United States v. Sugar Institute

• Citation: 15 F. Supp. 817
• Parties: UNITED STATES v. SUGAR INSTITUTE, Inc., et al.
• Decision Date: 09 October 1934
• Court: U.S. District Court — Southern District of New York

15 F. Supp. 817

UNITED STATES v. SUGAR INSTITUTE, Inc., et al.

District Court, S. D. New York.

March 7 and October 9, 1934.

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John Lord ”'Brian, Asst. to Atty. Gen., Harold M. Stephens, Asst. Atty. Gen., James Lawrence Fly and Walter L. Rice, Sp. Assts. to Atty. Gen., and George Z. Medalie, U. S. Atty., of New York City, for the United States.

Cadwalader, Wickersham & Taft, of New York City (Cornelius W. Wickersham and Arthur L. Fisk, Jr., both of New York City, of counsel), for defendants Spreckels Sugar Corporation, Rudolph Spreckels, Edgar H. Stone, and W. W. Harper.

Sullivan & Cromwell, of New York City (John C. Higgins, of New York City, John Dickinson, of Washington, D. C., and Hyman Zettler, S. Pearce Browning, Jr., and Parker McCollester, all of New York City, of counsel), for the other defendants.

MACK, Circuit Judge.

By petition filed March 30, 1931, the United States seeks a decree under the provisions of the Sherman Act and acts amendatory thereof and supplemental thereto (15 U.S.C.A. ß 1 et seq.), dissolving the Sugar Institute, a trade association incorporated under the laws of New York, and enjoining certain corporations, firms, and individuals, defendants herein, from engaging further in an alleged conspiracy in restraint of interstate commerce in sugar. In addition to the Institute, the defendants are fifteen sugar refinery companies which either have been or are members thereof and various individuals who either have been or are active in its management and in the direction of the activities alleged to constitute the conspiracy.

The testimony is transcribed in over 10,000 typewritten pages; more than 900 exhibits covering many thousands of pages were introduced in evidence.

The petition charges a comprehensive conspiracy affecting almost all phases of the sale and distribution in the domestic markets of domestic refined cane sugar, and incidentally beet and offshore sugar. The complicated and frequently disputed issues of fact and of law involved must be approached with the more important factors of the sugar industry in mind.

I. Background.

The Institute was organized in December, 1927, and began operation the following month. The scope of its activities may be gathered to some extent from its "Code of Ethics," reproduced in the Appendix hereto. The implications of the code were worked out in great detail by "interpretations" adopted pursuant thereto. The code, together with these rulings the nature of which is hereinafter more fully described, reveals much of the purpose and plan of the Institute.

The Institute members refined practically all of the imported raw sugar processed in this country. They describe their product as "domestic refined." In recent years, the wholesale value thereof has been as much as $500,000,000. Prior to the Institute, they provided in excess of 80 per cent. of the sugar consumed in the United States. They have since supplied from 70 per cent. to 80 per cent. thereof; in some states, particularly in the New England and Middle Atlantic areas, they have supplied in excess of 90 per cent.; in only a few states throughout the country is their share less than 55 per cent. Ex. E-15.¹ Manufacturers of beet and of domestic cane sugar and cane refineries located in the insular possessions and foreign countries provide the remainder of the nation's supply.

Domestic refined, beet sugar, and foreign and insular refined known in the trade as "offshore" refined, constitute about 99 per cent. of the nation's supply. The balance, which consists of domestic cane grown and refined principally in Louisiana, is not, so far as the record shows, an important factor in the national markets. Quantities of various sugars used in the United States in recent years are shown in Ex. D-15.²

Defendants' refineries are located in the vicinity of Boston, New York, Philadelphia, Baltimore, Savannah, New Orleans, Galveston, and San Francisco. Only two defendants operate more than one plant: The National Co., with three refineries near New York: the American Co., with refineries in or near Boston, New York, Philadelphia, Baltimore, and New Orleans. In 1927, American accounted for 25.06 per cent. of all sugar produced by defendants, National, for 22.07 per cent.; the others in that year ranged from Henderson's 1.13 per cent. to California and Hawaiians' 10.84 per cent. Ex. Y-14. Capital employed ranged from Henderson's $2,037,975 to American's $119,854,340. Ex. E-17.³

Raw cane sugar used by defendants is imported principally from Cuba and to some extent from the insular possessions. It is obtained by clarifying juice extracted from the cane at mills near the plantations. The raws, which usually contain about 96 per cent. pure sucrose, are further clarified and purified at defendants' domestic plants to produce sugar 100 per cent. sucrose and ready for consumption. Ample supplies of raw sugar in a steadily declining^3a market have been available since the formation of the Institute.

The government does not contest defendants' claim that the refined sugar produced by them is, as to physical and chemical properties, a thoroughly standardized commodity. It is undisputed that at least since the Institute, the product of the various defendants has generally sold at a uniform price in any given trade area. The government insists, however, as a basis for contentions hereinafter discussed, that because of certain preferences created by advertising and other means, the sugars of the several defendants are economically different products.

Beet sugar for many years has been an important factor in the domestic market, and offshore sugar, since the Institute, has increasingly become such. See note 2, supra. Either or both offer some competition to defendants' product in nearly all trade areas (Ex. E-15), and each has always sold at a differential below domestic refined.

The sugar beet is grown and the sugar therefrom produced and sold chiefly in the Middle and Far West, providing in some states well over 75 per cent. of the supply. It competes, too, with other sugars, in a number of Southern and Middle Atlantic States. Ex. E-15. Although for most purposes practically identical with domestic refined, it has ordinarily, for several reasons, sold at a differential of 20 cents per hundred pounds. In the early years of the beet sugar industry, the grade was inferior; thus, a prejudice grew up against it, which to some extent has carried over to the present time. Beet sugar, unlike domestic refined, is not sold in full assortments of grades and packages and is therefore less attractive to the trade. While 20 cents has been the customary differential, at various times and localities, it has ranged from 10 cents to 35 cents both before and since the Institute.

The relation of the Domestic Sugar Bureau to the beet manufacturers is similar to that of the Institute to the domestic refiners. They were informally organized at about the same time. A few months later, in the spring of 1928, the Bureau was incorporated, with headquarters in Chicago. Its "Code of Ethics" is substantially identical with that of the Institute and is admittedly patterned after it. While defendants insist that the two trade associations are entirely independent, they freely admit that the Institute has sought and obtained a high degree of co-operation from the Bureau in practically all of its activities. Joint meetings have been held, questions of policy have been discussed, and action jointly taken. The two associations have continuously communicated by letter, telegram, or personal contact of their officials. The evidence, however, does not support the contention that defendants have effected an agreement with the producers of beet sugar, through the Bureau, to maintain a fixed 20 cents differential, even though that differential may have prevailed more consistently since the creation of the Institute than theretofore.

Offshore sugar, which is practically a new factor in the domestic market, is refined principally in Cuba and to some extent the insular possessions. Its sale in this country is in the hands chiefly of four selling agencies. Its important trade areas have been Middle Atlantic and Southern States, although substantial quantities of it have also been sold in other parts of the country. In some states, it has provided from 25 per cent. to 40 per cent. of the total supply. With the exception of Hershey sugar, represented by H. H. Pike & Co., all of it is sold at a differential from 5 cents to 10 cents below defendants' sugar. This is due to the fact that it has not been in the market long and also because it is offered in a limited assortment of grades and packages.

An agreement with the offshore interests (except Hershey) to sell at a fixed 5-cent differential is charged against defendants. The government relies, in this connection, on a letter written by the executive vice secretary of the Institute, in which the statement is made that, "the Armstrong people representative of an offshore refinery * * * had sold their sugars strictly in accordance with our Code Rulings on a price differential of 5¢." Ex. 324. While this might be susceptible of the inference, as contended, that the 5-cent differential was the result of an agreement, the explanation offered therefor by defendants, that it was merely expressive of the fact that Armstrong had sold at such a differential, is equally plausible. In view of the lack of other evidence to support the government's charge and the failure to refute defendants' evidence of a varying differential, I cannot find that any such agreement was made by them with the offshore interests even though, as defendants freely admit, co-operation has been sought and obtained in many activities. Certain alleged activities, however, are denied by defendants; of course, as to these they...