Opinion ID: 758041
Heading Depth: 2
Heading Rank: 2

Heading: Rossi at Standard; Rossi Forms His Own Company

Text: 14 From 1972 to 1988, Rossi worked for defendant Standard as the manager of its Cedar Knolls, New Jersey branch, selling roofing and siding materials. In 1980, Rossi was promoted to vice president, rewarded with stock in the company, and told that he would eventually become a co-owner of the business. Eight years later, however, in September 1988, Standard fired Rossi. The parties dispute the reasons for Rossi's discharge. Rossi alleges that Standard fired him because he refused to participate in a conspiracy with defendant Arzee to fix prices, discussed infra at § II.B.2.a. Standard claims that it fired Rossi for a combination of reasons including his deteriorating work performance, his failure to control expenses, the Cedar Knolls branch's excessively high payroll expenses under his management, his large personal expense account, his failure to arrive at work until late morning, his concentration on outside business ventures to the detriment of Standard, and, ultimately, his failure to achieve branch profits commensurate with branch sales. 15 At all events, by the time he was fired, Rossi had developed a reputation within the industry for extremely competitive pricing, excellent service, and reliability. While at Standard, Rossi had refined an aggressive marketing strategy that stressed high volume sales at low prices. This strategy, as one might imagine, angered Rossi's competitors and even concerned some of his suppliers, which were sensitive to their distributors concerns about pricing. 16 After his termination, Rossi decided to use his connections within the industry to open his own roofing and siding distributorship that would serve northern New Jersey in direct competition with Standard and Arzee. Rossi's first attempt, in late 1988, was Rossi Florence, a joint venture with Richard Droesch (Droesch), president of Florence Corp. (Florence), a roofing, siding, and window distributor in Long Island, New York. Rossi and Droesch planned to operate their new business out of a warehouse Rossi owned at 8 Frederick Place, located immediately adjacent to Standard's Cedar Knolls/Morristown branch and just down the street from Arzee's Morristown branch. Rossi and Droesch made substantial preparations for their venture during the fall of 1988. Droesch (together with one of his employees) invested $100,000 in Rossi Florence, and Rossi Florence obtained a $900,000 bank line of credit secured by the principals' personal guarantees. By mid-January 1989, however, Droesch decided to pull out of Rossi Florence, and Rossi refunded his investment. Droesch felt that because of pressure from Standard, Arzee, and others, the new company would be unable to get the products it needed to successfully compete in the market. In addition, Alvin Roth, president of Arzee, threatened Droesch that if he continued in business with Rossi in New Jersey, Arzee would open up a branch in Long Island to compete directly with Droesch's Florence distributorship. 17 Thereafter, in February 1989, Rossi incorporated Rossi Roofing, continuing his efforts to break into the roofing and siding distribution business in northern New Jersey. Rossi Roofing obtained another $900,000 bank line of credit, personally guaranteed by Rossi and his wife. The company, which opened for business on March 20, 1989, closed in less than a year, after experiencing great difficulty in obtaining product lines and weathering the brunt of a major downturn in the New Jersey housing industry. In January 1990, unable to run Rossi Roofing profitably, Rossi sold the company's assets to American Builders and Contractors, Inc. (ABC), a national roofing and siding distributor. 18 C. The Roofing and Siding Industry in Northern New Jersey; Price Discounting and Market Shares 19 During the relevant time period, the northern New Jersey market included thirty-nine roofing distributors with more than fifty-seven locations. Eleven residential roofing manufacturers, nine commercial roofing manufacturers, and seventeen vinyl siding manufacturers operated in the region. It is undisputed that this roofing and siding marketplace was highly competitive, and that roofing and siding contractors constantly price-shopped, pitting distributor against distributor in order to obtain the best possible deal. 20 GAF, which served this region, offered certain favored distributors secret off-invoice, volume and non-volume discounts or rebates in the form of periodic credits against purchases. Standard, Arzee, and former defendant Allied purportedly all received such discounts from GAF. The amount of these discounts was kept highly confidential because the favored distributors feared that if other distributors found out, they might complain to GAF and ultimately destabilize prices in the market. As GAF district sales manager Elmer Bud Krusa put it, the less people that know about it, the less chance you have of getting it--dropping the entire market price. Rossi contends that while he was employed at Standard, he would pass these discounts on to his customers in an effort to increase his market share, whereas his competitors typically pocketed the rebate. 21 GAF and Wood Fiber are the only two manufacturers remaining as litigants in this case. According to GAF's own estimates, it supplied a large percentage of the New Jersey shingle market (38% for all shingles and 71% for laminate shingles). GAF was Standard's primary supplier of roofing products in the 1980's, and Standard was GAF's biggest customer in New Jersey and one of its top five customers in the entire country. Standard bought $7.7 million of GAF product in 1989 (or 32% of GAF's total sales in New Jersey that year), substantially more than any other GAF customer in New Jersey. 22 Arzee and former defendant Allied also purchased GAF product, but in markedly smaller quantities. Arzee, for example, featured Tamko and Owens Corning Roofing, rather than GAF product, and only purchased $919,747 of GAF product in 1989 (or 4% of GAF's total sales in New Jersey in 1989). Together, however, Standard, Arzee, and Allied (which bought $2.1 million of GAF product in 1989) purchased $10.7 million of the $24.1 million of GAF product sold in New Jersey (or 44% of GAF's total sales in New Jersey in 1989). 3 Rossi contends that, notwithstanding the large number of other manufacturers offering product in the area, GAF product was critical for a distributor to successfully compete in Northern New Jersey, as evidenced by GAF's large market share and also the fact that it was the most desirable and popular roofing material available. This in turn stems in part from several facts: GAF product was well-known by both homeowners and contractors; GAF guaranteed its product; and importantly, GAF product had already been selected for many of the existing townhouse projects in northern New Jersey in 1989 and 1990, making it impossible for the builders to switch brands mid-stream. 23 The evidence in the record regarding Wood Fiber's market position in 1989-90 is not as clearly defined as that of GAF. Wood Fiber manufactures Structodek FS, a commercial roofing product used primarily in commercial applications for certain modified bitumen roofs. Commercial work comprised no more than a third of Rossi Roofing's business; the remaining two-thirds consisted of residential roofing. We do not know from the record how much product Wood Fiber sold in the northern New Jersey market; nor do we know what percentage of Wood Fiber's sales was purchased by Standard or Arzee (or Allied); nor is there any evidence that Wood Fiber had an off-invoice rebate program favoring certain distributors similar to GAF's. This is not surprising because Wood Fiber's involvement in this case stems largely from two isolated episodes, one in which a Wood Fiber representative complained of pressure not to sell to Rossi Roofing, and another in which Wood Fiber refused to supply product to Rossi after having accepted an order. See infra § II.B.2.d. D. Rossi's Damage Claims 24 Rossi submits that because of his inability to purchase GAF and other essential products, Rossi Roofing could not succeed. Unable to sustain the business any longer, on January 8, 1990, Rossi entered into an asset purchase agreement with ABC, which leased Rossi's 8 East Frederick Place property and opened a branch where Rossi Roofing once stood. Most employees, including Rossi as the branch manager, continued to work for ABC. According to Rossi, ABC (which was able to get GAF and other products) did very well. In 1990, it achieved over $5.5 million in sales, and by 1993, sales had increased to $11 million. 4 In 1993, ABC fired Rossi, closed the Morristown branch, and transferred operations to Randolph, New Jersey. Rossi then entered into a similar agreement with Allied, which opened up a location on Rossi's property and hired him to manage it. 25 Rossi contends that he suffered substantial damages when Rossi Florence and Rossi Roofing, unable to get GAF and other important products, failed. In support, Rossi offers the testimony of several of his former customers during his tenure at Standard, who stated that they would have done business with Rossi Roofing if it had had the necessary product lines. Thus, in Rossi's submission, if the manufacturers had sold to him the same products that they ultimately sold to ABC (and later Allied), Rossi Roofing would have succeeded, and over time, Rossi would have had his company open up new branches, as Standard, Arzee and Allied have done. The lost profits to Rossi Florence, and to Rossi Roofing, have been over $7 million at a minimum. In addition, Rossi claims to have suffered additional, non-duplicative damages of over $1 million from payments he made on behalf of Rossi Florence and Rossi Roofing, including payments made on his personal guarantees of Rossi Roofing's debts. E. Procedural History 26 Rossi's action in the district court alleged, inter alia, a group boycott in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and Section 3 of the New Jersey Antitrust Act, as well as tortious interference with plaintiffs' contractual and prospective contractual relations. 5 After extensive discovery and submissions in support of and opposition to the motions, the district court granted defendants' motions for summary judgment, finding insufficient evidence of concerted action, causation, and damages. Rossi has appealed not only that judgment but also a discovery ruling--the district court's order denying a motion to compel defendant GAF to provide additional factual detail about the subject matter of GAF's counsel's handwritten notes of three telephone conversations with GAF employees. 27 The district court had subject matter jurisdiction pursuant to 28 U.S.C. §§ 1337 and 1367, as well as 15 U.S.C. § 15. We have appellate jurisdiction pursuant to 28 U.S.C. § 1291.