Esco Corporation v. United States, 19384.

• Decision Date: 20 January 1965
• Docket Number: No. 19384.,19384.
• Citation: 340 F.2d 1000
• Parties: ESCO CORPORATION, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

340 F.2d 1000 (1965)

ESCO CORPORATION, Appellant, v. UNITED STATES of America, Appellee.

No. 19384.

United States Court of Appeals Ninth Circuit.

January 20, 1965.

Guy J. Rappleyea, Black & Apicella, Portland, Or., L. M. McBride, McBride, Baker, Wienke & Schlosser, Chicago, Ill., for appellant.

Wm. H. Orrick, Jr., Asst. Atty. Gen., Lionel Kestenbaum, Donald L. Hardison, Dept. of Justice, Washington, D. C., Lyle L. Jones, Atty. Dept. of Justice, San Francisco, Cal., for appellee.

Before POPE, BARNES and JERTBERG, Circuit Judges.

BARNES, Circuit Judge:

This is an appeal from a jury verdict convicting appellant corporation of violating Section 1 of the Sherman Act (15 U.S.C. § 1) by means of its participation in an alleged price-fixing conspiracy, admittedly a per se violation of the Act. United States v. Trenton Potteries Co., 273 U.S. 392, 47 S.Ct. 377, 71 L.Ed. 700 (1927); Standard Oil Co. v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911).

The defendants originally named as co-conspirators were the four principal West Coast distributors of stainless steel pipe and tubing. The conspiracy was alleged to have been a continuing one, beginning prior to the year 1960, and continuing "until at least May 1961." These four distributors were the Tubesales Corporation (herein "Tubesales"); the Esco Corporation ("Esco"); Alaskan Copper Companies, Inc. ("Alaskan"); and the Republic Supply Company of California, doing business through its Kilsby Tube Supply Division ("Kilsby").

Jurisdiction existed below (15 U.S.C. § 4), and exists in this court (28 U.S.C. § 1291).

All defendants other than Esco entered nolo contendere pleas prior to trial, so that Esco alone stood trial, No individual defendants were named or prosecuted. Several corporations, firms and individuals were alleged to be coconspirators but were not named as defendants.

The "central criminal design" charged herein was the fixing of prices in stainless steel pipe and tubing by nonproducing wholesale distributors within a described market area. That market area comprised the states of Washington, Oregon, California, Idaho and Utah.

I — The Business Setting.

For several years prior to 1959 a relatively stable and uniform pricing structure in the distribution of stainless steel pipe and tubing existed on the West Coast. The dominant and largest distributor, "Tubesales," adopted the price at a figure called "mill parity," which was a delivered price, uniform throughout the market area, made up of an identical freight rate plus mill prices, less (a) quantity discounts, and a (b) distributors' quantity discounts. These were known as a "functional discount" and a "functional resale discount," given by a seller to a buyer purchasing stainless steel pipe and tubing for resale to others.

F.O.B. prices were set and published by the mills; the delivered prices were set and published by the "Tubesales" price book.

Beginning in 1959, some Eastern mills and Eastern "stocking distributors" cut prices — in some instances by absorbing freight charges to the West Coast.

We quote from the government's brief:

"The price-cutting eventually spread to some of the defendants themselves as well as to smaller nonstocking jobbers in the area who were able to undersell the defendants by reason of the traditional 10 percent discount extended them by the larger wholesale distributors. To meet these competitive threats * * * Tubesales, the price leader and dominant distributor in the area, launched a program to encourage price stability by bringing price deviators back in line with the Tubesales published price list (see Tr. 92-98 * * *) * * *. The old, and higher, published prices were maintained even in the face of `tremendous\' price cuts by the eastern producing mills (Tr. 700). These prices were, in fact, adhered to for several months until the downward pressure of prices became so great that Tubesales and Esco * * * almost simultaneously published new price lists * * * around November 1, 1960 (Tr. 749-50, 137). The new prices were virtually identical (Tr. 749-50).

"(2) To meet the threat posed by competition from the smaller, nonstocking jobbers, the defendants including Esco, at a series of meetings held in Los Angeles and San Francisco at the invitation of Tubesales, agreed to reduce the discount to these distributors from the historic 10 percent to 5 percent. It was felt that such a reduction would substantially eliminate troublesome price-cutting and underselling by this class of distributors (see Tr. 120 -121) and yet allow them `to continue in business, and at least make a small profit\' (Tr. 618).

"(3) Similarly, with respect to the Idaho-Utah area, prices had become `highly competitive\' (Tr. 343) because a number of the defendants, including Esco and Alaskan (Tr. 558), had been quoting below the published Tubesales prices and, in fact, even Tubesales\' representative in Salt Lake City had been selling below list (Tr. 452). The problem in this area revolved around the freight factor built into Tubesales\' price book. The published prices in Tubesales\' so-called western price book, which was applicable throughout the six-state market area, made no allowance for the cheaper freight rate available from eastern producing points to delivery sites in Idaho and Utah. For example, the pubprice for a given item was as great in Salt Lake City as in Los Angeles notwithstanding the difference in freight from the eastern mills to the two points (Tr. 454; GX 63). As a result, many distributors were either deducting the freight differential from published prices in the Salt Lake City area or, as in the case of Tubular Service, a non-defendant co-conspirator, absorbing the freight charge altogether (Tr. 577, 579). To correct this situation, Tubesales invited representatives of Esco, Alaskan and others (Tr. 206, 556) to a meeting at Salt Lake City on January 17, 1961, where an agreement was reached that a new and reduced freight factor would thenceforth be used in quoting prices in the Idaho-Utah area (Tr. 343-349, 350-51, 356-57, 524-31). New price lists embracing the lower freight rate were drawn up by Tubesales, hand-delivered to Esco (Tr. 506; see also Tr. 544-46) and made effective immediately (Tr. 609-10; GX 87, 93)."¹

II — Specifications of Error.

Appellant's principal point urged on this appeal is the alleged insufficiency of the evidence to support the verdict. (Specifications 1 and 2.)

Appellant also raises two specifications with respect to the admission of evidence (3 and 4); alleged prejudicial remarks of the trial judge (Specification 5); and Specification 6, the prejudicial instruction to the jury by the trial judge withdrawing the third subspecification of the alleged conspiracy. (Section V of the indictment, paragraph 9(c).)² In our opinion, Specifications 5 and 6 must be touched upon before we reach the question of alleged insufficiency in the evidence.

Specification of Error 6 is treated by appellant in its brief under organizational point IV A (d). The appellant correctly states: "The Court and the Government found themselves with possible proof of a cutting-charge conspiracy, but with no proof of an Esco connection."

The trial judge thereupon strongly indicated to government counsel that the charge contained in subsection (c) of paragraph 9, part V of the indictment, should be withdrawn.³ It was.⁴

This action, says appellant, was prejudicial error, not because the evidence was stricken, but because it was admitted into evidence in the first place — without first establishing "a prima facie connection * * * between Esco and that act." That connection, of course, if Esco never participated actively in fixing and adopting identical cutting charges, could only be established by proof of Esco's participation in an overall conspiracy involving more than the cutting charge allegation.

Beyond noting that (a) the government frequently charges more than it can prove, and (b) no objection was made by defendant Esco, either during argument (Tr. 874-75) or during instruction (Tr. 947), to the withdrawal of such issue from the jury, we will consider the "no connection" argument under our subsequent consideration of the insufficiency of the evidence (Specifications of Error 1 and 2).

III — Conduct of Judge.

We turn to the error alleged in Specification 5, that "the District Court erred in making statements in the presence of the jury that the government witnesses were favorably disposed toward the industry of which Esco is a member, thereby misconstruing the demeanor of those witnesses and substantially prejudicing Esco defense."

Appellant seeks to buttress this argument (a) by remarks made by the court, out of the presence of the jury, (and at the argument for judgment of acquittal, for a new trial, and at time of sentencing) and (b) by citing one case. A reading of the transcript clearly indicates that the trial court correctly concluded that the witnesses Deshon, Kilsby, Walton, Bialock and Smith of Alaskan, et al., were in truth not favorable to the party calling them (the government), and hence could properly be considered hostile witnesses. As such they were properly and lawfully subjected to leading questions. Moreover, even had these witnesses not been considered "hostile," some "leading" would still have been proper, subject always to the judicial discretion of the trial judge.^4a

In fixing the penalties after the three nolo contendere pleas were entered six months before the trial, the trial judge was required to learn something of the conspiracy. At that time he had also approved, signed and entered a consent decree in Civil Action No. 62-512 (of which appellant asks this court to take judicial notice, which we do) restricting Kilsby's future conduct in pricing stainless steel pipe and tubing. While a consent decree, forged by agreement between private and government attorneys, may not be a product of the trial judge's own effort, it...