United States v. Sargent Electric Co., Lord Electric Co., Inc., W v. Pangborne and Co., Inc., J.A. Bruce Pinney

785 F.2d 1123

• Court: Court of Appeals for the Third Circuit
• Decided: April 18, 1986
• Docket: 85-1262 to 85-1265
• Status: Published

Opinions

OPINION ANNOUNCING THE JUDGMENT OF THE COURT

GIBBONS, Circuit Judge:

The United States appeals, pursuant to 18 U.S.C. § 3731 (1982), a district court order dismissing on double jeopardy grounds an indictment for violation of section 1 of the Sherman Act, 15 U.S.C. § 1 (1982). We reverse.

I.

District Court Proceedings

On July 19, 1984, a grand jury in the Eastern District of Pennsylvania returned an indictment charging Sargent Electric Company (Sargent), Lord Electric Company (Lord), W.V. Pangborne and Co. (Pang-borne) and Pangborne’s Executive Vice-President, J.A. Bruce Pinney, with violating section 1 of the Sherman Act by conspiring to rig bids for electrical construction work at the Fairless Hills Works of United States Steel Corporation in Bucks County, Pennsylvania (Fairless Hills). The four defendants moved to dismiss the indictment, all asserting that it was barred by the double jeopardy clause of the United States Constitution.

The first two defendants, Sargent and Lord, contended that the offense charged in the July 19, 1984 indictment was the same as that for which they previously had been convicted in the Western District of Pennsylvania. That conviction resulted from an indictment returned by a grand jury in the Western District of Pennsylvania on July 1, 1983, which charged that Sargent, Lord, and other electrical contractors had, for approximately seven years from 1974 to 1981, conspired to rig bids for electrical construction work at the Western Pennsylvania Works of U.S. Steel (Western Works). See Joint Appendix at 1230. This court affirmed judgments fining Sargent and Lord one million dollars each, the statutory maximum for violation of section 1 of the Sherman Act. United States v. Fischbach & Moore, Inc., 750 F.2d 1183 (3d Cir.1984), cert. denied, — U.S. -, 105 S.Ct. 1397, 84 L.Ed.2d 785 (1985).

With respect to the second two defendants, Pangborne and Pinney, they contended that the offense charged in the July 19, 1984 indictment was the same as that for which they had pleaded nolo contendere in the Eastern District of Pennsylvania. Those pleas followed a March 8, 1984 indictment that charged that Pangborne, Pinney, and other electrical contractors, “beginning in or about the late 1970’s and continuing thereafter into about 1982,” had conspired to rig bids for electrical construction work at a Gulf Oil Company refinery in Philadelphia, Pennsylvania. See Joint Appendix at 1130. The district court accepted the pleas from Pangborne and Pinney on June 5, 1984 and sentenced them on July 19, 1984.

On the basis of these contentions, the district court ruled on November 13, 1984 that the four defendants had established prima facie cases of nonfrivolous double jeopardy claims and scheduled an evidentiary hearing on those claims. The court ordered the United States to disclose to the defendants all grand jury testimony regarding alleged illegal bid-rigging on steel and refinery jobs involving the indicted and unindicted co-conspirators named in the July 19, 1984 indictment. It then held a lengthy hearing and subsequently filed a memorandum concluding that there was at all relevant times one general understanding among all the participating electrical contractors that they would rig bids when circumstances permitted regardless of whether the job was at Western Works, at Fairless Hills, at the Gulf Oil refinery, or at several other locations. United States v. Sargent Electric Co., Crim. Action No. 84-00313 (E.D.Pa. March 26,1985). “Bid rigging at each of these facilities,” the court concluded, “did not reflect separate conspiracies but simply separate manifestations of the same unlawful agreement to rig bids wherever and whenever possible.” Id., slip op. at 30. The district court therefore dismissed the indictment. This appeal followed.

II.

Scope of Review

The United States does not dispute the district court’s ruling that the four defendants made out nonfrivolous claims of double jeopardy. Consequently, there is no question that once the defendants advanced their claims, the government assumed the risk of nonpersuasion of demonstrating by a preponderance of the evidence that the double jeopardy clause did not bar the challenged indictment. United States v. Inmon, 568 F.2d 326, 331-32 (3d Cir.1977).

While the parties agree upon the applicability of Inmon to the proceedings in the district court, they disagree as to the scope of our review of that court’s holding. The defendants urge that the district court’s conclusion that “[b]id rigging did not reflect separate conspiracies but simply separate manifestations of the same unlawful agreement to rig bids wherever and whenever possible” is a factual determination that we cannot reverse on appeal without finding that the determination was clearly erroneous. The United States, on the other hand, contends that whether it met its burden of proving separate offenses is a question of law as to which this court exercises plenary review.

Although this court did not address in Inmon the scope of review issue that this case raises, we did do so in United States v. Felton, 753 F.2d 276 (3d Cir.1985). In Felton, in which we reviewed a district court’s denial of a motion to dismiss an indictment on double jeopardy grounds, the United States, as appellee, urged a position similar to that which the defendants here espouse. We rejected that argument, observing,

We find it necessary to reiterate that on review the trial court’s findings of narrative or historical facts are measured by the clearly erroneous test, but as to the legal component of its conclusion, this court has plenary review. Accordingly, what we must examine here is whether the district court correctly determined that as a matter of law the government met its burden of proving the separate conspiracies by a preponderance of the evidence. Such an inquiry requires us to examine the basic facts of record and the permissible inferences that may be drawn therefrom.

Id. at 278 (citation omitted). Thus Felton has classified as a legal issue, subject to plenary review, the question whether, from the narrative or historical facts the government established to the satisfaction of the district court, an inference of multiple conspiracies rather than a single conspiracy was permissible.

The procedural posture of this case is not identical with Felton, however, because in this case the district court granted the defendants’ motion to dismiss. In Felton we held that the government failed to establish a prima facie case on the existence of conspiracy. Here, in order to reverse, we must hold not only that the United States made out a prima facie case on the existence of multiple conspiracies, but also that an inference of a single conspiracy was on this record clearly erroneous as a matter of fact or legally impermissible. Such a conclusion involves a much greater assertion of authority to set aside rulings of the court of first instance than was made in Felton. There may be cases where it would be possible to hold that as a matter of law no inference other than that of multiple conspiracies was permissible. In most cases, however, in which the government has made out a case satisfying the Felton threshold, competing inferences may be logically permissible, and in such cases the inference drawn by the court of first instance should stand.

Of course a district court’s decision, even when couched in terms of inference drawing, may be predicated upon legal assumptions such as the elements of the offenses charged in successive indictments. As to such legal assumptions our reviewing function is obviously plenary. If, however, we should disagree with the district court’s legal assumptions of the elements of the offenses charged — here Sherman Act conspiracies — such disagreement would not necessarily permit us to select among competing permissible inferences. At most such a disagreement would require a remand for reconsideration. See United States v. Young, 503 F.2d 1072, 1076 (3d Cir.1974).

Thus for the United States to prevail in this appeal we must (1) hold that the district court misunderstood the elements of a Sherman Act conspiracy or (2) hold that the court’s findings on historical or narrative facts are clearly erroneous, or (3) hold that the only inference that may be drawn from those facts is that the bid-rigging conspiracy aimed at Fairless Hills was separate from those aimed at Western Works and Gulf’s Philadelphia refinery.

III.

Elements of an Antitrust Conspiracy

Unlike statutes such as 18 U.S.C. § 371 (1982) and 21 U.S.C. § 846 (1982) that speak of conspiracy to commit crimes defined in other federal statutes, section 1 of the Sherman Act is self-contained. It makes illegal contracts, combinations, or conspiracies “in restraint of trade” and punishes as a felony every contract, combination, or conspiracy “hereby declared to be illegal.” 15 U.S.C. § 1 (1982). Thus unlike other federal conspiracy statutes section 1 of the Sherman Act does not refer us elsewhere for the substantive elements of the prohibited conduct. As in all conspiracy statutes, concert of action is a substantive element, but under governing caselaw more than mere concert of action is required. The illegal object of a Sherman Act conspiracy must be identified in terms of an intended or achieved effect upon commerce in a relevant market, a market not defined by statute.

When the concerted action is price-fixing or bid-rigging, the Sherman Act caselaw shortcuts the inquiry into market effect, by treating such concerted actions as per se violations. Those activities are deemed to be per se illegal, in the sense that the court will not consider evidence that their effects upon commerce in a relevant market might have had a pro-competitive purpose and effect. The bid-rigging activities charged in the several indictments before us fall within that per se category. But while the per se rule proscribes inquiry into competitive effects, it does not excuse identification of relevant markets. An agreement among persons who are not actual or potential competitors in a relevant market is for Sherman Act purposes brutum fulmen. An agreement “to rig bids wherever and whenever possible” is meaningless for Sherman Act purposes unless there are in the real world of the marketplace some “whens” and “wheres.”

To some extent, of course, a horizontal agreement tends to define' the relevant market, for it tends to show that the parties to it are at least potential competitors. If they were not, there would be no point to such an agreement. Thus its very existence supports an inference that it would have an effect in a relevant market. Where, as here, however, the disputed issue is the existence or scope of the alleged horizontal agreement that is to be inferred from circumstantial evidence, the first inquiry must be whether or not each firm alleged to have been a party to it was an actual or potential competitor in that market. Membership in a bid-rigging conspiracy aimed at Western Works, for example, would not have any actual or potential effect upon Gulf Oil Company’s Philadelphia refinery unless there was actual or potential competition for electrical work at that refinery by the Western Works conspirators.¹

The district court's analysis placed principal reliance upon evidence that all alleged conspirators had a common objective: the elimination of price competition whenever and wherever possible. But as we note above, that common purpose is not alone sufficient to establish a violation of section 1 of the Sherman Act. Thus the district court’s focus upon facts suggesting such common purpose arguably ignored the essential market element of a Sherman Act offense and gave insufficient weight to the government’s proofs respecting that element.

Because Sherman Act conspiracies involve a relevant market and that market may vary over time, the government’s task in drafting indictments is somewhat more complex than in other conspiracy contexts. The difficulty is illustrated by the contrasting positions taken by Sargent and Lord in this case and in their appeal from the sentence imposed in the Western District of Pennsylvania. In that case the indictment charged a conspiracy to fix the prices at which electrical construction projects at Western Works were bid. Sargent argued on appeal that there was a fatal variance between the indictment and the proofs at trial in that they failed to establish that all bids at Western Works were rigged. Alternatively Sargent argued that the government had proved not one continuing conspiracy, but a series of independent conspiracies. 750 F.2d at 1189. Lord also argued that the government proved fourteen separate conspiracies, while the indictment charged one. See id. at 1190. This court held that the indictment alleged a single conspiracy to rig bids at Western Works and that proof of fourteen instances of such bid-rigging permitted the jury to conclude that the conspiracy encompassed all bids. Id. In this appeal, on the other hand, Sargent and Lord both allege that the trial of the prior indictment put them in jeopardy with respect to a conspiracy that was aimed at different steel mills of U.S. Steel and different corporations over extended time periods. Had the government known about bid-rigging at other locations when the July 19, 1984 indictment was drawn and had it drawn that indictment to charge an agreement to rig bids “wherever and whenever possible,” we may be certain that the defendants would have urged prior to trial that the indictment should be stricken as prejudicially duplicitous. Had the July 19, 1984 indictment been drawn with a separate count addressed to the bid-rigging activities of the defendants at different locations, both their pretrial and posttrial claims would have been that the indictment was multiplicitous.

For purposes of the double jeopardy clause it is appropriate to consider how the government could have drawn the first indictments. None of the four defendants •before us in this appeal was acquitted in a prior proceeding. Thus they cannot rely upon the collateral estoppel component of the double jeopardy defense announced in Green v. United States, 355 U.S. 184, 78 S.Ct. 221, 2 L.Ed.2d 199 (1957), and applied to the states in Ashe v. Swenson, 397 U.S. 436, 90 S.Ct. 1189, 25 L.Ed.2d 469 (1970). They rely on two different and complementary aspects of double jeopardy: protection against more than one prosecution for the same offense, In re Nielsen, 131 U.S. 176, 187, 9 S.Ct. 672, 675, 33 L.Ed. 118 (1889), and protection against multiple punishments for the same offense, Ex parte Lange, 85 U.S. (18 Wall.) 163, 168-69, 21 L.Ed. 872 (1873). The standard of these aspects of double jeopardy is no different pretrial and posttrial.² The defendants’ position, if accepted, means that in their initial prosecution the same grand jury could not have charged them with separate Sherman Act offenses. Our inquiry now is no different, legally, than that which would have faced the district court had multiple counts been pleaded in the initial indictment against each defendant. We must determine whether there was a conspiracy aimed at a single relevant market or conspiracies aimed at several separate markets. To put the same question in slightly different words, we must determine whether charging several Sherman Act violations was multiplicitous.

IV.

The District Court’s Findings

Because the district court placed primary reliance upon the common objective of price-fixing, its discussion of the narrative or historical facts emphasized those facts tending to support the inference that there was such a common objective. In the only real discussion of the market aspect of the Sherman Act offense the court observed, Sargent Electric, Crim. Action No. 84-00313, slip op. at 28 (emphasis supplied). The court’s reference to the “regulations at each facility” is to the undisputed evidence that at each facility where bid-rigging charged in any of the indictments is alleged to have occurred, only electrical contractors on a pre-approved bid list were permitted to examine construction documents and submit bids. The court found, moreover, that all the companies affected usually invited the same contractors to bid on each of their projects. Id. at 4. In the case of U.S. Steel, separate bid lists were maintained for Western Works and Fairless Hills. Meetings were held among representatives of the conspirators separately for each project. The district court found,

In the present case, there is the potential for competition. If the contractors were added to the bid list at a facility, they would be able to compete for jobs. The contractors were not physically or economically incapable of competing for contracts, they were only prevented from doing so by the regulations at each facility. There was always the possibility that a contractor would be added to the bid list and, thus, all the contractors were potential competitors.

At the meetings, the parties decided among themselves who the low bidder would be for that particular project. The bid each contractor was to submit on the project was determined either during or after the meeting. The jobs were allocated among the participants so that each contractor on the bid list would receive a fair share of the projects let by the particular facility____

The members of the conspiracy kept records concerning how the jobs were allocated. Separate records were kept for each facility. There was no bookkeeping system for the conspiracy as a whole.

Id. at 7.

If all bidders were on the bid list at each facility, or even if each bidder, by some action within its own control or the control of the other alleged conspirators, could get on each bid list, the court’s conclusion that there was a potential for competition at each facility would plainly be a permissible inference. The undisputed facts, however, are otherwise.

Four companies, Pangborne, H.B. Frazer Co., Ortlip Co., and The Foley Co., were charged in the indictment to which Pang-borne and Pinney pleaded nolo contendere to having rigged bids at Gulf’s Philadelphia refinery. These bidders were qualified by Gulf to submit bids for work at the facility. Of these, only Pangborne, Ortlip Co., and The Foley Co. were on the Fairless Hills qualified list. That list included, besides Pangborne, Ortlip Co., and The Foley Co., Sargent, which was not qualified by Gulf to bid for work at the Philadelphia refinery. Lord, Sargent, The Foley Co., and Fishbach and Moore (Pangborne’s parent corporation) were on U.S. Steel’s qualified list for Western Works. Pangborne, H.B. Frazer Co., and Ortlip Co. were not. Sargent and Lord were on the qualified list at Fairless Hills, but neither Lord nor Sargent nor Fishbach and Moore were qualified at Gulf. Thus the only alleged co-conspirator qualified to bid at all three facilities was The Foley Co., an indicted co-conspirator in the July 19, 1984 indictment and an unindicted but named co-conspirator in the other two indictments.

The district court did not find, and the record would not support a finding, that it was within the power of bidders, singly or collectively, to get on the list of qualified bidders at these separate facilities. That was entirely within the control of the management of those facilities. Instead the district court found that “[t]he contractors could not place themselves on the bid list, nor could they attempt to compete for projects at that facility unless they were on the bid list.” Id. at 27.

Given the incongruity in membership of the approved bidder lists and the fact that those lists were controlled by the management of the separate facilities, it is not surprising that, as the court found, “Only the contractors on the bid list for that project would attend the [bid-rigging] meeting. If a contractor was not on the bid list for a particular project, the contractor would not even be informed that a meeting was to take place.” Id. at 6. The court found, moreover, that “[o]n those occasions when a contractor would be dropped from the list for a period of time it would not participate in the scheme. If, later, it was put back on the list it would resume its conspiratorial activities.” Id. at 12.

The court’s observation that “there is the potential for competition,” id. at 28, if it is intended as a legal conclusion, is inconsistent with the underlying factual findings and the undisputed facts. There is no potential competition between a party not on an approved list of vendors and a party on such a list. If it is intended as a finding of fact, that finding is on this record clearly erroneous. The government’s evidence, which is not disputed, is that the managements of the purchasers by their independent actions determined the competitors at each facility, and thus the relevant market for purposes of section 1 of the Sherman Act.

The district court bolstered its single violation analysis by discounting certain other evidence tending to show that there were separate agreements or understandings with respect to each facility. Conceding that separate meetings took place for bid-rigging on different facilities, the court noted that “[t]he differences in meeting places does not indicate separate facilities, it simply demonstrates the adaptability of the scheme to the circumstances.” Id. at 30. Differences in the manner in which bids were prepared and submitted at different facilities were dismissed as “simply adaptations of the same scheme to the individual requirements of each victim.” Id. at 29. While observing that “[t]he parties’ relationships at one facility depended upon their relationship at the others,” the district court discounted the undisputed fact that The Foley Co. did not rig bids at Western Works or at Lukens Steel while it participated in bid-rigging at Gulf’s Philadelphia refinery and at Fairless Hills. The court disregarded, as well, the undisputed fact that while Lord rigged bids at Western Works and at Fairless Hills, it did not do so at Lukens Steel. Conceding that not all the participants were active at every facility and that not all the participants even knew each other, the district court discounted the significance of these facts by noting that “members of a single conspiracy do not have to know or have direct contact with each other.” Id. at 21.

These explanations of undisputed facts, which on their face tend to suggest separate agreements or undertakings with respect to each facility, would be plausible except for the absence of any evidence tending to show that the conspirators had any control over the dimensions of the market defined by the purchasers’ independent decisions to deal only with pre-qualified bidders. We accept as true the underlying facts. The district court’s explanations for their insignificance, if those explanations are intended as findings of fact, are clearly erroneous. Probably they are not so intended, but are merely legal argument. As such they suffer from the fundamental error that permeates the district court memorandum; namely, focusing on the common motive of fixing prices while disregarding the other essential element of a section 1 Sherman Act case, relevant market.

The district court also relied upon the fact that the time periods during which bid-rigging occurred at the various facilities were “basically congruent.” Id. at 20. This finding is supported by the record in a limited sense. For some period between 1971 and 1981 bid-rigging was going on at all three facilities. However, the undisputed evidence — in particular the immunized testimony of Paul Arbogust of Lord — suggests that the bid-rigging began at each facility at a different time and ended at each facility at a different time and for different reasons. Thus the fact that the times of the bid-rigging were “basically congruent,” while of some evidentiary significance, cannot be relied upon as establishign that there was a single conspiracy. The district court discounted the different reasons for terminating bid-rigging at each facility as irrelevant, asserting that the events leading to termination “were events over which the conspirators had no control.” Id. at 20. This very absence of control, however, is strong evidence of the absence of interdependence among the separate markets and thus undercuts the court’s ultimate conclusion that the participants acted pursuant to a single overarching conspiracy.³

V.

Disposition

The district court’s faulty legal analysis, which focuses exclusively upon the concert of action component of a section 1 violation, so permeates its decision that the order appealed from cannot stand. If the court’s observation that there existed the potential for competition among all the conspirators at each facility and its conclusion that the bid-rigging schemes at all three facilities amounted to but one Sherman Act offense are regarded as findings of fact, they are inconsistent with the court’s findings of narrative or historical fact, are inconsistent with the record, and are clearly erroneous. If they are regarded as conclusions of law, they are erroneous for the reasons set forth in Part III.

The question that remains is whether we should remand for further proceedings on the double jeopardy issue or simply reverse. It seems to us that the historical or narrative facts found by the district court require a holding that the United States established, as a matter of law, that the bid-rigging at the different facilities constituted multiple Sherman Act offenses. The district court found that at each facility there were separate bid lists; that the purchasers, not the bid-riggers, controlled access to those bid lists; that the membership of different lists were not identical; that some firms qualified to bid at more than one facility did not rig bids at all of them; that separate bid-rigging meetings were held with respect to each facility; that the allocation of business among the bid-riggers was made on a facility-by-facility basis; that not all the conspiring personnel knew each other; that the bid-rigging commenced at each facility at a different time; and that bid-rigging ended at each facility at different times and for different reasons. These findings, absent others pointing the other way, establish that there were separate offenses. No other findings, except the legally flawed conclusions about potential competition, point the other way. Given these historical facts, any ultimate finding of a single conspiracy would be clearly erroneous. Thus we will reverse with a direction that trial on the July 19, 1984 indictment may go forward.

1 . That is not to say that for some antitrust purposes all the defendant electrical contractors may not be potential competitors. They well might be, for example, for the purpose of a nonconspiratorial statute like section 7 of the Clayton Act, 15 U.S.C. § 18 (1982). But the fact that they are potential competitors for the purpose of antitrust laws aimed at preventing potential future injury to competition does not support a legitimate inference that those defendants entered into a conspiracy with respect to specific markets defined by the independent economic decisions of persons unrelated to and uncontrolled by them.

2 . Justice Brennan’s position, announced in his concurring opinion in Ashe v. Swenson, 397 U.S. at 453-54, 90 S.Ct. at 1199, that there is a fourth double jeopardy principle permitting joinder of multiple offenses, but not separate trials, growing out of the same transaction or occurrence, has not received majority support in the Court. If separate Sherman Act offenses are charged in the indictments before us, however, we believe his Ashe v. Swenson test would be satisfied.

3 . Judge Stapleton’s concurring opinion develops the absence of evidence which would justify a finding of a single overreaching conspiracy. I fully agree with that analysis.