U.S. v. Ven-Fuel, Inc., VEN-FUE
| Decision Date | 18 September 1979 |
| Docket Number | VEN-FUE,INC,No. 78-5682,78-5682 |
| Citation | 602 F.2d 747 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v., Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Ursula Mancusi-Ungaro, Miami, Fla., Edward M. Booth, Jacksonville, Fla., for defendant-appellant.
Robert S. Yerkes, Asst. U. S. Atty., Jacksonville, Fla., John L. Briggs, Sp. Atty., Tampa, Fla., for plaintiff-appellee.
Appeal from the United States District Court for the Middle District of Florida.
Before BROWN, Chief Judge, CLARK and VANCE, Circuit Judges.
This case presents a vicious duel,
Between the U.S. of A. and defendant Ven-Fuel.
Seeking a license for oil importation,
Ven-Fuel submitted its application.
It failed to attach a relevant letter,
And none can deny, it should have known better.
Yet the only issue this case is about,
Is whether a crime was committed beyond reasonable doubt.
Ven-Fuel was convicted of fraudulent acts,
By the Trial Court's finding of adequate facts.
We think it likely that fraud took place,
But Materiality was not shown in this case.
So while the Government will no doubt be annoyed,
We declare the conviction null and void.
The Procedural Background Is Easily Stated . . .
The appellant, Ven-Fuel, Inc., 1 was charged with 15 violations of 18 U.S.C.A. § 542, which prohibits the importation of merchandise by means of a false statement or practice. 2 Counts II through VIII alleged that Ven-Fuel introduced seven shipments of residual fuel oil 3 into the United States while operating under an import license obtained by false statements to the Office of Oil and Gas, Department of the Interior (OOG). Counts IX through XV charged that in connection with these same seven shipments, Ven-Fuel deprived the United States of lawful duties. Count I alleged that Ven-Fuel conspired with Jack Gusler, then Vice-President of Ven-Fuel, and with "unnamed and diverse other persons to the Grand Jury unknown" to commit the substantive offenses alleged in Counts II through XV.
In late August of 1977, the case was tried before a jury. After lengthy deliberations, the jury informed the Court that it could not reach a unanimous verdict, and the Court declared a mistrial. Thereafter, the Court granted a motion for judgment of acquittal on the conspiracy count. 4
On October 20, 1977, the United States and Ven-Fuel filed a stipulation providing that the case would be retried before the Court, sitting without a jury, and that the Court could consider evidence admitted in the first trial, as well as any additional evidence the parties wished to introduce. 5 At the completion of the second trial, the Court entered its findings of fact and conclusions of law. 6 Ven-Fuel was found guilty of Counts II through VIII and was acquitted on Counts IX through XV. 7
Ven-Fuel now appeals its convictions (Counts II through VIII) on a variety of grounds. 8 Since we believe that Ven-Fuel's alleged fraudulent statements are immaterial as a matter of law, we reverse the conviction without reaching Ven-Fuel's other challenges.
But The Facts Are Far More Complicated.
On March 14, 1973, Ven-Fuel applied to OOG for an allocation and license to import one million barrels of residual fuel oil into District I. 9 According to Department of Interior regulations, Ven-Fuel was required to demonstrate (1) that it was already in the business of selling residual fuel oil, and (2) that it had "a throughput agreement with a deepwater terminal operator under which agreement the person has delivered to the terminal residual fuel oil to be used as fuel which he owned when it was so delivered." 10 The regulations defined a "throughput agreement" as a storage arrangement providing for "the delivery to a deepwater terminal by a person of residual fuel oil which he owned and for a right in such person to withdraw on call an identical quantity of such oil from the terminal." 11
Despite the literal requirements of the regulations, OOG required only that a license applicant have a binding throughput agreement. Thus, Ven-Fuel did not have to demonstrate that it was already in the business of selling fuel or that it had previously delivered oil to a deepwater terminal under a throughput agreement.
The Government contends that Ven-Fuel violated 18 U.S.C.A. § 542 in that Ven-Fuel falsely represented that it had a throughput agreement with Southland Oil Company, a deepwater terminal operator located in Savannah, Georgia. 12 Ven-Fuel did not reveal to OOG that its agreement with Southland was to go into effect only if Ven-Fuel succeeded in reaching a contract with Savannah Electric and Power Company (SEPCO) for the sale of residual fuel oil. SEPCO, a utility, used residual fuel oil to generate electricity. Although SEPCO was then committed to purchase oil from another company, Ven-Fuel's negotiations with SEPCO were premised on the idea that Ven-Fuel could serve as a "second source" of oil for purchases in addition to the amount SEPCO had already contracted to buy.
At the time Ven-Fuel applied for its license, SEPCO and Ven-Fuel had not even come close to reaching an agreement. Indeed, Ven-Fuel and SEPCO never reached an agreement (and the Southland/Ven-Fuel "agreement" thereby became a nullity). After obtaining the import license from OOG, 13 Ven-Fuel entered into an agreement with Jacksonville Electric Authority for the sale of the oil authorized by the license. The Jacksonville Electric Authority/Ven-Fuel contract price was higher than SEPCO was willing to pay, 14 a fact which the Government claims indicated that Ven-Fuel wished to acquire the license and then hunt for the highest paying buyer for the oil. Ven-Fuel proceeded to make seven shipments of oil to Jacksonville Electric Authority through the Port of Jacksonville. Jacksonville Electric had the necessary unloading and storage facilities to receive and store the oil. Ven-Fuel did not have, or even claim to have had, a throughput terminal in Jacksonville.
Ven-Fuel's disclosures and nondisclosures during the license application process were critical to the Trial Court's determination that Ven-Fuel was guilty of criminal activity. In support of its application for a license, Ven-Fuel submitted to OOG a letter it had received from Southland describing the agreement between the two companies. The letter, which was sent by Southland to Ven-Fuel's President on March 21, 1973 (the March 21 letter), stated:
With reference to our conversations in regard to the storage and handling of residual fuel for your account at our terminal facilities located at the Port of Savannah, we submit the following proposal.
We will provide for your exclusive use two 80,000 barrel tanks and one 55,000 barrel tank for the purpose of storing and handling of residual fuel for your account. Southland will receive, store and ship on your order residual fuel at the prevailing commercial rates on a basis of a minimum of four turnovers per twelve month period. The contract will run for twelve months from the date of acceptance and will be automatically renewed unless ninety days notice is given by either party prior to the anniversary date.
This contract will go into effect as soon as the tanks have been inspected as suitable for handling your commodity and the proper equipment is installed for heating and pumping.
This agreement can be cancelled by either party by giving the other thirty days notice prior to the letting of the contract for the additional equipment required for the handling of the residual fuel.
Under the terms of this agreement the title to the product will remain in Ven-Fuel at all times and any insurance, if desired, will be at the expense of Ven-Fuel.
Please indicate your acceptance of this proposal by signing one copy of this letter and returning it to us.
Ven-Fuel also submitted a letter from SEPCO to Southland (the SEPCO/Southland letter) which suggested that SEPCO would most likely need a second source of oil. That letter, which was also dated March 21, read:
The last time Julio Iglesias (President of Ven-Fuel) was in town, I promised to give you some information with regard to our # 6 (residual fuel oil) requirements. The "wild blue yonder thinking" figures are below and I expect the stated quantity to increase each year.
Our contract year with Humble covers the period July 1 to July 1 so it seems to me that the cleanest way is for you to plan to start making deliveries at the beginning of the contract year. In the year July '73 and July '74, I anticipate that we will require from a second source of supply approximately 750,000 barrels of # 6. It must be compatible with the oil that is being furnished by Colonial and a couple of fuel oil analyses are attached for your information. I am also attaching a copy of Humble's control specifications, but the last letter I had from them referred to the oil as 2.5 percent sulfur rather than 2.9 percent.
I hope this gives Julio the information in which he was interested and will wait to hear further from you.
The crucial letter for purposes of this case is the one Ven-Fuel did not disclose to OOG. That letter, dated March 22, 1973 (the March 22 letter) made clear the conditional nature of the throughput agreement and specifically limited Ven-Fuel's liability to Southland. That letter, which was sent by Ven-Fuel to Southland, read:
Attached is a signed copy of our throughput agreement on residual fuel oil for your files. We hope this agreement will permit issuance of an import liscense (Sic ).
I am signing this agreement subject to your acceptance of the following understanding. That, the agreement will not be put into operation prior to completing our negotiations with Savannah Electric later this year.
We understand your tanks are held by U.S. Government until May 31, 1973. Unless release earlier. There is no need to release these until an agreement is reached with Savannah Electric. Also, installation of additional equipment is...
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