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United States v. Zayyad, No. 13-4252

Decided: January 24, 2014

The Fourth Circuit held that the United States District Court for the Western District of North Carolina did not abuse its discretion by prohibiting Awni Shauaib Zayyad (Zayyad) from cross-examining government witnesses regarding the existence of a gray market for certain prescription pills and that—when assessed in the light most favorable to the Government—the evidence sufficiently established that Zayyad knew he was selling counterfeit prescription drugs.  The Fourth Circuit therefore affirmed the judgment of the district court.

Essam Elasmar (Elasmar) sold counterfeit erectile-dysfunction drugs that looked like Cialis and Viagra in Charlotte, North Carolina.  After Elasmar sold drugs to an undercover Department of Homeland Security (DHS) agent and a fruitful search revealed hundreds of pills, Elasmar “agreed to cooperate with investigators.”  Elasmar gave his supplier’s telephone number to DHS officials, who traced it to Zayyad.  Under the direction of government authorities, Elasmar then ordered drugs from Zayyad twice.  Police detained Zayyad when he delivered the second shipment of pills, finding over 800 unpackaged pills in the sunglasses holder and glove box of Zayyad’s van.  Police also visited Zayyad’s home on the day of the traffic stop; a search of the home revealed a yellowish pill on a toilet with an “industrial strength flushing system.”  Though some of the pills seized by government officials looked like genuine Viagra and Cialis, chemical analyses revealed that the pills had “incorrect compositions and active-ingredient levels”; at trial, various specialists testified that all of the pills they sampled were counterfeit.

A federal grand jury indicted Zayyad on “one count of conspiracy to traffic in and dispense counterfeit drug products, three counts of trafficking in counterfeit goods, and three counts of selling and dispensing counterfeit prescription drugs.”  At trial, the Government relied mainly on the nature of the drug transactions to prove Zayyad’s knowledge of the counterfeit nature of the pills.  Through cross-examination, Zayyad tried to suggest that he thought the pills came from the “gray market”—which involves goods that are “imported outside the distribution channels that have been contractually negotiated by the intellectual property owner,” Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351.  The evidence also showed that Zayyad said the pills were real when speaking to Elasmar; furthermore, there was no evidence indicating that Zayyad ever said the pills were counterfeit.

After the jury deadlocked during deliberations, the district court declared a mistrial.  The grand jury then issued a superseding indictment that narrowed the scope of the conspiracy count and removed two of the other counts.  Prior to the second trial, the Government made a motion in limine to prevent Zayyad from raising gray-market evidence through cross-examination; the Government argued that this evidence would only be relevant if, for instance, Zayyad was to testify during his case-in-chief regarding his state of mind—specifically, that he believed the pills he sold were genuine pills from a specific part of the gray market or “diversion market.”  The district court granted the Government’s motion, finding that gray-market evidence was not relevant under Federal Rule of Evidence 401.  The district court also excluded the evidence under Rule 403, finding that the probative value of the evidence would be overwhelmed by “concerns about confusion of the issues, misleading the jury, and considerations of waste of times.”  After the closure of the evidence in the second trial, Zayyad moved for a judgment of acquittal.  The district court denied his motion, and the jury convicted him on all counts.  Zayyad appealed, arguing that the district court committed error by prohibiting the gray-market evidence and that the Government did not provide sufficient evidence to prove the knowledge element of the offenses charged.

With regard to the gray-market issue, the Fourth Circuit first noted that the district court only limited Zayyad’s right to cross-examine witnesses—and that Zayyad did not make a proffer of gray-market evidence or try to introduce gray-market evidence during his case-in-chief.  The Fourth Circuit then found that Zayyad likely did not preserve this argument below—but that the result would be the same under either the plain error standard or the abuse of discretion standard.  The Fourth Circuit concluded that the proposed subject of cross-examination was irrelevant: Zayyad never suggested that he believed he was peddling gray-market goods, and he also did not even establish his knowledge of the gray market.  The Fourth Circuit also rejected the implication of an infringement upon Zayyad’s constitutional right not to testify, finding that “Zayyad cannot use the privilege against self-incrimination as a means to free himself from the basic rules of relevancy.”  In addition, the Fourth Circuit found that, even if the gray-market evidence was relevant, the district court did not commit reversible error “by directing the evidence to Zayyad’s case-in-chief”; the Fourth Circuit noted that Zayyad had the chance to present gray market evidence during his own case, and that Zayyad had the opportunity to cross-examine Government witnesses on other issues.  With regard to the district court’s alternative ruling on Rule 403 grounds, the Fourth Circuit noted that gray-market evidence “threatened to lead the jury into pure speculation based on no foundational evidence as to Zayyad’s state of mind.”  Lastly, with regard to Zayyad’s challenge to the sufficiency of the evidence, the Fourth Circuit found that the jury could reasonably infer that the drugs were counterfeit based on the circumstantial evidence provided by the Government.

Full Opinion

 -Stephen Sutherland