US v. Quadro Corp.

• Decision Date: 10 February 1996
• Docket Number: No. 1:96CV38.,1:96CV38.
• Citation: 916 F. Supp. 613
• Parties: UNITED STATES of America, Plaintiff, v. QUADRO CORPORATION, Wade L. Quattlebaum, Raymond Fisk, Malcom S. Roe, Quadro Corporation of Texas, William J. Long, et al., Defendants.
• Court: U.S. District Court — Eastern District of Texas

916 F. Supp. 613

UNITED STATES of America, Plaintiff, v. QUADRO CORPORATION, Wade L. Quattlebaum, Raymond Fisk, Malcom S. Roe, Quadro Corporation of Texas, William J. Long, et al., Defendants.

No. 1:96CV38.

United States District Court, E.D. Texas, Beaumont Division.

February 10, 1996.

COPYRIGHT MATERIAL OMITTED

Mike Bradford, United States Attorney, Robert Rawls, Ken Dodd, Assistant United States Attorneys, Beaumont, TX, for plaintiff.

Robert Lyles, Ingrid Blackwelder, Timothy Culp, Charleston, SC, Hubert Oxford III, Beaumont, TX, for defendants.

PRELIMINARY INJUNCTION HEARING FINDINGS OF FACT AND CONCLUSIONS OF LAW

HEARTFIELD, District Judge.

1. Before the court is the plaintiff, United States of America's, petition for injunctive and other relief pursuant to 18 U.S.C. § 1345. Plaintiffs allege that the defendants are engaged in a mail and wire fraud scheme to defraud numerous consumers, particularly law enforcement agencies, correctional institutions, and school systems, through false and misleading representations concerning a remote sensoring device, known as the Quadro Tracker, which allegedly locates contraband, drugs, and guns by identifying molecular frequencies. Although Quadro manufactures and sells other products including, the Golfball Gopher, Trailhook and Treasure Hunter, purportedly based on the same principal of locating items by identifying molecular frequencies, the plaintiff's petition for injunction only relates to the marketing and sale of the Quadro Tracker.

2. Defendants oppose plaintiff's petition on the grounds that they are not engaged in a scheme to defraud under the mail and wire fraud statutes, 18 U.S.C. § 1341 and § 1343. Defendants contend that the Quadro Tracker can detect contraband substances such as marijuana, cocaine, other drugs, gunpowder, and other explosives, and guns. Defendants' marketing literature further represents that the devise operates on a scientific principle of matching molecular emissions from the substance or object being searched for the molecular emissions in a locator card carried in the devise.

3. This court having heard the evidence and arguments offered by both parties, enters the following findings of fact and conclusions of law pursuant to Fed.R.Civ.P. 52(a). These findings of fact and conclusions of law made by a court granting a preliminary injunction are not binding at trial on the merits. University of Texas v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 1834, 68 L.Ed.2d 175 (1981).

I. Findings of Fact

1. Defendant Quadro Corporation ("Quadro") and its principals, defendants Wade L. Quattlebaum, Raymond L. Fisk and Malcolm S. Roe, manufacture, distribute and sell the device known as the Quadro Tracker.

2. The defendants market, promote, and sell the Quadro Tracker to correctional facilities, schools, and law enforcement agencies as a "scientific breakthrough in modern physics" that has remote sensing capabilities to detect various forms of contraband including marijuana, cocaine and gun powder or explosives.

3. Defendants' promotional literature and brochures make representations about the capabilities of the Quadro Tracker. For example, one brochure, Plaintiff's Exhibit 3A, states:

USE IN SCHOOLS:

The Tracker will locate loaded weapons, marijuana, cocaine, crack, heroin, in cars, lockers and buildings, without opening them.

It will locate substances on or in individuals, without physically searching them.

The object is to use the Tracker as a deterrent for students who participate in illicit drug abuse.

USE BY LAW ENFORCEMENT:

Police Depts., Sherriffs Depts., ATF, FBI, DEA, Border Patrol, Texas Rangers.

The Tracker will locate loaded weapons, drugs, explosives and currency.

Locate within inches inside a house or car without entering either!

USE BY PRISONS & CUSTOMS:

Control entry of currency, drugs, loaded guns and explosives into secured premises or across borders. Can be tracked from vehicles, boats, planes, even helicopters and blimps.

4. The marketing literature states that the devise contains an inductor, conductor, and an oscillator, as well as a preprogrammed "chip" in the locator card for each type of contraband. This implies that the device is an electronic or electrical instrument.

5. The tests, including x-rays of the devise, conducted by the plaintiffs' experts, reveal the devise to be a hollow plastic shell with a retractable transistor radio-type antenna. The preprogrammed chip is a small piece of polymer coated paper run through a copy machine and sealed between two pieces of plastic. Reliable scientific tests and analysis conducted by the plaintiff negate defendants' representations and claims that the Quadro Tracker has remote sensing capabilities, and also conclude that the operating principals suggested by the manufacturer are scientifically unsound and incorrect.

6. The marketing brochures and Quadro Tracker are delivered through authorized mail depositories of the U.S. Postal Services and also transmitted over telephone facsimiles wires in interstate commerce.

7. Sales of the device are being made throughout the United States through authorized distributors and agents of the defendants.

8. Because the devise is marketed to law enforcement agencies and schools there exists the potential for jeopardizing serious prosecutions as well as violating basic constitutional liberties.

9. The defendants' sale of the Quadro Tracker is an ongoing scheme and defendants will likely continue to advertise and sell the devise to consumers and entities unless the injunctive relief requested is granted.

II. Conclusions of Law

Plaintiff filed an application with this court for preliminary injunctive relief, and other equitable relief, including a freeze of defendants' assets pursuant to 18 U.S.C. § 1345. Plaintiff seeks to enjoin defendants from using the United States mails or private commercial interstate carriers or the telephone or interstate wires to solicit customers or entities, promote, sell, transfer, or demonstrate the Quadro Tracker devise, or receive monies from marketing schemes which are the subject of this action, or to transmit any other substantially similar solicitations or promotional materials, which violate 18 U.S.C. § 1341 or § 1343, two of the predicate offenses which serve as a basis for injunctive relief under § 1345.

A. Statute

On its face 18 U.S.C. § 1345 provides that the Attorney General may seek an injunction "in any Federal court" when a person has or is about to violate one of the predicate statutes, including mail fraud or wire fraud, 18 U.S.C. § 1341 and § 1343, where an injunction is "warranted to prevent a continuing and substantial injury to the United States or to any person or class of persons." 18 U.S.C. § 1345.

Before issuing a preliminary injunction under § 1345, a court must decide (1) whether an injunction is appropriate and (2) if an injunction is appropriate, what is the proper scope. United States v. Brown, 988 F.2d 658, 663 (6th Cir.1993).

B. Whether a Preliminary Injunction is Appropriate in this Case

1. Standard of Proof for a § 1345 Injunction

Plaintiffs argue that this court should follow a line of cases that set forth a probable cause standard of proof. This means that the government would only have to show probable cause that the defendants have committed or about to commit mail or wire fraud, and then the burden shifts to the defendants to prove by a preponderance of the evidence that the defendants are not engaged in such activity or that the assets in question are not the proceeds of illegal activity. United States v. William Savran & Associates, 755 F.Supp. 1165, 1184-84 (E.D.N.Y.1991). See also United States v. Weingold, 844 F.Supp. 1560, 1573 (D.N.J. 1994).

Defendants argue that this court should reject the probable cause standard and follow the line of cases that sets forth a preponderance of the evidence standard of proof. This means that the government would have the traditional burden of proving by the preponderance of the evidence that defendants have committed or are about to commit mail or wire fraud. United States v. Brown, 988 F.2d 658, 663 (6th Cir.1993); United States v. Barnes, 912 F.Supp. 1187, 1195 (N.D.Iowa). Additionally, the government would have to prove which assets are proceeds of illegal activity before assets may be seized.

In Brown, the Sixth Circuit held that "the district court, in deciding whether to issue a preliminary injunction may not punish the defendant without first determining the extent of his illegal acts." The Brown court further held that the traditional burden of proof in civil actions, requiring plaintiff to prove the case by a preponderance of the evidence, should be applied to cases under § 1345, because, "to hold otherwise would provide the United States a substantial procedural advantage over the traditional civil plaintiff, which is not mandated by the language of § 1345." United States v. Brown, 988 F.2d 658, 663-64 (6th Cir.1993).

For the reasons cited in the Brown and Barnes decisions, this court concurs with the conclusion of the Sixth Circuit that § 1345 requires the government to prove in civil actions by preponderance of the evidence that mail fraud or wire fraud is being committed, or is about to be committed. Proof by preponderance of the evidence means to prove that something is more likely than not so. Matter of Briscoe Enterprises, Ltd. II, 994 F.2d 1160, 1164 (5th Cir.1993).

At the preliminary injunction stage, the procedures in the district court are less formal, and the district court may rely on otherwise inadmissible evidence, including hearsay evidence. Thus, the district court can accept evidence in the form of deposition transcripts and affidavits. Sierra Club, Lone Star Chapter v. F.D.I.C., 992 F.2d 545 (5th Cir.1993). While the government may use hearsay to support its application for preliminary injunction, hearsay should be given less credence than direct allegations. Marshall...