the contrary are not persuasive.
He contends that a party to a joint account does not necessarily
"own" the account. But, the test is whether he "obtained" the
funds, and, as noted, a party does not need to have owned property
to have obtained it for the purposes of § 1963(a)(3). See Hurley,
63 F.3d at 21. He also contends that, in line with Honeycutt,
forfeiture under § 1963(a)(3) "is limited to property the
- 86 -
defendant himself actually acquired as the result of the crime."
137 S. Ct. at 1635. Because Lisa Cadden was an "innocent" party,
he argues that it would unfair to penalize him on the basis of her
earnings. Even assuming that this holding of Honeycutt applies to
§ 1963(a) -- and is not limited to the statute at issue there, 21
U.S.C. § 853 -- it provides no support for Cadden's position,
however, because as a party to the jointly controlled account,
Cadden himself "actually acquired" the funds at issue. Because we
hold that Cadden "obtained" the NECC "proceeds" that Lisa Cadden
deposited in the couple's joint bank account, we remand for the
District Court to consider what amount of Lisa Cadden's earnings
should be included in Barry Cadden's forfeiture order because they
were tainted by racketeering activity.
VIII.
This case was extremely complex. The District Court was
faced with a number of novel issues and emotionally fraught
evidence concerning the most serious type of allegations. We
commend its handling of this difficult case, and, for the reasons
stated above, affirm Cadden's convictions, though we vacate and
remand Cadden's sentence, and vacate and remand the forfeiture
order entered against him.
- 87 -