United States v. Chenhsin Chan

• Court: Court of Appeals for the Eleventh Circuit
• Decided: April 4, 2018
• Docket: 16-17797
• Status: Unpublished

Opinion

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[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT ________________________

No. 16-17797 Non-Argument Calendar ________________________

D.C. Docket No. 1:14-cr-00203-ODE-AJB-1

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

CHENHSIN CHAN, a.k.a. Paul Chan,

Defendant-Appellant.

________________________

Appeal from the United States District Court for the Northern District of Georgia ________________________

(April 4, 2018)

Before ED CARNES, Chief Judge, TJOFLAT, and NEWSOM, Circuit Judges.

PER CURIAM: Case: 16-17797 Date Filed: 04/04/2018 Page: 2 of 12

A jury convicted Chenhsin Chan of ten counts of mail fraud, 18 U.S.C.

§§ 1341 and 2, ten counts of introducing adulterated food into interstate commerce,

id. §§ 331(a) and 333(a)(2), five counts of distributing a listed chemical, 21 U.S.C.

§ 841(f)(1) and 18 U.S.C. § 2, and five counts of money laundering, id. §§ 1957

and 2. All of those counts relate to a seven year scheme through which Chan made

millions selling dietary supplements containing ephedrine. The jury returned a

special verdict finding certain assets forfeitable, including several rare gold coins, a

Lamborghini, a house in New York, and $666,000 cash. The district court

sentenced Chan to 135 months and ordered him to forfeit specified assets. Chan

appeals his convictions and sentence.

I.

In 2004 the Food and Drug Administration banned dietary supplements

containing ephedrine by deeming them “adulterated foods.” 21 C.F.R. § 119; see

21 U.S.C. § 331(a) (prohibiting introduction of adulterated foods into interstate

commerce). Because ephedrine can be used to make methamphetamine, it is a “list

I” chemical, 21 U.S.C. § 802(34)(C), and anyone seeking to distribute it must get

authorization from and register with the Drug Enforcement Agency, id. § 823(h).

At trial the government presented evidence that from 2005 to 2012 Chan

operated a website that sold dietary supplements containing ephedrine. Testimony

showed that Chan never registered with the DEA and received warnings that it was

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illegal to sell supplements containing ephedrine. An FDA investigator testified

that in 2005 he told Chan that the FDA had adopted a rule banning supplements

containing ephedrine. Chan told the investigator that he thought the FDA rule was

suspended because a Utah district court ruled that it exceeded the FDA’s statutory

authority. The investigator told Chan that the FDA rule remained in effect.

Despite that warning, Chan continued to sell supplements containing

ephedrine. His source was a company called Hi-Tech Pharmaceuticals. Hi-Tech

employees testified that the company stopped producing supplements containing

ephedrine in 2006 but continued to sell leftovers to Chan. One employee sold

Chan supplements containing ephedrine in 2009. That employee knew the

supplements were banned in the United States but thought they could be exported,

so he put a notice to that effect in each shipment. Another employee said that he

told Chan that the supplements were banned after seeing them on Chan’s website.

Chan kept selling supplements containing ephedrine until August 2012,

when federal agents executed a search warrant on Chan’s parents’ home and seized

more than 100 boxes of supplements. They also executed a search warrant on

Chan’s car and seized supplements and incorporation records for the company

through which Chan sold those supplements. Two FDA chemists testified that

several seized supplements tested positive for ephedrine.

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A fraud examiner who reviewed Chan’s bank records testified that he had

deposited into his account more than $11 million from website sales. The

examiner testified that Chan withdrew funds from that account to purchase a

Lamborghini, a Mercedes Benz, a house in New York, and several rare gold coins.

An FDA agent testified that Chan used a system called CartManager to

process credit card payments for website purchases. The agent isolated sales

figures for dietary supplements containing ephedrine and concluded that Chan

received in excess of $4.5 million from selling supplements containing ephedrine.

The agent also testified about statements that Chan published on his website

about the legality of ephedrine. He introduced screen captures of the website from

2005 to 2012, one of which stated that “[t]he FDA has approved the use of

Ephedrine . . . for the treatment of asthma, colds, allergies, or any other disease.”

Another, titled “Is Ephedra legal,” stated:

Let me answer that question by saying that ephedrine has never been illegal. It is legal to purchase ephedrine both natural and synthetic (Ephedrine HCL made by Vasopro) for its intended use which is a decongestant and bronchodilator. It will also provide energy, appetite suppression and increase your metabolism which leads to weight loss. It will also increase your blood pressure so do not take it with any blood pressure medication, antidepressants or if you have a history of heart disease. Read all warnings before using and consult with your physician before use.

The agent testified that those statements were false and misleading because Chan’s

website sold only dietary supplements, not bronchodilators or decongestants.

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Several customers testified that they bought dietary supplements containing

ephedrine from Chan’s website and that they believed those supplements were

legal to sell and safe to use. Some customers testified that they experienced

adverse effects from the supplements, including headaches, anxiety, and nausea.

The jury ultimately convicted Chan of all 30 counts, which yielded a

guidelines range of 262 to 327 months imprisonment. The district court varied

downward and sentenced him to 135 months. It also ordered him to forfeit assets

obtained by the fruits of his offenses. This is Chan’s appeal.

II.

Chan raises six issues on appeal. We address each in turn.

A.

Chan contends that the evidence was insufficient to sustain the mail fraud

convictions. We review de novo the sufficiency of the evidence, viewing the

evidence and drawing all inferences from it in favor of the verdict. United States

v. Isaacson, 752 F.3d 1291, 1303 (11th Cir. 2014). Chan did not preserve this

issue, so we will not disturb the verdict unless failure to do so would result in a

miscarriage of justice. United States v. Tapia, 761 F.2d 1488, 1491 (11th Cir.

1985).

Chan argues that the government failed to prove “an intentional participation

in a scheme to defraud.” United States v. Smith, 934 F.2d 270, 271 (11th Cir.

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1991). He asserts that his mail fraud convictions cannot stand because the

government did not prove that his customers relied on his false and misleading

statements. But reliance is not an element of mail fraud. See United States v.

Clay, 832 F.3d 1259, 1309 (11th Cir. 2016).

Relying on United States v. Takhalov, 827 F.3d 1307 (11th Cir. 2016), Chan

argues that he did not defraud his customers because they “got exactly what they

paid for” and as a result his statements did not mislead them about the “nature of

the bargain.” Id. at 1312. But his customers did not get “exactly what they paid

for” because they paid for supplements that were legal to sell and safe to consume.

There is ample evidence to sustain the mail fraud convictions and letting them

stand will not result in a miscarriage of justice. 1

B.

Chan contends that the district court erred by declining to notice the FDA

rule banning ephedrine. He sought to introduce that rule to substantiate the

statement on his website that the FDA approved the use of ephedrine for “any

other disease.” We review evidentiary rulings only for an abuse of discretion.

United States v. Henderson, 409 F.3d 1293, 1297 (11th Cir. 2005). We need not 1 Chan also argues that the indictment was insufficient to charge him with the mail fraud counts, but that argument merely rehashes his meritless sufficiency-of-the-evidence claim. His argument does not assert any of the grounds on which an indictment can be attacked as insufficient. See United States v. Woodruff, 296 F.3d 1041, 1046 (11th Cir. 2002) (listing three grounds on which a defendant can attack the sufficiency of an indictment). Instead, it asserts that the government failed to prove that he participated in a scheme to defraud instead of a scheme to deceive, which is just another way of putting his sufficiency-of-the-evidence claim.

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disturb the verdict to correct an evidentiary error unless it substantially influenced

the outcome. United States v. Fortenberry, 971 F.2d 717, 722 (11th Cir. 1992).

Chan argues that the district court erroneously concluded that the FDA rule

was irrelevant or likely to confuse the jury. He asserts that the rule was relevant

because it was the source of the statements he “paraphrased” on his website. But

Chan’s website badly misstated the FDA rule. Compare Doc. 1 at 2 (“The FDA

has approved the use of Ephedrine . . . for the treatment of asthma, colds, allergies,

or any other disease.”), with 69 Fed. Reg. at 6793 (“The use of ephedrine . . . for

the treatment of asthma, colds, allergies, or any other disease is beyond the scope

of this final rule.”). And admitting the rule as evidence could have frustrated the

district court’s ability to instruct the jury on the law. See United States v. Oliveros,

275 F.3d 1299, 1306–07 (11th Cir. 2001) (“Domestic law is properly considered

and determined by the court whose function it is to instruct the jury on the law;

domestic law is not to be presented through testimony and argued to the jury as a

question of fact.”). As a result, the court was correct to exclude the FDA rule

because it would not have made the truthfulness of Chan’s statements any more

probable and could have confused the jury. Fed. R. Evid. 401; 403.

Alternatively, even if the court erred by excluding the rule, any error was

harmless because it did not substantially influence the outcome. Fortenberry, 971

F.2d at 722. The government produced ample evidence showing that Chan’s

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statements were false and misleading, including testimony by the FDA agent and

by customers who were in fact misled by those statements. The court’s exclusion

of the FDA rule did not substantially influence the outcome of the case.2

C.

Chan contends that the district court erred in calculating his base offense

level by applying United States Sentencing Guidelines § 2D1.11 instead of

§ 2D1.13. We review de novo the district court’s application of the guidelines.

United States v. Arguedas, 86 F.3d 1054, 1059 (11th Cir. 1996).

The jury convicted Chan for knowingly distributing a listed chemical in

violation of 21 U.S.C. § 841(f)(1). Appendix A of the guidelines specifies that

courts should apply either § 2D1.11 or § 2D1.13 to convictions under § 841(f)(1).

Section 2D1.11, titled “Unlawfully distributing, importing, exporting, or

possessing a listed chemical,” provides for a base offense level of 38 if the offense

involved at least 9 kilograms of ephedrine. Id. § 2D1.11(d)(1). It provides a three-

level reduction for defendants who did not know that the chemical they distributed

would be used to manufacture a controlled substance. Id. § 2D1.11(b)(2). By

contrast, § 2D1.13, titled “Structuring chemical transactions or creating a chemical

2 Chan argues that 44 U.S.C. § 1507 required the district court to take judicial notice of the FDA rule. Because he did not raise that argument below, we review it only for plain error. United States v. King, 73 F.3d 1564, 1571 (11th Cir. 1996). As already discussed, the court did not err by excluding the FDA rule. And even if it did, Chan cannot show that error “seriously affect[ed] the fairness, integrity or public reputation of the judicial proceedings” because there was ample evidence supporting the verdict. See United States v. Hall, 314 F.3d 565, 566 (11th Cir. 2002). 8 Case: 16-17797 Date Filed: 04/04/2018 Page: 9 of 12

mixture to evade reporting or recordkeeping requirements; presenting false or

fraudulent identification to obtain a listed chemical,” provides for a base offense

level of six unless the defendant knew that the chemical he distributed was to be

used to manufacture a controlled substance. Id. § 2D1.13.

The district court properly applied § 2D1.11. Its title expressly covers

Chan’s offense of distributing more than 11 kilograms of ephedrine. Id. § 2D1.11.

By contrast, § 2D.1.13 applies to mere record-keeping or document fraud

violations, like creating a chemical mixture to evade record-keeping requirements

or presenting false documentation to obtain a listed chemical. Id. § 2 D1.13. Chan

asserts that § 2D1.11 applies only when a defendant intended that the distributed

chemical be used to manufacture a controlled substance. But § 2D1.11 includes a

reduction for defendants who did not know that the listed chemical they distributed

would be used to manufacture a controlled substance, which shows that § 2D1.11

applies even if a defendant did not intend for the chemical to be used to

manufacture a controlled substance.

D.

Chan contends that the district court erred by including in the loss amount

nearly $2 million in sales that occurred between April 2005 and August 2007. We

review for clear error the district court’s factual findings related to sentencing

enhancements. United States v. Barakat, 130 F.3d 1448, 1452 (11th Cir. 1997).

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Chan argues that the legality of the FDA rule was “in flux” between 2005

and 2007 because a Utah district court decided in 2005 that the rule exceeded the

FDA’s statutory authority and because his supplier, Hi-Tech, challenged the FDA

rule in a Georgia district court. Those proceedings had no effect on the legality of

the FDA rule as to Chan because district court judges “lack authority to render

precedential decisions binding other judges, even members of the same court.”

Am. Elec. Power Co., Inc. v. Connecticut, 564 U.S. 410, 428, 131 S. Ct. 2527,

2540 (2011). And an FDA agent informed Chan in 2005 that the rule was in full

effect. The court did not err by including sales from 2005 to 2007 in the loss

amount.

E.

Chan contends that his sentence was substantively unreasonable because it

resulted in an unwarranted sentence disparity with other ephedrine distributors.

We review the reasonableness of Chan’s below-guidelines sentence only for abuse

of discretion. Gall v. United States, 552 U.S. 38, 41, 128 S. Ct. 586, 591 (2007).

“A well-founded claim of disparity . . . assumes that apples are being compared to

apples.” United States v. Docampo, 573 F.3d 1091, 1101 (11th Cir. 2009).

Chan argues that the district court erred by failing to consider that two of his

suppliers at Hi-Tech Pharmaceuticals received lower sentences than he did. But

neither was similarly situated to Chan. Unlike Chan, both suppliers pleaded guilty.

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One supplier was not prosecuted for distributing ephedrine or defrauding

customers about the legality of supplements containing ephedrine. The other was

convicted of only one count of mail fraud and one count of introducing adulterated

foods into interstate commerce. By contrast, a jury convicted Chan of ten counts

of mail fraud, ten counts of introducing adulterated food into interstate commerce,

five counts of distributing a listed chemical, and five counts of money laundering.

Put simply, an apples-to-apples comparison is impossible when Chan went

to trial and was convicted of 30 counts while his suppliers pleaded guilty and were

convicted of 3 counts total. The district court did not abuse its discretion by

declining to consider sentencing disparities between Chan and his suppliers.

F.

Chan contends that the forfeiture of his house is disproportionate to the

gravity of his offense and violates the Eighth Amendment. We review de novo the

district court’s legal conclusions regarding forfeiture and its findings of fact for

clear error. United States v. Puche, 350 F.3d 1137, 1153 (11th Cir. 2003).

There is a strong presumption that a criminal forfeiture is not excessive if it

is within the statutory range of fines prescribed by Congress. United States v.

Dicter, 198 F.3d 1284, 1292 (11th Cir. 1999). The maximum fine for a money

laundering conviction is twice the amount of the criminally derived property

involved in the transaction, 18 U.S.C. § 1957(b)(2), which in this case would

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presumptively permit forfeiture of property up to about $8 million in value. Chan

concedes that the forfeited house is worth less than the proceeds he obtained

through his mail fraud scheme.

Chan’s sole argument against the forfeiture of his house is that part of the

funds he used to purchase it was legitimately obtained. He offers no evidence to

support that argument. Absent any evidence showing that Chan used legitimate

funds to purchase the forfeited property, he cannot overcome the presumption that

the forfeiture was not excessive because it was well within the statutory range of

fines prescribed by Congress. See Dicter, 198 F.3d at 1292. The district court did

not err by ordering Chan to forfeit his house.

AFFIRMED.