Court Opinion

ID: 9463670
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:12:49.429305+00
Date Added: 2024-06-11T17:38:13.498485
License: Public Domain

SEITZ, Chief Judge,
concurring and dissenting, in part.
I join in the judgment and opinion of the court as to the contract claim, and agree that Bravman has standing under § 4 of the *104Clayton Act, 15 U.S.C. § 15, to litigate his § 1 and § 2 Sherman Act claims. I also join in that portion of the opinion dismissing the § 2 claims. I dissent, however, from the disposition of the § 1 claim, because I think that Bravman failed to produce sufficient evidence from which a jury could reasonably find that defendants have imposed an illegal restraint of trade upon Bravman.- I also feel that the majority errs in deciding the statute of limitations issue since in the present posture of the case it is more appropriate to remand that issue to the district court.
Bassett Furniture and Bassett Mirror (hereinafter collectively referred to as Bassett) manufacture furniture products which are distributed directly to independent non-franchised retailers. They utilize sales representatives, such as Bravman, to demonstrate their product line to retailers and solicit orders from them. Bassett extends credit and invoices the retailer and ships the furniture directly to the retailer, paying the sales representative a commission on each sale. The sales representatives often guarantee payment on behalf of retailers whom Bassett regarded as unacceptable credit risks; Bravman found it necessary to guarantee payment for between 25 and 30% of his dollar volume in most years, and was forced to effect collection and sometimes incurred losses on delinquent accounts guaranteed by him.
Bravman has challenged two distribution practices of the Bassett companies: the exclusive dealing requirement under which Bassett sales representatives are contractually restricted from selling the merchandise of any other company while representing Bassett, and a policy restricting Bassett sales representatives from selling outside of the exclusive sales territory assigned to them. Bravman asserts that he is engaged in an independent distribution business, that these practices restrain him in his business, and that since they were imposed at a time when his sales efforts were being underutilized by Bassett, the restraints are patently unreasonable. Moreover, he contends that they were intended to and/or had the effect of restraining trade by preventing competing manufacturers access to his services and hence to retail outlets.
Before the legality of these practices is appraised, it seems appropriate to elaborate my reasons for agreeing with the majority that the jury could find that Bravman was an independent contractor and not an employee or agent. It is undisputed in the record that Bassett did not make social security contributions on behalf of Bravman, that it did not provide him with office space, that it did not pay benefits to him, that Bravman guaranteed payment on certain accounts and was responsible for damaged or unaccepted merchandise, and that Bravman, at Bassett’s direction, hired an associate to help service accounts in his territory and that the associate was employed and compensated by Bravman. Moreover, an internal memorandum from the chairman of the board of Bassett Furniture describes sales representatives as independent contractors (app. at 623-24). On the other hand, it is undisputed that Bravman solicited sales in Bassett’s name, not his own, that the companies accepted or rejected orders placed by Bravman, and that Bravman did not insure goods. Although this evidence is somewhat mixed, I think that, at the least, it created a jury issue as to plaintiff’s status.
I. EXCLUSIVE DEALING REQUIREMENT
At least on appeal, it is not contended that the exclusive dealing arrangement is governed by § 3 of the Clayton Act. Consequently, the more general proscription of § 1 of the Sherman Act must furnish-the guide for decision, and it is clear that that Act does not render exclusive dealing contracts unreasonable per se. See, e. g., American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230, 1248-53 (3d Cir. 1975). See also FTC v. Motion Picture Advertising Service Co., 344 U.S. 392, 73 S.Ct. 361, 97 L.Ed. 426 (1953).
*105A. “Common Law” Unreasonable Restrictive Covenant
Plaintiff vigorously argues that the Sherman Act codified the preexisting common law doctrine under which any restriction is unreasonable which, absent dominant social or economic justification, is greater than required for the person for whose benefit it is imposed, or “imposes an undue hardship upon the person restricted.” Restatement of Contracts § 515 (1932). He argues that since Bassett was unable to fill his orders for merchandise sold, there was no business justification for maintaining the restriction, and that since the restriction was therefore greater than necessary to protect its interests, and imposed undue hardship upon Bravman in his business, Bassett violated § I-
At least since Board of Trade v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed. 683 (1918), it has been clear that the fundamental purpose of the Sherman Act is the preservation of competition and the central inquiry in a rule of reason analysis is the extent to which the challenged practice dampens competition. It is hardly sufficient for plaintiff to show that he has been restrained in his business and that but for the restraint he could have earned more money. As Justice Brandéis noted:
Every agreement concerning trade, every regulation of trade restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. Id. at 238, 38 S.Ct. at 244.
Implicit in plaintiff’s argument is the idea that proof of market impact is not necessary when no business justification has been shown and the viability of an independent economic unit is implicated by the challenged practice. See Bok, “The Tampa Electric Case and the Problem of Exclusive Arrangements Under the Clayton Act,” 1961 Sup.Ct.Rev. 267, 293-95 (P. Kurland ed. 1961). But this is not a situation in which an independent dealer, having invested in the establishment of a market outlet, is threatened with extinction. See Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959). See also Coleman Motor Co. v. Chrysler Corp., 525 F.2d 1338, 1347 (3d Cir. 1975). Although a manufacturer cannot claim that the practice challenged here enjoys the virtues of a requirements contract, which quite often benefits the buyer as well as the seller, we know too little about the need for the practice from the standpoint of economic efficiency in the orderly distribution of goods to permit its condemnation without an analysis of its market impact. It was therefore incumbent upon plaintiff to introduce evidence concerning the foreclosure of retail markets to Bassett’s competitors.
B. Foreclosure of Retail Markets
Plaintiff has urged that the exclusive dealing restriction has the purpose and/or effect of preventing competing manufacturers from reaching retail outlets. If this were the case, interbrand competition among furniture manufacturers might be adversely affected and the exclusive dealing requirement would bear close scrutiny. To prove this charge, it was incumbent upon plaintiff to show that defendants conspired or acted with the purpose of achieving this end, or that the restriction, though innocently conceived, actually tended to or did accomplish that result. Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 614, 73 S.Ct. 872, 97 L.Ed. 1277 (1953); United States v. Columbia Steel Co., 334 U.S. 495, 522, 525, 68 S.Ct. 1107, 92 L.Ed. 1533 (1948). Plaintiff introduced no evidence that manufacturers actually encountered difficulty in reaching retail outlets, but did attempt to show that the restriction tended toward this result and that defendants conspired to foreclose competitors access to retail markets.
1. Tendency to foreclose retail markets.
As evidence of an anticompetitive tendency, plaintiff attempted to show that Bassett Furniture is one of the two largest wood household furniture manufacturers in *106an otherwise fragmented industry. While Bassett Furniture had 5,000 employees, 87% of such manufacturers had fewer than 100 employees. Bassett Mirror, which shared Bassett Furniture’s table line sales representative, had 140 employees but could not support its own sales organization. From these facts it is asserted that a jury could conclude that if Bravman’s sales services were monopolized by Bassett, other companies could not distribute their products. The question for decision is whether this evidence is sufficient to permit the issue to go to the jury.
Bassett apparently does not sell through franchised retail outlets or restrict the retailers upon whom its distributors may call. Therefore, this case does not involve a situation in which small competing manufacturers would be faced with the cost of integrating forward if a dominant firm were to tie up a number of existing retail outlets. See FTC v. Brown Shoe Co., 384 U.S. 316, 86 S.Ct. 1501, 16 L.Ed.2d 587 (1966). Obviously, the nonavailability of plaintiff’s services to other manufacturers will necessitate their having to find other distributors in order to supply retailers with their products. But Bravman has not shown that he maintains a warehouse or showroom, that he made any capital investment, in short that he offered anything other than his services as a skilled salesman. Since Bravman’s position in the distribution system, both before and during his association with Bassett, was functionally that of an employee-salesman, rather than a jobber or wholesaler, I think that the assertion that a distribution bottleneck would occur if Bravman’s services were unavailable to other manufacturers is wholly speculative. Under these circumstances, I think that it was incumbent upon plaintiff to introduce evidence of the relevant market, Bassett’s position in that market vis a vis its competitors, the structure of the industry and the distribution practices common in the industry.
Plaintiff failed to introduce or proffer any evidence on most of these points. The proffered evidence of the structure of the industry and Bassett’s size and profitability, while relevant, is insufficient to permit a reasoned evaluation of market foreclosure. For example, assuming the accuracy of Bassett Furniture’s representation that.it enjoyed only 3% of the market, could not the manufacturers who held the remaining 97% of the market distribute their products through sales agents retained on a nonexclusive basis? Did the competing manufacturers have access to and utilize jobbers or wholesalers? Did other large firms employ exclusive dealing restrictions? Plaintiff has failed to provide evidence from which these questions can be answered.
Plaintiff has also urged that any purported interest which defendants have in maintaining dealer loyalty and efficiency could not justify the exclusive dealing requirement since the less restrictive alternative of establishing a sales quota system for dealers would achieve the same goals. Had plaintiff adduced some evidence of an anti-competitive tendency, he would be entitled to have the trier of fact consider the evidence on this point. But the law of this circuit is that absent any showing of an anticompetitive tendency attributable to the challenged practice, the existence of a less restrictive alternative will not by itself establish the unreasonableness of the practice. American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230, 1246-49 (3d Cir. 1975).
2. Conspiracy to foreclose retail markets.
Bravman has also attempted to show that Bassett Furniture and Mirror conspired or acted with the purpose of impeding the sales of its competitors. I agree with the majority that plaintiff adduced sufficient evidence of the fact of agreement to impose the exclusive dealing restriction on dealers to reach the jury on that element. Their only evidence of an unlawful purpose is that the exclusive dealing restriction was not relaxed during a period in which Bassett was unable to fill Bravman’s orders. It is argued that, at least while Bassett was underutilizing Bravman’s services, there was no conceivable business purpose justify*107ing the restriction; therefore the jury could infer a wrongful purpose to deprive competing manufacturers of access to retail outlets.
I agree that a wrongful purpose may be inferred from circumstantial evidence. See, e. g., Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959) (conspiracy among retailer and suppliers to boycott rival retailer); Lorain Journal v. United States, 342 U.S. 143, 72 S.Ct. 181, 96 L.Ed. 162 (1951) (refusal of newspaper to accept advertising unless buyer forebore from advertising with competitor). But a desire to maintain an exclusive sales force cannot, on its face, be equated with the predatory nature of boycotting, blacklisting, or other coercive tactics. This exclusive dealing requirement, on its face, manifests the normal business purpose of facilitating the orderly distribution of goods by having sales representatives devote their full-time efforts to intensive promotion of the full line of Bassett products assigned to them. Absent some showing that the practice involved here would actually tend to impede competitors access to retail markets, I think it is impermissible as a matter of law to permit the trier of fact to infer that the practice was actually established or maintained for that purpose. Cf. Times-Picayune, supra, 345 U.S. at 622 — 24, 73 S.Ct. 872; Gold Fuel Service, Inc. v. Esso Standard Oil Co., 306 F.2d 61 (3d Cir. 1962), cert. denied, 371 U.S. 951, 83 S.Ct. 506, 9 L.Ed.2d 500 (1963).
II. VERTICAL DIVISION OF TERRITORIES
In United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967), the Court held that a vertically mandated territorial restriction is unreasonable per se when imposed upon buyers, but that the restriction is subject to the rule of reason when imposed upon dealers functioning as agents or consignees who assume neither title, dominion, nor risk of loss over the goods sold. I agree with the district court that the fact that Bravman guaranteed payment on certain accounts did not alter the basic arrangement as one in which the manufacturer retained title, dominion and risk of loss over the products which Bravman sold to retailers. It is clear, therefore, that the vertically imposed territorial restriction which Bravman challenges is not illegal per se.
In Schwinn, the retail dealers selling under the “Schwinn plan,” received shipments directly from Schwinn and were invoiced by and made payments to Schwinn. Schwinn established the price at which the retailer would purchase and remitted a standard commission to the sales representative in whose territory the order originated. 237 F.Supp. 323, 340 (N.D.Ill.1965). Thus, in Schwinn, as in this case, there was no intrabrand price competition at the wholesale level, not by virtue of the territorial restriction, but simply because the manufacturer established the wholesale price. In Schwinn, however, the territorial restriction was an integral part of a system through which Schwinn confined sales to franchised retail outlets — the result of which was to restrain intrabrand competition at the retail level. The Court recognized that this diminution of intrabrand competition could violate § 1, but, on the facts of that case, found it not unreasonable in light of the marketing system’s overall procompetitive effect on interbrand competition.
Unlike Schwinn, Bassett does not franchise or otherwise limit retail outlets. Thus, Bassett’s system cannot conceivably affect intrabrand competition at the retail level, and, as we have seen, cannot affect intrabrand price competition at the wholesale level. Theoretically, the territorial restriction could affect intrabrand nonprice competition at the wholesale level, but there has been no evidence or argument that nonprice competition among sales representatives is an important factor in the industry. Indeed, I have searched the record and briefs in vain to find even a single reference to a real or imagined anticompetitive effect attributable to the territorial restriction. Under these circumstances there is no need to examine procompetitive *108aspects, for plaintiff’s case has not progressed beyond the pleadings.
III. STATUTE OF LIMITATIONS
Since the disposition of the majority will result in a new trial on the § 1 claim, and since we have not had the benefit of a district court ruling on this point, I would remand for consideration by the district court.