United States v. Chenhsin Chan

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 16-17797
Non-Argument Calendar
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D.C. Docket No. 1:14-cr-00203-ODE-AJB-1
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
CHENHSIN CHAN,
a.k.a. Paul Chan,
Defendant-Appellant.
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Appeal from the United States District Court
for the Northern District of Georgia
________________________
(April 4, 2018)
Before ED CARNES, Chief Judge, TJOFLAT, and NEWSOM, Circuit Judges.
PER CURIAM:
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A jury convicted Chenhsin Chan of ten counts of mail fraud, 18 U.S.C.
§§ 1341 and 2, ten counts of introducing adulterated food into interstate commerce,
id. §§ 331(a) and 333(a)(2), five counts of distributing a listed chemical, 21 U.S.C.
§ 841(f)(1) and 18 U.S.C. § 2, and five counts of money laundering, id. §§ 1957
and 2. All of those counts relate to a seven year scheme through which Chan made
millions selling dietary supplements containing ephedrine. The jury returned a
special verdict finding certain assets forfeitable, including several rare gold coins, a
Lamborghini, a house in New York, and $666,000 cash. The district court
sentenced Chan to 135 months and ordered him to forfeit specified assets. Chan
appeals his convictions and sentence.
I.
In 2004 the Food and Drug Administration banned dietary supplements
containing ephedrine by deeming them “adulterated foods.” 21 C.F.R. § 119; see
21 U.S.C. § 331(a) (prohibiting introduction of adulterated foods into interstate
commerce). Because ephedrine can be used to make methamphetamine, it is a “list
I” chemical, 21 U.S.C. § 802(34)(C), and anyone seeking to distribute it must get
authorization from and register with the Drug Enforcement Agency, id. § 823(h).
At trial the government presented evidence that from 2005 to 2012 Chan
operated a website that sold dietary supplements containing ephedrine. Testimony
showed that Chan never registered with the DEA and received warnings that it was
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illegal to sell supplements containing ephedrine. An FDA investigator testified
that in 2005 he told Chan that the FDA had adopted a rule banning supplements
containing ephedrine. Chan told the investigator that he thought the FDA rule was
suspended because a Utah district court ruled that it exceeded the FDA’s statutory
authority. The investigator told Chan that the FDA rule remained in effect.
Despite that warning, Chan continued to sell supplements containing
ephedrine. His source was a company called Hi-Tech Pharmaceuticals. Hi-Tech
employees testified that the company stopped producing supplements containing
ephedrine in 2006 but continued to sell leftovers to Chan. One employee sold
Chan supplements containing ephedrine in 2009. That employee knew the
supplements were banned in the United States but thought they could be exported,
so he put a notice to that effect in each shipment. Another employee said that he
told Chan that the supplements were banned after seeing them on Chan’s website.
Chan kept selling supplements containing ephedrine until August 2012,
when federal agents executed a search warrant on Chan’s parents’ home and seized
more than 100 boxes of supplements. They also executed a search warrant on
Chan’s car and seized supplements and incorporation records for the company
through which Chan sold those supplements. Two FDA chemists testified that
several seized supplements tested positive for ephedrine.
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A fraud examiner who reviewed Chan’s bank records testified that he had
deposited into his account more than $11 million from website sales. The
examiner testified that Chan withdrew funds from that account to purchase a
Lamborghini, a Mercedes Benz, a house in New York, and several rare gold coins.
An FDA agent testified that Chan used a system called CartManager to
process credit card payments for website purchases. The agent isolated sales
figures for dietary supplements containing ephedrine and concluded that Chan
received in excess of $4.5 million from selling supplements containing ephedrine.
The agent also testified about statements that Chan published on his website
about the legality of ephedrine. He introduced screen captures of the website from
2005 to 2012, one of which stated that “[t]he FDA has approved the use of
Ephedrine . . . for the treatment of asthma, colds, allergies, or any other disease.”
Another, titled “Is Ephedra legal,” stated:
Let me answer that question by saying that ephedrine has never been
illegal. It is legal to purchase ephedrine both natural and synthetic
(Ephedrine HCL made by Vasopro) for its intended use which is a
decongestant and bronchodilator. It will also provide energy, appetite
suppression and increase your metabolism which leads to weight loss.
It will also increase your blood pressure so do not take it with any
blood pressure medication, antidepressants or if you have a history of
heart disease. Read all warnings before using and consult with your
physician before use.
The agent testified that those statements were false and misleading because Chan’s
website sold only dietary supplements, not bronchodilators or decongestants.
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Several customers testified that they bought dietary supplements containing
ephedrine from Chan’s website and that they believed those supplements were
legal to sell and safe to use. Some customers testified that they experienced
adverse effects from the supplements, including headaches, anxiety, and nausea.
The jury ultimately convicted Chan of all 30 counts, which yielded a
guidelines range of 262 to 327 months imprisonment. The district court varied
downward and sentenced him to 135 months. It also ordered him to forfeit assets
obtained by the fruits of his offenses. This is Chan’s appeal.
II.
Chan raises six issues on appeal. We address each in turn.
A.
Chan contends that the evidence was insufficient to sustain the mail fraud
convictions. We review de novo the sufficiency of the evidence, viewing the
evidence and drawing all inferences from it in favor of the verdict. United States
v. Isaacson, 752 F.3d 1291, 1303 (11th Cir. 2014). Chan did not preserve this
issue, so we will not disturb the verdict unless failure to do so would result in a
miscarriage of justice. United States v. Tapia, 761 F.2d 1488, 1491 (11th Cir.
1985).
Chan argues that the government failed to prove “an intentional participation
in a scheme to defraud.” United States v. Smith, 934 F.2d 270, 271 (11th Cir.
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1991). He asserts that his mail fraud convictions cannot stand because the
government did not prove that his customers relied on his false and misleading
statements. But reliance is not an element of mail fraud. See United States v.
Clay, 832 F.3d 1259, 1309 (11th Cir. 2016).
Relying on United States v. Takhalov, 827 F.3d 1307 (11th Cir. 2016), Chan
argues that he did not defraud his customers because they “got exactly what they
paid for” and as a result his statements did not mislead them about the “nature of
the bargain.” Id. at 1312. But his customers did not get “exactly what they paid
for” because they paid for supplements that were legal to sell and safe to consume.
There is ample evidence to sustain the mail fraud convictions and letting them
stand will not result in a miscarriage of justice. 1
B.
Chan contends that the district court erred by declining to notice the FDA
rule banning ephedrine. He sought to introduce that rule to substantiate the
statement on his website that the FDA approved the use of ephedrine for “any
other disease.” We review evidentiary rulings only for an abuse of discretion.
United States v. Henderson, 409 F.3d 1293, 1297 (11th Cir. 2005). We need not
1
Chan also argues that the indictment was insufficient to charge him with the mail fraud
counts, but that argument merely rehashes his meritless sufficiency-of-the-evidence claim. His
argument does not assert any of the grounds on which an indictment can be attacked as
insufficient. See United States v. Woodruff, 296 F.3d 1041, 1046 (11th Cir. 2002) (listing three
grounds on which a defendant can attack the sufficiency of an indictment). Instead, it asserts that
the government failed to prove that he participated in a scheme to defraud instead of a scheme to
deceive, which is just another way of putting his sufficiency-of-the-evidence claim.
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disturb the verdict to correct an evidentiary error unless it substantially influenced
the outcome. United States v. Fortenberry, 971 F.2d 717, 722 (11th Cir. 1992).
Chan argues that the district court erroneously concluded that the FDA rule
was irrelevant or likely to confuse the jury. He asserts that the rule was relevant
because it was the source of the statements he “paraphrased” on his website. But
Chan’s website badly misstated the FDA rule. Compare Doc. 1 at 2 (“The FDA
has approved the use of Ephedrine . . . for the treatment of asthma, colds, allergies,
or any other disease.”), with 69 Fed. Reg. at 6793 (“The use of ephedrine . . . for
the treatment of asthma, colds, allergies, or any other disease is beyond the scope
of this final rule.”). And admitting the rule as evidence could have frustrated the
district court’s ability to instruct the jury on the law. See United States v. Oliveros,
275 F.3d 1299, 1306–07 (11th Cir. 2001) (“Domestic law is properly considered
and determined by the court whose function it is to instruct the jury on the law;
domestic law is not to be presented through testimony and argued to the jury as a
question of fact.”). As a result, the court was correct to exclude the FDA rule
because it would not have made the truthfulness of Chan’s statements any more
probable and could have confused the jury. Fed. R. Evid. 401; 403.
Alternatively, even if the court erred by excluding the rule, any error was
harmless because it did not substantially influence the outcome. Fortenberry, 971
F.2d at 722. The government produced ample evidence showing that Chan’s
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statements were false and misleading, including testimony by the FDA agent and
by customers who were in fact misled by those statements. The court’s exclusion
of the FDA rule did not substantially influence the outcome of the case.2
C.
Chan contends that the district court erred in calculating his base offense
level by applying United States Sentencing Guidelines § 2D1.11 instead of
§ 2D1.13. We review de novo the district court’s application of the guidelines.
United States v. Arguedas, 86 F.3d 1054, 1059 (11th Cir. 1996).
The jury convicted Chan for knowingly distributing a listed chemical in
violation of 21 U.S.C. § 841(f)(1). Appendix A of the guidelines specifies that
courts should apply either § 2D1.11 or § 2D1.13 to convictions under § 841(f)(1).
Section 2D1.11, titled “Unlawfully distributing, importing, exporting, or
possessing a listed chemical,” provides for a base offense level of 38 if the offense
involved at least 9 kilograms of ephedrine. Id. § 2D1.11(d)(1). It provides a three-
level reduction for defendants who did not know that the chemical they distributed
would be used to manufacture a controlled substance. Id. § 2D1.11(b)(2). By
contrast, § 2D1.13, titled “Structuring chemical transactions or creating a chemical
2
Chan argues that 44 U.S.C. § 1507 required the district court to take judicial notice of
the FDA rule. Because he did not raise that argument below, we review it only for plain error.
United States v. King, 73 F.3d 1564, 1571 (11th Cir. 1996). As already discussed, the court did
not err by excluding the FDA rule. And even if it did, Chan cannot show that error “seriously
affect[ed] the fairness, integrity or public reputation of the judicial proceedings” because there
was ample evidence supporting the verdict. See United States v. Hall, 314 F.3d 565, 566 (11th
Cir. 2002).
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mixture to evade reporting or recordkeeping requirements; presenting false or
fraudulent identification to obtain a listed chemical,” provides for a base offense
level of six unless the defendant knew that the chemical he distributed was to be
used to manufacture a controlled substance. Id. § 2D1.13.
The district court properly applied § 2D1.11. Its title expressly covers
Chan’s offense of distributing more than 11 kilograms of ephedrine. Id. § 2D1.11.
By contrast, § 2D.1.13 applies to mere record-keeping or document fraud
violations, like creating a chemical mixture to evade record-keeping requirements
or presenting false documentation to obtain a listed chemical. Id. § 2 D1.13. Chan
asserts that § 2D1.11 applies only when a defendant intended that the distributed
chemical be used to manufacture a controlled substance. But § 2D1.11 includes a
reduction for defendants who did not know that the listed chemical they distributed
would be used to manufacture a controlled substance, which shows that § 2D1.11
applies even if a defendant did not intend for the chemical to be used to
manufacture a controlled substance.
D.
Chan contends that the district court erred by including in the loss amount
nearly $2 million in sales that occurred between April 2005 and August 2007. We
review for clear error the district court’s factual findings related to sentencing
enhancements. United States v. Barakat, 130 F.3d 1448, 1452 (11th Cir. 1997).
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Chan argues that the legality of the FDA rule was “in flux” between 2005
and 2007 because a Utah district court decided in 2005 that the rule exceeded the
FDA’s statutory authority and because his supplier, Hi-Tech, challenged the FDA
rule in a Georgia district court. Those proceedings had no effect on the legality of
the FDA rule as to Chan because district court judges “lack authority to render
precedential decisions binding other judges, even members of the same court.”
Am. Elec. Power Co., Inc. v. Connecticut, 564 U.S. 410, 428, 131 S. Ct. 2527,
2540 (2011). And an FDA agent informed Chan in 2005 that the rule was in full
effect. The court did not err by including sales from 2005 to 2007 in the loss
amount.
E.
Chan contends that his sentence was substantively unreasonable because it
resulted in an unwarranted sentence disparity with other ephedrine distributors.
We review the reasonableness of Chan’s below-guidelines sentence only for abuse
of discretion. Gall v. United States, 552 U.S. 38, 41, 128 S. Ct. 586, 591 (2007).
“A well-founded claim of disparity . . . assumes that apples are being compared to
apples.” United States v. Docampo, 573 F.3d 1091, 1101 (11th Cir. 2009).
Chan argues that the district court erred by failing to consider that two of his
suppliers at Hi-Tech Pharmaceuticals received lower sentences than he did. But
neither was similarly situated to Chan. Unlike Chan, both suppliers pleaded guilty.
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One supplier was not prosecuted for distributing ephedrine or defrauding
customers about the legality of supplements containing ephedrine. The other was
convicted of only one count of mail fraud and one count of introducing adulterated
foods into interstate commerce. By contrast, a jury convicted Chan of ten counts
of mail fraud, ten counts of introducing adulterated food into interstate commerce,
five counts of distributing a listed chemical, and five counts of money laundering.
Put simply, an apples-to-apples comparison is impossible when Chan went
to trial and was convicted of 30 counts while his suppliers pleaded guilty and were
convicted of 3 counts total. The district court did not abuse its discretion by
declining to consider sentencing disparities between Chan and his suppliers.
F.
Chan contends that the forfeiture of his house is disproportionate to the
gravity of his offense and violates the Eighth Amendment. We review de novo the
district court’s legal conclusions regarding forfeiture and its findings of fact for
clear error. United States v. Puche, 350 F.3d 1137, 1153 (11th Cir. 2003).
There is a strong presumption that a criminal forfeiture is not excessive if it
is within the statutory range of fines prescribed by Congress. United States v.
Dicter, 198 F.3d 1284, 1292 (11th Cir. 1999). The maximum fine for a money
laundering conviction is twice the amount of the criminally derived property
involved in the transaction, 18 U.S.C. § 1957(b)(2), which in this case would
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presumptively permit forfeiture of property up to about $8 million in value. Chan
concedes that the forfeited house is worth less than the proceeds he obtained
through his mail fraud scheme.
Chan’s sole argument against the forfeiture of his house is that part of the
funds he used to purchase it was legitimately obtained. He offers no evidence to
support that argument. Absent any evidence showing that Chan used legitimate
funds to purchase the forfeited property, he cannot overcome the presumption that
the forfeiture was not excessive because it was well within the statutory range of
fines prescribed by Congress. See Dicter, 198 F.3d at 1292. The district court did
not err by ordering Chan to forfeit his house.
AFFIRMED.
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