U.S. v. Azzarelli Const. Co., s. 79-1348

• Decision Date: 12 February 1979
• Docket Number: 79-1349,Nos. 79-1348,s. 79-1348
• Citation: 612 F.2d 292
• Parties: 1980-1 Trade Cases 63,103, 5 Fed. R. Evid. Serv. 749 UNITED STATES of America, Plaintiff-Appellee, v. AZZARELLI CONSTRUCTION CO. and John F. Azzarelli, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 292

612 F.2d 292

1980-1 Trade Cases 63,103, 5 Fed. R. Evid. Serv. 749

UNITED STATES of America, Plaintiff-Appellee, v. AZZARELLI CONSTRUCTION CO. and John F. Azzarelli,

Defendants-Appellants.

Nos. 79-1348, 79-1349.

United States Court of Appeals, Seventh Circuit.

Argued Nov. 8, 1979.

Decided Dec. 28, 1979.

Rehearing and Rehearing En Banc Denied Feb. 12, 1979.

George J. Cotsirilos, Chicago, Ill., for defendants-appellants.

Daniel J. Conway, Dept. of Justice, Washington, D.C., for plaintiff-appellee.

Before PELL and BAUER, Circuit Judges, and DUMBAULD, Senior District Judge. ^*

DUMBAULD, Senior District Judge.

Appellants Azzarelli Construction Company, and John F. Azzarelli, its vice-president, where convicted of bid-rigging on three highway projects in Illinois in violation of Section 1 of the Sherman Act, 15 U.S.C. 1, and of twelve counts of mail fraud in violation of 18 U.S.C. 1341. The corporation was fined $200,000 on the antitrust count and a total of $12,000 on the mail fraud counts. Azzarelli was fined $25,000 and sentenced to a suspended two-year prison term with three years' probation after serving the first ninety days.

Other defendants indicted are not involved in this appeal. Azzarelli's brother Joseph, president of the company, was acquitted by the jury. Central States Engineering, Inc. was acquitted of mail fraud charges but convicted of the antitrust violation, and has not appealed. Loitz Brothers Construction Company, and its affiliate Kankakee Paving Corporation pleaded guilty to the Sherman Act count and to one count of mail fraud.

The dealings which led to the collusive bids were conducted by Lawrence Loitz for Loitz Brothers and Kankakee Paving, by Larry Boettcher for Central States, and by John Azzarelli for Azzarelli Construction Company. The three men carried on their discussions at a hotel in Springfield the day before the bidding was to take place.

I THE SHERMAN ACT

The Sherman Antitrust Act of July 2, 1890, 26 Stat. 209, 15 U.S.C. 1, has been likened to a charter of economic liberty, expressing a national policy akin to constitutional principles in importance and impact upon the general welfare.

As well stated by the late Mr. Justice Hugo Black:

The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions. But even were that premise open to question, the policy unequivocally laid down by the Act is competition. And to this end it prohibits "Every contract, combination * * * or conspiracy, in restraint of trade or commerce among the several States." Although this prohibition is literally all-encompassing, the courts have construed it as precluding only those contracts or combinations which "unreasonably" restrain competition. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (31 S.Ct. 502, 55 L.Ed. 619;) Chicago Board of Trade v. United States, 246 U.S. 231 (38 S.Ct. 242, 62 L.Ed. 683).

However, there are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable an inquiry so often wholly fruitless when undertaken. Among the practices which the courts have heretofore deemed to be unlawful in and of themselves are price fixing, United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 210, 60 S.Ct. 811, 838, 84 L.Ed. 1129; division of markets, United States v. Addyston Pipe & Steel Co., 6 Cir., 85 F. 271, 46 L.R.A. 122, affirmed 175 U.S. 211 (, 20 S.Ct. 96, 44 L.Ed. 136;) group boycotts, Fashion Originators' Guild v. Federal Trade Comm., 312 U.S. 457 (, 468, 61 S.Ct. 703, 85 L.Ed. 949;) and tying arrangements, International Salt Co. v. United States, 332 U.S. 392 (, 68 S.Ct. 12, 92 L.Ed. 20). ¹

The case at bar is a typical or classical example of division of markets or allocation of business by bid-rigging which has been recognized as a Per se violation since the Taft opinion in Addyston Pipe. Able defense counsel ingeniously seeks to modify the traditional contours of Per se violations by inserting an additional element in the definition of such an offense.

The contention is thus formulated in appellants' brief (p. 56): "To invoke the Per se rule . . . the Government is required to prove not only a price-fixing, bid-rigging or job allocation agreement, but it must also prove, as an element of the offense, that the conspiratorial activities involved transactions In the flow of interstate commerce. ² "

In other words, appellants argue that a Per se violation can occur only in a "flow" of commerce situation, and not in an "affecting" commerce situation. This argument, unsupported by authority, is untenable. It confuses the type of Restraint ("Per se " or "unreasonable") with the type of nexus with Commerce ("in" or "affecting").

With respect to the restraints forbidden by § 1 of the Sherman Act ³ the cases have recognized that in enacting § 1 Congress "wanted to go to the utmost extent of its Constitutional power" and hence that "however local its immediate object, a 'contract, combination . . . or conspiracy' nonetheless may constitute a restraint within the meaning of § 1 if it substantially and adversely affects interstate commerce." ⁴

Goldfarb v. Va. State Bar, 421 U.S. 773, 780, 784-85, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975), obviously is inconsistent with appellants' contention. That was a Per se price-fixing case (with respect to fees charged by lawyers for title searches, a local activity) and was likewise a case "affecting" interstate commerce. ⁵

We now turn to appellants' most plausible contention, that the evidence in the case shows that the interstate commerce affected had terminated, by reason of processing which transformed the nature of the material moving in interstate commerce. Appellants produced an expert witness to prove chemical and molecular change, or the creation of a new product, when crude oil and asphaltic cement were combined to make the bituminous concrete used in the highway construction affected by appellants' rigged bids.

It is doubtful whether, even under the "flow" theory such a change would suffice to render § 1 of the Sherman Act inapplicable. In Swift & Co. v. U. S., 196 U.S. 375, 399, 25 S.Ct. 276, 49 L.Ed. 518 (1905), Mr. Justice Holmes considered fresh meat (as well as cattle) subject to injunction under the antitrust law. And clearly, under the "affecting commerce" theory (which in the case at bar was adequately presented to the jury, unlike Las Vegas Merchant Plumbers Assn. v. U. S., 210 F.2d 732, 746-47 (C.A. 9, 1954)), the restraint could be one which operated either before, during, or after the interstate movement. ⁶ In similar vein, the eloquent dissent of Mr. Justice Holmes in Hammer v. Dagenhart, 247 U.S. 251, 38 S.Ct. 529, 62 L.Ed. 1101 (1918), refuted the majority view in that case that commerce in goods produced by child labor was unlike situations where "the use of interstate transportation was necessary to the accomplishment of harmful results."

⁷ Holmes retorted: "It does not matter whether the supposed evil precedes or follows the transportation. It is enough that in the opinion of Congress the transportation encourages the evil." ⁸

Appellants' contention falls within the category of "mechanical distinctions" condemned in Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219, 229, 68 S.Ct. 996, 1002, 92 L.Ed. 1328 (1948). Such artificial separation of production and manufacturing from commerce "without regard to their economic continuity" would be a "reversion to conceptions formerly held ⁹ but no longer effective to restrict either Congress' power . . . or the scope of the Sherman Act's coverage." Such a reversion to outmoded concepts, rejected in Mandeville almost forty years ago, is A fortiori unavailing now. In Mandeville the distinction was between sugar beets and manufactured sugar. The Court was not impressed by this transformation, and applied the doctrine of Wickard v. Filburn which had dealt with an "identical commodity (wheat) from the planting stage through the phase of interstate distribution." 334 U.S. at 237, 68 S.Ct. at 1007. The Court concludes that "mere change in the form of the commodity or even complete change in essential quality by intermediate refining, processing or manufacturing does not defeat application of the statute . . . . ¹⁰ Again, as we have said, the vital thing is the effect on commerce, not the precise point at which the restraint occurs or begins to take effect . . . . Hence . . . the mere fact that the price fixing related directly to the beets did not sever or render insubstantial its effect subsequently in the sale of sugar." 334 U.S. at 238, 68 S.Ct. at 1007. Similarly it seems clear that in the case at bar the fact that the price fixing impinged on the new product (asphalt concrete) rather than the ingredients thereof did not diminish its impact or render insubstantial its effect on the sale of crude oil and asphaltic cement in interstate commerce.

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