United States v. Bhutani, Baldev R.

In the
United States Court of Appeals
For the Seventh Circuit

Nos. 00-1523 & 00-2679

United States of America,

Plaintiff-Appellee,

v.

Baldev R. Bhutani and
ALRA Laboratories, Incorporated,

Defendants-Appellants.

Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 93 CR 585--John F. Grady, Judge.

Argued April 5, 2001--Decided September 12, 2001

Before Bauer, Ripple, and Evans, Circuit
Judges.

Bauer, Circuit Judge. A jury found
defendants Baldev Raj Bhutani, Neelam
Bhutani, and ALRA Laboratories, Inc.
guilty of various violations of the
Federal Food, Drug, and Cosmetic Act
("FDCA"), 21 U.S.C. sec. 301 et seq. The
defendants moved for a new trial, which
the district court granted, finding that
the government violated Brady v.
Maryland, 373 U.S. 83 (1963). The
government appealed, and in United States
v. Bhutani, 175 F.3d 572 (7th Cir. 1999)
we reversed and remanded the case for
sentencing. On remand, the defendants
again moved for a new trial, which the
district court denied. Assuming
familiarity with our first opinion, we
consider the appeal by the defendants
(Neelam does not appeal) from that
denial. For the following reasons, we
affirm.

A.

The defendants believe that the
government’s position in the first appeal
contradicted its trial theory and that
the government’s appellate position is
newly discovered evidence, and that if
the jury had heard the government’s
appellate theory it would have decided
the case differently. Specifically, they
contend that at trial the government said
that the defendants had added sodium
hydroxide to decomposed Lactulose in
hopes of concealing its medical
ineffectiveness, but on appeal admitted
that the Lactulose was medically
effective by iterating that it was within
the accepted pH range before the addition
of sodium hydroxide. On remand, the
district court agreed with the defendants
that the government had changed its
theory, but the district court refused to
entertain the argument, believing that it
was foreclosed from doing so since we had
held otherwise in our first opinion in
this case.

The government counters that its focus
at trial was not that the Lactulose was
outside of the acceptable pH range or
medically ineffective, but rather the
fact that the defendants added sodium
hydroxide to the Lactulose lots because
they wanted the 1986 lots to have a pH
similar to the 1988 lots so that they
could bear the same expiration date and
be sold. The government’s position was
that the defendants masked the fact that
the Lactulose was degrading and past its
expiration date in order to make money.

We agree with the government. A second
read of the trial transcript reveals that
the government’s position at trial and on
appeal has been consistent. The
government did not show at trial that the
Lactulose was outside the accepted pH
range or medically ineffective; rather it
admitted that the pH was at all times
within range, but that it was dropping,
which signaled degradation, and in order
to mask any degradation the defendants
raised the pH by adding sodium hydroxide
so that the fact that it was being sold
past its expiration date could not be
detected. The medical efficacy of the
Lactulose was only mentioned by the
government to explain the significance of
expiration dating to the jury. The
government wanted to explain why
expiration dates are imposed in order to
counter the defense theory that the
defendants did not intend to put an
adulterated product on the market because
Lactulose could be stable and medically
effective beyond the artificially imposed
expiration date assigned by the
"paperwork bureaucracy" known as the FDA.
The defense again mischaracterizes the
thrust of the government’s case and
regurgitates its argument from the last
appeal, the only difference being that in
the first appeal they argued that the
newly discovered evidence was the U.S.P.
recommendation, see 175 F.3d at 578-79,
and here they point to the government’s
switch in theories. This supposed
difference does not affect our decision.
There is no new evidence that would have
altered the outcome of this case.

B.

The defendants submit that reversal is
justified because the district court
abused its discretion, see United States
v. Butler, 71 F.3d 243, 250 (7th Cir.
1995), by permitting the government to
elicit impermissibly prejudicial
testimony from Dr. John Senior, offered
as an expert in gastroenterology and
liver disease, see Trial Tr. at 1691
(December 28, 1995), about the medical
consequences of taking ineffective
Lactulose. The defendants claim that Dr.
Senior testified that patients could die
from ingesting ineffective Lactulose.
Before Dr. Senior testified, the district
court had admonished the government to
avoid introducing this sort of testimony.
The defendants believe that the
government violated this admonition.

Contrary to the defendants’
characterization of Dr. Senior’s
testimony, the transcript reveals that he
did not testify in an impermissibly
prejudicial manner. Dr. Senior explained
that Lactulose works as a substitute
liver for patients with liver disease,
and that Lactulose would be ineffective
if it had degraded into its component
parts because the separate sugars would
be absorbed into the small intestine
before reaching the colon. He also
testified that it would be impossible for
a physician to know that Lactulose had
degraded to the point of ineffectiveness,
and therefore a physician might
erroneously determine that the Lactulose
was ineffective for a patient for some
other reason.

The sole mention of the possibility of
death from ingesting ineffective
Lactulose was not presented by the
government, but was elicited on cross-
examination by the defense:
Q. [Mr. Branding, Attorney for ALRA] And
[Lactulose] doesn’t cure the underlying
liver disease, does it?

A. Of course not.

Q. It’s only--

A. It’s only a compensation for a failed
organ.

Q. It’s used to treat the symptoms?

A. It’s used to treat--it’s not just
symptoms. It’s a whole syndrome that may
kill. It’s not just symptoms.

Encephalopathy due to liver failure
may be fatal. It’s not just symptoms.

Trial Tr. at 1710-11 (December 28, 1995).
The testimony defendants complain about
was never offered, and thus there was no
abuse of discretion by the district
court.

C.

The defendants argue that Count Four,
which charged that the defendants "[o]n
or about August 12, 1988 . . . with
intent to defraud and mislead, failed to
establish and maintain accurate drug
manufacturing batch production records
for the generic drug product, Lactulose
Syrup USP" in violation of 21 U.S.C. sec.
331(e), along with the correlating
conspiracy charge in Count One, failed to
state a crime for which they could be
convicted.

In 1938, Congress enacted the FDCA
pursuant to its authority to regulate
interstate commerce in order to protect
the public from dangerous food and drug
products. In 1962, Congress amended the
FDCA, adding sec. 355(j) to require drug
manufacturers to establish or maintain
records about the manufacture and testing
of drugs. See The Drug Amendments of
1962, Pub. L. No. 87-781, sec. 103(a), 76
Stat. 780. Thereafter, the failure to
establish or maintain records under sec.
331(j) was a prohibited act under sec.
331(e) and subject to the imposition of
criminal penalties under sec. 333, such
as imprisonment, fine, or both.

In 1984, Congress amended the FDCA and
the federal patent laws to help make
available more low cost drugs by creating
an abbreviated procedure for FDA approval
of generic drug applications. See Drug
Price Competition & Patent Term
Restoration Act of 1984, Pub. L. No. 98-
417, sec. 101, 98 Stat. 1585; see also
National Ass’n of Pharm. Mfrs., Inc. v.
Ayerst Labs., 850 F.2d 904, 907 (2d Cir.
1988). Congress enacted this new
abbreviated drug approval process under
sec. 355(j) and redesignated the old sec.
355(j) concerning recordkeeping as sec.
355(k). However, Congress did not alter
sec. 331(e). Thus, sec. 331(e) still
instructed that the failure to establish
or maintain records under sec. 355(j) was
subject to criminal penalties, even
though the new sec. 355(j) did not
require recordkeeping. Whether
intentional or not, the penalties for
failing to establish or maintain records
had been in effect eliminated.

In 1990, Congress passed a short,
technical amendment, which stated:
"Section 301(e) of the Federal Food,
Drug, and Cosmetic Act (21 U.S.C. sec.
331(e)) is amended by striking out ’or
(j)’ and inserting in lieu thereof ’or (k).’"
Vaccine & Immunization Amendments of
1990, Pub. L. No. 101-502, 104 Stat.
1285. Thus, by simply replacing "(j)"
with "(k)," sec. 331(e) again clearly
subjected violators to the same criminal
penalties as they had been for more than
two decades prior to 1984 for failing to
establish or maintain records.

However, there was a gap between 1984
and 1990 where under the plain statutory
language the failure to establish or
maintain records under sec. 355(k) was
not subject to criminal penalties. This
time gap is of import to this case; the
defendants’ conduct charged under sec.
331(e) occurred in August of 1988, which
raises the delicate question of whether
their convictions for these violations
may stand, given that the plain language
of the statute did not penalize their
conduct. As noted, the defendants argue
that under the plain language of the
statute they cannot be penalized for
failing to establish and maintain
records. The government argues that the
elimination of the penalty was a
scrivener’s snafu, and criticizes the
defendants’ hyper-technical and illogical
reading of the statute. This question has
all of the trappings of a law school
hypothetical, but with real-world
consequences, so although the defendants’
brief fails to support this argument with
case law discussion or even citation, we
nonetheless address this important issue
of criminal law and statutory
construction.

Generally, courts strictly construe
criminal statutes against the government
and in the defendant’s favor. See Barrett
v. United States, 423 U.S. 212, 218
(1976); 3 Norman J. Singer, Sutherland
Statutory Construction sec. 59.03 (5th ed.
1992). This is so to ensure that people
are fairly warned about what sort of
conduct may expose them to criminal
penalties and what sort of penalty may be
imposed. See United States v. Bass, 404
U.S. 336, 348 (1971); 3 Sutherland Statutory
Construction sec. 59.03. But, in strictly
construing a statute, courts ought
notdeprive it of the obvious meaning
intended by Congress, nor abandon common
sense. See United States v. Moore, 423
U.S. 122, 145 (1975); 3 Sutherland Statutory
Construction sec. 59.06.

Some courts have upheld the imposition
of criminal penalties despite the
presence of a typographical error in the
statute. See United States v. Lacher, 134
U.S. 624, 625-32 (1890) (upholding
conviction for embezzling a letter
containing an article of value under 18
U.S.C. sec. 318 even though after
revision of the statute the wording was
alteredbecause "the intention to impose a
penalty on [the] commission [of the
offense] cannot reasonably be denied;
and, although the apparent grammatical
construction might be otherwise, the true
meaning, if clearly ascertained, ought to
prevail"); United States v. Graham, 169
F.3d 787, 790-91 (3d Cir. 1999)
(upholding a defendant’s sentence for
illegally reentering the United States
after finding that Congress intended that
the actual term of imprisonment imposed
determines whether a defendant is
classified as an "aggravated felon" under
8 U.S.C. sec. 1101(a)(43) despite the
fact that the statutory section was
"obviously missing a crucial verb");
United States v. Warren, 149 F.3d 825,
827-28 (8th Cir. 1998) (affirming the
defendant’s sentence of 151 months for
manufacturing 32,000 grams of
methamphetamine under 21 U.S.C. sec.
841(b)(1) even though "[a]t the time of
[the] offense, because of a typographical
error, the same amount of a quantity of a
mixture--100 grams--was listed as
triggering both the five-year and the
ten-year mandatory minimum sentences,"
because Congress intended drug
trafficking penalties to be graduated
according to drug quantity); United
States v. Rossetti Bros, Inc., 671 F.2d
718, 720 (2d Cir. 1982) ("Plainly,
Congress did not intend its
recodification [of the Interstate
Commerce Act] to reduce the reach of
[its] penalty, but intended merely to
transplant that section, renumbered, into
the recodified portion . . . .
Congressional drafters unfortunately
overlooked [this], but, when construed in
light of the intent of Congress and in
light of common sense, that section
clearly applies to the regulations here
in question."); United States v.
Scrimgeour, 636 F.2d 1019, 1021-24 (5th
Cir. Unit B 1981) (reversing dismissal of
indictment under 18 U.S.C. sec. 1623(d)
for making false declarations before a
grand jury because in finding Congress’
intention in enacting the statute, the
court believed Congress inadvertently
used an "or" in the statute but meant to
use "and"); United States v. Moore, 613
F.2d 1029, 1039-45 (D.C. Cir. 1979)
(same); United States v. Babcock, 530
F.2d 1051, 1053-54 (D.C. Cir. 1976)
(holding that, in light of "an
inadvertent change" by Congress when
reorganizing and renumbering the statute,
2 U.S.C. sec. 441(b) was not to be
interpreted to mean that a misdemeanor
violation under sec. 440 precluded being
sentenced to imprisonment); cf. Whitfield
v. Scully, 241 F.3d 264, 272 (2d Cir.
2001) ("Although the statute refers to
[28 U.S.C.] sec. 1915(a)(2) for the
manner of payment, we have recognized
that this reference is a typographical
error (as it makes the statute
unintelligible) and that the actual
process for payment of costs is instead
described in sec. 1915(b)(2)."); Estate
of Kunze v. C.I.R., 233 F.3d 948, 953
(7th Cir. 2000) ("The erroneous cross-
reference in [26 U.S.C. sec.
7430(c)(4)(D)] to a misnumbered
subparagraph in (4)(A) can hardly be
construed to have changed the legislative
intent . . . or to have affected the
substantive rights of the parties. The
import of the subsection remains clear,
in spite of the typo."); In re Chateaugay
Corp., 89 F.3d 942, 952 (2d Cir. 1996)
(agreeing with other courts that the
improperly renumbered subsections in 11
U.S.C. sec. 507 were the result of
typographical errors by Congress rather
than substantive changes in the law).

However, some courts have held
otherwise. See United States v. Faygo
Beverages, Inc., 733 F.2d 1168, 1170 (6th
Cir. 1984) (recognizing that Congress
unintentionally eliminated a penalty
section in recodifying the
InterstateCommerce Act, but holding that
the defendant was not subject to criminal
penalty for his conduct because "it would
be unreasonable to require persons
confronted with the plain language of a
criminal statute to go beyond that
statute in order to determine whether
Congress really meant what it clearly
said"); United States v. RSR Corp., 664
F.2d 1249, 1253-55 (Former 5th Cir. 1982)
(noting that Congress inadvertently
changed a penalty section in recodifying
the Interstate Commerce Act, but holding
that the defendant was not subject to
criminal penalty for his conduct, stating
"although this is what Congress clearly
meant to say, intended to say, and wanted
to say, still Congress did not say it").

While the plain language of the FDCA
clearly prohibited the failure to
establish or maintain records, criminal
penalties were not clearly imposed.
Nevertheless, we agree with the reasoning
found in the former set of cases rather
than the latter because strictly reading
and applying the FDCA as it was at the
time of the offense in question would put
the plain language at odds with the
statute’s purpose and intent. There is no
indication in the legislative history
that in amending the FDCA Congress
intended to eliminate the penalties. The
Law Revision Counsel of the House of
Representatives, who prepares and
publishes the U.S. Code, even placed a
footnote in the 1988 edition of the U.S.
Code in sec. 331(e) after the
proscription on failing to keep records
under sec. 355(k), and noted that sec.
335(j) had been redesignated as sec.
355(k). Thus, it seems that the failure
to cross-reference the sections was
interpreted as a mere typo by the Law
Revision Counsel. Also, we agree with the
government that Congress would not have
eliminated the penalties for failing to
establish or maintain records in this
part of the statute while retaining the
penalties for failing to do so under
other sections. Furthermore, the
government points out that the 1984
amendments broadened the recordkeeping
requirements in the redesignated sec.
355(k), and that Congress would not have
intentionally broadened the requirements
and at the same time have eliminated the
penalties for not complying with the
requirements.

Finally, the defendants do not argue
that because of the typographical error
they lacked notice; nor could they since
they maintained records believing that
they were required to (although they did
so inadequately, as this case reveals)
under the FDCA. Therefore, we hold that
the failure to establish or maintain
records under sec. 355(k) was subject to
criminal penalties despite the
typographical error in sec. 331(e)
between 1984 and 1990.

D.

Baldev Bhutani also raises several
challenges to his sentence imposed under
U.S.S.G. sec. 2F1.1 (2000). "The district
court’s choice of which guideline to
apply is a question of law, and we review
this choice de novo," United States v.
Andersen, 45 F.3d 217, 219 (7th Cir.
1995); we review factual determinations
for clear error, see United States v.
Vitek Supply Corp., 144 F.3d 476, 490
(7th Cir. 1998).

First, the defendant finds error in the
district court’s choice of guideline to
apply, claiming that he ought to have
been sentenced under sec. 2N2.1(a) rather
than sec. 2F1.1. Section 2N2.1(a) covers
violations of statutes and regulations
dealing with, among other things, drug
products, and assigns a base offense
level of six to such violations; however,
subsection (b)(1) instructs: "[i]f the
offense involved fraud, apply sec. 2F1.1
(Fraud and Deceit)." Section 2F1.1 "also
has a base offense level of six, but
provides for substantial increases in
offense level based on the amount of
loss." Andersen, 45 F.3d at 219.
Bhutani’s argument turns on the notion
that sec. 2N2.1(a) applies because his
wrongs were "knowing, technical"
violations of the FDCA, and not as
serious as those of other companies that
have been prosecuted. This argument is
without merit as there is substantial
evidence of fraud in this case. See,
e.g., id. at 219-20.

Second, he submits that sec. 2N2.1(b)(1)
does not apply to his case since it was
made effective on November 1, 1992, but
"the offenses of conviction all occurred
prior to November 1, 1992." This is of no
matter since "judges must apply the
Guidelines in force when a defendant is
sentenced." United States v. Perez, 249
F.3d 583, 584 (7th Cir. 2001) (per
curiam). Bhutani was sentenced on
February 15, 2000, and subsection (b)(1)
was then in effect, thus it is
applicable.

Third, the defendant disputes how the
district court measured loss. As noted,
sec. 2F1.1 assigns a base offense level
of six, which is increased based on the
amount of loss attributed to the fraud.
In calculating the loss, the district
court is not required under the
Sentencing Guidelines to "compute the
loss with precision; the court need only
make a reasonable estimate of the loss
based on the information available."
United States v. Duncan, 230 F.3d 980,
985 (7th Cir. 2000); see U.S.S.G. sec.
2F1.1, cmt. 9. If it has been shown that
the victims of the fraud suffered a loss
and a more precise way of measuring the
loss is unavailable, the amount of the
defendant’s gain may provide a reasonable
estimate of the loss. See Andersen, 45
F.3d at 221.

Directing us to United States v.
Chatterji, 46 F.3d 1336 (4th Cir. 1995),
the defendant maintains that his gain was
not the appropriate measure because there
was no actual loss to consumers as none
of the drugs were shown to be medically
effective and there was no evidence that
anyone fell ill or died. He argues that
the calculation should not be based on
whether the consumers got what they
bargained for, but rather ought to be
based on whether the consumers got
medically effective drugs.
In Chatterji, the defendant, sentenced
under U.S.S.G. sec. 2F1.1, submitted two
abbreviated new drug applications to the
FDA, which were approved. See id. at
1338-40. The defendant had submitted
false batch records in its application
for one of the drugs, and for the other
had changed the formula by adding more of
an inactive ingredient after its
application had been approved without
seeking further FDA approval. The
district court held that loss should be
measured by the defendant’s gain from the
sale of the drugs because the defendant’s
fraud voided the FDA approval, thereby
stripping the drugs of market value. See
id. at 1340. The Fourth Circuit, over
dissent, reversed, finding that the
defendant’s gain was not the appropriate
measure of loss because consumers got
medically effective drugs that were
exactly what they purported to be. See
id. at 1340-43.

Relying on United States v. Marcus, 82
F.3d 606 (4th Cir. 1996), the government
in our case argues that there was loss to
consumers because consumers paid for-FDA-
approved drugs, but received drugs that
were not manufactured according to the
FDCA and FDA regulations; therefore, the
government argues that the amount of the
defendant’s gain is an appropriate
measure of loss.

In Marcus, the defendant, sentenced
under sec. 2F1.1, had obtained FDA
approval to manufacture a drug, but
changed the formula by adding two
additional inactive ingredients without
obtaining additional FDA approval. See
id. at 607-08. The district court found
that the defendant’s gain was the
appropriate measure of loss because the
drug did not meet FDA specifications, and
therefore, had no value. See id. at 608.
The court distinguished Chatterji, which
the Fourth Circuit affirmed, reasoning
that the formula modification in
Chatterji "was merely an insignificant
change that implicated only the shelf
life of the drug," and not the safety or
medical efficacy; however, the formula
modification here had a bearing on the
medical effectiveness, which would
require additional testing to determine
whether the drug was still safe and
effective. Id. at 610.

In this case, the district court agreed
with the government’s position and
reasoned:

I find the analysis in the Marcus case
from the Fourth Circuit to be persuasive.
I understand that the defendants believe
Marcus is distinguishable on the basis
that the defendant there agreed that
there was an issue as to whether the drug
involved there was the bioequivalent of
the patented drug.

I don’t regard that as a distinguishing
feature of the case, because whether the
defendants stipulate to it or not, and
certainly they do not in this case, I
find that there was an issue as to
whether these drugs had been properly
manufactured.

I’m not saying that there was an issue
as to whether they would be injurious to
health or necessarily even an issue as to
whether they would be effective for their
pharmaceutical purpose. What I find,
rather, is that there was an issue as to
whether they had been manufactured in
such a way that the consumers of those
drugs were being sold something other
than what they thought they were buying.

I don’t think that any consumer of any
of those drugs would have bought those
drugs had the consumer known what had
happened to them.

* * *

And I think the essence of the loss here
to the consumers was the same thing fact
[sic] that the Marcus case was talking
about, namely, the fact that they didn’t
get the FDA-approved manufactured drugs
that they thought they were getting.

And I emphasize that I don’t think
Marcus applies only in the situation
where the drugs could be dangerous. . . .

Sentencing Hr’g Tr. at 23-24 (February15,
2000). The district court based the
amount of loss on the defendant’s gain,
which it estimated at over $200,000,
thereby assigning Bhutani a base offense
level of fourteen. See U.S.S.G. sec.
2F1.1(b)(1)(I).

While we do not agree with the district
court’s reading of Marcus or his reliance
on it, we wholly adopt the core of its
rationale. Indeed, we find the district
court’s reasoning to be more sound than
that in Chatterji and Marcus./1 The
medical effectiveness of the drug or its
dangerousness after adulteration ought
not be the core of the inquiry; rather,
the district court was justified in
determining that there was a loss because
consumers did not get what they bargained
for. We agree with the district court’s
decision that there was indeed loss to
consumers because consumers bought drugs
under the false belief that they were in
full compliance with the law.

However, the defendant points out that
in Andersen we held that the defendant’s
gain was not the appropriate measure of
loss when there was "no clear evidence
that customers or consumers suffered any
loss." 45 F.3d at 221. We so held, in
part, because the drugs in that case were
sold in hand-labeled containers and the
customers were aware that the drugs were
not FDA approved. See 45 F.3d at 221.
That is not so here; here consumers
bargained for FDA-approved drugs that
were in compliance with the law. This
they did not get. We agree with the
district court’s determination of what
constitutes loss in this sort of case,
and that the defendant’s gain is the
appropriate measure of that loss.

E.

The bulk of the defendants’ brief is
tinged with hyberbole, lamenting that
they ought not to have been prosecuted
because what they may have done was not
so bad compared to what others have done
and that their industry is overregulated
by the FDA. The judiciary is not the
branch to hear these beefs; rather, they
ought to be raised with Congress, who
makes the law, and prosecutors, who have
broad discretion in instituting criminal
proceedings. Furthermore, many of the
disputes are no more than an invitation
to reweigh the evidence based on the
defendants’ attempt to retry this case on
appeal. We are at ease with the jury’s
work in weighing evidence and assessing
credibility and will not engage in
second-guessing. The other arguments of
the defendants are equally without merit
and we shall not address them further.

AFFIRMED.

FOOTNOTE

/1 We decline the defendant’s invitation to apply
United States v. Maurello, 76 F.3d 1304 (3d Cir.
1996) by analogy to this case. We also find our
decision in Vitek Supply inapplicable because it
dealt with whether loss to competitors and down-
stream consumers was to be included in the loss
calculation. See 144 F.3d at 490-92.