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United States v. Chu

United States District Court, M.D. Florida, Jacksonville Division

December 19, 2017



          MARCIA MORALES HOWARD United Slates District Judge

         THIS CAUSE is before the Court on Qiao Chu's Motion for Award of Attorney Fees and Expenses pursuant to 18 U.S.C. 3006A and 28 U.S.C. 2414 (Doc. 300; Motion), with exhibits (Def. Ex.) and Wei Tang Lo's Amended Motion for Award of Attorney Fees and Expenses Pursuant to 18 U.S.C. 3006A and 28 U.S.C. 2412 (Doc. 325; Amended Motion). Lo has also adopted Chu's Motion.[1] The Government filed a response, see United States' Consolidated Response in Opposition to Defendants' Motions for Award of Attorney's Fees and Expenses (Doc. 353; Response), with exhibits (Resp. Ex.). Chu replied. See Reply Memorandum of Points and Authorities in Support of Motion for Award of Attorney Fees and Expenses Pursuant to 18 U.S.C. 3006A and 28 U.S.C. 2414 (Doc. 360; Reply). Accordingly, this matter is ripe for judicial review.

         I. BACKGROUND

         The criminal prosecution in this case centered around Qiao Chu, Wei Tang Lo, and Chin Shih Chou's (“Defendants”) alleged scheme to import Chinese honey into the United States by labeling it as a blend of honey and rice syrup to avoid millions of dollars in antidumping duties.[2] The purpose of the antidumping duties is to prevent the importation and sale of honey at what the United States Government has determined to be less than the fair market value. At the time of the events giving rise to the charges in this case, those duties were imposed on “natural honey, artificial honey containing more than 50 percent natural honey by weight, preparations of natural honey containing more than 50 percent natural honey by weight, and flavored honey.” Department of Commerce Notice of Amended Final Determination of Sales at Less Than Fair Value and Antidumping Duty Order, 66 Fed. Reg. 63670-02, 63671 (Dec. 10, 2001) (Antidumping Duty Order).[3]

         The investigation leading to the charges in this case began on or about September 29, 2011, when the Department of Homeland Security, Homeland Security Investigations (HSI), received information from Customs and Border Protection (CBP) that Demeter Group, Inc. (Demeter), Fina Food Trading, Inc. (Fina Food), and other related entities, may have falsely declared containers of honey imported from China as rice fructose syrup to evade antidumping duties. Testing performed by CBP on samples taken from some of the Demeter and Fina Food containers suggested the substances contained more than 50 percent honey.[4] Through further investigation and interviews of various warehouse employees, HSI discovered that Chin Shih Chou owned Fina Foods and Chu was the point of contact for Demeter. HSI also learned of a third related entitled called Mega Farms U.S. (Mega Farms), owned by Lo.

         Even for those containers that CBP did not test, HSI believed it had reason to suspect the substance inside was honey rather than rice fructose syrup. HSI agents discovered that when containers imported by Demeter and Fina Food reached a warehouse for storage and shipping, Lo and Chou, allegedly at Chu's directions, removed the “rice fructose syrup” labels from the individual barrels and replaced them with “amber honey” labels before the barrels were shipped to buyers. One warehouse manager also reported to HSI that Chou provided false bills of lading to truck drivers who transported the barrels from the warehouse. According to the warehouse manager, the false bill of lading described the commodity as “drums of honey” and listed the shipper as Mega Farms, but the warehouse manager's bills of lading described the commodity as “rice fructose syrup” and listed the shipper as the warehouse.

         On April 18, 2012, a grand jury sitting in the Middle District of Florida returned a Third Superseding Indictment (Doc. 100; Indictment) against Chou, Chu, and Lo.[5] In the first of thirteen counts of the Indictment, the government charged Defendants with conspiring to commit wire fraud in violation of 18 U.S.C. § 1343, to introduce in commerce fraudulently imported merchandise in violation of 18 U.S.C. § 542, to fraudulently import merchandise knowing it to have been imported contrary to law in violation of 18 U.S.C. § 545, and to fraudulently introduce misbranded Chinese honey into interstate commerce in violation of 21 U.S.C. §§ 331(a), 333(a)(2) and 343(a)(1). See id. at 1-25. In Counts Two through Seven, the government charged Defendants with committing wire fraud in violation of 18 U.S.C. §§ 1343 and 2, see id. at 26-27, and in Counts Eight through Eleven charged Defendants with importing Chinese honey that was misbranded as rice fructose syrup to avoid the payment of anti-dumping duties in violation of 18 U.S.C. §§ 542 and 2, see id. at 28-31. Lastly, in Counts Twelve and Thirteen, the government charged Defendants with misbranding honey as rice fructose syrup with the intent to defraud and mislead in violation of 21 U.S.C. §§ 331(a), 333(a)(2), and 343(a)(1). See id. at 32.

         A critical issue in this case was whether the substances imported contained more than 50 percent honey by weight, thus making them subject to the significant anti-dumping duties. The government planned to establish that the rice fructose syrup imported by Defendants contained more than 50 percent honey by weight through the expert testimony of Sharon E. Stricklin, a chemist in the CBP laboratory in Savannah, Georgia. On July 12, 2012, Defendants Chu and Lo filed a motion to exclude Ms. Stricklin's expert opinions, arguing that Ms. Stricklin's methodology for determining the percentage of honey in a blend of honey and rice syrup was not sufficiently reliable under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). See Motion to Exclude Government's Proposed Witness Testimony under Fed.R.Evid. 702 at 3-4 (Doc. 122; Daubert Motion).[6]Defendants claimed “that the general consensus in the scientific community, and within the United States government, is that no reliable scientific method currently exists to quantify the respective amounts of honey in rice-syrup/honey blends.” Id. Indeed, they pointed out that as of November 29, 2011, HSI reported that its laboratory “could not determine the percentage of honey in” a sample identified as being “Rice Fructose Blend Syrup.” Exhibit 6 to Daubert Motion (Doc. No. 122-6) at 2. Specifically, HSI stated, “The Savannah Lab do[es] not have a quantitative method at this time to be able to determine the percentage of honey in a blend such as the one submitted. The Savannah Lab did determined [sic] that there is honey present, but we cannot determine the amount.” Id.

         Defendants also relied on a June 21, 2012 determination from the United States Department of Commerce (the Department) acknowledging the current absence of a reliable, accepted method of determining the ratio of honey and rice-syrup in a mixture of the two. See Daubert Motion at 4, 6-8. The Department concluded that importers were circumventing the antidumping duty by importing blends of honey and rice syrup from China that had not been commercially available in the United States at the time the Antidumping Order was issued. See Honey from the People's Republic of China: Affirmative Preliminary Determination of Circumvention of the Antidumping Duty Order, 77 Fed. Reg. 37378, 37381 (June 21, 2012), Exhibit 10 to Daubert Motion (Doc. Nos. 122-10 & 122-11; Preliminary Determination). In doing so, the Department explained that “the percentage of sugar in blends of honey and rice syrup is not determinate because one cannot identify the percentage of C-3 sugars blended with honey.” See id. In light of this finding, the Department concluded that “without the ability to test for the relative amount of honey in a blend of rice syrup and honey, the ‘50 percent natural honey by weight' threshold in the scope is without meaning.” Id. at 37381. Based on this finding, the Department announced its intention to declare that all blends of honey and rice syrup that entered or were withdrawn from a warehouse on or after December 7, 2011, regardless of the percentage honey, would be subject to the Antidumping Order. See id. at 37383.

         At the Daubert hearing, the parties agreed that current methods of testing could readily quantify the relative amounts of honey (a C-3 sugar) and corn and/or cane syrup (C-4 sugars) based upon the carbon ratios in the sample. See Daubert Hearing Transcript at 15 (Doc. 158; Daubert Hearing Tr.). However, rice syrup, like honey, is a C-3 sugar, and known testing methods, such as using an isotopic ratio mass spectrometer, cannot distinguish one C-3 sugar from another C-3 sugar. Id. at 15-16, 101, 143. In response, the government argued that it did not need to quantify the specific percentage of honey in a blend of honey and rice syrup, but only needed to determine whether a blend of rice syrup and honey contains more or less than 50 percent honey, the threshold ratio implicating the antidumping duties. Id. at 65. The government submitted that Ms. Stricklin's new methodology, developed specifically for this case, was sufficiently reliable to overcome Defendants' Daubert objections.

         Based upon the testimony presented at the Daubert hearing, the government's methodology for determining whether a particular sample contained more than 50 percent honey can be summarized as follows: (1) the government's expert, following the methods of Melissopalynology, [7] creates a slide for microscopic analysis; (2) the government's expert views the slide under the microscope; (3) the government's expert makes a subjective assessment as to whether the amount of pollen observed in the sample constitutes a “relative abundance” or “overabundance” of pollen; (4) if the government's expert finds a “relative abundance” or an “overabundance, ” the sample is determined to contain more than 50 percent honey. Daubert Hearing Tr. at 62. Additionally, as to 19 of the samples, the government's method included comparison to one set of reference slides prepared using Vitex honey and corn syrup.

         On September 28, 2012, the Court held a status conference at which the Court announced that it would grant the Daubert Motion and exclude the government's expert opinions regarding whether a particular syrup sample contained more than 50 percent honey by weight. See Transcript of Criminal Status Conference (Doc. 218; September 28, 2012 Status Tr.). At that time, the Court provided the parties with a summary of its analysis, explaining that exigent circumstances arising in other cases on the docket prevented the completion of a thorough written order in advance of the approaching trial date.[8] Id.

         On November 11, 2012, the Court entered its written opinion. See Opinion (Doc. 242). In the Opinion, the Court initially expressed concern regarding Ms. Stricklin's qualifications to offer the specific opinions proffered by the government, as her opinion was based upon her observation of the relative amount of pollen in a particular sample, but she is not a pollen expert. Id. at 17. The Court concluded, however, that even if she was qualified to render an opinion about the relative amount of honey in the samples she tested, the government failed to establish that Ms. Stricklin's methodology was reliable or that her proposed testimony would assist the trier of fact. Id. at 19.

         Specifically, the Court found, and the government did not dispute, that the methodology relied upon by the government was not generally accepted in the relevant scientific community. Id. at 19-20. The Court further noted that it was “undisputed that the government's new method has not been submitted for any peer review or evaluation.” Id. at 21 (noting that “the fact that this method has not been subject to peer review and publication does not significantly undermine its reliability, but neither does it support its admissibility”). Next, the Court observed that the fact that “there are no known rates of error or standards for the application of the government's method, and that no effort has been made to test or refute Ms. Stricklin's hypothesis or verify the accuracy of her opinions, however, does significantly undermine the government's ability to carry its burden under Daubert.” Id. In sum, the Court explained that

The critical inquiry with regard to the methodology in this case is not whether it can discern whether the suspect samples contain more than 5 percent honey as suggested on the import documents. It is not whether the methodology can determine whether a sample contains a little bit or a lot of pollen. The question is whether the government has shown that using this methodology, its expert can make a reliable quantitative determination that a particular sample contains not some honey, not a lot of honey, not even 50 percent honey, but more than 50 percent honey by weight. The government has simply failed to carry this burden.

Id. at 33.

         On November 13, 2012, the government filed a notice of appeal of the Court's Opinion. See Plaintiff United States' Notice of Interlocutory Appeal and Accompanying Certification (Doc. 245; Notice of Appeal). The next day the Court ordered that no further action be taken in the case until the government's appeal was resolved. See Endorsed Order (Doc. 246). However, the government voluntarily dismissed the appeal on February 22, 2013. See Clerk's Entry of Dismissal (Doc. 257).

         On March 11, 2013, the Court held a status conference to determine how the government wished to proceed in light of the Court's Daubert ruling and the government's decision to dismiss the appeal. See Transcript of Criminal Status Conference (Doc. 319; March 11, 2013 Status Tr.). The Assistant United States Attorney (AUSA) prosecuting the case, Russell Stoddard, informed the Court as follows:

MR. STODDARD: With respect to the current indictment, Your Honor, if the government does go to trial on the indictment as it currently exists, then at the present time it would appear that the Title 21 offenses and the 371 conspiracy would be -- would still be viable.
I will tell the Court that we are working on the possibility of a superseding indictment which could significantly alter the posture of the case in light of the Daubert ruling, as well as additional evidence that the government is in the process of getting as a result of a parallel prosecution in the Northern District of Illinois.

Id. at 6. After defense counsel expressed “a loss at what the theory of the case is going to be” in light the Court's ruling on the Daubert motion, the Court inquired of the AUSA as follows:

THE COURT: . . . Mr. Stoddard, Counts Twelve and Thirteen as pled are that the defendants, with the intent to defraud, caused to be introduced into interstate commerce honey that was misbranded as rice fructose syrup.
How does -- do you not have to prove that it was honey --
MR. STODDARD: I don't have to prove scientifically that it was honey for purposes of the statute. I can put on end purchasers who can say, “This is what I bought. This is who I bought it from, and this is the product that I bought and subsequently sold as the product that was represented to me, that is to say, honey.”
. . .
[DEFENSE COUNSEL]: Unfortunately I disagree because that -- that is what I -- in a previous pretrial proceeding I indicated to the Court that I was afraid would happen, that the government would try to bring in evidence, opinion evidence, and try to ply it in under something else that is excluded by the Daubert ruling. I'd respectfully submit that that is what was just described.
THE COURT: Well, what he said was that he would intend to prove that -- prove the intent to defraud by bringing in evidence that the item that end purchasers bought was labeled as honey and represented to them to be honey and that -- I guess he's going to show that that's the same stuff that was brought into the country labeled as rice fructose syrup.
Is that right?
MR. STODDARD: That's correct, Your Honor.
THE COURT: Now, I don't know if that's enough, but that doesn't have anything to do with the opinion evidence, Mr. Scroggie [(Chu's counsel)].
. . .
And then as to Count One -- I guess, Mr. Stoddard, what's the government's position --
. . .
MR. STODDARD: The government's position is that the defendants intended to smuggle in a product which they believed to be honey mislabeled as rice fructose syrup or rice fructose blended syrup in order to avoid the tariffs.
Whether or not they were successful or whether or not it was actually possible for them to commit or to accomplish the conspiracy is really irrelevant. It has to do with what their agreement was and what the intent was and what, if any, overt acts they may have done in order to accomplish the plan. It could be bubble gum as far as the government's concerned, and they could still be criminally liable under Court One.

Id. at 10-14.

         On Monday, May 6, 2013, at what was supposed to be a sentencing hearing for Defendant Chin Shih Chou, who had previously entered a guilty plea, Mr. Stoddard requested a continuance as the government had received new testing results that concluded the substances imported by Lo, Chu, and Chou contained little to no honey. See Transcript of Sentencing Hearing (Doc. 279; Sentencing Tr.). Mr. Stoddard explained the disconcerting turn of events as follows:

Last week we received -- well, to back up, in preparation for a superseding indictment against the remaining defendants, we became aware of a laboratory in Germany by the name of Intertek that is being used by a lot of food distributors in the United States, as well as almost all of the food distributors in the European Union, to do tests for adulteration and contaminants of food products.
Once we became aware of this, I sought funding to send the samples of the suspected honey to this laboratory for testing. That funding was granted in April. Samples were sent from the CBP and Border Protection lab in Savannah, Georgia, to Intertek in Bonn, Germany.
We received initial reports of their testing on Wednesday with a final summary report on Friday at about 11:45. The results from the German testing are in stark contrast to the testing that was conducted by CBP and Border Protection in that their tests concluded that the substance in question was predominantly syrups, either corn syrup or rice fructose syrup, with little if any honey contained in the samples that were presented to them.
As a result of that, we are not prepared to go forward [with the sentencing] because [Chou], quite frankly, is not guilty of the crime to which he has pled guilty, at least based upon the scientific evidence that we have at this point in time.
I have sought permission to dismiss the indictment. I have not received that permission. I have not received permission to ask for this continuance. However, given the nature and circumstances of the case, I don't feel that I have any alternative.
I sent the information that I received Friday to Ms. Irvin [(Chou's counsel)], and I also spoke with her. She did not have an opportunity to talk with her client because [the translator] was out of the country. But I requested from Ms. Irvin at that time if we could file a joint motion for continuance, and she said she was not in a position to be able to do so. This was late Friday afternoon.
But I am asking for a continuance of one week with the idea being that between now and a week from today, I will receive permission to dismiss the indictment against Mr. Chou, and we'll make arrangements to get him home as quickly as possible.

Id. at 4-5.

         Mr. Stoddard went on to state that he believed a crime had been committed, but that it was “not the crime that is charged and not the crime that [Chou] pled guilty to.” Id. at 6-7. When the Court asked how the Intertek lab results could be so different, Mr. Stoddard responded, “I have no answer for that. I don't know. I mean, obviously the people at [CBP] took serious issue with the results that we received from Germany on Friday.” Id. at 9. Mr. Stoddard assured the Court that he would “waste no time” in filing a motion for leave to dismiss the charges against the Defendants once he received permission from his supervisors. Id. at 11. Ultimately, the parties agreed to a one week continuance of the sentencing hearing to give the government time to dismiss the charges and to allow defense counsel time to look into Chou's immigration status.

         Despite the week-long continuance, Mr. Stoddard moved to voluntarily dismiss the Indictment and all charges against all three Defendants the next day. See Request for Leave to Dismiss Indictment (Doc. 281; Voluntary Dismissal). The Court sua sponte scheduled a status hearing that same day to discuss the best way to handle the dismissal given Chou and Chu's immigration status[9] and the Court's concern that if the Court granted the dismissal, Chu and Chou would be taken into immigration custody immediately upon their release from prison.[10] See Transcript of Telephonic Status Conference (Doc. 291; May 7, 2013 Status Tr.). The parties agreed that the best course of action would be to delay granting the voluntary dismissal by one day so that defense counsel could work out the immigration issues. Id. at 22-23.

         At the hearing the next day on May 8, 2013, after being advised that the immigration detainers had been lifted, the Court granted the request for leave to dismiss the charges against the Defendants in open court and entered a written order as well. See Transcript of Telephonic Status Conference at 4 (Doc. 292; May 8, 2013 Status Tr.); Order (Doc. 287). Subsequently, Chu and Lo filed the instant motions for an award of attorney's fees and other litigation expenses pursuant to the Hyde Amendment, arguing the Government's prosecution was vexatious, frivolous, and in bad faith.

         II. ...

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