Advance Pharmaceutical, Inc. v. U.S.

Decision Date03 December 2004
Docket NumberNo. 02-6233.,02-6233.
PartiesADVANCE PHARMACEUTICAL, INC., Tasrin Hossain, and Liaquat Hossain, Defendants-Appellants, v. UNITED STATES of America, Plaintiff-Appellee.
CourtU.S. Court of Appeals — Second Circuit

Jeffrey A. Badner, Mauro Goldberg & Lilling LLP, Great Neck, New York, for Defendants-Appellants.

Elliot M. Schachner, Assistant United States Attorney (Deborah B. Zwany, Assistant United States Attorney, on the brief), for Roslynn R. Mauskopf, United States Attorney, Eastern District of New York, Brooklyn, New York, for Plaintiff-Appellee.

Before: CALABRESI, B.D. PARKER, and RAGGI, Circuit Judges.

RAGGI, Circuit Judge.

Defendants-Appellants Advance Pharmaceutical, Inc.; its president, Tasrin Hossain; and her husband and the corporation's vice-president, Liaquat Hossain, appeal from a judgment of the United States District Court for the Eastern District of New York (Ivan L.R. Lemelle, Judge1), entered on August 7, 2002,2 which awarded the United States a $2 million monetary penalty and injunctive relief after a civil jury trial at which defendants were found to have repeatedly violated a provision of the Controlled Substances Act (the "Act") requiring manufacturers of pseudoephedrine tablets to report certain shipments to the Attorney General. See 21 U.S.C. § 830(b)(1)(A). Defendants submit that (1) the trial evidence was insufficient to support the jury's verdict; (2) the reporting requirements of § 830(b)(1)(A) are, in any event, unconstitutionally vague as applied to their case; and (3) the monetary and injunctive relief awarded by the district court was excessive. Because we reject each of these arguments as without merit, we AFFIRM the judgment of the district court.

I. Regulatory Framework
A. Statutory Reporting Requirements

Title 21 U.S.C. § 830(b)(1) requires a "regulated person," i.e., anyone who "manufactures, distributes, imports, or exports a listed chemical," id. § 802(38),

[to] report to the Attorney General, in such form and manner as the Attorney General shall prescribe by regulation — (A) any regulated transaction involving an extraordinary quantity of a listed chemical, an uncommon method of payment or delivery, or any other circumstance that the regulated person believes may indicate that the listed chemical will be used in violation of this subchapter[,]

id. § 830(b)(1)(A). To satisfy the regulations implementing this reporting requirement, a regulated person must make an oral report to the local office of the Drug Enforcement Administration ("DEA") "at the earliest practicable opportunity after ... becom[ing] aware of the circumstances involved and as much in advance of the conclusion of the transaction as possible," followed by a written report within fifteen days thereafter. 21 C.F.R. § 1310.05(b).

The negligent failure to comply with § 830(b)(1)(A)'s reporting requirements constitutes a violation of 21 U.S.C. § 842(a)(10) and can be penalized civilly with a fine not in excess of $10,000 per violation. See 21 U.S.C. § 842(c)(1)(B). This represents a reduction, effective October 21, 1998, from the previous possible civil fine of up to $25,000 per violation. See id. § 842(c)(1)(B) (West 1997), amended by Pub.L. No. 105-277, § 101(b), 112 Stat. 2681, 2681-69 (1998).3 Moreover, the earlier version of the statute identified no specific mens rea requirement for the imposition of civil penalties. See id. § 842(a)(10) (West 1997), amended by Pub.L. No. 105-277, § 101(b), 112 Stat. 2681, 2681-69 (1998).4 In addition, 21 U.S.C. § 843(f)(1) authorizes the Attorney General to seek "appropriate ... injunctive relief relating to violations of ... section 842."

B. Regulated Pseudoephedrine Transactions

The Controlled Substances Act lists pseudoephedrine as one of several chemicals that is subject to regulatory reporting because, in addition to having legitimate uses, for example, as an active ingredient in over-the- counter cold and allergy medicines, pseudoephedrine is used in the illicit production of controlled substances, notably methamphetamine. See 21 U.S.C. § 802(34)(K) (designating pseudoephedrine as "list I chemical"); see also id. § 812, Sched. II, (c) (listing any injectable liquid containing methamphetamine as a Schedule II controlled substance); id. § 812, Sched. III, (a)(3) (listing any other substance containing methamphetamine as a Schedule III controlled substance). See generally U.S. Dep't of Justice, DEA, Diversion Control Program Alert, Methamphetamine: Preventing the Retail Diversion of Pseudoephedrine (Aug.2003), available at http://; Comprehensive Methamphetamine Control Act of 1996: Hearing on H.R. 3852 Before the Subcomm. on Crime of the House Comm. on the Judiciary, 104th Cong. 55-57 (1996) (statement of Harold D. Wankel, Chief of Operations, DEA) (describing use of pseudoephedrine products by illegal methamphetamine manufacturers). The Act exempts from the definition of a "regulated drug transaction," see 21 U.S.C. § 802(39)(A)(iv), transactions in listed chemicals that are contained in drugs lawfully marketed and distributed in the United States under the Federal Food, Drug, and Cosmetic Act, id. § 301 et seq. Because this "`legal drug exemption'" became a "`loophole'" that was sometimes" `exploited by clandestine laboratory operators,'" H.R.Rep. No. 103-379, at 8 (1993) (quoting letter of Stephen H. Greene, Acting Administrator, DEA), reprinted in 1993 U.S.Code Cong. & Admin. News 2983, 2986, Congress enacted the Domestic Chemical Diversion Control Act of 1993, Pub.L. No. 103-200, 107 Stat. 2333 (1993), and the Comprehensive Methamphetamine Control Act of 1996 ("CMCA"), Pub.L. No. 104-237, 110 Stat. 3099 (1996), which revoked the exemption for drugs containing ephedrine and pseudoephedrine, see 21 U.S.C. § 802(39)(A)(iv)(I)(aa).5 See generally United States v. Daas, 198 F.3d 1167, 1176 (9th Cir.1999); Comprehensive Methamphetamine Control Act of 1996: Hearing on H.R. 3852 Before the Subcomm. on Crime of the House Comm. on the Judiciary, 104th Cong. 36 (statement of Rep. Bill McCollum, Chairman, Subcomm. on Crime) (describing history of Congress's efforts to control precursor chemicals used to manufacture methamphetamine). The effective date for the inclusion of transactions in pseudoephedrine products was October 3, 1997. See CMCA § 401(g). All violations at issue in this case occurred after that date.

II. Factual Background

At all times relevant to this action, Advance Pharmaceutical, a business operating out of Ronkonkoma, New York, manufactured and distributed, inter alia, pseudoephedrine in sixty-milligram tablets. At trial, law enforcement officials testified that such tablets, commonly sold in bulk quantities, are the dosage and form most often used by large-scale methamphetamine manufacturers. Although defendants sold their pseudoephedrine tablets to pharmaceutical wholesalers and distributors, law enforcement officials discovered evidence of over thirty-four million pseudoephedrine tablets originating with defendants at methamphetamine laboratories or dump sites. At trial, DEA officials testified that Advance Pharmaceutical was the pseudoephedrine manufacturer whose products were most often found in connection with such illegal activity.

Law enforcement witnesses from both the DEA and the California Bureau of Narcotic Enforcement ("CBNE") testified at trial that, on multiple occasions prior to the initiation of this enforcement action, they reviewed § 830(b)(1)(A)'s reporting requirements with defendants and detailed for defendants the evidence that large quantities of Advance Pharmaceutical's pseudoephedrine tablets had been diverted to criminal activities. Despite their receipt of this information, defendants never reported a single pseudoephedrine transaction to the DEA.

Because defendants argue on appeal that the evidence was insufficient to establish their violation of the statutory reporting requirements, we outline the relevant evidence in some detail.

A. Defendants' Unreported Shipments of Extraordinary Quantities of Pseudoephedrine Tablets to "New Customers"

At trial, the government demonstrated a remarkable difference in the stipulated volume of pseudoephedrine shipments as between customers with whom Advance Pharmaceutical had a business relationship prior to October 31, 1997, and "new customers" with whom it began to deal after that date.

The "established customers," whose business the government used as a benchmark, included eleven companies to whom defendants supplied pseudoephedrine tablets between January 1, 1996, and October 31, 1997. See Trial Tr., July 17, 2001, at 13. Of these established customers, defendants provided the largest volume of pseudoephedrine tablets to Rugby Laboratories, Inc. ("Rugby"), a large, independent pharmaceutical distributor. Defendants' average shipment to Rugby contained approximately 500,000 sixty-milligram tablets of pseudoephedrine; only seven shipments to Rugby ever totaled more than one million tablets.

The nine "new customers" with whom Advance Pharmaceutical started doing business only after October 31, 1997, were Oralabs, Inc., a/k/a Top Form Brands, Inc. ("Top Form"); Interstate Vitamins, Inc. ("Interstate"); Assured Products Corp. ("Assured"); Oklatex Marketing, Inc. ("Oklatex"); Wildcat Wholesale Distributors, Inc. ("Wildcat"); HFO, Inc. ("HFO"); Pharmasales Corp. ("Pharmasales"); Maxx II, Inc. ("Maxx II"); and Seaside Pharmaceutical, Inc. ("Seaside"). See id. Between November 11, 1997, and April 26, 2000, defendants made 159 shipments to these new customers. The following table summarizes comparison evidence offered by the government to show that the volume of sixty-milligram pseudoephedrine tablets that Advance Pharmaceutical sold to...

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