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Court Clarifies Knowledge Standard Required for Analogue Act Conviction

In United States v. Demott, No. 13-3410 (2d Cir. Oct. 9, 2018) (Leval, Pooler, Wesley), the Second Circuit vacated two convictions under the Controlled Substance Analogue Enforcement Act of 1986 (the “Analogue Act”), 21 U.S.C. §§ 802(32)(A), 813, due to errors in the district court’s jury instructions relating to the statute’s knowledge element.  The Court also found error in the admission of certain hearsay testimony by a case agent about the underlying investigation.  The defendants in Demott were convicted of participating in a conspiracy to distribute two different synthetic “designer drugs” substantially similar to the listed controlled substance MDMA.  The defendants were thus prosecuted under the Analogue Act, which functions as a catch-all statute to enable prosecutions of crimes involving drugs that are substantially similar to drugs already listed in the schedule set forth in the Controlled Substances Act (“CSA”), 21 U.S.C. § 812.  See id. §§ 802(32)(A), 813.

After rejecting the defendants’ contentions that the Analogue Act is unconstitutionally vague as applied to the facts here, and that there was insufficient evidence to sustain their convictions, the Second Circuit held that certain of the district court’s jury instructions regarding the knowledge element of the statute were erroneous and that these errors necessitated a new trial.  In so holding, the Court interpreted and applied the Supreme Court’s recent decision in McFadden v. United States, 135 S. Ct. 2298 (2015), in which the Court held that “the Government must prove that a defendant knew that the substance with which he was dealing was a ‘controlled substance,’ even in prosecutions involving an analogue.”  135 S. Ct. at 2305.  Because McFadden did not specify what it meant for a defendant to know that he or she was dealing with a “controlled substance,” (or an analogue thereof), the Demott court interpreted McFadden to require not specific knowledge that the substance at issue was in fact listed on the CSA schedule (or was substantially similar to a listed drug) but rather knowledge that the drug at issue “was controlled by federal drug laws.”  As the court noted, not only does this interpretation of McFadden accord with interpretations of the Fifth, Eighth, and Eleventh Circuits, but it also strikes the appropriate balance of honoring the statute’s knowledge requirement while also avoiding a situation in which myriad drug convictions would have to be overturned in cases where the conspirators knew the drug at issue was prohibited but were not familiar with particulars of the CSA schedule.

While the Demott court found no error in the district court’s instruction that a conviction under the Analogue Act required proof that the defendants knew that the drugs they were distributing were “controlled or regulated by federal drug abuse laws,” it found reversible error in the court below’s statements to the jury indicating that knowledge of the law was not an element of the offense.  In particular, the district court instructed the jury that “knowledge of or intent to violate the law is not an element of this offense,” and that even if the defendants were told that the substance was legal, “[t]hat is not a defense to these charges.”  As McFadden made clear, knowledge that the substance in question was a controlled substance analogue is an element of an Analogue Act violation, and instructing the jury to the contrary was error.  The district court’s instructions “effectively deprived Defendants of the ability to defend against the Government’s evidence on the knowledge element.”  Finding that the error was not harmless beyond a reasonable doubt, the court thus remanded the case for a new trial as to the defendants convicted of violating the Analogue Act. 

In the course of this discussion that Court needed to address an apparent inconsistency between McFadden and the Court’s prior ruling in United States v. Ansaldi, 372 F.3d 118, 123-24 (2d Cir. 2004).  While the Court held that the fact-specific holding in Ansaldi was consistent with the holding in this case, the reasoning in Ansaldi (that “knowledge of, or intent to violate, the law is simply not an element” of an Analogue Act violation) could not be reconciled with McFadden.  To this limited extent, the Court disavowed its Ansaldi decision.  Given this aspect of the Demott decision, the Court conducted a “mini en banc” and circulated the decision to the active judges of the Court prior to the issuance of the opinion.

The court also ruled that trial testimony from a detective relaying information communicated to him by a “source” who was not present for cross-examination was inadmissible hearsay that should not have been before the jury and that should not come in at the retrial.  As urged by the Government, the district court held that the statements were admissible because they were not offered for the truth of the out-of-court declarant’s statements, but only as background evidence to explain the detective’s actions.  On appeal, however, the Government “wisely concede[d] that this evidence was hearsay” and the Court held that “[i]t should not have been offered.”  Even though some hearsay evidence may be admissible as background evidence, “the value of the non-hearsay use to explain [the detective’s] actions was practically nil, while the prejudice flowing from the jury’s consideration of the content of the informant’s tip was substantial and obvious.”  Here too, the district court’s error could not be described as harmless; it was not “highly probable that the error did not affect the verdict.”

Judge Wesley wrote a short concurring opinion to address McFadden and the “significant interpretive challenges” that the decision presents.  Although Judge Wesley agreed that the convictions should be vacated, he appeared to view the legal issues raised by the appeal as being much less complicated.  It was error for the district court to have told the jury that knowledge was not an element of the offense, and the error was not harmless (“[k]nowledge was the only truly disputed element in this trial”).  Judge Wesley explained that he “d[id] not disagree with Judge Leval that McFadden raises as many questions as it answers” but he saw “no need to dwell on the difficulties it presents when they do not impair our resolution of the case.”

Demott is not only a helpful guide to understanding the knowledge requirement set forth in the Analogue Act, it is also a reminder that in a certain subset of cases, knowledge of the law is an element of the offense.  In other words, while ignorance of the law is generally no excuse, in a limited group of cases, knowledge that one’s actions violate a specific statute can be an important defense.  For instance, in certain federal tax crimes cases, the Government must prove not only that the defendant violated a given tax law but that the defendant was aware of the duty imposed on him by that law.  See Cheek v. United States, 498 U.S. 192 (1991).  Demott shows that drug prosecutions under the Analogue Act also raise issues of knowledge, as the drugs are only by analogy illegal under federal law.  As with certain tax and regulatory offenses, it is important for courts to make sure that innocent people who blundered into criminal activity without the requisite knowledge are not prosecuted.  Although arising from a non-white collar context, the decision serves as a reminder to white collar practitioners to always analyze the knowledge requirement of a given offense and to ensure that any instructions to the jury accurately reflect that requirement.