U.S. v. LaGrou Distribution Systems, Inc., 05-3361.

• Decision Date: 20 October 2006
• Docket Number: No. 05-3361.,05-3361.
• Citation: 466 F.3d 585
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. LaGROU DISTRIBUTION SYSTEMS, INCORPORATED, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

466 F.3d 585

UNITED STATES of America, Plaintiff-Appellee, v. LaGROU DISTRIBUTION SYSTEMS, INCORPORATED, Defendant-Appellant.

No. 05-3361.

United States Court of Appeals, Seventh Circuit.

Argued February 14, 2006.

Decided October 20, 2006.

Angela Crawford (argued), Office of the United States Attorney, Chicago, IL, for Plaintiff-Appellee.

William R. Coulson (argued), Gold & Coulson, Chicago, IL, for Defendant-Appellant.

Before BAUER, RIPPLE, and WILLIAMS, Circuit Judges.

BAUER, Circuit Judge.

Based on severe rodent infestation and sanitary problems at a LaGrou Distribution Systems warehouse, LaGrou was convicted of three felony counts: the knowing improper storage of poultry products, 21 U.S.C. §§ 458(a)(3) and 461(a) (Count Three); the knowing improper storage of meat products, 21 U.S.C. §§ 610(d) and 676(a) (Count Four); and the knowing improper storage of food products, 21 U.S.C. §§ 331(b), 333(a)(2), and 342(a)(4) (Count Five). LaGrou was sentenced to a five-year term of probation, ordered to pay a total restitution of $8.2 million, jointly and severally with co-defendants, and sentenced with a total fine of $2 million. LaGrou now appeals its convictions and sentence. We affirm LaGrou's convictions on Counts Three, Four, and Five and its sentence for Counts Three and Four. We vacate and remand the sentence for Count Five.

I. Background

The conditions at LaGrou's cold storage warehouse at 2101 Pershing Road in Chicago were enough to turn even the most enthusiastic meat-loving carnivore into a vegetarian. The Pershing Road warehouse was a cold storage facility that stored raw, fresh, and frozen meat, poultry, and other food products. LaGrou did not own most of the products that it stored at the facility. Rather, LaGrou's business consisted of storing products owned by its customers. As much as 2 million pounds of food went in and out of the Pershing Road warehouse on a daily basis.

The record is unclear as to how long the rodent problems existed, but based on the trial testimony of LaGrou's manager, David Smith, it is clear that LaGrou was aware of the problem in 1999. In January of 1999, Smith (a codefendant who pleaded guilty to misdemeanor charges) was hired as the manager of the Pershing Road warehouse. When he started, he noticed a rodent problem at the facility. Specifically, Smith learned that LaGrou workers found rodent droppings and occasionally caught rats in traps throughout the warehouse. Soon after, Smith approached LaGrou's president, Jack Stewart (an individual co-defendant at trial), about the rodent problem at the warehouse. Smith and Stewart discussed the rodent problem about three times per week, with the frequency of these discussions increasing as time went on.

Unfortunately, the rat problem only worsened. According to Smith, in 2001 LaGrou employees were catching more rats and finding more rodent droppings. Smith testified that in late 2001 or early 2002, LaGrou warehouse workers regularly caught rats (at least one to two rodents per day), and discovered rat droppings and rodent-gnawed products in the warehouse. Rodent-damaged product was coming from all over the warehouse, with the bulk of the damaged product coming from the basement. Smith testified that although employees would destroy the product that had been gnawed, LaGrou did not conduct any tests to make sure that other boxes that appeared okay were not similarly contaminated by rodents.

Eventually, the rat problem became so bad that LaGrou assigned warehouse employees to "rat patrols" to search for rats and rat droppings, to put out traps, and to report back about the number of rats they were removing from traps each day. According to trial testimony, at one point the "rat patrols" tallied as many as 50 trapped rats. LaGrou employees even tried various makeshift pest control remedies, including fashioning their own rat traps and pouring papier mâché and brine on the floor of the warehouse.

Stewart and Smith met with representatives from McCloud, LaGrou's pest control company, to discuss the rodent problem at LaGrou's warehouse. Although McCloud recommended that LaGrou make certain changes to the warehouse, including rodent proofing dock doors, cementing holes in walls, and sealing sewer lids, Stewart did not give Smith authorization to implement these recommendations because he concluded that the project was too expensive.

Despite improvised solutions to the rodent problem, the situation at the Pershing Road warehouse worsened. For example, in February 2002, LaGrou had particular problems with rats getting into the beef brisket held in the basement cooler area of the warehouse. LaGrou arranged to ship the beef brisket from its Pershing Road warehouse to its Hammond facility. Before LaGrou shipped the brisket, its employees inspected the boxes, separated boxes that appeared to have rodent damage, and the boxes that appeared to be undamaged were returned to inventory. But, the LaGrou employees were not completely successful in discarding all of the rodent-damaged product: a driver picking up some of this beef brisket from the Hammond facility refused to take the product because blood was dripping from the boxes and it looked as if the brisket had been "chewed" by rats.

Although LaGrou usually noted product damage on outgoing bills of lading to customers, LaGrou did not tell its customers that the damage was caused by rodents. Instead, LaGrou's practice was to tell the customer that the product had been thrown out because of warehouse damage, such as from torn boxes or forklift mishaps. LaGrou employees started writing "MM" (short for "Mickey Mouse") on outgoing bills of lading to differentiate the rodent damage from other warehouse-related damage. Upon discovering that LaGrou employees were using the "MM" notation for rodent-damaged product, Stewart instructed them to stop doing so because he did not want customers asking what "MM" meant.

Many customers did make claims for damaged product. One customer asked LaGrou if it had a rodent problem because the customer had received rodent-damaged meat from LaGrou's warehouse on several occasions, specifically, boxes with gnaw marks and holes. In response, LaGrou sent a letter explaining that there was a small area of the basement with rodent activity and that it would move the product out of the basement to be stored somewhere else in the facility. Despite the letter, the customer's product was still stored in the basement of the warehouse.

Ronda Dunson, a quality assurance manager for LaGrou customer Aurora Foods, came to the Pershing Road warehouse to check on her products in the spring of 2001. Dunson discovered "excessive droppings," what looked like a feeding area for rodents, ceiling and wall damage, exposed cork, mold growth, and pest harborage. In later correspondence between Stewart and Aurora Foods, LaGrou refused to pay a claim from Aurora Foods for product damage. Further, Stewart represented to Aurora Foods that the pest control company only "found two totes with old mouse droppings" and "no other signs of infestation," and that a recent American Sanitation Institute ("ASI") inspection did not find any problems. This information provided by LaGrou was not true; as the ASI representative testified at trial, one of the "critical" issues ASI found was rodent activity. Moreover, a report from McCloud, LaGrou's pest control company, had previously informed LaGrou of the vast rodent problems.

On May 25, 2002, Hugh McCauley, a United States Department of Agriculture ("USDA") food safety inspector went to the Pershing Road warehouse. At the time, LaGrou employees were processing hams for freezing without the benefit of USDA inspection. In addition, the hams were uncovered. McCauley notified other USDA officials, and Vella Kay Holmes, a USDA compliance official, went to the Pershing Road warehouse on May 29, 2002. Holmes noticed that in the warehouse freezer where the hams were being stored, the walls were deteriorating, the ceiling and structures were rusty, and the paint was flaking. Holmes was concerned that due to these conditions in the freezer, the hams that had been processed and were uncovered could have been contaminated. Because of these concerns, Holmes detained the hams.

On May 29, 2002, Holmes and McCauley conducted a more detailed examination of the conditions in the Pershing Road warehouse. Holmes observed holes in the walls with glue boards in front of them, fresh rat droppings on the floor of the food storage areas, and a box of beef product that had been gnawed by rats and was dripping blood. Holmes advised Smith that no food products would be allowed to come into or leave the basement of the warehouse. Holmes also advised LaGrou officials that the USDA inspectors would return the next morning to inspect the entire facility.

After the USDA inspectors left, Stewart advised Smith to start cleaning up the warehouse. Consistent with this discussion, Smith and approximately 20 LaGrou employees cleaned the Pershing Road warehouse and threw out meat, boxes, and pallets.

The following morning, 14 USDA officials arrived at the warehouse to begin an intensive inspection. Prior to arriving at the Pershing Road warehouse, USDA officials advised representatives from other federal, state, and local health agencies about the conditions at the warehouse. As a result, officials from the Food and Drug Administration ("FDA"), the Illinois Department of Public Health, the Chicago Department of Public Health, and the Illinois Department of Agriculture assisted in the inspection. When the officials arrived, they observed and photographed dumpsters and tow bins full of meat, ice, debris, pallets, and packaging material. These findings were discussed with Smith, who acknowledged that he and other LaGrou employees had been there all night cleaning the warehouse in anticipation of the morning's inspection.

According to Dr. Bonnie Rose, the USDA microbiologist who...