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UNITED STATES v. QUAKER INDUS. ALCOHOL CORP.

October 17, 1932

UNITED STATES
v.
QUAKER INDUSTRIAL ALCOHOL CORPORATION et al.



The opinion of the court was delivered by: KIRKPATRICK

This suit at law was brought by the United States upon three permit bonds in which the Quaker Industrial Alcohol Corporation was principal and New Amsterdam Casualty Company surety. The bonds were given to guarantee the lawful handling of alcohol in connection with the operation of a distillery, a bonded warehouse and a denaturing plant, respectively, all of which constituted the industrial alcohol plant of the principal. At the outset of the trial the government conceded that there could be no recovery upon either of the first two bonds and the case proceeded and may now be considered as though the third bond were the only one in suit.

The trial resulted in a verdict in favor of the plaintiff for $85,400, with interest from October 10, 1928, and the defendant has moved for a new trial. Assuming, as we must, that the jury believed the plaintiff's witnesses, disbelieved the defendant's, and drew all permissible inferences favorable to the plaintiff from the circumstantial evidence, the following proved facts support the verdict:

 During the twelve days from December 23, 1926, to January 3, 1927, four freight cars, each loaded with drums of pure alcohol, billed variously as lubricating oil, steel castings, glucose, and agricultural machinery, were located by government agents at four widely separated points in the United States, namely, Rochester, N.Y., Cleveland, Ohio, Detroit, Mich., and Eden Prairie, Minn., and the alcohol seized.

 Beside containing alcohol in drums of the same size and kind, these four cars had something else in common. They all appeared, from the railroad records, to have been loaded at Bell Road siding, Philadelphia, between the 8th and the 22d of December, the consignor in three instances being "Di Ganna Oil Company" and in one "Salvage Lumber Company." Inquiry naturally turned toward these shippers, and, not unexpectedly, it turned out that no such concerns existed. However, directly opposite the Bell Road siding was the plant of the Quaker Industrial Alcohol Corporation.

 During the period that the alcohol cars were being dispatched from Bell Road, this concern was purchasing pure alcohol, at the rate of a carload (say 5,500 gallons) every day or two from Publicker Commercial Alcohol Company of Philadelphia, which alcohol was being shipped to its bonded warehouse, ostensibly to be kept there until such time as it would be moved into the denaturing plant for manufacture into commercial products. The alcohol came from the Publicker Company in 54-gallon steel drums of the type found in the seized cars (although some witnesses loosely referred to the latter as 50-gallon drums).

 It began to look as though the Quaker Corporation might have something to do with the shipment of the alcohol in the four seized cars, though the facts so far, of course, did not make the government's case. The theory of the government was that the alcohol in the seized cars had either been received at the bonded warehouse and then reloaded, still in the original drums, by the Quaker Corporation into the same cars and shipped out, or never had been unloaded at all, but the cars of alcohol sent off to their destinations by the Quaker Corporation under false descriptions and in the name of fictitious consignors.

 At this point it may be remarked that either of these operations would be a diversion of alcohol for which the bonding company would be liable. The defendant's argument upon this point, carried to its logical limits, is that it was necessary for the government to prove the actual physical entry of the alcohol into the denaturing plant before a recovery could be had. The terms of the bond clearly show that no such narrow limitation was intended. It recites that the Quaker Corporation "intends to transfer to said denaturing plant from bonded warehouses * * * alcohol, free of tax; for denaturing or other tax-free purposes." And the condition is inter alia, that the Quaker Corporation "shall pay on demand all taxes * * * on all alcohol so removed from the said bonded warehouses and not * * * denatured or removed under lawful permit." Since the Quaker Corporation had only one warehouse of its own, it is obvious that the bond was drawn to guarantee the lawful disposition of all alcohol obtained by it from any lawful source, and was not limited to its transit from its own warehouse to its denaturing plant, which operation consisted merely in rolling the drums through a door or running the alcohol through a short pipe.

 Although the evidence of the general scope and character of the principal's business might well support the inference that the specific alcohol diverted had been intended for the denaturing room rather than for sale from the warehouse, I do not think the government was required to prove that fact. The bond recites intended transfers of alcohol to the principal not only for denaturation but for "other tax-free purposes," which expression includes sales from the warehouse, under permit, and the condition relates to "such alcohol."

 The fact that another bond was given covering the operation of the warehouse is not controlling as against the plain language adopted by the parties. There is nothing to show that the two bonds were intended to be mutually wholly exclusive, and there was nothing to prevent the parties from entering into two separate bonds in each of which some of the acts guaranteed on the part of the principal were the same.

 To return to the evidence: Throughout the period in question, government agents, including a prohibition inspector named Becherer, had been stationed at the Quaker plant. The elaborately detailed reports to the Prohibition Administrator, showing the receipt and lawful disposal of the alcohol, required of these agents were in perfect order. The scheme, therefore, which the government set out to prove included the corrupt co-operation of some of thee agents and must have involved Becherer. Upon tracing the cars, it also developed that there were railroad records showing that each of them had been emptied and reloaded again at some intermediate point before it reached the place where it was seized. Of course, if these records were correct, it was unlikely (but not impossible) that the alcohol seized had come all the way from Bell Road siding. The scheme, therefore, also required corrupt or culpably indifferent connivance of various railroad employees and falsification by them of railroad records.

 Becherer was a witness at the trial and indignantly denied the imputation that he was corrupt. In fact, so shocking was the suggestion to counsel for the defendant that he moved to withdraw a juror. Becherer also testified that his reports were honest and accurate, and that no diversions could have taken place. Obviously the jury disbelieved him. The railroad employees who made the actual checkup of cars upon which the records of unloading and loading at intermediate points were made were not all called. Those who were evidently did not impress the jury.

 It required no violent assumption to accept the view that these various agents and employees had been corrupted.The profits of the illegal business carried on must have amounted to staggering sums, and there must have been plenty of money available to bribe the small fry involved. Ine of the defendant's complaints is that the court in the charge mentioned this situation to the jury. It was not intended to be stated as a fact in evidence, and the jury could hardly have gotten that impression. It was, however, a perfectly proper consideration as bearing on the inherent probability or improbability of a basic and vital fact; namely, the co-operation of the prohibition agents and the railroad men. From any point of view, where the evidence indicates diversions of ...


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