II. STATEMENT OF FACTS
Between 1985 and the Spring of 1991, defendants XXXX X. XXXX, XXXX XXXX, and XX XXXX defrauded customers throughout the United States by selling products as "100 percent orange concentrate," when in fact, the products were adulterated with sugar, orange syrup, citric acid, and other things. (This substitution allowed the defendants to "stretch" the product they sold, substituting substantially cheaper adulterants for orange concentrate. While orange "solids" cost $1.00 to $2.20 per pound, sugar typically cost less than 35 cents per pound.) To make their scheme work, the defendants and coconspirators created phony invoices, altered records, used shell companies, created "secret" storage rooms, required their employees to use code words for sugar, and so on. As a result, the defendants' company, Moon Down Foods, Inc., went from zero sales in 1983 to, in the defendants words, "the largest bulk blender of orange juice in North America and one of the largest in the world." [NOTE: names and places changed from original.]
At all times, XXXXX X. XXXX and his wife, XXXXX XXXX, were officers, directors and owners of Moon Down Foods, Inc. XXXXX X. XXXX was the president, while XXXXX XXXX was the Secretary/ Treasurer. XXXXX XXXX (XXXXX X. XXXX' brother) was the Vice President and Operations Manager. All of the company's important decisions were made by these three defendants. They openly discussed ways to hide their activity among themselves, and plotted ways to evade detection.
XXXXX XXXX kept tight control over the company's finances--particularly those transactions involving the clandestine purchase of sugar. XXXXX X. XXXX and XXXXXX XXXX controlled production decisions, such as how much sugar to add to their "100 percent" orange concentrate.
From 1985 to 1989, the Moon Down plant was on Blueberry Lane in Louisville, Kentucky. Early in the conspiracy, the defendants used granulated sugar, mixed in water, to adulterate orange concentrate. The defendants kept 100 pound bags of this sugar in a room at the plant, which outsiders were told belonged to another company. Problems arose, however, because the sugar did not mix well with orange concentrate, and kept settling in the bottom of the mixing tank.
To solve this problem, XXXXX X. XXXX worked out an arrangement with the Haywood Dairy, in Louisville. Haywood Dairy had the equipment to blend sugar with juice to keep the sugar from settling. The defendants became dissatisfied with this arrangement, however, for a variety of reasons. XXXXX X. XXXX then bought a farm in Jefferson County, Kentucky, to allow Moon Down employees to mix sugar and water outside of and away from the Moon Down plant, safe from government regulatory visits and secure from any potential search of Moon Down's plant.
At the plant on Blueberry Lane, Moon Down employees, acting at the direction of and with the authority of XXXXX X. XXXX and XXX XXXX, installed a system of pipes to allow liquid sugar to be secretly added to the orange concentrate. A 6" pvc pipe was placed around one portion of the stainless steel sugar line, to make it look like a sewer pipe, rather than a line for pumping sugar into the orange concentrate. The sugar line was connected to the sugar tank so that it could quickly be taken apart, and a plug screwed onto the pvc pipe to make it look like it had nothing to do with the sugar tank. Another part of the sugar line was wrapped in insulation, to make it look like a steam pipe.
XXXXX XXXX oversaw Moon Down's books and records. She directed Moon Down's clerical personnel. Under XXXXX XXXX' direction, they entered the sugar and sugar syrup that Moon Down was acquiring for illegal "stretching" of orange concentrates into Moon Down's books as though the sugar itself was orange concentrate. XXXXX XXXX saw to it that the paper reaching those employees did not even mention "sugar" or "syrup." She also took steps to ensure that outside auditors did not learn that Moon Down purchased massive amounts of sugar.
On occasion, when Moon Down ran out of sugar, XXXXX X. XXXX and XXX XXXX shut down the plant, rather than producing truly "100 pure" orange concentrate. The XXXes would then run the plant on the week-end after sugar was delivered, so the adulteration could go on as usual.
Each of the defendants directed employees at the plant not to use the word "sugar." Instead, the defendants told employees to use code words such as "solids," "liquid," or "preblend." Truckers were often told not to bring sugar to the plant until after dark, or until the USDA inspector was gone.
In 1989, the conspirators built and opened a new plant in Benton, Kentucky. At the heart of the new plant was a secret room. XXXXXX XXXX helped design the room, but told people to forget about the room after it was made. This room contained two tanks which held over 7,000 gallons each. These tanks stored the liquid sugar Moon Down used to adulterate its orange concentrate. The only access to the room was through an electrical control panel several feet above the floor. To get into the room, Moon Down's blenders had to step on a five gallon bucket and hoist themselves through the panel after they opened it up.
The conspirators went to great lengths to hide the pipes which brought sugar from the secret room to the orange concentrate. Phony support clamps were used to hide pipe connections, to prevent people from tracing the lines back to the sugar. The "secret" room was so well hidden that Moon Down employees could not on their own locate the room without being told where it was.
The defendants used other methods of avoiding detection. They directed employees to use only beet sugar, which is the most difficult type of sugar to detect through scientific tests. They used a firm known as "Sugar Base Company" or "S.B.C." to disguise their purchases of tons of sugar. The defendants, particularly XXXXX XXXX, also hid the scheme by altering or destroying records on a routine basis as part of the conspiracy, and by destroying scores of business records after the investigation of this matter began.
III. SUBSTANTIVE ISSUES OF LAW
The United States is unaware of any substantive issues of law which have not already been briefed.
IV. EVIDENTIARY ISSUES
A. Summary Exhibits.
The United States intends to offer summary exhibits into evidence, pursuant to Fed. R. Evid. 1006. Under Rule 1006, summary charts may be admitted into evidence. See United States v. Campbell, 845 F.2d 1374, 1381 (6th Cir.), cert. denied, 488 U.S. 908 (1988); United States v. Scales, 594 F.2d 558, 562-65 (6th Cir.), cert. denied, 441 U.S. 946 (1979); Hackett v. Housing Authority of San Antonio, 750 F.2d 1308, 1312 (5th Cir.), cert. denied, 474 U.S. 850 (1985); United States v. Foley, 598 F.2d 1323, 1338 (4th Cir. 1979), cert. denied, 444 U.S. 1043 (1980). Rule 1006 itself indicates that the summary charts need only be based on admissible evidence previously made available to the defendant at a reasonable place and time. Rule 1006, therefore, does not require that the underlying documents themselves be introduced at trial. See United States v. Clements, 588 F.2d 1030, 1039 (5th Cir.), cert. denied, 440 U.S. 982 (1979). Rule 1006 requires only that the underlying evidence for a summary chart be admissible and available to the opponent for cross-examination. United States v. Strissel, 920 F.2d 1162, 1164 (4th Cir. 1990).
B. Foreign Records.
The United States intends to offer foreign records of regularly conducted activity, pursuant to 18 U.S.C. § 3505. (U.S. Exhibits 921 and 922). These records (one volume from Future Fastfreight, Inc., and the other from Cit-Ray International, Inc.) were produced under the Treaty between the Government of Canada and the Government of the United States of America on Mutual Legal Assistance. Both sets of records are accompanied by foreign certifications attesting that:
(a) such records were made, at or near the time of the occurrence of the matters set forth, by (or from information transmitted by) a person with knowledge of those matters;
(b) such records were kept in the course of a regularly conducted business activity;
(c) the business activity made such a record as a regular practice; and
(d) the records are duplicates of the originals.
These records have also been copied and provided to the defense. Therefore, the records are authentic and satisfy the requirements of the hearsay rule under 18 U.S.C. § 3505.
C. Evidence of Plea Agreements with Government Witnesses.The United States will call certain witnesses who have entered plea agreements requiring their cooperation. In its direct examination of each such witness, the United States is entitled to elicit testimony concerning the fact that the witness pled guilty to particular charges, the details of those charges, and the nature of the cooperation agreement. The testimony can properly include testimony concerning the requirements in the plea agreement that the witness provide only truthful testimony and that the witness could be prosecuted if he or she commits perjury. United States v. Townsend, 796 F.2d 158 (6th Cir. 1989). The plea agreement itself is admissible. United States v. Walker, 871 F.2d 1298 (6th Cir. 1989) (confederate's plea agreement is admissible on direct examination as evidence of the witness' credibility or acknowledgement of participation in the offense).
D. Scientific Evidence.
The United States may offer the results of scientific tests. These tests results establish that product sold by defendants represented to be "unsweetened" concentrated orange juice for manufacturing in fact contained added sugar.
Admissibility of expert scientific testimony is governed by the test set forth in Daubert v. Merrell Dow Pharmaceuticals, ___ U.S. ___, 113 S. Ct. 2786 (1993). In Daubert, the Court held that the "general acceptance" test set out in Frye v. United States, 293 F.2d 1013 (D.C. Cir. 1923), was superseded by Fed. R. Evid. 702. Id. at 2794. Rule 702 provides:
If scientific, technical or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience training, or education, may testify thereto in the form of an opinion or otherwise.
This rule envisions a "flexible," more lenient inquiry than under the Frye test, and favors the admission of any scientifically valid expert testimony. United States v. Bonds, 12 F.3d 540, 565 (6th Cir. 1993).
Under Rule 702, scientific evidence is admissible if it is both relevant and reliable. Daubert, 113 S. Ct. at 2795; Bonds, 12 F.3d at 555. This determination in turn relies upon "'whether the expert is proposing to testify to (1) scientific knowledge that (2) will assist the trier of fact to understand or determine a fact in issue.'" Bonds, 12 F.3d at 555 (quoting Daubert, 113 S. Ct. at 2796). In conducting this inquiry, the court must make a "preliminary assessment of whether the reasoning or methodology underlying the test is scientifically valid and of whether that reasoning can be applied to the facts in issue." Daubert, 113 S. Ct. at 2796. Under this inquiry, it is scientific validity, and not scientific precision, that is the touchstone. Bonds, 12 F.3d at 558.
Scientific evidence satisfies the relevance prong of the Daubert inquiry if it will assist the trier of fact in understanding the evidence or determine a fact in issue. Id. at 557. To establish the reliability of the testimony, the principles and methodology of the technique must be scrutinized. Daubert, 113 S. Ct. 2797. Reliability of a testing technique concerns the scientific validity of the test's methodology, and not the accuracy of the test's results. Id. ("[t]he focus . . . must be solely on principles and methodology, not on the conclusions they generate"); Bonds, 12 F.3d at 563 ("questions about the accuracy of results are matters of weight, not admissibility").
The reliability prong is determined by examining, among other things, the following four considerations: (1) whether the technique can be or has been tested; (2) whether the technique has been subjected to peer review and publication; (3) the known or potential rate of error in using the particular scientific technique and the standards controlling the operation of the technique; and (4) whether the technique has been generally accepted in the particular scientific field. Bonds, 12 F.3d at 555; see id. at 558-65 (applying test); see generally Daubert, 113 S. Ct. 2796-97.
E. Chain of Custody.
The United States will offer evidence (such as samples, seized records and physical evidence) which has been under the custody and control of more than one person. "[C]hallenges to the chain of custody go to weight of the evidence, not its admissibility." United States v. Levy, 904 F.2d 1026, 1030 (6th Cir. 1990), cert. denied, 488 U.S. 1091 (1991). For such evidence to be admissible, the United States need only establish a reasonable probability that the physical evidence has not been changed or altered. United States v. Miller, 994 F.2d 441, 443 (8th Cir. 1993). Factors affecting this determination include the nature of the object, the circumstances surrounding its preservation and custody, and the likelihood that others tampered with it. United States X. XXXX, 822 F.2d 793, 796 (8th Cir. 1987). The United States need not introduce the testimony of every individual who handled the evidence or whose initials appear on the evidence. Miller, 994 F.2d at 443. "The integrity of evidence is presumed to be preserved unless there is a showing of bad faith, ill will, or proof that the evidence has been tampered with." Id.; see also United States v. McFadden, 458 U.S. 440, 441 (6th Cir. 1972), cert. denied, 410 U.S. 911 (1973); Pasedena Research Laboratories v. United States, 169 F.2d 375, 381-82 (9 Cir.), cert. denied, 335 U.S. 853 (1948); United States v. Wood, 695 F.2d 459, 462 (10th Cir. 1982).
V. OTHER TRIAL ISSUES
The United States is unaware of any other trial issues.
Dated: March , 1994 Respectfully submitted,
MICHAEL TROOP United States Attorney ________________________________ William F. Campbell Assistant United States Attorney 510 West Broadway, 10th Floor Louisville, Kentucky 40202 (502) 582-5911
________________________________ Kenneth L. Jost Assistant Director
________________________________ James E. Arnold Attorney Office of Consumer Litigation U.S. Department of Justice P.O. Box 386 Washington, D.C. 20044 (202) 307-0048/(202) 307-01744
[cited in USAM 4-8.240]