Court Opinion

ID: 4148390
Source: CourtListenerOpinion
Date Created: 2017-02-25 01:00:51.290222+00
Date Added: 2024-06-11T14:45:23.893660
License: Public Domain

Case: 15-10385      Document: 00513889479         Page: 1    Date Filed: 02/24/2017

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                          United States Court of Appeals
                                                                                   Fif h Circuit
                                      No. 15-10385                               FILED
                                                                          February 24, 2017

UNITED STATES OF AMERICA,                                                   Lyle W. Cayce
                                                                                 Clerk
              Plaintiff - Appellee

v.

BARRY BAYS; JERAD COLEMAN,

              Defendants - Appellants

                  Appeals from the United States District Court
                       for the Northern District of Texas
                            USDC No. 3:13-CR-357-1

Before DAVIS, DENNIS, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
       The defendants Barry Bays and Jerad Coleman were indicted for
conspiracy to distribute a controlled substance analogue, conspiracy to defraud
the United States, and conspiracy to commit mail fraud.                   Bays was also
indicted for possession of a firearm in furtherance of a drug trafficking crime
and use of a communication facility to facilitate a drug felony. A jury found
the defendants guilty on all counts and the defendants appealed.                               We

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                 No. 15-10385
REVERSE the conviction for conspiracy to distribute a controlled substance
analogue as to both defendants. We also REVERSE Bays’s conviction for
possession of a firearm and use of a communication facility. We AFFIRM all
other counts. The case is REMANDED for further proceedings.

              FACTUAL AND PROCEDURAL BACKGROUND
      Barry Bays founded and owned Little Arm, Inc., doing business as B&B
Distribution (“B&B”). Jerad Coleman, Bays’s brother, worked as an employee
of B&B. The company produced and sold “spice,” a type of synthetic marijuana
made by spraying or mixing certain synthetic chemicals into plant products.
B&B distributed its product to customers in over 30 states across the country,
selling it through gas stations, tobacco shops, and other retailers.
      B&B sold spice as potpourri or air freshener, labeling it “[n]ot for human
consumption” or “[f]or novelty purposes only.”        Nevertheless, there was
substantial evidence that the product was intended to be smoked.              For
example, B&B promoted smoking the product by hiring someone to smoke and
review the product on YouTube, commissioning a rap group to sing about it,
and engaging in other marketing efforts.
      Bays maintains that B&B was run as a legitimate business. Because of
the constantly changing market for the chemicals used in making spice, Bays
points out that the legality of the chemicals is sometimes unclear. When a
chemical is discovered, the Drug Enforcement Administration (“DEA”) often
initiates the process to “schedule” it under the Controlled Substances Act, but
in the intervening time other chemicals enter the market. Some of the not-yet-
scheduled chemicals are criminalized under the Controlled Substances
Analogue Enforcement Act of 1986 (“Analogue Act”), which operates to treat
substances that are “substantially similar” to a scheduled substance the same
as a scheduled substance under federal law. See 21 U.S.C. §§ 802(32)(A), 813.
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Much of this case centers on the Analogue Act because, as the Government
points out, spice producers often “tried to stay one step ahead of authorities’
efforts to outlaw synthetic cannabinoid chemicals as they were discovered.”
      In an effort to maintain legitimacy and reassure customers, Bays
contracted with an independent lab to test B&B’s product and create “Does Not
Contain Reports.” These reports would indicate whether any federal or state
scheduled drug was detected. The reports did not, however, indicate whether
the product contained an analogue to a scheduled drug. B&B often included
these reports and letters of affirmation in shipments to customers.
      In November 2012, Indiana police conducted a controlled buy of B&B’s
product at a gas station and determined that it contained the substance XLR-
11, which was a scheduled substance in Indiana as of September 14, 2012. 1
Indiana police then executed a search warrant at Bays’s residence and
production facility on December 20, 2012. The Indiana police confiscated spice
product, but determined the chemicals in the product were not illegal under
Indiana law at that time. They also found a pipe that later tested positive for
XLR-11. Finally, they confiscated two handguns, one located near where Bays
was seated when police entered the residence, and the other located in his
makeshift garage office. The State did not prosecute Bays. B&B resumed
operation about a week after the search.              In May 2013, B&B moved its
production facility from Indiana to Ohio in response to proposed Indiana
legislation concerning spice manufacturing.
      In August 2013, the DEA executed a warrant to search Bays’s residence
in Indiana and B&B’s facility in Ohio.             As a result of that search, Bays,
Coleman, and several others involved with B&B were indicted. Many of the

      1   XLR-11 was scheduled as a controlled substance under federal law on May 16, 2013.
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defendants entered plea agreements, but Bays and Coleman proceeded to a
jury trial. Bays and Coleman are the only defendants involved in this appeal.
      The indictment charged Bays and Coleman with conspiracy to defraud
the United States in violation of 18 U.S.C. § 371 (“Count One”), conspiracy to
commit mail fraud in violation of 18 U.S.C. § 1349 (“Count Two”), and
conspiracy to distribute a controlled substance analogue in violation of
21 U.S.C. § 846 (“Count Three”).       The indictment also charged Bays with
possession of a firearm in furtherance of a drug trafficking crime in violation
of 18 U.S.C. § 924(c)(1)(A) (“Count Four”), and using a communication facility
to facilitate a drug felony in violation of 21 U.S.C. § 843(b) (“Count Five”).
      A jury found Bays and Coleman guilty on all counts, and the district
court entered judgment in April 2015. The defendants appealed.

                                   DISCUSSION
      Bays and Coleman challenge each count under which they were
convicted. We will consider each argument, but we begin with the conspiracy
to distribute a controlled substance analogue because it affects our disposition
of other counts involved in this appeal.

I.    Conspiracy to Distribute a Controlled Substance Analogue
      The Controlled Substances Act “makes it unlawful knowingly to
manufacture, distribute, or possess with intent to distribute controlled
substances.” McFadden v. United States, 135 S. Ct. 2298, 2302 (2015) (citing
21 U.S.C. § 841(a)(1)). The Analogue Act “identifies a category of substances
substantially similar to those listed on the federal controlled substance
schedules . . . and then instructs courts to treat those analogues, if intended
for human consumption, as controlled substances listed on schedule I for
purposes of federal law . . . .”   Id. (citing 21 U.S.C. §§ 802(32)(A), 813).    A
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“controlled substance analogue” for purposes of the Analogue Act is a
substance:
      (i) the chemical structure of which is substantially similar to the
      chemical structure of a controlled substance in schedule I or II;

      (ii) which has a stimulant, depressant, or hallucinogenic effect on
      the central nervous system that is substantially similar to or
      greater than the stimulant, depressant, or hallucinogenic effect on
      the central nervous system of a controlled substance in schedule I
      or II; or

      (iii) with respect to a particular person, which such person
      represents or intends to have a stimulant, depressant, or
      hallucinogenic effect on the central nervous system that is
      substantially similar to or greater than the stimulant, depressant,
      or hallucinogenic effect on the central nervous system of a
      controlled substance in schedule I or II.

21 U.S.C. § 802(32)(A).
      The district court instructed the jury that to find Bays and Coleman
guilty for conspiracy to manufacture or distribute a controlled substance
analogue, it must be convinced the Government proved beyond a reasonable
doubt:
      First: That two or more persons, directly or indirectly, reached an
      agreement to manufacture or distribute a particular substance(s);

      Second: That defendants knew what the substance(s) was . . . ;

      Third: That [the substance(s)] was a controlled substance
      analogue;

      Fourth: That defendants knew that the substance(s) was intended
      for human consumption;

      Fifth: That defendants knew of the unlawful purpose of the
      agreement;

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      Sixth: That defendants joined in the agreement willfully, that is,
      with the intent to further its unlawful purpose.

Bays argued to the district court that the Government must also prove that
Bays knew the substances were analogues controlled under federal law. The
court rejected Bays’s argument. The jury found Bays and Coleman guilty.
      After the district court entered judgment, the Supreme Court decided
McFadden.       There, the Court held that the Government must prove “a
defendant knew that the substance with which he was dealing was ‘a controlled
substance,’ even in prosecutions involving an analogue.” McFadden, 135 S. Ct.
at 2305. This “knowledge requirement can be established in two ways.” Id.
First, it can be established by proving the defendant “knew that the substance
with which he was dealing is some controlled substance — that is, one actually
listed on the federal drug schedules or treated as such by operation of the
Analogue Act — regardless of whether he knew the particular identity of the
substance.” Id. Second, it can be established by proving the defendant “knew
the specific analogue he was dealing with, even if he did not know its legal
status as an analogue.” Id. In other words, if the defendant “knew that [the
substance] was substantially similar to [a controlled substance] in its chemical
structure and produced a substantially similar ‘high,’ he had the requisite
knowledge that [the substance] was a [controlled substance analogue].” United
States v. Stanford, 823 F.3d 814, 835 (5th Cir. 2016); see also 21 U.S.C.
§ 802(32)(A).
      As the Government acknowledges, in light of McFadden, the jury was
not properly instructed on the element of knowledge.          That was error.
Nevertheless, we review to determine whether the error was harmless. See
McFadden, 135 S. Ct. at 2307 (citing Neder v. United States, 527 U.S. 1, 15
(1999)). We confine our inquiry to Bays because the Government explicitly
declines to argue that the error was harmless as to Coleman.
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                                 No. 15-10385
      For error to be harmless, we must “conclude beyond a reasonable doubt
that the jury verdict would have been the same absent the error.”            See
Stanford, 823 F.3d at 828 (quotation marks omitted). We do not take the place
of “a second jury to determine whether the defendant is guilty,” but rather ask
“whether the record contains evidence that could rationally lead to a contrary
finding with respect to the omitted element.”      See Neder, 527 U.S. at 19
(quotation marks omitted).
      Our recent decision in Stanford is helpful. The defendant in that case, a
lawyer, was involved with a group selling and purchasing synthetic marijuana.
Stanford, 823 F.3d at 823.       The defendant performed various roles in
furtherance of the group’s effort to promote their synthetic marijuana product,
and one of the distributors ensured that the defendant was told “everything
about the business.” Id. (quotation marks omitted). Eventually the defendant
was indicted for, among other things, conspiracy to distribute and to possess
with intent to distribute a schedule I controlled substance in violation of the
Controlled Substances Act and the Analogue Act. Id. at 826. The district court
provided jury instructions very similar to those entered in the current case,
and the jury found the defendant guilty on that count. See id. at 827.
      Like Bays, the defendant in Stanford argued that the jury instructions
were insufficient because the Government must prove that he knew the
substance at issue was a controlled substance analogue. See id. at 826. The
district court rejected that theory, but it submitted a special interrogatory to
the jury asking: “During the [relevant] time period . . . do you find that the
defendant . . . knew that [the substance] was a controlled substance analogue?”
Id. at 828. The jury answered unanimously, “yes.” Id. at 827.
      After the district court entered judgment, the Supreme Court decided
McFadden. On appeal in Stanford, we held the error in instructing the jury
was not harmless even though the jury decided that the defendant knew the
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                                 No. 15-10385
substance at issue was in fact a controlled substance analogue. See Stanford,
823 F.3d at 833–34. We reasoned that the special interrogatory did not render
the jury instruction error harmless because the court did not instruct the jury
on the burden of proof for the special interrogatory. Id. Moreover, “the jury
was not aware of the Supreme Court’s test for proof of knowledge,” so the
missing knowledge element was not inherent in the jury’s answer to the
interrogatory. Id. at 835. We noted the Government’s argument that there
was “ample proof” of the defendant’s knowledge that the substance was a
controlled substance analogue, but we declined to allow the Government “to
look back now that the Court has provided the proper framework and pick out
evidence that fits into that framework[.]” Id.
      By way of comparison, the Fourth Circuit held that the jury instruction
error was harmless when it considered McFadden on remand from the
Supreme Court. See United States v. McFadden, 823 F.3d 217, 228 (4th Cir.
2016). The court first concluded “the evidence was sufficient to permit, but not
so overwhelming to compel, the jury to find that [the defendant] knew that
federal law regulated the [substances] as controlled substances.” Id. at 226.
On McFadden’s second method of proof, “recorded telephone conversations
overwhelmingly establish[ed] that [the defendant] knew the [substances’]
chemical structures and physiological effects.”            Id.   These recorded
conversations made the error harmless. Id. at 228.
      As to Bays, the Government argues the proof of his knowledge that he
was handling analogues was overwhelming. There are three exchanges that
allegedly demonstrate this point.
      First, a B&B supplier testified that he warned Bays that a chemical Bays
was using — AM-2201 — was an analogue of JWH-018, a controlled substance
under federal law.    As Bays points out, though, the supplier based his
conclusion that AM-2201 was an analogue on his own research. Bays claims
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                                No. 15-10385
that he believed the supplier to be wrong and that the supplier was in fact
wrong. Moreover, the supplier also testified that his purpose in relating this
information to Bays was to try to convince Bays to start purchasing the
supplier’s new line of “organics” products. In other words, he had an ulterior
motive to convince Bays that AM-2201 was an analogue.
      The Government also relies on a text message that Bays’s sales
supervisor, Kyle Boyer, sent at Bays’s direction on May 16, 2013.          The
Government claims Boyer’s message reveals Bays’s knowledge that two
different chemicals — PB-22 and 5f-PB-22 — were analogues of JWH-018. The
text message stated that a ban on the substances would possibly be published
that night. It also stated that PB-22 and 5f-PB-22 were analogues of JWH-
018, and it discussed the chemical structure. In response, Bays points out that
the text message also stated it could not verify whether the substances would
be banned. He also notes that the text message claimed the “physiological and
toxicological properties of this compound are not known.”
      Finally, the Government claims Bays knew by September 2012 that yet
another chemical — 5f-UR-144 (also known as XLR-11) — was an analogue.
That chemical was scheduled as a controlled substance in Indiana on
September 14, 2012, and scheduled as a federal controlled substance on May
16, 2013. On September 12, 2012, Bays entered into a text exchange with one
of his suppliers in which he reported having received a shipment of “5f-UR”
instead of another chemical. Bays stated he could not use the chemical as it is
“illegal here, considered an analogue.” The Government states the chemical
was nonetheless found in Bays’s products a few months later, and in his
production facility in August 2013. Bays argues this evidence is insufficient
because, even if it arguably supports knowledge, it only relates to knowledge
of the chemical’s status as an analogue under state law. He argues the

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Government “impermissibly conflated state and federal law” when it discussed
this text message. 2
      Our task in considering this evidence is not to determine whether it could
support a jury’s finding that Bays possessed the requisite knowledge beyond a
reasonable doubt. Rather, we must be able to say that the evidence could not
“rationally lead to a contrary finding with respect to the omitted element.” See
Neder, 527 U.S. at 19. In this case, the focus at trial was proving that Bays
understood the substances with which he was dealing, and that the substances
were in fact analogues, but not that Bays knew the substances were analogues.
In its closing argument, the Government emphatically rejected Bays’s
suggestion that the Government must prove Bays knew the substances were
analogues: “That’s 100 percent untrue, and that’s not the law, it’s never been
the law, and that’s not what we have to prove.” In light of the intervening
decision in McFadden, the error in instructing the jury was not harmless
beyond a reasonable doubt. We reverse.
      Bays’s conviction for conspiracy to distribute a controlled substance
analogue (Count Three) served as the predicate drug offense for two other
counts: possession of a firearm in furtherance of a drug trafficking crime
(Count Four) and using a communication facility to facilitate a drug felony
(Count Five). As the Government acknowledged at oral argument, Counts
Four and Five must also fall if we reverse on Count Three. We have; they do.

      2  At oral argument, the Government urged us to conclude that because of the
similarity between Indiana and federal law in this area, Bays necessarily possessed the
requisite knowledge. We decline to make such inferences on harmless-error review when the
knowledge element at issue requires the defendant to know that the substance with which
he was dealing was controlled under federal law. See McFadden, 135 S. Ct. at 2305–06.

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                                    No. 15-10385
II.     Conspiracy to Defraud the United States
        Bays and Coleman also challenge their conviction under Count One of
the indictment, conspiracy to defraud the United States in violation of
18 U.S.C. § 371. The defendants moved for acquittal in the district court but
did not renew their motion at the end of trial. We therefore review for a
manifest miscarriage of justice. See United States v. Dowl, 619 F.3d 494, 500
(5th Cir. 2010). We will reverse “only if the record is devoid of evidence
pointing to guilt or contains evidence on a key element of the offense that is so
tenuous that a conviction would be shocking.”             See id. (quotation marks
omitted). In making this determination, “we consider the evidence in the light
most favorable to the government, giving the government the benefit of all
reasonable inferences and credibility choices.” See United States v. Brown, 727
F.3d 329, 335 (5th Cir. 2013) (quotation marks omitted).
        Count One charged the defendants with conspiring to defraud the United
States Food and Drug Administration (“FDA”) by impeding its function of
regulating drug labeling and approving new drugs, and with conspiring “to
commit certain offenses against the United States, that is to violate 21 U.S.C.
§§ 331 and 333(a)(2) by introducing or delivering an adulterated or misbranded
drug into interstate commerce with the intent to defraud or mislead.” 3 The
Government submits the evidence “overwhelmingly demonstrated” that Bays
and Coleman agreed to introduce their product into interstate commerce
“intending that people consume it but with deceptive and incomplete labeling.”
        Bays argues that any alleged mislabeling of the spice product was cured
by B&B’s advertising efforts, and therefore “the evidence is not sufficient to
support the jury’s verdict that Bays conspired to introduce misbranded drugs

        3The defendants did not raise a duplicity issue prior to trial, nor do they argue
duplicity on appeal.
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                                   No. 15-10385
into interstate commerce with intent to defraud or mislead.” For example,
although the spice was labeled “not for human consumption,” Bays explains
that purchasers could learn that it was intended for human consumption
through his “YouTube Infomercials,” rap video, and other promotional
endeavors.      Bays does not explain how the separate, often contradictory
advertising saves the product itself from being mislabeled or materially false.
         Coleman presents a different argument. He argues that the evidence is
not sufficient to support finding that he possessed the requisite intent to
defraud or mislead the FDA. At oral argument, the Government explained
that this case was not indicted exclusively as a fraud on the FDA, nor was it
tried exclusively as a fraud on the FDA. Regardless, the evidence is sufficient
to rebut Coleman’s argument.         Coleman’s extensive involvement with the
product labeling supports finding he knowingly participated in the conspiracy.
See United States v. Morris, 46 F.3d 410, 415–16 (5th Cir. 1995). The evidence
indicates he filled bags with spice product, affixed labels, and participated in
distribution knowing the labels were false.        It supports finding that the
participants were aware of the FDA and its role in approving drugs, and that
they took steps to avoid scrutiny of their product. It further supports finding
they intended their product for human consumption yet intentionally decided
not to label their product accordingly. There is no manifest miscarriage of
justice resulting from this count.

III.     Conspiracy to Commit Mail Fraud
         Finally, the defendants submit the evidence was insufficient to support
a conviction under Count Two, conspiracy to commit mail fraud in violation of
18 U.S.C. § 1349. Here, too, the defendants did not preserve their challenge
because they failed to renew their motion for acquittal at the close of all

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evidence. We again review for manifest miscarriage of justice. See Dowl, 619
F.3d at 500.
       Count Two charged the defendants with devising a “scheme and artifice
to defraud customers of B&B Distribution, and ultimately the general public,
by marketing and distributing misbranded drugs to obtain money by means of
materially false and fraudulent pretenses and representations . . . .” Bays and
Coleman argue the evidence was insufficient to demonstrate that customers
and consumers were actually defrauded or detrimentally relied on
representations made on the product packaging. As Coleman explains, no one
was defrauded because all of the customers and consumers were “in on the
joke, so to speak . . . .”
       Contrary to the defendants’ argument, record evidence supports finding
that some customers relied on false representations that B&B product was “not
intended for human consumption” or was “D.E.A. and state compliant.”
Regardless, the Government need not demonstrate actual reliance on the
alleged misrepresentations. See Neder, 527 U.S. at 24–25. Rather, it need
demonstrate a materially false statement, which requires showing that the
statement “has a natural tendency to influence, or is capable of influencing,
the decision of the decision-making body to which it was addressed.” See
United States v. Harms, 442 F.3d 367, 372 (5th Cir. 2006). The record evidence
supports finding the defendants falsely labeled their products “not intended for
human consumption” and “D.E.A. and state compliant,” and these statements
plainly have a natural tendency to influence the decision of purchasers of B&B
product.     The conviction on Count Two does not constitute a manifest
miscarriage of justice.

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                                  * * *
     We REVERSE Count Three as to both defendants.            We REVERSE
Counts Four and Five as to Bays. We AFFIRM Counts One and Two, and we
REMAND for further proceedings.

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