United States v. Moran Oz (2)

• Decision Date: 28 March 2016
• Docket Number: Criminal No. 13-00273 (SRN/JJK)
• Parties: UNITED STATES OF AMERICA, Plaintiff, v. MORAN OZ (2); BABUBHAI PATEL (3); ELIAS KARKALAS (8); PRABHAKARA RAO TUMPATI (9); Defendants.
• Court: U.S. District Court — District of Minnesota

UNITED STATES OF AMERICA, Plaintiff, v. MORAN OZ (2); BABUBHAI PATEL (3);ELIAS KARKALAS (8); PRABHAKARA RAO TUMPATI (9); Defendants.

Criminal No. 13-00273 (SRN/JJK)

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

March 28, 2016

ORDER

Jacqueline Blaesi-Freed, Linda I. Marks, U.S. Department of Justice, Consumer Protection Branch, 450 5^th St. NW, Ste. 6400, Washington, DC 20001, and Roger J. Gural, U.S. Department of Justice, Civil Division, P.O. Box 386, Washington, DC 20044, for the United States of America.

Joseph S. Friedberg, 701 4^th Ave. S., Ste. 300, Minneapolis, MN 55415, and Robert D. Richman, P.O. Box 16643, St. Louis Park, MN 55416, for Defendant Moran Oz.

Brian N. Toder, Chestnut Cambronne, PA, 17 Washington Ave N., Ste. 300, Minneapolis, MN 55401 for Defendant Babubhai Patel.

Daniel L. Gerdts, 247 Third Ave. S., Minneapolis, MN 55415, John C. Brink, 310 4th Ave. S., Ste. 1008, Minneapolis, MN 55415, for Defendant Elias Karkalas.

James E. Ostgard, Ostgard Law Office, P.O. Box 582536, Minneapolis, MN 55458, Paul Daniel Schneck, Paul Daniel Schneck, LTD, 222 South 9^th St., Ste. 1600, Minneapolis, MN 55402, for Defendant Prabhakara Rao Tumpati.

SUSAN RICHARD NELSON, United States District Judge

This matter is before the Court on Defendant Moran Oz's ("Oz") Objections to the Report and Recommendation ("Oz Objs.") [Doc. No. 474], Defendant Elias Karkalas' ("Karkalas") Objections to the Report and Recommendation ("Karkalas Objs.") [Doc. No. 475], and Defendant Prabhakara Rao Tumpati's ("Tumpati") Objections to the Report and Recommendation ("Tumpati Objs.") [Doc. No. 473]. These various objections all pertain to the Report and Recommendation ("R & R") issued by Magistrate Judge Keyes ("Judge Keyes") on February 1, 2016.¹ The United States of America ("the Government") filed timely responses to each set of objections: Government's Memorandum in Response to Defendant Oz's Objections ("Resp. to Oz") [Doc. No. 486]; Government's Memorandum in Response to Defendant Karkalas' Objections ("Resp. to Karkalas") [Doc. No. 487]; and Government's Memorandum in Response to Defendant Tumpati's Objections ("Resp. to Tumpati") [Doc. No. 485]. Defendant Babubhai Patel ("Patel") filed a Motion to Join Certain Motions of Co-Defendants [Doc. No. 417] which Judge Keyes recommended be denied. (See R & R at 11, 34.) Patel did not file any objections to the R & R. Defendant Oz's Motion to Dismiss Certain Counts as Duplicative [Doc. No. 376] and the Government's Motion to Dismiss Duplicative Counts [Doc. No. 395] were also addressed by the R & R. (See R & R at 32-34.) Neither party objected to Judge Keyes' recommended resolution of those motions.

For the reasons set forth herein, the objections of Defendants Oz, Karkalas, and Tumpati are overruled and the R & R is adopted in its entirety. Defendant Oz's Motion to Dismiss Certain Counts for Failure to State an Offense [Doc. No. 377] is denied and his Motion to Dismiss Certain Counts as Duplicative [Doc. No. 376] is denied as moot.Defendant Patel's Motion to Join [Doc. No. 417] is denied. Defendant Karkalas' Motion to Dismiss Certain Counts for Failure to State an Offense [Doc. No. 340], Motion to Dismiss Certain Counts as Void for Vagueness [Doc. No. 339], and Motion to Dismiss Certain Counts for Violating Due Process Rights [Doc. No. 353] are denied. Defendant Tumpati's Motion to Dismiss Certain Counts as Void for Vagueness [Doc. No. 379] and Motion to Dismiss [Doc. No. 380] are denied. The Government's Motion to Dismiss Counts 61-72 [Doc. No. 395] is granted, except that paragraphs 1 through 6 of Counts 61-72 are not dismissed so far as they are incorporated into other Counts that remain in the Indictment.

I. BACKGROUND

The extensive procedural history of this matter is well documented in the R & R and not disputed by the parties. Thus, for the sake of brevity, the Court refers to the R & R throughout this Order when discussing this undisputed history.

The Government alleges that several defendants conspired to violate the Food Drug and Cosmetics Act ("FDCA"), introduced misbranded drugs into interstate commerce, conspired to commit mail and wire fraud, committed mail and wire fraud, unlawfully distributed and dispensed controlled substances, conspired to launder money, and conspired to distribute controlled substances. (R & R at 1; Indict. [Doc. No. 5].) Relevant to the present matter, the Government charges Karkalas, Oz, and Patel with violating the Controlled Substance Act ("CSA") and its associated regulations by distributing a drug—Fioricet—through an online pharmacy called RX Limited withoutthe necessary prescriptions, (Indict., Counts 73-83), Oz, Patel, Karkalas and Tumpati² (collectively, "Defendants") with conspiring to violate the FDCA, (Indict., Count 1), and Oz, Patel, and Karkalas with actually violating the FDCA, (Indict., Counts 2-23).

Defendants now look to dismiss some or all of the charges against them for a variety of reasons. (See R & R at 2; Doc. Nos. 339, 340, 353, 377, 379, 380, 417.) The bases for Defendants' motions and objections overlap in large part and the Court addresses each category of argument below. The Court must conduct a de novo review of any portion of a magistrate judge's report and recommendation on a dispositive matter to which specific objections are made. 28 U.S.C. § 636(b)(1); Fed. R. Crim. P. 59(b)(3); D. Minn. L.R. 72.2(b); see United States v. Raddatz, 447 U.S. 667, 673 (1980).

II. DISCUSSION

A. Karkalas' and Oz's Motions to Dismiss Certain Counts for Failure to State an Offense, Doc. Nos. 340 and 377

Karkalas and Oz ask that the CSA-related charges be dismissed.³ (See R & R at 2.) Karkalas and Oz specifically argue that Fioricet is not a "controlled substance" under the CSA by virtue of a Drug Enforcement Agency ("DEA") exemption regulation andthus the Indictment does not state a criminal offense. (See id. at 6; Oz Objs. at 1-3; Karkalas Objs. at 2-4.) Judge Keyes disagreed and held that the regulation did not exempt Fioricet from the criminal provisions of the CSA. (See R & R at 7-11.) Thus, he found that the Indictment adequately states an offense against Karkalas and Oz and recommended that their motions be denied. (Id. at 11.) Karkalas and Oz object to this recommendation and argue that Judge Keyes' analysis was flawed. (See Oz Objs. at 1-3; Karkalas Objs. at 2-4.)

The Government alleges, in relevant part, that Karkalas and Oz violated the CSA by delivering, distributing, or dispensing Fioricet, which it claims is a controlled substance. (R & R at 3, 6; Indict., Counts 73-83.) Fioricet is a compound that contains Butalbital, a derivative of barbituric acid, and other components such as acetaminophen and caffeine. (R & R at 8, n.6, 13; Indict., Count 1 at ¶¶ 6, 10.) "Any substance which contains any quantity of a derivative of barbituric acid, or any salt of a derivative of barbituric acid," is a Schedule III controlled substance. 21 U.S.C. § 812, Schedule III, Part (b)(1).

The CSA provides that "it shall be unlawful for any person knowingly or intentionally to . . . distribute, or dispense . . . a controlled substance," unless that conduct is authorized by the CSA's provisions. 21 U.S.C. § 841(a)(1). Moreover, it is "unlawful for any person to knowingly or intentionally . . . deliver, distribute, or dispense a controlled substance by means of the Internet, except as authorized by this subchapter." 21 U.S.C. § 841(h)(1)(A). Specific examples of conduct constituting a violation of § 841(h)(1)(A) are "writing a prescription for a controlled substance for the purpose ofdelivery, distribution, or dispensation by means of the Internet in violation of section 829(e) of [Title 21]," 21 U.S.C. § 841(h)(2)(B), and "offering to fill a prescription for a controlled substance based solely on a consumer's completion of an online medical questionnaire," 21 U.S.C. § 841(h)(2)(D). Section 829(e) requires that controlled substances dispensed through the Internet be distributed to individuals only where there is a valid prescription, meaning a prescription "issued for a legitimate medical purpose in the usual course of professional practice by . . . a practitioner who has conducted at least 1 in-person medical evaluation of the patient." 21 U.S.C. § 829(e)(1)-(2); see also id. § 829(e)(2)(B) (further defining an "in-person medical evaluation" as one that is "conducted with the patient in the physical presence of the practitioner").

Furthermore, one violates the CSA if he knowingly or intentionally delivers, distributes, or dispenses a controlled substance "by means of the Internet by an online pharmacy that is not validly registered with a modification authorizing such activity as required by section 823(f) of [Title 21.]" 21 U.S.C. § 841(h)(2)(A). The CSA requires online pharmacies to display certain information on their websites, including:

1) The name and address of the pharmacy as it appears on the pharmacy's [DEA] certificate of registration.

2) The pharmacy's telephone number and email address.

3) The name, professional degree, and States of licensure of the pharmacist-in-charge, and a telephone number at which the pharmacist-in-charge can be contacted.

4) A list of States in which the pharmacy is licensed to dispense controlled substances.

5) A certification that the pharmacy is registered under [Part C, Subchapter I, Chapter 13, of Title 21 of the United States Code] to deliver, distribute, or dispense by means of the Internet controlled substances.

6) The name, address, telephone number, professional degree, and States of licensure of any practitioner who has a contractual relationship to provide medical evaluations or issue prescriptions for controlled substances, through referrals from the website or at the request of the owner or operator of the website, or any employee or agent thereof.

7) The following statement, unless revised by the Attorney General by regulation: "This online pharmacy will only dispense a controlled substance to a

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