U.S. v. Smith

• Citation: 573 F.3d 639
• Decision Date: 28 July 2009
• Docket Number: No. 07-2956.,07-2956.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Christopher William SMITH, also known as Chris Jonson, also known as Tony Spitalie, also known as Robert Jonson also known as Bruce Jonson, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

573 F.3d 639

UNITED STATES of America, Plaintiff-Appellee, v. Christopher William SMITH, also known as Chris Jonson, also known as Tony Spitalie, also known as Robert Jonson also known as Bruce Jonson, Defendant-Appellant.

No. 07-2956.

United States Court of Appeals, Eighth Circuit.

Submitted February 11, 2009.

Filed July 28, 2009.

Katherine M. Menendez, AFPD, argued, Minneapolis, MN, for appellant.

Nicole Ann Engisch, AUSA, argued, Minneapolis, MN, for appellee.

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

MELLOY, Circuit Judge.

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, 552 U.S. 38, 128 S.Ct. 586, 169 L.Ed.2d 445 (2007), and that his sentence is substantively unreasonable. We affirm the convictions, vacate the sentence, and remand for resentencing in light of Gall.

I.

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.¹ 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 cashon-delivery. Despite the fact that Smith was not authorized to handle controlled substances and despite the fact that the drugs originally came from traditional brickand-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...