decided as amended august 28 1979.: July 20, 1979.
APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (Criminal Nos. 76-00514-01/03/06/10, E.D. Pa.)
Before Seitz, Chief Judge, and Hunter and Garth, Circuit Judges.
On October 29, 1976, a grand jury in the Eastern District of Pennsylvania returned a one-count indictment charging five corporations and seven individuals with conspiring "to raise, fix, maintain and stabilize the prices and terms and conditions of sale of consumer bags" in violation of section 1 of the Sherman Act, 15 U.S.C. § 1. The indicted corporations were Continental Group, Inc. (Continental), American Bag & Paper Corporation (American), Chase Bag Company (Chase Bag), Harley Corporation (Harley Corp.), and St. Regis Paper Company (St. Regis). The individual defendants were James K. Cooper (vice president and general manager of Continental's Flexible Packaging Division), Peter J. Weggeman (general sales manager of Continental's Flexible Packaging Division), David Mawicke (manager of paper product sales for Continental's Flexible Packing Division), Stanley A. Schottland (president of American), Harrison B. Rue (vice president of Chase Bag's Converting Division), William H. Versfelt (vice president and general divisional manager of St. Regis's Bag Packaging Division), and Edward W. Weikum (manager of converter sales and license relations in St. Regis's Bag Packaging Division).
As defined in the indictment, "consumer bags" are small, pre-formed paper containers used to package such products as pet foods, cookies, tea, coffee, kitty litter, chemicals, and agricultural products. The bags usually have printed exteriors designed as specified by the customer. They are often lined or coated. In addition to packages designed for consumer items, the term "consumer bags" also includes such coated paper containers as air sickness bags.
Prior to trial Harley Corp., American, and Schottland (American's president) pled nolo contendere. Beginning on September 30, 1977, the three remaining corporate defendants (Continental, Chase Bag, and St. Regis) and the six remaining individual defendants (Cooper, Weggeman, Mawicke, Rue, Versfelt, and Weikum) went to trial before a jury. At the close of the government's evidence, the district court granted motions for judgment of acquittal on behalf of Mawicke and Versfelt. After the close of all evidence the jury returned a verdict acquitting St. Regis, Weggeman, and Weikum and convicting Continental, Chase Bag, Cooper, and Rue.
After denying post-trial motions, the district court fined Continental $750,000 and fined Chase Bag $600,000. It sentenced both Cooper and Rue to four months imprisonment to be followed by thirty-two months probation. In addition, it fined Cooper $40,000 and fined Rue $30,000. These convictions and sentences form the basis of the present appeal.
In its opinion on appellants' post-trial motions, the district court summarized the evidence presented at the 43-day trial. See United States v. Continental Group, Inc., 456 F. Supp. 704, 708-14 (E.D.Pa.1978). Although we will examine portions of this evidence in some detail in considering each appellant's claim that the evidence was insufficient to support conviction, See Part II, Infra, a brief overview of the alleged conspiracy will aid our analysis.
The government charged that various manufacturers of consumer bags had begun to conspire to fix prices as early as 1950. This conspiracy allegedly continued, despite changes in participants, until the indictment was returned in 1976. Significantly, the grand jury charged that the conspiracy extended beyond December 21, 1974, the effective date of an amendment making violation of section 1 of the Sherman Act a felony rather than a misdemeanor. Pub.L. 93-528, § 3, 88 Stat. 1708 (1974).
Of the indicted defendants, only American was alleged to have participated in 1950. Other companies alleged to have participated in the 1950's, however, included Benjamin C. Betner Company (Betner) and Arkell & Smith Company (Arkell & Smith). Continental acquired Betner in 1953; Chase Bag acquired Arkell & Smith in 1967. Although testimony concerning the meetings held in the 1950's was sketchy, the record indicates that some discussion of prices did occur.
In 1960 or 1961 representatives of Continental, Bemis Bag Company (Bemis Bag), and Arkell & Smith allegedly met in New York to put together a price list to be used in pricing consumer bags. The list consisted of a loose-leaf binder breaking down the various components or "factors" of a job and assigning a price to each. Factors included such specifications as the amount and type of paper, the type of coating, and the amount of printing. When a potential customer asked one of the manufacturers to quote a price on a particular job, that manufacturer would bid by adding up the necessary factors from the list. Continental, American, Bemis Bag, and Arkell & Smith allegedly adopted this pricing format. Later entrants into the industry allegedly were encouraged to price from the list.
During the 1960's Continental, the largest manufacturer of consumer bags, assumed the role of "price leader." Semi-annual revisions in the price list, either single-factor or across-the-board, would be initiated by Continental, published in the Wall Street Journal, and mailed to competitors. These increases and their effective dates allegedly were cleared in advance at meetings attended by representatives of Continental, Arkell & Smith (Chase Bag after 1967), American, Harley Corp., and St. Regis. In 1971 these manufacturers all joined the Paper Sack Shipping Manufacturers' Association (PSSMA). That organization held semi-annual or quarterly meetings at resorts around the country. According to the government, the defendant corporations would gather during these conventions at informal meetings to discuss and set prices. The corporations and corporate personnel attending these meetings varied from meeting to meeting, as did the exact topics of conversation. These informal gatherings continued into 1976.
In support of its allegations that the defendants conspired to fix prices, the government introduced three types of evidence. First, it presented testimony by participants in the various meetings. Because of the long time frame and the large number of meetings, the government's witnesses often were unsure about who attended particular meetings or about what was discussed. Second, the government presented evidence of inter-defendant phone calls to compare prices on particular bids. The government contended that these calls were made to ensure that the conspirators were abiding by the price list. Defendants argued that the phone calls that did occur were made in order to support a "meeting competition" defense under the Robinson-Patman Act, 15 U.S.C. § 13(b). Finally, the government introduced economic testimony aimed at demonstrating that the defendants made parallel and nearly simultaneous changes in their price lists between 1970 and 1976. Defendants contended that these data were misleading, that all price changes were cost-justified for each manufacturer individually, and that any parallelism was the result of legitimate price leadership/followership.
Additionally, the defendants presented evidence allegedly demonstrating that the consumer bag industry was very competitive. An economist testified that the industry's low profit margin and other economic indicators belied any concerted effort to maintain prices at an artificially high level. Moreover, defendants and some of their customers testified that discounts from list prices were very common and very competitive.
All the appellants argue that the government produced insufficient evidence to support their convictions. To the extent that they argue that United States v. United States Gypsum Co., 438 U.S. 422, 98 S. Ct. 2864, 57 L. Ed. 2d 854 (1978), requires proof of a conspiracy's anticompetitive effect and that the government failed to provide such proof, we will treat that question in our consideration of Gypsum's applicability to this case. See Part IV, Infra. To the extent that each appellant asserts a general insufficiency of the evidence to prove the crime charged, we note that we must sustain the jury's verdict "if there is substantial evidence, viewed in the light most favorable to the Government, to uphold the jury's decision." Burks v. United States, 437 U.S. 1, 17, 98 S. Ct. 2141, 2150, 57 L. Ed. 2d 1 (1978).
Continental contends that the evidence was insufficient for the jury to conclude that Continental had participated in the ongoing, twenty-six year conspiracy charged in the indictment.
Viewed in the light most favorable to the government, the evidence demonstrates that various manufacturers of consumer bags began to meet to discuss prices as early as 1951. These meetings took place several times a year up until 1971, the year that the manufacturers joined PSSMA. Early participants included representatives of Betner (Continental after 1953), American, Oneida Packaging Products (Oneida), Thomas M. Royal Co. (Royal), and Union Bag & Paper Co. (Union). Although the existence and extent of any agreement to fix prices during that early period is perhaps uncertain, Stanley Schottland testified that since 1950 American had followed price increases discussed at those meetings.
Continental's participation in the alleged conspiracy entered a new phase in 1961. According to Rose Loughrey, a price analyst for Continental, she received orders from George Buchanan, her supervisor, to attend a meeting with representatives of Bemis Bag and Arkell & Smith to develop a new price list for consumer bags. Buchanan told her that this list was to be used by Continental, American, Arkell & Smith, Bemis Bag, and Oneida. When Loughrey complained that such a meeting was illegal, Buchanan threatened her with dismissal. Loughrey attended the meeting and helped to develop the price list format. Some time after she reported back to Buchanan, he told her that the list had been accepted without protest. On further orders, Loughrey published the list. About twice each year she would revise the list and arrange for its distribution.
Robert Harley testified that soon after Harley Corp. entered the consumer bag industry sometime in 1960 or 1961, he received an invitation from Fred Hinkle of Continental to attend a meeting in New York City. Harley believed that he received the invitation because he had refused to tell Rose Loughrey over the phone what price he was charging Perk Foods for consumer bags. At the meeting, attended by Hinkle and Buchanan of Continental, Pavitt of American, and two representatives of Arkell & Smith, Hinkle told Harley that Harley Corp. didn't have to sell its bags "at what we consider under a market price." Harley told the participants that he had "no intention of doing anything to destroy the pricing structure in the market place." Hinkle then provided Harley with Continental's list, which Harley Corp. used thereafter.
In 1962, Loughrey and Hinkle of Continental, Eugene Pavitt of American, and representatives of Arkell & Smith met at Pavitt's home. According to Loughrey, she, Hinkle, and the Arkell & Smith people sought Pavitt's approval for an increase in the prices of heat-sealed bags. Pavitt reluctantly agreed to such an increase, saying "if you do (raise the price) we will follow." Loughrey issued new lists reflecting the changes.
Although representatives of the various competitors continued to meet through the 1960's, the record contains little evidence of who participated or what was discussed at any particular meeting. The record does indicate, however, that during this period various representatives of the defendant companies frequently exchanged phone calls to compare prices. Continental claims that these calls were made only to verify a customer's report of a lower price quoted by a competitor. According to Loughrey, however, when a prospective customer asked Continental for a bid, either she or Buchanan routinely would call competitors, ask if they had received a similar inquiry, and compare prices. Prior to 1961, Buchanan made the calls for large orders while Loughrey called for small orders. After 1961, Loughrey made almost all the calls herself. If the competitor's price was the same as that calculated by Loughrey, she would quote it to the customer. If they differed, she would consult her superiors before quoting a price.
In 1969, Pavitt of American hosted a meeting at the Philmont Country Club attended by George Landon and Fred Hinkle of Continental as well as representatives of Chase Bag and Harley Corp. Pavitt testified that Landon announced a three per cent price increase that Continental had made public a short while earlier. The advisability of such an increase was discussed by the participants, some of whom expressed surprise that Continental would commit itself to such an increase before the meeting. By the end of the meeting no one had expressed disagreement with a three per cent increase, and Pavitt left with the impression that all the participants had committed themselves to follow Continental's lead.
Similarly, Robert Harley described a meeting he hosted at Hilton Head Island, South Carolina, in January 1970. Landon of Continental stated that costs were increasing and that Continental was going to raise its prices. Harley responded that he was experiencing similar problems with costs and left with the impression that he had committed his company to mirror Continental's increase.
Prior to joining the PSSMA in 1971, Continental was represented at at least three other meetings where the participants discussed prices and industry conditions. During a golf outing at Tamarach Country Club in September 1970, Landon announced that Continental planned another three per cent increase effective January 1, 1971. Chase Bag and Harley Corp., whose representatives were present at Tamarach, thereafter implemented similar increases. In Spartansburg, South Carolina, in March 1971, the participants spoke generally about industry conditions and compared prices on certain types of bags. Finally, at Darien Country Club in May 1971, Continental and the other defendants agreed to join PSSMA.
Continental's representatives continued to meet with its competitors' representatives at informal "rump sessions" held at each PSSMA convention. Such sessions were held at Scottsdale, Arizona, in 1971, and at Boca Raton, Florida, and Chicago in 1972. The subjects discussed at these meetings, however, are unknown.
The first PSSMA-related meeting at which prices definitely were discussed was held at Tuckerstown, Bermuda, in October 1972. Landon and James Cooper (appellant in No. 78-2331) of Continental and Robert Harley of Harley Corp. hosted a breakfast meeting attended by representatives of St. Regis, American, and Union Camp. According to Harley, he and Landon accused Union Camp's Jack Bauman of undercutting certain prices quoted by Harley. Landon told Bauman that the other manufacturers would like to see "you people" use Continental's price list. Bauman responded that he would "take the matter under consideration."
In April 1973, at the PSSMA meeting in Atlanta, Landon of Continental told a group consisting of representatives of Harley Corp., Chase Bag, American, and St. Regis that Rose Loughrey had filed a discrimination suit against Continental and "had disclosed that this group of ours had been meeting, (and) named a lot of people and places." Harley then informed the group that his counsel had advised him to stop attending the rump sessions and to stop exchanging price information over the phone because such activities were illegal. Versfelt of St. Regis and Landon of Continental said that their attorneys had told them that the meetings were legal. Despite this discussion, the meetings continued and Harley continued to attend.
Later in 1973, at PSSMA's Pebble Beach convention, representatives of the defendant corporations met in Landon's hotel room. In the course of discussing revisions in the price list, Landon indicated "that he wanted it known" that Continental was the price leader of the industry.
A particularly significant meeting was held at the Chicago PSSMA convention in June 1974. Cooper and Weggeman represented Continental, Harrison Rue (appellant in No. 78-2332) represented Chase Bag. Others present included Harley of Harley Corp., Schottland of American, and Versfelt and Weikum of St. Regis. According to Harley, at an earlier meeting in New Orleans Weikum had expressed St. Regis's dissatisfaction with the price list for pet food bags. At that time Cooper had responded that Continental "liked the price book the way it was." Nevertheless, in Chicago, Versfelt and Weikum again suggested that St. Regis wanted to develop its own list for pet food bags. Schottland of American heard Cooper respond, "this will be fine, be my guest" or "go ahead, do it, that sounds great." Harley told the St. Regis people that if they revised the price list "we would follow their list."
St. Regis issued a revised list to be effective December 30, 1974. Chase Bag and Harley Corp. issued pet food lists identical to St. Regis's effective in January 1975. While Continental and American did not publish new lists until February 1975, both companies used the St. Regis list to price pet food bags in the interim.
In September 1975 the PSSMA held a convention in Bermuda. While there Cooper of Continental invited Harley of Harley Corp. and Schottland, Abe Mendenhall, and Theodore Hughes of American to a breakfast meeting. Harley testified that Cooper had told him that the purpose of the meeting was to get Schottland to stop delaying a price increase. Because a grand jury had begun an investigation into the industry, Schottland told Mendenhall and Hughes before the meeting that "I'm sure that nobody would be that dumb to bring up anything about prices, but if anybody does, for God's sake, don't open your mouth." According to Schottland, however, "(t)here was somebody that dumb."
Harley, Schottland, Mendenhall, and Hughes all testified as to what took place at the meeting. Cooper began by briefing them on the status of Rose Loughrey's lawsuit. He then announced that Continental intended to raise its prices by three per cent*fn1 effective January 1, 1976. He specifically stated that he had the support of "the others" for such an increase. Cooper asked both Harley and Schottland if their companies would support such an increase; both indicated that they would. Although each of the defendant companies seemed to pursue an independent course during the next few months, all eventually announced a three per cent increase effective January 1, 1976.
After the announcement of this increase, the defendant companies met resistance from Ralston Purina, a major purchaser of consumer bags. In January 1976, at a PSSMA convention in Palm Beach, Florida, Harley discussed Harley Corp.'s pricing policy for Ralston with Cooper of Continental, Rue of Chase Bag, Weikum of St. Regis, and Schottland of American. In particular, he told Cooper that Harley Corp. was going to delay increasing its prices to Ralston until February 15. Cooper told Harley that Continental was going to do the same. Harley then gave Cooper, Rue, and Schottland a piece of paper with the prices Ralston had resisted, "(t)o let them know that the prices on that sheet were the prices that were being developed from our price book."
In addition to the evidence of meetings and telephone calls, the record contains economic testimony demonstrating a high degree of parallelism in the timing and amount of price changes by the defendant companies between 1970 and 1975. The district court has tabulated some of this evidence in its opinion. See 456 F. Supp. at 724-25.
After reviewing the evidence concerning Continental's participation in the alleged conspiracy, we agree with the district court that there was substantial, even overwhelming, evidence of Continental's guilt. We recognize that the government shouldered a heavy burden when it charged a continuing 26-year conspiracy, but we believe that the government produced sufficient evidence to go to the jury on this allegation. Moreover, we note that the breakfast meeting in Bermuda took place in September 1975, well after the effective date of the amendment making a violation of the Sherman Act a felony. This meeting provides sufficient evidence for a jury to conclude that Continental's participation in the conspiracy extended into the "felony period."*fn2
Appellant James K. Cooper also argues that the government produced insufficient evidence to convict him of participation in the conspiracy charged. Cooper was general sales manager of Continental's Flexible Packaging Division from February 1970 to January 1974, and general manager of that division from January 1974 through 1976. In considering this contention we again stress that we must view the evidence in the light most favorable to the government. Moreover, we note that the government did not have to prove that Cooper participated in the conspiracy from its inception, but only that he knowingly became a member of the ongoing conspiracy. See United States v. American Radiator & Standard Sanitary Corp., 433 F.2d 174, 182 (3d Cir. 1970), Cert. denied, 401 U.S. 948, 91 S. Ct. 928, 28 L. Ed. 2d 231 (1971).
During Cooper's tenure as general sales manager he served under George Landon and had no official authority to set the prices of consumer bags. Nevertheless, one facet of his job was supplying price information to Landon, who did have authority to set prices.
Testimony demonstrates that, prior to his promotion in 1974, Cooper accompanied Landon to various meetings identified as "conspiratorial" by the government. These meetings included the golf outing at Tamarach Country Club in September 1970 where Landon announced Continental's intention to increase its prices by three per cent. The evidence does not indicate, however, whether Cooper took any part in the ensuing discussion of prices.
Similarly, Cooper apparently accompanied Landon to meetings in Spartansburg, South Carolina (March 1971), Darien, Connecticut (May 1971), Tuckerstown, Bermuda (October 1972), Atlanta, Georgia (April 1973), and Pebble Beach, Florida (September 1973). As noted earlier, Landon spoke on behalf of Continental at each of these meetings while Cooper apparently took no active role.
At a meeting in New Orleans soon after his promotion to general manager, Cooper told representatives of St. Regis who were dissatisfied with the pet food price list that Continental liked the list the way it was. In June 1974 at a meeting in Chicago, the St. Regis representatives again voiced dissatisfaction with the list and announced that they were going to revise it. Cooper responded that "this will be fine, be my guest" or "go ahead, do it, that sounds great." Thereafter, Continental adopted the new list issued by St. Regis.
Cooper also presided at the breakfast meeting in Bermuda in September 1975. All four of the other men present, Schottland, Mendenhall, Hughes, and Harley, testified that Cooper sought Schottland's agreement to a three per cent increase, See note 1, Supra, and that Cooper stated that he had the support of "the others" for this increase. Continental did, in fact, increase its prices by three per cent, as did each of the other defendant companies.
Between 1974 and 1976, Cooper also participated in the exchange of price information with Continental's competitors. Thus, in 1974 or 1975 he assisted Harley in obtaining the price that Continental was charging Keebler Cookies. During that same period Cooper called Hughes to find out whether American was going to sell "on list" in upcoming bids to Ralston Purina, Carnation, and American Airlines. Finally, in January 1976, he discussed with Harley, Rue, Weikum, and Schottland the prices that Harley Corp. was going to charge Ralston Purina after the most recent revision of the list.
Cooper argues that he introduced overwhelming evidence that any price increases made by Continental during his tenure as general manager were carefully planned responses to Continental's own corporate needs. Such internal planning, he argues, belies any conspiracy among competitors. We believe, however, that this question was for the jury to decide. Cooper forcefully argued this theory before them. Moreover, even if the evidence cited by Cooper did, in fact, prove overwhelmingly that Continental's pricing decisions were the product of internal corporate forces, such evidence would not rule out the conspiracy alleged by the government. We need only note that Continental was the self-professed "price leader," and that this role might well have permitted Continental to propose price increases that were best suited to its own corporate needs.
We conclude that there was substantial evidence to support the jury's conclusion that Cooper knowingly joined the ongoing conspiracy.
Appellant Chase Bag did not enter the consumer-bag industry until August 18, 1967, when it acquired Arkell & Smith, one of the originators of the price-list format. According to Rose Loughrey of Continental, Hinkle told her at that time that the new owners of Arkell & Smith did not want to exchange price information with Continental. As a result, Loughrey, refrained for a while from calling her contacts at Arkell/Chase. Within six to eight months, however, Chase Bag employees began to call her for prices and she resumed her normal exchange of information.
No Chase Bag representative attended any meeting of consumer-bag manufacturers until the summer of 1969, when a number of the alleged conspirators gathered at Seaview Country Club to meet Stanley Schottland, Eugene Pavitt's successor as president of American. Chase Bag was represented by Eugene Alexander, Chase Bag's product manager, and Frederick Kiendl, a former employee of Arkell & Smith who had been put in charge of Chase Bag's sales of "coated paper." Although prior to the takeover in 1967 Kiendl had controlled the pricing of consumer bags for Arkell & Smith, neither Kiendl nor Alexander had authority to price bags for Chase Bag. Both did, however, have "input" into the pricing decision. Apparently no price discussions occurred at the Seaview meeting.
Alexander hosted the golf outing at Tamarach Country Club in September 1970, in which Kiendl also participated. At that outing Landon of Continental announced that his company planned a three per cent increase effective January ...