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Ninth Circuit Holds Proof Of Materiality Required For A Finding Of Felony Liability Under FDCA


HLD, v. 30, n. 4 (April 2002)

Ninth Circuit Holds Proof Of Materiality Required For A Finding Of Felony Liability Under FDCA

The Food, Drug, and Cosmetic Act (FDCA) prohibits "[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). Under the FDCA misbranding provision's two-tier liability scheme, misdemeanor misbranding imposes criminal liability "without any conscious fraud at all," 21 U.S.C. � 333(a)(1), while felony misbranding requires a showing that the defendant acted "with intent to defraud or mislead," 21 U.S.C. � 333(a)(2).

Jack Watkins, president and majority owner of Cap Tab Nutritional Formulating and Manufacturing, Inc. (Cap Tab), was indicted on charges of conspiracy, mail fraud, wire fraud, and felony misbranding under the FDCA. Specifically, the government charged that Watkins purposely omitted or changed ingredients listed on the labels of several nutritional supplements that Cap Tab manufactured. Before trial, the government moved to exclude evidence on the materiality of the ingredient substitutions. The district court granted the government's motion and, pursuant to a plea agreement, Watkins pled guilty to the three felony misbranding counts. However, the plea was conditioned on Watkins' right to appeal the district court's ruling on whether "proof of materiality was required for conviction under the felony misbranding provisions of � 333(a)(2)." Subsequently, Watkins and Cap Tab separately appealed, arguing that "knowledge of falsity alone is not sufficient for conviction under � 333(a)(2)."

After consolidating the separate appeals, the Ninth Circuit held that felony liability for misbranding requires proof of materiality. In so holding, the appeals court relied on the U.S. Supreme Court's decision in Neder v. United States, 527 U.S. 1 (1999), which concluded that the "scheme or artifice to defraud" language in federal mail, wire, and bank fraud statutes required a showing of materiality. The appeals court rejected the "literal approach" employed by the Eighth Circuit in United States v. Jorgensen, 144 F.3d 550 (finding no materiality element in a similarly worded criminal misbranding provision of the Federal Meat Inspection Act, 21 U.S.C. �� 601‑695). According to the appeals court, the Jorgensen decision, contrary to the Supreme Court's approach in Neder, failed to examine the settled common law meaning of the "intent to defraud" language. The appeals court also rejected the government's argument that such a reading of � 333(a)(2) would frustrate the statute's purpose to "insure that the goods they offer for sale to the public were safe and properly labeled," noting that any misbranding would still be a criminal offense under � 333(a)(1), which does not require a showing of intent. Rather, the appeals court reasoned, "[t]he increased penalties provided by � 333(a)(2) . . . indicat[e] Congress's intent to limit the scope of felony liability."

Next, the appeals court determined that the "intent to . . . mislead" component of � 333(a)(2) likewise carried a materiality requirement. After examining the plain meaning of the language, the appeals court found that "[a]ny intent to mislead presumes an expectation or purpose that another will in fact be mislead." The appeals court discounted the government's argument that congressional intent could be inferred from the lack of an express reference to materiality in � 333(a)(2) given that other FDCA provisions "prohibit misleading representations or omissions that are expressly material." In the appeals court's view, "Congress had no need to include an express reference to materiality where liability is founded upon intent." Finally, the appeals court found that the common law meaning of "intent to mislead" included a materiality requirement. The appeals court looked to the meaning of "intent to mislead" in the context of common law fraud, which included the materiality element, and determined "that Congress mean[t] to incorporate the established meaning of these terms," Neder, 527 U.S. at 21-22.

A dissenting opinion argued that, in the area of food and drug labeling, "intentional misrepresentations are ipso facto material because of their inevitable impact upon the victim." In the dissent's view, the majority should have applied the Eighth Circuit's approach in Jorgensen.

United States v. Watkins, No. 00‑50656 (9th Cir. Jan. 29, 2002) (18 pages).

Health Lawyers thanks Margaret Manning in Los Angeles, California, for sending us a copy of this decision.

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