Appeals from judgments of conviction entered in the United States District Court for the Eastern District of New York after a jury trial before Thomas C. Platt, Judge, for conspiracy, in violation of 18 U.S.C. § 371; mail fraud, in violation of 18 U.S.C. § 1341; and the introduction of adulterated and misbranded apple juice into interstate commerce, in violation of 21 U.S.C. § 331(a). See 659 F. Supp. 1487 (1987); 677 F. Supp. 117 (1987). Affirmed in part and reversed in part.
Oakes, Chief Judge, Kearse and Cardamone, Circuit Judges. Judge Cardamone dissents in part in a separate opinion.
Defendants Neils L. Hoyvald and John F. Lavery appeal from judgments of conviction entered in the United States District Court for the Eastern District of New York after a jury trial before Thomas C. Platt, Judge. Hoyvald was convicted on 359 counts of introducing adulterated and misbranded apple juice into interstate commerce, in violation of the Federal Food, Drug, and Cosmetic Act ("FDCA"), 21 U.S.C. §§ 331(a) and 342(b)(1) and (2) (1982 & Supp. IV 1986). Lavery was convicted on one count of conspiracy, in violation of 18 U.S.C. § 371 (1982), 18 counts of mail fraud, in violation of 18 U.S.C. §§ 1341 and 2 (1982), and 429 counts of introducing adulterated and misbranded apple juice into interstate commerce, in violation of 21 U.S.C. §§ 331(a), 342(b)(1) and (2), and 18 U.S.C. § 2. Each defendant was fined a total of $100,000, sentenced to concurrent prison terms of one year and one day on each count on which he was convicted, and ordered to pay the costs of prosecution. On appeal, defendants contend principally that venue as to certain counts was improper and that the district court made a variety of errors in admitting or excluding evidence and in instructing the jury. For the reasons below, we conclude that venue as to the substantive FDCA counts was improper, and we therefore reverse defendants' convictions under 21 U.S.C. §§ 331(a) and 342(b)(1) and (2) and remand for dismissal of those counts; we affirm Lavery's conviction on the conspiracy and mail fraud counts.
During the period in question, Lavery was vice president in charge of operations for Beech-Nut Nutrition Corporation ("Beech-Nut" or the "Company"), a company engaged in the business of, inter alia, selling fruit juice products in interstate commerce. As vice president for operations, Lavery was responsible for the purchasing and processing of apple juice concentrates used in Beech-Nut's apple juice and in its "mixed juice" products. Hoyvald was first employed by Beech-Nut in 1980 and became its president and chief executive officer in April 1981. Thereafter, Lavery reported directly to Hoyvald.
The government's evidence at trial was presented principally through the testimony of present and former Beech-Nut employees, scientists and investigators employed by the Food and Drug Administration ("FDA"), and expert witnesses, and through documents from the files of Beech-Nut. The evidence, taken in the light most favorable to the government, revealed the following.
A. Events Prior to June 25, 1982
Beech-Nut marketed its apple juice as pure unsweetened juice, labeling and advertising it as pure fruit juice with no sugar added. It made its juices from concentrates. In 1977, Universal Juice Company ("Universal") became its sole supplier of apple juice concentrate. In October 1978, Dr. Jerome LiCari, Beech-Nut's director of research and development, received information suggesting that that concentrate might be adulterated, i.e., might be made of syrups and edible substances other than, and cheaper than, apples. LiCari reported this information to Lavery.
In response, Lavery sent two employees to inspect Universal's blending operation. What the employees found, however, was only a warehouse without any blending facility. Lavery did not attempt to determine the location of the blending operation and pursue an inspection. Instead, he required Universal to give the Company a "hold harmless" agreement which was intended to protect Beech-Nut from legal claims related to the juice.
Thereafter, as a result of tests, LiCari continued to express to Lavery his concerns about the quality of the concentrate supplied by Universal; he argued that a supplier willing to adulterate the concentrate in the first place would likely have little compunction about continuing to supply adulterated product after signing a hold-harmless document. Lavery's response was that the agreement would adequately protect the Company even if the juice was adulterated.
Lavery told LiCari that Universal's price to Beech-Nut for the concentrate was 50 cents to a dollar per gallon below the price charged by the Company's previous supplier. He stated that, because of the tremendous economic pressure under which the Company was operating, he would not change suppliers unless LiCari's tests were sufficient to prove in a court of law that the concentrate was adulterated. He directed LiCari to give the testing low priority. Beech-Nut continued to buy the adulterated concentrate.
In 1979, LiCari had the concentrate analyzed by an outside laboratory. The test results showed that the concentrate consisted primarily of sugar syrup. Lavery was informed of these results but took no action. In July 1979, Lavery received a memorandum from the Company's plant manager in San Jose, California, advising him that approximately 95,000 pounds of concentrate inventory was "'funny'" and "adulterated," in that it was "almost pure corn syrup." (Emphasis in original.) The plant manager suggested that Beech-Nut demand its money back from the supplier. Instead, Lavery, who did not dispute the accuracy of these reports, instructed the manager to use the tainted concentrate in the Company's mixed juices. These too were labeled 100% pure juice. The Company continued to purchase its apple juice concentrate from Universal.
On numerous occasions thereafter, Beech-Nut's scientists advised Lavery of their concerns that the apple juice concentrate was adulterated. In August 1981, LiCari sent a memorandum to Charles Jones, the Company's purchasing manager, with a copy to Lavery, stating that although the scientists had not proven that the concentrate was adulterated there was "a tremendous amount of circumstantial evidence" to that effect, "paint[ing] a grave case against the current supplier." LiCari's memorandum concluded that
[i]t is imperative that Beech-Nut establish the authenticity of the Apple Juice Concentrate used to formulate our products. If the authenticity cannot be established, I feel that we have sufficient reason to look for a new supplier.
Lavery took no action to change suppliers. Rather, he instructed Jones to ignore LiCari's memorandum, criticized LiCari for not being a "team player," and called his scientists "Chicken Little." He threatened to fire LiCari.
In late 1981, the Company received, unsolicited, a report from a Swiss laboratory concluding that Beech-Nut's apple juice product was adulterated, stating, "[t]he apple juice is false, can not see any apple." Lavery reviewed this report, and one of his aides sent it to Universal. Universal made no response, and Beech-Nut took no action.
Both before and after becoming president of Beech-Nut in April 1981, Hoyvald too received information from several sources about the adulteration problem. In January 1981, LiCari sent copies of a memorandum to Hoyvald and Lavery expressing concern over the quality of the concentrate used to make the apple juice. In November, purchasing manager Jones raised the problem. In the spring of 1982, Paul Hillabush, the Company's director of quality assurance, advised Hoyvald not to be surprised by adverse publicity concerning Beech-Nut's purchases of apple juice concentrate. Hoyvald took no action in response to any of these communications. Rather, he told Lavery that, for budgetary reasons, he would not approve a change in concentrate suppliers until 1983.
B. The Events of June 25, 1982, and Thereafter
On June 25, 1982, a detective hired by the Processed Apple Institute visited Lavery at the Beech-Nut manufacturing facility in Canajoharie, New York, and advised him that Beech-Nut was about to be involved in a lawsuit as a result of its use of adulterated concentrate and that adverse publicity would ensue. Lavery immediately terminated Beech-Nut's relationship with Universal.
Lavery dealt with the adulterated concentrate on hand in two ways. He promptly ordered that so much of Beech-Nut's inventory of concentrate as was located in New York be returned to Universal or destroyed. As to the inventory of concentrate located in San Jose, California, however, he allowed the California plant to continue to use it in manufacturing apple juice products.
In addition to the concentrate in New York and California, Beech-Nut had in June 1982 an inventory worth millions of dollars of finished apple products already made from the adulterated concentrate. Hoyvald realized that an inability to sell this inventory would be financially crippling to the Company, and accordingly undertook delaying tactics designed to give the Company time to sell it.
To avoid seizure of the inventory in New York by state officials in August 1982, Hoyvald had this juice moved out of state during the night. It was transported from the New York plant to a warehouse in Secaucus, New Jersey, and the records of this shipment and others were withheld from FDA investigators until the investigators independently located the carrier Beech-Nut had used. While the FDA was searching for the adulterated products but before it had discovered the Secaucus warehouse, Hoyvald ordered virtually the entire stock in that warehouse shipped to Beech-Nut's distributor in Puerto Rico; the Puerto Rico distributor had not placed an order for the product and had twice refused to buy the product even at great discounts offered personally by Hoyvald.
Similarly, in September 1982, Hoyvald ordered a rush shipment of the inventory of apple juice products held at Beech-Nut's San Jose plant, and took a number of unusual steps to get rid of the entire stock. He authorized price discounts of 50 percent; the largest discount ever offered theretofore had been 10 percent. Hoyvald insisted that the product be shipped "fast, fast, fast," and gave a distributor in the Dominican Republic only two days, instead of the usual 30, to consider and respond to this product promotion. Further, in order to get the juice out of the warehouse and out of the country as quickly as possible, the Company shipped it to the Dominican Republic on the first possible sailing date, which was from an unusually distant port, thereby raising the freight cost to a level nearly equal to the value of the goods themselves. Finally, this stock was shipped before Beech-Nut had received the necessary financial documentation from the distributor, which, as one Beech-Nut employee testified, was "tantamount to giving the stuff away."
Hoyvald also used Beech-Nut's lawyers to help delay the government investigation, thereby giving the Company more time to sell its inventory of adulterated juice before the product could be seized or a recall could be ordered. For example, in September 1982, the FDA informed Beech-Nut that it intended to seize all of Beech-Nut's apple juice products made from Universal concentrate; in October, New York State authorities advised the Company that they planned to initiate a local recall of these products. Beech-Nut's lawyers, at Hoyvald's direction, successfully negotiated with the authorities for a limited recall, excluding products held by retailers and stocks of mixed juice products. Beech-Nut thus eventually agreed to conduct a nationwide recall only of apple juice, and by the time of the recall Hoyvald knew that more than 97 percent of the earlier stocks of apple juice had been sold. The Company continued to sell its mixed juice products made from the tainted concentrate until March 1983. In December 1982, in response to Hoyvald's request, Thomas Ward, a member of a law firm retained by Beech-Nut, sent Hoyvald a letter that summarized the events surrounding the apple juice concentrate problem as follows:
From the start, we had two main objectives:
1) to minimize Beech-Nut's potential economic loss, which we understand has been conservatively estimated at $3.5 million, and
2) to minimize any damage to the company's reputation.
We determined that this could be done by delaying, for as long as possible, any market withdrawal of products produced from the Universal Juice concentrate. . . .
Since the mixed fruit juices and other products constituted the bulk of the products produced with Universal concentrate, one of our main goals became to prevent the FDA and state authorities from focusing on these products, and we were in fact successful in limiting the controversy strictly to apple juice.
C. The Present Prosecution
In November 1986, Beech-Nut, Hoyvald, and Lavery, along with Universal's proprietor Zeev Kaplansky and four others (Kaplansky and these four referred to hereafter as the "suppliers"), were indicted on charges relating to the Company's sale of adulterated and misbranded apple juice products. Hoyvald and Lavery were charged with (A) one count of conspiring with the suppliers to violate the FDCA, 21 U.S.C. §§ 331(a), (k), and 333(b) (1982 & Supp. IV 1986), in violation of 18 U.S.C. § 371; (B) 20 counts of mail fraud, in violation of 18 U.S.C. §§ 1341 and 2; and (C) 429 counts of introducing adulterated and misbranded apple juice into interstate commerce, in violation of 21 U.S.C. §§ 331(a) and 333(b) and 18 U.S.C. § 2. The suppliers were also charged with introducing adulterated concentrate into interstate commerce; Hoyvald and Lavery were not charged with any substantive offense regarding the concentrate itself, either directly or as aiders and abettors.
Hoyvald and Lavery pleaded not guilty to the charges against them. Eventually, Beech-Nut pleaded guilty to 215 felony violations of §§ 331(a) and 333(b); it received a $2,000,000 fine and was ordered to pay $140,000 to the FDA for the expenses of its investigation. Kaplansky and the other four supplier-defendants also eventually pleaded guilty to some or all of the charges against them. Hoyvald and Lavery thus went to trial alone.
Prior to trial, Hoyvald and Lavery made various motions, including (1) a motion to dismiss the substantive FDCA counts against them on the ground that none of the acts on which those counts were based occurred in the Eastern District of New York, and hence venue was improper; and (2) a motion to dismiss the conspiracy count on the ground that it pleaded two conspiracies rather than a single conspiracy. In an opinion reported at 659 F. Supp. 1487 (1987), the district court denied both motions. It denied the venue motion on the ground that, since transportation is necessary for the "introduction" of goods into commerce, the FDCA offenses were continuing crimes under 18 U.S.C. § 3237(a) (1982 & Supp. IV 1986) and venue was thus proper in any district in which the offenses were begun, continued, or completed. It denied the motion to dismiss the conspiracy count, finding that the indictment adequately alleged a single conspiracy albeit with multiple objectives.
The trial began in November 1987 and continued for three months. The government's evidence included that summarized above. Hoyvald's principal defense was that all of his acts relating to the problem of adulterated concentrate had been performed on the advice of counsel. For example, there was evidence that the Beech-Nut shipment of adulterated juices from its San Jose plant to the Dominican Republic followed the receipt by Hoyvald of a telex sent by Sheldon Klein, an associate of the law firm representing Beech-Nut, which summarized a telephone conference between Beech-Nut officials and its attorneys as follows:
We understand that approximately 25,000 cases of apple juice manufactured from concentrate purchased from Universal Juice is [sic] currently in San Jose. It is strongly recommended that such product and all other Universal products in Beech-Nut's possession anywhere in the US be destroyed before a meeting with [the FDA] takes place.
Hoyvald and Klein testified that they had a follow-up conversation in which Klein told Hoyvald that, as an alternative, it would be lawful to export the adulterated apple juice products.
At the close of the evidence, two counts of mail fraud were dismissed at the government's request; the remaining counts were submitted to the jury. The jury returned a verdict of guilty on all of the counts against Lavery. It returned a verdict of guilty against Hoyvald on 359 counts of adulterating and misbranding apple juice, all of which related to shipments after June 25, 1982. It was unable to reach a verdict on the remaining counts against Hoyvald, which related to events prior to that date. These appeals followed.
On appeal, defendants contend principally (1) that the Eastern District of New York was not a proper venue for prosecution of the substantive counts under the FDCA; (2) that the court improperly curtailed their presentation of evidence in support of their advice-of-counsel defense; and (3) that the court failed to give the jury proper instructions with respect to that defense and with respect to the matter of conscious avoidance. In addition, Lavery contends that the proof at trial did not substantiate the charge that he and Beech-Nut's suppliers were members of a single conspiracy to violate the FDCA; both defendants contend that that their rights under the Speedy Trial Act, 18 U.S.C. § 3161 et seq. (1982 & Supp. IV 1986), were violated and that the court made various other errors in the admission of ...