# Appendix — Hutto v. Finney > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1813%3A11 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1979 - **Citation:** 437 U.S. 678 ## Text FOR ARGUMENT FILED FEB 10 1978 | MICHAEL RODAK, JR., CLEAR IN THE Supreme Court of the United States OcTOBER TERM, 1977. No. 76-1560 UNITED STATES OF AMERICA, Petitioner, vs. UNITED STATES GYPSUM COMPANY, E&T AL., Respondents. ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT. APPENDIX TO RESPONDENTS’ JOINT BRIEF (SEE INSIDE FRONT COVER FOR LIST OF COUNSEL FOR RESPONDENTS JOINING HEREIN) LIST OF COUNSEL Rosert C. Keck James G. HIERING VALENTINE A. Weer, Jr. Keck, CUSHMAN, MaHIN & CaTE 8300 Sears Tower Chicago, IL 60606 Counsel for United States Gypsum Company CLorp R. MeLtorr Watiam B. Matin J) Garay Kosovsxs D. Richargp Funk Eckert, SEAMANS, CHERIN & MeLLott 600 Grant Screet Pittsburgh, PA 15219 Counsel for Georgia-Pacific Corporation Ciark M. CLirrorp Carson M. GLass THOMAS RICHARD SPRADLIN Barry J. Israei C.irroap, GLASS, Mcliiwaltn & Finney 815 Connecticut Avenue, N.W. Washington, D.C. 20006 Counsel for Messrs. Colon Brown and J. P. Nicely H. Francis DeLone STeruen A. Stack, Ja. Joun F. Wirson, III Mari M. Gursxy Decnert Paice & Ruoaps 3400 Centre Square West Philadelphia, PA 19102 Counsel for National Gypsum Company W. DonaLp McSweeney Wittiam A. MONTGOMERY Joser® R. Lunpy Scwarr Hagpin & Warte 7200 Sears Tower Chicago, IL 60606 Counsel for The Celotex Corporation Frep H. Baaruir, Ja. Tuomas A. GOTTSCHALK Jerrney S. Davipson KimKLanp & E.tis 200 E. Randolph Drive Chicago, IL 60601 Counsel for Andrew J. Watt APPENDIX TO RESPONDENTS’ JOINT BRIEF This Appendix contains Appellants’ briefs in the Court of Appeals as follows: These briefs are submitted as an appendix for the Court's convenience because (1) they are referred to in Respondents’ Joint Brief in this Court with respect to the Government's misstatements of facts in its bref and (2) they make available Respondents’ arguments of the issues not decided by the Court of Appeals, should this Court be inclined to consider those issues. United States ‘Court of Appeals For Tae Taro Crmcvrr. Nos. 75-1836 through 75-1842. UNITED STATES OF AMERICA, Appellee, t. UNITED STATES GYPSUM COMPANY, Appellant in 75-1836, NATIONAL GYPSUM COMPANY, Appellant in 75-1837, GEORGIA-PACIFIC CORPORATION, Appellant in 75-1838, THE CELOTEX CORPORATION, Appellant in 75-1839, COLON BROWN, Appellant in 75-1840, Appellant in 75-1841, (See Inside Front Cover for Listing of Counsel) Internationa! Printing Co. 71! So. SO St. Prita. Pa 19743 — Tol. (215) T27-eTT1 INDEX TO BRIEF. STATEMENT OF SuByECT MATTER JURISDICTION ............ ve STATEMENT oF Issves PreseNTeD ror Review .............. EO GG, —n ccccccccceecesececcesete ctbeees i io on ol os i ue cadeenaeeds B. History of Proceedings ...........6.00000cceceueee C. Facts Relevant to the Issues on Appeal ............ 1. The Gypsum Board Industry .................. 2. Economic Evidence of Competition in the Gyp- GD BED ciccccocccccccccccccsccesccces I. The Lawful Purposes of Defendants’ Verification Should Have Precluded Submission of That Issue to the Jury; Instead the Verification Issue Was Im- properly Submitted Under Erroneous Instructions Which Made Compliance With One Antitrust Law ED vcccccccccsccccecessccsccess A. The Sherman Act Permits Competitors to Verify Reported Lower Prices or More Favorable Terms of Sale in Order to Comply With the Robinson-Patman Act or to Prevent Customer PED cncccdcdcepoccecesvccsevceccscsseoces 2. Verification of Prices With Competitors in Good Faith Compliance With the Robinson- Patman Act Is Not a Sherman Act Violation ~~ A ® Nncoaas ~ 17 INDEX TO BRIEF (Continued). B. The Verification Issue Should Never Have Been Submitted to the Jury .....6..6 6666 ccc eee nuns C. The Trial Court's Instructions to the Jury or the Verification Issue Were Erroneous and Preju- GD ceccvcccccesccccccsecescecccccecccess 1. The Trial Court Prejudicially Mishandled the Verification Issue During Trial ........... 2. The Final Charge Erroneously Equated the Purpose of Defendants’ Verification With Its Effect and Improperly Instructed the Jury to Presume That the Verification Was for an Unlawful Purpose ................ 3. The Trial Court Did Not Adequately Instruct the Jury Concerning Defendants’ Right to Protect Themselves Against Customer PUD ecccccccccconsecacececsoscceecess 4. The Tria! Court Improperly Refused to Allow the Jury to Consider the Relevance of Legal Advice to Defendants That Verification WUD GOED ccccccccdcccccecccccccoecss D. The Policy of the Nation's Antitrust Laws Is Not Served by a Statutory Construction That Holds Compliance With One Law to be a Violation of RETTEED cocccccccccccvecccccsoscecceccccess Defendants Are Entitled to delgnents ( of Acquittal Because the Prosecution’s Evidence Consists of a Hodgepodge of Unconnected Episodes That Are Insufficient, Singly or Collectively, to Prove a Nation- wide Price-Fixing Conspiracy Within the Statutory POUND cccccovesevecconescccessececoccoccscccces A. No Antitrust Conspiracy Existed Within the Statutory Period seer eeceoeeeeeeeeee eee eeee Page 51 INDEX TO BRIEF (Continued). 1. The May 1, 1969 List Price Changes ....... 2. The December, 1970 “Prompt Payment” Dis- count Withdrawal on the West Coast 3. The May-June, 1971 Wooden Pallet Decisions 4. Lower Prices in the Southwest in 1970 ..... B. Events in the Pre-Statutory Period Are Insuffi- cient to Establish the Antitrust Conspiracy Charged 0... cc ccccccccceeeeeereeeeeennnnns 1. The Claude Huckleberry/Texas Gypsum Complaints, 1960-65 0... 6c cece eens 2 Price and Credit Term Announcements in BOGS and 1088 2. nc cccccccccscvcccccees 3. The Wooden Pallets Discussion in December, ss PPPPYTTTITITTIT Tir iri Oe BERD ncccccccccccccccccsccccecececscs C. There Was No Substantial Evidence of the Single Nationwide Price-Fixing Conspiracy Charged in the Indictment and Allegedly Extending From 1960 Through 1973 6... ccc ccc eee ewe ene Ill. Defendants Were Severely Prejudiced by the Trial Court's Repeated Errors and Its Partiality Toward the Prosecution ©6666 ccc ce eee ene enw nnn A. The Trial Court Prejudicially Refused to Give a Proper Final Charge on Key Conspiracy Law Primciples onc ccsscccccsccccevcsesecevevess 1. A “Kotteakos” Instruction on Single Rather Than Multiple Conspiracies Was Required But Not Given . 0... ccc cece eer eeeneeees 2 The Court Refused to Instruct the Jury to Determine “Scope and Purpose” and to 103 103 104 Consider It Separately as to Each Defendant 106 BO ——————— eee] INDEX TO BRIEF (Continued), 3. The Jury Was Not Permitted to Consider Evidence of Vigorous Price Competition as Bearing on the Issue of Withdrawal and Abandonment From an Alleged Price- Fixing CORMINIE ccccccccccccccccccccccccccce B. Dismissal of the Indictment Is Required Because Defendants Were Seriously Prejudiced by the Prosecution'’s Excessive Pre-Indictment Delay .. 1. The Prosecution Unduly Delayed Commene- ing This Prosecution ....... 666s ceeecuues 2 Defendants Suffered Actual Prejudice as a Consequence of the P vsecution’s Pre- PE GEE cdcccsccccececcoceses: 3 An A Fortiori Case for Dismissal Is Presented Under the Marion Rationale Because the Prosecution’s Delay Pre-Dated the Appli- cable Limitations Period ................ C. The Jury Verdict Was Contaminated by Con- sideration of Incompetent, Inflammatory Hear- say Evidence 1 The Requirements of the Co-Conspirator Declaration Exception Were Ignored by the Se ED cncconccasuncsnecscescncsece 2. The Tria! Court Paid No Heed to the Re- quirements of the Business Record Rule .. 3. The Prosecution Was Improperly Permitted to Adduce Inflammatory, Prejudicial Evi- dence of Past Antitrust Complaints and RED co cccccecccececcccececcecccee D The Tria Courts Partiality for the Prosecution Necessarily Prejudiced Defendants 108 113 115 119 121 122 129 INDEX TO BRIEF (Continued). 1. The Final Instructions Clearly Favored the Prosecution in Their One-Sidedness ...... 2 The Trial Court Was Not Evenhanded ia Its Control of Witness Examinations and Com- mented Prejudicially on Defendants’ Evi- Append Bw. n cscs cccsccessccsecesveeees IV. Grave Prosecutorial Misconduct Deprived Defend- V. gate OF Oo Be Te o.ncc0nceegesecseseocceencess A. The Prosecution Asserted and Insinuated to the Jury Alleged “Facts” Outside the Record and Misstated and Misconstrued Evidence Which Was in the Record ... 0.6.66 cee enue B. The Prosecution Engaged in Improper and Un- fair Examinations of Witnesses .............. C. The Prosecutor Attempted to Secure a Verdict by Blatant Appeals to Jury Passion and Prejudice . D Defendants’ Convictions Must Be Reversed Be- cause the Severity and Frequency of the Prose- cution’s Misconduct Poisoned the Trial ....... The Trial Court's Coercion of the Deadlocked, Ill and Exhausted Jury Requires Reversal of the Ver- GD ccccccccccccccccccccoccccccecccescccececss A. The Trial Court Erred by Refusing to Declare a Mistrial When the Ill and Exhausted Jurors Were Unable to Reach a Verdict ............. B. The Trial Court Erred by Directly Pressuring the Jury Into Its Verdicts Through the Use of Re- petitive and Erroneous “Dynamite” Instructions, Including One Improperly Given in a Private Meeting With the Jury Foreman ............. . . a ncnecausenenndnesesenesebeeebenneesesenns 132 14 138 140 14 145 150 155 159 163 163 TABLE OF CITATIONS. Cases: Page Ah Fook Chang v. United States, 91 F. 2d 805 (9th Cir. Dl ds cégndhabsecansubbeesenscontiadeéecuusedeees 179 American Column & Lumber Co. v. United States, 257 U. S. Bee GEEED ccccocccccccccecesccceccesocccocescosces 32 American Tobacco Co. v. United States, 147 F. 2d 93 (6th Cir, 1944), affirmed 328 U. S. 781 (1946) ..........45. 67, 86 Banana Distributors, Inc. v. United Fruit Co., 1962 Trade Cases § 70,368 (S. D. N. Y. 1962)... .. ccc cccceeeues 131 Barnes v. United States, 412 U. §. 837 (1973) ............4. 54 Belliston v. Texaco, Inc., 455 F. 24 175 (10th Cir, 1972), cert denied 408 U. S, 928 (1972) ........ 28, 32, 33, 36, 37, 38, 39, 41 Belmont Industries, Inc. v. Bethlehem Steel Corp., 512 F. 2d Ge Geer Gs ED ccdcccececonccencccessececensbesn 131 Berger v. United States, 295 U. 8. 78 (1935) ..... 64, 144, 145, 148, 151, 153, 154, 160, 162 Bouie v, City of Columbia, 378 U. S, 347 (1964) .......... 58 Brasfield v, United States, 272 U. §. 448 (1926) ............ 180 Buhler v. United States, 33 F. 2d 382 (9th Cir, 1929) ....110, 111 Cement Mfrs. Protective Ass'n v. United States, 268 U. §. 588 ERED cdcnceccacccoccscess 29, 31, 32, 36, 37, 48, 55, 58, 50, 64 Chapman v, California, 386 U. §. 18 (1967) ............0.. 103 Continental Baking Co, v. United States, 281 F. 2d 137 (6th GD HED Guncecnccdcccevdesenccssesesceccccosccece 135 Commercial Standard Ins, Co, v. Gordon's Transports, Inc., 154 F. 2d 300 (Oth Cir. 1046) ..... cc cess sceccccecesss 71 Commonwealth v. Clark, 404 Pa, 143 (1961) ............., 164 Commonwealth v, DiFrancesco, 329 A. 2d 204 (Pa. 1974) .. 54 Commonwealth v. Turner, 317 A, 2d 298 (Pa. 1974) Corn Products Refining Co, v. FTC, 324 U. S$. 726 (1945) .. 34 Delaware Valley Marine Supply Co. v. American Tobacco Co,, 297 F. 2d 199 (3rd Cir, 1961), cert. denied, 369 U. S. 839 (1962) TABLE OF CITATIONS (Continued). Cases (Continued): Page Di Marco, et al. v. USG et al., E. D. Pa, CA #31766 ....... 63 Di-Wal, Inc. v. Fibreboard Corp. CCH 1970 Trade Cases $73,155 (N. D. Cal, 1970) occ cccccc cece ee eeeeennes 28 Dugan Drug Stores, Inc. v, United States, 326 F. 2d 835 (5th Cle. 19BE) cn ccccccccccccccccccvccccevevevecevccenes 151 Dunn v. United States, 307 F. 2d 883 (Sth Cir, 1962) ... .158, 160 Dutton v. Evans, 400 U. S. 74 (1970) occ cece eee en eees 123 Forster Manufacturing Co. v. FTC, 335 F. 2d 47 (Ist Cir. 1964), cert. denied, 380 U. S. 906 (1965), after remand, 361 F. 2d 340 (Ast Cir, 1966) occ eee ee nees u FTC v. A. E. Staley Company, 324 U. S. 746 (1945) . .33, 35, 36, 41 Glasser v. United States, 315 U. S, 60 (1942) ...... ccc eee 124 Goldfarb v. Virginia State Bar, 421 U, §. 773 (1975), reh Bonded, —@ U. Bie ci cccssccsssccccccccccccvceecccens 31, 32 Goldlawr, Inc. v. Shubert, 290 F. Supp. 482 (E. D. Pa, 1968) 67 Gray v. Shell Oil Co, 469 F. 2d 742 (9th Cir, 1972), cert. denied, 412 U. §. 943 (1973) ......05. 28, 33, 37, 38, 52, 53, 54 Grunewald v. United States, 353 U. S. 391 (1957) ...... 67, 86, 99, 103, 121, 130 Hall v. United States, 419 F. 2d 582 (Sth Cir. 1969) .. .64, 150, 157 Holland v. United States, 348 U.S. 121 (1954) 2... ... cues 71 Hurst v. United States, 337 F. 2d 678 (Sth Cir, 1964) ...... 129 Hyde v. United States, 225 U.S. B47 (1912) oor cceceeeees 109 ladependent Iron Works, Inc. v. United States Steel Corp., 177 F. Supp. 743 (N. D. Cal, 1959), aff'd, 322 F. 2d 656 (9th Cir, 1963), cert. denied, 375 U. S, 922 (1963) ....... 70 In re Winship, 397 1. S, 358 (1970) occ cc cence eee enes 54, 66 International Shoe Machinery Corp. v. United Shoe Machine Corp., 315 F. 2d 449 (1st Cir, 1963), cert. denied 375 U. S. OBO (10BB) nn rrrccccrrceeereeeevveeevevens 130, 131 Interstate Circuit, Inc. v, United States, 306 U. §. 208 (1939) 67 Jenkins v. United States, 330 F, 2d 220 (D. C, Cir, 1964) ... 182 TABLE OF CITATIONS (Continued). Cases (Continued): Page Jenkins v, United States, 380 U. §, 445 (1965) .. .163, 164, 174, 181 Jones v. Shell Oil Co,, Civ, No, 47261 (N, D. Cal.), affirmed sub nom. Gray v. Shell Oil Co,, 469 F, 2d 742 (9th Cir, 1972) 54 Klein v. American Luggage Works, Inc., 323 F. 2d 787 (3rd GE, BEER) cccccccceccccccsvecseuaneeennenne 46, 62, 66, 106 Kotteakos v, United States, 328 U. S. 750 (1946) . . .68, 81, 99, 100, 101, 103, 104, 105, 107 Krulewitch v, United States, 336 U. §, 440 (1949) ..... 22, 78, 103, 124, 160 Maple Flooring Mfrs, Ass'n v. United States, 268 U. §, 563 (OEE) ccccccccccccccccccccsesececeseseseeeeeeeneel 29, 31 Marino v. United States, 91 F. 2d 691 (9th Cir, 1937) ...... lll Milgram v. Loew's, Inc., 192 F. 2d 579 (3rd Cir. 1951) ..... 70 Minker v. United States, 85 F. 2d 425 (3rd Cir, 1936) ...... 150 Modern Home Institute, Inc, v. Hartford Ace, & Indem. Co., GIS F. Od 108 (Gnd Cip. 1075) ...cccccccccccccccccces 70 Moore v. United States, 271 F, 2d 564 (4th Cir, 1959) ...... 71 National Dairy Products Corp. v, FTC, 305 F. 2d 517 (7th Cir, 1968), cert. denied, 393 U. §. 977 (1968) ........... 344 NBO Industries Treadway Companies, Inc., et al. v. Bruns- wick Corp, et al., 1975-2 CCH Trade Reg. Rep. $ 60,479 Co em 1 North Carolina v, Chas, Pfizer & Co., 1974-2 Trade Cases 7 75,176 (BE. D. N.C, 1074) cc ccccccccsccevssvcsvees 70 Pauldino v, United States, 379 F, 2d 170 (10th Cir, 1967) ... 66 Pennewell v. United States, 353 F, 2d 870 (D. C. Cir, 1965) . 150 Pointer v, Texas, 380 U, §, 400 ( EDGED occccconséscameen 135 Rivers v. Union Carbide Corp., 426 F. 2d 633 (3rd Cir. 1970) 125 Rocha v. United States, 288 F, 2d 545 (9th Cir, 1961) ....101, 105 Rogers v, United States, 422 U, §. 35, 45 L. Ed. 2d (1975) .. 178 Salley v. United States, 353 F, 2d 897 (D. C. Cir, 1965) .... Bll Snyder v. Lehigh Valley R. R. Co,, 245 F. 2d 112 (3rd Cir, 1957) TABLE OF CITATIONS (Continued). Cases (Continued): Page State of Arizona v. Cook Paint & Varnish Co., 1975-2 Trade Cases, CCH Trade Reg. Rep., { 60,450 (D. Ariz. 1975) . .82, 96 Strauss v. United States, 376 F. 2d 416 (5th Cir. 1967) ..... 51 Sugar Institute v. United States, 297 U. S. 553 (1936) ...... 30 Tag Mfrs. Institute v. FTC, 174 F. 2d 452 (Ist Cir. 1949)... 31 Theatre Enterprises, Inc. v. Paramount Film Distributing Co., ET TS 66 Treasure Valley Potato Bargaining Ass'n v. Ore-IDA Foods, Inc., 497 F. 2d 203 (9th Cir. 1974), cert. denied, 419 U. S. GED CIID cc ccccccccccevccccccccccccccceveseccccces 32 United States ex rel. Clark v. Anderson, 502 F. 2d 1080 (3rd Cir. 1974) onc ccc cece cer eeceerererecsnecneesseeses 58 United States v. Alper, 449 F. 2d 1223 (3rd Cir. 1971) ...... 179 United States v. American Linseed Oil Co., 262 U. S. 371 - BIB) cccccccccccccccccccccccccceccceccoscsccccocs en States v. American Radiator & Standard Sanitary Corp., 433 F. 2d 174 (3rd Cir. 1970) ........ 67, 126, 144, 156 United States v. Angiulo, 485 F. 2d 37 (Ist Cir. 1973) ........ 181 United States v. Arendale, 444 F. 2d 1260 (5th Cir. 1971) .. 162 United States v. Bass, 490 F. 2d 846 (Sth Cir. 1974) ........ 176 United States v. Benson, 487 F. 2d 978 (3rd Cir. 1973) ..... 114 United States v. Bertolotti (2nd Cir. November 10, 1975) . 102, 105 United States v. Bohle, 445 F. 2d 54 (7th Cir. 1971) ....... 149 United States v. Borelli, 336 F. 2d 376 (2nd Cir. 1964), cert. denied, 379 U. S. 960 (1965) ........ 6.6045. 68, 86, 98, 99, 100, 105, 107, 109, 110 United States v. Bowen, 414 F. 2d 1268 (3rd Cir. 1969) .... & United States v. Bradley, 421 F. 2d 924 (6th Cir. 1970) ..... 71 United States v. Burley, 460 F. 2d 998 (3rd Cir. 1972) ..... 167 United States v. Butler, 494 F. 2d 1246 (10th Cir. 1974) .... 71 United States v. Central Supply Ass'n, 6 F. R. D. 526 (N. D. Ghho BBGT) cccccccccccccccccccccccccccccess 68, 82, 101, 104 United States v. Chester, 407 F. 2d 53 (3rd Cir. 1969), cert. denied, 304 U. S. 1020 (1969) . 2... 6. ccc ccc ec eeees 109 TABLE OF CITATIONS (Continued). Cases (Continued): Page United States v. Clark, 398 F. Supp. 341 (E. D. Pa. 1975) .. 114 United States v. Container Corp. of America, 393 U. S. 333 a ae 19, 31, 32, 36, 37, 38, 39, 41, 42, 43, 44, 46, 47, 48, 55, 58, 116, 117 United States v. Container Corp. of America, 273 F. Supp. 18 Gee Gee Gib Gb BEE deccecccesccoonenveecodcoeseenss 32 United States v. Dabney, 393 F. Supp. 529 (E. D. Pa. 1975) 114 United States ex rel. Leguillou v. Davis, 115 F. Supp. 392 (D. V. L 1953), rev'd on other grounds, 212 F. 2d 681 (3rd th Mt dint tankabntudddddemsieiinmnndimtearos 163, 164 United States v. DeCavaleante, 440 F. 2d 1264 (3rd Cir. caaned 23, 68, 78, 88, 89, 98, 99, 100, 101, 103, 107, 123, 124 United States v. Delay, 440 F. 2d 566 (7th Cir. 1971) ...... 71 United States v. DeSisto, 289 F. 2d 833 (2nd Cir. 1961) .... 137 United States v. Dukow, 453 F. 2d 1328 (3rd Cir. 1972), cert denied, sub nom. Crow v. United States, 406 U. S. 945 rene ee Sau Fat per eee 113, 114 United States v. Erickson, 472 F. 2d 505 (9th Cir. 1973) .... 114 United States v. Falcone, 109 F. 2d 579 (2nd Cir.), affd 311 Se ED cccnoussdctadiediinadedetnddiaatial 66, 99 United States v. Fioravanti, 412 F. 2d 407 (3rd Cir. 1969), cert. denied sub nom. Panaccione v. United States, 396 Se & Gar GED cccccccccscs 165, 166, 173, 174, 175, 178, 181 United States v. Flannery, 451 F. 2d 880 (Ist Cir. 1971) .... 175 United States v. Fry, 304 F. 2d 296 (7th Cir. 1962) ........ 131 United States v. fullmer, 457 F. 2d 447 (7th Cir. 1972) .... 155 United States v. Gambert, 410 F. 2d 383 (4th Cir. 1969) .... 161 United States v. General Motors Corp., 1974-2 Trade Cases {75,233 (BE. D. Mich. 1974) ....... 0... ccc cece cuccee 70 United States v. Georga, 210 F. 2d 45 (3rd Cir. 1954) ... .155, 160 United States v. Giacalone, 477 F. 2d 1273 (6th Cir. 1973) .. 114 United States v. Goldberg, 401 F. 2d 644 (2nd Cir. 1968 ), cert. denied, 393 U. S. 1099 (1969) .................. 110 United States v. Graham, 325 F. 2d 922 (6th Cir. 1963) .... 15] Luited States v. Gray, 468 F. 2d 257 (3rd Cir. 1972) TABLE OF CITATIONS (Continued). Cases (Continued): Page United States v. Grimes, 413 F. 2d 1376 (7th Cir. 1969) .... 5l United States v. Grosso, 358 F. 2d 154 (3rd Cir. 1966), rev'd on other grounds, 390 U. S. 62 (1968) .......--.----+> 164 United States v. Gullia, 450 F. 2d 777 (3rd Cir. 1971) ...... 179 United States v. Gullo, 502 F. 2d 759 (3rd Cir. 1974) ........ 151 United States v. Harmon, 379 F. Supp. 1349 (D. N. J. 1974) li4 United States v. Hayward, 420 F. 2d 142 (D. C. Cir. 1969) 155 United States v. Heinze, 361 F. Supp. 46 (D. Del. 1973) .... @ United States v. Hudson, 432 F. 2d 413 (9th Cir. 1970) .... 154 United States v. Johns-Manville Corp., Cr. 21-118 (E. D. Pa 482 at SIZ (1065) ... 2... eee een nce ewneeeeees “e*. 107, 108 United States v. Johnson, 65 F. Supp. 46 (M. D. Pa. l° . 68, 86 United States v. Kissel, 218 U. S. 601 (1910) ............-. 67, 86 United States v. Klein, 515 F. 2d 751 (3rd Cir. 1975) ..... ~ _ United States v. Kompinski, 373 F. 2d 429 (2nd Cir. 1967) .69, 128 United States v. Lansdown, 460 F. 2d 164 (4th Cir. 1972) .. 164 United States v. Leach, 427 F. 2d 1107 (Ist Cir. 1970), cert. denied, 400 U. S. 829 (1970)... 2.6.6 occ cnn nnn 51 United States v. Lester, 282 F. 2d 750 (3rd Cir. 1960), cert. denied, 364 U. S. G37 (1961) ..... ©. ence nnn wn nnes 101 United States v. Marion, 404 U. S. 307 (1971) ...113, 114, 119, 121 United States v. Morgan, 1953 Trade Cases { 67,586 (S. D. aE SET ai United States v. Morris, 485 F. 2d 1385 (Sth Cir. 1973) .... 135 United States v. Nazzaro, 472 F. 2d 302 (2nd Cir. 1973) .... 10 United States v. Neal, 320 F. 2d 533 (3rd Cir. 1963) ....... 178 United States v. Nettl, 121 F. 2d 927 (3rd Cir. 1941) ..... 153, 14 United States v. Newman, 490 F. 2d 139 (3rd Cir. 1974) . .145, 160 United States v. Noble, 155 F. 2d 315 (3rd Cir. 1946) ...... 178 United States v. Oregon State Medical Society, 95 F. Supp. 103 (D. Ore. 1950), affirmed 343 U. S. 326 (1952) ....... 131 United States v. Ott, 489 F. 2d 872 (7th Cir. 1973) ........ 162 s - TABLE OF CITATIONS (Continued). Cases (Continued): Page United States v. Partin, 1972 Trade Cases { 73,999 (N. D. Ga. EEE cdhccccoécecdsesccssscnsoeseoncesossonseesere 71 Palted States v. Perez, 489 F. 2d 51 (5th Cir. 1973) ........ 105 United States v. Perlstein, 120 F. 2d 276 (3rd Cir. 1941) 153, 154 United States v. Rodrigues, 491 F. 2d 663 (3rd Cir. 1974) .. 123 United States v. Rogers, 289 F. 2d 433 (4th Cir. 1961) ..... 174 United States v. Russano, 257 F. 2d 712 (2nd Cir. 1958) . .101, 105 United States v. Saunders, 325 F. 2d 840 ( 6th Cir. 1964), cert. denied, 370 U. $. G78 (1085) ..... 2... ence eccnccecees 71 United States v. Sawyer, 210 F. 2d 169 (3rd Cir. 1954) ..... 51 United States v. Schartner, 426 F. 2d 470 (3rd Cir. 1970) .... 149 United States v. Schneiderman, 106 F. Supp. 892 (S. D. Cal., ED ‘acckoncocecdacnnedéasesesocesodesoonesseteces 67 United States v. See, 505 F. 2d 845 (9th Cir. 1974), cert. en Gaya Gh Ge ED ccacccccedecececececesos 164 United States v. Silvern, 484 F. 2d 879 (7th Cir. 1973) ...... 175 United States v. Small, 443 F. 2d 497 (3rd Cir. 1971) ....... 145 United States v. Sprengel, 103 F. 2d 876 (3rd Cir. 1939) .... 150 United States v. Standard Oil Co. 316 F. 2d 884 (7th Cir. HED accoceouseeocsosoucsasessusseccoodead 62, 66, 106, 131 United States v. Stein, 249 F. Supp. 873 (E. D. Pa. 1966) .... 67 United States v. Stein, 456 F. 2d 844 (2nd Cir. 1972), cert. denied, 408 U. S. 922 (1972), reh. denied, 409 U. S. 898 DEED eqnuncsesseneeseeoesbotontesancdsebencsedees ll4 United States v. Tucker, 267 F. 2d 212 (3rd Cir. 1959) ..... 145 United States v. United States Gypsum Co., Civil No. 71-2467 Cie ee GR GENE cocecccdécecccccecececces 117 United States v. United States Gypsum, Crim. No. 1042-73 (D. D. C., filed December 27, 1973) ................. 118 United States v. United States Gypsum Co., 383 F. Supp. 462 Sh tn ih PT ketcGubnededdindsedentansennaiad 6, 27,113 United States v. Van de Carr, 343 F. Supp. 993 (C. D. Cal. GREED caccdececocceccssonvonsoceesosocecococcoceces 69 TABLE OF CITATIONS (Continued). Cases (Continued): Page United States v. Varelli, 407 F. 2d 735 (7th Cir. 1969) ...... 105 United States v. Watson, 489 F. 2d 504 (3rd Cir. 1973) ..... 51 United States v. Williams, 523 F. 2d 1203 (Sth Cir. 1975) .... 150 United States v. Wilson, 357 F. Supp. 619 (E. D. Pa. 1973), appeal dismissed and pet. for panel reb. denied, 492 F. 2d 1345 (3rd Cir. 1974), rev'd on other grounds, 420 U. §. 332 (1975), affd on remand 517 F. 2d 1400 (3rd Gin, BED ccccccccccccccccccccccccvcccccccccsescose 1l4 United States v. Wohl Shoe Company, 369 F. Supp. 386 (D. BE, Blam, BIDE) .cccccccccccccccccsccsccccceccssesees 32 United States v. Young, 464 F. 2d 160 (5th Cir. 1972) ...... 51 Venzie Corp. v. U. S. Mineral Products Co., 1975-2 Trade Cases, { 60,481 (3rd Cir. 1975) ...... 69, 70, 75, 79, 81, 96, 128 Viereck v. United States, 318 U. S. 236 (1943) ............ 144, 155 Virgin Islands v. Gereau, 523 F. 2d 140 (3rd Cir. 1975) ..... 164 Viviano Macaroni Co. v. FTC, 411 F. 2d 255 (3rd Cir. BED aceccacuccecccecccsnceesoncnavecsess 34, 35, 41, 50, 64 Wagner v. United States, 263 F. 2d S77 (Sth Cir. 1959) .. .148, 149 Wall Products Co. v. National Gypsum Co., 326 F. Supp. 295 (N. D. Cal. 1971) ..... 23, 25, 27, 28, 33, 37, 38, 48, 63, 90, 110, 111, 115, 116, 128, 119, 128, 129, 130 Webster v. Sinclair Refining Co., 338 F. Supp. 248 (S. D. Ala EET 28, 33, 37, 38 Webster Rosewood Corp. v. Schine Chain Theatres, Inc., 263 F. 2d 533 (2nd Cir. 1959), cert. denied, 360 U. S. 912 ET Jadddsuddebededsadaseecedsdaemidanewenestaces 67 TABLE OF CITATIONS (Continued). Statutes: Page Robinson-Patman Act, 15 U. §. C. §13(b) ..........545. 2 et seq. Sherman Act, 15 U. §. C. §1 2.0... ccc cece ence eeeeenees 2 et seq. BD GB. BG Bie vcccsccvecesccceccccoscescccececeseses 1 BD U. BS BEE ceccccccccsccccccccccesccccccesccsces: 14 United States Constitution: SD SEE ncccascceneedoeesseeeseseunseest 163 i) JD: ..sunneceqnseasenesenseeted 135, 163, 164 Rules: Page Federal Rules of Criminal] Procedure: TD int tl The sharpest deterioration in actual prices of gyp- Jeoneeeee™™ — sum wallboard occurred during the late 1960's and 1970 when three significant competitive factors came together s-Ss" =s" =" C." = =" = Tr a simultaneously. First, demand fell off sharply due to a PRICE CONTROLS recession in the general economy and particularly the Price behavior in the gypsum board industry contrasted housing market (2280a-228la, Tr. 9307; 3180a, Tr. dramatically with that of other industries during the 12,465). Second, the supply of gypsum board had sig- thirteen-year period covered by the prosecution's case.* nificantly increased with the entry during the early 1960's While prices of other construction materials generally have of many additional producers, particularly in the South- increased without interruption since 1965, gypsum wall- west (50ex, GX 7, Schedule “C”; USG 71, pp. 1-2 of part : aah ep ert ast oun en 1 by dividing board two). Third, G-P introduced a completely new market- volume sold into sales revenue reduced by 4 costs ( 2367a- ing concept in the distribution of gypsum board products 2369a, Tr. 9724-25). which gave its wholly-owned local distribution centers a ee a 9 Demand in the gy m industry is largely a function of sharply by verage for h” gypsum — demand in the housing and construction market (2528a-2530a, Tr fell bre 168 (31940-31960, Tr “08, USG 656) 10,334-36 ) we OQ, 12 Statement of the Case authority to sell to anyone in the chain of distribution at prices determined by the local manager (Tr. 4794; 4797; 2769a-2770a, Tr. 10,915-16; 2775a-2776a, Tr. 10,923-24; 2875a-2876a, Tr. 11,180-81; 2902a-2904a, Tr. 11,282-84). When G-P entered the gypsum business in 1965, by acquiring Bestwall, management's immediate objective was to increase Bestwall’s production and sales by one-third. G-P executives recognized that this aggressiveness would necessitate a number of competitors “moving over as a result of the pressure” (2214ex-2218ex, G-P 1, p.3). This “pressure” was exerted principally by a doubling of Best- wall’s sales force through its merger with the existing G-P network of 86 distribution centers located throughout the United States (278la-2782a, Tr. 10,959-60; 2800a-2802a, Tr. 10,984-86 ).*° Utilization of this branch distribution network enabled G-P to provide quick delivery and special service, to sell direct to the end user by bypassing the traditional “mid- dleman” wallboard dealer, and to “wheel and deal” on price to gain additional gypsum business (2768a-2769a, Tr. 10,913-14; 2775a, Tr. 10,923; 2777a-2778a, Tr. 10,925- 26; 2785a-2787a, Tr. 10,965-66; 2867a-2868a, Tr. 11,169- 70; 2872a-2873a, Tr. 11,176). The prosecution stipulated that each G-P distribution center manager possessed inde- pendent pricing authority over all products, including gypsum (1365a-1366a, Tr. 4805-06), thus precluding the setting of prices by any central corporate authority. Therefore, G-P was strategically positioned to market its gypsum products more aggressively and, by 1968, as the prosecution also stipulated, had embarked on a “very strong campaign to increase their share of the market” 10. Each distribution center was operated as an independent roft center primarily distributing wood products (2759a-2760a, r: 10.901-02, 2769a-2770a, Tr. 10.915-16). By the end of 1973, G-P had 128 distribution centers (2763a, Tr. 10,906). Statement of the Case 13 (1348a-1349a, Tr. 4742)."' Its competitors recognized that G-P was in the “most aggressive posture” (2277a- 2278a, Tr. 9299) and that G-P made it “very, very rough” on even its larger competitors (2278a-2279a, Tr. 9304).” The simultaneous impact of new competitors, declin- ing demand, and G-P’s competitive inroads into its com- petitors’ market shares soon resulted in dramatically de- teriorating prices. In May, 1967, in response to widespread discounting, National announced a nationwide published price decrease on most gypsum board products (2125ex- 212@ex, NG 28-29). By 1968, USG had begun to plan its own distribution network, L&W Supply, to compete with G-P distribution centers directly (2099a, Tr. 8482-84; Tr. 8524-26; 2298a-2299a, Tr. 9339; 2817a-2818a, Tr. 11,007-08; 3180a-318la, Tr. 12,465-66). Later, USG also designed an interim “war zone” program, by which USG lowered its published prices to all customers around each G-P distribution center (2283a-2286a, Tr. 9310-17; 2055ex, USG 50I). ~ Den ll. G-P’s sive marketing a te suc- cessful. In , 1967, USC lost 9 peresnta ts total market share (2057a-2058a, Tr. 8173; Tr. percentage pom Use 153 54), while G-P showed an increase in market thare ‘of 8.6 percentags points (2228ex, G-P 67). aS. Weltnan 6 UGS ees Gg OF aes far the most cqueuiee Sala te oboT) chile . 9283; a-2279a, Tr. - a. Tr ), while =. : as nh Dake asa r. 8254; 953ex, Duffy tho ana thik of» “more ve’ or “more trouble- of some” competitor (31974, Tr. 12,513). of National testified that throug the 1960's G-P, on a nationwide basis, gave National the most trouble (1718a-1719a, Tr. 6277-79). Hayes of ~ testified that G-P’s competition came from all directions and w full-scale warfare ( -2569a, Tr. 10,409-10). Johns-Manvile a G-P as its “worst competitor” (G- P Ay Seannehy's Simp- blic G Ty os G-P = ow he o (eke Te of G-P’s 7 the ~ is ~ at Tr. 14,287-317, 14,323-31, 14, l4 Statement of the Case Contemporaneous reports within the companies re- flect increasingly chaotic and downward pricing behavior in the gypsum industry during 1968—the year prior to the beginning of the statutory period on December 27, 1968 (1963ex-1965ex, USG 156; 1978ex, USG 164; 1983ex, USG 166; NG 31-34; 2277ex, G-P 265; 2280ex, G-P 284; 2284ex, G-P 316; 2287ex, G-P 318)."" On the eve of the statutory period, in October, 1968, so much discounting was occur- ring in the market that contemporaneous USG documents showed that if all the business then being quoted at dis- counted prices were secured, the volume of board sold by USG at off-list prices would equal 134% of its entire 1967 sales volume (2064a, Tr. 8233; 1983ex, USG 166), In 1969, the first year of the statutory period, the aver- age realized price on 'x” gypsum wallboard fell more than 10%, or about $4.00/ MSF, from the 1968 average. The historical industry lows were hit in 1970, the second year of the statutory period, when average realized prices were 13% below the depressed 1969 levels, more than 20% below the pre-statutory period 1968 level and almost 30% below average prices in 1961, at the beginning of the al- leged conspiracy.'' Average wallboard prices improved moderately in 1971 through 1973 when the economy im- proved, inflationary forces were strong, and federal price controls requiring prior approval of price increases were in effect. Even then, the average 4” wallboard realized price 13. The statutory period covers the five years prior to the re- nine : the Indictment on December 27, 1973. 18 U. §. C. § 3282 14. USG'’s 1970 average realized price for ¥" wallboard was $31.29/MSF as compared to $42.55 in 1961, $40.03 in 1968 and $36.02 in 1969 (199lex, USG 306, 2097ex, USG 1200). National's 1970 average price was $29.55/MSF in 1970 vs. $42.15 in 1961, $39.21 in 1968 and $34.99 in 1969 (2149ex, NG 340; NG 341). USG authorized its salesmen to cut prices after receiving 18,874 in 1969 and 13,150 reports in 1970 that its competitors were doing likewise (1986ex, USG 301), while National did so after ee 19.635 reports in 1969 and 17,670 reports in 1970 (2152ex, NG 349, NG 350). Statement of the Case 15 in 1973 was ten percent or approximately $4.00/ MSF be- low the 1968 pre-statutory period level."* In addition to the uncontradicted contemporaneous record of declining prices and increased discounting, ex- pert economic testimony was offered by both the prosecu- tion and the defendants. The prosecution's expert, Dr. Richard A. Miller, during two appearances as a witness, did not give any opinion as to the existence or non-exist- ence of the alleged conspiracy (1942a-195Sa, Tr. 7144- 7221; Tr. 7243-50; Tr. 13,460-70; 3659a-3719a, Tr. 13,472- 569; 3719a-3738a, Tr. 13,576-709; 3739a-3746a, Tr. 13,713- 31). Nor did he find market behavior indicative of col- lusion and provide any analysis or study of any economic data from which he felt even an inference of conspiracy might be drawn. In contrast, Dr. Richard Cyert, a distinguished econ- omist and President of Carnegie-Mellon University (Tr. 12,025; 2600ex-2605ex, DJX 1), testified that defendants had been engaged in “rampant price competition” during the entire statutory period, which was completely incon- sistent with the claimed conspiracy (3085a-3086a, Tr. 12,059). That period was characterized by Dr. Cyert as one reflecting in the markets he studied “a high degree of competition” that “verges on being disorderly” (3093a- 3004a, Tr. 12,090) where the picture was one of “firms really scrambling, almost on a sale-by-sale basis to try to quote a price that is going to get that particular sale” (3105a, Tr. 12,116), Dr. Cvert based his conclusion on: (a) a detailed study of his own design, encompassing transaction prices and discounts from published prices for the principal gypsum 15. USG’s average realized prices for ¥" wallboard were $32.20 MSF in 1971, $33.72 in 1972, and $35.79 in 1973 (199lex, USG 306, See USG 656). National's average 4° wallboard prices were $32.23/MSF in 1971, $34.12 im 1972 and $35.31 in 1973 ( 2)49ex, NG MO, NG 341), Ott ee 16 Statement of the Case board product in eight Standard Metropolitan Statistical Areas (“SMSA”) (Tr. 12,036-43; 2606ex-2622ex, DJN ~42); (b) a review of sales of all gypsum board products made by USG, National and Celotex in each of fifty marketing areas throughout the country (3105a-3107a, Tr. 12,117-22; 3110a-3ll4a, Tr. 12,129-35; 2623ex-2639ex, DJX 43-61); and (c) a study of all gypsum product sales to nine large common customers of the defendant corpora- tions (Sll4a-31l6a, Tr. 12,137-40, 2639ex-2648ex, DJX 62-79). Dr. Cvert found extremely wide disparity among the defendants in the actual prices they charged for 4” wall- board during the same time periods and in the same areas (30S4a-3086a, Tr. 12,058-59, 3093a-3094a, Tr. 12,090; 3105a-3107a, Tr. 12,117-18)."" In addition to wide-ranging differences in actual prices, he found widely varving dis- counts from list prices (3101a-3103a, Tr. 12,110-13). Price and discount disparities existed not only between different defendants, but also in the varying prices charged by the same company during the same time period in the same SMSA (3097a-3099a, Tr. 12,096-97). Very substantial quantities of wallboard were sold at the lower price ranges, i.e., at larger discounts, in each marketing area (26]4ex- 2622ex, DJX 27-42). Frequently, nearly all 4” wallboard sold in an area during three month periods studied was sold 16. Dr. Cyert's pricing and discount study concentrated on the “bellwether” product, 4 wallboard A standard selection technique was utilized so that the eight SMSA would be representa- we bP A petition in al] major ( Tr. 12,039-44). The “ snalted were Anehekn, Cincinnati, Minneapolis, New - — Boston, Denver and Pittsburgh (Tr. 12,043). transaction of each defendant was included in the study Yor 138s so tous vous of Go cotuaer puded (assem Oe certain National sales in Pitts in the first quarter for which records were unavailable) ( Tr. 12.044-45). All transactions in cer- tain quarters of each of the su four years, 1970 through 1973, were included for certain of eight SMSA's in accordance with standard statistical sampling techniques (2606ex, DJX 2). Statement of the Case 17 at discount from published list prices.’’ Dr. Cyert’s view that the price data established the highly competitive nature of the gypsum industry was reinforced by his con- sideration of other economic indicators such as: (a) con- stant shifting of position in the fifty market areas (3107a- 3115a, Tr. 12,119-37; 2623ex-2639ex, DJX 43-61), (b) switching of customers among defendants (3114a-3119a, Tr. 12,137-46; 2640ex-2648ex, DJX 62-79), (c) the large number of changes in published list prices (3118a-3124a, Tr. 12,146-55), and (d) the widely varied marketing and distribution techniques employed by defendants (3124a- 3126a, Ty. 12,155-57). Although Dr. Miller, the prosecution's expert, testi- fied in the rebuttal case after Dr. Cyert had given his de- tailed findings of vigorous price competition, Dr. Miller did not dispute Dr. Cyert's data nor his conclusion that the gypsum industry was highly competitive throughout the statutory period. 3. The Evidence Relied Upon by the Prosecution. The prosecution's entire case was circumstantial. Its dominant focus was on events occurring prior to 1967— He ea ee ee om phy Soggy ses submitted demonstrating extensive discounting both before and throu NG S00. CEL ihe Use nik ob ii, 21 Mister 2170ex, NG NG 500, CEL 1142 151 amy tg ee Y For example, the period from Sept September, 1968 , through the summer wy KA yh spy —b,-~-4,, wallboard were Bove. lished list prices ( 2235ex-2239ex, G-P 99, 101, 102, pve 18 Statement of the Case cember 27, 1968."" According to the trial court's final in- structions to the jury, adopting the prosecution's Request to Charge No, 15 (4152a-4170a), there were five categories of evidence from which the prosecution claimed an infer- ence could be drawn of defendants’ participation in the nationwide price-fixing conspiracy charged in the Indict- ment (3874a-3888, Tr. 14,846-63). The circumstantial evidence relied upon by the prosecution as to each cate- gory is summarized below, with more detailed treatment and supporting record references reserved for those sections of the brief concerned with the insufficiency of the evidence. (a) Price Verification (see infra at 26-65). Until mid- 1968, each corporate defendant and other gypsum pro- ducers on occasion sought to verify with each other the truthfulness of a customer's claim of a competitive offer of a more favorable price, term, or other condition of sale. In the absence of sufficient data confirming the customer's claim, direct verification with competitors was regarded as legally important before extending a discriminatorily low price to the customer. Such verification avoided vio- lations of the Robinson-Patman Act by satisfying its strin- gent requirements for establishing a good faith meeting competition defense. Also, verification protected the seller against customer fraud or misrepresentation. 18. The concentration of the tion's evidence in the pre- statutory period was fores by the admission of an Antitrust Division official just to approving the Indictment that, with identifying fic, affirmative acts in furtherance of the conspiracy within the veree statutory period” (B. Rashid to T. Kauper 12/11/73; Ev. H. DXQ-39). Very late in the trial, even the trial court noted that def ts might be deprived of a fair trial by the prosecutor's “absolutely massive and gross detai 4 about the pre-statutory period, and admonished t desist in“. . . massive questioning as to ‘61, 62, ‘63, ‘64, and pothing within the statutory period . . .” (3375a-3376a, Tr. 12,988- rE H : g Statement of the Case 19 After mid-1968, defendants’ conduct regarding price verification was non-parallel. At USG, price verification on gypsum products had stopped by mid-1968 as unneces- sary in light of more rampant price discounting in the market and USG’s delegation of discounting authority to its regional managers. As for National, the uncontradicted evidence shows that with three limited and unauthorized exceptions, National stopped verifying on the advice of counsel immediately upon learning of the decision in United States v. Container Corp. of America, 393 VU. §S. 333 (January 14, 1969). G-P verified approximately fifteen times between 1969 and early 1972, and not at all there- after. Celotex continued to verify infrequently throughout the statutory period upon the advice of counsel that verifi- cation continued to be a lawful method of assuring compli- ance with the Robinson-Patman Act. (b) Published Prices and Terms (see infra at 71-80; 90-97). Although the Bill of Particulars challenged every list price increase in the statutory period as conspiratorial (B. P. 30), only a list price announcement effective on May 1, 1969 was attacked at trial. The prosecution's evidence relating to that list price announcement consisted of parallel conduct and opportunity contacts. There was no evidence that the announcements resulted from an agree- ment. Similarly, the prosecution challenged the elimina- tion of a single credit term effective on the West Coast until December, 1970, but again there was no evidence of prior agreement to do so. Instead of focusing on the statutory period, the prose- cution dwelled at length on evidence of published list price and credit terms effective in 1965 and 1966, the effects of which were dissipated by the vigorous price competition described above, well before the statutory period began. Evjdence was offered of sporadic communications between certain defendants in 1965 related to specific special- 20 Statement of the Case ized products or to particular competitive situations which arose in particular geographic areas, such as ap- plicator allowances in Portland, Oregon, in October, 1965 and price protection against a price increase on fire-rated gypsum wallboard in September, 1965. These early, un- related communications, combined with “ contacts” and conscious parallelism were urged by the prosecution as the basis for an inference of an alleged conspiratorial agreement concerning a change in prices and pricing policies on gypsum products, effective Decem- ber 15, 1965, and a subsequent change in credit and collection policies on March 1, 1966. (c) Job Price Protection. “Job price protection” was a guarantee by a gypsum producer of a particular price to a contractor for a specific volume and job so that the contractor would be “protected” against sub- sequent price increases prior to delivery (1085a, Tr. 3229; 3245a-3247a, Tr. 12,696-98), On advice of counsel, in December, 1965 USG made available through its auditors a list of such “protected” jobs without disclosing any pricing information (Tr. 6487-88; 3193a-3194a, Tr. 12,499; 3212a-3213a, Tr. 12,569; 3247a-3249a, Tr. 12,699- 700; 3368a-3369a, Tr. 12,976). No other competitor did likewise. By 1967, USG no longer maintained such a list (2056a, Tr. 8170). The record is barren for the statutory period of even the maintenance, much less the exchange, of such lists or any information on them. (d) Materials Handling. Pre-statutory period evi- dence was introduced indicating limited communications in 1965 and 1966 among subordinate employees of defendants and other competitors relating to preferred materials han- dling and transportation practices." There was no evi- 19. The tion principally relied upon discussions at a December, 1966 meeting me a sor of the G Associa- tions Materials Handling Committee at which the of eliminating the use of wooden pallets in Michigan was generally Statcment of the Case 21 dence to show that any materials handling or transportation practice was ever modified or eliminated following such communications (see infra at 95-96). Five vears later, in May 1971, USG’s Central Division Manager independently decided to discontinue the use of wooden pellets to ship gypsum board from USG’s Detroit plant. His decision was based on quadrupled costs due to theft and vandalism of the pallets which at all times remained USC property. USG’s announcement was followed by Michigan area com- petitors after it was made public. There is no evidence showing that this decision on pallets had any impact on price (see infra at 80-82). (e) Single Plant Producers. Claude Huckleberry, president of Texas Gypsum Company until January, 1965, was permitted to testify to unconnected, hearsay state- ments allegedly made in 1961 by a deceased employee of a non-defendant that the “big boys” would try to drive Huckleberry out of business unless Texas Gypsum stopped competitive trucking practices (see infra at 86-90). The prosecution also sought to prove that Republic Gyp sum Company was a target of conspiratorial predatory practices in 1970. At most, the evidence disclosed that gypsum prices were depressed nationally during that year, but particularly so in the Southwest due to overcapacity and low demand. Not only was there a failure of proof as to any “predatory agreement” among defendants, but un- controverted evidence disclosed that during those years, Celotex had a large investment in Republic, the alleged victim, while National assisted Republic by supplying critically needed wallboard paper on a $350,000 line of to 19. (Cont'd.) recognized On advice of counsel, no at 95-96). : : i A Z 22 Summary of Argument SUMMARY OF ARGUMENT. The massive record below falls far short of the sub- stantial evidence required to convict defendants of par- ticipation in a single, nationwide price-fixing conspiracy covering all aspects of gypsum board competition from 1960 through 1973. Focusing on the relevant period covered by the statute of limitations (1969-73), there is simply no evidence of any antitrust agreement or con- spiracy of any kind. In a sprawling conspiracy case such as this, “the looseness and pliability of the [conspiracy] doctrine present{[s] inherent dangers,” Krulewitch ct. United States, 336 U. S. 440, 449 (1949), Jackson J., con- curring, which the trial judge must guard against and control. Here, however, the trial court abdicated its essen- tial function of admitting only competent and relevant evi- dence, failed to curb prosecutorial excesses, and submitted the case to the jury under improper instructions. Yet. even with all these errors, any one of which was sufficient to tip the scales against defendants, the jury's deliberations were beclouded with division and difficulty. At least some of the jurors must have perceived the absence of substan- tial evidence of conspiracy. Twice the jury reported itself deadlocked. Ultimately, judicial coercion—not the testi- of lower prices offered by competitors, (2) the effect of such verification had been to stabilize prices, and (3) de- fendants’ verification was not for the purpose either of avoiding price discrimination. illegal under the Robinson- Act, regardless of its lawful purposes, if the effect of veri- fication was to stabilize prices (see infra at 48-62). F. 2d 1264, 1275 (3rd Cir. 1971) (see infra at 66-102). Indeed. fundamental constitutional guarantees, as well as the protection of the statute of limitations were vitiated by the prosecution’s predominant reliance on stale and unconnected evidence and by its inexcusable and 24 Summary of Argument prejudicial delay in initiating this prosecution (see infra at 113-22). Therefore, judgments of acquittal should be entered as to each defendant. Ill. In the alternative, new trials are required, not only because of the trial court’s faulty instructions concerning verification, but also because, misapplying basic conspiracy law principles, the court permitted the prosecution to rely on inflammatory hearsay evidence concerning remote in- cidents without any proof of their connection to the de- fendants or to later events, and compounded the error by its refusal to give the jury proper instructions needed to guide it in its deliberations. Clear errors of law on major substantive issues were committed in the trial court's evi- dentiary rulings and final charge (see infra at 103-12; 122-33). IV. The lack of taut trial management encouraged the prosecutorial misconduct which pervaded the trial. Mis- statement of facts in evidence, insinuation of facts not in evidence. unfair examination of witnesses, inflammatory appeals to jury prejudice—all of these tactics in the prosecutor's “bag of tricks” were tolerated and. on occasion, even excused by the court because the prosecutor is “tem- peramental and irrepressible” (Tr. 3452-53) or because he “is an emotional person” (Tr. 8494-98) (see infra at 144- 62). On the principal issue of verification the prosecutor was even permitted to argue that defendants’ purpose of Robinson-Patman Act compliance was “a sham conjured up for this case” | Tr. 14.698), despite his knowledge that over ten vears ago two of the defendants here had asserted the same purpose in litigation then pending in the Eastern Summary of Argument 25 District of Pennsylvania, and despite his and the trial court's) intimate familiarity with Judge Zirpoli’s 1971 find- ing, in Wall Products, that this was one of two “controlling circumstance” purposes “present in abundance” in a “rec- ord. . . replete with evidence” about them ( 326 F. Supp. at 314-15). V. Defendants were gravely prejudiced by the prosecu- tion's tactics and by the slipshod and improper way in which the trial judge conducted the trial and instructed the jury. No doubt these factors created the hopeless jury deadlock despite the prosecution's failure of proof. Cap- ping a record of egregious error, the trial court demanded that the jury reach a verdict “one way or the other” to avoid the expense of a possible retria!. In pursuit of that crass economy, the constitutional rights of defendants to a fair trial were wholly submerged and a coerced verdict was returned (see infra at 163-S2). The acquittals to which defendants were entitled should now be entered by this Court. 26 Argument ARGUMENT. I. The Lawful Purposes of Defendants’ Verification Should Have Precluded Submission of That Issue to the Jury; Instead the Verification Issue Was Improperly Sub- mitted Under Erroneous Instructions Which Made Compliance With One Antitrust Law Violative of Another The centra! issue in this case is whether defendants’ verification with competitors of the accuracy of customers’ claims of lower prices purportedly offered by competitors violated Section 1 of the Sherman Act, 15 U. S. C. § 1. Relying on established Supreme Court law and recent federal decisions, defendants urge that price verification does not violate the Sherman Act when done for either of two legitimate purposes: (a) to comply with the Robinson- Patman Act by establishing a bona fide basis for extending a lower price to meet a reported lower price offered by a competitor, 15 U. S. C. § 13(b),” or (b) to prevent cus- tomer fraud. Otherwise, when a supplier is faced with a customer's claim of a lower competitive offer, as to which the supplier has insufficient data to form a good faith belief concerning its accuracy, the supplier would have to choose either to act on the customer's representation and risk violation of the Robinson-Patman Act or risk being - -. Section 2(b) of Ay mame Act, 15 U. S. C. (Db), permits a prima showin price discrimination to rebutted or justified by the seller, “by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor, or the serv- ices or facilities furnished by a competitor. The Act emphasizes however, that: “the burden of rebutting the prima-facie case thus made by showing justification shall be — charged with a s violation of this section, and un shall be affirma- tively shown, the Commission is authorized to issue an order terminating the discrimination... .” (emphasis added). Argument 27 non-competitive by refraining from offering a lower price. Neither choice is consistent with the policy and purpose of the nation’s antitrust laws. The prosecution adduced no evidence, as was its burden, to show that defendants had no lawful purposes for verification. On the contrary, the evidence overwhelmingly establishes the legality of defendants’ purposes. In 1971, a federal court explicitly found that price verification by gypsum wallboard manufacturers for pur- poses of Robinson-Patman Act compliance and prevention of customer fraud was lawful and, even in that civil case, was not a Sherman Act violation. Wall Products Co. v. National Gypsum Co., 326 F. Supp. 295, 312-15 (N. D. Cal. 1971). Two years later, however, after it was appar- ent that the Wall Products holding would not be appealed, the prosecution instituted this criminal proceeding charg- ing that defendants’ verification constituted a criminal Sherman Act violation. Despite the 1971 holding that verification, in the gypsum industry, was lawful, a prin- cipal basis expressed by the government for the 1973 Indictment of the individual defendants was their “au- thorization of price verification” (Ev. H. DX Q-39). Before trial commenced, the court below expressed the view that the “complex, portentious” verification issue “raises profound policy questions which go to the heart of trade regulation in this country.” United States v. United States Gypsum, 383 F. Supp. 462, 467 n. 5 (W. D. Pa. 1974). During trial, the prosecutor referred to verification as the policing mechanism or the connecting thread of the claimed conspiracy (See, e.g., Tr. 210-11; 221-22; 244-45; 248). Since trial, the chief prosecutor has urged publicly that the Robinson-Patman Act and the Sherman Act con- flict and are “antithetical.” BNA, Antitrust Trade Reg. Repts., No. 742 (12/9/75, p. A-21). Notwithstanding the 28 Argument pivotal importance of the verification issue, the trial court approached the subject with a mind set hostile to defend- ants’ position. During trial, he informed defense counsel that, in his view, even good faith compliance with the Robinson-Patman Act could well constitute a violation of the Sherman Act ( Tr. 6041-43; Tr. 7763; 3930a-3932a, Tr. 14,923-25). And, he instructed the jury to presume that defendants intended to fix prices, regardless of their actual. legitimate purposes, if the effect of verification was to stabilize prices (3884a-3885a, Tr. 14,858-59). In these and other instances, which we will point out, the trial court communicated its firmly held view that compliance with one antitrust law is a criminal violation of another antitrust law. Recognition of the lawful character of defendants’ verification vitiates the core of the prosecution's case and makes plain defendants’ entitlement to acquittals. Con- sequently, the verification issue is treated first. A. The Sherman Act Permits Competitors to Verify Reported Lower Prices or More Favorable Terms of Sale in Order to Comply With the Robinson- Patman Act or to Prevent Customer Fraud. Verification by competitors of customers’ claims of more favorable competitive offers does not violate the Sherman Act when done for the purpose of comnlving with the Robinson-Patman Act or to protect against customer fraud. Belliston cv. Texaco, Inc., 455 F. 2d 175 (10th Cir. 1972 ). cert. denied 408 U.S. 928 (1972); Gray v. Shell Oil Co., 469 F. 2d 742 (9th Cir. 1972), cert. denied 412 U. S. 943 1973); Webster v. Sinclair Refining Co., 338 F. Supp. 245 S$. D. Ala. 1971); Wall Products Co. v. National Gyp- sum Co. supra, 326 F. Supp. 295; Di-Wal, Inc. v. Fibre- boar! Corp.. CCH 1970 Trade Cases € 73,155 (N. D. Cal. 1970. These cases apply established antitrust principles Argument 29 first adopted by the Supreme Court in Maple Flooring Mfrs. Ass'n v. United States, 268 U. S. 563 (1925); and Cement Mfrs. Protective Assn v. United States, 268 U. S. 588 (1925). and specifically approved thereafter. The Maple Flooring case involved an express agree- ment between competitors to exchange information regu- larly, including actual prices (268 U. S. at 566-67). The Supreme Court upheld the propriety of such exchanges of competitive information, notwithstanding their stabilizing effect on prices (268 U.S. at 582): “Persons who . . . report market prices, are not en- gaged in unlawful conspiracies in restraint of trade merely because the ultimate result of their efforts may be to stabilize prices or limit production through a better understanding of economic laws and a more general ability to conform to them, for the simple reason that the Sherman Law neither repeals eco- nomic laws nor prohibits the gathering and dissemina- tion of information” (268 U. S. at 584). The Court held that the “prices at which the commodity has actually been sold in the usual course of business” are “legitimate subjects of enquiry and knowledge in any in- dustrv” (268 U. S. at 585). In Cement Mfrs. Protective Ass'n v. United States, 268 U. S. 588 (1925), the Court extended Maple Flooring by holding that reciprocal communications between com- petitors of the prices at which cement was sold under “specific job contracts” were permissible under the Sherman Act even where they related to specifically identified jobs and customers.” Such exchanges were ap- 21. A universal practice in the cement industry was use of the “snecitic job contract.” a requirements contract which gave the bu: er an option to obtain at the quoted price as much cement as necessarv to complete the specific job. Because it was common for mL | 30 Argument proved, despite the trial court’s express finding that they “tended to produce uniformity in price” (268 U. S. at 593), because their purpose was to protect against buyer fraud: “. . . [I}n our view the gathering and dissemination of information which will enable sellers to prevent the perpetration of fraud upon them, which informa- tion they are free to act upon or not as they choose, cannot be held to be an unlawful restraint upon com- merce, even though in the ordinary course of business most sellers would act on the information. . “ . | [W]e cannot regard the procuring and dissem- ination of information which tends to prevent the procuring of fraudulent contracts or to prevent the fraudulent securing of deliveries of merchandise . . as an unlawful restraint of trade even though such information be gathered and disseminated by those who are engaged in the trade or business principally concerned.” (268 U. S. 603-04, emphasis added). Later, in Sugar Institute v. United States, 297 U. S. 553, 602-04 (1936), where a price-fixing conspiracy had actually been proved, the Court similarly approved the relay of “current or future prices” among competitors by striking a prohibition on such exchanges from a lower court's decree. “Such reporting . . . .” the Court said, “subject to the restrictions imposed by the decree does not appear to involve any unreasonable restraint of competition.” 21. (Cont'd. ) buvers to order more cement under such a contract than could be used on the job involved, thus Gating Se benefit of the lower contract price, cement manufacturers exchanged information to pre- vent such deliveries from being used on other jobs not cov by the contract (268 U. . at + ). fee a 5 and its underlying purpose are precisely analogous to * rice protection rezister established by USG in 1965 and USG’s alhond to oa ). itself against customer fraud. (See supra at 20; see infra at Argument 31 These Supreme Court decisions were followed in Tag Mfrs. Institute v. FTC, 174 F. 2d 452 (1st Cir. 1949). There, the court held lawful regular transaction price exchanges by which the Institute, “sends out to all Subscribers daily bulletins . . . re- cording thousands of these off-list transactions each month, showing the name of seller, descriptions of the tag products, quantity, list price, actual price of the particular off-list transaction, and the state where the customer is located .. .” (174 F. 2d at 457). The Tag Mfrs. Institute decision specifically determined that (1) compiling and disseminating published list prices and off-list actual transaction prices was permissible, even though examination of that information by competitors “will give a quite accurate picture of the current price structure in the industry” (174 F. 2d at 458), and (2) such exchanges were lawful even where there was “considerable uniformity” of list prices and actual selling prices in the industry (174 F. 2d at 460). The trial court here seemed to believe that these au- thorities had been implicitly overruled by the Supreme Court’s decision in United States v. Container Corp. of America, 393 U. S. 333 (1969). The short answer is that the Container decision itself cites Maple Flooring and Cement as authoritative and that, quite recently, the Court has again contu::.ed the continuing vitality of Maple Floor- ing and Cement by favorably citing each case in Goldfarb v. Virginia State Bar, 421 U. S. 773, 782 (1975), reh. denied, — U.S. -. As Container itself makes clear, exchanges of price information for legitimate purposes are not proscribed, even if the exchanges result in a stabilizing effect on prices 393 U. S. at 335). As the concurring opinion of Justice 32 Argument Fortas makes explicit, Container did not create a per se rule equating agreements to exchange specific price in- formation with price-fixing agreements (393 U. S. at 338- 339 ).** Container found the decision in Cement inap- plicable because, in Container, “there was absent the controlling circumstance, viz., that cement manufacturers exchanged price information as a means of protecting their legal rights from fraudulent inducements to deliver more cement than needed for a particular job” (393 U. S. at 335). Thus Container reaffirmed the legality of exchang- ing specific price information for the purpose of protecting one’s “Iggal rights” and preventing customer fraud.” The additional issue of the legality of Robinson- Patman verification was not presented in Container, since the defendants there did not claim that their exchanges were for the purpose of complying with the Robinson- Patman Act, nor could they have.** Post-Container deci- 22. In Goldfarb, the Supreme Court cited favorably Justice Fortas’ dpinion in Container (421 U. S. at 782). Lower courts have subsequently recognized that Container did not create a per se rule. See Treasure Valley Potato Bargaining Ass'n v. Ore-IDA Foods, Inc., 497 F. 2d 203, 208 (9th Cir. 1974), cert. denied, 419 U. S. 999 (1974); Belliston v. Texaco, Inc., 455 F. 2d 175 (10th Cir. 1972), cert. denied, 408 U. S. 928 (1972): and United States v. Wohl Shoe Company, 369 F. Supp. 386, 389 (D. N. Mex., 1974). The absence of a per se rule involving price exchanges calls into — question the prosecution's decision to attack Robinson-Patman verification by proceeding criminally. 23. Confirming the absence of a legitimate purpose for the ex- changes in Container, the majority placed principal reliance on two price-fixing decisions where express agreements existed: both the purpose and effect of the agreements was to suppress competition; and the agreements extended far beyond the cakes of price in- formation. American Column & Lumber Co. v. United States, 257 U. S. 377, 411-412 (1921); United States v. American Linseed Oil Co., 262 U. §. 371, 390 (1923). 24. In Container, the products were not of “like grade and quality.” thus making the Robinson-Patman Act inapplicable. There. defendants were frequently beating competition — not just re oting it. See United States v. Container Corp. of America, 273 F. Sunp. 18, 22 (M. D. N. C. 1967); Note, 25 Baylor L. Rev. 357, 364 (1973); 15 USC § 13(b). On appeal, the Container defendants Argument 33 sions, however, expressly hold that exchanges of price in- formation to verify customers’ doubtful claims of more favorable competitive offers are lawful. Gray v. Shell Oil Co., supra, 469 F. 2d 742; Belliston v. Texaco, Inc., supra, 455 F. 2d 175; Webster vc. Sinclair Refining Co., supra, 338 F. Supp. 248; Wall Products Co. v. National Gyp- sum Co., supra, 326 F. Supp. 295. These decisions embody two principles: (1) for a seller to establish a good faith meeting of an equally low price of a competitor under Section 2(b) of the Robinson-Patman Act, independent investigation or verification of customer reports of lower competitive prices is required and (2) when such verifica- tion is the purpose of such exchanges, they do not violate the Sherman Act. 1. The “Meeting Competition” Defense Requires Independent Investigation or Verification of Customers’ Claims. A seller bears a heavy burden in establishing a “meet- ing competition” defense under the Robinson-Patman Act. In FTC v. A. E. Staley Company, 324 U. S. 746 (1945), the Court found a seller's failure to investigate or verify prices precluded the seller’s reliance on the “good faith” meeting competition defense: “The facts as stipulated were only that the discrimina- tions were made in response to verbal information re- ceived from salesmen, brokers or intending purchasers, without supporting evidence, to the effect that in each case one or more competitors had granted or offered to grant like discriminations.... The record . . . dis- 24. (Cont’d.) mentioned Robinson-Patman once to illustrate why a per se rule rohibiting exchanges of price information would be unwise ( Brief or Appellees, pp. 42-43). However, sum board is basically homogeneous and generic in nature (610a-61lla, Tr. 1859-60; 3104a- 5a. Tr. 12,115) and, therefore, is a commodity of “like grade and Sealy” within he meaning of the Robinson-Patman Act. 34 Argument closes no efforts by respondents to investigate or ver- ify them, and no evidence of respondents’ knowledge of their informants’ character and reliability . . .” (324 U. S. at 758, emphasis added). Thus, reports of lower prices from salesmen or buyers, without further verification, are insufficient to carry the burden of proof imposed by Section 2(b). See also Corn Products Refining Co. v. FTC, 324 U. S. 726, 741 (1945).” This Court’s opinion in Viviano Macaroni Co. v. FTC, 411 F. 2d 255 (3rd Cir. 1969), summed up the stringent requirements of investigation and verification of the “meet- ing competition” defense which the Federal Trade Com- mission had been enforcing vigorously and consistently throughout the 1960’s.* In Viviano, the unreliability of customer reports as a basis for establishing the “meeting competition” defense was emphasized. There, although an established and reliable customer had personally told the supplier of offers of advertising allowances from a competitor, the Commission disallowed the defense. Al- though sympathizing “with the difficulty facing petitioner in finding precise information as to the identity of the competitors and the amount of the offers” (411 F. 2d at 25. One commentator has observed that the courts require a defendant a “meeting competition” defense to establish “an elaborate plan aimed at determining the of the offeror of a given lower price and, if possible, the exact offer.” Eaton, The Robinson-Patman Act: Reconciling The Meeting Com- — ano (i013) With The Sherman Act, 18 AntiTRUsT BULLETIN 26. See, e.g., National Dairy Products Corp. v. FTC, 395 F. 2d 517, 524, 528-29 (7th Cir. 1968), cert. denied, 393 U. S. 977 (1968); Forster Manufacturing Co. v. FTC, 335 F. 2d 47, 54-56 (Ist Cir. 1964). cert. denied, 380 U. S. 906 (1965), after remand, 361 F. 2d 340 ( Ist Cir. 1966). In Forster, the court emphasized that a seller cannot establish the “meeting competition” defense by relying only on customer reports of lower price offers since the buyer wants to huy as cheaply as he can and, therefore, is induced to misrepresent competitive oon (335 F. 2d at 56). Argument 35 259), this Court, stressing the seller's need for facts beyond those orally reported from buyers, affirmed the Commis- sion’s order. “We think that it is clear from the Supreme Court opinion in Staley that petitioner was under a duty to investigate or verify the oral communications of [the customer] as well as the reliability of [the customer] himself in view of the ‘tendency of buyers to secure the most advantageous terms of sales possible’ (411 F. 2d at 259, emphasis supplied ). Similarly, this Court held that petitioner had failed to sat- isfy the requirements of the “meeting competition” defense as to other discriminatory concessions, even though those concessions had been based upon intimate familiarity with the particular market gained by a salesman with 18 years experience (411 F. 2d at 259). Thus, under Staley, Viviano, and other decisions applying the Robinson-Patman law, a seller desiring to rely on the good faith meeting competition defense in lowering its prices must affirmatively verify the accuracy of any re- ported lower price and caunot rely merely on statements of customers or salesmen as being adequate. Absent actual competitive invoices or written quotes, the only source for such verification may well be the competitor who re- portedly offered the lower price. 2. Verification of Prices With Competitors in Good Faith Compliance With the Robinson- Patman Act Is Not a Sherman Act Violation. Because of the heavy burden on sellers in satisfying the Robinson-Patman “meeting competition” defense, veri- fication of prices or terms among competitors in a good faith effort to comply with that defense cannot be held to 36 Argument be a Sherman Act violation. Attempted good faith com- pliance with the Robinson-Patman Act thus is considered a “controlling circumstance” permitting exchanges of price information under the Container and Cement decisions. In Belliston v. Texaco, Inc., 455 F. 2d 175 (10th Cir. 1972), cert. denied, 408 U. S. 928, the court considered a claim by service station operators that Container con- demned direct exchanges of price information among major oil companies relating to gasoline prices in the Salt Lake City area. The trial court had directed a verdict for plaintiff operators on the ground that attempted Robinson- Patman compliance was not a defense to a Sherman Act charge.*” The Court of Appeals reversed and directed the entry of judgment for defendant, holding that the asserted Robinson-Patman justification was sufficient as a matter of law to preclude any finding of a Sherman Act violation. The court reasoned that defendant could not be penalized under the Sherman Act for attempted compliance with the Robinson-Patman Act, since verification with competitors was necessary to satisfy the latter Act: “By seeking verification Texaco was simply complying with the requirements laid down in . . . Staley... . That is, Texaco was attempting to confirm the reports of its retail outlets that their competitors had lowered their prices. This much would be necessary before Texaco could lower its prices and still be within the ‘meeting competition’ defense. . . . We hold that the judgment awarded under this count must be set aside” (455 F. 2d at 182). 27. The same faulty reasoning was utilized by the trial court here. which made clear its erroneous belief that “. . . if it verification] is done for the purpose of a defense to Robinson- Patman but it violates the other section [the Sherman Act] that's a veolvtion of the law” (3930a-393la, Tr. 14,923-24). (See infra at -* = S Argument 37 The same result reached in Belliston, a civil case, should obtain here in a criminal prosecution. The Belliston decision explicitly relied on the Ninth Circuit's similar holding in Gray v. Shell Oil Co., 469 F. 2d 742 (9th Cir. 1972), cert. denied, 412 U. S. 943 (1973), that exchanges of price information are not per se unlawful under Container. In Gray, the court went on to hold that judgment must be entered for defendant when the defend- ante punpese to vertiytng & to comply wi Go Retinne Patman Act (469 F. 2d at 747). In Wall Products, which, of course, dealt with the very industry and issue under consideration here, Judge Zirpoli found the exchange of price and other information be- tween defendants lawful because such exchanges served two legitimate purposes: protection against customer fraud, and compliance with the Robinson-Patman Act. As to buyer fraud, Judge Zirpoli relied on the Cement decision . and the Supreme Court's confirmation of the Cement rationale in Container. As to Robinson-Patman com- pliance, Judge Zirpoli reasoned that it too was a “lawful purpose” for exchanges of price information and that at- tempted compliance in good faith with one federal anti- trust law cannot lead to the violation of another (326 F. Supp. at 312-315). Judge Zirpoli held that the presence of these purposes for gypsum industry verification pro- duced “controlling circumstances” which had been “absent from Container.” In Webster wv. Sinclair Refining Company, 338 F. Supp. 248 (S. D. Ala. 1971), the district court found direct verification between competitors to be lawful, citing Wall Products, and Container: _. . Such verification is not in violation of 15 U.S.C. A. § 1 if there is present a ‘controlling circum- stance’ as required by United States v. Container 38 Argument Corporation, . The lawful purpose 02 4 —— of oat in good faith as required by the Robinsons Patman Act is clearly present here and constitutes a controllin g circumstance’ as required by Container supra (338 F. Supp. at 251-52). Like Belliston, the Gray, W cases elliston, y, Wall Products, and were civil Sherman Act cases. Their pi pee a fortiori in a criminal prosecution under the same statute. B. The Verification Issue Should N Been Submitted to the Jury. aa Under the holdings of the foregoing cases . . the 4 —_— regarding defendants’ verification aa sane ty, — to be used as a predicate for finding a Sherman ne 1 ation. The prosecution was required to prove beyond a reasonable doubt that defendants had engaged in verification (a) for unlawful purposes, that . r reasons excluding either Robinson-Patman Act com lie cS or avoidance of customer fraud, (b) pursuant to ae “ne -_ Lape , into the statutory period after ew wl s — and (c) which had a stabilizing effect on prices. = Pp po s burden was not met, and the verification ue should not have been submitted to the jury.”* . Lawful Purposes of Verification. The prosecution it se recognized that, under Container, it had the burde to — beyond a reasonable doubt “that the se f . [verification] exchanges was for reasons other "on Feng compliance with the Robinson-Patman Act” vt. Req. 15c¢ (4158a-4167a ); see also Bill of Particulars p. 197). But the prosecution's evidence overwhelmingly 28. Def. Reg. Final Inst. 26 (4095a), which the trial j | refused to give (3748a-374 would - " verification issue from the aA. 3. = Argument 3g demonstrated that verification occurred to assure compli- ance with the Robinson-Patman Act and to protect against customer misrepresentation. These legitimate purposes— “controlling circumstances” which were “absent” in Con- tainer—require acquittal on the verification issue as a matter of law. Belliston v. Texaco, Inc., 455 F. 2d 175 (10th Cir. 1972), cert. denied 408 U. S. 928 (1972). Virtually every prosecution witness who testified about the purposes of verification established overwhelm- ingly that those purposes were fraud protection, Robinson- Patman Act compliance, or both. From USG, Bear cited both fraud protection and Robinson-Patman compliance (590a-591la, Tr. 1648-50), while Gimlin mentioned the Robinson-Patman Act (1179a-1182a, Tr. 3587-92). Drafts of USG's 1962 statement of company policy permitting verification expressly referred to the Robinson-Patman Act and the need to comply with it as lawful reasons to contact competitors (2079ex-2086ex, USG 759). From National, Atwell testified that he verified in those situations where he had serious doubt about the veracity of the customer and to protect National against illegal price discrimination (1651a-1653a, Tr. 5988-90 2 Atwell’s testimony was sub- stantiated by contemporaneous documents corroborating his consultations with outside counsel about Robinson- 99. The infrequency with which Atwell verified, when com- pared to the substantial number of pricing transactions he had to act on, is graphically demonstrat by a survey which he con- ducted for the year 1965. In that year, when more requests to meet competition were verified with competitors than at any other time—between 0-6 requests per week—his department processed 40.000 requests to meet competitive offers of lower prices and “P- he penne y 80% of those requests were @ proved (1650a-165la, Ir. ys6-S7). Even at six requests 4 week that vear, or 300 times, would have verified less than 1 of the 32,000 requests which were approved To the same efect. see the testimony of: Webster of Sc comal (1747a-1748a, Tr. 6374); Burch of G-P ( Tr. 5336-38); Hill ot Celotex (1793a, Tr. 662>); Galvin of USG (2146a-2147a, Tr. && 4-03). and Fisch of Celotex 3037, Tr. 11,710). EL S........eeeaE . 40 Argument Patman Act compliance (1664a-] From G-P, Burch verified because ees the Robinson-Patman Act and to ensure G-P was not mis- led by customers (141la-1412a, Tr. 5273); Sikes verified because of G-P’s policy to avoid price discrimination am. Tr. 5645-47); A. L. Meyer pointed to the . to ascertain customer truthfulness (1480a-1481a, r. 5532-33 ); and McCaskill cited both Robinson-Patman mee and fraud protection (1289a-1290a, Tr. 4380: 1528-13314, Tr. 4647-49). Jarrett of Celotex stated that company verified to protect against a price discrimi- nation charge ( 2033a-2034a, Tr. 7473; 2038a, Tr 7486 ) .*° Even the officials of small gypsum producers acknowl- edged that Robinson-Patman Act compliance and protec tion from lying customers were the reasons for —atiiete, Van Cleve of Texas Gypsum and Simpson of Re ublic Gypsum identified both prevention of price edi | 1847a, Tr. 686C; 1849a, Tr. 6863; 185la-1855a, Tr 6880. 7 639a-640a, Tr. 1897) and customer fraud (1850a- §52a, Tr. 6878-80; Tr. 2284-85). Montgomery of Repub- lic Gypsum relied on the need to determine the truth f customer reports of competitive situations (1732a-1734a, Tr. 6314-15). Simpson and Montgomery of Republic, 30. Similarly, Webster, a fo : useqpenty when he did not = op Ae “porte > a — — ( 1746a-1748a, Tr. 6372-74). Frederi who hed AK, sponsi — for gypsum products at G-P after April. 1967 : SS Sue Sh ene re ere counsel Tr. 5200-01) to be curtain Ast SY : ‘nae ~ pricing were a matter of fact (1400a, Tr 5204). Goddard of elotex. who did not verify after August 1967 testifi ~ mony oceasions he received legal advice concerni “I yt — . copention of the Robinson Patman Act and the r ~ pan Act with respect to not discriminatin between Gilieeens pastennens AS823a-1$24a, Tr. 6800-01). Hill of Celotex was dvised by comipaay counsel that verification was legal, pennies (1793a-1795a, Tr. 6622-24 tial _— Argument 41 who were complaining witnesses for the prosecution, were neither defendants nor alleged co-conspirators despite their own verification. Simply put, all of these prosecution witnesses proved the lawful character of defendants’ verification. Similarly, the defense witnesses, including each of the individual defendants, confirmed the legitimate purposes for defendants’ verification, citing the reasons of Robinson- Patman compliance or fraud protection, or both.” The evidence tendered by the prosecution and con- firmed by the defense did not, as in Container, show ab- sence of a “controlling circumstance.” ** Quite the contrary, it showed the unreliability of customers’ claims of lower competitive offers and, further, that when defendants veri- fied they were, in compliance with Staley and Viviano, attempting to confirm customers’ claims for which ade- quate substantiation was not otherwise available. This glaring deficiency in the government's case pertains to de- fendants’ verification in both the pre-statutory and the statutory periods, alike. As to either period, under Belliston and the other post-Container decisions, the veri- fication issue should not have been submitted to the jury. 31. See the testimony of Galvin of USG (2145a-2147a, Tr. 8903-05); Hayes of National (255la-2552a, Tr. 10,374); soommese (2977a-2987a, Tr. 11,528-42) and Fisch of Celotex (Soda a, Tr. 11.704-08) and the individual defendants: Watt (3234a-3235a, Tr. 12,680-81); Nicely (3402a-3403a, Tr. 13,028); and Brown (3564a-3565a, Tr. 13,267-68 ). 32. The prosecution en a few competitive contacts— all in the pre-statutory period—regarding fic pricing situations. These were not shown to be “verifications, except one which was described as such by a prosecution witness (12 -1246a, Tr. 3905; 376ex-38 lex, GX 37 i ). Even assuming one or more of these few con- tacts were “verifications,” they were far too limited in time, locale and scope to permit an inference that verification contacts gen- erally, and especially the few in the statutory period, were for other than legitimate purposes. 42 Argument No Agreement To Verify After 1968. The prosecution also failed to establish any basis for an inference that de- fendants had even an implied agreement to verify within the statutory period. The uncontradicted evidence estab- lishes that this essential element is lacking since each de- fendant followed a different course with respect to verifica- tion in the period after December 27, 1968. USG stopped all verification on gypsum products in the late spring of 1968, months before the commencement of the statutory period. Andrew Watt testified that in the spring of 1968, Baldwin recommended to Watt that changed market conditions and competitive strategies made verification unnecessary and that for business reasons it be stopped on gypsum products (3238a-3239a, Tr. 12,686-87). After consultation with counsel, that recom- mendation was adopted (3239a-3240a, Tr. 12,687-88). Watt's testimony was confirmed by a principal government witness, Rhyne Simpson, Jr., former president of Republic Gypsum.** Simpson testified that Watt informed him that USG was no longer verifying prices with anyone (86la- 862a, Tr. 2423) and placed his conversation with Watt in the Spring of 1967, when Mr. Montgomery began verify- ing at Republic (678a, Tr. 1966; 856a-857a, Tr. 2416).** Following Container and after conferring with counsel, 33 Baldwin's testimony confirmed that Watt approved discon- tinuing verification (2056a-2057a, Tr. 8170-71) and that Baldwin stopped verifying himself in the Spring of 1968 (2052a-2053a, Tr. 8162-63). Watt's testimony was further confirmed by the testimony of R. L. Wallace, who in succeeding Baldwin as USG's Director of Marketing Policy in November, 1 Woe Tr. 8470-71), had never made or received a verification call (2099a, Tr. 8479-80). 34. Montgomery testified for the prosecution that although he verified beginning oe! in 1967, he never verified with anyone from USG ( 1722a, Tr. 6288; 1723a, Tr. 6290; 1732a-1733a, Tr. 6314, emphasis added ). Argument 43 Watt issued a memorandum directing that verification be stopped on all other USG products (324la-3244a, Tr. 12,691-93; 96ex, GX 23). Thus, the prosecution's own evidence establishes that by the spring of 1968, USG | the largest wallboard producer) had entirely ceased verifica- tion on gypsum products. There is no contrary evidence.** As for National ( the next largest wallboard producer ), the uncontradicted evidence shows that National stopped verifying immediately upon learning of the Container deci- sion in January, 1969, with three limited and unauthor- ized exceptions: (1) Webster, a former National employee called as a prosecution witness, confirmed that on advice of counsel National ceased verifying immediately after Container was decided in January, 1969. He stated that, on his own and without authorization, he had a few price verification contacts with Flintkote during the latter part of 1969. He had assumed verification calls could be resumed because he received a call from Flintkote. By the end of 1969 he had ceased entirely, as directed by his superior (1747a-1750a, Tr. 6374- 76; 175la-1752a, Tr. 6392-96). (2) Max Montgomery of Republic, a single-plant producer, testified that he verified prices with Atwell of National in the statutory period (1722a, Tr. 6288), but only occasionally and only when he was not sure 35. One document suggests that in February, 1971 Celotex initiated a single verification call to an unidentified person in USC's Credit Department pertaining to a credit term to a ific account (1102ex-1104ex, GX 1009). With the exception of this one lawful but unauthorized response, there is no evidence that USG's 1968 decision not to verify was ever violated. 36. See the testimony of witnesses Atwell (1522a-1523a. Tr. 5674. 1635Sa-1659a, Tr. 6072); Kroth (1720a, Tr. 6280); Webster (174Sa-1749a. Tr. 6375): Haves ( 2550a-255la, Tr. 10,371); Kent (2415a. Tr. 9876); and Nicely (3410a-3413a, Tr. 13,039-42). 44 Argument he was being told the truth by the customer as to prices which the customer claimed had already been quoted by a competitor (1726a, Tr. 6304; 1733a- 1734a, Tr. 6315).°* Atwell denied participation in any verification contacts after counsel advised him to stop in January of 1969 ( 1522a-1523a, Tr. 5673-74; 165Sa- 1659a, Tr. 6071-72). (3) Jarrett of Celotex testified that he made one verification call to someone at National in February. 1971 concerning credit terms to a specific account ( 2024a-2025a. Tr. 7429-30; 1117ex. GX 1017). With these limited exceptions, the record discloses that National did not verify at all after Container was de- cided. Such evidence can hardly support findings that, in the statutory period, National was party to an agree- ment to verify or that the limited, unauthorized verifica- tions which did occur were for purposes other than com- pliance with the Robinson-Patman Act and prevention of customer fraud. The evidence regarding G-P’s verification contacts in the statutory period is similarly insufficient to show its al- leged participation in an agreement to verify. Its verifica- tion contacts during those 5 years were minimal. When Eugene Burch became G-P’s general sales manager (1285a- 37. In any event, Montgomery's testimony could not serve to link National or any other defendant to any conspiracy. Neither Montgomery nor Republic was named as a co-conspirator; rather, it was the prosecution's contention that Republic was the target of alleged conspiratorial activity, not a participant in it. 38. If one were to adopt the trial court’s mistaken view of Container as bringing about a fundamental change in existing law, then the evidence of pre-Container verification should neither have been received nor submitted to the jury. Such a drastic change in existing law may not be given retroactive application, as shown infra at 3S. m. 52, and as explained more fully in the separate briet ot appellant J. P. Nicely. Argument 45 128S8a, Tr. 4366-69; 1479a-1480a, Tr. 5531-32), he verified a total of 10 or 12 times from June of 1969 to early 1972 (1426a-1427a, Tr. 5336-39). None of these verification contacts was with USG or National, the number one and two companies in the industry ( Tr. 5260-62). Max Mont- gomery of Republic testified that he made possibly four calls to Burch, that Burch never called him, and that he (Montgomery) ceased calling Burch because Burch was not able to answer his questions (1734a-1735a, Tr. 6319-20). Rhyne Simpson of Republic testified that by 1968 he did not verify with G-P because it was obvious that they were dropping prices (83la, Tr. 2315). Fisch of Celotex was advised that it was uscless to attempt to verify with G-P because the distribution center managers were autonomous and had control of pricing ( 3037a, Tr. 11,710). The only evidence of any additional verification contacts by G-P in the statutory period pertained to two possible credit verification calls by G-P to Kaiser and, by inference, one to Johns-Manville in January, 1970 ( 12S5ex-12S7ex, GX 1385-1387). The few G-P verifications during the statutory period—none with either of the two leading pro- ducers—cannot support any allegation that, as part of a national conspiracy, it participated in any agreement to verifv—much less a nationwide price-fixing agreement. With respect to Celotex (the smallest of the defend- ant manufacturers) Fisch, an assistant product manager, testified that during the more than four vears from August, 1969 to November, 1973, while he acted on many thou- sands of requests by Celotex salesmen to meet price com- petition. he initiated “mavbe” six verification calls and 39. Mr. Sikes. who had participated in verification calls, left G-P in March, 1967 (1493a-1494a, Tr. 5610-11). Mr. A. L. Meyer, v bo had done some pre-statutory period verification but was not a tyve with regard to the gypsum business after February, 1969, left C.-P in July, 1969 ( 1477a-1478a, Tr. 5529). He testified that he did : + recall making or receiving any verification calls in 1969, before he left G-P (1479a-1480a, Tr. 5531-32). 46 Argument received “maybe” seven or eight calls, all involving Grand Rapids and Flintkote (3037a-3039a, Tr. 11,710-12). He also testified that Donald Miller, Fisch’s superior, who died in 1973, made about one verification call per month during the 1969-73 period (3038a-3039a, Tr. 11,712). Jarrett, Celotex’ credit manager, testified that he verified until sometime in 1971 when he stopped based on a dis- cussion with counsel (2012a-20l4a, Tr. 7413-14). The evidence is undisputed that Celotex’ decision to continue its limited verification in the statutory period resulted from the advice of its counsel as to the scope of Container and the verification requirements of the Robinson-Patman Act (2984a-2987a, Tr. 11,538-42). No evidence was adduced from which it may be inferred that Celotex veri- fied because it had an agreement with its competitors to do so, particularly in light of the evidence that its major competitors were refusing to verify with Celotex.* The scarcity of the sporadic verification contacts in the statutory period, combined with the divergent courses followed by each defendant based on advice of its counsel,*’ preclude an inference of agreement to verify within the statutory period. Unlike Container, there was no agreement “to furnish price information whenever re- quested” (393 U. S. at 335). Nor was there a “conscious commitment to a common scheme” required in proving an antitrust conspiracy. See Klein v. American Luggage Works, Inc., 323 F. 2d 787, 791 (3rd Cir. 1963). 40. There was no evidence that the three individual defend- ants verified in the statutory period. Colon Brown and Jay Nicely never verified at all (3565a-3566a, Tr. 13,268; 3397a-339Sa, Tr. 13.022); Andrew Watt stopped verifying in the fall of 1967 (3234a- 3236a, Tr. 12,680.83). 41. As noted infra at 60-62, the adherence of the defend- ants to the differing views of their respective counsel shows that verification was not pursued because of any supposed agreement but because defendants were striving to comply with the intricacies of antitrust law by careful compliance with advice of counsel. Argument 47 Absence of a Stabilizing Effect. The uncontradicted economic evidence established a chaotic pricing structure throughout the statutory period with widespread and di- versified discounting off published list prices in all markets. (See supra at 9-17). The few verification contacts occurring in the statutory period * could not by any stretch of the imagination be considered as having a “stabilizing effect” on market prices when compared to the hundreds of thousands of transactions which occurred annually, including tens of thousands of authorized price reductions.** With the largest producer having already halted all verification by the beginning of the statutory period and the second largest producer stopping (except as noted) within less than a month thereafter, it is incon- ceivable that the infrequent verification contacts of others could have had anything more than a de minimis effect on price levels. As to this element also, the prosecution failed to prove by substantial evidence, as in Container, that the “exchange of price information has had an anticompetitive effect. . .” (393 U.S. at 337).* 42. For example, USG verified none of the more than 45,000 authorized price reductions in the statutory period (See 1986ex- 1989ex, USG 301-304). 43. See 1986ex-1989ex, USG 301-304; 2152ex-2154ex, NG 349- 44. For the pre-statutory period, the prosecution engaged in semantic games by asking witnesses whether in their opinions, un- _—— y any study, verification produced a stabilizing effect. e prosecution witness answered negatively (Tr. 1504). An- other prosecution witness answered affirmatively (1120a-112la, Tr. 3343) and also testified that where verification disclosed the falsity of the customer's reported claim, he could not lawfully lower the price (1179a-118la, Tr. 3587-91). Other prosecution witnesses testified that where verification disclosed the customer to be truth- ful, the seller was then permitted to grant a lower price (See 1179a- 11Sla. Tr. 3587-91; 15lla-1512a, Tr. 5647; 185la-1854a, Tr. 6880- 82). It is recognized that the Robinson-Patman Act itself has a stabilizing effect on prices by prohibiting discriminatorily low rices and allowing sellers to “meet, not beat” competition. See Reansted Remarks of Jonathan C. Rose, Acting Deputy Ass't Atty Gen, Antitrust Division, before the Legal Committee of the 48 Argument Since the prosecution failed to satisfy its burden of proof in challenging defendants’ verification, that issue should have been withdrawn from the jury. Instead, the trial court submitted it under instructions which, ignoring the evidence and the controlling authorities, created an irrebuttable legal presumption and in effect directed a verdict against the defendants. C. The Trial Court’s Instructions to the Jury on the Verification Issue Were Erroneous and Prejudicial. Prior to trial, the court betrayed its fundamental con- fusion of the controlling law by referring to a supposed “dichotomy” between the Container and Wall Products decisions (383 F. Supp. at 466-67 n. 5). Actually, those decisions harmonize and —— no ~~ ng a expressly recognized that exchanges of price informa aa ioe a stabilizing effect on prices but still be lawful where there is some “controlling circumstance,” such as protection of legal rights against customer fraud, as in Cement, or Robinson-Patman Act compliance, as in Wall Products. The trial court’s mistaken view that Container and Wall Products are contradictory led to its hostile rejec- tion during trial and in its final charge of the defense posi- tion that verification is lawful under such “controlling circumstance[s].” 1. The Trial Court Prejudicially Mishandled the Verification Issue During Trial. Despite its pretrial recognition of the signal impor- tance of the verification issue, the trial court rejected rach eo f 19 (Oct. 29, 1975) (reported Grocerv Manufacturers of America, p. . 29, in part CCH Trade Reg. Rep. +202. Nov. 11, 107s, pe. 5-7). Veri- fication obviously permitted the defendants lawfully to quote fivures below those which would have been charged absent verifi- cation. Argument 49 defense requests for a preliminary charge on the Robinson- Patman Act requirements necessary to balance its pre- liminary explanation of the prosecution's contentions (Tr. 153-54, 157, 18a, Def. Req. Prel. Inst. 18, Docket Entry #160). Only after each defense counsel had ad- verted to the Robinson-Patman Act in his opening state- ment did the trial court give a cursory summation of the Act, prefaced with the undermining comment, “That Act, insofar as it now appears to me to have any relevancy to the matter before you, provides . . .” (294a-295a, Tr. 407-08, emphasis supplied). Thereafter, during the trial, the court threatened to receive inadmissible prosecution evidence if just one defense counsel referred to the Robin- son-Patman Act (Tr. 1040-44). And, the court informed counsel that, in his view, a good faith effort to comply with the Robinson-Patman Act would violate the Sherman Act if verification were shown to have a stabilizing effect on prices (3930a-3932a, Tr. 14,923-25; See also Tr. 6041-43; Tr. 7763). The court's contempt for defendants’ legal position was even expressed to the jury during trial. One especially damaging comment by the trial court came during the testimony of Van Cleve of Texas Gypsum, a prosecution witness. Before Van Cleve testified, at least seven prosecu- tion witnesses had testified that they made their telephone verifications to “meet competition” in compliance with the Robinson-Patman Act or to prevent buyer fraud, or both. On direct examination, Van Cleve testified that his supe- rior, Mr. Armstrong, telephoned competitors, “in an attempt to verify competitive information that we had picked up in the field and in order for us to 45. See the testimony of witnesses Bear (590a-59la, Tr. 1648- 50): Simypson (639a-640a, Tr. 1897; 817a-81S8a, Tr. 2284.85). Gimlin 1174a-11$2a, Tr. 3587-92); McCaskill (1289a, Tr. 4380. 1329a-133]a. Tr. 4647-49); Burch ( 14] la-1412a, Tr. 5273); Sikes (1510-15]2a. Tr. 5645-47, Atwell (165la-1653a, Tr. 5988-90). 50 Argument fully determine if this was fact or . . . a false report” ( 1839a-1840a, Tr. 6849). On cross-examination, Van Cleve testified that customers “quite frequently” gave misleading or unreliable informa- tion, and that verificativ:. calls were made to verify such reports in accordance with the requirements of the Robinson-Patman Act (185la-1854a, Tr. 6880-82). This testimony was important to the defense since Van Cleve was not au alleged co-conspirator and as an employee of Texas Gypsum, was hostile to defendants. However, this witness’ strong corroboration of defendants’ position was utterly destroyed by the trial judge in a colloquy imme- diately following: “Q. Mr. Van Cleve, wasn't it your understanding that, under these certain circumstances which you have described, these calls to verify prices with com- petitors by Mr. Armstrong would, under the law, allow you to drop your price to meet that lower competitive quote? “Mr. Fricano: Objection. It is also repetition. “THe Court: Well, you can say whether or not that’s your impression. “I read the Robinson-Patman Act to the jury and it doesn't say anything about any telephone calls, but go ahead” ( 1854a-1855a, Tr. 6883, emphasis added). The court's mocking statement that the literal stat- utorvy language of Section 2(b) of the Robinson-Patman Act does not mention “telephone calls” was grossly mis- leading, particularly in light of cases such as this Court's decision in Viviano interpreting the requirements of the Argument 51 “meeting competition” defense.“ With one sarcastic re- mark, the trial judge bolstered the prosecution's case, im- paired the credibility of testimony favorable to the defense, and prejudiced the jury's view of all future testimony about the legitimate reasons for defendants’ price verification telephone calls. 2. The Final Charge Erroneously Equated the Purpose of Defendants’ Verification With Its Effect and Improperly Instructed the Jury to Presume That the Verification Was for an Unlawful Purpose. Once the court had determined, contrary to defen- dants’ requests, to submit the verification issue to the jury, defendants were entitled to clear and correct instructions as to the significance of the evidence.*’ Defendants sub- mitted sound instructions on this key issue (Def. Req. Final Instr. 20 (4090a), 26-33 (4095a-4100a) and Def. Supp. Req. 15-21 (4212a-4214a)) which the court either refused, summarily, or failed to charge (3748a, Tr. 13,758; 3787a-3792a, Tr. 14,007-14). In fact, defendants’ requests included the precise verification instruction approved by A criminal defendant is entitled to specific instructions on his theory of defense if there is evidence to it and —-* are made. United States o 413 F. 2d 52 Argument the Ninth Circuit in Gray v. Shell Oil Co., 469 F. 2d 742 (9th Cir. 1972), cert. denied, 412 U. S. 943 (1973), but that instruction was not given (see infra at 53-54, n. 49). Instead, apparently without even preparing written in- structions (375la-3752a, Tr. 13,763; 3917a-3918a, Tr. 14,906; 3974a-3978a, Tr. 14,982-85), the judge extem- porized his final charge to the jury on the complex veri- fication issue.“* In doing so, he committed wholesale prejudicial error. In glaring error, the court instructed the jury that, regardless of their actual purposes, defendants must be presumed, as a matter of law, to have intended to fix prices if their verification had a stabilizing effect on prices. “If vou decide that, if you decide this [verifica- tion] was merely done in a good faith effort to comply with the Robinson-Patman Act, then you could not consider verification. standing alone, as establishing an agreement to fix, raise, maintain, and stabilize prices, as charged. “However, if vou decide that the effect of these exchanges was to raise, fix, maintain, and stabilize the price of gypsum wallboard, then you may consider these changes [sic] as evidence of the mutual agree- ment or understanding alleged in the indictment to raise, fix, maintain and stabilize list prices. notes. but I that precise in i until the Court Reporter who took the ch has transcri of it. there is no way for me to read it” (Tr. 14,984; see 397 4a-3978a, Tr. 14,982-85). The verification instruction was there- fore not repeated unti) the next day (Tr. 15,003-25). Argument 53 “... If the effect of such exchanges was to raise, fix, maintain or stabilize prices, then an agreement to engage in such an exchange is a violation of the Sher- man Act regardless of the specific purpose that the parties to the agreement had in their minds. That is because the Sherman Act does not require proof of a specific purpose to restrain trade in order to establish the offense. “The law presumes that a person intends the necessary and natural consequences of his acts. Therefore, if the effect of the exchanges or pricing in- formation was to raise, fix, maintain, and stabilize prices, then the parties to them are presumed, as a matter of law, to have intended that result” (38S84a- 3885a, Tr. 14,858-59, emphasis added). As already shown (see supra at 26-48), where the purpose of verification is either to comply with the Robinson-Patman Act or to protect against customer fraud, there is no Sherman Act violation, regardless of whether verification occurred pursuant to an agreement or whether verification had a stabilizing effect on prices. But the jury was never instructed that verification was lawful if done pursuant to a reasonable belief concerning the obli- gations of the law in meeting competition.” Although, 49. The instructions which defendants had submitted, but which the court did not charge, included Supplemental Fina! In- struction sagnemien by Defendant Watt Regarding Verification And The inson-Patman Act. It was taken directly from and accurately paraphrased the civil instruction in Gray v. Shell Oil Co., where the jury was instructed: “. . . Thus, Shell could reasonably conclude that the antitrust laws did require it to know or have reason to believe that a competing, sappaies Dad somseed Ms price to Shell dealers com- peting with the dealers of the other suppliers. “If you find that Shell sought the information pur- suant to its reasonable belief of the tions of the law to 54 Argument initially, the jury was told that verification standing alone would not violate the law if done to comply with the Robinson-Patman Act, the court went on, erroneously equating “effect” with “purpose,” to instruct that, regard- less of defendants’ actual purpose, the jury should find a Sherman Act violation if the effect of their verification was to stabilize prices. But the errors did not end with the instruction that evidence of lawful purpose could be dis- regarded. Rather, they grew to constitutional proportions. Incredibly, the trial court concluded its verification charge by telling the jury it is “presumed, as a matter of law” that defendants’ purpose in verifying was unlawful if the effect of the verification was to stabilize prices. Both the due process clause and the guarantee of a trial by jury flatly preclude a “presumption of guilt” by presuming a central element of the criminal offense charged. See Barnes v. United States, 412 U. S. 837, 843 (1973); Com- monwealth wv. DiFrancesco, 329 A. 2d 204, 207-10 (Pa. 1974); Commonwealth v. Turner, 317 A. 2d 298, 299-300 (Pa. 1974). Cf. In re Winship, 397 U. S. 358 (1970). Similarly, reliance on an irrebuttable presumption is un- constitutional when its effect is to preclude consideration of evidence establishing a defense in a criminal] prosecu- tion. United States v. Bowen, 414 F. 2d 1268, 1273 (3rd Cir. 1969). By instructing the jury in this case that de- fendants are “presumed, as a matter of law” to have in- tended to stabilize prices, the trial court in essence directed a verdict against defendants on the central issue in this criminal prosecution. 49. (Cont'd. ) , _ — “Ary > took _ h—— which these plaintiffs can recover damages for Shell's seeking to obtain aan ae information” (Jones v. Shell Oil Co., Civ. No. 47261, N. D. Cal.), affirmed sub nom. Gray v. Shell Oil Co., supra, 469 F. 2d at 747). Argument 55 Quite apart from constitutional infirmities, the trial court's equation of “effect” with “purpose” collides with Cement, Container, and all post-Container decisions. In- deed, it even runs counter to the prosecution’s requested instructions on this point.” In gist, the court’s charge instructed the jury to disregard evidence of lawful purpose as irrelevant if it found verification had a stabilizing effect on prices. Its consequence was to make all exchanges of price information which may have a stabilizing effect on prices, per se price-fixing agreements in violation of long established Supreme Court precedent to the contrary. Compounding the erroneous instruction that price ex- changes which have a stabilizing effect on prices are pre- sumptively for an unlawful purpose, the trial court gave a homely and extremely prejudicial “illustration” of what is meant by a price-fixing agreement. In substance, the illustration told the jury that price-fixing occurs when price information is exchanged: “I guess I could sum it up by saying Macy’s can’t tell Gimbels; but, if Macy’s wants to follow Gimbels and charge the same prices Gimbel’s do [sic], there is nothing wrong with that, unless there is an agree- ment to do that (3877a-3878a, Tr. 14,850). Thus, the jury was told, in effect, “USG can’t tell National.” Even after vigorous objection, the trial court refused to 50. Gov't Req. 15ce (4158a-4167a) read, in pertinent part: “However, if you find that the purpose of these exchanges was for reasons other than to ensure compliance with the Robinson- Patman Act, then you may consider these exchanges as evi- dence of the mutual agreement or understanding alleged in the indictment to maintain or stabilize prices.” The second graph of the portion of the court’s charge quoted at page 52 hove virtually tracks the government's —~ 4 ) me for the key words. In place of the prosecution's woth, which we have italicized, the court completely changed the meaning by sub- stituting “that the effect of these exchanges was to raise, fix, main- tain, and stabilize the price of gypsum wallboard.” 56 Argument explain the lawful circumistances under which “Macy's can tell Gimbel’s.” ® The errors in the court's verification charge were promptly challenged by defense objection (3915a-3917a, Tr. 14,902-905; 3924a-3925a, Tr. 14,914-915; 392Sa-3930a, Tr. 14,920-921; 3930a-3932a, Tr. 14,923-925 ), but these ob- jections were brusquely turned aside by the trial court, with an unseemly threat to compound its error and an invitation to seek the review of this Court: “Mr. McSweeney [Celotex Counsel]: . . . And in that connection I also object to the charging in that it said if the effect of verification was stabilization, then there can be conspiracy regardless of the purpose of the verification; whereas the law is that if the pur- pose is compliance with the Robinson-Patman Act, even if that should bring about an effect of stabiliza- tion, it is not illegal. “Tue Covrt: That is not, so far as I am con- cerned, the law at all, and I am not going to charge that way. In other words, I think if it violates both sections, if it is done for the purpose of a defense to Robinson-Patman but it violates the other section, that’s a violation of the law. I didn’t charge that way. I will if you wish. “Mr. McSweeney: No. Of course, I would net want that, because I don’t consider that the law. “Tue Court: Now when you raise that kind of thing I tried to avoid saying that. But if you wish, I will say it. 51. This careless instruction given without prior notice empha- sizes the error invited by the trial court in refusing to prepare a written charge and in extemporizing in a case of this length and complenity. Argument 57 “Mr. McSweeney: Well, Your Honor, I certainly do not wish that. “Tue Covrt: Well, you say I am wrong the way I said it. Now if you want me to, I will say it exactly the way I think is right. I tried to avoid making that kind of harsh statement, but I will say it if you want me to. “Mr. McSweeney: I do not want you to say that. “Tue Court: You are raising it; aren't you? “Mr. McSweeney: I don’t want you to say it, Your Honor. I say what I think the law is. I think the law is quite the contrary. We apparently have a difference of view of the law. “Tue Covrt: We sure do. “Mr. McSweeney: Yes, we do. “Tue Covrt: That's all right. There is nothing wrong with that. You can disagree with me. “Mr. McSweeney: But Your Honor shouldn't ep “Tue Covrt: I am merely saying that if you want me to state my thoughts on the matter quite clearly, so that a reviewing authority can review it if they want to, I will do it. My thoughts are that if it violates the Sherman Act, even though it is done for some other purpose... . “Mr. McSweeney: I don’t want to provoke Your Honor into giving an instruction which I consider wrong. 1 would consider if you did that it would be error. 58 Argument “Tue Covrt: You consider the way I do it error, too” (3930a-3932a, Tr. 14,923-25). The trial court's adamance that good faith compliance with one antitrust law can violate another plainly led to its faulty charge on the principal issue in the case. Clear error of extraordinarily prejudicial character was com- mitted requiring vacation of the judgments below. 3. The Trial Court Did Not Adequately Instruct the Jury Concerning Defendants’ Right to Protect Themselves Against Customer Fraud. The trial court’s final instructions omitted any refer- ence to verification being lawful if done to protect against customer fraud. See Cement Mfrs. Protective Ass'n vt. United States, 268 U. S. 588 (1925). Thus, despite de- fendants’ requested instructions,” the extemporaneous de- livery of the charge resulted in a central element of the defense being simply forgotten by the trial court. When this significant omission was called to the court's attention, after the charge had been completed (3930a-393la, Tr. 14,923), the court did not correct the 52. Even if the trial court felt Container changed the law of Cement, defendants were entitled to an instruction that pre- Container evidence of verification could not be considered against any defendant. Two such instructions were tendered but refused 41S7a, Watt Supp. Req.; 4195a, National Supp. Req.). Sucn a damental! change of law, had the change quoutenl, Goasty would have to be limited to re application only. See Bouie ct. City of Columbia, 378 U. §. 347, 352-54 (1964); United States ex rel. Clark v. Anderson, 302 F. 2d 1080, 1083 (3rd Cir. 1974). This PP hic ‘ discussed more fully in the separate brief of appellant . P. Nicely. 53. See Def. Req. Final Inst. 29 (4097a-409Sa) and Def. Supp. Req. 16 (4212a) and 19 (4213a), the last of which read: “Sellers may lawfully contact competitors to confirm or verify a report of a lower price or price quotation to a cus- tomer even if the effect of such contacts is to s‘abilize or in- crease prices provided the purpose of such contacts is to pro- tect sellers against misrepresentations of the customers as to the prices they are being quoted or charged.” Argument 59 omission by charging, as requested, that verification was lawful if its purpose was to protect against customer mis- represenation. Instead, it limited its “correction” to an inadequate description of the “contentions” of defendants: “I want to say that in connection with verification either as to job protection arrangements or price, the Defendants contended there were two purposes, not just one. One purpose they contended for was that it was a defense to the Robinson-Patman Act. The other they contended was to avoid being defrauded. If they had any other contentions you heard them set forth by counsel. If counsel told you what their con- tentions are and they differed in any way from mine, they know what thei: contentions are better than I know what their contentions are, so you take their statements of the contentions” (3946a, Tr. 14,944). Thus, the trial court passed off a fifty-year old principle of the Sherman Act, set down in Cement, as a mere lawyer's argument, to be given such weight as the jury desired without any guidance whatsoever. The trial court’s failure to instruct the jury properly on the relevance of the customer fraud defense was prejudicial error on the key issue of verification.” 54. The jury had, of course, been toid time and aga::. by both court and counsel that it could “take the law” only from the judge, not from counsel (294a-295a, Tr. 408; 3S54a-3855a, Tr. 14.819). Without guidance from the court on the significance of defendants’ contention, the jury oy | well have fallen prey to ihe prosecutor's erroneous assertion, in his — argument, that “[t]here cannot be fraud if there is not a legally binding contract” (3848a, Tr. 14.790). The trial court refused to give a requested instruction which would have corrected the prosecution’s improper assertion (4217a, G-P Supp. Req. [Rebuttal] A). 55. Similarly, although the trial court had instructed the jury that an exchange of job price protection lists was lawful if done to prevent customer fraud ( 3879a-38Sla, Tr. 14,852-53), that instruc- tion was also prejudicially erroneous primarily because the court also instructed the jury that exchanges of job protection lists could 60 Argument 4. The Trial Court Improperly Refused to Allow the Jury to Consider the Relevance of Legal Advice to Defendants That Verification Was Lawful. Abundant evidence showed that defendants engaged in verification because different legal counsel advised each of them separately that verification was legally permis- sible. This evidence was not offered with the thought that legal advice could immunize an otherwise unlawful agreement. Instead, the issue of legal advice had a dual relevance: it established, first, that defendants’ purpose in verifying was to comply with the Robinson-Patman Act and, second, that defendants engaged in verification not because they had agreed to do so with competitors but because they desired to comply with the law and to heed their respective counsels’ advice.*" This position was but- 55. (Cont'd. ) provide a basis for inferring that a price fixing conspiracy existed in the statutory period when there was no evidence that any defend- ant even kept such lists, much less exchanged them after 1967 (3877a-3878a, Tr. 14,849-50; 3879-388la, Tr. 14,852-53). 56. For example, Atwell of National testified he had frequently consulted “with outside counsel about what [he was] doing in order to try to comply with the Robinson-Patman Act” (1664a, Tr. 6084). There was, as the court explained, “written corroboration . . . of the consultation between National Gypsum and their coun- sel concerning the Robinson-Patman Act” ( 1664a-1666a, Tr. 6085- 86). National's antitrust compliance manual, prepared with the aid of counsel, made express reference to the Robinson-Patman Act and authorized verification with competitors where further con- firmation of customers’ claims was needed (1898a-190la, Tr. 7026- 28. 2133ex-2146ex, NG 77 p. 6). There was similar evidence as to other defendants. As to USG, see USG 63, USC 660; 538a, Tr. 1466; 1179a-1180a, Tr. 3587-88. As to G-P, see 1259a-1290a, Tr. $3S': Tr. 5201, Tr. 5258-59. As to Celotex, see 1794a-1797a, Tr. 6623-27: 332a-3035a, Tr. 11.703-07; 2977a-2980a, Tr. 11,528-32. 1s to Watt, see 3235a, Tr. 12,680-S1. As to Nicely, see 3402a- 34 3a. Tr. 13,028. 57. In addition to seeking Pas instructions on the relevance of legal advice to show a lawful reason for verifying (4082a-4083a, Argument 61 tressed further by the uncontradicted evidence that USG stopped verifying after consulting its counsel in 1968, while National did so early in 1969 on advice of its counsel (see supra at 42-44). Following a different course, Celotex continued its infrequent verifications after 1969 because its counsel advised that it was lawful to verify in order to avoid Robinson-Patman Act liability (see supra at 46). The trial court refused to instruct the jury as to either aspect of the relevance of defendants’ evidence of legal advice (3748a-3749a, Tr. 13,758; 3782a-3783a, Tr. 14,001 ). Instead, the court merely instructed that: “I also want to remind you that we are concerned, here, with the Sherman Act, with an antitrust viola- tion. The fact any particular company’s antitrust poli- cies may or may not have been violated or legal counsel may or may not have advised their company that a particular action was or was not a violation of the antitrust laws have relevance only insofar as it bears on the alleged violation of the Sherman Act, which is your concern” (3903a, Tr. 14,885, emphasis added ). Thus the court completely and prejudicially ignored the consideration that verification pursued upon independent 57. (Cont'd. ) Def. Req. Final Inst. 9), defendants requested the following charge on legal advice: “A person is entitled and encouraged to seek and rely upon the advice of counsel in guiding his Casteses conduct. While the fact that counsel may have approved certain conduct as lawful does not constitute a defense to a Sherman Act vi [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1813%3A11. Public record. Not legal advice.