Viazis v. American Ass'n of Orthodontists

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT
_______________

m 01-41298
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ANTHONY D. VIAZIS, ET AL.,

Plaintiffs,

ANTHONY D. VIAZIS,

Plaintiff-Appellant,

VERSUS

AMERICAN ASSOCIATION OF ORTHODONTISTS, ET AL.,

Defendants,

AMERICAN ASSOCIATION OF ORTHODONTISTS,
SOUTHWESTERN SOCIETY OF ORTHODONTISTS, GAC INTERNATIONAL, INC.,
AND LEO A. DOHN,

Defendants-Appellees.

_________________________

Appeal from the United States District Court
for the Eastern District of Texas

_________________________
December 11, 2002
Before KING, Chief Judge, and SMITH and Viazis alleged that the resulting controversy
EMILIO M. GARZA, Circuit Judges. surrounding his advertisements resulted in the
termination of the marketing aspect of his
JERRY E. SMITH, Circuit Judge: agreement with GAC. There was an adverse
impact on the relationship between Viazis and
Anthony Viazis appeals a judgment as a GAC, and their arrangement was restructured
matter of law (“j.m.l.”) in favor of the Ameri- in mid-1997. GAC continued to manufacture
can Association of Orthodontists (“AAO”), the Viazis bracket but ceased all marketing
the Southwestern Society of Orthodontists activities.
(“SWSO”), GAC International, Inc. (“GAC”),
and Leo A. Dohn. Finding no reversible error, In December 1997, the AAO advised Viazis
we affirm. that he could be subject to disciplinary action
as a result of the claims of faster, safer, and
I. more effective treatment made in his adver-
Viazis, an orthodontist practicing in the tisements. In December 1999, after a hearing
Dallas area, designed and patented a triangular and appeal, the AAO suspended Viazis’s mem-
orthodontic bracket in 1991.1 He contends bership in the organization.
that his bracket is more effective than other
designs in that it decreases the amount of time Meanwhile, in August 1998, Viazis filed
braces must be worn. In 1992, Viazis entered this action against the AAO, the SWSO, the
into a contract with GAC, a manufacturer of GDAO, and various individuals who are no
orthodontic devices, to market and distribute longer defendants. Viazis subsequently added
his bracket. Dohn and GAC as defendants. By the time of
trial, Viazis’s only remaining claim was that
In April 1996, Viazis sent an advertising the AAO, SWSO, GAC, and Dohn had con-
mailer to the parents of school age children in spired to exclude his brackets from the market
the Plano, Texas, area near Dallas, claiming for orthodontic devices in violation of § 1 of
that braces made using the Viazis bracket were the Sherman Act. At the conclusion of Via-
faster, less expensive, and potentially safer zis’s case-in-chief at trial, the court granted
than other products. In May of that year, Via- defendants’ motion for j.m.l.
zis held a seminar promoting his brackets di-
rectly to these parents. A member of the II.
Greater Dallas Association of Orthodontists We review a j.m.l. de novo. Casarez v.
(“GDAO”) and the AAO forwarded a com- Burlington N./Santa Fe Co., 193 F.3d 334,
plaint regarding Viazis’s advertisements to the 336 (5th Cir. 1999). To defeat a motion for
AAO, indicating that Viazis’s conduct might j.m.l., the nonmovant must present “substantial
violate provisions of that organization’s Code evidence opposed to the motion[].”2 In other
of Professional Responsibility. words, the nonmovant must present evidence

1 2
Brackets are components of braces that are Boeing Co. v. Shipman, 411 F.2d 365, 374
fixed onto the teeth with an adhesive. Wires are (5th Cir. 1969) (en banc), overruled in part on
then passed through the brackets, and forces are other grounds by Gautreaux v. Scurlock Marine,
applied to straighten the teeth. Inc., 107 F.3d 331 (5th Cir. 1997) (en banc).

2
that is “of such quality and weight that rea- Direct evidence of a conspiracy is that
sonable and fair-minded men in the exercise of which “explicitly refer[s] to an understanding”
impartial judgment might reach different con- between the alleged conspirators. See South-
clusions.” Id. way Theatres, Inc. v. Ga. Theatre Co., 672
F.2d 485, 493 n.8 (5th Cir. 1982). The letter
Section 1 of the Sherman Act does not pro- written by Leo Dohn, then-CEO of GAC,
scribe independent conduct. Monsanto Co. v. which constitutes Viazis’s primary evidence
Spray-Rite Serv. Corp., 465 U.S. 752, 761 bearing on the existence of a conspiracy be-
(1984). So, to establish a § 1 violation, a tween the AAO and GAC, contains no explicit
plaintiff must demonstrate concerted action. reference to an agreement between GAC and
Id. Further, although in ruling on a motion for any party. Each of the statements from the
j.m.l. the court must consider all the evidence letter offered by Viazis as evidence of a con-
offered by either party “in the light and with all spiracy depends on additional inferences.3
reasonable inferences in favor of” the party Therefore, the letter is, at most, circumstantial
opposed to the motion, Giles v. Gen. Elec. evidence of a conspiracy.4
Co., 245 F.3d 474, 481 (5th Cir. 2001) (inter-
nal quotation marks omitted), in this case the
3
range of permissible inferences is limited by Viazis asserts that Dohn’s statements to the
particular principles of antitrust law, effect that GAC might experience national
Matsushita Elec. Indus. Co. v. Zenith Radio repercussions are “inconsistent with localized
Corp., 475 U.S. 574, 588 (1986). Ac- complaints,” and he claims that Dohn’s prediction
cordingly, evidence of conduct that is “as con- that Viazis would suffer adverse professional
sistent with permissible competition as with il- consequences as a result of his seminar are
“consistent with ongoing communications.”
legal conspiracy” cannot support an inference
Neither these statements nor any other of the
of conspiracy. Id. In essence, an antitrust
passages cited by Viazis contain explicit reference
plaintiff who is unable to present direct to an agreement between GAC and any other party.
evidence of a conspiracy must introduce cir-
cumstantial evidence that “tends to exclude the 4
Viazis contends that he introduced evidence of
possibility of independent action.” Monsanto, a conspiracy through testimony that the district
465 U.S. at 768. court improperly disregarded. The testimony at is-
sue related to whether GAC had a policy against
Viazis contends that he introduced suffi- advertising directly to consumers before the events
cient evidence of concerted action to avoid at issue. Dohn testified that GAC had a policy
j.m.l. He alleges that GAC terminated the against advertising directly to the public, although
marketing agreement in response to threats Barry Mervine, GAC’s representative in Dallas,
made by AAO and its regional affiliates. He testified that he was unaware of any such policy.
In addition, Viazis testified that GAC had
also contends that the decision of an AAO dis-
foreknowledge of, and input into, a mailer through
ciplinary committee to suspend him for one which he advertised to the public but failed to
year was the result of unlawful concerted ac- object to its contents.
tion. Viazis failed to introduce sufficient evi-
dence to prove either allegation. Although, in ruling on a motion for j.m.l., a
district court should refrain from making credibility
A. determinations, see Conkling v. Turner, 18 F.3d
(continued...)

3
 As discussed above, in the absence of direct has imposed restrictions collusively, not based
evidence of a conspiracy, an antitrust plaintiff on its independent business judgment.”5 In
must present evidence tending to exclude the Culberson, this court specifically held that a
possibility of independent conduct. Monsanto, manufacturer’s action in the face of customer
465 U.S. at 768. To do so, Viazis was complaints is not a sufficient basis for a finding
required to demonstrate that GAC and AAO of conspiracy.6
“had a conscious commitment to a common
scheme designed to achieve an unlawful 5
objective.” Id. Although the Dohn letter Culberson, 821 F.2d at 1094; see also Matrix
Essentials, 988 F.2d 587.
contains evidence of complaints received by
GAC from accounts in the Dallas area, such 6
See Culberson, 821 F.2d at 1093. Viazis’s
complaints are insufficient evidence of attempts to distinguish the Monsanto line of cases
concerted action, because “[d]ealer-initiated are unpersuasive. He accurately notes that the rea-
contact fails to establish that a manufacturer soning in Monsanto and its progeny reflects some
concern that allowing dealer complaints to serve as
evidence of conspiracy would deter legitimate bus-
4
(...continued) iness strategies, such as the adoption of marketing
1285, 1300 (5th Cir. 1994), the court did not nec- strategies using nonprice restrictions. Viazis con-
essarily do so here. Mervine’s testimony does not tends that such concerns are not implicated here,
establish that GAC advertised directly to because “conspiracies aimed at stamping out
consumers, nor even that GAC lacked a policy promising new technology should not be made
prohibiting such advertising. All Mervine’s tes- unduly difficult to prove.”
timony establishes is that if such a policy existed or
such advertisement took place, he was unaware of Even if manufacturers’ ability to impose le-
it. His testimony, therefore, does not directly gitimate nonprice restrictions were the principal
contradict Dohn’s. Viazis’s testimony has a great- focus of Monsanto, this conclusional statement
er tendency to undercut the existence of a fails to offer any ground for distinguishing the
longstanding policy against direct advertisement present case. This case implicates GAC’s ability
but does not contradict GAC’s contention that it to enforce its particular marketing strategy, name-
had not engaged in direct advertisement in the ly, that of marketing to health professionals rather
preceding decade. than the public, and therefore is not distinguishable
from Monsanto on the ground argued by Viazis.
In any event, even if the court improperly eval-
uated the credibility of these two witnesses in ar- Further, Viazis ignores the fact that the Mon-
riving at its conclusions, the legal result would be santo Court dealt with the “two important
the same. Although proof of a preexisting policy distinctions that are at the center of [any]
tends to support an inference of independent con- distributor-termination case.” Monsanto, 465 U.S.
duct, see Matrix Essentials, Inc. v. Emporium at 761 (emphasis added). The distinction between
Drug Mart, Inc., 988 F.2d 587, 594 (5th Cir. price and nonprice restrictions was the second of
1993); Culberson, Inc. v. Interstate Elec. Co., 821 these; the first was “the basic distinction between
F.2d 1092, 1094 (5th Cir. 1987), the absence of concerted and independent action.” Id. The Court
such a policy does not necessarily support an in- dealt with this distinction by reaffirming the prin-
ference of conspiracy. As discussed in part I.B.2 ciple that “[a] manufacturer of course generally has
infra, GAC was entitled to act in response to cus- a right to deal, or refuse to deal, with whomever it
tomer complaints irrespective of whether it had a likes, as long as it does so independently.” Id.
preexisting policy. (continued...)

4
 Viazis argues, however, that GAC was a matter. Viazis has introduced no evidence
faced with more than mere dealer complaints. that the AAO itself, as opposed to some of its
Instead, he maintains, the AAO itself individual members, took action with respect
threatened a nationwide boycott to coerce to GAC.
GAC to end its marketing efforts on behalf of
Viazis, and GAC acceded to AAO’s demands. Moreover, evidence that a manufacturer
Such an inference of conspiracy is appropriate took certain actions does not tend to exclude
only if Viazis presented evidence tending to the possibility of independent conduct if the
exclude the possibility of independent conduct actions were in the manufacturer’s indepen-
on the part of AAO and GAC. To meet this dent self-interest.7 In other words, even if
standard, Viazis needed to show both that the Viazis proved that the AAO or its regional
AAO threatened a boycott and that GAC’s affiliates threatened GAC, he must also show
decision to cease marketing the Viazis bracket that GAC decided to end its relationship in re-
was inconsistent with its independent self- sponse to those threats. If GAC ignored the
interest. He failed to do so. threats but ended the relationship with Viazis
based on an independent evaluation of its best
A corporate entity such as the AAO can act interests, GAC acted independently, and there
only through its agents. Consequently, in the was no conspiracy. See Matrix Essentials,
absence of evidence of formal decisionmaking, 988 F.2d at 594; Lovett, 998 F.2d at 579-81.
an antitrust plaintiff must prove an asso- Viazis failed to demonstrate that GAC’s deci-
ciation’s conduct by demonstrating that the ac- sion to alter its relationship with Viazis was
tion was taken by individuals having apparent contrary to its own interests.
authority to act for the association. Am. Soc’y
of Mech. Eng’rs, Inc. v. Hydrolevel Corp., Viazis introduced statements made by GAC
456 U.S. 556, 556-67 (1982). regarding the enormous potential market for
his bracket and argued that GAC could not
The Dohn letter contains no indication that have been acting in its own interests when it
any of the referenced complaints was initiated abandoned its marketing rights. This argument
by individuals having either actual or apparent fails, because GAC could have determined that
authority to speak for the AAO. Viazis intro- the potential benefits from its marketing agree-
duced no evidence of a membership vote or ment with Viazis would be outweighed by the
other formal decisionmaking process through loss of business that would result from its con-
which the AAO acted to threaten GAC or tinued association with him.8 Therefore,
authorized its agents to do so. Nor did he pro-
duce evidence that the unnamed Dallas ac-
counts referred to in the Dohn letter had ap- 7
See Matrix Essentials, 988 F.2d at 594;
parent authority to speak for the AAO on such Lovett v. Gen. Motors Corp., 998 F.2d 575, 579-
81 (8th Cir. 1993).
6 8
(...continued) See Bailey’s, Inc. v. Windsor Am., Inc., 948
(citing United States v. Colgate & Co., 250 U.S. F.2d 1018, 1030 (6th Cir. 1991); see also
300, 307 (1919)). GAC’s ability to deal or refuse Garment Dist., Inc. v. Belk Stores Servs., Inc., 799
to deal with Viazis is implicated by these F.2d 905, 909 (4th Cir. 1986) (“One [legitimate
proceedings. (continued...)

5
GAC’s decision to alter its relationship with textual,9 so he failed to establish the existence
Viazis is not evidence tending to exclude the of an unlawful conspiracy. See id. To the ex-
possibility of independent behavior. tent that he challenges the promulgation of the
advertising restrictions by the AAO, as
B. opposed to their enforcement, his failure to
Although there is no evidence that any au- demonstrate any competitive harm, as dis-
thorized agent of the AAO threatened GAC, cussed below, is fatal to that claim.
Viazis does point to one instance of official
conduct by the AAO, namely, his suspension III.
pursuant to the finding of an AAO ethics com- Even if Viazis had presented sufficient evi-
mittee that he had violated the organization’s dence of concerted action, § 1 of the Sherman
prohibition of false and misleading advertising. Act prohibits only those agreements that con-
Because there is no connection between this stitute unreasonable restraints of trade.
proceeding and GAC, it can constitute action Northwest Wholesale Stationers, Inc. v. Pac.
pursuant to a conspiracy only if the members Stationery & Printing Co., 472 U.S. 284, 289
of AAO were conspiring among themselves. (1985) (citation omitted). The question
Viazis failed t o present sufficient evidence of whether a particular restraint is unreasonable
such a conspiracy. frequently turns on whether it is examined un-
der the rule of reason or falls within the
Despite the fact that “[a] trade association category of practices that are judged to be
by its nature involves collective action by com- unreasonable per se. If application of the per
petitors[,] . . . [it] is not by its nature a se rule is appropriate, competitive harm is
‘walking conspiracy’, its every denial of some presumed, and further analysis is unnecessary.
benefit amounting to an unreasonable restraint If, by contrast, the restraint should be judged
of trade.” Consolidated Metal Products, Inc. according to the rule of reason, its net poten-
v. Am. Petroleum Inst., 846 F.2d 284, 293-94 tial for competitive harm must be evaluated by
(5th Cir. 1988). In Consolidated Metal Prod- weighing its probable anticompetitive effects
ucts, we rejected a claim of conspiracy based
on a trade association’s delay in licensing the 9
plaintiff’s product, noting that the plaintiff had During the appeal of Viazis’s suspension, Dr.
failed to offer evidence that the proceedings Hershey, one of the panelists, told Viazis: “It’s not
your work Tony. Next time, play by the rules.”
were “merely a ploy to obscure a conspiracy
This comment is certainly suspicious, but it is not
against competing producers.” Id. at 294. Vi-
direct evidence of conspiracy, because it does not
azis similarly was unable to demonstrate that explicitly reference any agreement. In addition,
the ethics proceedings against him were a Hershey’s statement is not inconsistent with the
sham or that the standards applied were pre- committee’s finding that Viazis violated the AAO’s
prohibition of deceptive advertising. The
committee could have found Viazis’s bracket to be
a good product, while still concluding that Viazis
had used inappropriate methods to promote it. In
8
(...continued) any event, in light of the fact that GAC ended its
reason for terminating a relationship with a dealer] marketing arrangement with Viazis over a year
is to avoid losing the business of disgruntled before his suspension, the exclusion of which
dealers.”). Viazis complains had long since occurred.

6
against any procompetitive benefits. a full market analysis is required in such cases.
Id. at 779. Instead, the Court held that
A. “[w]hat is required is an enquiry meet for the
Viazis contends that the advertising restric- case.” Id. at 780. Under this approach, an
tions in question should be reviewed according analysis is sufficient if it openly addresses the
to the per se rule. Typically, it is the type of “circumstances, details, and logic of a re-
restraints that are “always or almost always” straint” in reaching its conclusion. Id. at 781.
anticompetitive that are deemed to be unrea-
sonable per se. Broadcast Music, Inc. v. Col- In California Dental, the Court recognized
umbia Broadcasting Sys., Inc., 441 U.S. 1, that a restriction on advertising related to qual-
19-20 (1979). The Supreme Court has been ity has several potential procompetitive justifi-
reluctant to apply the per se rule to standards cations.11 On remand, the Ninth Circuit deter-
promulgated by professional organizations, mined that the FTC had failed to prove that
such as the advertising restriction at issue the advertising restrictions at issue were a net
here.10 harm to competition. Cal. Dental Ass’n v.
FTC, 224 F.3d 942, 957 (9th Cir. 2000). The
In fact, the Court recently concluded that court noted that the Federal Trade
advertising restrictions i mposed by a Commission had failed to prove actual harm by
professional association are not subject to a presenting relevant data from the precise
per se analysis. In Cal. Dental Ass’n v. FTC, market at issue. Id.
526 U.S. 756 (1999), a case dealing with the
legality of advertising restrictions that are Viazis similarly has failed to present data
remarkably similar to those at issue here, the demonstrating the anticompetitive effects of
Court necessarily rejected the application of the advertising restrictions of which he com-
the per se rule by holding that even the plains. In the absence of such data, he has not
truncated rule of reason, or “quick look,” carried his burden to demonstrate that the re-
treatment applied by the Ninth Circuit was strictions have a net anticompetitive effect.
insufficient given the potential procompetitive See id.
effects of such restrictions in a market for
professional services. Id. at 763-81. The per Viazis claims that competitive harm is dem-
se rule likewise is inapplicable to the onstrated by the steep decline in sales of his
restrictions at issue in this case. brackets to orthodontists. There is no evi-
dence, however, that the AAO has influence
B. over its members’ purchasing decisions or that
Although California Dental rejected the it coerced them into rejecting Viazis’s brack-
application of per se or even quick-look anal-
ysis to advertising restrictions implemented by
a professional association, it did not hold that 11
Cal. Dental, 526 U.S. at 778 (noting that a
restriction on quality- related advertisement for
professional services may be justified by the
10
FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, possibility “that restricting difficult-to-verify
458 (1986) (“[W]e have been slow to condemn claims about quality or patient comfort would have
rules adopted by professional associations as a procompetitive effect by preventing misleading or
unreasonable per se.”). false claims that distort the market”).

7
ets. In Consolidated Metal Products, 846 contained in the expert’s report, as required by
F.2d at 296, we held that where an associa- Local Rule 26(d)(1). In challenging this
tion’s product recommendations were non- ruling, Viazis cites a passage in the expert’s
binding and the association did not coerce its report that contains the excluded testimony
members to abide by its recommendations, its almost verbatim. It therefore appears that the
refusal to sanction plaintiff’s product did not district court may have erred in determining
show that plaintiff was excluded from the that the testimony should be excluded under
market. Nor can a plaintiff show competitive the local rule.
harm merely by demonstrating that the
defendant “refused without justification to Nonetheless, we “may not disturb the dis-
promote, approve, or buy the plaintiff’s trict court’s exclusion of the evidence . . . if
product.” Id. at 297. that ruling can be upheld on other grounds, re-
gardless of whether the court relied on those
Though there is evidence demonstrating a grounds.” Metallurgical Indus., Inc. v. Four-
drastic reduction in the number of orthodon- tek, Inc., 790 F.2d 1195, 1207 (5th Cir. 1986).
tists purchasing Viazis’s brackets, there is The excluded testimony concerned alleged
none connecting that decrease to anything harm to the orthodontic services market, ra-
other than the voluntary decisions of indepen- ther than the relevant market for purposes of
dent orthodontists. Moreover, GAC has, at Viazis’s claim, which is the market for ortho-
most, a 20% market share in orthodontic dontic braces. The testimony therefore was
brackets. Therefore, GAC’s refusal to market arguably irrelevant, as noted by the district
on behalf of Viazis could not significantly im- court, and could have been excluded on that
pede his ability to market the brackets, either ground as well. See FED. R. EVID. 401.
independently or through GAC’s competitors.
Viazis also asserts that the district court
Indeed, Viazis has been successful in mar- erred in refusing to allow cross-examination
keting his brackets to dentists and remains free concerning portions of a note written by Dohn
to sell them to any orthodontist willing to pur- that recognized the possibility that Viazis
chase them. In the absence of proof that the could file a § 1 claim against GAC. The ex-
AAO and its member orthodontists are engag- cluded portion was hearsay, but Viazis argues
ing in a conspiracy, Viazis cannot prove harm that it should have been admitted under the ex-
to competition, because he can demonstrate ception for statements made by cocon-
nothing more than that his product is no longer spirators.
selling well, at least not to orthodontists.
Under the coconspirator exception, hearsay
IV. evidence is admissible only if the proponent
Viazis challenges two evidentiary rulings. proves by a preponderance of the evidence
First, he contends that the court erred in that (1) a conspiracy existed; (2) the statement
refusing to admit expert testimony to the effect was made in furtherance of that conspiracy;
that “consumers would have been harmed by and (3) the coconspirator and the party op-
the suppression” of the brackets. The posing admission were members of the con-
testimony was excluded based on the spiracy. Burton v. United States, 237 F.3d
determination that the testimony was not 490, 503 (5th Cir. 2000). Because no con-

8
spiracy was established here, the coconspirator
exception cannot apply, and the evidence was
not admissible against AAO and the other
association defendants.

Additionally, GAC contends that the pass-
age in question was based on communications
between Dohn and his attorney, and that it is
therefore privileged attorney-client material
and inadmissible. The district court did not
abuse its discretion in excluding testimony
regarding the note on either of these grounds.

In any event, we will not reverse erroneous
evidentiary rulings unless the aggrieved party
can demonstrate “substantial prejudice.” Kona
Tech. Corp. v. S. Pac. Transp. Co., 225 F.3d
595, 602 (5th Cir. 2000). Viazis failed to
demonstrate that the exclusion of either of
these pieces of evidence resulted in substantial
prejudice.

AFFIRMED.

9