Continental Baking Company v. United States, 13865-13867.

CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)
Writing for the CourtCECIL and WEICK, Circuit , and KENT
Citation281 F.2d 137
PartiesCONTINENTAL BAKING COMPANY, Appellant, v. UNITED STATES of America, Appellee. AMERICAN BAKERIES COMPANY, Appellant, v. UNITED STATES of America, Appellee. COLONIAL BAKING COMPANY OF MEMPHIS, Appellant, v. UNITED STATES of America, Appellee.
Docket NumberNo. 13865-13867.,13865-13867.
Decision Date18 July 1960



A. Longstreet Heiskell, C. P. J. Mooney, John M. Heiskell, Memphis, Tenn., for appellants.

Ramsay Wall, Shepherd, Heiskell, Williams, Beal & Wall, Memphis, Tenn., Roy M. Anderson, and George Faunce, Jr., Rye, N. Y., on the brief, for appellant Continental Baking Co.

C. P. J. Mooney, Memphis, Tenn., on the brief, for appellant American Bakeries Co.

J. Clyde Mason, Canale, Glankler, Montedonico, Boone & Loch, Memphis, Tenn., on the brief, for appellant Colonial Baking Co.

Earl A. Jinkinson and Raymond D. Hunter, Dept. of Justice, Anti-Trust Division, Chicago, Ill. (Raymond P. Hernacki and Richard A. Solomon, Dept. of Justice, Anti-Trust Division, Washington, D. C., and Rives A. Manker, U. S. Atty., Memphis, Tenn., on the brief), for appellee.

Before CECIL and WEICK, Circuit Judges, and KENT, District Judge.

WEICK, Circuit Judge.

On May 7, 1958 an indictment was returned against the Continental Baking Company, American Bakeries Company, Hart's Baking, Inc., and Colonial Baking Co. of Memphis charging them in one count with violation of Section 1 of the Sherman Act (15 U.S.C.A. § 1). The nature of the offense charged was a continuing conspiracy for many years resulting in the fixing and stabilization of uniform and non-competitive prices of bakery products in the Memphis, Tennessee area. Thereafter defendant Hart's entered a plea of guilty and was fined $3,500. Trial was commenced against the remaining defendants, appellants herein, on December 8, 1958 and on December 18, 1958 the jury returned a guilty verdict as to all three defendants. Fines were imposed in the following amounts: $42,500 on Continental, $35,000 on American and $32,500 on Colonial.

In this Court ten questions have been presented by both Continental and American and six by Colonial. Many of the questions are identical and several issues overlap. All errors assigned will be considered under nine subject headings.

I. The Nature of the Government's Proof and Exclusion of Defendants' Explanatory Evidence

The prosecution sought to prove that the defendants had acted in concert in raising and maintaining the price of bakery goods in the Memphis area. The nature of the Government's proof went beyond a mere showing that the prices charged by the defendants for various items were the same, and that each raised its prices the same amount at the same time. Evidence was introduced that preceding each price change representatives of the defendants had met together and discussed prices. It is claimed that the meetings were held to reach, and resulted in, illegal agreements fixing the price of the bakery goods manufactured by the defendants. Thus, the Government contends it has proved its case of conspiracy by direct and positive evidence.

Appellants entered pleas of not guilty. They denied that the price increases were the result of any agreements, but rather that the products of the bakery industry are standardized and uniform prices and contemporaneous price changes are the rule, rather than the exception. In support of this claim the defendants offered proofs of similarity of costs, operations, marketing procedures, and other economic factors affecting price changes, alleged to be common to all, and had expert witnesses to testify in support of their theory. In essence, the defendants sought to show that they were following an economically dictated practice of conscious parallelism of prices, rather than engaging in any illegal conspiracy to fix prices.

The District Court excluded all such proffered evidence. The reason for so doing is found in the following statement made by the Court to counsel:

"Well, gentlemen, the defendants as we all understand are charged with having conspired to fix prices. We are dealing here with a matter of proof as the Court understands it, what proof may be received on that charge in the trial of this case.
"Now, as to the evidence, the Government has closed its case and we heard evidence here for a week; we heard the testimony of the responsible officers of at least two of the co-defendants, defendant corporations, and the evidence shows that the responsible officials of the company and all of them held meetings in hotel rooms and in other places at which time they discussed and definitely agreed upon price increases of their bakery products, the amounts of such increases on the various products and the particular defendant which would lead off or first announce the price change.
"Following these meetings over this period of time, the defendants did in fact raise their prices in the manner and to the extent agreed upon at the meetings. Now, under the law as the Court understands the law, and I have in mind in particular the cases discussed here this morning, among others the Socony Vacuum case, the testimony concerning cost factors and the testimony of an economist which the defendants are proposing to introduce, cannot serve to rebut this price fixing evidence. As they say in those cases, where the justification or motive, whether economic, benevolent or otherwise, that price fixing agreements may be said to have, the law does not permit any inquiries into their reasonableness.
"So in view of all that, any testimony concerning cost factors or testimony of an expert economist along those lines in the Court\'s opinion would be wholly immaterial and inadmissible in evidence.
"It does present a problem; as we go along, we will have to deal with it in the proof as best we can. While the defendants may controvert, of course, the Government\'s evidence, if they can, they are and will be restricted to a considerable extent.
"Price fixing agreements are per se violations of the Sherman Act, p-e-r-i-o-d, and there is virtually no defense to a price fixing case, gentlemen.
"In a case like this, defendants will be permitted, as I said, to controvert the evidence of meetings which have been developed in the proof of any negotiations or conversations, but they will not be permitted to offer evidence concerning cost factors or other reasons for having a price increase. If they fixed prices, meaning they agreed to them, they are guilty as a matter of law, and there is no concern, as the Court has already pointed out, how necessary it was for them to raise the prices."

The Government's theory in this Court is predicated on the proposition that in its case in chief the defendants' illegal activities were proven by direct and positive evidence and, therefore, the defense was precluded from its showing of economic causation.

The Government's evidence established that prior to each price increase during the indictment period representatives of the defendants had met together. Three Government witnesses testified as to what transpired at certain of those meetings.

Wayne Grout, President of Colonial, testified to the fact that at the meetings the question of prices would come up and one of the bakers would state he felt that his firm needed an increase in prices. The other bakers would agree that they too needed to raise prices, or, as Government counsel phrased it they "did not object" to the suggestion. However, there was no testimony from this witness that the decision of any one of the defendants to raise prices was conditioned on the agreement that all would do so. He testified that at these meetings all the bakers agreed that a price increase was warranted, but he did not testify that they agreed to raise prices collectively. Rather, one of the bakers, generally the one who initiated the conversation concerning prices, would state that he was going up. When he in fact did go up the other bakeries followed, generally within a day or two.

The testimony of L. S. Hartzog, President of Hart's, was similar to that of Mr. Grout concerning the discussions at the meetings. Of singular importance in his testimony was the following statement, made under cross-examination:

"Q. Now, actually was there any agreement, Mr. Hartzog? A. No, Sir."

The third Government witness was John McCrory, Manager of Hart's Jackson, Mississippi plant. He testified to attending meetings at which the defendants were represented preceding price increases in December 1955, August 1954 and October 1953. His description of the conversations was substantially the same as that of the other two witnesses. He further testified that when the baker who stated he was going up told the amounts he proposed to raise his prices the others present copied the amounts down. He did not testify that he heard any agreement reached that all present would go up the specified amounts or that the one quoting prices conditioned his increase on the others following suit.

It is our opinion that by the testimony of these witnesses concerning the meetings and the evidence of the price increases by the defendants shortly thereafter the Government placed before the jury circumstances from which an inference that an illegal agreement had been consummated could be drawn. It cannot be said that the Government irrefutably established that such agreements were reached. None of the witnesses so testified and Mr. Hartzog stated that no agreements were entered into. The defendants denied that they entered into such agreements. It was for the jury to determine if, on all the evidence, together with the inferences to be drawn therefrom, the Government had proven its case.

The principle witness for the defense was Howard A. "Buck" Humbrecht, plant manager for Continental in Memphis. He admitted to the various meetings, but denied that they were called for the purpose of, or resulted in, the reaching of...

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