United States v. JR Watkins Company

• Citation: 127 F. Supp. 97
• Decision Date: 02 December 1954
• Docket Number: Cr. A. No. 7574.
• Parties: UNITED STATES of America, Plaintiff, v. The J. R. WATKINS COMPANY, a Delaware corporation, The J. R. Watkins Company, a Maryland corporation, E. L. King, Jr., Howard F. Williams, Ralph G. Boalt, Louis W. Goldberg, William M. Bright, Clarence C. Currier, John Fedders, E. C. Baumann, James Murphy, E. M. McCullough, Lewis E. Fickett, Louis A. Dischler, C. R. Birckhead, Defendants.
• Court: U.S. District Court — District of Minnesota

127 F. Supp. 97

UNITED STATES of America, Plaintiff, v. The J. R. WATKINS COMPANY, a Delaware corporation, The J. R. Watkins Company, a Maryland corporation, E. L. King, Jr., Howard F. Williams, Ralph G. Boalt, Louis W. Goldberg, William M. Bright, Clarence C. Currier, John Fedders, E. C. Baumann, James Murphy, E. M. McCullough, Lewis E. Fickett, Louis A. Dischler, C. R. Birckhead, Defendants.

Cr. A. No. 7574.

United States District Court, D. Minnesota, Third Division.

December 2, 1954.

COPYRIGHT MATERIAL OMITTED

George E. MacKinnon, U. S. Atty., St. Paul, Minn., appeared in behalf of the United States.

Linus J. Hammond, St. Paul, Minn., and C. Stanley McMahon, Winona, Minn. (Norman J. Morrisson, Washington, D. C., of counsel), appeared in behalf of the defendants.

NORDBYE, Chief Judge.

This case is a prosecution for conspiracy to violate the internal revenue laws and for specified violations thereof. The indictment, which was sustained by this Court against defendants' motion to dismiss in United States v. J. R. Watkins Co., D.C., 1954, 120 F.Supp. 154, charges inter alia, that defendants conspired together to commit offenses against the United States and to defraud it by selling for internal human purposes liniment made with specially denatured alcohol without payment of the tax due thereon. It also alleges the continuance of this conspiracy from September, 1928, to September 30, 1950, and concludes with allegations of overt acts allegedly committed in pursuance of the conspiracy.

In 1945, the corporate defendants in this case entered into a compromise with the Commissioner of Internal Revenue. It covered all civil and criminal liability of the corporation for violations of the internal revenue laws due to the withdrawal and use by the corporation or its officers, directors and employees of specially denatured alcohol in the manufacture and sale of liniment for internal human use. The existence of the violations referred to in the compromise was discovered as a result of an offer made by Mr. E. L. King, Jr., on February 3, 1944, to make a voluntary disclosure concerning all federal tax liabilities of any nature concerning Mr. E. L. King, Sr., members of his family, and their several corporations.

The Government has shown by its bill of particulars filed July 19, 1954, in response to the order of this Court that, in proving the charge of a continuing conspiracy from 1928 to 1950, it will rely upon acts committed by the defendants prior to the compromise, including withdrawal and use of specially denatured alcohol in the manufacture of liniment without paying the tax thereon, mislabeling such liniment with labels bearing directions for internal use, and the preparation of advertising material encouraging the internal use of this liniment. It is clear that, so far as these acts constituted offenses under the internal revenue laws, those offenses were compromised. In addition, the Government indicates that as evidence of the existence of the conspiracy since 1928, it will offer the compromise itself and the report, including as it does signed statements of former employees of the Watkins companies submitted by the defendants disclosing the violations ultimately compromised. Defendants' motion seeks to have suppressed said report and compromise, all evidence obtained on account of the aforesaid compromise, and all evidence that tends to establish that any defendants, or any other person who was an officer, director or employee of the J. R. Watkins companies, violated or conspired to violate any internal revenue laws or regulations relating to the withdrawal or use of specially denatured alcohol or possession, sale or use of liniment made with such alcohol between 1928 and October 31, 1944.

The bases for the motion are the contentions (1) that the evidence made available to the Government as to the alcohol tax liability of the corporation constituted a "voluntary disclosure" within the policy announced by the Bureau of Internal Revenue to the effect that criminal prosecution would not be recommended in cases where a taxpayer voluntarily discloses his tax liabilities, makes good the delinquency with interest, and pays the civil penalties consequent therefrom; and (2) that since the compromise covered all civil and criminal liability of the defendants arising under the internal revenue laws, the Government now is foreclosed from prosecuting defendants through the device of a conspiracy indictment for the same acts which gave rise to the offenses compromised. The latter contention is the one most heavily relied upon. The defendant point out that the compromise covered not only the physical acts of withdrawing and using specially denatured alcohol and possessing and selling the liniment manufactured therefrom, but also any lack of "good faith" in conforming to the provisions of the code, any "attempt" to withdraw alcohol tax free, any "intent" to use any property in violation of any internal revenue law, any "wilfull attempt" to evade the tax in any manner, and any acts which aided or abetted the commission of the foregoing violations. They contend that the distinction between such substantive offenses and the offense of conspiracy is too nebulous to sustain the present prosecution for conspiracy covering the same period of time. They also contend that the principle of collateral estoppel prevents relitigation of the facts involved in the compromise.

The defense that the substantive offenses which were compromised are indistinguishable from the offense of conspiracy is, whatever defendants label it, essentially one of double jeopardy. The issue is not whether the offense under indictment is "covered" by the compromise in a contractual sense, but whether the compromise forbids this prosecution by necessary operation of law. For these purposes, of course, the compromise must be considered to be as complete a bar to subsequent prosecution as a final judgment of acquittal or conviction. United States v. Chouteau, 1880, 102 U.S. 603, 26 L. Ed. 246; see Oliver v. United States, 4 Cir., 1920, 267 F. 544, 548. However, it is clear that the compromise, like a conviction or acquittal, is not a bar to a subsequent prosecution merely because the same activity is the basis for both. The test is whether the defendant has previously been put in jeopardy for the same offense, and if one act is made a violation of two statutes, double jeopardy does not prevent a conviction under both if either statute requires proof of an additional fact which the other does not. Carter v. McClaughry, 1902, 183 U.S. 365, 22 S. Ct. 181, 46 L.Ed. 236.

It is fundamental that a conspiracy to commit a crime is distinct from the crime itself and that the accused can, therefore, be convicted of both. Carter v. McClaughry, supra. Further, it is immaterial that the Government seeks to convict both for conspiracy and for an attempt to commit a given crime. For while an attempt may be committed by one person alone, conspiracy requires concert of action between two or more. Further, while the crime of conspiracy requires that one of the conspirators have done an act to effect the object of the conspiracy, 18 U.S. C. § 371, it is not essential that the overt act be a crime in itself. Therefore, the substantive crime is not necessarily an ingredient of the conspiracy, and a defendant may be convicted and sentenced both for attempt and for the conspiracy to commit the same crime. United States v. Wexler, 2 Cir., 1935, 79 F.2d 526; see Brown v. United States, 8 Cir., 1948, 167 F.2d 772.

It seems obvious that most of the other "offenses" compromised, i. e., lack of good faith and intent to violate the law, are distinct from the crime of conspiracy because they can be proved without showing a scheme between two or more persons — which is, of course, the sine qua non of conspiracy.

It is more difficult to perceive a distinction between the charge of conspiracy to commit a crime where the overt act relied upon is the crime itself and the charge that a defendant has aided and abetted another in the commission of the crime. For the offense of aiding and abetting by counseling or commanding another to commit a crime requires a showing of a "community of unlawful purpose" as well as the commission of the crime itself. Johnson v. United States, 8 Cir., 1952, 195 F.2d 673, 675. However, part of what was said regarding the distinction between conspiracy and attempt is also applicable here. The acts constituting the basis of the charge of aiding and abetting obviously must be acts which tend to the commission of some substantive offense, while the overt act necessary to a conspiracy conviction may in itself be innocent. More fundamental is the fact that while "aiding and abetting" might be thought of as an offense in itself, it is not an independent crime under the "aider and abettor" statute. The statute, 18 U.S.C. § 2, itself provides no penalty, but only abolishes the distinction between the common-law notions of "principal" and "accessory". Under it the acts of the actual perpetrator become the acts of the aider and the latter can be charged with having done the acts himself. Gelbach, Res Judicata and Conspiracy, 39 J.Crim.Law 58, 60. A person may be indicted for commission of the substantive crime and convicted by proof showing him to be an aider and abettor. See Johnson v. United States, 9 Cir., 1932, 62 F.2d 32; Colbeck v. United States, 7 Cir., 1925, 10 F.2d 401, 403. It would seem that the general principle that one may be convicted both of conspiracy and the substantive crime should not be altered merely because the Government establishes the substantive crime by showing that the defendant's participation therein was as aider and abettor. See Nye & Nissen v. United States, 1949, 336 U.S. 613, 69 S.Ct. 766, 93 L.Ed. 919.

Whether upon these bases or some other, it seems well established that aiding and abetting in the commission of a crime is distinct...