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WALL PRODUCTS CO. v. NATIONAL GYPSUM CO.
326 F.Supp. 295 (1971)
WALL PRODUCTS CO. et al., Plaintiffs,
v.
NATIONAL GYPSUM CO. et al., Defendants.
Civ. Nos. 46414, 46455, 46487, 46640, 47195-47197, 47323, 48214, 48235, 48549, 48550, 48778-48784, 48787-48789, 48797 and 48798.
United States District Court, N. D. California.
March 18, 1971.
Frederick P. Furth, John H. Boone, San Francisco, Cal., Robert H. Weir, San Jose, Cal., for plaintiffs.
Thelen, Marrin, Johnson & Bridges, Gordon Johnson, Frank D. MacDowell, Michael B. Anderson, San Francisco, Cal., for defendant Kaiser Gypsum Co., Inc.
Dinkelspiel, Steefel, Levitt, Weiss & Donovan, Richard C. Dinkelspiel, Lenard G. Weiss, Anthony T. Miller, San Francisco, Cal., for defendant National Gypsum Co.
McCutchen, Doyle, Brown & Enersen, Morris M. Doyle, Frederic A. Sawyer, Larry B. Dent, San Francisco, Cal., for defendant United States Gypsum Co.
MEMORANDUM OPINIONZIRPOLI, District Judge. On October 27, 1969, pursuant to pretrial orders previously entered by this Court, trial began in the 24 above numbered civil actions filed by six different dealer plaintiffs1 seeking to recover damages for alleged violations by four named defendants of the state and federal antitrust laws. By stipulation of the parties, filed November 27, 1968, jury trial was waived and trial was held before the Court sitting without a jury. Pursuant to pretrial orders No. 15, dated April 1, 1969, and No. 17, dated June 26, 1969, the issues of the first phase of the trial were limited to alleged violations by defendants of Section 1 of the Sherman Act (15 U.S.C. § 1), and impact on the dealer plaintiffs. Broadly stated, the issue presented was whether any of the defendants combined, conspired, or agreed with any other defendant or co-conspirator in violation of Section 1 of the Sherman Act. Defendants filed answers denying the material allegations of the complaint and after 23 pretrial orders had been entered, trial commenced before the Court on the date hereinabove stated. Plaintiffs in their post-trial brief assert that the principal acts of the defendants' combination and conspiracy were (1) the stabilization of prices and elimination of competition through verification of price and terms exceptions; and (2) direct price fixing through the concerted withdrawal of price and terms exceptions occurring on December 15, 1965 (price); on March 1, 1966 (credit); and in late 1966 (packaging).2
After plaintiffs had presented their evidence and concluded their case, defendant Fibreboard Corporation moved for dismissal of the cases against it (Nos. 48549, 46640, 48797, 48214 and 48798). On February 19, 1970, the Court granted said motion and on April 17, 1970, made and entered its findings of fact, conclusions of law and judgment in favor of Fibreboard.
1. In addition to these cases involving the so-called "dealer" plaintiffs, the Court has pending before it approximately 60 additional so-called "backburner" cases, which involve purchasers of gypsum wallboard other than dealers (e. g., contractors, tract builders and other end-users), many of which were transferred to this district for discovery purposes by order of the Judicial Panel of Multidistrict Litigation. 2. The evidence as to the late 1966 packaging practices of the defendants is inadequate to justify a claim of anti-trust violation. Other activities of the defendants which the plaintiffs assert in support of their claim that defendants violated Section 1 of the Sherman Act, which the Court, except for the limited purposes hereafter indicated, finds to be without merit are: (a) the attempt to procure Trade Practice Rules from the Federal Trade Commission, activities which clearly come within the protective shield of the Noerr-Pennington doctrine. Eastern Railroad Presidents Conference v. Noerr Motor Freight Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961), and United Mine Workers of America v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L. Ed.2d 626 (1965). (Although the Noerr-Pennington doctrine shields these activities of the defendants, it does not preclude consideration of the nature of such activities as it may bear upon the March 1, 1966 withdrawal of terms exceptions); (b) activities of the defendants relating to the Gypsum Association; (c) activities of the defendants relating to other trade associations; (d) credit investigation and administration, including activities of credit associations; (e) communications and contacts of defendants connected with social activities; (f) USG's commitment register filed with Arthur Andersen & Company, except in so far as it may bear upon the nature of USG's commitment to its November 17, 1965 announcement to withdraw price exceptions; (g) truck shipments; (h) sale of materials to a competitor or purchase of materials from a competitor; and (i) patent licensing, patent litigation and related matters. 3. Kaiser Cement and Gypsum Corporation was named a party defendant in Civil Action No. 48235. The parties have stipulated that Kaiser Cement and Gypsum Corporation has not at any time manufactured, sold or delivered any gypsum wallboard or related products and there being no evidence to the contrary, by order of the Court dated March 12, 1970, Kaiser Cement and Gypsum Corporation was dismissed as a defendant.
Richard L. Downing, Laura M. Downing, David E. Wiley, Clayton Berg, Kenneth Palmer and Mary Jane Walker were each named parties plaintiff to certain of these actions. By order of the Court entered March 17, 1970, each of said individuals was dismissed as a plaintiff. 4. As used herein the term "price deviation" refers to any price lower than a particular producer's list or published price; however, such lower price may have been characterized in the record. Such broad use of the term was adopted by the Court and counsel during the course of the trial. Some defendants, including United States Gypsum Company, referred to their price deviations as "price adjustments" and designated a price adjustment by the initials "PA." 5. Section 2(a) of the Robinson-Patman Act makes it unlawful
"* * * to discriminate in price between different purchasers of commodities of like grade and quality * * *." Section 2(b) provides that a seller may defend against a Robinson-Patman charge "* * * 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 services or facilities furnished by a competitor." (15 U.S.C. § 13). 6. Mr. Watt of USG described a typical verification telephone conversation as follows:
I would tell him I had a competitive report from my organization, that XYZ company had been offered or was buying at a price at such and so, or is this such and so and, would you tell me if this was accurate. Other officers of defendant producers gave similar accounts. If the inquiring caller did not have the precise information and did not ask a question regarding a specific price or practice, a specific customer or specific area, USG would either refuse to answer or deny the report. 7. The cooperation or mutuality of the understanding among the officers of the defendant producers is explicitly evidenced from the testimony of Mr. Harper, Chief Executive Officer of Kaiser:
Q. Now, sir, how did you learn to call Mr. Saddler? A. Mr. Saddler was the vice-president of sales for the United States Gypsum Company during that period. Q. Did you ask him once, Can I call you from time to time to verify prices? A. That is correct. Q. What did he say, Yes, you may? A. Yes. Q. Then, did you tell him, Well, I'm the man to call if you want to verify prices of Kaiser? A. That is correct. Q. Did you ask each one of these fellows if you could call them to verify prices? A. Didn't ask them; didn't have to. They asked me. Q. Did Mr. Brown [National] ask you? A. Yes. Q. What did he say, do you recall? A. He wanted to know whether or not it would be all right if he called me to verify prices, and I said yes. Q. And did Mr. Galloway [Fibreboard] ask you a similar question? A. Hm-hmm. Q. Mr. Spence [Fibreboard]? A. Correct. Q. And Mr. Ross [Flintkote]? A. That is correct. Q. And Mr. Meyer [Bestwall]? A. That is correct. Q. So the only one you asked was Mr.— A. Saddler. Q. —Saddler. 8. Mr. Harper, of Kaiser, when asked why he answered verification calls, said, "If you don't tell him you are giving him $2 off, he might give him three." And Mr. Atwell, of National, said he answered verification questions, so that a competitor would not meet an inaccurate price, thus forcing National to meet the new price; "The first thing I know, I would be meeting myself and that is why I answered them." 9. This justification for concern is further manifested by the fact that each of the plaintiffs here is also suing defendants for Robinson-Patman price discriminations. This latter issue was not included in the pretrial order that led to the instant phase of the trial. The pretrial order limited the immediate issue for trial to alleged violations of Section 1 of the Sherman Act. 10. This compelling, controlling circumstance plaintiffs seek to brush aside by asserting that the Act does not require uniformity and that, when relying on the meeting competition defense, good faith "does not require exact price parity." What they are saying, from the comfort of a hind-sight position, is that the defendants should have exercised less care and possibly have followed reckless policies in their compliance with Robinson-Patman. In the course of litigation it is at times expedient for one party to assert that the other parties took too seriously their obligation to comply with a statute, and that their compliance policies went beyond the required minimum. But that kind of argument, which plaintiffs make here, comes down to nothing more than the assertion that if plaintiffs had been running the defendants' business they would have elected to be less responsible in their compliance policies. The ultimate answer to the argument is that notwithstanding plaintiffs' speculative theorization of how defendants might have recast their Robinson-Patman policies, the evidence in these cases establishes without serious contradiction that the verification communications of the defendants were based on and geared to a good faith effort to comply with the Act.
The Supreme Court has held that a seller charged with price discrimination under Section 2(a) of the Robinson-Patman Act must show that it used diligence to verify its customer's claim of a competitor's lower price in order to avail itself of the good faith defense under Section 2(b) of the Act. Federal Trade Comm'n v. A. E. Staley Mfg. Co., 324 U.S. 746, 759-760, 65 S.Ct. 971, 89 L.Ed. 1338 (1945). Ever since Staley, American industry has been on notice that to avoid violating the Act a seller who knowingly discriminates among his customers must have substantial evidence which would lead a reasonable person to believe that the granting of a lower price would in fact meet the equally low price of a competitor. See also, Surprise Brassiere Co., Inc. v. F.T.C., 406 F.2d 711, 714-716 (5th Cir. 1969) and Viviano Macaroni Co. v. F.T.C., 411 F.2d 255 (3rd Cir 1969). In the Third Circuit case the court clearly ruled that Staley required more than mere reliance upon unverified communications from customers or field personnel. Following Staley, the Supreme Court in Standard Oil Co. v. Federal Trade Commission, 340 U.S. 231, 241-242, 71 S.Ct. 240, 245, 95 L.Ed. 239 (1951) established the "meet but not beat rule." It held that the meeting competition defense of Section 2(b) of the Act "* * * is limited to a price reduction made to meet in good faith an equally low price of a competitor. * * * It also excludes reductions which undercut the `lower price' of a competitor." These decisions amply support the compliance policies of defendants and indicate that such policies where sound and necessary. The interpretations of the Act which plaintiffs propose in their suggested findings are not well founded in law. 11. A careful reading of the lengthy opinion in FMC will show that Judge Higginbotham found that these elements were present in the record before him: (1) an agreement, (2) for the purpose of stabilizing prices, and (3) with the effect of stabilizing prices. The information exchanges were not within the exception of Container; defendant FMC sought to justify them solely on the ground that the information exchanges permitted the manufacturers to set their prices in the light of full market information. 12. Northern District of California, Civil No. 47261, Transcript pp. 4472-73 (December 10, 1969). 13. The circumstantial evidence that National and Kaiser knew of USG's contemplated action prior to its announcement of November 17, 1965 and that USG would not have made such announcement without prior acquiescence on the part of its major competitors upon which plaintiffs primarily rely consists of: (a) certain office memoranda of National identified as plaintiffs' exhibits 222, 223 and 224 (hereinafter referred to simply as 222, 223 or 224) which, because of the chronological sequence in which they were prepared and the nature of the corrections made therein, plaintiffs claim conclusively show that National had advance notice of USG's moves; (b) the testimony of Mr. Harper, of Kaiser, that at various times in 1965 he suggested to representatives of National and USG that they all should stop deviating from list (published) price; and (c) certain meetings of officers of defendant corporations, which occurred prior to and at a time near to the date of the November 27, 1965 announcement of USG. With relation to Mr. Harper's suggestions, he further testified that he received no reaction thereto. As to the meetings of officers of defendant corporations, it was never established that price or any policy relating to price was discussed at these meetings. The more difficult problem arises as to the manner in which 222, 223 and 224 are to be interpreted and the inferences to be drawn therefrom. These exhibits will be hereinafter discussed. 14. "Whether the conspiracy was achieved by agreement, by tacit understanding, or by `acquiescence * * * coupled with assistance in effectuating its purpose is immaterial.'" United States v. Singer Mfg. Co., 374 U.S. 174, 193, 83 S.Ct. 1773, 1783, 10 L.Ed.2d 823 (1962). 15. Prior to USG's November 27th announcement to the trade, Mr. Morgan or Mr. Shaver of USG elected to dispense with the suggested announcement to the Wall Street Journal. Plaintiffs contend that the decision of USG to dispense with the Wall Street Journal announcement means that it was no longer necessary to inform its competitors of USG's action because a conspiracy had been formed. They reason that the purpose of the announcement was to inform competitors of USG's action as rapidly as possible because the success of USG's policy depended on parallel action on the part of major competitors. Selling only at list prices and ignoring the competition could never have worked if National or Kaiser had not adopted a similar policy. While this may be a plausible explanation of the reason behind USG's withdrawal of the Wall Street Journal announcement, it strikes the Court as being too speculative to be given weight as affirmative proof. Hence this added factor, as proof of a conspiracy, forms no part of the conclusions of the Court herein reached. 16. At the time USG announced its withdrawal of pricing exceptions effective December 15, 1965, it sent out 12 identical letters, one to each of its competitors which read as follows:
Recently we made an announcement to the trade with respect to prices to be charged for our gypsum products effective December 15, 1965, which you probably have learned about from the trade. No mention was made in our announcement regarding honoring of commitments made prior to the announcement. We have certain moral and legal commitments which we have decided we must fulfill. A copy of our policy with regard to commitments is set out in our November 17th letter to our sales organization, a copy of which is enclosed. We intend to list all of our commitment with our auditors, Arthur Andersen & Company, and to record all shipments against job commitments. If you desire to confirm whether or not we have a commitment with respect to any specific job or a commitment for a specific number of units, or for a specific period of time, you are at liberty to contact Mr. Warren Cecil of Arthur Andersen & Company's Chicago office. If there is any other pertinent information that you wish with respect to such commitments, we will answer your questions. We make this information available to you because it is common knowledge in our industry that it has become practically impossible to secure in the field accurate knowledge of the prices and policies of competitors, and that all of of us have been frequently misled by misrepresentation of customers and users of our products. In view of this situation, we are willing that you should have knowledge of our business commitments which were made prior to our November 17, 1965, price announcement to the trade. While the use of such a registry of USG's job commitments, alone, might not constitute an antitrust violation, it nevertheless served as a means of removing all doubts as to the exact position of USG not to cheat on its announcement to sell only at list price. 17. While some USG witnesses testified that certain customers were to receive hand delivery of the USG announcement, National presumably had no way of knowing this and whoever wrote the "Plan of Action" would be expected to assume mail delivery. 18. The reason Kaiser did not include credit in its November 30, 1965 announcement was "because there was so much out there that it was too quick. We didn't have the time." 19. The only element of USG's program that neither Kaiser, National nor Flintkote followed was the creation of a job commitment register for their respective companies. Nor did they avail themselves of the register at Arthur Andersen. No witness was able to adequately explain this commitment register as a necessary means of information exchange. The information on the register included the name of the job, the quantity of wallboard committed and the length of the commitment. If a competitor wanted to know if a job was protected, all he had to do was call up and ask, since job protection was a subject of verification. There was no reason to call Arthur Andersen for this information. When questioned as to why, since they had the procedure of verification, they needed Arthur Andersen, Mr. Morgan said he did not recall. Even if a competitor wanted to verify a price on a protected job he could not call Arthur Andersen because Arthur Andersen did not have price information; however, he could call USG to verify the price. In fact the letters sent to USG's competitors invited them to call: "If there is any other pertinent information that you wish with respect to such commitments, we will answer your questions."
Mr. Watt stated that a purpose of the commitment register was to police a job to make sure a committed job was not overshipped with the product going somewhere else. However, Mr. Evans said they did not need to place the commitment register with Arthur Andersen to keep track of the quantity shipped and Mr. Harper testified that at Kaiser, the salesmen policed a protected job by going out to the job and seeing how much is shipped on the job. It is therefore apparent that the Arthur Andersen commitment register and USG's letters to its competitors served no purpose of significance in the industry, except (1) to assure USG's competitors that it was going to hold to its promise, and (2) to solicit other competitors to adopt a similar policy. 20. Plaintiffs contend that when the Federal Trade Commission on October 14, 1965, issued its order terminating the proceedings initiated by the Industry's Trade Practice Committee without the issuance of Trade Practice Rules, the "raison d'etre" of the Industry's Trade Practice Committee ceased and that the meeting of that Committee convened by Mr. Harper of Kaiser at Chicago, Illinois on January 3 and 4, 1966, and attended by representatives of USG, National, Celotex and Bestwall, had for its true objective an agreement to withdraw exceptions to terms of sale. This contention, however, is purely speculative and has no substantial evidentiary support in the record.
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