The HONORABLE GARY A. FENNER, United States District Judge for * the Western District of Missouri, sitting by designation. United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 96-4208

___________ The Corner Pocket of Sioux Falls, Inc., * et al., *
* Plaintiffs - Appellants, * Appeal from the Unite d States
* District Court for the
v. * District of South Dakota

. * Video Lottery Technologies, Inc., et al., * * Defendants - Appellees. *

___________ Submitted: June 9, 1997 Filed: August 29, 1997

___________ Befor e LOKEN and ROSS, Circuit Judges, and FENNER, * District Judge.

___________ LOKEN, Circuit Judge.

In 1989, the State o f South Dakota initiated a video lottery regulated by the South Dakota Lottery Commission. See S.D. C ODIFIED L AWS Ch. 42-7A

. In this type of lottery, game s of chance are played on coin-operated, computer

controlled video machines. The video lottery machines ar e privately owned, but the State owns theThe HONORABLE RICHARD H. BATTEY, Chief Judge of the United 1 States District Court for the District of South Dakota.
-2- operat ing software and controls the games through a central compute r system. The machines repay players 80-95% of the amounts wagered. Th e State takes a portion of the remaining gross revenues (initially 22%, now 50%) by electronically sweeping the machine owner’s ban k
accoun t

. See generally Chance Mgmt., Inc. v. State o f South D akota , 97 F.3d 1107, 1108 (8th Cir. 1996), cert

. denie d , 117 S. Ct. 1083 (1997); Poppen v. Walker , 52 0 N.W.2d 238, 249 (S.D. 1994). In November 1993, the Lottery Commission investigate d the video lottery machine market and concluded there was effective competition. Plaintiffs nonetheless commenced this antitrust class action in June 1994, alleging tha t Video Lottery Technologies, Inc. (“VLT”) , man ufacturer of the most popular video lottery machines, had refused t o sell its machines to new customers for the purpose o f enforcing a conspiracy among vending machine distributors to allocat e territories and fix prices, all in violation of Se ction 1 of the Sherman Act, 15 U.S.C. § 1

. Following discovery, the district court granted summary 1 judgment for defendants on the ground that pl aintiffs had fail ed to present sufficient evidence of an unlawfu l conspiracy. Plaintiffs appeal, launching a t hree-pronged attack on the district court’s decision. We affirm. A. Plaintiffs first argue that the district cour t
erre d in applying the legal standard for grantin g summary judgment in antitrust cases. Plaintiff s crit icize the court’s “heavy reliance” on Matsushit a Elec. Indus. Co. v. Zenith Radio Corp. , 475 U .S. 574, 588 (1986) , where the Supreme Court stated that “conduct a s consistent with permissible competition as with illega l conspiracy does not, standing alone, support an inference-3-

of a ntitrust conspiracy.” Relying primarily on case s from the T hird and Ninth Circuits, plaintiffs argue that this p ortion of Matsushita does not apply to this cas e becau se the conspiracy they allege served defendants ’ economic interests. However, we are among the majorit y of c ourts and commentators who read Matsushita mor e broadly. See-4-

Lovett v. General Motors Corp. , 998 F.2d 575, 578-79 (8th Cir. 19 93), cert. denied , 510 U.S. 1113 (1994); City o f Mt. Pleasant, Iowa v. Associated Elec. Co-op, Inc. , 83 8 F.2d 268, 2 73 (8th Cir. 1988); II A REEDA AND H OVENKAMP , A NTITRUST L AW ¶ 322, at 70-72, 75-81 (rev. ed. 1995). In its Memorandum Opinion and Ord er, the district court discussed at length th e appropriate summary judgment standard in comple x antitrust cases, carefully reviewing these relevan t
cases. We conclude that the court properly articulate d and applied the governing summary judgment standard o f this Ci rcuit.

B. P laintiffs next argue that the district cour t engaged in improper summary judgment fact-fin ding when it accepted defendants’ explanations for market condition s that, in plaintiffs’ view, evidence an unlawfu l
co nspiracy. To put this issue in context, we mus t brie fly describe the South Dakota video lottery machin e market.

T he private sector participants in the South Dakot a video lottery are defined by statute . The Stat e separately licenses video lottery machine manufacturer s and distri butors, who manufacture and sell the machines; “o perators,” who own the machines and account to th e State for their revenues; and gambling “establishments,” where the machines are played by consumers of thi s government-sponsored gambling. See S.D. C ODIFIED L AW S §§ 42 -7A-1(15-17), 41-45. Licensed manufacturers an d distributors must sell their machines to license d oper ators, who typically lease the machines to license d esta blishments. Only bars, restaurants, and inns tha t sell alcoholic beverages may become license d-5-

establishments. Operators and establishments negotiat e their respective shares of the machine revenu es remaining after t he State takes its cut. T ypically, those share s are stated as a percentage “split,” such as 50-50. The South Dakota video lottery commenced in Octobe r 1989. By the end of 1989, six manufacturers wer e licensed to sell video lottery machines approved by th e Stat e. Not surprisingly, those best prepared t o distribute these machines were the establishe d distributors of coin-operated vending machines , businesses that for years-6-

had placed juke boxes, pool tables, pinball m achines, and dart bo ards in bars and restaurants around the State

. These distributors and their trade associatio n, the Music and Vending Association (“MVA”), had successf ully lobbied the Leg islature to authorize a video lottery. When th e lottery began, MVA members had obtained opera tor licenses and were ready to supply video lottery machines t o licensed establishments located on the operators’ well

established vending machine routes.
As the lottery got u nderway, something unanticipated occurred -- South Dakota gamblers overwhelmingl y preferred to play video lottery machines manufactured by VLT

. But these popular machines proved hard to get

. Beginning as early as the fall of 1989, newly -established ope rators, including licensed establishments tha t obta ined operator licenses so they could buy their ow n mach ines, had difficulty buying machines from VLT. T o outsiders, it appeared that VLT was refusing to deal with anyone other than well-established vending machin e distributors and those “squeaky wheels” who threatene d lit igation or complained to the Lottery Commission

. Though VLT denied such an exclusionary policy and th e Lottery Commission’s investigation concluded that th e marketplace was sufficiently competitive, the name d plai ntiffs -- two licensed operators and three license d esta blishments -- smelled an unlawful conspiracy an d began this action against VLT, certain licens ed operators who are long-standing vending machine distributors, an d the MVA.

Pl aintiffs’ Allegations. Although the lawsuit wa s initially prompted by VLT’s refusal to sell v ideo lottery-7-

machine s to plaintiffs and others from the fall of 198 9 to late 1993, plaintiffs’ antitrust claims evolve d thro ugh discovery and the summary judgment process t o include the following allegations:

-- MVA and the operator defendants conspired t o allo cate operator territories in South Dakota. MVA memb ers have their own distribution routes and went t o grea t lengths to avoid competing in each other’ s territories. For example, MVA memberParadoxically, plaintiffs allege that the conspiracy broke down as a result of 2 the Lottery Commission’s investigation but argue that the Commission’s report -- which found the video lottery machine marketplace competitive -- should be ignored as irrelevant. In our view, the heavily regulated nature of this business is highly relevant in determining whether “the inference of conspiracy is reasonable in light of the competing inferences of independent action.” Matsushita , 475 U.S. at 588.
-8- protocol i s to refer a competitor’s complaining customer to that competitor, rather than try to obtain th e account.

-- MVA and the operator defendants conspired to fi x pric es by agreeing to make video lottery machine s available to establishments for a 50-50 split of the net
revenu es. In 1989, one MVA member circulated a sampl e le ase agreement showing a 60-40 split. The operato r defe ndants then agreed to adopt the 50-50 split, whic h
was reflected in o ver 80% of their contracts wit h esta blishments between 1989 and 1993

. When th e conspiracy

broke down, the operators’ share of negotiate d 2 splits decreased.
-- VLT knowingly enf orced the operator conspiracy by refusing to sell its video lottery machines directly t o esta blishments, or to licensed operators other than th e oper ator conspirators. VLT’s policy of not sellin g machines to operators who leased to establish ments at 90- 10 or 80-20 splits helped enforce the cartel’ s conspiracy to impose 50-50 splits on establishments. VLT assumed the role of cartel enforcer out of gratitude for help MVA
me mbers gave VLT in quickly obtaining a South Dakot a ma nufacturer license, and out of fear that MVA woul d othe rwise use its influence to tarnish VLT’s reputatio n-9-

in other States.

De fendants’ Response. In moving for summar y judgment, defendants painted a very different picture of the video lottery machine market than plaintiffs ’ conspiracy-dominated portrait:-10-

-- When the video lottery began, long-time vendin g machine distributors had well-defined territories o r routes , typically encompassing the area in wh ich customer
mac hines can be serviced in one day’s drive. Thes e oper ators concentrated on placing the new video lotter y machines with existing bar, restaurant, and hote l customers in their traditional territories . Whe n supp lies of the popular VLT machines became limited , oper ators served their existing customers first. Ther e
was no agreement to allocate territories or customers

. Many MVA m embers have overlapping routes, and p laintiffs have no evidence describing defendants’ behavior alon g route overlaps, where one might reasonably ex pect to find competition absent a conspiracy.

-- Th e 50-50 revenue split was common in the coin

oper ated vending machine industry long before the vide o lott ery. When the lottery was new and its prospect s un certain, licensed operators and establishment s reasonably adopted this equitable-looking split; indeed, the named plaintiffs and other non-MVA operators did so. When the initial leases expired, operators an d establishm ents renegotiated based upon actual experience wi th VLT machines. Establishments with profitabl e mach ines demanded and received more generous splits

. Thus, the increase in split variety ( pricing diversity ), whic h plaintiffs attribute to the conspiracy breakin g down , is entirely consistent with what would hav e happened in a competitive marketplace.

-- VLT was not the enforcer for an operator cartel

. Thro ughout the alleged conspiracy, VLT sold machines t o non-MVA me mbers, to new entrants in the operator market,-11-

and occasionally to establishments that obtai ned operator licenses a nd could lawfully buy machines. VLT’s refusals to deal are explained by factors other than the allege d
cons piracy. First, VLT’s sales policy, which predate d its entry into the South Dakota market, was to sel l mach ines to vending machine distributors, not retai l esta blishments. VLT markets to distributors because i t believes that well-serviced machines will be more popular and generate more revenues, because in VLT’s experienc e bars and restaurants do not properly service machines , and because VLT does not wish to perform the servic e function. VLT prefers well-established-12-

distr ibutors experienced in servicing machines. Thi s policy explains many of VLT’s refusals to dea l during the alleged co nspiracy period, including its refusal to sell to operators who leased machines at 90-10 or 80-2 0 spli ts, terms that VLT considered tantamount to resale

. A manuf acturer may refuse to deal for these reasons, s o lon g as it does so independently. See Monsanto Co. v

. Spr ay-Rite Serv. Corp. , 465 U.S. 752, 761 (1984) ; Weathe r Wise C o. v. Aeroquip Corp. , 468 F.2d 716, 718 (5th Cir. 1972), cert

. denied , 410 U.S. 990 (1973). Second, the immediate success o f VLT’ s machines in South Dakota meant that VLT receive d many more orders than it could fill. In the 1989-199 2 per iod, virtually all buyers encountered back orde r dela ys. When forced to prioritize, VLT understandabl y favored its best customers -- well-established vendin g machine di stributors -- and other prospective buyers who th reatened litigation or complained to the Lotter y Comm ission. Thus, a s the Lottery Commission concluded , fact ors other than the alleged conspiracy explain wh y plaintiffs encountered difficulty in obtaining VL T machines.

In gr anting summary judgment to defendants, th e district court concluded that VLT had rationall y expl ained its policy of selling only to selecte d operators, that the prevalence of 50-50 splits was non

actionable conscious parallelism by the defendan t oper ators, and that the operators’ practice of stayin g with in their well-established service routes did no t evidence an agreement to allocate territories

. Plaintiffs contend the court usurped the jury’s function by inferring lawful conduct from defendants’ descriptions of the marketplace. We disagree. Because “a ntitrust law-13-

limits the range of permissible inferences fr om ambiguous evidence in a § 1 case,” the court must neces sarily weigh the summary judgment evidence of both parties i n determining whether plaintiffs’ evidence “tends t o exclu de the possibility that the alleged conspirator s acted independently.” Matsushita , 475 U.S. at 588

.
After carefully reviewing the record, we agree wit h the district court that the objectively obser vable market conditions are consistent with defendants’ as sertions (i) that VLT acted unilaterally in choosing custo mers for its video lottery machines inThough VLT received at least one written complaint from an operator 3 customer about another operator’s “cost cutting,” complaints by distributors are not sufficient to overcome the presumption of unilateral decision-making. See Lovett , 998 F.2d at 578; H.J., Inc. v. International Tel. & Tel. Corp. , 867 F.2d 1531, 1544- 45 (8th Cir. 1989). After oral argument, defendants moved to exclude the letter or to expand the 4 record on appeal to include the author’s deposition testimony regarding the letter.
-14- South Dakota, and (ii) that the operator defe ndants acted ind ependently in buying and leasing VLT’s machines

. Rega rding the former, VLT has given legitimate busines s reasons for its sales practices, which we may not lightly disr egard

. See Lovett , 998 F.2d 580-81; Illinoi s Corp orate Travel, Inc. v. American Airlines, Inc. , 80 6 F.2d 722, 726 (7th Cir. 1986). Regarding the operators’ 3 cond uct, giving priority to customers in an establishe d terr itory is to be expected, particularly when VL T machines are in short supply, and the prevale nce of 50-50 splits in the early years of the video lottery i s parallel conduct that, standing alone, lacks probativ e va lue. See Pumps and Power Co. v. Southern State s Indus., Inc. , 787 F.2d 1252, 1258 (8th Cir. 1986).

At oral argument, plaintiffs pointed to a letter sen t from defendant Hub Music to Ramkota, Inc., a chain o f licen sed establishments, as direct evidence of price

fixi ng. The letter appears to be a joint proposal o n behalf of MVA operators to lease VLT machines on commo n term s (including a 50-50 split) to the various Ramkot a hotels located “in their respective areas.” There i s nothing in the record putting this proposal in context , and plaint iffs apparently did not argue its significance to the district court. Beca use the letter disclosed the 4We deny that motion because the letter was part of the record before the district

court, and the deposition passages encompassed by the motion to expand the record were not. -15- auth or’s affiliation with MVA, plaintiffs suggest it i s proof of a general agreement among MVA members to fi x standard lease terms. But it could also have been a specific proposal on behalf of multiple suppl iers none of whom could satisfy the needs of a multi-locatio n customer, which from an antitrust-16-

standpoint is a very different document indeed. Without
mor e context, the letter is too ambiguous to hel p plaintiffs defeat summary judgment.

For the foregoing reasons, we conclude that, absen t add itional evidence of concerted action, the marke t cond itions emphasized by plaintiffs do not prove tha t “the inference of conspiracy is reasonable in light o f the competing inference[] of independent action. ” Matsushita , 475 U.S. at 588.

C. Finally, plaintiffs’ argue that the distric t court erre d in discounting affidavits and secretly taped conversations, testimonial evidence that p laintiff s contend provides sufficient additional evidence of th e alle ged conspiracy to withstand summary judgment. Thi s evidence consisted of the following:

1. I n response to defendants’ motion for summar y judgment, plaintiffs submitted an affidavit b y Bill Welk, a former partner of defendant James Koehler i n developing motel s. Welk averred that Koehler was late for a Ma y 1989 business flight and explained that he had bee n meeting wi th MVA members at the “Goose Camp,” where they agreed to “limit the area within which they c onducted the video lottery business” and not compete in each other’ s rout e areas. Defendants responded with affidavits an d business records establishing that Welk and K oehler could not h ave had such a meeting and conversation befor e Janu ary 1990. Plaintiffs responded with a second Wel k affi davit in which he admitted confusion regarding th e dates, rea ffirmed that the conversation with Koehler did
occu r, and promised a third affidavit supplying th e-17-

prop er dates. Plaintiffs never submitted a thir d affidavit

. The district court noted that the Welk affidavi t could be rejected on procedural grounds becaus e plai ntiffs disclosed neither Welk as a witness nor th e subs tance of his affidavit during discovery. Based o n the summary judgment record, the court dismissed Welk’ s alleg ed conversation with Koehler as a “factua l im possibility” that did not raise a genuine issue o f mate rial fact. We agree. Plaintiffs inexcusabl y concealed WelkAccording to the Lottery Commission’s November 1993 Report, witnesses 5 at the Commission’s hearing included “[o]ne licensed establishment owner, Bill Welk of Aberdeen.” Thus, concealment of Welk’s assertions was unconscionable. A reasonable inference is that plaintiffs knew Welk’s accusations against his former partner and current litigation adversary, Koehler, would not withstand scrutiny.
-18- during discovery and then sprung his affidavit testimony during the summar y judgmen t briefing process. Despite years to perfect this sneak attack , 5 presumably with the aid of Welk’s business records, plaintiffs submitted
an affid avit in which every verifiable detail was incorrect. Whe n defendants pointed ou t the errors, including the critical error as to the date of the alleged conversation, Welk promised to clarify his recollectio n and then reneged on that promise. “Where a party emphatically an d wittingly swears to a fact, it bears a heavy bur den -- even in the summary judgment context -- when it seeks to jettison its sworn statement. ” Pyramid Sec. Ltd. v. IB Resolution, Inc. , 924 F.2d 1114, 1123 (D.C. Cir. 1991), cert. denied , 502 U.S. 822 (1992); cf. Prosser v. Ross , 7 0 F.3d 1005, 1008 (8th Cir. 1995); Wilson v. Westinghous e El ec. Corp. , 838 F.2d 286, 289 (8th Cir. 1988)

. Th e district court properly disregarded the Welk affidavits.

2. Plaintiffs submitted a secretly tape-recorde d
conv ersation in May 1993 between the principals o f plai ntiff G & T Gaming and James Trucano, brother o f defendant Michael Trucano. The ostensible pu rpose of the meeting was to urge Trucano to use his persona l
conn ections to help G & T obtain VLT machines

. Plaintiffs cite the resulting conversation as evidenc e the defend ant operators did not compete for each other’s accounts a nd VLT only sold to MVA members. Trucano left the coin-v ending distributor business in South Dakota in 1988, prior to the start-up of the video lott ery. At his depo sition, he denied firsthand knowledge of the Sout h Dakota vid eo lottery machine market, and plaintiffs have
no ev idence he participated in the conspiracy. Hi s-19-

comm ents in the taped conversation are ambiguous as t o whether operators avoid “stealing” accounts b ecause of an agreement not to do so, andFor example, Huber’s question, what happens if an MVA member “doesn’t 6 play by the rules,” produced the following dialog:
Koehler: [It means y]ou’re no longer friends.
Huber: I mean fine you’re no longer friends but I mean there’s gotta be

more hold than that.
Koehler: No.
Huber: They don’t get a supply of product or they get sanctioned or I

assume you don’t have anything in writing between all of the members.
Koehler: We don’t no, we’re trying . . . as an association we’re trying to

make everybody more profitable -- we can do a better job, service our locations better, have money to reinvest[. Y]ou

-20- lend no support to plaintiffs’ theory that VLT enforce d
an o perators’ conspiracy. The district court properl y discounted this tape as non- probative, inadmissibl e hearsay.

3. Plaintiffs submitted two secretly tape-recorde d
conv ersations in 1993 between Charles Huber, a G & T Gamin g principal, and a competing operator , defendan t James Koehler, owner of defendant Hub Music. Ostensibly, Huber was seeking either an “allotment” of VLT machine s or t o sell G & T Gaming to Koehler. In the course o f their lengthy conversations, Huber repeatedly mad e stateme nts or asked questions in a way that invited th e unsuspecting Koehler to acknowledge an operators ’ conspiracy. E ach time, Koehler either flatly denied that
an anticompetitive agreement existed, responde d ambig uously, or changed the subject. N othing Koehle r 6know you make it sound like we’re doing price fixing . . . .
-21- said is inconsistent with unilateral behavior. Th e dist rict court properly discounted these tapes as to o ambiguous for a reasonable jury to infer that a cons piracy existed. Accord Richards v. Neilson Freigh t Lines , 810 F.2d 898, 903-04 (9th Cir. 1987).Waggener later returned to VLT, so his deposition testimony did not support 7 plaintiffs’ conspiracy claim. Like the district court, we do not consider whether plaintiffs may avoid summary judgment by relying on secretly taped conversations that the unsuspecting declarant later disavows under oath.
-22- 4. Plaintiffs submitted three secretly tape-recorde d tele phone conversations in April, May, and August 199 3 between G & T Gaming and Dana Waggener, who had jus t resigne d as VLT’s sales manager to work for a competin g manufacturer. Waggener said that he left VLT because he 7 did not like its policy of not selling to all license d operat ors and that VLT “protected the hell out of” th e operators it preferred, who “kinda had their roots in the industry.” Waggener’s ambiguous statements ar e consistent with VLT’s explanation of its sale s policy and therefo re do not support an inference that VLT acted a s the enforc er of an operator-level conspiracy. Moreover, the statements were made while Waggener was working fo r
a V LT competitor and were not in furtherance of th e alle ged conspiracy. Thus, the district court properl y discounted these tapes as non-probative, inadmissibl e hearsay. See Fed. R. Evid. 801(d)(2)(E); United State s
v. Snider , 720 F.2d 985, 992 (8th Cir. 1983), cert

. denied , 465 U.S. 1107 (1984).

The judgment of the district court is affirmed.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT