U.S. v. Fuchs

• Decision Date: 17 October 2006
• Docket Number: No. 05-10426.,05-10426.
• Citation: 467 F.3d 889
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Clayton H. FUCHS; Eugene Gonzales; Waldrick Lemons, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

467 F.3d 889

UNITED STATES of America, Plaintiff-Appellee, v. Clayton H. FUCHS; Eugene Gonzales; Waldrick Lemons, Defendants-Appellants.

No. 05-10426.

United States Court of Appeals, Fifth Circuit.

October 17, 2006.

Daniel D. Guess (argued), Susan B. Cowger, Dallas, TX, for Plaintiff-Appelee.

Franklyn Ray Mickelsen, Jr. (argued), Broden & Mickelsen, Dallas, TX, for Clayton H. Fuchs.

F. Clinton Broden (argued), Broden & Mickelsen, Dallas, TX, for Eugene Gonzales.

Michael P. Gibson (argued), Burleson, Pate & Gibson, Dallas, TX, for Waldrick Lemons.

Appeals from the United States District Court for the Northern District of Texas.

Before KING, GARWOOD and JOLLY, Circuit Judges.

KING, Circuit Judge:

Defendants-appellants Clayton H. Fuchs, Eugene Gonzales, and Waldrick Lemons were charged in a six-count indictment for their involvement in two Internet-based pharmacies that dispensed controlled substances to thousands of customers without valid prescriptions. The jury convicted them on all counts, and they timely appealed. For the reasons that follow, we AFFIRM.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Factual Background

This case centers around two Internet-based pharmacies that defendant-appellant Clayton H. Fuchs established and operated. In 1999, Fuchs, then a licensed pharmacist, sought to capitalize on the Internet boom by setting up an online pharmacy. Fuchs's idea was to find a physician, or several physicians, who would issue prescriptions or refills for patients who requested medication online. Fuchs would then dispense the medication, based on the physician's prescriptions, to patients throughout the United States.

After several meetings with Dr. Stephen Thompson, then a licensed physician who had had ideas similar to Fuchs's, Fuchs opened Friendly Pharmacy ("Friendly") inside the Garland, Texas office building where Dr. Thompson maintained his medical clinic. Dustin Humphries, a licensed pharmacist who was a close friend of Fuchs, also partnered with Fuchs to open Friendly. Humphries initially designed and maintained Friendly's web site.

Friendly began receiving orders through its web site in April 1999, but business was slower than Fuchs desired, presumably because Friendly initially offered non-controlled medications only. That same month, Fuchs approached Dr. Thompson and told him that the pharmacy was receiving requests for controlled substances. Dr. Thompson initially resisted the idea of dispensing controlled substances via the Internet because he was concerned it might be illegal. But after a few more months of slow sales and after Fuchs told him about another web-based pharmacy that was continuing to dispense controlled substances even after a government investigation, Dr. Thompson relented. Once Friendly began offering controlled substances, sales skyrocketed.

Fuchs hired several employees to work at Friendly. Among them was defendant-appellant Eugene Gonzales, Fuchs's step-father, who supervised several of the pharmacy's employees. Fuchs's then wife, Angela Fuchs, also worked at the pharmacy. Dr. Thompson testified at trial that Angela Fuchs and Gonzales were part of the pharmacy's "inner circle." Friendly also employed defendant-appellant Waldrick Lemons as a pharmacist.

Friendly's operation was relatively simple. Customers located throughout the United States went to the pharmacy's web site, completed an online profile, and requested medication. After a customer completed an order, Friendly generated a completed prescription form and forwarded it to Dr. Thompson for his approval. Dr. Thompson reviewed the patient's profile and approved and signed the prescription without communicating with the patient either face to face or over the telephone. Friendly paid Dr. Thompson $40 for each prescription he approved. Either Fuchs or Lemons, assisted by Friendly's pharmacist technicians, then filled the prescription, and a Friendly employee shipped it to the customer.

Fuchs instituted few checks to ensure controlled substances were not being abused. A Friendly employee called each customer to verify the order before forwarding the completed prescription form to Dr. Thompson. And if a Friendly employee suspected that a customer was abusing controlled substances or using a fake name to obtain them, she would ask the customer to fax in some form of identification or she would add the name to a list of suspect customers for whom the pharmacy refused to fill further prescriptions. Notwithstanding these minimal checks in the process, the pharmacy filled nearly all of the orders that were placed.

In May 2000, Fuchs decided to expand business by increasing the number of hydrocodone tablets per prescription from 40 to 100. Dr. Thompson initially resisted the increase, but he eventually acquiesced, and Fuchs increased Dr. Thompson's payment to $100 per prescription. By August 2000, Friendly processed 150 to 200 requests for medication daily; hydrocodone, a Schedule III controlled substance, was the primary drug being dispensed.

Cy Weich, a Field Compliance Officer with the Texas State Board of Pharmacy ("TSBP"), performed a routine inspection of Friendly in August 2000. The information Weich gleaned during the inspection alarmed him. He was troubled by the high volume of prescriptions, especially controlled substances, that Friendly was dispensing. He was also concerned that nearly all of Friendly's prescriptions were signed by the same doctor, who was located in Texas, despite the fact that the patients were dispersed throughout the United States. After consulting with TSBP's general counsel, Weich informed Fuchs that the prescriptions generated through Friendly's web site were invalid.

According to the testimony of a former Friendly employee, Fuchs informed the employees a few days after Weich's inspection that Friendly was going to shut down "because it was illegal or . . . we were doing something wrong." Supp. R. 675. Friendly apparently stopped accepting new orders shortly thereafter, but it remained open long enough to continue processing the 1,000 or more orders it had already received.

In October 2000, Fuchs opened Main Street Pharmacy ("Main Street") in Norman, Oklahoma. Main Street was also an Internet-based pharmacy; its operation was substantially the same as Friendly's. Main Street was nominally owned by Gonzales, although he had very little interaction with the pharmacy and its employees recognized Fuchs as the true owner. Trial testimony conflicted as to why Main Street was put into Gonzales's name. According to Craig Jones, an employee at both Friendly and Main Street, Fuchs told him it was because he did not want a paper trail linking Friendly with Main Street. According to other testimony, the reason was that Fuchs was going through a divorce and sought to protect his assets. Regardless of Fuchs's motivation, he purchased Gonzales a new truck in exchange for putting Main Street in Gonzales's name.

Fuchs offered his Friendly employees positions at Main Street if they would move to Oklahoma. Lemons declined Fuchs's offer. By this point, Dr. Thompson had also severed his relationship with Fuchs. Fuchs established relationships with three physicians who approved Main Street's orders. The primary physician was Dr. Ricky Joe Nelson.¹ Dr. Nelson approved most of Main Street's prescriptions, but he refused to approve prescriptions for customers in Oklahoma and one or two other states because he had medical licenses in those states. Main Street paid Dr. Nelson between $40 and $70 for each prescription he approved. Drs. Kenneth Speak and Robert Ogle also approved prescriptions at Main Street.

Fuchs hired Myron Thompson as a pharmacist at Main Street. After a couple of weeks, Myron Thompson became highly suspicious of the legality of Main Street's operation and shared his concerns with Fuchs. Fuchs told him that he would try to find a replacement pharmacist. Myron Thompson continued working at Main Street for approximately two more weeks until Fuchs hired Jerry Shadid as his replacement.

By the time Main Street was shut down, the pharmacy was processing between 300 and 500 prescriptions per day, approximately 70% of which were for hydrocodone. And nearly every hydrocodone order shipped out was a 30-day supply of 100 tablets with two refills. Both Friendly and Main Street charged far more than the average price for each prescription. Neither pharmacy accepted payment through insurance; the pharmacies' standard payment terms were C.O.D.

B. Procedural History

On November 20, 2002, the grand jury indicted the defendants-appellants for their involvement in the web-based pharmacies. Superseding indictments were handed down on July 23, 2003, and September 24, 2003. The second superseding indictment ("indictment"), on which the defendants-appellants were tried, contained six counts. Count one charged Fuchs and Lemons with conspiracy to distribute a controlled substance in violation of 21 U.S.C. § 846. Count two charged Fuchs with engaging in a continuing criminal enterprise ("CCE") in violation of 21 U.S.C § 848. Counts three, four, and five charged Fuchs with dispensing of a controlled substance not in the usual course of professional practice in violation of 21 U.S.C. § 841(a)(1). And count six charged Fuchs and Gonzales with conspiracy to commit money laundering in violation of 18 U.S.C. § 1956(h).²

The defendants-appellants were tried before a jury. At the close of the government's case-in-chief, the defendants-appellants moved for a judgment of acquittal, which the court denied. The defendants-appellants renewed their motions at the close of all the evidence. The jury convicted them on all counts. After trial, the defendants-appellants filed supplemental motions for judgment of acquittal and motions for a new trial. The district court denied the defendants-appellants' motions in a January 25, 2005, order. On the government's motion, however, the court dismissed Fuchs's...