Opinion ID: 686802
Heading Depth: 2
Heading Rank: 1

Heading: Choice of Sentencing Guideline

Text: 6 Van Damme and Andersen argue that the district court erred in sentencing them under U.S.S.G. Sec. 2F1.1 instead of Sec. 2N2.1. United States Sentencing Commission, Guidelines Manual, Sec. 2F1.1, Sec. 2N2.1 (Nov.1993). The district court's choice of which guideline to apply is a question of law, and we review this choice de novo. United States v. Johnson, 965 F.2d 460, 468 (7th Cir.1992). 7 Section 2N2.1 covers violations of statutes and regulations dealing with any food, drug, biological product, device, cosmetic or agricultural product, and has a base offense level of six. Section 2F1.1 has broader application and deals with offenses involving fraud or deceit. It also has a base offense level of six, but provides for substantial increases in offense level based on the amount of loss. The defendants argue that because they pleaded guilty to a violation of the Food and Drug Act, 21 U.S.C. Sec. 331 and Sec. 333, Sec. 2N2.1 is the most clearly applicable Guideline and thus should have been used by the district court. See U.S.S.G. Sec. 1B1.2(a) (Guideline used should be that most applicable to the offense of conviction). 8 The defendants are correct that Sec. 2N2.1 applies directly to violations of the Food and Drug Act. However, Sec. 2N2.1 itself directs us to apply Sec. 2F1.1 if the offense involved fraud. In addition, the Statutory Index to the Guidelines, which specifies the Guideline section or sections ordinarily applicable to the statute of conviction, indicates that both Sec. 2F1.1 and Sec. 2N2.1 are ordinarily applied to 21 U.S.C. Sec. 333(a)(2). U.S.S.G. Appendix A. 9 The district court here found overwhelming evidence of fraud, Sent.Tr., R.O.A. 96, p. 10, including mislabeling drugs and altering invoices, rerouting shipments to avoid detection and misrepresenting current and intended future actions to the FDA. In addition, the defendants themselves pleaded guilty to Count VII of the indictment, admitting that they did fail to register their drug manufacturing facility (a bed-and-breakfast inn) with the FDA with the intent to defraud and mislead. Indictment, R.O.A. 1, p. 14 (emphasis added). 10 Nevertheless, Van Damme and Andersen claim that this evidence of fraud is insufficient to support the application of Sec. 2F1.1. They argue that the evidence establishes only that they defrauded a regulatory agency, not their customers, and that fraud on a regulatory agency does not support the use of Sec. 2F1.1. We also fail to find this argument persuasive. 11 Section 2F1.1 is designed to apply to a wide variety of fraud cases, U.S.S.G. Sec. 2F1.1, comment. (backg'd), and it does not specify that the victim must be a consumer rather than a regulatory agency. As other circuits addressing this issue have held, there is no meaningful distinction between the government as a victim and individual consumer victims; ... it is possible for either or both to be defrauded. United States v. Cambra, 933 F.2d 752, 756 (9th Cir.1991); United States v. Von Mitchell, 984 F.2d 338 (9th Cir.1992); United States v. Arlen, 947 F.2d 139 (5th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1480, 117 L.Ed.2d 623 (1992). 1 12 In Cambra, 933 F.2d 752, the defendant sold misbranded human growth hormones, which he counterfeited to represent different products made by reputable manufacturers. He pleaded guilty to distributing misbranded hormones with intent to defraud and mislead, and stipulated that the dollar value of the counterfeit steroids was $500,000. Id. The Ninth Circuit held that at least federal agencies were defrauded by Cambra's acts, and that fraud on a federal agency was enough to support the use of Sec. 2F1.1. Id. at 756. In Arlen, 947 F.2d 139, the defendant also ran a business selling, buying and trading steroids through the mail, taking great pains to keep this business hidden from the FDA. Arlen argued that fraud against a regulatory agency was not sufficient to constitute an intent to defraud or mislead under 21 U.S.C. Sec. 333(a)(1) and that it was not enough to invoke U.S.S.G. Sec. 2F1.1. The Fifth Circuit recognized that there was no evidence of fraud against Arlen's customers, but held that fraud on a regulatory agency was sufficient to support charges of fraud and deceit under both the Statute and the Guidelines. Id. at 143, 146-47. 13 The defendants here attempt to distinguish Cambra and Arlen on their facts, arguing that there was more evidence in both Cambra and Arlen of fraud on consumers as well as regulatory agencies. However, we find these attempted distinctions insignificant. Both cases involved illegal marketing of drugs and fraud on the FDA, and both courts specifically held that regulatory fraud alone is sufficient basis for the application of Sec. 2F1.1. See Cambra, 933 F.2d at 756; Arlen, 947 F.2d at 143-44, 146-47. 14 The defendants also rely on United States v. Shields, 939 F.2d 780 (9th Cir.1991) to support their argument that regulatory fraud cannot be the basis for application of Sec. 2F1.1. However, that reliance is also misplaced. In Shields, the defendants were sentenced under Sec. 2N2.1 for distribution of steroids in violation of 21 U.S.C. Secs. 331, 333 and 353. The district court had, in fact, departed upward from Sec. 2N2.1, and the Ninth Circuit found this departure inappropriate and reversed and remanded for resentencing. But, in resentencing Shields' co-defendant on remand, the district court again gave a higher sentence, this time under Sec. 2F1.1. That sentence was subsequently upheld in United States v. Von Mitchell, 984 F.2d 338 (9th Cir.1992), specifically because it was imposed under Sec. 2F1.1 and not Sec. 2N2.1. 15 We find Cambra and Arlen persuasive. Here, as in those cases, the district court found substantial evidence of fraud. The FDA represents the public, and a deliberate attempt to mislead the FDA should be considered as clearly a fraud as are attempts to mislead customers or other individuals. Further, a straightforward application of the Guidelines regarding fraud requires the use of Sec. 2F1.1. We thus join the Ninth and the Fifth Circuits in finding evidence of fraud on a regulatory agency sufficient to invoke Sec. 2F1.1.