Civil Resource Manual 137. Analysis of Minarik

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137.
Analysis of Minarik

A. The Motions to Dismiss Count 1 Should Be Denied

XXXXX, joined by XXXXXXXX and XXXXXXXX, has filed two separate motions to dismiss Count 1 of the Indictment. The first motion claims that Count 1 fails to allege an offense under 18 U.S.C. § 371. The second motion contends that Count 1 impermissibly combines felony and potential misdemeanor charges. Neither motion has any merit.

1. Count 1 of the Indictment Properly Alleges a Violation of 18 U.S.C. § 371

XXXXXX bases his first motion on the proposition that the government has failed to properly allege an offense under the "defraud clause" of the conspiracy statute. Section 371, 18 United States Code, provides:

If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined not more than $10,000 or imprisoned not more than five years or both.
The first clause is commonly known as the "offense clause" and the second clause is referred to as the "defraud clause." To establish a violation of the "defraud clause," the government need not show that a defendant intended to cheat the United States or one of its agencies out of money. Rather, as the Supreme Court stated in Dennis v. United States, 384 U.S. 855 (1966):

It has long been established that this statutory language is not confined to fraud as that term has been defined in the common law. It reaches "'any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any department of government.'"
384 U.S. at 861 (citations omitted). See also United States v. Tuohey, 867 F.2d 534, 537-38 (9th Cir. 1989).

In addition, it is not duplicitous for the government to charge as a single offense under 18 U.S.C. § 371 one conspiracy whose objects include violations of both the "offense clause" and the "defraud clause." United States v. Bilzerian, 926 F.2d 1285, 1301-02 (2d Cir.), cert. denied, ___ U.S. ___, 112 S. Ct. 63 (1991) ("[The government] may simultaneously prosecute the same conduct under both clauses."); United States v. Smith, 891 F.2d 703, 712-13 (9th Cir. 1989), cert. denied, ___ U.S. ___, 111 S.Ct. 47 (1990) ("The clause 'defraud the United States' merely expands the scope of the offense by including another object of the conspiracy that might not otherwise be covered by the clause 'any offense.'"); United States v. Hope, 861 F.2d 1574, 1578 n.8 (11th Cir. 1988). See also Braverman v. United States, 317 U.S. 49, 54 (1942) ("The allegation in a single count of conspiracy to commit several crimes is not duplicitous . . . .").

Thus, Count 1 properly charges a single conspiracy with three objects. Two of the objects of the conspiracy -- to violate the FDC Act and to violate the mail and wire fraud statutes -- fall within the "offense clause" of § 371. The third object of the conspiracy is "to defraud the United States . . . by obstructing, hampering, hindering, frustrating, defeating, impairing, and impeding by craft, trickery, deceit, and dishonest means the United States Food and Drug Administration ("FDA") of its lawful and proper government functions of monitoring and controlling the manufacture, distribution, and sale of orange juice from concentrate and concentrated orange juice for manufacturing." Indictment at p. 2, ¶ 2. This object of the conspiracy falls within the "defraud clause" of § 371.

XXXXXX argues that the Sixth Circuit's decision in United States v. Minarik, 875 F.2d 1186 (6th Cir. 1989), renders the allegation that defendants conspired to defraud the United States defective. See Memorandum in Support of XXXXXX's Motion to Dismiss Counts [sic] One ("XXXXXX Dismiss Mem."). He further claims that the purported defect warrants dismissal of the entire count. Id. Minarik, both standing alone and as interpreted by subsequent Sixth Circuit decisions, does not lead to the result that XXXXXX demands.[FN1]

FN1. Even if the Court should conclude that, under current Sixth Circuit law, Count 1 of the Indictment does not adequately set forth an offense under the "defraud clause," the proper remedy would be to strike that portion of Count 1 that alleges defrauding the United States as an object of the conspiracy, not to dismiss the entire count. See United States v. Gibson, 881 F.2d 318, 320-21 (6th Cir. 1989). XXXXXX does not (and cannot) contend that Count 1 also fails to properly allege a conspiracy to commit offenses against the United States.

In Minarik, one of the defendants, XXXXXXX, received three tax assessment notices informing her that she owed the IRS over $100,000. 875 F.2d at 1187. Shortly afterward, XXXXXXXX and her co-defendant, Minarik, arranged to sell some property XXXXXXXX owned. Id. In structuring the sale, Minarik and XXXXXXXX required the purchaser to pay the sales price with several cashier's checks, each in an amount under $5000. Id. When XXXXXXXX began cashing the checks at several branches of the same bank, the bank notified the IRS. Id. IRS agents detained XXXXXXXX and Minarik and searched their car. Id. at 1188.

XXXXXXXX and Minarik were subsequently charged in a one-count indictment with conspiracy to defraud the United States. Id. In describing the object of this conspiracy under the "defraud clause," the indictment merely stated that it was to interfere with "the lawful functions of the Department of Treasury." Id. The indictment thus failed to delineate "[w]hich of the many functions entrusted to the Treasury Department defendants were alleged to have agreed to impede . . . ." Id. at 1189.

Moreover, throughout the prosecution, the government changed its theory of the case. Id. At one point, the government maintained that the defendants defrauded the Treasury Department by "selling XXXXXXXX's house in a way that would avoid the currency reporting requirements of 31 U.S.C. § 5313(a)." Id. This theory was later dropped. Id. At another point, the government stated that the fraud against the United States was that "the defendants, having received XXXXXXXX's notice of assessment, sought to conceal assets to avoid levy by the IRS." Id. at 1190. It abandoned this theory, too. Id. Finally, the prosecution also was unable to settle on a theory of the legal duty that the defendants owed to the government, a breach of which rendered them guilty of a crime. Id.

Against this backdrop, the Sixth Circuit concluded in Minarik that "the Government's failure to specify the crime with which it charged the defendants has generated unacceptable confusion." Id. Accordingly, it ruled that:

[T]he "offense" and "defraud" clauses as applied to the facts of this case are mutually exclusive, and the facts proved constitute only a conspiracy under the offense clause to violate 26 U.S.C. § 7206(4), [a provision of the tax laws making it illegal to conceal assets subject to levy after notice and assessment of a tax has been issued].
Id. at 1187 (emphasis added).

Of key importance to the Sixth Circuit in Minarik was the fact that, depending on the circumstances, the conduct with which the defendants were charged could be legal. Id. at 1194-95. However, by indicting under the "defraud clause" of § 371, the government failed to give the defendants adequate notice of what they did wrong and when, and thereby interfered with their right to prepare for trial. Id. at 1189, 1195. By contrast, if the government had used the "offense clause" of § 371 and charged a conspiracy to violate 26 U.S.C. § 7206(4), the defendants would have been apprised of the legal duty that they breached -- in their case, not to conceal assets subject to levy after receiving a tax assessment notice --and been able to defend themselves accordingly. Thus, the Sixth Circuit concluded:

[W]here the duties of a citizen are as technical and difficult to discern as they are when a taxpayer, before levy, engages in otherwise legitimate activities that may make ultimate collection more difficult, we hold that a Congressional statute closely defining those duties takes a conspiracy to avoid them out of the defraud clause and places it in the offense clause.
Id. at 1196. The Sixth Circuit also acknowledged the narrow breadth of its decision. It expressly stated:

At the same time, it is important to emphasize the limits of our holding today. We do nothing to disturb the well-settled principle that modern criminal statutes defining new offenses do not necessarily erode or displace § 371 conspiracy liability in general.
Id. at 1195-96.

In cases decided after Minarik, the Sixth Circuit has made it clear that the holding in Minarik is limited to the unique factual circumstances present in that decision. In particular, the Sixth Circuit has not interpreted Minarik to mean that, whenever the conduct underlying a conspiracy may also be charged as a violation of a particular statute or statutes, the government must always charge the conspiracy under the "offense clause" and may never invoke the "defraud clause."

In United States v. Mohney, 949 F.2d 899 (6th Cir. 1991), the district court had dismissed a count in an indictment charging the defendants with conspiracy to defraud the United States by impeding the IRS from learning the true ownership of certain businesses and the sources and disposition of funds that passed through those operations. 949 F.2d at 900. The district court had ruled that Minarik required dismissal of the conspiracy count, which alleged an offense under the "defraud clause" of § 371, because specific statutes covered the conduct that underlay the conspiracy. Id. The Sixth Circuit reversed. It held:

After studying Minarik, as well as the present case, we conclude that the district court misread Minarik when it dismissed Count I based on that holding. The court in Minarik reached its decision based on the specific facts of that case. Minarik did not require that all prosecutors charge all conspiracies to violate a specific statute under the offense clause of section 371.
949 F.2d at 902 (emphasis added).

The Mohney court stressed that to interpret Minarik as precluding a charge under the "defraud clause" whenever specific statutes are available to support a charge under the "offense clause" would be contrary to the broad language of § 371, contrary to Supreme Court precedent,[FN2] and contrary to the discretion that the prosecution has to charge a case under the applicable statute of its choice. Id. See also United States v. Sturman, 951 F.2d 1466, 1473-74 (6th Cir. 1991), cert. denied, 112 S.Ct. 2964 (1992).[FN3]

FN2. In Dennis v. United States, supra, the Supreme Court considered the adequacy of an indictment charging the defendants with conspiracy to defraud the United States through the filing of false affidavits with the National Labor Relations Board. Such conduct is illegal under 18 U.S.C. { 1001. Nonetheless, the Supreme Court stated: "The fact that the events include the filing of false statements does not in and of itself, make the conspiracy to defraud clause of { 371 unavailable to the prosecution." 384 U.S. at 863-64.

FN3. Every other circuit that has considered Minarik has concluded that the decision permits the government to charge under the "defraud clause" even when specific statutes apply to the conduct in question. See United States v. Harmas, 974 F.2d 1262, 1266-67 (11th Cir. 1992); United States v. Hurley, 957 F.2d 1, 3-4 (1st Cir.), cert. denied, ___ U.S. ___, 113 S. Ct. 60 (1992); United States v. Derezinski, 945 F.2d 1006, 1010 (8th Cir. 1991); United States v. Notch, 939 F.2d 895, 901 (10th Cir. 1991); United States v. Bilzerian, supra, 926 F.2d at 1301-02 (cited with approval in Mohney, 949 F.2d at 902); United States v. Reynolds, 919 F.2d 435, 438-39 (7th Cir. 1990), cert. denied, ___ U.S. ___, 111 S.Ct. 1402 (1991).

In Mohney, the Sixth Circuit noted three factors that could create a situation similar to that in Minarik and therefore render the "defraud clause" inapplicable. None of these factors is present in this case.

First, the court in Mohney stated that a charge under the "defraud clause" might suffer from vagueness and thus fail to inform the defendant of the charges pending against him. 949 F.2d at 902. That was the principal defect with the indictment in Minarik, which merely described the object of the conspiracy as being to defraud the United States by impeding the functions of the Treasury Department. Id. Moreover, the Minarik indictment was defective in that it set forth only part of the conspiracy in which the defendants engaged. Id.

Here, as in Mohney, the indictment provides in great detail who the conspirators are, what the full scope of their conduct was, with which government agency the defendants allegedly interfered (i.e., FDA), and which of the agency's many functions the defendants impeded (i.e., FDA's responsibility for monitoring and controlling the nation's food supply). See Indictment at pp. 2-19. In addition, the conspiracy count describes the manner in which the defendants interfered with FDA's duties. Count 1 expressly states:

It was further part of the conspiracy that defendants sought to impair, impede, and defeat the FDA's efforts to monitor and control the manufacture and distribution of orange juice products in that defendants attempted to cover up the addition of beet sugar, preservatives, orange pulpwash, and other substances to products sold as orange juice from concentrate and concentrated orange juice for manufacturing, and attempted to prevent government personnel from uncovering those activities.
Indictment at p. 10, ¶ 6. Unlike the charge in Minarik, the government's charge here under the "defraud clause" gives the defendants more than adequate notice of their alleged offense. There can be no confusion as to the government's theory of its case.

The second factor that the Mohney court determined to be unique to Minarik was the existence of a single statute that applied to the defendants' activities. 949 F.2d at 904. In Mohney, several statutes covered the conduct described in the challenged conspiracy count; therefore, the Sixth Circuit held that the government was justified in choosing the "defraud clause." Id. at 905.

Here, too, the defendants' conduct implicates more than one criminal offense. As the other objects of the conspiracy make clear, the defendants violated the FDC Act and the mail and wire fraud statutes. Other statutes, not charged or mentioned in the Indictment, also apply to the actions that underlie the alleged conspiracy. These would include the giving of false statements in violation of 18 U.S.C. § 1001. In short, several other statutes define the wrongs that the defendants committed here. It is thus proper for the government to charge, as one of the objects of the alleged conspiracy, that the defendants sought to defraud the United States by interfering with FDA's role in overseeing the food supply.

The final factor that the Mohney court identified as being unique to Minarik was the complex nature of the duties that the defendants had toward the government concerning the disclosure of assets before and after a levy to satisfy a tax delinquency. 949 F.2d at 905. Here, the duties that the defendants owed the government were straightforward and easy to discern: They had a duty not to represent their orange juice products as being something other than what those products really were, not to adulterate those products, and not to conceal from FDA the true identity of the products that they were placing into the nation's food supply.[FN4] Once again, the situation in Minarik is entirely distinguishable from that here.

FN4. XXXXXX maintains that the defendants' conduct was "subject to extremely complex regulations." See XXXXXX Dismiss Mem. That is false. Only two regulations apply to this case: 21 C.F.R. { 146.145 and 21 C.F.R. { 146.153. These are the "standards of identity" for orange juice from concentrate and concentrated orange juice for manufacturing, respectively. They are short and merely describe what may be in products that are labeled as orange juice from concentrate or concentrated orange juice for manufacturing...

[cited in USAM 4-8.240]