Opinion ID: 196628
Heading Depth: 4
Heading Rank: 1

Heading: In Commerce

Text: 20 CAPECO argues, correctly we conclude, that section 2(a) of the Clayton Act does not apply because in the instant case, neither of the two transactions which evidence the alleged price discrimination crossed a state line. Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 200-201, 200 n. 17, 95 S.Ct. 392, 401, 401 n. 17, 42 L.Ed.2d 378 (1974). For a transaction to qualify, the product at issue must physically cross a state boundary in either the sale to the favored buyer or the sale to the buyer allegedly discriminated against. See, e.g., Misco, Inc. v. United States Steel Corp., 784 F.2d 198, 202 (6th Cir.1986); Black Gold Ltd. v. Rockwool Industries, Inc., 729 F.2d 676, 683 (10th Cir.), cert. denied, 469 U.S. 854, 105 S.Ct. 178, 83 L.Ed.2d 113 (1984); William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 668 F.2d 1014, 1043-44 (9th Cir.1981), cert. denied, 459 U.S. 825, 103 S.Ct. 57, 74 L.Ed.2d 61 (1982); S & M Materials Co. v. Southern Stone Co., 612 F.2d 198, 200 (5th Cir.), cert. denied, 449 U.S. 832, 101 S.Ct. 101, 66 L.Ed.2d 37 (1980); Rio Vista Oil, Ltd. v. Southland Corp., 667 F.Supp. 757, 763 (D.Utah 1987). 21 However, this issue is not dispositive, because the jury found that CAPECO violated the Puerto Rico price discrimination statute, which is identical to Section 2(a) except that it contains no interstate commerce requirement. 5 CAPECO has not challenged the district court's supplemental jurisdiction stemming from Coastal's Sherman Act claims. The relevant statute states that in any civil action over which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action ... that they form part of the same case or controversy. 28 U.S.C. § 1367 (1994). In application, [i]f, considered without regard to their federal or state character, a plaintiff's claims are such that [it] would ordinarily be expected to try them all in one judicial proceeding, then, assuming substantiality of the federal issues, there is power in federal courts to hear the whole. United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218, (1966); see Rodriguez v. Doral Mortgage Corp., 57 F.3d 1168, 1175-76 (1st Cir.1995) (interpreting and applying 28 U.S.C. § 1367). In the instant case, the price discrimination claims flow out of the same set of facts and require the same evidence as the Sherman Act claims. Because we uphold the district court's jurisdiction over the Sherman Act claims, see 15 U.S.C. § 4 (1994) (investing [t]he several district courts of the United States ... with jurisdiction to prevent and restrain violations of [Title 15] sections 1 to 7[,] which includes the Sherman Act), we also must conclude that the district court properly exercised supplementary jurisdiction over the price discrimination claims. 22 Thus, we conclude that the district court erred in applying section 2(a) of the Clayton Act to the conduct at issue, and accordingly reverse that part of its opinion. However, we find applicable section 263 of the Puerto Rico Anti-Monopoly Act, 10 L.P.R.A. § 263. Because section 263 was patterned after and is almost identical to section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, we look to the jurisprudence interpreting federal law as a guide in applying the statute. 6 Given that the one key difference between the federal and Puerto Rico statutes is the lack of an in commerce requirement in the Puerto Rico analogue, we conclude that we should interpret section 263 as intended to extend the provisions of section 2(a) of the Clayton Act to price discrimination within Puerto Rico, the situation which we confront in the instant case. Given the relative lack of applicable section 263 case law and the well-developed jurisprudence concerning Clayton Act section 2(a), we will focus on the latter in assessing the price discrimination claims.2. Injury to Competition 23 CAPECO's second argument in support of reversing the price discrimination portion of the judgment is that Coastal failed to demonstrate injury to competition. As noted above, we analyze this case as one of secondary-line price discrimination, and thus Coastal bears the burden of showing injury to competition between Coastal and its rival bunker fuel resellers, Harbor and Caribbean. Addressing the burden of the secondary-line plaintiff, the Supreme Court has stated that 24 [i]t would greatly handicap effective enforcement of the Act to require testimony to show that which we believe to be self-evident, namely, that there is a reasonable possibility that competition may be adversely affected by a practice under which manufacturers and producers sell their goods to some customers substantially cheaper than they sell like goods to the competitors of these customers. 25 Morton Salt Co., 334 U.S. at 50, 68 S.Ct. at 830. As a result, the Supreme Court has held that for the purposes of section 2(a), injury to competition is established prima facie by proof of a substantial price discrimination between competing purchasers over time. Falls City, 460 U.S. at 435, 103 S.Ct. at 1288 (citing Morton Salt, 334 U.S. at 46, 50-51, 68 S.Ct. at 828, 830); see also Texaco, Inc. v. Hasbrouck, 496 U.S. 543, 559, 110 S.Ct. 2535, 2544, 110 L.Ed.2d 492 (1990); Monahan's Marine, Inc. v. Boston Whaler, Inc., 866 F.2d 525, 528-529 (1st Cir.1989) (noting lower burden for antitrust plaintiff under Clayton Act, as amended by the Robinson-Patman Act, than under Sherman Act); Boise Cascade Corp. v. FTC, 837 F.2d 1127, 1139 (D.C.Cir.1988). 26 CAPECO challenges the district court's finding of competitive injury in two ways, arguing that the Morton Salt rule is no longer good law, or alternatively, that the Morton Salt rule was incorrectly applied in this case. We first address CAPECO's direct challenge to the vitality of the Morton Salt rule, a challenge based on the Supreme Court's opinion in Brooke Group, 509 U.S. 209, 113 S.Ct. 2578. In that case, the Supreme Court ruled that, because primary-line price discrimination injury is of the same general character as predatory pricing schemes actionable under Sherman Act section 2, Brooke Group, 509 U.S. at 221-23, 113 S.Ct. at 2587, a primary-line injury plaintiff bears the same substantive burden as under the Sherman Act, that is, the plaintiff must show that the predator stands some chance of recouping his losses, id. 509 U.S. at 223-24, 113 S.Ct. at 2588. In so deciding, the Supreme Court implicitly overruled Utah Pie Co. v. Continental Baking Co., 386 U.S. 685, 87 S.Ct. 1326, 18 L.Ed.2d 406 (1967), in which the Supreme Court had set forth different standards for primary-line injury. Brooke Group, 509 U.S. at 221-23, 113 S.Ct. at 2587 (explaining that Utah Pie was merely an early judicial inquiry). 27 According to CAPECO, the Supreme Court's recent emphasis in Brooke Group on reconciling the area of price discrimination with other antitrust law requires that we find that the Morton Salt rule no longer is good law. CAPECO notes that both primary-line and secondary-line price discrimination are prohibited by the same language of section 2(a) as amended by the Robinson-Patman Act. Furthermore, CAPECO contends that the Supreme Court in Brooke Group apparently undercut any reliance on a principled distinction between the aims of section 2 of the Clayton Act and other antitrust laws' purported emphasis on protecting competition, not competitors, Brooke Group, 509 U.S. at 224, 113 S.Ct. at 2588 (emphasis in original) (citation omitted); see also Monahan's Marine, Inc., 866 F.2d at 528-29 (not discussing the Morton Salt rule, but noting that unlike the Sherman Act, which protects 'competition not competitors,' ... the [Robinson-Patman] Act protects those who compete with a favored seller, not just the overall competitive process. (emphasis in original)). Thus, according to CAPECO, precedent that pre-dates Brooke Group and applies the Morton Salt rule must be reexamined. See, e.g., 496 U.S. at 544, 110 S.Ct. at 2537; Falls City, 460 U.S. at 436, 103 S.Ct. at 1289; Boise Cascade v. FTC, 837 F.2d 1127, 1153 (D.C.Cir.1988). 28 While CAPECO's argument has merit, we join the two other circuits that have addressed competitive injury in secondary-line cases since Brooke Group in refusing to disregard the rule the Supreme Court formulated in Morton Salt, for three reasons. 7 First, the statutory structure that prohibits primary-line price discrimination stands on an entirely different footing than the statutory scheme that proscribes secondary-line discrimination. See Rebel Oil Co., 51 F.3d at 1446. Congress first forbade primary-line price discrimination with the Clayton Act of 1914, which originally condemned discrimination that might substantially ... lessen competition or tend to create a monopoly in any line of commerce. Clayton Antitrust Act, 38 Stat. 730 (1914) (codified as amended at 15 U.S.C. § 13(a) (1994)). The statute was intended to prevent large corporations from invading markets of small firms and charging predatory prices for the purpose of destroying marketwide competition, and thus specifically applied only to primary-line injury. See H.R.Rep. No. 627, 63rd Cong., 2d Sess. § 8 (1914); E. Thomas Sullivan & Jeffrey L. Harrison, Understanding Antitrust and Its Economic Implications § 8.03 (1988). 29 By contrast, secondary-line discrimination is forbidden by the Robinson-Patman Act, 49 Stat. 1526 (1936), 15 U.S.C. §§ 13-13b, 21a (1988), which amended the original Clayton Act's price discrimination proscriptions. Congress clearly intended the Robinson-Patman Act's provision to apply only to secondary-line cases, not to primary-line cases. See H.R.Rep. No. 2287, 74th Cong., 2d Sess. § 8 (1936), 8 cited in Rebel Oil Co., 51 F.3d at 1446. In contrast to the Sherman Act and the Clayton Act, which were intended to proscribe only conduct that threatens consumer welfare, the Robinson-Patman Act's framers intended to punish perceived economic evils not necessarily threatening to consumer welfare per se. Rebel Oil Co., 51 F.3d at 1445. See generally Hovenkamp § 2.1a. In particular, the Robinson-Patman Act's amendments to the Clayton Act stemmed from dissatisfaction with the original Clayton Act's inability to prevent large retail chains from obtaining volume discounts from big suppliers, at the disadvantage of small retailers who competed with the chains. See S.Rep. No. 1502, 74th Cong., 2d Sess. § 4 (1936); H.R.Rep. No. 2287, 74th Cong., 2d Sess. §§ 3-4 (1936); see also Morton Salt, 334 U.S. at 49, 68 S.Ct. at 829 (Congress intended to protect a merchant from competitive injury attributable to discriminatory prices); Rebel Oil Co., 51 F.3d 1421, 1446; Monahan's Marine, Inc., 866 F.2d at 528-29. 30 Second, we are persuaded by the reasoning of the Ninth Circuit's opinion in Rebel Oil Co. that the amendment to the Clayton Act effected by the Robinson-Patman Act supports the continued vitality of the Morton Salt rule, even in the face of Brooke Group's alteration of standards for primary-line price discrimination. While the Clayton Act only proscribed conduct that may substantially lessen competition or tend to create a monopoly[,] the new law added the following passage: or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them. See Rebel Oil Co., 51 F.3d at 1447. The purpose of this passage was to relieve secondary-line plaintiffs--small retailers who are disfavored by discriminating suppliers--from having to prove harm to competition marketwide, allowing them instead to impose liability simply by proving effects on individual competitors. See id.; H.R.Rep. No. 2287, 74th Cong., 2d Sess. § 8 (1936). Such legislative intent directly supports maintaining the Morton Salt rule, which puts into practice Congress' concern with placing the same burden on secondary-line plaintiffs that other antitrust plaintiffs face. Thus, the comparison that the Supreme Court drew between primary-line price discrimination and predatory pricing in Brooke Group stands on a different, and stronger, footing than any comparison that could be made between secondary-line price discrimination and other area of antitrust law, including, but not only, predatory pricing. 31 Third, and finally, the holding of the Brooke Group opinion on its face applies only to primary-line cases, not secondary-line cases. As a result, given the legislative history and statutory language distinctions, we will not presume, without more guidance, that the Supreme Court intended in Brooke Group to alter the well-established rule that it adopted in Morton Salt. 9 Thus, we hold that the Morton Salt rule continues to apply to secondary-line injury cases such as the present one. 32 The Morton Salt rule provides that, for the purposes of secondary-line claims under section 2(a), injury to competition is established prima facie by proof of a substantial price discrimination between competing purchasers over time. Falls City Industries v. Vanco Beverage, Inc., 460 U.S. 428, 435, 103 S.Ct. 1282, 1288, 75 L.Ed.2d 174 (1983) (citing Morton Salt, 334 U.S. at 46, 50-51, 68 S.Ct. at 828, 830). If the plaintiff makes such a showing, then [t]his inference may be overcome by evidence breaking the causal connection between a price differential and lost sales or profits. Falls City, 460 U.S. at 435, 103 S.Ct. at 1288. Barring evidence breaking that connection, however, for a[ ] plaintiff to prove competitive injury under Robinson-Patman, he [or she] need only show that a substantial price discrimination existed as between himself [or herself] and his [or her] competitors over a period of time. Hasbrouck v. Texaco, Inc., 842 F.2d 1034, 1041 (9th Cir.1987), aff'd, 496 U.S. 543, 110 S.Ct. 2535, 110 L.Ed.2d 492 (1990). 33 Here the jury properly inferred prima facie injury to competition since Coastal produced sufficient evidence before the jury to conclude (1) that the discrimination in question was continuous and substantial and (2) that the discrimination occurred in a business where profit margins were low and competition was keen. 4 Von Kalinowski, Antitrust Laws and Trade Regulation § 31.04(1). First, the discrimination lasted all 18 months that Coastal was in business, and always exceeded the five cents per barrel that witnesses testified was competitively significant. Additionally, there was ample testimony that the marine fuel oil business, in which Coastal competed against Caribbean and Harbor, was characterized by thin margins and intense competition. At any rate, on appeal, CAPECO does not make the argument that Coastal failed to produce evidence required for a prima facie showing of injury to competition under the Morton Salt rule. 34 However, CAPECO argues that the Morton Salt inference was undercut by evidence breaking the causal connection between CAPECO's price discrimination and Coastal's lost sales or profits, Falls City, 460 U.S. at 435, 103 S.Ct. at 1288, and showing an absence of competitive injury, Boise Cascade Corp. v. FTC, 837 F.2d 1127, 1146 (D.C.Cir.1988). According to CAPECO, overall market forces depressed the price for bunker fuel more than 30 percent between late 1991 and early 1992, and it was this fact, rather than CAPECO's price discrimination, that led to Coastal's demise. CAPECO points to the admission of Coastal's CEO that Coastal's sales agents based their price quotes to ships on the prices being charged by competitors in San Juan and other ports, often without even knowing the cost of the fuel that was to be delivered. According to CAPECO, if prices were set when costs were unknown, then discounts from CAPECO could not have been a material factor in setting prices. 35 We reject the argument that this evidence rebuts Coastal's prima facie showing of price discrimination. In reviewing the jury verdict, [w]e are compelled ... even in a close case, to uphold the verdict unless the facts and inferences, when viewed in a light most favorable to the party for whom the jury held, point so strongly and overwhelmingly in favor of the movant that a reasonable jury could not have arrived at this conclusion. Chedd-Angier Production Co. v. Omni Publications Int'l Ltd., 756 F.2d 930, 934 (1st Cir.1985); see also Rodriguez v. Montalvo, 871 F.2d 163, 165 (1st Cir.1989); Castro v. Stanley Works, 864 F.2d 961, 963 (1st Cir.1989); Brown v. Freedman Baking Co., 810 F.2d 6, 12 (1st Cir.1987). Thus, in this case, the appellants must persuade us that the facts of this case so conclusively point to a verdict in [their] favor that fair-minded people could not disagree about the outcome. Chedd-Angier Production Co., 756 F.2d at 934. 36 Here, neither section 2(a), section 263, nor their attendant case law, requires that the price discrimination in question be directly factored into the prices that favored and disfavored purchaser-resellers offered to their customers. Presumably, regardless of whether these costs were factored directly into the prices that Coastal offered, or were later calculated into Coastal's bottom line, these costs affected Coastal's pricing. Certainly, no argument can be made from this evidence alone that bunker fuel costs, no matter when accounted for, were not causally connected to Coastal's lost profits. See, e.g., Hasbrouck v. Texaco, Inc., 842 F.2d 1034, 1039-41 (9th Cir.1987), aff'd, 496 U.S. 543, 110 S.Ct. 2535, 110 L.Ed.2d 492 (1990) (finding that evidence that some portion of small extra discounts of 2cents - 5cents on gasoline was passed on by favored customers sufficient, particularly when retail gasoline market was strongly price sensitive). Additionally, the fact that Coastal's sales agents operated without complete knowledge of the prices at which other Coastal agents were purchasing the bunker fuel that would later be delivered does not, without more, show an absence of competitive injury. 3. Actual Injury 37 CAPECO also contends that Coastal failed to present adequate evidence of actual injury to support the verdict. On appeal, CAPECO does not complain that the court's instructions to the jury on the actual injury requirement were erroneous. Thus, the only question regarding this issue is whether the evidence that Coastal presented to the jury was adequate to permit a reasonable inference of actual injury. 38 Although we have concluded that Coastal has proved competitive injury under Title 10, Section 263 of the Laws of Puerto Rico, in order to collect damages as a private plaintiff, Coastal must show that CAPECO's offense was a material cause of injury. See Zenith Radio Corp. v. Hazeltine Research, 395 U.S. 100, 114 n. 9, 89 S.Ct. 1562, 1571 n. 9, 23 L.Ed.2d 129 (1969); Hasbrouck, 842 F.2d at 1042; Allen Pen Co. v. Springfield Photo Mount Co., 653 F.2d 17, 21-22 (1st Cir.1981). Coastal was required to show that, as a result of CAPECO's price discrimination, it lost sales and profits. Hasbrouck, 842 F.2d at 1042; see Allen Pen Co., 653 F.2d 17, 21-22 (1st Cir.1981). CAPECO contends that, to do so, Coastal was required to indicate and document specific losses of business [for Coastal] and corresponding gains by [favored competitors], or otherwise show that [Coastal's] losses were caused by [CAPECO's] practices. Foremost-McKesson, Inc. v. Instrumentation Laboratory, Inc., 527 F.2d 417, 420 (5th Cir.1976); see also Falls City, 460 U.S. at 437-38, 103 S.Ct. at 1290 (ruling that findings based on direct evidence of diverted sales more than established the competitive injury required for a prima facie case under section 2(a)). 39 Assuming arguendo that CAPECO correctly claims that Coastal needed to show specific losses of business, CAPECO's argument fails to persuade us. 10 CAPECO concedes that a Coastal employee, Andrew McIntosh (McIntosh) testified that Coastal was getting feedback from its customers that its prices were not competitive. Whether or not to credit such testimony is a decision best left to the factfinder. See Wytrwal v. Saco School Bd., 70 F.3d 165, 171 (1st Cir.1995); Flanders & Medeiros, Inc. v. Bogosian, 65 F.3d 198, 204 n. 4 (1st Cir.1995). McIntosh's testimony, if believed, could lead a jury to reasonably infer actual injury in the form of lost sales. 40 CAPECO also contends that because McIntosh's testimony was based on statements other Coastal employees had made to him, it was both inadmissible hearsay evidence, see Fed.R.Evid. 802, and even if admissible, legally insufficient to support a finding of actual injury. In making this argument, CAPECO cites two cases, Stelwagon Manufacturing Co. v. Tarmac Roofing Systems, Inc., 63 F.3d 1267, 1275-76 (3d Cir.1995), and Chrysler Credit Corp. v. J. Truett Payne Co., 670 F.2d 575, 581 (5th Cir.1982). However, the two cases are inapposite. Apparently unlike the defendant in Stelwagon, CAPECO did not make a lower court hearsay objection to the testimony in question. See Stelwagon Mfg. Co., 63 F.3d at 1275, n. 17. 41 Additionally, the Fifth Circuit's opinion in J. Truett Payne is distinguishable in a significant manner from the instant case. In a preceding Supreme Court opinion, the Court noted that 42 [a]lthough [Payne Co.'s owner] asserted that his salesmen and customers told him that the dealership was being undersold, he admitted that he did not know if his competitors did in fact pass on their lower costs to their customers. 43 J. Truett Payne, Co. v. Chrysler Motors Corp., 451 U.S. 557, 564, 101 S.Ct. 1923, 1928, 68 L.Ed.2d 442 (1981). Likewise, Payne Co.'s expert witness did not testify that the lower costs were passed on in the retail price. Id. The Court found important the lack of evidence that competitors passed on discounts to customers. Id. at 564, n. 4, 101 S.Ct. at 1928, n. 4. On remand, the Fifth Circuit noted, in finding the evidence insufficient, that Payne Co.'s witnesses only spoke to either the supposed or hypothesized effect of the programs. J. Truett Payne, 670 F.2d at 581. By contrast, while Coastal offered similar testimony of feedback about being undersold, it also put forth expert testimony that Caribbean and Harbor had fully passed on their lower costs to the ships purchasing marine fuel. Coastal's expert testified that CAPECO gave discriminatory low prices to Harbor and Caribbean ... [that] were fully passed on ... to the ships purchasing marine fuel. Thus, because Coastal proffered evidence linking the discounts in question to actual, not hypothetical, effects, J. Truett Payne is inapposite. 44 We conclude that, once admitted, this evidence could have led the jury to reasonably infer actual injury to competition.