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United States v. Cadden

United States District Court, D. Massachusetts

May 3, 2016

UNITED STATES OF AMERICA
v.
BARRY J. CADDEN, et al.

MEMORANDUM AND ORDER ON DEFENDANTS’ MOTIONS TO DISMISS COUNTS 1-2 AND 4-94 OF THE INDICTMENT BASED ON THE USE OF A PRIVATE INDUSTRY CODE AS A STANDARD OF CRIMINAL CONDUCT

RICHARD G. STEARNS UNITED STATES DISTRICT JUDGE.

The defendants listed below seek to dismiss the Racketeer Influenced and Corrupt Organizations Act (RICO) Counts 1-2, and Counts 4-94 of the indictment, and more specifically, the 78 incorporated alleged racketeering acts, of which 25 involve second-degree murder.[1] In brief, the indictment involves the now defunct New England Compounding Pharmacy, Inc. (NECC), and the allegedly contaminated drugs that it compounded and shipped nationwide. Charged in the indictment are twenty-five patient deaths in Michigan, Indiana, Tennessee, Maryland, Virginia, and North Carolina. These twenty-five patients died after being administered NECC-compounded doses of non-sterile methylprednisolone acetate (MPA), a steroid used to treat pain from swollen joints. More than 800 additional patients are alleged to have suffered complications of varying degrees of severity after taking the same drug. Defendant Barry Cadden, a licensed pharmacist, served as NECC’s President. Defendant Glenn Chinn, also a licensed pharmacist, oversaw NECC’s “Clean Rooms.” Defendants Gene Svirskiy, Christopher Leary, and Joseph Evanovsky were licensed pharmacists who worked in the Clean Rooms. Defendant Alla Stepanets was employed as a pharmacist who, among other jobs, worked in the packing area checking orders prior to shipment. Defendant Sharon Carter served as NECC’s Director of Operations, while defendant Scott Connolly performed the duties of a pharmacy technician.[2] Medical Sales Management, Inc. (MSM), a corporate alter-ego of NECC, served as NECC’s sales arm.

An indictment meets the test of legal sufficiency if it is handed up by a properly constituted grand jury and if it adequately “sketches out the elements of the crime and the nature of the charge so that the defendant can prepare a defense and plead double jeopardy in any future prosecution for the same offense.” United States v. Guerrier, 669 F.3d 1, 3 (1st Cir. 2011). To successfully plead a RICO violation, an indictment must allege the “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985).[3] An enterprise may be a legal entity (for example, a corporation, as is the case here) or a group of individuals associated in fact. United States v. Turkette, 452 U.S. 576, 580-581 (1981). An often overlooked aspect of RICO is the requirement that “the ‘person’ alleged to be engaged in racketeering activity . . . must be [an entity] distinct from the ‘enterprise.’” Odishelidze v. Aetna Life & Cas. Co., 853 F.2d 21, 23 (1st Cir. 1988) (per curiam). Engaging in the enterprise’s affairs requires “participat[ion] in the operation or management of the enterprise itself.” Reeves v. Ernst. & Young, 507 U.S. 170, 185 (1993). Although the word “participate” makes clear that liability is not limited to those with primary responsibility for the enterprise’s affairs, “‘some part in directing those affairs’” is required. United States v. Cummings, 395 F.3d 392, 397 (7th Cir. 2005), quoting Reeves, 507 U.S. at 179. It should also be noted that “one may ‘take part in’ the conduct of an enterprise by knowingly implementing decisions, as well as by making them.” United States v. Oreto, 37 F.3d 739, 750 (1st Cir. 1994).

A “pattern of racketeering activity” is defined as the commission of “at least two” related racketeering acts over a span of time.[4] See Schultz v. Rhode Island Hosp. Trust Nat’l Bank, N.A., 94 F.3d 721, 731 (1st Cir. 1996).[5] To demonstrate relatedness, the predicate acts must “have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise be interrelated by distinguishing characteristics and not be isolated events.” Feinstein v. Resolution Trust Corp., 942 F.2d 34, 44 (1st Cir. 1991). There must also be evidence of “continuity” sufficient to show that the predicate acts constituted a “pattern” - “a closed period of repeated conduct” - amounting to a threat of continued criminal activity or one that is “a regular way of conducting . . . the RICO enterprise.” H.J., Inc. v. N.W. Bell Tel. Co., 492 U.S. 229, 243 (1989).

In essence, Counts 1-2 of the indictment (the RICO counts) allege that defendants Cadden, Chin, Svirskiy, Leary, Evanovsky, and Connolly conducted the affairs of NECC and MSM through a pattern of racketeering activity to obtain money and property by fraudulent pretenses, namely by falsely representing NECC’s compounded drugs to be in compliance with the United States Pharmacopeia (USP) standards for sterile compounding. It is on this allegation that the instant issue is joined. Citing the “pervasive role” of the USP in the indictment, defendants contend that Congress has in effect “criminalized” the USP, and in so doing, has improperly delegated an essential legislative function to a private trade association. Defs.’ Mem., Dkt. #402 at 4.

A bit of background is necessary. The USP standards are formulated and published by a Council of Experts chosen by the United States Pharmacopeia Convention (USPC), a nonprofit organization that owns the copyright to the USP compendium of drug information. The USPC was founded in 1820 by doctors “who recognized an essential need for a national lexicon of drug names and formulas in the United States.” http://www.usp.org/about-usp (last visited 4/29/2016). The Convention is composed of volunteer members. A Board of Trustees oversees the staff of employees and volunteers who assemble and publish the USP and related materials. Pharmacy Compounding Chapter 797 of the USP (on which the indictment principally draws) was promulgated by the USPC in its official version in 2008. Defs.’ Mem., Dkt. #402 at 4 n.6.

The specific “delegations” to which defendants object appear in the federal Food, Drug, and Cosmetic Act (FDCA), principally in 21 U.S.C. §§ 351, 352. The FDCA in its Definitions preamble, at § 321(j), states that “[t]he term ‘official compendium’ means the official United States Pharmacopœia, official Homœopathic Pharmacopœia of the United States, official National Formulary, or any supplement to any of them.” In § 351(b), Congress defined a drug as adulterated

[i]f it purports to be or is represented as a drug the name of which is recognized in an official compendium, and its strength differs from, or its quality or purity falls below, the standard set forth in such compendium. Such determination as to strength, quality, or purity shall be made in accordance with the tests or methods of assay set forth in such compendium, except that whenever tests or methods of assay have not been prescribed in such compendium, or such tests or methods of assay as are prescribed are, in the judgment of the Secretary, insufficient for the making of such determination, the Secretary shall bring such fact to the attention of the appropriate body charged with the revision of such compendium, and if such body fails within a reasonable time to prescribe tests or methods of assay which, in the judgment of the Secretary, are sufficient for purposes of this paragraph, then the Secretary shall promulgate regulations prescribing appropriate tests or methods of assay in accordance with which such determination as to strength, quality, or purity shall be made. No drug defined in an official compendium shall be deemed to be adulterated under this paragraph because it differs from the standard of strength, quality, or purity therefor set forth in such compendium, if its difference in strength, quality, or purity from such standard is plainly stated on its label. Whenever a drug is recognized in both the United States Pharmacopœia and the Homœopathic Pharmacopœia of the United States it shall be subject to the requirements of the United States Pharmacopœia unless it is labeled and offered for sale as a homœopathic drug, in which case it shall be subject to the provisions of the Homœopathic Pharmacopœia of the United States and not to those of the United States Pharmacopœia.

In FDCA § 352, Congress prohibited the misbranding of drugs. To effectuate the prohibition, Congress required that drugs be marketed under an “established” name (or designated ingredient). Id. at (e)(1).

(3) As used in subparagraph (1), the term “established name”, with respect to a drug or ingredient thereof, means (A) the applicable official name designated pursuant to section 358 of this title, or (B), if there is no such name and such drug, or such ingredient, is an article recognized in an official compendium, then the official title thereof in such compendium, or (C) if neither clause (A) nor clause (B) of this subparagraph applies, then the common or usual name, if any, of such drug or of such ingredient, except that where clause (B) of this subparagraph applies to an article recognized in the United States Pharmacopeia and in the Homœopathic Pharmacopœia under different official titles, the official title used in the United States Pharmacopeia shall apply unless it is labeled and offered for sale as a homœopathic drug, in which case the official title used in the Homœopathic Pharmacopœia shall apply.

Id. at (e)(3).

(g) If it purports to be a drug the name of which is recognized in an official compendium, unless it is packaged and labeled as prescribed therein. The method of packing may be modified with the consent of the Secretary. Whenever a drug is recognized in both the United States Pharmacopœia and the Homœopathic Pharmacopœia of the United States, it shall be subject to the requirements of the United States Pharmacopœia with respect to packaging and labeling unless it is labeled and offered for sale as a homœopathic drug, in which case it shall be subject to the provisions of the Homœopathic Pharmacopœia of the United States, and not those of the United States Pharmacopœia, except that in the event of inconsistency between the requirements of this paragraph and those of paragraph (e) as to the name by which the drug or its ingredients shall be designated, the requirements of paragraph (e) shall prevail.[6]

Id. at (g).

Doctrinally, defendants’ improper delegation argument rests on A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935). Schechter was decided at the apex of President Franklin Roosevelt’s struggle with the Supreme Court over the powers of the agencies created to implement the New Deal, particularly the National Recovery Administration (NRA) and the Agricultural Adjustment Administration (AAA). The battle was first joined in Panama Refining Co. v. Ryan, 293 U.S. 388 (1935), a case involving a Presidential prohibition of trade in petroleum goods in quantities in excess of state quotas imposed under the National Industrial Recovery Act of 1933 (NIRA). Chief Justice Hughes, writing for a majority of the Court, held that Congress had unconstitutionally (and outrageously, in the eyes of the court) empowered the President to issue decrees without any “criterion to govern the President’s course. . . . ...


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