United States v. Haas

                IN THE UNITED STATES COURT OF APPEALS

                          FOR THE FIFTH CIRCUIT


                          _____________________

                               No. 97-41335
                          _____________________



UNITED STATES OF AMERICA,

                                 Plaintiff - Appellee-Cross-Appellant,

                                  versus

RONNIE S. HAAS,

                            Defendant - Appellant-Cross-Appellee.
_________________________________________________________________

      Appeals from the United States District Court for the
                    Southern District of Texas
_________________________________________________________________
                          March 29, 1999
Before JOLLY, DUHÉ, and EMILIO M. GARZA, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

     A jury convicted Ronnie Haas, who conducted a pharmaceutical

drug importation business, on multiple conspiracy charges involving

fraud   and   other   illegal   conduct     relating   to    Food   and    Drug

Administration (“FDA”) regulations. The jury also convicted him of

aiding and abetting others involved in the illegal conduct and of

introducing misbranded drugs into this country with the intent to

defraud.      Haas    argues   that   the   government      did   not   produce

sufficient evidence for a rational jury to convict him.                 He also

argues that the district court erroneously instructed the jury.

Finally, both Haas and the government (which cross-appeals) contend
that the district court incorrectly calculated Haas’s sentence

under the Sentencing Guidelines.     We hold that the evidence is

sufficient to support convictions on all counts.   We further hold

that the district court did not err when instructing the jury.

Finally, we agree with the government that the district court did

err in calculating Haas’s sentence when it failed to consider loss

caused by his fraudulent activities.     We therefore uphold all

convictions, but remand for resentencing.

                                 I

     Taken in the light most favorable to the government, see

United States v. Ortega Reyna, 148 F.3d 540, 543 (5th Cir. 1998),

the evidence established the following facts.

     Ronnie Haas was, shall we say, an entrepreneur.      He, along

with two other partners, founded North American Pharmaceutical

Services, Inc. (“NAPS”).1   NAPS operated as a mail-order business

that advertised in several states, claiming that it could supply

pharmaceutical drugs at prices lower than the average wholesale

prices because of “the benefits of International Trade.”      These

“benefits of International Trade,” however, had little to do with

NAFTA, GATT or any other international trade agreement.    Instead,

the benefits came by way of avoiding U.S. regulations governing the

     1
      Haas took the most active role in operating NAPS while the
other partners, Keith Dodson and William Wray, were silent
partners.




                                 2
sale of drugs; NAPS avoided regulatory oversight by purchasing

drugs in Mexico and then transporting them into the United States

(either through the mail or by way of NAPS employees themselves)

without declaring the importation to any customs authority.

       NAPS maintained two primary places of business to sustain its

mode of operation.      The headquarters were located in San Antonio,

Texas. Here NAPS received its orders from United States customers.

NAPS employees would then transmit the orders to its Mexican

pharmacy located in Nuevo Laredo, Mexico.         To fill the orders, the

NAPS   employees   at   the   pharmacy   would   purchase   drugs   from   a

wholesale supplier in Monterrey, Mexico.         The NAPS employees would

then fill the orders and, at the early stage of this operation,

would mail them from Mexico to the U.S. customers.

       Over the course of several months, NAPS slightly altered its

procedure for moving the drugs from the Mexican pharmacy to the

U.S. customers.     Instead of mailing the drugs directly from the

pharmacy, NAPS employees began transporting the drugs--sometimes by

car, and sometimes even by foot--into the United States.              Only

after entering the United States would NAPS employees place the

drugs into the mail.      NAPS never reported the importation of the

drugs to customs officials as required.           It is significant that

this alteration of distribution methods occurred after Haas met

with FDA agents concerning his questionable operation, and during




                                    3
a period in which Haas received written warnings from the FDA

stating that he appeared to be violating the law.

     During the months of September and October of 1994, Haas

participated in three meetings with various state and federal

government officials who were concerned about the legality of his

conduct. At the first meeting, which Haas initiated, Haas met with

a customs inspector, Agent Leyendecker, to discuss his importation

plans.     Importantly, the inspector told Haas that his activities

would be considered commercial--as opposed to personal--importation

of   drugs.      The   characterization   of   Haas’s   activities   as

“commercial” is a crucial point for both the legality of Haas’s

activities and Haas’s convictions. The characterization is crucial

because the facial legality of Haas’s importation business turns

upon the availability to him of a narrow exemption (the “personal

importation exemption”) from various customs and FDA importation

regulations.     Under the personal importation exemption, the FDA

waives its standard rule that only drugs manufactured or prepared

in foreign facilities registered with the FDA may enter the United

States.2    At this first meeting, however, Haas was instructed that

     2
      See 21 C.F.R. § 207.40 (1998):

     Drug listing requirements for foreign drug establishments.

     (a) Every foreign drug establishment whose drugs are
     imported or offered for import into the United States
     shall comply with the drug listing requirements in




                                   4
his planned course of business constituted commercial importation

and    that   the     personal   importation     exemption    did   not   apply.

Furthermore, Agent Leyendecker suggested that Haas speak with the

FDA.

       The next day, September 21, 1994, Haas did meet with FDA

agents.       These    agents    warned   Haas   that   his   activities    were

commercial and that he must comply fully with customs and FDA

regulations.        Approximately two weeks later, Haas met with the FDA

again.     They again informed him that they considered NAPS to be

engaged in commercial importation.             Furthermore, they explicitly

told Haas that his activities were illegal.3                  Undeterred, Haas


       Subpart C of this part, unless exempt under Subpart B of
       this part, whether or not it is also registered.

       (b) No drug, unless it is listed as required in Subpart
       C of this part, may be imported from a foreign drug
       establishment into the United States except a drug
       imported or offered for import under the investigational
       use provisions of part 312 of this chapter. Foreign drug
       establishments shall submit the drug listing information
       in the English language.

       (c) Every foreign drug establishment shall submit, as
       part of drug listing, the name and address of the
       establishment and the name of the individual responsible
       for   submitting   drug   listing   information.      The
       establishment shall report to FDA any changes in this
       information at the intervals specified in § 207.30(a) for
       updating drug listing information.

 Haas does not argue that he complied with these regulations.
       3
      The FDA agents told Haas that before foreign drugs may be
marketed in the United States, they must be approved by the FDA.




                                          5
continued NAPS’s operations without complying with customs or FDA

regulations.

     In February 1995, the FDA began to confiscate NAPS drug

shipments made through the mail from Mexico.      After the FDA began

confiscating the shipments, Haas and other NAPS employees altered

the delivery method by transporting the drugs into the United

States before placing them into the mail system.       Then, in March

1995, the FDA sent Haas the first of two warning letters.       Among

other things, the letter stated that NAPS’s “drugs may not be

legally marketed in this country, and, therefore, your activities

are in serious violation of the Federal Food, Drug, and Cosmetic

Act.”       The letter went on to list specific sections of the United

States Code that the FDA thought NAPS was violating.      Although the

letter asked for a response, Haas ignored the letter.4        The FDA

sent another warning letter (repeating the content of the first



It is undisputed that the FDA had never approved the drugs Haas
imported.   Nor does Haas contend that the production facility
making the drugs was registered with the FDA.
        4
      Haas testified that although he did not respond to the FDA
after receiving this letter, he did stop advertising in the United
States. According to Haas, he did this without stopping NAPS’s
importation activities because he believed that this was all that
the warning letter required.    The jury was, of course, free to
doubt that Haas actually believed this novel and convenient
interpretation of the warning letter at the time he received it.
The decision to stop advertising could easily be interpreted as an
attempt to lower the profile of NAPS’s operations so as to avoid
alerting regulatory officials to continuing importation.




                                     6
letter) in November 1995.    Again, Haas ignored the letter; NAPS

operations continued without change.

     Later that same month, FDA officials sought to determine

whether NAPS’s was still operating in violation of federal law.     To

this end, an FDA agent--operating under cover and acting as a

typical customer--ordered some drugs from NAPS.      In due course the

drugs were delivered. The undercover order confirmed that NAPS was

still operating in violation of FDA regulations.       The drugs were

not properly labeled and they did not come from a foreign facility

registered with the FDA.    Soon thereafter, FDA agents obtained a

search warrant, searched NAPS’s San Antonio premises, and found

paraphernalia indicating that Haas was still conducting NAPS’s

operations out of that location.       Haas was subsequently arrested,

indicted, and brought to trial.

                                  II

     The government charged Haas with six counts at trial.      First,

Haas was charged with conspiracy to defraud an agency of the United

States (the FDA) in violation of 18 U.S.C. § 371.5        Section 371

     5
      Section 371 states in relevant part:

     If two or more persons conspire either to commit any
     offense against the United States, or to defraud the
     United States, or any agency thereof in any manner or for
     any purpose, and one or more of such persons do any act
     to effect the object of the conspiracy, each shall be
     fined under this title or imprisoned not more than five
     years, or both.




                                   7
also supports the charge in the second count for conspiracy to

commit an offense against the United States by (1) introducing

misbranded drugs into interstate commerce with the intent to

defraud and mislead,6 and (2) entering and introducing imported

goods into United States commerce by means of a false statement and




18 U.S.C.A. § 371 (West Supp. 1998).
     6
      21 U.S.C. §§ 331(a), 333(a)(2) form the predicate for this
part of the offense. Section 331(a) states:

     The following acts and the causing thereof are prohibited:

     (a) The introduction or delivery for introduction into
     interstate commerce of any food, drug, device, or
     cosmetic that is adulterated or misbranded.

21 U.S.C.A. § 331(a) (West 1972).    Section 333(a) states:

     (a)   Violation of section 331 of this title; second violation;
           intent to defraud or mislead

           (1) Any person who violates a provision of
           section 331 of this title shall be imprisoned
           for not more than one year or fined not more
           than $1,000, or both.

           (2)   Notwithstanding   the    provisions   of
           paragraph (1), if any person commits such a
           violation after a conviction of him under this
           section has become final, or commits such a
           violation with the intent to defraud or
           mislead, such person shall be imprisoned for
           not more than three years or fined not more
           than $10,000, or both.

21 U.S.C.A. § 333(a) (West Supp. 1998).




                                 8
false and fraudulent practice.7   In the remaining four counts, Haas

was charged with aiding and abetting the illegal delivery of

misbranded drugs into interstate commerce in violation of 18 U.S.C.

§ 28 and 21 U.S.C. §§ 331(a), 333(a)(2).

         7
       18 U.S.C. § 542 forms the predicate for this part of the
offense. That provision states in relevant part:

     Entry of goods by means of false statements

          Whoever enters or introduces, or attempts to enter
     or introduce, into the commerce of the United States any
     imported merchandise by means of any fraudulent or false
     invoice, declaration, affidavit, letter, paper, or by
     means of any false statement, written or verbal, or by
     means of any false or fraudulent practice or appliance,
     or makes any false statement in any declaration without
     reasonable cause to believe the truth of such statement,
     or procures the making of any such false statement as to
     any matter material thereto without reasonable cause to
     believe the truth of such statement, whether or not the
     United States shall or may be deprived of any lawful
     duties; or

          Whoever is guilty of any willful act or omission
     whereby the United States shall or may be deprived of any
     lawful duties accruing upon merchandise embraced or
     referred to in such invoice, declaration, affidavit,
     letter, paper, or statement, or affected by such act or
     omission–

          Shall be fined for each offense under this title or
     imprisoned not more than two years, or both.

 18 U.S.C.A. § 542 (West Supp. 1998).
     8
      Section 2 states:

     Principals

     (a) Whoever commits an offense against the United States or
     aids, abets, counsels, commands, induces or procures its




                                  9
     The jury returned a verdict of guilty on all six counts.   The

trial judge then sentenced Haas to a 27-month term of imprisonment

for each count, each term to run concurrently.      The court also

sentenced Haas to three years of supervised release based on counts

1 and 2 and one year of supervised release for each of counts 3-6.

The court ordered that all the terms of supervised release would

run concurrently.

     At the sentencing hearing, the district court enhanced Haas’s

sentence, under U.S.S.G. § 3C1.1, for obstruction of justice.   The

court found that Haas obstructed justice by perjuring himself in

his testimony at trial.   In particular, the court found that Haas

falsely testified by claiming that he had not been told that he

could not import drugs from Mexico and by denying that NAPS was

operating commercially when it brought the drugs into the United

States.

     The prosecution also argued that the court should enhance

Haas’s sentence under U.S.S.G. § 2F1.1(b)(1)(H).   This subsection

calls for a sentence enhancement based upon the dollar amount of

loss caused by the offender’s fraud.   The district court, however,


     commission, is punishable as a principal.

     (b) Whoever willfully causes an act to be done which if
     directly performed by him or another would be an offense
     against the United States, is punishable as a principal.

18 U.S.C.A. § 2 (West 1969).




                                10
disagreed because it could find no “loss” and refused to enhance

the sentence under this provision.

       Haas now appeals, challenging the sufficiency of the evidence

for conviction, the jury instructions, and the calculation of his

sentence.     The government cross-appeals the calculation of Haas’s

sentence.

                                      III

                                       A

       We first address the sufficiency of the evidence. Viewing all

of the evidence and the inferences to be drawn therefrom in the

light most favorable to the government, we conclude that a rational

jury could find that the evidence was sufficient to remove any

reasonable doubt of Haas’s guilt.

                                      (1)

       We   will   find   the   evidence    sufficient   to   support   Haas’s

convictions “if any reasonable trier of fact could have found that

the evidence presented at trial established the essential elements

of the crime beyond a reasonable doubt.”         United States v. Ramirez,

145 F.3d 345, 350 (5th Cir.) (citing United States v. Alix, 86 F.3d

429, 435 (5th Cir. 1996)), cert. denied, 119 S.Ct. 602 (1998).              We

also keep in mind that the evidence presented by the government

need    not   exclude     every   reasonable    hypothesis    of   innocence.

Ramirez, 145 F.3d at 350 (citations omitted).            In other words, the




                                      11
proof need not be “conclusive” in order to “constitute substantial

evidence and to authorize a reasonable trier of fact to conclude

that [Haas’s] guilt was established beyond a reasonable doubt.”

United States v. Richardson, 848 F.2d 509, 514 (5th Cir. 1988).




                               12
                                     (2)

     Haas first argues that a rational jury could not have found,

beyond a reasonable doubt, that he intended to defraud the FDA.

Haas argues that, given his numerous attempts to contact and to

receive advice from the FDA, the government presented insufficient

evidence of an intent to defraud.           According to Haas, he and his

partners spent time researching regulatory and customs issues for

several months before starting up his business.              He also testified

that,   before    his   initial   meeting    with    Agent    Leyendecker,   he

attempted,   on    multiple    occasions,    to     contact    the   FDA   about

regulations; only after petitioning his congressman did the FDA

return his calls.       And when the FDA finally responded to his calls,

an FDA employee sent Haas information on the personal importation

exemption. Haas maintains that he continued to believe that he was

operating within the personal importation exemption, despite the

repeated refrain from regulatory officials that his activities

constituted commercial importation.           He also points out that he

operated NAPS openly by advertising in several publications--at

least until receiving the first warning letter from the FDA.

Finally, Haas argues that a rational jury could not have found that

he had any intent to defraud the FDA with respect to misbranding.

According to Haas, he did not have a subjective understanding of

the term “misbranded” as that term is defined in FDA regulations.




                                     13
     Haas also argues that the government provided insufficient

evidence for a jury to conclude that the drugs were, in fact,

misbranded.      The relevant facts surrounding this argument are not

in dispute.      Haas does not argue that the drugs he distributed

complied with the requirements listed in § 352 (b),(c), and (f).

See 21 U.S.C.A. § 352.           Instead, he argues that the drugs were

exempt from these labeling requirements because they were filled by

a pharmacist (though the pharmacist was not certified by any

authority   in    the   United    States).   The   applicability   of   this

exemption, Haas argues, means that the drugs were not “misbranded.”

                                      (3)

     We think that the jury had ample evidence before it to

conclude that Haas intended to defraud the FDA.            The government

may, of course, prove the defendant’s criminal intent by way of

circumstantial evidence.         We need not list all of the evidence a

jury could have considered in concluding that Haas intended to

defraud the FDA--we will only consider a few examples.

     In February 1995, the method that NAPS (at Haas’s instruction)

used in delivering the drugs to U.S. customers changed. Instead of

mailing the drugs from Mexico, NAPS employees transported the

drugs--sometimes by car, sometimes by foot--over the border before

placing them into the U.S. mail system. This change occurred after

Haas had had the three meetings with various agents who had




                                      14
explained          that         NAPS’s      activities          constituted           commercial

importation.         Also, just before the delivery methods changed, the

FDA began confiscating NAPS’s deliveries, mailed in Mexico, to the

U.S.       customers.           Haas   knew    of       the   FDA   seizures        because    his

customers began to complain about FDA detention of their drugs.

From these facts, the jury not only could have inferred that Haas

knew that          the    FDA    considered        the    importation          of   these   drugs

illegal, but also that Haas changed the methods for importing the

drugs so that he could continue the illegal importation.

       Haas     argues      that       a   rational       jury,     in    the    light    of   his

explanations, would have rejected much of the inference of intent

that might be drawn from the government’s evidence.                                 Haas and the

government presented two competing explanations for Haas’s conduct

after he received multiple warnings from FDA officials.9                                 The jury

had ample reason to disbelieve Haas’s version.                             His testimony was

riddled with suspect assertions as to his subjective beliefs.                                  For

example, Haas said that he believed that NAPS’s importation of

drugs       that    were    delivered         to    customers       for    a    price    was   not


       9
      According to Haas, the change in delivery methods came about
as the result of an innocent business decision. Haas told the jury
that his customers began complaining about how long it took to get
their drugs. Haas told the jury that he attributed the lengthy
delivery time to the inefficiency of the Mexican mail system. That
was the reason, he testified, why he sought to avoid the
international mail system by walking the drugs over into the United
States. The jury obviously could have rejected this explanation.




                                                   15
“commercial” importation, even after being instructed otherwise--on

multiple       occasions--by     regulatory     agents.       In   addition,    Haas

interpreted the FDA’s letters warning that he could not “market”

the Mexican drugs to mean only that he could not advertise those

drugs to U.S. citizens.             To rational jurors, this testimony could

have been taken as nothing more than lame and specious excuses for

violating the law, denying even the obvious, and could therefore

have created, in the minds of the jurors, a presumption of deceit

as to many of the controverted issues relating to Haas’s intent.

When a challenge to a jury verdict is based on an argument that the

jury        could   not   have   rationally     believed   that    the   defendant

possessed criminal intent because of the defendant’s subjective

beliefs, evidence showing that the defendant is wilfully attempting

to   obfuscate        the   truth    proves    particularly    damaging    to    the

defendant’s case; it is rational for a jury to believe that those

who have been deceptive with the truth once are likely to deceive

again.10

       10
      Haas also makes a sufficiency of the evidence argument based
on his assertion that the drugs he imported were exempt from the
labeling requirements of the Food, Drug, and Cosmetic Act because
they were filled by a pharmacist. This argument is meritless. A
pharmacist cannot legally fill prescriptions with illegal drugs,
and the lack of FDA approval made NAPS’s drugs illegal.        The
prosecution presented evidence that the drugs he imported were not
regulated or approved by the FDA. The jury also learned from a FDA
import compliance officer that without FDA approval, the drugs
could not be legally marketed in the United States. Thus, the jury
could have rationally found that NAPS’s drugs did not comply with




                                          16
      The undisputed evidence revealed that Haas’s company delivered

thousands of drug orders to U.S. citizens from a pharmacy in Mexico

without filing any declarations with U.S. Customs or the FDA.       Haas

was   advised   repeatedly   by   government    officials   that   NAPS’s

operations violated federal law.         In the face of this, Haas

stubbornly continues to argue on appeal that he actually believed

in the legality of his operations.       We cannot conclude that the

jury was unreasonable in disbelieving him and in accepting the

governments evidence and arguments.

                                    B

      We turn now to Haas’s challenge to the jury instructions.       In

reviewing a challenge to jury instructions, we ask “whether ‘the

court’s charge, as a whole, is a correct statement of the law and

whether it clearly instructs jurors as to the principles of law

applicable to the factual issues confronting them.’” United States

v. Devoll, 39 F.3d 575, 579 (5th Cir. 1994) (quoting United States

v. Pace, 10 F.3d 1106, 1120-21 (5th Cir. 1993).             We will find

reversible error when “the jury charge, as a whole, misled the jury

as to the elements of the offense.”       Id.    Furthermore, in cases

involving violations of relatively complex regulatory law, the

district court’s discretion is especially broad.       District courts


mandatory labeling requirements.    Without the exemption, the
evidence showed that the drugs were “misbranded” under 21 U.S.C.
§ 352.




                                   17
must be given added discretion when they distill the essential

concepts from complex legal jargon.

                                (1)

     In his first challenge to the instructions, Haas argues that

the district court erred when it failed to define the phrase

“intent to defraud.”    Haas would have us require a specifically

worded instruction--which we have in the past upheld, see United

States v. Gray, 105 F.3d 956, 968 (5th Cir. 1997)--that acting with

intent to defraud “means to act knowingly and with the intention or

purpose to deceive or to cheat.”      We think that this additional

language, beyond the instruction that the court gave, would add

little to the jurors’ understanding of the phrase “intent to

defraud.”   In short, the district court’s instruction did not fail

to “clearly instruct[] the jurors as to the principles of law

applicable to the factual issues confronting them.’”      Devoll, 39

F.3d at 579.

                                (2)

     The district court instructed the jury that it could conclude

that Haas possessed guilty knowledge if it found that he acted with

deliberate ignorance as to the legality of his conduct.    Haas does

not challenge the content of these instructions, but only argues

that the evidence did not support the district court’s decision to

give a deliberate ignorance instruction.     This challenge to the




                                 18
jury instructions is meritless because Haas bases it--like his

sufficiency of the evidence arguments--on his own disputed and

controverted view of the evidence.

     We have stated that “[t]he purpose of the deliberate ignorance

instruction is to inform the jury that it may consider evidence of

the defendant’s charade of ignorance as circumstantial proof of

guilty knowledge.”   United States v. Lara-Velasquez, 919 F.2d 946,

951 (5th Cir. 1990).     More specifically, we have said that the

“evidence at trial must raise two inferences:    (1) the defendant

was subjectively aware of a high probability of the existence of

the illegal conduct; and (2) the defendant purposely contrived to

avoid learning of the illegal conduct.”    Id. (citation omitted).

The evidence to which we previously referred clearly supports each

of these inferences.11

                                 C

     Both parties find fault with the district court’s sentencing

decision.   Haas appeals the district court’s enhancement of his

sentence for obstruction of justice under U.S.S.G. § 3C1.1.    The

     11
       Haas also argues that the jury instructions were deficient
because they failed to require a finding that Haas knew of the
misbranding. We review Haas’s arguments on this point for plain
error because he did not raise them before the district court. See
generally United States v. Calverley, 37 F.3d 160 (5th Cir. 1994)
(en banc). After reviewing the jury instructions, and in the light
of the fact that the jury was told that it must find that the
defendant “knew the facts that made his conduct illegal as to each
element of the offense,” we find no plain error.




                                19
government cross-appeals the failure of the district court to

enhance Haas’s sentence based on “loss,” as that term is used in

U.S.S.G. § 2F1.1. In considering the arguments, we will review the

district court’s application of the Sentencing Guidelines de novo.

The factual findings are reviewed, however, under the clearly

erroneous standard.     See United States v. Edwards, 65 F.3d 430, 432

(5th Cir. 1995).      “A factual finding is not clearly erroneous as

long as the finding is plausible in the light of the record as a

whole.” United States v. Brown, 7 F.3d 1155, 1159 (5th Cir. 1993).

                                   (1)

     Section 3C1.1 instructs the sentencing court to increase the

sentencing offense level if the defendant has willfully obstructed

justice.12    As the commentary to § 3C1.1 points out, one example of

such obstruction is perjury.      See § 3C1.1 cmt. 4(b).   The district

court adopted the findings of the Presentence Report and concluded

that Haas committed perjury when he testified at trial.           Haas

argues that the district court did not make the independent factual

findings for perjury as required by United States v. Dunnigan, 507

U.S. 87 (1993).       After reviewing the findings of the district

     12
          Section 3C1.1 states:

     If the defendant willfully obstructed or impeded, or
     attempted to obstruct or impede, the administration of
     justice during the investigation, prosecution, or
     sentencing of the instant offense, increase the offense
     level by 2 levels.




                                   20
court, including those which it adopted from the Presentence

Report, see United States v. Storm, 36 F.2d 1289, 1296 n.6 (5th

Cir. 1994), we conclude that the district court made independent

findings    as    to   the   wilfulness     and     untruthfulness   of    Haas’s

testimony.       Although the district court made no explicit findings

as to the materiality of the perjurious statements, it is clear to

us, as a matter of law, that those statements were material.                  See

Id. at 1297 (finding materiality as a matter of law when the

district court did not make an explicit finding as to materiality).

Haas denied having been told by FDA agents that he could not

legally continue his importation operations, and this assertion

undoubtedly spoke to a material fact.               See U.S.S.G. § 3C1.1 cmt.

n.6 (“‘Material’ . . . statement . . . as used in this section,

means . . . statement . . . that, if believed, would tend to

influence    or    affect    the   issue    under    determination.”).13      The




     13
      Haas also challenges the district court’s conclusion as to
perjury by arguing that the record does not support the elements of
perjury. After reviewing the trial transcript, we are convinced
that there exists sufficient evidence for a finding that Haas
committed perjury. For example, when Haas’s attorney asked him at
trial whether any FDA officer told him that he “could not be given
any approval to import any medicines,” Haas replied, “No.” But
both testimonial and physical evidence at trial established that
the FDA agents told Haas--both verbally and in writing--that his
drug importation activities violated federal law. The sentencing
judge could easily have found that this evidence both contradicted
Haas’s flat denial and that it was more credible than that denial.




                                       21
district court did not err in deciding to enhance Haas’s sentence

under § 3C1.1.

                               (2)

     In its cross-appeal, the government argues that the district

court erred when it refused to enhance Haas’s sentence based on

“loss” pursuant to U.S.S.G. § 2F1.1.      This section requires an

incremental increase in the offense level based on the amount of

loss caused by the fraud.

     Haas argues that the government has not shown that Haas’s

customers suffered any loss. According to Haas, the customers paid

discounted prices for drugs that they knew were coming from Mexico.

The government did not show that any of the drugs sold performed

differently from the drugs’ U.S. counterparts.    Furthermore, the

government did not produce any customers as witnesses to testify

that NAPS had swindled or cheated them.   Without any proof of loss

to the customers, Haas maintains, there simply is no loss to

calculate for sentence enhancement under § 2F1.1. Haas raised this

argument in his objection to the Presentence Report, and the

district court sustained the objection.

     The government argues that the customers did suffer an actual

loss.   The government asserts that NAPS caused a loss to its

customers by failing to inform them that, unlike all drugs legally

marketed in the United States, the drugs were not FDA-approved.




                                22
NAPS customers suffered loss because they reasonably assumed that

they would receive FDA-approved drugs when, in fact, they did not.

In short, they paid for something they did not receive, i.e., FDA

approval.

     There is some evidence, though not much, to indicate that some

customers may have thought that the drugs were FDA-approved.14

There is certainly no expert testimony, however, showing the value

of such a loss, if any, and no argument on appeal that such a loss

can be quantified based on the record made in the district court.

Furthermore, there would be no economic harm done to the customers

if they consumed the drugs in ignorance of the lack of FDA approval

and those drugs performed just as well as FDA-approved drugs.

Thus, it would seem that the government has proved very little, if

any, loss.   We cannot conclude on the record before us that the

district court clearly erred in estimating that Haas’s fraud

produced no loss for his customers.

     Notwithstanding the record in this case, however, our circuit

seems to have taken the position that a § 2F1.1 “loss” enhancement

is appropriate even when there has been no identifiable loss.   In

United States v. Smithson, 49 F.3d 138 (5th Cir. 1995), the

    14
      For example, a NAPS worker testified that when the FDA began
confiscating NAPS shipments, it would sometimes place a flier in
the packages to inform customers that the drugs were not FDA-
approved. According to the employee, some of the customers called
to complain about this fact.




                                23
government indicted one Pyron for his conduct in his role as a

bankruptcy debtor.        In his bankruptcy petition, Pyron failed to

include, as assets, two option contracts to purchase real estate.

Our court noted that these options were virtually worthless to the

bankruptcy estate because the trustee would not have raised the

money necessary to exercise the options before they expired.                In

other    words,    “[t]he   loss   to    the   estate   resulting   from   the

concealment was, for all practical purposes, zero.”              Id. at 144.

     Even    so,    we    concluded     that   the   district   court   should

approximate the gain to the defendant as an alternative valuation

method.15    Smithson interprets the commentary note to require the

district court to use the defendant’s gain as a means to estimate

the severity of the fraud when the court cannot calculate any loss

for such purpose.        Although § 2F1.1 ordinarily requires courts to

use the victim’s loss as a proxy for the severity of the crime, the

offender’s gain, i.e., the proceeds from the illicit activity, can

        15
       We reached this result after describing Application Note
eight to section 2F1.1 which states:

     For the purposes of subsection (b)(1), the loss need not
     be determined with precision. The court need only make
     a reasonable estimate of the loss, given the available
     information. . . . The offender’s gain from committing
     the fraud is an alternative estimate that ordinarily will
     underestimate the loss.

U.S.S.G. § 2F1.1 cmt. n.8 (1993). In the current version of the
Sentencing Guidelines, this note is now note 9 in the Commentary
section.




                                        24
provide an adequate, alternative method of gauging the crime’s just

penalty when the loss is incalculable.            Cf. United States v.

Izydore, No. 97-50537, 1999 WL 55158, at *10 (5th Cir. Feb. 8,

1999) (stating that the “touchstone for determining loss under

U.S.S.G. § 2F1.1 is the ‘value of the thing taken’ . . . because

the Sentencing Commission believed that punishment for fraud should

reflect a balance between the loss to the victim and the gain to

the defendant”).       Thus, according to our precedent, if the loss is

either incalculable or zero, the district court must determine the

§   2F1.1   sentence    enhancement   by   estimating   the   gain   to   the

defendant as a result of his fraud.16

      Under the facts of this case, the loss sustained by either the

FDA (whom Haas was convicted of defrauding) or Haas’s customers

(some of whom may or may not have been defrauded) is, for all

practical purposes, incalculable--certainly on the record made by

the government. The district court can, however, estimate the gain


     16
      But cf. United States v. Haddock, 12 F.3d 950, 960 (10th Cir.
1993) (“[T]he enhancement is only for loss to victims, not for gain
to defendants.    The defendant’s gain may be used only as an
‘alternative estimate’ of that loss; it may not support an
enhancement on its own if there is no actual or intended loss to
the victims.”); United States v. Anderson, 45 F.3d 217, 221 (7th
Cir. 1995) (“While gain may normally prove an adequate surrogate
for loss, gain may be used only as an alternative method of
calculation when there is in fact a loss, and only if use of the
gain results in a ‘reasonable estimate of the loss.’”); United
States v. Chatterji, 46 F.3d 1336, 1340 (4th Cir. 1995)
(“gain . . . is not a proxy for loss when there is none”).




                                      25
that Haas received from defrauding the FDA.17    The record before us

suggests that all of NAPS operations circumvented FDA regulations.

We come to this conclusion because the entire scheme was to import

Mexican made drugs at deep discounts to customers without incurring

the costs associated with regulatory approval.     Thus, Haas’s gain

from his fraudulent importation scheme appears to have been those

monies he received from NAPS by way of salary and profits.18      We

will remand the case to the district court for further proceedings

not inconsistent with this opinion.

                                 V

     For the foregoing reasons, we AFFIRM the conviction of Ronnie

Haas on all counts.    We must VACATE his sentence, however, and

REMAND for further proceedings in accordance with this opinion.

                                     AFFIRMED, VACATED, and REMANDED.


     17
      We pause to note that the government has informed us in its
briefs that it possesses evidence that NAPS conducted a little over
$150,000 in sales. This, the government argues, is an accurate
enough estimate of NAPS’s gain. Note eight in the commentary to
§ 2F1.1 provides that loss may be estimated by calculating the
offender’s gain. The offender in this case is Haas, not NAPS.
    18
     Notwithstanding what we have said in this paragraph, we leave
to the district court the ultimate determination of all underlying
facts that relate to the amount of Haas’s gain from the fraud.
According to our precedent, on remand the district court may allow
further development of the record to establish facts necessary for
deciding the § 2F1.1 sentencing issue.      See United States v.
Kinder, 980 F.2d 961 (5th Cir. 1992); United States v. Marmolejo,
139 F.3d 528, 530-31 (5th Cir. 1998).




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