871 F.2d 1181 (2nd Cir. 1989), 422, United States v. Beech-Nut Nutrition Corp.

Docket Nº:422, 423, Dockets 88-1287, 88-1288.
Citation:871 F.2d 1181
Party Name:UNITED STATES of America, Appellee, v. BEECH-NUT NUTRITION CORPORATION, Neils L. Hoyvald, John F. Lavery, Zeev Kaplansky, Raymond H. Wells, Nina B. Williamson, South Orange Express, Inc., Danny A. Shaeffer, Defendants, Appeal of Neils L. HOYVALD and John F. Lavery, Defendants-Appellants.
Case Date:March 29, 1989
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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871 F.2d 1181 (2nd Cir. 1989)

UNITED STATES of America, Appellee,

v.

BEECH-NUT NUTRITION CORPORATION, Neils L. Hoyvald, John F.

Lavery, Zeev Kaplansky, Raymond H. Wells, Nina B.

Williamson, South Orange Express, Inc.,

Danny A. Shaeffer, Defendants,

Appeal of Neils L. HOYVALD and John F. Lavery, Defendants-Appellants.

Nos. 422, 423, Dockets 88-1287, 88-1288.

United States Court of Appeals, Second Circuit

March 29, 1989

Argued Dec. 5, 1988.

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John R. Fleder, Director, Office of Consumer Litigation, U.S. Dept. of Justice, Washington, D.C. (John R. Bolton, Asst. Atty. Gen., Washington, D.C., Andrew J. Maloney, U.S. Atty. for the E.D. of N.Y., Brooklyn, N.Y., Kenneth L. Jost, Atty., Office of Consumer Litigation, U.S. Dept. of Justice, Washington, D.C., David C. James, Thomas H. Roche, Asst. U.S. Attys., Brooklyn, N.Y., on the brief), for appellee.

Barry S. Simon, Washington, D.C. (Brendan V. Sullivan, Jr., Paul Mogin, John D. Cline, Williams & Connoly, Washington, D.C., on the brief), for defendant-appellant Hoyvald.

Steven Kimmelman, New York City (James Alexander Burke, Steven Kimmelman, P.C., New York City, on the brief), for defendant-appellant Lavery.

Before OAKES, Chief Judge, KEARSE and CARDAMONE, Circuit Judges.

KEARSE, Circuit Judge:

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. Secs. 331(a) and 342(b)(1) and (2) (1982 & Supp. IV 1986). Lavery was convicted on

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one count of conspiracy, in violation of 18 U.S.C. Sec. 371 (1982), 18 counts of mail fraud, in violation of 18 U.S.C. Secs. 1341 and 2 (1982), and 429 counts of introducing adulterated and misbranded apple juice into interstate commerce, in violation of 21 U.S.C. Secs. 331(a), 342(b)(1) and (2), and 18 U.S.C. Sec. 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. Secs. 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.

I. BACKGROUND

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.

  1. 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.

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    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.

  2. 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...

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