United States v. Standard Oil Company

• Decision Date: 07 June 1963
• Docket Number: No. 13429-13439.,13429-13439.
• Citation: 316 F.2d 884
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. STANDARD OIL COMPANY et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

316 F.2d 884 (1963)

UNITED STATES of America, Plaintiff-Appellee, v. STANDARD OIL COMPANY et al., Defendants-Appellants.

Nos. 13429-13439.

United States Court of Appeals Seventh Circuit.

April 22, 1963.

Rehearing Denied June 7, 1963.

COPYRIGHT MATERIAL OMITTED

Merwin Bristol, Robert H. Bork, Hammond E. Chaffetz, Walter T. Kuhlmey, Chicago, Ill., Joseph DuCoeur, Washington, D. C., Gordon H. S. Scott, Melvin R. Goldman, Chicago, Ill. (Richard J. Farrell, Ernest L. Godshalk, Kirkland, Ellis, Hodson, Chaffetz & Masters, Chicago, Ill., of counsel), for defendant-appellant Standard Oil Co.

Edward F. Howrey, Joseph B. Kennedy, Jr., Washington, D. C. (John J. Scott, Paul E. Bermingham, J. Arthur Kelly, New York City, Philip B. Raue, Niles, Ill., Howrey, Simon, Baker & Murchison, Washington, D. C., Henry C. Moses, New York City, of counsel), for defendant-appellant Socony Mobil Oil Co., Inc.

Alan W. Boyd, Thomas M. Scanlon, Raymond W. Gray, Jr., Indianapolis, Ind. (Clayton Orn, William K. Tell, Calvin A. Brown, Findlay, Ohio, Barnes, Hickam, Pantzer & Boyd, Indianapolis, Ind., of counsel), for defendant-appellant Ohio Oil Co.

Walter L. Barnes, Bartlesville, Okl., Howard Neitzert, Howard P. Robinson, Chicago, Ill., Bruce C. Hammerschmidt, South Bend, Ind. (Sidley, Austin, Burgess & Smith, Chicago, Ill., of counsel), for defendant-appellant Phillips Petroleum Co.

Gentry Lee, Cecil C. Cammack, Russell H. Smith, Bartlesville, Okl., E. Gray Hayden, New York City, for defendant-appellant Cities Service Petroleum Co.

Amzy B. Steed, New York City (Milton Handler, Stanley D. Robinson, Cecelia H. Goetz, Kaye, Scholer, Fierman, Hays & Handler, New York City, of counsel), for defendant-appellant Texaco Inc.

Paul R. Teetor, New York City, (William F. Kenney, S. Russell Vandivort, New York City, of counsel), for defendant-appellant Shell Oil Co.

Edward R. Adams, Chicago, Ill., M. Edward Doran, South Bend, Ind. (Miller, Gorham, Wescott & Adams, Chicago, Ill., of counsel), for defendant-appellant Central West Oil Corp.

Louis Shifrin, St. Louis, Mo. (Shifrin, Treiman, Agatstein & Schermer, St. Louis, Mo., of counsel), for defendant-appellant Tornado Oil Co., Inc.

Irving C. Klinock, Kansas City, Kan., for defendant-appellant Hudson Oil Co.

William F. McInerny, South Bend, Ind. (Chapleau, Roper, McInerny & Farabaugh, South Bend, Ind., of counsel), for defendant-appellant Pacer Oil Co., Inc.

Earl A. Jinkinson, Raymond P. Hernacki, Chicago, Ill., Richard A. Solomon, Anti-Trust Div., Dept. of Justice, Washington, D. C., Alfred W. Moellering, U. S. Atty., Fort Wayne, Ind., Robert L. Eisen, Lawrence H. Eiger, Chicago, Ill., Robert B. Hummel, Cleveland, Ohio, Joel E. Hoffman, Michael J. Miller, Washington, D. C., for appellee.

Before DUFFY, CASTLE and KILEY, Circuit Judges.

DUFFY, Circuit Judge.

We have before us eleven appeals from separate judgments of conviction based upon jury verdicts finding each defendant guilty of having on or about May 1, 1957, conspired to raise and/or induce its dealers to raise, or induce its jobbers to raise, retail gasoline prices in the South Bend, Indiana, area in violation of Section 1 of the Sherman Act (26 Stat. 209, 15 U.S.C. § 1).

Thirteen defendants were named in the indictment. However Sun Oil Company was dismissed before the case went to the jury. Among those found guilty was Gulf Oil Corporation, but thereafter the trial court granted Gulf's motion for a judgment of acquittal.

The appellants are seven "major" and four "independent" companies.¹ In the first category are Standard Oil Company (Standard), Socony Mobil Oil Company (Socony), The Ohio Oil Company (Ohio), Phillips Petroleum Company (Phillips), Cities Service Oil Company (Cities Service), Texaco Inc. (Texaco), and Shell Oil Company (Shell). The independents are Central West Oil Company (Central West), Tornado Oil Company, Inc. (Tornado), Hudson Oil Company of Illinois, Inc. (Hudson), and Pacer Oil Company (Pacer).

The trial court fined Standard and West Central each in the amount of $50,000. The other "major" companies were each fined $45,000. Hudson, Tornado and Pacer were fined $30,000, $20,000 and $5,000, respectively.

The "market area" referred to throughout this record included the cities of South Bend, Roseland and Mishawaka, and the immediate surrounding areas in the State of Indiana. All of this area is within a few miles from the Michigan state line.

The so-called gasoline price war in the area described, dated from March 15, 1957 when the State of Indiana increased its gasoline tax by two cents a gallon. This brought the Indiana tax to a level with the Michigan gasoline tax.

Prices in the area were generally raised two cents a gallon to cover the tax increase. Major brand stations typically went to 32.9 cents per gallon and independents to 30.9 cents a gallon. Prior to March 15, 1957, a two cent per gallon differential between major and independent companies had existed in this market for some years.

A number of independents in the area were of the opinion that any price above 29.9 cents per gallon diminished the price appeal of their product. For some psychological reason, the 30 cents per gallon barrier was not to be breached. This was especially true in Roseland which was located on a main highway not far distant from the Michigan state line.

On March 19, 1957, the independents in Roseland started cutting prices. The practice stopped temporarily but started again on March 28th, spreading to South Bend and Mishawaka and also spreading to major companies' stations. The majors began lowering their tank wagon prices to lighten the burden of the price war on their dealers. By April 1, gasoline prices were down four cents per gallon from the pre-price-war level.

On April 1, Central West, which was the largest independent in the South Bend area, decided to increase its prices to the pre-price-war level, effective April 3. It notified certain of its competitors including Standard, that it intended to take such action. The Division Manager of Standard was on vacation, but his assistant, Paul Troup, decided to raise Standard's tank wagon price effective April 3, and to suggest to its Standard dealers that they raise the retail price of the pre-price-war level.

Although Central West increased its price to 30.9 cents per gallon on April 3rd, it was apparent by April 6 that some stations in the area had not advanced their price or, if they had done so, had again reduced them. Within two or three days, all price increases had been rescinded. From April 12 to April 17, there were further drastic price reductions to a low of 24.9 cents for the major companies, and 22.9 cents for the independents for regular gas. These low prices prevailed until May 1st.

The Dealers' Association which claimed to represent most dealers in the South Bend area, put great pressure on the oil companies for a restoration of normal gasoline prices. The Association invited all the oil companies in the area to send representatives to a meeting held on April 25, 1957, which meeting was called to discuss means for ending the price war. All of the companies but two refused to attend, and the representatives of the two who did attend, declined to participate in the meeting but remained only as observers. The Dealers' Association also threatened to seek the aid of the Teamsters Union to bring about an end to the price war.

The price war hurt every oil marketer in the area, independents and majors alike. The testimony showed that Central West was losing more than $500 a day. Independent Pacer's gross margin was less than two cents a gallon, but direct labor costs at its three stations ranged from 3.47 to 4.47 cents per gallon. Hence, Pacer had a substantial out-of-pocket loss for every gallon of gasoline that it sold.

The majors' losses in the price war were very substantial. In April alone, Shell paid out $30,000 in temporary price allowances to its dealers. Many Standard dealers lost more than $350 a month. One Socony Mobil dealer testified he sustained $400 per month loss.

It is very clear from this record that every gasoline marketer in the area devoutly hoped for an early end to the price war. The dealers were eager and anxious to increase their retail price in their own economic self-interest. Dealers and oil companies alike were anxious to follow any market rise in gasoline prices and they needed no urging or pressure from any source to do so.

Johnson, president, and Parker, vice president, of Central West, discussed the situation daily. On April 25, Parker called Lee of Standard who was at Wabash, Indiana, attending a meeting of five hundred of his dealers. Parker told Lee that Central West was considering raising its price. Lee ended the phone call quickly because he was busy with the dealers' meeting.

On April 26, Johnson and Parker decided to raise Central West's pump prices on May 1 to 29.9 cents per gallon. They chose the 29.9 cent price because other independents had defeated the April 3rd price raise by refusing to go above that figure. They picked May 1 because they knew a price rise would not be effective if the majors did not raise their prices, and they knew the majors would not do so without first giving their dealers an opportunity to fill their tanks at the prevailing low price.

Lee returned to his office on a Friday morning. This was the day following the Wabash dealers' meeting and the dealers' protest meeting. He found on his desk a recommendation that Standard's tank wagon price to dealers in Goshen and Elkhart, Indiana, be lowered three or four cents because of the adverse effect on dealers in those cities due to the South Bend price war.

Later that same morning, Johnson informed Lee of Central West's decision to increase its price. He did not tell Lee that any other company had been notified. Lee made no statement as to what Standard would do. In fact, he testified that at that time he did not know what, if...