Epstein v. United States

• Decision Date: 11 April 1949
• Docket Number: No. 10749,No. 10751.,10750,10749,10751.
• Citation: 174 F.2d 754
• Parties: EPSTEIN v. UNITED STATES. SMITH v. UNITED STATES. EPPS v. UNITED STATES.
• Court: U.S. Court of Appeals — Sixth Circuit

174 F.2d 754 (1949)

EPSTEIN v. UNITED STATES.

SMITH v. UNITED STATES.

EPPS v. UNITED STATES.

Nos. 10749, 10750, No. 10751.

United States Court of Appeals Sixth Circuit.

April 11, 1949.

COPYRIGHT MATERIAL OMITTED

Wm. Henry Gallagher, of Detroit, Mich. (Wm. Henry Gallagher and Freud, Markus & Gilbert, all of Detroit, Mich., on the brief), for appellants Epstein and Epps.

John W. Babcock, of Detroit, Mich. (John W. Babcock, of Detroit, Mich., on the brief), for appellant Carleton Smith.

Jos. C. Murphy, of Detroit, Mich., and Arden L. Andresen, of Washington, D. C. (Thomas P. Thornton and Joseph C. Murphy, both of Detroit, Mich., on the brief), and Arden L. Andresen and Harvey M. Spear, both of Washington, D. C., for appellee.

Before MARTIN, McALLISTER, and MILLER, Circuit Judges.

McALLISTER, Circuit Judge.

Alfred Epstein, Carleton Smith, and Elias Epps were indicted for using the mails in carrying out a scheme to defraud, in violation of the "Mail Fraud Statute," 18 U.S. C.A. § 338 now § 1341. The indictment set forth that during the period between June, 1933, and June, 1943, Epstein and Smith were officers and directors of the Pfeiffer Brewing Company, of Detroit, Michigan, and of Drewry's, Ltd., U. S. A., Inc., a brewery in South Bend, Indiana. It was alleged that during the above named period of ten years, Epstein and Smith, together with Epps, organized a succession of companies with the financial support of the Pfeiffer company; that such companies engaged in a course of dealings with the Pfeiffer company and Drewry's through the sale to them of brewing materials and supplies at excessive prices, thereby extracting substantial sums of money from the two breweries, to the benefit of Epstein, Epps and Smith, and to the loss and detriment of the stockholders of the breweries. It was charged that in carrying out this scheme to defraud, appellants made use of the mails. Upon trial, appellants were convicted by a jury. Epstein was sentenced to serve a term of three years of imprisonment and fined $2,000; Epps was sentenced to a term of three years and fined $4,000; Smith was sentenced to a term of eighteen months and fined $2,000. They appealed, claiming that according to the undisputed proofs, they were guilty of no offense; that there was a fatal variance between the indictments and the proofs; that the district court, through its rulings during the trial, placed upon the appellants the burden of proving their innocence of the criminal charges brought against them by the government, and erred in its rulings on the admission of evidence and in its instructions to the jury.

For the background necessary to an understanding of the case and the issues on appeal, a summary of the facts may be helpful. At the present time, the Pfeiffer Brewing Company is a highly successful business enterprise — in fact, the leading brewery in Michigan in production and sales, — having produced, in the year 1947, a total of 779,000 barrels of beer. Appellant Epstein is now, and has been since its organization sixteen years ago, president and general manager of the Pfeiffer Brewing Company, as well as a director. Appellant Smith, at the inception of the company, was secretary and treasurer, and has been also a director since its origin. The stock of the company is publicly owned and is at present listed on the New York Stock Exchange. Drewry's, Ltd., U. S. A., Inc., is an equally successful brewery, having manufactured and sold 532,000 barrels of beer during the year 1947. Appellant Smith now is, and has been, since its organization thirteen years ago, president and general manager of Drewry's, as well as a director. Appellant Epstein, during the same period, has been a vice president and director of Drewry's.

With the foregoing as some indication of the business capacity of the appellant directors, and the size and successful character of the brewery corporations, it will be helpful to trace the progress and development of the various companies here involved and the activity of appellants, in arriving at the consideration of the legal questions presented by this appeal. Epstein and Epps did not testify in the case and practically all of the facts which follow come from government witnesses, many of them not on speaking terms with appellants, others, nourishing deep-seated jealousies, animosities, and personal grudges against the accused, and some, refusing even to be interviewed by appellants' counsel.

Prior to the prohibition era in the United States, a corporation known as the Pfeiffer Brewing Company had been engaged in business in Detroit, Michigan. During prohibition, its premises and property were acquired by the State Products Company, a corporation that thereafter carried on the business of manufacturing malt. The stock of this company was owned equally by eight individuals, of whom appellant Epstein was one. After the repeal of the Eighteenth Amendment to the Constitution of the United States and the ending of prohibition, the name of the State Products Company was changed back to the Pfeiffer Brewing Company, with the idea of reentering the brewing business. This plan, however, did not succeed, and in June, 1933, the eight holders of stock resigned as directors and entered an agreement to sell all of their stock holdings to the Dodge company of Chicago, an investment house. About this time, Carleton Smith became associated with the Pfeiffer company as an expert accountant and was elected secretary and treasurer. In the performance of his duties, Smith learned of certain irregularities in the conduct of the financial operations of the Dodge company with respect to the Pfeiffer organization. He immediately reported the situation to the Michigan Securities Commission, which thereupon invalidated further sales of Pfeiffer stock by the Dodge company. Subsequently, the Dodge company defaulted in its purchase payments of the Pfeiffer company, with the result that the premises and property of the Pfeiffer company came back into the hands of the eight stockholders, just where it had been before the sale with the Dodge company had been entered into. However, during the time that the Dodge contract of purchase was in existence, extensive plans had been made for the remodeling of the brewery plant and, as a consequence, the roof and walls of some of the buildings had been torn down pursuant to the plan of rebuilding. When the Dodge company ceased making the payments required for these remodeling operations, the contractors quit the job, leaving the buildings in a half-wrecked, dismantled condition. At this time, the Pfeiffer company was facing bankruptcy.

Shortly after this took place, in November, 1933, the board of directors of the Pfeiffer company importuned Epstein to return to the company and take over its active management. He agreed to do this on condition, however, that the other stockholders would sell him their stock interests, and this they agreed to do.

The Pfeiffer stock, which had been issued at $2.50 a share, was then selling at 50 cents a share. Epstein immediately advanced $50,000 of his own money to the company and induced a friend to invest another $50,000. He further pledged his personal credit for $100,000 with various manufacturers and supply men, and through his brother Epps, procured credit from various manufacturers whose products Epps was then handling. Six months after Epstein took over the management of the dismantled brewery, it produced its first beer; and within a year, the company's stock had risen from 50 cents a share, to $4 a share. Two years later, the Pfeiffer company, under Epstein's management, had a yearly production of 250,000 barrels of beer, which increased each year until, as has been mentioned, it had a production of 779,000 barrels in 1947.

We come, then, to the consideration of the circumstances relating to Drewry's, the other principal brewery corporation in this case.

Appellant Smith, after having rendered considerable assistance in the reorganization of the Pfeiffer Brewing Company, became interested, with Epstein, as a result of the suggestion of a Detroit broker, in another brewery in Davenport, Iowa, and in 1934, was made president of that company. He continued in that capacity and as a director of the Pfeiffer Brewing Company until 1936, when Mr. Schurig, a business friend, directed the attention of Smith and Epstein to the Muesel Brewing Company, in South Bend, Indiana, which at the time was in bankruptcy. Schurig was chairman of the creditors' committee that was endeavoring to work out the financial difficulties of the company under the provisions of the Bankruptcy Act, 11 U.S.C.A. § 1 et seq. Smith and Epstein, after their conferences with Schurig, went to South Bend, made an investigation of the brewery and its business, and thereafter, with several associates, submitted a proposal to the creditors' committee to reorganize the company. In general, the proposal consisted of an offer to authorize and issue new stock and to give creditors whose debts were larger than a certain amount, a percentage of notes and a percentage in cash. Upon examination of the proposal by the United States District Court having charge of the bankruptcy proceedings, the plan was approved by order of the court. In carrying out the approved plan, appellant Smith became president and took over the management of the brewery in South Bend. The parties interested in the reorganization had been able to purchase the valuable right to the use of the name "Drewry's," which was a well-known and famous name of a Canadian brewery; and, accordingly, the name of the reorganized company was changed from the Muesel Brewing Company to Drewry's Ltd., U. S. A., Inc. In effecting the reorganization, Epstein, Smith, and approximately ten other individuals interested in the project raised $240,000 in cash to finance the reorganization. Since that time, Drewry's has increased its annual sales from 60,000...