Petition — Gulf Oil Corp. v. Bogosian

—

JFupreme Court, U. 8.

FILE PD J

ie

IN THE MICHAEL RODAK, JR., CLERK

Supreme Cuurt of the Uuited- States —

OCTOBER TERM, 1977

No. ve" 740

GULF OIL CORPORATION, ET AL.,

Petitioners,

V.

PAUL J. BOGOSIAN,

Respondent.

GULF OIL CORPORATION, ET AL.,

Petitioners,

V.

Louis J. PARISI,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

[Counsel Listed on Inside Cover]

— ee a a <a a =

— es es — — — ee

WILGON « Eree PRinTiING Co,, INC, « Re 7.6002 . Wasninaron, 0e 2000

FRANK W. MorGAN

439 7th Avenue

Pittsburgh, Pennsylvania 15230

Hoyt A, HARMON, JR,

1 Presidential Boulevard

Bala-Cynwyd, Pennsylvania

19004

Counsel for Gulf Oil

Corporation

Patrick T. RYAN

Drinker, Biddle & Reath

1100 PNB Building

Philadelphia, Pennsylvania 19107

Counsel for American Oil

Company

BENJAMIN M. Quiaa, JR,

STEPHEN W. ARMSTRONG

Morgan, Lewis & Bockius

123 South Broad Street

Philadelphia, Pennsylvania 19109

Ropert L. Norris

P. O. Box 2180

Houston, Texas 77001

Counsel for Exxon Corporation

Jerome E. DAWKINS

P. O. Box 839

Valley Forge, Pennsylvania

19482

CHARLES F. Rick

STEPHEN E. KITCHEN

150 East 42nd Street

New York, New York 10017

Counsel for Mobil Oil

Corporation

RaLyn W. BRENNER

Davip L. Grove

Montgomery, McCracken, Walker

& Rhoads

3 Parkway

Philadelphia, Pennsylvania 19102

Lewis J, OTTAVIANI

662 Frank Phillips Building

Bartlesville, Oklahoma 74004

Counsel for Phillipa Petroleum

Company

JOUN T. CLARY

405 Witherspoon Building

Juniper and Walnut Street

Philadelphia, Pennsylvania 19107

WILLIAM SIMON

WILLIAM R. O'BRIEN

Howrey & Simon

1730 Pennsylvania Avenue, N. W.

Washington, D.C, 20006

Counsel for Shell Oil Company

Jon G. HARKINS, JR,

BARBARA W. MATHER

Pepper, Hamilton & Scheetz

2001 The Fidelity Building

123 South Broad Street

Philadelphia, Pennsylvania 19109

Rohmer M. Dunns

240 Radnor-Chester Road

St. Davids, Pennsylvania 19087

Counsel for Sun Oil Company

Henry T. Reatu

Duane, Morris & Heckscher

100 South Broad Street

Philadelphia, Pennsylvania 19110

MILTON HANDLER

MILTON J, SCHUBIN

Kaye, Scholer, Fierman, Hays &

Handler

425 Park Avenue

New York, New York 10022

Joseru P. Fou

1356 East 42nd Street

New York, New York 10017

Counsel for Texaco Inc.

Epwarp W. MULLINIX

Artruur H. KAHN

Schnader, Harrison, Segal &

Lewis

1719 Packard Building

Philadelphia, Pennsylvania 19102

Counsel for The Standard Oil

Company (Ohio)

EDWARD W. MULLINIX

Artuur H. KAHN

Schnader, Harrison, Segal &

Lewis

1719 Packard Building

Philadelphia, Pennsylvania 19102

Counsel for Union Oil

Company of California

H. Francis DeLonge

RICHARD G. SCHNEIDER

Dechert, Price & Rhoads

8400 Centre Square West

1500 Market Street

Philadelphia, Pennsylvania 19102

C. LANSING Hays, JR.

Hays, Landsman & Head

11 Broadway

New York, New York 10004

Counsel for Getty Oil Company

Rommr W. SAYRE

Freperick H. EuMANN

Saul, Ewing, Remick & Saul

28rd Floor Packard Building

Philadelphia, Pennsylvania 19102

WILLIAM E. JACKSON

~~ Tweed, Hadley &

eCloy

1 Chase Manhattan Plaza

New York, New York 10005

Counsel for Amerada Hess

Corporation

ALLEN E. MAULSBY

Cravath, Swaine & Moore

One Chase Manhattan Plaza

New York, New York 10006

Grorce I, Wu aus, III

Schnader, Harrison, Segal &

Lewis

1719 Packard Building

Philadelphia, Pennsylvania 19102

Counsel for Chevron Oil

Company

TABLE OF CONTENTS

K 22

ꝓ6ꝙ＋6-— .. ———ꝛ—— —

QUESTIONS PRESENTED FOR REVIEW ................

STATUTES AND RULES INVOLVED .........................

I. The Court of Appeals’ Decision on the Sufficiency

of the Complaints is Contrary to Decisions of

this Court and the Couru of Appeals and Leaves

Uncertain the Legality of Many Types of Legiti-

mate Business Conduct ...00.........cccccccccccseccesenenenes

A. Deferral of Decision on the Lega! Sufficiency

of Plaintiffs’ Theory Until After Discovery

and Trial is Contrary to the Controlling

Authorities and Will Result in “Jurispru-

„

B. The Controlling Decisions of this Court and

the Courts of Appeals Establish that Inter-

dependent Conscious Parallelism does not

Constitute a Violation of the Sherman Act....

Review of the Panel Majority’s Class Determi-

nation is Required to Establish Standards for

the Efficient Judicial Administration of Class

Actions and to Resolve Conflicts Among the Cir-

Ee eee a ENE Oe RE

W „

10

14

TABLE OF CONTENTS—Continued

A. The Court of Appeals’ Decision Constitutes a

Wholly Unauthorized Invasion of the Dis-

trict Court’s Discretion to Supervise Class

—— a

B. The Panel Majority’s Class Determination is

Based on Substantive Antitrust Principles

Which Are Contrary to Decisions of this

Court and the Courts of Appeals

Z —õꝰ-

Page

18

III

TABLE OF AUTHORITIES

Cases:

Aamco Automatic Transmissions, Inc. v. Tayloe,

1977-2 Trade Cas. (CCH) f 61,681 (E.D. Pa.

1977) 3

American Manufacturers Mutual Ins. Co. v. Ameri-

can Broadcasting-Paramount Theatres, Inc., 446

F.2d 1131 (2d Cir. 1971), cert. denied, 404 U.S.

1063 (1972)

Archer v. United States, 217 F.2d 548 (9th Cir.

1954), cert. denied, 348 U.S. 953 (195557

Blue Beli Co. v. Frontier Refining Co., 213 F.2d

354 (10th Cir. 1954)

Capital Temporaries, Inc. v. Olsten Corp., 506 F.2d

658 (2d Cir. 1974)

Conley v. Gibson, 355 U.S. 41 (1957)

Delaware Valley Marine Supply Co. v. American

Tobacco Co., 297 F.2d 199 (3d Cir. 1961), cert.

denied, 369 U.S. 839 (1962)

Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974)

Esposito v. Mister Softee, Inc., 1976-1 Trade Cas.

(CCH) { 68,866 (E. D. N. V. 1976)

Fortner Enterprises, Inc. v. United States Steel

Corp., 394 U.S. 495 (1969)

Franchise Realty Interstate Corp. v. San Francisco

Local Joint Executive Board of Culinary Work-

ers, 542 F.2d 1076 (9th Cir. 1976), cert. denied,

430 U.S. 940 (1977)

FTC v. Royal Milling Co., 288 U.S. 212 (1933)

FTC v. Sinclair Refining Co., 261 U.S. 463 (1923

Gray V. Shell Oil Co., 469 F.2d 742 (9th Cir. 1972),

cert. denied, 412 U.S. 943 (1973)

Hehir v. Shell Oil Co., 72 F.R.D. 18 (D. Mass.

1976)

Independent Iron Works, Inc. v. United States Steel

Corp., 322 F.2d 656 (9th Cir. 1963), cert. denied,

II.. Perea

In re 7-Eleven Franchise Antitrust Litigation, 1972

Trade Cas. (CCH) F 92,829 (N.D. Cal. 1972)

Katz v. Carte Blanche Corp., 496 F.2d 747 (3d

Cir.), cert. denied, 419 U.S. 885 (1974) _........

Page

IV

TABLE OF AUTHORITIES—Continued

Page

Klein v. American Luggage Works, Inc., 323 F.2d

r SENT Fea Summon soe 15

Link v. Mercedes-Benz of North America, Inc., 550

F.2d 860 (3d Cir. 1976), cert. denied, 97 S.Ct.

I i 18, 23

Livesay v. Punta Gorda Isles, Inc., 550 F.2d 1106

r rel 19

Morr v. United States, 243 F.2d 913 (6th Cir.

ccc 13

Naum keag Theatres Co. v. New England Theatres,

Inc., 345 F.2d 910 (1st Cir.), cert. denied, 382

I dt eeeialibabiiiinelons 15

New York v. International Pipe and Ceramics

Corp., 410 F.2d 295 (2d Cir. 1969)... 18

Northern Pacific Railway Co. v. United States,

SRE ee ee eee 21, 25, 27

Orbo Theatre Corp. v. Loew’s Inc., 156 F. Supp. 770

(D. D.C. 1957), aff'd per curiam, 261 F.2d 380

(D.C. Cir. 1958), cert. denied, 359 U.S. 943

r ee ee ee aT 16

Peterson V. Oklahoma City Housing Authority, 545

- 19

Plekowski v. Ralston Purina Co., 68 F. R. D. 443

D PREIS EASE nanan on as See 21, 28

Price v. Lucky Stores, Inc., 501 F.2d 1177 (9th

1 19

Redd v. Shell Oil Co., 524 F.2d 1054 (10th Cir.

1975), cert. denied, 425 U.S. 912 (1976) 17

Schwartz v. Compagnie General Transatiantique,

he ee 13

Shumate & Co. v. NASD, 509 F.2d 147 (5th Cir.),

cert. denied, 423 U.S. 868 (1979 19

Siegel v. Chicken Delight, Inc., 271 F. Supp. 722

(D. Cal. 1967), modified sub nom, Chicken De-

light, Inc. v. Harris, 412 F.2d 830 (9th Cir.

1969), on remand, 311 F. Supp. 847 (N.D. Cal.

1970), aff'd in part and rev'd in part, 448 F.2d

43 (9th Cir. 1971), cert. denied, 405 U.S. 955

——A 3 21, 28

V

TABLE OF AUTHORITIES—Continued

Page

Theatre Enterprises v. Paramount Film Distribut-

ing Corp., 346 U.S. 537 (1954) 15

Times-Picayune Publishing Co. v. United States,

Fe 25

Ungar v. Dunkin’ Donuts of America, Inc., 531

F.2d 1211 (3d Cir.), cert. denied, 429 US. 823

/ / ( 21, 27, 28

United States v. Loew’s, Inc., 371 U.S. 38 (1962) 26

United States Steel Corp. v. Fortner Enterprises,

We 21, 22

Waltham Watch Company v. FTC, 318 F.2d 28

(7th Cir.), cert. denied, 375 U.S. 944 (1963) _. 17

Western Pacific R. Corp. v. Western Pacific R. Co.,

345 U.S. 247 (1953) 22

Winchester Theatre Co. v. Paramount Film Dis-

tributing Corp., 324 F.2d 652 (Ist Cir. 1963) 15

Windham v. American Brands, Inc., 539 F.2d 1016

I I CN ate taal el ateialite 22-23

Windham v. American Brands, Inc., 1977-2 Trade

Cas. (CCH) { 61,670 (4th Cir. Oct. 11, 1977).. 17, 23

Statutes and Rules:

Federal Trade Commission Act, 15 U.S.C. §§ 41,

1 T— 0ww , 16

Lanham Act, 15 U.S.C. §§ 1055 et seq. * 16

Sherman Antitrust Act, 15 U.S.C. 811 3, 4, 7, 10, 14

I ae eee 9

BK ß 2

Federal Rules of Civil Procedure

11 ˙ ee Nn ee 2,4

r SSP een 2, 4, 12

rere 4, 7, 22

CS . ae 2,4,12

VI

TABLE OF AUTHORITIES—Continued

Miscellaneous:

Areeda, Antitrust Analysis, . 554 at 617 (2d ed.

cr

Areeda, Antitrust Violations Without Damage Re-

coveries, 89 Harv. L. Rev. 1127 (1970)

Kirkham, Complex Civil Litigation—Have Good

Intentions Gone Awry?, 70 F.R.D. 79 (1976)

2A Moore, Federal Practice § 12.08

Recent Developments, 62 Cornell L. Rev. 177

— .

Varner, Voluntary Ties and the Sherman Act, 50

ee Se SR, eee

Withrow and Larm, The “Big” Antitrust Case: 25

Years of Sisyphean Labor, 62 Cornell L. Rev.

FREESE Reem S” —0Re RET eee

Page

14

12

14

IN THE

Supreme Court of the United States

OCTOBER TERM, 1977

No.

GULF OIL CORPORATION, ET AL.,

7 Petitioners,

PAUL J. BOGOSIAN,

Respondent.

GULF OIL CORPORATION, ET AL.,

Petitioners,

V.

Louis J. PARISI,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

The undersigned petitioners pray that a writ of cer-

tiorari issue to review the judgment and opinion of a

divided panel of the United States Court of Appeals

for the Third Circuit, entered on July 21, 1977.

OPINIONS BELOW

The opinion of the court of appeals is reported at

561 F.2d 434 and is set forth in the Appendix at

pages A. 1-54. The order denying petitioners’ motion

for rehearing and suggestion for rehearing in banc is

2

set forth in the Appendix at page A-56.' The two rele-

vant opinions of the United States District Court for the

Eastern District of Pennsylvania are reported at 62

F.R.D. 124 (1973) (class action certification) and 393

F. Supp. 1046 (1975) (summary judgment) and are set

forth in the Appendix at pages A. 57-73, 76-102.

JURISDICTION

The judgment of the Court of Appeals for the Third

Circuit was entered on July 21, 1977. A timely petition

for rehearing in bane was denied on August 25, 1977,

and this petition for certiorari was filed within 90 days

of that date. This Court’s jurisdiction is invoked under

28 U.S.C. § 1254 (1).

QUESTIONS PRESENTED FOR REVIEW

The decision below epitomizes and significantly fosters

a trend that is producing a critical breakdown in the

administration of justice: the conversion of grievances

(real or imagined) between two parties, however minis-

cule, into massive industrywide and nationwide litigation

which clogs the courts and imposes astronomical litigation

burdens upon the parties. Although the Federal Rules of

Civil Procedure call for “the just, speedy and inexpensive

determination of every action” (Rule 1) and afford pro-

cedures that might enable district courts to meet this

challenge (e.g., Rules 12 and 56), the panel majority die-

tates a procedure which is accurately described by the

dissent as “jurisprudential anarchy” (A. 43).

1The suggestion for rehearing in banc was considered only by

the three members of the panel since all of the other judges of the

court of appeals had recused themselves from participating in this

case (see p. 9, infra).

3

The two plaintiffs purport to have a tie-in claim in-

volving the leasing of a service station and the securing

of a supply of the lessor’s brand of gasoline for resale.

Rather than having the individual claims promptly re-

solved, the two judge majority of the court of appeals

has determined to allow plaintiffs’ counsel to convert them

into a mammoth proceeding against strangers to the

plaintiffs that by its very magnitude would seriously

impair proper functioning of the court system and would

impose such enormously unfair and coercive burdens

upon defendants as to deprive them of elementary justice.

The questions which warrant urgent review by this

Court are: ie

(1) Whether the action of the court of appeals vio-

lates the Federal Rules of Civil Procedure and defend-

ants’ due process rights by depriving the district court

of the power to determine that complaints, which as a

matter of “deliberately employed strategy” alleged no

concerted action, but only interdependent consciously

parallel action, state a claim for relief under Section 1

of the Sherman Act.

(2) Whether the panel majority, in conflict with the

established law of the Third Circuit and other courts of

appeals, erroneously substituted its findings, based on

unfounded factual assumptions and legal conclusions, for

the discretionary class certification determinations of the

district court.

(3) Whether the panel majority, in reversing the class

determination ruling, erred in concluding that a pur-

chaser may recover antitrust damages for an alleged

illegal tying arrangement where he voluntarily obtained

both the alleged tying and tied products.

4

STATUTES AND RULES INVOLVED

The statute involved is 15 U.S.C. §1, which reads in

pertinent part as follows:

Every contract, combination in the form of trust

or otherwise or conspiracy, in restraint of trade or

commerce among the several States, or with foreign

nations, is hereby declared to be illegal

The case also involves the proper interpretation of

Rules 1, 12, 28 and 56 of the Federal Rules of Civil

Procedure, the texts of which are set forth in the Ap-

pendix at A. 182-38,

STATEMENT OF THE CASE

The original Bogosian complaint was filed over six

years ago in May, 1971, on behalf of a lessee service

station dealer of Gulf Oil Corporation. That complaint

alleged that the defendants had a monopoly of “strategi-

cally located service station sites” in metropolitan areas

and used this monopoly to control virtually all aspects of

the operations of independent retail service station

dealers.“ The plaintiff purported to represent a nation-

wide class of all past, present and future retail dealers

who leased service stations from any of the defendants.

The complaint, however, did not allege that Bogosian

had any business dealings with any defendant other than

Gulf or that any defendant had engaged in any con-

spiratorial or concerted action which affected the plain-

tiff. After Bogosian had confirmed at his deposition

that his claims were based solely on his relationship with

Gulf, the non-Gulf defendants moved for summary judg-

ment.

* The original Bogosian complaint is set forth in the Appendix,

at A. 124-31.

Acknowledging that he had set forth no basis for suing

the non-Gulf defendants, plaintiffs’ counsel met the sum-

mary judgment motion with a two-fold procedural re-

sponse, First, he moved to amend the Bogosian com-

plaint to allege that “defendants have conspired among

themselves and with others. . . through a course of in-

terdependent conscious parallel action pursuant to a tacit

understanding by acquiescence coupled with assistance

.. (A, 117-18) Second, Bogosian’s counsel filed the

Parisi complaint on behalf of Mr. Parisi, a former lessee

dealer of Exxon Corporation, That complaint named the

original Bogosian defendants as well as two additional

companies; asserted the same alleged monopoly and anti-

competitive activities; purported to encompass the same

class; and included the same vague “conspiracy” allega-

tion as the amended Bogosian complaint.

On January 18, 1972, the district court, while noting

that “conspiracy allegations were conspicuously lacking

from the original complaint” and that the omission of

“such important allegations” was “curious,” raising the

“suspicion that the omission was by design and not by

inadvertence,” granted Bogosian’s motion for leave to

amend and therefore denied defendants’ motion for sum-

mary judgment without prejudice as moot (A. 103-05).

The parties then engaged in extensive discovery and

briefing on the propriety of these cases proceeding as class

actions. During the course of the initial hearing on the

class motion in January, 1973, plaintiffs’ counsei, recog-

nizing the futility of seeking class certification on their

original claims, substantially modified them. They aban-

doned their prior claims, including the alleged monopoly

of service station sites, and stated their intention to

proceed on the allegation that defendants entered into

tying arrangements with their dealers by requiring each

The first amended Bogosian complaint is set forth at A. 118-23.

—_—_ OO errur -

dealer who leased a service station to purchase gasoline

exclusively from the lessor.

On March 80, 1973, the district court again granted

plaintiffs leave to file new amended complaints setting

forth their new theory of liability. On May 2, 1973, two

years after the beginning of this litigation, the third ver-

sion of the claims was filed.‘ In addition to abandoning

many of the plaintiffs’ previous allegations of monopoly

and other purported anticompetitive practices, the new

complaints deleted the conspiracy allegations which had

appeared in the Bogosian first amended complaint and

the original Parisi complaint. That is, the new complaints

deleted the previous allegation of “conspiracy” and “tacit

understanding” among defendants, and did not allege any

concerted activity, but only that:

Defendants, through a course of nn con-

sciously parallel action, have required all dealers who

lease, sublease, or renew such leases or subleases

for one or more defendants’ service stations to:

(a) license the use of the lessor’s trademark;

(b) sell only the lessor’s gasoline; and

(e) not sell gasoline purchased from any other

source under the licen trademark (A. 109; em-

phasis added).

The District Court Opinions

After further briefing and a second hearing, the dis-

trict court, on December 19, 1978, denied plaintiffs’ mo-

tion to certify the alleged nationwide class (A. 76-102).

The court set forth the background and scope of this

litigation, thoroughly analyzed plaintiffs’ efforts to secure

class action treatment and, based on the record which

consisted of extensive affidavits, interrogatory answers

The second amended Bogosian complaint is set forth at A. 106-11.

7

and deposition testimony, carefully considered the facts

and demonstrated that class treatment was wholly inap-

propriate in these cases for numerous independently suf-

ficient reasons. The district court expressly considered

and rejected each of three possible bases for class treat-

ment under Rule 23 (b), applying the proper legal stand-

ards set forth in the Rule to the facts of these cases, The

court catalogued the issues raised by plaintiffs’ claims

and analyzed why those issues were not susceptible of

common treatment, concluding that individual questions

with respect to both liability and damages predominated

over common issues and that processing these cases as

class actions would give rise to staggering problems of

manageability (A. 76-102).

Subsequently, those defendants which had no business

dealings with the plaintiffs again moved for summary

judgment based on the second amended complaint’s fail-

ure to allege any agreement or concerted action, The

district court, noting that the deletion of the conspiracy

allegations from the second amended complaint was “a

matter of deliberately employed strategy” by plaintiffs’

“experienced and learned attorneys in the field of anti-

trust litigation” (A. 59), dismissed the claims against the

non-lessor defendants (A. 57-75).° The court’s decision

was based on the controlling decisions of this Court, the

Third Cireuit and other courts of appeals that conscious

parallelism (whether or not interdependent) does not

alone constitute a violation of Section 1 of the Sherman

Act, and, therefore, a complaint which alleged no more

than conscious parallelism does not state a Section 1 claim.

»The district court permitted the actions to proceed against

those companies from which the plaintiffs had leased service sta-

tons, e, Gulf in the Bogosian case and Exxon in Parisi (A. 68-

78, 75).

The Court of Appeals Proceedings

In an opinion dated July 21, 1977, a divided panel

of the Third Circuit (Seitz, Ch. J., and Gibbons, J.;

Aldisert, J., dissenting) reversed both the denial of class

certification and the decision on the sufficiency of the

amended complaints (A. 1-54). The majority held that

no determination of the legal sufficiency of pleadings could

be made until after subjecting the trial court and the

parties to lengthy discovery. Moreover, the court resusci-

tated the claims against petitioners while recognizing that

disposition of the pending claims against the lessor de-

fendants would render moot the claims against the non-

lessors (A. 11-12).

To compound the unfairness of such a procedure, the

court reversed the district court’s rejection of the pro-

posed class. The panel majority, in contravention of the

in bane decisions of the Third Circuit and the decisions

of several other circuits, substituted its judgment for

the discretionary determinations of the district court.

Thus, the court suggested that hundreds of thousands of

present and former dealers throughout the country be

brought into this action despite acknowledging the ques-

tionable legal sufficiency of the complaints. In so doing,

the majority swept aside the insuperable problems of

judicial manageability which had led the district court

to deny certification and prejudged many of the complex

issues raised by plaintiffs’ claims—based on wholly un-

founded factual assumptions. Moreover, the panel’s class

determination is based on an interpretation of the sub-

stantive law of tying arrangements contrary to the gov-

erning authorities of this Court, the Third Circuit and

other courts of appeals by treating a buyer as having

a tie-in claim even if he wished to buy both the alleged

tying and tied products and was not forced to buy

anything he did not want.

In light of the enormous impact of the panel majority

opinion on both substantive antitrust law and the proper

judicial administration of massive class action litigation

and the conflicts between the majority opinion and de-

cisions of this Court, the Third Circuit and other courts

of appeals, petitioners herein moved for in bane con-

sideration. However, because all of the active judges of

the Third Circuit other than the panel had disqualified

themselves from considering this matter, in bane con-

sideration was impossible and petitioners’ motion was

denied by a 2 to 1 vote of the same panel which rendered

the decision below (A. 56, 189).°

REASONS FOR GRANTING THE WRIT

I. The Court of Appeals’ Decision on the Sufficiency of

the Complaints Is Contrary to Decisions of this Court

and the Courts of Appeals and Leaves Uncertain the

Legality of Many Types of Legitimate Business

Conduct

The decision below severely jeopardizes the adminis-

tration of justice in the federal courts and creates far

reaching uncertainty with respect to fundamental prin-

ciples of antitrust law and legitimate business conduct.

Since the customary remedy of in banc consideration by

the Third Circuit was unavailable in the instant case, re-

view by this Court is necessary to resolve the conflicts

between the decision below and the principles established

in prior decisions of this Court, the Third Circuit and

several other circuits and, in the exercise of this Court’s

supervisory responsibility over the administration of jus-

* The recusal of the remaining circuit judges is noted on the Third

Cireuit’s docket sheet (a copy of which is reproduced at A, 139).

The reasons for this wholesale recusal are not disclosed, but pre-

sumably at least some members of the court were required to dis-

qualify themselves under the rigid financial interest restraints im-

posed by 28 U.S.C. § 466.

10

tice in federal courts, to establish standards for the

prompt resolution of legal issues in complex litigation.

A. Deferral of Decision on the Legal Sufficiency of

Plaintiffs’ Theory Until After Discovery and Trial

is Contrary to the Controlling Authorities and Will

Result in “Jurisprudential Anarchy”

The essential holding of the court of appeals is that

the district court erred in determining the sufficiency of

the second amended complaints, and that the court should

have deferred ruling on the sufficiency of the conscious

parallelism claims:

We conclude that the ruling that the specific allega-

tion of interdependent consciously parallel action

made here fails to state a claim should be vacated

so that the issue can be decided, if necessary, after

the relevant facts are fully developed (A. 22).

Alternatively, the majority held that the mere in

clusion of the term “combination” in the complaint satis-

fied the liberal rules of pleading (A. 18-19). However,

since the only acts alleged to constitute the “combina-

tion” were the allegedly parallel leasing practices of the

defendants’ and since the court deferred ruling on the

issue of whether an allegation of such parallel conduct

Paragraph 16 of the second amended complaint alleges:

The unlawful acts of defendants as aforesaid constitute an un-

reasonable combination in restraint of interstate trade and com-

merce in the marketing of gasoline in violation of Section | of

the Sherman Act, 16 U.S.C, §1 (A. 110; emphasis supplied).

Paragraph 16 explicitly states tha“ the combination therein alleged

consists solely of “the unlawful acts of defendants as aforesaid.”

But the only “aforesaid” unlawful acts are the alleged similar, or

parallel, leasing practices of the defendants. Thus, the totality of

the alleged combination is the defendants’ alleged “interdependent

consciously parallel action,” and the mere inclusion in Paragraph

16 of the statutory word “combination” does not add the crucial

element — necessary for a Sherman Act claim (see pp.

14-17, infra). '

11

is sufficient to state a Sherman Act claim, the effect of

the alternative holding is merely to defer resolution of

the legal sufficiency of the complaint allegations pending

discovery and, perhaps, trial.

The panel majority thus held that the legal sufficiency

of the charges in a case involving alleged classes of

hundreds of thousands of dealers of 15 oil companies

cannot be decided after some six years of litigation (in-

cluding two amended complaints), but must await many

more years of time consuming and expensive discovery

and trial proceedings. The issue here is not whether the

plaintiffs can muster the evidence to prove a Section 1

violation, but whether their complaints state a cause of

action. Requiring the district court to defer decision

on the legal sufficiency of a complaint until after exten-

sive undefined discovery is contrary to the scheme of the

Federal Rules of Civil Procedure, misinterprets the con-

trolling decisions of this Court and conflicts with the de-

cisions of other circuits. Moreover, the approach adopted

by the court of appeals would hamstring the effective

judicial management of complex litigation by eliminat-

ing the availability of summary determination of ques-

tions of law. Finally, and most significantly, requiring

parties against whom no cause of action is asserted to

disclose their private files and to endure years of onerous

litigation burdens would be a violation of fundamental

constitutional rights.

The dissent summarizes the adverse effects of the ma-

jority approach on judicial administration as “juris-

prudential anarchy”:

Although the majority purports to act in the interest

of efficient judicial administration, I fail to see how

that interest is served by allowing what probably

will be massive discovery prior to deciding whether

the basic theory of the action is legally viable. The

relevant facts should be fully developed after it is

12

determined whether the claim is legally sufficient,

not while that issue is still in doubt. Moreover, un-

til the theory of the case is settled, it will not be

known which are the ‘relevant’ facts. Facts are only

relevant insofar as they support a valid legal theory

(A. 43).

The Federal Rules of Civil Procedure contemplate that

a case be dismissed when the complaint does not set

forth a legal theory which would support recovery if all

of the alleged facts were proved. See Federal Rules

of Civil Procedure 12 (b) (6) and 56; see generally 2A

Moore, Federal Practice { 12.08. Use of these provisions

enables the federal judicial system to function by elimi-

nating claims which are insufficient as a matter of law

without costly and time-consuming pretrial and trial

proceedings. Again, the dissent emphasizes the need for

effective use of these devices:

A motion to dismiss or for summary judgment

for failure to state a claim seeks to obviate the

necessity for time-consuming and expensive discovery

in cases where the facts are irrelevant because no

legal claim has been stated. Requiring discovery as

a predicate to deciding such a motion defeats the

very purpose of the motion. . . . The question is

whether an allegation of interdependent consciously

parallel action states a Sherman Act claim. Either

it does or it does not. That may be a sophisticated

question, but it is a question of policy, not of fact

(A. 43).

In requiring deferral of decision on the legal sufficiency

of the complaint until the conclusion of discovery, the

panel majority misapplied this Court’s ruling in Conley

v. Gibson, 355 U.S. 41 (1957). Conley held that the

Federal Rules require only a short plain statement of

the claim and that all supportive facts need not be

pleaded, but did not abolish the requirement that a com-

13

plaint state a legally cognizable cause of action.“ The

entire question here is whether a legally sufficient claim

has been stated, and the panel majority in effect es-

tablishes a new rule for judging the sufficiency of plead-

ings in complex cases, i.e., that such judgments must be

deferred until after full development of the facts through

discovery.

This is not a case in which the district court granted

summary judgment despite the existence of factual is-

sues or where the evidence to support the claim was

in the possession of the defendant. Rather, the district

court granted judgment because the sufficiency of the

second amended complaint was purely a question of law.

In holding this action improper, the panel majority acted

in direct conflict with the decisions of other circuits, which

hold that such questions, no matter how difficult, should

be decided on motion. See e.g., Schwartz v. Campagnie

General Transatlantique, 405 F.2d 270, 273-74 (2d Cir.

1968) (Where appropriate, a trial judge may dismiss

for failure to state a cause of action upon motion for

summary judgment... Summary judgment procedure

may be properly invoked for determination of a legal

question”); Morr v. United States, 243 F.2d 913, 914

(6th Cir. 1957) (“Even if the issue involved proves to

be a difficult one . . it is nevertheless a purely legal one,

not factual, and summary judgment is proper“); Archer

v. United States, 217 F.2d 548 (9th Cir. 1954), cert.

denied, 348 U.S. 953 (1955).

The instant case demonstrates the need for sum-

mary procedures and the adverse effect of the approach

espoused by the court of appeals on the administration

of justice and the rights of the defendants. Six years

have elapsed since suit was instituted. The complaint

® To the contrary, Conley is based on the finding that [wle have

no doubt that [the] complaint adequately set[s] forth a claim”

(355 U.S. at 48).

14

has been twice amended; motions have been extensively

briefed and argued—all of which has burdened judicial

resources and diverted the trial court from more pressing

needs. Now the panel majority has dictated that a de-

cision on the legal sufficiency of plaintiffs’ complaint

must await what will inevitably be several more years

of expensive and time-consuming discovery, with attend-

ant motions and judicial supervision. And, of course,

at the conclusion of this process, plaintiffs’ complaint

will have no more or less legal validity than now.

The courts and commentators have become increas-

ingly critical of the intolerable burdens on the judiciary

imposed by the approach adopted by the panel majority,

which Chief Judge Markey, citing the National Con-

ference on the Causes of Popular Dissatisfaction with

the Administration of Justice, described as the “un-

happy marriage of ‘notice’ pleading and virtually un-

limited discovery.” Franchise Realty Interstate Corp. V.

San Francisco Local Joint Executive Board of Culinary

Workers, 542 F.2d 1076, 1086 (9th Cir. 1976), cert.

denied, 430 U.S. 940 (1977) (concurring opinion). Ef-

ficient judicial administration particularly requires the

availability of summary procedures to dispose of un-

tenable claims in complex litigation. See Withrow and

Larm, The “Big” Antitrust Case: 25 Years of Sisyphean

Labor, 62 Cornell L. Rev. 1, 34 (1976) ; Kirkham, Com-

plex Civil Litigation—Have Good Intentions Gone Awry?,

70 F.R.D. 79, 199-211 (1976).

B. The Controlling Decisions of this Court and the

Courts of Appeals Establish that Interdependent

Conscious Parallelism does not Constitute a Viola-

tion of the Sherman Act

Since Section 1 of the Sherman Act requires a “con-

tract, combination, or conspiracy in restraint of trade,”

some form of agreement or concerted action by a plural-

ity of actors is necessary. Therefore, this Court and

15

others have consistently held that proof of consciously

parallel conduct does not alone amount to a Section 1 of-

fense. See Theatre Enterprises v. Paramount Film Dis-

tributing Corp., 346 U.S. 537, 541 (1954); Nawmkeag

Theatres Co. v. New England Theatres, Inc., 345 F.2d 910,

911 (Ist Cir.), cert. denied, 382 U.S. 906 (1965) ; Klein

v. American Luggage Works, Inc., 323 F.2d 787, 791 (3d

Cir. 1963); Winchester Theatre Co. v. Paramount Film

Distributing Corp., 324 F.2d 652, 653 (1st Cir. 1963) ;

Independent Iron Works, Inc. v. United States Steel

Corp., 322 F.2d 656, 661 (9th Cir.), cert. denied, 375

U.S. 922 (1963); Delaware Valley Marine Supply Co.

v. American Tobacco Co., 297 F.2d 199 (3d Cir. 1961),

cert. denied, 369 U.S. 839 (1962).

If proof of agreement is necessary to establish a

Section 1 violation, a fortiori, an allegation of agree-

ment is necessary to state a cause of action. In the face

of overwhelming precedent and plaintiffs’ intentional

elimination of any allegation of agreement among the

defendants, the panel majority held that the allegations

of interdependent consciously parallel action may state a

Section 1 claim.’

Both the reason for the prevailing rule that con-

sciously parallel behavior (whether or not interdepen-

dent) does not constitute a violation, and the serious

consequences of the panel majority’s departure from these

settled principles, are obvious. Virtually all business de-

cisions are based to some extent on prior actions or an-

ticipated reactions of competitors. Vigorous competition

often results in similar actions by competitors, and the

mere fact that several businessmen individually react in

a similar manner to a common stimulus does not amount

The inclusion of the term “interdependent” in the complaints

does not distinguish this case from the controlling decisions. As

explained by the dissent, the insertion adds nothing because “inter-

dependence is implicit in the notion of conscious parallelism and

... the added word is hardly more than a redundancy” (A. 47).

16

to a combination or agreement for Sherman Act pur-

poses. See, e.g., Orbo Theatre Corp. v. Lowe’s, Inc., 156

F. Supp. 770, 775 (D.D.C. 1957), affd per curiam, 261

F.2d 380 (D.C. Cir. 1958), cert. denied, 359 U.S. 943

(1959). As the dissent points out, such consciously paral-

lel business behavior may be the essence of competition:

In the usual situation of parallel business behavior,

a businessman is conscious of what his competitor

is doing and his action, or inaction, depends on what

the competitor does. This is not a violation of the

antitrust laws; it is, in fact, the essence of the

competitive behavior that those laws seek to promote

(A. 47).

Indeed, in the instant case, the allegedly consciously

parallel conduct is no more than similar, but not iden-

tical, efforts by the defendants to police the use of their

registered trademarks as required by the Lanham Act,

15 U.S.C. §§ 1055 et se., the Federal Trade Commission

Act, 15 U.S.C. §§ 41, et seg. and insure compliance with

over 25 state statutes prohibiting the misbranding and

false labelling of gasoline at retail outlets. Under the

court of appeals’ formulation, defendants’ refusal to at-

10 This Court has long recognized as a fundamental proposition

of trademark law:

If consumers or dealers prefer to purchase a given article be-

cause it was made by a particular manufacturer or class of

manufacturers, they have a right to do so, and this right cannot

be satisfied by imposing upon them an exactly similar article,

or one equally as good, but having a different origin.

FTC v. Royal Milling Co., 288 U.S. 212, 216 (1933).

With respect to the Federal Trade Commission Act, the courts

have long recognized the obligation of a trademark owner to control

the use of his mark:

The pertinent principles of law are clear. The owner of a

trademark or tradename may not use, nor permit the use of,

17

tempt to induce their competitors’ customers to breach

their contracts with their suppliers and to violate federal

and state law could subject them to criminal antitrust

sanctions.

Unfortunately, because of the wholesale recusal of the

other circuit judges, the customary remedy of in banc

review was not available to correct the conflicts between

the panel decision and the controlling authorities. See

Windham v. American Brands, Inc., 1977-2 Trade Cas.

(CCH) © 61,670 (4th Cir. October 11, 1977) (in banc)

(see discussion at pp. 23-24, infra). Therefore, the need

for review by this Court is all the more compelling in the

instant case.

II. Review of the Panel Majority’s Class Determination

is Required to Establish Standards for the Efficient

Judicial Administration of Class Actions and to Re-

solve Conflicts Among the Circuits

Having stripped the district court of the ability to

dismiss those defendants against whom no claim is stated,

thereby subjecting them and the district court to many

more years of burdensome and expensive proceedings, the

court of appeals proceeded to expand the case many

times over by reversing the district court’s careful and

fully supported class action determinations.

such trademark or tradename in a manner designed to deceive

the public. Those who put into the hands of others the means

by which they may mislead the public, are themselves guilty

of a violation of Section 5 of the Federal Trade Commission

Act.

Waltham Watch Company v. FTC, 318 F.2d 28, 31-32 (7th Cir.),

cert, denied, 375 U.S. 944 (1963); see also FTC v. Sinclair Refining

Co., 261 U.S. 463 (1923); Redd v. Shell Oil Co., 524 F.2d 1054 (10th

Cir. 1975), cert. denied, 425 U.S. 912 (1976); Blue Bell Co. v. Fron-

tier Refining Co., 213 F.2d 354 (10th Cir. 1954).

18

A. The Court of Appeals’ Decision Constitute a Wholly

Unauthorized Invasion of the District Court's Dis-

cretion to Supervise Class Action Litigation

Several courts of appeals, including prior in bane de-

cisions of the Third Circuit, have recognized the need for

deferring to the discretion of the district court on class

action determinations. In Katz v. Carte Blanche Corp.,

496 F.2d 747 (3d Cir.), cert. denied, 419 U.S. 885 (1974),

the Third Circuit in bane limited review on the issue of

predominance of common questions to whether the district

court properly identified the issues raised by the claims

and those issues which are common to the class members.

Once the district court has done so, the court of appeals

must defer since the issue of predominance “relates to

the conservation of litigation effort, and the trial court’s

judgment probably will be as good as ours” (496 F.2d

at 756). With respect to the superiority of the proposed

action, Katz required deference to the district court’s

discretion so long as the court had considered and com-

pared the fairness and efficiency of the alternative meth-

ods of adjudicating the controversy (Id., at 759). In

Link v. Mercedes-Benz of North America, Inc., 550 F.2d

860 (3d Cir.), cert. denied, 97 S.Ct. 2641 (1977), the

Third Cireuit in bane reaffirmed Katz, noting that the

trial judge as “the man on the scene” is far better

equipped to evaluate the practical problems posed by

massive class actions (550 F.2d at 864).

The principles established in Katz and Link have been

adopted by several other circuits. See New York v. Inter-

national Pipe and Ceramics Corp., 410 F.2d 295, 298

(2d Cir, 1969) (judgment of trial court to be given

The impact of the wholesale recusal of the Third Circuit judges

in this case is demonstrated by the fact that four of the five judges

who recused themselves were part of the Katz majority. The fifth,

Judge Adams, went further and argued in his dissent that the

majority did not pay sufficient deference to the trial courts’ “gener-

ous discretion” (496 F.2d at 775).

19

“broadest discretion” and “greatest respect”) ; Shumate

& Co. v. NASD, 509 F.2d 147, 155 (5th Cir.), cert. de-

nied, 423 U.S. 868 (1975) (“District Court’s decision is

reviewable only for an abuse of discretion”) ; Livesay v.

Punta Gorda Isles, Inc., 550 F.2d 1106, 1110 (8th Cir.

1977) (district court decision “reviewable only for an

abuse of discretion”); Price v. Lucky Stores, Inc., 501

F.2d 1177, 1179 (9th Cir, 1974) (“class action determin-

ation under Fed. R. Civ. P. 28 is one of a trial courts’

considered discretion”) ; Peterson v. Oklahoma City Hous-

ing Authority, 545 F.2d 1270 (10th Cir. 1976) (“ques-

tion . is one primarily for the determination of the

trial judge”).

The de novo class determination by the panel majority

here is directly contrary to these cases. As noted by the

dissent, the majority’s citation of purportedly common is-

sues is merely “a euphemistic way” of disagreeing with

the district court’s structuring of the proof—a matter

which “lies necessarily and unalterably within the dis-

cretion of the district court” (A. 50). For example, while

recognizing that the contracts in issue do not, on their

face, require the exclusive sale of the lessor’s gasoline,

the majority identifies as common the issue of whether

the “practical economic effect“ of the lease provisions

utilized by the defendants, when read together, amount to

the alleged tie-in (A. 32-33). Based on factual assump-

tions which were totally unsupported by the record, the

majority suggests the “practical economic effect” can be

shown on a uniform basis for each of the hundreds of

thousands of present and former dealers of the fifteen

defendants. This finding overlooks numerous complex

individual issues which led the district court to reject

the proposed class, including:

(1) The significant variations among the over 400

forms of leases and contracts utilized by the defendants,

which are subject to further negotiations with individual

dealers. The majority describes allegedly common lease

provisions which presumably give rise to the “practical

economic effect” (A. 32). However, many of the provi-

sions are not common to the leases utilized by the defend-

ants, and such significant variations led the district court

to find that analysis of the economic effect of defendants’

varied contracts would raise individual issues (A. 95);

(2) The location of the station and its sales volume,

which have a direct impact on the “practical economic

effect” of lease provisions on the individual dealers; and

(3) The interest of the individual dealers in pur-

chasing from a source other than his lessor.

The dissent succinctly summarizes the error of the

majority’s assumptions:

Even if there were only one defendant oil company

and only one form contract, the practical economic

effect would vary from dealer to dealer, city to city,

region to region. It might, for example, be eco-

nomically feasible for a large volume dealer in a

large city to install his own pumps and tanks while

it might not be feasible for a smaller dealer in a

smaller city to do so. Here there are more than a

dozen oil companies, with operations concentrated in

different regions of the country, and there are more

than 400 different forms of contracts and agreements.

A fortiori, the practical economic effects of the agree-

ments will present diverse questions (A. 50-51).

Similarly, the panel majority reversed the district

court’s finding that proof of sufficient economic power

over the tying product, i.e., service station sites avail-

able for lease, would require an individual determina-

tion by location, or at least by geographic market. The

court of appeals relied on the assumptions that defend-

ants control a majority of the existing service stations

and that zoning restrictions and high capital costs re-

21

strict new development (A. 35-36). This unprecedented

intrusion into the fact-finding province of the district

court is unsupported by the record and defies common

sense by ignoring the significant variations in zoning

restrictions, capital costs and defendants’ market shares

among the thousand of diverse markets encompassed with-

in the alleged nationwide class. Obviously, whatever the

situation may be elsewhere, if there were other stations

(or sites suitable for station use) available to a dealer

in his area, his decision to lease from a defendant does

not give him an antitrust claim. See Northern Pacific R.

Co. v. United States, 356 U.S. 1, 7 (1958).

With respect to the issues of the fact and amount of

damages, the panel majority speculates that damages

ultimately might be proved by calculating a per unit

overcharge resulting from the alleged practices as in a

horizontal price fixing case brought by consumers (A.

88-40). This finding ignores the requirement that a

purchaser seeking damages for an alleged tie-in must

show that he was forced to purchase a product at a

price higher than he otherwise would have paid for a

comparable product in order to demonstrate impact

or fact of damage. See Gray v. Shell Oil Co., 469 F.2d

742, 751 (9th Cir. 1972), cert. denied, 412 U.S. 943

(1973); Plekowski v. Ralston Purina Co., 68 F. R. D. 443

(M. D. Ga. 1975) ; see generally Areeda, Antitrust Viola-

tions Without Damage Recoveries, 89 Harv. L. Rev. 1127

(1976). The court’s damage formulation also ignores the

necessity of setting off against the alleged overcharge

the value of the use of the defendants’ trademarks and

other services provided. See United States Steel Corp. v.

Fortner Enterprises, Inc., 429 U.S. 610, 618 (1977);

Siegel v. Chicken Delight, Inc., 448 F.2d 43, 52 (9th Cir.

1971), cert. denied, 405 U.S. 955 (1972); Ungar v.

Dunkin’ Donuts of America, Inc., supra, 531 F.2d 1211,

1223 (3d Cir.), cert. denied, 429 U.S. 823 (1973). These

calculations will vary by brand, geographic area and

individual dealer, and could far exceed any overcharge,

thereby resulting in no impact or fact of damage. See

United States Steel Corp. v. Fortner Enterprises, Inc.,

supra; Areeda, Antitrust Analysis | 554 at 617 (2d ed.

1974).

Finally, with respect to the issue of superiority of

the class action device and the peculiarly discretionary is-

sue of manageability of the proposed class action, the

majority summarily disregards the district court’s de-

tailed analysis of both the relative fairness and efficiency

of alternative methods of adjudication and the criteria set

forth in Rule 28(b) (8) (A. 90-102), and states only that

it disagrees completely with each of the district court’s

findings (A. 40-41). The court noted only that prob-

lems of notifying class members could be overcome by

use of defendants’ regular mailings to their dealers—

a procedure which would violate due process and which

was suggested by Justice Douglas in his dissent in Eisen

v. Carlisle & Jacquelin, 417 U.S. 156, 180 n.1 (1974),

but rejected by the Eisen Court.

Although, as noted above, several courts of appeals,

including prior in bane decisions of the Third Circuit,

recognize the need for deferring to the discretion of the

district court on these questions, the instant case demon-

strates thé need for a definitive ruling by this Court to

establish quidelines for the proper administration of class

actions. See Recent Developments, 62 Cornell L. Rev.

177, 184 (1977). Moreover, review by this Court is com-

pelled in the instant case because the recusal of all of

the remaining circuit judges effectively eliminated peti-

tioners’ right to seek reconciliation of the panel ma-

jority’s opinion with the controlling precedent. See gen-

erally, Western Pacific R. Corp. v. Western Pacific R.

Co., 345 U.S. 247, 261 (1953).

The experience of the Fourth Circuit illustrates the

need for review of the instant case. In Windham v.

American Brands, Inc., 589 F.2d 1016 (4th Cir. 1976),

the panel majority as here substituted its findings for

the district court’s and reversed a denial of class certifi-

cation. As here, the court relied in part on its finding

that a bifurcated trial on the issues of liability and dam-

ages would be appropriate.”

Unlike the instant case, the remedy of rehearing in

banc was available to reestablish the necessary discretion

of the district court. In Windham v. American Brands,

Inc., 1977-2 Trade Cas. (CCH) {| 61,670 (4th Cir., Oct.

11, 1977) (in bane), the full court noted that the district

court’s denial of class treatment was based on a finding

of unmanageability and recognized:

the firmly established principle that the issue of

manageability of a proposed class action is always

a matter of ‘justifiable and serious’ concern for the

trial court and peculiarly within its discretion. This

is so because the issue is one of fact, subject to de-

termination b, the district court; it is ‘a practical

problem, and primarily a factual one with which a

district court generally has a greater familiarity and

expertise than does a court of appeals. r pen

it is an area in which the trial court must of neces-

sity be granted a wide range of discretion.’ (quoting

Link v. Mercedes-Benz, supra). (Id. at 72,748; foot-

notes omitted.)

With these principles in mind, a 7 to 1 majority of the

in bane court reversed the panel decision, emphasizing

that it would not disturb the trial court’s findings (simi-

lar to those of the district court here) that the individual

issues raised by the necessity of proving the three ele-

ments of an antitrust cause of action made the action

unmanageable. The court specifically rejected the panel’s

The court below relied on the panel decision in Windham in

suggesting such a procedure (A. 39).

24

directive to bifurcate the trial of the issue of violation

from impact and damages, noting that although the

Bogosian majority had approved such a technique, the

reasoning in Judge Aldisert’s dissenting opinion (is

more persuasive.” (Id. at 72,752, n. 35a).

Here, as in Windham, the panel majority exceeded the

proper role in the administration of class actions and

trampled on the broad discretion which must be afforded

the district court, establishing principles in conflict with

those of the other circuits. However, in Windham in

bane review by the Court of Appeals was available to

reestablish the proper rule of law. The wholesale recusal

of the Third Circuit judges eliminates such a remedy here

and requires review by this Court.

B. The Panel Majority’s Class Determination is Based

on Substantive Antitrust Principles Which Are Con-

trary to Decisions of this Court and the Courts of

Appeals

The district court held that proof of plaintiffs’ tie-in

claims “would require a factual determination in each

and every lease that there was such economic coercion

as to constitute an illegal tie-in arrangement” A. 95).

Because such a determination would require an individual

inquiry with respect to each class member, the court

found class action treatment inappropriate.

The panel’s reversal is based on principles of the sub-

stantive law of tying arrangements directly contrary to

the prior decisions of this Court, the Third Circuit and

several other court of appeals. First, both the district

court and the court of appeals recognized that the multi-

ple contracts utilized by the defendants did not contain

any express requirement that lessee dealers purchase

gasoline exclusively from their lessors (A. 32, 94). How-

ever, the court of appeals proceeded to analyze the prob-

lems of proof raised by plaintiffs’ claims as if the con-

tracts in question did contain express tie-in clauses.

Second, the panel majority held that no proof of co-

ercion is necessary to sustain a tie-in claim by a pur-

chaser where there is a written contract, the alleged

practical effect of which is to induce the purchase of

both the alleged tying and tied products (A. 33).

While correctly noting that the essence of an unlawful

tie-in is a seller who conditions the sale of one product

on the purchase of another, the panel majority failed to

recognize that in a damage action brought by a pur-

chaser (as opposed to a competitor or a government

prosecution) proof of such “conditioning” necessarily re-

quires a showing that the buyer did not willingly seek

to purchase both products, but was required to purchase

the tied product as a condition to obtaining the tying

product. Thus, the effect of the courts’ ruling is to con-

vert any contract, or in this case two contracts,” pro-

viding for the sale of two or more products into a

Sherman Act violation.

This Court has recognized that the essence of an

unlawful tie-in is the use by the seller of its economic

power in the tying market to coerce or compel the pur-

chase of the tied product. For example, in Times-

Picayune Publishing Co. v. United States, 345 U.S. 594,

614 (1953), the Court held that the “common core of

the adjudicated unlawful tying arrangements is the

forced purchase of a second, distinct commodity with the

desired purchase of a dominant ‘tying’ product” (em-

phasis added). See also Northern Pacific Railway Co.

v. United States, 356 U.S. 1, 6 (1958) (in a tying ar-

The allegations here relate to leases of real estate, which did not

provide for the purchase of gasoline, and separate contracts to sup-

ply gasoline, which in many instances (e.g., Mr. Parisi) were mani-

fested only by a course of dealing, and which did not relate to the

leasing of real estate.

26

rangement, buyers are “forced to forego their free choice

between competing products”) ; United States v. Loew’s,

Inc., 371 U.S. 38, 45 (1962) (noting the “force” that had

been applied to purchasers of the tied product) ; Fortner

Enterprises, Inc. v. United States Steel Corp., 394 U.S.

495, 504 (1969) (describing the purchasers as having

been “forced” to accept the tied product).

Even where there exists a written contract calling

for the purchase of both the alleged tying and tied

product, this is not dispositive of the issues of illegal

tying. In Capital Temporaries, Inc. v. Olsten Corp., 506

F.2d 658 (2d Cir. 1974), the plaintiff alleged that in

order to obtain a license to use the defendant’s trademark

and operate a white collar temporary personnel fran-

chise, it was also required to license and operate a blue

collar personnel franchise. The parties had entered into

a written contract, which the court assumed obligated

the plaintiff to operate both types of franchises. Noting

that there was no evidence that the plaintiff had been

coerced, had tried to avoid the requirement of operating

the blue collar franchise or had sought to operate only

the white collar business, the court affirmed the dis-

missal of the tie-in claim:

We do not think that there can be any question

that no tying arrangement can possibly exist unless

the person aggrieved can establish that he has been

required to purchase something which he does not

want to take.

It does not follow that because the contract re-

quired the opening of a blue collar operation, it was

therefore a tying arrangement. Quite obviously, a

franchise agreement, like any contract of sale may

obligate the purchaser to accept numerous com-

modities, trademarked or not; this does not mean

that the purchaser was coerced in any fashion to

27

take some or all to get one or some (506 F.2d at

662, 665-66).

See also American Manufacturers Mutual Ins. Co. V.

American Broadcasting-Paramount Theatres, Inc., 446

F.2d 1131, 1137 (2d Cir. 1971), cert. denied, 404 US.

1063 (1972) (“{T]here can be no illegal tie unless un-

lawful coercion by the seller influences the buyer’s

choice“).

Capital Temporaries was followed by the Third Cir-

cuit in Ungar v. Dunkin’ Donuts of America, Inc., 531

F.2d 1211 (3d Cir.), cert. denied, 429 U.S. 823 (1976).

After reviewing Northern Pacific, Fortner and Lowe’s,

supra, the Ungar court concluded:

In view of these teachings, we simply cannot ac-

cept the district court’s view that the Supreme

Court has not set forth a coercion requirement in

tying cases.

We believe that coercion has been and continues to

be an integral part of the law of tying as established

by the Supreme Court. (531 F.2d at 1219, 1222)

While the alleged tie-in in Ungar was not based on the

practical economic effects of written contracts, the Third

Cireuit's holding on coercion is equally applicable in such

a case:

We believe that coercion is implicit—both logically

and linguistically—in the concept of leverage upon

which the illegality of tying is premised: the seller

with market power in one market uses that power

as a ‘lever’ to force acceptance of his product in an-

other market. If the product in the second market

would be accepted anyway, because of its own merit,

then, of course, no leverage is involved; in the lan-

guage of the District Court, there is no use of the

sellers’ market power (531 F.2d at 1218; emphasis

supplied).

28

Moreover, the decision below is entirely inconsistent with

the Ungar court’s statements that “what is sufficient to

coerce one buyer’s choice may not be sufficient to coerce

another buyer’s choice,” and therefore [proof of a

tie-in must focus on the buyer, because a voluntary pur-

chase of two products is simply not a tie-in” (Id. at

1219, 1224). In the face of these statements, the panel

majority found Ungar was distinguishable merely be-

cause alleged tie-in here is based on the practical eco-

nomic effect of the contracts utilized by the defendants.

This case is not rationally distinguishable from Ungar.

As the district court recently stated in another case, “I

have great difficulty in reconciling Ungar v. Dunkin’

Donuts of America, Inc., 531 F.2d 1211 (3d Cir. 1976),

and Bogosian, supra, as to certain aspects of when class

certification is appropriate and when it is not

Aamco Automatic Transmissions, Inc. v. Tayloe, 1977-2

Trade Cas. (CCH) 7 61,681 (E.D. Pa. 1977). However,

since no in bane review to resolve the conflict was pos-

sible, review by this Court is necessary.

Since the essence of an unlawful tie-in is the use of

economic power to force a purchaser to accept an un-

wanted product, the voluntary purchase of two products

from a supplier is plainly not unlawful. The decision

below, however, would render unlawful such a voluntary

14 See also, Plekowski v. Ralston Purina Co., 68 F.R.D. 443 (M.D.

Ga. 1975); Hehir v. Shell Oil Co., 72 F.R.D. 18 (D. Mass. 1976).

However, there is some apparent confusion among some courts with

respect to this principle. See Siegel v. Chicken Delight, Inc., 271 F.

Supp. 722 (N.D. Cal. 1967), modified sub nom, Chicken Delight, Inc.

v. Harris, 412 F.2d 830 (9th Cir. 1969), on remand, 311 F. Supp. 847

(N.D. Cal. 1970), aff'd in part and rev'd in part, 448 F.2d 43 (9th

Cir. 1971), cert. denied, 405 U.S. 955 (1972); In re 7-Eleven

Franchise Antitrust Litigation, 1972 Trade Cas. (CCH) { 92,829

(N.D. Cal. 1972) ; Esposito v. Mister Softee, Inc., 1976-1 Trade Cas.

(CCH) 7 68,866 (E.D.N.Y. 1976); see generally, Varner, Voluntary

Ties and the Sherman Act, 50 So.Cal.L.Rev. 271 (1977).

29

agreement solely on the fortuitous grounds that it is

either incorporated in written contracts or is the prac-

tical economic effect of a ¥.' tten contract. This can-

not be justified—either in economie theory or logic—and

review by this Court is necessary to resolve the conflict-

ing decisions of the lower courts on this issue.

CONCLUSION

The petition for writ of certiorari should be granted.

Dated: November 23, 1977

FRANK W. MORGAN

439 7th Avenue

Pittsburgh, Pennsylvania 15230

Hoyt A. HARMON, JR.

1 Presidential Boulevard

Bala-Cynwyd, Pennsylvania

19004

Counsel for Gulf Oil

Corporation

PATRICK T. RYAN

Drinker, Biddle & Reath

1100 PNB Building

Philadelphia, Pennsylvania 19107

Counsel for American Oil

Company

BENJAMIN M. QUIGG, JR.

STEPHEN W. ARMSTRONG

Morgan, Lewis & Bockius

123 South Broad Street

Philadelphia, Pennsylvania 19109

ROBERT L. NORRIS

P. O. Box 2180

Houston, Texas 77001

Counsel for Ekzon Corporation

Respectfully submitted,

JOHN T. CLARY

405 Witherspoon Building

Juniper and Walnut Street

Philadelphia, Pennsylvania 19107

WILLIAM SIMON

WILLIAM R. O’BRIEN

Howrey & Simon

1730 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

Counsel for Shell Oil Company

JOHN G. HARKINS, JR.

BARBARA W. MATHER

Pepper, Hamilton & Scheetz

2001 The Fidelity Building

123 South Broad Street

Philadelphia, Pennsylvania 19109

ROBERT M. DUBBS

240 Radnor-Chester Road

St. Davids, Pennsylvania 19087

Counsel for Sun Oil Company

HENRY T. REATH

Duane, Morris & Heckscher

100 South Broad Street

Philadelphia, Pennsylvania 19110

30

JEROME E. DAWKINS

P. O. Box 839

Valley Forge, Pennsylvania

19482

CHARLES F. RICE

STEPHEN E. KITCHEN

150 East 42nd Street

New York, New York 10017

Counsel for Mobil Oil

Corporation

RALPH W. BRENNER

Davw L. GROVE

Montgomery, McCracken, Walker

& Rhoads

3 Parkway

Philadelphia, Pennsylvania 19102

Lewis J. OTTAVIANI

552 Frank Phillips Building

Bartlesville, Oklahoma 74004

Counsel for Phillips Petroleum

Company

EDWARD W. MULLINIX

ARTHUR H. KAHN

Schnader, Harrison, Segal &

Lewis

1719 Packard Building

Philadelphia, Pennsylvania 19102

Counsel for Union Oil

Company of California

H. FRANCIS DELONE

RICHARD G. SCHNEIDER

Dechert, Price & Rhoads

3400 Centre Square West

1500 Market Street

Philadelphia, Pennsylvania 19102

C. LANSING Hays, JR.

Hays, Landsman & Head

11 Broadway

New York, New York 10004

Counsel for Getty Oil Company

MILTON HANDLER

MILTON J. SCHUBIN

Kaye, Scholer, Fierman, Hays &

Handler

425 Park Avenue

New York, New York 10022

JOSEPH P. FOLEY

135 East 42nd Street

New York, New York 10017

Counsel for Texaco Inc.

EDWARD W. MULLINIX

ARTHUR H. KAHN

Schnader, Harrison, Segal &

Lewis

1719 Packard Building

Philadelphia, Pennsylvania 19102

Counsel for The Standard Oil

Company (Ohio)

ROBERT W. SAYRE

FREDERICK H. EHMANN

Saul, Ewing, Remick & Saul

23rd Floor Packard Building

Philadelphia, Pennsylvania 19102

WILLIAM E. JACKSON |

Milbank, Tweed, Hadley &

McCloy

1 Chase Manhattan Plaza

New York, New York 10005

Counsel for Amerada Hess

Corporation

ALLEN E. MAULSBY

Cravath, Swaine & Moore

One Chase Manhattan Plaza

New York, New York 10005

Grorce P. WIIIAMS, III

Schnader, Harrison, Segal &

Lewis

1719 Packard Building

Philadelphia, Pennsylvania 19102

Counsel for Chevron Oil

Company