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United States v. Oz

United States District Court, D. Minnesota

August 17, 2017

MORAN OZ; Defendant.

          Jacqueline Blaesi-Freed, Linda I. Marks, U.S. Department of Justice, Consumer Protection Branch, Roger J. Gural, U.S. Department of Justice, and Vijay Shanker, U.S. Department of Justice, for the United States of America.

          Joseph S. Friedberg, Joseph S. Friedberg, Chartered, and Robert D. Richman, for Defendant Moran Oz.



         This matter is before the Court on acquitted-Defendant Moran Oz's Motion for Attorney's Fees and Expenses Under the Hyde Amendment (“Oz's Mot.”) [Doc. No. 947]. For the reasons set forth below, Oz's Motion is denied.


         On March 7, 2017, after nearly four weeks of trial and at the conclusion of the Government's case, this Court granted Defendant Moran Oz's (“Oz”) Motion For A Judgment of Acquittal under Federal Rule of Criminal Procedure 29 and ordered that he be acquitted of all charges against him. (See Trial Tr. Vol. 19 dated 3/7/2017 at 3055- 59[1] [Doc. No. 1020].) Specifically, the Court found that even under Rule 29's demanding standard, Oz met the burden of establishing that the Government had failed to introduce sufficient evidence that would allow the jury to find beyond a reasonable doubt that Oz possessed the intent-or mens rea-required to convict him on any of the charges. (See Id. at 3056-58.) Now, Oz asks that this Court order the Government to reimburse him his attorneys' fees and other costs pursuant to the Hyde Amendment, 18 U.S.C. § 3006A, note, arguing that the Government's prosecution was frivolous, vexatious, or in bad faith.

         The ruling of a sister court aptly summarizes the challenge of receiving an award of fees under the Hyde Amendment:

Defendant, an innocent man, faces financial hardship because of the Government's unsuccessful prosecution of him. Even the slightest empathy produces a sense of unfairness; but subjective fairness cannot guide the Court. This Court must remain anchored by the law as enacted by Congress. It is duty bound to follow that law even if the consequences are harsh. That law is clear. Congress has decided that, except in a rare case of prosecutorial misconduct, a citizen must bear the legal cost of an acquittal. The narrow exception to this principle, carefully carved out by Congress, allows a defendant to recover his costs of a successful defense only if he proves that the Government's prosecution was frivolous, vexatious, or in bad faith.

United States v. Shelnutt, No. 4:09-CR-14 (CDL), 2010 WL 1223943, at *1 (M.D. Ga. Mar. 19, 2010).

         At the hearing on Oz's Motion, the Government conceded that it made many mistakes during this prosecution that ultimately caused it to “implode” at trial. Even “innocent” mistakes-those that result from inexperience or negligence rather than affirmative misconduct-carry real and serious consequences when they involve the immense prosecutorial might of the United States. Here, Oz was uprooted from his native country, incarcerated for several months, forced to live in the United States for more than two years while subject to intrusive monitoring, and spent hundreds of thousands of dollars on his legal defense.

         However, the standard for awarding fees under the Hyde Amendment is onerous. It allows for an award only under limited circumstances that do not include prosecutorial mistakes, inexperience, or even poor judgment. The Court is duty-bound to follow the law and does so here, holding that although this case presents a close call, Oz has not produced evidence of the sort of frivolous, vexatious, or bad faith conduct that would allow for an award of fees.


         The facts of this case have been set forth at length in the previous orders of this Court. They are briefly recounted here only to the extent necessary to rule on Oz's Motion.

         A. The Government's Investigation and the Charges Against Oz

         This case was the result of a years-long, global investigation by the Government into an online pharmacy known as RX Limited (“RXL”). United States v. Oz, No. 13-cr-273 (SRN/FLN), 2017 WL 480389, at *1 (D. Minn. Feb. 3, 2017). The Government alleged that RXL amounted to a conspiracy to illegally distribute prescription drugs over the internet. See Id. The Government had evidence that RXL distributed large amounts of prescription drugs using a series of websites. Customers filled out medical questionnaires on the websites, those questionnaires were purportedly reviewed by American doctors (in some instances, individuals without medical licenses approved prescriptions) who wrote prescriptions, and those prescriptions were filled by American pharmacies and mailed to the customer. The Government alleged that these practices did not comport with the requirements of various federal statutes-namely that the customers and doctors did not have the necessary physician-patient relationships and that a controlled substance, in the form of a prescription drug called Fioricet, was dispensed through this process without the necessary licenses and registration. (See generally Indict. [Doc. No. 5].)

         RXL was run by Paul Calder Le Roux (“Le Roux”)-a wealthy, self-confessed murderer, international drug dealer, arms trafficker, and computer hacker-who oversaw a multi-faceted international criminal enterprise. See Oz, 2017 WL 480389 at *1. Le Roux pled guilty to numerous charges-including misbranding drugs, mail and wire fraud, and conspiracy stemming from his involvement with RXL-on separate indictments in the Southern District of New York. Id. Le Roux was not a defendant in this matter and the Government did not call him as a witness at trial-a decision that created numerous evidentiary issues related to key pieces of evidence.

         Oz, an Israeli citizen, joined an internet pharmacy company incorporated in Israel in 2005. Id. at *2. This company was not immediately identifiable as part of RXL, Oz believed it was a legitimate business (like many other similar internet pharmacy operations in Israel), and at first he was not aware of Le Roux's involvement with the company. Id. Oz would later meet Le Roux and come to understand that Le Roux controlled not only this Israeli company, but RXL as a whole. See Id. However, their relationship soured in 2009 after Le Roux allegedly lured Oz to the Philippines, had his hitmen take Oz out on a boat, throw him in the ocean, threaten to kill him, and shoot at him in the water, all because Le Roux suspected Oz was being “disloyal.” Id. at *2-3. Although Le Roux did not ultimately kill Oz, he allegedly threatened Oz's family and took numerous steps to “remind” Oz of his ability to harm Oz and his family anywhere in the world. Id. at *3. Remarkably, Le Roux did not deny much of Oz's story and even confirmed some details of it to the Government and the Court, as did one of the alleged hitmen who participated in throwing Oz off the boat. Oz planned to call Le Roux and the hitman at trial and present this evidence as part of his duress defense. Of course, when the Court granted his Rule 29 motion, that defense became moot.

         The Government viewed Oz as Le Roux's “go to” lieutenant who oversaw most of the day-to-day operations of RXL, including recruiting doctors and pharmacists, payments to vendors, and efforts to secure and maintain relationships with shippers. (See Gov't's Mem. in Opp. to Oz's Application For Attorney's Fees (“Gov't's Mem. in Opp.”) at 7-8 [Doc. No. 989].) The Government also believed that Oz was intimately familiar with RXL's operations and practices and knew-or should have known-that those practices consisted of conduct that violated the Food, Drug, and Cosmetics Act (“FDCA”) and Controlled Substances Act (“CSA”). (See Id. at 9-27.) In contrast, Oz portrayed himself as a sort of middle-management information technology and operations employee, one with no medical training or background and who worked for RXL after 2009 only under duress. Most importantly, Oz averred that at all times he genuinely believed that RXL was complying with the requirements of the FDCA and CSA and had no idea that Fioricet was a controlled substance. (See Oz's Mem in Supp. of Application for Attorney's Fees (“Oz's Mem. in Supp.”) at 30-31 [Doc. No. 948]; Oz's Reply to Gov't's Opp. (“Oz's Reply”) at 10-26 [Doc. No. 1032].) Of course, the pertinent inquiry is whether evidence supported the Government's theory of Oz's involvement with RXL and his resulting intent and knowledge. This issue is discussed in-depth below.

         In 2012, Le Roux was arrested in Liberia and extradited to the United States as part of a sting orchestrated by the Drug Enforcement Agency (“DEA”). United States v. Oz, No. 13-cr-273 (SRN/JJK), 2016 WL 2595963, at *1-2 (D. Minn. Mar. 22, 2016), report and recommendation adopted sub nom. United States v. Moran Oz, No. 13-cr-273 (SRN/JJK), 2016 WL 1948874 (D. Minn. May 3, 2016). He quickly began cooperating with the Government, in relevant part assisting with its ongoing investigation of RXL. Id. at *3. For a time, this included Le Roux continuing to finance and direct RXL's operations. Id. However, Le Roux ultimately stopped financing and communicating with RXL, after which the company ceased operations.

         In 2013, as part of his cooperation with the Government, Le Roux contacted Oz- who was living in Israel-and offered to give Oz money to pay severance packages for the recently terminated Israeli employees of RXL. Oz agreed to meet Le Roux in Romania to collect this money. Shortly after Oz arrived, he was arrested by Romanian officials at the behest of the DEA. Oz was held in a Romanian jail for nearly four months before he was extradited to the United States. Once in the United States, Oz was detained for an additional month before he was released, but remained subject to strict limitations, including an initial period of house arrest followed by GPS monitoring and a curfew that continued through trial.

         Oz was charged with 83 counts related to his involvement with RXL, including misbranding under the FDCA, distribution of a controlled substance and online sale of a controlled substance under the CSA, mail and wire fraud, and conspiracy counts.[2] (See Indict.) Each count, other than those for conspiracy, was premised on a controlled-buy conducted by DEA investigators. For each buy, the Government charged Oz with five counts: misbranding, mail fraud, wire fraud, distribution of a controlled substance, and online sale of a controlled substance. The Government dismissed some of the charges against Oz prior to trial for a variety of reasons, including its conclusion that some of the charges were multiplicitous or should be dropped in the interest of justice. (See Gov't's Mots. to Dismiss [Doc. No. 395, 703].)

         B. Pre-Trial Arguments

         Before trial, Oz moved to dismiss the charges against him in part based on the contention that Fioricet was not a controlled substance. See United States v. Oz, No. 13-cr-273 (SRN/JJK), 2016 WL 1183041, at *2 (D. Minn. Mar. 28, 2016). Fioricet is a controlled substance as defined by the CSA because it contains butalbital, which is a derivative of barbituric acid, which is listed as a Schedule III controlled substance. Id. Neither Fioricet nor butalbital are actually listed as controlled substances. See 21 U.S.C. § 812, Schedule III, Part (b)(1). The crux of Oz's argument was that a DEA regulation, 21 C.F.R. § 1308.32 (hereinafter, the “Exempting Regulation”), exempted Fioricet from treatment as a controlled substance under the CSA. Oz, 2016 WL 1183041 at *3. The Court disagreed and held that the Exempting Regulation applied solely to certain administrative provisions of the CSA and that Fioricet remained a controlled substance subject to the criminal provisions of that statute. See Id. at *4-6.

         The Court also held that the Exempting Regulation did not make the CSA unconstitutionally vague. See Id. at *6-7. One reason for the Court's holding was that the CSA contained a scienter requirement (sometimes referred to as mens rea or intent), which mitigated against any risk of vagueness. Id. at *7. Of course, confusion surrounding the scope of the Exempting Regulation could affect whether Oz had the requisite intent to violate the CSA. For instance, Oz might have relied on representations by others, including medical professionals, that Fioricet was not a controlled substance- representations made at least in part based on confusion regarding the effect of the Exempting Regulation. It appears that the Government failed to appreciate the significant detrimental impact such evidence would have on its case, as shown through its subsequent filings and arguments.

         Shortly before trial, the Government moved to exclude any evidence regarding Oz's mistaken belief that his conduct was lawful. United States v. Oz, No. 13-cr-273 (SRN/FLN), 2017 WL 410534, at *1 (D. Minn. Jan. 30, 2017). The Government asked that the Court exclude any argument or testimony “attempting to establish defendants did not specifically know their actions violated the law.” Id. It made a more specific request that evidence of Oz's mistaken belief that Fioricet was not a controlled substance-based on the Exempting Regulation-be prohibited. Id. Tellingly, the Government argued that the CSA “only requires that [it] prove the defendants knowingly distributed Fioricet, not that the defendants knew Fioricet was a controlled substance.” Id. at *2 (alteration in original). Oz ...

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