Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
10-7-1994
Alvord-Polk, Inc., et al. v. F. Schumacher & Co.
Precedential or Non-Precedential:
Docket 92-1762
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 92-1762
___________
ALVORD-POLK, INC.; AMERICAN BLIND FACTORY,
INC.; DELTA PAINT AND WALLPAPER SUPPLY CO.,
INC.; FAIRMAN WALLPAPER AND PAINT COMPANY;
FRANK R. YOCUM, t/a FRANK R. YOCUM & SONS
WALLPAPER CO.; HARRY'S WALLPAPER, INC.;
LANCASTER CARPET MARKET, INC.; MARVIN KOLSKY,
t/a HEADQUARTERS WINDOWS & WALLS; SILVER
WALLPAPER & PAINT CO., INC.; YANKEE
WALLCOVERINGS, INC.,
Appellants,
vs.
F. SCHUMACHER & CO.; THE NATIONAL DECORATING
PRODUCTS ASSOCIATION, INC.
Appellees.
___________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
(D.C. Civil No. 90-03617)
___________
ARGUED MARCH 17, 1993
OPINION VACATED SEPTEMBER 15, 1993
SUBMITTED PURSUANT TO LAR 34.1(a)
ON PANEL REHEARING OCTOBER 25, 1993*
BEFORE: STAPLETON, ROTH and LEWIS, Circuit Judges.
*
The motion for oral argument on panel rehearing filed by F.
Schumacher & Co. is denied.
(Filed October 12, 1994)
___________
Steven A. Asher (ARGUED)
Kohn, Nast & Graf
1101 Market Street
24th Floor
Philadelphia, PA 19107
Attorney for Appellants, Alvord-Polk, Inc.,
American Blind Factory, Inc.; Delta Paint and
Wallpaper Supply Co., Inc; Frank R. Yocum,
t/a Frank R. Yocum & Sons Wallpaper Co.;
Harry's Wallpaper, Inc.; Lancaster Carpet
Market, Inc.; Marvin Kolsky, t/a Headquarters
Windows & Walls; Silver Wallpaper & Paint
Co., Inc.; Yankee Wallcoverings, Inc.
Michael S. Lando (ARGUED)
1411 Fifth Avenue
Pittsburgh, PA 15219
Attorney for Appellant, Fairman Wallpaper and
Paint Company
Margaret M. Zwisler (ARGUED)
Howrey & Simon
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2402
Attorney for Appellee, F. Schumacher & Co.
Richard D. Lageson (ARGUED)
Gino F. Battisti
Suelthaus & Kaplan, P.C.
7733 Forsyth Boulevard, 12th Floor
St. Louis, MO 63105
Attorneys for Appellee, The National Decorating
Products Association, Inc.
___________
OPINION OF THE COURT
__________
LEWIS, Circuit Judge.
For over a decade, retailers who market wallpaper by
providing sample books and showroom displays have feuded with
dealers who sell at a discount through toll-free "1-800"
telephone numbers. In this case, ten 800-number dealers have
accused the retailers' trade association and one of the leading
wallpaper manufacturers of violating antitrust laws in an attempt
to force them out of business. The district court granted
summary judgment to the defendants on these and certain state-law
claims. We will reverse the grant of summary judgment as to some
federal and state antitrust claims but will affirm as to others
and as to the 800-number dealers' tort claims.
I.
Our review of a grant of summary judgment is plenary;
we evaluate the evidence using the same standard the district
court was to have applied in reaching its decision. Big Apple
BMW, Inc. v. BMW of North America, Inc., 974 F.2d 1358, 1362 (3d
Cir. 1992); J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d
1524, 1530 (3d Cir. 1990); Erie Telecommunications, Inc. v. City
of Erie, 853 F.2d 1084, 1093 (3d Cir. 1988). Plaintiffs have
alleged three theories of antitrust liability under the Sherman
Act, 15 U.S.C. § 1 (the "Act"). A brief review of the Act and
its purposes informs our determination of the standard to be
applied on summary judgment.
A.
Section 1 of the Sherman Act provides:
Every contract, combination in the form of
trust or otherwise, or conspiracy, in
restraint of trade or commerce among the
several States, or with foreign nations, is
declared to be illegal[.]
15 U.S.C. § 1. The very essence of a section 1 claim, of course,
is the existence of an agreement. Indeed, section 1 liability is
predicated upon some form of concerted action.1 Fisher v.
Berkeley, 475 U.S. 260, 266 (1986); Copperweld Corp. v.
Independence Tube Corp., 467 U.S. 752, 767-69 (1984); United
States v. Colgate & Co., 250 U.S. 300 (1919); Big Apple BMW, 974
F.2d at 1364. See also Weiss v. York Hospital, 745 F.2d 786, 812
(3d Cir. 1984) (section 1 claim requires proof of three elements,
the first of which is "a contract, combination or conspiracy");
Edward J. Sweeney & Sons, Inc. v. Texaco, Inc., 637 F.2d 105, 110
(3d Cir. 1980) ("[u]nilateral action, no matter what its
motivation, cannot violate [section] 1"). A "`unity of purpose
or a common design and understanding or a meeting of minds in an
unlawful arrangement[,]'" must exist to trigger section 1
liability. Copperweld, 467 U.S. at 771, quoting American Tobacco
Co. v. United States, 328 U.S. 781, 810 (1946). See also Fisher,
475 U.S. at 267; Sweeney, 637 F.2d at 111.
1
. The term "concerted action" is often used as shorthand for
any form of activity meeting the section 1 "contract, combination
or conspiracy" requirement. Bogosian v. Gulf Oil Corp., 561 F.2d
434, 445-46 (3d Cir. 1977).
The requirement is an important one, for it emphasizes
the distinction between section 1 liability, which is imposed for
concerted action in restraint of trade, and liability imposed
under section 2 of the Sherman Act for monopolization. See
Copperweld, 467 U.S. at 767. Activity which is alleged to have
been in violation of section 1 may be subject to a per se
standard and engender liability without inquiry into the harm it
has actually caused. See Copperweld, 467 U.S. at 768. See
generally Business Electronics Corp. v. Sharp Electronics Corp.,
485 U.S. 717, 723 (1988). Alternatively, section 1 liability
might be imposed for concerted action which violates the "rule of
reason" standard without proof that it threatened monopolization.
Copperweld, 467 U.S. at 768.
Congress treated concerted action more strictly than
unilateral behavior because,
Concerted activity inherently is fraught with
anticompetitive risk. It deprives the
marketplace of the independent centers of
decisionmaking that competition assumes and
demands. In any conspiracy, two or more
entities that previously pursued their own
interests separately are combining to act as
one for their common benefit. This not only
reduces the diverse directions in which
economic power is aimed but suddenly
increases the economic power moving in one
particular direction. Of course, such
mergings of resources may well lead to
efficiencies that benefit consumers, but
their anticompetitive potential is sufficient
to warrant scrutiny even in the absence of
incipient monopoly.
Id. at 768-69. For this reason, when we examine an alleged
violation of section 1 of the Sherman Act, we look for an
agreement that "brings together economic power that was
previously pursuing divergent goals." Id. at 769. A lack of
such divergent goals precludes officers of a single company from
conspiring. Neither internally coordinated conduct of a
corporation and its unincorporated division, nor activity
undertaken jointly by a parent corporation and its wholly owned
subsidiary, can form the bases of section 1 violations. Id. at
769-71.
An agreement need not be explicit to result in section
1 liability, Standard Oil Co. of New Jersey v. United States, 221
U.S. 1, 59-60 (1911), quoted in Copperweld, 467 U.S. at 785
(Stevens, J., dissenting), and may instead be inferred from
circumstantial evidence. Theatre Enterprises, Inc. v. Paramount
Film Distributing Corp., 346 U.S. 537, 540-41 (1954); Sweeney,
673 F.2d at 111; Milgram v. Loew's, Inc., 192 F.2d 579, 583 (3d
Cir. 1951). Therefore, direct evidence of concerted action is
not required.
In this case, the parties contest the propriety of
summary judgment on the issue of concerted action in each of
three different alleged fact patterns. Before addressing each
fact pattern, we turn to a review of the summary judgment
standard applicable to antitrust cases.
B.
A district court may enter summary judgment "if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law."
Fed. R. Civ. P. 56(c). The substantive law determines which
facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986).
A party moving for summary judgment need not produce
evidence to disprove its opponent's claim, Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986), but it does bear the burden of
demonstrating the absence of any genuine issues of material fact.
Big Apple BMW, 974 F.2d at 1362. As in this case, when the
nonmoving party will bear the burden of proof at trial, the
moving party may meet its burden by showing that the nonmoving
party has failed to produce evidence sufficient to establish the
existence of an element essential to its case. Celotex, 477 U.S.
at 322.
In reviewing the evidence, facts and inferences must be
viewed in the light most favorable to the party opposing summary
judgment. Matsushita Electric Industrial Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986). When the moving party has
pointed to material facts tending to show there is no genuine
issue for trial, however, the nonmoving party "must do more than
simply show that there is some metaphysical doubt as to the
material facts. . . . Where the record taken as a whole could
not lead a rational trier of fact to find for the nonmoving
party, there is no `genuine issue for trial.'" Matsushita, 475
U.S. at 586-87.
This traditional summary judgment standard applies with
equal force in antitrust cases, Eastman Kodak Co. v. Image
Technical Services, Inc., 119 L.Ed.2d 265, 285 (1992); Big Apple
BMW, 974 F.2d at 1362-63; however, the meaning we ascribe to
circumstantial evidence will vary depending upon the challenged
conduct.
For example, evidence of conduct which is "as
consistent with permissible competition as with illegal
conspiracy," without more, does not support an inference of
conspiracy. Matsushita, 475 U.S. at 597 n.21, citing Monsanto
Co. v. Spray-Rite Service Corp., 465 U.S. 752, 763-64 (1984); Big
Apple BMW, 974 F.2d at 1363. See generally Fineman v. Armstrong
World Industries, Inc., 980 F.2d 171, 186-87 (3d Cir. 1992).
This is because mistaken inferences in such a context "are
especially costly[;] they chill the very conduct the antitrust
laws are designed to protect." Matsushita, 475 U.S. at 594;
Monsanto, 465 U.S. at 763-64. In such cases, the Supreme Court
has required plaintiffs to submit "evidence tending to exclude
the possibility" of independent action, i.e., "direct or
circumstantial evidence that reasonably tends to prove that [the
alleged conspirators] `had a conscious commitment to a common
scheme designed to achieve an unlawful objective.'" Monsanto,
465 U.S. at 764, quoting Sweeney, 637 F.2d at 111.
Conversely, if the alleged conduct is "facially
anticompetitive and exactly the harm the antitrust laws aim to
prevent," no special care need be taken in assigning inferences
to circumstantial evidence. Eastman Kodak, 119 L.Ed.2d at 291;
Arnold Pontiac-GMC, Inc. v. Budd Baer, Inc., 826 F.2d 1335, 1339
(3d Cir. 1987) (Monsanto and Matsushita do not apply when
challenged action is overtly anticompetitive); Tunis Brothers
Co., Inc. v. Ford Motor Co., Inc., 823 F.2d 49, 50 (3d Cir. 1987)
(implying that Matsushita requires evidence tending to exclude
the possibility of independent action only when the challenged
conduct is as consistent with permissible competition as with
illegal conspiracy). See also In re Coordinated Pretrial
Proceedings in Petroleum Products Antitrust Litigation, 906 F.2d
432, 438-39 (9th Cir. 1990) ("the key to proper interpretation of
Matsushita lies in the danger of permitting inferences from
certain types of ambiguous evidence").2
II.
With these standards in mind, we will review the
evidence, granting reasonable inferences to the plaintiffs.3
Persons interested in decorating or redecorating their
homes or offices typically view samples of wallpaper before
purchasing. Recognizing this, retailers traditionally have made
available to consumers the wallpaper sample books they purchase
from manufacturers. They have also provided consumers with
information through the use of promotional materials and showroom
2
. Similarly, the analyses set forth in Monsanto and Matsushita
do not apply when a plaintiff has offered direct evidence of
concerted action. Arnold Pontiac-GMC, Inc. v. Budd Baer, Inc.,
826 F.2d 1335, 1338 (3d Cir. 1987). See also In re Coordinated
Pretrial Proceedings in Petroleum Products Antitrust Litigation,
906 F.2d 432, 441 (9th Cir. 1990).
3
. Our review does not include consideration of evidence
which was the subject of the three pending motions to supplement
the record. Nor will we consider citations to evidence in
F. Schumacher & Co.'s brief which was not of record before the
district court.
displays. The purchase of sample books, establishment of a
showroom and hiring of knowledgeable sales personnel are costly
endeavors and, as one might expect, these costs are reflected in
higher prices to consumers. Manufacturers have encouraged
retailers to incur these costs, however, because of a prevailing
notion that their products sell better when marketed thus.
In recent years, a new breed of retailer has emerged.
Some companies now accept orders from consumers all over the
United States who call toll-free telephone numbers to order
wallpaper after having availed themselves of the sample books,
displays and assistance offered by conventional retailers.
Today, purchasers may visit a conventional retailer's showroom,
peruse the sample books, note the brands and product numbers of
the patterns they like, and then go home and order wallpaper at a
discount from an 800-number dealer. This informed decision has,
of course, been funded in part by retailers who will realize no
return on their investment. The 800-number dealer will arrange a
"drop shipment" directly from the manufacturer to the purchasers'
homes.4
Both conventional retailers and 800-number dealers are
members of the National Decorating Products Association (the
4
. In the nomenclature of the marketplace, these 800-number
dealers are "free-riders," who reduce or eliminate service to
create price competition but who benefit from services such as
wallpaper sample books, salesperson advice and showroom displays
paid for and provided by other, full-service retailers. See
Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 55
(1977); Big Apple BMW, Inc. v. BMW of North America, Inc., 974
F.2d 1358, 1376-77 (3d Cir. 1992).
"NDPA"), a trade association comprised of independent retailers
who sell a variety of decorating products. The NDPA has about
3,300 members who operate approximately 8,500 retail locations.
Its policy is established and its business conducted by an
18-member board of directors. It sponsors a number of trade
shows and educational programs for its members each year. It
also publishes a monthly industry news journal titled Decorating
Retailer, and it formerly published a similar newsletter called
Wallcovering Industry News.
A.
In the late 1970's and early 1980's, conventional
retailers in the NDPA threatened to cease purchasing products
from manufacturers who continued to do business with the
800-number dealers, whom they referred to as "pirates." The NDPA
itself actively campaigned against 800-number dealers by lobbying
manufacturers to recognize the advantages of conventional
retailing and by encouraging them to "level the playing field"
between 800-number dealers and conventional retailers.
For example, Robert Petit, NDPA's executive vice
president and chief executive officer, spoke to manufacturers,
including Michael Landau, president of F. Schumacher & Co.
("FSC") on this subject. Appendix ("App.") at 190-97, 202. In
February, 1983, Petit sent a letter on NDPA letterhead urging
retailers to request from manufacturers sample books that did not
reveal retail prices. Depriving consumers of this information,
Petit argued, would make it more difficult for them to avail
themselves of an 800-number dealer's discount. App. at 523. The
NDPA also marketed a "sales piracy kit" for conventional
retailers to use in disguising or concealing pattern numbers and
price information on sample books so that consumers could not so
easily acquire the information and then order elsewhere. App. at
271-73, 407.
In 1985, the Federal Trade Commission ("FTC") issued a
complaint against NDPA because of these activities. In 1986, the
parties entered into a consent decree which provided in part:
NDPA . . . shall cease and desist from:
A. Conduct having the purpose or
effect of:
* * *
Expressly or impliedly advocating,
suggesting, advising, or
recommending that any of NDPA's
. . . members refuse to deal with
any seller of wallcoverings on
account of, or that any of NDPA's
. . . members engage in any other
act to affect, or to attempt to
affect, the prices, terms or
conditions of sale, or distribution
methods or choice of customers of
any seller of wallcoverings.
App. at 412. The consent decree also provided:
IT IS FURTHER ORDERED that this Order
shall not be construed to prevent NDPA . . .
from publishing written materials or
sponsoring seminars, or otherwise providing
information or its members' views on topics
including but not limited to cost accounting
principles, and suggested prices and product
identification numbers in wallcovering sample
books to other sellers of wallcoverings,
provided, however, that the information or
views are not presented in a manner
constituting a violation of any provision
contained in Part II of this Order.
Id.5
In the aftermath of this settlement, as required by the
consent decree, NDPA circulated a summary of the consent order in
which it informed members that NDPA, as a group of competitors,
was "already considered to be an `agreement.'" App. at 430. The
NDPA guidelines for conducting meetings, drafted shortly before
entry of the consent decree, also acknowledge that "a trade
association is, by definition, a combination of competitors."
App. at 740. The guidelines further provide that before a
chapter officer delivers a speech or makes a presentation at a
meeting, he or she should state that the views expressed are his
or her own and not those of the NDPA or any chapter. App. at
743.
Since the entry of the consent decree, NDPA has
modified its lobbying efforts to some extent, but it has not
ceased them. The following passage from Petit's deposition
testimony illustrates his view of the effect of the consent
decree on NDPA's lobbying activities:
We changed some of the things we were
doing. One of the things that the [FTC]
objected to us doing was, for example, having
a sales piracy kit. Their feeling on that
was that -- which we didn't agree with at all
[--] that we were projecting a single way for
the dealers to take action, and that they
felt that this was bad. There was no problem
5
. We may, of course, consider evidence of activity
necessitating the entry of the consent decree, as well as the
terms of the consent decree itself, as part of the overall
picture, or potential evidence of a pattern of conduct. See Big
Apple BMW, 974 F.2d at 1361; cf. Continental Ore Co. v. Union
Carbide & Carbon Corp., 370 U.S. 690, 699 (1962).
with the FTC of enumerating numerous things
that might be done, but not to specialize in
one particular thing. So, therefore, we did
drop the sales piracy kit.
* * *
We took extra care in everything we did
to make sure we lived up to that FTC
agreement.
App. at 199. Some NDPA members apparently believe NDPA has
substantially altered its activities; one poll revealed that
members have resigned because the NDPA is "not doing anything in
regard to the sales piracy issue." App. at 200. Petit, however,
has continued to impart to manufacturers, including Landau, his
view of the advantages of conventional retailing over other
methods of marketing wallcovering, such as 800-number sales.
App. at 198.
B.
The sentiment against 800-number dealers continued to
escalate even after the consent decree was entered. Decorating
Retailer published several letters from NDPA members, including
some retailers who were former or current NDPA officers, urging
action against the 800-number dealers. Its editor, John Rogers,
often solicited comment for the letters column by sending a
variety of articles from a forthcoming issue to a number of
people in the industry. In each issue of Decorating Retailer, a
standard statement appeared in the letters column apprising the
reader that: "The editor reserves the right to edit to fit space
limitations or publishing policies. Opinions expressed are those
of the writer and not necessarily those of the editor." E.g.,
app. at 496.
Decorating Retailer and Wallcovering Industry News also
printed several news articles about 800-number dealers, most of
which used the term "pirates" among other characterizations to
describe them. In May, 1988, one editorial -- a Perspective
column in Decorating Retailer -- stated that "[t]here are
increasing signs that the retailer's voice crying in the
wallcovering wilderness is being heard," and cited many
developments in the industry, such as "a sudden advent of bar
coding kits for retailer protection of sample book pattern
numbers," as signs that wallpaper suppliers were responding to
retailers' needs. App. at 758.
C.
Undoubtedly, FSC, a leading manufacturer which had
always promoted the traditional method of marketing
wallcoverings, heard the complaints. In July, 1988, it announced
a drop shipment surcharge on wallcovering deliveries directly to
consumers, to take effect in September, 1988. App. at 298-99.
Under this new policy, FSC would impose a 7 percent surcharge on
every order requesting drop shipment. Obviously, this would have
the effect of increasing the 800-number dealers' costs while
decreasing their ability to compete on the basis of price with
conventional retailers.
The minutes from FSC's management committee meeting in
April, 1988, state that it considered the policy to be a signal
to conventional retailers that FSC was trying to help them.
App. at 290. A draft press release, later revised, identified
the protection of dealers from piracy as one reason for the
surcharge. Compare app. at 298-99 with app. at 1364-65. Minutes
from September, 1989, reveal that the management committee viewed
the drop shipment surcharge as "a good first step" against
800-number dealers. App. at 304.
Beyond merely responding to dealer complaints, FSC also
claimed that the surcharge was, in part, intended to recoup
increased costs of drop shipments. It did not, however, employ
any particular formula or calculations to arrive at its surcharge
figure or to determine its basis for recoupment. Nor did it
consult any source regarding or otherwise study such costs,
although the record contains statements by another manufacturer
indicating that his costs for drop shipments were no higher than
for shipments to stores. App. at 148-49, 622.
Predictably, retailers responded favorably to the
imposition of the surcharge. For example, in September, 1988, a
Decorating Retailer editor's note responding to a letter about
800-number dealers' advertisements stated that "there are signs
that telling your troubles to suppliers eventually will be heard
and some remedy may result." App. at 485.
Yet the retailers were not entirely satisfied. In
January, 1989, at a convention in Halifax, Nova Scotia, Petit
revisited the issue of 800-number dealers and the problems they
posed for the industry. An August, 1989 memo shows that Petit
spoke to at least one manufacturer about "the anger felt by the
retailers in lack of support from the wallcovering industry."
App. at 185-86. See also app. at 190-98, 201-07, 212-29, 404,
416-19, 693-99, 700. During this period, NDPA officer Clyde
Morgan also expressed "concern about the 800-number and the
effect it was having on me" at a meeting of industry leaders.
App. at 183.
The fall 1989 planning session at FSC also reflected
continuing concerns about 800-number dealers. In September,
1989, soon after an NDPA meeting, Landau stated at a management
committee meeting that the surcharge was a good first step but
that other measures were necessary. App. at 304. An October,
1989 memo asked whether "we [should] make another anti-pirate
move? If so, what?" App. at 793. In November, 1989, Landau
reported to the management committee what he had learned at an
NDPA trade show: "retailers squeezed by mass market & 800 #'s."
App. at 307. The minutes from that committee's meeting also
include the following entry: "800 #s: Meeting with attorneys
next week to formulate new strategy." App. at 309.
D.
In January, 1990, FSC announced a local trading policy
to be implemented in March, 1990. App. at 694-97. FSC dealers
would be prohibited from selling FSC products outside of their
"local trading area," thus effectively prohibiting 800-number
dealers from selling FSC's products nationwide through their
toll-free telephone numbers. Immediately after this policy was
announced, Petit circulated a copy of it to the NDPA board of
directors, saying, "This is a major step forward in our battle
against the 800-number operators." App. at 693. He also sent a
letter to Landau on NDPA letterhead stating, "On behalf of the
members of our decorating products associations, I want to
express our appreciation of your actions." App. at 700.
Five FSC executives testified that the purpose of the
local trading area policy was to ensure that FSC dealers would
realize a return on their investments in sample books and other
FSC overhead. App. at 1215, 1218-19, 1222-23, 1238-40, 1249-50,
1340-43, 1520-22, 1550-52. FSC's vice president of sales
testified that if FSC had not taken action against the 800-number
dealers, it "would continue to have resistance to purchasing
sample books with the piracy issue." App. at 691. Indeed, there
were several references in planning meetings to safeguarding
against free riders and supporting conventional retailers.
Shortly thereafter, according to Decorating Retailer
and Wallcovering Industry News articles, NDPA president John
Wells spoke at a trade show in Anaheim, California. The articles
describe Wells as urging that "[i]nsisting on supplier support
rather than coding books is the answer to piracy problems
besetting wallcovering retailers." App. at 440. At the same
show Petit, according to one of the articles, applauded
manufacturers' efforts to fight 800-number dealers. Id. In
accordance with NDPA guidelines, Wells specifically stated that
his views were his own as an independent retailer, but the
articles refer both to him and to Petit in their NDPA
capacities.6
6
. FSC and NDPA argue that these articles constitute
inadmissible hearsay. Plaintiffs respond that the articles are
In May, 1990, Rogers wrote a Perspective column in
which he discussed the retailers' opposition to 800-number
dealers, reviewed some of the methods retailers had adopted to
guard against 800-number dealers' taking their business, and
stated, "ultimately, the answer for the individual dealer is that
given by Wells: `I will support those who support me.'" App. at
167. Rogers testified that while the Perspective column does not
represent the policy of the NDPA, to his knowledge there has not
been an occasion when a comment published in it has contravened
NDPA's policies.
Both before and after it instituted the policies in
question, FSC received letters from retailers urging it to take
action against the 800-number dealers. Meanwhile, during this
period the FTC repeatedly responded to inquiries from plaintiffs
with the assurance that, in its view, NDPA was in compliance with
the consent decree entered into in 1986.
E.
Anti-800 number dealer sentiment was not confined to
retailers' ranks; manufacturers were also discussing 800-number
dealers among themselves. Between 1988 and 1990, wallpaper
manufacturers discussed 800-number dealers at meetings of the
(..continued)
admissible as statements of NDPA, having been published in its
own publications. See Fed. R. Evid. 801(d)(2) (statements are
not hearsay if they are offered against a party and are
statements of which the party has "manifested his adoption or
belief in its truth"). We agree: an employee of NDPA had to
have written these articles, which were adopted by NDPA when it
published them in Decorating Retailer and Wallcovering Industry
News. Wells' statements as reflected in the articles are,
therefore, admissible.
Wallcovering Manufacturers Association ("WMA"), an organization
in which Landau served as a member of the board of directors.
In April, 1988, for example, Landau reported to the FSC
management committee that there had been "extensive discussion
pirate situation" at the WMA meeting in Hilton Head. App. at
292. Manufacturers also discussed bar-coding, in the context of
either "pirate-proofing" sample books or standardizing labels and
shipping containers. FSC discussed with other manufacturers
steps they were taking to combat 800-number dealers, such as
engaging in cooperative advertising, imposing state sales taxes
and imposing local trading policies.
800-number dealers were also discussed at conventions
sponsored by a chain of wallcovering stores called Wallpaper-To-
Go. App. at 313, 315. FSC officials and other wallcovering
manufacturers deny that they agreed with other manufacturers to
take action against the 800-number dealers, however. See FSC's
brief at 42.
Other manufacturers reacted against the 800-number
dealers in much the same fashion as FSC did. In April, 1988, the
owner of one company wrote an open letter to manufacturers about
800-number dealers. In it, he suggested that a task force be
formed to establish an "effective, standard and universal method
of `[p]irate-[p]roofing' sample books." App. at 884. At least
one manufacturer took a step in that direction and coded its
sample books so that style and price information could not easily
be discerned. App. at 139-41. Another imposed a local trading
policy, app. at 130-38, 151, and another tried, but discontinued,
a cooperative advertising program with conventional retailers.
App. at 127-28. By August, 1989, two more manufacturers had
imposed a drop shipment surcharge. App. at 160, 789.
III.
In May, 1990, plaintiffs filed suit against NDPA and
FSC. Their amended complaint, filed in January, 1991, contained
twelve counts, the first four of which provide the central focus
for this appeal. In Count I, they alleged that "[t]he individual
retail wallcovering dealers, acting through the NDPA" violated
section 1 of the Sherman Act by entering into a horizontal
conspiracy to eliminate the competition posed by 800-number
dealers. In Count II, the plaintiffs alleged that in response to
the pressure exerted by the NDPA, FSC joined NDPA in a vertical
conspiracy similarly designed to thwart competition. In
Counts III and IV, the plaintiffs alleged that FSC entered into a
conspiracy with other, unnamed, wallcovering manufacturers aimed
at eliminating 800-number dealers. Specifically, plaintiffs
challenged FSC's imposition of the drop shipment surcharge and
its adoption of a local trading policy as being directed at
them.7
Plaintiffs also alleged a claim under section 2(d) of
the Clayton Act, 15 U.S.C. § 13(d); state-law antitrust and
7
. Their amended complaint indicates that plaintiffs originally
were concerned about two additional FSC policies: FSC's failure
to discuss cooperative advertising possibilities with 800-number
dealers though it did so with conventional retailers, and FSC's
charging state sales tax on drop shipments. These policies,
however, are not subjects of this appeal.
restraint of trade violations; tortious interference with
contracts and prospective contractual relations; fraud and
misrepresentation; defamation and commercial disparagement and
breach of contract. In turn, FSC asserted various counterclaims
against the 800-number dealers.
The district court granted defendants' motions for
summary judgment on Counts I through IV and granted both
plaintiffs and defendants summary judgment on various other
claims and counterclaims. Thereafter, the parties settled those
claims which had not been disposed of, and plaintiffs filed this
appeal challenging the district court's decision on Counts I
through IV, the state-law antitrust claims, the tortious
interference claim and the defamation claim against NDPA.
The district court had jurisdiction over this case
pursuant to 28 U.S.C. § 1331, and we exercise jurisdiction
pursuant to 28 U.S.C. § 1291.8 In our analysis of each of the
8
. NDPA and FSC argue that we lack jurisdiction over this
appeal because the district court failed to enter a judgment on a
separate document in accordance with Rule 58 of the Federal Rules
of Civil Procedure and had not yet awarded costs in accordance
with Rule 54(d) of the Federal Rules of Civil Procedure.
In Bankers Trust Co. v. Mallis, 435 U.S. 381 (1978) (per
curiam), however, the Supreme Court recognized that the rules of
civil procedure requiring entry of judgment on a separate
document should be interpreted in a common-sense fashion. "If,
by error, a separate judgment is not filed before a party
appeals, nothing but delay would flow from requiring the court of
appeals to dismiss the appeal." Mallis, 435 U.S. at 385-86. See
also International Brotherhood of Teamsters v. Western
Pennsylvania Motor Carriers Assoc., 660 F.2d 76, 80 (3d Cir.
1981). The district court's failure to enter judgment in
accordance with the dictates of Rule 58 appears to stem from
oversight. No other plausible suggestion has been advanced.
Thus, we reject this jurisdictional argument.
plaintiffs' Sherman Act claims, which allege three distinct
antitrust theories of liability, we proceed from the premise that
"plaintiffs should be given the full benefit of their proof
without tightly compartmentalizing the various factual components
and wiping the slate clean after scrutiny of each." Continental
Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699
(1962).
IV.
At Count I, in which plaintiffs named only NDPA as a
defendant, they alleged that conventional retailers, acting
through the NDPA, conspired to pressure manufacturers to
eliminate them from the marketplace. The district court examined
the record for evidence of "officially sanctioned NDPA activity,"
found none, and ruled that plaintiffs could not meet the
"concerted action" requirement because "[t]he NDPA can only act
pursuant to a resolution from its board and no such resolution
has been identified." App. at 37. We will reverse.
A.
It is both uncontested and uncontestable that NDPA is
an association of competing wallpaper dealers. As such, when
NDPA takes action it has engaged in concerted action so as to
trigger potential section 1 liability. Weiss, 745 F.2d at 816
(..continued)
As to costs, we note that the parties' stipulation of
settlement, which disposed of those counts as to which the
district court had not granted summary judgment and which was
entered as an order by the district court, provided that each
party was to bear its own costs, thus implicitly if not actually
resolving any Rule 54(d) issue.
(hospital executive committee's actions are concerted action
within the meaning on section 1). "[A]ntitrust policy requires
the courts to seek the economic substance of an arrangement, not
merely its form." Weiss, 745 F.2d at 815. The actions of a
group of competitors taken in one name present the same potential
evils as do the actions of a group of competitors who have not
created a formal organization within which to operate. See id.
at 816 ("[w]here such associations exist, their actions are
subject to scrutiny under section 1 . . . in order to insure that
their members do not abuse otherwise legitimate organizations to
secure an unfair advantage over their competitors"). See also
Silver v. New York Stock Exchange, 373 U.S. 341 (1963);
Associated Press v. United States, 326 U.S. 1 (1945).
We agree with NDPA's contention, however, that NDPA can
only be held liable for concerted action if it acted as an
entity. See Nanavati v. Burdette Tomlin Memorial Hospital, 857
F.2d 96, 117-18 (3d Cir. 1988) (Weiss holds that when a group of
competitors "acts as a body, it constitutes a `combination'").
In Nanavati, we held that although the actions of a hospital
executive committee might constitute concerted action, the
committee does not engage in concerted action when it does not
"act[] as an entity in furtherance of the conspiracy." Id. at
119. As we explained there:
Our conclusion in Weiss was premised on the
concept that where individual actors take
actions as a group, they are a combination
for the purposes of those actions. Where no
group action is taken, no such combination
can exist. In short, we did not hold in
Weiss that because the actions of the medical
staff constitute the actions of a
combination, even where there is no
allegation that the staff acted as a group,
the `contract, combination or conspiracy'
requirement has been met. Such a group is a
combination as a matter of law only for the
actions it takes as a group.
Id.
In Nanavati, the plaintiff did not maintain that the
executive committee took any action as a group. Id. Instead, he
pointed to the actions of medical staff members who were not on
the executive committee as the basis for his claim. He argued
that the record contained evidence of a boycott against him by
members of the medical staff, so the jury had not erred in
finding that the executive committee had participated in the
boycott. Our search for evidence that members of the executive
committee had acted in furtherance of the boycott yielded none;
thus, we affirmed the district court's grant of judgment n.o.v.
to the executive committee.
Nanavati teaches that concerted action does not exist
every time a trade association member speaks or acts. Instead,
in assessing whether a trade association (or any other group of
competitors) has taken concerted action, a court must examine all
the facts and circumstances to determine whether the action taken
was the result of some agreement, tacit or otherwise,9 among
9
. It would be incorrect to require an official board
resolution, or other officially sanctioned activity, to impose
liability on NDPA. Recognizing that perpetrators of antitrust
violations are often sophisticated businessmen, courts regularly
permit agreements to be shown by circumstantial evidence. See
Big Apple BMW, 974 F.2d at 1364; Theatre Enterprises, Inc. v.
Paramount Film Distributing Corp., 346 U.S. 537, 540-41 (1954).
members of the association. See generally Nanavati, 857 F.2d at
119-20.
Judicial scrutiny of alleged concerted action,
undertaken to determine whether it was the result of an
agreement, is an intricate endeavor. In the straightforward
case, such as when a stock exchange requires disconnection of a
nonmember's private telephone wire, or a hospital executive
committee votes to deny staff privileges to a member, the action
is obviously a result of an agreement which is stamped with the
imprimatur of the association by a vote or passage of a
resolution. See, e.g., Silver, 373 U.S. at 347; Weiss, 745 F.2d
at 816. We can hardly say, however, that this case falls within
that genre.
Here, plaintiffs rely on American Society of Mechanical
Engineers, Inc. v. Hydrolevel Corp., 456 U.S. 556 (1982), to
argue that NDPA took concerted action when its officers spoke out
in protest against the 800-number dealers' business methods and
when NDPA publications included letters complaining about
800-number dealers. In Hydrolevel, the Supreme Court, relying on
general principles of agency law, determined that the American
Society of Mechanical Engineers ("ASME") could be held liable for
the actions of its officers and agents taken with apparent
authority. Writing for the majority, Justice Blackmun held that
imposing liability based upon apparent authority comported with
the intent of the antitrust laws because ASME possessed great
power and the codes and standards it issued influenced policies
and affected entities' abilities to do business. Hydrolevel, 456
U.S. at 570. "When it cloaks its subcommittee officials with the
authority of its reputation, ASME permits those agents to affect
the destinies of businesses and thus gives them the power to
frustrate competition in the marketplace." Id. at 570-71.
Imposing antitrust liability on the association for the actions
of its agents would encourage ASME to police its ranks and
prevent the use of associations by one or more competitors to
injure another. See generally id. at 571-73. See also M.
Boudin, Antitrust Doctrine and the Sway of Metaphor, 75 Geo. L.
J. 395, 417-18 (1986).10
In deciding Hydrolevel, the Court rejected ASME's
argument that it should not be held liable unless its agents had
acted with an intent to benefit it. This argument was
irrelevant, the Court held, in part because "[w]hether they
intend to benefit ASME or not, ASME's agents exercise economic
power because they act with the force of the Society's reputation
behind them." Hydrolevel, 456 U.S. at 574. The Court viewed the
imposition of liability regardless of the agents' intent as more
10
. Judge Boudin notes that the Supreme Court in Hydrolevel
viewed ASME as an "extra-governmental agency" regulating its own
industry. American Society of Mechanical Engineers, Inc. v.
Hydrolevel Corp., 456 U.S. 556, 570 (1982). See M. Boudin,
Antitrust Doctrine and the Sway of Metaphor, 75 Geo. L. J. 395,
417 (1986). Indeed, Hydrolevel and many other trade association
cases have focused on this role and on associations'
standard-setting or industry-regulating activities. See e.g.
Northwest Wholesale Stationers, Inc. v. Pacific Stationery &
Printing Co., 472 U.S. 284 (1985); Moore v. Boating Industry
Assoc., 819 F.2d 693 (7th Cir. 1987). See generally ABA
Antitrust Section, Antitrust Law Developments 86-91 (3d ed.
1992). Notably, the case before us does not involve
standard-setting or industry-regulating activity on NDPA's part.
consistent with the purposes of antitrust law, since this would
encourage ASME to police its agents so as to prevent the
anticompetitive effects of their using its name and power even in
individual efforts at restraining trade. Id.
The issue presented here, however, is markedly
different. In Hydrolevel, the plaintiff had named three
defendants in its conspiracy claim. Although it is difficult to
discern the exact contours of the alleged conspiracy from the
Hydrolevel opinion, it is quite clear that the plaintiff there
was not seeking to hold ASME liable for concerted action solely
on the basis of actions taken by one official with apparent
authority. The conspiracy alleged apparently was between the
chairman of an ASME standards committee and the plaintiff's
primary competitor; the question before the Court was whether
ASME could be held liable for its agent's anticompetitive
activity in participating in the conspiracy even though no one
else at ASME had authorized the violation. Because a conspiracy
was alleged to have taken place between the ASME official and
another conspirator, the Court did not address the question of
whether an agent with apparent authority can cause a trade
association to be held liable for violating the antitrust laws by
taking action on behalf of the association which would have
amounted to such a violation if the association itself, as a
combination of competitors, had undertaken it.
We believe that the Hydrolevel rule that an
association's economic power may justify its being held liable
for the actions of its agents cannot be extended to defeat the
"concerted action" requirement of section 1. Imposing liability
on an association, as we did in Weiss, does not abolish or
diminish the first element of section 1 liability; it merely
recognizes that a group of competitors with a unity of purpose
are engaged in concerted action, whether or not they act under
one name. As we explained in Nanavati, in the absence of a
co-conspirator, an association's actions satisfy the concerted
action requirement only when taken in a group capacity. The
potential for antitrust liability arising from the concerted
action of a group such as a trade association, as that liability
may be established by the apparent authority of an agent to speak
on behalf of and bind that association, has not yet been fully
explored in a trade restraint case.11 In Hydrolevel, for
example, the Court described the concept of apparent authority as
one which results in liability on a principal's part for an
agent's torts. Hydrolevel, 456 U.S. at 565-66. Thus, if an
agent commits fraud, his or her principal is liable if he or she
11
. There is, however, authority for the proposition that a
trade association, in and of itself, is a unit of joint action
sufficient to constitute a section 1 combination. See G.D.
Webster, The Law of Associations § 9a.01[1], 9A3-4 (1991) ("There
is no question that an association is a `combination' within the
meaning of Section 1 of the Sherman Act. Although a conspiracy
requires more than one person, an association, by its very nature
a group, satisfies the requirement of joint action. Thus, any
association activity which restrains interstate commerce can be
violative of Section 1 even if no one acts in concert with the
association."); Stephanie W. Kanwit, FTC Enforcement Efforts
Involving Trade and Professional Associations, 46 Antitrust L.J.
640, 640 (1977) ("Because trade associations are, by definition,
organizations of competitors, they automatically satisfy the
combination requirements of § 1 of the Sherman Act.")
acted with apparent authority to act on behalf of that principal.
Id. at 566. Similarly, if an agent acting with apparent
authority makes misrepresentations that cause pecuniary loss to a
third party or is "guilty of defamation," the principal is
liable. Id. See also id. at 568; see generally Restatement
(Second) of Agency §§ 215 et seq. (a principal is liable for the
"torts of its servants" and for its "servants' tortious
conduct"). Applying that general principle to the antitrust area
leads us to conclude that a principal will be liable for an
antitrust violation if an agent acting with apparent authority
violates the antitrust laws, as one did in Hydrolevel by
conspiring with another person. See Hydrolevel, 456 U.S. at 572
(speaking in terms of finding "ASME . . . civilly liable for the
antitrust violations of its agents acting with apparent
authority" (emphasis added)).
We are dealing here, however, with a trade association
which is charged with violating the antitrust laws by
constituting a horizontal conspiracy to eliminate the 800-number
dealers. Clearly, an association, as a combination of its
members, can violate the antitrust laws through such a
conspiracy. This was the nature of the claim which prompted the
FTC to initiate its complaint against the NDPA in 1985. The
singular characteristic of plaintiffs' allegations here is that
the association is now charged with acting through agents whom it
has imbued with apparent authority. It is uncontested that the
NDPA is highly sophisticated and possesses significant market
power; it is unrealistic to think that such a sophisticated trade
association, wary of the antitrust laws, would ingenuously act as
an association in endorsing the type of activity forbidden by the
consent decree.
In considering the antitrust implications of this
situation, though, our first concern must be whether plaintiffs'
allegations demonstrate an antitrust violation. Specifically, we
must determine whether statements by NDPA officers demonstrate
that NDPA recommended that its members refuse to deal with any
seller of wallcoverings on account of the prices or distribution
methods of that seller. We must also determine whether the
evidence could show that the NDPA officers' statements were made
with the apparent authority of the membership of the NDPA for
those officers to act as the NDPA's agents. This method of
analysis is consistent with Hydrolevel, which instructs that a
court must find an antitrust violation before deciding whether to
hold an association liable for that violation by virtue of the
perpetrator's apparent authority.12
B.
Having focused our inquiry not just upon whether Petit
or other NDPA agents might have acted with apparent authority but
also upon whether their actions could constitute an antitrust
12
. We do not, however, require that members of NDPA
actually ratify an agent's actions before NDPA may be held liable
for them. Such a rule not only would be unrealistic, see supra
note 9, but it also would contravene the Court's admonition that
agents of trade associations acting with apparent authority
exercise the associations' economic power regardless of whether
they are acting to benefit the associations. Hydrolevel, 456
U.S. at 573-74.
violation in the absence of that authority, we believe that a
rational jury could find for the plaintiffs if the evidence
presented to us is proven at trial. As noted previously, Petit
has acknowledged that since the entry of the FTC consent decree
he has continued to urge manufacturers to take steps to hinder
800-number dealers in the conduct of their business. App. at
199, 407. He described himself as conveying "the concerns of
NDPA," app. at 191, and he stated that he views it as part of his
job to convey those concerns. App. at 192. Additionally, once
FSC announced its local trading policy, Petit circulated a copy
of it to the NDPA board of directors along with a memorandum
which could be read as triumphant. App. at 693. From this, a
rational juror could infer that Petit viewed himself as being
authorized by the NDPA to make the statements he made.
Moreover, the record contains evidence from which a
rational juror could also infer that Petit's actions represented
concerted action. That is, a jury could find that, while
representing NDPA, Petit went beyond merely voicing complaints to
manufacturers to actually coercing (or attempting to coerce) them
into cooperating in eliminating 800-number dealers. There is
some evidence that Petit emphasized to manufacturers with whom he
met "the anger felt by the retailers in [the] lack of support
from the wallcovering industry." App. at 185. See also app. at
190-98, 218-29. Such evidence, when viewed against the existing
backdrop of urgings from NDPA officers and editors that retailers
should support only those manufacturers who supported them, could
imply a threat of a retailers' boycott if manufacturers did not
take steps to help eliminate 800-number dealers from the
marketplace.
In sum, nothing in either the antitrust laws or the FTC
consent decree prohibits NDPA from voicing complaints. Granting
all reasonable inferences to the plaintiffs, however, a rational
jury could find that NDPA did more than serve as a conduit for
members' complaints in this case. It could, for example, find
that NDPA, acting through its officers, threatened a retailers'
boycott of manufacturers and thus could hold NDPA liable for a
section 1 violation. For these reasons, we will reverse the
district court's grant of summary judgment at Count I.
V.
At Count II, plaintiffs alleged that FSC responded to
pressure from the NDPA by conspiring with it to eliminate
800-number wallpaper dealers from the marketplace. Their
allegations flow directly from evidence of FSC's taking actions
to eliminate free riders from the marketplace in response to
conventional retailers' complaints (and, possibly, threats of
boycott). There is no dispute that plaintiffs are free riders,
and there is no question as to the legitimacy of a manufacturer's
desire to rid the marketplace of free riders. See Continental
T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 55 (1977); cf. Big
Apple BMW, 974 F.2d at 1377-78. Therefore, the scenario which is
the focus of Count II is as consistent with procompetitive
activity as with allegedly illegal activity. Monsanto, 465 U.S.
at 763.
In Monsanto, a case which also involved an alleged
conspiracy to terminate a dealership relationship because of
other dealers' complaints, the Supreme Court noted:
Permitting an agreement to be inferred merely
from the existence of complaints, or even
from the fact that termination came about `in
response to' complaints, could deter or
penalize perfectly legitimate conduct.
[C]omplaints about price cutters `are natural
-- and from the manufacturer's perspective,
unavoidable -- reactions by distributors to
the activities of their rivals.' Such
complaints . . . `arise in the normal course
of business and do not indicate illegal
concerted action.' . . . Moreover,
distributors are an important source of
information for manufacturers. In order to
assure an efficient distribution system,
manufacturers and distributors constantly
must coordinate their activities to assure
that their product will reach the consumer
persuasively and efficiently. To bar a
manufacturer from acting solely because the
information upon which it acts originated as
a price complaint would create an irrational
dislocation in the market.
Monsanto, 465 U.S. at 763-64. Thus, we exercise a measure of
caution when drawing inferences from such facts; "a fine line
demarcates concerted action that violates antitrust law from
legitimate business practices." Big Apple BMW, 974 F.2d at 1363,
citing Monsanto, 465 U.S. at 762-64. See also Matsushita, 475
U.S. at 597 n.21.13
13
. In Matsushita, the Supreme Court, in the context of an
alleged horizontal price-fixing conspiracy, ruled that the case
should not proceed to trial because the petitioners lacked a
rational motive to conspire in the manner alleged. It also
noted, however, that its ruling was not meant to "imply that, if
petitioners had had a plausible reason to conspire, ambiguous
conduct could suffice to create a triable issue of conspiracy.
Our decision in Monsanto . . . establishes that conduct that is
In Big Apple BMW, plaintiffs alleged that BMW of North
America, Inc. ("BMW") had refused to grant automobile dealerships
to them because other dealers had complained about plaintiffs'
high-volume, deep-discount business methods. BMW asserted a
variety of legitimate business reasons for its actions, including
a concern about plaintiffs being "free-rider" dealers.
Plaintiffs, however, presented evidence that they would not have
posed the "free-rider" problem BMW feared, see Big Apple BMW, 974
F.2d at 1377, and that a person with the same advertising tactics
as theirs (high-volume, deep-discount "sellathons") had been
granted a BMW franchise. Id. at 1378. They also presented
evidence tending to discredit the other reasons BMW proffered to
support its refusal to grant them a franchise. Id. at 1377-80.
We reversed the district court's grant of summary
judgment because plaintiffs had advanced evidence tending to
exclude the possibility of BMW's having acted independently from
the complaining dealers. They had "countered each alleged reason
with evidence that both discredits BMW NA's witnesses and
provides independent support for the [plaintiffs'] claim that BMW
NA and its dealers acted in concert to repel" plaintiffs'
competition. Id. at 1380.
Similarly, in Arnold Pontiac-GMC, Inc. v. General
Motors Corp., 786 F.2d 564 (3d Cir. 1986), we reversed a grant of
summary judgment because defendant General Motors Corporation
(..continued)
as consistent with permissible competition as with illegal
conspiracy does not, without more, support even an inference of
conspiracy." Matsushita, 475 U.S. at 597 n.21.
("GMC") first favorably viewed plaintiff's franchise application,
then heard its dealers' disapproval and threatened
non-cooperation, and then denied the application. GMC had not
expressed concern about the plaintiff's franchise application
until it heard its dealers' complaints. We held that "we must
infer that [the dealers'] conduct contributed to GMC's decision
not to award [the plaintiff] the Buick franchise." Arnold
Pontiac, 786 F.2d at 573.
In marked contrast to Big Apple BMW and Arnold Pontiac,
here the 800-number dealers concede that they are free riders.
It is also undisputed that FSC has for years sold sample books
and promotional materials and has encouraged its dealers to
invest in these and other overhead costs in order to provide
better service to their customers. A jury could find that,
because FSC had for years recognized the importance of selling
service, its actions aimed at 800-number dealers were entirely
consistent with its previously held view of its own self-interest
and do not tend to demonstrate that it acted in conjunction with
anyone in implementing its policies.
On the other hand, however, the record also contains
evidence that may indicate concerted action between FSC and NDPA.
Specifically, plaintiffs highlight two examples of what they
claim to be FSC's assertion of pretextual reasons for its
actions. If FSC in fact advanced reasons for its actions which
were pretextual, this would tend to support an inference that it
acted as part of a conspiracy with conventional retailers. See
Big Apple BMW, 974 F.2d at 1374-80.
First, plaintiffs point to evidence in FSC's management
committee minutes which contrast the "objective" of its drop
shipment surcharge ("To make statement to industry that we are
trying to help them") with the "rationale" for this surcharge
("To protect legitimate customers, [t]o increase margins in this
area"). App. at 290. They also point to a parallel distinction
between FSC's original and published press releases announcing
the surcharge. The original press release stated:
In direct response to retailer requests, we
at F. Schumacher & Company are proud to
announce that we will assertively support our
dealers in their local trading areas and
protect them from sales piracy by adding a
seven percent surcharge onto all drop
shipments . . . While bar coding is a
breakthrough for the industry in terms of
product identification we feel that it alone
is not an entirely effective deterrent
against sales piracy . . . . Our approach
attacks the problem at its root and makes the
accounts who drop ship feel the effects,
rather than leaving the responsibility of
policing to the retailers.
App. at 298-99. The final press release stated that the policy
was not designed to combat "piracy" but rather to
help insure that our consumers receive the
best possible service and that our
wallcovering brands are supported in the most
effective and appropriate manner at retail
. . . This policy seeks to encourage all
dealers to concentrate their selling efforts
exclusively within their own trading areas
where they can provide service directly to
the consumers to whom they sell the product.
App. at 486.
Plaintiffs argue that these inconsistencies in and
contrasts between the internal and the public explanations of the
drop shipment policy reveal that FSC was attempting to disguise
the true reason for its actions. We agree; while the two
statements and the two press releases could be seen as being in
harmony with FSC's explanation that it took the action it did to
protect the investments made by traditional retailers, a jury
might view FSC's apparent desire to use more genteel language
when explaining its actions to the public as implying a sinister
motive.
Second, plaintiffs argue that although FSC acknowledges
that dealer complaints were part of the reason for its surcharge,
at one time it also stated that the surcharge was intended in
part to recoup increased costs associated with drop shipments.
FSC did not, however, use mathematical calculations to arrive at
its surcharge figure; it neither consulted anyone regarding nor
studied such costs, and the record contains statements by another
manufacturer indicating that his costs for drop shipments were no
higher than for shipments to stores. This, plaintiffs argue,
underscores the arbitrariness of the surcharge and evinces FSC's
true, sinister motive.
A lack of market research, while perhaps adding luster
to plaintiffs' contention that the surcharge was arbitrarily
determined, does not necessarily invite an inference that FSC's
statement was an attempt to conceal a conspiracy. It is true
that the seven percent figure did not reflect an analysis of
FSC's costs; however, this does not indicate that FSC was not
pursuing its self interests in imposing it. Nevertheless,
viewing this evidence in conjunction with the press releases and
the retailer pressure on FSC, it is not an implausible conclusion
that FSC may have imposed the surcharge without first undertaking
mathematical calculations because it had agreed with others to
impose the surcharge whether it made economic sense or not.
Accordingly, because there is some evidence from which
a rational jury could infer that FSC advanced pretextual reasons
for its policies, and might in turn infer that FSC had acted in
concert with NDPA in deciding to implement policies designed to
injure 800-number dealers, we will reverse the district court's
grant of summary judgment at Count II.
VI.
At Counts III and IV, plaintiffs allege that FSC
conspired with other wallcovering manufacturers to injure the
800-number dealers. We will affirm the district court's grant of
summary judgment as to these counts because plaintiffs' evidence
tends to show only an opportunity to conspire, not an agreement
to do so.
Certainly, direct evidence (or a direct inference) of
an agreement between FSC and other manufacturers regarding
800-number dealers could enable plaintiffs to show concerted
action. The evidence of an agreement, however, amounts to
nothing more than communications on the 800-number subject.
Communications alone, although more suspicious among competitors
than between a manufacturer and its distributors, do not
necessarily result in liability. Tose v. First Pennsylvania
Bank, N.A., 648 F.2d 879, 894 (3d Cir. 1981). As we have
observed, it is only when those communications rise to the level
of an agreement, tacit or otherwise, that they become an
antitrust violation.
Thus, plaintiffs are left to argue that FSC and other
manufacturers conspired based upon their parallel conduct.
"[P]roof of consciously parallel business behavior is
circumstantial evidence from which an agreement, tacit or
express, can be inferred but . . . such evidence, without more,
is insufficient unless the circumstances under which it occurred
make the inference of rational, independent choice less
attractive than that of concerted action." Bogosian v. United
States, 561 F.2d 434, 446 (3d Cir. 1977). The circumstances
necessary to support such an inference are: (a) a showing that
the defendants acted contrary to their own economic interests;
and (b) satisfactory demonstration of a motivation to enter an
agreement. Id., citing Venzie Corp. v. United States Mineral
Products Co., Inc., 521 F.2d 1309, 1314 (3d Cir. 1975). See also
Petruzzi's IGA Supermarkets, Inc. v. Darling Delaware Co., Inc.,
998 F.2d 1224 (3d Cir. 1993); Schoenkopf v. Brown & Williamson
Tobacco Corp., 637 F.2d 205, 208 (3d Cir. 1980).
In particular, when evidence shows communications which
provided an opportunity for agreement, a plaintiff must still
produce evidence permitting an inference that an agreement in
fact existed. Venzie, 521 F.2d at 1313. The evidence must give
rise to more than speculation. Id.
In Venzie, for example, plaintiffs contended that two
defendant corporations had agreed to refuse to sell fireproofing
material to them. The record contained evidence that defendants
had made numerous telephone calls, at least one of which
concerned the plaintiffs, to each other and had met for lunch.
We held that it was for the jury to assess the credibility of the
defendants' assertions that they had not discussed or agreed upon
the alleged refusal to deal, but, even disregarding statements to
that effect, all that plaintiffs' evidence proved was an
opportunity for an agreement, which would not suffice to support
a verdict. Plaintiffs had failed to highlight evidence
supporting an inference that an agreement in fact existed and
thus could not support a verdict. Venzie, 521 F.2d at 1312. See
also Tose, 648 F.2d at 895.
In contrast, a particularly detailed memorandum of a
telephone call can give rise to a reasonable inference of
agreement. In Apex Oil Co. v. DiMauro, 822 F.2d 246, 254 (2d Cir
1987), for example, the plaintiff survived a summary judgment
motion by advancing evidence in the form of detailed memoranda
indicating the existence of an agreement.
In this case, it is conceded that manufacturers
discussed 800-number dealers, and actions they were taking
concerning them, at conventions. The evidence of communications
thus falls somewhere between Venzie, in which there were no
notations of the subject matter of the conversations, and Apex
Oil, in which the notations implied an agreement. Plaintiffs,
however, seek to infer an agreement from those communications
despite a lack of independent evidence tending to show an
agreement and in the face of uncontradicted testimony that only
informational exchanges took place. Without more, they cannot do
so. Cf. Tose, 648 F.2d at 894 (mere disbelief of contrary
testimony does not prove agreement).
We emphasize that unlike actions such as price-cutting,
which provide the classic example of conscious parallelism, FSC's
action was in its economic interests. It is simple syllogistic
reasoning that if FSC was aware that most of its dealers were
conventional retailers, and believed that its products sold
better in the conventional setting, it would conclude that it was
in its economic interests to keep the conventional retailers
satisfied. That FSC may have foregone some short-term
opportunity for sales to 800-number dealers does not suffice to
show it acted contrary to its self-interests when its actions
clearly would benefit it economically in the long term. Tose,
648 F.2d at 895; see P. Areeda, Antitrust Law § 1415e (1986).
FSC's listening to retailers' complaints in no way implies that
there was an agreement among manufacturers to do the same. See
Venzie, 521 F.2d at 1314 ("[t]he absence of action contrary to
one's economic interest renders consciously parallel business
behavior `meaningless, and in no way indicates agreement,'"
quoting Turner, The Definition of Agreement Under the Sherman
Act: Conscious Parallelism and Refusals to Deal, 75 Harv. L.
Rev. 655, 681 (1962)); see also Houser v. Fox Theatres Management
Corp, 845 F.2d 1225, 1232-33 (3d Cir. 1988) (requiring both
actions contrary to economic interests and motive to conspire).
VII.
Remaining for disposition are the plaintiffs' state-law
antitrust and tort claims. To the extent that their state-law
antitrust claims mirror their federal antitrust claims, we will
dispose of those claims in like manner. We will affirm the
district court's disposition of the state-law tort claims.
A.
In Count VI, plaintiffs alleged that the defendants
violated Pennsylvania antitrust law by engaging in the activity
alleged as the basis of Counts I through IV. This allegation
rises or falls with plaintiffs' federal antitrust claims. See
Collins v. Main Line Board of Realtors, 304 A.2d 493 (Pa. 1973);
Schwartz v. Laundry and Linen Supply Drivers' Union, 14 A.2d 438
(Pa. Super. 1940); plaintiffs' brief at 45; FSC's brief at 47-48.
Therefore, our decision with respect to Counts I through IV
disposes of Count VI as well. Count VI survives to the extent
that it is directed toward the theories of liability upon which
Counts I and II are based; to the extent it is a counterpart of
Counts III and IV, however, we will affirm the district court's
grant of summary judgment.
B.
In Count VII, plaintiffs alleged that FSC and NDPA
tortiously interfered with their existing and prospective
contracts. We have previously noted that the "factual
underpinnings" of such intentional interference claims generally
"are intertwined with" the antitrust claims they accompany, see
Big Apple BMW, 974 F.2d at 1381-82, but that statement does not
imply that claims of intentional interference with contractual
relations must always survive summary judgment if a plaintiff's
antitrust claims survive. It merely implies what to some might
be obvious -- that antitrust violations or other actions in
restraint of trade are examples of improper conduct. We are not
bound, therefore, to reversing on the tortious interference
claims merely because we are reversing on two of plaintiffs'
antitrust claims. Instead, we will affirm the grant of summary
judgment to defendants on Count VII because plaintiffs have
failed to demonstrate that they would be able to present evidence
tending to prove each element of their tortious interference
claims at trial.
To establish a claim of tortious interference with
existing contracts, plaintiffs must prove that the defendants
intentionally and improperly interfered with their performance of
contracts with third persons. Nathanson v. Medical College of
Pennsylvania, 926 F.2d 1368, 1388 (3d Cir. 1991); Adler, Barish,
Daniels, Levin and Creskoff v. Epstein, 393 A.2d 1175, 1183 (Pa.
1978). To prove their claims of tortious interference with
prospective contractual relations, plaintiffs likewise must
prove, inter alia, the existence of prospective contracts.
Thompson Coal Co. v. Pike Coal Co., 412 A.2d 466, 471 (Pa. 1979).
A prospective contract "is something less than a contractual
right, something more than a mere hope[ ]" id.; it exists if
there is a reasonable probability that a contract will arise from
the parties' current dealings. Glenn v. Point Park College, 272
A.2d 895, 898-99 (Pa. 1971).
Plaintiffs have failed to identify with sufficient
precision contracts and prospective contracts which were
interfered with by the defendants. They have likewise failed to
identify an existing contract which was terminated because of the
defendants' actions. Nor have they demonstrated a reasonable
probability that they would have entered into prospective
contracts with third parties but for defendants' alleged
interference. See General Sound Telephone Co., Inc. v. AT&T
Communications, Inc., 654 F. Supp. 1562, 1565-66 (E.D. Pa. 1987).
This case differs in this respect from Big Apple BMW, in which we
reversed a grant of summary judgment on claims of intentional
interference with contractual relations solely because their
"factual underpinnings" were "intertwined with the antitrust
claims" as to which we were reversing a grant of summary
judgment. In Big Apple BMW, the plaintiffs had specified
transactions in which they claimed defendants' actions had
deprived them of specific automobile dealership franchises. In
contrast, in this case, plaintiffs have failed to advance more
than speculation to support their claim of tortious interference;
therefore, we will affirm the district court as to this count.
C.
Finally, in Count X, plaintiffs alleged that the NDPA
defamed them by publishing articles and editorials referring to
800-number dealers as "pirates." Under Pennsylvania law, a
statement is defamatory if it "`tends to so harm the reputation
of another as to lower him in the estimation of the community or
to deter third persons from associating or dealing with him.'"
U.S. Healthcare, Inc. v. Blue Cross of Greater Philadelphia, 898
F.2d 914, 923 (3d Cir. 1990), quoting Birl v. Philadelphia
Electric Co., 167 A.2d 472, 475 (Pa. 1960). To prove their
claim, plaintiffs must show: (1) the defamatory character of the
statements; (2) publication by NDPA; (3) the statements'
application to the plaintiffs; (4) an understanding by readers of
the statements' defamatory meaning; and (5) an understanding by
readers of an intent on the part of NDPA to refer to the
plaintiffs. 42 Pa. Cons. Stat. Ann. § 8343(a) (1982); U.S.
Healthcare, 898 F.2d at 923. The law does not require that a
plaintiff be specifically named in an allegedly defamatory
statement, for a statement might be defamatory if, by description
or circumstances, it tends to identify the plaintiff as its
object. Redco Corp. v. CBS, Inc., 758 F.2d 970, 972 (3d Cir.
1985).
Plaintiffs base their defamation claim upon statements
referring to 800-number dealers in general as "pirates."
Individual group members may sue based upon statements about a
group when the statements were directed toward a "comparatively
small class or group all of whose constituent members may be
readily identified and the recipients of the [statements] are
likely to identify some, if not all, of them as intended objects
of the defamation." Farrell v. Triangle Publications, Inc., 159
A.2d 734, 736-37 (Pa. 1960). But no claim arises from a
defamatory remark directed toward a group whose membership is so
numerous that no individual member can reasonably be deemed its
intended object. Id. at 736. Similarly, no claim exists if, for
any other reason, a reader could not reasonably conclude that the
statements at issue referred to the particular person or persons
alleging defamation. Id. at 737.
Relying upon record evidence indicating that in 1990
there were only 20 to 25 800-number dealers in the industry (app.
at 1123-24), plaintiffs argue that they may base their claim on
statements directed at 800-number dealers in general. Cf.
Restatement (Second) of Torts § 564A, comment c. As noted above,
however, a group's size is not the sole consideration in
determining whether individual members may assert defamation
claims based upon statements about the group. A group may be
relatively small, but statements which disparage it may not serve
as a basis for an individual defamation claim unless a reader
could reasonably connect them to the complaining individual.
In Farrell, for example, one of 13 township
commissioners asserted a defamation claim against a newspaper
which had published a story implicating "a number of township
commissioners and others" in corrupt activity. Farrell, 159 A.2d
at 736. The Pennsylvania Supreme Court held that the plaintiff
had stated a claim for defamation. In so holding, however, the
court concentrated not on the size of the group discussed but on
whether readers "knew that the plaintiff was one of the thirteen
commissioners." Id. at 738. We similarly do not end our inquiry
upon being apprised that there were between 20 and 25 800-number
dealers in 1990; we examine whether the plaintiffs were
"sufficiently identified as [objects of NDPA's statements] to
justifiably warrant a conclusion that [their] individual
reputation[s have] been substantially injured." Id. at 736.
Here, there is nothing in the record other than the
number of 800-dealers which could support a conclusion that any
of the plaintiffs' individual reputations were injured by NDPA's
statements about 800-number dealers in general. Indeed, the
individual identities of this group's members are, by the very
nature of their business, less meaningful than the telephone
numbers they promote to facilitate discount purchases. This
group appears amorphous and ill-defined when compared to the
well-defined group of township commissioners at issue in Farrell.
Plaintiffs have not produced evidence tending to prove that they
belong to such an easily identifiable, cohesive group that a
reader would ascribe statements referring to 800-number dealers
in general as "pirates" to any of them individually. Thus, we
will affirm the district court's grant of summary judgment on
Count X.
VIII.
For the foregoing reasons, we will reverse the district
court's grant of summary judgment as to Counts I and II, as well
as the corresponding portion of Count VI, but will affirm its
disposition of Counts III, IV, VII and X and the remainder of
Count VI.
ALVORD-POLK, INC., ET AL., v. F. SCHUMACHER & CO., ET AL.
No. 92-1762
STAPLETON, J., concurring in part and dissenting in part:
I would affirm the district court's summary judgment in
favor of the defendants on the vertical conspiracy count and,
accordingly, dissent from Section V of the court's opinion. I am
also unable to join all of Sections IV-A, VII-A, and VII-B. I do
join the remainder of the court's opinion. I comment only on the
trade association aspect of the horizontal conspiracy charge and
on the vertical conspiracy charge.
I.
Trade associations have been held liable for
unreasonably restraining trade in violation of section 1 of the
Sherman Act, even when they have not been accused of contracting,
combining, or conspiring with other unrelated actors. See, e.g.,
National Soc'y of Professional Eng'rs v. United States, 435 U.S.
679 (1978). Courts, however, have not articulated how a trade
association, by itself, can violate a statute which "does not
prohibit unreasonable restraints on trade as such -- but only
restraints effected by a contract, combination, or conspiracy."
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 775
(1984).
A sound theory of trade association liability under
section 1 will recognize the anticompetitive potential inherent
in an agglomeration of competitors. Indeed, trade associations
have fixed prices, see, e.g., Goldfarb v. Virginia State Bar, 421
U.S. 773 (1975), organized group boycotts, see, e.g., Fashion
Originators' Guild of America, Inc. v. FTC, 312 U.S. 457 (1941),
allocated customers and territories, see, e.g., United States v.
Topco Assoc., Inc., 405 U.S. 596 (1972), and suppressed potential
competitors, see, e.g., United States v. Women's Sportswear Mfr.
Ass'n, 336 U.S. 460 (1949). A sound theory of trade association
liability, however, also will recognize that some trade
association activities are not necessarily inconsistent with the
preservation of competition. These activities include
cooperative research, market surveys, development of new uses for
products, mutual insurance, publication of trade journals,
advertising, and joint representation before legislative and
administrative agencies. See Julian O. van Kalinowski, Antitrust
Laws and Trade Regulation § 6I.01. Most trade associations are
organized for the purpose of pursuing these kinds of activities
and most members initially join because of the benefit to be
derived therefrom. If such an association thereafter engages in
anticompetitive activity, only a limited number of its members
may be involved in, or even aware of, the change of course.
Finally, a sound theory of trade association liability will
conform with the "well-established" rule that "[a] single person
or entity acting alone is not subject to the strictures of
Section 1." Earl W. Kintner, Federal Antitrust Law § 9.7.
The plaintiffs insist that trade association activity
is concerted activity for purposes of section 1. Since any
activity of an officer of an association engaged in with apparent
authority is activity of the association under conventional rules
of agency, any such activity, in plaintiffs' view, is thus
concerted activity for purposes of section 1. This logic
eviscerates the concerted action requirement of section 1.14
In my view, the agreement element of a section 1 claim
is satisfied if, but only if, it is shown that two or more of the
association's members have committed themselves to the anti-
competitive activity of the trade association and to the
accomplishment of its objectives. Thus, in the absence of a
conspiracy between the trade association and a third party, the
association can be liable only if some of its members are using
it to unreasonably restrain trade.
Since a trade association is normally controlled by its
members, where an association has engaged in anticompetitive
activity, it normally will not be difficult to show the necessary
agreement among a group of its members. The focus of the theory
on the commitment of its members to anticompetitive activity,
however, has important corollary consequences. One is that
members of the trade association who neither participate nor
knowingly acquiesce in the association's anticompetitive
activity, unlike those who do, will not be held liable along with
the association. See, e.g., Kline v. Coldwell, Banker & Co., 508
14
. For the reasons explained in the court's opinion, the agency
principles discussed in American Soc'y of Mechanical Eng'rs v.
Hydrolevel Corp., 456 U.S. 556 (1982), and the Supreme Court's
application of those principles in that case are not pertinent
until a violation of section 1 has been established.
F.2d 226 (9th Cir. 1974), cert. denied, 421 U.S. 963 (1975);
Phelps Dodge Refining Corp. v. FTC, 139 F.2d 393 (2d Cir. 1943);
see generally, Earl W. Kinter, Federal Antitrust Law § 9.16.
Another collateral consequence of this theory of
concerted activity is that, in the absence of membership
commitment to an activity engaged in by an association officer or
a conspiracy between the officer and some other entity, the
activity of the officer is not concerted activity. It seems to
me that this must be true without regard to whether the officer
had apparent authority to act as he did, although evidence
supporting the existence of apparent authority may also
constitute circumstantial evidence tending to show concerted
activity on the part of the members of the association.
As the district court recognized, if NDPA's directors,
acting on behalf of the retailers they represent, had passed a
resolution instructing its officers to recruit retailers for a
boycott of any manufacturer who dealt with 800-number dealers and
to threaten manufacturers with such a boycott, and an officer of
the association had carried out this directive, the association
clearly would have engaged in concerted activity for purposes of
section 1. As the district court emphasized, there is no
evidence of such formal corporate action in this record.
The district court erred, however, by not continuing
its inquiry beyond this level. If NDPA's directors did not pass
such a resolution but, acting on behalf of the retailers they
represented, tacitly agreed among themselves to so instruct
NDPA's officers, the association would just as surely be engaged
in concerted activity when an officer carried out this agreement.
In this situation, as in the first, NDPA would have been used by
its members, through their representatives on the board, to
engage in concerted activity. The same would be true if an
officer of the NDPA had initiated this kind of anti-competitive
activity without the knowledge or approval of the board and the
board, after learning of it, had approved or acquiesced in it.
As a matter of antitrust theory, however, I do not think that an
activity of an NDPA officer, even if engaged in with apparent
authority, can constitute concerted activity in the absence of
some basis for inferring member commitment to that activity.
With this theoretical background, I turn to the summary
judgment record in this case. Plaintiffs urge that a trier of
fact could infer from the present record that officers of NDPA,
with the approval of NDPA's board and the retailers they
represent, threatened FSC and other manufacturers with a dealer
boycott if they did not take measures against the 800-number
dealers. I do not understand the defendants to urge at this
stage that such an inference would not provide a satisfactory
basis for imposing section 1 liability.15 They do insist,
however, that such an inference cannot reasonably be drawn from
the current record. While the issue is a close one, I think
there is enough evidence to make the plaintiffs' inference a
permissible one.
15
. I express no opinion on whether the activities the
defendants are accused of engaging in constitute an unreasonable
restraint of trade within the meaning of section 1 of the Sherman
Act.
Mr. Petit, the CEO of NDPA, candidly acknowledged
speaking directly to numerous manufacturers after the consent
decree about the concerns of conventional retailers regarding
800-number dealers. Given the past history of the matter and Mr.
Petit's view that the scope of FTC's consent decree was of very
limited effect, a rational trier of fact could infer that Mr.
Petit continued, after the decree, not only to express to
manufacturers the concerns of the conventional dealers, but also
to call upon them to take specific steps to thwart the 800-number
dealers. When he spoke to manufacturers about this matter, he
spoke on behalf of the NDPA. As he testified, he spoke about
"the concerns of the NDPA." App. 191. Clearly, he viewed
himself as authorized by the NDPA to say what he did. As he put
it, "That's my job," referring to his campaign among the
manufacturers. App. 192.
As the defendants stress, there is no direct evidence
of a threat of a boycott by Mr. Petit or anyone else on NDPA's
behalf. There is, however, evidence that Mr. Petit emphasized to
the manufacturers "the anger felt by the retailers in [the] lack
of support from the wallcovering industry," App. 185, and that
his demands for action by the manufacturers came against a
background of public, oral and written advice from NDPA officers
that conventional retailers should deal only with those
manufacturers who supported them. When one adds to this evidence
the fact that some manufacturers did respond with measures
against the 800-number dealers, I believe a trier of fact could
conclude that a boycott threat was intended by the NDPA officers
and understood by the manufacturers.
Finally, if a trier of fact inferred that NDPA officers
implicitly threatened a boycott, it would be permissible for the
trier of fact to further infer that the NDPA board members knew
of the boycott threat and at least tacitly approved it. Mr.
Petit's triumphant memorandum of January 29, 1990, to the board
members is strong circumstantial evidence supporting this view.
That memorandum, it will be recalled, declared that FSC's
decision not to sell to the "sales pirates" was "a major step
forward in our battle against the 800-number operators." App.
693 (emphasis added). There is, in addition, evidence that the
board regularly discussed this matter and it was receiving
intense pressure from NDPA membership to do something about the
problem. Thus, like my colleagues, I would reverse the district
court's summary judgment in favor of the defendants on the
horizontal conspiracy charge.
II.
Turning to the charged vertical conspiracy, I start
with the undisputed propositions that (1) potential purchasers of
wallcovering normally desire to view samples of the merchandise
before making a purchase, (2) as a result, FSC has for years sold
sample books and promotional materials and has for years
encouraged other investment from its retailers to facilitate
customer selection and satisfaction, and (3) the 800-number
retailers are free riders as far as that investment is concerned.
Since FSC cannot long remain successfully in business if its
retailers are unwilling to make the investment necessary to
facilitate customer selection and satisfaction, FSC has a
legitimate and compelling interest in making sure free riders do
not maintain a competitive advantage over retailers who are
willing to make that investment. Nothing in this record tends to
show that FSC took any action with respect to the plaintiffs
other than to serve this interest. In particular, there is no
evidence from which a finder of fact could infer a retail price
maintenance conspiracy involving FSC. Under the now-familiar
teachings of Monsanto Co. v. Spray-Rite Service Corp., 465 U.S.
752 (1984), the mere fact that FSC's conventional retailers
complained and FSC acted in response to those complaints does not
preclude summary judgment for the defendants.
In Monsanto, a manufacturer and some of its
distributors allegedly conspired to sanction a discount
distributor. The Supreme Court began its analysis by noting that
section 1 outlaws only some sanctions against a discount
distributor: unilateral conduct is not forbidden and concerted
action is per se illegal only when it fixes prices. Id. at 760-
61. The Supreme Court then observed that these distinctions are
often difficult to apply in practice because the economic effect
of legal and illegal conduct can be similar -- indeed, "judged
from a distance, the conduct of the parties in the various
situations can be indistinguishable." Id. at 762. Care, the
Supreme Court directed, should be taken in inferring a conspiracy
from highly ambiguous evidence, lest perfectly legitimate conduct
is deterred or penalized. Id. at 763. The Supreme Court went on
to hold that a vertical conspiracy cannot be inferred solely from
evidence of complaints from distributors to a manufacturer about
a discount distributor and a resulting termination of the
discount distributor:
Permitting an agreement to be inferred merely
from the existence of complaints, or even
from the fact that termination came about "in
response to" complaints, could deter or
penalize perfectly legitimate conduct. . . .
Moreover, distributors are an important
source of information for manufacturers. In
order to assure an efficient distribution
system, manufacturers and distributors
constantly must coordinate their activities
to assure that their product will reach the
consumer persuasively and efficiently. To
bar a manufacturer from acting solely because
the information upon which it acts originated
as a price complaint would create an
irrational dislocation in the market. . . .
Thus, something more than evidence of
complaints is needed. There must be evidence
that tends to exclude the possibility that
the manufacturer and nonterminated
distributors were acting independently. As
Judge Aldisert has written, the antitrust
plaintiff should present direct or
circumstantial evidence that reasonably tends
to prove that the manufacturer and others
"had a conscious commitment to a common
scheme designed to achieve an unlawful
objective."
Id. at 764.
The three pieces of evidence that the plaintiffs in
this case have offered to prove a vertical conspiracy fail to
meet the standard that the Supreme Court set forth in Monsanto.
First, the plaintiffs note that the conventional retailers
complained to FSC about the 800-number dealers. Complaints like
these are precisely what the Supreme Court considered in Monsanto
and found to be insufficient to prove a vertical conspiracy:
[C]omplaints about price cutters "are natural
-- and from the manufacturer's perspective,
unavoidable -- reactions by distributors to
their rivals." Such complaints, particularly
where the manufacturer has imposed a costly
set of nonprice restrictions, "arise in the
normal course of business and do not indicate
illegal concerted action."
Id. at 763 (citations omitted).
Second, plaintiffs offer evidence that FSC did not use
mathematical calculations from its own cost data to set the drop-
shipment surcharge, even though the surcharge was purportedly
instituted to equalize the costs of deliveries to the
conventional and 800-number retailers. The absence of
mathematical calculation supposedly suggests a vertical
conspiracy: in the words of this court, "FSC may have imposed
the surcharge without first undertaking mathematical calculations
because it had agreed with others to impose the surcharge whether
it made economic sense or not."
FSC's determination of the drop-shipment surcharge is
not probative of whether FSC acted alone or in conspiracy with
the conventional retailers. An arbitrarily chosen surcharge is
equally compatible with both unilateral and concerted conduct.
Seeking to end destructive free-riding, FSC might have exercised
its right under United States v. Colgate, 250 U.S. 300 (1919), to
unilaterally limit its dealings with 800-number retailers and,
toward that end, imposed a substantial surcharge to level the
playing field for conventional retailers, or even to cripple the
800-number retailers. While I acknowledge that FSC and the
conventional retailers conceivably could have conspired to
cripple the 800-number retailers through a substantial surcharge,
that concession does not preclude summary judgment for the
defendants. Because a surcharge fixed by FSC is equally
compatible with both hypotheses, no inference of conspiracy can
be drawn: "Monsanto . . . establishes that conduct that is as
consistent with permissible competition as with illegal
conspiracy does not, without more, support even an inference of
conspiracy." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 597 n.21 (1986).
Plaintiffs' third piece of evidence of a vertical
conspiracy is the differently-phrased explanations FSC offered in
internal and external communications for the drop-shipment
surcharge. This court observes that "a jury might view FSC's
apparent desire to use more genteel language when explaining its
actions to the public as implying a sinister motive."
FSC's liability under section 1, however, does not turn
on whether FSC had "a sinister motive," but whether it acted
alone or in combination with the conventional retailers. The
varying tones in internal and external communications are
consistent with both hypotheses -- the sanitized language that
FSC used to avoid drawing attention to its moves against the 800-
number dealers could have been the result of either a unilateral
decision to eliminate free-riding or a conspiracy with the
conventional dealers against the 800-number retailers. Once more
plaintiffs have presented "highly ambiguous evidence," Monsanto,
465 U.S. at 763, that does not tend "to exclude the possibility
that the manufacturer and nonterminated distributors were acting
independently," id. at 764.
A misreading of Big Apple BMW, Inc. v. BMW of North
America, Inc., 974 F.2d 1358 (3d Cir. 1992), cert. denied, 113 S.
Ct. 1262 (1993), may well be responsible for the court's decision
on the vertical conspiracy count. In Big Apple BMW, we noted
that a manufacturer's "inconsistent reasons" for denying a
franchise support an inference of conspiracy with existing
franchisees. Id. at 1374. The court seizes on this language
from Big Apple BMW to argue that FSC's drop-shipment surcharge
and the varying tones of internal and external communication
about the surcharge are inconsistencies which permit an inference
of conspiracy. This analogy is flawed.
In Big Apple BMW, unsuccessful applicants for an
automobile dealership brought a claim under section 1, charging
that the manufacturer and existing dealers conspired to deny them
the dealership because they would have been price cutters. The
plaintiffs identified actions of the defendants which suggested a
conspiracy, but the defendants tendered business reasons for each
of their actions. We found that summary judgment was
inappropriate: even though the defendants had offered
justifications for their actions, these justifications were
"internally inconsistent and inconsistent with [the
manufacturer's] concomitant treatment of [other] dealers." Id.
at 1374. For example, the manufacturer claimed that it refused
to award a franchise to the applicants because they attempted to
bribe one of its employees; evidence showed that the same
employee solicited the applicants to buy a franchise only a year
after the attempted bribe. Id. at 1368. The manufacturer
claimed that it refused to award a franchise to the applicants
because they would have engaged in price advertising; evidence
showed that other dealers engaged in price advertising. Id. at
1378. The manufacturer claimed that it refused to award a
franchise to the applicants because they would have located their
dealership in an "automall" adjacent to other manufacturers'
dealerships; evidence showed that the manufacturer tolerated
other multi-franchise dealerships. Id. at 1380.
In Big Apple BMW, if the trier of fact believed the
plaintiffs' evidence that tended to show pretext, it would be
left with no reason to believe that the manufacturer acted
unilaterally to advance its own self interest. This case is
fundamentally different. A trier of fact in this case could
believe that FSC did not calculate the drop charge from its cost
data and could agree with every inference plaintiffs seek to draw
from the draft press release and this would still not alter the
indisputable fact that FSC had a legitimate and compelling self
interest in solving the free rider problem and preserving an
effective distribution system.
Finding no evidence in the record that tends to exclude
the possibility that FSC acted unilaterally against the 800-
number dealers, I would affirm the district court's grant of
summary judgment on the vertical conspiracy count.