Amicus Brief — Texas Industries, Inc. v. Radcliff Materials, Inc.

No. 79-1144 |

IN THE

Supreme Court of the Unhrir States

OCTOBER TERM, 1980

TEXAS INDUSTRIES, INC.,

Petitioner,

v.

RADCLIFF MATERIALS, INC., et al.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Fifth Circuit

BRIEF OF AMICUS CURIAE THE MEAD CORPORATION

IN SUPPORT OF PETITIONER

TEXAS INDUSTRIES, INC.

HAROLD F.. BAKER

ALAN M. WISEMAN

GASPARE J. BONO

HOWREY & SIMON

1730: Pennsylvania Ave., N.W.

Washington, D.C. 20006

(202) 783-0800

Attorneys for Amicus Curiae

The Mead Corporation

ee -

December 18, 1980

WILSON - ErPES PRINTING Co.. INC. - 789-0096 - WASHINGTON, D.C. 20001

TABLE OF CONTENTS

I. THE RIGHT TO CONTRIBUTION AMONG

II.

Il.

DEFENDANTS IN ANTITRUST CASES

SHOULD BE RECOGNIZED BY THIS

SIE edldetcey co hcnitieatcceiincaohbondaanicgs ;

CONTRIBUTION IN ANTITRUST CASES

WOULD ELIMINATE SETTLEMENT COER-

CION SUCH AS THAT WHICH OCCURRED

IN THE CORRUGATED CONTAINER ANTI-

SECU TINNY Winsseeicnvkinsnicsnaccheisincitbaninons

A. The Settlement History -......000.000.000000000.0..-.

B. The Settlements Were Extortionate ............

CONTRIBUTION IN ANTITRUST CLASS

ACTIONS WOULD PREVENT THE MISUSE

OF RULE 23 OF THE FEDERAL RULES OF

a Be Be ORI AAT sconcdstvnceiccencniinsanoceectictsowscsinis

I eich tiacicilii cena eidhidiidoisisiseierteiniac ntaiabcais

12

ii

TABLE OF AUTHORITIES

CASES Page

Alsup v. Montgomery Ward & Co., 57 F.R.D. 89

RK Ey AIP saidahs dccsiconircevateicinsttbieneesciinisianipaerente 15

Arth Main Street Drugs v. Beer Distributors, Inc.,

26 F.R. Serv. 2d 87 (N.D. Ind. 1978) .................. 15

Cackling Acres, Inc. v. Olson Farms, Inc., 541 F.2d

242 (10th Cir. 1976), cert. denied, 429 U.S. 1122

RITE: seis asada culd Aasinsnnkeshdaiddaabsenpentiohnabeaiaheseannnetainetite 6

City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d

Rs I asics Sls dina his adda cca eeghsbicetihemaisbaninaniabvintclipion 8

City of Philadelphia v. American Oil Co., Civ. No.

ee Ae | Ma ey Rel ae 20

Cooper Stevedoring Co. v. Fritz Kopke, Inc., 417

Be RIOD oi ahied.ncniseipcidina SpectknetpsccSomsctecabigscnlein cebicine 5

Coopers & Lybrand v. Livesay, 487 U.S. 463

ST Teese tik eeiciis dela caqicch Lact oatctact dich eaioess idaictie 16

Edmonds v. Comvagnie Generale Transatlantique,

OR OR IRE ae ee ee 5

Eisen V. Carlisle & Jacquelin, 391 F.2d 555 (2d Cir.

RES RSP ree ean ROSY aL Oe AIR Ss FIC 17

Eisen Vv. Carlisle & Jacquelin, 479 F.2d 1005 (2d

Cir. 1973), vacated and class action dismissed

on other grounds, 417 U.S. 156 (1974) ............... 21

Glus v. G.C. Murphy Co., 629 F.2d 248 (3d Cir.

FORSCH Pay Retest dt rt Be ae oe ee Lewy COO 5,6

Gomes V. Brodhurst, 394 F.2d 465 (3d Cir. 1967).. 7

Hawaii v. Standard Oil Co., 405 U.S. 251 (1972).. 22

Heizer Corp. V. Ross, 601 F.2d 330 (7th Cir.

| SERRE POR EEO RL SINE DRE EEA ie ee 5

Hooley v. Red Carpet Corp. of America, 1975

Trade Cas. {| 60,285 (D. Ore. 1975), appeal dis-

missed, 549 F.2d 643 (9th Cir. 1977) —.............. 15, 16

In re Corrugated Container Antitrust Litigation,

80 F.R.D. 244 (S.D. Tex), mandamus denied,

No. 78-3684 (5th Cir. December 29, 1978) ........ 2

Judson V. Peoples Bank & Trust Co., 17 N.J. 67,

EE RR ID casita diinmeaciesmadestceadcadantnisiaeiioee 7

Kline v. Coldwell, Banker & Co., 508 F.2d 226 (9th

Cir. 1974), cert. denied, 421 U.S. 963 (1975) .... 14, 16,

17

iii

TABLE OF AUTHORITIES—Continued

Page

Kohr v. Allegheny Airlines, Inc., 504 F.2d 400

(7th Cir. 1974), cert. denied, 421 U.S. 978

UPI bres shaashatna sbeia tok dacedi dnc taatanadh aedsanaiuad xsubaedabiantinnans 5, 6

Little Rock School District v. Borden, Inc., 1980-1

Trade Cas. 63,059 (E.D. Ark. 1979) .............. 7

Mead Corp. v. Alton Box Board Co., Civ. No. 4-79-

ae Ci. Be SOD ike See ee. 3

Mid-West Paper Products Co. v. Continental

Group, Inc., 596 F.2d 573 (8d Cir. 1979) ............ 11, 16

Olson Farms, Inc. Vv. Safeway Stores, Inc., 1977-2

Trade Cas. {| 61,698 (D. Utah 1977), aff’d, 1979-

2 Trade Ces. 62,995 (10th Cir. 1979) _............. 6

Professional Beauty Supply, Inc. v. National

Beauty Supply, Inc., 594 F.2d 1179 (8th Cir.

IEE adie Nie scleh aided antancih cde daclanamietevediea emsabianns 6, 7

Reiter v. Sonotone Corp., 442 U.S. 330 (1979) -..... 16

Shapiro v. General Motors Corp., 472 F. Supp.

Se Wei: Fs IIIS onincatitnc es ccnnbiniectnansenietichhinvacl ices 14, 15

Smith v. Beneficial Finance Co., Civ. Nos. 860-71,

OGL-75, Give tO. SOILD a... i... 17

Snyder Vv. Harris, 394 U.S. 382 (1969) .......0000000.... 21

United States v. Indrelunas, 411 U.S. 216 (1978).. 3

United States v. Reliable Transfer Co., 421 U.S.

Be PED cassclscactapancadicclceiclalietinenbadieladnuhtntaasanss 5

Wassel v. Eglowsky, 399 F. Supp. 1830 (D. Md.

1975), aff'd, 542 F.2d 1235 (4th Cir. 1976) ....... 5

Wilson P. Abraham Construction Corp. v. Texas

Industries, Inc., 604 F.2d 897 (5th Cir. 1979),

cert. granted sub nom. Texas Industries, Inc. Vv.

Radcliff Materials, Inc., No. 79-1144 (1980).... 3, 23

STATUTE

CONE FAME, BE RETA as Be airs cheeses 16, 21

FEDERAL RULES OF CIVIL PROCEDURE

ie Tie: Rae ee UO pinch cits Secintechasandenta 2,4, 14, 16, 17, 21

RE We eG ee: PRIOR inns cA ccndepteduicmiricsaonmeenens 3

Se. ees ie Sh I es cts iden tn coaneseebnpienacnalealcnsingad 3

IN THE

Supreme Court of the United States

OCTOBER TERM, 1980

No. 79-1144

TEXAS INDUSTRIES, INC.,

‘i Petitioner,

RADCLIFF MATERIALS, INC., et al.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Fifth Circuit

BRIEF OF AMICUS CURIAE THE MEAD CORPORATION

IN SUPPORT OF PETITIONER

TEXAS INDUSTRIES, INC.

The Mead Corporation (“Mead’’) submits this brief as

amicus curiae in support of petitioner Texas Industries,

Inc. Mead respectfully submits that this Court should

hold that defendants may assert rights of contribution

and claim reduction in antitrust cases.

INTEREST OF AMICUS CURIAE

Mead is one of 37 corrugated container manufacturers

named as defendants in one or more of over 60 treble

damage antitrust class and nonclass actions alleging a

nationwide conspiracy to fix the prices of corrugated

containers and sheets in the Corrugated Container

1 Counsel for petitioner and counsel for respondents have con-

sented in writing to the filing of this amicus curiae brief. The

written consents of all parties to this case are being filed concur-

rently with this brief pursuant to Rule 36.2 of the Rules of the

United States Supreme Court.

2

Antitrust Litigation, M.D.L. 310 (S.D. Tex.). Mead is

the only defendant in M.D.L. 310 which did not settle

the class action cases. On September 3, 1980, after a

three month trial, a jury returned an adverse verdict to

Mead, although no final judgment has yet been entered.

Without rights of contribution or claim reduction, plain-

tiffs claim that Mead, having approximately 242% of

the market, is nevertheless liable in M.D.L. 310 on the

basis of industry-wide sales.

On September 6, 1978, the district court in M.D.L. 310,

purportedly under Rule 23 of the Federal Rules of Civil

Procedure, certified a national class of all purchasers of

corrugated containers or corrugated sheets from defend-

ants from January 1, 1960 to January 25, 1978, esti-

mated to include 300,000 members. In re Corrugated

Container Antitrust Litigation, 80 F.R.D. 244 (S.D.

Tex.), mandamus denied, No. 78-8684 (5th Cir. Dec. 29,

1978).

Thereafter, and as a direct result of that class certifi-

cation, plaintiffs in M.D.L. 310 engaged in an unprece-

dented five-week settlement “stampede” from late De-

cember 1978 to January 1979, which resulted in 24

defendants collectively paying more than $288 million in

22 separate settlements. With each successive settlement,

plaintiffs demanded and received amounts at a higher

rate than prior settlements without regard to the merits

of their claims. Plaintiffs were able to escalate their

settlement demands by refusing to remove the sales of

settling defendants from the litigation. As a result,

plaintiffs threatened each remaining nonsettling defend-

ant with exposure to damage claims based upon the sales

of each settling defendant.

In M.D.L. 310, three defendants filed motions to assert

cross claims for contribution and an affirmative defense

of claim reduction. On May 16, 1979, the district court

denied the motions. On October 30, 1979, the Court of

Appeals for the Fifth Circuit summarily affirmed the

3

district court’s denial of the motions for contribution and

dismissed the appeals with respect to claim reduction.

The court, without analysis, accepted as controlling au-

thority its decision in Wilson P. Abraham Construction

Corp. v. Texas Industries, Inc., 604 F.2d 897 (5th Cir.

1979), cert. granted sub nom. Texas Industries, Inc. V.

Radcliff Materials, Inc., No. 79-1144 (1980), in which

the Fifth Circuit held that there were no rights of con-

tribution for antitrust defendants.

Mead has a vital and legitimate interest in the issue

of contribution among antitrust defendants and in the

outcome of this appeal. Mead has asserted, and con-

tinues to seek, rights to contribution in its complaint filed

on May 21, 1979 in the District Court for the District

of Minnesota, The Mead Corporation v. Alton Box Board

Co., Civ. No. 4-79-245. The Judicial Panel on Multidis-

trict Litigation transferred Mead’s complaint to the

Southern District of Texas for consolidation in M.D.L.

310 (Civ. No. H-79-1436). While the district court on

December 21, 1979 filed an opinion dismissing Mead’s

claim for contribution, no final judgment has ever been

entered dismissing Mead’s complaint, as required by ei-

ther Rule 58 or Rule 54(b) of the Federal Rules of Civil

Procedure. See United States v. Indrelunas, 411 USS.

216 (1973). On January 3, 1980, Mead filed a motion

for reconsideration and on January 21, 1980, plaintiffs

filed their objections to the motion. The district court has

never ruled on that motion. Thus, no final and separate

judgment has yet been entered by the district court from

which Mead can appeal.

In M.D.L. 310, Mead also filed a motion to amend its

answer to assert the affirmative defense of claim reduc-

tion, which is a mechanism to implement contribution

where there have been settlements with plaintiffs by

some, but not all, defendants. The district court initially

denied Mead’s motion as premature prior to the jury

verdict, but at that time did not enter a final and sepa-

4

rate judgment. Following the jury verdict, the district

court, on December 1, 1980, denied Mead’s motion for

claim reduction, but no final judgment has yet been

entered.

SUMMARY OF ARGUMENT

The Corrugated Container Antitrust Litigation, M.D.L.

310, not only represents one of the largest antitrust cases

in history, but also represents the most egregious abuse

of the class action device to date. The absence of rights

of contribution and claim reduction among antitrust de-

fendants has resulted in coercive escalation settlement

tactics by plaintiffs and a blatant perversion of Rule 23

of the Federal Rules of Civil Procedure. The escalation

settlements extracted by plaintiffs in M.D.L. 310 conclu-

sively demonstrate the fundamental necessity for rights

of contribution and claim reduction in antitrust cases. In

the absence of such rights, an innocent defendant is rele-

gated to the unacceptable choice of trying a lawsuit with

potential multimillion dollar damage exposure or agree-

ing to an extortionate settlement on a take it or leave

it basis.

Rights of contribution and claim reduction among anti-

trust defendants will (1) eliminate the manifest unfair-

ness of coercive escalation settlements to nonsettling de-

fendants, (2) prevent the most culpable defendants from

escaping significant liability through “sweetheart” settle-

ments, and (3) increase the deterrence of the antitrust

laws. Recognition of rights of contribution and claim

reduction among antitrust defendants would proportion

liability and ultimately damages to relative market size

and other legitimate factors. The settlement process

would not be exploited by coercion, and settling and non-

settling defendants alike would not be victimized by the

happenstance of a successive escalation settlement time-

table. The confluence of joint and several liability, class

certification, and treble damages compels that rights of

contribution and claim reduction be recognized in anti-

trust cases.

5

ARGUMENT

I. THE RIGHT TO CONTRIBUTION AMONG DE-

FENDANTS IN ANTITRUST CASES SHOULD BE

RECOGNIZED BY THIS COURT.

This Court should recognize rights of contribution and

claim reduction in antitrust cases to promote the deter-

rent policies of the antitrust laws and to ensure fairness

in the apportionment of damages among antitrust defend-

ants.

Contribution has been recognized in various areas of

federal law. In Cooper Stevedoring Co. v. Fritz Kopke,

Inc., 417 U.S. 106, 111 (1974), this Court established

the right to contribution in maritime noncollision cases.

Federal courts have also recognized contribution rights

in employment discrimination cases,’ securities cases *

and airline disaster cases.‘

In Cooper Stevedoring Co. v. Fritz Kopke, Inc., 417

U.S. 106, 111 (1974), this Court held that contribution

was necessary to ensure fairness:

[A] “more equal distribution of justice” can best be

achieved by ameliorating the common-law rule

against contribution which permits a plaintiff to

force one of two wrongdoers to bear the entire loss,

though the other may have been equally or more to

blame.

This Court in United States v. Reliable Transfer Co.,

421 U.S. 397, 405 (1975), ruled that fairness compelled

an equitable system of damage allocation based upon

comparative fault. In Edmonds v. Compagnie Generale

Transatlantique, 443 U.S. 256, 271-72 n.80 (1979), this

2Glus v. G.C. Murphy Co., 629 F.2d 248 (3d Cir. 1980).

3 Heizer Corp. V. Ross, 601 F.2d 830, 332-38 (7th Cir. 1979);

Wassel v. Eglewsky, 399 F. Supp. 1830, 1867 (D. Md. 1975), aff’d,

542 F.2d 1235 (4th Cir. 1976).

* Kohr v. Allegheny Airlines, Inc., 504 F.2d 400 (7th Cir. 1974),

cert. denied, 421 U.S. 978 (1975).

6

Court declared that a tortfeasor “[nJormally . . . may

seek contribution from another concurrent tortfeasor... .

Contribution remedies the unjust enrichment of the con-

current tortfeasor... .”

In Professional Beauty Supply, Inc. v. National Beauty

Supply, Inc., 594 F.2d 1179, 1185-86 (8th Cir. 1979), the

Eighth Circuit held that fundamental fairness requires

recognition of contribution in antitrust actions:

There is an obvious lack of sense and justice in a

rule which permits the entire burden of restitution of

a loss for which two parties are responsible to be

placed upon one alone because of the plaintiff’s whim

or spite, or his collusion with the other wrongdoer.

See also Glus v. G.C. Murphy Co., 629 F.2d 248, 252

(8d Cir. 1980); Kohr v. Allegheny Airlines, Inc., 504

F.2d 400, 405 (7th Cir. 1974), cert. denied, 421 U.S. 978

(1975).

Contribution would promote the underlying policies of

the antitrust laws. It would advance the disgorgement

and deterrence objectives of the antitrust laws by ensur-

ing that antitrust violators will be held accountable for

their conduct. Without contribution, antitrust violators

may obtain preferential “sweetheart settlements” irre-

spective of their relative market share or the merits of

plaintiff’s claims, or may completely escape liability. See

Cackling Acres, Inc. v. Olson Farms, Inc., 541 F.2d 242

(10th Cir. 1976), cert. dented, 429 U.S. 1122 (1977);

Olson Farms, Inc. v. Safeway Stores, Inc., 1977-2 Trade

Cas. 7 61,698 (D. Utah 1977), aff'd, 1979-2 Trade Cas.

7 62,995 (10th Cir. 1979). The denial of contribution

would undermine and “dilute the deterrent effect of the

antitrust laws.” Professional Beauty Supply, Inc. v. Na-

tional Beauty Supply, Inc., 594 F.2d 1179, 1185 (8th

Cir. 1979).

The lack of contribution unfairly forces an antitrust

defendant to absorb the consequences not only of his own

7

acts but also those of other defendants. A right to con-

tribution is especially necessary in antitrust cases where

joint and several liability and mandatory treble damages

are coupled with massive class action damage exposure,

such as in M.D.L. 310.

Recognition of contribution wouid promote fair settle-

ments based upon the merits of the case. Final settle-

ments can be achieved when contribution is coupled with

claim reduction, which reduces claims against nonsettling

defendants by an amount fairly allocable to the acts of

settling defendants where there have been settlements by

some, but not all, defendants. Claim reduction would

protect nonsettling defendants’ rights to contribution and

settling defendants’ interests in finality by treating set-

tlements as providing plaintiffs with full satisfaction for

any damages attributable to settling defendants’ acts.

See Gomes v. Brodhurst, 394 F.2d 465, 467 (3d Cir.

1967) ; Little Rock School District v. Borden, Inc., 1980-1

Trade Cas. { 63,059 (E.D. Ark. 1979) ; Judson v. Peoples

Bank & Trust Co., 17 N.J. 67, 98, 110 A.2d 24, 36-37

(1954). Recognition of contribution and claim reduction

in antitrust cases would encourage voluntary settlements,

foster the equitable distribution of liability among anti-

trust defendants, eliminate collusion, and bring “peace”

to settling defendants.

Contribution would not complicate antitrust cases. It

would not add new substantive issues or present proce-

dural manageability problems. A defendant’s liability for

contribution would be established according to the same

substantive standard used by plaintiff to prove antitrust

liability. The argument that contribution would compli-

cate antitrust actions has been rejected. Professional

Beauty Supply, Inc. v. National Beauty Supply, Inc., 594

F.2d 1179, 1185 (8th Cir. 1979).

8

II. CONTRIBUTION IN ANTITRUST CASES WOULD

ELIMINATE SETTLEMENT COERCION SUCH AS

THAT WHICH OCCURRED IN THE CORRUGATED

CONTAINER ANTITRUST LITIGATION.

Although settlements in antitrust cases have been his-

torically favored, plaintiffs’ settlement tactics in M.D.L.

310 have completely perverted the settlement process and

have “upset the delicate settlement balance by giving too

great an advantage to the claimants—an advantage that

is not required by the antitrust laws and one which might

well hinder the highly favored practice of settlement.”

City of Detroit v. Grinnell Corp., 495 F.2d 448, 459 (2d

Cir. 1974). Recognition of contribution and claim reduc-

tion among antitrust defendants would not only eliminate

settlement coercion, but would also restore the delicate

settlement balance which was destroyed by plaintiffs in

M.D.L. 310. Furthermore, the availability of contribution

would prevent the negotiation of “sweetheart” settlements

in which more culpable defendants settle early and

cheaply to the detriment of the remaining firms.®

A. The Settlement History.

Plaintiffs negotiated the settlements in M.D.L. 310

based on market share or “points.” Points equal an indi-

vidual defendant’s percentage of all defendants’ sales of

corrugated containers and sheets.® Plaintiffs classified

defendant corporations into three groups—felony indict-

ees, misdemeanor indictees, and unindicted corporations

5 See S. Rep. No. 428, 96th Cong., Ist Sess. 2 (1979); The Anti-

trust Equal Enforcement Act of 1979: Hearings on S. 1468 Before

the Subcomm. on Antitrust, Monopoly and Business Rights of the

Senate Comm. on the Judiciary, 96th Cong., 1st Sess. 72 (1979)

(statement of Robert P. Taylor, Director, ABA Task Force on

Contribution).

6 Defendants in M.D.L. 310 account for approximately 75% of

the total industry sales. Thus, settlement market share points

represent approximately 1.33 times each defendant’s actual total

market share.

9

—and negotiated successive settlements with each corpo-

ration in each group, as illustrated in the following

table.’

Amount

Per Point Market Settlement

Company ($ million) Share Date

FELONY INDICTEES

International Paper 1.0 8.3 8-24-78

Champion 4.5 5.36 12-18-78

Weyerhaeuser 5.0 7.83 1- 6-79

Owens-Illinois 6.0 5.45 1-12-79

Olinkraft 6.0 1.22 1-12-79

Continental Group 6.5 4.22 1-16-79

MISDEMEANOR INDICTEES

Boise Cascade 3.5 2.82 12-18-78

Container Corp. 4.0 8.56 1- 6-79

Inland Container 4.75 7.29 1-18-79

Stone Container 4.75 3.05 1-18-79

St. Joe Paper Co. 4.75 2.62 1-18-79

UNINDICTED COMPANIES

St. Regis Paper Co. 5 3.97 7-21-78

Union Camp 2.0 3.7 12-13-78

Diamond International 2.0 5 12-14-78

Dura Container 2.0 37 12-14-78

Chesapeake Corp. 2.4 1.26 12-18-78

Longview Fibre 2.5 2.58 12-18-78

Willamette Industries 2.7 4.18 12-18-78

Menasha Corp. 2.75 1.67 12-18-78

MacMillan-Bloedel 4.0 2.11 12-18-78

U.S. Corrugated 4.0 .76 1-25-79

Green Bay Packaging 3.25 1.71 1-25-79

This chronology demonstrates that plaintiffs in M.D.L.

310 required each successive settling defendant within

each group to pay an ever greater amount in proportion

™The table reflects plaintiffs’ grouping and the settlement of

each corporation in each group in chronological order, expressed

in terms of millions of dollars per point of market sales. Thus,

as shown in the table, International Paper with 8.3% of the market

settled for 1.0 per poini, or $8.3 million.

10

to its sales of corrugated containers and sheets than the

preceding defendant in its group. Plaintiffs’ ability to

coerce successive escalation settlements from individual

defendants in each group rested on the simple but perni-

cious fact that as each successive settlement was reached,

plaintiffs claimed that the potential damage exposure to

each defendant which had not yet settled would increase

by geometric proportions.® Plaintiffs obtained ever greater

8 The Senate Judiciary Committee described the exploding po-

tential liability on nonsettling defendants:

The Corrugated Container litigation provides an excellent

example for illustrating how today’s vast damage claims are

used unfairly to “whipsaw” settlements. . . . Apparently be-

cause of the large number of defendants and the disparity in

the size, market share, and involvement in the alleged conspir-

acy, no sharing agreement existed. This, combined with the

unavailability of contribution, made possible a classic example

of what one witness called the whipsaw “game theory” in

application.

The strategy of the plaintiffs was to break the defendants’

ranks by offering discounted settlements to a few initially in

order to pressure subsequent settlements at a higher price.

The plaintiffs were successful, settling with the first defendant

at $500,000 per percentage point of market share, and the

second at $1 million. The second settlement was the more

significant, for it was with a defendant which had the second

largest market share (8.3%) and which was to plead nolo

contendere in the criminal case. The $8.3 million settlement

was clearly beneficial to the defendant because its potential

liability for its own sales alone ranged from $50 to $250 million,

and its total potential liability for the industry’s sales ranged

from over $250 million to well over $3 billion—depending on

the damage estimate used.

The sum deducted from the potential liability facing the

other 35 defendants was only $8.3 million, however, not the

$50-250 million traceable to the settling defendant’s own sales.

Since this defendant was now protected from having to share

in paying off that sum, the liability of the other defendants

thus increased for all practical purposes by that amount over-

11

leverage in each succeeding settlement negotiation with-

out regard to the probability of class recovery against

that individual corporation.°

The Third Circuit in Mid-West Paper Products Co.

v. Continental Group, Inc., 596 F.2d 578, 587 (3d Cir.

1979), noted that “courts have been wary of permitting

‘overkill’ recoveries, whose punitive impact may unduly

cripple a defendant and lead to an overall deleterious

effect upon competition.” In M.D.L. 310, as a result of

plaintiffs’ settlement tactics, plaintiffs claim that Mead

is liable for 100 percent of any damages in M.D.L. 310

even though it accounts for only approximately 214%

of the corrugated container industry’s sales because the

market shares of the defendants who settled were not

withdrawn from the case. In fact, plaintiffs in M.D.L.

310 demanded during all settlement negotiations the non-

negotiable term that settling defendants’ market shares

remain in the lawsuit. Of course, in the absence of

contribution, the settling defendants also had no incen-

tive to remove their market shares from the lawsuit.

night. This dramatic escalation in liability increased the settle-

ment pressure as other defendants—now paying at a rate of

$2 million a point and rising—sought to protect themselves.

Because the damages attributable to these settling defendants

also remained in the case, the damage exposure and settlement

price thus continued to increase greatly for nonsettling de-

fendunts every time another defendant settled.

S. Rep. No. 428, 96th Cong., Ist Sess. 14-15 (1979).

*If this scenario were carried to its logical conclusion, a non-

settling defendant with a 1% market share could, if all other de-

fendants settled, be potentially liable for damages based upon 100%

of an industry’s sales.

10In M.D.L. 310, plaintiffs admitted that each settling defend-

ant “agreed to leave its sales in the lawsuit, thus making non-

settling defendants potentially liable for the full damage of the

conspiracy.” Memorandum of Class Plaintiffs in Support of Their

Motion for Preliminary Approval of All Settlements, at 34.

12

B. The Settlements Were Extortionate.

The extortionate nature of the successive escalation

settlement agreements in M.D.L. 310 becomes readily

apparent upon analysis, as demonstrated by the follow-

ing examples:

1. International Paper, the first of the felony indictees

to settle, bought its peace for $8.3 million, or approxi-

mately $1.0 million per “point.” Continental Group, the

last of the felony indictees to settle, paid $27,430,000,

or $6.5 million per “point,” the highest rate of any

settling defendant and six and one-half times greater

than International Paper. International Paper, a com-

pany with twice Continental’s market share, was per-

mitted to settle for less than one-third of Continental’s

settlement simply because of its early position in the

escalation timetable. If Continental had settled at $1

million per point, as did International Paper, its settle-

ment would have been $4,220,000, not $27,430,000. This

$23 million difference bears no relationship to relative

market share or to relative culpability—International

Paper pleaded nolo contendere whereas Continental

pleaded not guilty and was acquitted at the criminal

trial—or to the merits of plaintiffs’ claims—both. settle-

ments were concluded before any significant civil dis-

covery commenced. The Continental settlement is plainly

and simply attributable to the enormously increased

liability that plaintiffs claimed faced Continental as a

result of prior settlements. After the International Paper

and St. Regis settlements, the remaining defendants who

had not settled accounted for approximately 88 percent

of defendants’ sales. By the time Continental settled,

however, the nonsettling defendants accounted for less

than 40 percent of defendants’ sales. Continental’s in-

creased damage exposure under plaintiffs’ theory was

created because no claim reduction was included in any

of the preceding settlements and there was no right of

contribution among defendants.

13

2. Container Corporation of America was charged with

a misdemeanor. Despite a market share virtually iden-

tical to International Paper, it paid $34.2 million, or

more than four times the amount paid by International

Paper, a felony indictee.

3. Although U.S. Corrugated Fibre-Box was not in-

dicted and had the smallest market share of all defend-

ants, it settled at a rate eight times higher than St.

Regis and four times higher than International Paper.

4, Even though petitioner Georgia-Pacific was iden-

tified in the criminal cases as a victim of the alleged

conspiracy, it was forced to settle with plaintiffs for $3

million. Thus, the absence of contribution allowed plain-

tiffs to victimize Georgia-Pacific.

5. The final settlement negotiated before the crimi-

nal verdict conclusively demonstrates the extortionate

nature of the M.D.L. 310 settlements. George Kress,

founder and president of Green Bay Packaging Co., Inc.

(“Green Bay”), testified before the Senate Judiciary

Committee’s Subcommittee on Antitrust, Monopoly, and

Business Rights concerning the Green Bay settlement.

Mr. Kress testified that Green Bay, which was neither

indicted nor named as an alleged co-conspirator in the

criminal case, had decided to prove its innocence at trial

in M.D.L. 310. After defendants having over 80 per-

cent of sales settled, Green Bay learned that it could

settle the case for $3.7 million per point, or 7.5 times

the St. Regis settlement, on a take it or leave it basis.

At this point, Green Bay calculated its potential liability

in M.D.L. 310 to be $65 billion under plaintiffs’ theory,

an amount which not only would bankrupt Green Bay

but also would immediately destroy its ability to borrow

capital in financial markets." Green Bay reluctantly

The Antitrust Equal Enforcement Act of 1979: Hearings on

S. 1468 Before the Subcomm. on Antitrust, Monopoly and Business

Rights of the Senate Comm. on the Judiciary, $6th Cong., 1st Sess.

33-34 (1979).

14

settled at the amount demanded by plaintiffs only after

the full impact of its potential liability became apparent.

As Mr. Kress testified:

The effect of this extortive sgttlement practice upon

a small, family-owned and aged business is cata-

strophic. We were threatened with a loss of over

fifty years of effort and coerced into paying an ex-

orbitant settlement rather than being afforded the

privilege of ultimately proving our corporate in-

nocence.*”

At the trial against Mead, the jury in response to a

special verdict form made a finding that Green Bay was

not a co-conspirator. Yet, because of plaintiffs’ coercive

settlement tactics, which utilized the Rule 23 class action

device coupled with “no contribution” as a club, Green

Bay had been forced to settle at an exorbitant price.

The district court in M.D.L. 310 recognized the inherent

coerciveness of the M.D.L. 310 escalation settlements:

It appears that Westvaco seeks contribution pri-

marily to avoid the coercive impact to it, as a late-

settling or non-settling defendant, of the possibility

of enormous damages being assessed against it.

That this possibility is inherently coercive is un-

disputable. ... Even a defendant relatively certain

of a judgment in his favor must have serious doubts

about risking such exposure by going to trial. (Em-

phasis added.) ™

What the district court in M.D.L. 310 acknowledged has

become commonplace in antitrust class actions. See, e.9.,

Kline v. Coldwell, Banker & Co., 508 F.2d 226, 284 (9th

Cir. 1974), cert. denied, 421 U.S. 963 (1975) ; Shapiro

12 Td. at 35.

18 Memorandum Opinion, In re Corrugated Container Antitrust

Litigation, M.D.L. 310 (May 30, 1979).

15

v. General Motors Corp., 472 F. Supp. 636, 660 (D. Md.

1979); Arth Main Street Drugs v. Beer Distributors,

Inc., 26 F.R. Serv. 2d 87 (N.D. Ind. 1978); Hooley v.

Red Carpet Corp. of America, 1975 Trade Cas. J 60,285

(D. Ore. 1975), appeal dismissed, 549 F.2d 643 (9th Cir.

1977) ; Alsup v. Montgomery Ward & Co., 57 F.R.D. 89,

93 (N.D. Cal. 1972).

Furthermore, plaintiffs’ “whipsaw tactics” * in M.D.L.

310 are even more objectionable than the “most favored

nations” clause, the use of which in class action settle-

ments has been consistently condemned by federal courts

and the Manual For Complex Litigation. In each in-

stance, not only can it be anticipated that a defendant

whose guilt is clearest or whose pocket is deepest will

settle early, but also a floor (or a built-in escalation

factor) can be created for subsequent negotiations which

has no bearing on the probability of class recovery

against that defendant.

As a result, a trial may be forced which nobody

wants under circumstances in which all concerned,

including the court, agree that a smaller settlement

with the late-settling defendants would be fair and

reasonable.

Manual For Complex Litigation, § 1.46 at 63. This is

precisely the situation in M.D.L. 310. Mead faced an

unacceptable choice: either capitulate to escalation set-

tlement tactics amounting to “legalized blackmail” or go

to trial and risk exposure under plaintiffs’ theory to an

inordinate and exorbitant judgment for damages based

upon not only its own market share but also the market

shares of all other defendants who had previously settled.

14 See S. Rep. No. 428, 96th Cong., Ist Sess. 2 (1979).

16

III. CONTRIBUTION IN ANTITRUST CLASS ACTIONS

WOULD PREVENT THE MISUSE OF RULE 23 OF

THE FEDERAL RULES OF CIVIL PROCEDURE.

Without a right to contribution among antitrust de-

fendants, the class action provisions of Rule 23 of the

Federal Rules of Civil Procedure combined with the rule

of joint and several liability in civil damage actions

and the mandatory treble damage remedy of Section 4

of the Clayton Act, 15 U.S.C. § 15, permit class plain-

tiffs to coerce settlements in antitrust class actions with-

out regard to the merits of their claims. As the Third

Circuit cautioned in Mid-West Paper Products Co. v.

Continental Group, Inc., 596 F.2d 578, 586-87 (3d Cir.

1979): “Notwithstanding the seriousness of the per se

violation present in this case, the judiciary should not

be hasty to allow the treble damage action to become so

destructive a force, when Congress intended only that

it be used as a weapon to enforce the antitrust laws.”

Federal courts have expressed increasing concern that

the aggregation of damage claims in class actions may

coerce settlements from defendants and force them to

abandon meritorious defenses. Thus, this Court in

Coopers & Lybrand v. Livesay, 487 U.S. 463, 476 (1978),

observed :

Certification of a large class may so increase the de-

fendant’s potential damages liability and litigation

costs that he may find it economically prudent to

settle and to abandon a meritorious defense.

In Hooley v. Red Carpet Corp. of America, 1975 Trade

Cas. {] 60,285 at 66,112 (D. Ore. 1975), appeal dismissed,

549 F.2d 643 (9th Cir. 1977), the court acknowledged

that the enormous risk of classwide treble damage li-

ability “may well result in some or all of the defendants

opting for a settlement . . . whether they were guilty

of the plaintiffs’ allegations or not.” See also Reiter v.

Sonotone Corp., 442 U.S. 330, 345-46 (1979) (Rehnquist,

J., concurring) ; Kline v. Coldwell, Banker & Co., 508

17

F.2d 226, 234 (9th Cir. 1974), cert. denied, 421 U.S.

963 (1975). The need for contribution among antitrust

defendants to strike an appropriate balance in the set-

tlement process and to protect nonsettling defendants

from disproportionate liability has become even more

acute with the proliferation of class actions.”

M.D.L. 310 vividly demonstrates that “unless pru-

dence and caution are exercised by the Bench and Bar,

the Class Action device can be *»ansformed from a useful

tool to an engine of destruction.” (Emphasis added.)

The absence of contribution among antitrust defendants

will continue to permit plaintiffs to use class certifica-

tion to coerce unjust settlements and to transform Rule

23 into a “Frankenstein monster.” '7 This harsh epithet

is frightfully apropos to that which occurred in M.D.L.

310. It is precisely the abuse of Rule 23 engineered by

plaintiffs in M.D.L. 310 that recognition of contribution

among antitrust defendants would guard against. The

right of contribution would deter only “unfair settle-

15 See The Antitrust Equal Enforcement Act of 1979: Hearings

on S. 1468 Before the Subcomm. on Antitrust, Monopoly and Busi-

ness Rights of the Senate Comm. on the Judiciary, 96th Cong., 1st

Sess. 19 (1979) (testimony of John Shenefield, Assistant Attorney

Gen., Antitrust Div., Dept. of Justice); id. at 76 (testimony of

Robert P. Taylor, Director, ABA Task Force on Contribution) ;

see also S. Rep. No. 428, 96th Cong., 1st Sess. 11 (1979) (“[T]he

problem of contribution in price-fixing cases is one of relatively

recent origin. As the hearing record indicates, the vast class action

damage exposure from which the problem results did not surface

until the 1970’s, after the revision of Rule 23 to permit the modern

class action in 1966 .. .”).

16 Oral Opinion in Smith v. Beneficial Finance Co., Civ. Nos. 860-

71, 861-71, 862-71 (D.N.J.), quoted in American College of Trial

Lawyers, Report and Recommendations of the Special Committee

on Rule 23 of the Federal Rules of Civil Procedure, III (1972).

17 Risen V. Carlisle & Jacquelin, 391 F.2d 555, 572 (2d Cir. 1968)

(Lumbard, C. J., dissenting).

18

ments based on the risk of massive liability, without re-

gard to culpability or damage caused.” **

The rule against contribution has long been criticized

by commentators precisely for its coercive effects on set-

tlements in antitrust class actions.’® The class action de-

vice, unfettered by contribution among antitrust de-

fendants, permits plaintiffs to aggregate trivial claims

“into enormous sums so crushing on the defendants as to

induce huge settlements to avoid destruction.” * Recently,

the absence of contribution in antitrust class actions was

criticized “because of the possible overwhelming liability

of one company for the damages of an entire conspiracy

and of the ability of plaintiffs to coerce settlements from

defendants who fear that liability.” **

The certification of a large antitrust class action with-

out rights of contribution among defendants gives rise

18 ABA, Antitrust Section, Resolutions and Report of the Section

of Antitrust Law of the American Bar Association on Proposed

Amendment of the Clayton Act to Permit Contribution in Damage

Actions Brought Thereunder, 8 (September 6, 1979), reprinted in,

936 Antitrust & Trade Reg. Rep. (BNA) E-2 (October 25, 1979);

see also S. Rep. No. 428, 96th Cong., Ist Sess. 19 (1979) (‘Plain-

tiffs’ lawyers have testified that [contribution] will undermine the

settlement process and lead to protracted antitrust suits, bottling

up the courts for years. The committee rejects this scenario, finding

that the effect of [contribution] would simply be to lessen the

coercive nature of some of the plaintiffs’ lawyers negotiations, and

that the only settlements [contribution] will discourage in the long

run are those it is intended to discourage—namely coerced settle-

ments”’).

19 Corbett, Apportionment of Damages and Contribution Among

Coconspirators in Antitrust Treble Damage Actions, 31 Fordham

L. Rev. 111 (1962); Paul, Contribution and Indemnification Among

Antitrust Coconspirators Revisited, 41 Fordham L. Rev. 67 (1972);

see also Contribution Among Antitrust Defendants, 33 Vanderbilt

L. Rev. 979 (1980).

20 Kirkham, Complex Civil Litigation—Have Good Intentions

Gone Awry?, 70 F.R.D. 199, 206 (1976).

21 Contribution In Private Antitrust Actions, 98 Harv. L. Rev.

1540 (1980).

—

> 4

19

to such tremendous pressures to settle before trial that

the class action device has been aptly characterized by

Professor Handler as a form of “legalized blackmail’’:

Any device which is workable only because it utilizes

the threat of unmanageable and expensive litigation

to compel settlement is not a rule of procedure—it is

a form of legalized blackmail. If defendants who

maintain their innocence have no practical alterna-

tive but to settle, they have been de facto deprived

of their constitutional right to a trial on the merits.

The distinctions between innocent and guilty de-

fendants and between those whose violations have

worked great injury and those who have done little if

any harm become blurred, if not invisible. The only

significant issue becomes the size of the ransom to

be paid for total peace.??

Thus, there is enormous settlement pressure even on in-

nocent defendants.** Defendants are compelled to settle

from fear of liability for the damages of an entire al-

leged conspiracy.”*

22 Handler, The Shift from Substantive to Procedural Innova-

tions in Antitrust Suits—The Twenty-third Annual Antitrust Re-

view, 71 Colrmbia L. Rev. 1, 9 (1971).

23 Kirkham, Complex Civil Litigation—Have Good Intentions

Gone Awry?, 70 F.R.D. 199, 207 (1976) (“No matter how sincere

is [defendants’] belief in the innocence of their acts, they have

little practical alternative but to settle, and certainly no alternative

but to join in any settlement by [other defendants] or be left with

a potential liability measured by the total damages a jury might

find, trebled, less only the settlement amounts”); The Antitrust

Equal Enforcement Act of 1979: Hearings on S. 1468 Before the

Subcomm. on Antitrust, Monopoly and Business Rights of the

Senate Comm. on the Judiciary, 96th Cong., 1st Sess. 75 (1979)

(testimony of Robert P. Taylor, Director, ABA Task Force on

Contribution) (estimates of potential liability for a “completely

foundationless suit” range from 5% to 25%).

24 Contribution Among Antitrust Defendants, 383 Vanderbilt L.

Rev. 979, 995 (1980) (“[C]ontribution eliminates coercive or

‘whip-saw’ settlements in large cases. For example, in In re Cor-

20

Furthermore, when the potential damage exposure of

a class action exceeds the net worth of a corporate de-

fendant, the possibility of corporate destruction becomes

real. Corporate management naturally tends to seek in-

surance against whatever remote chance of success plain-

tiffs may have. The settlement agreement becomes the

corporation’s life insurance policy, and the amount of

settlement, its premium. Thus, “any settlement within

{[defendants’] purse, as a practical matter, may be their

only chance for survival.” *

Over the years, eminent plaintiffs’ counsel have ac-

knowledged the coercive effects of class certification by

underscoring that such actions are invariably settled:

I have seen nothing so conducive to settlement of

comples: litigation as the establishment by the court

of a class... . When two very competently repre-

sented and major litigants have settled, I think it

shows this. It shows that the problem is manageable.

It shows that they feel that this is the way that the

litigation can be disposed of by settlement, namely,

by having a class; whereas, if there were no class,

it would not be disposed of by settlement. So I think

that you sow the seed for the possibility of a settle-

ment. (Emphasis added.) *°

rugated Container Antitrust Litigation defendants had little or no

choice but to settle, even if they were innocent of wrongdoing, be-

cause of the potentially staggering liability” claimed by plaintiffs)

(footnote omitted); The Antitrust Equal Enforcement Act of

1979: Hearing on S. 1468 Before the Subcomm. on Antitrust,

Monopoly and Business Rights of the Senate Comm. on the Judi-

ciary, 96th Cong., Ist Sess. 68 (1979) (statement of Donald Kempf)

(“[T]he practicalities of the situation are such that, increasingly,

businessmen are concluding that they have no real option but to

settle such antitrust claims, even when they are confident that they

did nothing wrong and have a solid defense’’).

25 Kirkham, Complex Civil Litigation—Have Good Intentions

Gone Awry?, 70 F.R.D. 199, 207 (1976).

26 City of Philadelphia v. American Oil Co., Civ. No. 647-68

(D.N.J.), Transcript of Proceedings, 11 (March 1, 1971).

21

Furthermore, the Second Circuit in Eisen v. Carlisle

& Jacquelin, 479 F.2d 1005 (2d Cir. 1973), vacated and

class action dismissed on other grounds, 417 U.S. 156

(1974), astutely predicted that injustices would occur

when the class action device is misused to extract settle-

ments from antitrust defendants who are not entitled to

contribution:

There is reason to believe that the practical effect of

these procedures, and the fact that possible recoveries

run into astronomical amounts, generate more lever-

age and pressure on defendants to settle, even for

millions of dollars, and in cases where the merits of

the class representatives claim is to say the least

doubtful, than did the old-fashioned strike suits made

famous a generation or two ago by Clarence H.

Venner.

Id. at 1019. As demonstrated above, this is precisely

what happened in M.D.L. 310 without the right of contri-

bution among defendants. The abuse to which Rule 23

is susceptible can be effectively eradicated by this Court’s

recognition of rights of contribution and claim reduction

among antitrust defendants.

Not only has the lack of contribution rights allowed

class plaintiffs in M.D.L. 310 to subvert the settlement

process, but the extortionate settlements obtained through

the mechanism of class certification have, in effect, re-

written substantive provisions of the antitrust laws.2”

Section 4 of the Clayton Act, 15 U.S.C. § 15, limits the

recovery of treble damages to those who can prove an

injury to their business or property by reason of a viola-

27 Rule 23 is a rule of procedure which does not alter substantive

statutory provisions. Snyder v. Harris, 394 U.S. 382 ( 1969).

eal

22

tion of the antitrust laws.?* With contribution unavail-

able among antitrust defendants, plaintiffs in M.D.L. 310

grossly distorted these substantive provisions by using

the class action device to coerce settlements which have

no bearing whatever either to the actual damages which

may have been suffered by class plaintiffs or to the rela-

tive culpability of each settling defendant. Thus, without

contribution, antitrust class actions permit plaintiffs to

shift private antitrust policy from compensation to confis-

cation. And the larger the stakes, the greater the incen-

tive for plaintiffs to attempt to do just that, as has been

accomplished by plaintiffs in M.D.L. 310.

28 This principle was affirmed by this Court in Hawaii v. Standard

Oil Co., 405 U.S. 251 (1972), which held that recovery in a private

antitrust action is limited to actual damages trebled: “In enacting

{the antitrust] laws, Congress had many means at its disposal to

penalize violators. It could have, for example, required violators

to compensate federal, state, and local governments for the esti-

mated damage to their respective economies caused by the vio-

lations. But, this remedy was not selected. Instead, Congress chose

to permit all persons to sue to recover three times their actual

damages every time they were injured in their business or property

by an antitrust violation.” Jd. at 262.

23

CONCLUSION

For the foregoing reasons, The Mead Corporation re-

spectfully submits that this Court should reverse the

decision of the Court of Appeals for the Fifth Circuit in

Wilson P. Abraham Construction Corp. v. Texas Indus-

tries, Inc., and remand to the district court with instruc-

tions to permit rights of contribution and claim reduc-

tion.

Respectfully submitted,

HAROLD F.. BAKER

ALAN M. WISEMAN

GASPARE J. BONO

HOWREY & SIMON

1730 Pennsylvania Ave., N.W.

Washington, D.C. 20006

(202) 783-0800

Attorneys for Amicus Curiae

The Mead Corporation

December 18, 1980

y*

24

CERTIFICATE OF SERVICE

I hereby certify that on this 18th day of December,

1980, three copies of the Brief of Amicus Curiae The

Mead Corporation In Support of Petitioner Texas Indus-

tries, Inc. were mailed, postage prepaid, to the following:

Benjamin R. Slater, Jr.

William J. Hamlin

Monroe & Lemann

1424 Whitney Building

New Orleans, Louisiana 70130

Attorneys for Petitioner

Dando B. Cellini

Lemle, Kelleher, Kohlmeyer & Matthews

1800 First National Bank of Commerce

Building

New Orleans, Louisiana 70112

Attorneys for Respondent Radcliff

Materials, Inc.

James A. Babst

Chaffe, McCall, Phillips, Toler & Sarpy

1500 First National Bank of Commerce

Building

New Orleans, Louisiana 70112

Attorneys for Respondent Jimco, Inc.

Ewell P. Walther, Jr.

Stephen H. Kupperman

Stone, Pigman, Walther, Wittmann

and Hutchinson

1000 Whitney Bank Building

New Orleans, Louisiana 70130

Attorneys for Respondent OKC Dredging,

Inc.

I further certify that all parties required to be served

have been served.

ALAN M. WISEMAN