United States v. Sanford Ltd.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES,
Plaintiff,
v. Criminal Case No. 11-cr-352 (BAH)
Judge Beryl A. Howell
SANFORD LTD. and
JAMES POGUE,
Defendants.
MEMORANDUM OPINION
Pending before the Court is Defendant Sanford Ltd.’s (“Sanford’s”) motion in limine to
exclude evidence regarding the alleged monetary proceeds obtained by Sanford as a result of the
offload of fish cargo from the fishing vessel San Nikunau. See Def.’s Mot. In Limine to Exclude
Evid. of Monetary Proceeds (“Def.’s Mot. In Limine”) at 1, ECF No. 143. To the extent that
Sanford merely argues that all evidence of monetary proceeds earned from the fishing activities
aboard the San Nikunau are either irrelevant under FED. R. EVID. 402 or unfairly prejudicial
under FED. R. EVID. 403, Sanford’s motion is denied for the reasons stated below. Indeed, if the
arguments presented by the parties for exclusion of alleged monetary proceeds were the only
pertinent issues affecting the admissibility of evidence regarding Sanford’s monetary proceeds,
this opinion would be simple and short.
Unfortunately, however, neither party has addressed certain critically important legal
issues that the Court must weigh in determining what evidence of monetary proceeds is either
permitted or required to be presented to the jury. Principally, the Court must consider the
interaction between the constitutional issues stemming from the Supreme Court’s recent decision
1
in Southern Union Co. v. United States, 132 S. Ct. 2344 (2012), and the appropriate definitions
of “gross gain” and “derive[d] . . . from” under the Alternative Fines Act, 18 U.S.C. § 3571(d) as
applied to this evidence in the context of the charges pending against the defendants. Thus, to
the extent that the government has proffered that it intends to admit evidence that Sanford’s
gross revenues of $24,045,930.79 over a period of approximately four years constitute a “gross
gain” to Sanford “derive[d] . . . from” the charged offenses, the Court is likewise not prepared to
admit that particular monetary figure for that purpose under either Rules 402 or 403 for the
reasons explained below.
I. BACKGROUND
This is a criminal case charging defendants Sanford and James Pogue with seven felony
counts under the Act to Prevent Pollution from Ships (“APPS”), 33 U.S.C §§ 1901 et seq. and
related criminal statutes. The superseding indictment charges the defendants with conspiracy, in
violation of 18 U.S.C. § 371; knowingly failing to maintain an accurate Oil Record Book
(“ORB”), in violation of 33 U.S.C. § 1908(a) and 18 U.S.C. § 2, and 33 C.F.R. § 151.25;
falsification of records, in violation of 18 U.S.C. §§ 1519 and 2; obstruction of justice, in
violation of 18 U.S.C. §§ 1505 and 2; and unlawful discharge of oil waste, in violation of 33
U.S.C. §§ 1907(a) and 1908(a), 18 U.S.C. § 2, and 33 C.F.R. § 151.10(b). See Superseding
Indictment at 7–18, ECF No. 22. These criminal charges stem from the defendants’ operation of
the fishing vessel San Nikunau in the South Pacific between March 2007 and July 2011. Id. at
2–3.
During that time period, the government charges that the defendants entered into a
conspiracy to fail to maintain the ORB as required by law, did fail to maintain the ORB, and
knowingly discharged machinery-space bilge waste overboard the vessel without first running
2
such waste through an Oily Water Separator (“OWS”). Id. at 7–18. Between March 2007 and
July 2011, the government alleges that Sanford earned $24,862,954.89 in gross revenues from
the offloading of fish cargo that was caught aboard the San Nikunau. Id. at 3. The superseding
indictment also contains a forfeiture allegation that seeks forfeiture of this amount as monies
“equal to property constituting, or derived from, proceeds obtained, directly or indirectly, as a
result of the offenses alleged in Counts One, Two, Four, and Seven.” Id. at 19.
The instant motion by Sanford to exclude evidence of monetary proceeds is not the first
defense motion challenging this evidence, and certain of the arguments raised in the defendant’s
prior motion are pertinent for consideration here. Specifically, on March 23, 2012, Sanford filed
a “Motion to Dismiss or in the Alternative to Strike as Surplusage the Forfeiture Claim.” See
Def. Sanford Ltd.’s Mot. to Dismiss or in the Alternative to Strike as Surplusage the Forfeiture
Claim (“Def.’s Mot. to Strike”), ECF No. 69. As noted, the forfeiture allegation seeks a
“judgment in favor of the United States of America for the sum of at least $24,862,954.89.”
Superseding Indictment at 19. The government’s claim for forfeiture appears to be based on the
following allegation in the superseding indictment:
Sanford Ltd. gained, during the time period relevant in this indictment, revenues
of $24,862,954.89 for the offload of fish cargo from the F/V San Nikunau in
American Samoa, even though the vessel was not in compliance with
international and United States law and therefore could have been prevented from
entering American Samoa and offloading fish cargo . . . all of which constitutes a
gain pursuant to the Alternative Fines Act, 18 U.S.C. § 3571, and is forfeitable
pursuant to 18 U.S.C. §§ 981(a)(1)(C) & 1956(c)(7)(E).
Id. at 3–4.
In Sanford’s March 23 motion, it argued that this allegation was “contrary to logic,
conflict[ed] with express Coast Guard policy regarding the basis for banning foreign-flag vessels
from United States ports, and is at odds with the practices of the Coast Guard in other APPS
investigations and prosecutions over the past 15 years.” Def.’s Mot. to Strike at 6. Specifically,
3
Sanford characterized as “illogical” the government’s contention that Sanford’s commercial
fishing revenues were “proceeds” of its recordkeeping violations because if the San Nikunau had
been barred from port even once, “the logical result would have been that remedial measures
would have been taken promptly to correct the deficiency to ensure the vessel’s future operations
in American Samoa were not again impeded.” Id. It also cited the Coast Guard’s CG-543 Policy
Letter 10-03, Banning of Foreign Vessels, which states that the Coast Guard will only ban
foreign-flagged vessels like the San Nikunau if it has been previously detained three times within
the prior twelve months for significant noncompliance with international safety or environmental
standards. Id. at 7. Thus, according to Sanford, “the revenues from the fish cargoes of the
Nikunau do not constitute the ‘proceeds’ of the alleged APPS offenses, so there is no . . . logical
nexus between the proof of the APPS offenses and the evidence of the fish cargo revenues over
the period of the indictment.” Id. at 12. Finally, in addition to disputing the nexus between the
charged offenses and the revenues from the San Nikunau’s commercial fishing activities,
Sanford argued that “even if the government were to prevail in its forfeiture claim in this case,
any forfeiture award would be for the net revenues from fish cargoes.” Id. at 13 (citing 18
U.S.C. § 981(a) (2)). After hearing argument on Sanford’s motion at the motions hearing on
April 20, 2012, the Court denied the motion and agreed with the government that arguments
pertaining to the appropriate amount of forfeiture were premature. Tr. of Mot. Hr’g at 57:6–
58:22 (Apr. 20, 2012). 1
1
Sanford asserts that “the jury will be required to consider separately the government’s forfeiture allegations.”
Reply to Gov’t’s Opp’n to Def. Sanford Ltd.’s Mot. In Limine (“Def.’s Reply Mem.”) at 5 n. 3, ECF No. 156. This
is contrary to the government’s position that “when the government only seeks forfeiture of a money judgment, as it
does in this matter, the determination of the amount of any money judgment is reserved for the Court.” Gov’t’s Pre-
Trial Mem. Regarding Forfeiture at 3, ECF No. 160. While Federal Rule of Criminal Procedure 32.2, which
governs criminal forfeiture procedures, states that when the government seeks forfeiture of “a personal money
judgment, the court must determine the amount of money that the defendant will be ordered to pay,” FED. R. CRIM.
P. 32.2(b)(1)(A), this Rule also provides that when “a party timely requests to have the jury determine forfeiture,”
the government must submit a Special Verdict Form “asking the jury to determine whether the government has
4
Sanford filed the motion in limine currently pending before the Court on June 20, 2012,
in which it sought to “to exclude from admission into evidence at trial evidence, including
testimony, regarding the alleged monetary proceeds obtained directly or indirectly as a result of
the offload of fish cargo from the fishing vessel San Nikunau.” Def.’s Mot. In Limine at 1.
Sanford’s primary argument in support of its motion is that admission of the amount of proceeds
would be either irrelevant under FED. R. EVID. 402 or unfairly prejudicial under FED. R. EVID.
403. See Def.’s Mem. in Support of Def.’s Mot. In Limine (“Def.’s Mem.”) at 3–16, ECF No.
143-1. The government, however, argues that evidence of monetary proceeds should be
admitted because it is relevant to (1) the defendants’ financial motive for committing the charged
offenses; and (2) determining the appropriate amount of “gross gain” that was “derive[d] . . .
from the offense,” which the government intends to seek as a measure of the appropriate criminal
fine to be assessed if the defendants are found guilty. See Gov’t Mem. in Opp’n to Def.
Sanford’s Mot. In Limine (“Gov’t Opp’n Mem.”) at 1–3 & n.1, ECF No. 147; 18 U.S.C.
§ 3571(d). 2
established the requisite nexus between the property and the offense committed by the defendant.” FED. R. CRIM. P.
32.2(b)(5)(B).
As an initial matter, several Circuits have recently held that FED. R. CRIM. P. 32.2(b)(5) does not apply to
money judgments. See United States v. Grose, 461 F. App’x 786, 806 (10th Cir. 2012); United States v. Gray, 443
F. App’x 515, 523 (11th Cir. 2011); United States v. Gregoire, 638 F.3d 962, 972 (8th Cir. 2011). Even assuming,
arguendo, that 32.2(b)(5) applies to the forfeiture money judgment sought in this case, the language of Rule 32.2
suggests that it is within the Court’s discretion to either submit the nexus question to the jury or determine the
question itself. See Sunrise Acad. v. United States, 791 F. Supp. 2d 200, 203 (D.D.C. 2011) (“[E]ither the court or
the jury must determine, based on the evidence . . . [the nexus question].” (emphasis added)). Compare FED. R.
CRIM. P. 32.2(b)(1)(A) (“[T]he court must determine whether the government has established the requisite
nexus . . . .”), with FED. R. CRIM. P. 32.2(b)(5) (requiring court to determine “whether either party requests that the
jury be retained to determine the forfeitability of specific property” and requiring government’s submission of
Special Verdict Form, but not requiring the nexus question to be found by the jury). In light of the fact that the jury
may have to determine whether any “gross gain” was “derive[d] . . . from” the charged offenses, as well as the
amount of that gain, the parties should be prepared to address before the close of the government’s case-in-chief
whether 32.2(b)(5) applies to money judgments and, if it does apply, whether the Court should exercise its discretion
to have the jury determine both the “gross gain” question as well as the nexus question under Rule 32.2.
2
Because Sanford paid a fee to a third-party company (TriMarine Singapore) for remitting payment to Sanford
for tuna deliveries, the amount being sought by the government as “gross gain” is $24,045,930.79. See Gov’t Opp.
Mem. at 1 n.1. For the remainder of this opinion, the Court will refer to $24,045,930.79 as Sanford’s “gross
5
II. DISCUSSION
A. Evidence of Monetary Proceeds Is Generally Admissible
Only relevant evidence is admissible. FED. R. EVID. 402. A trial court may prevent the
introduction of relevant evidence, however, “if its probative value is substantially outweighed by
a danger of . . . unfair prejudice, confusing the issues, misleading the jury, undue delay, waste of
time, or needlessly presenting cumulative evidence.” FED. R. EVID. 403. The term “unfair
prejudice” in this context means “an undue tendency to suggest decision on an improper basis,
commonly, though not necessarily, an emotional one.” Id. advisory committee’s note. “The trial
court has broad discretion to weigh the extent of potential prejudice against the probative force
of relevant evidence.” Fredrick v. District of Columbia, 254 F.3d 156, 159 (D.C. Cir. 2001).
Sanford argues that any evidence of monetary proceeds from the San Nikunau is either
irrelevant or unfairly prejudicial and should therefore be excluded. See Def.’s Mem. at 1. First,
the defendant contends that evidence of monetary proceeds is irrelevant under Fed. R. Evid. 402
“because the value of the proceeds of the sales is not an element of any of the offenses charged
in the Superseding Indictment.” Id. at 3. Second, echoing the same arguments put forth in
support of its March 23 “Motion to Dismiss or in the Alternative to Strike as Surplusage the
Forfeiture Claim,” Sanford argues that such evidence is not probative of the defendants’ motives
for committing the charged offenses because the Superseding Indictment “does not allege any
facts that support the argument that the making of false entries in the Oil Record Book (“ORB”)
aboard the Nikunau was motivated by or in any way connected to the proceeds from the
offloading of fish cargoes.” Id. at 9. Hence, Sanford argues, admission of monetary proceeds
revenues,” despite the fact that it does not include the $817,024.10 paid to TriMarine Singapore. The government
appears to acknowledge that some costs need to be deducted from Sanford’s gross revenues in calculating “gross
gain,” but the government does not explain why only this cost should be deducted from Sanford’s gross revenues
and no other costs of doing business.
6
evidence would “improper[ly] invit[e] . . . the jury to engage in rank speculation regarding
‘motive.’” Id. at 10. Furthermore, Sanford argues that any motive argument is “plainly
illogical” because the “allegations regarding the making of false entries in the ORB relate to an
incidental aspect of the operation of the engine room of the Nikunau.” Id.
1. Monetary Proceeds Are Generally Relevant to Motive
Taking the motive argument first, Sanford relies extensively on the Third Circuit’s
decision in United States v. Abrogar, 459 F.3d 430 (3d Cir. 2006), which involved similar
charges against a chief engineer for making false entries in the ORB to conceal illegal discharges
of oily bilge water into the ocean. See Def.’s Mem. at 10–11. The similarity between the cases
stops there, however. The issue in Abrogar was whether the district court had properly applied a
six-level sentencing enhancement, pursuant to § 2Q1.3 of the United States Sentencing
Guidelines, for repeated discharges of pollutants into the environment. See Abrogar, 459 F.3d at
431. The district court had imposed the six-level enhancement—even though the defendant had
been charged with ORB recordkeeping violations rather than actual illegal discharges—because
it found that the illegal discharges were “relevant conduct” for purposes of determining the total
offense level under the Guidelines. See id. at 433; see also U.S. SENTENCING GUIDELINES
MANUAL § 1B1.1 cmt. 1(H) (2011) (defining “offense” as “the offense of conviction and all
relevant conduct”). The Third Circuit disagreed, holding that improper discharges are not
“relevant conduct” under the Sentencing Guidelines. Abrogar, 459 F.3d at 435–36.
Sanford points to Abrogar and invites the Court to conflate the term “relevant conduct”
under the U.S. Sentencing Guidelines (“USSG”) § 1B1.3 with the term “relevant evidence”
under FED. R. EVID. 401, but the Court declines that invitation. Even though both terms use the
nomenclature of relevance, the definitions and applications of those two terms are completely
7
different. “Relevant evidence” is evidence that “has any tendency to make a fact more or less
probable than it would be without the evidence” and “is of consequence in determining the
action,” FED. R. EVID. 401, while “relevant conduct” is “all acts and omissions committed, aided,
abetted, counseled, commanded, induced, procured, or willfully caused by the defendant; and . . .
that occurred during the commission of the offense of conviction, in preparation for that offense,
or in the course of attempting to avoid detection or responsibility for that offense,” U.S.
SENTENCING GUIDELINES MANUAL § 1B1.3. In other words, “relevant conduct” may be
“relevant evidence,” but the converse is not necessarily true. As Abrogar makes plain, not all
relevant evidence is “relevant conduct” under the Guidelines.
The government, on the other hand, proffers that evidence of monetary proceeds is
relevant to motive because Sanford paid its employees per metric ton of fish they caught at sea.
Gov’t Opp. Mem. at 4–5. According to the government, this created an incentive for the crew to
“primarily focus[] on fishing operations, keeping the fish properly refrigerated, and trying to
maximize their catch,” id. at 4, rather than spending time maintaining their ORB or running the
OWS. Furthermore, the government argues, because a vessel like the San Nikunau “can be
prevented entry into a port of the United States and prevented from engaging in commerce if the
vessel is not in compliance with international or United States law,” id., the crew had a motive to
cover up the alleged violations so that they would not be barred from selling their fish at port and
getting paid.
“‘[M]otive is always relevant in a criminal case, even if it is not an element of the
crime.’” United States v. Hill, 643 F.3d 807, 843 (11th Cir. 2011) (quoting United States v.
Sriyuth, 98 F.3d 739, 747 n.12 (3d Cir. 1996)); United States v. Day, 591 F.2d 861, 874–75 (D.C.
Cir. 1978) (“Motive is a state of mind . . . showing the probability of appropriate ensuing action
8
[and] it is always relevant.” (quoting 1 Wigmore on Evidence § 118 at 558, 561 (3d ed. 1940))).
Although Sanford is correct that monetary proceeds are not an element of any offense charged,
the government has demonstrated that at least some evidence of monetary proceeds will be
relevant because it is probative of the incentives and priorities of the defendants and, thus, will
have a tendency to make it more or less probable that the defendants committed the charged
offenses.
2. Evidence of Monetary Proceeds Is Generally Unlikely to Be Unfairly
Prejudicial
Sanford next argues that even if evidence of monetary proceeds has probative value, that
value is substantially outweighed by the danger of unfair prejudice, confusing the issues, and
misleading the jury. See Def.’s Mem. at 13–16. The Court disagrees. Although Sanford points
to several authorities in the context of civil litigation where parties were barred from admitting
evidence of a party’s “financial condition or wealth,” see id. at 14–15, the considerations are
different in a criminal case. To start, the government bears a much heavier burden of proof than
a civil plaintiff would. Also, although a “David versus Goliath” dynamic can sometimes lead
civil juries to impose liability out of sympathy for beleaguered plaintiffs in a legal dispute with
deep-pocketed defendants, such a dynamic is unlikely when the United States government is a
defendant’s adversary.
Although Sanford expresses concern that admitting evidence of monetary proceeds will
“give the jury the false impression that the legitimate fishing and commercial activities of the
Nikunau constituted an illegal racketeering type enterprise,” id. at 16, this concern is highly
speculative and unlikely. First, it will be no secret that Sanford is a commercial fishing
enterprise, which is in the business of making money from fishing, and not a criminal enterprise.
The government does not appear to contest this fact, and the Court has no reason to believe that
9
this will constitute even a subtext of the government’s presentation at trial. To the contrary, the
government intends to offer evidence of monetary proceeds to show that the crewmembers of the
San Nikunua had an incentive to catch and preserve for sale as many fish as possible and that this
over-arching priority made APPS compliance a lesser concern. See Gov’t Opp. Mem. at 2–4.
Second, the Court believes the jury is perfectly capable of discerning the clear difference
between a commercial fishing enterprise and an “illegal racketeering type enterprise,”
particularly where the proffered monetary proceeds were explicitly gained from “the offload of
fish cargo from the F/V San Nikunau.” Superseding Indictment at 3.
The Court finds that some evidence of monetary proceeds earned by Sanford from its
commercial fishing activities on the San Nikunau during the relevant time period is generally
relevant to the defendants’ motives to commit the charged offenses and that such relevance is not
substantially outweighed by a danger of unfair prejudice. As a result, insofar as Sanford has
moved to exclude all evidence of such monetary proceeds, that motion is DENIED.
B. The Meaning of “Gross Gain” and “Derived From” Delimit the Relevance of
Monetary Proceeds
Denying Sanford’s general relevance objections is not the end of the matter, however.
Although the Court finds that, in the main, evidence of monetary proceeds is admissible, the
question remains whether admitting particular measures of monetary proceeds could be unfairly
prejudicial to Sanford. For the reasons discussed below, the Court holds that the government’s
proposed specific measure of monetary proceeds ($24,045,930.79 in gross revenues) may not be
admitted, standing alone, to establish the “gross gain” that Sanford “derive[d] . . . from” the
charged offenses under 18 U.S.C. § 3571(d). The government may not admit that specific
monetary figure except to the extent, and only if, necessary for the jury to establish or calculate
10
the appropriate measure of “gross gain” “derive[d] . . . from” the charged offense, which the
Court defines below.
1. Southern Union and 18 U.S.C. § 3571(d)
The Supreme Court recently held that “the rule of Apprendi applies to criminal fines.” S.
Union Co. v. United States, 132 S. Ct. 2344, 2357 (2012). This means that “‘[o]ther than the fact
of a prior conviction, any fact that increases” the amount of a criminal fine “beyond the
prescribed statutory maximum must be submitted to a jury and proved beyond a reasonable
doubt.’” Id. at 2350 (quoting Apprendi v. New Jersey, 530 U.S. 466, 490 (2000)). The majority
in Southern Union considered but ultimately rejected the government’s argument that “requiring
juries to determine facts related to fines will cause confusion (because expert testimony might be
needed to guide the inquiry); or prejudice the defendant (who might have to deny violating a
statute while simultaneously arguing that any violation was minimal).” 3 Id. at 2356. Likewise,
in dissent, Justice Breyer argued that applying Apprendi to criminal fines would be highly
problematic because Congress, in enacting statutes like 18 U.S.C. § 3571(d) “expected judges,
not juries, to determine fine-related sentencing facts because doing so will often involve highly
complex determinations.” Id. at 2370 (Breyer, J., dissenting). In fact, Justice Breyer argued that
in “an environmental pollution case, the jury may have particular difficulty assessing different
estimates of resulting losses,” and that “the majority’s holding will sometimes permit prosecutors
3
Notably, Sanford makes this precise argument, contending that, should evidence of its alleged pecuniary gain
from the sale of fish cargoes be admitted, “the defendant will be placed in the position of having to deny violating
the statutes alleged in the criminal indictment while simultaneously arguing that any pecuniary gain from its
violation of the statutes was minimal.” Def.’s Reply Mem. at 5, ECF No. 156. For this reason, Sanford seeks
bifurcation of the guilt phase of the trial from the penalty phase. The Court is not now prepared to bifurcate the trial
since evidence of the defendants’ monetary proceeds is relevant and probative evidence of their culpability. See
United States v. AU Optronics Corp., No. 09-00110, 2011 WL 2837418, at *5 (N.D. Cal. July 18, 2011) (denying
government motion for bifurcation because “similar evidence will undoubtedly be introduced in order to prove
defendants' guilt or innocence” after finding that issues related to alternative fine in criminal price-fixing case
required submission to the jury).
11
to introduce newly relevant evidence that would otherwise have been kept from the jury on the
ground that it was cumulative or unduly prejudicial.” Id.In federal criminal cases, the government may seek two principal types of fines for
organizational defendants. The government may seek either (1) the statutorily prescribed
maximum fine for the type of offense charged, which for a felony is $500,000 per offense, 18
U.S.C. § 3571(c)(3), or (2) an alternative fine, “[i]f any person derives pecuniary gain from the
offense, or if the offense results in pecuniary loss to a person other than the defendant,” that is
“not more than the greater of twice the gross gain or twice the gross loss,” id. § 3571(d). Thus,
the maximum statutorily prescribed fine that could be levied against Sanford should this
defendant be convicted on all counts against it, is $3,500,000 (i.e., $500,000 times seven felony
counts).
In this case, the government intends to “seek to have the jury find that [Sanford] gained
[$24,045,930.79] as a result of the criminal charges.” Gov’t Opp’n Mem. at 1 n.1. As is clear
from the Supreme Court’s decision in Southern Union and 18 U.S.C. § 3571(d), however, in
order for the Court to impose a fine in that amount against Sanford, the U.S. Constitution
requires that the jury find beyond a reasonable doubt that this amount constituted a “gross gain”
to Sanford and that this amount was “derive[d] . . . from” the charged offenses. Therefore, even
though Sanford’s monetary proceeds are generally relevant to the defendants’ motives, because
the jury is constitutionally required to determine the amount of any fine exceeding $3,500,000,
the Court holds that the probative value of any monetary proceeds evidence in this case is
necessarily cabined by the definitions of “gross gain” and “derive[d] . . . from” as those terms are
used in 18 U.S.C. § 3571(d). This is primarily because, if the government is allowed to present
the $24,045,930.79 gross revenues earned by Sanford as the appropriate measure of a criminal
12
fine under 18 U.S.C. § 3571(d), when, as a matter of law, the “gross gain” that was
“derive[d] . . . from” Sanford’s crimes is a measure that is less than gross revenue, then Sanford
stands to be unfairly prejudiced by being punished with a fine that exceeds the bounds of
§ 3571(d).
Hence, although the government will be permitted to present evidence of Sanford’s
monetary proceeds from commercial fishing on the San Nikunau between March 2007 and July
2011, it may not present evidence of the $24,045,930.79 gross revenue figure except to the
extent, and only if, necessary to establish or calculate the appropriate measure of “gross gain”
“derive[d] . . . from” the charged offense. In other words, the government may not present
evidence of the $24,045,930.79 gross revenue figure in a vacuum for the purpose of establishing
“gross gain.” Context matters, and in order to avoid the danger of unfair prejudice presented by
this evidence, the government must provide to the jury sufficient context for the $24,045,930.79
figure—vis-à-vis the proper definitions of “gross gain” and “derive[d] . . . from” laid out
below—to admit it for the purpose of establishing or calculating “gross gain.” 4
2. The Meaning of “Gross Gain”
The term “gross gain” is not defined anywhere in the Alternative Fines Act. The phrase
appears ambiguous on its face because a “gross” monetary amount typically refers to “total
income from all sources before deductions, exemptions, or other tax reductions,” as opposed to a
“net” monetary amount which would exclude costs and other deductions. See BLACK’S LAW
DICTIONARY 831 (9th ed. 2006). The word “gain,” on the other hand, typically refers to the
4
If, however, the government chooses not to pursue an alternative fine under 18 U.S.C. § 3571(d), or if the
Court finds that the evidence required to prove “gross gain” would unduly delay or complicate the proceedings, the
danger of unfair prejudice attached to the admission of the $24,045,930.79 figure would disappear. Under either of
these two scenarios, evidence of the $24,045,930.79 figure would be admissible at trial for the purpose of proving
motive.
13
“excess of receipts over expenditures or of sale price over cost,” i.e., profit or “net” income. See
id. at 747. 5
a. U.S. Sentencing Guidelines
One source that illuminates the meaning of “gross gain” is the U.S. Sentencing
Guidelines. The Guidelines state that the base fine for an organizational defendant is the greatest
of three figures, including “the pecuniary gain to the organization from the offense.” U.S.
SENTENCING GUIDELINES MANUAL § 8C2.4(a). The Guidelines further define “pecuniary gain”
as “the additional before-tax profit to the defendant resulting from the relevant conduct of the
offense.” Id. § 8A1.2 cmt. 3(H). This definition of “pecuniary gain” is helpful in determining
the meaning of “gross gain” because, as the commentary makes clear, the Guidelines’ use of the
term “pecuniary gain” is “derived from 18 U.S.C § 3571(d).” Id. 6
b. Legislative History
When faced with an ambiguous statutory phrase, it also “becomes necessary for a court to
look to the intent of Congress as revealed in the history and purposes of the statutory scheme.”
Penn Allegh Coal Co. v. Holland, 183 F.3d 860, 864 (D.C. Cir. 1999) (internal quotation marks
omitted); see also Natural Res. Def. Council, Inc. v. Browner, 57 F.3d 1122, 1127 (D.C. Cir.
1995) (“Reference to statutory design and pertinent legislative history may often shed new light
on congressional intent, notwithstanding statutory language that appears ‘superficially clear.’”).
5
Compare 6 OXFORD ENGLISH DICTIONARY 370 (2d ed. 1989) (defining “gross” as “[e]ntire, total, whole. Now
only (opposed to net) of an amount, value, weight, number, or the like, before necessary deductions have been
made”), with id. at 311 (defining “gain” as “[s]ums acquired by trade or in other ways; emoluments, profits,
winnings, etc.”).
6
The environmental crimes charged against Sanford as the causes of its alleged $24,045,930.79 pecuniary gain
are exempt from the Sentencing Guidelines’ provisions regarding the sentencing of organizational defendants. See
U.S. SENTENCING GUIDELINES MANUAL § 8C2.1. Instead, the Guidelines state that courts should determine the
appropriate fine against organizational defendants for such environmental crimes “based on the general statutory
provisions governing sentencing,” which in this case would be 18 U.S.C. § 3571. Id. § 8C2.10 cmt. background.
14
In the case of 18 U.S.C. § 3571(d), it is necessary first to consult its predecessor statute,
18 U.S.C. §3623(c)(1) (repealed 1987), which contains the identical “gross gain” language as 18
U.S.C. §3571(d). The language of the House Judiciary Committee Report accompanying that
statute suggests that Congress intended the “gross gain” language to refer to the net proceeds or
profits derived from an offense. See H.R. REP NO. 98-906 at 17 (1984) (“[The alternative fines]
provision is intended to enable federal courts to impose fines that will prevent convicted
offenders from profiting from their wrongdoing.” (emphasis added)). The language of the House
Judiciary Committee Report accompanying 18 U.S.C § 3571(d)—written when the law was
amended three years later—echoes the same concern with profiting or benefiting from an
offense, which is consistent with the term “gain” and the more precise phrase “pecuniary gain”
that is used throughout the report. See H.R. REP. NO. 100-390 at 6 (1987) (amending the statute
so that “if the defendant knows or intends that his conduct will benefit another person
financially, the court can measure the fine imposed based on twice that benefit” (emphasis
added)).
The language from 18 U.S.C. § 3623(c)(1) (repealed) was in turn derived from the Model
Penal Code, which states that “[a] person who is convicted of an offense may be sentenced to
pay a fine not exceeding . . . any higher amount equal to double the pecuniary gain derived from
the offense by the offender.” MODEL PENAL CODE § 6.03(5) (1981); see also H.R. REP. NO. 98-
906 at 17. The drafters’ comments accompanying the Model Penal Code likewise use the
terminology of “profit” in describing the measure of “pecuniary gain” for purposes of this type
of criminal fine:
In cases where the defendant has gained from his offense, the imposition of a
sanction that has the dual purpose of removing the profit and removing the
incentive to seek profit in this manner seems justified. Subsection (5) accordingly
15
permits the fine to be measured in such cases by double the pecuniary gain
derived from the offense by the offender.
3 MODEL PENAL CODE AND COMMENTARIES § 6.03 comment 2, at 61–62 (1985).
c. Judicial Interpretation
Few courts have interpreted the proper meaning of the term “gross gain” in 18 U.S.C.
§ 3571(d), and among those courts that have considered this issue, there is a difference of
opinion as to whether it includes only “net” gains, i.e., profits, whether it includes all revenues
derived from an offense without deducting costs and taxes, or whether some other measure may
be appropriate in certain circumstances.
Some district courts have viewed “gross gain” to mean gross revenues derived from a
crime or criminal enterprise rather than profits. For example, in United States v. Bader, the
District of Colorado held that because “the jury concluded that [the defendant] grossed $4.8
million in revenue from the sale of the unlawfully-imported human growth hormone . . . the
maximum fine that may be imposed against [the defendant] under 18 U.S.C. § 3571(d) is $9.6
million.” No. 07-cr-00338, 2010 WL 2681707 at *2 (D. Colo. July 1, 2010). The District of
Kansas drew a similar conclusion, holding that, in a counterfeit goods case, “gross gain” meant
“the amount of the bank deposits attributed to [the defendant’s] sale of infringing merchandise.”
United States v. Foote, CR.A. 00-20091-01, 2003 WL 22466158, at *7 (D. Kan. July 31, 2003).
Other courts have viewed the matter differently. Notably, the court in SEC v. Bilzerian—
which appears to be the only decision from within this Circuit to address the definition of “gross
gain”—stated that “§ 3571(d) provides a calculation for the potential allowable fine based upon
the amount of illicit profit.” 814 F. Supp. 116, 120 (D.D.C. 1993) (emphasis added); see also
United States v. McNair, 605 F.3d 1152, 1217, 1224 (11th Cir. 2010) (noting presentence
investigation reports defined “gross gain” as the defendant’s “net profit or benefit . . . in
16
connection with their [crimes]”); United States v. Wilder, 15 F.3d 1292, 1301 (5th Cir. 1994)
(affirming district court’s fine of $4 million under § 3571(d) where “the record adequately
demonstrate[d] that [defendant] received gross profits of over two million dollars from the
scheme to defraud” (emphasis added)).
At least one court, however, approved of a definition of “gross gain” that was neither
gross revenue nor gross profit. In United States v. BP Products North America, Inc., the
Southern District of Texas was asked to accept a plea agreement between the government and
the defendant arising from a criminal Clean Air Act violation that had caused an oil refinery
explosion, killing 15 and injuring at least 170 workers. 610 F. Supp. 2d 655, 660 (S.D. Tex.
2009). The government argued that the criminal fine should be $50 million, which represented
twice the amount of the defendant’s cost savings from not replacing a chimney-like apparatus in
the plant that “had been in poor operating condition” and whose faulty ventilation was believed
to be the principal cause of the explosion. See id. at 665, 695–96.
The victims argued, however, that the fine should be much higher. They argued that
“gross gain” should be defined as, among other possible measures, all of the plant’s profits from
either the fourteen months or the six years prior to the explosion, which amounted to either $450
million or $1 billion respectively. Id. at 699. The government argued that the plant’s profits
were the wrong measure of “gross gain,” taking the position that defining “gross gain” as the
plant’s profits “would so unduly complicate a sentencing determination that the complexity
provision of § 3571(d) would apply.” Id. at 701. The Court agreed, noting that such a measure
of “gross gain” “would require the court to determine what part of these profits were either costs
saved or additional revenues generated by the failure to implement the process safety measures
that are the basis of the offense.” Id. at 699. Ultimately, the court adopted the government’s
17
position and approved the criminal fine of $50 million in the plea agreement as “a reasonable
estimate of the gross pecuniary gain that [the defendant] derived from the criminal offense.” Id.
at 728.
The authorities interpreting “gross gain” generally as profits rather than revenues, see
Bilzerian, 814 F. Supp. at 120; see also McNair 605 F.3d at 1217, 1224; Wilder 15 F.3d at 1301,
appear to comport with the definition of “pecuniary gain” in the U.S. Sentencing Guidelines, the
natural equivalence of “gain” with “profit,” and with Congress’s stated intent to have § 3571(d)
“prevent convicted offenders from profiting from their wrongdoing,” H.R. REP NO. 98-906 at 17.
Therefore, the Court concludes that the term “gross gain” means any additional before-tax profit
to the defendant that derives from the relevant conduct of the offense.
3. The Meaning of “Derived From”
An additional question related to the proper measure of “gross gain” is the meaning of the
term “derive[d] . . .from” in § 3571(d). This issue presents the question of what causal nexus is
required between a monetary amount and a charged offense to allow the monetary amount to
qualify as a “gross gain” that was “derive[d] . . . from” the offense.
Once again, the statute does not define the term “derive[d] . . . from,” and so resort to
other sources is required. “It is a bedrock rule of both tort and criminal law that a defendant is
only liable for harms he proximately caused.” United States v. Monzel, 641 F.3d 528, 535 (D.C.
Cir. 2011) (footnoted omitted) (collecting sources); see also United States v. Spinney, 795 F.2d
1410, 1415 (9th Cir. 1986) (“A basic tenet of criminal law is that the government must prove that
the defendant’s conduct was the legal or proximate cause of the resulting injury.”); BP Products,
610 F. Supp. 2d at 688–89 (construing “derived from” language in § 3571(d) “as imposing a
proximate causation requirement”).
18
The only case to address the precise question of the causal nexus required under
§ 3571(d) is the Southern District of Texas’s decision in BP Products. In that case, the victims
argued that “derive[d] . . . from” entails a but-for causation standard. They argued that if
Congress had intended to mandate a stricter proximate causation standard, it would have
expressly used such language as it does in other statutes governing criminal restitution and the
Crime Victims’ Rights Act (“CVRA”). 610 F. Supp. 2d at 687–88; see also 18 U.S.C.
§ 3663(a)(2) (permitting restitution for victims “directly and proximately harmed as a result of
the commission of an offense for which restitution may be ordered”); 18 U.S.C. § 3663A(a)(2)
(requiring restitution for victims of certain crimes who were “directly and proximately harmed as
a result of the commission of an offense for which restitution may be ordered”); 18 U.S.C.
§ 3771(e) (extending protections to victims “directly and proximately harmed as a result of the
commission of a Federal offense”). By contrast to the CVRA and criminal restitution statutes,
no proximate cause standard is expressly required in § 3571(d).
The court in BP Products disagreed with the victims and, instead, was persuaded by the
government and the defendant who argued that the common-law principles of causation
“mandate that gain or loss be both factually and proximately caused by the defendant’s acts.”
BP Products, 610 F. Supp. 2d at 688 (internal quotation mark omitted). The court relied upon a
series of decisions from other courts that had addressed the appropriate causation standard for
criminal penalties and concluded that a proximate causation standard was required. See id.(collecting cases). In particular, the court discussed United States v. Spinney, which had
interpreted the predecessor statute, 18 U.S.C. § 3623, and had concluded that “‘[c]ausation in
criminal law has two requirements: cause in fact and proximate cause.’” Id. (quoting 795 F.2d
at 1415). The BP Products court further concluded that a proximate causation standard would be
19
consistent with the Supreme Court’s decision in Hughey v. United States, 495 U.S. 411 (1990),
“in which the Court concluded that a defendant could be ordered to pay restitution only for
damages caused by the ‘offense of conviction,’ to the exclusion of other ‘losses stemming from
all conduct attributable to the defendant, including conduct unrelated to the offense of
conviction.’” Id. (quoting 495 U.S. at 418).
In addition to strenuously arguing that proximate cause was the appropriate standard to
apply to § 3571(d), it should also be noted that, in BP Products, the government went one step
further by taking the position that, absent its plea agreement, it “would have a difficult time at
trial establishing the necessary causal links among [the defendant’s] charged criminal conduct,
liability for the explosion, and the victims’ losses or [the defendant’s] gain.” Id. Indeed, the
government’s position was that the proximate cause standard, aside from being the correct
interpretation of the statute, would be so demanding and complex when seeking a fine against an
organizational defendant for an environmental crime under 18 U.S.C. § 3571(d) that “showing
the necessary causal link . . . would require ‘methodically and carefully structure[d]’ and highly
technical proof.” Id. at 689.
The Court finds the reasoning of BP Products persuasive and concludes that the term
“derive[d] . . . from” requires that the government prove that a given monetary amount (either a
gain or a loss) was proximately caused by the conduct of the charged offense in order to qualify
as a “gross gain” under § 3571(d). Based on its litigating position in BP Products, the Court has
little doubt that the government concurs that proximate cause is the appropriate standard under
§ 3571(d). The Court is cognizant that how demanding this standard may be when seeking fines
against organizational defendants for environmental crimes depends upon the nature of the
20
charges and underlying criminal conduct. This is a threshold issue requiring attention before
application of the alternative fine provision of § 3571(d).
C. Undue Complication
If the imposition of the “gross gain” measure of a criminal fine would “unduly
complicate or prolong the sentencing process,” the alternative measure becomes unavailable and
the statutory maximum of $500,000 per offense applies instead. See 18 U.S.C. § 3571(d) (“[T]he
defendant may be fined [under this subsection] . . . unless imposition of a fine under this
subsection would unduly complicate or prolong the sentencing process.”); BP Products, 610 F.
Supp. 2d at 682 (“Under § 3571(d), if imposing the alternative maximum fine would ‘unduly
complicate or prolong the sentencing process,’ the $500,000 maximum applies.”). The
alternative fine provision refers to delay and complexity in “the sentencing process,” but in the
wake of the Southern Union decision, the Court must consider these factors in determining the
admissibility at trial of evidence pertaining to gross gain. See FED. R. EVID. 403 (relevant
evidence may be excluded if probative value is substantially outweighed by a danger of
“confusing the issues,” or “undue delay”).
Once again, the BP Products case is instructive, not only regarding the appropriate
interpretation of § 3571(d), but also regarding the myriad practical complexities that can arise in
proving a “gross gain” to an organizational defendant in an environmental crime case. As that
court noted with respect to the “unduly complicate and prolong” language, the House Report
from the predecessor statute, § 3623(c), discussed the circumstances in which calculating an
alternative fine might be inappropriate:
[F]or example, if determining the amount of the defendant's gain were to
require a protracted hearing that would last longer than the trial, the judge
could decline to base the fine on the defendant's gain. The court's
determination as to whether imposing a fine based on defendant's gain or
21
victim's loss is discretionary, and the committee is confident that federal
judges will not abuse this discretion.
H.R. REP. NO. 98-906 at 17. The court also cited to similar statutory sections that provided
useful guidance on the threshold for when an alternative fine determination “unduly
complicate[s] or prolong[s] the sentencing process.” See BP Products, 610 F. Supp. 2d at 690–
91 (citing and discussing The Victim and Witness Protection Act, 18 U.S.C. § 3663(a)(1)(B)(ii)
and The Mandatory Victims’ Restitution Act, 18 U.S.C. § 3663A(c)(3)(B)). Ultimately, the
court held that, in determining whether a “gross gain” determination would meet the threshold, it
should consider three factors: (1) whether there are multiple victims; (2) whether the causation
issues are disputed; and (3) whether disputed future losses are involved. Id. at 691.
In this case, although there are no identifiable “victims” or any future losses at issue, the
parties do contest what portion of Sanford’s profits earned from the fishing voyages at issue were
gained as a proximate result of the offenses. See Tr. of Pre-trial Conference at 31:23–32:15 (July
9, 2012) (unofficial rough transcript); see also Def.’s Reply Mem. at 8 n. 4 (“[T]he Superseding
Indictment failed to allege any facts establishing a causal connection between the proceeds
obtained by Sanford for the offload of fish cargo from the F/V San Nikunau and the criminal
charges contained in the Superseding Indictment.”). The government made clear its plan to
present evidence on gross gain “through one witness—a custodian of records from TriMarine
Singapore . . . . [who] will testify that according to the records of TriMarine Singapore, from
March 2007 through July 2011, an amount of approximately $24,045,930.79 USD was paid to
Sanford Ltd. for tuna offloads in Pago Pago, American Samoa.” Gov’t Opp’n Mem. at 3-4.
Sanford, on the other hand, argues that “evidence regarding Sanford’s overall commercial
purposes and the proceeds from offloading of fish cargoes from the F/V San Nikunau bear no
relation to the record-keeping offenses charged in the Superseding Indictment.” Def.’s Reply
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Mem. at 6–7. The defendants represented to the Court at the Pre-trial Conference on July 9,
2012, that they would seek to present evidence through two or three witnesses with respect to the
“gross gain” issue. See Tr. of Pre-trial Conference at 39:9–21(unofficial rough transcript). Both
parties made these representations, however, prior to the Court’s instant ruling on the definitions
of “gross gain” and “derive[d] . . . from” under § 3571(d).
The Court requires additional information before deciding whether allowing the
government to seek a fine under § 3571(d) would “unduly complicate or prolong” the trial. 7
Therefore, the government is directed to submit, on or before noon on July 24, 2012, notice of
the number of witnesses and kinds of evidence it intends to present to the jury regarding the
“gross gain” that Sanford “derive[d] . . . from” the charged offenses. If Sanford wishes to submit
a response, it must do so on or before noon on July 26, 2012. The parties are reminded that, in
light of the Court’s rulings in this opinion, in order to qualify as “gross gain” that is
“derive[d] . . . from” the charged offenses, it will be the government’s burden to prove to the jury
beyond a reasonable doubt that any before-tax profits earned by Sanford were earned as a
proximate result of the charged offenses.
III. CONCLUSION
For the reasons explained above, the Court finds that evidence of monetary proceeds is
generally relevant to motive in this case, and that the danger of unfair prejudice is unlikely to
result from the admission of such evidence. As a result, Sanford’s motion to exclude such
evidence, ECF No. 143, is DENIED.
7
To be clear, as noted previously, at note 4 supra, should the Court determine that the evidence pertinent to the
alternative fine computation would unduly complicate or prolong the trial, warranting exclusion of evidence relating
to the gross gain derived by Sanford from the charged offenses under Fed. R. Evid. 403, the government would then
be permitted to admit evidence of Sanford’s $24, 045, 930.79 in gross revenues as probative of the defendants’
motive, without risk that this evidence would unduly prejudice the jury in determining Sanford’s “gross gain.”
23
The Court further holds that the government may only introduce evidence of monetary
proceeds in support of an alternative fine under 18 U.S.C. § 3571(d) to the extent, and only if,
such evidence is necessary to establish or calculate the appropriate measure of “gross gain”
“derive[d] . . . from” the charged offense, namely: monetary proceeds which are additional
before-tax profit to the defendants that was proximately caused by the relevant conduct of the
offense.
Finally, the Court reserves judgment at this time on the question of whether allowing the
government to introduce evidence in support of an alternative fine under 18 U.S.C. § 3571(d)
would “unduly complicate or prolong,” the trial, pending the government’s submission, on or
before noon on July 24, 2012, regarding the number of witnesses and kinds of evidence to be
offered in support of the “gross gain” to Sanford that was “derive[d] . . . from” the charged
offenses.
An Order consistent with this Memorandum Opinion shall be entered.
Date: July 19, 2012
/s/ Beryl A. Howell
BERYL A. HOWELL
United States District Judge
24