The Core Conspiracy and the Sub-Conspiracies

A. The 90c5009 complaint.

On August 28, 1990, Grove Fresh filed a seven-count complaint captioned Grove Fresh Distributors, Inc. v. John Labatt, Ltd., et al., 90c5009 (N.D. Ill.) [“90c5009”]. The complaint named five corporations, two corporate divisions, and four individuals as defendants, as follows:

The complaint also named the following persons as co-conspirators:

B. The seven counts alleged in the 90c5009 complaint.

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The 54-page complaint included 167 paragraphs supported by a two-inch thick book of exhibits. The exhibits included dozens of chemical assays showing that products labeled and sold by the defendants as 100% pure orange juice from concentrate were in fact adulterated with illegal additives and substitute ingredients.

The seven counts were as follows:

C. The RICO counts added by the amended complaint.

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 On September 17, 1990, Grove Fresh filed an amended complaint as a matter of right pursuant to FRCP 15(a)(1). The amended complaint identified three more co-conspirators: Mr. Juicey of Illinois; J-Z Juice Co., a Michigan corporation wholly-owned by Holiday Juice Ltd.; and Holiday Juice Co., a Michigan corporation wholly-owned by Ever Fresh.

The amended complaint added three RICO counts and identified at least 57 specific dates on which the RICO defendants used the interstate mails or wire services in furtherance of their RICO schemes.

D. The Core Conspiracy: A Formal Agreement to Make Adulterated Orange Juice Falsely Labeled as 100% Pure.

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The core conspiracy described by the 90c5009 complaint was a scheme for making unlawful profits from adulterated orange juice. Paragraph 100 of the amended complaint alleged that in furtherance of this scheme the defendants developed a formula for producing a beverage that had the look and taste of 100% pure orange juice from concentrate, and which was labeled and described to the consuming public as 100% pure orange juice from concentrate, but which, in fact, consisted of significant amounts of sugar, chemicals, flavorings and preservatives, mixed in a solution of water and only a minimal amount of orange juice concentrate. (This formula is hereafter referred to as “the Home Juice Formula.”)

Grove Fresh alleged that Exhibit 6 to the amended complaint was a version of the Home Juice Formula that was in use at Ever Fresh as of May 1975, when Ever Fresh was a wholly-owned subsidiary of Home Juice. Parent and subsidiary corporations can be co-conspirators. International United Auto Workers v. Cardwell Manufacturing Co., 416 F. Supp. 1267, 1284, 1290 (D. Kan. 1976). Thus, evidence that Home Juice and Ever Fresh had agreed to make “orange juice” pursuant to the formula in Exhibit 6 constituted proof of a conspiratorial agreement.

Grove Fresh was not required to produce direct evidence of the defendants’ unlawful agreement. A conspiracy by its nature tends to be secret, so the law of evidence allows the existence of a conspiracy to be proved by circumstantial evidence. United States v. Conway, 632 F.2d 641, 643 (5th Cir. 1988). Grove Fresh had to rely on circumstantial evidence because all of the witnesses with knowledge of the conspiracy had invoked the Fifth Amendment.

The following circumstantial evidence established the existence of an agreement between and among Home Juice, Ever Fresh, and Holiday Juice to make unlawful profits from the manufacture and sale of adulterated orange juice:

These facts established that formulas for adulterated orange juice were stored on Home Juice's main-frame computer, and that Home Juice, Ever Fresh and Holiday Juice all had unrestricted access to those formulas. When the inferences most favorable to Grove Fresh were drawn, the discovery record supported Grove Fresh’s claim that the defendants had agreed among themselves to make adulterated orange juice according to formulas such as the one in Exhibit 6.

Once the existence of a conspiracy has been established, it is presumed to continue until the contrary is shown. United States v. Stromberg, 268 F.2d 256, 263 (2d Cir. 1959). A co-conspirator’s liability does not end until he or she withdraws from the agreement. To accomplish effective withdrawal the defendant must show that he or she acted affirmatively to defeat or disavow the purpose of the conspiracy. United States v. James, 609 F.2d 36, 41 (2d Cir. 1979).

No defendant ever made any such showing.

E. The sub-conspiracy to import an unsafe additive under false pretenses.

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In 1977 the FDA asked the Justice Department to prosecute Ever Fresh because of the firm’s “flagrant and continuing disregard for the requirements of the law and regulations” regarding preservatives, which are not permitted by the standard of identity for orange juice from concentrate. The Justice Department declined to prosecute, on the ground that the preservatives in question (potassium sorbate and sodium benzoate) did not present any danger to the public health or safety.

After the Justice Department closed the case, Ever Fresh resumed using an illegal preservative—but it switched to an undetectable additive that it imported from Europe under false pretenses.

The additive was Oleum 320/IDEA. The vendor was IDEA, International Engineering and Development, Ltd. (renamed Bio Trade Ltd. In 1987) [“Bio Trade”], a Swiss firm operated by Friedrich Kohlbach, a German national.

1. The deceptive scheme.

The FDA has jurisdiction over imported food additives. If Kohlbach’s import agent had truthfully declared at the border that Oleum 320/IDEA would be added to food, the agent would have had to disclose the ingredients in Oleum 320/IDEA.  Unless all of the ingredients were on the FDA’s list of approved food additives, the product would not have been admitted into the United States. 

The active ingredient in Oleum 320/IDEA was not approved for  use in chilled orange juice, so a truthful declaration would have disqualified the product from entry into the United States.

To avoid FDA jurisdiction, Kohlbach called his product “oleum,” which is the commercial name for fuming sulfuric acid, a highly corrosive, dense, oily liquid used to manufacture fertilizers, paints, detergents, and explosives.  Oleum is “extremely corrosive” to all body tissues; “[i]ngestion  may cause severe injury and death." The Merck Index, p. 1418 (11th ed. 1989). 

Kohlbach falsely represented to his import agent that Oleum 320/IDEA was a “cleaning-in-place” solution for aseptisizing manufacturing equipment.  The import agent, in turn, repeated Kohlbach’s false representations to the Bureau of Customs.  These false representations placed the product in the jurisdiction of the Environmental Protection Agency, which accepted the representations as true and regularly admitted Oleum 320/IDEA into the United States. See [link to 1987 documents with import declarations]

2. The circumstantial evidence that DEPC is the active ingredient in Oleum 320/ IDEA.

During pretrial discovery Ever Fresh claimed that the identity of the active ingredient in Oleum 320/IDEA was a mystery to them because it was a trade secret that Kohlbach didn’t share with them.  Circumstantial evidence, however, suggests that the active ingredient in Oleum 320/IDEA was DEPC, a carcinogenic agent.  This evidence is outlined at pp. 14-18 of Grove Fresh’s Memorandum in Support of Motion to Overrule Objections to Time Period.

3. Kohlbach’s other U.S. customers.

Kohlbach had at least three other customers in the United States—Home Juice, Flavor Fresh, and Peninsular—and one in Canada (Holiday Juice).  They imported Oleum 320/IDEA through V. G. Nahrgang Co., an import/export agent at the Port of Detroit, and through HRJ, Inc., a brokerage company partly owned by Marshall. (Proffer, p. 4.)

4. The cost of Oleum 320/ IDEA was more than offset by the savings realized from economic adulteration.

The cost of Kohlbach’s product was dear—$650 to $800 per gallon—but one quart was sufficient to sterilize a 10,000 gallon batch of juice, which translated into a cost of 6¢ to 8.5¢ per gallon.  Kohlbach’s customers easily absorbed this cost because they were also diluting their orange juice with less costly beet sugar and infusing it with amino acids and flavor enhancers to foil federal detection.  Consequently, even with the added expense of Kohlbach’s product, the total cost of manufacturing their “orange juice” was substantially less than the cost of manufacturing chilled orange juice in conformity with the standard of identity.

F. Other sub-conspiracies.

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1. The Flavor Fresh/Holiday Juice COJM sub-conspiracy.

In 1979 Kotwicki and Marshall entered into an arrangement whereby Holiday Juice supplied Flavor Fresh with a blend of COJM and invert sugar. Marshall then blended his own special ingredients into this adulterated COJM. He referred to this blended product as a “base.”

Flavor Fresh re-sold Marshall’s “base” to tertiary processors who used it to make single-serve beverages that were falsely labeled as 100% pure orange juice from concentrate.   Marshall Proffer, pp. 3, 4, 11-12.

2. The Flavor Fresh/Peninsular Products sub-conspiracy.

Peninsular Products was a tertiary juice processor in Lansing, Michigan.  Edward Crouse owned the firm; Wayne Wagoner was its president. 

In the late 1970s Peninsular retained Marshall as a consultant, seeking his advice on how to resolve “market pressure problems.”  Marshall’s advice: cut costs by using his “base” to make adulterated juice falsely labeled as 100% pure. For the next 11 years Peninsular followed Marshall’s advice. Marshall Proffer, p. 11.

In 1983 the firms entered into a co-packing arrangement whereby Peninsular Products manufactured chilled orange juice products under the Flavor Fresh name brand, using Marshall’s “base.” Marshall Proffer, p. 11. 

[1] “Ever Fresh” is the format used in these essays when referring to that firm’s operations prior to December 1986, when Labatt acquired the firm and changed the format of the name to “Everfresh.”

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