China Esquire

It seems the government–and not a plaintiff’s class action firm as before–has stolen the headlines yesterday in filing federal charges against those involved with the melamine poisoning of pets from Chinese pet food. I did not see this one coming from a mile away. (and Dan Harris, among other commentators, did not either) Here is the surprising article from CNN Money:

Two Chinese businesses and a U.S. company were indicted Wednesday in the tainted pet food incidents that killed dozens of animals last year and raised worries about products made in China.

Xuzhou Anying Biologic Technology Development Co., Suzhou Textiles, Silk, Light Industrial Products, Arts and Crafts I/E, and Las Vegas-based ChemNutra were charged in two separate but related indictments. The U.S. attorney’s office in Kansas City said the tainted food led to the death and serious illness of pets in the U.S. last year.

One of the indictments charges Xuzhou Anying Biologic, located in China’s Jiangsu Province, and Suzhou Textiles, in Suzhou, China, with 13 counts of introduction of adulterated food into interstate commerce and 13 counts of introduction of misbranded food into interstate commerce.

ChemNutra and company owners Sally Quing Miller, a Chinese national, and her husband, Stephen S. Miller were charged with 13 counts of introduction of adulterated food into interstate commerce, 13 counts of introduction of misbranded food into interstate commerce and one count of conspiracy to commit wire fraud.

The indictments allege that Suzhou Textiles, an export broker, mislabeled 800 metric tons of wheat gluten tainted with the toxic chemical melamine to avoid inspection in China. Xuzhou then did not properly declare the contaminated product it shipped to the U.S. as a material to be used in food, the indictment says.

Wow. 2 separate cases involving both American and Chinese companies. This is a big deal for anyone who does business with Chinese manufacturers and/or suppliers because you may be liable for criminal charges and not just civil liability. I foresaw a large class action where the American distributor would lose a lot of money in settlement, but this is indeed something else.

I don’t practice criminal law, so I cannot comment about the misdemeanor counts. But the federal wire fraud charge appears to me to be broad enough to nail the companies. (I do not have the complaint so I hope I am talking about the proper statute)

18 U.S.C. 1343, which covers fraud by wire, states the crime as:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice

And the punishment:

shall be fined under this title or imprisoned not more than 20 years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

18 U.S.C. 1343 (2008).

The wire fraud statute has been applied to a wide range of activities. In Pasquantino v. United States, 544 U.S. 349 (U.S. 2005), the U.S. Supreme Court held that the wire fraud statute covered prosecute U.S. citizens for smuggling cheap liquor into Canada. The facts:

Petitioners . . . were indicted for and convicted of federal wire fraud for carrying out a scheme to smuggle large quantities of liquor into Canada from the United States. According to the evidence presented at trial, the Pasquantinos, while in New York, ordered liquor over the telephone from discount package stores in Maryland. [citation] They employed Hilts and others to drive the liquor over the Canadian border, without paying the required excise taxes. [citation] The drivers avoided paying taxes by hiding the liquor in their vehicles and failing to declare the goods to Canadian customs officials. [citation] During the time of petitioners’ smuggling operation, between 1996 and 2000, Canada heavily taxed the importation of alcoholic beverages. [citations] Uncontested evidence at trial showed that Canadian taxes then due on alcohol purchased in the United States and transported to Canada were approximately double the liquor’s purchase price. [citation]

Id. at 353. The Court noted:

It may seem an odd use of the Federal Government’s resources to prosecute a U. S. citizen for smuggling cheap liquor into Canada. But the broad language of the wire fraud statute authorizes it to do so, and no canon of statutory construction permits us to read the statute more narrowly.

Id. at 372 (emphasis added); see e.g., United States v. King, 590 F.2d 253 (8th Cir. 1978) (scheme to sell herbicide). I suppose I could do a research memo and post a string cite of cases that deal with this topic, but I think this gives you an idea of how broad this statute can be.

Stay tuned because it will be big news if defendants do get slapped with fines up to $1,000,000 and prison terms up to 20 years.

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