George Arnott v. The American Oil Company, a Corporation

BRIGHT, Circuit Judge,

concurring and dissenting:

I concur in the result reached by the majority, but only because I believe that substantial evidence in the record supports the jury verdict on the claim of fraud and because I believe that the payment of the suggested remittitur would constitute a reasonable resolution of this litigation. 1 I do not believe that, as a matter of law, a fiduciary relationship existed between the parties in this case, nor do I believe that the evidence demonstrates a violation of the antitrust laws. Because the majority’s reasoning on those issues appears to me to be in error and because this case may be retried, I set forth my views in dissent.

*890 1. The Relationship Between the Parties.

The district court twice instructed the jury that, as a matter of law, a fiduciary relationship existed between Arnott and Amoco, requiring Amoco to act for itself only with utmost good faith and the full knowledge and consent of Arnott. These strictures, though appropriate in the case of a trustee, should not be applied to a commercial lessor. Rather, the lessor should be held to the rules governing contracts in general. It is true that a franchisor might have other duties. But only if the evidence shows a relationship between lessor and lessee extending significantly into other areas is it necessary or desirable to characterize their arrangement as a franchise. Even then one must determine which of the full gamut of fiduciary responsibilities should be required of the franchisor. See Eaton, Yale & Towne, Inc. v. Sherman Industrial Equip. Co., 316 F.Supp. 435, 445 (E.D. Mo. 1970). In my view both the district court and the majority erred in deciding this matter; in fact, South Dakota law does not justify the conclusion they reach.

The majority acknowledges (ante, at 883 n. 8) that Judge Nichol’s instruction on fiduciary duties was based on a New York case that was later reversed. The majority maintains, however, that the instruction properly reflected South Dakota law because of the subsequent enactment there of a comprehensive franchise statute, S.D. Compiled Laws Ann. ch. 37-5A. The majority quotes Judge Nichol. as. expressly construing that franchise statute as a codification of the common law of South Dakota. Ante, at 883-884. I do not so read the record. 2

The South Dakota franchise law contains detailed registration and public disclosure provisions akin to those found in the Securities Act of 1933, 15 U.S.C. §§ 77a-77aa (1976). This scheme of franchise regulation doubtless represents a substantial departure from the common law of South Dakota. But even if the franchise statute reflected existing common law standards applicable to the lease challenged here, the district court’s instructions would remain unjustified. The statute merely enjoins unfair or inequitable practices. S.D. Compiled Laws Ann. §§ 37-5A-51 and 37-5A-66(7). It does not establish a fiduciary relationship between franchisor and franchisee or impose a standard of utmost good faith.

The cases cited by the majority go no further than the South Dakota statute. Shell Oil Co. v. Marinello, 120 N.J.Super. 357 , 294 A.2d 253 (1972), aff’d, 63 N.J. 402 , 307 A.2d 598 (1973), cert. denied, 415 U.S. 920 , 94 S.Ct. 307 , 39 L.Ed.2d 475 (1974), nowhere mentions the concept of a fiduciary relationship. Rather, the court there simply granted dealer Marinello’s prayer for contract reformation by inferring a contractual term that Shell could refuse to renew his franchise (comprising both a lease and a multifaceted dealer agreement) only for good cause. Atlantic Richfield Co. v. Razumic, 480 Pa. 366 , 390 A.2d 736, 743 (1978), is to the same effect. Not only do these cases fail to state a general principle of fiduciary duty, but they are also readily distinguishable on their facts from the case at hand. Here Arnott breached the terms of his lease agreement by failing to stay open twenty-four hours a day; in terminating his lease, Amoco was proceeding under a clause permitting termination for cause. 3

*891 The parties in this case entered into a business relationship, not a fiduciary relationship. Each party served the interests of the other, but each also quite properly sought its own interests. The district court was unwilling to find the terms of their agreement unconscionable. Cf. Shell Oil Co. v. Marinello, supra, 307 A.2d at 602-03 (striking the disputed termination provision as unconscionable and contrary to public policy). I think that it was unnecessary to go beyond this conclusion, and I believe the court committed error when, on the facts of this case, it instructed the jury that a strict fiduciary relationship existed between Ar-nott and Amoco. 4

II. The Antitrust Claim.

The majority concludes that Amoco combined to fix vertical prices, a per se violation of section 1 of the Sherman Act, 15 U.S.C. § 1 (1976). 5 Having reviewed the record, I believe that there is insufficient evidence to support this conclusion. Specifically, I find no proof of a combination or conspiracy in this case; the contract between Arnott and Amoco was admittedly innocuous. My reading of the record is supported by Judge Nichol’s observation at the close of plaintiff’s case: “I don’t see any evidence of conspiracy or combination in this case * * * [.] ” Unlike Judge Nichol, I believe this implicit finding of unilateral activity vitiates Arnott’s antitrust claim. See Quality Mercury, Inc. v. Ford Motor Co., 542 F.2d 466, 469 (8th Cir. 1976), cert. denied, 433 U.S. 914 , 97 S.Ct. 2986 , 53 L.Ed.2d 466 (1977).

The record in this case reflects that Ar-nott usually posted his retail gasoline prices a penny or two above those suggested by Amoco. Such deviations led to “coffee” with Amoco representatives, but no change. In the only direct incident regarding prices recalled by Arnott or his employees, Dick Lucas, field sales manager for Amoco, refused one day to purchase gas from Arnott because he thought it was too expensive. Amott let his prices stand. 6

*892 The majority suggests two theories under which the jury could find a combination or conspiracy in this case: first, that Amoco and Arnott combined when the latter unwillingly complied with Amoco’s “pricing directives”; and second, that Amoco combined with other dealers who “acquiesced in the enforced pricing policy.” Ante, at 884. Both of these theories are derived from dicta in Albrecht v. Herald Co., 390 U.S. 145 , 150 n. 6, 88 S.Ct. 869 , 19 L.Ed.2d 998 (1968). Neither one is applicable here.

First, the evidence provides no support for the notion that Arnott complied with Amoco’s “pricing directives.” “Directives” cannot mean merely Amoco’s suggested prices: such suggestions, standing alone, were clearly permissible. Susser v. Carvel Corporation, 332 F.2d 505, 510 (2d Cir.), cert. granted, 379 U.S. 885 , 85 S.Ct. 158 , 13 L.Ed.2d 91 (1964), cert. dismissed as improvidently granted, 381 U.S. 125 , 85 S.Ct. 1364 , 14 L.Ed.2d 284 (1965). The majority must be referring more particularly to the conversations over coffee that Arnott had with Amoco representatives when he deviated from the suggested prices. But there is no evidence that Arnott changed his prices as a result of these conversations, or that he thereafter hewed more closely to Amoco’s suggested prices. The cited incident with Dick Lucas likewise resulted in no change; Arnott continued to price independently (i. e., generally higher than Amoco’s suggested prices) throughout the period of his lease. Hence, in this case no combination existed and no actual fixing of prices occurred. Cf. Quinn v. Mobil Oil Company, 375 F.2d 273 (1st Cir.), cert. dismissed, 389 U.S. 801 , 88 S.Ct. 8 , 19 L.Ed.2d 56 (1967) (affirming dismissal of an antitrust complaint on similar facts).

The panel’s second theory is also inapplicable to the facts of this case. Having reviewed the record, I find no substantial evidence of a combination between Amoco and its other dealers. The record simply does not support the majority’s characterization of the dealers’ behavior as “acquies[ence] in [an] enforced pricing policy.” Ante, at 885. In contrast to the fragments of Mrs. Pascoe’s testimony quoted by the majority, ante, at 885, nine witnesses who were past or present Amoco lessees (including Greg White) testified that retail gas prices were only suggested by Amoco, that the dealers possessed final authority to set prices, and that this authority was frequently exercised independently. Moreover, not one testified that his lease had been threatened or terminated in retaliation for independence in pricing. Cf. Umphres v. Shell Oil Company, 512 F.2d 420, 422 (5th Cir.), cert. denied, 423 U.S. 929 , 96 S.Ct. 278 , 46 L.Ed.2d 257 (1975) (holding comparable evidence of vertical price fixing to be clearly insubstantial).

Even if a combination with other dealers were shown to exist, I would be loath to hold that it satisfies the statutory requirement of a “combination * * * in restraint of trade.” In fact, any such combination would be wholly irrelevant to the restraint of trade alleged here. See Albrecht v. Herald Co., supra, 390 U.S. at 161 , 88 S.Ct. 869 (Harlan, J., dissenting). The other dealers in the Sioux Falls area had little or no interest in Arnott’s affairs. To the extent that they had an interest, it was not that of Amoco: in all likelihood, the other dealers preferred that Arnott keep his price higher than that suggested, as such a policy might well bring them more customers. Cf. Harold Friedman, Inc. v. Kroger Co., 581 F.2d 1068 (3d Cir. 1978) (finding similarly collateral dealings involving the defendant to be insufficient evidence of concerted activity).

Under either of the majority’s theories, Arnott failed to establish the “contract, combination or conspiracy” essential to his Sherman Act claim. Hence, the cases the majority relies upon in finding an antitrust *893 violation are not controlling here. In Simpson v. Union Oil Co., 377 U.S. 13 , 84 S.Ct. 1051 , 12 L.Ed.2d 98 (1964), plaintiffs challenged retail service station leases that were tied to “consignment” agreements expressly empowering the supplier to set the selling price. The presence of this price-fixing term, the Court found, distinguished Simpson from United States v. Colgate & Co., 250 U.S. 300 , 39 S.Ct. 465 , 63 L.Ed. 992 (1919); its enforcement made the “consignment” agreements contracts in restraint of trade. Simpson v. Union Oil Co., supra, 377 U.S. at 24 , 84 S.Ct. 1051 . In the case at hand there was no such price-fixing term; indeed, in the only written agreement concerning pricing, Arnott was promised “an absolute right to set [his] own resale prices * * * » 7

United States v. Parke, Davis & Co., 362 U.S. 29 , 80 S.Ct. 503 , 4 L.Ed.2d 505 (1960), is also inapposite. In that ease a drug manufacturer was found to have combined not only with acquiescing retailers but also with its wholesalers in order to terminate those retailers that cut prices. Similarly, in Al-brecht v. Herald Co., supra, 390 U.S. at 149-150 , 88 S.Ct. 869 , the defendant newspaper publisher was found to have combined with two other persons, including a rival carrier, to force plaintiff to charge only the advertised retail price for his newspapers. In the case at hand, by contrast, Amoco acted unilaterally in terminating Arnott’s lease. The other Amoco dealers cannot be said to stand in the position of the wholesalers in Parke, Davis or the rival carrier in Albrecht because they had no power over Arnott. Amoco therefore could not and did not employ the other dealers as a weapon in its dispute with Arnott.

In sum, I believe that the majority’s treatment of fiduciary duties and the antitrust claims in this case is in error. I fear that their approach will also have unfortunate consequences in practice. Arnott clearly breached the express terms of his lease agreement. To limit unduly Amoco’s power of termination in circumstances such as these (putting aside the issue of fraud), and to uphold a dubious antitrust claim by the dissatisfied lessee, invites wholesale suppliers to replace their lessees and distributors with company employees whose freedom of action will be considerably more restricted. See Continental T. V., Inc. v. GTE Sylvania Inc., supra, 433 U.S. at 57 n. 26, 97 S.Ct. 2549 . 8 That is to say, the approach taken by the majority encourages increased concentration in the retail market for gasoline and related products. I consider this to be unwarranted and unfortunate.

. The appellant’s objection that the proof of damages offered by the appellee was speculative has merit, but it does not appear that appellant objected to some of the evidence now questioned. Moreover, the jury quite obviously did not accept the calculations of plaintiffs expert. Under these circumstances, I agree with the majority that the jury award may stand if the appellee accepts the remittitur.

. In the passage relied on by the majority, plaintiffs counsel was attempting to explain the New Jersey Superior Court’s interpretation of that state’s franchise statute in Shell Oil Co. v. Marinello, 120 N.J.Super. 357 , 294 A.2d 253 (1972), aff'd, 63 N.J. 402 , 307 A.2d 598 (1973), cert. denied, 415 U.S. 920 , 94 S.Ct. 307 , 39 L.Ed.2d 475 (1974). Judge Nichol interrupted to observe, “In other words, they were codifying the common law.” Plaintiffs counsel replied, “That’s exactly right.” Judge Nichol then said, “Just as maybe South Dakota did when it adopted the Franchise Act, was codifying what was really the law in South Dakota anyway.” (Emphasis added.) Plaintiff’s counsel responded, “That’s exactly what the New Jersey Court said.”

. The evident purpose of the statutory and common law termination requirements * * * is the protection of franchisees who have conscientiously striven to carry out their obligations under the franchise agreement. They were not intended to prevent the severance of those who deliberately disregard reasonable requirements contained in their contract *891 with the franchisor. [Amerada Hess Corp. v. Quinn, 143 N.J.Super. 237 , 362 A.2d 1258, 1267 (1976).]

. This error was not made harmless by the context in which it occurred, as the majority suggests. Ante, at 884. The disputed instruction was repeated by the court without benefit of context when, after two hours of deliberations, the jury returned with the question, “Define fiduciary duty.”

. 15 U.S.C. § 1 provides in pertinent part: “Every contract, combination * * * or conspiracy, in restraint of trade or commerce among the several States, * * * is hereby declared to be illegal!.]”

. If I were writing on a clean slate with only the rule of reason for guidance, see Standard Oil Co. v. United States, 221 U.S. 1 , 31 S.Ct. 502 , 55 L.Ed. 619 (1911), I would be hard pressed to find unlawful an actual combination that succeeded in keeping down Amott’s . prices. Amott was, after all, exploiting the modicum of monopoly pricing power that he enjoyed by virtue of his location on an interstate highway.

Amott testified that, in effect, many of his customers were ignorant of the prices charged by his off-highway competitors. He therefore found it advantageous to raise his prices; demand for his gas was not greatly reduced. Amoco, on the other hand, had a direct interest in maintaining the volume of Amott’s sales, in part because his lease payments were based solely on fuel gallonage. See Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 , 56 n. 24, 97 S.Ct. 2549 , 53 L.Ed.2d 568 (1977). Amoco also had an important interest in the pricing reputation of its stations generally. Success in restraining Amott’s prices would have advanced the interests of both Amoco and Ar-nott’s customers, at the same time replicating (with respect to Amott) the consequences of a fully competitive retail gasoline market. See Albrecht v. Herald Co., 390 U.S. 145, 169 , 88 S.Ct. 869 , 19 L.Ed.2d 998 (1968) (Stewart, J„ dissenting).

The Supreme Court has, however, displaced the rule of reason in cases such as this by making agreements or combinations to fix maximum prices per se illegal. Kiefer-Stewart Co. v. Seagram & Sons, 340 U.S. 211, 213 , 71 S.Ct. 259 , 95 L.Ed. 219 (1951); Albrecht v. Herald Co., supra, 390 U.S. at 151 , 88 S.Ct. 869 . But cf. Continental T. V., Inc. v. GTE Sylvania Inc., supra (restoring the rule of reason in cases addressing the legality of vertical nonprice restrictions). Notwithstanding the caveat in Continental T. V. distinguishing price from nonprice restrictions, 433 U.S. at 51 n. 18, 97 S.Ct. 2549 , the Court’s reasoning in that case suggests that the per se approach adopted in Albrecht may not survive reexamination. See Continental T. V., Inc. v. GTE Sylvania Inc., supra, 433 U.S. at 69-70 , 97 S.Ct. 2549 (White, *892 J., concurring); Posner, The Rule of Reason and the Economic Approach: Reflections on the Sylvania Decision, 45 U.Chic.L.Rev. 1, 12 (1977); Koches, Developments in the Law of Vertical Nonprice Restrictions: A Welcome Re turn to the Rule of Reason, 33 U.Miami L.Rev. 247, 266-68 (1978); Pitofsky, The Sylvania Case: Antitrust Analysis of Non-Price Vertical Restrictions, 78 Colum.L.Rev. 1, 16 n. 59 (1978).

. To be sure, Arnott alleged that Amoco breached this promise. But the breach of a contract term does not transform the contract, so that what it once promised, it now forbids. Nor can it be argued that price fixing was a term in an implied contract that replaced the fraudulently induced lease agreement; as noted above, Arnott never agreed to such a term. If Amoco sought to fix Amott’s prices, it did so in spite of, not in furtherance of, the terms of their agreement. Theirs was simply not a contract in restraint of trade.

. Examples of this process may be found in Call Carl, Inc. v. BP Oil Corp., 554 F.2d 623 (4th Cir.), cert. denied, 434 U.S. 923 , 98 S.Ct. 400 , 54 L.Ed.2d 280 (1977); Knutson v. Daily Review, Inc., 548 F.2d 795 (9th Cir. 1976), cert. denied, 433 U.S. 910 , 97 S.Ct. 2977 , 53 L.Ed.2d 1094 (1977); and McGuire v. Times Mirror Co., 405 F.Supp. 57 (C.D.Cal.1975).