USA v. SKW Metals & Alloys, Docket Nos. 98-1090

• Decision Date: 01 August 1998
• Docket Number: 703,569,Docket Nos. 98-1090,Nos. 547,s. 547
• Citation: 195 F.3d 83
• Parties: (2nd Cir. 1999) UNITED STATES OF AMERICA, Appellee-Cross-Appellant, v. SKW METALS & ALLOYS, INC.; and CHARLES ZAK, Defendants-Appellants-Cross-Appellees. (L), 98-1091(CON), 98-1139(XAP)--
• Court: U.S. Court of Appeals — Second Circuit

Page 83

195 F.3d 83 (2nd Cir. 1999)

UNITED STATES OF AMERICA, Appellee-Cross-Appellant, v. SKW METALS & ALLOYS, INC.; and CHARLES ZAK, Defendants-Appellants-Cross-Appellees.

Docket Nos. 98-1090(L), 98-1091(CON), 98-1139(XAP)

Nos. 547, 569, 703 -- August Term, 1998

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: October 22, 1998

Decided: October 28, 1999

Defendants appeal from judgments of conviction for conspiracy to fix prices of ferrosilicon in violation of the Sherman Act, entered after a jury trial in the United States District Court for the Western District of New York (Skretny, J.); the government cross-appeals on the ground that the district court improperly applied the "volume of commerce" enhancement provision of the Sentencing Guidelines in calculating defendants' sentences.

The convictions are affirmed; the sentences are vacated, and we remand for resentencing.

[Copyrighted Material Omitted]

ANDREA LIMMER, Washington, DC (Joel I. Klein, Assistant Attorney General, A. Douglas Melamed, Deputy Assistant Attorney General, John J. Powers, III, Department of Justice, Washington, DC; Melvin Lublinski, Edward Friedman, John W. McReynolds, Department of Justice, New York, NY, on the brief), for Appellee-Cross-Appellant United States.

KEVIN M. KEARNEY, Buffalo, NY (Victor T. Fuzak, Leecia Roberta Eve, Hodgson, Russ, Andrews, Woods & Goodyear, LLP, on the brief), for Defendant-Appellee-Cross-Appellant Charles Zak.

GEORGE R. KUCIK, Washington, DC (Nada S. Sulaiman, Arent Fox Kintner Plotkin & Kahn, PLLC, on the brief), for Defendant-Appellee-Cross-Appellant SKW Metals & Alloys, Inc.

Before: NEWMAN and JACOBS, Circuit Judges and TSOUCALAS, Judge.¹

Judge JON O. NEWMAN concurs in part by a separate opinion.

JACOBS, Circuit Judge:

SKW Metals & Alloys, Inc. ("SKW") and its executive vice-president, Charles Zak, were convicted, after a jury trial in the United States District Court for the Western District of New York (Skretny, J.), of conspiracy to fix prices in the market for ferrosilicon, in violation of Section1 of the Sherman Act, 15 U.S.C. 1 (1990). SKW was fined $150,000; Zak was fined $30,000 and sentenced to four months' home confinement and 18 months' probation. On appeal, defendants adduce a variety of trial defects, including the improper admission of evidence. The government cross-appeals the sentences on the ground that the district court misinterpreted the "volume of commerce" enhancement provision of the Sentencing Guidelines, U.S.S.G. 2R1.1(b)(2) (1988 & Supp. 1990), and erroneously failed to consider defendants' conduct in conspiring to fix the price of silicon metal, for which defendants were indicted and tried, but acquitted. We affirm the convictions; we vacate defendants' sentences, and remand for resentencing consistent with this opinion.

BACKGROUND

We consider the evidence in the light most favorable to the government, which prevailed at trial. See United States v. Reyes, 157 F.3d 949, 955 (2d Cir. 1998).

Most of the suppliers of commodity ferrosilicon in the United States engaged in a price-fixing conspiracy that began in the fall of 1989 and continued until the summer of 1991. Several suppliers, including SKW and its competitor Elkem Metals Company, colluded to set a "floor price" for ferrosilicon to counteract price pressure from imports. Although conspirators cheated, and sales of ferrosilicon were generally below the targeted floor price, at least four witnesses (several of whom pled guilty to price-fixing charges) testified to conspiring with defendants. Charles Boardwine of Elkem testified that Zak called him to various meetings in the autumn of 1989 in order to set floor prices for ferrosilicon. These meetings were also attended by William Beard of American Alloys, Inc. and Arden Sims of Globe Metallurgical, Inc. At these early meetings, the group decided to set a floor price of 41 cents per pound, with the idea of raising the price to as much as 43 or 45 cents. Following the meetings, the participant companies sent out price quotations between 41 and 43 cents. Soon thereafter, a ferrosilicon buyer remarked to an Elkem salesman that it was "a little unusual," in light of the perceived market pressure, for the different firms to be quoting uniformly higher prices.

Early signs of cheating in the spring of 1990 led Zak to call a second meeting at which the suppliers discussed deviations from the target price. Witnesses testified that during this meeting Zak, Boardwine, and Beard discussed downward price pressures from non-cooperating co-conspirators and how to prop up the target price. Zak followed up on this meeting by making phone calls to other suppliers regarding their pricing strategy. John Barnyak, president of Minerais, testified that he received such a call, that Zak accused him of "destroying the effort to raise prices and breaking an agreement," and that Barnyak responded to the effect that he "had no interest in sharing a cell with [Zak]."

Toward the end of 1990, Broadwine was replaced at Elkem by David Beistel, who testified at trial as the government's principal witness. During the transition period, Boardwine told Beistel about the floor price, and that Zak, Beard, and Sims were agreeing to take corrective action to raise prices. Over the next several months, Beistel and Zak had numerous telephone conversations during which they discussed target prices and cheating on the agreement. According to Beistel's testimony, the conspiracy continued on and off into 1991.

Over the course of the conspiracy, the suppliers frequently discussed the prices charged by competitors. Beistel and other witnesses testified that they understood from these various meetings and conversations, that there was an agreement to fix the price of ferrosilicon.

Defendants were charged with one count of conspiracy to fix prices in the ferrosilicon market and one count of conspiracy to fix prices in the silicon metal market, in violation of the Sherman Act, 15 U.S.C. 1. At trial, the parties clashed repeatedly over the admissibility of certain critical evidence: a series of detailed but cryptic and sporadic notes taken by Beistel. Because Beistel had no independent recollection of the meetings or conversations--and his notes did not refresh his memory--admission of the notes into evidence was vital to his testimony. After voir dire on each exhibit, the notes were admitted under the business records exception to the hearsay rule, Fed. R. Evid. 803(6). Consequently, Beistel was able to read from, interpret, and explain his understanding of the notes. The district court clarified its ruling in a opinion issued following a post-trial evidentiary hearing, and admitted the set of notes both as business records and as co-conspirator statements pursuant to Fed. R. Evid. 801(d)(2)(E).

Defendants were convicted on the ferrosilicon count, and acquitted on the silicon metal count. Applying the 1990 Sentencing Guidelines, the pre-sentence report calculated defendants' recommended offense level by using a base level of nine, and adding a two-level adjustment, pursuant to U.S.S.G. 2R1.1(b)(2), to reflect that the "volume of commerce" attributable to defendants is between $16 million and $50 million. The PSR construed the term "volume of commerce" in 2R1.1(b)(2) to include all $29,971,000 in ferrosilicon sales made by SKW during the span of the charged conspiracy (i.e., from October 1, 1989 to June 30, 1991). The district court construed "volume of commerce" more narrowly to include only those sales by SKW that were made at or above the target price during times when the conspiracy was "in effect" (i.e., a total of $361,443 in sales made during two time periods: from February 14, 1991 to April 4, 1991, and from May 29, 1991 to June 30, 1991). Accordingly, the district court therefore adjusted the offense level downward one level to reflect a volume of commerce below $1 million.

Although the jury acquitted defendants of conspiring to fix the price of silicon metal, the government sought a finding for sentencing purposes concerning the existence of such a conspiracy, and that the volume of commerce affected by that conspiracy was $16.5 million. The court refused to consider the silicon metal sales because the court found no evidence that the alleged silicon metal conspiracy was "successful .. . and produced sales . . . at or above an illegally-fixed floor price." These appeals followed.

DISCUSSION

Defendants point to numerous supposed errors at trial,² of which one presents a substantial question on appeal: whether Beistel's business-related notes, which were crucial to his testimony, should have been excluded from evidence. Therefore, this opinion addresses only (A) the admissibility of Beistel's notes, and (B) the government's cross-appeal regarding sentencing.

A. Beistel's Notes

Over the period of the conspiracy, Beistel made contemporaneous notes of his conversations with Zak and other members of the ferrosilicon conspiracy. Based on the particular exhibits referenced by the parties on appeal, all of Beistel's notes are handwritten; most of them are dated; most of them bear notations to reflect the occasion, and the person or persons who supplied information or were present or on the phone; some contain detailed, tabular data, while others are fragmentary jottings; some are on full sheets of 8" by 11" paper, while others are on hotel pads, other notepads, or in the margin of another document. The notes were not typed up, nor were they assembled into a diary, chronological file, or notebook; instead, they were kept in the attach case that Beistel carried back and forth to work.

The district court admitted the Beistel notes on the grounds that they were business records, admissible under Fed. R. Evid. 803(6), and (alternatively) that they were co-conspirator statements, admissible under Fed. R. Evid. 801(d)(2)(E). We need not decide whether the miscellaneous stack of notes...