United States v. General Motors Corporation

• Citation: 121 F.2d 376
• Decision Date: 02 July 1941
• Docket Number: No. 7146.,7146.
• Parties: UNITED STATES v. GENERAL MOTORS CORPORATION et al.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

121 F.2d 376 (1941)

UNITED STATES v. GENERAL MOTORS CORPORATION et al.

No. 7146.

Circuit Court of Appeals, Seventh Circuit.

May 1, 1941.

Rehearing Denied July 2, 1941.

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John Thomas Smith and Henry M. Hogan, both of New York City, E. S. Ballard, of Chicago, Ill., and S. J. Crumpacker, of South Bend, Ind., for appellants.

Holmes Baldridge and Edmond J. Ford, both of Washington, D. C., for appellee.

Before EVANS, SPARKS, and KERNER, Circuit Judges.

KERNER, Circuit Judge.

This is a criminal prosecution for a conspiracy to restrain interstate trade and commerce in violation of § 1 of the Sherman Anti-Trust Act. 26 Stat. 209, 50 Stat. 693, 15 U.S.C.A. § 1. The jury rendered a verdict acquitting all of the individual defendants and finding the four corporate defendants guilty. This appeal is taken from the judgment entered upon the verdict fining each of the corporate defendants in the amount of $5,000.¹

The errors relied on arise out of the overruling of the demurrer to the indictment, denial of a bill of particulars, denial of a motion to dismiss at the close of the Government's opening statement, rulings on evidence, failure to grant defendants' motions to direct a verdict, instructions to the jury, and refusal to grant a new trial.

A. Theory Upon Which Case Tried.

1. Indictment. In essence the indictment charges that the defendants conspired to restrain unreasonably the interstate trade and commerce in Chevrolet, Pontiac, Oldsmobile, Buick, LaSalle and Cadillac cars; that their purpose was to control the financing essential to the wholesale purchase and retail sale of General Motors cars; and that in furtherance of this purpose the conspirators devoted themselves to concerted action by which GMAC financing was imposed on dealers who were engaged in the purchase and sale of the above described cars.

Paragraphs 1 to 27 of the indictment explain the general background of the automobile industry including the manufacture of automobiles and their sale and financing at wholesale and retail. In particular it is alleged that GMC manufactures its products at plants in seven states and sells them through GMSC at wholesale to approximately 15,000 dealers located in all of the states. The dealers in turn sell these new automobiles, as well as used automobiles on hand, to retail purchasers. Generally the retail transactions are "time sales" where part of the price is paid in cash, a used car is taken in trade and the remainder of the price is paid in installments. The practice in the industry is to require dealers to pay cash before receiving the new cars, so that normally title and possession pass from the manufacturer or selling agent when the cars are transported and shipped from the factory. The wholesale and retail price of automobiles is high, and usually the dealer and retail purchaser are unable to pay on a cash basis. Consequently a large supply of money is regularly and continuously needed, so much so that it is absolutely necessary in most instances to finance (1) the wholesale purchase of the new car, (2) the retail sale of the new car and (3) the re-sale of the used car. As a result, approximately 375 independent finance companies and GMAC find themselves competing for the financing of these transactions. This financing is indispensable to the free movement of automobiles from the factory to the dealer as well as from the dealer to the ultimate purchaser.

Paragraphs 28 to 33 of the indictment describe and name the corporate and individual defendants, and paragraph 34 charges them with a conspiracy to restrain unduly the interstate trade and commerce in General Motors automobiles. Paragraph 35 states that the purpose of the defendants was to monopolize and control the business of financing the trade and commerce in new and used General Motors automobiles. Paragraph 70 alleges that dealers have complied with the defendants' coercive plan in order to save substantial investments in their businesses, paragraph 71 states that the effect of the conspiracy has been to restrain and burden unreasonbly the interstate trade and commerce in General Motors automobiles, and paragraph 72 is a restatement of paragraph 34.

The specific conduct embraced within the illegal concert of action is described in paragraphs 36 to 67 of the indictment and may be summarized as follows: (1) Requiring dealers to promise to use GMAC exclusively as a condition to obtaining a franchise for the sale, transportation and delivery of automobiles; (2) Making contracts for short periods and cancellable without cause, canceling or threatening to cancel such contracts unless GMAC facilities are used; (3) Discriminating against dealers not using GMAC by refusing to deliver cars when ordered, delaying shipment and shipping cars of different number, model, color and style; (4) Compelling dealers to disclose how they finance their wholesale purchases and retail sales, examining and inspecting dealers' books and accounts in order to procure this information, and requiring dealers to justify their using other financing media; (5) Giving special favors to dealers using the wholesale and retail facilities of GMAC; (6) Granting special favors to GMAC which are denied to other discount companies; (7) Giving dealers a rebate from the GMAC finance charge paid by the retail purchaser, in order to induce use of GMAC financing facilities; and (8) Compelling dealers to refrain from using other finance companies by all other necessary, appropriate or effective means.

2. Opening Statements. The opening statements made by counsel in the trial of this case, throw considerable light upon the primary issues and make the respective positions of the parties stand out plainly. For this reason pertinent portions therefrom are either quoted or paraphrased substantially in the paragraphs that follow.

Government counsel stated that the gist of the conspiracy alleged in the indictment was "to restrain and interfere with the right of General Motors dealers to finance cars sold by them in whatever manner they see fit," to deny them "the right to finance the sales of their cars with whomever they see fit," and "to force 15,000 independent business men" to use the financing facilities of GMAC. He added that the motive actuating the conspirators was "profit. They wish to secure as much of the financing business as possible * * * because it is a profitable business." Then he concluded that the object in prosecuting the defendants was "to restore to a class of independent business men, namely, 15,000 General Motors Dealers, a right to conduct their automobile business in the way that they see fit."

Counsel for defendants expressed the following thesis: "From the very beginning and over a period of 20 years the original conception of GMAC * * *, the development of it and the way it is administered, is all for the purpose of selling automobiles and never for the purpose of making money out of the financing business." He reasoned that everything done by the General Motors family was directed toward one end, the manufacture and sale of General Motors automobiles. In this connection it was necessary to establish GMAC "as a merchandising aid for General Motors as a producer and seller of automobiles," because there were "variable and exorbitant charges being made by miscellaneous independent companies" and because General Motors goodwill faced "the risk of being wiped out by abuses in connection with financing in the case of time sales." This necessity has continued and increased, for now there are "some 175 independent finance companies who are interested in only one thing, and that is in making money out of finance." He pointed to the history of GMAC as conclusive evidence that its purpose was to "implement the selling of General Motors cars" or to serve as a "selling tool, a means of getting more General Motors automobiles in the hands of time purchasers throughout the United States."

3. Statements During Trial. At one period counsel for the Government stated "the theory of the case is that the defendants are forcing their dealers to use a particular type of financing, although there may be various other types available," and counsel for defendants replied "our defense is that we are not forcing them, but they are using it because it is better."

When the defense sought to adduce evidence relating to rates and practices of independent finance companies, counsel for the Government objected because the "government's case is predicated on the dealer's right to make his own choice of finance companies, and not on a fight between GMAC and other discount companies." In sustaining this objection the Court said that the jury in this case was neither "trying the respective merits of finance companies" nor deciding "whether a man would have been better off if he had accepted the facilities of another finance company other than GMAC."

4. Closing Arguments. Although the closing arguments of counsel for the defendants were not included in the record on appeal, some reference and answer thereto was made in the Government's summation to the jury.

Counsel for the Government told the jury that the prosecution had proved three elements, namely (1) conspiracy, (2) interstate commerce and (3) unreasonable restraint of trade. As to (1) he pointed out that the instant case presented a nation-wide conspiracy "to restrain the movement of General Motors cars in interstate commerce" by restraining the "dealer selling General Motors products in the * * * free running of his own business affairs." As to (2) he argued that General Motors cars were products in interstate commerce, being shipped from places of manufacture in seven states into the channels of trade across state lines and then being received and sold by 15,000 dealers located in every state in the...