U.S. v. Kohlbach
Decision Date | 14 December 1994 |
Docket Number | Nos. 93-2495,93-2531,s. 93-2495 |
Citation | 38 F.3d 832 |
Parties | UNITED STATES of America, Plaintiff-Appellant (93-2495/2531), Cross-Appellee, v. Friedrich R. "Fred" KOHLBACH, Defendant-Appellee, Edward B. CROUSE, Defendant-Appellee, Cross-Appellant (93-2550), James R. MARSHALL, Defendant-Appellant (93-2564). , 93-2550 and 93-2564. Sixth Circuit |
Court | U.S. Court of Appeals — Sixth Circuit |
Brian K. Delaney (argued and briefed), Office of the U.S. Atty., Grand Rapids, MI, Jay I. Bratt (argued and briefed), U.S. Dept. of Justice, Washington, DC, for plaintiff-appellant.
Charles S. Rominger, Jr. (argued and briefed), Grand Rapids, MI, for Friedrich R. Kohlbach.
David A. Dodge (argued and briefed), Grand Rapids, MI, for Edward B. Crouse.
Craig W. Haehnel (argued and briefed), Grand Rapids, MI, for James R. Marshall.
Before: KEITH, BOGGS, and BATCHELDER, Circuit Judges.
Defendants Kohlbach, Crouse, and Marshall pleaded guilty to federal charges arising from a conspiracy to produce and introduce into interstate commerce adulterated "orange juice made from concentrate." The government appeals from the sentences imposed on Kohlbach and Crouse, claiming that they were lighter than mandated by the United States Sentencing Guidelines. Crouse cross-appeals, and Marshall appeals, both claiming that the district judge incorrectly determined the total loss caused by the conspiracy, and consequently imposed a sentence harsher than that authorized by the guidelines. For the reasons set forth below, we: (1) remand the matter of Kohlbach's sentencing to the district court for further findings of fact; (2) vacate Crouse's sentence and remand for resentencing; and (3) affirm the findings of loss because they are not clearly erroneous.
Kohlbach, Crouse, and Marshall were named among seven persons and two corporations charged in a 33-count indictment with conspiring to violate the Federal Food, Drug, and Cosmetic Act ("FDCA") by selling adulterated orange drinks as "orange juice from concentrate." The Food and Drug Administration ("FDA") is authorized by Congress to establish definitions and standards for food products whenever "such action will promote honesty and fair dealing in the interest of the consumer...." 21 U.S.C. Sec. 341.
The FDA has chosen to define standards for orange juice. Under 21 C.F.R. Sec. 146.145, "orange juice from concentrate" may consist only of water, concentrated orange juice, orange juice, orange pulp, orange oil, and orange aroma (also called "orange essence"). Thus, it is forbidden to add sugar, pulpwash, 1 citric acid, amino acids, enzymes, or preservatives to a product called "orange juice from concentrate." Under the law, it is not relevant whether the forbidden additives improve the product's quality. As a separate but related matter, the antibiotic natamycin (marketed under the trade name "Delvocid") has been approved by the FDA for use on the surface of cheese but in no other food substance. See 21 C.F.R. Sec. 172.155.
Flavor Fresh Foods, Inc. ("Flavor Fresh"), contracted with the Peninsular Products Company ("Peninsular") to process Flavor Fresh's "100% orange juice from concentrate" by adding the appropriate amount of water, and to pack and market the finished product. Defendant Marshall was one of Flavor Fresh's owners and a company vice-president. Marshall had been in the orange juice business for three decades. Sometime around the early 1970s, he developed formulas for adulterating orange juice. During this period, he first met defendant Kohlbach, a German scientist specializing in food biology.
Meanwhile, Peninsular also produced and distributed its own in-house "orange juice from concentrate," marketed as "Orchard Grove." Defendant Crouse was the owner of Peninsular, the chairman of its board of directors, and its chief executive officer. Crouse delegated responsibility for Peninsular's day-to-day activities to others, especially co-conspirator Wagoner, Peninsular's general manager. 2 While Wagoner ran Peninsular's operation from the company's main office in Michigan, Crouse increased his presence in Florida, where he had an office, monitoring groves and developing financial information. Crouse still visited Michigan periodically during the year, to attend Peninsular's quarterly board meetings and to pursue other personal charitable, civic, and religious interests. Nevertheless, Wagoner kept Crouse apprised of the company's adulterating schemes, and Crouse understood that Peninsular was violating federal law.
According to the indictment, Flavor Fresh first began to dilute its "100% orange juice from concentrate" by adding beet sugar and by infusing other additives, including amino acids and flavor enhancers, to foil federal detection. Subsequently, Marshall contracted with Kohlbach to purchase, and to market to others, a sophisticated preservative that could extend the shelf life of "orange juice from concentrate" from four weeks to as long as seven weeks.
Kohlbach devised and supplied the preservative, whose main ingredient was glucose oxidase/catalase, a natural enzyme that extends the product's life by inhibiting oxidation. Kohlbach's preservative also included natamycin, an antibiotic that further extends shelf life by killing microbes and molds that are present in orange juice concentrate. Kohlbach described his compound as being so potent that it contained "one bullet for every bug." By adopting this method to extend product shelf life, Flavor Fresh and Peninsular saved costs by eliminating the need to sanitize and upgrade their production facilities, and they further avoided the losses that their competitors incur when the shelf life of unadulterated orange products expires. In addition, Kohlbach sold and provided maintenance service for a "dosing machine" that he created to inject measured amounts of preservative into the concentrate, and he devised a formula by which enough extra orange aroma was added into the enzyme-and-natamycin additives to mask the alterations. He shipped his preservative to Flavor Fresh, invoicing it as a "cleansing and aseptisizing compound." In turn, Flavor Fresh sold some of the preservative to Peninsular, shipping it as a "flavoring compound."
Shortly after Flavor Fresh began working with Peninsular in 1979, Marshall informed Wagoner that he was adulterating his concentrate by adding beet sugar. Nevertheless, Peninsular continued to market it as "100% orange juice from concentrate." In fact, around 1983, Peninsular chose to increase the profit margin on its own in-house "Orchard Grove" label by purchasing adulterated concentrate from Flavor Fresh. In time, Peninsular obtained more than three million gallons of the Flavor Fresh concentrate, the base ingredient from which it produced approximately 37 million gallons of finished product. In 1990, Peninsular began adding pulpwash to its concentrate. However, in early 1991, an FDA inspector caught Peninsular employees adding the pulpwash. An investigation followed, leading to criminal indictments against Defendants.
The Food, Drug, and Cosmetic Act makes it a federal crime to "adulterate" a food by substituting a component, or by adding any substance to it that "reduce[s] its quality or strength, or [that] make[s] it appear better or of greater value than it is." 21 U.S.C. Sec. 342(b). It is also a federal offense to introduce "adulterated or misbranded" food into interstate commerce. Id. Sec. 331(a). Section 333(a)(2) makes it a felony to violate Sec. 331(a) while acting "with the intent to defraud or mislead."
Desiring to avoid trial on the 33-count indictment, Kohlbach and Crouse both pleaded guilty to count 15 only, admitting that, with the intent to defraud or mislead, they caused adulterated orange juice to be introduced into interstate commerce. 21 U.S.C. Secs. 331(a), 333(b) (recodified as Sec. 333(a)(2) after July 22, 1988). Marshall pleaded guilty both to that count and to count one, conspiracy to violate the FDCA. 21 U.S.C. Sec. 371. The defendants were sentenced separately, and the issues on this appeal arise from those sentences.
Kohlbach pleaded guilty to count 15 of the indictment, which charged that with the intent to defraud or mislead, he caused adulterated orange juice to be introduced into interstate commerce. 21 U.S.C. Secs. 331(a), 333(b) (recodified as Sec. 333(a)(2) after July 22, 1988). It was agreed by the parties that, based on the dates of his offenses, he would be sentenced under the 1987 guidelines.
Under U.S.S.G. Sec. 2F1.1(a), an offender whose crime involves fraud or deceit is assigned a base offense level of 6. That offense level is further increased based on the amount of loss caused, with incremental sentencing enhancements pegged to higher thresholds of loss. When a district court calculates the amount of loss caused by a crime involving fraud or deceit, the court need not determine the amount of loss with precision. United States v. Milligan, 17 F.3d 177, 183 (6th Cir.1994) . "The guidelines require a district court to make a reasonable estimate, which may be founded on general factors such as the nature and duration of the fraud." Ibid.
The government urged the district judge to adopt the recommendation of the Pre-Sentencing Investigation (PSI) that Kohlbach's base offense level of 6 under U.S.S.G. Sec. 2N2.1(b)(1)(1987) be enhanced by 11 levels under Sec. 2F1.1(b)(1)(L)(1987) for the specific offense of perpetrating a fraud that exceeded $5 million. The judge refused, finding that it would "turn the statute on its head" to enhance Kohlbach's offense level based on a quantity of criminality to which he had "no proprietary nexus of gain." Furthermore, because the judge was satisfied that no one had been hurt by Kohlbach, he rejected the government's suggestion...
To continue reading
Request your trial-
U.S. v. Monus
...an enhancement of eighteen levels. Although the court need not establish the value of the loss with precision, see United States v. Kohlbach, 38 F.3d 832, 835 (6th Cir.1994) (citing § 2F1.1, comment. (n.8)), Rule 32 requires it to publish the resolution of contested factual matters that for......
-
Lexington Ins. v. General Acc. Ins. Co. of America
...because good works are not exceptional for someone of defendant's income and preeminence in a small town); United States v. Kolbach, 38 F.3d 832, 838-39 (6th Cir.1994) (vacating a good works departure because "it is usual and ordinary, in the prosecution of similar white collar crimes invol......
-
United States v. Annamalai
...States v. Johnson , 841 F.3d 299, 304–05 (5th Cir. 2016) (extrapolation based on sampling in a tax fraud case); United States v. Kohlbach , 38 F.3d 832, 841 (6th Cir. 1994) (extrapolation based on statistical analysis in a case involving a conspiracy to violate the Federal Food, Drug, and C......
-
U.S. v. Thurston, 02-1966.
...because the defendant's good works were not exceptional in light of his income and preeminence in a small town); United States v. Kohlbach, 38 F.3d 832, 838-39 (6th Cir.1994) (vacating a good works departure because "it is usual and ordinary, in the prosecution of similar white collar crime......