On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Crim. No. 02-cr-00324) District Judge: Hon. James T. Giles.
The opinion of the court was delivered by: Sloviter, Circuit Judge
Before: SLOVITER, McKEE and ROSENN,*fn2 Circuit Judges.
Appellant James C. Fallon was convicted by a jury of one count of wire fraud and three counts of mail fraud in the United States District Court for the Eastern District of Pennsylvania. This is an appeal of the District Court's judgment of conviction and sentence entered on October 16, 2003.*fn3
Fallon was the president of Derma Genesis, a company which manufactured and distributed microdermabradors under the name "Derma Peel."*fn4 Dermabradors are classified by the Food, Drug, and Cosmetic Act ("FDCA") as class I medical devices (a device which carries the lowest amount of medical risk). See generally 21 U.S.C. § 360c(a). Prior to February 18, 1998, manufacturers who wished to market a Class I device were required to first obtain a 510(k) letter from the Food and Drug Administration, indicating that the device was substantially equivalent to an existing device previously approved for distribution. See generally 21 U.S.C. § 360(k).*fn5
In November 1997, the FDA received notice that Fallon was marketing Derma Peel without obtaining the requisite clearance from the FDA. By letter dated November 4, 1997, a representative of the FDA informed Fallon that this practice was prohibited; Fallon acknowledged receipt of the letter and filed a formal clearance application on November 19, 1997. On that date, the FDA assigned a unique computer-generated number to his application, and sent Fallon a letter instructing him to use the number on all future correspondence.
In January 1998, prior to obtaining 510(k) approval from the FDA, Fallon met with a group of medical-device salesman in an effort to promote the Derma Peel. In attendance was Michael Coffelt, director of medical sales for a company in the process of merging with American Business Leasing ("ABL"). Coffelt was impressed with Fallon's presentation and recommended to ABL that it enter into a vendor agreement with Derma Genesis, whereby ABL would buy Derma Peel devices and lease them to interested doctors.
ABL's credit personnel were reluctant to do business with Derma Genesis because Fallon had previously filed for bankruptcy protection, Derma Genesis was a start-up company with an unproven track record and unproven equipment, and because Fallon failed to provide certain requested tax and social security information. Coffelt, however, lobbied ABL to reconsider its decision.
On February 9, 1998, Fallon faxed to ABL, among other things, a purported 510(k) clearance letter on FDA letterhead. The government's evidence at trial demonstrated definitively that the letter was a fabrication. The November 4, 1997 date stamp of the letter was lifted from an earlier FDA correspondence to Fallon, which cautioned him not to market Derma Peel until he had obtained prior FDA clearance. Further, although the letter was purportedly signed by Consumer Safety Officer "Margaret Shuppers," FDA's records reveal that there has never been an FDA employee by that name. Finally, the letter bore Fallon's unique 510(k) application number, even though that number was not assigned to him until November 19, 1997, two weeks after the November 4 date stamp.*fn6
In February of 1998, Alan Frankel, president of ABL, authorized the company to enter into a relationship with Fallon.*fn7
Over the next several months, ABL purchased 70 microdermabradors from Derma Genesis which it planned to lease to physicians. ABL's relationship with Derma Genesis ended in October 1998, after ABL determined that the value of the devices had dropped significantly over the course of the year and that an abnormally high percentage of doctors were behind on their lease payments.
On June 4, 2002, Fallon was indicted by a grand jury and charged with one count of wire fraud, in violation of 18 U.S.C. § 1341, and four counts of mail fraud, in violation of 18 U.S.C. § 1343. A superseding indictment was returned on October 1, 2002, adding one count of witness tampering in violation of 18 U.S.C. § 1512. The basis for the fraud charges was the fabricated FDA clearance letter.
At trial, Frankel testified that ABL had a policy of requiring FDA clearance from medical device manufacturers which he claimed he had brought with him from his prior employer, Capelco Leasing. He further testified that he explicitly required Fallon to produce a 510(k) clearance letter as a condition to doing business with Derma ...