United States v. Direct Sales Co.

• Citation: 44 F. Supp. 623
• Decision Date: 27 April 1942
• Docket Number: No. 8460.,8460.
• Parties: UNITED STATES v. DIRECT SALES CO., Inc., et al.
• Court: U.S. District Court — District of South Carolina

44 F. Supp. 623

UNITED STATES v. DIRECT SALES CO., Inc., et al.

No. 8460.

District Court, W. D. South Carolina.

April 27, 1942.

Oscar H. Doyle, U. S. Atty., E. P. Riley and Thomas A. Wofford, Asst. U. S. Attys., all of Greenville, S. C., for United States.

William B. Mahoney, of Buffalo, N. Y., for defendant Direct Sales Co., Inc.

J. M. Nickles, of Abbeville, S. C., for defendant Dr. John Victor Tate.

WYCHE, District Judge.

The indictment in this case charges the defendants with a conspiracy to violate the Harrison Narcotic Act. The defendants Black and Johnson entered pleas of guilty. During the trial the defendant Foster suffered a heart attack and by consent, a mistrial was ordered in the case as against him, and the trial proceeded against defendants Tate and Direct Sales Company.

At the conclusion of the testimony, a motion was made for a directed verdict of not guilty on the ground that the evidence was insufficient to support the charge in the indictment. The motion was overruled and the jury returned a verdict of guilty. The case is now before me on motion for new trial on the ground that the verdict is contrary to the law and the evidence; that the Court erred in not directing a verdict of not guilty; and upon other grounds which have already been disposed of on the motion to quash the indictment.¹

The testimony discloses that Direct Sales Company is a corporation, having its principal place of business at Buffalo, New York, and is a manufacturer of and a wholesale dealer in drugs, including narcotics, and at the times mentioned in the indictment was registered as such under the provisions of the Harrison Narcotic Act. Dr. John Victor Tate is a physician residing at Calhoun Falls, South Carolina, and was at the times mentioned in the indictment, registered under provisions of the Act in his proper class. The defendant Johnson was a resident of Augusta, Georgia, and defendants Foster and Black were residents of Spartanburg, South Carolina. Neither of them had been registered or had paid the special tax in any class under the provisions of the Act.

The Direct Sales Company, as its name implies, sells directly to the customer. It has no traveling representatives. It solicited the business of Dr. Tate by means of catalogs and circulars sent to him every ten days. The catalog used by this defendant is an ordinary pamphlet printed in black type on white paper, and a great number of preparations are listed in it. Narcotics, however, are not listed in the catalog itself. This defendant's uniform practice, during the period alleged in the indictment, was to insert into the catalogs a sheet of paper approximately four inches wide by five and one-half inches long, sometimes colored pink and sometimes blue, on which was listed morphine sulphate. It offered tablets of morphine sulphate for sale in lots of five hundred, one thousand, and five thousand, one-quarter and one-half grain tablets. The prices were from thirty to forty per cent. less than could be obtained elsewhere.

There was expert testimony by competent witnesses that the standard dose of morphine was from one-eighth to one-quarter grain, and in rare instances, one-half grain; that it is administered to alleviate pain and as a sedative, and that codein is also used for such purposes. Dr. Blake who testified as a witness for the government, said he used one hundred codein tablets to one of morphine.

Narcotic Agent Bransky went to the offices of the Direct Sales Company in August, 1936, and told the officers of the company that he had been sent there by the Commissioner of Narcotics, because large quantities of narcotics which the company had been selling to registrants throughout the United States had been diverted into unlawful channels, and he asked their cooperation to curb such diversion. The officers replied that they had only sold to registrants on order forms, and had no way of knowing what disposition was being made of the drugs. Bransky told them that it was his experience as an officer that when a physician ordered one-half grains of morphine sulphate, it could be assumed that it was to be used for other than legitimate purposes, and was being dispensed to satisfy addiction in violation of law. He told them that it was his experience over a long period of years as an investigator, that the average physician throughout the United States would purchase from two hundred to four hundred one-quarter grain tablets of morphine sulphate in one year. He showed to the officers of the company a list of two hundred and four names of class 4 registrants who had been convicted of violations of the narcotic laws. By permission of the company, he investigated its records and informed the president of the company at that time that of the two hundred and four physicians who had been convicted for violations of the narcotic laws in the United States, fifty-five of them were customers of this defendant. This witness called the attention of the president of the company to his catalog listings, and told him some of the best known companies listed morphine in lots not to exceed one hundred one-quarter grain and half grain tablets, and that the Direct Sales Company was listing in lots of five hundred, one thousand and five thousand. Later the company's listings were changed to show lots of five hundred and one thousand. He asked the company to limit the amount to be sold on one order form to one thousand one-half grain tablets, to which this defendant agreed. He did this, as he said, in a spirit of cooperation, as he had no authority under the law to demand it. In the year 1936, he testified that the president of the company told him he had ordered five thousand ounces of morphine. The Direct Sales Company does an annual gross business of from $300,000 to $350,000, and the Government contends that its principal business is dealing in morphine. He said that the officers of the company promised to revise its catalogs so as not to show lots of five thousand tablets, and that they would not sell on one order form more than one thousand one-half grain tablets, and so far as he knew they had kept their promise. It was shown that the purpose of the agreement to discontinue catalog listings of lots of five thousand tablets, and the agreement to limit to one thousand tablets the quantity to be sold on one order form was to reduce the amount going out to physicians and thus reduce the amount being diverted into unlawful channels. The Commissioner also asked the company to discontinue the giving of discounts on narcotics in order further to reduce the flow to class 4 registrants. The company complied with this request, but immediately listed prices with the discount already figured off. Dr. Tate was submitting order forms for one thousand half-grain tablets of morphine sulphate on an average of every five days, and in the latter period more often. All of his orders were for one thousand one-half grain tablets, with the exception of one submitted on June 28, 1939, in which he ordered one thousand one-half grain tablets and one hundred one-quarter grain tablets. On that occasion the company filled his order for the one thousand one-half grain tablets, and wrote a letter to him requesting him to submit another order form for the remaining part of the order. It was contended by the Government that this letter, while informing Dr. Tate of the rule that only one thousand tablets could be ordered on one order form, that it also suggested to him that all he needed to do was to split his purchase up into different order forms, and that the letter was so understood by him, as shown by his orders for the succeeding thirty days, during which he ordered six thousand one-half grain tablets, or one thousand more than in any other thirty-day period.

The president of the company testified that he knew the only way Dr. Tate could dispose of the morphine sulphate he ordered was by direct administration to his patients in the legitimate practice of his profession. This, of course, is the law. He could neither sell nor give it away. Dr. Tate was ordering one thousand one-half grain tablets at a time. One-half grain tablets, it was testified, are rarely used in the practice of medicine, but are frequently used by addicts. These orders came with regularity and it was shown that on many occasions one order was in the mail coming to Dr. Tate while his order form for another lot was on the way to Direct Sales Company. With negligible exceptions, Dr. Tate ordered no other preparations from the Direct Sales Company, and he ordered no codein. The company was bound to know that the volume of morphine being used by Dr. Tate could by no stretch of the imagination be dispensed by him in the course of the legitimate practice of medicine, and must, therefore, have known that he was diverting it into unlawful channels, particularly after it was told that 26.96 per cent. of all convicted physicians in the United States were its customers, who had likewise been ordering from it.

Section 2 of the Harrison Narcotic Act, 26 U.S.C.A. Int.Rev.Code § 2554(g), provides, among other things, that: "It shall be unlawful for any person to obtain by means of said order forms any of the aforesaid drugs for any purpose other than the use, sale, or distribution thereof by him in the conduct of a lawful business in said drugs or in the legitimate practice of his profession."

Direct Sales Company was bound to know that Dr. Tate was buying morphine on order forms for unlawful purposes. The catalogs and circulars sent to Dr. Tate every ten days constituted an offer to continue to furnish the morphine knowing it was to be used in the violation of the narcotic law. Each time Dr. Tate accepted an offer contained in the catalog, an agreement was made, and the facts and circumstances were sufficient in my opinion to support the inference that what they did was done pursuant to a mutual understanding and a preconcerted...