American Tobacco Co. v. United States

Decision Date26 March 1945
Docket NumberNo. 9137-9139.,9137-9139.
Citation147 F.2d 93
PartiesAMERICAN TOBACCO CO. et al. v. UNITED STATES. LIGGETT & MYERS TOBACCO CO. et al. v. SAME. R. J. REYNOLDS TOBACCO CO. et al. v. SAME.
CourtU.S. Court of Appeals — Sixth Circuit

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COPYRIGHT MATERIAL OMITTED No. 9137:

Geo. W. Whiteside, of New York City, and Floyd Williams, of Cincinnati, Ohio (Chadbourne, Wallace, Parke & Whiteside, of New York City, Hunt, Bush & Lisle, of Lexington, Ky., and George W. Whiteside and Ralph D. Ray, both of New York City, on the brief), for appellants.

No. 9138:

Bethuel M. Webster, of New York City (Bethuel M. Webster and Charles Dickerman Williams, both of New York City, J. Craig Bradley and Victor A. Bradley, both of Georgetown, Ky., and Charles F. Wheaton, of New York City, on the brief), for appellants.

No. 9139:

B. S. Womble, of Winston-Salem, N. C., and H. F. McGuire, of New York City (Frederick H. Wood and Harold F. McGuire, both of New York City, B. S. Womble, of Winston-Salem, Thomas T. Cooke, of New York City, Richard C. Stoll, of Lexington, Ky., and L. P. McLendon, of Greensboro, N. C., on the brief), for appellant.

Herbert Borkland and Milton A. Kallis, both of Washington, D. C. (Wendell Berge, Herbert Borkland, Carson Glass, Edward S. Stimson, and Margaret H. Brass, all of Washington, D. C., and John T. Metcalf, of Lexington, Ky., on the brief), for appellee.

Before HICKS, HAMILTON, and McALLISTER, Circuit Judges.

Writ of Certiorari Granted March 26, 1945. See 65 S.Ct. 864.

McALLISTER, Circuit Judge.

The American Tobacco Company, Liggett & Myers Tobacco Company, and R. J. Reynolds Tobacco Company, together with certain of their officials and a subsidiary of one of the companies, were convicted by a jury, in the district court, on counts of conspiracy in restraint of trade, attempt to monopolize, conspiracy to monopolize, and monopolizing in the tobacco industry, in violation of the Sherman Anti-Trust Act.1 They were each fined an aggregate of $15,000 on three of the counts, or a total of $255,000. On the count of attempting to monopolize, no fines were assessed, for the reason that this offense was held to be merged in the offense of monopolizing. The allegations of fact are the same for each count on which the parties were convicted.

Appellants claim that there was no evidence showing any violation of the anti-trust law; that, inasmuch as the evidence was as consistent with innocence as with guilt, a verdict should have been directed in their favor; that they were convicted on evidence obtained by unlawful search and seizure; that the trial court erred in its instructions to the jury; that appellants were deprived of their legal rights in the challenge of jurors for cause; that they were denied a sufficient bill of particulars; that the charge of the district court to the jury was insufficient and inadequate; that Government counsel indulged in prejudicial argument to the jury; and that improper admission of irrelevant and immaterial evidence constituted prejudicial, reversible error.

The Government's case was based upon the practices and conduct of appellants in their purchases in the tobacco market, and in their sales and systems of distribution; and it is alleged that they all combined and conspired in carrying out such practices. For convenience, the designation "appellants" may be hereafter interchangeably used in referring either to the corporations alone, or to both the corporations and individuals making the appeal.

With the decree of dissolution of The American Tobacco Company in 1911,2 there emerged from the combination thereby held to be illegal the three companies, American Tobacco Company, Liggett & Myers Tobacco Company, and R. J. Reynolds Tobacco Company, which, since that time, have continued to retain their place as the three largest tobacco companies in this country. It is unnecessary, at this point, to describe the origin of these corporations, or their growth, except to remark upon their size, wealth, and power, as those considerations, in view of the issues in this case, are pertinent. As some indication of the enormous growth of the companies, however, it may be observed that in the manufacture, in this country, of cigarettes alone, 38,598,128 pounds of leaf tobacco were used in 1911; in 1939, the amount so used, had increased to 509,107,672 pounds.

In 1929, the three companies above named produced 91% of the cigarettes manufactured in the United States; but this percentage of production has diminished since that time, until, in 1939, they produced 68% of the cigarettes manufactured in the United States, or an aggregate of approximately 123 billion cigarettes out of a total of approximately 181 billion manufactured in the country. In the same year, 1939, they produced 63.5% of the smoking tobacco, and 44.22% of the chewing tobacco manufactured in the United States. Their net profits for 1939, after payment of expenses, taxes, interest, depreciation, etc., were, for American, $26,427,934.28, for Liggett & Myers, $20,705,549.13, and for Reynolds, $25,645,455.09, or an aggregate of $72,778,938.50 for the three companies. For advertising, alone, the three companies, during the above period, disbursed a total of $40,776,771.37. In the same year, the tangible assets of American amounted to $237,130,931.57, of Liggett & Myers, $181,453,497.39, and of Reynolds, $176,709,822.23; their combined tangible assets amounted to $595,294,251.19; and their combined tangible and intangible assets amounted to $649,393,683.59. These figures and amounts vary through the preceding years, but the changes are not such as derogate from the wealth, power, and outstanding importance of the three companies in the tobacco industry, or controvert the fact that their united resources, purchases, production, and sales were and are far greater than all other tobacco companies combined.

Among the circumstances concerning which there is no dispute, it appears that each of the companies consistently has tobacco stocks on hand to last approximately three years. The value of these stocks is more than $100,000,000 for each company, and assures their independence of the market in any particular year. In the hands of the tobacco farmers, the crop is perishable, as it requires a certain redrying treatment or process. Unless it has been redried, it cannot be stored for sale in another season, and the farmers have no facilities for such processing. Hence, it is seen that the farmers must sell their crop in the season in which it is raised, or lose it. Tobacco is sold by auction in various warehouses located in several states. For the most part, the tobacco offered for sale is piled in baskets, arranged in rows along the floor of the warehouse in orderly fashion. The tobaccos involved in this case are the fluecured, burley, and Maryland tobaccos. Foreign companies purchase the larger share of flue-cured tobacco, for foreign consumption. Appellants purchase the greater part of the remainder for blending in their tobacco mixtures, and also buy the greater part of the burley and Maryland crops. The tobacco is purchased at 75 fluecured markets, 42 burley markets, and 4 Maryland markets.

Appellants contend that there was no evidence of agreement, combination, and conspiracy to restrain trade or monopolize. This, the Government claims, is proved by circumstantial evidence, and it is maintained that all reasonable inferences drawn therefrom by the jury, sustain the convictions of appellants. While the entire body of the evidence has been reviewed, we shall not here outline the whole of it, or refer to all of the various arguments that have been directed to different aspects of the proofs. In restating various portions of the evidence as showing the existence of certain facts, we are mindful that contrary interpretations might be indulged in, or opposite inferences drawn. Parol testimony adduced by the Government is in some instances rendered subject to certain qualifications by documentary evidence introduced by appellants. How far such qualifications extended, or whether it was sufficient to permit a partial, or complete, disregard of the Government's proofs in any given instance, was a question for the jury to determine. In view of the jury's verdict, our consideration shall be limited, in this regard, to determining whether there was substantial evidence to support the verdict, and, in reciting what the proofs demonstrate and arriving at our conclusions, we shall take that view of the evidence, and the inferences reasonably to be drawn therefrom, which is most favorable to the Government.

The alleged combination, relating to the purchase of leaf tobacco by appellants, as well as to the sales and distributions of their finished or manufactured products, we shall next consider; and in discussing the proofs relied upon by the Government to establish appellants' violation of the Sherman Act, we will first address ourselves to their activities and methods in the purchase of leaf tobacco on the auction markets and, subsequently, to their conduct in the sales and distribution of their manufactured products.

In support of its contention that appellants combined to fix and control prices of leaf tobacco on the auction markets, the Government relies upon evidence showing that such concerted illegal action was carried on by various devices and methods. First, the Government introduced proof that each appellant company refuses to purchase tobacco on any of the markets, unless all of them are represented thereon. Appellants admit that this is their policy, and that they carry it out. There have been several attempts to open new tobacco markets, but none of the appellants would participate unless all were present, and, consequently, such markets were failures because of the absence of...

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