United States of America, Plaintiff-appellee, v. James R. Haga, Jr., Defendant-appellant, 821 F.2d 1036 (5th Cir. 1987)

Appellant James R. Haga, Jr. ("Haga"), was indicted on charges that he conspired "to commit offenses against the United States," in violation of 18 U.S.C. § 371, by participating in the sale of anabolic steroids and androgenic hormones without prescriptions in contravention of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. §§ 301-392 (the Act), and on three charges of substantive violations of the Act. Tried before the bench, he was convicted of three misdemeanor substantive offenses and of a felony conspiracy offense.

In his appeal, appellant challenges only the conspiracy conviction, contending that he was convicted of conspiring to defraud the United States rather than of conspiring to commit offenses against the United States and, because he was not indicted or tried for conspiring to defraud the federal government, that his conviction must be reversed. We determine that the indictment did not allege the section 371 offense of which appellant was convicted, and, accordingly, we reverse his conspiracy conviction.

From 1982 until mid-1984, two licensed pharmacists, Cecil C. Kennedy, Jr. ("Kennedy"), and Albert N. Helsley, Jr. ("Helsley"), operated an illegal mail-order business from the Dallas, Texas area. The two ordered prescription drugs for delivery to a legitimate pharmacy but then sold drugs through the mail without requiring customers to have prescriptions. The prescription drugs they sold--primarily anabolic steroids and androgenic hormones--typically were purchased by body builders and weight lifters who sought to increase their muscle mass.

During the summer of 1984, the pharmacists hired appellant to take orders and to package and mail drugs, paying Haga a fixed weekly salary. Kennedy terminated his involvement in October 1984, and Helsley died in January 1985. Thereafter, on his own, Haga continued to operate the mail-order business until his arrest in December 1985.

During the existence of the conspiracy, customers would contact the suppliers, specifying the types and quantities of drugs they wanted. They were sent drugs in the same form as the manufacturer had packaged them, billed for the drugs, and asked to send a cashier's check made out in the name of a nonexistent company to a post office box. The record contains nothing to indicate that any buyer was misled by or claimed to have been defrauded by the conspirators. However, the pharmaceuticals sold were drugs that could not be lawfully dispensed except by a prescription or on a doctor's orders, and one drug sold was a veterinary prescription medicine approved for use only on horses.

A grand jury indicted appellant and Kennedy for conspiring "to commit offenses against the United States, to wit, violations ... of Title 21, United States Code, Sections 301-392," in violation of 18 U.S.C. § 371 (count I). The indictment also charged appellant with three counts of having distributed prescription drugs in violation of 21 U.S.C. §§ 331(a) and 333(b) (counts XVI, XVII, and XVIII).¹ 

Haga was convicted of three substantive offense violations of section 331, misdemeanors under section 333(a). These three convictions have not been challenged on appeal. Appellant challenges his section 371 felony conspiracy conviction under Count I on the ground, among others, that the indictment failed to allege a conspiracy to defraud the United States, the offense of which appellant was convicted.²  We agree, and accordingly reverse his conviction on this count.

The central question presented requires an analysis of the relevant statutes, the language in the conspiracy count of the indictment, and the district court's findings and conclusions.

We note at the outset that our determination of the reach of a criminal offense statute is governed by "the traditional canon of construction which calls for the strict interpretation of criminal statutes and rules in favor of defendants where substantial rights are involved." Smith v. United States, 360 U.S. 1, 79 S. Ct. 991, 997, 3 L. Ed. 2d 1041 (1959). Furthermore, to the extent that an offense statute is ambiguous, we are guided by the rule of lenity: " 'When Congress leaves to the Judiciary the task of imputing to Congress an undeclared will, the ambiguity should be resolved in favor of lenity.' " Ladner v. United States, 358 U.S. 169, 79 S. Ct. 209, 214, 3 L. Ed. 2d 199 (1958) (citations omitted).

Under these canons of statutory construction, conduct can be prosecuted under the general conspiracy offense statute, 18 U.S.C. § 371, only if "the defendant's conduct 'plainly and unmistakably' falls within the proscription" of the statute. United States v. Porter, 591 F.2d 1048, 1055 (5th Cir. 1979) (quoting United States v. Gradwell, 243 U.S. 476, 37 S. Ct. 407, 410-11, 61 L. Ed. 857 (1917) (" [Because] there are no common-law offenses against the United States, ... before a man can be punished as a criminal under the Federal law his case must be 'plainly and unmistakably' within the provisions of some statute....") (citations omitted)).³ 

Section 371 provides (emphasis added):

"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 not more than $10,000 or imprisoned not more than five years, or both.

"If, however, the offense, the commission of which is the object of the conspiracy, is a misdemeanor only, the punishment for such conspiracy shall not exceed the maximum punishment provided for such misdemeanor."

Cases construing section 371 have made it plain that the "commit any offense" clause and the "defraud the United States" clause describe different criminal offenses, and that, although an indictment brought under section 371 may allege either or both offenses, a defendant may be convicted only under the particular criminal offense clause or clauses framed in the indictment. E.g., United States v. Rosenblatt, 554 F.2d 36 (2d Cir. 1977); see also United States v. Dennis, 384 U.S. 855, 86 S. Ct. 1840, 1846, 16 L. Ed. 2d 973 (1966) (describing the "conspiracy to defraud" clause and the "conspiracy to commit the substantive offense" clause as alternative clauses); id. at 1845-46, 1845 n. 5 (noting that the conduct involved in a conspiracy to defraud the United States may include actions that could also be charged as offenses against the United States).

The Supreme Court has also cautioned that "indictments under the broad language of the general conspiracy statute [18 U.S.C. § 371] must be scrutinized carefully....," id. at 1843,⁴  and has indicated that a central question is whether "the allegation as to conspiracy to defraud ... properly reflects the essence of the alleged offense," id. at 1845.

In Hammerschmidt v. United States, 265 U.S. 182, 44 S. Ct. 511, 68 L. Ed. 968 (1924), the Court circumscribed the reach of the predecessor to section 371, in the context of an indictment charging "a conspiracy [to defraud based on actions intended] to defeat the selective draft by inducing the persons required to register under it to defeat its purpose by refusing to register." Id. at 511. Holding that the indictment should have been quashed and explaining some limits of the "conspiracy to defraud" clause, the Court wrote:

"To conspire to defraud the United States means primarily to cheat the government out of property or money, but it also means to interfere with or obstruct one of its lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest. It is not necessary that the government shall be subjected to property or pecuniary loss by the fraud, but only that its legitimate official action and purpose shall be defeated by misrepresentation, chicane, or the overreaching of those charged with carrying out the governmental intention. It is true that the words 'to defraud' as used in some statutes have been given a wide meaning, wider than their ordinary scope.... [However, the construction of 'defraud' in Horman v. United States, 53 C.C.A. 570, 116 F. 350 (6th Cir. 1902) ] cannot be used as authority to include within the legal definition of a conspiracy to defraud the United States a mere open defiance of the governmental purpose to enforce a law by urging persons subject to it to disobey it." Id. at 512.⁵ 

Hammerschmidt did not involve the participation of a federal official in a conspiracy or some fraudulent claim on the public fisc or for governmental benefits; the opinion instructs that--at least absent such factors--even concerted conduct encouraging violations of federal law is not of itself a conspiracy to defraud the government. Hammerschmidt also suggests that, even if a conspiracy to violate a specific federal law may be prosecuted under the "commit any offense" clause of section 371, a criminal prosecution under the "conspiracy to defraud" clause requires a showing of more than completely external interference with the working of a governmental program or disregard for federal laws.

Post-Hammerschmidt cases based on section 371 "conspiracy to defraud" indictments involving intangible governmental rights ordinarily have described clear interference and active contact with governmental agency functions.⁶  Analogously, section 371 "conspiracy to defraud" indictments typically include language indicating that the conspiracy defrauded the government by actively interfering with some specific function in some specified affirmative manner.⁷ 

While it is not altogether clear whether a "conspiracy to defraud" indictment must specifically allege that the conspiracy had as its object interfering with a particular, specific governmental function, it nevertheless seems plain that, for a section 371 "conspiracy to defraud" conviction to stand, the essence of the conspiracy must at least involve a showing of more than inadvertent contact with a governmental agency or incidental infringement of government regulations: a criminal charge of conspiracy to defraud the federal government must "reflect [ ] the essence of the alleged offense." Dennis, supra, at 1845.

The three substantive counts and the conspiracy charge lodged against appellant were founded on violations of 21 U.S.C. §§ 331 and 333. Section 333(a) defines a misdemeanor offense, and section 333(b) defines a felony offense (see 18 U.S.C. § 1):

"(a) 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.

"(b) Notwithstanding the provisions of subsection (a) of this section, if any person ... 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. § 333 (emphasis added).

Section 331 lists conduct prohibited under the Act, including " [t]he introduction or delivery for introduction into interstate commerce of any food, drug, device, or cosmetic that is adulterated or misbranded." 21 U.S.C. § 331(a) (emphasis added). A drug is "misbranded" if, for example, it is a prescription drug intended for human use but is distributed without a prescription.⁸ 

These provisions define distributing drugs in violation of section 331 at least as a misdemeanor (section 333(a)) or, if an intent to "defraud or mislead" can be shown, as a felony (section 333(b)). Although section 333(b) does not identify who must be defrauded or misled in order to trigger the felony provision of the statute, cases construing section 333(b) have ordinarily been based on a seller's intent to defraud or mislead purchasers, and not on the theory that a defendant has defrauded or misled the government by evading or violating its regulatory systems.⁹ B. The indictment

Because appellant consistently opposed all reliance on the "conspiracy to defraud" theory by the prosecution below and on appeal,¹⁰  we cannot construe the indictment "liberally ... in favor of validity," as we would if appellant had not challenged the indictment below.¹¹  Instead, we must follow the general rule of Dennis set forth above that indictments brought under section 371 must be strictly construed.

The indictment lodged against appellant included a single conspiracy count (Count I) and three substantive offenses (Counts XVI, XVII, and XVIII). Count I stated in pertinent part:

"1. That ... JAMES R. HAGA, Jr., and other persons ... did unlawfully, willfully and knowingly conspire ... to commit offenses against the United States, to wit, violations of the Federal Food, Drug, and Cosmetic Act, Title 21, United States Code, Sections 301-392.

"2. It was a part of said conspiracy that the defendants ... would and did, with intent to defraud and mislead, obtain, hold, promote, market, distribute and sell anabolic steroids, androgenic hormones and other prescription human and animal drugs, and did, with the intent to defraud and mislead, cause the prescription drugs to be ... sold without the authorization of a prescription ... in violation of Title 21, United States Code, Sections 331(a), 331(k), 333(b), and 353(b).

"...

"4. It was a further part of the conspiracy that the defendants ... would and did, with the intent to defraud and mislead the FDA, the Texas State Board of Pharmacy, and the Division of Food and Drugs of the Texas Department of Health, conceal and cover up their actual activities in the following ways:

"...

"All in violation of Title 18, United States Code, Section 371." (Emphasis added).

As noted above, there was no evidence presented at trial that appellant or his coconspirators defrauded or misled any purchasers.¹²  Furthermore, although the indictment (in counts XVI, XVII, and XVIII) charged three specific transactions in violation of 21 U.S.C. § 333(b) (the felony subsection), the district judge found appellant in respect to those counts guilty only of three lesser included misdemeanor substantive offenses, concluding that none of these three sales involved the "intent to defraud or mislead" which is required to invoke the felony penalties of subsection 333(b).¹³ 

The district court concluded that appellant was guilty of a felony conspiracy offense under section 371 because he had engaged in a business which by its very nature involved the secretive and unauthorized sale of prescription drugs, and that this sort of endeavor constituted a conspiracy to defraud an agency of the United States, the Food and Drug Administration, which was charged with regulating the sale of prescription animal and human drugs.¹⁴ 

We turn now to a comparison of the conspiracy offense with which appellant was charged by the indictment and the offense of which he was convicted.

Count I of the indictment plainly charged appellant under the first clause of section 371, which prohibits a conspiracy "to commit any offense against the United States." Rule 8(a), Fed. R. Crim. P., requires that separate offenses be "charged in a separate count for each offense." Thus, Count I must have charged a conspiracy either to "commit any offense" or to "defraud the United States"; it cannot have charged both. Paragraph 1 identified the conspiracy as one "to commit offenses against the United States, to wit, violations of the ... Act." Subsequent paragraphs referred to "the" or "said" conspiracy, plainly relating back to the single conspiracy identified in the first paragraph. Paragraph 2 of Count I used the "defraud and mislead " language of 21 U.S.C. § 333(b), and not the "defraud the United States" language of section 371, which does not contain the term "mislead."

The government urges that paragraph 4 of Count I describes a conspiracy to "defraud the United States" because it contains the following phrase: "to defraud and mislead the FDA, the Texas State Board of Pharmacy, and the Division of Food and Drugs of the Texas Department of Health." We emphasize again that Count I, taken as a whole, could have charged either form of conspiracy described by section 371, but not both, and that "defraud and mislead " is the language of section 333(b) rather than of section 371. In addition, paragraph 4 lacks the characteristic language of "conspiracy to defraud" indictments, see notes 6 and 7, supra, in that it does not describe the manner in which the agencies' functions were obstructed or hindered but, instead, merely states that the conspirators "did ... conceal and cover up their actual activities."

The reference to governmental agencies in paragraph 4 reflects the prosecution's original theory of the case, which relied on the premise (the innovative nature of which, even before trial, the government conceded) that anything but an inadvertent distribution of prescription drugs in violation of section 331 should be regarded as a section 333(b) felony offense.¹⁵  We view the government as having advocated below the view that one of appellant's "offenses against the United States" was a felony violation of section 333(b); this, in turn, depended upon the theory that distributing prescription drugs in knowing violation of federal and state regulatory systems and rules was a felony because the "intent to defraud and mislead" language of section 333(b) included operating a black market prescription drug business in knowing defiance of the law. The inclusion of the two state agencies in paragraph 4 is a further indication of the government's reliance on this theory, because it is plain to us that section 371's conspiracy to defraud provision--"defraud the United States, or any agency thereof"--does not reach a conspiracy to defraud which affects only a state agency.¹⁶ 

Regardless of whether appellant could have been convicted under section 371 of a felony conspiracy to commit offenses (on the theory that a felony violation of section 333(b) occurred because his conduct defrauded and misled agencies rather than purchasers¹⁷ ), appellant was not convicted of a conspiracy to commit offenses against the United States. The district court's conclusions of law reflect that appellant "is guilty of the felony offense of conspiracy to defraud an agency of the United States, the FDA" under the "defraud" clause of section 371. The indictment, however, charged him with a different conspiracy offense, and the government's felony conspiracy theory relied upon at trial (and impliedly rejected by the district court¹⁸ ) was substantially different from the section 371 "conspiracy to defraud the United States" theory upon which the district court grounded appellant's conviction.

The Fifth Amendment requires that a grand jury determine whether an indictment should be handed down. We are unable to conclude with fair certainty that this grand jury determined there were grounds to indict appellant for conspiring to defraud the United States. See United States v. Outler, 659 F.2d 1306, 1311 (5th Cir. 1981), cert. denied, 455 U.S. 950, 102 S. Ct. 1453, 71 L. Ed. 2d 665 (1982). The Sixth Amendment requires that "the accused shall enjoy the right ... to be informed of the nature and cause of the accusation...." The record of proceedings below indicates that neither appellant nor the prosecution contemplated or addressed a theory of criminal culpability under the defraud branch of the conspiracy statute, and that the possibility appellant would be convicted under that arm of section 371 first became evident only when the district judge found appellant guilty of felony conspiracy, while finding he had no intent to defraud under section 333(b).

We cannot conclude that the variance between the indictment and the basis of appellant's conviction was the sort of harmless error addressed by Rules 7(c) (3) or 52(a), Fed. R. Crim. P. This is not a case of citing the wrong statute. Rather, the words in the body of the indictment describing the conspiracy being charged ("conspire to commit offenses against the United States, to wit, violations of the Federal Food, Drug, and Cosmetic Act") plainly allege one offense, while appellant was convicted of another and different offense (conspiracy to defraud the United States). Moreover, appellant convincingly claims that his defense was substantially prejudiced. Because appellant accepted the indictment and the government's theory of the case as fairly representing the charges against him, he waived his right to a jury trial and conceded the existence of a misdemeanor conspiracy, relying on the defense that the absence of any intent to defraud purchasers--which the district court found--barred a felony conviction. The indictment and the government's motions and memoranda below focused appellant's defense on the question of whether knowing noncompliance with applicable laws could be a felony under 21 U.S.C. § 333(b) as conduct that defrauded or misled the FDA and state agencies. Neither the prosecution nor appellant argued the question of whether the second branch of section 371 applied to his conduct. Appellant had offered no defense to this form of conspiracy offense, and only when the district court handed down its verdict based on the conspiracy to defraud theory did appellant discover that those defenses he had raised, although directly responsive to the indictment and the prosecution's theory of the case, were nevertheless irrelevant to the conspiracy offense of which he was convicted.

A conviction for an offense not alleged in the indictment or presented at trial "offends the most basic notions of due process. Few constitutional principles are more firmly established than a defendant's right to be heard on the specific charges of which he is accused." Dunn v. United States, 442 U.S. 100, 99 S. Ct. 2190, 2194, 60 L. Ed. 2d 743 (1979). Appellant was convicted of an offense for which he was not indicted and which was not asserted during his trial. His conviction on count I must be reversed.¹⁹ 

REVERSED as to count I, otherwise AFFIRMED.