U.S. v. Continental Group, Inc.

• Decision Date: 28 August 1979
• Docket Number: Nos. 78-2328 and 78-2330,No. 78-2328,No. 78-2330,No. 78-2331,No. 78-2332,78-2328,78-2330,78-2331,78-2332,s. 78-2328 and 78-2330
• Citation: 603 F.2d 444
• Parties: 1979-2 Trade Cases 62,782, 4 Fed. R. Evid. Serv. 734 UNITED STATES of America v. CONTINENTAL GROUP, INC., Appellant inUNITED STATES v. CHASE BAG COMPANY, Appellant inUNITED STATES v. COOPER, James K., Appellant inUNITED STATES v. RUE, Harrison B., Appellant into 78-2332.
• Court: U.S. Court of Appeals — Third Circuit

Page 444

603 F.2d 444

1979-2 Trade Cases 62,782, 4 Fed. R. Evid. Serv. 734

UNITED STATES of America v. CONTINENTAL GROUP, INC., Appellant in No. 78-2328.

UNITED STATES v. CHASE BAG COMPANY, Appellant in No. 78-2330.

UNITED STATES v. COOPER, James K., Appellant in No. 78-2331.

UNITED STATES v. RUE, Harrison B., Appellant in No. 78-2332.

Nos. 78-2328 and 78-2330 to 78-2332.

United States Court of Appeals Third Circuit.

Argued April 3, 1979.

Decided July 20, 1979.

As Amended Aug. 28, 1979.

Patrick T. Ryan (argued), William J. Lehane, Wilson M. Brown, III, Drinker, Biddle & Reath, Philadelphia, Pa., for appellant Continental Group, Inc.

Henry T. Reath (argued), Michael M. Baylson, Peter J. Hoffman, Alexis J. Anderson, Duane, Morris & Heckscher, Philadelphia, Pa., for appellant Chase Bag Company.

H. Francis DeLone (argued), Mark A. Klugheit, Barbara P. Ianacone, Dechert, Price & Rhoads, Philadelphia, Pa., for appellant James K. Cooper.

Robert W. Sayre (argued), James G. Rosenberg, Stephen S. Aichele, Saul, Ewing, Remick & Saul, Philadelphia, Pa., for appellant Harrison B. Rue.

John H. Shenefield, Asst. Atty. Gen., Barry Grossman, Daniel J. Conway, Andrea Limmer (argued), Dept. of Justice, Washington, D. C., Walter L. Devany, Morton M. Fine, Donald C. Klawiter, James A. Backstrom Before SEITZ, Chief Judge, and HUNTER and GARTH, Circuit Judges.

Jr., Dept. of Justice, Philadelphia, Pa., for appellee.

OPINION OF THE COURT

SEITZ, Chief Judge.

On October 29, 1976, a grand jury in the Eastern District of Pennsylvania returned a one-count indictment charging five corporations and seven individuals with conspiring "to raise, fix, maintain and stabilize the prices and terms and conditions of sale of consumer bags" in violation of section 1 of the Sherman Act, 15 U.S.C. § 1. The indicted corporations were Continental Group, Inc. (Continental), American Bag & Paper Corporation (American), Chase Bag Company (Chase Bag), Harley Corporation (Harley Corp.), and St. Regis Paper Company (St. Regis). The individual defendants were James K. Cooper (vice president and general manager of Continental's Flexible Packaging Division), Peter J. Weggeman (general sales manager of Continental's Flexible Packaging Division), David Mawicke (manager of paper product sales for Continental's Flexible Packing Division), Stanley A. Schottland (president of American), Harrison B. Rue (vice president of Chase Bag's Converting Division), William H. Versfelt (vice president and general divisional manager of St. Regis's Bag Packaging Division), and Edward W. Weikum (manager of converter sales and license relations in St. Regis's Bag Packaging Division).

As defined in the indictment, "consumer bags" are small, pre-formed paper containers used to package such products as pet foods, cookies, tea, coffee, kitty litter, chemicals, and agricultural products. The bags usually have printed exteriors designed as specified by the customer. They are often lined or coated. In addition to packages designed for consumer items, the term "consumer bags" also includes such coated paper containers as air sickness bags.

Prior to trial Harley Corp., American, and Schottland (American's president) pled nolo contendere. Beginning on September 30, 1977, the three remaining corporate defendants (Continental, Chase Bag, and St. Regis) and the six remaining individual defendants (Cooper, Weggeman, Mawicke, Rue, Versfelt, and Weikum) went to trial before a jury. At the close of the government's evidence, the district court granted motions for judgment of acquittal on behalf of Mawicke and Versfelt. After the close of all evidence the jury returned a verdict acquitting St. Regis, Weggeman, and Weikum and convicting Continental, Chase Bag, Cooper, and Rue.

After denying post-trial motions, the district court fined Continental $750,000 and fined Chase Bag $600,000. It sentenced both Cooper and Rue to four months imprisonment to be followed by thirty-two months probation. In addition, it fined Cooper $40,000 and fined Rue $30,000. These convictions and sentences form the basis of the present appeal.

I

In its opinion on appellants' post-trial motions, the district court summarized the evidence presented at the 43-day trial. See United States v. Continental Group, Inc., 456 F.Supp. 704, 708-14 (E.D.Pa.1978). Although we will examine portions of this evidence in some detail in considering each appellant's claim that the evidence was insufficient to support conviction, See Part II, Infra, a brief overview of the alleged conspiracy will aid our analysis.

The government charged that various manufacturers of consumer bags had begun to conspire to fix prices as early as 1950. This conspiracy allegedly continued, despite changes in participants, until the indictment was returned in 1976. Significantly, the grand jury charged that the conspiracy extended beyond December 21, 1974, the effective date of an amendment making violation of section 1 of the Sherman Act a felony rather than a misdemeanor. Pub.L. 93-528, § 3, 88 Stat. 1708 (1974).

Of the indicted defendants, only American was alleged to have participated in 1950. Other companies alleged to have participated in the 1950's, however, included Benjamin C. Betner Company (Betner) and Arkell & Smith Company (Arkell & Smith). Continental acquired Betner in 1953; Chase Bag acquired Arkell & Smith in 1967. Although testimony concerning the meetings held in the 1950's was sketchy, the record indicates that some discussion of prices did occur.

In 1960 or 1961 representatives of Continental, Bemis Bag Company (Bemis Bag), and Arkell & Smith allegedly met in New York to put together a price list to be used in pricing consumer bags. The list consisted of a loose-leaf binder breaking down the various components or "factors" of a job and assigning a price to each. Factors included such specifications as the amount and type of paper, the type of coating, and the amount of printing. When a potential customer asked one of the manufacturers to quote a price on a particular job, that manufacturer would bid by adding up the necessary factors from the list. Continental, American, Bemis Bag, and Arkell & Smith allegedly adopted this pricing format. Later entrants into the industry allegedly were encouraged to price from the list.

During the 1960's Continental, the largest manufacturer of consumer bags, assumed the role of "price leader." Semi-annual revisions in the price list, either single-factor or across-the-board, would be initiated by Continental, published in the Wall Street Journal, and mailed to competitors. These increases and their effective dates allegedly were cleared in advance at meetings attended by representatives of Continental, Arkell & Smith (Chase Bag after 1967), American, Harley Corp., and St. Regis. In 1971 these manufacturers all joined the Paper Sack Shipping Manufacturers' Association (PSSMA). That organization held semi-annual or quarterly meetings at resorts around the country. According to the government, the defendant corporations would gather during these conventions at informal meetings to discuss and set prices. The corporations and corporate personnel attending these meetings varied from meeting to meeting, as did the exact topics of conversation. These informal gatherings continued into 1976.

In support of its allegations that the defendants conspired to fix prices, the government introduced three types of evidence. First, it presented testimony by participants in the various meetings. Because of the long time frame and the large number of meetings, the government's witnesses often were unsure about who attended particular meetings or about what was discussed. Second, the government presented evidence of inter-defendant phone calls to compare prices on particular bids. The government contended that these calls were made to ensure that the conspirators were abiding by the price list. Defendants argued that the phone calls that did occur were made in order to support a "meeting competition" defense under the Robinson-Patman Act, 15 U.S.C. § 13(b). Finally, the government introduced economic testimony aimed at demonstrating that the defendants made parallel and nearly simultaneous changes in their price lists between 1970 and 1976. Defendants contended that these data were misleading, that all price changes were cost-justified for each manufacturer individually, and that any parallelism was the result of legitimate price leadership/followership.

Additionally, the defendants presented evidence allegedly demonstrating that the consumer bag industry was very competitive. An economist testified that the industry's low profit margin and other economic indicators belied any concerted effort to maintain prices at an artificially high level. Moreover, defendants and some of their customers testified that discounts from list prices were very common and very competitive.

II

All the appellants argue that the government produced insufficient evidence to support their convictions. To the extent that they argue that United States v. United States Gypsum Co., 438 U.S. 422, 98 S.Ct. 2864, 57 L.Ed.2d 854 (1978), requires proof of a conspiracy's anticompetitive effect and that the government failed to provide such proof, we will treat that question in our consideration of Gypsum 's applicability to this case. See Part IV, Infra. To the extent that each appellant asserts a general insufficiency of the evidence to prove the crime charged, we note that we must sustain the jury's verdict "if there is substantial evidence, viewed in the light most favorable to the Government, to uphold the jury's decision." Burks v. United States, 437 U.S. 1, 17, 98 S.Ct. 2141, 2150, 57 L.Ed.2d 1 (1978).

A

Continental contends that the evidence was insufficient for the jury to conclude that Continental had participated in the ongoing, twenty-six year conspiracy charged in the indictment.

Viewed in the light most favorable to the...