Opinion ID: 352299
Heading Depth: 1
Heading Rank: 2

Heading: Was a Restraint on Interstate Commerce Proven?

Text: 32 All parties recognize that the mere pleading of a restraint on interstate commerce is insufficient to sustain a conviction under the Sherman Act. Rather, the Government at trial must prove the existence of such a restraint. 33 The requirement that a restraint on interstate commerce be present acts as a jurisdictional limitation on the power of Congress, pursuant to the interstate commerce clause of the Constitution, to condemn such an arrangement as that alleged here. Rasmussen v. American Dairy Association,472 F.2d 517 (9th Cir. 1973). Yet, it has repeatedly been recognized that in enacting the Sherman Act, Congress intended to exercise the full sweep of its power in making illegal (e)very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States . . . . United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 1174, 88 L.Ed. 1440 (1944); United States v. Frankfort Distilleries, Inc., 324 U.S. 293, 65 S.Ct. 661, 89 L.Ed. 951 (1945); Las Vegas Merchant Plumbers Ass'n v. United States, 210 F.2d 732 (9th Cir. 1954). 34 In its second enumeration, appellant contends that the Government failed at trial to prove the requisite restraint on interstate commerce. The trial judge, after taking all the evidence, found that such a restraint had been proven. In order to resolve this issue, we must review the evidence and determine whether or not the Government proved a restraint on interstate commerce under either the flow of commerce or the affecting commerce tests. 35 Prior to trial, the parties stipulated that Cadillac had purchased over half of its garments and incidental supplies from out-of-state sources. These purchases were in excess of $100,000.00 for the years 1970-1972. Cadillac, it was undisputed, was one of the smaller businesses alleged to have participated in the conspiracy. 36 When this evidence is coupled with the admission of agents of some of the alleged co-conspirators that the customer allocation scheme had lasted over a decade, the restraint is easily seen to encompass a very large volume of goods moving into South Florida from out-of-state sources. 37 There is thus no question that a substantial volume of industrial garments and supplies were in the flow of interstate commerce until they reached the appellant and the alleged co-conspirator companies. Under the flow of commerce test, the question is at what point along the path from manufacturer to consumer the flow might have stopped, thereby rendering any subsequent anti-competitive conduct purely intrastate in nature. 38 The point at which the flow came to rest is a factual question left initially to the finder of fact. United States v. Flom, 558 F.2d 1179 (5th Cir. 1977); Las Vegas Merchant Plumbers Ass'n v. United States, supra. When the finder of fact is the trial judge, unless it is clearly erroneous, the finding must stand. United States v. Rischard, 471 F.2d 105 (8th Cir. 1973); United States v. Tallman, 437 F.2d 1103 (7th Cir. 1971). Here, the trial judge found that the goods remained in the flow of commerce until they were leased to the ultimate consumer. 39 Appellants' challenge this in a two pronged attack. 40 First, Cadillac asserts that its business has two separate and distinct aspects. The purchase and receiving of the industrial garments from out-of-state suppliers, they admit, is of an interstate nature. However, Cadillac contends that the subsequent rental and laundering services provided to its customers is of a purely intrastate nature and hence beyond the reach of the Sherman Act. 41 After review of the entire record, we decline to take such a theoretical and unrealistic view of Cadillac's business. The record contains no evidence to rebut the conclusion that Cadillac's entire Florida operation was conducted as a single integrated whole. 42 The evidence established that Cadillac ordered new garments from out-of-state sources to supply newly retained customers and to replace the rental stock of an existing customer. This evidence strongly supports the view that the business was an integrated operation. We therefore reject this bifurcated approach urged by appellant for the first time on appeal. 43 In a closely related argument challenging the finding that the flow had not stopped until it reached the customers, appellant contends that the garments had left the stream of commerce when they arrived at and were stored in the company's warehouse. The interstate nexus, it is contended, had thus dissipated when the garments were thereafter delivered for the customer's use. 44 It has long been established that, 45 (t)he entry of goods into the warehouse interrupts but does not necessarily terminate their interstate journey. A temporary pause in their transit does not mean that they are no longer 'in commerce' within the meaning of the Act. . . . if the halt in the movement of the goods is a convenient intermediate step in the process of getting them to their final destinations, they remain 'in commerce' until they reach those points. Then there is a practical continuity of movement of the goods until they reach the customers for whom they are intended. That is sufficient. Any other test would allow formalities to conceal the continuous nature of the interstate transit which constitutes commerce. Walling v. Jacksonville Paper Co., 317 U.S. 564, 568, 63 S.Ct. 332, 87 L.Ed. 460 (1942). 46 Likewise, in this Circuit, we have held that where the circumstances under which the shipment was made are such as to nearly equate shipment in response to an order, . . . the temporary halt did not break the chain of commerce. Hardrives Co. v. East Coast Asphalt Corp., 329 F.2d 868, 870 (5th Cir. 1964). Taking a practical view of interstate commerce, we must look to the ultimate disposition of the product that is contemplated by the appellant and the industrial garment industry. Hardrives Co. v. East Coast Asphalt Corp., supra; Northern Cal. Pharmaceutical Assoc. v. United States, 306 F.2d 379 (9th Cir. 1962). 47 Recently in United States v. Flom, supra, this Court went further and refused to hold that the fabrication of a product, subsequent to its arrival at a warehouse within a state, resulted in the removal of the product from the flow of interstate commerce. 48 On appeal, Cadillac stresses the dearth of testimony as to the flow of the garments into Florida and onto the lessees. This is easily explained by the pre-trial stipulation entered into between the Government and Cadillac's trial counsel. 49 In pertinent part, the stipulation states that: 50 Cadillac Overall Supply Company has regularly purchased substantial quantities of industrial garments for its Florida Division from companies located in Tennessee, Missouri, Michigan, Georgia, Illinois, New Jersey, Oklahoma and New York. The garments were shipped to the Florida Division of Cadillac Overall Supply Company for the use of its customers in South Florida. 51 Under the mandate of Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680 (1942), we must view the evidence and all reasonable inferences flowing therefrom in the light most favorable to the Government. 52 In this light, we think the evidence was sufficient to support the finding that the garment remained in the flow of commerce until they reached the consumer-lessees. 53 As shown above, Cadillac stipulated that garments were ordered from out-of-state sources to supply its customers. The testimony at trial established that when taking on a new customer, Cadillac would have to make an investment in uniforms and the like in order to supply that customer. Likewise, garments would be ordered to replace the worn out stock of existing customers. 54 The trial judge was of the opinion that the inference to be drawn from the evidence was one of a practical continuity of movement from out-of-state suppliers to the garment lessees: Now, as to the flow theory, garments simply were being shipped in here, passed through the ordering company and sent out to the Gulf station and the Gulf station unwrapped them and put them on. We share this view of the evidence and hold that the finding of the trial judge, that the garments were in commerce until leased to the customers, is not clearly erroneous. 55 Although we need go no further in finding that interstate commerce was restrained, we shall address the issue as to whether the proof sustained a finding that interstate commerce was substantially affected. 56 It is well established that a local restraint on intrastate commerce may nevertheless substantially and adversely affect interstate commerce and thus violate Section 1 of the Sherman Act. Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976); United States v. Employing Plasterers Ass'n., 347 U.S. 186, 74 S.Ct. 452, 98 L.Ed. 618 (1954). 57 In its attack on the affecting commerce test, Cadillac asserts that since there was no proof of increased prices due to the restraint and no proof that a greater quantity of merchandise would have entered Florida in the absence of the restraint, the alleged customer allocation conspiracy did not substantially and adversely affect interstate commerce. We disagree. 58 It is well settled that under Section 1 of the Sherman Act, the scrutiny of the Court must be directed to the character of the restraint, not the amount of commerce restrained. Goldfarb v. Virginia State Bar, 421 U.S. 773, 785, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1976); United States v. Socony Vacuum Oil Co., 310 U.S. 150, 221-223, 60 S.Ct. 811, 84 L.Ed. 1129 (1940). Recent Supreme Court authority has squarely held that the Sherman Act reaches unsuccessful restraints on interstate commerce as well as those which have not been shown to affect the price of goods or services in the market place. United States v. Topco Associates, Inc., 405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972). 59 At trial, the testimony revealed that Cadillac's out-of-state products were manufactured in Detroit. The testimony also revealed that the garments of Neway Uniform, a co-conspirator, were manufactured in Cleveland, Ohio. As the Second Circuit observed in United States v. Consolidated Laundries Corporation, 291 F.2d 563, 574 (2d Cir. 1961) if conspirators engage in the allocation of customers, the customer's range of choice and ability to seek out the supplier who could give him better terms is curtailed. 291 F.2d at 572. 60 Similarly, the Supreme Court in Burke v. Ford, 377 F.2d 901 (10th Cir.), reversed, 389 U.S. 320, 88 S.Ct. 443, 19 L.Ed.2d 554 (1967), has held in the context of horizontal territorial market divisions that, as a matter of practical economics, a substantial adverse affect on interstate commerce results by virtue of the restraint, itself. 61 In Burke, liquor entering the State of Oklahoma was found to have come to rest and not have been in the flow of interstate commerce when it was thereafter sold out of the wholesaler's inventories to liquor retailers. 62 In rejecting the retailers' contention that the territorial market division substantially and adversely affected interstate commerce, the Tenth Circuit stated: 63 The retailers in this case have utterly failed to prove that if, as we hold, the flow of liquor stopped at the wholesale warehouse, the alleged conspiracy nevertheless adversely affected the flow of liquor into the state. The only pertinent evidence in the record indicates that the net cases shipped to Oklahoma wholesalers increased from 885,976 in 1963 to 891,176 in 1964. If anything, this proves the alleged conspiracy had no effect on the flow of liquor. 64 The retailers seem to rest their case on the hypothesis that the mere fact of market division and the resulting reduction in the number of wholesale outlets available to the respective distillers ipso facto proved the requisite adverse effect on the free flow of liquor in interstate commerce. In other words, they seem to argue that from this single fact we must infer that interstate commerce was adversely affected. But this is not so. The single fact of a reduced number of wholesale outlets does not give rise to the necessary implication that interstate commerce was adversely affected. While a division of the market is to be sure a per se violation of the anti-trust law, i. e. see Addyston Pipe and Steel Co. v. United States, 175 U.S. 211, 20 S.Ct. 96, 44 L.Ed. 136, this postulate presupposes but does not prove the requisite connection with commerce. Even though a trivial impact on interstate commerce may be sufficient to bring the activities complained of within the purview of the Sherman Act, i. e. Cf. Wickard v. Filburn, 317 U.S. 111, 127, 63 S.Ct. 82, 87 L.Ed. 122, there was no proof whatsoever that the alleged conspiratorial market division either deterred the amount of sales distillers could make into Oklahoma or in any way reduce the price at which they could sell. As Judge Bohanon aptly put it. 'The record shows that the Oklahoma sales of liquor continued to increase and grow. There is no proof here that what the defendants did was a deterrent to interstate commerce.' 377 F.2d at 907-908. 65