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UNITED STATES v. BORDEN CO.

March 30, 1953

UNITED STATES
v.
BORDEN CO. ET AL.



The opinion of the court was delivered by: Campbell, District Judge.

  1. The government charges that each of ten defendant dairy companies has been engaged in a conspiracy to restrain and to monopolize, and has monopolized interstate trade and commerce in the sale of fluid milk to wholesale customers and certain public institutions in the Chicago area, in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C.A. §§ 1 and 2. The government also charges that each of ten defendant dairy companies has sold fluid milk in interstate trade and commerce to different wholesale purchasers in the Chicago area at prices which discriminate between said purchasers of fluid milk of like grade and quality, and that the effect of such alleged discrimination may have been and may continue to be substantially to lessen competition or tend to create a monopoly in the sale of fluid milk to wholesale purchasers in the Chicago area, or to injure, destroy or prevent competition between the aforesaid wholesale purchasers knowingly receiving the benefit of such price discriminations and other wholesale customers not receiving the benefit of such discriminations, in violation of Section 2(a) of the Clayton Act, as amended, 15 U.S.C.A. § 13(a).

Paragraph 27 of the complaint defines the alleged conspiracy to monopolize in the following manner:

    "The aforesaid combination and conspiracy has
  consisted of a continuing understanding and concert
  of action among the defendants, the substantial terms
  of which have been:
    "(a) That each defendant refrain from competing for
  the fluid milk business of the wholesale customers of
  another defendant;
    "(b) That each defendant offer inducements such as
  discriminatory prices, rebates, discounts, lump sum
  cash payments, interest-free loans, or the furnishing
  of store equipment or other gratuities to wholesale
  customers of non-defendant distributors of fluid milk
  to cause said customers to discontinue their
  purchases of fluid milk from said non-defendant
  distributors and to purchase fluid milk from the
  defendant offering such inducement;
    "(c) That each defendant induce its store wholesale
  customers to agree to maintain the retail prices
  `suggested' by the defendants;
    "(d) That the defendants Bowman and Borden maintain
  and enhance their dominant market position by
  acquiring the businesses, including customer outlets,
  of competing distributors;
    "(e) That defendants Bowman and Borden organize and
  operate `fighting companies' in order to suppress and
  destroy the competition of non-defendant
  distributors;
    "(f) That the defendants collusively allocate and
  share among themselves the business of selling fluid
  milk to public institutions;
    "(g) That the defendants agree upon, fix, and
  maintain prices for the sale of fluid milk to public
  institutions by submitting prearranged, bogus, and
  collusive bids for the sale of fluid milk to such
  institutions."

Paragraphs 28 through 45 of the complaint contain detailed descriptions of some of the general charges outlined in paragraph 27; these more descriptive paragraphs will be referred to wherever necessary in the course of this memorandum.

In its prayer for relief, the government asks that the alleged conspiracy to monopolize interstate commerce in the sale of fluid milk, as described above, be decreed to be in violation of Sections 1 and 2 of the Sherman Act; that the defendants be decreed to have monopolized interstate commerce in the sale of fluid milk, as described above, in violation of Section 2 of the Sherman Act; that the discriminations in price for fluid milk of like grade and quality, which each of the defendants has allegedly granted to certain of its wholesale customers and not to other of its wholesale customers, be decreed to be in violation of Section 2(a) of the Clayton Act, as amended; that the defendants, individually and collectively, be perpetually enjoined from continuing the alleged discriminations and from carrying out the alleged conspiracy to monopolize and the alleged monopolization of commerce in the sale of fluid milk, as described above; that the defendant Borden Company be required to dispose of its entire interest in defendant Belmont Dairy Company to parties who are not named as defendants; that the defendant Borden Company be required to submit a plan for the divestiture of such of its plants, facilities and other assets, used by its Chicago Milk Division, as is necessary to restore effective competition in the distribution and sale of fluid milk to wholesale customers and public institutions in the Chicago area; that the defendant Bowman Dairy Company be required to dispose of its entire interest in defendant Ridgeview Farms Dairy to parties who are not named as defendants; that defendant Bowman Dairy Company be required to submit a plan for the divestiture of such of its plants, facilities and other assets used by it, as is necessary to restore effective competition in the distribution and sale of fluid milk to wholesale customers and public institutions in the Chicago area; that the agreements, understandings, arrangements and practices of the defendants, alleged in the complaint, be ordered terminated and cancelled. The government has asked for certain other injunctive relief, particularly with reference to certain alleged violations of Section 2(a) of the Clayton Act. I shall describe and comment upon these particular requests for relief in another part of this memorandum.

An extended pre-trial conference was held. At the outset of the conference, counsel apprised the court that five of the ten defendants were conducting negotiations with the government, and that it was likely that agreement would be reached on a consent decree. These negotiations did result in the entry of a consent decree, and consequently, five defendants — American Processing and Sales Company, Capitol Dairy Company, Hunding Dairy Company, Meadowmoor Dairies, and Western United Dairy Company — did not appear at or participate in the trial. Counsel are now reminded of my comments on this decree, appearing of record at the time of its entry.

Five nonconsenting defendants — the Borden Company and its subsidiary, Belmont Dairy Company, Bowman Dairy Company and its subsidiary, Ridgeview Farms Dairy, Inc., and Beloit Dairy Company — remained as participants in the pre-trial conference, and appeared as defendants at the trial. For the purposes of this memorandum, the court is concerned solely with those five defendants.

A lengthy pre-trial order emerged from the conference. That order contains numerous agreements of fact, agreements on the manner in which certain evidence would be used at the trial, and agreements as to the issues of the case. At this time, I wish to thank all counsel for the able and workmanlike manner in which they participated in the conference and prepared the pre-trial order. I shall refer to specific provisions of the order in the course of this memorandum.

The government has presented its evidence, and the matter is now before the court on the motion of each defendant to dismiss the complaint, or parts thereof.

The first disputed matter which I must resolve entails a construction of Federal Rule 41(b), 28 U.S.C.A., which provides:

    "After the plaintiff has completed the presentation
  of his evidence, the defendant, without waiving his
  right to offer evidence in the event the motion is
  not granted, may move for a dismissal on the ground
  that upon the facts and the law the plaintiff has
  shown no right to relief. In an action tried by the
  court without a jury the court as trier of the facts
  may then determine them and render judgment against
  the plaintiff or may decline to render any judgment
  until the close of all the evidence. If the court
  renders judgment on the merits against the plaintiff,
  the court shall make findings as provided in Rule
  52(a). Unless the court in its order for dismissal
  otherwise specifies, a dismissal under this
  subdivision * * * operates as an adjudication upon
  the merits."

Plaintiff contends that this court, in considering the instant motions, is precluded from weighing the evidence. Plaintiff vigorously objects to the defendants' use of the phrase "preponderance of the evidence." According to plaintiff's construction of the Rule, this court must now determine whether or not the evidence considered in a light most favorable to the plaintiff, presents a prima facie case for relief; and, the argument runs, if such a prima facie case is discovered, defendants' motions must be denied. Such a construction of Rule 41(b) has been flatly rejected by the Court of Appeals for this circuit. In Allred v. Sasser, 7 Cir., 1948, 170 F.2d 233, 235, it was made clear that in disposing of a motion to dismiss at the close of plaintiff's case, the court, as trier of fact, must weigh and evaluate the evidence. The meaning of Rule 41(b) is unmistakable after a reading of this language from the Allred opinion:

    "* * * the trial court was the trier of the facts,
  and in considering the evidence was not bound to view
  it in a light most favorable to the plaintiff, with
  all attendant favorable presumptions, but was bound
  to take an unbiased view of all the evidence, direct
  and circumstantial, and accord it such weight as he
  believed it entitled to receive."

The Rule was similarly construed by the court in Gary Theatre Co. v. Columbia Pictures Corp., 7 Cir., 1941, 120 F.2d 891, and, more recently, in Chicago & N.W. Ry. Co. v. Froehling Supply Co., 7 Cir., 1950, 179 F.2d 133.

This court is, therefore, under an affirmative duty to review all the evidence thus far presented, and, upon the basis of that review, to determine whether or not the government's evidence warrants the relief sought in the complaint.

I shall first consider all evidence which was introduced to prove violations of the Sherman Act. The evidence may appear disjointed at times; that is because the government necessarily commingled evidence which tends to prove violations of the Sherman Act with evidence which tends to prove Clayton Act violations. I should also note at the outset that I shall consider many items of doubtful relevance and materiality; in another context, such evidence would be excluded summarily. However, as I indicated at the trial, in a case of this nature and scope, the government must be afforded any opportunity, within reason, to support the charges in its complaint. Conspiracies of the sort described in the complaint are difficult to prove, and most often can be proved only through the use of evidence which is circumstantial and seemingly remote. Therefore, in my rulings on the evidence at the trial, and in my review of the evidence at this time, I have admitted and considered any evidence which might in some manner tend to prove the existence of a conspiracy.

Testimony of Witnesses Tending to Prove the Existence of a
    Conspiracy to Monopolize Wholesale Customers in the Chicago
    Area.

A. Solicitors or "contact men" employed by the defendants.

Seven government witnesses were, at one time or another, employed by the Borden Company or the Bowman Dairy Company to solicit new wholesale accounts. They testified as to certain instructions given to them in the course of their employment, as to some practices current in the industry at the time of their employment, and as to conversations which they had or overheard during their employment. I have outlined this segment of the testimony most carefully, for it is, apparently, the most direct available evidence of the alleged conspiracy. Listing these seven witnesses in the order of their appearance at the trial, that part of their testimony relevant to the proof of a conspiracy is as follows:

(1) William H. Horton. In 1941 and 1942, Horton was employed by the Bowman Dairy Company as a solicitor. He received a two-week training period from a Mr. Morley, whom he was replacing. Morley told him how to solicit, and what stops to solicit. Morley explained that "open competition" was "new business, business which was closed and reopened after a period of thirty days, and other dairies that were what they call cut-rate dairies, such as Meadowmoor and smaller ones." Morley further explained that "closed competition" consisted of "Borden, Hunding, Capitol, Western", and "one or two other stops that I forget." Horton was told not to solicit "closed competition."

In the early part of 1942, Horton solicited and won the business of a stop being served by the Capitol Dairy Company. Messrs. Philippi and Moller of the Bowman Company directed the return of this stop to the Capitol Company.

On cross examination, Horton stated that the Bowman officers said that they desired the return of the store to Capitol because the store owner was a relative of a Mr. Shankman, an official of Capitol Dairy Company.

(2) Otto A. Sedlak. Sedlak was a solicitor of wholesale accounts for the Bowman Company for three and one-half years, beginning in 1941 or 1942. In 1942, he was told by his superior, a Mr. Block, that he was not supposed to solicit stops like "Borden, Capitol, Western-United." He testified of instances wherein his superiors did not permit him to begin serving stops which were then served by Borden or Capitol, although the proprietors were willing to be served by Bowman. He testified that in the latter part of 1944, he overheard Block speaking on the telephone to a Mr. Katz of the Western-United Company. He overheard Block state to Katz: "You know you took one of our stores, don't you? — Do you know what this means? — We have to go out and get one of yours."

In March or April of 1946, Horton solicited and "lined up" a Dean stop which had formerly been served by Hunding Dairy. Mr. Kernkamp, his superior, told him that Mr. Hunding of Hunding Dairy requested that Bowman abstain from further solicitation because Hunding still had hopes of recapturing the stop from Dean. Nevertheless, a week or so later, Horton related, he managed to get the business of that stop.

Horton also testified that a Mr. Spitzer, an official of Ridgeview Farms Dairy, told him upon Spitzer's transfer from Bowman to Ridgeview, that "he had worked at Ridgeview before, and that that is the fighting company that Bowman used against the cut-rate dealers."

(4) Lorne Snoberger. Snoberger was a Bowman solicitor in 1946. He stated that when he was first employed as a solicitor, Mr. Kernkamp, his superior, told him to solicit stops served by the Dean Milk Company. He was not told to solicit stops served by other dairies. During his employment by Bowman as a solicitor, his activities were confined principally to the solicitation of stops served by the Dean Milk Company.

(5) Julius Guy Johnston. Johnston was employed by the Bowman Company as a retail route salesman from 1944 to 1946. He was acquainted with the owner of a wholesale stop along his route, who was then being served by the Beloit Dairy Company. He asked a Mr. Scanlan, his manager, for permission to serve the stop. Scanlan told him that Bowman had an "agreement" with Beloit, "but you go ahead and serve it for awhile and see what happens." Scanlan said that "We might have to give up another stop equivalent to it in order to keep it." Johnston began serving the stop, served for about a week, and was then told by Scanlan to discontinue service. Scanlan again stated that "we would have to quit serving or give up a stop to Beloit equivalent to that." Johnston suggested to the owner that he take milk from another dairy for thirty days; the owner did in fact take milk from the Wanzer company for thirty days, and then resumed Bowman service.

In the latter part of 1945, when one of the witness' stops was solicited by Borden, Mr. Scanlan told the witness: "We have an agreement with Borden, if they take the stop away from us we will get another one in return equivalent to it."

On cross examination, the witness admitted that he was accused of having a "short book" by the Bowman Company after he left that company's employ.

(6) Raymond Stephens. Stephens was a solicitor of wholesale accounts for the Borden Company. He was told by a Mr. Creed, his superior, not to comply with requests for service by stops then being served by Bowman, Western-United, Hawthorn-Mellody, and Capitol. According to Stephens, "open competition" consisted of stops served by the Dean Milk Co., Wanzer Dairy Company, and Meadowmoor Dairy Company.

Subsequent to Stephens' employment by Borden, he was a vendor supplied by the Lake Valley Company. After successfully soliciting a stop served by Bowman, he had a conversation with a Mr. Curtin of the Bowman Company, and was told by Curtin to return the stop. He did return the stop, so that Bowman would not "bother" his accounts.

(7) Sam Parker. During part of the period embraced by the complaint, Parker was a wholesale foreman employed by the Borden Company. In the fall of 1944, his superior, a Mr. Creed, did not permit him to serve a wholesale stop which was then served by the Bowman Dairy Company.

Each of these witnesses is a former employee of one of the defendants, and each expressed some degree of animosity toward his former employer. Johnston, in particular, was hostile during cross-examination, and as I noted earlier, the Bowman Company had once accused him of dishonesty. The testimony of each of the witnesses is, therefore, open to some suspicion. Assuming arguendo that all of the foregoing testimony is true, however, just what relationship among the defendants is indicated?

There are but three instances of direct communication between alleged conspirators. First, William Horton testified that he returned a stop to Shankman of the Capitol Company, pursuant to orders given by his superior at the Bowman Company. There is testimony to indicate, however, that the owner of the stop was related to Shankman, and that the return of the stop was motivated by respect for that relationship. Second, Sedlak testified that he overheard his superior at Bowman tell Katz of Western-United that Bowman would "get" a Western stop in exchange for a stop which Western had captured from Bowman. This testimony is as consistent with competitive activity as it is with a conspiracy to monopolize. Third, Herbert Horton testified that Hunding asked Bowman not to solicit a stop formerly served by Hunding. This testimony is rendered meaningless by Horton's later assertion that Bowman thereafter successfully solicited the stop.

The testimony does indicate one rough similarity between the actions of Bowman and Borden, insofar as Stephens, a Borden solicitor, testified that he was instructed by his superior not to comply with requests for service by stops served by Bowman, Western-United, Hawthorn-Mellody, and Capitol. Three Bowman solicitors testified that they were similarly instructed not to solicit stops served by Borden and certain other dairies. However, the court notes that the instructions which these solicitors said they received are at variance with the terms of the conspiracy alleged in the complaint. One Bowman solicitor and one Borden solicitor testified that they might solicit stops served by Meadowmoor; but Meadowmoor is alleged to be one of the conspirators. One Bowman solicitor testified that he could not solicit stops served by Wanzer, although Wanzer is not alleged to be a conspirator. And I note in passing that witness Rhody, a Hunding employe, testified that Hunding, an alleged conspirator, did in fact capture stops served by other of the alleged conspirators.

B. Wholesale customers served by the defendants.

The foregoing portion of the record should be considered alongside the correlative testimony of wholesale customers served by the defendants. The government introduced over two dozen witnesses who owned food stores or restaurants in the Chicago area. The testimony of a few of these witnesses corroborates, in a limited way, that of the solicitors employed by the defendants. This corroborative testimony is as follows:

(1) Richard Myers. Myers owns and operates a food store in Chicago, and has sold milk supplied by the Capitol Dairy Co. ever since he opened his store in 1946. A representative of the Borden Company told him that unless he was served by Borden from the first day he opened his store, he could not thereafter switch to Borden's. Myers testified that since he began using the services of Capitol, he has not been solicited by dairies other than the Kraml Co. and the Dean Milk Co.

(2) Louis J. Pushauer. Pushauer owns and operates a grocery in Chicago. In 1951, the Dean Milk Co. supplied some of his dairy needs and Hunding Dairy supplied others. During the time he split his orders between Hunding and Dean, a Hawthorn representative came to Pushauer's store and inspected his dairy supplies. The next day Hunding Dairy discontinued service. A similar incident occurred while the witness was later being served by Western-United. The witness further testified that the Borden Co. did not respond when he called for service.

(3) Michael J. Cozzi. Cozzi owned a grocery store in Chicago and was served by Meadowmoor Dairy. He moved his store, became dissatisfied with Meadowmoor milk, and accepted Bowman's offer to serve. Meadowmoor thereafter solicited Cozzi's business once again. The Meadowmoor solicitor told Cozzi of a "gentlemen's agreement" among the milk companies not to solicit stops within thirty days after service has been discontinued. The witness was not articulate when speaking of this "agreement." Meadowmoor did begin to serve Cozzi again, although it is not clear at whose instance the change was made.

(4) Julius Soboleski. This witness owns a grocery in Chicago, and is served by the Borden Co. A Bowman representative told him that Bowman could not serve "as long as I have Borden."

(5) Philip Bergman. Bergman owned a grocery in 1947, and was served by the Borden Co. Borden refused a request for financial assistance, and Bergman called Meadowmoor. The Meadowmoor representative said, in the words of the witness, "That he couldn't take the stop over because they had an association with some of the bigger companies not to take stops from each other." The Meadowmoor representative further stated, again in the words of the witness, that "I had to farm out for at least thirty days for a smaller company, and then they would take the stop over." The Meadowmoor representative did not suggest another dairy, but the witness called the Dean Milk Co. After a month of Dean service, Meadowmoor consented to serve.

(6) Gerald T. Killeen. Killeen owns a delicatessen in Chicago. At the time he purchased his store, Borden and International Dairy were supplying his milk needs. He desired Ridgeview service, and, after telephoning Ridgeview, a Ridgeview representative came to his store. The Ridgeview representative said, in the words of the witness, that "First he would have to notify those two dairies, and give them a chance to hold the stop." Although the witness called neither Borden nor International, he testified that representatives of both dairies visited him and knew of the contemplated change. The witness switched to Ridgeview anyway, and Ridgeview has been serving him ever since. And, according to the witness, Borden solicited his business even after he changed to Ridgeview. On cross examination, the witness admitted that he may have told the Borden driver about the intended change.

(7) Louis Miller. This witness owns a restaurant in Chicago. While he was served by Hawthorn-Mellody, a Hawthorn representative told him that he could not change to another dairy. A Meadowmoor representative told him that Meadowmoor could not serve because of an "agreement." Subsequently, the witness was served by the Wanzer Co. and the Capitol Co. Throughout his testimony, the witness made clear that he asked each dairy for some sort of financial assistance.

I shall now turn to testimony of other wholesale customers served by the defendants. A small part of this testimony is corroborative of that of solicitors employed by the defendants; another and much larger part of this testimony flatly contradicts that of the solicitors, and another part of this testimony is wholly irrelevant to any of the issues in this case.

(8) Myer Freedman. Freedman operates a grocery in Chicago, and receives his milk from the Bowman Co. Since Bowman began to serve, only the Dean Milk Co. has bid for his business.

(9) Dorothea Wallace. This witness operates a restaurant in Evanston, Illinois. She was served by Bowman, and became dissatisfied with Bowman service. A representative of Hawthorn-Mellody told her he could not serve her. Afterward, however, the Hawthorn representative made arrangements for the witness' employes to pick up milk from a nearby store served by Hawthorn. This arrangement continued for two or three weeks; afterward, Hawthorn delivered the milk directly to her restaurant.

On cross examination Mrs. Wallace admitted that she made no effort to contact another dairy.

(11) Andrew D'Alesandro. This witness formerly owned a restaurant in Chicago. When he first opened his restaurant, he was solicited by representatives of Western-United, Wieland, Borden, and Beloit. He was solicited to the point of annoyance.

(12) Abraham Wittenberg. Wittenberg operates a sandwich shop in Chicago, and was originally supplied his milk needs by Western-United Dairy. In 1947, he closed his shop for a few months. While his shop was closed, representatives of Borden, Western-United, Capitol and Meadowmoor bid for his business. He accepted Meadowmoor's offer, and has been served by Meadowmoor ever since.

(13) Karol Walczak. Walczak operates a grocery in Chicago. During his ownership of the grocery, many dairies bid for his business. Among the bidders were Dean, Capitol, Borden, Western-United, and Ogden-Schmitts. Even after he accepted Capitol's offer and began ...


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