Court Opinion

ID: 9473538
Source: CourtListenerOpinion
Date Created: 2023-08-05 04:32:30.190368+00
Date Added: 2024-06-11T17:43:35.325524
License: Public Domain

HARRISON L. WINTER, Chief Judge,
concurring specially.
I concur in Part III of the majority opinion. I also concur in the dismissal of plaintiff’s § 1 Sherman Act claim, but for reasons different from those relied on by the majority. Hence I write to set forth my separate views.
I.
As the majority recognizes, Monsanto Co. v. Spray-Rite Service Corp., — U.S. -, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984), states the evidentiary requirements for proving concerted action in a distributor termination case. Evidence of complaints by other distributors, followed by termination of the plaintiff’s distributorship, will not by itself support a finding of concerted action. A manufacturer would otherwise face the threat of treble damages solely because it acted on the information originating as a distributor complaint. The danger of liability based on such “highly ambiguous evidence” would deter lawful unilateral conduct and the optimal use of mar*616ket information, thereby creating “an irrational dislocation in the market.” Monsanto, — U.S. at-, 104 S.Ct. at 1470, 79 L.Ed.2d at 785. Therefore, “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.” Id. — U.S. at-, 104 S.Ct. at 1471, at 785.1
In my view, the evidence in this case met that standard. Here there was evidence of an understanding or agreement between Lees and Eatman’s. Eatman’s would get better prices than Terry’s on Lees carpet, in return for which Eatman’s would promote Lees carpet. Terry’s tried to circumvent this arrangement by buying Lees carpet from other sources. There is evidence that Eatman’s then pressed Lees to effectuate their prior understanding on preferential pricing by terminating Terry’s distributorship. This evidence presents a genuine dispute of material fact regarding plaintiff’s allegation that Lees and Eat-man’s conspired to exclude plaintiff from competition with Eatman’s in marketing Lees carpet.
To be more specific, the evidence showed that the termination of Terry’s occurred in the following circumstances. First, there was evidence that by mid-1979 John Cummings, the sales representative for Lees, uniformly gave more favorable prices to Eatman’s than to plaintiff. This enabled Eatman's to submit lower bids than plaintiff on jobs using Lees carpets. At the carpet market in July of 1980, plaintiff requested more favorable treatment. Cummings allegedly responded that Eat-man’s had guaranteed a million dollars in sales, and that it had been “agreed” that plaintiff would not be given a lower price. Plaintiff was subsequently told that it would no longer be given any discount at all, but would be quoted only the list price.
When plaintiff could not obtain better treatment from Lees, it arranged in late 1980 to buy the same Lees carpet, quoted by Lees at $13.65 per square yard, from a fellow retailer in Houston, Texas for $9.75 per square yard. This favorable purchase enabled plaintiff to win the carpet contract on the Armstrong Media Center project in Fayetteville, North Carolina. Eatman’s, too, had sought this contract, and Eatman’s president became very angry that plaintiff was able to secure Lees carpet from another supplier and win the contract.
Eatman’s protest about competition from plaintiff was documented in a letter Cummings wrote to the head of Lees’ commercial carpet department. The letter described Eatman’s anger and its demand that the source of plaintiff’s supply be traced. Lees complied, tracking down the Texas supplier and cautioning that supplier not to sell to plaintiff at a discount again. Lees decided, however, to honor the sale. Cummings’ letter notes that when Eat-man’s president learned Lees would honor the sale, he “made it very clear to me that this decision could have a very drastic effect on our future business with this firm.”
Further evidence that Eatman’s worked to force Lees’ hand comes from the deposition of William F. Creech, a carpet installer who had worked for both plaintiff and Eat-man’s. Creech said that in late December, 1980 or early January, 1981, he talked with Eatman’s president. Eatman’s president allegedly told him that plaintiff was creating “static”, and that “we’re going to the market [to talk with Lees] ... [W]hen I come back the samples are going to leave [plaintiff’s place of business] or either they’re going to leave here, and I don’t care which.”2
In summary, plaintiff tendered evidence that Eatman’s received better prices than *617plaintiff in exchange for Eatman’s guarantee of minimum sales. Coupled with this was evidence that Eatman’s threatened to break its “promise” of promoting Lees carpet, unless Lees kept its “promise” of preferential price treatment by preventing plaintiff’s “bootleg” competition. Given these facts, a jury could conclude that Lees’ refusal to deal with plaintiff stemmed, not from Lees’ unilateral and independent decision, but from defendants’ “conscious commitment to [the] common scheme” of excluding plaintiff from competition with Eatman’s in marketing Lees carpet. Monsanto, — U.S. at-, 104 S.Ct. at 1471, 79 L.Ed.2d at 786. Thus I think that summary judgment for defendants on the ground that Lees acted independently was improper.
II.
I nevertheless think that plaintiff has failed as a matter of law to show that the alleged concerted action violated § 1 of the Sherman Act. As Monsanto recognizes, “it is of considerable importance that independent action by the manufacturer, and concerted action on nonprice restrictions, be distinguished from price-fixing agreements, since under present law the latter are subject to per se treatment and treble damages.” Id., — U.S. at-, 104 S.Ct. at 1470, 79 L.Ed.2d at 785.3 Concerted action on nonprice restrictions is subject to the rule of reason, and is unlawful only if it adversely affects competition in the relevant market. Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977). In my view, plaintiff has failed to tender evidence showing that the conspiracy alleged had any such anticompetitive effect; hence summary judgment for defendants was appropriate.
There was no showing here that Lees conspired to fix or maintain resale prices with its various commercial carpet distributors.4 There was no evidence of suggested resale prices at all, or of particular instructions from the manufacturer to plaintiff on the prices it should charge. Eatman’s may well have complained about plaintiff’s bids to supply Lees carpets, but that is not the same as complaining that plaintiff was undercutting a price level that the manufacturer and other distributors were conspiring to maintain.
Here the jury could conclude that the defendants “conspired” to refuse to deal with plaintiff for its violation of the non-price restriction on “bootlegging,” the practice that enabled plaintiff to compete with Eatman’s on Lees carpet bids. The effect of the bootlegging restriction is to preserve the nonprice territorial restrictions giving distributors like Eatman’s an area in which to operate as one of the principal promoters of Lees carpet. Limiting the number of distributors, and even eliminating existing ones to make the remaining ones sole outlets for a region, is conduct judged under the rule of reason. See, e.g., Schwing, Motor Co. v. Hudson Sales Corporation, 138 F.Supp. 899 (D.Md.), aff'd, 239 F.2d 176 (4 Cir.1956), cert. denied, 355 U.S. 823, 78 S.Ct. 30, 2 L.Ed.2d 38 (1957); Packard Motor Car Co. v. Webster Motor Car Co., 243 F.2d 418 (D.C.Cir.), cert. denied, 355 U.S. 823, 78 S.Ct. 30, 2 L.Ed.2d 38 (1957) (rule of reason applied where car manufacturer terminated plaintiff dealer to make another dealer its sole outlet in Baltimore area).
Plaintiff concedes that unilateral refusals to deal are lawful, but argues that the defendants’ concerted refusal to deal with plaintiff is per se unlawful. Plaintiff in essence argues that defendants’ conduct constituted a group boycott forbidden by Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959). Some precedent supports this ap*618proach. See, e.g., Cernuto, Inc. v. United Cabinet Corp., 595 F.2d 164 (3 Cir.1979).
The argument is flawed, however, because it fails to distinguish between horizontal boycott agreements amongst competitors and vertical, intrabrand restraints like those present here. Horizontal restraints serve only to stifle competition. Vertical, intrabrand refusals to deal, on the other hand, may limit intra brand competition, but at the same time promote inter brand competition, “by allowing a manufacturer to achieve certain efficiencies in the distribution of its products.”5 Oreck Corp. v. Whirlpool Corp., 579 F.2d 126, 131 (2 Cir.1978) (en banc) (Klors argument for per se analysis rejected where manufacturers and one distributor allegedly conspired to terminate other distributor), cert. denied, 439 U.S. 946, 99 S.Ct. 340, 58 L.Ed.2d 338 (1979). The intrabrand-interbrand tradeoff is the same consideration that led the Supreme Court to use the rule of reason in analyzing vertical nonprice restrictions generally. See GTE Sylvania, 433 U.S. at 54, 97 S.Ct. at 2559.
Here the proferred evidence shows that Lees channeled its commercial grade carpet through a limited number of dealers to encourage their promotion of Lees carpet over other brands they handled. “[I]f all dealers were equally able to bid against one another to supply Lees commercial products, then no particular dealer would have sufficient incentive to commit the effort and resources necessary to insure that Lees carpet, as opposed to other brands, would be specified by architects or end users, approved and bid.” Brief for Appellees at 33. Plaintiff’s conduct illustrates this “free rider” problem. The contract that plaintiff won with “bootlegged” carpet, according to Lees’ employee Cummings, was one that Eatman’s was “100% responsible” for getting specified. The evidence thus suggests that defendants’ alleged joint effort to limit intra brand competition may have had a positive effect on inter brand competition in the commercial carpet market, and that such a restraint is therefore suitable for rule of reason analysis.
Under rule of reason analysis, plaintiff must show that the challenged restraint has adversely affected competition in the commercial carpet market. In this case, it has not made a prima facie showing in this regard. There is no evidence on the importance of either Lees or plaintiff in the relevant markets. There is no evidence on any lessening of competition in the market generally. The market still has the same number of distributors; plaintiff simply bids other brands of carpet, and has apparently been even more successful in winning bids since the Lees termination. The only carpet plaintiff may not handle is that made by Lees. This alone does not show anticompetitive effect.
I would therefore affirm the summary judgment for defendants on the ground that plaintiff has not shown that the alleged conspiracy had any anticompetitive effect.

. This does not mean "that evidence of complaints has no probative value at all, but only that the burden remains on the antitrust plaintiff to introduce additional evidence sufficient to support a finding of an unlawful contract, combination, or conspiracy.” Monsanto, — U.S. at - n. 8, 104 S.Ct. at 1471 n. 8, 79 L.Ed.2d at 785 n. 8.

. The district court erroneously refused to consider this evidence because it was "hearsay." It was admissible on two grounds — as an admission against Eatman's, Fed.R.Evid. 801(d)(2)(D), *617and as a statement of intent to prove subsequent intended conduct, Fed.R.Evid. 803(3).

. In Monsanto the Court declined the invitation to reconsider the per se rule applicable to conspiracies to fix resale prices. Id., — U.S. at -n. 7, 104 S.Ct. at 1469-70 n. 7, 79 L.Ed.2d at 784 n. 7.

. Resale price maintenance seems unlikely in an industry where the use of competitive bids, constant variation in the size and terms of sales, and varying installation costs would make uniform resale pricing difficult.

. Vertical intrabrand resale price maintenance is singled out for per se treatment because it may inhibit inter brand competition, GTE Sylvania, 433 U.S. at 51 n. 18, 97 S.Ct. at 2558 n. 18, by facilitating interbrand price collusion and conscious parallelism.