FDA Investigations

  1.  Introduction.
    1. The orange juice investigations.
    2. The decision not to prosecute the most egregious offender—Everfresh.
    3. The cronyism factor.
  2. The 1971 ban on DEPC.
  3. FDA proceedings prior to Grove Fresh’s February 1989 lawsuits.
    1. The economic constraints on FDA enforcement.
    2. The economics behind the 1977 decision not to prosecute Ever Fresh for using preservatives.
    3. Ever Fresh’s switch to an undetectable, but unsafe, additive.
    4. The FDA’s incompetent investigations of 1983-84 complaints alleging that Oleum 320/IDEA was DEPC.
    5. Kohlbach’s untrustworthy statement, in 1987, that natamycin and glucose oxydase/catalase were the active ingredients in Oleum 320/IDEA.
      1. “Mr. Groner may have been coached…by Fred Kohlbach.”
      2. Kohlbach’s October 1987 Telex.
      3. The October 1987 Telex is inadmissible hearsay within hearsay on the issue of the identity of the active ingredients in Oleum 320/IDEA.
    6. The FDA’s incompetent investigation of a 1988 complaint regarding Oleum 320/IDEA.
  4. FDA Proceedings post-February 1989.
    1. The May-June 1989 amnesty meetings.
    2. August 1989-August 1990: The grand jury investigation initiated by the United States Attorney for the Northern District of Illinois.
    3. August 1990-June 1991: Grove Fresh’s challenge to Everfresh’s amnesty, and its investigation of Oleum 320/IDEA.
      1. Offensive collateral estoppel: Grove Fresh’s incentive to challenge Everfresh’s amnesty.
      2. The fraud alleged in the 90c5009 complaint.
      3. The grand jury subpoena for the 90c5009 complaint.
      4. Grove Fresh’s investigation of Oleum 320/IDEA.
      5. Labatt’s fraudulent concealment of its subsidiaries’ use of Oleum 320/IDEA.
    4. The March 1991 seizure and recall of Peninsular’s orange juice.
    5. October 1991: U.S. Attorney Foreman’s unwillingness either to investigate Labatt, Everfresh, Holiday Juice, and American Citrus or to cede jurisdiction to another prosecutor.
      1. Foreman’s lack of interest in the orange juice investigation.
      2. Foreman’s refusal to cede jurisdiction.
    6. February 1992: U.S. Attorney Foreman ’s indifference to evidence that Labatt had deceived the FDA regarding the unsafe additive.
    7. The government’s failure to investigate the active ingredients in Oleum 320/IDEA.
    8. The criminal case in the Western District of Michigan (February-November 1993).
      1. The Department of Justice’s conclusion that Labatt was cooperating with the investigation.
      2. The July 1993 findings regarding consumer fraud.
      3. The government’s questionable declaration that natamycin and glucose oxidase/catalase were, in fact, the active ingredients in Oleum 320/IDEA.
      4. The October 1993 evidence.
        1. Bechtel’s declaration.
        2. Moser’s perjured declaration.
        3. Marshall’s declaration and proffer.
      5. The significance of the government’s evidence regarding the civil conspiracy claim.
      6. The relevance of Moser’s perjured testimony to the conspiracy claim.

I. Introduction. 

Independent federal agencies, such as the Securities and Exchange Commission, hire their own lawyers and set their own enforcement standards and priorities.

The Food and Drug Administration is not an independent agency; it is a subdivision of the Department of Health and Human Services (HHS). Congress has parceled out FDA’s legal services to three different sets of lawyers, each with its own distinct priorities:

Sometimes, this hodgepodge of legal services can undercut the FDA’s missions to enforce the food purity laws fairly and efficiently, and to reassure the public that the food supply is safe.  The FDA’s investigations of the orange juice industry illustrate how this can occur.

Over an eight-year period the FDA investigated six different orange juice firms. Five were similarly situated, in that they all used the same unsafe additive, imported from Europe under false pretenses, but only two of the five were prosecuted. Lost in the shuffle was an allegation that the active ingredient in the unsafe additive may have been diethylpyrocarbonate (“DEPC”), a substance banned in 1971 as being a carcinogenic agent. See §II, below.

Sections A-C of this Introduction present an overview of these investigations. Sections II through IV give the details.

A. The orange juice investigations.

Between 1986 and 1993, the FDA investigated six Midwest juice processors for making and selling adulterated orange juice products falsely labeled as 100% pure orange juice:

Targets 1, 5 and 6 were the subjects of investigations initiated by the FDA, in accordance with FDA priorities. These investigations resulted in two sets of indictments—a July 1989 indictment, in Chicago, of three executives formerly employed by Target 1; and a February 1993 indictment, in Grand Rapids, Michigan, of Targets 5 and 6, along with eight individuals employed by those firms, plus a ninth who supplied both firms with an unsafe additive.

Of the 14 defendants indicted in the two cases, 13 entered guilty pleas. The one exception was Target 6, which was dismissed from the 1993 case because it had gone out of business.

Targets 2, 3 and 4 were the subject of an investigation initiated by the Chicago United States Attorney, Anton Valukas, in accordance with his priorities. Valukas left office before the investigation had made much headway. His successor, Fred Foreman, brought a new set of priorities to the office; the orange juice investigation was not high on his list.

According to the FDA, investigating Targets 2, 3, and 4 was high on its list of priorities. See §IV-E-2, below. Indeed, the FDA wanted to consolidate the investigation of Targets 2, 3 and 4 with the then pending investigations of Targets 5 and 6 because of a fact pattern common to all five firms:

Nevertheless, Chicago U.S. Attorney Foreman declined to complete the investigation of Targets 2, 3 and 4; he also refused to cede jurisdiction over that investigation to his counterpart in Grand Rapids, who was investigating Targets 5 and 6. As a result, only two of the five firms that had used the unsafe additive were indicted—the two that were the subject of the Grand Rapids investigation. See §IV-H, below.

U.S. Attorney Foreman has not publicly explained his reasons for ignoring the FDA’s interest in prosecuting Targets 1, 2 and 3. Presumably he communicated his reasons to the FDA and noted them “in the office files.” See U.S. Attorney's Manual §9.27.270.  

B. The decision not to prosecute the most egregious offender—Everfresh.

The users of the unsafe additive who were not indicted included the most egregious offender of the lot—Everfresh Juice Co.:

According to Jay Bratt, the trial attorney in the DOJ’s Office of Consumer Litigation[1] who was lead prosecutor in the Grand Rapids case, Everfresh was not indicted because its parent corporation (John Labatt, Ltd.) had provided the government with valuable cooperation. See §IV-H-1, below.

Bratt’s assessment of Labatt’s cooperation is inconsistent with two aggravating factors that showed obstruction by Labatt, not cooperation:

The FDA agents who investigated Everfresh were well aware of these aggravating factors, as were the FDA lawyers who were supervising them. Presumably, they shared that information with Bratt. If so, the public record does not explain why Bratt did not consider those factors when he assessed whether Labatt had cooperated with investigators.

In any event, four months after Bratt praised Labatt for its cooperation, Labatt suborned a declaration under penalty of perjury that falsely placed Everfresh’s use of the unsafe additive beyond the statute of limitations for criminal prosecution. See §IV-H-5, below.

C. The cronyism factor.

The lawyers representing Labatt and its orange juice subsidiaries included Joseph Duffy and David Stetler, former high-ranking officials in the Chicago U. S. Attorney’s Office.

Duffy was First Assistant U.S. Attorney from 1987-89, before joining Schiff Hardin & Waite as a partner. Stetler served in that Office as Chief of the Criminal Division (1985-86) and Chief of Criminal Receiving and Appellate Division (1986-88) before joining McDermott Will & Emery as a partner.

Duffy and Stetler’s relationships with former DOJ colleagues may explain why prosecutors so credulously concluded that Labatt had cooperated with the government when the evidence indicated otherwise.

II. The 1971 ban on DEPC. 

DEPC is an anti-microbial agent. The action of DEPC in fruit juices is analogous to heat treatment, but without the destructive effect that heat has on the flavor and nutritional value of juices. Fruit juices treated with DEPC can have a superior flavor and are generally indistinguishable from the natural products. Uncontested Facts ¶¶136-142.

When DEPC is added to certain types of beverages, it hydrolyzes—that is, it breaks down chemically into its constituent compounds within 24 hours, and it is no longer detectable as DEPC. Originally, this quality was thought to be a positive one. During the 1960s, the FDA authorized the use of DEPC as a fermentation inhibitor in wine, malt beverages, soft drinks, and fruit-based beverages (but not pure juices) Uncontested Facts ¶¶137, 140.

By 1972, however, studies showed that DEPC was actually a serious health hazard in orange juice and other beverages. These studies showed that when DEPC breaks down into its constituent compounds, the compounds are capable of combining with other ingredients in orange juice to form a by-product (urethane) that is a recognized carcinogen. Uncontested Facts ¶144. On the basis of these studies, the FDA in 1972 revoked the regulation authorizing the use of DEPC. 37 Fed.Reg. 3060, 15,426 (1972), codified at 21 C.F.R. §189.140 (1990).

As of 1989, when the Grove Fresh litigation began, DEPC was one of only 13 substances that had been banned from use in human food because of a determination that they present a potential risk to the public health. See 21 C.F.R. §189.110-.I91 (1990).

III. FDA proceedings prior to Grove Fresh’s February 1989 lawsuits. 

A. The economic constraints on FDA enforcement. 

The FDA has a mandate to “ensure the accuracy and safety of approximately 25% of all consumer products in the market” McFarland, Insufficient FDA Resources: Leveling the Playing Field and Reducing Fraud by Altering Incentives, p. 8 (2000).

Since the early days of the Carter Administration, however, there has been an ever-widening gap between that responsibility and the resources available to the agency. This disparity has forced the FDA to prioritize its enforcement objectives. For the last 33 years “health hazards, filth, and nutrition” have been the agency’s highest priorities; food economics and food standards have been its lowest. Id., p. 9.

The Edwards Commission, which reviewed the FDA’s performance during the 1980s, characterized the condition of the agency’s laboratories as “abysmal—overcrowded, poorly maintained, hazardous and inefficient.  Much of their scientific equipment is obsolete and technologically inadequate.” Pear, “Panel Calls Federal Drug Agency Unable to Cope with Rising Tasks,” New York Times (4/11/91). 

For a more detailed discussion of these issues, see The Economics of Food Purity Laws.

B. The economics behind the 1977 decision not to prosecute Ever Fresh for using preservatives.

In 1976-77 the FDA investigated Ever Fresh[3] and found that its orange juice products contained two preservatives—potassium sorbate and sodium benzoate. Uncontested Facts ¶¶44-45. These preservatives are generally recognized as safe (GRAS), but they are not permitted by the standard of identity for 100% orange juice from concentrate.

Citing Ever Fresh’s “flagrant and continuing disregard for the requirements of the law and regulations,” the FDA asked the Justice Department to prosecute Ever Fresh for felony violations of the Food, Drug and Cosmetic Act. Uncontested Facts ¶48. The agency argued for criminal sanctions because a civil action would not accomplish a significant seizure of misbranded juice, and an injunction “would be very difficult and costly to monitor.”  Criminal prosecution would “serve as a deterrent [to Ever Fresh and] also to the industry at large.”

The Justice Department declined to prosecute, however, on the ground that the only injury was economic, since the preservatives in question did not present any danger to the public health or safety. Uncontested Facts ¶48.

C. Ever Fresh’s switch to an undetectable, but unsafe, additive. 

The budget-driven decision not to prosecute Ever Fresh had an unintended consequence—Ever Fresh switched from a preservative that was unlawful, but GRAS, to a preservative that was undetectable, but also unsafe. The preservative went by various names, including Oleum 320/IDEA.

The vendor was IDEA, Ltd., later known as Bio Trade Ltd., a Liechtenstein entity controlled by Friedrich Kohlbach, a German national. Uncontested Facts ¶¶167, 169;Moser Declaration ¶¶4-11.

Kohlbach falsely invoiced the preservative as a “CIP [clean in place] Cleansing and Aseptisizing Compound.” Branding the product as Oleum 320/IDEA facilitated this false representation—oleum is the commercial name for fuming sulfuric acid, an oily liquid used to manufacture detergents, among other things.

Since the information on invoices is used to prepare declaration forms for U.S. Bureau of Customs, the false statement that Oleum 320/IDEA was a CIP compound placed the product under the jurisdiction of the EPA.[4] For years, EPA accepted the statement as true and regularly admitted Oleum 320/IDEA into the United States without asking for a particularized statement of the active and inert ingredients in the product. But see §E, below.

The identity of the active ingredient in Oleum 320/IDEA was never firmly established. See §§IV-G, H-3, below. There is circumstantial evidence, however, that the active ingredient may have been DEPC. See pp. 14-18 of Grove Fresh's Memorandum in Support of Motion to Overrule Objections to Time Period.

Whatever the active ingredient may have been, it was unsafe as a matter of law, since it wasn’t approved for use as an additive to orange juice in accordance with the procedures prescribed by 21 U.S.C. §348(b).

D. The FDA’s incompetent investigations of 1983-84 complaints alleging that Oleum 320/IDEA was DEPC.

In 1983-84, the FDA received a series of anonymous letters alleging, accurately, that Ever Fresh was importing a cold-fill sterilizer from Kohlbach, adding the sterilizer to its orange juice, and falsely declaring to the Bureau of Customs that the sterilizer was a sanitizing agent. The letters alleged that the sterilizer was  DEPC.

In response, the FDA collected retail samples of Ever Fresh orange juice, intending to test them for urethane, which is the carcinogen that is formed in orange juice after DEPC decomposes. 

The FDA suspended its investigation in December 1983 because it was uncertain of the method for testing whether orange juice contains urethane. Uncontested Facts ¶¶58-59; 170-73 However, this method had been available since at least 1971, when Swedish scientists performed the experiments that showed the presence of urethane in orange juice treated with DEPC.  Uncontested Facts ¶¶144-45.

The FDA’s ignorance of this method illustrated what the Edwards Commission characterized as the “abysmal” quality of the FDA’s laboratories.

E. Kohlbach’s untrustworthy statement, in 1987, that natamycin and glucose oxydase/catalase were the active ingredients in Oleum 320/IDEA.

Alan Groner was one of the import brokers who handled Oleum 320/IDEA. In 1987 the EPA asked him for more specific information about the active ingredient in Oleum 320/IDEA. Groner eventually sent the EPA a letter (a copy of which we do not have) declaring that natamycin[5] and glucose oxydase/catalase[6] were the active ingredients in Oleum 320/IDEA.

According to James Marshall, Groner sent the letter after being “coached” by Kohlbach. (§1, below.) The coaching included a telex (§2, below) that would be inadmissible in evidence in any proceeding where the government had the burden of proving the precise identity of the ingredients in Oleum 320/IDEA. (§3, below).

1. “Mr. Groner may have been coached…by Fred Kohlbach.”

In a 1992 Proffer (pp.9-10) to the DOJ and FDA, Marshall gave this account of how Groner handled the EPA’s query:

When the EPA/Customs problem with the Kohlbach preservative came up in 1987/1988, Julius Groner knew it was a sensitive subject and that he had to quash it. Mr. Groner knew from the outset that the Kohlbach preservative was being imported under a false invoice. When Mr. Marshall heard of the importation problem with the preservative in 1987, he told Alan or Julius Groner that they had better get hold of Mr. Kohlbach right away and get it straightened out. Because of the turmoil over the product, Mr. Marshall was concerned that there would be a problem for the company if they didn't respond quickly. Groner was to get the information from Fred Kohlbach, but Mr. Marshall may have told him the Kohlbach product was being used as a food preservative. Julius Groner was aware that the product imported by Home Juice as a cleanser was actually a food preservative. From the tone of Mr. Marshall's April 1, 1988 letter to Mr. Kohlbach, Mr. Marshall recalls that he had a discussion with Julius Groner on how to declare the product.

Julius Groner and Mr. Marshall had discussions about what should go in Julius Groner's letter to U.S. Customs concerning the nature of the product, but Mr. Marshall did not coach Mr. Groner on the contents of his letter. Mr. Groner may have been coached on the contents of the letter by Fred Kohlbach. (emphasis added)

2. Kohlbach’s October 1987 Telex.

Kohlbach’s coaching included a telex he sent to Groner dated October 15, 1987 (October 1987 Telex).This telex was the source for Groner’s declaration to the EPA that natamycin and glucose oxydase/catalase were the active ingredients in Oleum 320/IDEA.

The October 1987 Telex included three disclaimers:

If Kohlbach were called to the witness stand and repeated these disclaimers under oath, he would be disqualified from testifying to the identity of the ingredients in Oleum 320/IDEA, on the ground that he lacked the requisite personal knowledge.

3. The October 1987 Telex is inadmissible hearsay within hearsay on the issue of the identity of the active ingredients in Oleum 320/IDEA.

In any civil or criminal proceeding in which the government had the burden of proof, the October 1987 Telex would inadmissible hearsay within hearsay regarding the identity of the active ingredients in Oleum 320/IDEA

“’Hearsay’ is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.” Fed. R. Evid. 801(c). The October 1987 Telex is hearsay within hearsay because the statement about ingredients is based, not on Kohlbach’s personal knowledge, but on what the manufacturer allegedly told him (“according to the manufacturer”).

In order to be admissible, each part of the combined statement—the manufacturer’s statement to Kohlbach, and Kohlbach’s report of that statement in the October 1987 Telex —must conform to an exception to the hearsay rule. Fed. R. Evid. 805. The manufacturer’s alleged statement to Kohlbach does not fit any exception, and for that reason alone the October 1987 Telex would be inadmissible to prove that natamycin and glucose oxydase/catalase were the active ingredients in Oleum 320/IDEA.

Even if the manufacturer’s statement did fit an exception, the October 1987 Telex would be inadmissible because the “circumstances of [its] preparation indicate lack of trustworthiness.” Fed. R. Evid. 803(6).[7] The telex was untrustworthy because Kohlbach created it for an unlawful purpose, namely, to prolong the scheme whereby he and Groner deceived the EPA and the Bureau of Customs by falsely declaring that Oleum 320/IDEA was a sanitizing solution, when, in fact, both they both knew that Oleum 320/IDEA was an unsafe food additive subject to the jurisdiction of the FDA. See Hoffman v. Palmer, 129 F.2d 976, 991 (2d Cir. 1942), aff’d, 318 U.S. 109 (1943), excluding an accident report by a since deceased engineer, offered by defendant railroad trustees in a grade crossing collision case, on the ground that the engineer’s statement was “dripping with motivations to misrepresent.”

F. The FDA’s incompetent investigation of a 1988 complaint regarding Oleum 320/IDEA.

On October 29, 1988, Everfresh fired Duane Bosch. Before he was fired, he obtained several samples of Oleum 320/IDEA that he poured into ten-ounce glass containers and then stored in his home refrigerator. Uncontested Facts ¶174.

On November 21, 1988, Bosch went to the FDA District Office in Detroit and complained that he had been fired for questioning the legality of adding Oleum 320/IDEA to orange juice. Uncontested Facts ¶176. Eight days later he delivered a sample of the product to that FDA office; he also wrote and signed an affidavit attesting to the basic facts. Uncontested Facts ¶187-88.

When DEPC is exposed to air—as it was when Bosch created the sample he later delivered to the FDA—it breaks down into its constituent compounds within two weeks. Uncontested Facts ¶¶ 189. Bosch delivered his sample to the FDA four weeks after he was fired; by then the DEPC in the sample, if any, would already have broken down into its constituent compounds. Uncontested Facts ¶190.

The FDA waited four months before testing Bosch’s sample for DEPC.  The tests were inconclusive. Uncontested Facts ¶188.

The FDA did not test the sample for the presence of DEPC’s constituent compounds. The failure to test for these compounds further illustrated the “abysmal…obsolete and technologically inadequate” condition of the FDA’s laboratories.

IV. FDA Proceedings post-February 1989.

A. The May-June 1989 amnesty meetings.

Grove Fresh filed its first round of lawsuits in February 1989. The defendants included Everfresh Juice Co. (89c1113); Flavor Fresh Foods Corp. (89c1114); and American Citrus Products Corp. (89c1117). McDermott Will & Emery represented both Everfresh and Flavor Fresh, despite the incurable conflict of interest inherent in representing both firms simultaneously. See Conflicts of Interest §IV.

The Detroit District Office completed its analysis of Bosch’s sample on April 12, 1989. Uncontested Facts ¶188.  Three weeks later, McDermott asked FDA’s national headquarters—not the Detroit District Office—for a meeting to discuss amnesty. The first meeting took place the next day, May 5. A follow-up meeting took place on June 21. As a result of these meetings Labatt and its subsidiaries received an amnesty for all prior violations of the food purity laws.

FDA’s national leadership granted the amnesty without consulting the Detroit District Office, which had jurisdiction over Everfresh’s operations in Michigan and periodically inspected the Everfresh plant. As a result, Labatt and Everfresh received amnesty without ever having to explain the troubling facts in the records of the Detroit District Office, namely:

If the national leadership had informed itself of these prior complaints, asked about them, and received truthful answers, the FDA could have learned about the scheme for importing and using the unsafe additive in May 1989, 22 months earlier than it ultimately did. See §D, below.

B. August 1989-August 1990: The grand jury investigation initiated by the United States Attorney for the Northern District of Illinois. 

On July 26, 1989, after a three-year investigation led by FDA agent Jim Mundo, a federal grand jury in Chicago indicted Ed Boden and two other former executives of Bodine’s, Inc. for making and selling misbranded orange juice products from 1978 to 1985.

On August 21, 1989, CBS Morning News broadcast a report about the Boden indictment and also about the Grove Fresh litigation.  The next day, the Chicago Sun Times published a story linking one of the defendants in the Grove Fresh litigation (Olympic Gold Juice Co.) to Boden.

A day or two after the Chicago Sun Times story, Anton Valukas, the United States Attorney who oversaw the grand jury that had indicted Boden, caused that same grand jury to subpoena Grove Fresh for the results of the laboratory tests underlying its allegations that the defendants’ orange juice products were falsely labeled as “100% pure.”

Valukas acted at his own initiative, not at the request of the FDA, when he asked the grand jury to subpoena the defendants in the Grove Fresh litigation. Indeed, the subpoena for Everfresh’s records was inconsistent with the amnesty FDA’s national leadership had granted just a few months earlier. McDermott Will & Emery speedily reminded the U.S. Attorney’s Office of that amnesty; as a result, Everfresh ceased to be a subject of the investigation.

The investigation of the other defendants stalled in 1990, when Valukas resigned as U.S. Attorney and returned to private practice, as did the Assistant United States Attorney (AUSA) whom he had assigned to lead the investigation.

In August 1990 Valukas was succeeded by Fred Foreman, a state prosecutor from Lake County, Illinois. At his first press conference Foreman identified street gangs as his top priority, declaring, “We will put an end to that terrorism.” J. O’Brien, “New U.S. Attorney Foreman Targets Gangs,” Chicago Tribune (8/28/90).

Foreman assigned a relatively junior AUSA (Stephen Heinze) to the orange juice investigation. The FDA assigned agents Jim Mundo and George Bailey.

C. August 1990-June 1991: Grove Fresh’s challenge to Everfresh’s amnesty, and its investigation of Oleum 320/IDEA.

1. Offensive collateral estoppel: Grove Fresh’s incentive to challenge Everfresh’s amnesty.

In Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979), the Supreme Court held that a litigant who was not a party to a prior judgment may nevertheless use that judgment “offensively” to prevent a defendant from relitigating issues resolved in the earlier proceeding.

This litigation rule, known as offensive collateral estoppel, gave Grove Fresh a cost-saving incentive to show the FDA that Everfresh’s amnesty was fraudulently induced. If the FDA revoked the amnesty and then prosecuted and convicted Everfresh on criminal charges, Grove Fresh could, under Parklane Hosiery Co., use the criminal conviction to establish liability in its civil case against Everfresh.

Establishing Everfresh’s liability through offensive collateral estoppel would save Grove Fresh the substantial costs required to prove liability in a jury trial.

2. The fraud alleged in the 90c5009 complaint.

In August 1990 Grove Fresh filed the 90c5009 Complaint. Paragraphs 9-15 of that complaint alleged that Labatt had fraudulently induced the FDA to grant Labatt and its orange juice subsidiaries amnesty by presenting a false narrative regarding Labatt’s knowledge of Everfresh’s illegal practices. See also Analytical and Procedural History of the Grove Fresh Litigation §§XI-Q, XVI-D-2.

The 90c5009 complaint made no allegations about the unsafe additive; Grove Fresh did not yet know about Oleum 320/IDEA because Labatt’s lawyers had suppressed all evidence of the unsafe additive from its responses to Grove Fresh’s discovery requests. See Analytical and Procedural History of the Grove Fresh Litigation §§XI-E-2, N, Q; XIV-A, J, K; XV-A, C.

3. The grand jury subpoena for the 90c5009 complaint.

In September 1990 Heinze, at the request of the agents Mundo and Bailey, subpoenaed the 90c5009 Complaint. Despite repeated requests from the FDA agents for further investigation, Heinze took no further action over the next ten months. See §C-5, below.

4. Grove Fresh’s investigation of Oleum 320/IDEA.

Grove Fresh first learned about the unsafe additive in October 1990, when it received a tip that an ex-Everfresh employee (Bosch) had complained to the FDA’s Detroit District Office that Everfresh had once used an illegal preservative.

Over the next eight months Grove Fresh, using FOIA requests, subpoenas, and a private investigator based in England, gathered and analyzed information relating to Kohlbach, Bio Trade, Ltd., and Oleum 320/IDEA. The information came from regulatory agencies in the United States, Switzerland, and Germany, and from individual witnesses, including Duane Bosch and David Murray, Labatt’s Director of Technical Services. The gist of what we learned was as follows:

In February 1989 Labatt’s general counsel learned about Bosch’s whistleblower complaint against Everfresh. Under United States v. Park, 421 U.S. 658, 672 (1975), Labatt had “a positive duty to seek out and remedy [the] violations” implicated by Bosch’s allegations, so general counsel hired McDermott Will & Emery for “advice on how this matter should be handled, including what information should be conveyed to the FDA.” (Appler Affidavit¶3.)

Following McDermott Will & Emery’s advice, David Murray, Labatt’s Director of Technical Services, conducted an internal audit of the operations at both Everfresh and Holiday Juice, Labatt’s other orange juice subsidiary. According to Murray’s testimony about the audit:

  • Both Everfresh and Holiday Juice had used Oleum 320/IDEA.
  • A long-time employee at Holiday Juice told the auditors that he had heard that Oleum 320/IDEA contained DEPC.
  • No employee interviewed during the audit ever identified natamycin as the active ingredient in Oleum 320/IDEA.

(1990 Murray Dep. 97-98; 1992 Murray Dep. 110-12; 198.) See §IV-A, below.

Murray summarized the results of the audit in a written report submitted to McDermott on February 21-22, 1989. Attached to the report were business records documenting an October-November 1987 transaction whereby Everfresh purchased 10 jerry cans of Oleum 320/IDEA for $39,682.50. Follow-up investigations turned up records of at least six separate transactions between March 1987 and July 1988 whereby Everfresh purchased Oleum 320/IDEA and paid a total of $257,075.50.

Labatt and McDermott Will & Emery completed their initial investigation of the orange juice subsidiaries by mid-March 1989, but Labatt did not remedy the violations implicated by Bosch’s allegations—that is, Labatt did not initiate a recall of products tainted by the unsafe additive. Nor did Labatt inform the FDA about the facts that it had learned regarding the scheme to import and use Oleum 320/IDEA.

5. Labatt’s fraudulent concealment of its subsidiaries’ use of Oleum 320/IDEA.

Labatt had no contact with the FDA until May 4, when it arranged for a meeting on amnesty. By then, two important events had occurred:

As noted earlier (§A, above), Labatt obtained amnesty after meeting with the FDA on May 5 and June 21. At these meetings Labatt told the FDA about Everfresh’s economic adulteration—but not about Everfresh’s ten-year history of using Oleum 320/IDEA

In about June 1991 I briefed the FDA agents assigned to that agency’s investigation (Jim Mundo and George Bailey) on the results of Grove Fresh’s investigation. In July 1991 FDA agent Mundo persuaded AUSA Heinze to subpoena the evidence Grove Fresh had gathered regarding Kohlbach, Bio Trade, and the unsafe additive.

After reviewing the evidence, Mundo asked Heinze to accelerate the pace of the investigation, but Heinze declined, citing his assignment to a higher priority investigation targeting a street gang.

D. The March 1991 seizure and recall of Peninsular’s orange juice.

In the meanwhile, in February 1991 an FDA agent, during a routine inspection of juice operations at Peninsular Products Co., of Lansing, Michigan, discovered that Peninsular was adding pulp wash to a batch of chilled orange juice, in violation of the standard of identity for pure orange juice. 

This discovery caused the FDA to open a criminal investigation in Grand Rapids, in conjunction with the U.S. Attorney’s Office for the Western District of Michigan. The U.S. Attorney’s Office obtained a search warrant for Peninsular’s books and records. The records disclosed that Peninsular was treating all of its chilled juice products with natamycin (pimaricin) purchased in the United States.

The records also showed that in prior years, Peninsular had used Oleum 320/IDEA as a preservative. Peninsular had switched to natamycin (pimaricin) because Oleum 320/IDEA was too expensive. See 9/10/86 letter from Marshall to Kohlbach.

Peninsular was a co-packer for Flavor Fresh Foods Corp., a defendant in 89c1114. Peninsular’s books and records showed that Flavor Fresh-branded products were among those treated currently treated with natamycin and, in prior years, with Oleum 320/IDEA.

On March 22, Peninsular initiated a recall of all juice products falsely labeled as “100% pure.”  On March 27, 28 and 29, Peninsular destroyed about 94,400 pounds of tainted products under the supervision of the Michigan Department of Agriculture.  Shortly afterwards, Peninsular ceased operations.  

E. October 1991: U.S. Attorney Foreman’s unwillingness either to investigate Labatt, Everfresh, Holiday Juice, and American Citrus or to cede jurisdiction to another prosecutor.  

1. Foreman’s lack of interest in the orange juice investigation.

As noted above in §§C-2-5, by July 1991 I had provided the FDA agents in Chicago with evidence that Labatt had obstructed a timely investigation of the unsafe additive. Nevertheless, AUSA Heinze declined to press forward with the investigation, on the ground that U.S. Attorney Foreman had other, higher, priorities.

2. Foreman’s refusal to cede jurisdiction.

On October 1, 1991, I sent a letter to FDA Commissioner David Kessler regarding the government’s failure to act on evidence that certain orange juice processors had used an unsafe additive. I asked the Commissioner to “examine this investigation and determine for yourself why the wrongdoers are not being prosecuted.”  

Several weeks passed without a response, so I called Ken Baumgartner, the FDA lawyer in Washington, D.C., who was supervising the orange juice investigations in Chicago and Grand Rapids. He told me the following:

A few days after I spoke to Baumgarten I received a letter from Margaret Jane Porter, Chief Counsel for the FDA. The gist of her reply was that Foreman, not the FDA, controlled the decision whether to prosecute the Labatt subsidiaries and American Citrus:

The FDA and my office have expended considerable resources on the investigation and would like to see it concluded as soon as possible. However, since the investigation is being handled by the United States Attorney, that office must ultimately decide the priority of this matter relative to other pressing cases. As I stated, we are actively working with the Office of the United States Attorney and will encourage that office to conclude the investigation as soon as feasible. (emphasis added) §

Foreman’s unwillingness to cede jurisdiction appears to have violated U.S. Attorneys' Manual §9.27.240, Comment 2, which suggest that jurisdiction should be ceded when the other prosecutor has the intent to proceed and “has the prosecutorial and judicial resources necessary to undertake prosecution promptly and effectively.”

F. February 1992: U.S. Attorney Foreman ’s indifference to evidence that Labatt had deceived the FDA regarding the unsafe additive.

On February 28, 1992, I sent a letter to Steven Heinze and his supervisor, Dean Polales. The letter concerned the Bio Trade Documents that had come to Labatt’s attention in February 1989, when it was auditing its orange juice subsidiaries. The letter made the point that Labatt and its lawyers knew about the unsafe additive when they met with the FDA in May-June 1989, but they had withheld that information from the government:

Neither Heinze nor Polales nor anyone else at the U.S. Attorney’s Office ever responded to the letter.

G. The government’s failure to investigate the active ingredients in Oleum 320/IDEA.

As of July 1991, there were at least three ways in which the government might have identified the active ingredients in Oleum 320/IDEA:

So far as can be discerned from the public record, the government did none of these things. Instead, in October 1993, the government used a technical rule of evidence to give its blessing, in a footnote, to the unreliable statements in Kohlbach’s October 1987 Telex to Groner. See §III-E-2, above, and §H-3, below.

H. The criminal case in the Western District of Michigan (February-November 1993).

On February 18, 1993—the day before the 90c5009 defendants and Grove Fresh made an oral settlement agreement— a federal grand jury in Michigan issued a 33-count indictment charging Flavor Fresh, Peninsular, Marshall, Kohlbach, and seven other individuals with a scheme to sell consumers adulterated orange juice. United States v. Peninsular Products Co., et al., 93 CR 21 (W.D. Mich.). 

The indictment accused the defendants of using large amounts of low-cost inferior ingredients like sugar, citric acid and amino acids and falsely labeling the product as orange juice from concentrate.  The indictment also alleged a scheme to extend shelf life using Oleum 320/IDEA and, later, natamycin.  The indictment covered juices that were distributed under at least 23 different labels nationwide in 1979-91.

Flavor Fresh pleaded guilty to 32 counts and was fined $320,000. Marshall pleaded guilty to two counts and was sentenced to 37 months in prison and fined $125,000.  His partner, James Benton, pleaded guilty to one count and was sentenced to 30 months in prison and fined $25,000. 

The charges against Peninsular were dropped because the company was in a Chapter 7 bankruptcy. 

1. The Department of Justice’s conclusion that Labatt was cooperating with the investigation.

In June 1993, or thereabouts, I received a telephone call from Jay Bratt, the Justice Department lawyer who was the lead prosecutor in the related criminal case.  Bratt asked if I would accept service of a “friendly” subpoena for Mr. Troy; he wanted Troy to testify for the government at a sentencing scheduled for July 9.  See §2, below.

I told Bratt that Troy was not inclined to cooperate with the government; he was dismayed and irritated by the government’s decision to indict the “small fish” (Flavor Fresh and its principals), but to give a pass to the “big fish,” i.e., Labatt and its Everfresh subsidiaries. 

Bratt told me that Labatt and its lawyers had been cooperating with the government and that they had been “extremely helpful.”  He confirmed that the government had no plans to move against Labatt or its subsidiaries.  I reported this information to Troy; he declined to cooperate with the government. 

Four months later, an Everfresh employee (Bruno Moser) gave the government a perjured declaration that falsely exculpated Labatt for Everfresh’s use of Oleum 320/IDEA.  See §H-3-b, below. 

2. The July 1993 findings regarding consumer fraud.

The first sentencing hearing in the related criminal case took place on July 9, 1993, in the case against Don Wagoner, Peninsular’s chief executive officer. 

Under the federal sentencing guidelines the government was required to prove the amount of damages suffered by consumers who purchased misbranded orange juice products made by Flavor Fresh and its co-packer, Peninsular.  After an evidentiary hearing the sentencing court made the following findings:

(7/9/93 Tr. of Proceedings, pp. 204-16, in United States v. Wagoner, 93 CR 19 (W.D. Mich.).  Based on these findings, the court sentenced Wagoner to five years in prison. (Wagoner’s sentence was later reduced to one year of probation and a $1,000 fine.)

Marshall was sentenced several months later, before a different judge.  At Marshall’s sentencing the government offered a more conservative measure of damages which supported a finding of fact that the damages to consumers arising out of the $151,000,000 in fraudulent sales were $10,500,000.  The judge made such a finding and on that basis, sentenced Marshall to three years in prison. 

Both the finding of $10,500,000 in consumer damages and the three-year sentence were affirmed on appeal.  United States v. Kohlbach, 38 F.3d 832, 839-42 (6th Cir. 1994). 

3. The government’s questionable declaration that natamycin and glucose oxidase/catalase were, in fact, the active ingredients in Oleum 320/IDEA.

As of October 1993, the government had no admissible evidence as to the exact identity of the active ingredients in Oleum 320/IDEA. Kohlbach’s October 1987 Telex to Groner was the only document purporting to identify those ingredients, but, as discussed above in §III-E-3, that document was inadmissible hearsay-within-hearsay on that issue.

Forensically speaking, the government’s inability to prove the identity of the active ingredients did not jeopardize its ability to prove hygienic adulteration. To sustain its burden of proof on that issue the government only had to prove two things:

Wayne Wagoner, among others, was competent to testify to both of these facts.

The October 1987 Telex was admissible to prove another issue, however—the scheme to import Oleum 320/IDEA under the false pretense that it was a sanitizing agent. On this issue, the October 1987 Telex was an admission by a party-opponent (Kohlbach). Fed. R. Evid. 801(d)(2)(A).  

All of the defendants entered guilty pleas, however, so the limited purpose for which the October 1987 Telex was admissible in evidence became irrelevant to the outcome.

These technical points of evidence nevertheless bear discussion because of a statement the government slipped into footnote 7 (at p. 7) of the Sentencing Memorandum that it filed on October 28, 1993. Without acknowledging the prior, unresolved allegations that Oleum 320/IDEA contained DEPC (see §§III-D, F; IV-C-4, above), the government sought to foreclose any debate over the active ingredients in Oleum 320/IDEA with this unqualified declaration:

During the course of its investigation, the government obtained a telex dated October 15, 1987, in which Kohlbach disclosed to a customs broker in Chicago that the enzyme glucose oxidase/catalase and the preservative natamycin were, at that time, the active ingredients in his product.

As explained above in §III-E-3, however, the October 1987 Telex was prepared in untrustworthy circumstances; it proves nothing other than Kohlbach’s and Groner’s intent to deceive the government.  

4. The October 1993 evidence. 

By October 1993 all of the individual defendants in the criminal case against Peninsular and Flavor Fresh had entered guilty pleas.  That month, as the New York Times and NBC’s Dateline newsmagazine were preparing stories on orange juice adulteration, the government filed papers on sentencing that included evidence that corroborated the complaint in 90c5009 in all of its essentials, except one—Labatt’s culpability. 

The corroborating evidence was in the form of (a) declarations under penalty of perjury by Joseph Beuchel, Bruno Moser, and James Marshall, and (b) an 18-page FDA memorandum summarizing 15 hours of meetings with James Marshall during which Marshall made a proffer of the testimony he would give if there were a trial.

On its face, the government’s evidence exculpated Labatt—but it did so through perjured testimony by Bruno Moser.

a. Bechtel’s declaration.

Joseph Beuchel holds an M.S. degree in Food Science from Michigan State University.  He worked at Ever Fresh as a Quality Control technician from 1973-78, when it was a wholly-owned subsidiary of Home Juice.  He worked at Peninsular from 1979-86.  In a declaration dated October 9, 1993, he testified as follows:

b. Moser’s perjured declaration.

Bruno Moser was born in Yugoslavia in 1919 and emigrated to the United States in 1954.  He worked at Ever Fresh from 1955 to some unspecified date in the early 1990s.  He started as a foreman on the production line and later became the lab technician checking the quality of reconstituted juice.

He testified truthfully as follows:

Moser’s perjured testimony came in the penultimate paragraph: “Everfresh used Kohlbach’s product from approximately 1980 through approximately 1986 when Labatts [sic] purchased Everfresh and we were directed to discontinue its use.” (¶12.)

The assertion that Everfresh discontinued using Kohlbach’s product in 1986 is false.  In 1987-88, Everfresh made at least six purchases of Oleum 320/IDEA for which it paid $257,155, and which it then added to products falsely labeled as “100% pure orange juice.”  Moreover, Bosch testified that in October 1988 he observed Moser add Kohlbach’s product to orange juice, and that he was fired for questioning the legality of doing so. 

c. Marshall’s declaration and proffer.

Marshall’s declaration and proffer are discussed in Marshall/Flavor Fresh.

4. The significance of the government’s evidence regarding the civil conspiracy claim.

A civil conspiracy is an agreement between two or more persons to commit an unlawful act.  A person may become a member of a conspiracy without knowing all of the details of the unlawful scheme and without knowing who all the members are. See generally Conspiracy, The 'Lectric Law Library.

The evidence presented during the sentencing phase of the criminal case against Peninsular, et al., established a conspiracy to violate the food purity laws through economic adulteration and through the use of Kohlbach’s unsafe additive:

6. The relevance of Moser’s perjured testimony to the conspiracy claim. 

Co-conspirators retain joint and several liability for all of the damages caused by the conspiracy unless they take affirmative steps to withdraw from the conspiracy.  United States v. Gonzalez, 797 F.2d 915 (10th Cir. 1986).  If ¶12 of Moser’s declaration were true, which it wasn’t, it would support claims that:

[1] Bratt currently serves as National Security Counselor to the Assistant Secretary of Homeland Security for U.S. Immigration and Customs Enforcement (ICE). According to the ICE website, “Mr. Bratt’s responsibilities include advising agency leadership on key legal issues related to national security matters within the ICE law enforcement portfolio.”

[2] The FDA does not have a formal amnesty program, see Fleder, A Voluntary Disclosure Program for the FDA—The Time Has Come, 54 F.D.L Jour. 389 (1999), but it does have a de facto policy of not requesting prosecution of companies that self-report violations of the Food, Drug and Cosmetic Act, as amended, 21 U.S.C. §301, et. seq., so long as the violations do not threaten public health or safety. For all practical purposes this policy was imposed on FDA by DOJ in the late 1970s, when DOJ decided not to prosecute food purity violations that create only economic harm unless there are aggravating circumstances. See §III-B, below.

[3] “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.”

[4] Under §13 of the Toxic Substances Control Act, 15 U.S.C. §2612, the EPA shares jurisdiction with the Bureau of Customs over products that treat “permanent or semi-permanent food contact surfaces (sanitizers).”

[5] Natamycin is a polyene antibiotic that kills yeast and mold, which are the two microorganisms that cause spoilage in orange juice. Natamycin is not approved for use in orange juice, but it is relatively harmless.

[6] Glucose oxydase/catalase is an enzyme system that, in orange juice, reduces the amount of orange juice present.

[7] Fed. R. Evid. 803(6) is the business record exception to the hearsay rule and provides as follows: “A memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinions,  or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the memorandum, report, record or data compilation,…unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness.”