U.S. v. Consolidated Packaging Corp.

• Decision Date: 13 April 1978
• Docket Number: No. 77-1422,77-1422
• Citation: 575 F.2d 117
• Parties: 1978-1 Trade Cases 61,968 UNITED STATES of America, Plaintiff-Appellee, v. CONSOLIDATED PACKAGING CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 117

575 F.2d 117

1978-1 Trade Cases 61,968

UNITED STATES of America, Plaintiff-Appellee, v. CONSOLIDATED PACKAGING CORPORATION, Defendant-Appellant.

No. 77-1422.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 1, 1977.

Decided April 13, 1978.

Donald Page Moore, Chicago, Ill., for defendant-appellant.

Ron M. Landsman, Atty., Dept. of Justice, Washington, D. C., Thomas P. Sullivan, U. S. Atty., Chicago, Ill., for plaintiff-appellee.

Before CUMMINGS and WOOD, Circuit Judges, and GRANT, Senior District Judge. ^*

HARLINGTON WOOD, Jr., Circuit Judge.

The one count indictment charged a fourteen-year, nationwide, industry-wide, price-fixing conspiracy by twenty-three folding carton companies and fifty of their executives in violation of § 1 of the Sherman Act, 15 U.S.C. § 1. ¹ It was alleged that beginning about 1960 and continuing into 1974 the defendants and unindicted co-conspirators engaged in a conspiracy in restraint of interstate commerce to fix, raise, maintain, and stabilize the price of folding cartons ² in accordance with an understanding and concert of action among themselves. Seventy defendants pleaded nolo contendere and were sentenced. Only three defendants went to trial, Consolidated Packaging Corporation and two individual defendants, Melvin E. Riecke, Vice-President of Consolidated, and Vernon A. Kepford, not associated with Consolidated. In a jury trial, Consolidated was found guilty and the two individual defendants were acquitted. Consolidated was fined $45,000. ³

On appeal Consolidated raises issues which may be broadly categorized as conspiracy issues and trial issues. The conspiracy issues raise the questions of whether or not the government by sufficient independent evidence, admissible against Consolidated, proved the existence of the national conspiracy, and whether Consolidated knowingly participated in it. Since the evidence clearly disclosed some illegal price manipulation activities by Consolidated, the related question is whether or not those activities were only isolated acts of wrongdoing. If those activities, with which Consolidated was not separately charged, were not part of the alleged national conspiracy, a variance would result. Kotteakos v. United States, 328 U.S. 750, 66 S.Ct. 1239, 90 L.Ed. 1557 (1946). The trial issues raise questions concerning the production of Jencks Act material under 18 U.S.C. § 3500, restrictions on cross-examination, the invoking of the Fifth Amendment by a government witness during cross-examination, lack of documentary proof of pricing, instructions, alleged prosecutorial misconduct and the amount of the fine imposed. We affirm.

Conspiracy Issues

That a broad-based conspiracy in the folding carton industry is shown by the evidence, and in effect admitted by seventy other defendants, there is no doubt. The question remains, however, of whether or not the conspiracy was proven to exist by sufficient evidence admissible as to Consolidated, and if so, did the evidence demonstrate that Consolidated knowingly participated in the particular conspiracy. The government's evidence specifically relating to Consolidated consisted of the testimony of two former Consolidated employees, Donald Anderson and Robert Dieffenbach, and three employees of competitors who testified as to particular episodes of pricing and bidding arrangements with Consolidated. To show the nationwide scope of the alleged conspiracy, of which the government claimed Consolidated's pricing activities were a part, the government relied on the testimony of four present and former employees of folding carton manufacturers and numerous memoranda prepared by Roman Hencel, a former employee of co-defendant Weyerhaeuser Company. These memoranda, made at or about the time, detail numerous price-fixing conversations with other defendants made during and in furtherance of the conspiracy, but none held by Hencel personally with Consolidated, although two contacts were mentioned.

As a part of the broad, general picture the evidence showed much more extensive involvement by other defendants than by Consolidated. Suggesting the acceptability and scope of the illegal practice in the industry, it was shown that at least four defendants, not including Consolidated, had certain employees assigned the principal responsibility of exchanging price information with "competitors" in advance of bidding. There was nothing complex about the manipulations. Carton manufacturers sold their products supposedly by competitive bidding, to a large extent on an order-by-order basis, fixed term requirement contracts, or on continuing basis contracts. ⁴ If under this latter type of contract the present supplier might desire to effect a price raise to a particular customer without running the risk of losing the business to a competitor, the supplier would in advance exchange price information with probable competitors to secure their cooperation so that the contemplated price raise might be safely accomplished. Whenever a customer asked for competitive bids on a new requirement, the competition would at times be eliminated by the co-conspirators either refraining from bidding or by submitting intentionally high bids after secret exchange of price information so as to give the thwarted competitive bidding process the gloss of legitimacy. In some circumstances a supplier might desire to approach a new potential customer. The supplier first would contact the present supplier and exchange price information to insure that the new bidder would not undercut the price of the other. Though competition was not permitted as to price, it was at least as to quality and service. Suppliers in the conspiracy were expected to accommodate each other. Those arrangements were often accomplished by use of the telephone. Conspirators had their own helpful jargon. Those conspirators who were mutually cooperative during any particular period were referred to as being "on the phone," and those who were not conspirators, or were at least not active for a particular period were referred to as "off the phone." It does not appear that a conspirator needed to approach each new bid-letting occasion in search of some dishonest accommodation with the great care or caution which might reasonably be anticipated in an isolated instance of soliciting illegal cooperation with a competitor. The rules of the nefarious economic game appear to have been recognized and accepted. There were benefits and at times burdens. The conspirators were, however, not without all honor. If a conspirator misused the price information to underbid, he would be chastised or ostracized and taken "off the phone." This illegitimate business practice appears to have flourished among so many of the conspirators for so long that it could reasonably be considered the customary way of doing business. All the facts and circumstances fully justify the view that a custom-made conspiratorial understanding had been developed and fashioned in a size and style most suited to their particular needs. Whenever the needs of any conspirator might require it, the conspirator had only to plug into the system, get "on the phone," and make the necessary arrangements. This system which developed and remained viable among them to be available for use by any conspirator was a pervasive aspect of the conspiracy. The many minor individual or particular conspiracies which the system fostered and spawned were evidence of the effectiveness of the general conspiracy. The conspiracy was in the nature of an industry utility, operated totally for the benefit of its shareholders, the carton producing conspirators, and to the detriment of its customers and the public. Was it shown by admissible evidence that Consolidated was for a time a shareholder in that system, although only a minor one? In our view it was. We must examine the conspiracy evidence in relation to Consolidated in specific detail.

Consolidated aptly refers to the various times when Consolidated appears in particular price discussions as episodes, although we do not view them as isolated unrelated events in the context of this case. We believe it is necessary to review and comment on all those episodes, each one of which is a distinctive occurrence yet each serves in some way to illustrate Consolidated's participation in the continuing system of the overall general conspiracy. Except for our interpretation of the significance of the episodes, after reviewing the transcripts we have generally accepted the evidence as it was set forth in Consolidated's comprehensive brief.

The first episode concerns the major account of A-C Spark Plug Division of General Motors. In 1970 Diamond International Corporation and Weyerhaeuser, who were sharing the A-C account with Consolidated, decided to increase their prices to A-C at the next bidding for a yearly contract. Consolidated received a call from an officer of Diamond and responded by sending the manager of one of its carton plants to a motel meeting between representatives of the three suppliers. At the meeting Consolidated was advised about the price increase desired by the other two suppliers and then agreed to likewise raise Consolidated's prices. However, Consolidated subsequently reneged and as a result increased its share of the A-C account by underbidding Diamond and Weyerhaeuser. Diamond complained about the violation of the motel agreement to Consolidated's Vice-President Riecke. Riecke alibied to Diamond that he had been unable to control Consolidated's manager who had attended the meeting and who had entered into the violated agreement. Consolidated stresses on appeal that Consolidated in the final analysis in effect "refused" to raise its prices and prevailed in the price competition. We believe that Consolidated mischaracterizes that episode. Regardless of how the bidding went or whether the agreement was kept or not, this episode from and after the time of the...