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United States v. Various Gold, Silver and Coins

United States District Court, Ninth Circuit

October 30, 2013

VARIOUS GOLD, SILVER AND COINS, et al., in rem, Defendants, and JAMES G. COLE, an individual, JAMES G. COLE, INC., a corporation, and SONIC LIFE.COM, LLC, formerly known as SONIC HEALTH SYSTEMS, LLC, a limited liability company, Claimants.

S. Amanda Marshall, United States Attorney, Katherine C. Lorenz and Allan M. Garten, Assistant United States Attorneys, United States Attorney's Office, Portland, OR, Attorneys for Plaintiff.

Michael A. Cox, Law Office of Michael A. Cox, Tigard, OR. John J.E. Markham, II, Markham & Read, One Commercial Warf West, Boston, MA, Attorneys for Claimants.


MICHAEL H. SIMON, District Judge.

The United States brings this consolidated civil in rem forfeiture action against various items of property, referred to as "Defendants." James G. Cole, James G. Cole, Inc., and Sonic, LLC (collectively "Claimants") assert claims to the property, which consist of $520, 000.00 worth of various gold, silver, and coins, $144, 302.68 from Claimants' business accounts, a Toyota Tacoma truck (or $17, 500, which Claimants have substituted for that truck), and a condominium in California. The Government alleges that these assets are or have been purchased with proceeds of mail fraud or wire fraud relating to the sale of (1) nutritional supplements marketed as Maxam Nutraceutics ("Maxam") and (2) a patented, vibrational therapy device known as the "TurboSonic" that emits sonic vibrations. This action is brought under 18 U.S.C. § 981(a)(1)(C), which provides that property constituting or derived from proceeds traceable to a "specified unlawful activity" is subject to forfeiture to the United States, and 18 U.S.C. §§ 1956(c)(7) and 1961(1), which provide that mail fraud and wire fraud in violation of 18 U.S.C. §§ 1341 and 1343 constitute such "specified unlawful activities." This Opinion and Order addresses all pending motions in limine and other evidentiary matters.


A. The Government's Motions in Limine

1. The jury should be instructed that they are permitted, but not required, to draw an adverse inference based on Daniel George's refusal to testify to the substantive issues at stake in the case.
Withdrawn. See Dkt. 116.
2. Motion to exclude evidence of Claimants' compliance efforts after the date of the search warrant and to provide an instruction that the jury should disregard evidence of separate FDA investigations against Claimants.


At various times, the U.S. Food and Drug Administration ("FDA") has sent "warning" letters to Claimants, advising them about alleged misrepresentations on Claimants' websites. See, e.g., Ex. 4 (2003 letter), Ex. 5 (2004 letter), and Ex. 6 (2010 letter). On April 7, 2011, the Government, pursuant to warrant, searched Claimants' home and business premises. The Government asserts that after these searches, Claimants made "Herculean efforts" to clean up their business and comply with FDA regulations. According to the Government, Claimants' efforts were unsuccessful, and on September 12, 2013, the Government filed a complaint in a different but related case, seeking permanent injunctive relief. The Government moves to exclude any evidence of "Claimants' purported efforts to comply with FDA regulations after the searches on April 7, 2011" as well as any evidence of related FDA administrative actions. The Government relies upon Fed.R.Evid. ("FRE") 403 and argues that such evidence would be analogous to evidence by a defendant in a fraud case that the defendant intended someday to repay the fraud victim. The Government's analogy is misplaced, and the evidence of Claimants' purported compliance efforts will not be excluded. To that extent, the Government's motion in limine is DENIED IN PART. The jury will, however, be appropriately instructed regarding how any evidence of administrative actions should be considered, if at all. To that extent, the motion is GRANTED IN PART.

The Government seeks to prove at trial that Claimants' scheme to defraud included both false representations and material omissions, including failing to "disclose the receipt of warning letters from the FDA informing them that the products sold by Maxam... violated FDA law." Gov't Trial Brief at 13-14, Dkt. 91. In particular, the warning letter dated October 12, 2010, states that Maxam products were "offered for conditions which are not amendable to self-diagnoses and treatment by individuals who are not medical practitioners, such as, but not limited to, autism, Alzheimer's disease, heavy metal toxicity, uterine fibroids, mood disorders, impotence, asthma, diabetes, and infections including herpes." Ex. 6. The FDA's letter is relevant both because it was not disclosed to the potential customers and because it places Claimants on notice of their allegedly false or misleading statements.

Similarly, what Claimants did after receiving these letters also may be relevant to Claimants' attempt to rebut the Government's claim of fraud, especially concerning the required element of fraudulent intent. The fact that the Government executed a search warrant on April 7, 2011, does not change this analysis. The execution of a search warrant, by itself, does not prove that Claimants engaged in any wrongdoing. Moreover, the existence of the earlier letters from the FDA, which the Government offers in evidence, shows that Claimants were not unaware of the Government investigations before April 7, 2011. Thus, the fact that the Government decided to execute search warrants on that date has minimal evidentiary significance, and Claimants' actions and responses upon receiving the various FDA letters are relevant and admissible.

3. Motion to exclude evidence regarding the number of federal agents who executed the April 7, 2011 warrants and the number of boxes of documents and other evidence seized during that search.

The parties agree that the search warrants issued and executed should not be referenced during trial and that they will specifically instruct their witnesses not to do so. See Dkt. 116.

B. Claimants' Motions in Limine

1. Motion to disallow the Government from calling Claimants' witnesses in the Government's case-in-chief.
Withdrawn. See Dkt. 116.
2. Motion to admit survey evidence.

Claimants move to introduce questionnaires sent by Agent Hilary Rickher of the FDA's Office of Criminal Investigation to customers who purchased TurboSonic machines. Claimants offer these questionnaires as evidence that any representations that TurboSonic products were "FDA Certified" or "FDA Approved" had no effect on the customers' use of and satisfaction with these products. The Government responds that the method used in formulating and distributing these questionnaires was not done in a scientific manner, that the evidence gathered cannot be easily aggregated, and that the statements contained within the questionnaire responses constitute inadmissible hearsay.

The FDA sent questionnaires to all TurboSonic customers that Agent Rickher was able to identify, asking these customers about their "experiences with TurboSonic USA and the TruboSonic machine." See Cl.'s Ex. 278. This sort of questionnaire is a form of survey evidence. See Federal Judicial Center, Reference Manual on Scientific Evidence, 405 (3rd ed. 2011) (" Reference Manual ") (noting that a mail questionnaire is a survey instrument); see Gibson v. Cnty. of Riverside, 181 F.Supp.2d 1057, 1066-69 (C.D. Cal. 2002) (evaluating questionnaires sent out to county residents for reliability and using standards of reliability applicable to survey evidence generally); see also Pittsburgh Press Club v. United States, 579 F.2d 751, 758 (3d Cir. 1978). Survey evidence is commonly used, inter alia, in cases related to trademark infringement and misleading advertising cases. 1 McCormick On Evid. § 208 (7th ed.); see also Suzanne Bonamici, The Use and Reliability of Survey Evidence in Deceptive Advertising Cases, 62 Or. L. Rev. 561 (1983) (describing the use of survey evidence and indicia of reliability in Federal Trade Commission false advertising actions).

Survey evidence is "admissible, if relevant, either as nonhearsay or through a hearsay exception." Prudential Ins. Co. of Am. v. Gibraltar Fin. Corp. of Ca., 694 F.2d 1150, 1155 (9th Cir. 1982). "The proponent must show that the survey was conducted in accordance with generally accepted survey principles and that the results were used in a statistically correct manner." Keith v. Volpe, 858 F.2d 467, 480 (9th Cir. 1988). Thus, in order for the TurboSonic questionnaire responses to be admissible, Claimants must show that the responses are: (a) relevant; (b) reliable; and (c) not excluded under the rule against hearsay. Id.

a. Relevance

Evidence is relevant if it has any tendency to make a fact of consequence more or less probable than it would be without the evidence. FRE 401. Claimants seek to use the questionnaire responses to show both that Claimants' alleged misrepresentations and omissions were not material and, accordingly, that the seized assets are not traceable to materially fraudulent statements. The Government must show that the allegedly fraudulent representations or omissions were material. See United States v. Wood, 335 F.3d 993, 1000 (9th Cir. 2003). Further, the Government must demonstrate that the defendant property are "proceeds" of mail fraud or wire fraud. 18 U.S.C. § 981(a)(2)(A); see also United States v. Newman, 659 F.3d 1235, 1243 (9th Cir. 2011). Claimants contend that "any representation that Claimants' products were FDA Certified' or FDA Approved' had no impact on the customers' use of an overwhelming satisfaction with the products." Cl.'s Motions in Limine, Dkt. 53 at 5. This evidence relates to the question of materiality. It is, therefore, relevant.

b. Reliability

Survey evidence is only admissible if it was obtained "in accordance with generally accepted principles" and "the results were used in a statistically correct manner." Keith, 858 F.2d at 467. Any alleged technical inadequacies with a survey, "including the format of the questions or the manner in which it was taken, bear on the weight of the evidence, not its admissibility." Id. If, however, there are substantial design defects in the survey or its execution is deficient, then the survey should be completely excluded. See Harolds Stores, Inc. v. Dillard Dep't Stores, 82 F.3d 1533, 1544 (10th Cir. 1996); Pittsburgh Press Club v. United States, 579 F.2d 751, 759-60 (3d Cir. 1978); accord Keith, 858 F.2d at 480. The Ninth Circuit does not have a standard test to determine when a survey is conducted reliably, but the Handbook of Recommended Procedures for the Trial of Protracted Cases provides a list of important factors, including:

(1) The proper universe was selected and examined;
(2) A representative sample was drawn from that universe;
(3) The mode of questioning the interviewees was correct;
(4) The persons conducting the survey were recognized experts;
(5) The data gathered were accurately reported;
(6) The sample design, the questionnaire and the interviewing were in accordance with generally accepted standards of objective procedure and statistics in the field of such surveys;
(7) The sample design and the interviews were conducted independently of the attorneys; and,
(8) The interviewers trained in this field had no knowledge of the litigation or the purposes for which the survey was used.

Judicial Conference of the United States, Handbook of Recommended Procedures for the Trial of Protracted Cases, 25 F.R.D. 365 (1960) (" Handbook" ). The more modern Reference Manual enumerates similar considerations. Reference Manual at 373-76.

Claimants argue that the results of Agent Rickher's questionnaire are reliable, and they refer to her deposition testimony. Agent Rickher testified that the survey was designed by the Government for the purpose of investigating Claimants' alleged fraud. She testified:

Q. [Claimants' Counsel]: And did you believe that this was an objectively stated group of questions just simply aimed at getting the truth?
A. [Agent Rickher]: The truth to the questions I was interested in, yes.
Q. Did you think that you in any way stacked the questions so that they would be more favorable to the government's position in this case than to TurboSonic's position?
A. No.
Q. Did you believe that this questionnaire was made in a way that was calculated to obtain reliable answers?
A. Yes.
* * *
Q. Do you think that the answers are reliable?
A. Yes.
* * *
Q. In connection with that survey, who helped you devise the questions on that?
A. I did, and I believe I also sent them to the attorneys here. Yes, I did send them to the attorneys here.
Q. To be reviewed before they went out?
A. Correct.
Q. And that was a part of what you - part of the basis for you saying that you thought it was a fair survey because the Department of Justice reviewed it, you reviewed it before you went out.
A. Yes.

Cl.'s Motions in Limine, Dkt. 104 at 7-8. In response, the Government argues that the questionnaires were not conducted in a ...

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