Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
Thomas B. Higgins,

(OI File Number: 3-05-40179-9),
Petitioner,

v.

The Inspector General.

Docket No. C-13-164
Decision No. CR3477

Date: November 25, 2014

DECISION

Pursuant to section 1128(b)(1) of the Social Security Act (Act), the Inspector General for
the Department of Health and Human Services (I.G.) has excluded Petitioner, Thomas B.
Higgins, from participating in the Medicare, Medicaid, and all federal health care
programs for a minimum period of five years. For the reasons discussed below, I find
that the I.G. is authorized to exclude Petitioner and that the period of exclusion is not
unreasonably long.

Background

Petitioner Higgins was a senior executive of Synthes, Inc. (Synthes), the American
branch of a multinational medical device manufacturing corporation that specializes in
“trauma products.” I.G. Ex.5 at 1,2. With his knowledge and consent — indeed, his
active encouragement — the company engaged in some nefarious behavior, illegally
marketing its bone cement products for unapproved and dangerous uses, to the detriment
of patients unfortunate enough to have been administered those products.
Petitioner Higgins, along with three of his colleagues at Synthes, Synthes itself, and
Norian Corporation, a wholly-owned subsidiary of Synthes, were charged in a multi-
count criminal indictment. While the corporations were charged with the bulk of the
offenses, Petitioner Higgins was charged with introducing adulterated and misbranded
medical devices into interstate commerce, a violation of the Food, Drug, and Cosmetic
Act (FDCA) (21 U.S.C. §§ 331 (a), 352(a), and 333(a)(1)). I.G. Ex. 5 at 54. He pled
guilty, and, on November 21, 2011, the federal district court convicted him. I.G. Exs. 6,
Il.

In a notice letter dated September 28, 2012, the I.G. advised Petitioner that he would be
excluded from program participation for a minimum period of five years. The letter
explained that the I.G. took this action pursuant to section 1128(b)(1) of the Act, because
Petitioner Higgins had been convicted of a misdemeanor offense related to fraud, theft,
embezzlement, breach of fiduciary responsibility, or other financial misconduct in
connection with the delivery of a healthcare item or service. I.G. Ex. 1. Similar letters
were sent to Petitioner Higgins’ colleagues/co-defendants, excluding them for periods of
three to five years.

Petitioner and his co-defendants filed separate appeals, and the I.G. asked that their cases
be consolidated.’ Each petitioner is represented by separate counsel, and, although their
appeals present common issues, the issues are not identical, and I feared that
consolidating them could create an unwieldy case. In the interests of administrative
efficiency, I ordered that the cases remain separate but be kept as one administrative file,
and I issued the same briefing schedule for all. I allowed the I.G. to file either a single
brief or four separate briefs.

The I.G. submitted a single brief (1.G. Br.) with 27 exhibits (I.G. Exs. Ithrough 27-81)2
Petitioner submitted his individual brief (P. Br.) and, with Petitioners Walsh and Bohner,
a “Joint Brief” addressing common legal issues (P. Joint Br.). Petitioner also submitted
32 exhibits for his individual case (P. Exs. 1-32), and, with Petitioners Walsh and
Bohner, 13 joint exhibits (P. Joint Exs. 1-13). The I.G. submitted a reply brief (1.G.
Reply) with six additional exhibits (I.G. Exs. 28-33)3

' The related cases are: Michael D. Huggins, C-13-166; John J. Walsh, C-13-167; and
Richard E. Bohner, C-13-168.

> LG. Exhibit 27 includes multiple parts, which are marked as IG. Ex. 27 and IG. Exs.
27-1, 27-1A, and 27-2 through 27-81.

> The parties have corrected or amended the originally-filed versions of some of these
documents. I refer here to the amended documents and have disregarded the original
submissions.
Petitioner objected to most of the I.G.’s proposed exhibits, and, for reasons set forth in
the addendum attached, I overrule those objections. I admit into evidence I.G. Exs. 1-33,
P. Exs. 1-32 and P. Joint Exs. 1-13.

The parties agree that this matter should be resolved based on their written submissions
and that an in-person hearing is not required. I.G. Br. at 26; P. Br. at 28. I have therefore
tuled on Petitioner’s objections to exhibits (see attached as an addendum to this decision),
closed the record, and issue this decision*

Issues

The issues before me are: 1) has the I.G. a basis for excluding Petitioner from
participating in the Medicare, Medicaid, and all federal health care programs; and 2) if
so, does the five-year period of exclusion fall within a reasonable range.

Discussion

1. Petitioner Higgins may be excluded, because he was convicted of a
misdemeanor offense related to fraud, theft, embezzlement, breach of fiduciary
responsibility, or other financial misconduct in connection with the delivery of a
health care item or service.”

Section 1128(b)(1)(A) of the Act authorizes the Secretary of Health and Human Services
to exclude from participation in all federal health care programs any individual or entity
convicted of a misdemeanor offense “relating to fraud, theft, embezzlement, breach of
fiduciary responsibility, or other financial misconduct in connection with the delivery of
a healthcare item or service.” See 42 C.F.R. § 1001.201(a).

* The petitioner in one of the related cases suggested that oral argument could be helpful.
In an order dated May 1, 2014, I invited the parties to explain whether and why oral
argument would be useful. I directed them to identify which, if any, arguments each
would present and to explain why that argument could not adequately be presented in
writing. Petitioner Higgins subsequently asked for oral argument. He identifies no
specific argument that he would present but promises to ensure that the issues “are
sharply delineated and fully joined” and to address any concerns or questions. I find that
the parties have well presented their arguments, every nuance of this case has been
explored in the parties’ submissions, and that oral arguments would unnecessarily delay
its resolution, without adding anything new.

° My findings of fact and conclusions of law are set forth, in italics and in bold, in the
discussion captions of this decision.
Here, until February 2004, Petitioner Higgins was the president of Synthes Spine, a
division of Synthes. He then left that position to become Senior Vice President of Global
Strategy at Synthes. I.G. Ex. 5 at 1,2; see P. Br. at 5; P. Joint Ex. | at 19. In these
capacities, he was responsible for U.S. sales and was in charge of product development.
IG. Ex. 16.

In a 97-count indictment, Petitioner Higgins, three other Synthes executives, Synthes
itself, and Norian Corporation were charged with multiple offenses.° Petitioner Higgins
was charged with one count of introducing adulterated and misbranded medical devices
into interstate commerce, a violation of the FDCA (21 U.S.C. §§ 331(a), 352(a), and
333(a)(1)). IG. Ex. 5 at 54. On July 23, 2009, he pled guilty to 21 U.S.C. §§ 331 (a) and
333(a)(1), and, on November 21, 2011, the Federal District Court for the Eastern District
of Pennsylvania entered judgment against him, sentenced him to nine months
imprisonment, and ordered him to pay a $100,000 fine, which is the statutory maximum.
1G. Ex. 6 at 4; 1G. Exs. 6, 11; 1.G. Ex. 10 at 12; P. Joint Ex. 1 at 29-30. His prison
sentence significantly exceeded federal sentencing guidelines for such an offense (0-6
months). I.G. Ex. 16 at 4, P. Joint. Ex. 1 at 13.

Petitioner concedes that he was convicted of a criminal offense — one count of
introducing adulterated and misbranded medical devices into interstate commerce, in
violation of 21 U.S.C. §§ 331(a) and 333(a)(1). P. Br. at 3. But he argues that his
conviction does not justify exclusion under section 1128(b)(1), because he was not
convicted of fraud or a crime “relating to” fraud. Id. at 2, 4.

Determining whether an offense is “related to” fraud. Petitioner argues that the I.G.
may exclude under section 1128(b) only if the offender was convicted of an offense

requiring “‘an intentional perversion of truth designed to induce action by another,” which
he characterizes as an element necessary to establish fraud. P. Joint Br. at 10. In
Petitioner’s view, I should ignore all of the facts underlying his conviction — including
those he admitted — and consider only the generic criminal offense to which he pled
guilty. Because conviction under sections 331(a) and 333(a)(1) does not require a finding

° The corporations were charged with the bulk of the offenses. Defendant Norian was
charged with one count of conspiracy (18 U.S.C. § 371); seven counts of making false
statements (18 U.S.C. § 1001); and 44 counts of introducing adulterated and misbranded
medical devices into interstate commerce (21 U.S.C. §§ 331 (a), 352(a), and 333(a) (2)).
LG. Ex. 5 at 1-49. Defendant Synthes was charged with 45 counts of introducing
adulterated and misbranded medical devices into interstate commerce (21 U.S.C.

§§ 331 (a), 352(a), and 333(a)(1)). I.G. Ex. 5 at 50-53. The individual defendants were
each charged with one count of introducing adulterated and misbranded medical devices
into interstate commerce. I.G. Ex. 5 at 54.
of intent or knowledge, he reasons, his crime is not “related to” fraud, and he should not
be excluded.

Petitioner’s argument fails because it ignores the plain language of section 1128(b).
Under that statute, the I.G. may exclude based on a conviction relating to fraud. It does
not require a conviction for fraud itself, as Petitioner’s argument suggests. In Friedman
et al. v. Sebelius, 686 F.3d 813 (D.C. Cir. 2012), the D.C. Circuit affirmed the
Departmental Appeals Board’s (Board’s) long-standing position on this issue and
concluded that “the statute unambiguously authorizes . . . exclusion of an individual
whose conviction was for conduct factually related to fraud.” 686 F. 3d at 820 (emphasis
added).

The term “misdemeanor” [in section 1128(b)] refers to the particular
circumstances of an individual’s conviction, and “relating to” must denote a
factual relationship between the conduct underlying the misdemeanor and
the conduct underlying a “fraud.”

686 F. 3d at 821.

The Board has long rejected efforts to limit section 1128 review to the bare elements of
the criminal offense. See Narendra M. Patel, M.D., DAB No. 1736 at 7 (2000), aff’d,
Patel v. Thompson, 319 F.3d 1317 (11th Cir. 2003) (“We thus see nothing in section
1128(a)(2) that requires that the necessary elements of the criminal offense must mirror
the elements of the exclusion authority, nor that all statutory elements required for an
exclusion must be contained in the findings or record of the state criminal court.”);
Timothy Wayne Hensley, DAB No. 2044 (2006); Scott D. Augustine, DAB No. 2043
(2006); Lyle Kai, R. Ph., DAB No. 1979 at 5 (2005) (holding that an offense is “related
to” the delivery of a healthcare item or service, if there is ““a nexus or common-sense
connection” between the conduct giving rise to the offense and the delivery of a
healthcare item or service), aff'd, Kai v. Leavitt, No. 05-00514 BMK (D. Haw. July 17,
2006); Berton Siegel, D.O., DAB No 1467 at 5 (1994); Carolyn Westin, DAB No. 1381
(1993), aff'd, Westin v. Shalala, 845 F. Supp. 1446 (D. Kan. 1994).

Lalso note that, by regulation, “evidence of crimes, wrongs or acts other than those at
issue in the instant case is admissible ....” 42 C.F.R. § 1005.17(g). If I were limited to
considering the generic elements of the criminal offense to which Petitioner pled guilty,
this regulation would serve no purpose.

Moreover, ignoring the conduct underlying the conviction would defeat the purpose of
the statute, which is to protect program beneficiaries and program integrity from those
who have shown themselves to be untrustworthy. If I relied solely on the language of

21 U.S.C. §§ 331(a) and 333(a)(1), I would not know the extent of Petitioner’s
involvement in the illegal activity. Based solely on the language of the statute, all I know
is that he introduced adulterated and misbranded medical devices into interstate
commerce. Nothing in those provisions refers to conviction as a “responsible corporate
officer.” Unless I look at the indictment, the guilty plea, or other of the court documents,
I would not know whether Petitioner pled guilty as a responsible corporate officer, or
because he admitted that he personally willed the violation. Indeed, under Petitioner’s
theory, the I.G. could not exclude anyone convicted under sections 331(a) and 333(a)(1),
even the defendant who admitted that he knowingly and deliberately introduced a
dangerous product into interstate commerce. Congress plainly did not intend such a
result. See Narendra M. Patel, M.D., DAB No. 1736.”

The guilty plea. In the alternative, Petitioner argues that I may consider only the
contents of his plea agreement. Because he pled guilty as a “responsible corporate
officer,” without admitting any knowledge of or involvement in the crime, he reasons that
his crime is not “related to” fraud. Further, he points out that his plea agreement does not
describe any fraudulent conduct by him, Synthes, or any other individual or company. P.
Br. at 3, 5-6; P. Joint Br. at 3-7, 19-21. In Petitioner’s view, no admissible evidence
establishes that any person or corporation was guilty of anything, but for the strict
liability imposed by the FDCA. P. Br. at 23-24; P. Joint Br. at 28-29.

Petitioner’s argument suggests that no one at Synthes did anything wrong, but somehow
the company — through no intentional fault of its own, its managers, or its employees —
stumbled into introducing adulterated and misbranded devices into interstate commerce.
Such a scenario, on its face, strains credulity. Moreover, I find Petitioner’s argument
ironic, given the almost-unimaginable — but well-documented — level of malfeasance
engaged in by Petitioner Higgins and his colleagues. In the words of the sentencing
judge, Legrome D. Davis:

The scope of their scheme is without parallel, the risks created for an
unsuspecting public were grave, and the scale of the deception of the Food

and Drug Administration can only be characterized as extreme.

LG. Ex. 21 at 18

7 The L.G. does not argue that Petitioner’s conviction is related to breach of fiduciary
responsibility; however, a responsible corporate officer has such a duty to shareholders
and to the business itself. Arguably, a responsible corporate officer breaches that
responsibility if he fails to prevent or correct illegal activity, such as introducing
adulterated and misbranded medical devices into interstate commerce.

® In my ruling on Petitioner’s objections to the I.G.’s exhibits (attached), I explain why
Judge Davis’s conclusions are admissible and why I consider his findings reliable.
Moreover, without regard to the judge’s findings, the evidence upon which he based
Limiting my review to the facts of the plea agreement could effectively restrict me to the
basic elements of the crime, without allowing me to consider the full context of the
underlying criminal activity. So, for the same reasons my review is not limited to the
elements of the offense, it is not limited to the facts admitted in the plea agreement. See
Narendra M. Patel, M.D., DAB No. 1736 (finding extrinsic evidence of circumstance of
crime relevant.); Emem Dominic Ukpong, DAB No. 2220 (2008) (finding no support for
the petitioner’s claim that the scope of review should be limited to the four corners of her
plea agreement).

But even if I relied solely on Petitioner’s plea agreement, ignoring all the evidence to
which he objects, the facts he admitted would, by themselves, establish the necessary
connection between his crime and fraud.

I note, as a threshold matter, that Petitioner pled guilty to Count 97 of the indictment
(which was apparently not prepared until after the plea agreement was executed and,
unlike the plea agreement, accurately refers to the charge to which he pled). Count 97
incorporates paragraphs one through 93 of Count One of the indictment. Those
paragraphs describe the crime in some detail. 1.G. Ex. 5 at 1-28, 54; 1.G. Ex. 11 at 1; P.
Joint Ex. 1 at 26,29. In their joint brief, the petitioners seem to recognize that those facts
describe the offenses to which they pled guilty, because they argue that I must disregard
all of the allegations of the indictment except those described in Count 97 — which
necessarily includes paragraphs one through 93 of Count One. P. Joint Br. at 28-29 (“To
the extent the Indictment alleges facts that go beyond what is admitted in the Plea
Agreement of wrongful acts other than those described in Count 97, they are simply not
relevant to the actual basis for the conviction of Petitioners and must be disregarded.”).
Notwithstanding this apparent admission in the joint brief, as well as the judgment itself,
Petitioner, in his individual brief insists that he pled guilty and was convicted based
solely on the facts set forth in paragraph nine of his plea agreement. P. Br. at 18.
Whether Petitioner Higgins can so truncate the bases for his conviction is a question I
need not resolve, since 1) the facts set forth in paragraph nine, by themselves, justify the
exclusion; and 2) in the alternative, other admissible and compelling evidence establishes
his personal participation in introducing adulterated and misbranded devices into
interstate commerce.

The crime involves two Synthes products: the calcium phosphate bone cements Norian
Skeletal Repair System (Norian SRS) and its successor, Norian XR (made up of Norian
SRS to which barium sulfate is added). I.G. Ex. 5 at 2, 11 (Indictment §§ 1b., 35, 36).
The Food and Drug Administration (FDA), which regulates such products, has

those findings is reliable and admissible and establishes Petitioner Higgins’ active
participation in the misconduct. See Narendra M. Patel, M.D., DAB No. 1736.
categorized Norian SRS and Norian XR as “significant risk devices.” A “significant risk
device” presents the potential for serious risk to patient health and safety. 21 C.F.R.

§ 812.3(m); LG. Ex. 6 at 5; P. Ex. 1 at 5 (Plea Agreement § 9(B)); see I.G. Ex. 20 at 2; P.
Joint. Ex. 1 at 20. Its manufacturer may not undertake any clinical trial or investigation
without FDA approval and review by an “Institutional Review Board,” which is a group
of scientists, physicians, experts in bioethics, and others. I.G. Ex. 5 at 4 (Indictment

§ 10); 1.G. Ex. 6 at 5; P. Ex. 1 at 5 (Plea Agreement § 9(C)); see P. Joint Ex. 1 at 20. The
process may be long and expensive, but it is necessary to ensure that the clinical trial is
properly monitored and that human subjects are protected. See I.G. Ex. 5 at 4
(Indictment § 10); P. Ex. 19 at 2 (describing the time and resources required to obtain
FDA approval).

A manufacturer cannot legally market a device for a new use unless it notifies the FDA of
its plans to do so. I.G. Ex. 6 at 5; P. Ex. | at 5 (Plea Agreement § 9(E)).

In December 2001, the FDA approved Norian SRS for use as a “bone void filler.” It is
approved to fill bone voids that are “not intrinsic to the stability of the bony structure in
the extremities, spine, and pelvis.” Its label also warns that it is not to be mixed with any
other substance. I.G. Ex. 6 at 5-6; P. Ex. 1 at 5-6 (Plea Agreement § 9(F)) (emphasis
added); see P. Joint Ex. 1 at 20-21.

The FDA became concerned that some surgeons were nevertheless using bone void fillers
in the spine for load-bearing indications. I.G. Ex. 6 at 6; P. Ex. 1 at 6 (Plea Agreement

§ 9(G)); P. Joint Ex. | at 21. When Synthes sought FDA approval for Norian XR — made
up of calcium phosphate and barium sulfate — the FDA directed Synthes and Norian to
specify, in the product’s label, that the cement was not intended for “load-bearing
indications” such as vertebroplasty. I.G. Ex. 6 at 6-7; P. Ex. 1 at 6-7 (Plea Agreement §
9(G)); see P. Joint Ex. 1 at 21-22. Vertebroplasty is a procedure for treating compression
fractures of the spine. Bone cement is injected into the cracked or broken vertebrae. It
hardens, stabilizes the bone, and supports the spine. I.G. Ex. 5 at 9. To ensure patient
safety, the cement used must be approved for that use. Among other problems, cement
can leak, causing soft tissue damage, or, because so many blood vessels are near the
spine, it can leak into the venous system, causing pulmonary embolism and death. I.G.
Ex. 5 at 9-10 (Indictment § 31); see I.G. Ex. 27-31 at 11; IG. Exs. 27-62, 27-65, 27-66,
28; P. Joint Ex. 7 at 1; P. Joint Ex. 8 at 1.

° In describing his plea agreement, Petitioner writes that the FDA cleared Norian SRS
“as a general bone filler in the extremities, spine and pelvis,” but omits the critical
modifying phrase “not intrinsic to the stability of the bony structure in the extremities,
spine and pelvis.” P. Br. at 6 (emphasis added).
Synthes and Norian promised that they would not promote Norian XR for vertebroplasty
or other load-bearing indications, unless they obtained FDA approval. In December
2002, the FDA approved Norian XR, but required an indication statement identical to that
of Norian SRS plus the explicit warning that it is “not intended for treatment of vertebral
compression fractures.” I.G. Ex. 6 at 6-7; P. Ex. 1 at 6-7 (Plea Agreement § 9(G))
(emphasis added).

As it happened, the FDA’s concerns were well-founded. Physicians were, in fact,
misusing the Norian cements. But the FDA did not learn until much later that the
companies themselves had been encouraging the misuse, supplying the product and
training the surgeons in its unapproved use. As Petitioner concedes in his plea
agreement, between August and December 2002 (before the FDA approved Norian XR
for any purpose), the companies trained surgeons to mix Norian SRS with barium sulfate
and to use the resulting medical device in vertebroplasty surgeries to treat vertebral
compression fractures. These actions violated the FDCA, 21 U.S.C. §§ 351(f)(1)(B),
352(0), and 352(f)(1), because the mixing created a new device that required premarket
approval for the new intended use. I.G. Ex. 6 at 7; P. Ex. | at 7 (Plea Agreement § 9(H)).

Notwithstanding their assurances to the FDA, the product’s label, and federal law,
between August 2003 and January 2004, the companies trained spine surgeons to use
Norian XR in vertebroplasty surgeries to treat vertebral compression fractures. They did
so as part of a “test market,” gathering clinical data about the surgeries performed by
these Synthes-trained physicians in order to assess the risks posed by using Norian XR
this way. Because the companies were testing a significant risk device without the
required FDA approval, they violated the FDCA, 21 U.S.C. § 351(f)(1). 1G. Ex. 6 at 8;
P. Ex. | at 8 (Plea Agreement § 9(I)).

Throughout this time (December 2002 until January 2004), the companies were
promoting the off-label use of Norian XR — in vertebroplasty surgeries to treat vertebral
compression fractures — in violation of the FDCA, 21 U.S.C. § 351(f)(1). LG. Ex. 6 at 8-
9; P. Ex. | at 8-9 (Plea Agreement § 9(J)); P. Joint Ex. 1 at 23.

Although he did not mention his own involvement in the illegal activity, Petitioner
Higgins acknowledged that, as a corporate officer, he was responsible for preventing such
violations. I.G. Ex. 6 at 1,5; P. Ex. | at 1,5 (Plea Agreement 99 1, 9(A)).

Petitioner admits that the companies illegally test marketed and promoted their cements.
1G. Ex. 6 at 1; P. Ex. 1 at 1 (Plea Agreement § 1); see P. Joint Ex. 1 at 16-17 (describing
the elements necessary to establish the crimes of misdemeanor adulteration and
misdemeanor misbranding). They promised the FDA that they would not promote their
cements for unapproved purposes; they did it anyway; and they did not tell the FDA what
they were doing. From these admitted facts, I can reasonably infer — indeed, I find no
other inference reasonable — that company employees acted intentionally and
10

deliberately. I consider such conduct “related to” fraud, if not actual fraud. Thus,
without regard to Petitioner Higgins’ personal involvement in such illegal activities, these
facts, which he conceded as part of his plea agreement, establish that his offense is
related to fraud.

Petitioner Higgins’ knowledge of and participation in the underlying fraud. Just
because prosecutors don’t need to establish actual knowledge to sustain a conviction
under the FDCA does not mean that the corporate officer didn’t have actual knowledge.
The biggest difference between this and the Friedman case is that, in Friedman, no
compelling evidence established that the corporate officials were aware of their
company’s illegal activity. See Paul D. Goldenheim et al., DAB No. 2268 (2009) at 13-
14 n.9; aff'd in part sub nom. Friedman v. Sebelius, 686 F.3d 813. In contrast, when he
sentenced Petitioner Higgins, Judge Davis concluded:

Higgins betrayed the trust of his office and his position of leadership. Over
the course of several years, he personally compromised and undermined the
FDA’s largely voluntary system for regulation of medical devices. He
misled and manipulated surgeons by failing to provide accurate and
complete information as to the significant risks associated with the use of
Synthes bone cements in vertebral compression fracture surgeries. Sadly,
he exploited and harmed vulnerable patients who necessarily relied on the
integrity of professional judgments, which they had insufficient information
to question.

IG. Ex. 20 at 23.

Petitioner Higgins’ direct involvement in the crime is established by overwhelming
evidence. Judge Davis concluded that the “facts” of his involvement were “true beyond
all reasonable question.” I.G. Ex. 20 at 4 (Judge’s Memorandum) (emphasis added).
Among the many examples cited by Judge Davis (and supported by compelling
documentary evidence) are the following:

e As early as February 2000, Petitioner Higgins sent a memorandum to the CEO of
Synthes proposing a clinical trial of Norian SRS without FDA approval. He
wanted to identify willing surgeons, select test sites, provide the cement, train the
surgeons, and compile and review the data. The test market was to be completed
in 90 days. I.G. Ex. 20 at 4 (Judge’s Memorandum 1); I.G. Ex. 27-3; see LG.
Ex. 27-2 (notes regarding employee conversations with physicians about potential
Norian study).

e Other Synthes employees repeatedly warned Petitioner Higgins that it would be
illegal to conduct such a clinical trial of Norian SRS. In 2000, the then-group
manager for Synthes’s Regulatory and Clinical Spine Division, Barry Sands, told
11

him that the company could not initiate a study without an approved
“Investigational Device Exemption” from the FDA. I.G. Ex. 20 at 4 (Judge’s
Memorandum § 2); I.G. Ex. 29 at 2,5.

e Ina memorandum dated March 19, 2001, Michael Sharp, another employee in the
regulatory department at Synthes, explained that he “made it clear [to Tom
Higgins that] we absolutely could not do anything [that] could be considered
promotion of SRS for use in the spine. ... [Synthes staff] could not ask surgeons
if they had used SRS, how SRS had performed in this indication, possible
problems or ways to improve the use of SRS for this procedure, how often they
might use SRS for such a procedure, etc.” Mr. Sharp also “made it clear that the
spine company should not be providing SRS to any account . . . that there is
absolutely no reason[ ] that a spine consultant should ever be discussing SRS with
a surgeon or providing the product.” I.G. Ex. 20 at 5 (Judge’s Memorandum § 4);
IG. Ex. 27-18; P. Ex. 21 at 10.

Petitioner criticizes the sentencing judge for relying on the Sharp warnings,
suggesting that, because Regulatory Employee Sharp issued them before Norian
SRS was approved for use in the spine, they no longer applied after the product
was so approved. P. Br. at 21. But these warnings leave no room for
misunderstanding as to what constitutes the “promotion” of a medical device. See
P. Br. at 14-16. That the FDA approved Norian cements’ limited use in the spine
did not give the company carte blanche to promote it for all spinal surgeries, as
Petitioner well knew. After all, the FDA insisted on language emphasizing that
the product was not approved for vertebroplasty surgeries. I therefore find no
merit to Petitioner Higgins’ claim that he reasonably thought that Synthes’s “test
marketing” of Norian XR was legitimate. See P. Br. at 8-12.'° Judge Davis
characterized the company executives’ (including Petitioner Higgins’) actions in
obtaining FDA approval for Norian XR: “They deliberately circumvented the
premarket approval and [Investigational Device Exemption] processes for the
novel use of their bone cements (thereby avoiding required careful study, scientific
testing and explicit approval by the FDA), and instead surreptitiously sought and
obtained a 510(k) exception, intentionally deceiving the FDA by failing to disclose
their intended, and previously agreed upon, purposes.” I.G. Ex. 20 at 13 (Judge’s
Memorandum).

'© To support this proposition that Petitioner Higgins reasonably believed that the
marketing was legal, Petitioner submits highly edited exerts from the grand jury
testimony of various individuals who were involved in promoting the cements. P. Exs. 4-
11, 13-18; P. Br. at 23-24. I find these scraps of testimony unreliable and unpersuasive.
12

In March 2001, Petitioner Higgins learned that two patients, undergoing spine
surgeries using an unapproved Norian cement with the same chemical formulation
as Norian SRS, suffered hypotensive events.'' Petitioner Higgins also knew that
a Synthes sales representative was present at the off-label surgeries. I.G. Ex. 20 at
4 (Judge’s Memorandum § 3); 1.G. Ex. 27-37 at 20.

At a November 15, 2001 meeting, Petitioner Higgins participated in the
company’s decision not to pursue a clinical study aimed at obtaining FDA
approval for using Norian SRS mixed with barium sulfate in vertebroplasty
surgeries to treat vertebral compression fractures. The company officials instead
decided “to get a few sites to perform 60-80 procedures and help them publish
their clinical results.” They rejected the safer and lawful approach because of the
cost (about three years and a million dollars plus loss of Synthes’s competitive
advantage in the bone cement market). I.G. Ex. 20 at 5 (Judge’s Memorandum

§ 5); LG. Ex. 27-5 at 2-3.

In April 2002, researchers at the University of Washington began Synthes-
commissioned pilot studies on Norian SRS. In e-mails beginning May 4, 2002,
those researchers described the “alarming effect” the cement had on a pig:

At 2 cc’s the pig went into fulminant cardiopulmonary arrest.
Autopsy showed Norian as a grisel like substance in right ventricle.
More concerning was that the entire pulmonary artery system had
clotted off. This could represent an uncontrolled activation of the
coagulation cascade.

The bothersome thing about the event from 4/30 was that it
happened with only 2cc’s in a full-sized pig. It led toa
disproportionate and massive clot . . . all within a minute. We were
expecting to kill the pig with the full 10cc load in a slow and
progressive fashion — but not suddenly and with a relatively small
dose. We also need to worry about a coagulogenic effect of the
substance itself.

LG. Ex. 28 at 1, 2 (emphasis added); I.G. Ex. 20 at 6 (Judge’s Memorandum § 7).

Petitioner Higgins knew the alarming results of the pig studies. He knew that the
chemical composition of Norian SRS posed lethal risks when used in the spine in
vertebroplasties. He also “knew, or should have known, that the planned

development of a cement to treat vertebral compression fractures was potentially

"' Thave highlighted in bold evidence that the Norian products’ (mis)use had an adverse
impact on individuals. See the following discussion of adverse impact.
13

suspect, and caution and strict adherence to regulatory procedure [were] required.
Importantly, Higgins knew, or should have known, of the need for further testing
before the product could be safely used on humans.” I.G. Ex. 20 at 6-7 (Judge’s
Memorandum 9 7); I.G. Ex. 27-31 at 1-2.

Petitioner criticizes Judge Davis for referring to the pig studies without
considering that, over a year later, the University of Washington researcher
attended a Synthes Strategic Planning Meeting, where he purportedly opined that
“it [presumably Norian XR] is the safest material to use, especially with low
pressure system.” P. Br. at 22 (citing P. Ex. 31 at 1); 1G. Ex. 27-55 at 1. Judge
Davis considered the minutes of this meeting, although he did not point to that
particular entry. I.G. Ex. 20 at 9 (Judge’s Memorandum § 16).'2 However, in
April 2002, no one had suggested that Norian XR was “safest.” In any event, I
find that this cryptic reference to an ambiguous passing remark, made 16 months
after-the-fact, hardly justifies Petitioner Higgins’ disregard of the pig study’s
dramatic results.

e In June 2002 e-mails to Petitioner Higgins and other Synthes executives, Dr.
Kenneth Lambert, a physician consultant characterized as “necessary and proper”
the company’s earlier decision to declare a moratorium on the use of Norian SRS
in the spine “because of several cases . . . that caused serious concerns about
the safety of its use.” The consultant expressed concern that controlled studies

had begun and asked, rhetorically, what had changed, answering that nothing had

changed except a journal article describing a death involving the use of SRS. He
warned that giving SRS to a surgeon for his use without any protocol “amounts to
human experimentation whose only defense seems to be that it will be a small
study.” He opined that the company should be “uncomfortable” with any surgeon
who is “comfortable” using SRS. He specifically warned Petitioner Higgins “that
the company could suffer serious consequences if [the studies] are not done
properly. Having the FDA take approval away may not be the worst
consequence.” I.G. Ex. 27-32 at 4, 6 (emphasis added); I.G. Ex. 20 at 7 (Judge’s

Memorandum 9 9).

e Petitioner Higgins received other explicit warnings of the life-threatening risks
posed by using Norian SRS in vertebroplasties. He was copied on correspondence
to Synthes, dated June 28, 2002, from University of Washington researchers.
They warned “that vertebroplasty presents a unique risk of Norian’s entry into the
venous system with subsequent transport to the lung and a consequent risk of

2 The researcher is also quoted as saying “need to better define timing of surgery in
these studies” and recommending an FDA study to gain approval for the product’s use in
vertebroplasty. P. Ex. 31 at 1.
14

serious morbidity or mortality.” I.G. Ex. 20 at 7 (Judge’s Memorandum § 10)
(Judge’s emphasis); 1.G. Ex. 27-31 at 11.

e Petitioner Higgins attended a Management Review Board Meeting on September
17,2002. Attendees discussed vertebroplasty, and Synthes CEO Hansjérg Wyss
asked “about the test market set up and how surgeons, who are interested in the
product, were to be trained.” I.G. Ex. 27-35 at 4, 5; 1.G. Ex. 20 at 7 (Judge’s
Memorandum § 11).

e On May 8, 2002, representatives from the FDA met with Synthes personnel. At
that meeting, the FDA representatives “expressed concerns” about “ imprecise
indications for use of bone void fillers” in the spine. They said that they
“understood that surgeons were using [the fillers] in the spine for load bearing
indications” and asked for additional labeling to specify that “load bearing
indications, such as vertebroplasty” were not included in the indication for use.
The Synthes representatives promised that they would not promote the material
“for such indications as vertebroplasty or other load bearing indications without
the appropriate regulatory clearances.” Petitioner Higgins received a copy of the
meeting minutes, and therefore knew about the FDA concerns and the company’s
assurances. I.G. Ex. 27-13 at 2; 1.G. Ex. 29 at 3-4; see I.G. Ex. 6 at 6-7; P. Ex. | at
6-7 (Plea Agreement J 9(G)); P. Ex. 19 at 1 (advising Synthes Spine employees
that “FDA . . . still pushing for specific wording with regards to no vertebroplasty
and non load bearing only. . . .”).

e On January 13, 2003, a patient of Dr. Barton Sachs died during a
vertebroplasty/kyphop asty'? procedure, for which the surgeon had used SRS
mixed with barium sulphate (the combination that became Norian XR). No
autopsy was performed and no one filed a medical device report. 1.G. Ex. 20 at 7
(Judge’s Memorandum § 12); 1.G. Ex 27-37 at 8; 1.G. Exs. 27-49 through 27-51."4

Synthes’s failure to report or follow-up on this, and other adverse events, seriously
undermines its claim to have been conducting a legitimate test market in order to
determine the “level of risk” associated with the procedure. How does one assess
the “level of risk” without adequately investigating the negative outcomes?

'S “K yphoplasty” is a variation on vertebroplasty surgery, in which a surgical instrument
and balloon are inserted into the compressed vertebral body to create a cavity into which
the bone cement can be filled. 1.G. Ex. 5 at 9 (Indictment § 29).

‘4 These documents are handwritten notes taken by Synthes employees Nisra
Thongpreda, Josi Hamilton, and Stuart Weikel of a telephone conference call they had
with Dr. Sachs on January 16, 2003.

15

On February 10, 2003, Petitioner Higgins approved and signed the “Final Market
Introduction Plan for [Norian] XR,” predicting after-tax profits of 35 times the
cost of raw materials. I.G. Ex. 20 at 8, 14 (Judge’s Memorandum § 14); 1.G. Ex.
27-37. The plan includes a “Release to Market Strategy” that describes the “back
table mixing” of Norian SRS with barium sulfate (which became Norian XR, but
was not then approved). It says that “this part of the test market began in
September 2002, and that two sites were selected to participate in Phase I” (which
included Dr. Sachs). I.G. Ex. 27-37 at 77; see I.G. Ex. 6 at 7; P. Ex. | at 7 (Plea
Agreement § 9(H). For Phase II, which would begin in August 2003, eight
additional test sites had been selected, based on, among other factors, “affiliation
with treating vertebral compression fractures.” Phase III would begin in
September 2003 and would add eight additional sites. 1.G. Ex. 27-37 at 77
(emphasis added).

At the company’s July 18, 2003 Safety Meeting, the participants — including
Petitioner Higgins — considered their options: 1) maintain the current plan; 2)
postpone the test market and re-evaluate later; or 3) cancel the project as “too
unsafe.” I.G. Ex. 20 at 8 (Judge’s Memorandum § 15); 1.G. Ex. 27-38 at 22. They
decided to proceed with the market plan, obtaining a larger case base, at multiple
sites, which, they said, would allow them better to estimate the rate of
complications. “This will help us determine our associated level of risk and
decide what level is too high.” I.G. Ex. 20 at 8-9 (Judge’s Memorandum § 15)
(Judge’s emphasis); I.G. Ex. 27-39 at 2; I.G. Ex. 27-40. Not only did Petitioner
Higgins attend the meeting, one of the attendees sent him a copy of the meeting
minutes. 1.G. Ex. 27-40. Moreover, as Judge Davis observed: “These
determinations, of course, can be made properly only in accordance with FDA
regulatory protocol. A test market cannot lawfully be used to determine the safety
and efficacy of a significant risk medical device.” I.G. Ex. 20 at 9 (Judge’s
Memorandum 9 15).

At an August 14, 2003 Strategic Planning Meeting, Petitioner Higgins was among
the participants who decided to proceed with the unauthorized clinical trials of
Norian XR, to “prove safety of the technique” on human beings. I.G. Ex. 20 at 9
(Judge’s Memorandum 9 16); 1.G. Ex. 27-55.

When Norian XR was “officially released to Test Market,” Josi Hamilton, the
Synthes Product Manager, sent an e-mail, dated August 28, 2003, announcing the
release, advising that Synthes “shipped to 13 Spine sites Wednesday afternoon,
and have 4 cases scheduled for Friday!!” She thanked everyone for their
continued support. She sent a copy of this e-mail to Petitioner Higgins. I.G. Ex.
20 at 9 (Judge’s Memorandum {| 16); I.G. Exs. 27-58, 27-59.
16

On September 19, 2003, a second patient died during spinal surgery performed
by Dr. Paul Nottingham using Norian XR. Again, no autopsy was performed.
LG. Exs. 27-62, 27-66. Although a medical device report was filed, it did not
mention that the procedure was a vertebroplasty/kyphoplasty using Norian XR.
1.G. Ex. 20 at 9 (Judge’s Memorandum § 17) (emphasis added).

On September 19 and 20, 2003, Petitioner Higgins participated in the “Norian XR
Test Market Kick-Off” session. Its purpose was to train surgeons to use Norian
XR in vertebroplasties to treat vertebral compression fractures. 1.G. Ex. 20 at 9
(Judge’s Memorandum § 18); I.G. Exs. 27-63 and 27-64.

Petitioner Higgins met with Product Manager Hamilton and others on September
23,2003. At that meeting and in a follow-up memorandum, dated October 15,
2003, Product Manager Hamilton summarized her interviews with two of the 19
surgeons participating in the Norian XR clinical trials. One physician, Dr. Paul
Nottingham, reported that “[d]uring cement delivery ...a drastic drop in blood
pressure was noted... .” ; he noted a cement leak during injection “and feels
this was the cause of the incident.” He characterized the Synthes “system” as
“guesswork as to how much material to inject” and opined that “a clinical trial is
necessary before releasing” Norian XR. He also complained that “the sales
consultant pushed this ‘product’ on him and was unclear as to its status on the
market.” I.G. Ex. 20 at 9-10 (Judge’s Memorandum 19); I.G. Exs. 27-62, 27-65,
27-66.

In another e-mail, dated October 1, 2003, Product Manager Hamilton advised
Petitioner Higgins and others of her interview with Dr. Joe Lane. She wrote that
Dr. Lane thought that “Norian XR is potentially de-watering and causing
episodes of hypotension. ... With our system, he says there is no egress hole, so
the pressure can be too high . . . with an old fracture, the cement might not have a
place to go, so a venous leak can happen.... He believes Norian XR should
have gone to the [Institutional Review Boards] of every participating hospital
[because] of the information we’re collecting. ... Lane thinks we should go to the
FDA ASAP to understand what is necessary in order to change our labeling
(Remove ‘Not for use in Vertebral Compression Fractures’).” I.G. Ex. 20 at 10
(Judge’s Memorandum § 19); LLG. Ex. 27-68.

Petitioner Higgins and others met on October 31, 2003, to consider the serious
questions surrounding the use of Norian XR in unauthorized clinical trials (e.g.,
the death of Dr. Nottinham’s patient, the University of Washington pig studies).
17

They also considered their “competitors’ status.”'* Notwithstanding the second
death and aware of the risks, the participants opted to “continue the experimental
use of [Norian] XR on humans.” IG. Ex. 20 at 10 (Judge’s Memorandum § 20);
1.G. Ex. 27-67.

e Ina memorandum dated November 19, 2003, Product Manager Hamilton updated
Petitioner Higgins on the University of Washington’s ongoing Norian XR studies,
concluding that “[t]here is not enough information yet for the surgeons to draw
any conclusions regarding the clinical use of [Norian] XR.” I.G. Ex. 20 at 10
(Judge’s Memorandum § 21); 1.G. Ex. 27-61.

e On January 22, 2004, a third patient died while undergoing kyphoplasty surgery
to treat a vertebral compression fracture. Dr. Hieu Ball performed the surgery.
An autopsy report was preformed, and a medical device report filed. I.G. Ex. 20 at
10 (Judge’s Memorandum § 22); I.G. Exs. 27-74; 27-75.'°

e The FDA investigated Synthes from May 11 through June 18, 2004, and issued a
warning letter to Synthes on November 5, 2004. LG. Ex. 20 at 11 (Judge’s
Memorandum 23); I.G. Ex. 33; see I.G. Ex. 27-79. The letter advised Synthes
that, during its investigation, it learned that Synthes was “marketing the Norian
XR for new intended uses without approval or clearance from FDA[,] in violation
of the Act.” The letter also advised the company that the FDA found violations of
the Medical Device Reporting regulation (21 C.F.R. Part 803) and the Current
Good Manufacturing Practice of the Quality System regulation (21 C.F.R. Part
820). 1.G. Ex. 20 at 11 (Judge’s Memorandum § 23); I.G. Ex. 33 at 1.

e Petitioner Higgins was involved in preparing the Synthes response to the FDA. In
that response, the company (falsely) claimed that no clinical trials had occurred;
and that the test market was conducted for cleared indications only, not to test the

'S Apparently, one of Synthes’s competitors was also developing a bone cement at about
this time, and the FDA had approved a “second pilot human clinical study,” using the
competitor’s cement in vertebral compression fracture repair. P. Ex. 19 at 3.

'© T note that Dr. Ball was among the physicians who criticized Dr. Nottingham and his
purportedly “aggressive surgical tactics.” Dr. Ball also opined that “it is necessary to
focus on proper patient selection.” I.G. Ex. 27-62 at 1-2; P. Joint Ex. 9 at 1. But four
months after the death of Dr. Nottingham’s patient, Dr. Ball’s own patient died while
undergoing the procedure. I.G. Ex. 27-74. She was 83-years-old and a smoker,
suffering from hypertension, atypical angina, diabetes, and asthma. P. Joint Ex. 11 at 2-
3. So I don’t know what Dr. Ball meant by “proper patient selection.”
18

safety and efficacy of the bone cements. It denied training surgeons to use the
cements. I.G. Ex. 20 at 11 (Judge’s Memorandum § 24); I.G. Ex. 16 at 70-71.

The court concluded that Petitioner Higgins’ case “stands apart” from all other cases
involving convictions of responsible corporate officers “because the criminal conduct at
issue is his own.” LG. Ex. 20 at 15-16.

To summarize thousands of pages of documents reviewed before the
imposition of sentence, Thomas Higgins, as President of the Spine
Division, planned and participated in the unlawful clinical trials. He is
fairly described as having been the “hands on manager of the unlawful
clinical trials.” [citing Sentencing Transcript, I. G. Ex. 16 at 55,77] He
was the actual leader of the Spine Division from whom his subordinate
corporate-actors received direction. He received contemporaneous reports
from his managers and lower level employees on the conduct and results of
the trials. He was in front, up close, and in person on product development
and all important decisions involving bone cements. He was fully aware
that patients in the clinical trials were being subjected to untested and
unapproved medical devices and were being placed at risk without their
knowledge or consent. Indeed, when Defendant and persons under his
control conducted training sessions, the surgeons were not advised of the
deaths or adverse events, even though one of the deaths had occurred on the
first day of the September 19-20 forum. Moreover, as he acknowledged to
Barry Sands and Michael Sharp in 2000, Higgins fully understood that the
510(k) process was not an appropriate approval route for the devices at
issue. Thus, all subsequent events occurred . . . against the backdrop of
Higgins’ acknowledged awareness that the Synthes test market was outside
the boundaries of the law.

1G. Ex. 20 at 12-13; see also I.G. Ex. 16 at 19-20 (“[A]cting in concert [with his
colleagues, Petitioner Higgins] affirmatively decided to proceed, to ignore the risk, to
ignore the concerns, to ignore the evidence that had been presented by a host . . . of
different medical consultants .. . . [T]hey crafted an approach [that] circumvented the
regulatory authority and included lying on multiple occasions to the regulatory
authority. ...”).

Petitioner characterizes as “simply not true” Judge Davis’s conclusion that Petitioner
Higgins and his employees did not tell the physicians attending the September 19-20
training forum about the first two patient deaths (which occurred on January 13, 2003 and
September 19, 2003), claiming that Product Manager Hamilton personally “called
surgeons to inform them about the death” of Dr. Nottingham’s patient. In support,
Petitioner cites what appears to be a memorandum containing the notes of Ms.
Hamilton’s conversations with physicians. P. Br. at 17 (citing P. Ex. 25). Nothing
19

indicates when she had these conversations, but the memorandum is dated October 18,
2005, more than two years after the death of Dr. Nottingham’s patient and almost three
years after the death of the first patient. Thus, neither this document nor any other cited
evidence contradicts the judge’s finding that Synthes employees conducted the
September 2003 training sessions without telling the participating physicians about the
two deaths or other adverse consequences.

Petitioner plainly knew about and participated in the illegal test marketing that ultimately
led to his conviction. His conviction was thus factually related to fraud, and the I.G.
appropriately excluded him from program participation under section 1128(b).

Financial Misconduct. Petitioner Higgins (along with Petitioners Walsh and Boehner)
argues that he should not be excluded, because his conviction is not “related to” financial
misconduct. There are two problems with this argument. First, as Judge Davis found,
Petitioner and his cohorts were, in fact, motivated by financial gain. They wanted to
avoid the expense associated with seeking FDA approval, and they hoped that their
actions would engender enormous profits. I.G. Ex. 20 at 5,8, 14; 1.G. Ex. 27-5 at 2-3;
IG. Ex. 29 at 2-3. In that sense, the illegal activity was “related to” financial misconduct.
Breton Lee Morgan, M.D., DAB No. 2264 at 13 (2009) (finding that the petitioner, who
obtained, for his own use, hydrocodone samples from pharmaceutical representatives by
claiming he would give them to patients for medical purposes, “derived some
unquantifiable measure of pecuniary value by illegally diverting the controlled
substances.”)

Second, and even more compelling, the Board has rejected soundly Petitioner’s “narrow
interpretation” of the statutory language, finding it “not compatible with the structure and
context of the statutory language as a whole.” That decision was ultimately affirmed by
the Fourth Circuit Court of Appeals. Breton Lee Morgan, M.D., DAB No. 2264, aff'd,
Morgan v. Sebelius, 694 F.3d 535.'’ In affirming the Board’s decision, the Court of
Appeals found that the statutory language “makes clear” that, to warrant exclusion, the
offense “need only to relate to at least one of [the] five categories[.]” 694 F.3d at 538.
(emphasis added). The Court explicitly rejected as “simply not correct” Morgan’s
argument that the presence of the word “other” would be superfluous but for this
narrowing effect. To the contrary, the presence of the word “other” reflects the fact that
the other categories can also relate to financial misconduct. Had Congress intended that
an offense must relate to financial misconduct, it could have omitted all of the other

'7 The exclusion in Breton Lee Morgan was brought under section 1128(a)(3) of the Act,
but the reasoning applies here, because the relevant language of section 1128(a)(3) is
identical to that in section 1128(b)(1) (“relating to fraud, theft, embezzlement, breach of
fiduciary responsibility or other financial misconduct”).
20

terms, and “simply required the exclusion for offenses ‘relating to financial
misconduct.” Id.

The Court also noted that Morgan’s interpretation would defeat the statute’s purposes,
which are to protect federal programs from untrustworthy individuals and to “provide a
clear and strong deterrent against the commission of criminal acts.” Id. at 538 (citing S.
Rep. 100-109 at 5 (1987), reprinted in 1987 U.S.C.C.A.N. 682, 686). In the court’s view,
and I agree, Congress was targeting fraud generally, not simply fraud relating to financial
misconduct. Its purposes would not be served by narrowing the scope of the statute.

2. A five-year exclusion is not unreasonably long.

Having found a basis for the exclusion, I now consider whether a five-year exclusion falls
within a reasonable range. The statute provides that the period of exclusion under section
1128(b)(1) “shall be 3 years, unless the Secretary determines in accordance with
published regulations that a shorter period is appropriate because of mitigating
circumstances or that a longer period is appropriate because of aggravating
circumstances.” Act § 1128(c)(3)(D); 42 C.F.R. § 1001.201(b)(1). So long as the period
of exclusion is within a reasonable range, based on demonstrated criteria, I have no
authority to change it. Joann Fletcher Cash, DAB No. 1725 at 16-17 (2000) (citing 57
Fed. Reg. 3298, 3321 (1992)).

Among the factors that may serve as bases for lengthening the period of exclusion are

two relied on by the I.G.: 1) the acts resulting in the conviction, or similar acts, had a

significant adverse physical or mental impact on one or more program beneficiaries or
other individuals; and 2) the sentence imposed by the court included incarceration. 42
CFR. § 1001.201(b)(2) (iii) and (iv)."*

Incarceration. The court sentenced Petitioner Higgins to nine months in jail, a sentence
that is significantly longer than called for by federal sentencing guidelines (a minimum of
no jail time and a maximum of six months). I.G. Ex. 11 at 2; I.G. Ex. 16 at 77. When he
accepted Petitioner’s guilty plea, Judge Lawrence F. Stengel pointed out that Petitioner
Higgins’ case would ordinarily have fallen into the “zero to six-month” guideline range,
based on the “offense level” and his criminal history score. However, although “very
important,” the guidelines are not mandatory. Other factors, such as the nature and
circumstances of the offense, the defendant’s history, and his character go into the
determination. P. Joint Ex. | at 13.

18 Although, arguably, “the acts that resulted in the conviction, or similar acts, were
committed over a period of one year or more,” the LG. here did not cite this aggravating
factor as a basis for increasing the period of exclusion. See 42 C.F.R.

§ 1001.201(b)(2)(ii); see, e.g., 1.G. Ex. 16 at 46 (“[I]t’s a [deliberate] choice that is made
over a two, two and a half year period.”).
21

Judge Davis did not take the sentencing guidelines lightly. He also recognized that,
under the terms of his plea agreement, Petitioner waived his right to appeal the sentence,
so long as it was no longer than six months. “But the fact of the matter is that [nine
months] is the minimal sentence that I think is appropriate to protect the societal interest
in this matter.” I.G. Ex. 16 at 78; see LG. Ex. 6 at 11 (Plea Agreement § 13b(2) and (3)).
Judge Davis explained that he departed from the guidelines, because the crime was much
worse than any other case brought against a responsible corporate officer. Alluding to
the facts underlying the Supreme Court’s decision in United States v. Park, 421 U.S. 658
(1975), he noted that:

[t]his matter does not involve holding an unaware corporate executive
accountable for vermin in a warehouse. The sentencing considerations with
Higgins are far more stark and compelling. We have not been able to locate
a single case that involves such carefully constructed, meticulously
implemented, and patently illegal, clinical trials. It is axiomatic that it is
improper to use test markets to assess the safety of Class III devices. Nor
can we find a reported case evincing such a pattern of deception with the
FDA. And we cannot find a case where the decision-makers ignored such
clear warnings of the potentially fatal nature of the product for such an
extended period. We certainly cannot find a case where the corporate
actors disregarded two deaths, even failing to provide notice of the first as
required by law. Finally, and most importantly, Higgins’ case stands apart
from other Park doctrine cases because the criminal conduct at issue is his
own.

IG. Ex. 20 at 15-16.

Further, although he described Petitioner Higgins as “an accomplished and decent man,”
the judge questioned how such a man “came to participate in this extended course of
callous and illegal behavior.” In the judge’s view, that behavior “speaks to the character
of the offender and the nature and circumstances of the offense.” He also noted that
Petitioner Higgins’ written statement (he did not testify) “provided no insight and no true
answers for he acknowledged the wrongfulness of his conduct only through the lens of
hindsight.” LG. Ex. 20 at 16-17 (Judge’s Memorandum).

Any period of incarceration, no matter how short, justifies increasing the period of
exclusion. Nine months is, in fact, a relatively substantial period of incarceration. Jason
Hollady, M.D., DAB No. 1855 at 12 (2002); Stacy Ann Battle, D.D.S., DAB No. 1843 at
7 (2002) (finding that four months in a halfway house, followed by four months home
confinement justifies lengthening the period of exclusion); Brenda Mills, M.D., DAB
CR1461 at 4 (2006) (finding that six months home confinement justifies increase in
length of exclusion), aff'd, DAB No. 2061 (2007).

22

I consider Petitioner’s incarceration, by itself, sufficient to justify the relatively modest
increase in his period of exclusion, particularly in light of the judge’s significant and
well-supported upward departure from the sentencing guidelines. °

Adverse impact. Unquestionably, Petitioner Higgins and his colleagues at Synthes
subjected unsuspecting patients to “illegal and dangerous human experimentation.” I.G.
Ex. 20 at 14 (Judge’s Memorandum). Even without a showing of additional harm, I find
that promoting unauthorized experimentation on human subjects, particularly without
their informed consent, by itself, establishes a significant adverse impact on the
individuals who are subjected to it. See I.G. Ex. 27-32 at 4, 6; 1.G. Ex. 20 at 7.

Unfortunately, in this case, the adverse impact on individuals went beyond subjecting
them to unauthorized experimentation. Judge Davis found that “patients were directly
and proximately harmed by the conduct of the Defendants and others at Synthes.” They
were subjected to the risks of Norian SRS and Norian XR without their full informed
consent and without the FDA’s authorization. Some were injured and some died. By
conducting the unauthorized trials of these cements, the judge found, Synthes employees
“disregarded the safety of all members of society.” I.G. Ex. 15 at 19, 31; LG. Ex. 20 at
14 (Judge’s Memorandum) (“Ultimately, three unsuspecting persons died during the
Synthes clinical trials.”); 1.G. Ex. 27-37 at 20.

In his findings, listed above, Judge Davis included examples of the adverse effects
Petitioner’s crime had on individuals. I have highlighted those examples, any one of
which, by itself, justifies increasing the period of exclusion. Notably:

cant recognize the dangers inherent in comparing periods of exclusion. Comparisons can
be of limited value, at best, and misleading, at worst. Not only is the universe of cases
we review extremely limited, comparisons rarely consider the entire circumstances of the
particular cases. Nevertheless, some proportionality is desirable, in order to assure the
integrity of the exclusion process. Five-year exclusions are regularly imposed for
offenses that seem trivial when compared to Petitioner Higgins’ actions. See, e.g., Nabil
Elhadidy, M.D., DAB CR2000 (2009) (five-year exclusion based on one misdemeanor
count of offering a false instrument, with conviction discharged after petitioner
completed community service and paid a $160 fine); Andrew D. Goddard, DAB No.
2032 (2006) (five-year exclusion for appropriating one Lasix tablet, valued at $0.20, from
pharmacy and, as a prank, placing it in the employee coffee pot). And much longer
periods of exclusion have been imposed for offenses having less impact than Petitioner’s.
See Doantrang Thi Nguyen, DAB CR2191 (2010) (13-year exclusion imposed based on
one misdemeanor count of introducing misbranded drug (Lipitor that was not approved
for sale in the U.S. into interstate commerce)).
23

Prior to March 2001, two patients suffered hypotensive events while undergoing
surgery, using an unapproved Norian cement with the same chemical formulation
as Norian SRS, and with a Synthes sales representative present. I.G. Ex. 20 at 4;
1G. Ex. 27-37 at 20. Petitioner has not denied these events. Nor does he deny
that such sudden drops in blood pressure were associated with the use of the
Norian cements in vertebroplasties.

On January 13, 2003, Dr. Sach’s patient died while undergoing the unapproved
surgery. Synthes employees knew about it. No one reported the death and no
autopsy was performed. I.G. Ex. 20 at 7; I.G. Ex. 27-37 at 8; 1.G. Exs. 27-49 — 27-
51.

Petitioner complains that the I.G. has not proven that the Norian cement directly
caused this (and the other) deaths. But Petitioner Higgins and his colleagues were
in a position to learn the role the cement played in the death of Dr. Sach’s patient —
indeed the ostensible purpose of their “test market” was to determine the risks
associated with the procedure. To the extent that the causes of the patient deaths
were never fully determined, they bear significant responsibility and should not
now benefit from their failure to investigate adequately and their failure to disclose
the findings so that others could investigate. As Judge Davis recognized, failing to
report and investigate such a death is a dangerous practice and puts all future
patients at risk.

Moreover, no one doubts that the patients died as a direct result of the surgeries —
surgeries that were undertaken because Petitioner, his company, and his
colleagues, illegally promoted the misuse of the Norian cements.

On September 19, 2003, Dr. Nottingham’s patient died while undergoing the
unapproved surgery. Again, no autopsy was performed, and, although a medical
device report was filed, it did not accurately describe the procedure (vertebroplasty
using Norian XR). I.G. Ex. 20 at 9. During the surgery, the patient experienced
what the surgeon described as a “drastic drop in blood pressure.” He also noted a
“cement leak.” I.G. Ex. 20 at 9-10; I.G. Exs. 27-62, 27-65, 27-66. At least one
other physician opined that “Norian XR is potentially de-watering and causing
episodes of hypotension.” I.G. Ex. 20 at 10; I.G. Ex. 27-68. Even if Dr.
Nottingham’s patient had survived, a hypotensive event is an “adverse impact.”

On January 22, 2004, Dr. Ball’s patient died while undergoing surgery to treat a
vertebral compression fracture using Norian XR. I.G. Ex. 20 at 10; I.G. Exs. 27-
74, 27-75.

Only Dr. Ball’s patient underwent an autopsy. As with the experimental pig, this
patient died within a minute or two of the surgeon’s introducing the cement.
24

According to the autopsy report, “[i]mmediately following the installation of [the
Norian XR] cement bilaterally . . . her blood pressure decreased and [she] was
unresponsive to CPR.” P. Joint Ex. 11 at 3. Similar to the findings in the pig
studies, the autopsy examiners also found “foreign material” inside what they
presumed were capillaries, and “clumps” of this material inside larger blood
vessels of the lungs. P. Joint Ex. 11 at 4; 1.G. Ex. 27-31 at 11. Except for the
amount, this material was “‘indistinguishable” from the clumps they found in her
spine. P. Joint Ex. 11 at 5. Petitioner does not explain the presence of the same
“foreign material” in both the lungs and the spine. There may be other
explanations; however these findings are consistent with the risks described by the
many researchers who warned that Norian XR could enter the venous system and
travel to the lungs. I consider this compelling evidence that the unapproved use of
the Norian cement “had a significant adverse physical . . . impact on Dr. Ball’s
patient.”

Petitioner Higgins concedes that three patients undergoing surgeries using the Norian
cements “experienced hypotensive events and died,” but points out that all were elderly;
all suffered serious underlying health problems and multiple co-morbidities, including
significant coronary problems. In Petitioner’s view, the patients were not harmed by the
procedure, because they likely died from their underlying conditions. P. Joint Br. at 36-
37.

But Petitioner does not explain why these extraordinarily vulnerable patients — with
serious underlying cardiac conditions — would undergo an experimental procedure that
was associated with negative cardiac events. As Judge Davis recognized, the patients did
so because they did not know about those negative events! See P. Ex. 28 at 5 (referring to
one of the victims, Judge Davis described him as “a scientist, a physicist” who was
unable “to make a choice about whether he would undergo an optional procedure because
information wasn’t shared to him or his doctor, and you and your co-defandants did it.”);
1G. Ex. 16 at 7-9 (“[U]nfortunately, he didn’t have the information that we now know
prior to his surgery.”).

According to Petitioner, at one least one of these patients (Dr. Sachs’) needed and
obtained “cardiologist clearance to undergo procedure with general anesthesia.” The
patient herself signed a “special form” acknowledging the heightened risk. P. Joint Br. at
37. Petitioner does not provide copies of the patient consent nor the cardiologist’s
clearance, but relies on Product Manager Hamilton’s notes of her telephone conversation
with Dr. Sachs. P. Joint Ex. 6. This hearsay-on-hearsay comes from individuals with a
vested interest in avoiding responsibility for the negative outcome, and I do not consider
it very reliable. Nevertheless, accepting Ms. Hamilton’s version of Dr. Sachs’ version, I
see no claim that the cardiologist cleared the patient for anything more drastic than an
approved surgical procedure involving general anesthesia. I see no evidence that either
the cardiologist or the patient realized that she would undergo an unapproved and highly
25

experimental procedure, known to cause hypotensive events, a procedure that presented
the “unique risk” of the cement’s entry into the venous system and transport to the lungs.
IG. Ex. 27-31 at 11.

Petitioner disavows any responsibility for the surgeries, pointing out that physicians often
use medical devices in unapproved ways and suggesting that the physicians themselves
are accountable for any adverse outcome. P. Joint Br. at 39. I recognize that physicians
may use medical devices in unapproved ways. As happened with the Norian cements,
using a device in ways that are not approved can endanger patient safety. It is therefore
vitally important that manufacturers not promote their products’ use in such unapproved
—and potentially dangerous — ways. See, e.g. 1.G. Ex. 27-18. No doubt the physicians
should be held responsible for their own actions, but that does not relieve Petitioner of his
responsibility. The physicians may have pulled the trigger, but Petitioner, his colleagues,
and his employees supplied the guns and ammunition, and enlisted and trained gunmen
they knew to be willing.

Moreover, Judge Davis found that the Synthes executives misled physicians into
“believing the products could be used safely. To say that the physicians were
“sophisticated and experienced’ does not mean that they were not misled. ... The
reading of the [Norian] XR label word-for-word during the training sessions did not cure
the lack of critical information about the product’s dangers.” I.G. Ex. 20 at 19-20.

In light of the substantial amount of human experimentation, putting patients at
significant risk of hypotensive events and even death, the question is not so much
whether a five-year exclusion is reasonable, but why the period of exclusion is so low.

Mitigating factors. The regulations consider mitigating just three factors: 1) a petitioner
was convicted of three or fewer misdemeanor offenses, and the resulting financial loss to
the program was less than $1,500; 2) the record in the criminal proceedings demonstrates
that a petitioner had a mental, physical, or emotional condition that reduced his
culpability; and 3) a petitioner’s cooperation with federal or state officials resulted in
others being convicted or excluded, or additional cases being investigated, or a civil
money penalty being imposed. 42 C.F.R. § 1001.201(b)(3). Characterizing a mitigating
factor as “in the nature of an affirmative defense,” the Board has ruled that a petitioner
has the burden of proving any mitigating factor by a preponderance of the evidence.
Barry D. Garfinkel, M.D., DAB No. 1572 at 8 (1996), aff’d, Garfinkel v. Shalala, No. 3-
96-604 (D. Minn. 1997).

Here, Petitioner Higgins was convicted of one misdemeanor offense, and the I.G. does
not allege that his crime caused program financial losses. His relatively short period of
exclusion reflects that factor.
26

Petitioner claims that he cooperated with law enforcement and is therefore entitled to
additional consideration under section 1001.102(c)(3). In support of this claim, he points
to the timing of his guilty plea relative to the timing of his company’s guilty plea and
suggests a relationship between his taking “responsibility for whatever it is that [Synthes]
may have done that violated the FDCA” and the company’s guilty plea. P. Br. at 26.
Even among unsuccessful arguments of “cooperation with law enforcement,” this one is
exceptionally weak. At sentencing, Petitioner’s own attorney characterized as
“speculation” the notion that his plea agreement led to other guilty pleas, and Petitioner
has added no additional support for his claim. I.G. Ex. 16 at 18.

“Tt is entirely Petitioner’s burden” to show that his cooperation resulted in others being
convicted or excluded, or additional cases being investigated or excluded, or a civil
money penalty being imposed. Stacey R. Gale, DAB No. 1941 at 9 (2004). Section
1001.102(c)(3) “should be viewed narrowly (i.e., that it is designed to accommodate
‘only significant cooperation’).” Marcia C. Smith, DAB No. 2046 at 10 (2006). The
regulation is “designed to authorize mitigation for significant or valuable cooperation that
yielded positive results for the state or federal government in the form of a new case
actually being opened for investigation. .. .” Smith, DAB No. 2046at 9 (citing Stacey R.
Gale, DAB No. 1941 at 11) (emphasis in original). The regulation contemplates a
situation in which the target of the original investigation, i.e., the person who later claims
that the mitigating factor applies, gives information that results in an investigation of a
new target or targets. Expanding an existing investigation does not qualify. Smith, DAB
No. 2046 at 9-10.

The investigations of the Norian and Synthes companies and their corporate executives
were all parts of one whole. Petitioner is not entitled to special consideration simply
because he was among the first to plead guilty to a crime that he and his company
committed.

Petitioner raises other factors, which, he argues, should be considered in assessing his
trustworthiness. He complains that the regulations are too narrow, because they omit
factors that, is his view, should be considered mitigating. P. Joint Br. at 40. But the
statute provides that any deviation from the prescribed three-year exclusion must be made
“in accordance with published regulations.” I thus may not consider any factor not set
forth in the regulations. See 42 C.F.R. § 1005.4(c)(1).

Finally, Petitioner points out that during the sentencing hearing, Judge Davis mentioned
that he was not worried about the defendant committing another crime. P. Br. at 18
(citing P. Ex. 28 at 6). Judge Davis made this remark in the context of explaining that he
ordered supervised release following incarceration mainly to make sure that Petitioner
paid the fine, rather than to deter additional criminal activity. The observation did not
find its way into the judge’s written memorandum. In fact, throughout the sentencing
phase, Judge Davis struggled to understand why such a purportedly upstanding citizen
27

would engage in such reprehensible behavior. He gave the defendant every opportunity
to explain himself, which the defendant declined to do. See I.G. Ex. 20 at 16-17 (Judge’s
Memorandum). Indeed, as Petitioner Higgins’ submissions here establish, to this day, he
denies any culpability other than occupying his corporate officer position at Synthes.

In any event, the Board has repeatedly observed that the exclusion remedy serves two
purposes: to protect program beneficiaries and program integrity from those who have
shown themselves to be untrustworthy; and to deter others from engaging in similar
misconduct. Breton Lee Morgan, M.D., DAB No. 2264 at 9 (citing Jeremy Robinson
DAB No. 1905 at 3 (2004)); S. Rep. No. 109, 100th Cong., Ist Sess. (1987) (“clear and
strong deterrent”); Joann Fletcher Cash, DAB No. 1725 at 15, 18 (discussing
trustworthiness and deterrence). In imposing an expanded jail sentence, Judge Davis
emphasized that he considered the penalty necessary to deter similar wrong-doing.
Introducing adulterated and misbranded products into interstate commerce significantly
endangers the public. United States v. Park, 421 U.S. 658. Yet the temptations to engage
in such conduct are substantial, promising potentially enormous profits with relatively
little risk to the individuals involved. Judge Davis recognized that imposing significant
jail time is one of the few effective deterrents. So too is exclusion.

Conclusion

Petitioner’s crime demonstrates that he presents a significant risk to the integrity of health
care programs and the safety of program beneficiaries. With others, he callously
disregarded the FDA requirements, the repeated warnings from his regulatory
department, and the truly frightening findings of his researchers. He withheld from the
FDA and participating physicians alarming evidence of dangers associated with his
company’s cements when used in vertebroplasties. His crime merited significant jail
time, and it cries out for a significant period of exclusion. Based on all of the
circumstances described above, I find that a five-year exclusion is not unreasonably long.

/s/
Carolyn Cozad Hughes
Administrative Law Judge

Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Thomas B. Higgins,
(OI File Number: 3-05-40179-9),

Petitioner,
v.
The Inspector General
Docket No. C-13-164

Date: November 25, 2014

ADDENDUM TO DECISION CR3477:
RULING ON OBJECTIONS TO EXHIBITS

The Inspector General for the Department of Health and Human Services (I.G.) has
excluded Petitioner, Thomas B. Higgins, from participating in all federal health care
programs for a minimum period of five years, pursuant to section 1128(b)(1) of the
Social Security Act. Petitioner Higgins appealed the exclusion. The parties have
submitted their written arguments and proposed exhibits. The I.G. submitted 33 exhibits
(IG. Exs. 1-33). Of these, I.G. Ex. 27 includes multiple parts: I.G. Ex. 27, 1.G. Ex. 27-1
and I.G. Ex. 27-1A; LG. Ex. 27-2 through I.G. Ex. 27-81.

Petitioner objects to my admitting many of the I.G.’s proposed exhibits. For the reasons
discussed below, I overrule Petitioner’s objections and admit I.G. Exs. 1-33.

As a threshold matter, I note that I am not bound by the Federal Rules of Evidence and
may admit evidence that would not ordinarily be admitted under them. 42 C.F.R.

§ 1005.17(b). With limited exceptions, I admit all evidence that is relevant and material.
See 42 C.F.R. § 1005.17(c), (d), (e) and (f). By regulation, evidence of crimes, wrongs or
acts other than those at issue in the case before me is also admissible, in order to show
motive, opportunity, intent, knowledge, preparation, identity, lack of mistake, or
existence of a scheme. 42 C.F.R. § 1005.17(g).
LG. Ex. 5 — Criminal Indictment.

Petitioner objects to I.G. Ex. 5, which is his criminal indictment. He argues that, because
he was named only in Count 97 of the 97-count indictment, “most of the document has
nothing to do with him.” As to Count 97 itself, he characterizes it as “merely a set of
allegations” with “no evidentiary value” and claims that he did not, in fact, plead guilty to
those allegations, but limited his guilty plea to the facts set forth in his plea agreement,
1.G. Ex. 6. He claims that he did not even see the indictment before he pled guilty.
Petitioner Thomas B. Higgins’ Responses and Objections to I.G.’s Informal Exhibit List
(P. Objections) at 2.

Petitioner executed his plea agreement on May 22, 2009. The indictment must have been
drafted shortly thereafter, because, according to the district court’s docket sheet, it was
filed on June 16, 2009. I.G. Exs. 5, 6; IG. Ex. 10 at 9. Petitioner pled guilty more than
two years later, on November 21, 2011, and the district court entered judgment on
November 22, 2011. 1.G. Ex. 10 at 24; I.G. Ex. 11 at 1. It seems odd that Petitioner
Higgins would not have reviewed the indictment before he pled guilty to one of its
counts.

The guilty plea and judgment refer to Count 97 of the indictment, which, by itself, makes
the indictment relevant. I.G. Ex. 11. Moreover, Count 97 incorporates paragraphs one
through 93 of Count One, which represent a substantial portion of the indictment, so the
notion that the indictment has very little to do with Petitioner Higgins is plainly wrong.
1G. Ex. 5 at 1-28, 54. Further, Petitioner Higgins pled guilty as a responsible corporate
officer. At a minimum, he is guilty because the company and its employees engaged in
criminal behavior. The indictment describes that conduct and is thus inextricably
intertwined with Petitioner’s own conviction. Even Petitioner’s plea agreement refers to
the indictment; it says that the defendant “agrees to plead guilty to Count One... .”! LG.
Ex. 6 at 1 (Plea Agreement § 1). The indictment is thus relevant and admissible. See 42
C.F.R. § 1005.17(g); Emem Dominic Ukpong, DAB No. 2220 at 3 (2008) (finding that
the ALJ properly admitted the criminal indictment, conditions of probation, and other
documents beyond the petitioner’s plea agreement); W. Scott Harkonen, M.D., DAB No.
2485 at 18-20 (2012) (finding that the ALJ properly relied on all the factual allegations
set forth in count one of the indictment, where Petitioner was convicted under that count),
aff'd, Harkonen v. Sebellius, No. C13-0071 PJH, 2013 WL 5734918 (N.D. Cal. 2013).

The indictment would be admissible in any event, both as part of the case’s procedural
background and because I am allowed to consider “extrinsic evidence of the underlying

' Except for those provisions of Count One that are incorporated by reference into Count
97, no one argues that Petitioner pled guilty to Count One. The language of his actual
conviction trumps the language of the plea agreement.
circumstances of the offense.” Ukpong, DAB No. 2220 at 2; Gena C. Randolph, DAB
No. 2526 at 4-6 (2013) (finding the indictment and sentence sheet admissible); see 42
C.F.R. § 1005.17(g) (making admissible “evidence of crimes, wrongs, or acts other than
those at issue in the instant case. .. .”). Of course, if unsupported, the allegations of the
complaint would be entitled to little, if any, weight.

LG. Ex. 10 — District Court Docket Sheet for Criminal Proceedings.

Petitioner Higgins does not so much object to the admission of the district court’s docket
sheet, as express concern that it will be misused. P. Objections at 3. This is a matter for
argument. His concerns do not make the document inadmissible.

LG. Exs. 15 through 21 — District Court’s Sentencing Documents.

Petitioner Higgins objects to my admitting any of the district court’s sentencing
documents, arguing that they are “not entitled to collateral estoppel effect, have no
independent evidentiary value, and should not, therefore, be considered in this exclusion
proceeding.” P. Objections at 3-5; P. Joint Brief (Br.) at 23-28. In support, he cites the
Second Circuit decision in SEC v. Monarch, 192 F.3d 295 (2d Cir. 1999).

First, the I.G. has not suggested that I afford collateral estoppel effect to the sentencing
documents. Rather, the I.G. argues that the district court’s findings merit considerable
deference. I.G. Reply at 27 (citing Upkong, DAB No. 2220; Harkonen, M.D., DAB No.
2485 at 17-18). Iagree. I am not persuaded that the Second Circuit’s decision in SEC v.
Monarch compels my disregard of Judge Davis’s well-supported findings and other
documents from the sentencing proceeding. Indeed, the appeals court’s reasoning
suggests the opposite: I may fairly consider the sentencing findings.

The Monarch court addressed whether findings made in a criminal sentencing proceeding
should preclude relitigating an issue in a subsequent civil case. There, a jury acquitted
Defendant Bertoli on RICO (Racketeer Influenced and Corrupt Organizations Act)
charges but convicted him on related charges of obstructing justice. The district judge
enhanced his sentence, finding that he had, in fact, committed securities fraud and
conspired to cover it up — the very charges on which he had been acquitted. In
subsequent civil proceedings, the Securities and Exchange Commission argued that,
based on the sentencing findings, Mr. Bertoli was collaterally estopped from denying his
securities fraud liability.”

> In contrast to these proceedings, which derive from Petitioner’s criminal conviction,
the SEC sued Defendant Bertoli in a civil proceeding “parallel” to the criminal case,
based on the same alleged violations of federal securities laws.
The Second Circuit deemed it “unfair” to preclude Defendant Bertoli from relitigating the
securities fraud issue in a subsequent civil action. However, the court would not adopt a
sweeping per se prohibition against extending the doctrine of “offensive collateral
estoppel” (also referred to as “issue preclusion”), concluding that the doctrine could be
applied “in those circumstances where it is clearly fair and efficient to do so.” Id. at 306.
The court enumerated the reasons why applying the doctrine might be unfair: 1) applying
the doctrine deprives a party of “procedural opportunities” that are available to the civil
litigant, particularly the opportunity to take discovery, which may be limited in
sentencing proceedings; 2) applying the doctrine could deny a party the opportunity to
present witnesses or receive a full-blown evidentiary hearing; 3) the sentencing court
may consider evidence that has “sufficient indicia of reliability,” whereas, in civil
litigation, the evidence must be admissible under the Federal Rules of Evidence; 4) a
criminal defendant might not challenge sensitive issues or evidence, for fear that doing so
could enhance his sentence; and 5) the criminal defendant might be reluctant to testify
during sentencing. Id. at 305.

Here, Petitioner Higgins may not challenge his conviction nor attack collaterally any
facts adjudicated as part of that conviction. 42 C.F.R. § 1001.2007(d). However, no one
has suggested that he is precluded from challenging issues or evidence extrinsic to his
conviction, including Judge Davis’s findings. In fact, he has done so. See, e.g., P. Br. 6-
17, 19-24.

But, even assuming that the Monarch decision has any relevance to this case, nothing in
that decision compels me to reject the sentencing documents. The indicia of unfairness
do not apply for the following reasons:

1) In contrast to civil court actions, the regulations governing these proceedings
afford Petitioner very limited procedural opportunities, such as discovery. See
42 C.F.R. § 1005.7 (discovery is limited to requests for production of relevant
and material documents);

2) The sentencing court conducted an evidentiary hearing for two full days,
“giving the parties an adequate opportunity to present to the Court information
regarding disputed matters that are important to sentencing.” I.G. Ex. 15 at 1;
1G. Ex. 16 at 3,47. In contrast, here, Petitioner Higgins waived his right to a
hearing. P. Br. at 28.

3) The Federal Rules of Evidence do not apply in these proceedings (42 C.F.R.
§ 1005.17);

4) Petitioner does not point to any “sensitive issue or evidence” that he declined
to challenge during sentencing. Indeed, the court’s docket sheet attests to the
ample opportunities Petitioner Higgins had to challenge the government’s
evidence and argument before the sentencing judge. I.G. Ex. 10 at 20-27.
Although he did not testify at the sentencing hearing, he opted to have his
statement read into the record; in effect, he “testified” without subjecting
himself to any questioning. I.G. Ex. 16 at 22-25. He has declined to testify
during these proceedings.

5) Although Judge Davis characterized his findings as “true beyond all reasonable
question,” the standard of proof in sentencing enhancement is “preponderance
of the evidence.” I.G. Ex. 20 at 4, 12 (citing United States v. Fisher, 502 F.3d
293, 307 (3d Cir. 2007)). In these proceedings, the “burden of persuasion” is
judged by the same standard, “preponderance of the evidence.” 42 C.F.R.

§ 1005.15(d).

See U.S. ex rel. Lamberts v. Stokes, 640 F. Supp.2d 927, 930-33 (W.D. Mich. 2009)
(finding issue preclusion appropriate where the sentencing hearing afforded the parties
the opportunity to present witness testimony and argument, the parties had significant
incentives to litigate the issue at sentencing, and the burden of proof was the same in both
sentencing and subsequent civil proceedings).

Petitioner also complains that, at sentencing, the court is not limited to the conduct of the
underlying offense, but may consider all of the defendant’s “relevant conduct.” P. Joint
Br. at 16. This argument does not help Petitioner for two reasons: 1) in fact, Judge Davis
relied on the facts underlying Petitioner’s criminal conduct, and his findings are
supported by reliable, admissible evidence. If anything, Petitioner Higgins benefitted
from the judge’s considering conduct beyond that underlying the criminal offense,
because he considered most of the defendant’s own “characterizations of his background
and character.” I.G. Ex. 20 at 11-12; 2) by regulation, I, like the sentencing court, may
consider “evidence of crimes, wrongs or acts other than those at issue in the instant case
....” 42 C.F.R. § 1005.17(g).

I thus find the sentencing documents admissible. Whether or not the sentencing judge’s
findings are entitled to collateral estoppel effect, they are certainly entitled to deference,
particularly where, as here, they were arrived at following a full-blown adjudicative
proceeding and are well-supported.

LG. Exs. 22 through 26 — Court documents relating to the convictions of Petitioner’s
co-defendants.

Petitioner objects to my admitting court documents relating to the convictions of his co-
defendants, because he is not named in them and played no part in their creation. P.
Objections at 6-7. As noted above, Petitioner pled guilty as a responsible corporate
officer. At a minimum, he is guilty, because the company and its employees engaged in
criminal behavior. These documents describe that conduct and are thus inextricably
intertwined with Petitioner’s own conviction. They are therefore relevant and material
and admissible.

LG. Ex. 27 — Government’s presentence memorandum and exhibit list.

Petitioner objects to my admitting the government’s presentence memorandum,
characterizing it as “merely argument,” and arguing that it serves no legitimate purpose.
The I.G. included the document because it incorporates the underlying exhibits (I.G. Exs.
27-1 through 27-81) upon which the sentencing judge relied; to “give context” to the
district court’s order and memorandum; and “for completeness.” I.G. Reply at 27-28.

The presentence memorandum itself may not be entitled to much weight, but I find it
admissible as part of the criminal court record. Moreover, the document summarizes the
voluminous documents relied on by the court and may be considered admissible as a
“summary of voluminous records.” See Civil Remedies Division Procedures § 10; Fed.
R. Evid. 1006.

LG. Exs. 27-1 through 27-81.

After objecting to the admission of Judge Davis’s careful analysis of the evidence as
having “no independent evidentiary value,” Petitioner Higgins objects to my admitting
the underlying evidence upon which Judge Davis based his opinion. P. Objections at 7-
19. These documents include company e-mails, memoranda, reports, minutes of
meetings, and other documents describing the conduct underlying Petitioner’s (and his
colleagues’) criminal offense.

Petitioner apparently objects to these documents because they go beyond the limited facts
to which he admitted in his plea agreement. In Petitioner’s view, I may consider only
those facts proven beyond a reasonable doubt in the criminal case.’ P. Joint Br. at 22. As
explained more fully in my decision, the issue before me is whether Petitioner’s offense
“relates to” fraud. All evidence of his underlying conduct — which would include I.G.
Exs. 27-1 through 27-81 — is therefore relevant, material and admissible.

/s/
Carolyn Cozad Hughes
Administrative Law Judge

> Moreover, as discussed above, the I.G. here need only establish facts supporting the
exclusion “by a preponderance of the evidence.” 42 C.F.R. § 1005.15(d).


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

Center for Tobacco Products,
(FDA No. FDA-2014-H-1425)

Complainant,
v.

Kwabena Asante
d/b/a Asante Market,

Respondent.
Docket No. C-14-1947
Decision No. CR3476
Date: November 24, 2014
INITIAL DECISION AND DEFAULT JUDGMENT

The Center for Tobacco Products (CTP) began this matter by serving an administrative
complaint on Respondent, Kwabena Asante d/b/a Asante Market, at 2477 Grant Avenue,
Philadelphia, Pennsylvania 19114 and by filing a copy of the complaint with the Food
and Drug Administration’s (FDA) Division of Dockets Management. The complaint
alleges that Asante Market unlawfully sold cigarettes to minors and failed to verify, by
means of photo identification containing a date of birth, that a cigarette purchaser was

18 years of age or older, thereby violating the Federal Food, Drug, and Cosmetic Act
(Act), 21 U.S.C. § 301 et seq., and its implementing regulations, 21 C.F.R. pt. 1140.
CTP seeks to impose a $250 civil money penalty against Respondent Asante Market.

As provided for in 21 C.F.R. §§ 17.5 and 17.7, on September 30, 2014, CTP served the
complaint on Respondent Asante Market by United Parcel Service. In the complaint and
accompanying cover letter, CTP explained that, within 30 days, Respondent should pay
the penalty, file an answer, or request an extension of time in which to file an answer.
CTP warned Respondent that, if it failed to take one of these actions within 30 days, the
Administrative Law Judge could, pursuant to 21 C.F.R. § 17.11, issue an initial decision
ordering it to pay the full amount of the proposed penalty.

Respondent Asante Market has neither filed an answer within the time prescribed, nor
requested an extension of time within which to file an answer. Pursuant to 21 C.F.R.
§ 17.11, L assume that the facts alleged in the complaint (but not its conclusory
statements) are true. Specifically:

e At Respondent’s business establishment, 2477 Grant Avenue, Philadelphia,
Pennsylvania 19114, on August 7, 2013, at approximately 12:57 PM, an FDA-
commissioned inspector observed Respondent’s staff sell a package of Newport
Box 100s cigarettes to a person younger than 18 years of age. The inspector also
observed that Respondent’s staff failed to verify, by means of photo identification
containing the bearer’s date of birth, that the cigarette purchaser was 18 years of
age or older;

e Ina warning letter issued on September 19, 2013, CTP informed Respondent of
the inspector’s observations from August 7, 2013, and that such actions violate
federal law, 21 C.F.R. § 1140.14(a) and (b)(1). The letter further warned that if
Respondent failed to correct its violations, the FDA could impose a civil money
penalty or take other regulatory action;

e At Respondent’s business establishment, 2477 Grant Avenue, Philadelphia,
Pennsylvania 19114, on March 12, 2014, at approximately 11:58 AM, FDA-
commissioned inspectors documented Respondent’s staff selling a package of
Newport Box 100s cigarettes to a person younger than 18 years of age.

These facts establish Respondent’s liability under the Act. The Act prohibits
misbranding of a tobacco product. 21 U.S.C. § 331(k). A tobacco product is misbranded
if sold or distributed in violation of regulations issued under section 906(d) of the Act.

21 U.S.C. § 387f(d); see 21 U.S.C. § 387c(a)(7)(B); 21 C.F.R. § 1140.1(b). The
Secretary of the U.S. Department of Health and Human Services issued the regulations at
21 CFR. pt. 1140 under section 906(d) of the Act. 21 U.S.C. § 387a-1; see 21 U.S.C.

§ 387f(d)(1); 75 Fed. Reg. 13,225, 13,229 (Mar. 19, 2010). Under 21 C.F R.

§ 1140.14(a), no retailer may sell cigarettes or smokeless tobacco to any person younger
than 18 years of age. Under 21 C-F.R. § 1140.14(b)(1), retailers must verify, by means of
photo identification containing the bearer’s date of birth, that no cigarette or smokeless
tobacco purchaser is younger than 18 years of age.

A $250 civil money penalty is permissible under 21 C.F.R. § 17.2.
Order

For these reasons, I enter default judgment in the amount of $250 against Respondent
Kwabena Asante d/b/a Asante Market. Pursuant to 21 C.F.R. § 17.11(b), this order
becomes final and binding upon both parties after 30 days of the date of its issuance.

/s/
Catherine Ravinski
Administrative Law Judge