# The Jeanery, Inc., an Oregon Corporation, and Rock Bottom Jean Co., Inc., an Oregon Corporation v. James Jeans, Inc., a Washington Corporation

> Court of Appeals for the Ninth Circuit · June 2, 1988 · 849 F.2d 1148

URL: https://www.frixlaw.com/law-library/cases/9477817

## Case

- **Full name:** The JEANERY, INC., an Oregon Corporation, and Rock Bottom Jean Co., Inc., an Oregon Corporation, Plaintiffs-Appellants, v. JAMES JEANS, INC., a Washington Corporation, Defendant-Appellee
- **Court:** Court of Appeals for the Ninth Circuit
- **Decided:** June 2, 1988
- **Citations:** 849 F.2d 1148
- **Precedential status:** Published
- **Opinion:** Dissent by Reinhardt
- **Judges:** Alarcon, Reinhardt, Thompson
- **Cited by:** 74 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9477817

## How later opinions describe it (automated extraction)

- noting that competitors’ complaints about price-cutters have “probative value” but are 14 insufficient without “something more” to establish concerted action because complaints can be 15 “natural … reactions by distributors to the activities of their rivals”
- finding no concerted action even though a company official had responded to a dealer's complaint by saying that he would "take care of things"

## Opinion text

REINHARDT, Circuit Judge,
dissenting:
A jury found that James Jeans, Inc., had violated the antitrust laws by unlawfully terminating one of its dealers, The Jeanery, Inc., and awarded damages. The trial court, relying primarily on Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752 , 104 S.Ct. 1464 , 79 L.Ed.2d 775 (1984), granted a judgment non obstante veredic-to in favor of James Jeans. The majority issued an opinion affirming the district court, in which it concluded, on the basis of Monsanto, that The Jeanery did not offer sufficient evidence for a jury to find that an antitrust violation had occurred — specifically, that there was insufficient evidence of an agreement to terminate its franchise. Because I disagreed with the majority’s interpretation and application of Monsanto, and its failure to follow an earlier Supreme Court opinion, United States v. Parke, Davis, I filed a dissent. After the majority and dissenting opinions were issued, the Supreme Court decided Business Electronics Corp. v. Sharp Electronics Corp., — U.S. -, 108 S.Ct. 1515 , 99 L.Ed.2d 808 (1988). The majority then prepared an amended opinion, adding an additional ground for its conclusion — namely, that there was insufficient evidence of a price-specific agreement. I still dissent, and will discuss the two bases for my disagreement separately.
MONSANTO AND THE AGREEMENT TO TERMINATE
Monsanto reaffirmed and elaborated the holding of United States v. Colgate, 250 U.S. 300 , 39 S.Ct. 465 , 63 L.Ed. 992 (1919). The point of Colgate was that manufacturers have a qualified privilege to choose the firms with which they will deal. A manufacturer may state in advance that it will not sell to a price-cutting dealer, and then follow through with that resolution. Colgate, 250 U.S. at 307 , 39 S.Ct. at 468 . Monsanto stated that it followed from the holding in Colgate that a manufacturer’s termination of a price-cutting firm after complaints from the firm’s competitors might still be a legal unilateral action. Monsanto, 465 U.S. at 763-64, 104 S.Ct. at 1470 . As Monsanto stated, the competing firms’ complaints might simply have provided the manufacturer with information which formed a basis for its decision to enforce its earlier resolution regarding which firms it would deal with. Monsanto, 465 U.S. at 763-64, 104 S.Ct. at 1470 . Under Monsanto, “something more” is needed beyond evidence of a complaint and a termination to show that the manufacturer’s action was illegal (part of a combination) rather than legal (unilateral action). Id. at 764, 104 S.Ct. at 1470 . Monsanto discussed this “something more” as including direct or circumstantial evidence that “tends to exclude the possibility” that the alleged conspirators acted independently, or, put alternatively, that reasonably tends to prove “a conscious commitment to a common scheme designed to achieve an unlawful objective.” Monsanto, 465 U.S. at 764, 104 S.Ct. at 1471 . 1 In other words, *1162 there must be additional evidence that tends either to prove concerted action or to disprove unilateral action.
While Monsanto gave some indication of what this “something more” could be, more guidance on this question can be found in other Supreme Court cases, in particular, from one leading case which the majority, remarkably, does not even mention except in a footnote. In United States v. Parke, Davis & Co., 362 U.S. 29, 43-44 , 80 S.Ct. 503 , 4 L.Ed.2d 505 (1960), the manufacturer had an announced policy of ceasing to do business with wholesalers who failed to comply with its specified retail price. 2 The Court, in finding an antitrust violation, explicitly reaffirmed Colgate. Parke, Davis, 362 U.S. at 44 , 80 S.Ct. at 512 . However, the Court stated,
When the manufacturer’s actions ... go beyond mere announcement of his policy and the simple refusal to deal, and he employs other means which effect adherence to his resale prices, this countervailing consideration [the qualified privilege to choose trading partners, protected by Colgate ] is not present and therefore he has put together a combination in violation of the Sherman Act.
Id. It is in the majority’s refusal to apply Parke, Davis that I most strongly part company with its legal analysis.
The Supreme Court has never given much guidance on how courts determine whether an unlawful combination exists for the purpose of Section 1. Possible theories that have received some support in the case law vary from the weaker requirements of an “implied acceptance theory” or a “coerced compliance theory” to the more rigid requirement of an express agreement. See 7 P. Areeda, Antitrust Law 8-180 (1986). The majority seriously overstates the extent to which the Court’s decision in Monsanto has clarified — or narrowed — the criteria for determining whether there was an unlawful combination, by suggesting that an express agreement is necessary. 3 I think the more accurate reading of the relevant cases is that offered by Professor Areeda. He reads Monsanto as merely maintaining a distinction between simple and complex refusals to deal. A mere announcement and termination is a legal, unilateral action. However, when firms use individualized negotiations with dealers, meetings, repeated exhortations, and intermediate pressures, such actions indicate illegal, concerted action. 4 7 P. Areeda, Antitrust Law 82-180 (1986). All of these factors were present in this case. It is important to note also that this case involves not merely a manufacturer’s coercion of its dealers to control the dealers’ prices. Here, a competing dealer (JJ’s) had also threatened the manufacturer, trying (apparently successfully) to force the manufacturer to enforce the resale price levels. As Professor Areeda has argued, as a matter of antitrust policy, courts should be less tolerant of the efforts of dealers to control their competitors through the manufacturer than they are of manufacturer efforts to control dealer prices. 7 P. Areeda, Antitrust Law 175 (1986).
*1163 Here, as in Monsanto, there was more than merely a customer complaint followed by a dealer termination. The record before us contains more than enough additional evidence for a jury to have concluded that (1) there was an unlawful combination to maintain the resale price of James Jeans’ jeans and (2) The Jeanery was terminated as a result. There is ample evidence that in its dealings with retailers in general James Jeans went well beyond announcing a policy of refusing to deal with price-cutting merchants and terminating those who sold at discount. There is also ample evidence that in the particular act of terminating the Jeanery James Jeans did not, as permitted by Monsanto, simply enforce a preexisting policy in response to information it gained through a customer’s complaint.
The record before us reveals direct evidence of an agreement in restraint of trade —an express oral agreement between James Jeans and JJ’s, one of its major accounts. According to the testimony of Handwerk, a James Jeans sales representative, the owner of JJ’s told Handwerk that he must stop selling to The Jeanery or he would lose JJ’s business; Handwerk immediately assured JJ’s owner that he would “take care of things”; when Handwerk reported to the president of James Jeans, he was told to do just that; Handwerk filled in another sales representative, Nord-strom. It was Nordstrom who then cut off The Jeanery, as JJ’s had demanded. Hand-werk’s testimony is direct and substantial evidence from which a jury could reasonably conclude that there was an agreement between JJ’s and James Jeans to terminate a price-cutting dealer. Certainly a jury could find that Handwerk’s response constituted an assent, or at least a communicated acquiescence in JJ’s demand. 5 See Monsanto, 465 U.S. at 764 n. 9, 104 S.Ct. at 1471 n. 9.
The majority reads Monsanto and Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574 , 106 S.Ct. 1348 , 89 L.Ed.2d 538 (1986), in such a way as to create, in effect, a “beyond all reasonable doubt” standard for finding a Section 1 agreement. The majority’s argument, reduced to its simplest form, is that there is a plausible reading of the evidence that would be consistent with legal, independent behavior, and therefore plaintiff’s case must fail. 6 See maj. at 1157-59. I think this approach to evaluating evidence reads the relevant Supreme Court cases far too narrowly. What the Supreme Court stated was that an antitrust plaintiff “must show that the inference of conspiracy is reasonable in light of the competing inferences of independent action or collusive action that could have harmed respondents.” Matsushita, 106 S.Ct. at 1357 . It is clear that The Jeanery has met this standard. Any stricter reading of the Supreme Court cases interferes with the jury’s fact-finding function. That evidence may not entirely preclude an interpretation of independent action does not warrant taking the case from the jury.
The evidence here, unlike the type of evidence that Monsanto said would be insufficient, is direct in character. Hand-werk’s testimony relates to the agreement itself, not to other facts from which an *1164 agreement might be inferred. While conceivably one could argue that Handwerk’s response meant something different than acquiescence, the meaning of the statement was clearly a matter for the jury to decide. 7 In Monsanto, the plaintiffs sought to have the jury infer an agreement from the circumstantial fact that a dealer was terminated following another dealer’s complaint. Here the plaintiff asked only that the jury find that the exchange of statements itself constituted an agreement or, at the least, resulted in a communicated acquiescence. This the majority refuses to permit the jury to do solely because it would read the verbal exchange differently.
Even were only circumstantial evidence involved, the concerns raised in Monsanto, that drawing “an inference ... from highly ambiguous evidence” will erode the Colgate doctrine and eliminate distributors as an important source of information for manufacturers, Monsanto, 465 U.S. at 763, 104 S.Ct. at 1470 , are not present in this case. The circumstances here do not suggest the likelihood that the manufacturer was simply responding to newly received information by implementing a preexisting policy. First, there was no evidence that James Jeans had a pre-existing policy of terminating price-cutting dealers; in fact one of its own sales representatives testified that he believed it was illegal to terminate a price-cutter. There was also evidence that James Jeans normally dealt with price-cutters in other ways. Second, there was considerable evidence that at the time of Handwerk’s discussion with JJ’s owner James Jeans was already well aware of The Jeanery’s price-cutting policies; thus the dealer’s complaint was not particularly informative. Third, the message conveyed by the retailer here — a threat to cease doing business unless a competitor is terminated — cannot be classified as simply informational in nature. The existence of an agreement between James Jeans and JJ’s to terminate The Jeanery is at least compelling circumstantial evidence of the existence of an underlying arrangement to maintain resale prices — an arrangement of which James Jeans and JJ’s were a part.
There was considerable further evidence of the “something more” referred to in Monsanto, or the “other means which effect adherence to [the manufacturer’s] resale prices” referred to in Parke, Davis, 362 U.S. at 49 , 80 S.Ct. at 514 . There was, for example, substantial evidence that James Jeans’ tactics were far more sophisticated and disruptive than those permitted under Monsanto. James Jeans did not simply terminate dealers upon discovering that they did not sell at keystone. With respect to The Jeanery, James Jeans tried both rewards and punishments. Mr. Bal-lantyne testified that a James Jeans representative offered to supply The Jeanery with factory seconds and off-price merchandise in return for selling the popular new line of “Streets” jeans at full price. He also testified that the same representative repeatedly tried to “intimidate” him into selling at keystone.
In addition, other retail clothing dealers offered testimony as to the varying tactics that James Jeans used in trying to obtain their adherence to the keystone pricing policy. One dealer testified that he maintained James Jeans’ resale prices because Nordstrom told him that his company had “ways of stopping anybody else from discounting,” and that “[o]rders could be lost, could be shipped to the wrong destination, or just never processed.” 8 Another retailer testified that in “[m]any different conversations” with James Jeans sales representatives, he was told that James Jeans had received complaints from other dealers about his discount prices, that it wanted him to sell at keystone, and that he would have difficulty getting his supplies in the future if he did not comply. When this *1165 dealer refused to comply, James Jeans “lost” a $30,000 order from him.
The majority claims that James Jeans’ various coercive tactics are “consistent with the privilege of independent action permitted a manufacturer under Colgate.” Maj. at 1159. The majority gives no authority — and certainly none can be found in Colgate or Monsanto — for the position that a manufacturer may not only unilaterally terminate a dealer, but it may also use a variety of intermediate coercive tactics designed to disrupt the dealer’s business operations, without fear of running afoul of the antitrust laws. The majority’s view is contrary to the clear holding of Parke, Davis; the majority offers neither case law nor policy arguments for its extraordinary extension of the limited Colgate privilege.
James Jeans’ conduct in attempting to conceal the fact that it had cut off future sales to The Jeanery also qualifies as “something more”, as does its fabrication of a false reason for its failure to ship an order it had previously accepted. Attempting to conceal the fact of termination and contriving false reasons for not filling an order are probative of guilty knowledge and wrongful conduct. Here, these acts constitute further evidence that the termination of the Jeanery was undertaken as part of an unlawful resale price maintenance plan.
Finally, there was direct evidence of an agreement between James Jeans and The Jeanery to maintain the keystone price on the Street model. Mr. Ballantyne testified that he ultimately acquiesced in Nord-strom’s demands regarding that line and advised him he would comply. The existence of this agreement may serve as some evidence of a general pattern of agreements between James Jeans and its dealers.
In sum, the above evidence constitutes substantial direct as well as circumstantial proof that James Jeans was a participant in a combination or conspiracy to maintain the retail price of its merchandise. Cf. Monsanto, 465 U.S. at 765, 104 S.Ct. at 1471 . Thus, there was more than sufficient evidence before the jury to permit it to find a violation of Section One of the Sherman Act. Accordingly, in my opinion, the judgment notwithstanding the verdict cannot stand.
BUSINESS ELECTRONICS AND THE PRICE-RELATED AGREEMENT
As noted at the outset, the original majority opinion relied exclusively on the argument that the Jeanery had not shown sufficient evidence of an agreement between James Jeans and JJ’s to terminate The Jeanery’s franchise. After the Supreme Court handed down Business Electronics Corp. v. Sharp Electronics Corp., — U.S.-, 108 S.Ct. 1515 , 99 L.Ed.2d 808 (1988), the majority revised its opinion to add a second ground for its conclusion: insufficient evidence of a price-specific agreement between James Jeans and JJ. This second issue is not properly before us: it was not considered by the district court in its JNOV, and it was not raised by either party either before the district court or on appeal. Cf. maj. op. at 1155-56 n. 6. Moreover, even if the new ground could be raised for the first time now, on the theory that there has been a change in the law, the majority could not affirm on that basis. Rather, it would be required to remand in order to give the district court the initial opportunity to determine whether The Jeanery’s evidence regarding a price-specific agreement was in fact insufficient. If upon remand, the district court were to decide that the evidence adduced at the original trial failed to meet the Business Electronics standard, JNOV would still not be proper; because the change in the law occurred after trial, The Jeanery would be entitled to a new trial at which it could present additional evidence. Thus, I do not believe Business Electronics can serve as a basis for affirming the district court’s judgment. In my view, the majority’s decision to uphold the JNOV must stand or fall on the basis of its original opinion.
I respectfully dissent.
. The Court in Monsanto, after reviewing the additional evidence present in that case, found "something more” and accordingly, affirmed the Court of Appeals, 465 U.S. at 764-68, 104 S.Ct. at 1470-72 . The key evidence was a statement to Monsanto by a distributor that it would maintain the retail price. There was also a rather ambiguous newsletter from another distributor *1162 to his dealer-customers. In Monsanto, the "something more” was in actuality not very much. See Easterbrook, "Vertical Arrangements and the Rule of Reason”, 53 Antitrust L.J. 131, 171-72 (1984).
. I note that Monsanto does not in any way signal a retreat from Parke, Davis. In fact, in its opinion, the Monsanto court cited Parke, Davis at two separate points. See Monsanto, 465 U.S. at 761, 762, 104 S.Ct. at 1469, 1470 .
. One commentator has stated: "Monsanto clearly does not adopt the implied acceptance or the coercion theory of agreement, but it may not entirely reject them either. Taking Colgate as given, the Court did not pursue agreement concepts." 7 P. Areeda, Antitrust Law 83 (1986).
.Professor Areeda stated:
I do not mean to imply that suggestions or persuasion standing alone can be treated as agreements. Rather we are focusing on persuasion and exhortations (etc.) in the context of threatened termination. In this context, I would treat these additional steps as "complex.” As Parke Davis pointed out, such a manufacturer is not merely choosing congenial dealers in the sense of those who prefer to comply in order to get the goods — he is trying to get compliance without bearing the burden of termination. Such steps approach a seeking of dealer assent to a much greater degree than simple announcement of conditions and termination of non-conformists.
7 P. Areeda, Antitrust Law 116-17 (1986).
. The majority characterizes this same exchange as "reflect[ing] nothing more than an effort by a manufacturer to calm an angry customer." Maj. at 1158. Though this may be a plausible interpretation of the exchange, interpreting the exchange as evidence of an agreement seems far more probable. In any event, the majority oversteps its role when it announces that the exchange “falls [so] far short of establishing an agreement" that the question should not even go to the jury. Maj. op. 1158. In effect, the dis'trict court, and the majority, simply arrogated unto themselves the fact-finding function of the jury.
. The majority’s analysis seems to proceed from precisely the opposite premise set forth so persuasively by the Third Circuit when discussing antitrust conspiracies over forty years ago: "The picture of conspiracy as a meeting by twilight of a trio of sinister persons with pointed hats close together belongs to a darker age.” William Goldman Theatres v. Loew's, Inc., 150 F.2d 738 , 743 n. 15 (3d Cir.1945). Nowadays, because price-fixing agreements are per se illegal, antitrust conspirators tend to be perceptive enough to avoid express written agreements and to deny the existence of any combination or conspiracy; they also tend to avoid leaving incriminating evidence lying about.
. In Monsanto, the Court upheld the jury’s finding of a conspiracy based on “direct evidence of agreements to maintain prices,” even though that evidence was subject to lawful as well as unlawful interpretations. Monsanto, 465 U.S. at 765, 104 S.Ct. at 1471 .
. This parallels precisely what happened to The Jeanery: Its last order was not filled allegedly because James Jeans was out of stock or not in production, but The Jeanery offered persuasive evidence that these reasons were fictitious.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9477817. Public record. Not legal advice.