Court Opinion

ID: 76170
Source: CourtListenerOpinion
Date Created: 2010-04-26 23:52:43+00
Date Added: 2024-06-11T17:18:27.177363
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[PUBLISH]

              IN THE UNITED STATES COURT OF APPEALS

                        FOR THE ELEVENTH CIRCUIT                   FILED
                        ____________________________      U.S. COURT OF APPEALS
                                                            ELEVENTH CIRCUIT
                                                                March 12, 2003
                                No. 02-11265                THOMAS K. KAHN
                        ____________________________            CLERK

                        D. C. Docket No. 01-00084-CR-RV

UNITED STATES OF AMERICA,

                                                                Plaintiff-Appellee,

                                    versus

DAVID NEIL YEAGER,

                                                           Defendant-Appellant.

                        ____________________________

                 Appeal from the United States District Court
                    for the Southern District of Alabama
                     ____________________________
                               (March 12, 2003)

Before BIRCH, DUBINA and KRAVITCH, Circuit Judges.

BIRCH, Circuit Judge:
      In this case, we revisit the issue of whether proof of reasonable reliance is a

necessary component of a federal mail fraud conviction. Because the Supreme

Court has superseded our circuit precedent to the contrary, we hold that such proof

is not required. In addition, we consider the proper loss calculation under U.S.S.G.

§ 2F1.1 when a defendant who possesses a restricted right to distribute a product

fraudulently diverts that product to non-authorized buyers. We find that the

appropriate focus of the loss calculation is the marginal value of the unrestricted

right to distribute over the restricted right, and we find that a reasonable estimate of

this value is the profit obtained by the defendant from non-authorized sales.

Finally, we consider the argument that, in a conspiracy of two people, only one

person’s sentence may be enhanced for playing a leadership role in the offense.

Rejecting this assertion, we find that each participant can be sentenced as a leader

assuming that both exercise authority and control over a distinct portion of the

criminal activity. On these and related issues, we AFFIRM.

                                 I. BACKGROUND

      David Neal Yeager worked as the vice president of sales and marketing for

Respiratory Distributors, Inc. (“Distributors”), a small company located in Foley,

Alabama, whose business it was to distribute prescription drugs at wholesale prices

to pharmacies or other outlets. Richard Powell, the owner of Distributors, also

                                           2
owned Respiratory Druggist, Inc. (“Druggist”), a mail-order pharmacy that sold

prescription drugs directly to home health patients.

      Misrepresenting himself as a vice president for Druggist, Yeager contacted

Boehringer Ingelheim Pharmaceuticals, Inc. (“BIPI”) in March 1996 to negotiate a

contract for Druggist to sell Atrovent®, a prescription drug for the treatment of

respiratory conditions created and manufactured by BIPI, to Druggist’s home

health patients. Yeager negotiated the contract without the immediate knowledge

of Powell. Under the terms of the contract, BIPI would supply Atrovent at $28.78

per box. BIPI offered Druggist this low price on Atrovent based on the

understanding that it would only be resold to Druggist’s home health patients, and

not to other pharmacies or wholesalers.

       To ensure that Druggist sold only to its home health patients, BIPI required

Druggist to submit both an initial utilization report and supplemental reports every

month thereafter, which would list detailed information about all patients receiving

Atrovent through Druggist. Based on these utilization reports, BIPI would

determine the proper amount of Atrovent to ship. Under the contract, BIPI could

immediately terminate its relationship with Druggist if these reports were not filed

or if any Atrovent was diverted to non-home health patients.

                                          3
      Powell contends he was unaware until September 1996 that any of his

companies had a contract with BIPI for the distribution of Atrovent. Throughout

this time period and despite the restricted distribution contemplated under the

contract with BIPI, Yeager repeatedly diverted large shipments of Atrovent to

unauthorized buyers. These shipments were sent to the unauthorized buyers by

interstate commercial carrier. During the relevant period, the gross profit to

Powell’s corporations from these sales was $687,000. BIPI itself marketed

Atrovent to wholesale distribution companies, like Distributors, at a price generally

higher than the Druggist contract price. The crux of the fraudulent conduct in this

case was that Yeager obtained Atrovent at the low price offered under the Druggist

contract and then diverted the product to Distributors. Distributors then re-sold

Atrovent at a market advantage, effectively undercutting BIPI’s own distribution

scheme.

      Both the initial utilization report and the monthly utilization reports required

under the contract were not submitted. By January 1997, BIPI was concerned

about the reporting failures and suspected that diversion of Atrovent was

occurring. In March 1997, a representative of BIPI contacted Powell to discuss

BIPI’s concerns and to insist on the prompt and proper disclosure of patient

information. Following this contact, Yeager and Powell agreed to continue the

                                          4
extremely profitable deception of BIPI by submitting false and fraudulent

utilization reports containing the type of information that BIPI had requested.

Yeager prepared and submitted the reports to BIPI. Both Yeager and Powell

instructed employees of Distributors and Druggist in conduct designed to conceal

their scheme – for example, by answering the shared telephone line as “RDI” to

draw attention away from the Distributors operation.

      In June 1997, unsatisfied with the reports, BIPI requested an on-site audit of

the facilities in Foley, Alabama. Yeager and Powell were both present for and

participants in the audit.   The documents obtained by BIPI representatives during

the audit were continuations of the Druggist/Distributors shell game; in the words

of a BIPI representative, the documents were “worthless.” R3 at 150. Powell

ordered employees to set up rows of empty boxes in the warehouse, with boxes of

Atrovent only on top, to give the appearance that their on-hand inventory of

Atrovent was much larger than in reality to create the impression that Atrovent was

not being diverted to other purchasers. Powell testified at trial that, had he and

Yeager turned over the true inventory records, their scheme would have been

revealed. Yeager planned the BIPI visit and ensured that employees followed the

instructions designed to deceive the visitors.

                                           5
      After the audit, Yeager continue to remit utilization reports that did not

contain accurate and complete information for the patients to which Druggist was

supposedly distributing Atrovent. BIPI learned in December 1997 that the FBI

was conducting a criminal investigation related to the Atrovent sales, and BIPI

terminated its relationship with Druggist/Distributors the following month.

      Both Yeager and Powell were indicted for their use of the mail system to

further their fraudulent scheme. Yeager refused to cooperate with federal

authorities and put the government to its proof. Powell pled guilty pursuant to a

written plea agreement, under which he is currently serving approximately one

year in prison. He cooperated with federal authorities in the investigation and

testified against Yeager during a three-day trial in August 2001. A unanimous jury

found Yeager guilty on seven counts of mail fraud, in violation of 18 U.S.C. §

1341, based on seven shipments of Atrovent diverted by Yeager from August 1996

to August 1997 to unauthorized customers through the mail, and of conspiracy to

commit mail fraud, also in violation of 18 U.S.C. § 1341. The district court

sentenced Yeager to 33 months in prison, followed by three years of supervised

release, and ordered that Yeager be jointly and severally liable with his co-

conspirator Powell for the payment of $687,000 in restitution to BIPI.

                                 II. DISCUSSION

                                          6
      A. Sufficiency of Evidence for Mail Fraud Conviction

      Yeager argues that the evidence presented at trial cannot sustain his fraud

conviction because the government failed to prove that the alleged victim

reasonably relied on his misrepresentations. We review de novo the legal question

of whether sufficient evidence exists in the record to support a guilty verdict.

United States v. Tinoco, 304 F.3d 1088, 1122 (11th Cir. 2002), petition for cert.

filed (U.S. Dec. 2002) (No. 02-7868). “When conducting the review of the record,

we view the evidence in the light most favorable to the government and resolve all

reasonable inferences and credibility evaluations in favor of the jury’s verdict.” Id.

(quoting United States v. To, 144 F.3d 737, 743 (11th Cir. 1998)). The verdict will

be upheld unless no reasonable jury could have found guilt beyond a reasonable

doubt. Id.

      Under 18 U.S.C. § 1341, a person, having devised a scheme to defraud, who

mails any matter through the Postal Service or any commercial interstate carrier for

the purpose of furthering or accomplishing that scheme, commits a federal offense

punishable by fine and up to five years of imprisonment. In United States v.

Brown, 79 F.3d 1550, 1557 (11th Cir. 1996), we held that a defendant may not be

convicted of federal mail fraud unless there is proof that “a reasonable person

would have acted on the [defendant’s false] representations.” According to

                                           7
Yeager, BIPI could not have reasonably relied on his representations because BIPI

knew or easily could have discovered that the conveyed utilization information was

incomplete or false. In addition, BIPI implicitly consented to the incompleteness

of these reports by failing to pursue ardently their proper submission.

      The federal mail fraud statute prohibits the use of the mail to further

“scheme[s] . . . to defraud.” 18 U.S.C. § 1341. The use of the mail to further these

schemes is a distinct evil punishable whether or not the scheme results in

completed common-law fraud. Proof of reliance by the victim on the false

representations of the defendant, though necessary to prove common-law fraud,

has no place in prosecutions for federal mail fraud. Neder v. United States, 527

U.S. 1, 24-25, 119 S. Ct. 1827, 1841 (1999). Brown, to the extent that it holds the

contrary, is overruled.

      A mail fraud conviction does require that the misrepresented facts be

material – of a type that a regular person would regard as important in making a

particular decision. Id. at 22-23, 119 S. Ct. at 1840. However, there is no

requirement that the misrepresented material facts be believable – a defendant is

subject to mail fraud liability even though he uses the mail to further a scheme

based on ridiculous facts, as long as the subject matter of the misrepresentation is

important. “[C]riminal liability would exist so long as the defendant intended to

                                           8
deceive the victim [about a material topic], even if the particular means chosen turn

out to be immaterial, i.e., incapable of influencing the intended victim.” Id. at 24,

119 S. Ct. at 1841.

      Therefore, it is of no consequence that BIPI did not actually rely on the

misrepresentations, or that BIPI should not have relied on the misrepresentations

based on an ability to easily confirm their inaccuracy. The type of information

misrepresented by Yeager – the customers to whom Atrovent was being distributed

– was material, as indicated by the contract restricting sales only to Druggist’s

home health patients. The government was not also required to prove that BIPI

reasonably relied on those misrepresentations, and, accordingly, we find sufficient

evidence to sustain Yeager’s convictions.

      It is obvious from the record that BIPI could have pressed Yeager for

compliance with the reporting requirements of their contract, and that doing so

would have prevented Yeager from pursuing his fraudulent scheme. BIPI contends

that it lost track of contract obligations because the employee position responsible

for that task remained vacant for a long period during the conspiracy. We have

some trouble crediting this account, especially considering the substantial profit

BIPI enjoyed from its relationship with Yeager and BIPI’s failure to attempt to

correct the contractual deficiencies until the involvement of federal authorities.

                                            9
Obviously, BIPI provided Yeager all the rope he needed to hang himself, and

Yeager took that opportunity. It is understandable in a practical sense, but

sometimes regrettable in a moral sense, that suppliers of rope are not punished.

      B. Jury Instructions

      Yeager argues that the district court erred by refusing to give his proffered

instruction on reasonable reliance to the jury. “We review a district court’s refusal

to give a particular jury instruction for abuse of discretion.” United States v.

Cornillie, 92 F.3d 1108, 1109 (11th Cir. 1996) (per curiam). The failure of a

district court to give an appropriate instruction is reversible error where the

requested instruction “(1) was correct; (2) was not substantially covered by the

charge actually given; and (3) dealt with some point in the trial so important that

failure to give the requested instruction seriously impaired the defendant’s ability

to conduct his defense.” United States v. Chastain, 198 F.3d 1338, 1350 (11th Cir.

1999), cert. denied sub nom. Morris v. United States, 532 U.S. 996, 121 S.Ct. 1658

(2001).

      Yeager requested an instruction on the requirement of reasonable reliance

and drew the proposed language from our decision in Brown. Yeager’s instruction

provided, in relevant part, that

            [i]n this circuit, to prove a ‘scheme or artifice to defraud,’ the
      government must prove beyond a reasonable doubt that the defendant

                                           10
       intended to create a scheme reasonably calculated to deceive persons
       of ordinary prudence and comprehension. In other words, the
       government must prove that a person of ordinary prudence or a
       reaso n able person w ould have been deceived by the
       misrepresentations which were made to its detriment.             The
       government must prove beyond a reasonable doubt that a reasonable
       drug manufacturer, about to enter into an agreement to sell
       pharmaceuticals to the defendant, would reasonably have been
       deceived by the representations made to its detriment.

              A scheme to defraud has not been proved where reasonable
       jurors would have to conclude that the representation is about
       something which the alleged victim, Boehringer, should, and could,
       easily confirm – if it wished to do so – from readily available sources
       including information it should, and could, easily have obtained from
       the defendant in a timely fashion as specifically set forth in the
       executed agreement.

R1-42. The district court rejected Yeager’s proposed instruction, explaining that

the topic was substantially and correctly covered by its preferred charge, drawn

from the Eleventh Circuit’s Pattern Jury Instructions.

       Yeager’s proposal focuses on the concept of reasonable reliance, and, as we

have discussed infra, the concept of reasonable reliance has no place in

prosecutions for federal mail fraud. Yeager’s instruction, based on Brown, was not

a correct statement of the law, and the district court did not err by refusing to give

that instruction at trial.

       C. Loss Enhancement

                                           11
         Turning to Yeager’s sentencing following his conviction at trial, Yeager

argues that the district court improperly enhanced his sentence based on the

amount of gain flowing from his fraudulent conduct without first making the

preliminary determination that some loss accrued from the conduct. Although we

generally review the district court’s interpretation of the United States Sentencing

Guidelines de novo, the loss calculation at the heart of U.S.S.G. § 2F1.1 1 is a

factual determination that we review for clear error. United States v. Toussaint, 84

F.3d 1406, 1407 (11th Cir. 1996).

         Under the 2000 Guidelines, the base offense level for offenses involving

fraud is 6; this base offense level is increased up to 18 levels based on the amount

of loss occasioned by the fraud. See U.S.S.G. § 2F1.1(a), (b) (2000).2                Generally

speaking, “[l]oss is the value of the money, property, or services unlawfully taken.”

         1
             Under the current version of the Guidelines, § 2F1.1 has been incorporated into §
2B1.1.
         2
          The district court used the 2000 edition of the Sentencing Guidelines to sentence
Yeager, given the ex post facto concerns inherent in applying more recent versions. The general
rule is that a defendant is sentenced under the version of the Guidelines in effect on the date of
sentencing, barring any ex post facto concerns. United States v. Bailey, 123 F.3d 1381, 1403
(11th Cir. 1997). Yeager, sentenced on 20 February 2002, would have been sentenced under the
2001 Guidelines, including those amendments made effective on 1 November 2001. Under the
2001 Guidelines, the calculated loss would result in a 14-level enhancement of Yeager’s offense
level, compared to the 10-level enhancement arising under the 2000 Guidelines, the version in
effect during the commission of the criminal conduct at issue. This increased penalty after the
commission of the offense raises ex post facto concerns which were properly addressed by the
district court’s use of the 2000 Guidelines version. Therefore, all citations to the Sentencing
Guidelines herein are to the 2000 version unless specifically noted.

                                                  12
U.S.S.G. § 2F1.1 comment. (n.8). Loss, as understood under the Guidelines, is

often not calculable with precision; therefore, we require the district court only

“make a reasonable estimate of the loss, given the available information.”

U.S.S.G. § 2F1.1 comment. (n.9). The court, however, cannot merely speculate as

to the proper amount of loss, United States v. Sepulveda, 115 F.3d 882, 890 (11th

Cir. 1997), and, if the amount suggested by the government is contested, the

government must support its estimate with “reliable and specific evidence.”

United States v. Renick, 273 F.3d 1009, 1025 (11th Cir. 2001) (per curiam).

       Yeager contends that the district court did not and could not find that BIPI

suffered a loss from his fraudulent conduct, because BIPI made a substantial profit

from the sale of Atrovent to Druggist. The government responds, and the district

court accepted, that BIPI lost profit from Yeager’s diversion: Yeager wrongfully

sold Atrovent to non-authorized customers, using the low contract price from BIPI

to bolster sales, and BIPI was denied the opportunity to sell Atrovent through

established channels to these non-authorized customers at a higher price.

However, the district court found itself unable to reasonably estimate this loss,

based upon conflicting and confusing accounts at trial by experts who attempted to

quantify the profit shortfall.

                                          13
      Instead, the court found that Yeager, the defendant, and Powell, the owner of

Druggist and Distributors, gained $687,000 for those corporations by their pursuit

of the scheme to defraud, and the court used this gain as a proxy for loss for

purposes of sentencing. The $687,000 figure represents the profit made by the

corporations by selling Atrovent to non-authorized customers during the relevant

conspiratorial time period – the difference between the price at which Atrovent was

obtained under the legitimate contract with BIPI, and the price at which Yeager

sold Atrovent to non-authorized customers.

      To analyze whether the district court was correct in its sentencing

determinations, we initially must decide whether BIPI suffered any “loss,” as that

term is understood under the Guidelines, from Yeager’s conduct. “[L]oss is the

value of the money, property, or services unlawfully taken.” U.S.S.G. § 2F1.1

comment. (n.8). Yeager argues that BIPI made a substantial profit off of its

relationship with Druggist/Distributors, and any loss identified by the government

is opportunity-cost loss, loss based on the victim’s inability to use money or assets

in a more profitable way because of the perpetrated fraud. Opportunity-cost loss

may not be considered at sentencing: “[Loss] does not, for example, include

interest the victim could have earned . . . had the offense not occurred.” Id.

                                          14
      What “money, property, or services” were “unlawfully taken” by Yeager in

this case? Though the government intimates that we should focus on the value of

the diverted drugs themselves in estimating the loss, we think that a more proper

focus would be on Yeager’s “theft” of distribution privileges. BIPI granted

Druggist the restricted right to distribute Atrovent and charged Druggist a certain

price per box for that privilege. Yeager fraudulently diverted Atrovent to other

purchasers, effectively converting the restrictive distribution license from BIPI into

an unrestricted distribution license. Abstracted out, Yeager took the unrestricted

right to distribute Atrovent. This right obviously has some value, and we agree

with the district court that BIPI suffered an actual loss under the Guidelines based

on the “theft” of this right. The loss calculation, therefore, should be an attempt to

determine the value of the purloined portion of the distribution right – the

additional benefit of unrestrained distribution stolen by Yeager through fraud.

      The value of an unrestricted distribution right is the difference between the

cost at which a distributor can obtain a product and the price at which he can re-sell

that product on the market as a whole. The value of a restricted distribution right is

the difference between the cost at which a distributor can obtain the product and

the price at which he can re-sell that product to the restricted market. Therefore,

the marginal value of the unrestricted distribution right over the restricted

                                           15
distribution right is the price differential between the open market and the

restricted market.

       It was not clear error for the district court to accept the profit made by

Distributors through unrestricted sale of Atrovent during the time of the conspiracy

as a reasonable estimate of the marginal value of the purloined right.3 Distributors’

profit would be expected to correlate with the profit BIPI could have made through

its own sales of Atrovent to these non-authorized purchasers.

       Though we perhaps approach the issue in a manner different than the district

court, in that we use the $687,000 figure as a direct estimate of the value of the

property taken through fraud, rather than as an estimate of gain from the scheme to

be used as a proxy for such value, we cannot fault the result at sentencing. We

agree with the district court that the loss involved in this case was not merely an

opportunity-cost loss but rather was a definite loss for which sentencing

adjustments are appropriate, and, further, we agree that $687,000, the amount of

       3
           Accepting the gross profit from unauthorized sales as an estimate of the marginal value
of the unrestricted distribution right presumes that the value of Atrovent on the restricted market
is very low or zero. In this case, the restricted market (Druggist’s legitimate home health
patients) could absorb only a certain amount of Atrovent. After the exhaustion of legitimate
patients, the value of Atrovent on the restricted market is zero; there are no customers remaining
to whom Druggist legitimately could sell Atrovent at any price. Therefore, the marginal value of
the unrestricted right to distribute, or, at least, a reasonable estimate of the value based on the
evidence presented to the district court, is the entire profit made by Yeager/Distributors on the
open market, with a set-off of zero representing the value of Atrovent on the exhausted
restrictive market.

                                                16
profit obtained through sales of Atrovent on the unrestricted market by

Distributors, is a reasonable estimate of the loss inflicted on BIPI through Yeager’s

fraudulent conduct. Accordingly, we find that the district court did not err in

imposing a sentencing enhancement based on a loss calculation of $687,000.

      D. Role Enhancement

      Yeager argues that the government failed to prove that he exercised any

influence or control over another participant in the conspiracy and that, therefore,

his sentence cannot be increased for playing an aggravating role under the

Guidelines. According to Yeager, because only he and Powell were indicted for

the conduct at issue, and because Powell had already received a role enhancement

for his involvement, it is inconceivable that Yeager also could be eligible for the

enhancement.

      We review the sentencing court’s factual findings for clear error and its

application of the sentencing guidelines to those facts de novo. United States v.

Humber, 255 F.3d 1308, 1311 (11th Cir. 2001). The government bears the burden

of proving by a preponderance of the evidence that the defendant had an

aggravating role in the offense. United States v. Alred, 144 F.3d 1405, 1421 (11th

Cir. 1998).

                                          17
      Under the Guidelines, a four-level increase in the applicable offense level is

appropriate if the defendant “was an organizer or leader of a criminal activity that

involved five or more participants or was otherwise extensive.” U.S.S.G. §

3B1.1(a). If the defendant was a “manager or supervisor (but not an organizer or

leader) and the criminal activity involved five or more participants or was

otherwise extensive,” then the offense level should be increased by three. Id. at

(b). When the defendant is “an organizer, leader, manager, or supervisor” in any

other criminal activity (that is, any criminal activity not involving five or more

participants and not extensive), then his offense level should be increased by two.

Id. at (c). The district court imposed the two-level § 3B1.1(c) enhancement on

Yeager.

      According to the commentary, “[t]o qualify for an adjustment under this

section, the defendant must have been the organizer, leader, manager, or supervisor

of one or more other participants.” U.S.S.G. § 3B1.1 comment. (n.2). Yeager

latches onto this commentary as support for his argument that, in a conspiracy of

two people, only one can be sentenced for a leadership role. However, we do not

think this argument flows from the commentary. When a conspiracy involves only

two participants, each participant can be a “organizer, leader, manager, or

supervisor” in the criminal conduct when each participant takes primary

                                          18
responsibility for a distinct component of the plan and exercises control or

influence over the other participant with respect to that distinct component of the

plan. The record is replete with instances from which the district court could have

concluded that Yeager directed or organized or led Powell in the conduct of certain

elements of the criminal scheme. Even more telling, the record indicates that

Yeager directed other employees of Druggist and Distributors to undertake tasks

designed to further the scheme.

      In addition, the fact that Powell may have received an adjustment at his

sentencing does not require us to depart from an independent consideration of the

propriety of an enhancement for Yeager. We are quite sure that Yeager’s

participation in the scheme, as proved at trial, highlights the leadership role he

played in the plan to defraud BIPI, regardless of the result of Powell’s sentencing.

We find no error in the district court’s imposition of a two-level enhancement

based on that leadership role.

      E. Restitution Order

      Finally, Yeager contends that the district court imposed a restitution order

without any evidence of an identifiable victim who suffered loss or any finding that

Yeager had the ability to pay. A district court’s restitution order is generally

reviewed for abuse of discretion, but the legality of that order is reviewed de novo.

                                           19
United States v. Davis, 117 F.3d 459, 462 (11th Cir. 1997). As we have discussed,

there is evidence of a loss suffered by BIPI and attributable to Yeager’s fraudulent

conduct. Accordingly, we find no merit in Yeager’s argument that there was no

identifiable victim on which to predicate a restitution order.

      As to Yeager’s argument that the district court erred by failing to take into

account his ability to pay restitution, we note that restitution is mandatory, without

regard to a defendant’s ability to pay, when the crimes of conviction are fraud- or

deceit-based offenses under Title 18 of the United States Code. 18 U.S.C. §

3663A. Yeager was convicted of mail fraud and conspiracy to commit fraud in

violation of 18 U.S.C. §§ 1341 and 1343, and these offenses are of the type for

which mandatory restitution is appropriate under § 3663A. Therefore, the district

court did not err in failing to take Yeager’s financial situation into account before

ordering restitution.

                                III. CONCLUSION

      We conclude that Yeager’s sufficiency-of-the-evidence claim fails because

proof of reasonable reliance by the victim on the misrepresentations of the

defendant is not necessary to sustain a federal mail fraud conviction. In addition,

we find that the profits made on the open market are a reasonable estimate of the

                                          20
value of a stolen right to unrestricted distribution; therefore, Yeager’s challenge of

the loss calculation under U.S.S.G. § 2F1.1 fails.

      Based on the foregoing discussion, we find no error in Yeager’s conviction

or sentencing. We AFFIRM.

                                          21