Court Opinion

ID: 44514
Source: CourtListenerOpinion
Date Created: 2010-04-25 22:23:49+00
Date Added: 2024-06-11T09:03:11.552134
License: Public Domain

United States Court of Appeals
                                                               Fifth Circuit
                                                            F I L E D
              IN THE UNITED STATES COURT OF APPEALS
                                                              July 25, 2006
                      FOR THE FIFTH CIRCUIT
                                                        Charles R. Fulbruge III
                                                                Clerk

                          No. 04-31139

     Water Craft Management LLC,
     Douglas Wayne Glascock,
     Nick A. Martrain,

                           Plaintiffs-Appellants-Cross-Appellees,
          versus

     Mercury Marine, Etc, et al,

                                                        Defendants,

     Mercury Marine, A division
     of Brunswick Corp.,

                              Defendant-Appellee-Cross-Appellant.

         Appeals from the United States District Court
              for the Middle District of Louisiana

Before GARWOOD, DAVIS and GARZA, Circuit Judges.

GARWOOD, Circuit Judge:

     Appellants, Water Craft Management LLC, d/b/a LA Boating

Centre (Water Craft) and its members Douglas Wayne Glascock and

Nick A. Martrain, sued appellee Mercury Marine alleging, inter

alia, secondary-line price discrimination in violation of sections

2(a) and 4 of the Clayton Act, as amended by the Robinson-Patman
Act, 15 U.S.C. 13(a), 15 (1936).          Following a bench trial, the

district court entered judgment in favor of Mercury on their

Robinson-Patman Act claim.1         We affirm.

                        FACTS AND PROCEEDINGS BELOW

      Water Craft was a Mercury Marine retail dealership selling

Mercury Marine outboard motors in Baton Rouge, Louisiana.            It was

founded on November 25, 1996, by its two members, Nick Martrain and

Douglas Glascock, and went out of business roughly two years later,

on December 7, 1998.      Water Craft then filed this suit against one

of   its   suppliers,     Mercury   Marine,   for   secondary-line    price

discrimination2 in violation of sections 2(a) and 4 of the Clayton

      1
      In the district court the suit included several other
claims and counter-claims which are not properly before this
court, including state-law claims for breach of contract,
detrimental reliance, fraud, and misrepresentation and five
counter-claims for unpaid accounts. The district court
bifurcated these claims, ruling only on liability and reserving
the damages question for a later trial. Then, citing Rule 54(b),
the district court purported to certify for appeal its ruling on
liability. Because Rule 54(b) permits the certification of final
judgments only, we ruled ineffective the certification and
ordered dismissed all appeals and cross-appeals relating to the
state law claims. See Order of April 28, 2006, as modified by
Order of May 2, 2006. These state-law claims remain pending
before the district court; only the Robinson-Patman Act claim is
before us on this appeal. Sidag Aktiengesellschaft v. Smoked
Foods Products Co., Inc., 813 F.2d 81, 84 (5th Cir. 1987); see
also Wright and Miller § 2656.
      2
     In price discrimination cases, courts analyze the
competitive injury component at three basic levels: (1)
primary-line effects, i.e. injury to other sellers; (2)
secondary-line effects, i.e. injury to purchasers of a certain
seller; and (3) tertiary-line effects, i.e. injury to the
customers of those purchasers. A secondary-line violation occurs
when a large purchaser uses its purchasing power to obtain lower

                                      2
Act, as amended by the Robinson-Patman Act, 15 U.S.C. §§ 13(a), 15

(1936).      Section 2(a) provides, in pertinent part, as follows:

      It shall be unlawful for any person engaged in commerce,
      in the course of such commerce, either directly or
      indirectly, to discriminate in price between different
      purchasers of commodities of like grade and quality . .
      . where the effect of such discrimination may be
      substantially to lessen competition or tend to create a
      monopoly in any line of commerce, 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 . . . .

15 U.S.C. § 13(a).

      Water Craft alleges that Mercury Marine discriminated in favor

of   Water     Craft’s   largest   competitor,    Travis    Boating   Center

(“Travis”),     by   offering   Travis    discounts   on   motors   that   far

exceeded the discounts available to Water Craft or other Mercury

retail dealerships in the Baton Rouge market.              Mercury does not

dispute the fact that Travis got a better deal on motors than Water

Craft, but Mercury explains that it was forced to offer these lower

prices to Travis in order to compete with the Outboard Marine

Corporation (“OMC”),3 one of Mercury’s principal competitors.

      Before Mercury began selling motors to Travis, Mercury was

losing market share to OMC in the gulf coast region because the

prices from a manufacturer, allowing it to undersell its
competitors. Eximco, Inc. v. Trane, 737 F.2d 505, 515 (5th
Cir.1984).
      3
     At the time, OMC manufactured Johnson and Evinrude outboard
motors.

                                      3
Travis chain, which until October of 1998 had a sales agreement

with OMC but not with Mercury, was rapidly expanding, sometimes

buying out Mercury dealerships and converting them to Travis retail

stores which did not sell Mercury products.   During his testimony

at trial, Jeffery Behan, a marketing research director at Mercury,

explained that Mercury approached Travis several times in an effort

to sign them up, but was rebuffed because their prices were not

competitive with OMC’s.

     With this explanation for its price discrimination, Mercury

invoked the “meeting competition defense,” an affirmative defense

provided under section 2(b) of the Robinson-Patman Act that permits

a seller to rebut a prima facie case of discrimination by “showing

that his lower price . . . was made in good faith to meet an

equally low price of a competitor . . . .”    15 U.S.C.A. § 13(b)4

     The district court, after a bench trial, agreed that the

meeting competition defense applies and entered judgment in favor

     4
     Section 2(b) provides that “[u]pon proof being made, at any
hearing on a complaint under this section, that there has been
discrimination in price or services or facilities furnished, the
burden of rebutting the prima-facie case thus made by showing
justification shall be upon the person charged with a violation
of this section, and unless justification shall be affirmatively
shown, the Commission is authorized to issue an order terminating
the discrimination: Provided, however, That nothing herein
contained shall prevent a seller rebutting the prima-facie case
thus made by showing that his lower price or the furnishing of
services or facilities to any purchaser or purchasers was made in
good faith to meet an equally low price of a competitor, or the
services or facilities furnished by a competitor.” 15 U.S.C.A. §
13(b).

                                 4
of Mercury, finding, inter alia,5 that “Mercury has proved the

required elements of the meeting competition defense by more than

a preponderance of the evidence.”    Water Craft appeals from that

judgment.

                           DISCUSSION

     Water Craft argues that the district court erred in applying

the meeting competition defense for two reasons.   First, in their

brief to this court, Water Craft challenges the district court’s

factual finding that Mercury’s price discrimination was a good

faith response to OMC’s lower prices.     Second, in a theory not

advanced until oral argument, Water Craft challenges the district

court’s legal determination that the meeting competition defense

applies even though Mercury fell short of actually meeting OMC’s

low prices.

     “The standard of review for a bench trial is well established:

findings of fact are reviewed for clear error and legal issues are

reviewed de novo.” In re Mid-South Towing Co., 418 F.3d 526, 531

(5th Cir. 2005). Clear error exists if (1) the findings are without

substantial evidence to support them, (2) the court misapprehended

the effect of the evidence, and (3) although there is evidence

which if credible would be substantial, the force and effect of the

     5
     The district court also ruled that Water Craft had failed
to prove its prima facie case under § 2(a), but because we affirm
on the basis of the meeting competition defense, we need not
address these other rulings.

                                 5
testimony, considered as a whole, convinces the court that the

findings are so against the preponderance of credible testimony

that they do not reflect or represent the truth and right of the

case.   Moorhead v. Mitsubishi Aircraft Int'l, Inc., 828 F.2d 278,

283 (5th Cir. 1987). Reversal for clear error is warranted only if

the court has “a definite and firm conviction that a mistake has

been committed.” Canal Barge Co. v. Torco Oil Co., 220 F.3d 370,

375 (5th Cir. 2000).

     We find Water Craft’s first argument unpersuasive and hold

that the district court did not clearly err in finding that

Mercury’s lower pricing to Travis was made in a good faith attempt

to meet OMC’s prices.          The Robinson-Patman Act was passed in

response to the rapid growth of chain stores, which, by exploiting

the efficiencies of centralization, were able to threaten the

existence of small, independent retailers. Great Atlantic & Pacific

Tea Co., Inc. v. F. T. C., 99 S.Ct. 925, 930–31 (1979); see also

S.Res. 224, 70th Cong., 1st Sess. (directing the Federal Trade

Commission     to    investigate   and       report   to   it   on   chain-store

operators); RICHARD A. POSNER, THE ROBINSON-PATMAN ACT 26 (calling the Act

“the high-water mark of the anti-chain-store movement”). However,

“Congress did not seek by the Robinson-Patman Act either to abolish

competition or so radically to curtail it that a seller would have

no substantial right of self-defense against a price raid by a

competitor.”        Standard Oil Co. v. FTC, 71 S.Ct. 240, 249 (1951).

                                         6
To this end, as noted above, it is an absolute defense to liability

under the Robinson-Patman act that the price discrimination is the

result of price concessions made “in good faith for the purpose of

meeting the competitor’s price.”           Falls City Industries, Inc. v.

Vanco Beverage Inc., 103 S.Ct. 1282, 1291 (1983); Federal Trade

Commission v. Sun Oil Company, 83 S.Ct. 358 (1963).

     Our     focus,    then,   is     on     Mercury’s       motivation    for

discriminating, since “[a] good-faith belief, rather than absolute

certainty, that a price concession is being offered to meet an

equally low price offered by a competitor is sufficient to satisfy

the § 2(b) defense.”     United States v. United States Gypsum Co., 98

S.Ct. 2864, 2881 (1978).       Furthermore, the Court has emphasized

that the concept of good faith, which is at the heart of the

meeting    competition   defense,    is    “flexible   and    pragmatic,   not

technical or doctrinaire.”      Id. at 2864.       Indeed, “[r]igid rules

and inflexible absolutes are especially inappropriate in dealing

with the § 2(b) defense; the facts and circumstances of the

particular case; not abstract theories or remote conjectures,

should govern its interpretation and application.” Id.

     Some guidelines, however, do emerge from the Supreme Court

opinions.     In   United   States   Gypsum,     for   example,    the    Court

sustained a meeting competition defense, holding that although

“casual reliance on uncorroborated reports of buyers or sales

representatives without further investigation may not . . . be

                                     7
sufficient to make the requisite showing of good faith,” the

defense “can be satisfied by efforts falling short of interseller

verification . . . .”     Id. at 2881-82.    The Court then identified

certain indicia of good faith that are relevant to determining

whether the meeting competition defense should apply; among these

are (1)   whether   the   seller   “had   received   reports   of   similar

discounts from other customers”; (2) whether the seller “was

threatened with a termination of purchases if the discount were not

met”; (3) whether the seller made “[e]fforts to corroborate the

reported discount by seeking documentary evidence or by appraising

its reasonableness in terms of available market data”; and (4)

whether the seller had “past experience with the particular buyer

in question.”   United States Gypsum Co., 98 S.Ct. at 2882.

     The Court applied this good-faith checklist one year later in

Great Atlantic & Pacific Tea Co., supra, holding that a seller,

Borden, was entitled to the meeting competition defense, and that

the buyer, A&P, who faced derivative liability under the Act for

having demanded a discriminatorily low price, was also so entitled.

In that case, after Borden submitted its first bid to A&P, a long-

standing customer, the A&P buyer responded, “I have a [competing]

bid in my pocket. You [Borden] people are so far out of line it is

not even funny.”    Id., 99 S.Ct. at 929.     The A&P buyer then warned

Borden that it was in danger of losing its business in the Chicago

area unless Borden came up with a better offer.        When Borden asked

                                    8
A&P for details about the competing offer, it was refused.                          Even

though Borden’s eventual winning offer was actually below the

competing       offer,   the    Court    ruled   that      Borden   had     adequately

established its good faith.             First, the Court noted, “the source of

the information was a person . . . who had personal knowledge of

the competing bid.”            Id., 99 S.Ct. at 935 n.17. Second, “Borden

attempted to investigate by asking A&P for more information about

the competing bid.” Id. Finally, “Borden was faced with a credible

threat of a termination of purchases by A&P if it did not make a

second offer.”         Id.

       Later in Falls City, the Court again sustained a meeting

competition defense, observing that “the defense requires that . .

. the lower price must actually have been a good-faith response to

that competing low price.”          Id., 103 S.Ct. at 1291.           The Falls City

Court then addressed a matter relevant here, holding that “section

2(b)    .   .   .    does    not   distinguish    between      one    who     meets    a

competitor’s lower price to retain an old customer and one who

meets   a   competitor’s        lower    price   in   an    attempt    to    gain    new

customers.”         Id. at 1294.

       Under the circumstances of this case, Mercury has shown the

existence of facts, particularly those facts which the Court has

listed as indicia of good faith, “which would lead a reasonable and

prudent person to believe that the granting of a lower price would

in fact meet the equally low price of a competitor.” Great Atlantic

                                            9
& Pacific Tea Co., 99 S.Ct. at 934.            First, Mercury relied on

several   different   sources   for    their   approximation   of   OMC’s

discounts, including Ron Spradling and Mark Walton, both of whom

had personal knowledge of the competing bid and neither of whose

credibility had been questioned.        Then, as a Mercury Marketing

director explained at trial, Mercury attempted to corroborate their

information:

     “[W]e kind of looked at what the boat pricing was out in
     the marketplace, and some people started to do some math
     there, and we listened to what you heard at boat shows
     and other people that tended to talk about what they
     thought they knew, a lot of that information triangulated
     pretty closely.”

We agree with the district court’s finding that such information

forms a sufficient basis on which Mercury could have acted in good

faith. Indeed, its is doubtful that Mercury could have investigated

any further without exposing themselves to risk of liability under

section 1 of the Sherman Act.6

     As further evidence of good faith, the Supreme Court has

previously considered whether the seller “was threatened with a

termination of purchases if the discount were not met.” See United

States Gypsum Co., 98 S.Ct. at 2882.      Such a consideration is not

     6
     The Court has held that the exchange of price information
by competitors violates the Sherman Act. United States v.
Container Corp., 89 S.Ct. 510 (1969), and has often explained
that this risk of liability circumscribes the efforts which a
seller may undertake to verify a competing offer. See e.g.,
United States Gypsum Co., 98 S.Ct. at 2884.

                                  10
directly relevant here, since the immediate focus of Mercury’s

effort was to win a new customer rather than keep an old one;

however, the logic underlying this consideration still applies. It

is clear from trial testimony that Travis repeatedly refused

Mercury’s advances and favorable price offerings until an agreement

was finally reached in October of 1998. Like the scenario where a

seller loses existing business, this refusal indicates that the

final lower price was necessary to compete, not a predatory attempt

to undermine competition.

     Faced with this evidence of good faith, Water Craft then

advances   a   more   subtle   claim,   contending   that   Mercury’s

discriminatory discount was offered not for “pricing reasons” (i.e.

to respond to OMC’s lower price) but for “marketing reasons” (i.e.

to win Travis’s business and thus participate in their rapid

growth).

     We find no substantial evidence that supports such a claim by

Water Craft. Although there is trial testimony suggesting that the

reason Mercury pursued Travis in the first place was to protect

Mercury’s gulf coast market, this fact does not suggest that those

same marketing concerns led Mercury to offer Travis — and only

Travis — a substantial discount. Instead, the evidence suggests,

and the district court found, that Mercury’s decision to offer

especially low prices to Travis was driven entirely by price

negotiations in which Travis, like any savvy buyer, used its OMC

                                  11
price    schedule    to    extract     deep     discounts      from     Mercury.

Accordingly, we hold that the district court did not clearly err in

finding that Mercury’s price discrimination was a good faith

response to OMC’s lower price.

     Water   Craft   advanced     a   second    theory    at   oral    argument,

contending that, as a matter of law, Mercury’s discrimination

didn’t    “meet”     the      competition       because     Mercury’s      final

discriminatory price was not as low as OMC’s price.                    For this

proposition, Water Craft cites Falls City, in which the Court

explains that “a seller's response must be defensive, in the sense

that the lower price must be calculated and offered in good faith

to 'meet not beat' the competitor's low price.”                Falls City, 103

S.Ct. at 1294.       From this statement, they extrapolate to the

counter intuitive conclusion that the discriminatory price also

must “meet not exceed,” the competitor’s low price.

     This strained reading of Falls City aside, there is no support

for Water Craft’s novel theory in the case law, and, in fact, there

is language which implies otherwise.           First, we note that it is the

seller’s intent to meet a competitor’s price, not the actual

correspondence      between     prices,     that    triggers     the     meeting

competition defense. In Great Atlantic & Pacific Tea, for example,

the Court held that “[s]ince good faith, rather than absolute

certainty, is the touchstone of the meeting-competition defense, a

seller can assert the defense even if it has unknowingly made a bid

                                      12
that in fact not only met but beat his competition.” Great Atlantic

& Pacific Tea Co., 99 S.Ct. at 934; see also United States Gypsum

Co., 98 S.Ct. at 2884 n.32 (“The good-faith requirement of the §

2(b) defense implicitly suggests a somewhat imperfect matching

between competing offers actually made and those allowed to be

met.”).

     Furthermore, we hold that the meeting competition defense

applies even in a case such as this one, where the seller knew that

its discriminatory price was not as low as its competitor’s price,

yet nevertheless offered that discriminatory price in a good faith

response to the competition.     The Court’s recent statement of the

meeting competition defense implicitly supports this position,

holding that “under the circumstances it was reasonable to believe

that the quoted price or a lower one was available to the favored

purchaser or purchasers from the seller’s competitors.” Falls City,

103 S.Ct. at 1290 (emphasis added).

     Indeed, Water Craft’s argument in this respect in essence

attributes an irrational intent to Congress.        Plainly, a principle

intent of the Robinson-Patman Act was to protect small retailers

against   the   price   favoritism   which   the   manufacturers   of   the

products they sold might show to the large retailers with whom they

competed.   Congress, however, allowed the manufacturers a defense

plainly intended to allow them to offer a discriminatorily lower

price favoring only certain retailers in a good faith effort to

                                     13
meet the competition of a rival manufacturer’s lower prices. Water

Craft would require that the discriminating manufacturer offer an

even lower price than that necessary to meet the competition of the

rival manufacturer – here, that Mercury, in order to avail itself

of the defense, must have offered Travis an even lower price than

was necessary to get its business from OMC.             In other words, that

if Mercury discriminated more against Water Craft, and had harmed

it more, Water Craft would have no recovery.            But, because Mercury

was able to get the Travis business from OMC by offering Travis a

special low price that was not quite as low as OMC’s price,

Mercury, according to Water Craft, can have no defense.                     This

approach increases the price disparities between retailers contrary

to overall intent of the Act.        Nor is any useful purpose suggested

by such a requirement.      Moreover, Water Craft does not explain how

the offering of a price lower than necessary to get Travis’s

business could be deemed to be “in good faith” on Mercury’s part.

Such action would also properly be characterized as violating the

“defensive” and the “meet not beat” standards referenced in Falls

City.     103 S.Ct. at 1294.       On the other hand, Falls City plainly

recognizes that the competition defense may apply if the price

offered by the competitor is either the same price as that offered

by the defendant “or a lower one.”                Id., 103 S.Ct. at 1290.

     We    also   draw   support    for     our   holding   from   the   Court’s

longstanding mandate that the Robinson-Patman Act be construed

                                       14
consistently with broader policies of the antitrust laws. See e.g.,

United States Gypsum Co.; Automatic Canteen Co. of America v. FTC,

73 S.Ct. 1017, 1024 (1953); Great Atlantic & Pacific Tea Co., 99

S.Ct. at 933; Volvo Trucks North America, Inc. v. Reeder-Simco GMC,

Inc., 126 S.Ct. 860, 872–73 (2006).         We resist Water Craft’s

narrowing of the meeting competition defense, especially in light

of the Court’s reminder that “the right of a seller to meet a lower

competitive price in good faith may be the primary means of

reconciling the Robinson-Patman Act with the more general purposes

of the antitrust laws of encouraging competition between sellers.”

Great Atlantic & Pacific Tea Co., 99 S.Ct. at 934 n.16; see also 14

HERBERT HOVENKAMP, ANTITRUST LAW 2352a, at 182 (2005) (“[T]he [Robinson-

Patman Act] . . . is certainly less hostile toward competition with

such a defense than it would be without one.”).

     The district court’s findings on the meeting competition

defense are not clearly erroneous and the court properly granted

judgment in favor of Mercury on Water Craft’s Robinson-Patman Act

claim.

                              CONCLUSION

     The judgment of the district court is

                               AFFIRMED.

                                   15