U.S. v. Ballistrea, 56

• Citation: 101 F.3d 827
• Decision Date: 25 November 1996
• Docket Number: No. 56,D,56
• Parties: UNITED STATES of America, Appellee, v. Pascal BALLISTREA, Defendant-Appellant. ocket 95-1578.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 827

101 F.3d 827

UNITED STATES of America, Appellee, v. Pascal BALLISTREA, Defendant-Appellant.

No. 56, Docket 95-1578.

United States Court of Appeals, Second Circuit.

Argued Sept. 10, 1996.

Decided Nov. 25, 1996.

James P. Harrington, Harrington & Mahoney, Buffalo, NY, for defendant-appellant.

Paul J. Campana, Asst. U.S. Atty., Buffalo, NY (Patrick H. NeMoyer, U.S. Atty., Marc S. Gromis, Asst. U.S. Atty., Buffalo, NY, on the brief), for appellee.

Before: NEWMAN, Chief Judge, LUMBARD and CALABRESI, Circuit Judges.

JON O. NEWMAN, Chief Judge:

The primary question on this appeal is whether a defendant can be convicted of "defrauding" an agency of the United States under the general federal conspiracy statute, 18 U.S.C. § 371, if he did not contact agency personnel or submit documents to the agency. The question arises on an appeal by Pascal Ballistrea from the September 26, 1995, judgment of the District Court for the Western District of New York (Richard J. Arcara, Judge), convicting him, after a jury trial, of five counts arising under substantive provisions of the Food, Drug, and Cosmetics Act ("FDCA"), 21 U.S.C. § 301 et seq., two counts of conspiracy to defraud an agency of the United States, 18 U.S.C. § 371, and one count of making a false statement to the United States, 18 U.S.C. § 1001. We conclude that defendant was properly convicted of conspiracy to defraud the Food and Drug Administration ("FDA") because he conspired with others to interfere with or obstruct the FDA's lawful function of regulating the interstate distribution of medical devices and new drugs by deceit, trickery, and dishonest means. We also conclude that defendant's numerous challenges relating to trial proceedings, jury charge, and sentencing are without merit. However, we vacate defendant's conviction under 18 U.S.C. § 1001 because the element of materiality was not submitted to the jury as required by United States v. Gaudin, --- U.S. ----, 115 S.Ct. 2310, 132 L.Ed.2d 444 (1995), as interpreted in United States v. Ali, 68 F.3d 1468, 1474-75 (2d Cir.1995).

Background

In the late 1980s, Life Energy Resources, Ltd. ("LER"), a New York corporation, began conducting the business of ordering, storing, and distributing a variety of health-related devices and products through a multi-level marketing network. LER's marketing plan provided that members of the general public could purchase its products only through an official LER distributor, or by becoming LER distributors themselves. Each potential distributor had to be sponsored by an existing distributor and was required to sign a distributorship agreement with LER stating that he or she would not make medical claims or use unofficial literature or marketing aids to promote LER products. Distributors profited both from the price differential between LER's sale price to them and their sale price to customers, and from sales made by other distributors whom they had originally sponsored--in the amount of five percent of the "downstream" distributors' gross sales.

Appellant Ballistrea and his partner Michael Ricotta were at the top of the LER distribution network. They formed a partnership under the name East Coast Marketing that sold LER products directly to end users and sponsored downstream distributors. Additionally, Ballistrea, who had years of experience in multi-level distribution schemes, helped to set up LER's distribution system at the company's founding. For his efforts, LER awarded him one percent of all gross commissionable sales.

Two products sold by LER were the REM SuperPro Frequency Generator ("REM") and the Lifemax Miracle Cream ("Miracle Cream"). The REM, which sold for $1,350 to distributors, was a small box powered by electricity that ran currents through the feet and body of the user. It was officially described by LER as a "pulse generating instrument." The Miracle Cream was described by LER as an "excellent moisturizer and skin softener," but "possibly much more." Like all LER products, the REM and the Miracle Cream came with a disclaimer stating that they were not to be used for the "cure, treatment, mitigation, prevention, or diagnosis of diseases." These products were sold by LER until July 1990, when their sales and distribution were transferred to a newly formed corporation named New Millennium. New Millennium used the same multi-level marketing format as LER, and Ballistrea and Ricotta became distributors for this company upon its establishment.

The evidence showed that Ballistrea and Ricotta distributed literature and audiotapes to many potential downstream distributors and customers--some of whom were undercover Government agents--touting the REM and the Miracle Cream as having medicinal effects. Some materials, for instance, claimed that pulse stimulation devices such as the REM could cure cancer, staph infections, and other serious diseases. Other literature claimed that the Miracle Cream could alleviate the discomforts of premenstrual syndrome and reverse the effects of osteoporosis. Both Ballistrea and Ricotta also personally told many potential purchasers, including several who were gravely ill or had sick relatives and friends, about the alleged curative powers of these products.

Ballistrea and his partner knew that the REM and the Miracle Cream were not FDA approved and sought to conceal their activities from the Government. Their knowledge of the inappropriateness of their acts is demonstrated both by the distributorship agreement explicitly forbidding LER distributors from making medical claims concerning LER products and by a LER newsletter notifying all distributors to stop using unofficial literature to tout the curative powers of LER products. Additionally, both Ballistrea and Ricotta told undercover Government agents, posing as potential downstream distributors, that they should use the unofficial literature to market the products, especially to customers who were ill, but should take great care to ensure that their use of this information is not discovered by the FDA. Ballistrea stated on a training video for LER phone operators that they should be careful about touting LER products as medical aids to callers because "it could be the FDA calling." Ballistrea also informed an undercover postal inspector that he helped to set up New Millennium to distribute the REM and the Miracle Cream because of concerns that the FDA was acting against LER and its distributors for improperly distributing these products.

Ballistrea and Ricotta were tried separately. Ricotta was convicted of conspiring to defraud the FDA and of violating various provisions of the FDCA and sentenced to 41 months' imprisonment. Ballistrea was convicted on two counts of conspiracy to defraud the FDA (one for the REM and one for the Miracle Cream), 18 U.S.C. § 371, five counts of introducing unapproved medical devices and new drugs into interstate commerce, 21 U.S.C. §§ 331(a) & 333(a)(1), and one count of making a false statement to federal officials, 18 U.S.C. § 1001. Ballistrea was also sentenced to 41 months' imprisonment.

Discussion

I. Conspiring to Defraud the United States

Ballistrea contends that the Government failed to prove the conspiracy to defraud the FDA charges because there was no evidence of "actual or active contact" between him or Ricotta and the FDA or its agents. We reject this argument because the defraud prong of the federal conspiracy statute does not require such a showing of actual contact.

The general federal conspiracy statute punishes a conspiracy that has either of two objects: "to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose." 18 U.S.C. § 371. Ballistrea was charged under section 371 both with conspiracy to defraud the FDA, by interfering with its lawful function of regulating the interstate distribution of medical devices and drugs, and with conspiracy to violate specific sections of the FDCA prohibiting the introduction of unapproved medical devices and drugs into interstate commerce. Count I concerned the REM and charged a conspiracy with two objectives: to defraud the FDA and to violate substantive provisions of the FDCA. Count IX concerned the Miracle Cream and similarly charged a dual-object conspiracy. In each count, the conspiracy to defraud the FDA constituted a felony, though the conspiracy to violate substantive provisions of the FDCA constituted a misdemeanor because a violation of these substantive provisions constituted a misdemeanor. See id. The jurors specifically indicated on the verdict form that they found Ballistrea guilty on both aspects of the conspiracies charged in Counts I and IX.

A conspiracy to defraud under section 371 embraces "any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any department of government." Dennis v. United States, 384 U.S. 855, 861, 86 S.Ct. 1840, 1844, 16 L.Ed.2d 973 (1966) (quotations and citations omitted). Although neither this provision nor its predecessors "were accompanied by any particularly illuminating legislative history," Tanner v. United States, 483 U.S. 107, 128, 107 S.Ct. 2739, 2751, 97 L.Ed.2d 90 (1987), it is well established that the term "defraud" as used in section 371 "is interpreted much more broadly than when it is used in the mail and wire fraud statutes," United States v. Rosengarten, 857 F.2d 76, 78 (2d Cir.1988), and that this provision "not only reaches schemes which deprive the government of money or property, but also is designed to protect the integrity of the United States and its agencies." United States v. Nersesian, 824 F.2d 1294, 1313 (2d Cir.1987). Thus, this section covers acts that "interfere with or obstruct one of [the United States'] lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest," even if the Government is not "subjected to property or pecuniary loss by...