U.S. v. All Star Industries

• Decision Date: 28 May 1992
• Docket Number: No. 91-2439,91-2439
• Citation: 962 F.2d 465
• Parties: 1992-1 Trade Cases P 69,869 UNITED STATES of America, Plaintiff-Appellee, v. ALL STAR INDUSTRIES, et al., Defendants, Midco Pipe & Tube Co., Richard A. Brazzale, Mannesmann International Alloys, Inc. (MIA), Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 465

962 F.2d 465

1992-1 Trade Cases P 69,869

UNITED STATES of America, Plaintiff-Appellee, v. ALL STAR INDUSTRIES, et al., Defendants Midco Pipe & Tube Co., Richard A. Brazzale, Mannesmann International Alloys, Inc. (MIA), Defendants-Appellants.

No. 91-2439.

United States Court of Appeals Fifth Circuit.

May 28, 1992.

Roger L. Price, Steven L. Baron, D'Ancona & Pflaum, Chicago, Ill., for defendants-appellants.

Jeffrey S. Lynch, True, Rohde, Lynch & Sewell, Dallas, Tex., for Mannesman Intern. Alloy & Richard A. Brazzale.

Ronald G. Woods, U.S. Atty., Paula Offenhauser, Asst. U.S. Atty., Houston, Tex., Andrea Limmer, Atty., U.S. Dept. of Justice, John J. Powers, III, Asst. Chief., U.S. Dept. of Justice, Appellate Sec., Washington, D.C., for plaintiff-appellee.

Appeals from the United States District Court for the Southern District of Texas.

Before BROWN, GARWOOD, and EMILIO M. GARZA, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Mannesmann International Alloys, Inc. (MIA), Midco Pipe & Tube, Inc. (Midco), and Richard A. Brazzale--former vice-president of sales at MIA--appeal their convictions for violating section 1 of the Sherman Act, 15 U.S.C. § 1, and for aiding and abetting, 18 U.S.C. § 2, by conspiring to fix the prices of specialty pipe sold through Texas Pipe Bending Company (TPB). Specifically, these defendants assert that the district court erred in instructing the jury and abused its discretion in ordering restitution. Finding no error, we affirm.

I

This case involves an alleged conspiracy between six corporations ¹ and three individuals ² to fix the prices of specialty pipe sold to TPB for purchase by TPB's customers under a cost-plus contractual arrangement--a violation of section 1 of the Sherman Act ³ and the aiding and abetting statute. ⁴ Specifically, the indictment alleges that TPB and its distributors conspired to eliminate competition on specialty pipe bids submitted to TPB for its cost-plus contracts. ⁵

A

At trial, twelve alleged co-conspirators--including a former MIA sales manager, a former MIA executive vice-president, and two former Midco vice-presidents--described the conspiracy and their participation in it. According to these witnesses, when TPB was awarded a fabrication job on a cost-plus basis, Bartula--TPB's head purchasing agent--decided which distributors should submit bids. These distributors included All Star, Midco, MIA, Capitol, Guyon, and U.S. Metals. Bartula or another TPB employee would then ask Palma ⁶ to "quarterback" the job--that is, to act as a go-between among the distributors and TPB by discussing the prospective bids, allocating various material among the bidders, and working with the bidders to decide the prices each would submit to TPB.

Specifically, Bartula or Palma would call selected bidders to inform them that (1) they would be receiving a request for a quotation on a cost-plus job, (2) Palma would quarterback the job, and (3) the job was to be handled on a "code 5", "10", or "15" basis--meaning that the job was to be rigged and TPB would receive either a five, ten, or fifteen percent kickback. The distributors then padded their bids accordingly, adding this five-to-fifteen percent onto their bids and rebating the money to TPB in the form of a "credit memo" or check. TPB and its distributors sometimes referred to this scheme as TPB's "volume discount program."

As quarterback, Palma would discuss the bidders' preferences and agree on an allocation among them of the materials needed. The bidders who were designated winners would then determine their prices. In addition to the five-to-fifteen percent added to the bid price for TPB's kickback, these bid prices included higher than normal markups resulting in prices generally 20 percent--and as much as 75 percent--higher than competitive prices. Palma would then pass these inflated prices onto the other bidders who would protect them by bidding higher. Work was usually awarded according to the allocation agreed upon by the distributors.

B

TPB, Capitol, and U.S. Metals entered into plea agreements. All Star, MIA, Midco, Bartula, Brazzale, and Palma went to trial and were convicted by a jury on March 19, 1990. Judgments of conviction were entered on May 20, 1991: The district court fined each of the corporate defendants $250,000 and, as a condition of probation, ordered them jointly and severally liable for restitution in the amount of $859,935; Bartula was sentenced to three years imprisonment, with all but the first six months suspended; Brazzale and Palma received suspended sentences and were placed on probation for five years. MIA, Midco, and Brazzale appeal their convictions.

II

Defendants challenge both the district court's (A) jury instruction and (B) its award of restitution. Defendants' jury instruction challenge fractures into assertions that the district court erred by:

(1) instructing the jury under the per se rule analysis,

(2) refusing to instruct the jury on "rule of reason" analysis, and

(3) refusing to instruct the jury on the theories of defense (that is, good faith and lack of specific intent).

As for the district court's award of restitution, MIA asserts that the court abused its discretion by:

(1) ordering restitution for injuries outside the limitations period,

(2) failing to credit MIA for payments made to settle related civil claims, and

(3) making restitution joint and several.

A 1-2

Section 1 of the Sherman Act provides in part that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal...." 15 U.S.C. § 1. Despite the scope of its literal meaning, the Supreme Court has always recognized that section 1 was "intended to prohibit only unreasonable- estraints of trade." Business Electronics v. Sharp Electronics, 485 U.S. 717, 723, 108 S.Ct. 1515, 1519, 99 L.Ed.2d 808 (1988) (emphasis added). Therefore, "[o]rdinarily, whether [a] particular concerted action violates § 1 of the Sherman Act is determined through case-by-case application of the so-called rule of reason--that is, 'the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.' " Id. (citation omitted).

However, the Court has also introduced a shortcut around case-by-case, rule-of-reason analysis: the Court has found certain agreements to be so egregiously anticompetitive "that they are conclusively presumed illegal without further examination under the rule of reason generally applied in Sherman Act cases." Broadcast Music, Inc., v. Columbia Broadcasting System, Inc., 441 U.S. 1, 7-8, 99 S.Ct. 1551, 1556, 60 L.Ed.2d 1 (1979); see also Business Electronics, 485 U.S. at 723-24, 108 S.Ct. at 1519 ("Certain categories of agreements, however, have been held to be per se illegal, dispensing with the need for case-by-case evaluation."). ⁷ "[A]greements among competitors to fix prices on their individual goods or services are among those concerted activities that the Court has held to be within the per se category." Broadcast Music, 441 U.S. at 8, 99 S.Ct. at 1556. ⁸ The district court found the price fixing arrangement between TPB and its distributors to be such an agreement and instructed the jury accordingly, thereby rejecting the rule of reason instructions proposed by defendants. ⁹

The government asserts a conspiracy among distributors to fix the price of specialty steel and pass that non-competitive price onto end users. To diminish the importance of their horizontal agreement to rig specialty steel bidding, defendants emphasize the vertical component of the conspiracy--that is, TPB's involvement--by proffering a hostage ("TPB made us do it") theory:

The unique fact of this case is that the pipe distributors did not, as in a conventional case, come together voluntarily to fix prices on products to be sold to their customers. Rather, directions flowed the other way. It was the suppliers' customer, Texas Pipe Bending ..., which directed its suppliers in the scheme. TPB dictated the prices in the bids it expected to receive from suppliers. TPB then purchased and took title to the goods, which were passed on to the end users. ¹⁰

In sum, defendants would have us believe that (1) they dealt only with TPB and not with each other, (2) TPB told them what to bid and, for the sake of staying in business, they did what they were told, and, (3) after their deals were done, TPB went forth on its own to cheat its customers, the specialty pipe end users, with inflated prices. ¹¹ However, the record stages a very different scenario: Where specialty pipe distributors, TPB, and specialty pipe end users were united by underlying cost-plus contracts, distributors who were normally horizontal competitors conspired to rig their bids with the explicit intention of inflating the cost aspect of cost-plus contracts and deceiving specialty steel end users. ¹² The conspiracy depended upon distributor cooperation and participation, and the distributors obliged:

--Distributors knew that TPB was required to submit at least three competitive bids to its customers for their approval, and they took pains to make these bids look legitimate to the end users. ¹³

--Distributors did not allocate jobs exactly evenly because knew that would look suspicious, meaning that the distributors made a deliberate effort to maintain the appearance of competitive bidding. See supra notes 12-13.

--Even on contracts for items they knew they would not be getting because they were protecting the prices of other bidders, the distributors would "develop" their prices by calling manufacturers to give them the impression that distributors were preparing competitive bids. ¹⁴

Rather than merely being these distributors' customer who then went on to cheat its own customers, TPB was the distributors' conduit for...