De Jong Packing Co. v. United States Department of Agriculture

MERRILL, Circuit Judge:

FACTS

The Packers and Stockyards Administrator instituted this administrative action under the Packers and Stockyards Act (“the Act”), 7 U.S.C. § 181 et seq., alleging violations of § 202(a), (e) and (g) of the Act.1 The complaint alleged that a group of packers, petitioners here, had conspired to force ahction stockyards to change their terms of sale, from “as is” sales of slaughter cattle, under which the packers bear the risk that the cattle will fail to pass government inspection, to “subject” sales — those subject to the cattle’s passing government inspection — which place the risk of loss on the seller.

The administrative law judge found that petitioners had violated the Act as charged and that petitioner De Jong had violated 9 C.F.R. § 201.43(b) as well, and that appropriate cease and desist orders should issue. The government, contending that the cease and desist order was insufficiently broad, appealed to the Judicial Officer, who has final authority to decide cases within the Department of Agriculture. Petitioners also appealed, contending that the cease and desist orders should not have issued. The Judicial Officer sustained all findings of violations. In addition, he concluded *1332that all petitioners, not just De Jong, had violated 9 C.F.R. § 201.43, because they had conspired with De Jong. Accordingly, he broadened the scope of the cease and desist order.2 Petitioners have appealed to this court.

Under the customary trade practices and marketing procedures of the northwest Washington livestock auction markets, the purchase of livestock is on an “as is” basis unless otherwise expressly specified prior to sale. When so purchased, the purchaser buys the animals as he sees them with no guarantee that they are suitable for any purpose. He assumes the risk of subsequently discovered defects, and full payment is due within one business day of purchase.

When slaughter cattle are sold at an auction market on a “subject” basis, the sale is contingent upon the animal passing federal inspection as fit for human consumption, and payment is not due until one business day after the animal has passed inspection.

It is not practicable or lawful to sell a particular animal at auction with some prospective buyers bidding on an “as is” basis, while others bid on “subject” terms. It is the responsibility of the stockyard owner to fix the terms of sale.3 Under the practice at northwest Washington auctions, cattle are very rarely sold on “subject” terms; only cattle with visible defects or which have elicited no “as is” bid are so sold.

In early February, 1972, petitioners, with the exception of Hygrade, signed a letter to the stockyards which stated that in the future petitioners would purchase and pay for cattle only subject to their passing government inspection.4 The stockyards promptly rejected the proposed change in policy. On March 8 and 9, 1972, the Packers and Stockyards Administration sent letters to the packers advising them that it considered their actions to be in violation of the Act, and that it would take further administrative action if the stockyards did *1333not “reconsider.” All packers but petitioner De Jong appear to have reconsidered. Their purchase of cattle continued on an “as is” basis and they promptly paid for all cattle purchased, in accordance with the practice. De Jong, however, refused to pay for any cattle sold to it which were subsequently condemned. The Washington State Department of Agriculture then initiated proceedings pursuant to the state’s regulatory program, seeking to compel De Jong to pay. A state court found that De Jong had bought the cattle on “subject” terms and therefore, as a matter of contract law, was not required to pay.

Shortly after that decision became final, during April of 1974, each petitioner (now including Hygrade) sent a letter to the stockyards informing them that as of May 1, 1974 (in one case as of April 29, 1974), all bids would be subject to the cattle passing inspection, and that payment for cattle would be delayed for three bank days pending determination as to whether the cattle were fit for human consumption. (Hygrade’s letter varied only in specifying that it would implement this policy by withholding the average price of two animals for the three-day period.)

From May 1, 1974, to May 15, 1974, petitioners adhered to their announced position and no cattle were purchased “as is.” During the last two weeks of May, 1974, however, all petitioners notified the stockyards that they were rescinding their “subject” policy and resumed bidding for cattle on an “as is” basis.

EVIDENCE OF CONSPIRACY

It is clear that bidding for cattle on a “subject” basis is perfectly legal, and that any packer acting independently is free to bid on such terms. If what was done here constituted a violation of § 202, it was because concerted action was taken by petitioners. The existence of a conspiracy or agreement thus becomes critical. Petitioners contend that the record does not support the Judicial Officer’s finding of conspiracy. Our question on review is whether the finding is supported by substantial evidence. Corona Livestock Auction, Inc. v. United States Department of Agriculture, 607 F.2d 811 (9th Cir. 1979).

It is clear that a conspiracy existed as of February 8, 1972, when petitioners (absent Hygrade) joined in advising the stockyards that all future bids would be “subject” bids. As the Judicial Officer noted in his decision:

“This case is quite unusual! ‘Conspirators seldom sign articles of partnership in crime which may thereafter be conveniently put into evidence by the prosecution.’ United States v. Morris, 225 F.2d 91, 95 (C.A.7), certiorari denied, 350 U.S. 901 [76 S.Ct. 179, 100 L.Ed. 792].”

The question, then, is whether a conspiracy existed in 1974, when petitioners individually notified the stockyards that their bids would be confined to “subject” bids in the future. Petitioners assert that they all simultaneously and independently arrived at the decision to send their 1974 letters as a result of De Jong’s success in Washington state courts. This contention was rejected by the Judicial Officer. He noted that the state court success was founded on the state court finding that the livestock markets had accepted De Jong’s bids knowing that they were “subject” bids. Thus, the co-operation of the livestock markets in continuing to accept “subject” bids was necessary to future success. The Judicial Officer stated:

“ * * * the State Court decision was not likely to make each of the respondents, acting independently, come to the conclusion that he alone could force the auction markets to change their sales policy effective May 1, 1974 (or April 29, 1974).”

As to whether a 1974 conspiracy existed, the Judicial Officer stated:

“There is no evidence in this case that any of the conspirators withdrew from the conspiracy prior to mid-May 1974. Merely purchasing livestock in 1972 and 1973 without enforcing the terms of the February 1972 ultimatum is no evidence that the conspirators abandoned their conspiratorial purpose. In fact, I infer from their unity of action in 1974, following the State Court decision, that in 1972 and 1973, the respondents other than Hy*1334grade were merely biding their time awaiting the outcome of De Jong’s activities in furtherance of the conspiracy.”

We find this inference to be rational. Further, the parallel action taken in 1974 lends support to the inference that it was in response to a conspiracy. The similarity of the letters written by the individual petitioners, the manner in which terms and conditions of purchase were stated by each, and the coincidence of the effective dates selected by each (April 29, and May 1,1974), all lend credence to the view that each petitioner was aware of the action taken by the others and was acting in concert with the other petitioners. It is conceded that there was “trade talk,” of which petitioners were aware, regarding a boycott. While mere consciously parallel action is not sufficient to demonstrate conspiracy, neither is express agreement required; it is “enough that knowing that concerted action was contemplated or invited, [defendants] gave their adherence to the scheme and participated in it.” Interstate Circuit Co. v. United States, 306 U.S. 208, 226, 59 S.Ct. 467, 474, 83 L.Ed. 610 (1939). Accord, Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977), cert. denied, 434 U.S. 1086, 98 S.Ct. 1280, 55 L.Ed.2d 791 (1978); Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71, 84-85 (9th Cir. 1969), cert. denied, 396 U.S. 1062, 90 S.Ct. 752, 24 L.Ed.2d 755 (1970); Esco Corp. v. United States, 340 F.2d 1000, 1008 (9th Cir. 1965).

Here, from the facts that petitioners combined to seek “subject” terms in 1972 and waited to act together again in 1974, it can be inferred that petitioners believed that concerted action was necessary to achieve their purpose, and that no petitioner would have acted as it did had it not believed that the others would do the same.

We conclude that as to all petitioners who joined in the 1972 notice to stockyards there is substantial evidence to support the finding that the 1972 conspiracy was not abandoned prior to 1974, and that the writing of the 1974 letters constituted concerted action taken pursuant to agreement.

As to Hygrade — the company that did not join in the Í972 letter — the Judicial Officer found that it “knowingly and intentionally joined the conspiracy in 1974.” He based his finding on the similarity between the conditions set forth in the Hygrade letter and those set forth in the letters of the other petitioners,5 and on the coincidence in timing.6

*1335We conclude that there was substantial evidence to support the finding that Hygrade, in 1974, joined the ongoing conspiracy formed by the other petitioners in 1972.

UNFAIR PRACTICE UNDER SECTION 202(a)

The administrator alleged violations of subsections (a), (e) and (g) of § 202 (see footnote 1).

As to subsection (g), petitioners assert that they have never conspired to do any act made unlawful by the section; that if they conspired at all, it was to do a perfectly lawful act — to bid only on “subject” terms. We agree and find no violation of subsection (g).

At to subsection (e), the alleged violation is apparently based on the contention that the conspiracy, in effect, was to fix prices, the rationale apparently being that since the petitioners would only bid “subject,” they were fixing prices of condemned cattle at zero. We cannot accept the notion that a conditional sale is an effort to fix prices. If the condition is not met, then no purchase takes place at all. The unfit cattle are not purchased at zero dollars; they are simply not purchased. Accordingly, we find no violation of subsection (e).

The problem is with subsection (a), and the question is whether this conspiracy constitutes an unfair practice under that subsection. The fact that the conspiracy is not a subsection (g) violation, and that absent concert of action “subject” bidding is not an unfair practice, does not provide an escape. A competitor “can do many things independently which he may not combine with others to accomplish.” Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., supra, 416 F.2d at 76. See United States v. Parke, Davis & Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960).7 What is charged as unfair is the attempt to coerce a change in marketing practices by concerted action; to obtain by concert of action market power not possessed by the purchasers individually and, by exercise of that market power, to obtain a favorable change in marketing practices that could not have resulted from the free play of competitive forces.

Such conduct falls squarely within the prohibition of Paramount Famous Lasky Corp. v. United States, 282 U.S. 30, 51 S.Ct. 42, 75 L.Ed. 145 (1930), and United States v. First National Pictures, Inc., 282 U.S. 44, 51 S.Ct. 45, 75 L.Ed. 151 (1930).8 In Paramount Famous Lasky Corp., a group of motion picture distributors agreed that they would deal with exhibitors only on the terms of a standard exhibition contract which required arbitration of all disputes. The Court held that the “manifest purpose” of this arrangement was “to coerce the exhibitor and limit the freedom of trade,” and that the “necessary and inevitable” ef*1336feet of such an agreement was the unreasonable restraint of competition. 282 U.S. at 41-42, 51 S.Ct. at 44. The Court conceded that arbitration might be well suited to the needs of the film industry, but concluded that the statute could not

“ ‘ * * * be evaded by good motives. The law is its own measure of right and wrong, of what it permits, or forbids, and the judgment of the courts cannot be set up against it in a supposed accommodation of its policy with the good intention of the parties, and, it may be, of some good results.’ Standard Sanitary Mfg. Co. v. United States, 226 U.S. 20, 49 [, 33 S.Ct. 9, 15, 57 L.Ed. 107].”

282 U.S. at 43-44, 51 S.Ct. at 45. This is precisely what petitioners would have us do.

First National Pictures, Inc., involved the same parties; there, the distributors agreed to deal only with exhibitors who agreed to provide a security deposit as required by the standard contract and to assume any contractual obligations of the prior theater owner. The Court found that its decision in Paramount Famous Lasky Corp. was dis-positive; it concluded that

“The obvious purpose of the arrangement is to restrict the liberty of those who have representatives on the film boards and secure their concerted action for the purpose of coercing certain purchasers of theaters by excluding them from the opportunity to deal in a free and untrammeled market.”

282 U.S. at 54, 51 S.Ct. at 48.

The situation in the present case is indistinguishable. Here, as in Paramount Famous Lasky Corp. and First National Pictures, Inc., a group of competitors have joined together for the purpose of coercing more favorable terms of trade from third parties than they could obtain through the normal play of competitive forces.

In Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., supra, we drew a distinction between “normal and usual” agreements by which parties restrict their liberty to deal with others, which are permissible, and those with the “purpose to coerce the trade policy of third parties or to secure their removal from competition,” which are not. 416 F.2d at 77 (citations omitted). Here, it was the clear and sole purpose of petitioners to exert a coercive influence upon the trade practices of third parties in order to exact more favorable terms than they could otherwise obtain. This the Judicial Officer could properly enjoin.

Petitioners contend that their two unsuccessful attempts to coerce a change in marketing practices have demonstrated lack of market power on their part; that Paramount Famous Lasky Corp. and First National Pictures, Inc., are to be distinguished in that market power was clearly present in those cases; that without market power no adverse effect on competition is to be expected, and that for this reason a cease and desist order should not have been entered here.

Initially, we note that there may have been reasons for the failure of petitioners’ coercive efforts other than lack of market power. However, even assuming that petitioners lacked market power, and even were we to conclude that petitioners’ lack of market power would preclude our finding that they had violated the Sherman Act, the cease and desist order under § 202 was proper.

The consequences of violation of the Sherman and Clayton Acts are far more substantial than here, where the issue is simply whether the practice in question should be halted.

The question would seem to be whether, under the Act, a practice cannot be halted as unfair under § 202 unless competitive harm has already occurred, or whether the likelihood that harm will result suffices. This question we did not reach in Corona Livestock Auction, Inc. v. United States Department of Agriculture, supra, 607 F.2d 811 (9th Cir. 1979), or Central Coast Meats, Inc. v. United States Department of Agriculture, 541 F.2d 1325 (9th Cir. 1976).

The government contends that the purpose of the Act is to halt unfair trade practices in their incipiency, before harm *1337has been suffered; that unfair practices under § 202 are not confined to those where competitive injury has already resulted, but includes those where there is a reasonable likelihood that the purpose will be achieved and that the result will be an undue restraint of competition. We agree. See Swift & Co. v. United States, 393 F.2d 247, 253 (7th Cir. 1968); Wilson & Co. v. Benson, 286 F.2d 891, 895 (7th Cir. 1961). Cf. FTC v. Brown Shoe Co., 384 U.S. 316, 322, 86 S.Ct. 1501, 1504, 16 L.Ed.2d 587 (1966); FTC v. Motion Picture Adv. Co., 344 U.S. 392, 394-95, 73 S.Ct. 361, 363-64, 97 L.Ed. 426 (1952). It would make little sense and might prove disruptive of the market to hold that petitioners may continue to repeat their concerted efforts to coerce a change in market practices and may be halted only when they have finally acquired sufficient market power to succeed.

We affirm the Judicial Officer’s conclusion that petitioners engaged in an unfair trade practice in violation of § 202(a) of the Act, 7 U.S.C. § 192(a).

REGULATION 201.43(b)

Petitioners contend that the Judicial Officer erred in ruling that De Jong had violated Regulation 201.43(b) by failing to pay for condemned cattle within one business day following sale, and that the other petitioners, as De Jong’s coconspirators, had likewise violated the regulation. They contend that the Washington state court proceedings had established that the sale in question was a “subject” sale, and that when it had been determined that the livestock were unfit no obligation to pay arose. However, that decision was based on the state’s regulatory program rather than the federal program and the federal government was not party to the state court proceedings; it in no sense had a “laboring oar” in those proceedings. See Montana v. United States, 440 U.S. 147, 99 S.Ct. 970, 974, 59 L.Ed.2d 210 (1979). Thus, neither claim nor issue preclusion resulted. Cf. Commissioner v. Estate of Bosch, 387 U.S. 456, 457, 87 S.Ct. 1776, 1778, 18 L.Ed.2d 886 (1967). We have already ruled that substantial evidence supports the Judicial Officer’s findings of conspiracy.

As to whether the sales in question were “as is” or “subject” the administrative law judge and the Judicial Officer found them to be “as is”; they found that all markets involved had rejected the 1972 letter and had followed their regular practice of selling “as is.” The Judicial Officer concluded that since, under the Act, it is the market operator who has the responsibility for fixing the terms of sale and market practices (see footnote 3), a purchaser cannot unilaterally impose his conditions of sale without consent or approval of the market operator. He stated:

“If the State Court’s decision were sound, it would destroy the public livestock marketing system. Under the State Court’s decision, each buyer could establish the terms and conditions relating to his purchase of animals at an auction stockyard merely by advising the market of such terms and conditions, notwithstanding the market’s refusal to accept such terms. * * *
******
Accordingly, when a stockyard owner-market operator establishes that cattle are sold ‘as is’ at his market, any packer who bids on cattle at that market is buying the cattle ‘as is’; * * *.”

We find substantial evidence to support the Judicial Officer’s findings and agree with his conclusions.

OTHER CONTENTIONS .

We find no merit in petitioners’ contention that their withdrawal of their 1974 letters rendered the dispute moot. As the Supreme Court stated in United States v. W. T. Grant Co., 345 U.S. 629, 633, 73 S.Ct. 894, 897, 97 L.Ed. 1303 (1952), a case involving regulation by the Federal Trade Commission:

“[V]oluntary cessation of allegedly illegal conduct does not deprive the tribunal of power to hear and determine the case . A controversy may remain to be settled in such circumstances, . e. g., a dispute over the legality of the challenged practices . . . The de*1338fendant is free to return to his old ways. . The case may nevertheless be moot if the defendant can demonstrate that ‘there is no reasonable expectation that the wrong will be repeated.’ The burden is a heavy one.” (Emphasis added.)

Accord, Oregon-Washington Plywood Co. v. FTC, 194 F.2d 48, 51 (9th Cir. 1952). There is substantial evidence to support the conclusion that petitioners did not meet this heavy burden.

We find no merit in Hygrade’s contention that as to it the cease and desist order, being nation-wide in scope, was unnecessarily broad. As the Judicial Officer noted in his decision, it is common practice under the Act to make cease and desist orders nation-wide in scope. This practice was upheld in Wilson & Co. v. Benson, supra, 286 F.2d at 896. In our view, if a packer has engaged in an unfair practice which should be halted, it is not unreasonable to make the order as broad as the packer’s operations.

The order is affirmed.

. Section 202 of the Act, 7 U.S.C. § 192 (1964) (amended 1976), provides in pertinent part:

“It shall be unlawful with respect to livestock, meats, meat food products, livestock products in unmanufactured form * * * for any packer * * * to:
(a) Engage in or use any unfair, unjustly discriminatory, or deceptive practice or device in commerce; or
******
(e) Engage in any course of business or do any act for the purpose or with the effect of manipulating or controlling prices in commerce, or of creating a monopoly in the acquisition of, buying, selling, or dealing in, any article in commerce, or of restraining commerce; or
sfc 5^1 ♦ ¡ft
(g) Conspire, combine, agree, or arrange with any other person to do, or aid or abet the doing of, any act made unlawful by subdivisions (a)-(d) or (e) of this section.”

The administrator also alleged violation of § 201.43(b) of the Regulations, 9 C.F.R. § 201.-43(b) (1977) (amended 1977), which provides in pertinent part:

“Purchasers to pay promptly for livestock. Each packer, market agency, or dealer purchasing livestock shall, before the close of the next business day following the purchase of livestock and the determination of the amount of the purchase price, transmit or deliver to the seller or his duly authorized agent the full amount of the purchase price, unless otherwise expressly agreed between the parties before the purchase of the livestock. * * *”

Violation was also charged of two other regulations prohibiting the furnishing of information to competitive buyers, and the restriction or limitation of competition. On appeal, these have been treated as encompassed within the statutory violation.

. The Judicial Officer’s order provides:

“Respondents DeJong Packing Company, Ferry Bros., Inc., Hygrade Food Products Corporation, Mount Vernon Meat Co., Inc., and John F. Lenz, their officers, directors, agents, employees, successors, and assigns, directly or indirectly, individually or in combination with others, or through any corporate or other device, in connection with their operations as packers, shall cease and desist from:
1. Entering into or acting in furtherance of any conspiracy, combination, agreement or arrangement with any other packer or livestock buyer for the purpose or with the effect of establishing or imposing any terms or conditions relating to the purchase of or the payment for livestock purchased in commerce.
2. Conducting any of its operations relating to the purchase of livestock in commerce jointly or in combination with any other packer or livestock buyer, or furnishing any information of such buying operations to any other packer or livestock buyer.
3. Failing to pay, when due, the full purchase price of livestock purchased in commerce.
This order shall become effective as to each respondent on the first day after service upon such respondent.”

. 7 U.S.C. § 208(b) (Supp.1979) provides in part:

“It shall be the responsibility and right of every stockyard owner to manage and regulate his stockyard in a just, reasonable, and nondiscriminatory manner, to prescribe rules and regulations and to require those persons engaging in or attempting to engage in the purchase, sale, or solicitation of livestock at such stockyard to conduct their operations in a manner which will foster, preserve, or insure an efficient, competitive public market.”

. As to this letter, the administrative law judge stated in his initial decision:

“The obvious tenor of the document is threatening and coercive. * * * The meaning of the document was not unclear to the recipient markets. They understood it to be what it was — an ultimatum by their major customers. Without the patronage of these customers, the markets could not profitably conduct their business. Upon receipt of this ultimatum, it is no wonder that the markets sought Government aid in order to resist.”

Petitioners allege that they took this action in response to the increasingly common practice on the part of some sellers of administering antibiotics so that diseased cattle which will not pass government inspection appear to be healthy at the time of auction. The market operators opposed the shift to “subject” terms, asserting that it would cause added administrative problems and expense to the market. The Judicial Officer found that “each group had valid business reasons for its position *

. The Judicial Officer stated:

“1. Both letters applied only to cattle (although Hygrade purchases other species).
2. Under both letters, all cattle would be purchased ‘subject’ rather than ‘as is.’
3. Both letters provided that the packer would refuse to pay for an animal found unfit for human consumption if slaughtered within the identical time period, viz., three bank days; and both provided for the packer to pay for condemned animals slaughtered after such period.
4. Both letters provided for notice of condemnation by telephone, with condemnation slips to be thereafter mailed to the auction markets.
The only difference between the purchasing conditions of the two letters was in the method of payment. Hygrade would have withheld payment of only two animals from each sale until it was determined whether any animals failed to pass inspection; * * whereas the other respondents would have withheld payment for all cattle for three bank business days.”

. The Judicial Officer stated:

“3. Hygrade’s letter was sent practically simultaneously with-the letters of the other respondents in 1974, and all of the letters had the identical effective date, May 1, 1974, except for Ferry, which had an April 29, 1974, effective date. Respondents contend that they all simultaneously and independently arrived at the decision to send their 1974 letters as a result of the State Court decision referred to in Findings 11, 12 and 19, supra. But it is not likely that such uniformity in timing would have occurred absent collective action. The State Court decision was filed February 15, 1974. The time for appeal expired about March 18, 1974. Although the beginning of a month might have been picked by each respondent, acting independently, as the effective date for action, not one of the respondents picked April 1, 1974, as the effective date, and not one picked June 1, 1974, or thereafter as the effective date.”

. While § 202 of the Packers and Stockyards Act may have been made broader than antecedent antitrust legislation in order to achieve its remedial purpose, it nonetheless incorporates the basic antitrust blueprint of the Sherman Act and other pre-existing antitrust legislation such as the Clayton Act and the Fair Trade Commission Act. See Armour & Co. v. United States, 402 F.2d 712, 722 (7th Cir. 1968); Swift & Co. v. United States, 393 F.2d 247, 253 (7th Cir. 1968). Thus the courts that have considered § 202 have consistently looked to decisions under the Sherman Act for guidance, although recognizing that § 202 in some cases proscribes practices which the Sherman Act would permit. E. g., Armour & Co. v. United States, supra, 402 F.2d 712 (7th Cir. 1968); Swift & Co. v. United States, supra, 393 F.2d 247 (7th Cir. 1968); Swift & Co. v. United States, 308 F.2d 849, 853 (7th Cir. 1962). The parties in the present case agree, as indeed they must, that decisions under the Sherman Act are germane to the issues before us.

. The Supreme Court did not indicate in Paramount Famous Lasky Corp. or First National Pictures, Inc., whether it was proceeding under the rule of reason or whether it deemed the practices in question illegal per se. The court used language which suggests a rule-of-reason analysis and it also used language which suggests a per-se approach.

We do not find it necessary to decide that question here or to suggest which mode of analysis should apply under the Sherman Act. The present Act, as we discuss later is, if anything, broader in scope than the Sherman Act, and conduct of the kind held improper in Paramount and First National would clearly justify issuance of a cease and desist order under § 202.