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United States v. Cadden

United States District Court, D. Massachusetts

June 22, 2017

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

          MEMORANDUM AND ORDER ON DEFENDANT BARRY CADDEN'S MOTION FOR A JUDGMENT OF ACQUITTAL OR, IN THE ALTERNATIVE, A NEW TRIAL [DKT # 1004]

          Richard G. Stearns UNITED STATES DISTRICT JUDGE

         Following a ten-week trial and four days of deliberations, the jury returned a verdict finding defendant Barry J. Cadden guilty of racketeering, racketeering conspiracy, mail fraud, and violations of the federal Food, Drug, and Cosmetic Act (FDCA). Having preserved his rights, Cadden now moves for a judgment of acquittal, or in the alternative, a new trial.

         Judgments of acquittal are granted sparingly. In deciding such a motion, “we scrutinize the evidence in the light most compatible with the verdict, resolve all credibility disputes in the verdict's favor, and then reach a judgment about whether a rational jury could find guilt beyond a reasonable doubt.” United States v. Olbres, 61 F.3d 967, 970 (1st Cir. 1995) (quoting United States v. Taylor, 54 F.3d 967, 974 (1st Cir. 1995)). “Under the viewpoint principle, a jury charged with determining an accused's guilt or innocence is entitled to consider the evidence as a seamless whole. . . . ‘The sum of an evidentiary presentation may well be greater than its constituent parts.'” Id. at 974 (quoting United States v. Ortiz, 966 F.2d 707, 711 (1st Cir. 1992)).

         A district court's power to order a new trial is greater than its power to grant a motion for acquittal. United States v. Rothrock, 806 F.2d 318, 321 (1st Cir. 1986). The court may consider both the weight of the evidence and the credibility of the witnesses in deciding a motion for a new trial. Id. However, “[t]he remedy of a new trial is rarely used; it is warranted ‘only where there would be a miscarriage of justice' or ‘where the evidence preponderates heavily against the verdict.'” United States v. Andrade, 94 F.3d 9, 14 (1st Cir. 1996) (quoting United States v. Indelicato, 611 F.2d 376, 386 (1st Cir. 1979)).[1]

         The grounds for Cadden's motion can be divided into three separate groups. The first ground is purely one of law: that the First Circuit's post-trial opinion in United States v. Berroa, 856 F.3d 141 (1st Cir. 2017), made fundamental changes in the interpretation of the mail fraud statue (which formed the basis of the majority of Cadden's convictions) by imposing a “new and more rigorous” causal requirement linking a defendant's scheme to defraud to his obtaining another's money or property.

         The second ground rests on a claim that the evidence at trial was insufficient in six respects. First, that the evidence did not support a finding that Cadden knew that the three lots of methylprednisolone acetate (MPA) shipped in May, June, and August of 2012, were contaminated or that New England Compounding Center (NECC) technicians were not strictly following USP-797[2] standards (as NECC's customers were assured).[3]Second, that the evidence regarding deficient testing of NECC's product did not refute Cadden's contention that he reasonably relied on Analytical Research Laboratories (ARL), an independent third-party laboratory, to verify the sterility and potency of NECC's drugs. Under this heading, Cadden maintains that the government failed to disprove his contention that USP-797 does not forbid the shipment of drugs prior to a pharmacy's receipt of the sterility results. Cadden also asserts that certain subpotent lots cannot be a basis for liability because USP-797 does not require potency testing.[4]Third, that there was no evidence that the status of an unregistered pharmacy technician (Scott Connolly), who Cadden employed to compound cardioplegia drugs, was material to customers' purchasing decisions or that he (Cadden) ever affirmatively represented Connolly as being licensed.[5]Fourth, that there was no evidence of an agreement justifying the jury's finding of a conspiracy, or at least one involving Cadden (Count 2). Fifth, that there was insufficient evidence that the active ingredient contained in the methotrexate shipped by NECC had expired, as the government alleged.[6]Finally, Cadden argues that there is no case law supporting the government's claim that issuing a prescription under a false patient name (Counts 95, 99, and 100) can constitute misbranding for purposes of the FDCA.[7], [8]

         The third ground raises four claims of prosecutorial misconduct. First, that Cadden was unfairly prejudiced by the government's decision to fold into the indictment twenty-five racketeering acts of second-degree murder that it knew were “unsupported, unreasonable, and would ultimately not be proved.” Second, that the government presented and then refused to withdraw (despite refuting evidence) the testimony of South Bend (Indiana) Clinic director Wendy Huffman, who stated that Cadden had called her on Friday, September 21, 2012, to warn of the contaminated MPA, suggesting that he then knew of the potentially fatal drugs but failed to alert other customers until five days later.[9] Third, that the government compiled a distorted collection of exhibits involving test results (the “binder”) that, without the court's permission or Cadden's consent, was given to the clerk to be delivered to the jury. Finally, Cadden objects to the PowerPoint used by the government in its closing as overly prejudicial, distorted, and misleading.

         I will address each ground in the order presented.

         United States v. Berroa

         Unlike Cadden, I find nothing groundbreaking about the First Circuit's decision in Berroa. Without belaboring the context, Berroa involved doctors who bribed an employee of the Puerto Rico Board of Medical Examiners to alter the results of two of their qualifying examinations to change failing grades to passes (the manner and means). 856 F.3d at 147-148. After completing some additional requirements, the would-be doctors received notice (the mailing) that their licenses had been issued. Id. at 152. Each of them eventually established his or her own medical practice (the scheme to defraud), recruited patients, and in the ensuing years billed for their services (the obtaining of money and property). Id.

         In overturning the mail fraud convictions, the Court first noted that what the government had attempted was an end-run around the holding of Cleveland v. United States, 531 U.S. 12, 20 (2000), that a state-issued license does not constitute “property” for purposes of the mail fraud statute. Berroa, 856 F.3d at 149. In Berroa, what was missing (except in a “but-for” sense) was any connection between the “means” and the “end” that amounted to “something more than oblique, indirect, and incidental.” Id. (quoting Loughrin v. United States, 134 S.Ct. 2384, 2393 (2014)). What mail fraud requires is that the fraud be the mechanism that induces a victim to part with money in the sense evoked by “the familiar concept [in tort law] of proximate causation.” Id. at 149 n.4.[10]

         What differentiates this case is the direct link between the false statements regarding the integrity of NECC's compounding process and the safety and purity of its drugs (the manner and means) and the decision of customers (hospitals and clinics) to purchase them (the obtaining of money and property). Unlike in Berroa, there are no intervening circumstances attenuating the connection between the fraud and the injury. In other words, Berroa, even if it does put a gloss in some respects on First Circuit precedent interpreting the mail fraud statute, has no relevance here.

         Sufficiency of the Evidence

         Much of Cadden's argument is based on an alleged lack of proof that he knew that NECC's drugs, such as the three nonsterile lots of MPA shipped between May and August of 2012, fell well short of the USP-797-plus safety standards touted to customers. In the first instance, there was ample evidence that Cadden was not merely an outside investor in NECC, or a non-presence in the Clean Rooms of NECC's facility, or someone unschooled in the compounding business. Rather, Cadden was a licensed pharmacist with years of practitioner's experience who had founded NECC (his “baby”) and nurtured its growth from a small mom-and-pop operation into a national presence in the compounding market. There was also abundant evidence that Cadden was intimately involved in the day-to-day operations of NECC, including oversight of the Clean Rooms and the staff, including the on-site lead pharmacist, Glenn Chin.

         The argument that Cadden advances with respect to his alleged lack of personal knowledge that specific drugs shipped by NECC were fatally contaminated is more appropriately directed to the second-degree murder racketeering allegations, which the jury rejected. Second-degree murder requires a high degree of subjective awareness by a defendant that his acts are almost certain to result in the death of another. Mail fraud, on the other hand, requires proof of something entirely different: knowledge on Cadden's part that the representations that he and the salespeople working under his direction made to customers regarding compliance with USP-797 safety standards were materially false. On this point, there was considerable evidence from which the jury could reasonably find that Cadden knew, inter alia, that Chin was autoclaving drugs for less than the 20 minutes prescribed by USP-797, that the autoclave sterilization process was not being verified as the USP requires, that sterility testing was being conducted improperly, and that drugs were being shipped despite environmental counter-indications that USP-797 deems urgently actionable.

         Unlike in the case of second-degree murder, the jury also had the option (with evidence to support it) to find that Cadden had turned a blind eye to the deteriorating safety practices being followed in the Clean Room as NECC technicians struggled to cope with the ever-increasing volume of sales.[11]

         Cadden's argument that he could not be held liable for the sale of subpotent drugs because USP-797 does not require potency testing is infected by a similar misdirection of focus.[12] Cadden's position from the beginning, one with which the court agreed, see Dkt # 573, was that USP-797 was not a federal statute subjecting a defendant to the potential of criminal liability. As the court explained to the jury in its instructions:

It is important to remember that the standards contained in the USP are not drafted by the United States government. However, when Congress drafted the Food, Drug and Cosmetic Act, it referenced the USP as a source for defining best practices for the compounding and drug manufacturing industries. While the USP standards may be considered by you in determining the standard of care that Mr. Cadden may or may not have followed, a deviation from a provision of the USP, by ...

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