Michael Friedman v. Kathleen Sebelius

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 6, 2011 Decided July 27, 2012

No. 11-5028

MICHAEL FRIEDMAN, ET AL.,

APPELLANTS

v.

KATHLEEN SEBELIUS, IN HER OFFICIAL CAPACITY AS

SECRETARY, DEPARTMENT OF HEALTH AND HUMAN SERVICES

AND DANIEL R. LEVINSON, IN HIS OFFICIAL CAPACITY AS

INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND HUMAN

SERVICES,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:09-cv-02028)

Carter G. Phillips argued the cause for appellants. With

him on the briefs were Matthew D. Krueger, Joseph R.

Guerra, Anand H. Das, Jonathan L. Abram, and Jonathan L.

Diesenhaus.

Lisa S. Blatt, Jeffrey L. Handwerker, and Dirk C. Phillips

were on the brief for amicus curiae Pharmaceutical Research

and Manufacturers of America in support of appellants.

2

Amar D. Sarwal was on the brief for amicus curiae

Association of Corporate Counsel in support of appellants.

Michael A. Carvin, Daniel J. Popeo, and Richard A.

Samp were on the brief for amicus curiae Washington Legal

Foundation in support of appellants.

Robin M. Meriweather, Assistant U.S. Attorney, argued

the cause for appellees. With her on the brief were Ronald C.

Machen Jr., U.S. Attorney, and R. Craig Lawrence, Assistant

U.S. Attorney.

Before: SENTELLE, Chief Judge, WILLIAMS and

GINSBURG, Senior Circuit Judges.

Opinion for the Court by Senior Circuit Judge

GINSBURG.

Opinion concurring in part, dissenting in part, and

dissenting from the judgment filed by Chief Judge SENTELLE.

Opinion dissenting in part, concurring in part, and

concurring in the judgment filed by Senior Circuit Judge

WILLIAMS.

GINSBURG, Senior Circuit Judge: Michael Friedman,

Paul Goldenheim, and Howard Udell were executives at the

Purdue Frederick Company when it misbranded a drug, to

wit, the painkiller OxyContin, a schedule II controlled

substance. The Company was convicted of fraudulent

misbranding, a felony, whilst the executives were convicted

under the “responsible corporate officer” doctrine of the

misdemeanor of misbranding a drug. Based upon their

convictions, the Secretary of Health and Human Services later

excluded the individuals from participation in Federal health

3

care programs for 12 years, pursuant to 42 U.S.C. § 1320a-

7(b). They sought review of the Secretary’s decision in the

district court, arguing section 1320a-7(b) does not authorize

their exclusion and, in any event, the Secretary’s decision was

unsupported by substantial evidence and was arbitrary and

capricious because she failed to give a reasoned explanation

for the allegedly unprecedented length of their exclusions.

The district court granted summary judgment for the

Secretary.

We hold the statute authorized the Secretary’s exclusion

of the three executives but her decision was arbitrary and

capricious for want of a reasoned explanation for the length of

their exclusions. We therefore reverse the judgment of the

district court and direct it to remand the matter to the

Secretary for further proceedings.

I. Background

The Appellants were senior corporate officers at Purdue

when the Company developed and marketed OxyContin.

According to the Information initiating the criminal cases

against the Appellants and the Company, the “misbranding”

occurred when unnamed employees at Purdue, “with the

intent to defraud or mislead, marketed and promoted

OxyContin as less addictive, less subject to abuse and

diversion, and less likely to cause tolerance and withdrawal

than other pain medications.” United States v. Purdue

Frederick Co., 495 F. Supp. 2d 569, 571 (W.D. Va. 2007).

Purdue pleaded guilty to felony misbranding, in violation of

21 U.S.C. § 331(a) and § 333(a)(2). Id. at 570. Pursuant to

the plea agreement, the district court put the Company on

probation for five years, fined it $500,000, and imposed other

monetary sanctions totaling approximately $600 million, of

which approximately $160 million was earmarked for

4

restitution to Federal and State health care agencies, which

had been large buyers of the misbranded drug. Id. at 572. At

the same time, the Appellants pleaded guilty to misdemeanor

misbranding, in violation of 21 U.S.C. § 331(a) and §

333(a)(1), for their admitted failure to prevent Purdue’s

fraudulent marketing of OxyContin; each was sentenced to do

400 hours of community service, fined $5,000, and put on

probation for three years. The sentencing court also ordered

the Appellants to disgorge compensation they had received

from Purdue totaling approximately $34.5 million.

Under the “responsible corporate officer” (RCO)

doctrine, a “corporate agent, through whose act, default, or

omission the corporation committed a crime” in violation of

the Food, Drug, and Cosmetic Act may be held criminally

liable for the wrongdoing of the corporation “whether or not

the crime required ‘consciousness of wrongdoing’” by the

agent. United States v. Park, 421 U.S. 658, 670 (1975).

Criminal liability under the RCO doctrine extends “not only

to those corporate agents who themselves committed the

criminal act, but also to those who by virtue of their

managerial positions or other similar relation to the actor

could be deemed responsible for its commission.” Id. A

corporate officer may therefore be guilty of misdemeanor

misbranding without “knowledge of, or personal participation

in,” the underlying fraudulent conduct. Id. The Appellants,

as part of their plea agreements, admitted having

“responsibility and authority either to prevent in the first

instance or to promptly correct” the misrepresentations certain

unnamed Purdue employees made regarding OxyContin and

thereby, under the RCO doctrine, admitted being guilty of

misdemeanor misbranding.

Several months after the Appellants had been convicted,

the Office of the Inspector General (OIG) of the Department

5

of Health and Human Services determined the Appellants

should be excluded from participation in Federal health care

programs for 20 years, pursuant to 42 U.S.C. § 1320a-7(b)(1)

and (3). * The OIG based the length of the Appellants’

exclusion upon three aggravating factors listed in the

Department’s published regulations — the conduct underlying

the convictions lasting more than one year, the amount of the

financial loss, and the significant adverse physical or mental

impact upon program beneficiaries. See 42 C.F.R. §

1001.201(b)(2)(i)–(iii); id. § 1001.401(c)(2)(i)–(ii).

The executives appealed the OIG’s determination to an

Administrative Law Judge and ultimately to the Departmental

Appeals Board, to which the Secretary had delegated

authority to review decisions to exclude an individual.

During the pendency of the appeal to the ALJ, the OIG

reduced the length of the exclusion to 15 years because the

*

Section 1320a-7(b)(1)(a) authorizes the Secretary to exclude any

“individual ... [who] has been convicted ... of a criminal offense

consisting of a misdemeanor relating to fraud, theft, embezzlement,

breach of fiduciary responsibility, or other financial misconduct ...

in connection with the delivery of a health care item or service.”

Section 1320a-7(b)(3) authorizes the Secretary to exclude any

“individual ... [who] has been convicted ... of a criminal offense

consisting of a misdemeanor relating to the unlawful manufacture,

distribution, prescription, or dispensing of a controlled substance.”

The length of an exclusion predicated upon a conviction for a

misdemeanor “shall be 3 years, unless the Secretary determines in

accordance with published regulations that a shorter period is

appropriate because of mitigating circumstances or that a longer

period is appropriate because of aggravating circumstances.” 42

U.S.C. § 1320a-(7)(c)(3)(D). 42 C.F.R. § 1001.2 provides “items

and services furnished, ordered, or prescribed by [an excluded

person] will not be reimbursed under Medicare, Medicaid and all

other Federal health care programs until [that person] is reinstated

by the OIG.”

6

Appellants had assisted law enforcement authorities to

combat abuse of OxyContin, a mitigating factor. The ALJ

affirmed the 15-year exclusion as being within a “reasonable

range.” The DAB affirmed that decision, interpreting the

statute to authorize the exclusion of an individual convicted of

a misdemeanor when the facts underlying that conviction

have a “nexus or common sense connection” either to fraud or

to the distribution of a controlled substance. The DAB found

the Appellants’ “misdemeanor misbranding offense” had the

requisite connection to fraud because “[t]he actual

misbranding that resulted in [their] conviction was the

[Company’s] fraudulent misbranding of OxyContin.” The

DAB further reduced the length of the exclusion to 12 years

on the ground the “ALJ’s finding that [the Appellants’]

crimes had an adverse impact on program beneficiaries and

others is not supported by substantial evidence” because there

is no evidence the misbranded Oxycontin had any adverse

effect.

The Appellants sought review in the district court, which

held the statute authorized their exclusion because, “by its

plain terms, section 1320a-7(b)(1) appears to permit the

exclusion of anyone convicted of an offense ‘having a

connection with or reference to’ fraud or financial misconduct

in the delivery of a health care item or service.” Friedman v.

Sebelius, 755 F. Supp. 2d 98, 107–08 (D.D.C. 2010) (quoting

Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384

(1992)). * The district court upheld the length of the exclusion

because it concluded the DAB’s application of the

aggravating and mitigating factors was supported by

substantial evidence. Id. at 117.

*

Because we hold the exclusion was lawful under section (b)(1),

we do not pass upon the parties’ dispute over whether the

Appellants could be excluded pursuant to section (b)(3).

7

II. Analysis

We review the judgment of the district court de novo. Se.

Ala. Med. Ctr. v. Sebelius, 572 F.3d 912, 916 (D.C. Cir. 2009)

(“In reviewing HHS’s actions on appeal from the district

court, this court addresses the issue de novo, without

deference to the decision of the district court” (internal

quotation marks and citation omitted)). We are to uphold the

Secretary’s decision to exclude the Appellants if it was “based

on substantial evidence in the record and correctly applie[d]

the relevant legal standards.” Rosello v. Astrue, 529 F.3d

1181, 1184 (D.C. Cir. 2008) (internal quotation marks and

citation omitted); see also 42 U.S.C. § 1320a-7(f) (providing

for review pursuant to 42 U.S.C. § 405(g) of the Secretary’s

decision to exclude an individual); id. § 405(g) (“The findings

of the [Secretary of Health and Human Services] as to any

fact, if supported by substantial evidence, shall be

conclusive”). We will defer to the Secretary’s reasonable

interpretation of the statute she administers. Sullivan v.

Everhart, 494 U.S. 83, 88–89 (1990) (applying Chevron

deference in reviewing per § 405(g) Secretary’s interpretation

of the Social Security Act).

The Appellants contend section 1320a-7(b)(1) does not

authorize their exclusion because misdemeanor misbranding

is not a “misdemeanor relating to fraud.” They also argue

that, even if the statute authorizes their exclusion, the

Secretary’s decision to exclude them for 12 years was

unsupported by substantial evidence and was arbitrary and

capricious.

A. Statutory Grounds for the Appellants’ Exclusion

The Appellants first argue misdemeanor misbranding is

not a “criminal offense consisting in a misdemeanor relating

8

to fraud” because it lacks the allegedly requisite “‘generic’

relationship to fraud.” On their view, it is not enough for the

conduct underlying a particular conviction to be factually

related to fraud; the generic misdemeanor must comprise the

“core elements” of fraud, one of which is scienter.

Misdemeanor misbranding does not necessarily require a

culpable mental state because a conviction for the offense

may be, and in this case was, predicated upon the responsible

corporate officer doctrine, which entails strict liability. The

Secretary defends her interpretation by arguing that under the

DAB’s “‘intuitive, ordinary reading’ of the statute, [the

Appellants’] convictions ... ‘relate to’ fraud or unlawful

distribution of a controlled substance [because] there is a

‘nexus’ or ‘common sense connection’ between their

convictions and those statutory bases for exclusion.”

This case therefore presents the question whether the

phrase “misdemeanor relating to fraud” in section 1320a-

7(b)(1)(A) refers to a generic criminal offense or to the facts

underlying the particular defendant’s conviction. As the

Supreme Court has pointed out, “in ordinary speech words

such as ‘crime,’ ‘felony,’ ‘offense,’ and the like sometimes

refer to a generic crime, say, the crime of fraud or theft in

general, and sometimes refer to the specific acts in which an

offender engaged on a specific occasion, say, the fraud that

the defendant planned and executed last month.” Nijhawan v.

Holder, 557 U.S. 29, 33–34 (2009). The “categorical

approach,” according to which the statutory term refers to the

generic criminal offense, “prohibits the later court from

delving into particular facts disclosed by the record of

conviction” and directs that court to “look only to the fact of

conviction and the statutory definition of the prior offense,”

including the elements of that offense. Shepard v. United

States, 544 U.S. 13, 17 (2005) (internal quotation marks and

citation omitted). Under the “circumstance-specific”

9

approach, by contrast, the statutory term refers to the

particular conduct giving rise to the conviction and so the

court “must look to the facts and circumstances underlying an

offender’s conviction” to determine whether that conviction is

covered by the statute. Nijhawan, 557 U.S. at 34. Whether

the Congress intended the categorical or the circumstance-

specific approach is to be discerned from the text, structure,

and purpose of the particular statute at issue. Compare Taylor

v. United States, 495 U.S. 575, 600–602 (1990) (applying

“formal categorical approach” to phrase “any crime ... that ...

is burglary” in statute providing for sentencing enhancement

based upon defendant’s prior convictions), with Nijhawan,

557 U.S. at 36 (applying circumstance-specific approach to

phrase “fraud or deceit in which the loss to the victim or

victims exceeds $10,000” in statute providing for

deportation).

Although a reviewing court proceeding under section

405(g) generally defers to the Secretary’s interpretation of an

ambiguous provision of a statute she administers, see

Everhart, 494 U.S. at 88–89, the Appellants argue her

interpretation of section 1320a-7(b)(1)(A) in this case does

not warrant deference: “Nothing in the exclusion statute

evinces Congress’ intent to empower the agency to ‘speak

with the force of law’ ... when addressing ambiguities in the

phrase[] ‘misdemeanor relating to fraud.’” Brief at 20,

quoting United States v. Mead Corp., 533 U.S. 218, 229

(2001). They contend the Congress did not delegate authority

to interpret the phrase “misdemeanor relating to fraud”

because that phrase is a term of art in criminal law and

therefore outside the scope of the Secretary’s subject-matter

expertise and more suited to judicial interpretation.

Courts defer to an agency’s interpretation of a law it

administers only to the extent the Congress has delegated

10

interpretive authority to the agency. Adams Fruit Co. v.

Barrett, 494 U.S. 638, 649 (1990). * With respect to section

1320a-7(b)(1), however, we need not decide whether the

Congress authorized the Secretary “to speak with the force of

law when [she] addresses ambiguity in the statute,” Mead

Corp., 533 U.S. at 229, because the statute unambiguously

authorizes her to exclude the Appellants. The text, structure,

and purpose of the statute, viz., to protect Federal health care

programs from financial harm wrought by untrustworthy

providers, all indicate the Secretary’s circumstance-specific

approach is proper; i.e., the statute authorizes exclusion of an

*

There appears to be a split in authority on the question whether to

defer to an agency’s interpretation of a term drawn from criminal

law but used in a statute the agency administers. Compare, e.g.,

Wong Park v. Att’y Gen., 472 F.3d 66, 70 (3d Cir. 2006) (“[N]either

the Attorney General nor the BIA ... is entitled to Chevron

deference as to whether a particular federal offense is an aggravated

felony [as that term appears in the Immigration and Naturalization

Act]” (internal quotation marks and citation omitted)), with James

v. Mukasey, 522 F.3d 250, 254 (2d Cir. 2008) (“we defer to the

BIA’s interpretation of [the INA] in determining the meaning of

‘sexual abuse of a minor’” as it appears in the INA but not to its

“interpret[ation] of state or federal criminal laws” themselves), and

Mugalli v. Ashcroft, 258 F.3d 52, 56 (2d Cir. 2001) (“[W]e defer to

the BIA’s interpretation of [the INA] in determining the meaning of

‘sexual abuse of a minor’”). In Nijhawan the Supreme Court,

neither deferring nor mentioning the Government’s argument for

deferring to the BIA’s interpretation of the INA, decided the term

“fraud or deceit in which the loss to the victim or victims exceeds

$10,000” calls for the circumstance-specific approach, 557 U.S. at

36, even though the Court had only recently made clear that,

“[c]onsistent with the rule in Chevron ..., the BIA is entitled to

deference in interpreting ambiguous provisions of the INA,”

Negusie v. Holder, 555 U.S. 511, 516 (2009) (denying Chevron

deference where BIA decision was based upon “mistaken legal

premise” regarding a prior decision of the Court).

11

individual whose conviction was for conduct factually related

to fraud.

Section 1320a-7(b)(1)(A), 42 U.S.C. § 1320a-7(b)(1), *

provides:

(b) Permissive exclusion

The Secretary may exclude ... from participation in

any Federal health care program ...

(1) Conviction relating to fraud

Any individual or entity that has been

convicted ...

(A) of a criminal offense consisting of

a misdemeanor relating to fraud, theft,

embezzlement, breach of fiduciary

responsibility, or other financial

misconduct ....

The key phrase in this provision is “relating to,” the

“ordinary meaning of [which] is a broad one — ‘to stand in

some relation; to have bearing or concern; to pertain; refer; to

bring into association with or connection with.’” Morales,

504 U.S. at 383 (quoting BLACK’S LAW DICTIONARY 1158

(5th ed. 1979)); see also Metropolitan Life Ins. Co. v. Mass.,

471 U.S. 724, 739 (1985) (“The phrase ‘relate to’ [has a]

broad common-sense meaning” and a statutory provision

containing the phrase therefore has “broad scope”).

Accordingly, just as the Secretary contends, a misdemeanor

“relat[es] to” fraud “in the normal sense of the phrase, if it has

a connection with, or reference to” fraud, Ingersoll-Rand Co.

v. McClendon, 498 U.S. 133, 139 (1990). The established

meaning of these “deliberately expansive” words, Pilot Life

*

The full text of the relevant sections of the permissive exclusion

statute, 42 U.S.C. § 1320a-7(b)(1)–(3), is set out in the Appendix.

12

Ins. Co. v. Dedeaux, 481 U.S. 41, 46 (1987), is therefore at

odds with the Appellants’ crabbed and formalistic

interpretation. Rather than referring only to generic

misdemeanor offenses that share all the “core elements” of

fraud, the capacious phrase includes any criminal conduct that

has a factual “connection with” fraud. Cf. Morales, 504 U.S.

at 388–89 (“compelling or restricting ‘[p]rice advertising

surely ‘relates to’ price’” because “it is clear as an economic

matter that state restrictions on fare advertising have the

forbidden significant effect upon fares” (citation omitted)).

The rest of section 1320a-7(b)(1)(A) confirms its broad

scope. It authorizes the Secretary to exclude not only a

person convicted of “a criminal offense consisting of a

misdemeanor relating to fraud” but also one convicted of “a

criminal offense consisting of a misdemeanor relating to ...

theft, embezzlement, breach of fiduciary duty, or other

financial misconduct.” The residual clause “other financial

misconduct” expressly refers to a type of “conduct,” not to a

genus of criminal offense. The relationship of a

“misdemeanor” to “other financial misconduct” must

therefore be a factual one. The term “misdemeanor”

accordingly refers to the particular circumstances of an

individual’s conviction, and “relating to” must denote a

factual relationship between the conduct underlying the

misdemeanor and the conduct underlying a “fraud.”

The heading of section 1320a-7(b)(1) (“Conviction

relating to fraud”) further supports this reading of the

provision. “Although the title of a statute and the heading of

a section cannot limit the plain meaning of the text, they

remain tools available for the resolution of a doubt about

statutory meaning.” Hays v. Sebelius 589 F.3d 1279, 1282

(D.C. Cir. 2009) (internal quotation marks and citation

omitted); see also INS v. Nat’l Ctr. for Immigrants’ Rights,

13

Inc., 502 U.S. 183, 189 (1991) (“[T]he title of a statute or

section can aid in resolving an ambiguity in the legislation’s

text” (citations omitted)). In the heading to section 1320a-

7(b)(1) as enacted, “relating to fraud” modifies

“[c]onviction.” See Medicare and Medicaid Patient Program

Protection Act of 1987, Pub. L. No. 100-93, 101 Stat. 680

(1987) (codified at 42 U.S.C. § 1320a-7). In the provision

itself, of course, “relating to fraud” modifies “misdemeanor.”

Thus, we see the Congress used “conviction” and

“misdemeanor” interchangeably, and a “conviction,” is, of

course, a particular event on a particular occasion and so

refers to a set of facts, and not to a generic crime. Hence, the

parallel between the heading of section 1320a-7(b)(1) and the

text of section 1320a-7(b)(1)(A) implies the word

“misdemeanor” also refers to the facts underlying a particular

conviction.

The text and structure of the provisions adjoining section

1320a-7(b)(1)(A) further confirm this interpretation. In both

section (b)(1)(B) and section (b)(2), the phrase “relating to”

denotes a factual relationship. The former provision

authorizes the Secretary to exclude a person convicted of “a

criminal offense relating to fraud ... with respect to any act or

omission in a program (other than a health care program)

operated by or financed in whole or in part by any Federal,

State, or local government agency.” The phrase “fraud ...

with respect to any act or omission in a program” does not

refer to a generic offense but rather to criminal conduct that,

as a matter of fact, relates to a program financed by a

government agency. Addressing an analogous phrase in an

immigration statute providing for deportation, the Supreme

Court explained:

[The phrase] “falsely making, forging, counterfeiting,

mutilating, or altering a passport ... except in the case

14

of a first offense for which the alien ... committed the

offense for the purpose of assisting ... the alien’s

spouse, child, or parent” ... cannot possibly refer to a

generic crime. That is because there is no such

generic crime; there is no criminal statute that contains

any such exception. Thus if the provision is to have

any meaning at all, the exception must refer to the

particular circumstances in which an offender

committed the crime on a particular occasion.

Nijhawan, 557 U.S. at 37–38 (quoting 8 U.S.C. §

1101(a)(43)(P)).

Like the exception in the immigration statute analyzed in

Nijhawan, the limiting clause in section (b)(1)(B) does not

pick out a generic class of offenses because there is no

generic crime of defrauding a program other than a health

care program financed in whole or in part by a government

agency. Again like the exception in the immigration statute,

the limiting clause in section (b)(1)(B), therefore, restricts the

scope of the named offense – fraud – to frauds committed in

certain factual circumstances. It follows that the “criminal

offense” listed in section (b)(1)(B) must “relat[e] to fraud”

because it has a factual relationship to conduct committed on

a particular occasion.

Section 1320a-7(b)(2)(ii) similarly authorizes the

Secretary to exclude from participation in Federal health care

programs any individual “convicted ... in connection with the

interference with or obstruction of any investigation or audit

related to ... the use of funds received ... from any Federal

health care program.” The phrase “the use of funds” does not

refer to a generic offense and therefore must refer to specific

facts on a particular occasion. As a result, “related to” in this

provision denotes a factual connection between an

15

“investigation or audit” and “the use of funds.” It is simply

implausible that the Congress used “relating to” in section

1320a-7(b)(1)(B) and the functionally identical phrase

“related to” in section 1320a-7(b)(2) to denote a relationship

between factual situations but used the same phrase in section

1320a-7(b)(1) to denote a relationship between generic

offenses. The only reasonable interpretation is that in all

three provisions the phrases refer to a factual relationship.

See Mohamad v. Rajoub, 634 F.3d 604, 608 (D.C. Cir. 2011)

(“the same word[s] appearing in different portions of a single

provision or act [are] taken to have the same meaning in each

appearance” (internal quotation marks and citation omitted)).

The Appellants offer several arguments for a contrary

reading. First, they argue applying the circumstance-specific

approach gives no separate meaning to the phrase “relating

to” in section (b)(1)(A) and the phrase “in connection with” in

sections (b)(1)(A)(i) and (b)(2). According to the Appellants,

because “in connection with” denotes a factual relationship

between the conviction and “the delivery of a health care item

or service” in section (b)(1)(A)(i) and between the conviction

and “the interference with or obstruction of any investigation

or audit” in section (b)(2), “relating to” in section (b)(1)(A)

must denote a generic, not a factual relationship. The

Appellant’s interpretation of section (b)(1)(A)(i)

(“misdemeanor relating to fraud ... in connection with the

delivery of a health care service or item”) is implausible.

Under that interpretation, “fraud” would refer in section

(b)(1)(A) to a generic criminal offense, to which the

“misdemeanor” must “relat[e]” generically, but the same

appearance of the same word would refer in section

(b)(1)(A)(i) to the facts underlying the defendant’s conviction,

to which the delivery of a health care item or service must be

“connect[ed]” factually. An interpretation that requires a

single instance of a single word to carry two different

16

meanings in two consecutive clauses of a single sentence

simply cannot stand. Far more plausible is the Secretary’s

reading that the Congress used “relating to” and “in

connection with” each to denote a factual relationship –

respectively, the relationship between the facts underlying a

person’s conviction and conduct that would qualify as

“fraud”; and the relationship between that conduct and the

delivery of health care. The use of the phrases “relating to”

and “in connection with,” therefore does not imply “relating

to” must denote a non-factual, generic relationship. *

Next, the Appellants analogize the text of section

(b)(1)(A) to a provision of the Immigration and Naturalization

Act which authorized the deportation of an alien “convicted

of a violation of ... any law or regulation relating to the

possession of or traffic in narcotic drugs.” 8 U.S.C. §

1227(a)(b)(i) (1976). The Appellants, citing Castaneda de

Esper v. INS, 557 F.2d 79 (6th Cir. 1977), contend the

Congress “used a verbal formulation – ‘relating to [specified

offenses]’ – that had long been used in the INA, and already

had a settled meaning” denoting a generic, non-factual

relationship. The Secretary effectively counters that “relating

to” in the INA has no such settled meaning, contrasting

Castaneda, which held a conviction for misprision is not a

violation of a law “relating to the illicit possession of or

traffic in narcotic drugs” because misprision is “a criminal

offense separate and distinct from the particular felony

*

The Appellants also make passing reference to the legislative

history of the exclusion statute, which they claim “draws a clear

distinction between the generic relationship that the misdemeanor

must have to fraud, and the circumstance-specific relationship that

the conviction must have to a health-care related item, service, or

program,” but the quoted snippets of that history merely repeat the

text of the statute and therefore cast no light upon its proper

interpretation.

17

concealed,” 557 F.2d at 83, with Urena-Ramirez v. Ashcroft,

341 F.3d 51 (1st Cir. 2003), which held the defendant’s

violation of the Travel Act was a “violation of ... any law or

regulation ... relating to a controlled substance” because the

“conduct underlying the proscribed travel ... was tantamount

to aiding and abetting the distribution of narcotics,” id. at 54–

55, 57. See also Johnson v. INS, 971 F.2d 340, 342–43 (9th

Cir. 1992) (holding defendant’s violation of the Travel Act

was “violation of ... any law or regulation ... relating to a

controlled substance” because the “criminal conduct involved

narcotics and controlled substances”).

Moreover, we note the wording of the INA supports the

application of the categorical approach much more readily

than does the text of section (b)(1)(A). The Appellants err by

focusing narrowly upon the phrase “relating to” in the INA,

paying no heed to the words connected by that phrase — “law

or regulation” and “the possession of or traffic in narcotic

drugs.” A “law or regulation,” unlike a “misdemeanor,”

cannot refer to the facts of a particular incident.

The Appellants also argue the circumstance-specific

approach leads to an “absurd result,” to wit: “Individuals who

negligently submit false or fraudulent claims ... are not subject

to exclusion under [42 U.S.C. § 1320a-7a(a)]” whereas, under

the Secretary’s approach to section 1320a-7(b), one “who

pleads guilty of a strict liability misdemeanor offense that

requires no proof of conscious wrongdoing, fraud, or

falsehoods is excludable based on misconduct by others that

he had no knowledge of.” Viewed in context, however, there

is no absurdity. Section 1320a-7a(a) gives the Secretary

discretion whether to exclude the individual from

participation in Federal health care programs but makes a fine

mandatory. The statute at issue here similarly authorizes

exclusion but neither requires nor authorizes a fine; for a

18

lesser penalty, a lesser mens rea requirement, or indeed no

mens rea requirement at all, is not illogical.

Finally, the Appellants and their amici argue, because the

Secretary’s interpretation permits her to impose “career-

ending disabilities” upon someone whose criminal conviction

required no mens rea, it raises a serious question of validity

under the Due Process Clause of the Fifth Amendment to the

Constitution of the United States. Quoting Morrisette v.

United States, 342 U.S. 246, 256 (1952), they note the

Supreme Court upheld the constitutionality of strict liability

crimes “in part, because their associated penalties ‘commonly

are relatively small, and conviction does no grave damage to

an offender’s reputation.’” Section 1320a-7(b)(1), however,

is not a criminal statute and, although exclusion may indeed

have serious consequences, we do not think excluding an

individual under 42 U.S.C. § 1320a-7(b) on the basis of his

conviction for a strict liability offense raises any significant

concern with due process. Exclusion effectively prohibits one

from working for a government contractor or supplier. Surely

the Government constitutionally may refuse to deal further

with senior corporate officers who could have but failed to

prevent a fraud against the Government on their watch.

For the foregoing reasons, we hold section 1320a-

7(b)(1)(A) authorizes the Secretary to exclude from

participation in Federal health care programs an individual

convicted of a misdemeanor if the conduct underlying that

conviction is factually related to fraud. The Appellants do not

dispute they are excludable under this circumstance-specific

approach: Their convictions for misdemeanor misbranding

were predicated upon the company they led having pleaded

guilty to fraudulently misbranding a drug and they admitted

having “responsibility and authority either to prevent in the

first instance or to promptly correct” that fraud; they did

19

neither. * Accordingly, section 1320a-7(b)(1)(A) authorized

the Secretary to exclude them for a time from participation in

Federal health care programs.

*

JUDGE WILLIAMS objects (at pages 4–5 of his opinion) that the

interpretation of section 1320a-7(b) proposed by the Secretary and

adopted by the Court does not “articulate” the type or limit of the

factual relationships sufficient to support an individual’s exclusion.

This objection is misplaced for two reasons. First, as explained

above, the Appellants do not dispute they are subject to exclusion

under the circumstance-specific approach; they argue only that the

categorical approach applies. They never raised, either before the

district court or before this court, an argument of the sort advanced

by Judge Williams; any such argument is therefore not properly

before the Court. See Benoit v. Dep’t of Agric., 608 F.3d 17, 21

(D.C. Cir. 2010) (arguments not raised in district court are forfeit).

Second, there is nothing unusual or improper in a court adopting an

interpretation of a statute that does not settle every case that might

arise in the future. See, e.g., Morales, 504 U.S. at 390 (declining to

decide whether “nonprice aspects of fare advertising ... ‘relat[e] to’

rates,” regarding which “the connection would obviously be far

more tenuous. ... ‘[T]he present litigation plainly does not present a

borderline question, and we express no views about where it would

be appropriate to draw the line.’” (quoting Shaw v. Delta Air Lines,

Inc., 463 U.S. 85, 100 n.21 (1983))). If there is ever a case of the

sort that concerns Judge Williams — one in which the Secretary

excludes a person based upon the view that “virtually any overlap

between the facts required for fraud and those involved in (or

required for) the offense of conviction is enough,” (Opinion of

Williams, J., at 3) — then the court shall at that time have the

occasion and the duty to resolve that issue. The Appellants’

convictions under the responsible corporate officer doctrine,

however, were manifestly “related to” a fraud. So too would be a

conviction for other respondeat superior criminal offenses,

attempted fraud, conspiracy to commit fraud, and the like — no one

of which need share all the “core elements” of fraud.

20

B. Length of the Appellants’ Exclusion

The Appellants also challenge the Secretary’s decision to

exclude them for fully 12 years, four times as long as the

presumptive baseline in the statute: “the period of exclusion

shall be 3 years” unless the Secretary adjusts the length of

exclusion on the basis of aggravating or mitigating factors “in

accordance with published regulations.” 42 U.S.C. § 1320a-

7(c)(3)(D). The Appellants argue the Secretary took into

account two aggravating factors for which there was not

substantial evidence, failed to take into account one

mitigating factor without substantial evidence for so doing,

and gave them too little credit with respect to a second

mitigating factor. They also argue the Secretary erred by

failing to reconcile the length of their exclusion with the

agency’s prior decisions.

1. Aggravating and mitigating factors

First the Appellants claim the Secretary improperly

applied the aggravating factor of their being responsible for a

financial loss in excess of $5,000 because, they allege, there is

no evidence in the record of any actual financial loss. The

pertinent regulation establishes an aggravating factor when

“[t]he acts resulting in the conviction ... caused ... a financial

loss of $5,000 or more to a Government program or to one or

more other entities, or had a significant financial impact on

program beneficiaries or other individuals.” 42 C.F.R. §

1001.201(b)(2)(i). The Appellants’ argument is frivolous.

They admitted responsibility for a crime, misdemeanor

misbranding, that caused, at least in part, financial losses for

which Purdue paid $160 million in “restitution.” Specifically,

Purdue falsely portrayed OxyContin to be less addictive, less

subject to abuse and diversion, and less likely to cause

tolerance and withdrawal than other painkillers on the market,

21

which misrepresentation certainly led some doctors to

prescribe it when they would otherwise have prescribed a

different painkiller or none at all. Purdue had almost $3

billion in revenues from OxyContin during the time it

misbranded the drug, much of it from Federal and state health

care programs which paid for prescriptions for OxyContin,

some of which would not have been written but for the

misbranding. Even if the amount of restitution to which

Purdue agreed was the product of a negotiation unbounded by

forensic accounting, as the Appellants claim, their suggestion

the losses they caused did not exceed a mere $5,000 is

preposterous. Accordingly, the Secretary’s application of this

aggravating factor was supported by substantial evidence.

Second, the Appellants argue the same regulation, and

another which establishes an aggravating factor based upon

the duration of the excluded person’s criminal conduct, refer

only to “acts” whereas the Appellants’ violations consisted

solely of omissions. See 42 C.F.R. § 1001.201(b)(2)(i) (“The

acts resulting in the conviction ... caused ... a financial loss”);

id. at § 1001.201(b)(2)(ii) (“The acts that resulted in the

conviction ... were committed over a period of one year or

more”). The Secretary replies the “regulatory phrase ‘acts that

resulted in the conviction’ is used to describe the wrongful

conduct considered when setting an appropriate exclusion

period.” As the Appellants point out, however, the

regulations elsewhere distinguish between “acts” and

“omissions,” see 42 C.F.R. § 1001.201(a)(1)(ii) (“With

respect to any act or omission in a health care program ....”).

Still, nothing turns upon the distinction where it is made, and

in light of the deference due the Secretary’s interpretation of

her own regulation, see Auer v. Robbins, 519 U.S. 452, 461

(1997), we conclude her interpretation equating the two terms

when only “acts” are proscribed is a permissible one.

22

Third, the Appellants argue the Secretary erred in failing

to take into account their lack of “conscious wrongdoing.”

The pertinent regulation establishes as a mitigating factor

“that the individual has a mental, physical, or emotional

condition ... that reduced the individual’s culpability.” 42

C.F.R. § 1001.201(b)(3)(ii). The Appellants argue their “lack

of any awareness of wrongdoing” is one such “mental

condition,” and the Secretary therefore erred in failing to give

them credit for this mitigating factor. The regulation plainly

refers to mental, physical, or emotional illness or disability,

and the Appellants have not alleged they are afflicted by any

such condition. Accordingly, the Secretary’s decision not to

apply this mitigating factor is supported by substantial

evidence.

Fourth, the Appellants argue the Secretary gave

insufficient weight to their cooperation with law enforcement

agencies, notwithstanding that she reduced the period of their

exclusion by five years for this reason. Determining the

precise weight to be given an aggravating or mitigating factor

in setting the period of an exclusion is within the Secretary’s

discretion, which the Appellants have not shown she abused.

2. Departure from precedent: Review under the arbitrary

and capricious standard?

We turn finally to the Appellants’ only substantial

objection: That the Secretary failed to justify the length of

their exclusion in light of the agency’s prior decisions, as

required by the Administrative Procedure Act. See

Ramaprakash v. FAA, 346 F.3d 1121, 1125 (D.C. Cir. 2003)

(“An agency’s failure to come to grips with [its] conflicting

precedent constitutes an inexcusable departure from the

essential requirement of reasoned decision making” (internal

quotation marks and citation omitted)).

23

The Secretary claims she was not required to do so

because the APA is not applicable to the decision under

review; as we explained in National Kidney Patients

Association v. Sullivan, 958 F.2d 1127, 1130 (D.C. Cir.

1992), “Section 405(h) [of 42 U.S.C.] ... makes [42 U.S.C.] §

405(g) the exclusive avenue for judicial review of

administrative decisions,” and review under section 405(g),

according to the Secretary, precludes application of the APA.

The APA provides a “[s]ubsequent statute may not be

held to supersede or modify [the APA] except to the extent

that it does so expressly.” 5 U.S.C. § 559. The exclusion

statute, including section 1320a-7(f)(1), postdates the APA

but section 405(g) predates it; therefore it is not immediately

clear whether the limitation in section 559 — and therefore

the APA — applies here. Regardless whether we look to

section 1320a-7(f)(1) or to section 405(g), however, we agree

with the Appellants that the statute authorizes review under

the arbitrary and capricious standard.

Section 1320a-7(f)(1) does not expressly purport to

supersede the APA and therefore does not preclude review

under the arbitrary and capricious standard of the APA. The

Secretary would instead have us focus upon section 405(g),

which section 1320a-7(f)(1) incorporates by reference and

which, because it predates the APA, need not “expressly”

purport to supersede the APA in order to provide the

exclusive standard for our review. Looking to section 405(g),

however, we see the pertinent provision is virtually identical

to the corresponding provision in the National Labor

Relations Act. Compare 42 U.S.C. § 405(g) (“The findings of

the Commissioner of Social Security as to any fact, if

supported by substantial evidence, shall be conclusive”), with

29 U.S.C. § 160(e) (“The findings of the [National Labor

24

Relations Board] with respect to questions of fact if supported

by substantial evidence on the record considered as a whole

shall be conclusive”). Neither statute expressly calls for any

review other than review of findings of fact for substantial

evidence. The Supreme Court has nonetheless construed the

NLRA to incorporate review under the arbitrary and

capricious standard of the APA. Universal Camera Corp. v.

NLRB, 340 U.S. 474, 487 (1951); Linden Lumber Div.,

Summer & Co. v. NLRB, 419 U.S. 301, 309–10 (1974); see

also Diamond Walnut Growers, Inc. v. NLRB, 113 F.3d 1259,

1266 (D.C. Cir. 1997) (en banc). Considering that section

405(g), like section 160(e) of the NLRA, is silent regarding

the standard of review except with regard to questions of fact,

we see no reason to depart from the path indicated by the

Supreme Court. We therefore review the Secretary’s decision

to exclude the Appellants according to the arbitrary and

capricious standard, which requires that the Secretary provide

a reasoned explanation for departing from agency precedent.

3. Applying the arbitrary and capricious standard of

review

The Appellants may overstate their case by claiming their

12-year exclusion is “unprecedented”; the DAB cited a

number of prior decisions in which it had excluded

individuals for more than 10 years. The DAB’s mere citation

of these cases, however, does not stand as a reasoned

explanation if, as the Appellants argue, those cases are

materially different. And so it seems they are: As the

Appellants point out, every one of the cases cited by the DAB

involved a mandatory exclusion with a presumptive baseline

of five years, not a discretionary exclusion with a presumptive

baseline of three years; in addition, every cited case involved

either a felony conviction or a conviction for Medicare fraud

for which the defendant was incarcerated, none of which

25

factors is present in this case. * In fact, none of the cases cited

by the DAB even concerned an exclusion under section

*

See Marcia C. Smith a/k/a Marcia Ellison Smith, DAB No. 2046

(2006) (12-year exclusion: mandatory five-year exclusion for a

conviction resulting in incarceration, plus three aggravating factors

and no mitigating factors); Russell Mark Posner, DAB No. 2033

(2006) (14-year exclusion: mandatory five-year exclusion for three

felony convictions resulting in incarceration, plus three aggravating

factors and no mitigating factors); Stacy R. Gale, DAB No. 1941

(2004) (15-year exclusion: mandatory five-year exclusion for

conviction resulting in incarceration, plus three aggravating factors

and no mitigating factors); Jeremy Robinson, DAB No. 1905

(2004) (15-year exclusion: mandatory five-year exclusion for

felony conviction resulting in incarceration, plus three aggravating

factors and no mitigating factors); Thomas D. Harris, DAB No.

1881 (2003) (15-year exclusion: mandatory five-year exclusion for

felony conviction resulting in deferred incarceration, plus two

aggravating factors and no mitigating factors); Stacy Ann Battle,

D.D.S., DAB No. 1843 (2002) (10-year exclusion: mandatory five-

year exclusion for conviction for Medicare fraud resulting in

incarceration, plus three aggravating factors and no mitigating

factors); Joann Fletcher Cash, DAB No. 1725 (2000) (15-year

exclusion: mandatory five-year for conviction for Medicare fraud

resulting in incarceration, plus three aggravating factors and no

mitigating factors); see also (cases not cited by the DAB) John D.

Strom, DAB No. CR 1056 (2003) (15-year exclusion: mandatory

five-year exclusion for felony conviction resulting in incarceration,

plus three aggravating factors and no mitigating factors);

Natawadee Steinhouse, M.D., DAB No. CR 859 (2002) (15-year

exclusion: mandatory five-year exclusion for felony convictions

resulting in incarceration, plus four aggravating factors and one

mitigating factor); Ruth Ferguson, DAB No. CR 725 (2000) (15-

year exclusion: mandatory five-year exclusion for conviction for

Medicare fraud resulting in incarceration, plus three aggravating

factors and no mitigating factors); Gregory D. Wells, M.D., DAB

No. CR 723 (2000) (15-year exclusion: mandatory five-year

exclusion for conviction for Medicare fraud by offender with prior

26

1320a-7(b)(1); it appears the Secretary has never excluded

anyone for more than ten years under that provision of the

statute. Research reveals the longest period of exclusion the

DAB had ever approved under section 1320a-7(b)(1) was four

years. See Paulette White Jackson, DAB No. 1915 (2004);

Roberto Kutcher-Olivio, DAB No. 1837 (2002). When the

DAB affirmed the Appellants’ 12-year exclusion the agency

had never excluded anyone for more than ten years based

upon a misdemeanor — a departure the agency does not even

acknowledge, much less explain.

We do not suggest the Appellant’s exclusion for 12 years

based upon a conviction for misdemeanor misbranding might

not be justifiable; we express no opinion on that question.

Our concern here is that the DAB did not justify it in the

decision under review. Simply pointing to prior cases with

the same bottom line but arising under a different law and

involving materially different facts does not provide a

reasoned explanation for the agency’s apparent departure

from precedent. Therefore we hold the decision of the DAB

was arbitrary and capricious with respect to the length of the

Appellants’ exclusion.

III. Conclusion

For the reasons set out above, we hold section 1320a-

7(b)(1) authorizes the exclusion of the Appellants on the basis

of their convictions for misdemeanor misbranding. The

Secretary’s decision, however, was arbitrary and capricious

with respect to the length of their exclusion because it failed

to explain its departure from the agency’s own precedents.

The judgment of the district court is therefore reversed and

record of criminal and administrative sanctions, plus three

aggravating factors and no mitigating factors).

27

the matter shall be remanded to the district court with

instructions to remand it to the agency for further

consideration consistent with this opinion.

So ordered.

Appendix

42 U.S.C. § 1320a-7(b)(1)–(3)

(b) Permissive exclusion

The Secretary may exclude the following individuals and

entities from participation in any Federal health care program

(as defined in section 1320a-7b(f) of this title):

(1) Conviction relating to fraud

Any individual or entity that has been convicted for an

offense which occurred after August 21, 1996, under Federal

or State law—

(A) of a criminal offense consisting of a misdemeanor

relating to fraud, theft, embezzlement, breach of

fiduciary responsibility, or other financial

misconduct—

(i) in connection with the delivery of a health

care item or service, or

(ii) with respect to any act or omission in a

health care program (other than those

specifically described in subsection (a)(1) of

this section) operated by or financed in whole

or in part by any Federal, State, or local

government agency; or

28

(B) of a criminal offense relating to fraud, theft,

embezzlement, breach of fiduciary responsibility, or

other financial misconduct with respect to any act or

omission in a program (other than a health care

program) operated by or financed in whole or in part

by any Federal, State, or local government agency.

(2) Conviction relating to obstruction of an investigation or

audit

Any individual or entity that has been convicted, under

Federal or State law, in connection with the interference with

or obstruction of any investigation or audit related to—

(i) any offense described in paragraph (1) or in

subsection (a); or

(ii) the use of funds received, directly or indirectly,

from any Federal health care program (as defined in

section 1320a-7b(f) of this title).

(3) Misdemeanor conviction relating to controlled substance

Any individual or entity that has been convicted, under

Federal or State law, of a criminal offense consisting of a

misdemeanor relating to the unlawful manufacture,

distribution, prescription, or dispensing of a controlled

substance.

SENTELLE, Chief Judge, concurring in part and dissenting

part and dissenting in the judgment: At the outset, I have no

quarrel with the majority’s decision that the statute authorized

the Secretary’s exclusion of the three executives, and I will not

re-hash the factual background of the case or the reasoning

leading to that conclusion. I do, however, dissent from the

majority’s reversal of the Secretary’s decision on the length of

the assigned exclusions.

Anyone engaged in the practice of appellate law, especially

on the administrative side, knows that the standard of review

may be determinative of an appellate proceeding. Because the

majority today applies the wrong standard of review, it reaches

an incorrect result. As the majority acknowledges, Congress has

provided for review of an exclusion such as those under review

here by specific statutory provision: 42 U.S.C. § 1320a-7(f).

That section provides for “judicial review of the Secretary’s

final decision after such hearing as is provided in section 405(g)

of this title . . . .” Section 405(g), made applicable to the

exclusions by § 1320a-7(f), does not authorize review by

“arbitrary and capricious” or “abuse of discretion” standards.

See Morris v. Shalala, 207 F.3d 744, 745 (5th Cir. 2000). Under

the limited review afforded by § 405(g), we are to affirm the

decision of the Departmental Appeals Board so long as it was

“based on substantial evidence in the record and correctly

applies the relevant legal standards.” Rossello v. Astrue, 529

F.3d 1181, 1184 (D.C. Cir. 2008). The majority points to no

finding lacking substantial evidentiary support and no departure

from law. Therefore, the statute should compel a result

affirming the Board, as was entered by the district court. That

should leave us no avenue but affirmance of the district court.

I am concerned about the further implications of the

majority’s expansion of § 405(g) review. That section governs

review of the final decisions of the Commissioner of Social

2

Security. While not a part of our daily fare, such decisions,

especially in the case of disability claims, commonly come

before the courts of the United States. The total number of

disability claims, supplemental security income claims,

retirement and survivor benefit claims, and other claims

governed by § 405(g) reached 15,705 in the calendar year 2011.

Administrative Office of the U.S. Courts, Judicial Business of

the U.S. Courts (2012), available at

http://www.uscourts.gov/statistics/JudicialBusiness.aspx (Table

C-10). It is not surprising that Congress would dictate a

confined standard of review for claims so numerous and so

committed to a single agency. By expanding the applicable

standard of review in the present application of § 405(g), we

invite unanticipated consequences in the application of this

erroneous precedent to Social Security claims.

For the reasons set forth above, I respectfully dissent. I

would affirm.

WILLIAMS, Senior Circuit Judge, dissenting in part,

concurring in part, and concurring in the judgment: I cannot

agree that the Secretary’s interpretation of 42 U.S.C. § 1320a-

7(b) is valid, and accordingly would remand the case to the

district court for remand to her for a permissible

interpretation. If her action is valid on its own terms,

however, as the court holds, I agree on the remand for the

purposes stated by Judge Ginsburg—for the Secretary to

explain the departure from prior precedents in fixing the terms

of exclusion.

As the panel correctly notes, the appellants argue that the

clause requires a “‘generic’ relationship to fraud,” Maj. Op. at

7-8, or, as a practical matter, that convictions triggering a

sanction based on the “fraud” element of § 1320a-7(b)(1)

must have been based on findings of all the regular elements

of the traditional crime of fraud. Most notably, they argue,

scienter must have been an element of the crime—an element

conspicuously missing from appellants’ convictions, which

depended on the “responsible corporate officer” doctrine. The

Secretary argues instead for a “circumstance-specific”

approach, id. at 8-9, which, as she explains, means that the

“relation” requirement is satisfied if there is a “nexus or

common sense connection between . . . the conduct giving rise

to the offense and the fraud in connection with the delivery of

the health care item or service.” Goldenheim v. Inspector

General, Dec. No. CR1883, 2009 WL 1176331 (HHS Dept.

App. Bd. Jan. 9, 2009), Joint Appendix (“J.A.”) 590; see also

Appellees’ Br. 22-23.

The court upholds the Secretary’s view, evidently finding

it “unambiguously” supported by the statute regardless of

whether Chevron v. Natural Resources Defense Council, 467

U.S. 837 (1984), applies. See Maj. Op. at 10; see also id. at

2

18-19. The court quite correctly notes that the phrase

“relating to” is extraordinarily broad, quoting dictionary

paraphrases such as “to stand in some relation.” Id. at 11. In

fact a “relationship” can be one of hostility or enmity, or can

be orthogonal, so that for a literalist the statute is virtually

meaningless. Taken literally, the provision does not even ask

for a “substantial relationship” or a “close relationship”; it

calls only for a “relationship,” however attenuated. Happily,

the parties in fact appear to agree on narrowing the field a

little, both assuming that the relationship must be one of

overlap between the crime of fraud and the facts shown (or

necessary to be shown 1) in appellants’ conviction of

misdemeanor misbranding. Indeed, the context compels that

narrowing of the range—and more.

Appellants state what they view as the required overlap

fairly clearly: just as common law fraud requires a showing

of scienter, the crime of conviction must have required proof

of such an element. The Secretary’s idea of the necessary

1

This situation is somewhat analogous to the provisions of the

sentencing guidelines governing “career offenders,” which provide

for a heightened sentence if a defendant has previously committed a

“crime of violence”—the definition of which term requires that the

previous crime have as an element the “use, attempted use, or

threatened use of physical force against the person of another.”

U.S. SENTENCING GUIDELINES § 4B1.1; id. § 4B1.2. Compare with

id. § 4B1.5(b) (sentencing enhancement where “defendant engaged

in a pattern of activity involving prohibited sexual conduct” even if

that conduct was not an element of previous convictions or was

established by previous convictions); United States v. Phillips, 431

F.3d 86, 90 (2d Cir. 2005). We need not consider whether evidence

of scienter, even evidence beyond a reasonable doubt, would be

sufficient in the case of a crime not requiring proof of scienter; the

government does not remotely suggest scienter could be proven.

3

overlap is more free-floating—some sort of “nexus” between

the convictions and fraud (or the other bases for exclusion).

But even this free-floating overlap (if it is to have any

boundaries at all) requires some concept of “fraud, theft,

embezzlement . . . or other financial misconduct.” Suppose,

for example, that the Secretary was acting under the last and

vaguest of these terms, and the individuals had been convicted

of filing false environmental reports. To prevail, the Secretary

surely would have to offer a concept of financial misconduct

that embraced such filings. One can talk of “circumstance-

specific” relationships till one is blue in the face, but in the

end deciding whether the necessary overlap exists requires a

definition (or at least an idea) of the types of conviction

triggering § 1320a-7(b)(1)(A). The conceptual battle cannot

be avoided.

The parties’ somewhat synthetic battle between “generic

fraud” and the “circumstance-specific” approach leads the

court into an extensive showing that the statute is laced with

requirements that in the end will require burrowing into facts.

See Maj. Op. at 11-15. The court argues that a statute rife

with such intellectual exercises is not very likely to have

clearly limited the Secretary to “generic fraud” for the fraud

aspect of § 1320-7(b)(1)(A). But the sense of all those

“factual relationships” depends on conceptual relationships—

exemplified in the question whether the “financial

misconduct” criterion would allow exclusion for a conviction

for false environmental filings. If the Secretary’s view is

correct, virtually any overlap between the facts required for

fraud and those involved in (or required for) the offense of

conviction is enough.

The meaning of a statute must not be confused with its

simple linguistic potential. As we’ve seen, the linguistic

potential of crime or “misdemeanor relating to fraud” is

4

almost infinite. The Secretary, though on common ground

with appellants in understanding that the relation must be one

of overlap, purports to see no other limit. But this is not the

way lawyers read a statute. They put it into context. Here the

context suggests a requirement of at least some approximation

of the moral turpitude associated with “fraud” itself. Thus

Justice Cardozo, construing § 9(c) of the National Recovery

Act in Panama Refining Co. v. Ryan, 293 U.S. 388, 433

(1935), acknowledged that § 9(c) alone was inadequate to

supply an intelligible answer to the question of when the

President was to exercise the delegated power to interrupt

interstate oil transportation, but he went on to examine the

statute as a whole and concluded that the power could be

exercised only for “hot oil,” i.e., oil produced in excess of

statutory quotas. Id. at 435-46. Thus the context compelled a

non-literal, relatively narrow interpretation. For similar

context-based narrowings, see, e.g., Owens v. Republic of

Sudan, 531 F.3d 884, 893 (D.C. Cir. 2008); Phelps Dodge

Corp. v. Federal Mine Safety and Health Review Commission,

681 F.2d 1189, 1192 (9th Cir. 1982). So too here. Very

troublingly, without such an effort at seeking the legal

meaning of the disputed clause, we have a reading by the

Secretary that offers none of the “precision and guidance

[that] are necessary so that those enforcing the law do not act

in an arbitrary or discriminatory way.” FCC v. Fox Television

Stations, Inc., 132 S. Ct. 2307, 2317 (2012). That failing is

especially acute for an action that excludes appellants from

pursuing careers in the pharmaceutical industry—where

they’ve spent their lifetimes accumulating industry-specific

human capital. See J.A. 390, 428, 483. Compare Greene v.

McElroy, 360 U.S. 474, 492 (1959).

“Misdemeanor” and “fraud” have well-established

meanings. The Secretary need only prescribe some specific

meaning for the word “related.” It might require that an

excluded individual’s conviction rest on findings of all the

5

elements of fraud, as the appellants argue; or it might require

only that it rest on findings of the person’s culpable

responsibility for a material misrepresentation. It is for the

Secretary to say, subject of course to judicial review. But an

invocation of “nexus,” though it fits linguistically, is simply

not a legal interpretation as that process is normally

understood. It’s more accurately seen as a refusal to interpret.

Given the absence of an analytically reasonable

interpretation by the Secretary, and the Secretary’s leeway

under Chevron to reject appellants’ proposed interpretation, I

would remand to the district court to remand to the Secretary

to articulate a meaning of 42 U.S.C. § 1320a-7(b) that is

consistent with standard principles of legal interpretation.