FDA Denies Corn Sugar Petition, Only Sugar is Sugar

For years, the Corn Refiners Association (CRA), a national trade association representing the corn refining industry, has promoted the rebranding and name change of high fructose corn syrup (HFCS) to “corn sugar.” The CRA suggests that many consumers are confused and misled by the ingredient name HFCS. CRA proposes that, as an alternative to HFCS, the name “corn sugar” more closely reflects reasonable consumer expectations and more accurately describes the ingredient. The CRAs rebranding efforts have included filing a citizen petition with the U.S. Food and Drug Administration (FDA) and launching a multi-million dollar advertising campaign.

 Citizen Petition

In September 2010, the CRA filed a citizen petition with the FDA requesting that the Agency recognize “corn sugar” as an alternate common or usual name for HFCS as an ingredient on food labels. However, on May 30, 2012, the FDA denied the petition stating that the CRA “does not provide sufficient grounds for the Agency to authorize ‘corn sugar’ as an alternate common or usual name for HFCS.”
In its denial of the citizen petition, the FDA stated that the proposed name does not fully satisfy the criteria for common or usual names of foods. Common or usual names of foods must identify or describe, in as simple and direct terms as possible, the basic nature of the food or its characterizing properties. 21 C.F.R. 102.5(a). “Sugar” is permitted as part of the name for foods that are solid, dried, and crystallized. HFCS is a syrup, a liquid or aqueous solution, derived form corn. Thus, the use of the term Ëœsugar to describe HFCS, a product that is a syrup, would not accurately identify or describe the basic nature of HFCS or its characterizing properties.
Additionally, the CRA petitioned the FDA to amend the common or usual name established by regulation for dextrose monohydrate, eliminating “corn sugar” as an alternative name. 21 C.F.R. 168.111. The petition argued that consumers do not commonly associate the term “corn sugar” with dextrose. Not persuaded by this argument, the FDA stated that scientific literature and various public websites often use the term “corn sugar” to describe dextrose.

Furthermore, the FDA voiced concern that changing the name for HFCS to “corn sugar” could pose a public health risk. Individuals with hereditary fructose intolerance or fructose malabsorption avoid consuming ingredients that contain fructose. These individuals associate “corn sugar” with dextrose, which is an acceptable ingredient for their health, as opposed to fructose which is not. Therefore, changing the name for corn sugar could put these individuals at risk.    

Advertising Campaign Lawsuit

In 2008, the CRA launched a multi-million dollar advertising campaign in order to rebrand HFCS as “corn sugar” in the eyes of consumers. The advertisements claimed that “sugar is sugar” and “your body cant tell the difference” between HFCS and natural sugar.

The advertising campaign is the basis of an ongoing federal lawsuit filed by the sugar industry in April 2011. In the suit against the CRA, the sugar industry alleged that the advertising campaign is false and misleading, and violative of Section 43(a) of the Lanham Act. 15 U.S.C. § 1125(a). The complaint states that representations that HFCS and sugar are metabolically and nutritionally the same are literally false or, at best, reckless and misleading. In support of the allegation, the sugar industry points to the molecular differences between the free-floating monosaccharides fructose and glucose in HFCS and the bonded disaccharide sucrose in sugar. In order to demonstrate the nutritional difference, the complaint cited to a Princeton study which found a causal link between HFCS consumption and health problems that are not equally presented by the consumption of sugar.      

Fuerst Ittleman will continue to monitor the Courts decision and developments in the regulation of sugar and food products. For more information, please contact us at contact@fidjlaw.com. 

Tax Return Preparers Indicted for Assisting in Income Tax Evasion

In a Superseding Indictment, available here,

filed June 14, 2012 in the United States District Court for the Central District of California, three of the managers (David Kalai, Nadav Kalai, and David Almog) of a tax return preparation service, United Revenue Service ("URS") were indicted.  The Department of Justice has issued a press release, available here, announcing the indictment.

As the press release details,  URS had 12 offices located throughout the United States. David Kalai worked primarily at URS’s former headquarters in Newport Beach, Calif., and later at URS’s location in Costa Mesa, Calif. Nadav Kalai worked out of URS’s headquarters in Bethesda, Md., as well as URS locations in Newport Beach and Costa Mesa, Calif. David Almog was the branch manager of the New York office of URS and supervised tax return preparers for URS’s East Coast locations.

The superseding indictment alleges that the defendants prepared false individual income tax returns which did not disclose the clients’ foreign financial accounts nor report the income earned from those accounts. In order to conceal the clients’ ownership and control of assets and conceal the clients’ income from the IRS, the defendants incorporated offshore companies in Belize and elsewhere and helped clients open secret bank accounts at the Luxembourg locations of two unnamed Israeli banks.  The first unnamed Israeli bank is a large financial institution headquartered in Tel-Aviv, Israel, with more than 300 branches across 18 countries worldwide. The second unnamed bank is a mid-size financial institution also headquartered in Tel-Aviv, with a presence on four continents.

As further alleged in the superseding indictment, the defendants incorporated offshore companies in Belize and elsewhere to act as named account holders on the secret accounts at the Israeli banks. The defendants  then facilitated the transfer of client funds to the secret accounts and prepared and filed tax returns that falsely reported the money sent offshore as a false investment loss or a false business expense. The defendants also failed to disclose the existence of, and the clients’ financial interest in, and authority over, the clients’ secret accounts and caused the clients to fail to file FBARs with the Department of the Treasury. (The FBAR form is available here. The charge is 18 USC 371, commonly referred to as a "Klien Conspiracy," available here.)

This indictment appears to be just the beginning of the Justice Departments attempts to prosecute not only those who have undeclared foreign bank accounts and under- (or un-) reported income to the IRS, but those who have assisted the taxpayers with improperly reducing (or avoiding altogether) their income tax liability to the IRS.  This also appears to be one of the first prosecutions that has implicated Israeli banks.  It has been widely reported that the Department of Justice has been investigating banks outside of Switzerland for aiding U.S. taxpayers in evading taxes. 

In criminal tax litigation, defendants must engage a trial team that can navigate both criminal law and tax law.  As federal prosecutions become increasingly sophisticated, the defense needs to keep pace with the prosecution and bring to the defense table the full array of skill sets needed to properly defend a federal indictment. The attorneys at Fuerst Ittleman have extensive tax and criminal litigation experience.  The firm regularly handles matters involving civil tax litigation, criminal defense, and criminal tax defense (at the trial and appellate levels, including U.S. Supreme Court litigation).  You can contact an attorney via telephone by calling us at 305.350.5690 or via email at contact@fidjlaw.com

FDA Announces Final Rule for Etched Citrus Labels

On June 11, 2012, the U.S. Food and Drug Administration (FDA) announced a final rule approving the use of carbon dioxide lasers for etching information on the surface of fresh, intact citrus fruit. The approval is in response to a citizen petition originally filed five years ago by Durand-Wayland, Inc.

The citizen petition proposed that food additive regulations be amended to allow the safe use of carbon dioxide lasers for etching information on the skin of fresh, intact citrus fruit not intended for commercial juice production. The effect of carbon dioxide lasers is to etch information, such as the price look-up code printed on an adhesive, placed directly onto the surface of fresh produce. The carbon dioxide laser obviates the need for an adhesive label.

In evaluating the safety, the FDA determined that the two primary areas of possible health concern are potential chemical effects and microbiological risks from etching the surface of citrus fruit. The Agency concluded that the use of carbon dioxide lasers does not generate any new chemical substances that are not also typically generated by conventional cooking.  Further, the Agency concluded that there is no increased microbiological risk from changes to the surface of laser-etched fruit compared to non-laser-etched fruit based on a Salmonella study conducted by the University of Florida Citrus Research and Education Center. Overall, the FDA stated that “there is no material difference between etched and non-etched citrus fruit” and thus, the food additive regulations are being amended accordingly.

The FDA is currently seeking public comment on the final rule for carbon dioxide laser etching for citrus fruit. The deadline for submission is July 11, 2012. Fuerst Ittleman will continue to monitor developments of the FDAs changes to food labeling. For more information, please contact us at contact@fidjlaw.com.

Third Circuit Affirms District Court Holding the Perlman Doctrine Inapplicable Criminal Tax Grand Jury Subpoena

In the case of In re: Grand Jury, decided on May 24, 2012, the Third Circuit Court of Appeals confronted the following set of facts:

ABC Corp., John Doe 1, and John Doe 2 were the targets of a grand jury investigation. In mid-2010, the targets learned that the Government was investigating the tax implications of ABC Corp.s acquisition and sale of certain closely held companies. In December 2010, the Government issued a grand jury subpoena to ABC Corp.s former vice president of corporate acquisitions as the companys custodian of records. The subpoena sought any and all records relating to transactions entities and individuals.

At some point the Government received access to, or copies of, certain ABC Corp. documents from a law firm that previously represented the company. The firm withheld certain documents it claimed were privileged, but it did not supply the Government with a privilege log. After the current law firm commenced its representation, the former law firm transferred the documents to the law firm representing John Doe 2. In a January 2011 letter, ABC Corp.’s law firm took the position that the Government did not effectively serve the subpoena issued to ABC Corp.s former vice president. Because ABC Corp. refused to accept service of the subpoena issued to its former employee, the Government issued grand jury subpoenas to the law firms in May 2011. The subpoenas sought all documents the two firms received from ABC Corp.s former law firm relating to ABC Corp. and another entity. In response to these subpoenas, the law firms produced approximately 24 boxes of documents. These were the same documents that ABC Corp.s former firm had previously produced. They continued to withhold, however, the documents listed on the April 2011 privilege log, and provided the Government with another privilege log in June 2011 for additional documents withheld.

The Government then filed an ex parte motion to compel ABC Corp., and the law firms to produce the withheld documents.  The Government argued that the documents should be produced based on the crime-fraud doctrine, which provides that evidentiary privileges may not be used to shield communications made for the purpose of getting advice for the commission of a fraud or crime, pursuant to United States v. Zolin, 491 U.S. 554 (1989), available here. On March 8, 2012, the District Court granted the Governments motion. Shortly thereafter, the targets proceeded to the Third Circuit Court of Appeals to challenge the order of the District Court requiring ABC Corp., and the target’s attorneys and the law firms to produce documents to grand jury. 

It is fairly well settled that when a district court orders the production of possibly privileged documents, its order is typically not immediately appealable under 28 USC section 1291, available here. Instead, to obtain immediate appellate review, an objecting privilege holder must disobey the disclosure order, be held in contempt, and then appeal the contempt order; see Church of Scientology of Cal. v. United States, 506 U.S. 9, 18 n.11 (1992), available here; (a witness who “seeks to present an objection to a discovery order immediately to a court of appeals must refuse compliance, be held in contempt, and then appeal the contempt order.”)

However, the appellants argued that Perlman v. United States, 247 U.S. 7 (1918), available here, provides an exception to the contempt rule because the documents were in the custody of a third party (the law firm representing John Doe 2) who was not willing to suffer contempt for the sake of an immediate appeal.  The reason that the Perlman doctrine allows an immediate appeal is that the person/entity asserting the privilege is powerless to compel a third part to be held in contempt, so there is nothing that the person/entity can do to assert the claim of privilege. 

In this case, the Third Circuit disagreed with the targets that Perlman applied, and held that Perlman does not allow an immediate appeal of a district courts order mandating the production of supposedly privileged documents when (1) the courts order directs the privilege holder itself to produce the documents, and (2) the privilege holder has, or may obtain, custody of the documents. In short, according to the Third Circuit, Perlman does not apply when the traditional contempt route is available to the privilege holder.  The Third Circuit held that because ABC Corp. could obtain the documents from its agent (in this case the attorneys and/or law firms), the Perlman doctrine was inapplicable.  The Third Circuit went on to note that if ABC Corp. wants pre-conviction appellate review of the District Courts crime-fraud ruling, it must take possession of the documents and defy that Courts disclosure order before appealing any resulting contempt sanctions.

However, the Court also issued a dissenting opinion which reasoned that the Perlman doctrine was applicable to the facts of this case, but nonetheless would have affirmed the decision of the District Court requiring the production of documents in response to the grand jury subpoena.  The dissent noted that the District Court order required direct production of the privileged documents to the Government, and that by giving the documents back to the targets, the law firms would be in violation of a court order.  Thus, reasoned the dissent, the Perlman doctrine was applicable.

A full copy of the opinion can be found here.

This case demonstrates, among other things, that the Government will go to great lengths to obtain documents and evidence in federal criminal investigations, including subpoenaing documents that attorneys believe are subject to the attorney-client privilege.  When this happens, targets litigating against the Government have certain alternatives to production, but whether these alternatives are available will depend upon the facts and circumstances of the particular case. 

The attorneys at Fuerst Ittleman have extensive experience litigating against the federal government in civil and criminal cases, including grand jury subpoenas demanding privileged documents.  You can contact an attorney by emailing us at:  contact@fidjlaw.com or by calling us at 305.350.5690.

U.S. District Court in Miami orders new trial based on discovery violation for Electronically Stored Information

In United States v. Stirling, available here,

Judge Altonaga of the U.S. District Court for the Southern District of Florida in Miami found that even though the government technically complied with its discovery obligations under Federal Rule of Criminal Procedure 16(a)(1)(B) by furnishing an exact replica of defendant’s hard drive to the defense, because the government’s discovery production in this case so seriously impaired the defendants trial strategy, a new trial was nevertheless warranted.

The relevant facts of this case are fairly straightforward.  As Judge Altonaga summarized:

"Stirling proceeded to trial on April 24, 2012, and at his trial, testified in his defense. His defense consisted of duress, in particular, that he had participated in the charged crimes because of threats to himself and his family by Colombian drug traffickers. After Stirling testified, on the morning of the last day of trial, May 2, 2012, the Government turned over to the defense for the first time a 214-page log consisting of Skype chats downloaded from Stirlings computer. An exact replica of Stirlings laptop computer which was seized from the vessel had been provided to the defense in discovery prior to trial. The Skype chats were not readily available by opening the folders appearing in the hard drive or disk; rather, the Government used the services of an FBI computer analyst, Jeffrey Etter, who, after downloading a program, was able to recover various chats from the username “beenthere42.” That username belonged to one of the Co-Defendants."

"In rebuttal, and over defense objection, the Government called Agent Etter to testify and introduced the Skype log, containing communications between Sirling and his Co-Defendant. Those communications had a devastating impact. They contradicted many of Stirlings statements made during his testimony, and irreparably damaged his credibility and his duress defense. Defense counsel was severely limited in her ability to cross-examine Agent Etter, or rehabilitate Stirling, as the defense case was over. More importantly, defense counsel, unaware of the existence of the Skype chats before the Defendants decision was made to testify, was unable to properly prepare her client and competently advise him."

Not surprisingly, Stirling was convicted.

Under Federal Rule of Criminal Procedure 33, Judge Altonaga ordered a new trial in "the interest of justice," even though the government had warned the defense that if Stirling took the stand and testified falsely, there was [unidentified] evidence on the computer which the Government would use in its rebuttal to impeach him. Finding that this was not like those where courts have refused to require the government to identify evidence within a larger mass of disclosed evidence (commonly referred to as a "data dump"), Judge Altonaga wrote that the standard of Federal Rule of Civil Procedure 34(b)(2)(E)(ii), available

here, should also apply in criminal cases and should require the Governmentto produce ESI in a "reasonably usable form." Judge Altonaga held that "technical compliance with its discovery obligations under Federal Rule of Criminal Procedure 16 (a)(1)(B) by the furnishing of an exact replica of the hard drive" was insufficient under the Rules. The prosecution "never told defense counsel that incriminating Skype chats could be extracted from the disk or that they even existed."

Judge Altonaga agreed with the defendant that "production of something in a manner which is unintelligible is really not production," and went on to remark that "[i]f, in order to view ESI, an indigent defendant such as Stirling needs to hire a computer forensics expert and obtain a program to retrieve information not apparent by reading what appears in a disk or hard drive, then such a defendant should so be informed by the Government, which knows of the existence of the non-apparent information. In such instance, and without the information or advice to search metadata or apply additional programs to the disk or hard drive, production has not been made in a reasonably usable form. Rather, it has been made in a manner that disguises what is available, and what the Government knows it has in its arsenal of evidence that it intends to use at trial."

The Stirling case teaches that although the government may have the upper hand when it comes to computer forensics and its discovery obligations under the Federal Rules of Criminal Procedure, the government must nevertheless disclose the evidence contained within electronic media so that technologically unsophisticated defendants are not surprised by the evidence the government has in its possession. 

The attorneys at Fuerst Ittleman have extensive experience litigating criminal and civil cases against the federal government.  You can reach us by email at: contact@fidjlaw.com, or by telephone at: 305.350.5690.

Court Rebuffs FTC’s Attempt to Redefine “Competent and Reliable Scientific Evidence”

On May 23, 2012, Judge Donald Middlebrooks of the United States District Court for the Southern District of Florida issued an order denying the Federal Trade Commission’s (“FTC”) motion to modify a consent decree entered between it and dietary supplement manufacturer Garden of Life (“GOL”) regarding what qualifies as “competent and reliable scientific evidence” for the substantiation of health and disease related claims made on GOL’s dietary supplement products. The Court’s order comes as the FTC has made increased efforts at requiring a heightened level of substantiation for health related claims. Under this heightened substantiation level, dietary supplement manufacturers must support their claims with “two well-controlled human clinical studies.” A copy of the Court’s order can be read here.

The FTC requires that claims made by dietary supplement manufacturers be both truthful and not misleading. In addition, the FTC requires that manufacturers possess “competent and reliable scientific evidence” to support all health related claims. However, the definition of “competent and reliable scientific evidence” has been under increasing debate and scrutiny. Over the past several years, dietary supplement manufacturers have had to wrangle with the Federal Trade Commission’s attempts to redefine and enforce a heightened level of substantiation for health related claims. (Our previous reports on the FTC’s efforts can be read here, here, and here.) Such was the case in the Garden of Life litigation.

The GOL litigation stems from a consent decree entered into by the FTC and GOL regarding the health related claims used in the advertising of GOL’s dietary supplement products. The consent decree prohibited GOL from making any representations: 1) that its products mitigate, treat, prevent, or cure any disease or illness; or 2) about the absolute or comparative health benefits of its products, unless GOL possessed “competent and reliable scientific evidence” to substantiate such claims. “Competent and reliable scientific evidence” is defined in the Order as “tests, analyses, research, studies, or other evidence based on the expertise of professionals in the relevant area, that has been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the profession to yield accurate and reliable results.”

However, in its motion, the FTC sought to modify the consent decree by changing the definition of “competent and reliable scientific evidence” to require: 1) “two adequate and well-controlled human clinical studies for all absolute or comparative claims” about the cognitive health benefits of GOL’s products; and 2) FDA approval for all “disease treatment and cure claims” of GOL’s products.

Generally speaking, when seeking to modify a consent decree, the moving party must demonstrate: 1) that a significant change either in factual conditions or in the law has occurred; and 2) that the proposed modifications are suitably tailored to the changed circumstances. See Sierra Club v. Meiberg, 296 F.3d 1021, 1033 (11th Cir. 2002). Here, as a basis for the proposed modifications, the FTC argued that because the consent decreed failed “to achieve its intended purpose of protecting consumers from GOL’s ‘deceptive marketing,’” a significant change in factual circumstances had occurred which warranted the court modifying the consent decree. Order at 7.

In rejecting the FTC’s position, the Court noted several things. First, the Court found that “consent decrees generally do not have overarching purposes” such as consumer protection. Instead, consent decrees are typically the product of negotiation between the parties. Thus, the actually negotiated purpose of a consent decree is usually far more limited. The Court found that such was the case here. Thus, “the decree cannot be interpreted as requiring whatever might be necessary and appropriate to achieve [consumer protection] because it was not written that way.” Order at 8 (citing Sierra Club, 296 F.3d at 1031-1032).

Second, the Court found that a mere disagreement between the FTC and GOL over the definition of “competent and reliable scientific evidence” is not sufficient for the Court to assert its authority to modify the consent decree. “The fact that the FTC is no longer satisfied in 2012 with the definition it agreed to during negotiations with GOL in 2006 does not constitute a significant change in factual circumstances.”Order at 9. The Court went on to find that given the broad definition of “competent and reliable scientific evidence” as set forth in the consent decree, the FTC should have anticipated that parties would disagree over what evidence and procedures qualify and therefore should have sought to limit such a definition at the consent decree’s inception. Id at 9-10.

For more information on FTC regulations and substantiation requirements, or on how to ensure that your business maintains regulatory compliance at both the state and federal levels, please contact us at contact@fidjlaw.com.

Consumer Financial Protection Bureau Seeks Comments Regarding General Purpose Reloadable Prepaid Cards

On May 23, 2012, the Consumer Financial Protection Bureau (“CFPB”) issued an Advanced Notice of Proposed Rulemaking seeking comments, data, and information from the public regarding general purpose reloadable prepaid cards (“GPR cards”). A copy of the Advanced Notice of Proposed Rulemaking can be read here.

A GPR card is issued for a set amount of dollars in exchange for payment made by a consumer. If the GPR card is “reloadable,” consumers can add funds to the card. In addition, prepaid cards may either be “closed-loop” or “open-loop.” “Closed-loop” cards are prepaid cards that can only be used at a specific merchant or group of merchants, while “open-loop” cards can be used at any location that accepts payment from a retail electronic payment network. In its Advanced Notice of Proposed Rulemaking, the CFPB is only seeking comments on open-loop reloadable GPR cards and not other prepaid cards such as “closed-loop” cards, debit cards linked to a traditional checking account, non-reloadable cards, payroll cards, electronic benefit transfers (“EBT”), or gift cards.

GPR cards have drawn increased attention from CFPB because of the lack of federal regulation regarding these prepaid card products. For example, regulations (Regulation E) implementing the Electronic Fund Transfer Act currently do not apply to GPR cards. Regulation E generally provides that companies are required to reimburse customers for unauthorized transactions on consumers prepaid cards when those cards are reported lost or stolen. GPR cards also currently escape regulation under the Credit Card Accountability Responsibility and Disclosure Act of 2009 which established restrictions regarding dormancy fees, service fees and expiration dates on certain prepaid cards. The CFPB intends to use the information gathered through its comment period in order to craft proposed rules to regulate the GPR card industry.

Fuerst Ittleman will continue to monitor the situation as the CFPB develops a comprehensive regulatory scheme. For more information, please contact us at contact@fidjlaw.com.

Eleventh Circuit vacates sentence in criminal tax case based on impermissible grouping under the U.S. Sentencing Guidelines

On May 4, 2012, the U.S. Court of Appeals for the Eleventh Circuit vacated a sentence handed down by the U.S. District Court for the Middle District of Florida in United States of America, v. Register, case no. 11-12773.

The facts of the case are as follows:

The Defendant was the owner and operator of Criminal Research Bureau, Inc. (“CRB”), a provider of background-check services for employers. To manage the CRB payroll, the Defendant used a payroll processing company, PrimePay, that prepared employee paychecks and submitted the necessary quarterly paperwork to the IRS. The Defendant, in turn, was responsible for paying the withheld taxes over to the IRS. From the first quarter of 2003 through the fourth quarter of 2007, federal income taxes and Federal Insurance Contributions Act (“FICA”) taxes totaling $316,220 were withheld from the wages of CRB employees, yet the Defendant never remitted the

vast majority of those funds to the IRS.

In addition, the Defendant falsified his individual federal income tax returns during this period for tax years 2003 to 2006. In 2003 and 2004, the Defendant was not on the CRB payroll; instead, he paid his personal expenses directly from the company bank account. Initially, the Defendant filed no federal returns at all for these years. However, in order to qualify for a mortgage, the Defendant ultimately filed his 2003 and 2004 returns late. In doing so, the Defendant generated Form W-2s that falsely indicated that the Defendant had been paid wages and that federal taxes had been withheld. The Defendant then used those figures to complete his Form 1040s for both years, enabling him to fraudulently collect refunds of $4,444.50 for tax year 2003 and $7,479.13 for tax year 2004. In 2005 and 2006, the Defendant added himself to the CRB payroll as an employee with an annual salary of $234,000. Again, however, the Defendant falsified his Form 1040s to indicate that federal taxes had been withheld from his salary when in fact none had been withheld. As a result, the Defendant collected refunds of $6,689.12 for tax year 2005 and $10,780 for tax year 2006 when, in reality, he owed $45,098 and $40,905 for those tax years respectively.

On December 8, 2010, Mr. Register was indicted on thirteen counts of willful failure to pay over taxes in violation of 26 U.S.C. § 7202, available here. Each count charged that federal income taxes and FICA taxes had been withheld from the wages of CRB employees during a particular quarter but were never paid over to the IRS.  The thirteen failure-to-pay-over counts in the indictment covered the period from the fourth quarter of 2004 through the fourth quarter of 2007.

The Defendant was also indicted on four counts of filing false individual federal income tax returns in violation of 26 U.S.C. § 7206(1), available here. Each count charged that the Defendant had falsely stated on his return for a particular year that federal income tax had been withheld when, in fact, he knew that it had not. The four filing-false-returns counts in the indictment covered the 2003 through 2006 tax years.

The Defendant pleaded guilty to seventeen counts of tax-related offenses. The first thirteen concerned his failure to pay over to the IRS federal taxes that had been withheld from the wages of his companys employees. The remaining four concerned the falsification of his individual federal income tax returns. After accepting his plea and holding a sentencing hearing, the district court sentenced him to twenty-seven months in prison. On appeal, the Defendant challenged the district courts calculation of the applicable guideline range under the United States Sentencing Guidelines Manual (“Guidelines” or “U.S.S.G.”).  Specifically, he argued that the district court erred by refusing to group all of his counts into a single group pursuant to U.S.S.G. § 3D1.2(b) or (d), available here,  as “counts involving substantially the same harm.”

At the sentencing hearing on May 31, 2011, the Defendant and the United States again agreed that all of the counts should be grouped for sentencing. The district court, however, disagreed with both parties and sided with the probation officer. The district court rejected the argument that the counts should all be grouped together under U.S.S.G. § 3D1.2(b), because they did not involve the same criminal objective or the same victim. And the district court rejected the alternative argument that the counts should all be grouped together under  U.S.S.G. § 3D1.2(d), because it “seem[ed] unusual” to aggregate the losses for two different offenses merely because the offense level for each is determined largely on the basis of the total amount of loss.

Therefore, the district court concluded that the total offense level was 16, which yielded a guideline range of 21 to 27 months. (If the district court had actually grouped together all seventeen counts, Registers total offense level would have been 15 instead of 16, yielding a guideline range of 18 to 24 months.) The Defendant and the United States each sought a sentence at the low end of the guideline range. The district court, however, sentenced Register to 27 months, the top of the range, on each of the seventeen counts, all to run concurrently.

The 11th Circuit observed that under the Sentencing Guidelines, counts are to be grouped together for purposes of calculating the appropriate guideline range whenever they involve “substantially the same harm.” U.S.S.G. § 3D1.2. Section 3D1.2(d) provides, in pertinent part, that counts involve substantially the same harm “[w]hen the offense level is determined largely on the basis of the total amount of harm or loss, the quantity of a substance involved, or some other measure of aggregate harm.” 

The 11th Circuit further noted that subsection (d) includes a list of guidelines covering offenses predetermined to meet its requirements and provides that they “are to be grouped.”U.S.S.G. § 3D1.2(d). Nevertheless, when the counts involve offenses to which different guidelines apply, grouping is not automatic even if all of the applicable guidelines are included in this list. United States v. Harper, 972 F.2d 321, 322 (11th Cir. 1992) (per curiam), available

here. Rather, “[c]ounts involving offenses to which different offense guidelines apply are grouped together under subsection (d) if the offenses are of the same general type and otherwise meet the criteria for grouping under this subsection.” U.S.S.G. § 3D1.2(d) cmt. n.6. “The Ëœsame general type of offense is to be construed broadly.” Id. In addition, cases have required that the offenses not only be similar in a general sense but also “closely related” on the facts of the particular case.

In determining that the Defendants tax related counts should have been grouped together, the 11th Circuit stated as follows:

As an initial matter, we have no difficulty concluding that Registers offenses otherwise meet the criteria for grouping under [subsection (d)]. The applicable guideline for the failure-to-pay-over counts is § 2T1.6, entitled “Failing to Collect or Truthfully Account for and Pay Over Tax,” and the applicable guideline for the filing-false-returns counts is § 2T1.1, entitled “Tax Evasion; Willful Failure to File Return, Supply Information, or Pay Tax; Fraudulent or False Returns, Statements, or Other Documents.” Inasmuch as both guidelines are expressly included in the “are to be grouped” together list, they clearly “otherwise meet the criteria” for grouping under subsection (d). See U.S.S.G. § 3D1.2(d).

The 11th Circuit further held that:  “Although Registers failure-to-pay-over counts under § 7202 and filing-false-returns counts under § 7206(1) are governed by different guidelines, we conclude that the underlying offenses are Ëœof the same general type.” Both are tax offenses governed by the Internal Revenue Code and Part T of the Sentencing Guidelines. The “measure of aggregate harm” is the same in both, since each involves a monetary objective. See U.S.S.G. § 3D1.2 cmt. n.6 ex. 3 (“The defendant is convicted of five counts of mail fraud and ten counts of wire fraud. Although the counts arise from various schemes, each involves a monetary objective. All fifteen counts are to be grouped together.”). And while the guidelines themselves may be different, notably, the base offense level for both is determined by looking up the amount of tax loss in the same Tax Table located at § 2T4.1. Moreover, on the facts of this case, grouping the offenses serves § 3D1.2s principal purpose of combin[ing] offenses involving closely related counts.”

Based on this analysis, the 11th Circuit determined that all 17 of the Defendants counts should have been grouped together, resulting in a lower sentencing guideline range.  As a result, the 11th Circuit vacated the Defendants sentence  and remanded the case to the district court for resentencing.

The attorneys at Fuerst Ittleman, PL have extensive criminal and civil tax litigation experience at both the trial and the appellate levels.  You can contact an attorney by calling us at 305.350.5690 or by emailing us at contact@fidjlaw.com.

FDA Announces Delay in Compliance Deadlines for New Sunscreen Regulations

On May 11, 2012, the U.S. Food & Drug Administration (“FDA”) announced that it has delayed the compliance deadlines for the final rule for over-the-counter (“OTC”) sunscreen drug products that was published in the Federal Register on June 17, 2011. See 76 Fed. Reg. 35620 (June 17, 2011). Previously, the compliance deadlines were set to take effect on June 18, 2012 for OTC sunscreen products with annual sales of $25,000 and June 18, 2013 for those OTC products with less than $25,000 in annual sales. However, manufacturers now have an additional six months for compliance, meaning the rules will become mandatory December 18, 2012 and December 18, 2013 respectively. A copy of the FDAs announcement which was published in the Federal Register can be read here.

As we previously reported, in June of 2011, the FDA announced changes to the requirements for OTC sunscreen products as part of its ongoing efforts to ensure that sunscreens meet modern-day standards for safety and effectiveness. The final rule established labeling and effectiveness testing for certain OTC sunscreen products containing specified active ingredients and marketed without approved applications.

More specifically, under the new rule, sunscreens will no longer be allowed to be labeled as “waterproof” or “sweatproof” because the FDA believes these claims are misleading and overstate the effectiveness of the products. Instead, the new rules require manufacturers to indicate on the front label whether the sunscreen product is effective for either 40 minutes or 80 minutes while swimming or sweating, or if the product is not water resistant, to direct consumers to use a water resistant sunscreen if swimming or sweating. In addition, the new rule allows products to claim they offer “broad spectrum” protection only if they pass specific FDA tests for blocking both Ultraviolent A rays (“UVA”) and Ultraviolet B rays (“UVB”), and if they have an SPF of at least 15. The new rules provide that if a sunscreen do not protect against UVA, or has an SPF of less than 15, then the product must carry a warning which states that the product does not protect against skin cancer.

The delay in compliance deadlines was prompted by two interrelated concerns of the FDA: 1) manufacturers were simply not ready to be fully compliant; and 2) because manufacturers would not be able to be fully compliant by the June 18, 2012 deadline, a summer shortage of sunscreen could have resulted if manufacturers were prohibited from shipping products with old labels. As explained by the FDA:

One of our primary objectives in the 2011 final rule is to provide labeling that will enable consumers to identify and select sunscreen products that provide broad spectrum protection as well as a minimum SPF of 15. These sunscreens are particularly important for public health because, in addition to helping prevent sunburn, sunscreens with a broad spectrum SPF value of 15 or higher, if used as directed with other sun protection measures, decrease the risk of skin cancer and early skin aging caused by the sun. If the timeline for implementation discourages manufacturers from conducting broad spectrum testing, and instead prompts them to apply the labeling that the final rule establishes for products that have not been established to offer broad spectrum protection, a major public health goal will be undermined.

77 Fed. Reg. 27592 (May 11, 2012). Thus, the FDA determined that “allowing adequate time for the 2011 final rule requirements to be fully implemented is in the interest of public health.” Id.

Fuerst Ittleman will continue to monitor the FDAs rules for labeling and effectiveness testing of sunscreen products and other products or devices related to UVA or UVB exposure. For more information, please contact us at contact@fidjlaw.com.

CMS Delays Data Collection by Manufacturers under the Physician Payments Sunshine Act Until January 1, 2013

On May 3, 2012, Marilyn Travenner, Acting Administrator of the Centers for Medicare and Medicaid Services (“CMS”), sent a letter to Senator Charles Grassley (R-IA) formally responding to a letter sent to her on April 4, 2012 by Senator Grassley and Senator Herb Kohl (D-WI) urging CMS to issue its final rule implementing the Physician Payments Sunshine Act (“the Sunshine Act”) (see our previous post here). The CMS letter states, among other things, that drug and medical device manufacturers do not need to begin collecting data required under the Sunshine Act before January 1, 2013.

As we previously reported, the Sunshine Act, section 6002 of the Patient Protection and Affordable Care Act (“PPACA”), requires drug and medical device manufacturers to annually report to CMS payments made to physicians, and also requires that CMS, in turn, provide these required payment disclosure reports to the public through a searchable website. CMS published a proposed rule on December 19, 2011 with a 60-day comment period. As of the close of the comment period on February 17, 2012, CMS had received over 300 comments from a variety of stakeholders.

In their April 4 letter, Senators Grassley and Kohl urged CMS to release a final rule implementing the Sunshine Act by June of 2012 so that drug and device manufacturers could do a partial reporting to CMS for 2012. However, in its response letter, CMS stated that in order for a sufficient amount of data to be collected in 2012, the final rule would have to be issued in early 2012 to allow applicable manufactures an appropriate time period to collect and prepare the data submissions. The letter states,  “[g]iven the volume of the public comments received, and the numerous important issues to be clarified and refined in the final rule, CMS does not believe it is feasible to address all of the remaining issues in such a short time period.” CMS does intend to release a final rule later this year, but it will not require data collection by manufacturers before January 1, 2013.

In CMSs May 3 response to the Senators, Administrator Tavenner states that CMS has identified an internal work group for implementation, which is composed of both technical and policy staff. Currently, the work group is assessing the staffing and resources that will be required for full implementation of the Sunshine Act. The letter also states that CMS plans to issue a request for proposal this year to further aid with implementation.

Fuerst Ittleman will continue to monitor CMSs progress on issuing the final rule implementing the Sunshine Act. For more information, please contact us at contact@fuerstittleman.com or (305) 350-5690.