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United States v. Oceanic Illsabe Limited

United States Court of Appeals, Fourth Circuit

May 7, 2018

UNITED STATES OF AMERICA, Plaintiff - Appellee,
v.
OCEANIC ILLSABE LIMITED, Defendant-Appellant. UNITED STATES OF AMERICA, Plaintiff - Appellee,
v.
OCEANFLEET SHIPPING LIMITED, Defendant-Appellant.

          Argued: December 7, 2017

          Appeals from the United States District Court for the Eastern District of North Carolina, at Wilmington. Malcolm J. Howard, Senior District Judge. (7:15-cr-00108-H-3; 7:15-cr-00108-H-4)

         ARGUED:

          George Michael Chalos, CHALOS & CO, P.C., Oyster Bay, New York, for Appellant.

          Emily Anne Polachek, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

         ON BRIEF:

          Briton P. Sparkman, CHALOS & CO, P.C., Oyster Bay, New York, for Appellant.

          Jeffrey H. Wood, Acting Assistant Attorney General, Eric Grant, Deputy Assistant Attorney General, Allen M. Brabender, Kenneth E. Nelson, Brendan C. Selby, Environment & Natural Resources Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; John Stuart Bruce, United States Attorney, Jennifer May-Parker, First Assistant United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Raleigh, North Carolina; Brendan T. Gavin, LCDR, Deputy Staff Judge Advocate, UNITED STATES COAST GUARD, Norfolk, Virginia, for Appellee.

          Before TRAXLER, KING, and HARRIS, Circuit Judges.

          KING, Circuit Judge:

         In 2016, Oceanic Illsabe Limited ("Oceanic") and Oceanfleet Shipping Limited ("Oceanfleet") (together, the "Appellants") - two closely related corporate entities headquartered in Greece - were each convicted of nine criminal offenses by a jury in eastern North Carolina. Those crimes were directly committed by the supervisory personnel in the Engine Department of the M/V OCEAN HOPE (the "Ocean Hope, " or the "Vessel") - an oceangoing cargo ship owned and operated by the Appellants. The offenses of conviction arose from and are related to illegal discharges of large quantities of oily pollutants from the Vessel into the ocean. Oceanic and Oceanfleet maintain on appeal that the prosecution failed to sufficiently prove that they are criminally responsible for the offenses lodged against them. The Appellants also contend that the district court erred in imposing fines and other penalties at sentencing. As explained below, we affirm the convictions and sentences.

         I.

         A.

         We begin with a brief review of some pertinent legal and factual background for this prosecution. The United States is a signatory to the 1973 International Convention for the Prevention of Pollution from Ships, as amended in 1978 ("MARPOL"). MARPOL's primary purpose is to eliminate pollution of the oceans by discharges of oily wastes. To that end, MARPOL - an abbreviation for "marine pollution" - requires its member states to punish under domestic law any violations of MARPOL that occur on oceangoing ships, and to provide for penalties that will discourage additional violations.

         In compliance with MARPOL, our Congress enacted in 1980 the Act to Prevent Pollution from Ships ("APPS"). APPS provides that foreign ships in the navigable waters of the United States are subject to the discharge requirements of federal law pertaining to oily pollutants. See 33 U.S.C. § 1902(a)(2).[1] With respect to discharges of such pollutants that occur outside our navigable waters, the Coast Guard can assert jurisdiction when a foreign ship fails to make complete and accurate entries in the ship's Oil Record Book. Id. § 1908(a).[2]

         MARPOL and federal law both require all oceangoing ships exceeding 400 gross tons to maintain an Oil Record Book. See 33 C.F.R. § 151.25(a). The Oil Record Book must be fully updated any time a ship's crewmembers engage in certain "machinery space operations, " including the disposal of oily pollutants and wastes. Id. § 151.25(d).[3] Because oceangoing ships generate large quantities of oily pollutants and wastes, their Oil Record Books are required to be updated "without delay." Id. § 151.25(h).

         The applicable regulations prescribe how to properly dispose of specific waste products, including bilge water and sludge. See 33 C.F.R. § 151.10(a). Bilge water is created when water accumulates at the bottom of a ship and combines with oily mixtures that have leaked and dripped from the engine fuel systems. Id. § 151.05. Bilge water must be collected and stored in tanks onboard the ship and then processed through two pollution control devices, the Oil Water Separator (the "Separator") and the Oil Content Monitor (the "Content Monitor"). Id. § 151.10(a)(5)-(6). If, after passing through the Separator, the Content Monitor measures only negligible quantities of oil, bilge water can be legally discharged into the ocean. Id. Sludge - that is, the oil residue left over after bilge water has been processed through the Separator - must either be incinerated onboard the vessel or offloaded in port to a licensed hauler and disposal facility. See MARPOL, Annex VI, Reg. 16.1. The foregoing disposal activities must always be assiduously recorded in the ship's Oil Record Book.

          B.

         On April 14, 2016, the grand jury in the Eastern District of North Carolina returned the operative nine-count indictment in this case and charged Oceanic, Oceanfleet, and two of the Ocean Hope's supervisory personnel (the "Indictment"). The indicted supervisory personnel were Chief Engineer Rustico Ignacio and Second Engineer Cassius Samson of the Engine Department. The charges against the defendants included conspiracy to commit offenses against the United States, failure to fully and accurately maintain (and aiding and abetting the failure to fully and accurately maintain) the Ocean Hope's Oil Record Book, a charge of obstruction of justice by falsification of (and aiding and abetting the falsification of) the Oil Record Book, making false statements to Coast Guard investigators, a second obstruction of justice charge for making false statements to Coast Guard investigators, and four charges of witness tampering. Samson was subjected to eight charges - all the counts alleged except Count Six - while Chief Ignacio was subjected to five charges - Counts One, Two, Three, Six and Nine. More specifically, the nine offenses alleged in the Indictment were as follows:

• Count One - Conspiracy to violate APPS and obstruct justice, in violation of 18 U.S.C. § 371;
• Count Two - Violating APPS by failing to fully and accurately maintain - and by aiding and abetting the failure to fully and accurately maintain - the Oil Record Book, in violation of 33 U.S.C. § 1908(a), 18 U.S.C. § 2, and 33 C.F.R. § 151.25 (the "Failure to Maintain charge");[4]
• Count Three - Obstructing justice by falsification of - and by aiding and abetting the falsification of - the Ocean Hope's Oil Record Book, in violation of 18 U.S.C. §§ 1519 and 2 (the "Obstruction by Falsification charge");[5]
• Count Four - False statements to Coast Guard investigators, in violation of 18 U.S.C. § 1001(a)(2);
• Count Five - Obstructing justice by making false statements to Coast Guard investigators, in violation of 18 U.S.C. § 1505; and
• Counts Six through Nine - Four offenses of witness tampering, in violation of 18 U.S.C. § 1512(b)(3).

         Oceanic and Oceanfleet were charged in each of the nine counts with being vicariously liable for the illegal activities of Chief Engineer Ignacio and Second Engineer Samson, who were acting within the scope of their agency and employment. At the conclusion of the pretrial proceedings, the four defendants - Oceanic, Oceanfleet, Chief Ignacio, and Samson - were jointly tried before a jury in Wilmington.

          C.

         The trial lasted several days and concluded on September 1, 2016. The jury heard approximately twenty witnesses and was presented with numerous exhibits and records.[6]The witnesses confirmed that, sometime in April 2015, the Ocean Hope embarked on a voyage from Bangladesh in southern Asia to Wilmington in eastern North Carolina. During that trip, the Engine Department's subordinate crewmembers - at the direction of Chief Engineer Ignacio and Second Engineer Samson - ignored the waste disposal procedures required by MARPOL and APPS and illegally discharged large quantities of oily pollutants into the ocean. Several crewmembers confirmed that, after the Vessel's arrival in Wilmington, they were instructed by Chief Ignacio and Samson to make false statements to the Coast Guard investigators about the illegal discharges. The Oil Record Book of the Ocean Hope was not accurately maintained and was systematically falsified. The trial evidence proving those unlawful activities is summarized below.

         1.

         The jury learned that the Ocean Hope was owned by Oceanic, a Liberian corporation with its principal place of business in Greece. In October 2009, Oceanic contracted with its parent entity, Oceanfleet - a Marshall Islands corporation headquartered in Greece - to provide commercial ship management services to the Ocean Hope. Oceanic and Oceanfleet retained a staffing agency in the Philippines to provide seafarers (i.e., employees) to operate and maintain the Ocean Hope. Several of those employees were the subordinate crewmembers in the Vessel's Engine Department, and worked under the supervision of Chief Engineer Ignacio and Second Engineer Samson.

         The Engine Department was staffed by eight crewmembers. The crewmembers generally wore uniforms with the name "Oceanfleet" affixed thereon. The prosecution emphasized that the Department's crewmembers confirmed to the jury that they were employed by either Oceanic or Oceanfleet, or by both Appellants. For example, Second Engineer Samson confirmed that his salary came from both Oceanic and Oceanfleet. Samson said that the name "Oceanic Illsabe" was written on his employment contract, and that Oceanfleet operated the Ocean Hope for the duration of his employment. The subordinate crewmembers understood that they were employed by Oceanfleet.

         All of the Engine Department crewmembers were required to comply with the Oceanfleet Safety Management System Manual (the "Oceanfleet Manual"), which had the name "Oceanfleet" emblazoned on nearly every page. The Oceanfleet Manual explained the chain of command on the Ocean Hope and emphasized that "orders are given and expected to be obeyed down the chain of command without hesitation or question." See G.A. 344.[7] At the apex of the Department's hierarchy was Chief Engineer Ignacio, followed by Second Engineer Samson. Chief Ignacio and Samson were responsible for managing the day-to-day operations of the Department. Further down the chain were third engineer Menente, fourth engineer Sarduma, two "oilers" named Villar and Villegas, a "fitter" named Belleza, and a "wiper" named Reyes.

         In his supervisory capacity, Chief Engineer Ignacio was responsible for ensuring the Engine Department's compliance with all required safety and pollution control procedures. Pursuant to the Oceanfleet Manual, Chief Ignacio was also responsible for tracking the generation, transfer, and disposal of all oily pollutants produced onboard the Ocean Hope. Chief Ignacio was specifically required by the Oceanfleet Manual to fully and accurately record the completion of those tasks in the Vessel's Oil Record Book.[8]

         2.

         Evidence of the Ocean Hope's organizational structure provided the foundation for the government's theory of the vicarious criminal liability of the Appellants. The prosecution proved that the supervisory personnel in the Ocean Hope's Engine Department - that is, Chief Engineer Ignacio and Second Engineer Samson - oversaw and regularly directed illegal discharges of bilge water and sludge into the ocean. The prosecution also proved that Chief Ignacio and Samson committed the offense alleged in the Failure to Maintain charge by contravening the provisions of § 1908(a) of Title 33 and § 2 of Title 18, by aiding and abetting the failure to fully and accurately maintain the Ocean Hope's Oil Record Book. Similarly, the evidence proved that Chief Ignacio and Samson committed the Obstruction by Falsification charge, in violation of §§ 1519 and 2 of Title 18.[9] In addition, Chief Ignacio and Samson had corruptly persuaded their subordinate crewmembers in the Engine Department to make false statements to the Coast Guard investigators in Wilmington. Those false statements were made on behalf of the Appellants in a corrupt endeavor to conceal the pollution offenses that had occurred on the Ocean Hope.

         a.

         The evidence proved that illegal discharges of bilge water and sludge consistently occurred during the Vessel's trip to Wilmington. For example, Second Engineer Samson, with Chief Engineer Ignacio's approval, directed oiler Villegas to pump unprocessed bilge water directly into the ocean two to three times each week, using the Ocean Hope's general service pump.[10] When third engineer Menente questioned Samson about why they had not been using the Separator, Samson replied that they only used the Separator in Port when surveyors came aboard to inspect the viability of the Vessel's waste disposal equipment.[11] As Menente explained, if the Separator "wasn't used" - that is, if it was clean - there would not be "any problems with the survey" in Port. See G.A. 85.[12]

         The evidence also proved that Chief Engineer Ignacio and Second Engineer Samson directed their underlings in the Engine Department to improperly and illegally dispose of sludge. The prosecution emphasized a specific illegal discharge of sludge - corroborated with pictures, but never recorded in the Oil Record Book - that occurred on or about June 14, 2015. On that occasion, oiler Villar informed Samson that the sludge level in one of the sludge storage tanks was high. In response, Samson directed Villar and wiper Reyes to connect a "magic pipe" - that is, a surreptitious bypass hose - between the Ocean Hope's sludge pump and an illegal onboard discharge valve on the storage tank. After Villar and Reyes connected the magic pipe, Samson ordered them to run the sludge pump. When the Department's crewmembers ran the sludge pump, suction from the magic pipe drew sludge from the storage tank's illegal discharge valve and channeled it directly into the ocean. On that occasion, Villar and Reyes, acting at the direction of Samson, polluted the ocean with approximately ten cubic meters (2640 gallons) of sludge.

         Third engineer Menente corroborated the illegal dumping of sludge from the Ocean Hope on June 14. When Menente began his shift in the Engine Room just before midnight that evening, he - along with oiler Villegas - saw the magic pipe connected to the illegal discharge valve on the sludge tank. Menente - who was immediately suspicious - captured pictures and videos of the magic pipe and its surreptitious valve connection. Sometime later, Menente saw the magic pipe in the trash after it had been disconnected from the illegal valve on the sludge tank. At that time, Menente had Villegas record a video of Menente removing part of the magic pipe from the trash for use as evidence. Menente sent those pictures and videos to his wife, and they were placed in evidence by the prosecutors. A day or two after the illegal June 14 sludge disposal from the Ocean Hope, Second Engineer Samson directed Reyes to destroy the incriminating evidence by throwing the magic pipe overboard. Reyes complied with Samson's order and pitched the magic pipe into the sea.

          b.

         The evidence also proved that Chief Engineer Ignacio and Second Engineer Samson had conspired to falsify and fail to accurately maintain the Ocean Hope's Oil Record Book. By way of example, oiler Villar was responsible for measuring the bilge water and sludge levels in the Vessel's seven storage tanks, a process known as "sounding the tanks." Each time Villar did so, he was required to prepare a record of the measurements called a "sounding slip." Samson routinely directed Villar to falsely reduce the measurements recorded on the sounding slips. Chief Ignacio, meanwhile, would reduce those measurements even further when he recorded them in the Oil Record Book.

         The prosecution also proved that Chief Engineer Ignacio and Second Engineer Samson failed to make required entries in the Ocean Hope's Oil Record Book. For example, the Oil Record Book did not reflect that Second Engineer Samson had frequently directed the subordinate crewmembers to discharge unprocessed bilge water and sludge directly into the ocean, including the unlawful discharge of sludge on June 14, 2015.[13] Similarly, although entries were required to be made in the Oil Record Book when diesel fuel was pumped into the bilge water storage tank, those incidents were never recorded.[14]

         The applicable regulations also require oceangoing ships to record any "failure, and the reasons for, of the oil filtering equipment" in the Oil Record Book. See 33 C.F.R. § 151.25(d)(6). The government proved that, on about July 2, 2015, before reaching Panama, Chief Engineer Ignacio and the Vessel's Master, a man named Tabacaru, alerted Oceanfleet headquarters that the Separator was not functioning properly. That alert was never recorded in the Oil Record Book.

         D.

         1.

         The prosecution also proved that Chief Engineer Ignacio and Second Engineer Samson sought to conceal their illicit activities from the Coast Guard both before and after the Ocean Hope's arrival in Wilmington on July 15, 2015. In the course of the voyage from Panama to Wilmington, the Engine Department's subordinate crewmembers were gathered together on the Ocean Hope and instructed on how to avoid problems during the expected Port State Control Examination by the Coast Guard (the "Port Examination"). Oceanfleet assisted in this endeavor by providing a checklist for the crewmembers to use in their preparations for the Port Examination in Wilmington. The Oceanfleet checklist specified several tasks to be addressed prior to entering Port. Those included: (1) ensuring that the engine room was clean and free from oil traces; (2) repairing oil leakages "permanently (if possible)"; (3) ensuring that the Oil Record Book was in order; and (4) removing oily plastic pipes. See G.A. 358-63. An Oceanfleet official also provided Chief Engineer Ignacio with an example of an entry for the Oil Record Book that should pass the expected Coast Guard inspection. Chief Ignacio was advised to "enter . . . on a weekly basis" in the Oil Record Book that the Separator was "tested and found satisfactory." See G.A. 351. Such weekly entries, of course, would be fictitious.

         While the Ocean Hope was in Port in Panama, two senior Oceanfleet officials, a "Superintendent" named Prouzos and a "Port Captain" named Trousas, came aboard and travelled on the final leg to Wilmington. During their time onboard, they directed the Engine Department's subordinate crewmembers to perform certain tasks in preparation for the Port Examination - such as painting and cleaning the engine room. Of note, those officials never sought to verify whether the Engine Department had complied with MARPOL and APPS and the proper oil pollution disposal procedures during the Vessel's trip from Bangladesh.

         2.

         Two Coast Guard investigators - a Lieutenant named March and a Chief Warrant Officer named Libbert - testified extensively about the Port Examination and about interviewing the Engine Department crewmembers. In early July 2015, before the Ocean Hope arrived in Wilmington, the Coast Guard had been tipped off about illegal discharges of oily pollutants - particularly sludge - from the Vessel in mid-June during its trip from Bangladesh. The informant was the spouse of third engineer Menente. Menente had forwarded his wife the photographs and videos he made of the magic pipe being used as a bypass hose on the Ocean Hope to illegally dump sludge overboard.

         Immediately after initiating its Port Examination on July 15, the Coast Guard discovered that some of the Ocean Hope's firehoses were defective. Warrant Officer Libbert explained that third engineer Menente soon approached him and arranged to meet privately with the investigators. Menente then fully cooperated with the Coast Guard investigators, providing them with the pictures and videos he had taken of the magic pipe, plus the piece of the magic pipe that he had removed. Menente showed the Coast Guard investigators where and how the magic pipe had been used to dump sludge into the ocean from the Ocean Hope. After interviewing Menente, the Coast Guard investigators sounded the holding tanks and discovered that one of the bilge water tanks actually contained diesel fuel. As Lieutenant March confirmed, Menente's interview and that discovery prompted an expansion of the Port Examination into a criminal investigation.

         E.

          1.

         The Coast Guard's criminal investigation included interviews of the Engine Department's crewmembers. Before the Coast Guard investigators could fully interview oiler Villegas, however, Chief Engineer Ignacio directed Villegas to lie to the investigators and deny any knowledge of illegal pollution discharges from the Vessel.[15]Second Engineer Samson then approached Villegas, as well as fourth engineer Sarduma, and directed each of them to give false statements to the Coast Guard investigators. Villegas and Sarduma were each ordered by Samson to lie to the investigators about the use of the Separator onboard the Vessel.[16] Chief Ignacio and Samson also spoke with oiler Villar and wiper Reyes and directed both of them to deny any knowledge of unlawful sludge discharges from the Ocean Hope.[17] As a result of those corrupt efforts, each of the subordinate crewmembers in the Engine Department - except for third engineer Menente - initially lied to the Coast Guard investigators. The subordinate crewmembers who initially made false statements, however, later recanted and testified truthfully before the jury. At trial, they admitted participating in illegal pollution discharges from the Ocean Hope and confirmed that they had been ordered by their superiors to lie to the Coast Guard investigators.

          Second Engineer Samson, on the other hand, lied extensively to Lieutenant March during his interview about the illegal pollution activities onboard the Ocean Hope. For example, Samson told Lieutenant March that he did not know why there was oil residue in the overboard discharge equipment on the Vessel. Samson also falsely advised the Coast Guard investigators that the Ocean Hope's Separator had never been bypassed.[18]At trial, Samson testified falsely in each of those respects. Samson also denied connecting the magic pipe to the sludge tank and told the jury that he was unaware of any sludge being dumped directly overboard from the Ocean Hope. Samson denied ordering any Engine Department crewmembers to pump unprocessed bilge water into the ocean, and he maintained that he had not ordered anyone to lie to the Coast Guard investigators. Regarding the sounding slips, Samson falsely asserted that the sounding slips went directly to Ignacio, and maintained that he (Samson) never saw them.

         2.

         Put succinctly, the Coast Guard confirmed that the Oil Record Book contained a plethora of inaccurate and false information, and the investigation revealed that a vast amount of inculpatory information had not been properly recorded therein. The jury heard, for example, that - according to the Oil Record Book - the Ocean Hope had not offloaded sludge since September of 2014, about seven months before the Vessel's departure from Bangladesh. The Oil Record Book also reflected the daily use of the Ocean Hope's incinerator to burn sludge. The jury was advised that frequent or daily use of a ship's incinerator, however, was "not a common thing to see, " and the frequent use revealed by the Oil Record Book "struck [the Coast Guard investigator] as extremely odd." See G.A. 250. The Coast Guard's investigation also confirmed that the insulation on the incinerator was cracked and defective, and that such a defect would prevent sludge from burning properly.

         The evidence proved that Chief Engineer Ignacio had destroyed most of the sounding slips delivered to him by oiler Villar. Indeed, Chief Ignacio was able to provide the Coast Guard with only four sounding slips during the investigation in Wilmington. Furthermore, those sounding slips failed to match any entries in the Oil Record Book. For example, the amount of sludge in the sludge tank on July 13, 2015, was falsely recorded in the Oil Record Book as 4.9 cubic meters. The sounding slip for that ...


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