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United States v. Smith

July 28, 2009


Appeal from the United States District Court for the District of Minnesota.

The opinion of the court was delivered by: Melloy, Circuit Judge.

Submitted: February 11, 2009

Before LOKEN, Chief Judge, MELLOY and BENTON, Circuit Judges.

This case involves the prosecution of a businessman who sold millions of dollars of prescription drugs over the Internet without valid prescriptions. A jury convicted Christopher William Smith of conspiracy to distribute and dispense controlled substances without an effective prescription in violation of 21 U.S.C. §§ 841(a)(1), 841(b)(1)(D), and 846; aiding and abetting the unlawful distribution of controlled substances in violation of 21 U.S.C. §§ 841(a)(1) and 841 (b)(1)(D), and 18 U.S.C. § 2; aiding and abetting the introduction of misbranded drugs into interstate commerce in violation of 21 U.S.C. §§ 331(a), 333(a)(2), and 353(b)(1), and 18 U.S.C. § 2; conspiracy to commit money laundering in violation of 18 U.S.C. § 1956(h); and continuing criminal enterprise in violation of 21 U.S.C. § 848(a) and (c). Applying the U.S. Sentencing Guidelines, the Presentence Investigation Report ("PSR") calculated a total offense level of 42, a Category I criminal history, and a resulting advisory imprisonment range of 360 months to life. The district court imposed a sentence of 360 months' imprisonment and five years' supervised release.

Smith appeals, challenging his convictions for the above-described offenses on several grounds. He also contests his sentence, arguing that the district court committed a non-harmless procedural error in violation of Supreme Court's ruling in Gall v. United States, 128 S.Ct. 586 (2007), and that his sentence is substantively unreasonable. We affirm the convictions, vacate the sentence, and remand for resentencing in light of Gall.


Smith first began selling prescription drugs through Internet websites and spam emails in 2004. Smith's business used several different names during its existence, including Xpress Pharmacy Direct ("Xpress") and Online Payment Solutions ("OPS"). After taking an order online, Smith would distribute controlled substances from abroad to numerous customers throughout the United States. He employed no medical doctors and sold drugs without prescriptions. When his business began experiencing shipping problems, however, Smith limited his operations to the United States. Faced with a stricter regulatory regime, Smith developed an online questionnaire that he required his customers to complete prior to obtaining prescription drugs through his sites. The questionnaire required the customer's name, address, date of birth, phone number, height, and weight. It allowed customers to select the type of drug that they wanted to receive and in what quantity. There was also a place on the questionnaire for the customer to list a purported medical condition and any medical allergies. No additional evidence of a purported ailment was required.

Sometime in July 2004, Smith began employing Philip Mach, M.D., to issue prescriptions to the customers who had filled out the questionnaires posted on Smith's sites. In addition to being involved with other online prescription sites, Dr. Mach ran a traditional medical practice in New Jersey, the only state in which he was licensed to practice medicine. To receive Dr. Mach's "prescriptions," Smith set up a computer system by which Dr. Mach could log on daily and review the orders that customers had placed through Smith's sites. Dr. Mach was therefore never required to examine these customers face-to-face, review their official medical records, or in any way verify the limited information and claims that these customers had submitted on the questionnaires. The system's default was that all orders would be marked "approved," and the evidence at trial established that even in instances where Dr. Mach rejected a claim, Smith resubmitted the request for additional review (at which time it was approved). Despite the customers' lack of interaction with Dr. Mach, each "prescription" he issued stated that it was provided following a "doctor consultation."

In addition to the Internet sites, Smith ran call centers both in the United States and abroad. Customers who wished to place an order for a prescription drug could call a center, and operators would fill out a form similar to the online questionnaire. At Smith's direction, however, the operators employed at the centers also frequently called prior customers to ask whether they wanted drug refills. Because Smith paid the operators a commission, the more drugs the operators sold the more money they made. Testimony established that the entire purpose of the centers was to "sell, sell, sell."

Despite allegedly requiring particular information, many of the questionnaires upon which Dr. Mach issued drugs were lacking in the information necessary for a physician to issue an appropriate prescription. Some customers requested controlled substances that were in no way related to their claimed ailments, yet Dr. Mach provided "prescriptions" and Smith provided drugs. Some forms lacked basic identifying information. For example, one questionnaire used an obscene word instead of a name. Even in that case, however, Dr. Mach provided the "prescription," and Smith provided the drugs. At one point, during an investigation of Smith's operations, an undercover agent from the Food and Drug Administration ("FDA") made three purchases of controlled substances and three purchases of non-controlled substances through one of Smith's sites with false information about both his identity and medical conditions. At no point did Smith or Dr. Mach contact him to verify any of the information contained on his questionnaires for any of the purchases.

During his work with Smith's online sites and call centers, Dr. Mach approved thousands of "prescriptions" per day and was ultimately responsible for issuing over 72,000 orders for pharmaceuticals from July 2004 until mid-2005. The total drug sales for Smith's operation at the time it was shut down in May 2005 was over $24 million. The high rate of prescription approval and the resulting income was not unanticipated, however, as Smith only compensated Dr. Mach for those orders that Dr. Mach approved. For each "prescription" that Dr. Mach issued, Smith would pay him $3.50. Smith paid another $3.50 to a middle man from New Jersey, John Guerriero, who had connected Dr. Mach with Smith. Despite attempts to recruit additional physicians, Smith was unable to solicit anyone other than Dr. Mach to participate in his business.

Smith's online sites were not licensed to distribute controlled substances directly. As a result, he sought out licensed "brick and mortar" establishments to fill his orders once Dr. Mach issued a "prescription." Smith targeted small, independent pharmacies in numerous states that he believed would become economically dependent on him and refrain from questioning his business model. Smith attempted to assuage any fears that the pharmacies raised by assuring them that he was not dealing in illegitimate Internet prescriptions but that each prescription was a legitimate prescription backed by numerous physicians. He claimed that in states where a face-to-face meeting was required by law, the prescriptions were issued only after consultation with the customers' primary-care physicians. Additionally, the contracts that Smith entered into with these pharmacies stated that his model was FDA approved and that each "prescription" was issued only after a doctor--patient consultation. When pharmacies questioned the volume of orders for hydrocodone-a powerful painkiller sold under brand names such as Vicodin and Norco-Smith would shift orders to other pharmacies. This shifting occurred several times, as the majority of the "prescriptions" Dr. Mach issued were for hydrocodone. Smith sold over four-million tablets of this drug in addition to a much lesser quantity of non-controlled medication.*fn1 Smith's business also had a problem with "returned drugs," or those drugs that customers could not receive because they were unable to pay for them cash-on-delivery. Despite the fact that Smith was not authorized to handle controlled substances and despite the fact that the drugs originally came from traditional brick-and-mortar pharmacies, the drugs were returned to one of his offices in violation of federal law.

Around February 2005, the Drug Enforcement Administration ("DEA") issued a nationwide directive to pharmacies warning about the legitimacy of online pharmaceutical operations. The directive explicitly asserted that a questionnaire was an insufficient method to establish a doctor--patient relationship, as required by federal statute and regulations. Many of the pharmacies that Smith used to fill Dr. Mach's "prescriptions" threatened to quit unless Smith provided them with assurances that his business model was in compliance with the DEA directive. In response, Smith arranged to have Dr. Mach and Smith's attorney send a letter to the pharmacies. The letter stated that Smith's business issued valid prescriptions based on legitimate doctor--patient relationships. Smith concedes that some of the claims made in the letter were false.

Throughout Xpress and OPS's existence, other organizations and businesses, including boards of pharmacies and the credit-card company, Mastercard, contacted Smith with concerns about the legality of his operation. As it became clear to Smith that he was the target of a criminal investigation, he began moving operations to Canada, along with the laundered proceeds from the drug sales and the personal property he purchased with those proceeds.

In May 2005, the district court entered a preliminary injunction that shut down Smith's online business. The order froze Smith's bank accounts and assets and further enjoined Smith from operating any online pharmacy. In violation of that order, Smith immediately traveled to the Dominican Republic in hopes of setting up another online site there, and he even developed a plan to flee permanently from the United States to avoid trial. When he returned to the United States, he was arrested for contempt and released on bond. Smith was indicted in August 2006 and jailed. Even while in jail, he continually violated the preliminary injunction by attempting to start a new online pharmacy and arranging cash transfers. Smith ultimately was transferred to a maximum-security facility in response to claims that he had threatened to kill a witness. Smith's trial began on October 10, 2006, and on November 22, 2006, a jury found him guilty of the nine counts charged in the Indictment. At various points during the trial and investigation, several of his coconspirators pleaded guilty to conspiracy to distribute controlled substances. These coconspirators included Dr. Mach, a pharmacy recruiter, a business consultant, a computer programmer, and the person who had served as head of security for Smith's business.

Smith challenges his convictions on numerous grounds. First, he alleges that the district court erred in instructing the jury that a prescription's validity under 21 C.F.R. § 1306.04 is determined by generally accepted medical practices rather than the specific, regular practice of the issuing doctor. Smith also claims this instruction incorporated a civil-liability standard and violated the rule of lenity. Second, Smith argues that the court erred in instructing the jury that a prescription must be valid in order to preclude a charge of misbranding under 21 U.S.C. §§ 331(a), 333(a)(2), and 353(b)(1), and that the court's instruction again violated the rule of lenity. Third, Smith challenges the court's failure to exclude certain expert testimony from a pharmacist, as well as other "prejudicial" testimony. Finally, Smith contends that insufficient evidence supported his conviction under 21 U.S.C. §§ 841(a)(1), 841(b)(1)(D), and 846. We address each of these claims in turn.


"We review challenges to jury instructions for an abuse of discretion" and "will affirm if the entire charge to the jury, when read as a whole, fairly and adequately contains the law applicable to the case." United States v. Webster, 442 F.3d 1065, 1067 (8th Cir. 2006) (internal quotations omitted). Only where the "instructional error was prejudicial to the defendant" will we reverse. Id.

A. Definition of "Prescription" Under 21 C.F.R. § 1306.04

Section 841(a)(1) of the Controlled Substances Act ("CSA") makes it "unlawful for any person knowingly or intentionally... to manufacture, distribute, or dispense... a controlled substance" unless that person is a registered person acting pursuant to an effective prescription. See 21 U.S.C. §§ 841(a), 822(b); 21 C.F.R. § 1306.04. Title 21 C.F.R. § 1306.04 describes the conditions under which a registered person can distribute a controlled substance and requires that, to be "effective," a prescription must be "issued for a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice." 21 C.F.R. § 1306.04 (emphasis added); see 21 U.S.C. § 802(21) (defining "practitioner" as a person who is "licensed, registered, or otherwise permitted... to distribute [or] dispense... a controlled substance in the course of professional practice" (emphasis added)). Lay persons who conspire with or aid and abet a practitioner's unlawful distribution of drugs can be convicted under the CSA and its regulations. See, e.g., United States v. Hicks, 529 F.2d 841, 844 (5th Cir. 1976) (security guard); United States v. Green, 511 F.2d 1062, 1070--71 (7th Cir. 1975) (pharmacy owner). The CSA also reaches the distribution of controlled substances over the Internet. United States v. Fuchs, 467 F.3d 889, 896 (5th Cir. 2006); United States v. Nelson, 383 F.3d 1227, 1228--29 (10th Cir. 2004).

Smith was convicted of conspiracy to distribute controlled substances and aiding and abetting the distribution of controlled substances without an effective prescription. The instruction the district court provided the jury largely tracked the language of § 1306.04. The instruction provided:

The [Act] is not violated if a person distributes or dispenses controlled substances pursuant to a lawful prescription issued for a legitimate medical purpose [] by an individual practitioner acting in the usual course of his or her professional practice....

The court further defined "usual course of professional practice" as requiring that the practitioner [have] acted in accordance with a standard of medical practice generally recognized and accepted in the United States. In issuing prescriptions, practitioners are not free to disregard prevailing standards of treatment.

Smith contends that the instruction was improper because the court's definition of "usual course of professional practice" ignored the subjective element embodied in § 1306.04's use of the term "his," thus contravening the plain language of the regulation. He argues that "his professional practice" is to be judged with reference to the particular practices of the issuing doctor, as opposed to generally accepted medical practices. Because the prescriptions that Dr. Mach issued over the Internet were "the very heart" of Dr. Mach's regular medical practice, Smith argues that Dr. Mach's actions cannot support Smith's conspiracy or aiding-and-abetting convictions.

Smith also argues that to the extent the regulation is ambiguous, the rule of lenity resolves the issue in his favor. We disagree with Smith's creative argument.

While we have never before had occasion to address explicitly whether "his professional practice" under § 1306.04 is to be measured according to a generally accepted standard of treatment or the practice of a particular doctor,*fn2 the Supreme Court's decision in United States v. Moore, 423 U.S. 122 (1975), and the approaches of our sister circuits are instructive. In Moore, the Supreme Court impliedly approved a jury instruction that allowed a jury to find a doctor guilty of violating § 841(a) if the doctor dispensed methadone "other than in good faith for detoxification in the usual course of a professional practice and in accordance with a standard of medical practice generally recognized and accepted in the United States." Id. at 139. The Court's statements thus counsel against finding that professional practice is to be measured according to the practice of a particular doctor and indicate that the appropriate measure of what constitutes "his professional practice" is an objective one.

Furthermore, the circuit courts to consider a conviction under § 841(a) have applied a general-practice standard when determining whether the practitioner acted in the "usual course of professional practice." See, e.g., United States v. Merrill, 513 F.3d 1293, 1306 (11th Cir. 2008) ("The appropriate focus is not on the subjective intent of the doctor, but rather it rests upon whether the physician prescribes medicine in accordance with a standard of medical practice generally recognized and accepted in the United States." (quotation omitted)); United States v. Feingold, 454 F.3d 1001, 1011 n.3 (9th Cir. 2006) ("The term 'professional practice' implies at least that there exists a reputable group of people in the medical profession who agree that a given approach to prescribing controlled substances is consistent with legitimate medical treatment."); United States v. Norris, 780 F.2d 1207, 1209 (5th Cir. 1986) (relying on Moore, 423 U.S. at 139, in dismissing the defendant's argument that "his" requires that the government prove that the doctor prescribed drugs for a purpose contrary to the doctor's own standards of medical practice because "[o]ne person's treatment methods do not alone constitute a medical practice"); cf. United States v. Hurwitz, 459 F.3d 463, 478, 480 (4th Cir. 2006) ("[A]llowing criminal liability to turn on whether the defendant-doctor complied with his own idiosyncratic view of proper medical practices is inconsistent with the Supreme Court's decision in Moore.... Because the instruction proffered by Hurwitz set forth a subjective standard for measuring his good faith, the instruction was not a correct statement of the law."); United States v. Vamos, 797 F.2d 1146, 1153 (2d Cir. 1986) ("To permit a practitioner to substitute his or her views of what is good medical practice for standards generally recognized and accepted in the United States would be to weaken the enforcement of our drug laws in a critical area.").

Smith's argument is further undermined by the regulations use of "professional practice." 8 C.F.R. § 1306.04. Even assuming that "his professional practice" requires us to consider Dr. Mach's individualized practice, that practice must still comport with the tenants of medical professionalism. In line with the Supreme Court's decision in Moore, in United States v. Katz, 445 F.3d 1023 (8th Cir. 2006), we indicated that prescriptions issued "outside the bounds of professional medical practice" include instances where a doctor issues prescriptions "for the purpose of assisting another in the maintenance of drug habit or... for other than a legitimate medical purpose, i.e.[,] the personal profit of the physician." Katz, 445 F.3d 1023, 1028 (8th Cir. 2006) (quotation omitted). We are thus not at liberty to eliminate the requirement that an issuing practitioner's practice be objectively "professional," even assuming that we are required by the regulation to consider "his" particular practice. See generally Moore, 423 U.S. at 140--43; cf. United States v. Boettjer, 569 F.2d 1078, 1081 (9th Cir. 1978) (indicating that Moore "suggests that the 'usual course' standard itself imports considerations of medical legitimacy and accepted medical standards.").

Thus informed by the Supreme Court and other controlling and persuasive precedent, we believe that it was not improper to measure the "usual course of professional practice" under § 841(a)(1) and § 1306.04 with reference to generally recognized and accepted medical practices and not a doctor's self-defined particular practice. If Smith's argument that § 1306.04's use of the word "his" establishes a subjective standard were to prevail, it would allow an individual doctor to define the parameters of his or her practice and effectively shield the practitioner from criminal liability despite the fact that the practitioner may be acting as nothing more than a "large-scale 'pusher.'" Moore, 423 U.S. at 143 (finding criminal liability when a practitioner ceases to act as a physician and instead acts as a drug pusher). This cannot be the law.

Smith also argues that the definition of "usual course of professional practice" in Jury Instruction 30 improperly conflated the standard for criminal liability with the standard for medical malpractice and that he was criminally convicted of breaching a civil standard of care. We also find this argument unavailing. While Instruction 30 may have incorporated the standard of care often referenced in medical-malpractice claims, see Boettjer, 569 F.2d at 1081, looking at the jury instructions on the whole, we do not believe that the district court suggested that a breach of a civil standard alone was sufficient to sustain a criminal conviction. See Kershman, 555 F.2d at 201 ("It is axiomatic that the jury instructions should be construed as a whole."). We are thus confident that Smith's conviction rested on the appropriate criminal standard and not on the lesser, civil one.

It is true that courts have recognized a danger in confusing medical-malpractice and § 841 standards. See United States v. McIver, 470 F.3d 550, 558 (4th Cir. 2006); Feingold, 454 F.3d at 1010. In this case, however, even assuming that the use of the civil standard of care as a definitional tool was improper, the jury instructions on the whole required more than a finding that Dr. Mach did not adhere to generally accepted medical standards. The instructions indicated that the Government bore the burden to prove that Smith distributed or dispensed controlled substances "other than... for a legitimate medical purpose and in the usual course of professional practice." Thus, the jury was unable to convict Smith unless it found a failure to adhere to prevailing medical standards and a lack of legitimate medical purpose. This dual showing is one that exceeds that required to establish medical malpractice, which focuses largely on the former finding and may or may not include consideration of the latter. Cf. McIver, 470 F.3d at 559.*fn3

Additional indicators that the instructions did not conflate civil and criminal standards include the fact that the court explicitly instructed that the standard of proof applicable in this case was "beyond a reasonable doubt." See Katz, 445 F.3d at 1032 (rejecting a claim that the burden of proof was lowered because the court "instructed the jury that they must find beyond a reasonable doubt that [the doctor] wrote prescriptions outside the scope of medical practice and not for a legitimate medical purpose"); Vamos, 797 F.2d at 1153 ("The suggestion that an objective reasonableness standard exposes a physician to criminal responsibility for nothing more than the equivalent of malpractice ignores the fact that in a criminal prosecution the physician may be found guilty only upon proof beyond a reasonable doubt that he acted outside the scope of medical practice...."). The court also allowed Smith the possibility of a good-faith defense,*fn4 which is unavailable in malpractice cases. "The inclusion of a good faith instruction is therefore a plainspoken method of explaining to the jury a critical difference between the two standards." McIver, 470 F.3d at 558--60 (indicating courts must "exercise care in setting out the governing standard" in a § 841 prosecution but approving language setting forth the civil standard when the court made clear that the Government had to prove its case "beyond a reasonable doubt," instructed the jury that the "critical issue... was not whether the defendants had acted negligently," and included a good-faith instruction (quotation omitted)); Feingold, 454 F.3d at 1011 n.3; United States v. Alerre, 430 F.3d ...

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