Thursday, December 14th, 2017

Second Circuit on the Exclusion Non-Hearsay Evidence Concerning the Advice of Counsel Defense

Yesterday, in a published opinion, the Second Circuit reversed the convictions in an off-label drug importing case because the district court erroneously excluded evidence concerning the advice of counsel defense. The opinion in United States v. Scully, No. 16-3073 (Pooler, Lynch, Cogan (by designation) (appeal from Spatt, J., EDNY) is available here. The opinion touches on hearsay issues that arise beyond the fraud context.

The defendants in Scully were charged with fraud, conspiracy, and drug importation counts resulting from a “parallel importing” scheme: that is, the defendants’ company would import foreign versions of FDA-approved drugs and sell them at a reduced rate. One of the defendants cooperated and, at trial, the other defendant (Scully) advanced an advice-of-counsel defense. The defense sought to introduce evidence of an attorney’s legal advice through Scully’s own testimony, and elicited the following exchange during its direct examination of Scully:

Q. Did Mr. Tomao [the attorney] also give you an oral legal opinion as to his conclusions about your business model?

A. Yes . . . Peter Tomao . . . had given his approval and said the business was completely legal.

The district court excluded this testimony on 403 grounds, but in doing so provided an explanation suggesting that the decision was motivated by hearsay concerns. It further ruled that the defense would have to call the attorney, who was available to testify, if it wanted to introduce his statement to Scully.

The Circuit held that the district court abused its discretion in excluding this testimony. As the district court ultimately acknowledged, the excluded testimony was not hearsay because it was offered as evidence of Scully’s state of mind, rather than to prove the truth of the matter asserted. Accordingly, the district court erred by invoking hearsay-related concerns to exclude evidence that was, as the district court acknowledged, “extremely important” to the defense. The district court also abused its discretion by requiring the defense to call his attorney as a witness to ensure the testimony’s reliability. Although reasons existed to doubt Scully’s credibility and reliability, it is the jury’s role to make these assessments. “Scully is competent to testify to the advice he received from counsel, even if his testimony is one-sided and self-serving; we are now a long way from the common law rule that excluded as witnesses persons interested in the result of the trial.” Slip op. at 20 (quotation marks and alterations omitted).

Additionally, the Circuit took issue with the district court’s jury instructions, which could have given the misleading impression that the advice-of-counsel defense is an affirmative defense in a fraud case. (In fact, the advice-of-counsel defense serves to negate the mens rea element that the defendant had “unlawful intent.”) The Circuit advised that, on remand, the district court consider Sand’s jury instruction concerning the advice-of-counsel defense, as well as the Seventh Circuit’s model jury instruction.

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