IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

1. Following his nomination by the President of the United States and his confirmation by the United States Senate, Alphonso Michael Espy served as Secretary of Agriculture from January 22, 1993, until the effective date of his resignation therefrom on December 31, 1994. Secretary Espy performed the duties of his office related to the allegations in this Complaint in the District of Columbia, the Northern District of California and elsewhere.
2. The USDA was an agency and department of the United States of America. The Secretary of Agriculture was in charge of the USDA. Within the jurisdiction of the USDA were the following programs:
1. Funding of viticulture research: The USDA provides funding to various universities in California, including the University California at Davis, for research concerning wine. Defendant MONDAVI, along with other wineries and growers, sought the commitment of additional research funds to combat the spread of phylloxera, a pest that was devastating Mondavi and other vineyards in California.
2. Market Promotion Program ("MPP"): Under the Market Promotion Program, commonly referred to as MPP, the USDA provided government funds to certain trade organizations, which in turn would provide funding to private companies. The money was available to advertise American products in foreign countries. The Secretary of Agriculture would approve the award of money to each trade organization, which he believed would significantly contribute to United States export market development. Management of defendant MONDAVI believed that MPP funds should be spent predominantly on generic advertising and promotion to increase foreign sales of wine produced in the United States. Management of defendant MONDAVI also advocated a general reduction in the amount of MPP funds authorized for "brand marketing," advertising by specific wine brands. Through the Wine Institute, which received MPP funds from the USDA in 1993 totaling $11,680,000 and in 1994 totaling $4,950,000, defendant MONDAVI received MPP funds in the following amounts:
1. For calendar year 1993, $79,295, and
2. For calendar year 1994, $70,295.
3. Dietary Guidelines for Americans: Pursuant to statute, every five years the Department of Agriculture and the Department of Health and Human Services ("HHS") jointly promulgate the Dietary Guidelines for Americans. The 1990 version of the Dietary Guidelines dissuaded any alcohol consumption. However, with the results of studies in the early 1990s finding health benefits for moderate wine consumption, defendant MONDAVI and others wanted this fact included in the Dietary Guidelines. Defendant MONDAVI did not submit written comments to the joint USDA-HHS committee responsible for the Guidelines, but made informal comments during meetings to members of Congress and the Administration, including Secretary Espy.
4. International Trade issues: In or about late 1993, the Clinton Administration worked to pass NAFTA to create a free-trade bloc for North American countries. Defendant MONDAVI believed that passage of NAFTA would be beneficial to the state of California, including its wine industry.
5. Soil Conservation Service: In the opinion of defendant MONDAVI, the Soil Conservation Service ("SCS") conducted an effective program to deal with soil erosion. In or about late 1993, the USDA was considering, and defendant MONDAVI opposed, cutting funding of the program. In particular, USDA was considering closing the SCS office closest to Mondavi. Mondavi sought Espy’s help in preventing the closure.
6. Federal Marketing Orders: The USDA collects money from private sources and disburses it through a trust fund to promote marketing of particular agricultural products to specific geographic areas. Although the wine industry never before had federal marketing orders because of a lack of industry unity to create the program, defendant MONDAVI sought information and guidance from Secretary Espy concerning them. Although defendant MONDAVI did not apply for them, defendant MONDAVI advocated that the wine industry should understand and consider the use of federal marketing orders for wine grapes.
3. As an official of the United States and employee of the Executive Branch, Secretary Espy owed a duty of loyalty to the United States of America and its citizens, upon which the Government and the people relied for an impartial decision-making process. The duty of loyalty included the obligation to perform his job as Secretary free from, among other things, the receipt of gratuities and conflicts of interest.
4. In part, and among other things, Secretary Espy was required by law to adhere to the Standards of Ethical Conduct for Employees of the Executive Branch, 5 C.F.R. § 2635, which were promulgated, in part, under the statutory authority of the President of the United States. In part, the Standards of Ethical Conduct provided that:
1. "Public service is a public trust. Each employee has a responsibility to the United States Government and its citizens to place loyalty to the institution, laws and principles above private gain...." 5 C.F.R. §2635.101(a).
2. "[A]n employee shall not, directly or indirectly, solicit or accept a gift (1) From a prohibited source; or (2) Given because of the employee’s official position...."5 C.F.R. § 2635.202.
3. A "prohibited source," as defined in 5 C.F.R. § 2635.203, includes:

Any person who: (1) Is seeking official action by the employee’s agency; (2) Does business or seeks to do business with the employee’s agency; (3) Conducts activities regulated by the employee’s agency; (4) Has interests that may be substantially affected by performance or nonperformance of the employee’s official duties.

 

5. Under the Standards of Ethical Conduct, defendant MONDAVI and its officers and employees, were prohibited sources.
6. The gratuity provision of federal criminal law, Title 18, United States Code § 201(c)(1)(A) prohibited a person or entity from directly or indirectly giving anything of value to a public official for or because of any official act performed or to be performed. Title 18, United States Code § 201 (c)(1)(B) prohibited a public official from directly or indirectly receiving or accepting anything of value personally for or because of any official act performed or to be performed.
7. Title 18, United States Code, § 209(a) prohibited a corporation from supplementing the salary of an employee of the United States under circumstances which would make its receipt by the employee compensation for his services as an officer or employee of the government.
8. Title 5, United States Code, § 7353(a) prohibited an employee of the executive branch from:

solicit[ing] or accept[ing] anything of value from a person--

(1) seeking official action from, doing business with, or (in the case of executive branch officers and employees) conducting activities regulated by, the individual’s employing entity; or

(2) whose interests may be substantially affected by the performance or nonperformance of the individual’s official duties.

9. On or before October 5, 1993, Richard Douglas ("Douglas"), then Senior Vice President for Corporate Affairs for Sun-Diamond Growers of California and a personal friend of and advisor to Secretary Espy, telephoned Schmidt at defendant MONDAVI and asked if it would be possible for Secretary Espy to visit the defendant MONDAVI’s winery in the Napa Valley in California on or about October 29, 1993. Douglas told Schmidt, in substance, that Secretary Espy would be traveling to San Francisco, California to deliver a speech and that Douglas wanted Secretary Espy to come to Napa for broader industry exposure.
10. On a date uncertain after October 5, 1993 and before October 29, 1993, Schmidt telephoned Douglas and told Douglas that senior officials of defendant MONDAVI and other interested Napa Valley vintners would be available to meet with Secretary Espy on October 29, 1993.
11. On a date uncertain after October 5, 1993 and before October 29, 1993, during another telephone call, Douglas told Schmidt that Secretary Espy and his girlfriend as well as Douglas’ would be in the San Francisco Bay Area for the weekend to celebrate a private event. During the telephone call, Douglas asked Schmidt, in substance, whether he could pick up "some wine" from defendant MONDAVI for Espy’s group. Schmidt agreed, knowing that Secretary Espy would be one of the recipients of the wine and that it was unlawful for Mondavi to give things of value to Executive Branch officials.
1. On or about October 29, 1993, Secretary Espy visited defendant MONDAVI’s winery in Oakville, California. Representatives of defendant MONDAVI met with Secretary Espy and discussed the following matters of concern to defendant MONDAVI which were pending before Secretary Espy and regarding which the company hoped Secretary Espy would act favorably -- (1) Phylloxera, specifically describing the effect of the pest and requesting an increase in research funding from the USDA; (2) MPP; (3) Trade, specifically NAFTA; (4) Health and moderate wine consumption; and (5) the Soil Conservation Service, specifically concerns about cuts in funding.
12. Following the meeting at defendant MONDAVI’s winery, a representative of the company gave a tour to Secretary Espy and Douglas to show them the damage to the vineyards caused by phylloxera. Between the meeting and the tour of the vineyards, Douglas asked Schmidt, in substance, "do you have the wine for the Secretary?" Schmidt told Douglas, in substance, that the wine would not be a problem.
13. On or about October 29, 1993, in comments to the press at Mondavi, Espy expressed the following:

With respect to research funds to combat Phylloxera:

• "We will move federal agricultural research funds to the front burner to help the wine industry deal with the problem."

• "We’ve got money for research. We can do more than we have been doing and I commit to you we will."

With respect to NAFTA:

• "[NAFTA is] a win, win, win situation for U.S. agriculture and particularly for California, which is the nation’s leading agricultural state."

• The Press Democrat reported that Espy said he believed NAFTA would get through Congress, which would result in more wine being sold in the growing Mexican market.

With respect to the Dietary Guidelines, the St. Helena Star reported that Espy "vowed to get the department moving on the wine-health issue."

14. Following the tour of the vineyards, Secretary Espy attended a reception at the Vichon Winery ("Vichon"), another Napa Valley winery owned by defendant MONDAVI. During a conversation between Douglas, Schmidt and another employee of defendant MONDAVI, Douglas again brought up the wine. As a result of this conversation, the employee of defendant MONDAVI went to obtain wine from the winery store. Schmidt told the employee of defendant MONDAVI, in substance, that the wine was for Secretary Espy.
15. On or about October 29, 1993 at approximately 5:43 p.m., the employee of defendant MONDAVI drew six bottles of premium wine from the company’s retail gift shop in Oakville, California. The employee wrote on the receipt that the purpose of the wine was a "GIFT FOR FED. AG. SEC." The total retail value of the six bottles of wine was $187.
16. On or about October 29, 1993 at approximately 5:50 to 5:55 p.m., the employee of defendant MONDAVI returned to the Vichon Winery with the six bottles of wine that he had drawn for Secretary Espy. Upon seeing the employee arrive at the Vichon Winery with the wine, Schmidt and Douglas escorted the employee to the parking lot. The wine was then placed, either by Douglas or at the direction of Douglas, into one of the two cars that were part of Secretary Espy’s traveling party for and for the benefit of, among others, Secretary Espy. Douglas advised the Mondavi personnel that Espy could not receive the wine directly but it would be "OK if it was put in Douglas’ car" for Espy.
17. Neither Secretary Espy nor Douglas nor Kearney offered to or did pay for the six bottles of wine. Defendant MONDAVI did not ask or expect Secretary Espy, Douglas or Kearney to pay for the wine. When defendant MONDAVI gave the wine to Douglas for delivery to Secretary Espy, Schmidt knew that giving things of value directly or indirectly to Executive Branch officials was a violation of federal law.
18. On or about October 29, 1993 and at the time that defendant MONDAVI gave the wine to or for the benefit of Secretary Espy, defendant MONDAVI wanted Secretary Espy to act favorably with respect to certain concerns or issues pending before Secretary Espy and within his jurisdiction, including: (1) Additional funds for phylloxera research; (2) a bill pending before Congress concerning the tax treatment of damaged crops; (3) not reducing funding to the Soil Conservation Service; (4) support for NAFTA and GATT; and (5) the MPP program.
19. On or about November 1, 1993, Schmidt issued a memorandum to senior officials of defendant MONDAVI that provided, in part:

"[W]e have embarked on a program of inviting cabinet secretaries to visit Napa during the next 9 months. . . .The first visit took place this past Friday, October 29. United States Secretary of Agriculture, Mike Espy, visited . . .(the first visit of a secretary since 1983). During his briefings at [Robert Mondavi Winery, Secretary Espy] expressed the following feelings:

Health - Clinton administration believes wine in moderation is good for you! Important since his department is in charge of the nutrition of the nation.

Market Promotion Programs - Believes they need support but reform (perhaps should be removed from Wine Institute).

NAFTA - Thanked . . . for our unconditional support and noted it will not go un-rewarded.

Research Funding - Will make available greater USDA funding for research into grapevine pests and diseases.

[O]ne thing is clear, we have an unprecedented opportunity to make a difference on national policy regarding moderate consumption of wine. We must seize the opportunity! It will not happen again anytime soon. It is an ideal situation for political progress in terms of wine industry problems."

20. On or about January 19, 1994, Schmidt issued a memorandum addressed to senior officials of defendant MONDAVI that provided, in part:

"This year on the federal level health care reform, welfare reform and regulatory questions have the potential of affecting us not only as producers of wine but as a small business. . . .

The key tools in facilitating our strategy are:

. . .

Continue and expand our relationship with key legislators in both Sacramento and Washington.

Continue to have cabinet level officials to visit [Robert Mondavi Winery] to see our operation and discuss our concerns]."

21. On or about March 8, 1994, defendant MONDAVI hosted a dinner in a private room at Kinkead’s Restaurant in Washington, DC to celebrate the second American Wine Appreciation Week. Among the twelve guests of defendant MONDAVI attending the dinner were Secretary Espy and his girlfriend. The total cost of the dinner was $1660. The total value of the dinner to Secretary Espy for himself and his girlfriend was $207. Neither Secretary Espy nor his girlfriend offered to or did pay for their dinners.
22. During the dinner of March 8, 1994, a senior official of defendant MONDAVI spoke to those in attendance, including Secretary Espy, about, among other things, the healthful effects of wine consumption and the creation of federal market orders for wine grapes. Both issues were matters pending before or within the jurisdiction of Secretary Espy.
23. On or about March 18, 1994, Schmidt issued a memorandum to senior officials of defendant MONDAVI that provided, in part:

"Our meeting with some of the top officials of our government was very effective. . . .They were more than pleased to hear our point of view and want to be helpful."

24. On or about March 18, 1994, a senior official of defendant MONDAVI wrote a letter to Secretary Espy that included the following:

"It was an honor to have you join us for dinner last week at Kinkead’s. . . .It was a pleasure to meet [Espy’s girlfriend]. What a lovely woman.

Please know that you have a standing invitation to visit us in Napa. . . .We do have a guest house which could be made available to you."

25. On or about November 14, 1994, Schmidt sent a handwritten note to Secretary Espy that provided, in part: "I wanted to thank you for my appointment to APAC [(the Agricultural Policy Advisory Committee on Trade)]. It will be an honor to serve you and our country." APAC is an international trade committee dealing with agricultural issues appointed by Secretary Espy and the United States Trade Representative.

 

COUNT I (Tort)

1. Plaintiff realleges and incorporates by reference paragraphs 1 through 33 as though fully set forth herein.
2. On or about October 29, 1993, defendant MONDAVI, acting through Schmidt, its Vice President of Government Affairs and Community Affairs, who was acting in response to a solicitation by Douglas made on behalf of and in the name of Secretary of Agriculture Espy, did knowingly participate in Secretary of Agriculture Espy’s breach of his fiduciary duty owed to the United States and interfered with his agency relationship with the USDA and the Executive Branch by giving six bottles of wine to him or for his benefit valued at a total of $187.
3. On or about March 8, 1994, defendant MONDAVI, acting through a senior official of the company and Schmidt, did knowingly participate in Secretary of Agriculture Espy’s breach of his fiduciary duty owed to the United States and interfered with his agency relationship with the USDA and the Executive Branch by giving him, and his girlfriend, dinner valued at a total $207.

COUNT II (18 U.S.C. §§ 209 and 216(b))

1. Plaintiff realleges and incorporates by reference paragraphs 1 through 33 as though fully set forth herein.
2. Between October 5, 1993 and October 29, 1993, and again on October 29, 1993, Richard Douglas solicited wine from defendant MONDAVI for the direct and indirect benefit of Secretary Espy.
3. On or about October 29, 1993, defendant MONDAVI delivered into the custody of Douglas for the direct and indirect benefit of Secretary Espy six bottles of wine valued at $187.
4. On or about March 8, 1994, defendant MONDAVI gave dinner to Secretary Espy and his girlfriend dinner at a restaurant valued at a total of $207.
5. In consequence of the acts set forth in this Count, defendant MONDAVI did supplement the salary of an officer and employee of the executive branch of the United States Government as compensation for his services, by providing to Alphonso Michael Espy, the Secretary of the United States Department of Agriculture, wine valued at $187 and dinner valued at $207 as compensation for his services in giving favorable consideration to matters pending before the Department of Agriculture concerning (1) funding for research to combat phylloxera, (2) including the health benefits of moderate wine consumption in the Dietary Guidelines for Americans, (3) using Market Promotion Program funds, (4) trade issues related to the GATT and NAFTA, (5) funding of the Soil Conservation Service, and (6) federal market orders for wine, all in violation of 18 U.S.C. § 209.

 

PRAYER FOR RELIEF

WHEREFORE, plaintiff, the United States of America, prays that judgment be entered in its favor against defendant MONDAVI and $50,000 damages be awarded to the plaintiff for Count I and the maximum civil penalty in the amount of $50,000 be awarded to the plaintiff for Count II.

Respectfully Submitted,     DONALD C. SMALTZ Independent Counsel THEODORE S. GREENBERG Deputy Independent Counsel JACOB S. FRENKEL Associate Independent Counsel Office of Independent Counsel 103 Oronoco Street, Suite 200 Alexandria, VA 22314 (703) 706-0010

Date: July 21, 1998