U.S. v. Finis P. Ernest, Inc.

• Decision Date: 25 February 1975
• Docket Number: Nos. 74--1276,74--1277,s. 74--1276
• Citation: 509 F.2d 1256
• Parties: 1975-1 Trade Cases 60,135 UNITED STATES of America, Plaintiff-Appellee, v. FINIS P. ERNEST, INC., and Modern Asphalt Paving and Construction Co., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1256

509 F.2d 1256

1975-1 Trade Cases 60,135

UNITED STATES of America, Plaintiff-Appellee, v. FINIS P. ERNEST, INC., and Modern Asphalt Paving and Construction Co., Defendants-Appellants.

Nos. 74--1276, 74--1277.

United States Court of Appeals,

Seventh Circuit.

Argued Nov. 8, 1974.

Decided Jan. 29, 1975.

Rehearing Denied Feb. 25, 1975.

Edward G. Maag, Belleville, Ill., Phillip A. Montalvo, E. St. Louis, Ill., for defendants-appellants.

Henry A. Schwarz, U.S. Atty., and Jack A. Strellis, Asst. U.S. Atty., E. St. Louis, Ill., for plaintiff-appellee.

Before MARIS ^* and HASTINGS, Senior Circuit Judges, and TONE, Circuit Judge.

HASTINGS, Senior Circuit Judge.

Defendants Finis P. Ernest, Inc. (Ernest) and Modern Asphalt Paving and Construction Co. (Modern) were indicted under a single count indictment for violation of the Sherman Act, 15 U.S.C. § 1, for a combination and conspiracy to submit collusive, non-competitive and rigged bids to the City of East St. Louis, Illinois, for a city sanitary sewer project. The case was tried to a jury, the Honorable James L. Foreman, Judge, presiding, and the jury found both defendants guilty. The court denied all of defendants' post-trial motions and imposed fines of $35,000 and costs on Ernest and $15,000 and costs on Modern.

Defendants raise three issues in this appeal:

(1) Whether there was sufficient evidence to prove the jurisdictional requirement (2) Whether the evidence was sufficient to prove a conspiracy between the defendants to rig bids; and

of a restraint of interstate commerce;

(3) Whether the court erred in admitting evidence showing that Modern had insufficient funds in its checking account to cover the check which it submitted to the city with its bid.

JURISDICTION

The Sherman Act, 15 U.S.C. § 1, states: 'Every contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal . . ..' The Supreme Court has recently reiterated that jurisdictional inquiry under this general language requires a particularized judicial determination which must turn on the circumstances presented in each case. Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 197 fn. 12, 95 S.Ct. 392, 42 L.Ed.2d 378 (1974). See also Rasmussen v. American Dairy Association, 9 Cir., 472 F.2d 517, 526--527 (1972), cert. denied, 412 U.S. 950, 93 S.Ct. 3014, 37 L.Ed.2d 1003 (1973).

In the instant case, the government introduced evidence that materials used by Ernest in construction of the sanitary sewers were manufactured outside the State of Illinois. Clay sewer pipe manufactured in Indiana and manhole frames and covers manufactured in Wisconsin were purchased from Sidener Supply Company in Illinois. A sewer pumping station was purchased from Davco Manufacturing Company in Georgia. The cost of these items was approximately $9,307. The project was built under contract with the City of East St. Louis with funds supplied by the United States Department of Housing and Urban Development (HUD). In February 1971 HUD approved $300,000 for public improvements, primarily sewer construction. In October 1971, after the city had had to reject bids for sanitary and storm sewer construction because they substantially exceeded the engineer's estimate, the city requested an additional $300,000 for these projects and the increase was approved by HUD in February 1972. The question is whether these facts and the inferences which may be drawn therefrom satisfy the jurisdictional requirement of the Sherman Act.

In determining whether particular circumstances constitute a 'restraint of trade or commerce among the several states' courts have taken differing approaches. See, for example, Eiger, The Commerce Element in Federal Antitrust Litigation, 25 Fed.B.J. 282 (1965); Note, Portrait of the Sherman Act as a Commerce Clause Statute, 49 N.Y.U.L.Rev. 323 (1974). Problems of interpretation seem to be due in large part to the fact that the 'single cryptic phrase defines both the conduct prohibited by the Act and the statute's jurisdictional reach.' Rasmussen v. American Dairy Association, 9 Cir., 472 F.2d 517, 521 (1972), cert. denied, 412 U.S. 950, 93 S.Ct. 3014, 37 L.Ed.2d 1003 (1973).

Our problem of interpretation is whether the elements of restraint and interstate commerce may be satisfied separately or whether jurisdiction requires that the restraint be upon the interstate commerce. In several recent cases the Court of Appeals for the Ninth Circuit has viewed the question of jurisdiction under the Sherman Act as entirely one of constitutional power: whether defendants' conduct had a sufficient relationship to interstate commerce to be subject to regulation by Congress. Gough v. Rossmoor Corp., 9 Cir., 487 F.2d 373, 376 (1973); In re Western Liquid Asphalt Cases, 9 Cir., 487 F.2d 202 (1973), rev'd in part sub nom. Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 95 S.Ct. 392, 42 L.Ed.2d 378 (1974). See also Ford Wholesale Co. v. Fibreboard Paper Products Corp., 9 Cir., 493 F.2d 1204, cert. denied, 419 U.S. 876, 95 S.Ct. 138, 42 L.Ed.2d 115 (1974). ¹

The analysis of In re Western Liquid Asphalt Cases is illustrative of this approach. The Ninth Circuit's decision there on the issue of Sherman Act jurisdiction was unaffected by the Supreme Court's decision in the case reported as Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 95 S.Ct. 392, 42 L.Ed.2d 378 (1974), since the Court had limited its grant of certiorari to the questions of jurisdiction under the Clayton and Robinson-Patman Acts. ² In that case the dispute concerned asphaltic concrete which was produced in California and delivered to construction sites in California only. The Court of Appeals held that jurisdiction under the Sherman Act was satisfied because the 'production of asphalt for use in interstate highways rendered the producers 'instrumentalities' of interstate commerce and placed them 'in' that commerce as a matter of law.' 487 F.2d at 204. The court's bifurcated analysis made it unnecessary in deciding the question of jurisdiction to consider whether any interstate commerce was allegedly restrained. This approach, which widens the reach of the Act, finds some support in decisions of the Supreme Court which emphasize that Congress in the Sherman Act intended to exercise the full extent of its constitutional authority under the Commerce Clause. See, e.g., Gulf Oil Corp., supra, at 201, 95 S.Ct. 392; United States v. Frankfort Distilleries, Inc., 324 U.S. 293, 298, 65 S.Ct. 661, 89 L.Ed. 951 (1945); United States v. South-Eastern Underwriters Association, 322 U.S. 533, 557--559, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944); Apex Hosiery Co. v. Leader, 310 U.S. 469, 495, 60 S.Ct. 982, 84 L.Ed. 1311 (1940).

In situations such as the instant case, which involve per se violations of the Act, there is an additional reason for not requiring proof of an adverse impact on interstate commerce to satisfy the jurisdictional requirement. A per se violation is activity, such as price fixing, for which effects need not be shown to establish the substantive offense. Restraints in this category 'because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.' Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). Where activity falls within one of these classes of restraints it is 'not for the courts to decide whether in an individual case injury had actually occurred' in determining whether there has been a substantive violation of the Act. Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 211, 79 S.Ct. 705, 709, 3 L.Ed.2d 741 (1959). It may be anomalous to require proof of effects to satisfy jurisdiction in those cases where proof of effects is not necessary to establish the substantive offense. See P. Areeda, Antitrust Analysis § 178 (1967).

The alternative approach to Sherman Act jurisdiction which considers the nexus between restraint and interstate commerce is supported by other decisions of the Ninth Circuit, decisions in other circuits, as well as by other language of the Supreme Court.

The jurisdictional analysis in Page v. Work, 9 Cir., 290 F.2d 323 (1961), seems inconsistent with the Ninth Circuit's most recent decisions, yet Page continues to be cited with approval in those cases. In Page, the complaint alleged that the defendants eliminated competition in legal advertising in Los Angeles County. The court noted that the defendant newspapers bought newsprint from outside the state, carried some national news and advertising and had some out-of-state subscribers. The court nevertheless concluded that since the claimed restraints were 'on a purely local level and were wholly directed to (the) local intrastate market,' 290 F.2d at 330, the Other courts have also found jurisdiction absent where interstate activities were alleged where there was no showing that the restraint operated on the interstate commerce. Rosemound Sand & Gravel Co. v. Lambert Sand & Gravel Co., 5 Cir., 469 F.2d 416 (1972); Lieberthal v. North County Lanes, Inc., 2 Cir., 332 F.2d 269 (1964); Elizabeth Hospital, Inc. v. Richardson, 8 Cir., 269 F.2d 167, cert. denied, 361 U.S. 884, 80 S.Ct. 155, 4 L.Ed.2d 120 (1959); Saint Anthony-Minneapolis, Inc. v. Red Owl Stores, Inc., 316 F.Supp. 1045 (D.Minn.1970).

jurisdictional requirement of the Sherman Act was not satisfied. The court said, 'The test of jurisdiction is not that the acts complained of affect a business engaged in interstate commerce, but that the conduct complained of affects the interstate commerce of such business.' 290 F.2d at 330. In distinguishing a group of other newspaper cases the court said further, '(i)n all the above cases a restraint of interstate...