United States v. Scully
877 F.3d 464
2d Cir.2017Background
- William Scully, co-founder and operator of Pharmalogical (d/b/a Medical Device King, MDK) and related entity Taranis, imported and sold foreign versions of FDA-approved drugs and devices (e.g., Botox, Mirena, oncology products) in the U.S.; sales included products with foreign-language labels and lacking NDCs.
- Pharmalogical obtained two written opinion letters from attorney Richard Gertler (May 2009 and a Mirena-specific letter) stating no basis to believe the conduct violated the FFDCA; Scully also consulted Peter Tomao (oral advice claimed) but Tomao did not testify at trial.
- Indicted on multiple counts including mail/wire fraud, conspiracy, introduction/receipt/delivery of misbranded and unapproved drugs, and unlicensed wholesale distribution; Lameh (co-founder) cooperated and testified for the government.
- At trial Scully advanced an advice-of-counsel defense; the district court allowed Gertler to testify but excluded Scully’s testimony recounting Tomao’s oral advice, initially on hearsay grounds and later under Rule 403 balancing, noting Tomao was available to testify.
- The jury convicted Scully on most counts and he received a 60-month sentence; on appeal Scully challenged (1) exclusion of evidence concerning Tomao’s advice and (2) the jury instruction/verdict sheet on advice of counsel.
- The Second Circuit held the exclusion of Scully’s testimony about Tomao’s oral advice was erroneous (it was not hearsay and any credibility issue is for the jury), and that the error was not harmless; the conviction was vacated and the case remanded for a new trial with guidance on advice-of-counsel instructions.
Issues
| Issue | Plaintiff's Argument (Government) | Defendant's Argument (Scully) | Held |
|---|---|---|---|
| Admissibility of Scully’s testimony recounting Tomao’s oral legal advice | Testimony is prejudicial, unreliable hearsay; Tomao readily available to testify; exclusion proper under Rule 403 | Testimony is not offered for truth but to show Scully’s state of mind (advice-of-counsel defense); admissible and for jury to weigh credibility | Exclusion was erroneous: the testimony was not hearsay and probative value outweighed prejudice; error was not harmless — new trial ordered |
| Proper jury instruction/burden allocation on advice-of-counsel | Proposed instruction acceptable; court’s charge was proper | Instruction improperly suggested defendant had burden to “establish” defense and burden of production language risked confusing burden of proof | Scully waived appellate challenge to the specific charge by agreeing to it at trial; court provides guidance that government always bears burden to prove intent beyond a reasonable doubt and proposes clearer model instructions for remand |
| Use of foreign-language labeling as basis for misbranding convictions | Foreign-language labels indicate lack of adequate directions for use and failure to bear required labeling (e.g., "Rx only") — supports misbranding convictions | Argued labeling requirements derive from FDA regulation and cannot form basis for criminal charges | Court affirmed convictions: statutory misbranding elements (e.g., inadequate directions, missing "Rx only") are sufficient; foreign-language labels can establish lack of adequate directions for use |
| Sufficiency of evidence where a purchaser (Dr. Jacob) did not testify | Victim reliance not required for misbranded drug offenses; scheme-level circumstantial evidence suffices to prove intent | Argued absence of Dr. Jacob’s testimony prevents proof of fraudulent intent as to those counts | Court rejected sufficiency challenge: direct victim reliance not an element; circumstantial evidence of scheme supports convictions |
Key Cases Cited
- Zervos v. Verizon New York, Inc., 252 F.3d 163 (2d Cir. 2001) (abuse-of-discretion standard for evidentiary rulings)
- United States v. Awadallah, 436 F.3d 125 (2d Cir. 2006) (Rule 403 balancing review standard)
- United States v. Beech-Nut Nutrition Corp., 871 F.2d 1181 (2d Cir. 1989) (advice-of-counsel as evidence negating unlawful intent)
- United States v. Detrich, 865 F.2d 17 (2d Cir. 1988) (statements offered to show state of mind are not hearsay)
- United States v. Gupta, 747 F.3d 111 (2d Cir. 2014) (distinguishing hearsay and hearsay exceptions)
- United States v. Oluwanisola, 605 F.3d 124 (2d Cir. 2010) (harmless-error factors for excluded defense evidence)
- United States v. Colasuonno, 697 F.3d 164 (2d Cir. 2012) (elements required to warrant advice-of-counsel instruction)
- Patterson v. New York, 432 U.S. 197 (U.S. 1977) (constitutional permissibility of placing burden on defendant for certain affirmative defenses)