Opposition — Brown v. United States

i

No. 76-1556 i

rere 200K, Je,

In the Supreme Court of the United States

OcTOBER TERM, 1977

COLON BROWN AND J. P. NICELY, PETITIONERS

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE THIRD CIRCUIT

BRIEF FOR THE UNITED STATES

IN OPPOSITION

Wape H. McCree, Jr..

Solicitor General,

JOHN H. SHENEFIELD,

Acting Assistant Attorney

General,

Ropert B. NICHOLSON,

RopDNeEY O. THORSON,

ROBERT J. WIGGERS,

Altorneys,

Department of Justice,

Washington, D.C. 20530.

INDEX

Page

RS ee ee |

Ee eet eel ee On Yee ee oe |

FERIA cniecstiesstitncinatihivetsMiesitetistiangeacinstniiciinenctclinsdaihese 8

ES aE OE ES SS ee oon PE RED ae 12

CITATIONS

Cases:

American Column & Lumber Co. v. United

Se eS eee a 11

Cement Manufacturers Protective Association

v. United States, 268 U.S. 588 ............00.c.cccc eee it

Chicago Board of Trade v. United States, 246

As Se’ éaitabinsnitnttinteahitethtetasschliestibediddvcncecene 11

Eastern States Lumber Association v.

United States, 234 U.S. 600 .o..... ccc ccc ccccccccc cece eeees y

Glasser v. United States, 315 U.S. 60 ..................06 i]

Interstate Circuit, Inc. v. United States, 306

8 ER ERED REE A aE Ce Vee Oe y

Maple Flooring Manufacturers Association v.

United States, 268 U.S. $63 .........cccccccccceecceeeeeees 11

Marks v. United States, No. 75-708,

decided March 1, 1977 ..............cccccccccccceeeeeeeeeeees 12

Nash v. United States, 229 U.S. 373 ......c.cccccceceeee 12

Rudolph v. United States, 370 U.S. 269 ................. 9

United States v. American Linseed Oil Co..,

SA RES RU SES ee 11

Page

Cases— continued:

United States v. Container Corp. of America,

Los} ee Seo a |

United States v. Pomponio, 429 U.S. 10 .............++ 9

United States v. Powell, 423 U.S. 87 ............ccc00000 12

United States v. Wurzbach, 280 U.S. 396 ............. 12

Wall Products Co. v. National Gypsum Co.,

SOB F. Dae. BOD cecccecsssstbincsssiccincenionvenenmetanens 4

Statutes:

Robinson-Patman Act, Section 2(b), 38 Stat.

730, as amended, 15 U.S.C. 13(b) ...................... 10

Sherman Act, Section |, 26 Stat. 209, as

a Sf oll 2

In the Supreme Court of the United States

Octoper Term, 1977

No. 76-1556

COLON BROWN AND J. P. NICELY, PETITIONERS

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE THIRD CIRCUIT

BRIEF FOR THE UNITED STATES

IN OPPOSITION

QUESTIONS PRESENTED

1. Whether the evidence is sufficient to support

petitioners’ convictions.

2. Whether the legal standards set forth by the court

of appeals deprive petitioners of due process of law.

STATEMENT

This petition, like our petition in No. 76-1560, United

States v. United States Gypsum Co., presents questions

arising out of a complicated antitrust trial. The state-

ment of facts here supplements the statement in our

petition.

(1)

2

1. On December 25. 1973, a grand jury in the Western

District of Pennsylvania indicted petitioners, eight other

persons, and six corporations, for conspiracy in violation of

Section | of the Sherman Act, 26 Stat. 209, as amended, 15

U.S.C. |. Among other things, the indictment charged that

petitioners fixed the prices and the terms and conditions for

sale of gypsum board, beginning prior to 1960 and

continuing to the time of the indictment. Petitioner Brown

has been chairman of the board and chief executive officer

of defendant National Gypsum Company (“National”)

since 1965 (Pet. App. 3a: App. 3467a-3468a, 49ex).'

Petitioner Nicely, a sales manager with National from 1960

to 1964, became Vice-President of Sales in 1965 (Pet. App.

3a, App. 49ex).? National was the second largest producer of

gypsum board, with a 24 percent share of the market

between 1960 and 1974 (App. S0ex).

’ 2. Evidence established the participation of both Brown

and Nicely in the conspiracy.

a. The major gypsum board producers, including Na-

tional, engaged in a pattern of predatory conduct against

Texas Gypsum Company, a small producer. from 1960

to 1965, because Texas Gypsum refused to adhere to the

uniform delivery terms adopted by the major producers.’

After Texas Gypsum made its first sale in the Dallas

“App.” refers to the Appendix in the court of appeals.

*Nicely’s position was changed from corporate \ice-president

to divisional vice-president in July 1968 (App. 49ex), but his responsi-

bility with respect to sales of gypsum board (including a “consultant™

function relating to prices (App. 3381a-33%3a)) remained unchanged

(App. 3374a-3380a).

‘See generally the testimony of Claude Huckleberry. founder and

lormer president of Texas Gypsum (App. 929a-1076a). Specific

references to Nationals participation im the predatory practices

appear at App. 938a. 942a. 1689ex. 9474-9494, 955a. 1023a.

3

market to Groves Lumber Company in December 1961

(App. 888a-889a,. 936a), the manager of Groves, John

Tinsley, was visited by a National salesman, who asked for

a sample of the Texas Gypsum product (App. 893a-894a),

and then by Nicely himself in March 1962 (App. 895a-

897a). Tinsley asked Nicely why Texas Gypsum was “given

such a bad time” in every market that they entered.

Nicely replied that “there was a policy of containment

aimed, directed at Texas Gypsum Company,” and

further that “they knew what the cost was of Texas

Gypsum Company, their manufacturing costs. and they

knew what they had to get it down to where they could

keep him out of the market” (App. 898a).*

b. In 1965 the gypsum board industry suffered from sub-

stantial overcapacity (App. 1215Sa, 67ex, 7lex), declin-

ing demand (App. 1215Sa),° and increasing competition

from new producers (App. 1215a, 389ex-390ex), which

had led to widespread discounting, extended credit terms.

and competition in delivery services and allowances

(App. 3587a, 67ex, and 480ex). Despite this market dis-

equilibrium, between November !7 and December 2,

1965, all of the major gypsum producers announced a strict

no-discount policy on prices, effective December 15, 1965

(App. 557ex-566ex). Two months later, between January

25 and February 14, 1966, they announced new, identical

cash discount and credit terms, and the elimination of

extended credit terms for all buyers, effective March |,

1966 (App. 1036ex-1046ex).

‘Tinsley was so upset by that statement that thereafter he pur-

chased gypsum board only from Texas Gypsum (App. 901a-902a).

percent from $354.7 million in 1964

S)

to $323.6 million in . and i down to $312.4 million

in 1966 (calculated from App. Sex).

4

Executives of United States Gypsum Company con-

sidered their December 1965 pricing strategy so risky

that they sought prior approval of it from their board of

directors, an unprecedented step (App. 3228a-3229a. 582ex-

589ex). Petitioners testified that their decision to fol-

low this United States Gypsum pricing lead was made

within hours of its public announcement (App. 3459a-

3460a, 3465a, 3591a):* internal National documents, which

petitioner Nicely admits he helped to prepare (App.

3459a-3460a). show that National had prior notice of it.’

Petitioner Brown had spoken several times with Graham

Morgan, then president of United States Gypsum. dur-

ing 1965, to discuss patent litigation and “other subjects

of mutual interest” (App. 3467a-3468a, 3503a, 643ex.

3489a). Brown admitted deciding to centralize in him-

“Compare this precipitous decision with the elaborate considera-

tion petitioners gave to following a relatively simple list price in-

crease. App. 2580a-258 la. 2174ex-2176ex.

“These documents. three drafts of a “Plan of Action” for Na-

vional’s own announcement. show that National intended to pro-

cure United States Gypsum’s announcement and full price list on

November 17 (App. 594ex-596ex). Securing those documents from

dealers by that date would have been feasible if United States Gypsum

had published its announcement. as earlier planned. on November

1S (App. 442ex. 45lex, 459ex). Petitioners assert that one of their

field personnel in Chicago secured a copy of the announcement and

an internal United States Gypsum memorandum from a dealer on

the morning of November 17. dictated their contents to National's

headquarters by telephone. and then mailed them in (App. 1588a.

2554a-25S6a. 3460a. 3590a-3591a. 609ex-61 3ex). The announcement.

however. was not sent out by United States Gypsum unti! November

17 (App. 557ex). and according to the postmark the National employee

did not mail his copy to headquarters until the afternoon of No-

vember 18. when he sent it airmail special delivery (App. 2559a-2560a.

61 3ex).

These documents were the basis for finding National liable in

Wall Products Co... National Gupsum Co.. 326 &. Supp. 295. 321-323

(N.D. Cal).

5

self authority to allow discounts (App. 3591a-3592a), a

step United States Gypsum also had taken but had not

made public (App. | 152a-1155a, 459ex).

Upon implementation of their no-discount policy in

December 1965, United States Gypsum, National, and

Georgia-Pacific’ began to keep a very close watch on

prices (App. 1573a, 48lex, 612ex), and National adopted

a new form for its personnel to report competitive ac-

tivities (App. 1572a-1573a, 812 ex). In order to implement

the no-discount policy, the major producers ignored the

competition of the minor or “single-plant” producers.’

When some other major producers began to meet the

single-plant competition on a spot basis in May 1967

(App. 2569a-2570a, 1374ex), petitioner Brown ordered

a $2 reduction in National's list price (App. 3568a-3570a,

2125ex-2126ex). The reduction was limited to items sub-

ject to single-plant competition (App. 2676a-2678a). and

the announcement made it clear that National intended

to continue to sell only at list price (App. 212Sex). Na-

tional initiated price increases of $3.75 in the East and

$2.25 in the West later in the year (App. 2574a-2576a).

which were followed with some adjustments (and very

little discounting) by the other major producers (App.

1329ex-1330ex, 137Sex-138 lex).

‘Georgia-Pacific Corporation. the third largest producer. had an-

nounced its price change simultaneously with National on November

24. 1965 (App. 559ex-S60ex).

"The theory of the major producers was that the smaller ones

simply did not have the production capacity to make a refusal to com-

pete unprofitable (App. 480ex, 1573a-1574a, 816ex-818ex). The policy

of not meeting “single-plant™ competition, adopted by United States

Gypsum (App. 458ex-459ex). was also followed by National (App.

Silex) and Georgia-Pacific (App. 839ex) although it was never made

public (App. 1154a).

6

United States Gypsum and National also had been

troubled by competition in credit policies and had been

conducting studies of those policies during 1965, while

Morgan and petitioner Brown were meeting (App. 892ex-

9ilex, 93lex, S89ex, 954ex-962ex). In August 1965,

when National's treasurer protested to Brown that a

tightening of credit terms was not feasible because of com-

petitive pressures, Brown replied that (App. 1893a-1894a,

3617a-3621a, 896ex):

* * * a decision of this nature concerning the industry

falls within the prerogative of the Parent Company top

management supported by the Senior Vice President

of Sales [John Brown] whose function is one pri-

marily directed to industry relationships.

On December 10, 1965, petitioner Brown met with Robert

Fredericks, head of Georgia-Pacific’s gypsum division

(App. 3549a-355la, 34ex, 36ex, 636ex), and the same day

issued a memorandum instructing his aides to expedite

work on new credit terms (App. 915ex).

Fredericks went on to meet with defendants Morgan

and Andrew Watt, Executive Vice President of United

States Gypsum (App. 1123ex), and about January 20,

1966, reported to his superiors that credit terms were

being studied both in Georgia-Pacific’s gypsum division

“and in the industry” (App. 1396a-1398a, 943ex-944ex).

United States Gypsum publicly announced its revised terms

on January 26, 1966 (App. 1046ex). National followed

suit only six days later (App. 1036ex-1037ex).

Petitioner Nicely was involved from the beginning in

National's planning for revision of credit terms (App.

3456a-3457a, 802ex, 897ex). Credit personnel sought his

concurrence (App. 3622a-3623a, 895ex), and he approved

both the new credit terms and the transition policy (App.

7

1053ex). Both the earlier draft credit terms and the tran-

sition program finally adopted had significant unpublished

provisions identical to those being considered or adopted

by National's competitors,'® and one policy memorandum

approved by Nicely showed on its face contacts with com-

petitors (App. 105Sex-1056ex).

The credit terms adopted by the major producers effec-

tive March |, 1966, were maintained until the time of the

indictment (App. 1425a, 1960a, 2020a-2021a, 2131a-2132a,

2069ex).

c. It was the practice of National and the other corporate

defendants during the 1960s and 1970s to exchange cur-

rent price and credit term information. This practice, which

continued at National until at least 1971 (App. 1722a,

2024a-2025a, 1117ex), had both the purpose and effect of

stabilizing prices (App. 547a-549a, 1518a-1520a, 1695a-

1697a).

Brown and Nicely approved the exchange of price and

credit term information with competitors (App. 1706a,

1709a, 3398a-3401a). Contrary to his present assertion

(Pet. 7), petitioner Brown was aware that the practice was

not being used merely to establish a defense to a charge of

price discrimination or to protect against sharp bargain-

ing by customers. He knew that prices were being ex-

changed while National had a policy of not deviating from

United States Gypsum, National and Georgia-Pacific all consid-

ered, but rejected. the use of a one percent penalty for late payments

(App. 1397a-1398a, 943ex. 1903a-1904a, 213lex, 953ex), and the

transition programs for the major companies were virtually identical.

though their terms were never publicly announced (App. 1922a-1997a.

1048ex para. 3, 10Slex-106lex). One document from National's files

(App. 1050ex) shows a number of items of non-public information from

United States Gypsum, including the latter's transition policy (com-

pare para. 3 with 1048ex). the number of outstanding extended ac-

counts (para. 7 with 961ex-962ex). and the existence of a grace period

for mailing (para. 8 with 1047ex).

8

its list prices or standard credit terms, and he had assumed

the sole power to authorize such deviations (App. 1709a,

355Sa-3557a, 3562a-3563a). Consequently, the exchange

of price information would have detected price cuts by

competitors but could not have been used to establish a

defense to price discrimination charges.

Nicely admitted that he was aware of the practice from

1965 to 1969 (App. 3401a), and his present contention that

he never specifically directed price verification (Pet. 12)

is contradicted by the testimony of one of his former sub-

ordinates (App. 1705a-1706a).

3. The court of appeals observed that it did not view the

government's case skeptically, and it stated that there was

evidence to support the government's position that the

defendants had conspiredgwith the purpose of stabilizing

prices (Pet. App. 9a, Ila). The court remanded the case

for a second trial, however, holding that the district court

had committed the legal errors discussed in our petition.

ARGUMENT

!. Petitioners contend that no evidence at all was intro-

duced to support their convictions (Pet. 16). They argue

that the court of appeals should not have ordered a second

trial. There is no reason for this Court to consider peti-

tioners’ arguments. The evidence recited above, when

taken in the light most favorable to the government

(Glasser v. United States, 315 U.S. 60, 80), amply supported

the jury’s finding that petitioners knowingly participated

in the conspiracy to fix the prices and terms of sale of gyp-

sum board. It also established that petitioners’ participation

continued into the five-year period of limitations before

the indictment; petitioners adhered to terms agreed upon

and their agreement to exchange information on pending

sales, which served as a means of policing compliance

9

among the conspirators. Because their deeds extended

into the period of limitations, the jury was entitled to con-

sider their acts throughout the duration of the conspiracy.

The jury was not bound by the self-serving protesta-

tions of innocence cited in the petition or by the absence of

direct evidence of an agreement among the conspirators.

“It is elementary * * * that conspiracies are seldom

capable of proof by direct testimony and may be inferred

from those things actually done” (Eastern Siates Lumber

Association v. United States, 234 U.S. 600, 612). See also

Interstate Circuit, Inc. v. United States, 306 U.S. 208.

211.

Petitioners’ contentions boil down to a routine assertion

of factual error, and “review would be of no importance

save to the litigants themselves.” Rudolph v. United

States, 370 U.S. 269, 270. Moreover, the court of appeals

has not rendered a final decision against petitioners:

it reversed their convictions and remanded for a new trial.

If this Court should grant review in No. 76-1560 to con-

sider the court of appeals’ legal conclusions, and if it

should reverse the court of appeals’ judgment, that court

would be free to consider more fully petitioners’ eviden-

tiary arguments, which it did not discuss in detail in light

of its reversal on other grounds.'' See United States v.

Pomponio, 429 U.S. 10, 13. This Court need not consider

the ordinary evidentiary contentions raised by petitioners.

''The court noted that the government had shown deliberate anti-

trust violations (Pet. App. 9a. | 1a). Petitioners infer from a comment

of Judge Hunter that the court of appeals considered the evidence

against Brown to be weak (Pet. 4-5. referring to Pet. App. 27a). The

other two judges. however. dissociated themselves from that part of

Judge Hunter's opinion (Pet. App. 24a n. 11),and Judge Hunter

himself did not suggest that the evidence concerning Brown would

not be sufficient to support a conviction under a proper charge.

10

2. Petitioners’ further contention (Pet. 24) that the court

of appeals “perpetuated” an “erroneously retroactive

application” of the Sherman Act by the district court

is groundless.

Petitioners argued in the lower courts that the exchange

of information among competitors on pending price offers

did not violate the Sherman Act if done in good faith for the

purpose of establishing a “meeting competition” defense

under Section 2(b) of the Robinson-Patman Act, 38 Stat.

730, as amended, 15 U.S.C. 13(b), or of protecting against

“customer fraud” (Pet. 26). The district court rejected this

proposition. It instructed the jury that such an exchange of

information could constitute a violation if it had either the

purpose or the effect of stabilizing prices, and that a good

faith purpose of establishing a Robinson-Patman defense

would negate an unlawful intent but would not be a defense

if the exchange had the effect of stabilizing prices (Pet. App.

lla n. 6). A majority of the court of appeals reversed

because it concluded that exchanges of price information

for the purpose of “complying” with the Robinson-Patman

Act would not be illegal under certain circumstances even

if prices were stabilized.'?

The court of appeals did not create new “retroactive”

law in rejecting petitioners’ contention that a good faith

intent to take advantage of the “meeting competition”

'2The court of appeals held that (Pet. App. 23a):

* * * appellants were entitled to an instruction that their verifi-

cation practice would not violate the Sherman Act if the jury

found: (1) the appellants engaged in the practice solely to comply

with the strictures of Robinson-Patman; (2) they had first resorted

to all other reasonable means of corroboration, without success:

(3) they had good. independent reason to doubt the buyers

truthfulness: and (4) their communication with competitors was

strictly limited to the one price and one buyer at issue.

defense under the Robinson-Patman Act is a complete

defense to a Sherman Act charge. This Court held in 1921

that an exchange of price information among competitors

regarding specific prices jor specific customers is illegal!

if it has a tendency to stabilize prices and suppress com-

petition. American Column & Lumber Co. v. United States,

257 U.S. 377, 400. Accord, United States v. American

Linseed Oil Co., 262 U.S. 371, 389.

Any reliance petitioners may have placed on Maple

Flooring Manufacturers Association v. United States, 268

U.S. 563, and Cement Manufacturers Protective Associa-

tion v. United States, 268 U.S. 588, was unwarranted. Both

Maple Flooring and Cement emphasized that the price

information exchanges involved there were limited to

completed transactions and had no tendency to suppress

competition. Maple Flooring, supra, 268 U.S. at 585-

586; Cement, supra, 268 U.S. at 604-606. Thus, when this

Court held in United States v. Container Corp. of America,

393 U.S. 333, that an agreement to exchange price in-

formation that resulted in stabilizing prices violated the

Sherman Act regardless of the intent behind the ex-

change, it was not establishing new law but merely apply-

ing long-established principles to the particular facts of

that case. It is no novel doctrine that “a good intention

will not save an otherwise objectionable regulation”

(Chicago Board of Trade v. United States, 246 U.S.

231, 238).

"Our petition in No. 76-1560 contends that the court of appeals”

decision is more favorable to petitioners than prior decisions of thts

Court warrant. The four-part test of which petitioners complain (Pet.

31-32) establishes a defense for price exchanges that are otherwise

criminal, not a new basis of liability. The defense so established is

not justified. Moreover. the first of the other cases cited by petitioners

as validating their price exchange agreement (Pe‘. 26 n. 3) was not

decided until 1971 and had no effect on their practices. This Court has

12

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

Wape H. McCree, Jr..,

Solicitor General.

JoHN H. SHENEFIELD,

Acting Assistant Attorney General.

RosBertT B. NICHOLSON,

RODNEY O. THORSON,

ROBERT J. WIGGERS,

Attorneys.

AuGust 1977.

not, in any event. endorsed any of those cases. and petitioners were not

entitled to rely on them.

Petitioners suggest that “the Sherman Act itself is so vague that it

inadequately defines the elements of the crime with which defendants

were charged” (Pet. 28 n. 6). That proposition has long since been

decided adversely to them. Nash v. United States, 229 U.S. 373, 376-

378. Even if the law were less clear than it is, it would not be unconsti-

tutional as applied to petitioners.

* * * Whenever the law draws a line there wi!! be cases very near

each other on opposite sides. The precise course of the line may be

uncertain, but no one can come near it without knowing that

he does so. if he thinks, and if he does so it is ‘amiliar to the crimi-

nal law to make him take the risk.

United States v. Wurzbach, 280 U.S. 396, 399. See also United States

v. Powell, 423 U.S. 87, 93. Petitioners knowingly came close to. and

indeed overstepped. the line separating the legal from the illegal.

That line has not undergone an avulsive change making the rule less

favorable to petitioners (cf. Marks v. United States, No. 75-708.

decided March |. 1977). The most petitioners can say is that the law

has gradually become more clear. That. however, is often true in

criminal! cases, and it is not a sufficient reason to withhold application

of the criminal sanction.

DOJ-1977-48