Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-15-03601/USCOURTS-ca7-15-03601-0/pdf.json

Parties Involved:
John C. Morrison
Appellant
United States of America
Appellee

Document Text:

In the 

United States Court of Appeals 

For the Seventh Circuit ____________________ 

Nos. 15-3589 & 15-3601 

UNITED STATES OF AMERICA, 

Plaintiff-Appellee, 

v.

ANNA F. NOVAK AND JOHN C. MORRISON, 

Defendants-Appellants. 

____________________ 

Appeals from the United States District Court for the 

Western District of Wisconsin. 

No. 14-cr-121 — James D. Peterson, Judge. 

____________________ 

ARGUED SEPTEMBER 28, 2016 — DECIDED NOVEMBER 9, 2016 

____________________ 

Before POSNER, FLAUM, and MANION, Circuit Judges. 

FLAUM, Circuit Judge. Defendants-appellants John Morrison and Anna Novak both pled guilty to distributing a controlled substance analog and to tax fraud. The district court 

accepted their guilty pleas and later sentenced Morrison to 

forty-eight months of incarceration and Novak to ninety-six 

months. They now appeal, challenging the constitutionality 

of the Controlled Substances Analogue Act, 21 U.S.C. § 813 

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2 Nos. 15-3589 & 15-3601

(the Analogue Act), the district court’s acceptance of their 

guilty pleas, and their sentences. We affirm. 

I. Background 

From approximately November 2009 through September 

2013, Morrison and Novak sold substances they referred to as 

“herbal incense” from their retail store, JC Moon, in Ashland, 

Wisconsin. These substances included XLR-11, UR-144, PB22, and 5F-PB-22, which at the time were not listed on the controlled substance schedules but were similar to scheduled 

controlled substances. Between November 2012 and July 

2013, undercover law enforcement officers made twentyeight controlled purchases of various substances from JC 

Moon. 

Through undercover interviews with Novak, the government learned that appellants hid a significant portion of their 

cash income from the IRS. Novak directed JC Moon employees to take all $50 and $100 bills from the cash registers and 

put them in Novak and Morrison’s safe. These bills never 

went into JC Moon’s business bank account. This artificially 

low business income information was provided to the appellants’ tax preparer; as a result, the “skimmed” cash was not 

included on the returns and not reported to the IRS. From 

2010 to 2012, appellants under-reported JC Moon’s business 

income by approximately $575,752 for a tax loss of $186,095. 

On December 10, 2014, a federal grand jury returned a 

thirty-five-count indictment against Novak and Morrison. 

These counts included the Analogue Act and tax fraud counts 

to which Novak and Morrison would eventually plead guilty. 

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Nos. 15-3589 & 15-3601 3

On May 5, 2015, Novak and Morrison moved to dismiss 

the thirty indictment counts alleging either conspiracy or substantive distribution charges. Appellants argued before the 

district court that the Analogue Act was unconstitutionally 

vague as applied to XLR-11 and several other analogues involved in the case. On July 24, 2015, the court denied Novak 

and Morrison’s motion to dismiss. 

On August 27, 2015, Novak and Morrison pled guilty to 

one count each of distributing a controlled substance analogue—XLR-11—and to tax fraud. The plea agreements were 

unconditional and did not reserve the right to appeal the previously-denied motion to dismiss. 

At Morrison’s change of plea hearing, the district court reviewed the maximum penalties and asked whether Morrison 

understood the proceedings. The government then summarized the evidence it would submit at trial on the Analogue 

Act charge, including employee and customer testimony that 

appellants sold synthetic marijuana as “herbal incense” from 

a back room at JC Moon; a Facebook post indicating that appellants sold XLR-11 after they knew it was scheduled to be 

treated as a controlled substance;* undercover agent testimony regarding a May 2, 2013 XLR-11 purchase; expert testimony demonstrating the physiological-effects and chemical-

 * The May 2, 2013 post read: “The federal government is banning the 

current herbal incense on May 13, 2013. What that means for us is everything we are selling right now will be banned as of May 13. Our inventory 

is limited. We may run out before then. We will keep you posted.” The 

government said it also would have submitted evidence that XLR-11 was 

to be officially treated as a controlled substance on May 16, 2013, but that 

the notice of this change had been publicized earlier. 

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4 Nos. 15-3589 & 15-3601

structural similarities between XLR-11 and JWH-18, a controlled substance; and lay witness testimony from JC Moon 

customers regarding the effects of XLR-11. Morrison then 

agreed that the government could have proved all of the 

above facts. 

When questioned, both appellants vacillated between 

knowing and not knowing that XLR-11 was similar to controlled substances while they were selling it. When the court 

first asked Morrison to explain the distribution offense in his 

own words, he said, 

I didn’t realize I was being charged with anything because I didn’t think there was anything 

wrong with [the XLR-11] at the time. Because 

every time that something came down, we always stopped and ... I didn’t know. I’m sorry. I 

really didn’t know it was illegal. 

Morrison then said that he knew that people used the 

XLR-11 he sold to get high, he “thought it was like marijuana,” and he knew marijuana was a controlled substance. 

However, when questioned further, Morrison stated that he 

did not know that XLR-11 was a controlled substance when 

he sold it and that he stopped selling it once he believed it 

became a scheduled controlled substance. 

In response, the government said that XLR-11 was in fact 

not a scheduled controlled substance as of the date of the 

charged offense, May 2, 2013. Rather, the evidence showed 

that Morrison knew that XLR-11 would be treated as a controlled substance later that same month, yet continued to sell 

it after having that knowledge. The government continued, 

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Nos. 15-3589 & 15-3601 5

Mr. Morrison’s forthright answers that he knew 

people were smoking, it means he knew it was 

for human consumption. He knew they were 

using it to get high, which we had a lot of proof 

of that and I knew he would say that, and then 

his acknowledgement that he thought it was 

like marijuana, a Schedule 1 controlled substance, I think is sufficient. 

One of the things McFadden [v. United States, 

— U.S. —, 135 S. Ct. 2298 (2015)] tells us is you 

can prove knowingly ... by showing that the defendant knew the characteristics that would 

make it illegal even if he did not know its legal 

status as an analogue.... I would submit ... that 

there are facts, circumstantial facts that he knew 

it produced a high. It could give rise to an inference. The Court could infer ... that he then knew 

enough—that it would be an analogue even 

though he doesn’t know its legal status as an analogue. 

The district court concluded, 

I’m satisfied that there’s a factual basis for the 

plea, despite Mr. Morrison’s denials of the specific knowledge of the chemical involved or its 

specific legal status. But I think on the theory 

that [the government] described that ... Mr. 

Morrison was familiar with the features of the 

products that he was selling that made them 

controlled substance analogues, ... there is indeed a factual basis for the plea. 

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6 Nos. 15-3589 & 15-3601

Morrison also initially seemed unsure about how his tax 

reporting worked. He was not aware of how much money JC 

Moon made in 2012 or how much business income it reported. 

He also said the he was unaware of the cash-skimming operation underlying the tax fraud. However, after speaking with 

his attorney, Morrison said, “We put the fifties and hundreds 

in the safe as a separate, and ... the taxes were made out the 

way they were, I signed them and I’m guilty of it.” Morrison 

also said that he and Novak gave their business income information—without including the $50 and $100 bills—to their 

tax preparer, and that Morrison signed the return. The court 

questioned Morrison on his ability to raise lack of knowledge 

as a defense to the tax fraud charge. Morrison responded that 

he knew and that he nevertheless wanted to plead guilty. 

The court concluded, 

despite Mr. Morrison’s denial, I think there is a 

factual basis ... because of his knowledge of the 

treatment of the fifties and hundreds at the 

store, that he knew that the tax return that he 

signed was not an accurate tax return and that 

it understated the income .... 

The district court conditionally accepted Morrison’s guilty 

pleas pending a review of his presentence report. 

The district court then proceeded with Novak’s change of 

plea hearing. The court reviewed the maximum penalties and 

ensured that Novak understood the proceedings. The government noted that evidence from Morrison’s change of plea 

hearing applied to Novak. Novak was present at the defense 

table during that recitation and waived a proffer of the same 

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Nos. 15-3589 & 15-3601 7

evidence at her hearing, which took place directly after Morrison’s. Novak agreed that the government could prove everything from Morrison’s proffer. Then, like Morrison, Novak 

expressed some hesitation about the distribution charge. Novak initially said she thought XLR-11 was supposed to be tobacco, but then later realized it was not. Novak also stated 

that she did not know people smoked the substances sold at 

JC Moon. 

After speaking with her attorney, Novak said she later 

learned that people were smoking the herbal incense, but that 

people were interested in its “relaxing effect.” When asked if 

she knew that people used the substances to get high, Novak 

responded, “I don’t like to use that terminology. [I]t affects 

everybody differently. Some it would relax; some would go 

to sleep; some would buzz ....” Novak later admitted that JC 

Moon sold XLR-11 after Novak knew it had effects similar to 

marijuana. 

When questioned about the May 2, 2013 Facebook post, 

Novak said she was out of the state and did not create the post 

but that she was “aware of a date coming up, this particular, 

and our wholesalers would say [XLR-11] is going to be 

banned and so we just posted that instantly, not knowing it 

was going to come back at us.” The district court then found 

that there was a sufficient factual basis for accepting Novak’s 

guilty plea on the distribution charge. 

Regarding the tax fraud charge, Novak admitted that she 

knew the $50 and $100 bills were not reflected in the information she gave to the tax preparer, and that therefore the tax 

returns reflected fraudulently low business income. The court 

found that there was a sufficient factual basis for Novak’s 

plea. The court conditionally accepted Novak’s pleas pending 

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8 Nos. 15-3589 & 15-3601

a review of the presentence report. Neither appellant objected 

to the factual basis for the guilty pleas or attempted to withdraw the pleas. Novak and Morrison did not orally reserve 

their rights to appeal the district court’s earlier denial of their 

motion to dismiss. 

On November 6, 2015, the district court formally accepted 

appellants’ guilty pleas and sentenced them. At the hearing, 

the government called an expert who testified that XLR-11, 

UR-144, PB-22, and 5F-PB-22 had pharmacological effects 

substantially similar to THC and were at least as potent as 

THC. The expert also provided reasons why the substances 

were not most similar to marijuana. Five lay witnesses, all 

customers at JC Moon, testified to the effects of the substances. The court then found that THC was the closest controlled substance to the substances at issue. THC had a 1:167 

marijuana equivalency ratio, used to calculate the base offense level under U.S.S.G. § 2D1.1. The district court applied 

the 1:167 ratio to the substances in this case. 

The court sentenced Morrison to forty-eight months in 

prison on the Analogue Act charge and thirty-six months in 

prison on the tax fraud charge, with the sentences to run concurrently. The court sentenced Novak to ninety-six months in 

prison on the drug charge and thirty-six months in prison on 

the tax charge, with these sentences also running concurrently. 

II. Discussion 

A. Analogue Act Vagueness Challenge 

Typically, we review de novo the district court’s legal conclusions regarding the constitutionality of a statute. United 

States v. Morris, 821 F.3d 877, 879 (7th Cir. 2016). However, an 

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Nos. 15-3589 & 15-3601 9

unconditional guilty plea waives appellate review of all nonjurisdictional pretrial issues. United States v. Adams, 125 F.3d 

586, 588 (7th Cir. 1997). “An exception exists if the plea is conditioned on preserving specified issues for appeal,” and although “[t]hat conditional plea should be in writing, ... we 

have held that the conditions can also be sufficiently indicated 

in a transcript of the sentencing hearing.” United States v. Robinson, 20 F.3d 270, 273 (7th Cir. 1994) (citing Fed. R. Crim. P. 

11(a)(2); United States v. Yasak, 884 F.2d 996, 999 (7th Cir. 

1989)). 

The threshold question is therefore whether Novak and 

Morrison’s vagueness challenge alleges jurisdictional, preplea defects that this Court may consider even after an unconditional plea. This Court has spoken directly on the issue: 

“While a facial attack on a statute’s constitutionality is jurisdictional, an as-applied vagueness challenge is not.” United 

States v. Phillips, 645 F.3d 859, 863 (7th Cir. 2011). To the extent 

that appellants make non-jurisdictional as-applied challenges 

to the Analogue Act, those arguments are waived. Their 

guilty pleas did not reserve the right to appeal the district 

court’s denial of their motion to dismiss, and nothing in the 

record indicates that they preserved the issue during the hearings before the district court. To the extent that appellants facially attack the Analogue Act on vagueness grounds, the Supreme Court resolved this issue in the government’s favor in 

McFadden v. United States, — U.S. —, 135 S. Ct. 2298, 2307 

(2015) (holding that the Analogue Act is not unconstitutionally vague due to its scienter requirement). 

B. Guilty Pleas 

Appellants next say they unknowingly and involuntarily 

entered their guilty pleas and argue the district court accepted 

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10 Nos. 15-3589 & 15-3601

the pleas without a sufficient factual basis. Where, as here, a 

defendant makes no attempt to withdraw his plea in the district court, we review the claim for plain error. United States v. 

Pineda-Buenaventura, 622 F.3d 761, 770 (7th Cir. 2010). Likewise, we conduct plain-error review for the sufficiency of a 

factual basis to support a plea where the defendant failed to 

make such an objection below. United States v. Arenal, 500 F.3d 

634, 637 (7th Cir. 2007). 

1. Voluntariness

Rule 11 requires that before the court accepts a 

plea of guilty or nolo contendere the court must 

address the defendant personally in open court 

and inform the defendant of, and determine 

that the defendant understands[,] the nature of 

each charge to which the defendant is pleading.... To determine whether a defendant in fact 

understands the nature of a charge, we take a 

totality-of-the-circumstances approach and consider (1) the complexity of the charge; (2) the defendant’s intelligence, age, and education; 

(3) whether the defendant was represented by 

counsel; (4) the district judge’s inquiry during 

the plea hearing and the defendant’s own statements; and (5) the evidence proffered by the 

government. 

Pineda-Buenaventura, 622 F.3d at 770 (internal citations, quotation marks, brackets, and alterations omitted). 

The balance of these factors leads to the conclusion that 

Morrison and Novak understood the nature of the charges 

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Nos. 15-3589 & 15-3601 11

against them and that they knowingly and voluntarily entered their guilty pleas. First, while the complexity of Analogue Act charges can be difficult for defendants to grasp, the 

district court can alleviate this burden through careful questioning and explanation of the charges. See United States v. Fernandez, 205 F.3d 1020, 1026 (7th Cir. 2000); United States v. LeDonne, 21 F.3d 1418, 1423 (7th Cir. 1994). The district court in 

this case reviewed the elements of the Analogue Act and Controlled Substances Act with appellants and thoroughly questioned each on his or her knowledge of XLR-11’s effects. 

Second, Morrison was seventy-one years old at the time of 

the plea, had served in the Army, and had earned a GED. He 

had been operating businesses like JC Moon around Wisconsin for many years. English is his native language. Though 

there is some suggestion in the change of plea hearing that 

Morrison was suffering from the early stages of Alzheimer’s, 

there is no indication that any such complications impacted 

his ability to understand the nature of the proceedings. Novak 

was fifty-eight years old when she pled guilty. She had graduated high school and had taken some college courses. She 

ran the operations of JC Moon. Previously, she had managed 

her own restaurant. English is also Novak’s native language. 

Nothing about appellants’ personal history indicated that either was unable to understand the proceedings or the nature 

of the charges. 

Third, both Novak and Morrison were represented by 

counsel. Fourth, as explained above, the district court reviewed the nature of the charges with each appellant and 

dwelled on what each knew about XLR-11 and at what time. 

Finally, the government summarized, in plain language, the 

expert and lay witness testimony it expected to elicit at trial, 

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12 Nos. 15-3589 & 15-3601

and both appellants agreed that the government could prove 

all of the facts mentioned. These factors, and the totality of the 

circumstances surrounding Novak’s and Morrison’s guilty 

pleas, indicate that they entered into those pleas voluntarily 

and with sufficient understanding of the charges against 

them. 

 2. Factual Basis 

Appellants next argue the district court lacked a sufficient 

factual basis on which to accept their distribution pleas and 

Morrison’s tax fraud plea. As to the Analogue Act charges, 

appellants say the government did not proffer, and the district 

court did not elicit, sufficient evidence of their knowledge 

about the chemical structure and effects of XLR-11. Alternatively, they contend that if the court found sufficient evidence 

to satisfy the knowledge requirement, it did so by impermissibly relying on a now-disfavored Turcotte inference. See 

United States v. Turcotte, 405 F.3d 515, 527 (7th Cir. 2005) (creating the “provisional remedy” of a rebuttable, permissive inference of knowledge in Analogue Act cases, such that a defendant knew about the chemical structure of an analogue if 

the government can show the defendant knew the analogue 

had similar physiological effects to those of a controlled substance). 

The Analogue Act calls for analogues to be treated as controlled substances. 21 U.S.C. § 813. Though this statute does 

not itself contain any scienter requirements, courts have interpreted the Analogue Act to incorporate the knowledge requirement from federal laws prohibiting the distribution of 

scheduled controlled substances. That is, a defendant must 

have known that the substance in question was a controlled 

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Nos. 15-3589 & 15-3601 13

substance or analogue, just as someone who distributes a controlled substance must have known that he was dealing with 

a controlled substance. McFadden, 135 S. Ct. at 2305 (citing 21 

U.S.C. § 841(a)(1)). McFadden sets forth two ways in which the 

government can satisfy this knowledge requirement: 

First, [knowledge] can be established by evidence that a defendant knew that the substance 

with which he was dealing is some controlled 

substance—that is, one actually listed on the 

federal drug schedules or treated as such by operation of the Analogue Act—regardless of 

whether he knew the particular identity of the 

substance. Second, it can be established by evidence that the defendant knew the specific analogue he was dealing with, even if he did not 

know its legal status as an analogue. 

Id. 

To satisfy the knowledge requirement the second way, the 

Supreme Court further reasoned that the government must 

show that a defendant knew the substance he is charged with 

distributing had (1) a chemical structure substantially similar 

to that of an already-scheduled controlled substance and (2) a 

physiological effect substantially similar to or greater than the 

effect of an already-scheduled controlled substance. Id. 

Appellants are correct that after McFadden, courts can no 

longer rely on the Turcotte inference to demonstrate a defendant’s chemical-structure and physiological-effects knowledge. 

Turcotte effectively collapsed the second requirement (that the 

defendant know the analogue had physiological effects simiCase: 15-3601 Document: 46 Filed: 11/09/2016 Pages: 17
14 Nos. 15-3589 & 15-3601

lar to those of a controlled substance) into the first requirement (that the defendant know that the analogue had a chemical structure substantially similar to that of a controlled substance) in a way that is unsupported by McFadden’s reasoning. 

However, the government may still prove either through circumstantial evidence. McFadden, 135 S. Ct. at 2304, n.1 (“Circumstantial evidence could include, for example, a defendant’s concealment of his activities, evasive behavior with respect to law enforcement, knowledge that a particular substance produces a ‘high’ similar to that produced by controlled substances, and knowledge that a particular substance 

is subject to seizure at customs.”); id. at 2306, n.3. 

In the case at hand, considering the government’s proffer—which both appellants admitted could be proven at 

trial—and appellants’ admissions at the change of plea hearings, the district court had sufficient circumstantial evidence 

to satisfy the first McFadden knowledge requirement: appellants knew the substance in question was a controlled substance or analogue. 

As explained above, the parties agreed the government 

could prove at trial that appellants sold XLR-11 as “herbal incense” from the back of their store, JC Moon. While selling it, 

appellants learned from customers and employees that XLR11 would give users a high. Novak admitted that she knew 

XLR-11 got people buzzed, and Morrison believed it was like 

marijuana. In other words, appellants knew XLR-11 was not 

meant to be used as incense; rather, they knew it was for 

smoking and that it would give a buzz or high similar to marijuana. Most tellingly, JC Moon’s May 2, 2013 Facebook post 

said, “The federal government is banning the current herbal 

incense on May 13, 2013. What that means for us is everything 

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Nos. 15-3589 & 15-3601 15

we are selling right now will be banned as of May 13. Our 

inventory is limited. We may run out before then. We will 

keep you posted.” Appellants knew XLR-11 was going to be 

treated as a controlled substance, yet they continued to sell it. 

In sum, there was enough evidence before the district court to 

find that appellants were aware of the specific analogue they 

were dealing with and its status as a controlled substance analogue. The court committed no plain error in concluding that 

it had a sufficient factual basis to accept Novak’s and Morrison’s guilty pleas on the Analogue Act charges. 

The district court likewise had a sufficient factual basis on 

which to accept Morrison’s guilty plea for tax fraud. Morrison 

initially hesitated to admit he knew about the cash-skimming 

scheme; however, he later admitted to knowing that the $50 

and $100 bills went into his and Novak’s safe, that the taxes 

were prepared without including income from the skimmed 

bills, and that he knowingly signed off on the artificially low 

tax returns. Furthermore, the district court informed Morrison that not knowing the submitted tax information was false 

would be a defense to the tax fraud charge. Morrison still pled 

guilty. Thus, the district court did not err in accepting Morrison’s plea to the tax fraud charge. 

C. 1:167 Marijuana Equivalency Ratio 

Finally, appellants argue the district court erred in finding 

that THC was the most closely related controlled substance to 

XLR-11, UR-144, PB-22, and 5F-PB-22 for purposes of calculating the offense level under U.S.S.G. § 2D1.1 cmt. n.6. The 

district court’s conclusion that THC is the most closely related 

controlled substance to XLR-11, UR-144, PB-22, and 5F-PB-22 

is a finding of fact we review for clear error. United States v. 

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16 Nos. 15-3589 & 15-3601

Malone, 828 F.3d 331, 337 (5th Cir. 2016) (collecting cases); 

United States v. Hall, 101 F.3d 1174, 1176 (7th Cir. 1996). 

Where a substance, such as XLR-11, is not listed in the Sentencing Guidelines, the Guidelines require application of the 

marijuana equivalent of the most closely related controlled 

substance. U.S.S.G. § 2D1.1 cmt. n.6. To make this finding, the 

Guidelines instruct the district court to consider (1) whether 

the unlisted substance has a chemical structure substantially 

similar to that of a controlled substance listed in the Guidelines; (2) whether the unlisted substance produces a pharmacological effect that is substantially similar to the effect produced by a controlled substance in the Guidelines; and (3) 

whether a lesser or greater amount of the unlisted substance 

is required to produce a pharmacological effect that is substantially similar to the effect produced by a controlled substance in the Guidelines. Id. 

The government conceded at sentencing that none of the 

analogues involved in this case had a chemical structure similar to any controlled substance referenced in the Guidelines. 

The district court acknowledged that this factor was of no 

help in finding the most closely-related controlled substance 

for XLR-11. However, missing the first factor does not end the 

analysis. The government produced evidence on the latter 

two factors. At sentencing, the government called an expert 

witness and lay witnesses who testified that the substances 

had similar or stronger physiological effects to those of THC. 

The expert also elaborated on why the substances were like 

THC, and not like marijuana, which contains THC as one of 

its many chemicals. The expert also opined that less of the 

substances was needed to produce an effect compared to a 

given amount of THC. The district court was entitled to credit 

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Nos. 15-3589 & 15-3601 17

that testimony and use it to find that the substances were most 

like THC. It follows that the district court did not err in applying the 1:167 marijuana equivalency ratio for THC to the 

substances involved in this case, or in calculating appellants’ 

offense levels accordingly. 

III. Conclusion 

For the foregoing reasons, we AFFIRM the judgment of the 

district court. 

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