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UNITED STATES v. SUN-DIAMOND GROWERS

September 7, 1996

United States of America,
v.
Sun-Diamond Growers of California, Defendant.



The opinion of the court was delivered by: URBINA

 Denying Sun-Diamond's Motion to Dismiss the Indictment

 I. Background

 On September 9, 1994, pursuant to 28 U.S.C. Section 593(b), the United States Court of Appeals for the District of Columbia Circuit, Special Division for the Appointment of Independent Counsels (Special Division), appointed Donald C. Smaltz Independent Counsel to investigate whether former Secretary of Agriculture Alphonse Michael (Mike) Espy (Secretary Espy) violated federal criminal law by accepting improper gifts from organizations or individuals with business matters pending before the Department of Agriculture while he was Secretary of Agriculture.

 Specifically, count I alleges that Sun-Diamond, through its former Senior Vice President, Richard Douglas (Mr. Douglas), expended on Secretary Espy's behalf, over a 14 month period, approximately $ 2,295 for tickets to the 1993 U.S. Open Tennis Tournament, approximately $ 2,427 for luggage, approximately $ 665 for meals, and approximately $ 524 for a framed print, packing for the print, and a crystal bowl. Count I also charges that all of the expenses associated with the gratuities given by Mr. Douglas to Secretary Espy were reimbursed by Sun-Diamond as company business expenses. Count II alleges that Mr. Douglas advanced $ 3,100 to Secretary Espy's girlfriend, Patricia Dempsey, to pay for the cost of an airplane ticket so that she could accompany Secretary Espy to a trade association conference in Greece. The indictment further alleges that the trade association that sponsored the conference reimbursed Mr. Douglas.

 Counts III through IX allege the following: Mr. Douglas and James H. Lake (Mr. Lake), a principal of Robinson, Lake, Sawyer and Miller (Robinson-Lake), a public relations firm in Washington, D.C., together devised a scheme to enable Sun-Diamond to make an unlawful corporate contribution in the name of another. *fn1" To effect this contribution, Mr. Douglas and Mr. Lake allegedly agreed that Mr. Lake would obtain $ 1,000 contribution checks from several Robinson-Lake employees. Robinson-Lake then invoiced Sun-Diamond for a false and fictitious expense sufficient to cover these contributions. Finally, Sun-Diamond's payment of the expense to Robinson-Lake was used to reimburse the individuals that advanced the campaign contributions. *fn2"

 II. Discussion

 This matter comes before the court upon Sun-Diamond's motion to dismiss the indictment in this case. Sun-Diamond raises six arguments in support of its motion. Each argument addresses one or more counts contained in the indictment. First, Sun-Diamond argues that count I, which charges a violation of the gratuity statute, should be dismissed because it fails to allege that Sun-Diamond provided things of value to Secretary Espy to reward him for an act he had already performed or had committed himself to perform. Second, Sun-Diamond posits that count II, which also alleges a violation of the gratuity statute, should be dismissed because it fails to allege that Sun-Diamond provided a "thing of value" to Secretary Espy. Third, Sun-Diamond moves to dismiss counts I and II because the allegations set forth therein do not distinguish between innocent gift giving and illegal gratuities. Fourth, Sun-Diamond requests that the court dismiss counts III through IX of the indictment because the violations alleged in those counts are outside the scope of the independent counsel's jurisdiction. Fifth, Sun-Diamond moves to dismiss count III, which alleges wire fraud, because the alleged wire communication at issue did not further the execution of the alleged scheme. *fn3" Lastly, Sun-Diamond moves to dismiss, or in the alternative strike, the part of counts III and IV that allege that Mr. Douglas and Mr. Lake sought to defraud two entities, Robinson-Lake and its parent company, Bozell Worldwide, Inc., of the intangible right to Mr. Lake's honest services. The court will address each argument seriatim.

 A. Gratuity Statute

 1. Introduction

 Sun-Diamond moves to dismiss count I of the indictment on the basis that the indictment fails to allege that Sun-Diamond provided things of value to Secretary Espy for an improper purpose. More particularly, Sun-Diamond claims that the indictment does not allege that Sun-Diamond provided things of value to reward Secretary Espy for a specific act he had already performed or was already committed to perform. Sun-Diamond contends that the indictment must allege and the OIC must demonstrate a nexus between the alleged gratuity and "a definite official act for which [Sun-Diamond] intended to compensate[,]" Secretary Espy in order for its conduct to be in violation of 18 U.S.C. § 201(c), the gratuity statute. Given this required nexus, Sun-Diamond argues, the indictment must allege that it "intended to reward [Secretary Espy] for past action or action [the Secretary] was already committed to take." As fully discussed infra, to sustain a charge under the gratuity statute, it is not necessary for the indictment to allege a direct nexus between the value conferred to Secretary Espy by Sun-Diamond and an official act performed or to be performed by Secretary Espy. It is sufficient for the indictment to allege that Sun-Diamond provided things of value to Secretary Espy because of his position. Accordingly, the court denies Sun-Diamond's motion to dismiss count I.

 2. Analysis

 The indictment alleges that there were two matters pending before the Department of Agriculture and Secretary Espy, in which Sun-Diamond had a significant economic stake. They were the market promotion program (MPP) and the issue of whether the fumigant methyl bromide would be banned by the Environment Protection Agency (EPA). During 1993 and 1994, the Department of Agriculture administered a grant program, MPP, designed to increase export sales of certain U.S. agricultural commodities abroad. Under the MPP, the Secretary of Agriculture was authorized to award government funds to trade organizations, if the Secretary determined that such organizations would significantly contribute to the sale of U.S. farm commodities abroad. To receive money to market their products abroad, trade organizations submitted marketing plan applications to the Department of Agriculture. By law, the Secretary of Agriculture had to approve the award of MPP money to each trade organization. The trade organizations would in turn award money to companies, like the member cooperatives of Sun-Diamond, to pay for part of their marketing campaigns in foreign countries.

 Beginning in or about August 1993, the Department of Agriculture was required by law to develop regulations which gave small-sized entities preference in obtaining certain MPP funds. During that time, the Department of Agriculture entertained the issue of whether to include cooperatives in the definition of a small-sized entity. The indictment alleges that Sun-Diamond wanted the Secretary of Agriculture to direct the Department of Agriculture to promulgate MPP regulations that would allow Sun-Diamond member cooperatives to receive the preferences provided for small entities. In addition, Sun-Diamond wanted the Department of Agriculture to continue to study the issue with a view towards giving cooperatives the same preference given to small-sized entities.

 The other matter pending before the Department of Agriculture in which Sun-Diamond had an economic stake involved methyl bromide. Methyl bromide was a chemical used to kill pests and other insects when planting orchards and fields, as well as after a commodity was harvested. Certain Sun-Diamond member cooperatives used the chemical for post-harvest fumigation of walnuts, prunes, and figs.

 In 1992, the EPA announced plans to promulgate a rule which would phase out and ultimately bar the use of the chemical in the U.S. In 1993 and 1994, Sun-Diamond, and more particularly Diamond Walnut Growers, Inc., was concerned that the loss of methyl bromide and a lack of a viable alternative thereto, would hurt their ability to sell their products. Consequently, Sun-Diamond sought the assistance of the Department of Agriculture to persuade the EPA to delay promulgating the rule that would phase out and eliminate the use of methyl bromide. Sun-Diamond also sought to have the Department of Agriculture increase its funding for research for alternatives to methyl bromide in the event that the use of the chemical became restricted or prohibited.

 Count I alleges that Sun-Diamond violated Section 201(c)(1)(A) by providing Secretary Espy with improper gratuities. Section 201(c)(1)(A), provides, in pertinent part,

 
Whoever ... 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 not more than two years, or both. *fn4"

 Sun-Diamond concedes that Secretary Espy was a public official during the relevant time period of the indictment, namely, January 5, 1993 through March 11, 1994. Additionally, Sun-Diamond acknowledges that count I sufficiently identifies things "of value" that Sun-Diamond allegedly gave to Secretary Espy, e.g., tickets, meals and limousines for the U.S. Open Tennis Tournament, luggage, and meals at restaurants. Sun-Diamond, however, maintains that it did not give these items of value to Secretary Espy "for or because of any official act performed or to be performed by" Secretary Espy. *fn5" The pertinent official acts relate to the MPP and methyl bromide, the two matters pending before the Department of Agriculture in which Sun-Diamond had a significant economic stake.

 The issue before the court is whether, with respect to appointed officials, the gratuity statute requires the indictment to allege a nexus between the provision of things of value and a specific official act performed or committed to be performed by the appointed official. This District Court and the various federal courts of appeal that have addressed this precise issue have concluded that the gratuity statute does not require such nexus to be alleged by an indictment. Rather, it is sufficient for the indictment to allege that the provider of the gratuity has matters within the purview of the official receiving the gratuity, and that the gratuity be provided "simply because of ... [the] official's position, in appreciation of the relationship, or in anticipation of its continuation." United States v. Secord, 726 F. Supp. 845, 847 (D.D.C. 1989) (emphasis in the original). "The Government need not prove that the gratuity was given in exchange for any specific official act; there need be no ' quid pro quo...'" Id. "The Government must [only] show that Defendant acted simply because of [the individual's] official position..." Id.6

 The Brewster court, in distinguishing between the elements constituting the crimes of accepting a bribe and accepting an illegal gratuity, explicitly stated: "The bribery section makes necessary an explicit quid pro quo which need not exist if only an illegal gratuity is involved ; the briber is the mover or producer of the official act, but the official act for which the gratuity is given might have been done without the gratuity [.]" Id. at 72 (emphasis added). This statement weakens Sun-Diamonds argument that this Circuit requires the indictment to allege that a nexus between the gratuity and a specific official act exists. Under the bribery statute, the focus is on the briber who instigates an official act. However, as Brewster makes clear, under the gratuity statute, the emphasis is not on the act, which the official might have done with or without the provision of an improper gratuity. Rather, the definition of "official act" denotes that the official need not have undertaken or committed himself to undertake a specific act. An official act is one which involves "any decision or action on any question, matter, cause, suit, proceeding, or controversy, which may at the time be pending [.]" 18 U.S.C. § 201(a)(3) (emphasis supplied). Presently, the indictment alleges that there were two matters pending before Secretary Espy in which Sun-Diamond had a significant interest. There is no indication that the gratuity statute or the definition of the term "official act" require the indictment to allege that Sun-Diamond intended to reward Secretary Espy for an act that he had done or committed himself to do.

 In Brewster, the court's concern centered on an elected official's potential criminal liability under the gratuity statute. In the context of a politician receiving an illegal gratuity the court stated,

 
no politician who knows the identity and business of his campaign contributors is ever completely devoid of knowledge as to the inspiration behind the donation. There must be more specific knowledge of a definite official act for which the contributor intends to compensate before an official's action crosses the line between guilt and innocence.

 Id. at 81. The difficult question in Brewster therefore involved the ability of the jury to distinguish between illegal gratuities and legal campaign contributions. The court found that the trial judge had not made the distinction intelligible to the jury and, as a consequence, implicitly required a heightened nexus standard between the illegal gratuity and the official act. The court required such a standard because of the Senator's status as an elected, rather than an appointed official. As the court recognized, "every campaign contribution is given to an elected public official probably because the giver supports the acts done or to be done by the elected official." Id. at 72 n. 26. In the case of elected officials, a nexus ...


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