United States v. Pabst Brewing Company, 59-C-215.

• Decision Date: 22 September 1964
• Docket Number: No. 59-C-215.,59-C-215.
• Parties: UNITED STATES of America, Plaintiff, v. PABST BREWING COMPANY, Schenley Industries, Inc., the Val Corporation, Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

233 F. Supp. 475

UNITED STATES of America, Plaintiff, v. PABST BREWING COMPANY, Schenley Industries, Inc., the Val Corporation, Defendants.

No. 59-C-215.

United States District Court E. D. Wisconsin.

September 22, 1964.

COPYRIGHT MATERIAL OMITTED

Earl A. Jinkinson, Bert Long, Francis C. Hoyt, Department of Justice, Anti-Trust Division, Chicago, Ill., for plaintiff.

John T. Chadwell, Snyder, Chadwell, Keck, Kayser & Ruggles, Chicago, Ill., Ray T. McCann, Milwaukee, Wis., for Pabst Brewing Co.

Leonard J. Emmerglick, Washington, D. C., Ralph Hoyt, Milwaukee, Wis., for Schenley Industries and Val Corp.

TEHAN, Chief Judge.

On or about July 30, 1958, Pabst Brewing Company acquired the assets and business of Blatz Brewing Company, a wholly owned subsidiary of Schenley Industries, Inc., for approximately $11,000,000 in cash, $3,500,000 in debentures, 200,000 shares of Pabst common capital stock and a stock purchase warrant for an additional 350,000 shares of such stock. On October 1, 1959, the United States of America filed a complaint in this court pursuant to § 15 of the Clayton Act (Title 15 U.S.C. § 25) alleging that the effect of that acquisition may be substantially to lessen competition or to tend to create a monopoly in the production and sale of beer in the United States, the State of Wisconsin, and the three state area of Wisconsin, Illinois and Michigan in violation of § 7 of the Clayton Act (Title 15 U.S.C. § 18) and asking in part that the court adjudge the acquisition to be illegal and require Pabst to divest itself of the business and assets of Blatz.¹

Prior to the trial, an intensive pre-trial program produced considerable agreement between the parties. It was agreed that the line of commerce involved herein is the beer industry, meaning the production, sale and distribution of beer and that the continental United States is a relevant geographic market for purposes of this case. Jurisdiction and venue were admitted by Pabst, as was the fact that prior to the acquisition both Pabst and Blatz sold beer in interstate commerce, which Pabst continues to do. Issue remained, however, as to whether the State of Wisconsin and the three state area of Wisconsin, Illinois and Michigan are also appropriate sections of the country within which the probable effect of the acquisition is to be judged, Pabst claiming, contrary to the plaintiff's allegations, that the only relevant market area is the continental United States. There was also no meeting of the minds on the probable effect of the acquisition, Pabst denying that the effect thereof may be substantially to lessen competition in the areas advanced by the plaintiff as relevant and alleging that the purpose thereof was to avoid the consequences of Pabst's declining sales and increasing losses² and to preserve and promote competition and that the effect thereof was to preserve and promote competition. The plaintiff therefore faced at the trial the burden of proving, as it alleged, that Wisconsin and the three state area of Wisconsin, Illinois and Michigan are sections of the country within which the probable effect of the acquisition of Blatz by Pabst is to be examined and that the probable effect of that acquisition may be substantially to lessen competition or to tend to create a monopoly in the beer industry in either the continental United States or, if proved to be relevant market areas, in the State of Wisconsin or the three state area.

PRE-TRIAL OCCURRENCES.

After issue was joined, a series of pre-trial conferences was held to prepare this case for trial on the issue of whether § 7 had been violated. It was determined that a hearing on the type of relief to be afforded, if any, would await this court's decision on the substantive issue. It was further determined that prior to trial the plaintiff would identify the persons it had interviewed in connection with this case and those it intended to call as witnesses and would identify all documentary evidence upon which it would rely and that Pabst would make similar revelations to the plaintiff. Pursuant to the court's pre-trial directions, the plaintiff listed seventy-one persons whom it proposed to call as witnesses at the trial.

When this case was originally scheduled for trial on October 14, 1963, by order of May 7, 1963, it was estimated that the trial would last two months, such estimate being based in part on the plaintiff's expression of intention to call seventy-one witnesses. Thereafter, the trial was rescheduled twice, finally for January 27, 1964, and since the plaintiff still indicated that it would call seventy-one witnesses, no change was made in the trial estimate.

On January 3, 1964, the plaintiff and Pabst each moved for an order granting permission to issue subpoenas to witnesses residing more than 100 miles from Milwaukee and outside of this district. In the plaintiff's motion, its counsel stated:

"All such witnesses are believed by the plaintiff to have evidence material to the issues of this cause, and that the testimony of said witnesses is necessary to establish the alleged violations of the charges and allegations contained in the complaint filed in the above case." (sic)

On January 13, 1964, the plaintiff filed its pre-trial brief reiterating its belief in the importance and essentiality of the testimony of its witnesses as follows:

"In the course of proving the facts about the `industry context' required by the Brown Shoe opinion Brown Shoe Co. Inc. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510, the Government will call brewer witnesses to testify about the actual competitive situation in the beer industry. This is an invaluable and time honored mode of evidence in antitrust cases where the effect on competition is an issue. See for instance, United States v. Philadelphia National Bank et al., supra 374 U.S. 321, at pages 367-369 83 S.Ct. 1715, at pages 1743-1745, 10 L.Ed. 2d 915. These brewers deserve the close attention of the court not only because of their intimate knowledge of actual competitive conditions, but also because they represent companies which were the particular object the Anti-Merger Act sought to protect. These witnesses will show that the brewing industry is still, to some extent at least, an industry where control remains in the local community in the independent small company. Some of these witnesses will also testify as to the probable effect of changes in Blatz prices. This is perfectly proper under Section 7 which by its very nature looks to the future as already pointed out by the word `may.' The Court is called on in deciding these cases to predict the future and to do so must receive all the help it can get from industry representatives. The best source lies in industry experts, men long versed in the problems of breweries. Some of the Government's brewery witnesses in Wisconsin will testify that if Pabst ever cuts either the Pabst or Blatz prices to the level of their own, they would immediately be forced out of business. This is not subject to the objection that it is speculative because it comes from experts and will be received after a proper foundation is laid. We will prove that in other areas other breweries have been adversely affected by the lowering of Pabst or Blatz prices to the level of their own." (Pages 27-28)

* * * * * *

"The testimony of distributors presented in this case will be generally similar to that approved by the Court of Appeals in Crown Zellerbach Corporation v. Federal Trade Commission, 296 F.2d 800 (C.A.9, 1961) cert. den. 370 U.S. 937 82 S.Ct. 1581, 8 L.Ed.2d 807 (1962). That case involved the merger of two paper producers which resulted in the cutting off of an important source of supply to independent paper jobbers. The court at pages 828-830 discussed at length the testimony of jobbers about how their businesses had been injured by the merger and upheld the Federal Trade Commission's finding of lessening competition." (Page 32)

Also on January 13, 1964, a final conference was held at the request of counsel at which the plaintiff again affirmed its intention to call witnesses and both the plaintiff and Pabst agreed to furnish opposing counsel with a list of witnesses to be called each week, and the order of their expected appearance, by Wednesday of the preceding week. An order respecting that agreement was submitted by the parties, and was received and signed by the court on January 20, 1964.

On January 23, 1964, two court days before the trial was to commence, the court received a letter from counsel for the plaintiff, dated January 22, 1964, the day the plaintiff was to furnish its list of witnesses for the first week of trial, which letter stated:

"Pursuant to the final pre-trial order, the list of plaintiff's witnesses for the week beginning January 27, 1964 is to be furnished to defense counsel on January 22, 1964. As was indicated to some extent at the last pre-trial conference, attorneys for the Government have been assiduously attempting to reduce the number of witnesses and thus narrow the issues.

"It is now the decision of the Government that this case well lends itself to trial as a purely documentary case with no live witnesses.

"The purpose of this letter is to inform the Court and defense counsel of this decision and the resulting sharp curtailment of the length of trial required for the Government's case. We now consider it probable that the Government will rest within two days commencing on January 27, 1964."

No explanation was volunteered by the plaintiff for this drastic change of position regarding the desirability and necessity of testimony of many witnesses to establish its case and only when counsel was pressed for an explanation by the court on April 30, 1964 was any attempt at explanation made. With respect to this matter, we understand the plaintiff's position to be that it decided to call no witnesses at the trial because the state of the law had been clarified...