United States v. Scully
| Decision Date | 13 December 2017 |
| Docket Number | Docket No. 16-3073-cr,August Term, 2017 |
| Parties | UNITED STATES of America, Appellee, v. William SCULLY, aka Liam Scully Defendant–Appellant, Shahrad Rodi Lameh, Defendant. |
| Court | U.S. Court of Appeals — Second Circuit |
Kenneth M. Abell, Assistant United States Attorney (Amy Busa and Charles P. Kelly, Assistant United States Attorneys, on the brief), for Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York, for Appellee.
Scott A. Resnik (Michael M. Rosensaft, on the brief), Katten Muchin Rosenman LLP, New York, NY, for Defendant-Appellant.
Before: Pooler and Lynch, Circuit Judges, and Cogan, District Judge.*
William Scully appeals from a judgment of conviction entered following a five-week jury trial in the United States District Court for the Eastern District of New York (Arthur D. Spatt, Judge ).
The jury found Scully guilty of mail and wire fraud and conspiracy to commit the same in violation of 18 U.S.C. §§ 1341, 1343, and 1349 ; conspiracy to defraud the United States through the introduction of misbranded drugs into interstate commerce in violation of 18 U.S.C. § 371 ; introduction of misbranded drugs into interstate commerce in violation of 21 U.S.C. §§ 331(a) and 333(a)(2) ; receipt of misbranded drugs into interstate commerce and delivery thereof for pay in violation of 21 U.S.C. §§ 331(c) and 333(a)(2) ; introduction of unapproved drugs into interstate commerce in violation of 21 U.S.C. §§ 331(d) and 333(a)(2) ; and unlicensed wholesale distribution of prescription drugs in violation of 21 U.S.C. §§ 331(t), 333(b)(1)(D), and 355. He was sentenced principally to 60 months in prison.
The main issue on appeal is whether the district court properly excluded evidence relating to Scully's advice-of-counsel defense. Because we find that the evidence was admissible and its exclusion was not harmless error, we VACATE the district court's judgment and REMAND for further proceedings consistent with this decision.1
The jury found Scully guilty of all charges relevant to this appeal, so we consider the evidence in the light most favorable to the government. See United States v. Bouchard , 828 F.3d 116, 120 (2d Cir. 2016).
Scully and Shahrad Rodi Lameh founded Pharmalogical, Inc., in 2002 or 2003 as equal owners, Scully running the company's day-to-day operations and Lameh managing payments and providing most of the capital. They initially planned to acquire pharmaceutical products from manufacturers and sell those products to retail customers (such as doctors, hospitals, and clinics) as a wholesale distributor. To that end, Pharmalogical received a license from New York State authorizing it to act as a wholesale distributor of pharmaceutical products. Pharmalogical struggled to turn a profit for several years, and eventually Scully decided to set the company on a new course: parallel importing. That is, rather than buying prescription drugs and medical devices approved by the U.S. Food and Drug Administration from the drug manufacturers, the company would import foreign versions of FDA-approved products into the United States from European distributors. Pharmalogical could purchase these drugs at reduced prices and then sell them to customers in the United States for far less than the going rate on the domestic market. Around the same time, the company also began doing business under the name Medical Device King or MDK.
Pharmalogical launched its parallel importing business around 2009 with purchases of Botox from a Canadian distributor. One of the company's first potential customers, Dr. James Avellini, expressed concern that the product labels did not include a National Drug Code ("NDC")2 and requested assurances of the product's legitimacy before he placed an order. Dr. Avellini's inquiry prompted Scully and Lameh to approach an attorney, Richard Gertler, then of Thaler & Gertler, LLP, to research whether it was legal to resell the imported products in the United States. Gertler produced an opinion letter dated May 27, 2009, indicating that "Pharmalogical has not received any correspondence or notification from the FDA advising that Pharmalogical is operating in violation of any of the provisions of the Federal Food, Drug and Cosmetic Act," and that "Pharmalogical has no reason to believe that it is not in full compliance with the FFDCA or any other statute or regulation." App'x 400. The letter satisfied Dr. Avellini and others that Pharmalogical was authorized to sell Botox.
Scully and Lameh soon learned that the Canadian distributor with which they had been placing Botox orders simply forwarded those orders to a European distributor, which then shipped the product to Pharmalogical in the United States. Pharmalogical decided to cut out the Canadian middleman and began to place orders for Botox and a second product, Mirena intrauterine devices
, directly with the European company. They also began buying Mirena IUDs at an even lower price from a Turkish company that sold the devices with Finnish- and Turkish-language labels and packaging. Around that time, the FDA responded to an inquiry from Scully regarding the sale of the Mirena IUDs, notifying him that foreign-made versions of FDA-approved drugs were considered unapproved new drugs. Scully and Lameh asked Gertler to look into the matter and Gertler once again produced an opinion letter, finding that "the importation of Mirena ... from Finland to the United States by Pharmalogical, Inc., for resale to the end user, would not violate the criminal laws of the United States." App'x 417.
As had occurred with Botox, when a potential customer for the Mirena IUDs, Planned Parenthood, requested assurances that the product was lawful to purchase, Scully and Lameh provided Gertler's Mirena letter. Planned Parenthood then placed a small order for Mirena IUDs, but then rejected and returned the order because the product labels were missing NDCs. Scully and Lameh nevertheless resolved to continue selling the Mirena IUDs to doctors. As the company's sales of Botox and Mirena IUDs increased, Scully and Lameh further expanded their business into oncology products. Gertler did not issue a separate legal opinion regarding Pharmalogical's importation and sale of oncology drugs.
The first signs of trouble for Pharmalogical came in May 2012, when FDA agents executed warrants to search Pharmalogical's offices. In response, Gertler and other lawyers, including Peter Tomao for Scully and Geoffrey Kaiser for Lameh, arranged meetings with prosecutors, and Pharmalogical ceased selling oncology products. But Scully made at least one shipment of oncology products after the search through Taranis Medical Corp., a company that he had incorporated in December 2011 and for which he executed written agreements authorizing it to use Pharmalogical's wholesale license to distribute prescription drugs, all without Lameh's knowledge. Scully did not consult Gertler or Lameh before making the Taranis shipment.
Scully and Lameh were indicted and arrested in April 2014. The indictment alleged that the two men used Pharmalogical (doing business as Medical Device King and MDK) and Taranis, to knowingly and willfully import foreign versions of prescription drugs and medical devices not approved by the FDA for use in the United States, and that they sold those products to customers under materially false and fraudulent pretenses. After initially pleading not guilty, Lameh entered into a cooperation agreement with the government and pled guilty to conspiracy to commit wire fraud and conspiracy to distribute misbranded drugs.
Prior to trial, Scully moved to strike all counts based on violations of FDA regulations, as well as Count 72, charging fraudulent importation and transportation of goods, and Count 73, charging trafficking in counterfeit drugs. The district court denied the motions, but ordered the government to provide a bill of particulars identifying the specific fraud alleged in each count and the misbranding alleged in each count. The government provided such a bill, and obtained a superseding 75-count indictment that added two new counts charging Scully with the introduction of unapproved new drugs into interstate commerce and the unlicensed wholesale distribution of prescription drugs.
At trial, the government called dozens of witnesses to prove that Scully purchased prescription drugs and medical devices with labels bearing instructions in foreign languages and lacking NDCs from foreign distributors, misrepresented those products to medical professionals as FDA-approved products with English-language labeling, and continued selling such pharmaceuticals through Taranis after government officials raided Pharmalogical. The witnesses included Lameh, who detailed Pharmalogical's activities and Scully's knowledge regarding the legality of the company's business model throughout the company's history; some of the medical professionals who purchased products from Scully and testified to representations that Scully made about the products; and pharmaceutical company representatives and government officials who testified to the importance of FDA approval and NDCs.
At the close of the government's case, Scully moved to dismiss all counts of the superseding indictment for insufficient evidence. The district court denied that motion except as to Counts 72 and 73, which charged fraudulent importation and transportation of goods and trafficking in counterfeit drugs, on which the court reserved decision.
Scully then advanced an advice-of-counsel defense, contending that he lacked the requisite intent for all counts alleging fraud due to his good faith reliance on advice from Gertler and Tomao regarding the legality of his conduct. The defense called Gertler as its first witness, and both parties questioned him...
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