U.S. v. Sun-Diamond Growers of California

Citation138 F.3d 961
Decision Date18 June 1998
Docket NumberNo. 97-3072,SUN-DIAMOND,97-3072
Parties, 67 USLW 3479 UNITED STATES of America, Appellee, v.GROWERS OF CALIFORNIA, Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)

Appeal from the United States District Court for the District of Columbia (No. 96cr00193-01).

Eric W. Bloom, Washington, DC, argued the cause for appellant. With him on the briefs were Richard A. Hibey, Michael K. Atkinson and Charles B. Klein.

Theodore S. Greenberg, Deputy Independent Counsel, Alexandria, VA, argued the cause for appellee. With him on the briefs were Donald C. Smaltz, Independent Counsel, Los Angeles, CA, and Charles M. Kagay, Chief Appellate Counsel, San Francisco, CA.

Carter G. Phillips and Griffith L. Green, Washington, DC, were on the brief for amicus curiae American League of Lobbyists.

Before: WILLIAMS, HENDERSON and TATEL, Circuit Judges.

STEPHEN F. WILLIAMS, Circuit Judge:

Sun-Diamond is a large agricultural cooperative owned by individual member cooperatives including Diamond Walnut Growers, Sun-Maid Growers of California, Sunsweet Growers, Valley Fig Growers, and Hazelnut Growers of Oregon. It came within the sights of an independent counsel, Donald C. Smaltz, who was responsible for investigating allegations of unlawful activity by former Secretary of Agriculture Mike Espy. The independent counsel charged Sun-Diamond with making illegal gifts to Espy, committing wire fraud, and making illegal campaign contributions.

Linking Sun-Diamond and Espy was the figure of Richard Douglas. As Sun-Diamond's vice president for corporate affairs Douglas was responsible for (among other things) representing the interests of the corporation and its member cooperatives in Washington. Given Sun-Diamond's business, the Department of Agriculture ("USDA") was naturally part of his bailiwick. According to performance evaluations signed by Sun-Diamond's president, Douglas was a diligent and able representative. He once described his approach to lobbying by paraphrasing Lord Palmerston: "We have no permanent friends or permanent enemies, only a permanent interest in Sun-Diamond Growers of California." Permanent friends aside, he had a long-time friend in Mike Espy--the two had gone to college together at Howard University and had stayed close in the years since.

The crimes charged to Sun-Diamond grow out of two largely independent stories. One involves illegal gratuities given to Espy while he was Secretary of Agriculture, the other wire fraud and illegal contributions to the congressional campaign of the Secretary's brother, Henry Espy. We save the recitation of facts for the discussion of the distinct legal issues raised by each story.

Sun-Diamond argues that under the facts alleged and proven it could not properly be found guilty of any of the offenses, and, as to the illegal gratuities, that the trial court's charge allowed the jury to convict on a theory precluded by the statute. We disagree with Sun-Diamond's claims of entitlement to dismissal of the indictment and to acquittal, but we agree that the jury charge on the gratuity counts was error and requires a remand for a new trial. Sun-Diamond also attacks the sentence, saying that the trial judge, having increased the offense level by eight for Espy's high-level status as required by the Guidelines, wrongly bumped it up another two levels on the theory that the Guidelines inadequately took that status into account. It also objects to the trial court's imposition of probationary conditions on Sun-Diamond's member cooperatives, who were neither defendants nor agents of the defendant. We agree with Sun-Diamond on both sentencing points.

* * *

Illegal Gratuities

The key dispute here is over how close a link the government must show between Sun-Diamond's gifts and official acts that the Secretary of Agriculture performed or might perform. The indictment detailed two specific issues on which Sun-Diamond had a clear interest in favorable action by the Secretary. The first was the market promotion program ("MPP"), a grant fund administered by USDA and designed to prop up U.S. agricultural exports. See 7 U.S.C. § 5623. The Secretary of Agriculture was authorized to allocate MPP money to trade organizations like Sun-Diamond, who would in turn use it to defray overseas marketing expenses. According to the independent counsel, between 1990 and 1995 the Sun-Diamond member cooperatives received $23.9 million from MPP. In August 1993 Congress enacted budget legislation requiring the Secretary to give preference to "small-sized entities" in disbursing MPP funds. Omnibus Budget Reconciliation Act of 1993, Pub.L. No. 103-66, § 1302(b)(2)(A), 107 Stat. 312, 331 (1993). Sun-Diamond and its members were hardly mom-and-pop organizations--they reported net sales of $648 million for fiscal year 1993--but many of their constituent growers were quite modest in size. Sun-Diamond therefore wanted the Secretary to adopt a regulatory definition of "small-sized entities" that would include cooperatives such as its members.

Sun-Diamond also took an interest in federal regulation of methyl bromide, a pesticide used by some of the growers who belonged to its member cooperatives. In late 1992 the Environmental Protection Agency began review of a proposal to phase out the use of the chemical in the United States because of its potential to contribute to ozone depletion. Although the methyl bromide issue was not technically before USDA, a rational jury could conclude from the trial evidence that Sun-Diamond wanted Espy to help persuade EPA to delay or reject the proposed phase-out.

Count I of the indictment charged the company with giving Espy (via Douglas) around $5,900 in illegal gratuities: tickets to the 1993 U.S. Open Tennis Tournament worth $2,295, luggage worth $2,427, meals worth $665, and a framed print and crystal bowl worth $524. 1 The indictment further alleged that Sun-Diamond reimbursed Douglas for these outlays, treating them as business expenses.

Sun-Diamond challenges Count I, asserting that the gratuity statute, 18 U.S.C. § 201(c)(1)(A), requires the government to prove a nexus between each unauthorized gift and some specifically identified official act--performed or hoped to be performed--for which the gift was given. Because the indictment failed to allege any such one-to-one relationship, contends Sun-Diamond, the district court erred in denying its motion to dismiss Count I. See United States v. Sun-Diamond Growers of California, 941 F.Supp. 1262 (D.D.C.1996) (denying motion to dismiss); United States v. Sun-Diamond Growers of California, 964 F.Supp. 486 (D.D.C.1997) (denying renewed motion for acquittal). In a narrower variation on this argument, Sun-Diamond also challenges the jury instructions, saying that they impermissibly allowed the jury to convict if it found that Sun-Diamond gave Secretary Espy things of value merely in recognition of his official position, regardless of official acts that might have supplied the motivation. We reject Sun-Diamond's broader argument but agree with its challenge to the jury instructions, and it is with that challenge that we begin.

The gratuity statute provides:

Whoever ... otherwise than as provided by law for the proper discharge of official duty ... directly or indirectly gives, offers, or promises anything of value to any public official, former public official, or person selected to be a public official, for or because of any official act performed or to be performed by such public official, former public official, or person selected to be a public official ... shall be fined under this title or imprisoned for not more than two years, or both.

18 U.S.C. § 201(c)(1)(A) (emphasis added).

The statute defines an "official act" as "any decision or action on any question, matter, cause, suit, proceeding or controversy, which may at any time be pending, or which may by law be brought before any public official, in such official's official capacity, or in such official's place of trust or profit." 18 U.S.C. § 201(a)(3).

The trial court charged the jury in full accord with the independent counsel's theory that gifts motivated by an official's status or position run afoul of the statute, regardless of whether the donor had any intent to affect or reward official conduct. Indeed, time and again the jury instructions hammered home that theme:

The gratuity statute makes it a crime for a person or company to knowingly and willingly give a public official a thing of value because of his official position whether or not the giver or receiver intended that particular official's acts be influenced. * * *

The essence of the crime is the official's position of [sic] as the receiver of the payment not whether the official agrees to do anything in particular, that is, not whether the official agrees to do any particular official act in return. Therefore ... to prove that a gratuity offense has been committed, it is not necessary to show that the payment is intended for a particular matter then pending before the official. It is sufficient if the motivating factor for the payment is just to keep the official happy or to create a better relationship in general with the official. * * *

It is sufficient if Sun-Diamond provided Espy with unauthorized compensation simply because he held public office. * * *

In order for you to convict Sun-Diamond of violating the gratuity statute, you must find beyond a reasonable doubt that Sun-Diamond gave the gifts to Mr. Espy for or because of Mr. Espy's official government position and not solely for reasons of friendship or social purpose. * * *

[T]he government must prove that Sun-Diamond Growers of California, acting through its senior vice president for corporate affairs, Richard Douglas, and knowingly and willingly gave the gratuities, at least in part, because of the...

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