172 F.3d 275 (3rd Cir. 1999), 98-1135, United States v. Dispoz-O-Plastics, Inc.

Docket Nº:DISPOZ-O-PLASTICS, INC., Appellant in No. 98-1135,
Citation:172 F.3d 275
Party Name:UNITED STATES of America v.
Case Date:April 08, 1999
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

Page 275

172 F.3d 275 (3rd Cir. 1999)

UNITED STATES of America

v.

DISPOZ-O-PLASTICS, INC., Appellant in No. 98-1135,

and

Peter Iacovelli, Appellant in No. 98-1136.

Nos. 98-1135, 98-1136.

United States Court of Appeals, Third Circuit

April 8, 1999

Argued Sept. 14, 1998.

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[Copyrighted Material Omitted]

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Joel I. Klein, Assistant Attorney General, A. Douglas Melamed, Deputy Assistant Attorney General, John J. Powers, III, Robert B. Nicholson, John P. Fonte (Argued), Scott D. Hammond, Antitrust Division, U.S. Department of Justice, Washington, D.C., for Appellee.

Theodore B. Olson (Argued), Miguel A. Estrada, Jacqueline E. Coleman, Gibson, Dunn & Crutcher LLP, Washington, D.C., for Appellants.

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Before: STAPLETON and ROTH, Circuit Judges, and LONGOBARDI, 1 District Judge.

OPINION OF THE COURT

ROTH, Circuit Judge.

Peter Iacovelli and his company, Dispoz-O-Plastics, Inc. ("Dispoz-O"), appeal from a judgment of conviction entered in the United States District Court for the Eastern District of Pennsylvania. Iacovelli and Dispoz-O were convicted of conspiracy to fix prices in the plastic cutlery industry in violation of 15 U.S.C. § 1. Their claims on appeal include the following: (1) that the District Court erred in admitting evidence that government witnesses had been convicted of conspiracy to fix prices with Dispoz-O, (2) that the District Court erred in determining that the government's vouching for its witnesses by referring to extra-record prosecutorial policy constituted harmless error, and (3) that the District Court failed to declare a mistrial on the grounds that the government vouched for its witnesses by saying they had no motive to lie about whether they conspired to fix prices. 2 We will affirm the judgment of the District Court regarding appellants' first and third claims, the admissibility of the co-conspirators' convictions and the prosecutor's comments regarding the government's witnesses' motives to lie. However, we find that the prosecutor's extra-record comment about prosecutorial policy constitutes reversible error. We will therefore reverse the judgment of the District Court and remand this case for a new trial.

I. FACTS

Dispoz-O is an American manufacturer of disposable plastic cutlery, including knives, forks, and spoons. Peter Iacovelli is Dispoz-O's president, CEO, and sole stockholder. One type of plastic cutlery that Dispoz-O manufactures is medium-weight polypropylene cutlery, a popular flexible type of cutlery that is less expensive than stiffer polystyrene cutlery. Two of Dispoz-O's competitors in the medium-weight polypropylene cutlery ("plastic cutlery") industry are Amcel Corp. ("Amcel"), headed by Lloyd Gordon, 3 and Polar Plastics Manufacturing, Ltd. ("Polar"), headed by Andrew Liebmann and Basem Atallah.

Dispoz-O, Iacovelli, Amcel, and Gordon were charged with conspiracy to fix prices in the plastic cutlery industry. The charges centered on a meeting held at a restaurant at LaGuardia Airport in November 1991. Prior to the meeting, in October 1990 and May 1991, Gordon had sent copies of Amcel's recent price increases to Dispoz-O and Polar. In October 1991, Gordon met privately at a trade show with Liebmann and Atallah and later with Iacovelli and Albert Postrel, Dispoz-O's sales representative, to convince them to follow each other in making price increases. At that time, Iacovelli requested a meeting with representatives of Amcel and Polar to discuss pricing. He also contacted Michael Kennedy, head of the parent corporation of another plastic cutlery competitor, Winkler Products, to discuss "get[ting] a price increase." Kennedy declined to discuss pricing with Iacovelli.

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The meeting at LaGuardia Airport was attended by Gordon, Iacovelli, Liebmann, and Atallah. According to the testimony of Liebmann and Atallah, Iacovelli outlined then existing costs, and the group agreed that prices were too low. Atallah suggested that the group set a price minimum under which they would not go in order to prevent customers from playing the manufacturers against each other. Price increases in the industry were usually set as percentages because customers had varying deals with the manufacturers and often received prices that were discounted from standard price ranges. However, the LaGuardia group agreed to fix truckload prices at specific levels: $4.75 per case for forks, spoons, and knives, $5.00 for soup spoons, and $5.25 for combination fork/spoon ("spork") cutlery; they resolved not to offer discounts below those levels.

Atallah said that another competitor, Jet Plastica, should be asked to join the agreement if it was to be successful. Gordon agreed to approach Jet Plastica's principal about the plan. Atallah volunteered to increase its prices first and then send copies of its letter notifying customers of the price increases to Gordon and Iacovelli. During the meeting, Iacovelli told Liebmann and Atallah to refrain from taking notes and to pay for meeting expenses with cash to avoid creating any record of the meeting.

After the meeting, Atallah drafted the letter and an explanatory memo for his sales force. He instructed his secretary that, before she disseminated the letter to customers, she should fax copies of the letter to Amcel and Dispoz-O without the "Polar" fax banner. A few days later, Gordon faxed a signed price letter with identical increases to Polar and Dispoz-O; although sent by Gordon, these faxes bore the fax banner of an unrelated company, M.B. Financial. Later that day, Dispoz-O issued an increase letter listing the same prices. Unlike Amcel's and Polar's letters, however, Dispoz-O's letter did not announce the prices as a "floor" below which no discounts would be granted. Moreover, Dispoz-O did not adhere to such a "floor" after its letter was sent out; in fact, it did still discount or rebate some of its sales, although not as extensively as before.

Iacovelli set the price increases without Postrel's customary input. He assured Postrel that the increase would "stick," as Gordon also assured one of his sales managers. The price increases "stuck" from January 1992 to early March 1992, when Atallah notified Iacovelli and Gordon that he was going to lower Polar's prices. Although Iacovelli and Gordon tried to dissuade him, Atallah refused to continue with the agreement because he claimed to be losing too much business to Jet Plastica, which had not joined the agreement.

Later, the FBI questioned Iacovelli and Gordon, who lied about their contacts with competitors. Iacovelli denied that he had ever discussed prices with competitors, either in meetings or on the telephone, and he claimed that he had never received pricing information from a competitor by fax. Subsequently, Gordon contacted Iacovelli and Atallah to arrange a cover-up.

The government indicted Dispoz-O, Iacovelli, Amcel, and Gordon for conspiracy to fix prices. At trial, the government's two main witnesses were Liebmann and Atallah. These two had previously pled guilty to conspiracy to fix prices in the plastic cutlery industry and to an unrelated conspiracy to fix prices in the plastic cups industry. The testimony of Liebmann and Atallah was crucial to the government's case because the primary issue at trial was whether Liebmann, Atallah, Gordon, and Iacovelli had reached an agreement to fix prices. The government's documentary evidence revealed only general information such as the timing and frequency of telephone calls among the parties and the fact that the parties had faxed their price letters to each other. Liebmann and Atallah's testimony was necessary to establish the subject matter of the discussion at LaGuardia, as well as of the other communications

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between the parties, and thereby to demonstrate that the competitors were conspiring to fix prices.

The theory of the defense was that the LaGuardia meeting and the other communications related to merger and joint-venture discussions rather than to illegal price-fixing The defense presented evidence of merger and joint-venture discussions between industry manufacturers during that time, as well as introducing planning documents which analyzed Dispoz-O as a potential partner for Amcel. The defense also produced evidence that communications between manufacturers about their pricing was advisable, given customers' attempts to play the manufacturers against each other. Because the topic of conversation at the LaGuardia meeting was so vital to both sides, the credibility of Liebmann and Atallah was key.

At the close of the trial, the prosecutor argued during summation:

Now, first with regard to the sweetheart deal. You heard the testimony of Liebmann and Atallah, you can decide whether or not you think they felt that was a sweetheart deal. They went to jail and they pled guilty to both counts.

Common sense tells you people don't confess to a crime, they don't turn a completely innocent, legitimate business meeting into a crime, they don't confess to crimes they didn't commit and that's what the defendants are trying to tell you they did.

Now obviously they got credit for their cooperation; that's the way it works. But that misses the point. Why would Liebmann and Atallah say they fixed prices at LaGuardia? Why would they tell that to the Government, who would they tell that to the judge who sentenced them? Why would they tell that to their customers, their customers, if it didn't happen? Think about that.

They told the Government they fixed prices twice and I can guarantee you the Justice Department doesn't give two for one deals; they had to plead guilty to both price fixing conspiracies and their sentence reflected that.

On the basis of these remarks, the defendants moved for a mistrial. The court held a hearing and issued an opinion denying defendants' motion. The court determined that the prosecutor's reference to the guilty pleas...

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