459 F.Supp.2d 1255 (S.D.Fla. 2005), 05-60021, United States v. Livdahl

• Citation: 459 F.Supp.2d 1255
• Party Name: UNITED STATES of America, Plaintiff, v. Chad LIVDAHL, et al., Defendants.
• Case Date: October 17, 2005
• Court: United States District Courts, 11th Circuit, U.S. District Court — Southern District of Florida

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459 F.Supp.2d 1255 (S.D.Fla. 2005)

UNITED STATES of America, Plaintiff,

v.

Chad LIVDAHL, et al., Defendants.

No. 05-60021-CR.

United States District Court, S.D. Florida.

Oct. 17, 2005

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[Copyrighted Material Omitted]

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Andrew Ittleman, (D-Livdahl, Toxin, Powderz, Z-Spa, Cosmetic and Local Counsel for England).

Jane Raskin, (D-Baker and Local Counsel for Pafunda).

ORDER ADOPTING REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

COHN, District Judge.

THIS CAUSE is before the Court upon the Report and Recommendation prepared by United States Magistrate Judge Lurana S. Snow [DE 150]. Defendants Toxin Research International, Inc., Powderz, Inc., Z-Spa, Inc., The Cosmetic Pharmacy, Inc., Chad Livdahl, and Zahra Karim filed objections [DE 364]. The Government filed a response to Defendants' objections [DE 370]. Pursuant to 28 U.S.C. § 636(b)(1), this Court conducted a de novo review of the entire court record and is otherwise fully advised in the premises. It is thereupon,

ORDERED AND ADJUDGED as follows:

(1) The Report and Recommendation [DE 150] of United States Magistrate Judge Lurana S. Snow is hereby ADOPTED.

(2) Defendant Chad Livdahl's Motion to Dismiss the Second Superseding Indictment [DE 284] is hereby DENIED.

(3) Defendant Zarah Karim's Motion to Dismiss the Second Superseding Indictment [DE 287] is hereby DENIED.

(4) Corporate defendants Toxin Research, Inc.'s, Powderz, Inc.'s, Z-Spa, Inc.'s, and The Cosmetic Pharmacy, Inc.'s Motion to Dismiss the Second Superseding Indictment [DE 286] is hereby DENIED.

(5) Defendant Bach McComb's Motion to Dismiss the Second Superseding Indictment [DE 295] is hereby DENIED.

DONE AND ORDERED.

REPORT AND RECOMMENDATION

SNOW, United States Magistrate Judge.

THIS CAUSE is before the Court on the defendant Chad Livdahl's Motion to Dismiss the Second Superseding Indictment (DE 284); defendant Zarah Karim's motion to Dismiss and Strike Surplusage in the Second Superseding Indictment (DE 287), Corporate Defendants' ¹ Motion to Dismiss the Second Superseding Indictment (DE 286) and Defendant Bach McComb's Motion to Dismiss Second Superseding Indictment or, in the Alternative, Motion for Statement of Particulars (DE 295), which were referred to United States Magistrate Judge Lurana S. Snow for report and recommendation. ² By prior Order, the undersigned denied without prejudice defendant Zahra Karim's motion, to the extent that it sought to strike surplusage in the Second Superseding Indictment, and denied without prejudice defendant Bach McComb's motion, to the extent it sought a bill of particulars.

The defendants are charged in a 48 count second superseding indictment with:

Count 1 (All Defendants): Conspiracy to commit wire fraud and mail fraud, and

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to introduce misbranded drugs into interstate commerce, in violation of 18 U.S.C. § 371;

Counts 2-10 (All Defendants Except Robert Baker): Wire fraud, involving an alleged scheme of the defendants to unjustly enrich themselves by marketing and selling to health care providers for use in human patients defendant TRI's Botulinum Toxin Type A that was not approved by the FDA for use in human beings as a cheap facial wrinkle treatment alternative to Allergan's Botox Cosmetic, without the administering health providers advising their human patients that TRI's product (referred to as "Mimic Botox") was not Allergan's product and was not approved by the FDA for use in human beings, in violation of 18 U.S.C. §§ 1341, 1346 and 2;

Counts 11-44 (All Defendants Except Z-Spa and Cosmetic Pharmacy): Mail fraud, involving the same scheme alleged in Counts 2-10, in violation of 18 U.S.C. §§ 1341, 1346 and 2;

Counts 45-46 (Defendants Livdahl, Karim, McComb, Powderz and TRI): Misbranding, that is, causing the introduction into interstate commerce TRI's Botulinum Toxin Type A, a drug which was misbranded under 21 U.S.C. § 321(g)(1) because its labels did not bear adequate directions for the use intended by the defendants, since the labels stated, "For Research Purposes Only[;] Not for Human Use," when in actuality the defendants intended, promoted and sold their product for use in humans as a facial wrinkle treatment alternative to Allergan's Botox, without adequate directions for use, in violation of 18 U.S.C. §§ 331(a) and 333(a)(2);

Count 47 (Defendant Livdahl): Perjury, in connection with his testimony at a preliminary injunction hearing in United States v. Livdahl, et al., Case No. 04-61717-CIV-COHN, in violation of 18 U.S.C. § 1623(a), and

Count 48 (defendant McComb): Mail fraud, involving a scheme to unjustly enrich himself and to defraud his patients by advising them that he was providing them with Botox Cosmetic injections, when in fact he was injecting them with a product that had not been approved by the FDA for use in humans.

Defendant Livdahl seeks dismissal of the Second Superseding Indictment on two grounds. First, he asserts that the mens rea alleged was legally impossible because TRI's product was exempt from FDA regulation as a compounded drug (the product had to be reconstituted by adding distilled water). Second, he contends that his conduct was legal and was governed exclusively by Arizona state law.

Defendant Karim argues that the Second Superseding Indictment must be dismissed because it misquotes and misapplies FDA regulations to incorrectly allege that TRI's product was a "drug," which was subject to the FDA approval process, and because the product was exempt from the approval process as a drug used for research purposes.

The corporate defendants' first argument is that they had no duty to police the use of their product by health care providers, and that the conduct of the health care providers was the sole "proximate cause" of the fraud alleged in the Second Superseding Indictment. Second, the corporate defendants contend that health care providers have no fiduciary duty to inform their patients of FDA approval status of any prescribed drug. Therefore, it was legally impossible for the defendants to cause the health care providers to breach the alleged fiduciary duty to their patients.

Defendant McComb asserts, along with defendant Livdahl, that the Second Superseding

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Indictment must be dismissed against him because the FDA lacks regulatory authority over "compounded" drugs and that his conduct was governed by State law. Additionally, defendant McComb argues that his conduct cannot be punished because it was protected by the Free Speech Clause of the First Amendment to the United States Constitution.

Oral argument was heard on these motions on September 14, 2005.

RECOMMENDATIONS OF LAW

Challenges to the sufficiency of an indictment are premised upon the rule that a criminal conviction cannot be upheld if the indictment upon which it is based does not set forth the essential elements of the offense. United States v. Gayle, 967 F.2d 483, 485 (11^th Cir.1992) (en banc), cert. denied, 507 U.S. 967, 113 S.Ct. 1402, 122 L.Ed.2d 775 (1993). This rule serves two functions:

First, it puts the defendant on notice of "the nature and cause of the accusation as required by the Sixth Amendment to the Constitution. Second it fulfills the Fifth Amendment's indictment requirement, ensuring that a grand jury only return an indictment when it finds probable cause to support all the necessary elements of the crime."

United States v. Fern, 155 F.3d 1318, 1325 (11^th Cir.1998), quoting Gayle, supra, at 485.

The general rule is that a court should not look beyond the face of the indictment to determine its sufficiency. As noted by the court in United States v. Critzer, 951 F.2d 306, 307 (11^th Cir.1992):

There is no summary judgment procedure in criminal cases. Nor do the rules provide for a pre-trial determination of the sufficiency of the evidence. Moreover, this court is constitutionally barred from ruling on a hypothetical question. The sufficiency of a criminal indictment is determined from its face.

In determining whether an indictment is subject to dismissal, the allegations contained in the indictment must be taken as true. United States v. National Dairy Products Corp., 372 U.S. 29, 33 n. 2, 83 S.Ct. 594, 9 L.Ed.2d 561 (1963).

A. Whether TRI's Product Was a "Drug" Subject to FDA Regulation

Defendants Livdahl, Karim and McComb contend that TRI's Botulinum Type A was not subject to FDA jurisdiction. Defendant Karim asserts that it was not properly classified as a "drug" for FDA purposes. Defendant Karim's argument focuses on the package labeling which states that the product was for research purposes only and not for human use.

The Food, Drug & Cosmetic Act (FDCA), is codified at 21 U.S.C. § 301, et seq. One definition of a "drug" includes "articles (other than food) intended to affect the structure or any function of the body of man or other animals." 21 U.S.C. § 321(g)(1)(C). Thus, the issue of whether an article is a "drug" for purposes of the Act turns on its intended uses. FDA regulations interpret the words "intended use" as referring to "the objective intent of the persons legally responsible for the labeling of drugs," which is "determined by such persons' expressions or may be shown by the circumstances surrounding the distribution of the article." 21 C.F.R. § 202.128. ³

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Courts have affirmed this method of determining whether a product is a "drug" under § 321(g). In United States v. An Article Consisting of 216 Ca rtoned Bottles, More or Less, 409 F.2d 734, 739 (2^nd Cir.1969) (citations omitted), the court stated:

It is well settled that the intended use of a product may be determined from its label, accompanying labeling, promotional material, advertising and any other relevant source.... Regardless of the actual physical effect of a product, it will be deemed a drug for purposes of the Act where the labeling and promotional claims...