UNITED STATES of America, Plaintiff-Appellee, v. Jack WATKINS, Defendant-Appellant. United States of America, Plaintiff-Appellee, v. Cap Tab Nutritional Formulating and Manufacturing Inc., Defendant-Appellant.
Nos. 00-50656, 00-50682
United States Court of Appeals, Ninth Circuit
Argued and Submitted Sept. 14, 2001. Filed Jan. 29, 2002.
278 F.3d 961
CONCLUSION
The Social Security Administration Commissioner‘s decision denying Ms. Thomas’ application for Supplemental Security Income benefits was supported by substantial evidence in the record. Accordingly, the judgment of the district court is
AFFIRMED.
Patrick K. O‘Toole, United States Attorney, Melanie K. Pierson, Assistant United States Attorney, United States Attorney‘s Office, San Diego, CA, for the plaintiff-appellee.
Before: FERNANDEZ, KLEINFELD, and McKEOWN, Circuit Judges.
Opinion by Judge McKEOWN; Dissent by Judge FERNANDEZ.
McKEOWN, Circuit Judge.
Section 303 of the Food, Drug, and Cosmetic Act (“FDCA“),
BACKGROUND
Jack Watkins is the president and majority owner of Cap Tab Nutritional Formulating and Manufacturing, Inc., a company that manufactures vitamins and nutritional supplements (collectively, “Watkins“). The subject of this appeal arises from Watkins’ conditional guilty plea under the FDCA following a nineteen-count indictment. The indictment charged Watkins with conspiracy, mail fraud, wire fraud, and felony misbranding. According to the indictment, Watkins manufactured nutritional supplements by purposefully omitting, substituting, or using lesser amоunts of certain ingredients. Specifically, the government alleged that one product, “C3D,” did not contain acetyl L-carnitine as labeled. Rather, it contained L-carnitine, which was one of approximately six ingredients in the product. The government also claimed that two other products, “Neurotein” and “Energy,” did not contain chromium picolinate as labeled. Rather, they contained chromium polyniconate, which was one of approximately eight ingredients in Nuerotein and one of approximately fifteen ingredients in Energy. The indictment further charged that Watkins concealed these facts, knowing that his actions constituted false and misleading labeling.
Before trial, the government filed a motion in limine, moving to exclude evidence that the substitutions were not material. Watkins responded by arguing that proof of materiality was required for conviction under the felony misbranding provisions of
The distriсt court sentenced Watkins to five years supervised probation and imposed a $5,000 fine. Cap-Tab and Watkins appealed separately; we have consolidated their appeals. The sole legal issue, which we address de novo, is whether materiality constitutes an element of felony misbranding under the FDCA. See United States v. Steffen, 251 F.3d 1273, 1275 (9th Cir.2001); United States v. Douglass, 780 F.2d 1472, 1475 (9th Cir.1986).
DISCUSSION
I. FDCA OVERVIEW
The Food, Drug, and Cosmetic Act is a public welfare statute that imposes “the highest standard of care on distributors.” Smith v. California, 361 U.S. 147, 152, 80 S.Ct. 215, 4 L.Ed.2d 205 (1959). It was enacted to enable purchasers to make intelligent choices, and, to that end, “[m]isbranding was one of the chief evils Congress sought to stop.” United States v. 45/194 Kg. Drums of Pure Vegetable Oil, 961 F.2d 808, 812 (9th Cir.1992). The misbranding provision prohibits “[t]he introduction or delivery for introduction into interstate commerce of any food, drug, device, or cosmetic that is adulterated or misbranded.”
The FDCA provides two tiers of liability for misbranding violations under
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.
II. FELONY LIABILITY FOR MISBRANDING REQUIRES PROOF OF MATERIALITY
Watkins admits that he knew the labels on his nutritional supplements misrepresented the ingredients actually in the product. Nonetheless, he argues that knowledge of falsity alone is not sufficient for conviction under
A. INTENT TO DEFRAUD
Our first charge is to divine the meaning of “intend to defraud” under
In Neder, the Court addressed whether a “schеme or artifice to defraud” under the federal mail, wire, and bank fraud statutes requires material falsehoods. Observing that “none of the fraud statutes defines the phrase ‘scheme or artifice to defraud,’ or even mentions materiality,” the Court concluded that “based solely on a ‘natural reading of the full text,’ materiality would not be an element of the fraud statutes.” 527 U.S. at 20-21, 119 S.Ct. 1827 (citations omitted). The Court‘s analysis, however, did not end with this literal reading of the statutory language. Rather, the Court continued by looking to the common-law meaning of “defraud,” invoking the “well-established rule of construction that ‘[w]here Congress uses terms that have accumulated settled meaning under the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of those terms.‘” Id. at 21, 119 S.Ct. 1827 (quoting Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322, 112 S.Ct. 1344, 117 L.Ed.2d 581 (1992)). Surveying the settled meaning of “fraud,” the Court concluded that “the common law could not have conceived of ‘fraud’ without proof of materiality.” Neder, 527 U.S. at 22, 119 S.Ct. 1827 (citations omitted). In light of this settled meaning, the Court held that it “must presume that Congress intended tо incorporate materiality unless the statute otherwise dictates.” Id. at 23, 119 S.Ct. 1827.
In this case, the government relies primarily on the Eighth Circuit‘s decision in United States v. Jorgensen, 144 F.3d 550 (8th Cir.1998), to argue that materiality is not a requirement of
The government attempts to distinguish this case from Neder by claiming that requiring proof of materiality for prosecution under
Nor does this requirement contradict our own admonition that “Congress fully intended that the [FDCA‘s] coverage be as broad as its literal language indicates.” Baker v. United States, 932 F.2d 813, 814 (9th Cir.1991) (quoting United States v. Bacto-Unidisk, 394 U.S. 784, 798, 89 S.Ct. 1410, 22 L.Ed.2d 726 (1969)). Rather, because Congress expressly required proof of an “intent to defraud” for felony liability, we cannot infer from the absence of an express reference to materiality that Congress intended to drop that element from [
B. INTENT TO MISLEAD
Although Neder compels us to understand “intent to defraud” as requiring proof of materiality, we must consider the meaning of “intend to . . . mislead” separately because courts “are to accord a meaning, if possible, to every word in a statute.” Platt v. Union Pac. R.R. Co., 99 U.S. 48, 58, 25 L.Ed. 424 (1878); accord United States v. Gonzalez-Mendez, 150 F.3d 1058, 1060 (9th Cir.1995). Our examination of the plain meaning of this phrase as well as its settled meaning under the common law lead us to conclude that an intent to mislead also requires proof of materiality. That is, regardless of any additional liability Congress intended to include with this language, one still cannot “intend to mislead” another by means of a misrepresentation without having an expectation that the recipient would actually or reasonably rely on it.
The government would have us believe that an intent to mislead is established by showing mere knowledge of a statement‘s falsity by its maker. To begin as a matter of plain meaning, an “intent” to have knowledge of a statement‘s falsity makes little sense. Likewise, when we consider the government‘s proffered meaning, its reading is at once too narrow and too broad. It is too narrow because misbranding does not require a false label; a misleading label is prohibited as well.
The government also argues that in the absence of a specific reference to “materiality,” we should not read this concept into
The structure of the statute supports the distinctions in the language used by Congress. Many statements, whether true, incomplete, or false, can be misleading even when the maker of the representation does not intend to mislead the recipient. For example, a drug is deemed misbranded “[if] its labeling is false or misleading in any particular.”
Even the government notes the need for limiting penalties to labeling omissions that are material because criminal misdemeanor liability othеrwise would be unlimited when “the universe of what has been omitted from the label would include essentially every other word in the English language.” Brief for United States 23. Imposing liability where there is an “intent to . . . mislead,” on the other hand, requires no such extrinsic limiting language: whereas any statement could be potentially misleading under these other provisions without an express limitation, the only representations that will invoke felony liability are those that the maker expects, that is, intends, the recipient to rely upon. Thus, Congress had no need to include an express reference to materiality where liability is founded upon intent.
One final point of plain meaning bears mention—had Congress intended to impose felony liability, as the government suggests, simply for making knowingly false statements in labeling, then it easily could have used such language in the statute. See, e.g.,
Our conclusion is buttressed by the common-law interpretation of an “intent to mislead” as encompassing an expectation of reasonable reliance. Unlike fraud with its commonlaw history in torts as a cause of action and term of art defined by its elements, “intent to mislead” does not necessarily enjoy such a clear or distinguished pedigree. However, to the extent this phrase does have a “well-settled meaning” at common law requiring an expectation of reliance, we must examine this language “under the rule that Congress intends to incorporate the well-settled meaning of common-law terms it uses.” Neder, 527 U.S. at 23, 119 S.Ct. 1827; see also Nationwide Mut. Ins. Co., 503 U.S. at 322, 112 S.Ct. 1344 (1992).
We begin our inquiry into the common-law meaning of “intent to mislead” by first recalling as a matter of plain meaning that the intent to mislead is synonymous with the intent to deceive. This interchangeability of terms is important here because it is established “as the usually prevailing view in the United States” that “the intent to deceive is an indispensable element” of common-law fraud, an element which requires a showing “that the representation was made with the fraudulent intent of . . . inducing persons to act upon it.” 3 STEWART M. SPEISER, ET AL., THE AMERICAN LAW OF TORTS § 32:42 (1992) (emphasis added).
Several common-law jurisdictions specifically define this expectation of reliance element of fraud as the “intent to mislead.” These jurisdictions have expressly distinguished this element from any requirement regarding knowledge of a statement‘s falsity. See Evaluation Research Corp. v. Alequin, 247 Va. 143, 439 S.E.2d 387, 390 (1994) (actionable fraud requires both a false representation “made intentionally and knowingly” as well as the “intent to mislead“); Gaines v. Preterm-Cleveland, Inc., 33 Ohio St.3d 54, 514 N.E.2d 709, 712 (1987) (actionable fraud requires both a false representation made “with knowledge of its falsity” and the “intent of misleading another into relying upon it“); Zampatti v. Tradebank Int‘l Franchising Corp., 235 Ga.App. 333, 508 S.E.2d 750, 758 (1998) (where fraud requires knowledge of falsity as well as “the intention and purpose of deceiving the plaintiff (cаusing plaintiff to act or refrain from acting in reliance thereon),” court describes latter element as “the intent to mislead [plaintiff] to his detriment“); LaSalle Nat‘l Bank v. Ernst & Young LLP, 285 A.D.2d 101, 109, 729 N.Y.S.2d 671, 677 (N.Y.App.2001) (where fraud requires knowledge of falsity and “deception,” court describes latter element as the “intent to mislead the complaining party, to its detriment“); see also Hughes v. Hertz Corp., 670 So.2d 882, 888 (Ala.1995) (describing statutory deceit as “a willful or a reckless misrepresentation” that also requires “an intent to mislead“).
Returning to the government‘s contention that intent for purposes of liability under
Because felony liability for misbranding requires proof of materiality, we remand this case to the district court with instructions to allow the defendants the opportunity to withdraw their pleas. See Fed.R.Crim.P. 11(a)(2).
REVERSED and REMANDED.
FERNANDEZ, Circuit Judge, Dissenting:
I disagree with Watkins’ assertion that even though he did intentionally misstate the ingredients of the nutritional substances he was selling, he was improperly convicted because the government did not have evidence to show that the misstatements were material. There can be no doubt that Watkins intеnded to defraud and mislead purchasers into thinking they were purchasing one item when, in fact, they were purchasing a different, cheaper item. Of course, he did so because he knew that he could improve his own profits by so euchring his victims. That is the usual reason that a person like Watkins acts as he did here. However, he argues that even if he made more money and his victims, thus, not only had less, but also had a different kind of supplement, he cannot be guilty unless materiality is shown as a separate element. That is, he сannot have committed felony food and drug fraud, or even felony misleading, without that element. I do not agree.
Watkins relies on the general rule, set forth in Neder v. United States, 527 U.S. 1, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999), that when the word “fraud” is used, a material misrepresentation or concealment is required because it was required at common law. Id. at 20, 119 S.Ct. at 1839. In my
I believe that the Eighth Circuit‘s approach to a somewhat similar statute covering misbranded meat products should apply here also. See United States v. Jorgensen, 144 F.3d 550 (8th Cir.1998). That statute makes it а felony to misbrand meat products with intent to defraud. The court held:
Not requiring a materiality element is also consistent with the public policy underlying the Federal Meat Inspection Act. Congress has determined that the companies and people engaged in the food business have an affirmative duty to insure that the food they sell to the public is safe and properly labeled. Judicially adding a materiality requirement when none exists in the statutory text would not further congressional intent and would instead hinder it.
Id. at 559 (citations оmitted). I recognize, of course, that the statute in question there did say that a product is misbranded if the label is “false or misleading in any particular,”1 and language of that sort does not seem to suggest that materiality is required. Id. That is somewhat more explicit than the language we must consider, but I see it as a distinction without a difference. It would, I expect, stun Congress to hear that it cares a great deal about the meat we ingest, but is rather more insouciant about other food products and drugs.
Moreover, contrary to his argument, Watkins is not aided by
In fine, nothing could shake the foundation of our society more than a fear that people like Watkins can actively and intentionally tell us that we are putting one thing in our bodies when they know we are putting in something else entirely. To let wrongdoers of that kind escape felony penalties through quibbles about whether their intentional lies are material is enough to gally the hardiest souls. It threatens to release the evils of tainted and misbranded food and drugs from the oubliette to which Congress has consigned them. We should not countenance that.
Thus, I respectfully dissent.