Opinion ID: 1189773
Heading Depth: 4
Heading Rank: 2

Heading: Toledo's Evidence of an Unlawful Agreement Between the Dealers and Mack

Text: Obviously, evidence sufficient to allow a jury to conclude that illegal agreements existed among Mack dealers does not establish that Mack itself was a party to an agreement that violated § 1 of the Sherman Act. Toledo contends, however, that it presented sufficient evidence to allow a jury to conclude that Mack did enter into an illegal vertical agreement with its dealers. According to Toledo, it showed an agreement between the dealers and Mack that Mack would support the dealers' illegal conspiracy to control prices, and that one tool Mack employed to that end was a de facto ban on out-of-AOR sales by dealers like Toledo that sought to compete with other dealers on price. Our analysis of the alleged vertical agreement between Mack and its dealers follows the same pattern we used when considering the alleged horizontal agreement among the dealers. First, we consider Toledo's evidence of the agreement, and second, we consider the agreement's legality. Toledo presented direct evidence that Mack agreed with its dealers to support their anti-competitive agreements and that it did so by, among other things, refusing to offer sales assistance to dealers who sought to sell outside their AORs. [12] Jack Lusty testified that Jeff Yelles told him in 2002, during the time when Mack ostensibly permitted its dealers to sell everywhere, that he kn[ew] what [Toledo] [was] trying to do. [Toledo] wants to establish discounts and sell trucks all over the place. We are not going to let this happen. (App. at A2824.) Lusty also testified that Mack executives used sales assistance to control dealers and that the real purpose of Mack's system of cross-checks was to give an in-AOR dealer the advantage over an out-of-AOR dealer. Moreover, Mack does not contest that, in 1989, it issued Bulletin 38-89, which eliminated sales assistance to dealers on sales outside their AORs. Importantly for purposes of showing a conspiracy under § 1, Toledo presented evidence that Bulletin 38-89 was the result of a collaboration between Mack and its dealers. According to that evidence, Mack's NDAC, a group consisting of both Mack executives and dealer representatives, worked on a draft of Bulletin 38-89. In addition, when Yeager asked Dick Murphy whether NDAC's approval of the new policy was a unanimous kind of thing, Murphy responded, Oh yes. Oh very much so. Very much so. I mean, something as significant as this, it had to come from all walks. (App. at A4025.) Mack's Vice President of Distributor Sales, Gary Johnson, told Yeager that the one thing I can tell you that would be fair and legitimate advice is that I think this policy came about to a large extent because of the voice of the distributor organization.... If it's probably ever gonna be changed or modified, it will come about as a result of the voice of dealer organizations. (App. at A4058.) Mack's attempts to discredit Johnson's statement about the dealers' role in creating Bulletin 38-89 only demonstrates why the jury should have been given a chance to consider Toledo's § 1 claim. First, Mack argues that Johnson was mistaken because, immediately before explaining the origins of the policy, he stated that he was new on the job. While a jury presented with that argument might conclude that Johnson's statements are insufficient to establish that Mack and its dealers conspired, that does not mean that a jury could not believe Johnson and reach the opposite conclusion. Johnson stated unequivocally that Bulletin 38-89 came about to a large extent because of the voice of the distributor organization. (App. at A4058.) Because Bulletin 38-89 was issued as official Mack policy, a jury presented with Johnson's statement, along with Murphy's statement, could rationally conclude that Bulletin 38-89 was the result of an agreement between Mack and its dealers. Mack also attacks Johnson's statement by citing our decision in Edward J. Sweeney & Sons, Inc. v. Texaco Inc., 637 F.2d 105 (3d Cir.1980). In Sweeney, we held that testimony would not support an inference of conspiracy when a witness stated that he believed [the defendant] changed [the plaintiff's] hauling allowance because of ... retailer complaints, but then admitted that his opinion was just an unsupported surmise. 637 F.2d at 112. Seizing on the witness's statement in Sweeney that his belief was an unsupported surmise, Mack argues that, because Johnson only told Yeager what [he] th[ought] occurred, his statement is insufficient to support an inference of conspiracy. We disagree. In the first place, Sweeney is inapposite because Johnson's statement is direct evidence of collusion, which, if believed, requires no further inference. Second, unlike the witness in Sweeney, Johnson never stated that his belief about the origins of Bulletin 38-89 lacked support, and his position as Vice President of Distributor Sales buttresses the conclusion that his statement was based on first-hand knowledge, not mere surmise. Mack's argument that Murphy's statements cannot be taken as showing a conspiracy is equally unpersuasive. Relying on Monsanto, Mack argues that the tape recording of Yeager's conversation with Murphy shows, at most, that Mack responded to dealer complaints about Toledo. In Monsanto, the Supreme Court held that, to establish concerted action under § 1 using direct evidence, a plaintiff cannot simply show that the defendant received complaints about the plaintiff's price cutting from other dealers, nor is it enough to show that the defendant received complaints and acted in response. 465 U.S. at 764, 104 S.Ct. 1464 (citing Sweeney, 637 F.2d at 111-12). Instead, a plaintiff must produce evidence that would allow a jury to conclude that the alleged conspirators had a unity of purpose or a common design and understanding, or a meeting of the minds. Id. The necessary meeting of the minds requires more than a showing that the distributor conformed to the suggested price. It means as well that evidence must be presented both that the distributor communicated its acquiescence or agreement, and that this was sought by the manufacturer. Id. at 764 n. 9, 104 S.Ct. 1464. Mack argues that Yeager's conversation with Murphy does not meet Monsanto 's requirements because, even if believed, it shows only that Mack adopted Bulletin 38-89 in response to dealer complaints. However, in Monsanto itself, the Court held that a jury should be permitted to consider whether a conspiracy existed based on evidence of a meeting between Monsanto and its distributors. During the meeting at issue in that case, the parties discussed Monsanto's efforts to get the market place in order, id. at 765, 104 S.Ct. 1464 (internal punctuation omitted), and also discussed how to ensure a level playground in which the decision of the umpire in enforcing the rules of the game would be final, id. at 766, 104 S.Ct. 1464. The Supreme Court agreed that the report of the meeting could be describing the likely reaction to unilateral Monsanto pronouncements. Id. at 766 n. 11, 104 S.Ct. 1464. Nevertheless, the Court explained that the report could also indicate that Monsanto and its distributors entered into an illegal agreement and that the interpretation of [the] ... testimony ... properly was left to the jury. Id. In this case, Toledo presented evidence that Mack and its dealers met, discussed, and unanimously approved Bulletin 38-89 before Mack issued it. One view of the evidence may be, as Mack insists, that the dealers at the NDAC meeting were reacting to unilateral pronouncements by Mack, but another view is possible and entirely reasonable. Under Monsanto, then, how to view that evidence should be left to the jury. Toledo also presented evidence that the conspiracy between Mack and its dealers continued from 1989 until well into the limitations period. As we have noted, in October 1989, Mack amended Bulletin 38-89 with Bulletin 38-89A, which stated a policy purportedly permitting dealers to sell everywhere. [13] However, Toledo presented direct evidence in the form of statements by various Mack executives that Mack's policy against out-of-AOR sales continued unchanged despite the amendment to Mack's official policy. For example, when Toledo attempted to sell three trucks outside its AOR in 1991, Kevin Flaherty told Yeager that our policy has not changed, and he indicated that Mack would provide sales assistance if Toledo sold the trucks inside its AOR but not outside of it. (App. at A4086.) Similarly, Bob Grussing, Mack's Parts Manager, told Yeager in 1996 that dealers constantly want Mack to get involved in these territorial disputes ... and to protect them from one another. And right or wrong, we do that, you know. (App. at A4147.) Grussing also stated that such assistance was a long standing tradition and that I don't know if I can break that. Id. Mack attacks the statements by Flaherty and Grussing in various ways. Mack argues that Flaherty's statements do not show that Mack's policy remained unchanged because Flaherty was actually trying to convince Yeager to provide him with the information necessary to conduct a cross-check so that Toledo could compete on an equal footing with any other Mack dealer that might be attempting to make the same sale. Once again, Mack would have us view the evidence in the light most favorable to it, even though we are bound to do just the opposite at this point in the case. Moreover, Jack Lusty testified that, although Mack claimed that its system of cross-checks was used to ensure that all dealers competing for the same sale received equal sales assistance, the real purpose of cross-checks was to prevent dealers from competing effectively with one another. Because we must assume the truth of Lusty's testimony at this stage, Mack's characterization of Flaherty's statements, even if correct, would not prevent a jury from concluding that a conspiracy existed. Further, as Toledo points out, Flaherty's statement that our policy has not changed was made after Mack had ostensibly retracted its ban on sales assistance on out-of-AOR sales. See Rossi, 156 F.3d at 452, 478 (noting that actions by a party that are inconsistent with its stated policy support an inference of concerted action). Mack's attack on Grussing's statement is also flawed. Mack argues that because Grussing's expertise was parts rather than trucks, his statements do not show a conspiracy involving truck sales. Again, this is an argument suited for presentation to a jury, not this Court. In addition, Yelles made several comments to Lusty that support the conclusion that, during the limitations period, Mack continued a policy of preventing dealers from selling outside their AORs. Of particular note, Yelles stated that Yeager was not playing by the rules. (App. at A2825.) A jury could reasonably understand that the rules Yelles was talking about were an agreement not to engage in price competition outside one's own AOR. [14] Viewed in the light most favorable to Toledo, these statements by Mack executives are sufficient to allow a jury to decide whether an agreement between Mack and its dealers continued into the limitations period. Mack's arguments to the contrary fall short because they fail to recognize the nature of our inquiry. Rather than determining whether Mack actually violated § 1, our function now is simply to decide whether Toledo's evidence is sufficient to allow a jury to consider Toledo's § 1 claim. Because Toledo's evidence was sufficient to allow a jury to conclude that Mack entered into a competition-restricting agreement with its dealers, the only remaining question before us as to that agreement is whether, if proven, it violates § 1 of the Sherman Act. In contrast to horizontal price-fixing agreements between entities at the same level of a product's distribution chain, the legality of a vertical agreement that imposes a restriction on the dealer's ability to sell the manufacturer's product is governed by the rule of reason. Leegin, 127 S.Ct. at 2725. The rule of reason analysis applies even when, as in this case, the plaintiff alleges that the purpose of the vertical agreement between a manufacturer and its dealers is to support illegal horizontal agreements between multiple dealers. Id. at 2717 (A horizontal cartel among competing manufacturers or competing retailers that decreases output or reduces competition in order to increase price is, and ought to be, per se unlawful. To the extent a vertical agreement setting minimum resale prices is entered upon to facilitate either type of cartel, it, too, would need to be held unlawful under the rule of reason. ) (citation omitted and emphasis added). [15] When conducting a rule of reason inquiry, the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition. AT & T Corp. v. JMC Telecom, LLC, 470 F.3d 525, 531 n. 7 (3d Cir.2006) (citations omitted). In Rossi, we identified four factors that are relevant to an analysis of a restraint under the rule of reason: (1) that the defendants contracted, combined or conspired among each other; (2) that the combination or conspiracy produced adverse, anti-competitive effects within the relevant product and geographic markets; (3) that the objects of and the conduct pursuant to that contract or conspiracy were illegal; and (4) that the plaintiffs were injured as a proximate result of that conspiracy. 156 F.3d at 464-65 (citation omitted). In Leegin, the Supreme Court also identified additional issues relevant to the rule of reason inquiry. Two of those are particularly relevant to Toledo's appeal. First, [t]he source of the restraint may be an important consideration. If there is evidence retailers were the impetus for a vertical price restraint, there is a greater likelihood that the restraint facilitates a retailer cartel.... 127 S.Ct. at 2719. Second, that a dominant manufacturer or retailer can abuse resale price maintenance for anti-competitive purposes may not be a serious concern unless the relevant entity has market power. Id. at 2720. As to the first rule of reason factor we identified in Rossi, we have already explained that, viewed in the light most favorable to Toledo, the previously highlighted statements by Mack executives are sufficient to allow a jury to decide whether an agreement between Mack and its dealers continued into the limitations period. Further, we note that, consistent with Leegin, Toledo produced evidence that the agreement was the result of dealer pressure. Toledo also presented sufficient evidence to allow a jury to conclude that the agreement between Mack and its dealers produced anti-competitive effects in the relevant product and geographic markets. Toledo bears the burden of identifying those markets and showing the anti-competitive effect of the agreement between Mack and its dealers. Gordon v. Lewistown Hosp., 423 F.3d 184, 210 (3d Cir.2005). We have explained that proof of anti-competitive effects can be achieved by demonstrating that the restraint is facially anticompetitive or that its enforcement reduced output, raised prices or reduced quality. Alternatively, because proof that the concerted action actually caused anticompetitive effects is often impossible to sustain, proof of the defendant's market power will suffice. Id. Market power is the ability to raise prices above those that would prevail in a competitive market. United States v. Brown Univ., 5 F.3d 658, 668 (3d Cir.1993). At trial, Toledo presented expert testimony that Mack has power in two different product markets. The first of those markets is called the conventional straight truck market and includes vehicles that have an engine placed out in front of the driver's cab. The second market consists of low cab over engine trucks, or LCOE trucks, which have an engine placed underneath the driver's cab. Toledo's expert testified that Mack [has] market power in both the heavy duty vocational LCOE, as well as conventional straight truck markets, whether you look at the U.S. as a whole or the U.S., excluding the west. [16] (App. at A1676.) Toledo also presented sufficient evidence that the objects of and the conduct pursuant to th[e] contract or conspiracy were illegal. Rossi, 156 F.3d at 466. As explained, Toledo has alleged that Mack agreed to support the horizontal agreement among the dealers to control prices. In Leegin, the Supreme Court expressly condemned such agreements. 127 S.Ct. at 2717. Finally, Toledo adduced evidence that it was injured as a result of the unlawful conspiracy. For example, Toledo presented evidence that, during the limitations period, Jeff Yelles asked Mack's Controller to delay approving one of Toledo's requests for sales assistance on an out-of-AOR sale so that another Mack dealer could make a sale. Toledo also presented evidence that, during the limitations period, Yelles refused to give sales assistance to Toledo on out-of-AOR sales. Applying the rule of reason analysis to Toledo's § 1 claim, we conclude that Toledo presented sufficient evidence of an illegal agreement between Mack and its dealers for a jury to find for Toledo. Therefore, we vacate and remand the District Court's decision on that claim.