U.S. v. Merritt

• Citation: 988 F.2d 1298
• Decision Date: 09 February 1993
• Docket Number: No. 986,D,986
• Parties: , 5 Fed.Sent.R. 275 UNITED STATES of America, Appellee, v. Martyn C. MERRITT, Defendant-Appellant. ocket 91-1637.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 1298

988 F.2d 1298

61 USLW 2520, 5 Fed.Sent.R. 275

UNITED STATES of America, Appellee, v. Martyn C. MERRITT, Defendant-Appellant.

No. 986, Docket 91-1637.

United States Court of Appeals, Second Circuit.

Argued May 22, 1992.

Decided Feb. 9, 1993.

Joel B. Rudin, New York City, for defendant-appellant.

Baruch Weiss, Asst. U.S. Atty., New York City (Otto G. Obermaier, U.S. Atty., S.D.N.Y., and Miguel A. Estrada, Asst. U.S. Atty., of counsel), for appellee.

Before: ELLSWORTH A. VAN GRAAFEILAND, AMALYA L. KEARSE, Circuit Judges, and PIERRE N. LEVAL, District Judge. ^*

LEVAL, District Judge:

Defendant Martyn C. Merritt appeals from a judgment of conviction and sentence entered on October 10, 1991 in the United States District Court for the Southern District of New York, John S. Martin, Jr., Judge, on his plea of guilty to the charge of conspiracy to defraud the United States, 18 U.S.C. § 371. Merritt was sentenced to the statutory maximum of 60 months imprisonment, three years of supervised release, restitution of $936,000, the maximum fine of double the loss ($1,872,000), and a special assessment of $50. In imposing sentence, Judge Martin departed upward from the guideline range, in part because Merritt fraudulently schemed to retain the proceeds of his fraud.

On appeal, Merritt contends that (1) the upward departure was unlawful; (2) the district court impermissibly punished Merritt for relying on his fifth amendment rights in refusing to disgorge the proceeds of the fraud or explain how the funds had been dissipated; (3) the Government violated its plea agreement with Merritt by advocating upward departure.

We affirm.

I. Background

A. The Offense

The twelve-count indictment arose from a scheme by Merritt and AMG Services, Inc. to defraud the United States Agency for International Development (AID) in connection with a foreign-aid contract to supply and ship high-quality powdered milk to the Democratic Republic of the Sudan, which was facing a serious food shortage. Instead of shipping the powdered milk, Merritt shipped a compound known as "milk replacer," which is not fit for human consumption and is commonly used as animal feed.

In 1985, AID had agreed to provide $71 million in grant aid to the Sudan. The Sudanese government, acting through the Arab Company for Agricultural Production and Processing (ACAPP), allocated approximately $1.25 million of the AID money for the procurement of powdered milk. ACAPP solicited bids for several hundred tons of high-quality, nonfat powdered milk. ACAPP selected Laura Exports USA, a In December 1988 and January 1989, Laura assigned its rights and obligations under the contract to Merritt's company, AMG Services, Inc., a New York-based shipping and freight-handling company. Under the arrangement, AMG would supply and ship the milk and would receive the funds held by Citibank, net of a small commission for Laura.

                New Jersey corporation, to supply 501 tons of milk powder produced in the United States, for approximately $936,000.   In July 1988, ACAPP and AID arranged for payment of United States funds to Citibank, upon Laura's delivery to Citibank of proper certification that a supply of milk from the United States had been loaded freight prepaid on an approved vessel for delivery to the Sudan.   Laura, however, was unable to find milk at the appropriate price, quality, and quantity in the United States, and, with the permission of ACAPP and AID, modified the agreement to permit shipment of the milk from Sri Lanka
                

On January 10, 1989, Merritt and AMG made a contract to purchase 501 tons of milk powder from a Netherlands corporation, Traco, CV, for $666,330. On January 18, 1989, Merritt caused the presentation to Citibank of a fraudulent bill of lading that falsely stated that 501 metric tons of milk had been loaded onto the Dutch ship "Tanya P" in Port Columbo, Sri Lanka. On the basis of the false bill of lading, Citibank released the $936,870 payment for the milk. Merritt received the money on January 23, 1989. In fact, he had neither located, nor even acquired, the milk.

Merritt told the probation officer preparing his presentence report:

I knew that the Citibank letter of credit required the milk powder to come from Sri Lanka. In fact, I knew that the milk powder was not on board any vessel at that time, and I knew that it would not at any time be loaded in Sri Lanka.

Weeks later, Merritt acquired, purchased, and shipped "milk powder replacer" (not milk powder) from the Netherlands, (not from Sri Lanka). Milk replacer is normally used as animal feed, has a foul taste and odor, and is not fit for human consumption.

Although Merritt claimed to his probation officer that he was not the instigator of the substitution of animal feed, the Government's evidence showed that he was well aware of it. On March 2, 1989, Merritt sent a fax transmission to a co-conspirator in Sri Lanka stating:

I don't want to alarm you but it looks like Traco has actually shipped Animal Feed and not Milk Powder

....

Please keep this confidential but we don't want to get the blame if some one claim's [sic] later it was the wrong product.

(Emphasis in original.) The next day Merritt sent another fax to the same co-conspirator stating:

1. There are many kinds of milk powder and what Traco is doing is quoting you for milk powder for human consumption but they are actually supplying another type of product that is similar but not for human consumption. This other product (replacer) is a lot less than the milk powder for human consumption.

2. We can get any of these products and suggest you get the quotes from Traco and then when you have the order let us know all the details and we can purchase from actual suppliers at a much lower cost. Of course if we too quote for milk powder and actually supply "replacer" the savings is big!

In Merritt's plea agreement and allocution he acknowledged awareness, prior to shipment, that animal feed not fit for human consumption would be shipped. In March 1989, ACAPP had begun making inquiries about the whereabouts of the shipment. Merritt sent ACAPP a telex designed to conceal the fraud and to lull ACAPP into believing it soon would receive the powdered milk. Merritt stated in the telex that the milk had been shipped from Sri Lanka months earlier (as represented in the false bill of lading), but that the ship When the milk replacer reached the Sudan on April 6, 1989, ACAPP found that the milk was being held at the dock because the shipper and supplier claimed that they had not been paid. Merritt then sent ACAPP a series of telexes, again designed to conceal the fraud and to lull ACAPP into thinking it could and would soon get the milk released, and that any delay in the release of the milk was not Merritt's fault.

had been temporarily rerouted to the Netherlands for repairs.

B. The Plea Agreement

Merritt was charged in a twelve count indictment, alleging one count of conspiracy, 18 U.S.C. § 371, one count of defrauding the United States, 18 U.S.C. § 1031, one count of submitting a false claim to the United States, 18 U.S.C. § 287, and nine counts of wire fraud, 18 U.S.C. § 1343. On May 31, 1991, Merritt entered into a plea agreement with the government. Under the agreement, Merritt pled guilty to count one, which charged him with a conspiracy to submit false claims to the United States, to defraud the United States in connection with a contract worth in excess of $1 million, and to commit wire fraud. The court carried a maximum sentence of five years' imprisonment, a maximum fine of the greater of $250,000, or double the gross gain or gross loss, a $50 special assessment, $1,250,000 in restitution to the United States government and three years' supervised release.

In the agreement, the parties stipulated to the following facts and Sentencing Guidelines analysis:

a. Although the conspiracy count charges that the offense did not end until May 22, 1990, all the overt acts took place prior to November 1989 and consequently the relevant Guidelines are those that were in effect prior to the November 1989 amendments.

b. Because the offense is one of fraud and deceit, the base offense level is 6, pursuant to § 2F1.1(a).

c. Because the loss to the United States exceeded $1,000,000, the base offense level should be increased by 9 points, pursuant to § 2F1.1(b)(1)(J).

d. Because the offense involved more than minimal planning, the offense level should be increased by another 2 points, pursuant to § 2F1.1(b)(2). This upward adjustment also subsumes any upward adjustment that might be appropriate for Mr. Merritt's role as an organizer, leader, manager or supervisor under § 3B1.1.

e. Neither party will seek a departure from the Guidelines.

Thus, the stipulated base offense level was 17. The parties also stipulated:

It is understood that the sentence to be imposed upon Mr. Merritt is within the sole discretion of the sentencing Judge. [The United States Attorney's] Office cannot and does not make any promise or representation as to what sentence Mr. Merritt will receive.

Merritt agreed

to allocute that he believed, prior to shipping the milk product to the Sudan, that the product was animal feed not fit for human consumption, and knew that the contract required the supply of 1% low-fat milk fit for human consumption.

Merritt also agreed to allocute that he knowingly submitted a false bill of lading. Finally, Merritt agreed to make available, prior to sentencing, "all personal and corporate financial information requested by the Government." The Government agreed not to object to dismissal of the remaining counts against Merritt and all counts against AMG Services.

The parties did not agree on whether adjustments were appropriate for acceptance of responsibility or obstruction of justice. Merritt argued that because he was entering a plea of guilty, he was entitled to a two point reduction for acceptance of responsibility under § 3E1.1. The Government,...