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UNITED STATES v. AMERICAN RADIATOR & STD. SANITARY

October 23, 1967

United States
v.
American Radiator & Standard Sanitary Corp., et al. United States v. Plumbing Fixture Manufacturers Assn., et al.


Rosenberg, District Judge.


The opinion of the court was delivered by: ROSENBERG

This matter relates to two joint motions filed by the defendants in the above entitled cases for the dismissal of indictments and for suppression of certain evidence.

 On October 6, 1966, after a lengthy inquiry into the activities of the plumbing manufacturers throughout the United States, a grand jury in the United States District Court for the Western District of Pennsylvania presented two separate indictments charging the defendants variously named in the two criminal actions with antitrust violations. The first indictment at Criminal No. 66-295 charges eight corporate defendants, a trade association and eight individual defendants with engaging in a conspiracy, in violation of § 1 of the Act of Congress of July 2, 1890,*commonly known as the Sherman Act. This indictment charges, in substance, that the defendants conspired to fix the prices of enameled cast iron and vitreous china plumbing fixtures beginning sometime in September 1962 and continuing at least until sometime in 1966.

 The second indictment at Criminal No. 66-296 charges ten corporate defendants and the trade association with engaging in a conspiracy in violation of § 1 of the Sherman Act, to fix the prices of staple vitreous and china plumbing fixtures beginning in November 1960 and continuing to June 1962.

 In the joint motions to dismiss and suppress, the defendants charge a wrongful making of the evidence and its illegal procurement and use in bringing about the grand jury indictments and prosecution of the charges as contained in the indictments. The defendants had additionally requested that the motions to dismiss and suppress be heard en camera. Affidavits were required to be submitted by both sides for the purpose of providing information upon which a determination could be had as to whether or not there should be en camera proceedings, and whether a hearing was required on any issue of fact on the joint motions to dismiss and suppress.

 These affidavits were filed en camera until a proper determination could be had on whether or not en camera proceedings should be effected. The Government filed four affidavits. One of these was by its representing attorney, John C. Fricano, who set forth the chronology generally of the receipt and use of information by the Department of Justice in these prosecutions.

 The affidavit of Special Agent William Kendig of the Internal Revenue Service deposes generally to the agents' activities in dealing with the contacts made with the Plumbing Fixture Manufacturers Association (Association) and its general counsel, James McKay. The affidavit indicates that three tape recordings were procured when the Executive Vice-President of the Association, Stanley Backner, pointed to a desk belonging to an absconding executive secretary, William Kramer; that he assisted the agents in going through the desk; and that he allowed them to take the three tapes, a part of the desk's contents, because no recorder was available for replay in the Association's office. The agent indicates that the Association's counsel McKay directed the agents to Mrs. Carol Jean Gray, a sister of the absconding secretary, from whom the special agents procured three additional recorded tapes. He also reveals the contacts made between the Internal Revenue Service and the Federal Bureau of Investigation or the Antitrust Division of the Department of Justice, as the case may be.

 The third affidavit is from William Kramer, the former executive secretary of the Association. His affidavit describes how all the tapes were made and states that he authorized his wife to turn over to the Department of Justice tapes which he had placed in her possession.

 The fourth affidavit is from Kramer's sister, Mrs. Carol Jean Gray. She deposes that she had been in contact with or been contacted by the Internal Revenue Service agents and had cooperated with them and turned over to them a suitcase containing her brother's personal belongings and had given the agents certain information relating to her brother.

 The defendants' attorneys filed a joint affidavit consisting of twenty-five pages in which they asserted that they were the attorneys for the defendants; that they had received information which they believed to be true regarding the tapes; that the tapes were made in violation of the law; that they were illegally seized by the Government; and that the use to which they were put in connection with the grand jury proceedings was unlawful. This joint affidavit did not materially contradict the factual averments contained in the Government's affidavits, but rather emphasized denials of any illegality as applying to the defendants. The affidavits did set forth the circumstances as they related to a meeting of the executive committee and to a meeting of the general membership in August and November 1963, respectively. This I accept as factual. However, this affidavit had set forth no factual contradictions of the plaintiff's affidavits. The defendants were then directed to submit an affidavit or affidavits of a factual nature as would disclose an issue of material fact requiring a hearing.

 The defendants thereafter filed five affidavits. One was from Mary Louise Rubio who had secretarial charge of the Association's office. She asserts that she did not hear Special Agent Kendig ask for a tape recorder, but she does not say that he did not ask for it. She says that the new executive vice-president, Stanley Backner, did not aid the special agents in searching Kramer's desk, but she does say that he sat in a chair beside the desk as the agents went through it and examined its contents.

 The second affidavit is from Muriel Bell, an attorney who asserts that she received no cooperation from Kramer, Mrs. Kramer, Mrs. Gray, or Kendig, as she attempted to interview them. Three affidavits are presented by officers of certain of the defendant corporations as to what transpired at the executive committee meeting or the regular membership meeting in August and November, 1963, respectively. The affidavits are deposed by Raymond A. Pape, Manager of Plumbing Product Sales of the defendant, Crane Company; J. Vincent Cannon, Jr., Vice-President-Marketing of the defendant Wallace-Murray Corporation; and D. H. Walkup, President of the defendant Kilgore Ceramics Corporation. These three affidavits divulged what had occurred at the meetings in August and November, 1963, respectively, when the Association's counsel McKay reported to the respective meetings that Kramer had embezzled Association funds and absconded and certain other details. The affidavits indicate what action had been taken at both meetings. They conclude that the authorization for cooperation was only as it related to the Internal Revenue Service and Kramer, and not as it might have affected any acts by the defendants.

 Thus no substantial issue of fact was presented by all the defendants' affidavits which required an evidentiary hearing. No reason appeared why these joint motions should not be heard in open court and the defendants' request for an en camera hearing was denied on August 8, 1967. An opinion setting forth the reasons for the decision was filed.

 Findings of Fact

 As based upon evidentiary affidavits, I make the following findings of fact.

 William E. Kramer had been employed by the defendant Plumbing Fixture Manufacturers Association as its executive secretary from February 1954 until August 5, 1963, when he absconded to the Bahamas. The defendant Plumbing Fixture Manufacturers Association is an unincorporated Association in the nature of a trade association. The membership controls the direction of its business under its constitution, by a vote of a majority of members present at any membership meeting. The executive committee carries on the Association's affairs between such meetings. Article 7, Clause 1 of the Association's constitution provides that the executive committee has "full authority to conduct the affairs of the Association between meetings, except as the Association may restrict its authority from time to time." Its membership includes all of the corporate defendants in these cases.

 At a meeting of the executive committee held at the Mayflower Hotel in Washington, D.C. on August 29, 1963, counsel for the Association, James McKay, informed the committee members that several days prior it had been discovered that Kramer, the Association's executive secretary, had apparently absconded with considerable sums of the Association's money; that Kramer had apparently been embezzling monies of the Association for the past several years; that McKay had made intensive efforts to locate Kramer; and that on August 27, 1963, he had succeeded in reaching him by telephone in the Bahamas. McKay reported that in this telephone conversation Kramer admitted that he had appropriated funds of the Association, and also stated that if the Association took any action to order an audit or report him to the bonding company, he would turn over to the Federal authorities certain information which he had in his possession which, Kramer said, indicated that "various members of the Association had been engaging in price-fixing activities."

 The executive committee considered the McKay report and decided that the Association should advise its auditing firm to undertake an immediate audit to ascertain the amounts of the embezzlement and report the matter to the bonding company. The Association held a general meeting of the membership on November 5, 1963, at the Mayflower Hotel in Washington, D.C. At this meeting Attorney McKay advised the general meeting of the Kramer circumstances. He informed the members of the meeting of the threats by Kramer, which threats he had reported to the executive committee at its August 29th meeting. At this meeting a representative of the Association's firm of auditors reported that an audit indicated that a large sum of Association funds was unaccounted for. The audit apparently showed the extent of Kramer's embezzlement.

 The Association's counsel also advised of a visit to the Association's offices in October 1963 by Internal Revenue Service agents who had asked to look at the Association's financial records bearing on a possible violation of income tax laws by Kramer as flowing from his embezzlement activities of the last few years. A consensus of the general meeting was that Kramer's reported threats were just a desperate effort on his part to prevent any attempt by the Association to recover the funds. It then decided that the executive committee of the Association should proceed to employ counsel to take action as in the judgment of the executive committee was necessary to protect the interests of the Association and for the recouping of as much of the embezzled funds as possible, and also to deliver information to the Internal Revenue Service or any other Government agency investigating Kramer's income tax violations (or embezzlement) as the executive committee should deem appropriate to protect the interests of the Association. This was incorporated in a resolution and became a part of the minutes for that meeting. *fn1"

 At the same meeting on November 5th, Stanley Backner was elected to replace Kramer with a change of title from executive secretary to executive vice-president. The scope of duties remained essentially the same as before.

 Mr. McKay then reiterated to the Internal Revenue Service Agents the willingness of the Plumbing Fixture Manufacturers Association to cooperate in any way possible. The agents again visited the Association's office on November 6, 1963, the day after the membership meeting. They represented to Mr. Backner that they were continuing their investigation of possible tax violations by Kramer. They had come there for the purpose of picking up certain copies of the Association's cancelled checks which were to have been ready for them. These were furnished by Mrs. Mary Louise Rubio, the office secretary. The agents also interviewed Mr. Backner on that visit. Backner at that time informed the agents that Kramer's desk was still in the office and he showed it to the agents. Backner opened the desk and in his presence the agents searched it. It contained files relating to Kramer's personal business transactions, personal belongings and three reels of tape recordings. One of these tape recordings was labeled "Kansas City" in handwriting, the second tape bore no handwriting and the third tape had attached on it a label "R-1" in handwriting. There was no tape recorder in the office so Backner allowed the agents to take the reels of tape recordings with them in order to determine if they were relevant to the tax investigation. The agents promised that the tape recordings would be returned. Subsequently, when the tape recordings were played at the Internal Revenue Service office, it was found unexpectedly that one of them contained telephone conversations which indicated a possible violation of Federal antitrust laws. Sometime in February 1964 Attorney McKay telephoned and asked to have the tape recordings returned to the Association. He was then advised that the tapes would have to be retained because they indicated the possible violation of other Federal laws. McKay, by pre-arranged appointment on April 1, 1964, came to the agents' office and listened to a tape recording which it was thought indicated a possible violation of the Federal antitrust laws. The Association had variously made available to the agents a number of its files and records, including the cancelled checks, expense records and auditor's reports. They were allowed to conduct interviews of the Association's employees and independent accountants employed by the Association. Affidavits were secured from Attorney McKay and Mary Louise Rubio. The Association's office manager and Mr. McKay also volunteered leads to other information concerning Kramer and his assets.

 The Internal Revenue Service agents were instructed by the Department of Justice to turn over to the Federal Bureau of Investigation information relating to possible violations of the antitrust laws. This was on February 13, 1964. Accordingly, copies of the recordings considered pertinent were provided to the Federal Bureau of Investigation. This was the only communication between these agents and any representative of the Department of Justice concerning possible antitrust violations by the Association or its members.

 The special agents had received, in late October 1963, a telephone call from Attorney McKay informing them that Kramer's house had been sold by a realtor whom McKay identified, and that Kramer's sister, Mrs. Carol Jean Gray, acted for Kramer in the sale by his power of attorney. While in the Bahamas, Kramer had given Mrs. Gray an unlimited power of attorney. In the telephone conversation with the agents, McKay advised that Kramer's Thunderbird automobile had been moved from the Yacht Club, and he furnished Mrs. Gray's address. By pre-arranged appointment, Special Agents Kendig and Burkhardt went for the first time on December 9, 1963 to interview Mrs. Gray at her home. She stated that she would cooperate in the investigation of Kramer. As pre-arranged, the agents returned on January 8, 1964, and Mrs. Gray informed them that there was a suitcase of Kramer's in the attic crawl space of her home. With Mrs. Gray's permission, they removed the suitcase and examined its contents. Three reels of tape recordings were among other things found in the suitcase. With Mrs. Gray's permission they took the suitcase and its contents and gave Mrs. Gray a signed receipt. Sometime later that ...


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