Wallenstein v. United States, 3611.

Citation25 F.2d 708
Decision Date10 May 1928
Docket NumberNo. 3611.,3611.
PartiesWALLENSTEIN et al. v. UNITED STATES.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

John W. McGeehan, Jr., of Newark, N. J., for plaintiffs in error.

Walter G. Winne, U. S. Atty., of Hackensack, N. J., and Phillip Forman, Asst. U. S. Atty., of Trenton, N. J.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

DAVIS, Circuit Judge.

The defendants, Wallenstein and Paul Comora, were indicted, tried, and convicted for having conspired with Herman C. Comora and 18 or 20 others to defraud the United States in its governmental function in the control and regulation of intoxicating liquor for medicinal purposes. Ten of those with whom they conspired were physicians, and had permits from the Commissioner of Internal Revenue authorizing them to prescribe and dispense intoxicating liquor to their patients, who they in good faith believed required it as medicine. The others were druggists.

The indictment charged and the evidence shows that the defendants purchased from the physicians prescriptions, signed in blank by them, for $1 each, and wrote in as patients the names of fictitious and nonexisting persons. They then sold and delivered the prescriptions to the druggists, who, thus clothed with apparent authority, dispensed intoxicating liquors, which they purchased from Wallenstein, who represented a Baltimore distillery, selling pure whisky, not to bona fide patients of the physicians, but unlawfully to the trade desiring such unlawful products, and, oddly enough, to Wallenstein himself, who, by these circuitous means, was enabled to buy back and obtain for his own uses the pure whisky he had sold.

After all the prescriptions in the books furnished to the physicians by the Commissioner of Internal Revenue, in accordance with the National Prohibition Act (27 USCA), had thus been sold to the defendants, the books containing the prescription stubs were returned by the physicians to the Commissioner, his deputies and agents, who believing that the prescriptions had been used in the legitimate practice and sold to bona fide patients of the physicians, sent them other books containing blank prescriptions, to be filled up and delivered to bona fide patients by them in their proper and lawful practice. It is specifically charged that the defendants intended "thereby to defraud the United States in its governmental functions, and in the control and regulation of permittees authorized by law to prescribe intoxicating liquors to bona fide patients, and to sell, dispense, and dispose of such intoxicating liquors on prescriptions, and in the searching out, discovering, and prosecuting of persons engaged in the unlawful sale, dispensing, and disposing of such intoxicating liquors, and to delay, hinder, hamper, and prevent the United States and its duly appointed and qualified officers and agents in the prompt discovery and due and orderly prosecution of a number of persons so engaged in the unlawful sale, dispensing, and disposing of intoxicating liquors containing one-half of 1 per cent. or more of alcohol."

The defendants say that the learned District Judge erred in overruling their demurrer, their motions to quash and to direct a verdict, and in his charge to the jury. The facts alleged in the indictment, they contend, do not support a conspiracy to defraud the United States in its governmental functions. They do not deny, however, that the facts stated are sufficient to charge an offense against the United States, and that a mere reading of the indictment shows that the object of the conspiracy was to obtain liquor unlawfully. "To defraud the United States in any manner," they say, must be restricted to such conspiracies as come within the general definition of the word "defraud," which means something more than mere hindering and delaying the government in its function of prosecuting criminals and that in all the cases, such as Haas v. Henkel, 216 U. S. 462, 30 S. Ct. 249, 54 L. Ed. 569, 17 Ann. Cas. 1112, which have construed the statute as being "broad enough in its terms to include any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any department of government," the conspiracy directly involved an officer of the United States charged with a duty in one of its departments of the government. United States v. Foster, 233 U. S. 515, 34 S. Ct. 666, 58 L. Ed. 1074; United States v. Sacks, 257 U. S. 37, 42 S. Ct. 38, 66 L. Ed. 118. No federal officer was involved here, and therefore, they argue, the demurrer and motions to quash and to direct a verdict should have been granted.

The government relies on section 37 of the Penal Code (18 USCA § 88), the National Prohibition Act, and the cases of Haas v. Henkel, 216 U. S. 462, 30 S. Ct. 249, 54 L. Ed. 569, 17 Ann. Cas. 1112, and Hammerschmidt v. United States, 265 U. S. 182, 44 S. Ct. 511, 68 L. Ed. 968. Section 37 of the Penal Code provides that, if two or more persons conspire either to commit an offense against the United States, or to defraud the United States in any manner or for any purpose, and one or more of such parties do any act to effect the object of the conspiracy, each of the parties to such conspiracy is guilty of the crime which the statute inhibits.

Title 2, §§ 6, 7, and 8, of the National Prohibition Act (27 USCA §§ 16, 17, 19), provide as follows:

Section 6: "No one shall manufacture, sell, purchase, transport, or prescribe any liquor without first obtaining a permit from the Commissioner so to do, except that a person may, without a permit, purchase and use liquor for medicinal purposes when prescribed by a physician as herein provided. * * * No permit shall be issued to anyone to sell liquor at retail, unless the sale is to be made through a pharmacist designated in the permit and duly licensed under the laws of his state to compound and dispense medicine prescribed by a duly licensed physician. No one shall be given a permit to prescribe liquor unless he is a physician duly licensed to practice medicine and actively engaged in the practice of such profession."

Section 7: "No one but a physician holding a permit to prescribe liquor shall issue any prescription for liquor. And no physician shall prescribe liquor unless after careful physical examination of the person for whose use such prescription is sought, or if such examination is found impracticable, then upon the best information obtainable, he in good faith believes that the use of such liquor as a medicine by such person is necessary and will afford relief to him from some known ailment."

Section 8. "The Commissioner shall cause to be printed blanks for the prescriptions herein required, and he shall furnish the same, free of cost, to physicians holding permits to prescribe. The prescription blanks shall be printed in book form and shall be numbered consecutively from one to one hundred, and each book shall be given a number, and the stubs in each book shall carry the same numbers as and be copies of the prescriptions. The books containing such stubs shall be returned to the Commissioner when the prescription blanks have been used, or sooner, if directed by the Commissioner."

Admittedly there was a conspiracy. The question is whether or not it was to defraud the United States in its governmental function of the regulation of intoxicating liquor for medicinal purposes.

In order to defraud the United States, it need not be subjected to financial loss. United States v. Foster, 233 U. S. 515, 526, 34 S. Ct. 666, 58 L. Ed. 1074; United States v. Barnow, 239 U. S. 74, 79, 36 S. Ct. 19, 60 L. Ed. 155. In the case of Haas v. Henkel, 216 U. S. 462, 30 S. Ct. 249, 54 L. Ed. 569, 17 Ann. Cas. 1112, there was a conspiracy between Haas and one Holmes, Associate Statistician of the Bureau of Statistics, and others, to the effect that Holmes should give his co-conspirators information of the facts contained in the cotton report annually issued by the Department of Agriculture in advance of its promulgation and publicity for use in speculation on the cotton market, and thereby defraud the United States by depriving these reports of most of their value to the public and by degrading the department in the general estimation and cause financial loss. The court said:

"But it is not essential that such a conspiracy shall contemplate a financial loss or that one shall result. The statute is broad enough in its terms to include any conspiracy for the purpose of impairing, obstructing or defeating the lawful function of any department of government. Assuming, as we have, for it has not been challenged, that this statistical side of the Department of Agriculture is the exercise of a function within the purview of the Constitution, it must follow that any conspiracy which is calculated to obstruct or impair its efficiency and destroy the value of its operations and reports as fair, impartial, and reasonably accurate, would be to defraud the United States by depriving it of its lawful right and duty of promulgating or diffusing the information so officially acquired in the way and at the time required by law or departmental regulation. That it is not essential to charge or prove an actual financial or property loss to make a case under the statute has been more than once ruled. Hyde v. Shine, 199 U. S. 62, 81 25 S. Ct. 760, 50 L. Ed. 90; United States v. Keitel, 211 U. S. 370, 394 39 S. Ct. 123, 53 L. Ed. 230; Curley v. United States C. C. A. 130 F. 1; McGregor v. United States C. C. A. 134 F. 195."

This language is broad enough to include the conspiracy under consideration. Has it been so limited by the language used in the case of Hammerschmidt v. United States, 265 U. S. 182, 44 S. Ct. 511, 68 L. Ed. 968, as not to cover the indictment and proofs in the case at bar? Hammerschmidt, with a number of others, was indicted for conspiring to defraud the United States by impairing, obstructing, and...

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