U.S. v. Weinstein

• Citation: 762 F.2d 1522
• Decision Date: 12 June 1985
• Docket Number: Nos. 83-5260,83-5570,s. 83-5260
• Parties: 18 Fed. R. Evid. Serv. 757 UNITED STATES of America, Plaintiff-Appellee, v. Philip WEINSTEIN "Dr. Philip Adamelli", Wilhelmina Harich Weinstein, Solomon Richman, a/k/a "Sol" a/k/a "Silver Fox", Robert "Bobby" Falvo, Defendants-Appellants. UNITED STATES of America, Plaintiff-Appellant, v. Stanley KOWITT, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1522

762 F.2d 1522

18 Fed. R. Evid. Serv. 757

UNITED STATES of America, Plaintiff-Appellee, v. Philip WEINSTEIN "Dr. Philip Adamelli", Wilhelmina Harich

Weinstein, Solomon Richman, a/k/a "Sol" a/k/a

"Silver Fox", Robert "Bobby" Falvo,

Defendants-Appellants.

UNITED STATES of America, Plaintiff-Appellant, v. Stanley KOWITT, Defendant-Appellant.

Nos. 83-5260, 83-5570.

United States Court of Appeals, Eleventh Circuit.

June 12, 1985.

Philip Weinstein and Wilhelmina Harich Weinstein, pro se.

David R. Mackenzie P.A., Lauderhill, Fla., Harvey M. Stone, New York City, for Falvo.

Drew Neville, B.J. Rothbaum, Jr., Oklahoma City, Okl., Richard H. Dolan, New York City, for Richman.

Fine, Jacobson, Block, Klein, Colan & Simon, P.A., Irwin J. Block, Theodore Klein, Miami, Fla., for Kowitt.

Gloria C. Phares, Washington, D.C., for U.S.

Appeals from the United States District Court for the Southern District of Florida.

Before HILL, FAY and SMITH ^*, Circuit Judges.

JAMES C. HILL, Circuit Judge:

This appeal addresses two separate criminal actions joined at trial and consolidated for purposes of oral argument on appeal. For clarity and efficiency we address both actions in one opinion, setting out a separate disposition as to each appellant.

I. INTRODUCTION

Appellants herein, Philip Weinstein, Wilhelmina Harich Weinstein, ¹ Solomon Richman, Robert Falvo, and Stanley Kowitt (hereinafter and collectively, "appellants"), were convicted by jury trial in the United States District Court for the Southern District of Florida of conspiracy in violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Secs. 1961-68 (1982) ("RICO"), and of one or more counts of mail or wire fraud in violation of 18 U.S.C. Secs. 1341-1343 (1982). Each appellant appeals his or her conviction, alleging insufficient evidence to support prosecution under RICO. A number of evidentiary, constitutional, and procedural grounds of error are also raised. ²

The crime which the government sought to prove was a simple one, a conspiracy to defraud pharmaceutical manufacturers by misrepresentations made through use of interstate mail and wire transmissions. The case is complicated, however, by the context in which this crime took place, the so-called diversion market of the American pharmaceutical industry. An understanding of the case therefore requires an understanding of diversion and its role in the marketing of pharmaceuticals in this country.

II. FACTUAL BACKGROUND

A. Diversion In the American Pharmaceutical Industry

The Robinson Patman Act, 15 U.S.C. Sec. 13 et seq. (1982), prohibits anticompetitive discrimination in the pricing of goods sold for use, consumption or resale within the United States. An exception to the Act allows discriminatory prices for sales to nonprofit organizations. By its terms, the Act does not cover sales of goods for export.

In response to the Act, pharmaceutical manufacturers maintain a bifurcated pricing structure. One price is quoted for drugs sold to domestic wholesalers for resale in the United States. A much lower price is quoted for sales to exporters and nonprofit organizations. Pharmaceutical manufacturers thus discount products sold to exporters and nonprofit organizations. In most cases, the pharmaceutical products so sold are exported for resale in foreign countries or are used by nonprofit organizations for charitable purposes. Occasionally, however, exporters or nonprofit organizations may purchase a surplus of pharmaceutical products and later seek to resell that surplus in the domestic market. Because Robinson Patman only prohibits discriminatory pricing with anticompetitive effect, it is contended that it does not apply to such resales; no issue is raised as to that position. Notably, resale under these circumstances is also at a significant advantage. Nonprofit and export organizations can, because of the low price at which they were able to obtain the products, undercut the domestic prices pharmaceutical manufacturers offer on their own goods. This is the diversion market. It is a significant source of supply for many discount pharmacies and hospitals throughout the nation.

Understandably, diversion is unpopular with pharmaceutical manufacturers. While there was testimony in this case that in many instances pharmaceutical manufacturers used nonprofit and export organizations as a "dumping-ground" for pharmaceutical products nearing expiration, it was clear that many pharmaceutical houses actively seek to prevent diversion of products sold to export and nonprofit organizations. Some companies, in fact, go so far as to maintain investigators whose sole function is to trace sources of diversion supply.

These facts inform our disposition of the case. They are not, however, ultimately material to our decision. The financial motives a pharmaceutical manufacturer may have to favor or disfavor diversion are a matter of company policy. Diversion, whether boon or bane to the pharmaceutical industry, is not contended to be illegal as a matter of federal law.

B. The Conspiracy Scenario

While it represents no illegality in itself, the diversion industry clearly presents unique opportunities for the development of fraudulent practices. The appellants, most of whom were established diverters, were convicted of using the interstate mail and wires to misrepresent themselves to pharmaceutical manufacturers as nonprofit or export organizations in order to obtain pharmaceuticals. That mail and wire fraud is the crime with which this appeal is concerned. We turn to the proof put on by the government at trial.

In May, 1975, John Berkey, a commodities broker, was authorized to establish an American branch of Opus Christi, a legitimate, nondenominational, charitable organization headquartered in Rome, Italy and dedicated to the distribution of medicines and foodstuffs to developing countries. Berkey registered Opus Christi as a nonprofit corporation in the District of Columbia and opened offices in the Watergate complex. Uneducated in the pharmaceutical business, Berkey contacted David Pollard, another commodities broker, and indicated to Pollard that, through Opus Christi's status as a charitable organization, Berkey would be able to acquire pharmaceutical products at preferential prices. Berkey merely required expertise as to which pharmaceutical products to purchase and at what prices. Pollard, responding to Berkey's request, contacted Philip Weinstein, Peter Fixler, and Lionel Harris, parties whom Pollard felt would be interested in Berkey's proposition because of their acquaintance with the diversion industry. Weinstein, Fixler and Harris, in response to Pollard's information, formed American Medicinal International, Ltd. ("AMI") as an outlet for the sale in the diversion market of pharmaceutical products obtained by Berkey through Opus Christi. Berkey, Pollard, Weinstein, Fixler, and Harris agreed to share the profits of the pharmaceutical diversion among themselves. These events occurred between May and November, 1975.

In November, 1975, (then) Wilhelmina Harich joined AMI as a secretary. Over the course of time her involvement with the company apparently increased until she became Weinstein's de facto partner.

At trial, the government sought to prove that, beginning in July, 1975, Berkey, at the behest of AMI, began soliciting pharmaceutical products from manufacturers, purportedly on behalf of Opus Christi. He sent a form letter through the mail to approximately twenty companies and represented that Opus Christi, a charitable organization, would export all merchandise obtained from manufacturers and that this merchandise was to be used in the charitable undertakings of the organization. Upon certain of the manufacturers' further inquiries about the nature of the charity, Berkey provided, via the U.S. mail, misrepresentative documentation about Opus Christi America.

At approximately the same point in time, Lionel Harris, one of the principals of AMI, introduced Peter Fixler and Philip Weinstein to Stanley Kowitt, an established diverter of pharmaceutical products in southern Florida. At that time Mr. Kowitt owned and operated American Drug Brokers, later renamed Majestic Sales, Inc. Mr. Kowitt would soon come to purchase the substantial majority of all pharmaceuticals diverted through Opus Christi to AMI.

The government sought to prove at trial that, once these entities and characters were in place, Kowitt would place an order with AMI directing delivery of pharmaceutical products be made to Majestic Sales. David Pollard would then telex or mail this information to John Berkey. Additionally, the order information would be typed onto an AMI purchase order and sent to Berkey. Berkey would then prepare an Opus Christi purchase order for the benefit of the manufacturer and direct that the manufacturer deliver the merchandise to a specified warehouse. The merchandise would then be shipped by truck or air to Florida, either to Weinstein at AMI or directly to Kowitt at Majestic Sales. Payment for these transactions was demanded upon delivery by the manufacturers. Initially, the principals of AMI advanced money to Berkey who, prior to delivery, paid the manufacturer. Upon delivery of the merchandise to Majestic Sales, Kowitt would issue a check to AMI which would be deposited immediately. Weinstein would withdraw cash sufficient to pay Berkey and Pollard their respective shares and Pollard or Weinstein would then fly to Washington to deliver Berkey's share. Later cash flow contributions were obtained from another appellant, Robert Falvo, in return for 25% of Berkey's share in Opus Christi. Falvo also subsequently obtained 50% of Pollard's income from Berkey as remuneration for similar financing.

By the end of 1975, Pollard and Fixler had dropped out of the diversion scheme. As a consequence, the operation was simplified. Kowitt would transmit Majestic Sales purchase orders directly to...