1994 Decisions

Opinions of the United

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Precedential or Non-Precedential: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-ToGo. 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 anticompetitive 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 dropshipment 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.