Petition — DeVoto v. Pacific Fidelity Life Insurance

In the

Supreme Court of the

United States

October TERM, 1980

Davip DEeVorTo and Cuarzes F’. Vouk,

Petitioners,

vs.

Pacrric Fiwe.ity Lire Insurance Co, and

Bankers Mortcace Company Or Cairorni,

Respondents.

Petition For a Writ Of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

/

Fd

Auioto & ALIOTO

* JosepH M. AxioTo

STEVEN J. CANNATA

111 Sutter Street, Suite 2100

San Francisco, California 94104

(415) 434-2100

Attorneys for Petitioners

SORG PRINTING COMPANY OF CALIFORNIA, 346 FIRST STREET, SAN FRANCISCO 94105

SUBJECT INDEX

Page

Opinions of the Courts Below -00..0.......u.....-.esceceececcecceseeee 2

ONE so ee 3

Questions Presented for Review ...............-.-.2::sseseceseeeeee-e 3

Statutes Involved oui... cece eccceeceeceeeese RRM Aes 3

SIMONI OE Tie SI on icra Aes 4

ae. kt. eee TR tree 4

B. Course of the Proceedings Below .............0.........----- 4

eS | Re mee Mase AT Ore 7

Bi, HE I sscetacesticesserecceciaeteaccmemecnnneeenaiane 7

2. Statement of Material Facts —...00000000000.... 8

Reasons for Granting the Writ ................2.eceececeecseeeseeeeee 23

I IIIUNIIIIIY: cs: sichsnesccnnsapesacenasoancicensbbialenciscallasanleaseciacih atiakaaa maaan 32

TABLE OF AUTHORITIES CITED

CASES Pages

Ag-Chem Equipment Co., Ine. v. Hahn, Ine. (8th Cir.

SEE AE ERS SRR ar AR eles 29

Audrey D. Hanson d/b/a Hanson Paint and Glass v.

Pittsburg Plate Glass Industries, Ine. (5th Cir. 1973)

ae emnenda 29

Beacon Theatres v. Westover (1959) 359 U.S. 500 ........ 28

Belliston v. Texaco (10th Cir. 1972) 455 F.2d 175, cert.

UIE ROAR, Dees (NGS) oa ccsecccnccsccccnssanecsccenmeenecsvcnsee 28, 29

Berkey Photo, Inc. v. Eastman Kodak (2d Cir. 1979)

CS En PB 32

Carlyle Michelman v. Clark Schwebel Fiber Glass

Corp. (2d Cir. 1976) 534 F.2d 1036, cert. denied, 426

SSR eS a RE pear epee a 31

Champion Oil Service Co. v. Sinclair Refining Co. (6th

Cir. 1974) 502 F.2d 709, cert. denied, 420 U.S. 930

rick dicepsocassesiesnntasotuonanectarennnsapanoubndoontt 30

Columbia Nitrogen Corporation v. Royster Company,

I ts BM OONEN GAEL LD coc cececreccensnsevcedenicesncnsstactees 27

Davis v. Marathon Oil Co. (6th Cir. 1975) 528 F.2d 395 = 31

DeFilippo v. Ford Motor Co. (3rd Cir. 1975) 516 F.2d

1313, cert. denied, 423 U.S. 912 (1975) ...0 30

Dougherty v. Continental Oil Co. 5th Cir. 1978) 579

Cee ces na ccnarenesinenunatshnnninnnnie 31

E.A. McQuade Tours, Ine. v. Consolidated Air Tour

Manual Committee (5th Cir. 1972) 467 F.2d 178,

cert. denied, 409 U.S. 1109 (1978) 0.2... eee eeeeeeeeeeees 29

Elder-Beerman Stores Corp. v. Federated Dept. Stores

Se. BES) BOO Fd DGG nnn cccncsenseccornncseocones 29

Engine Specialties v. Bombardier Limited (1st Cir.

ia i aapierorivnctncespeses.ncniin sontiniiasvvenrmcasincson 32

TABLE OF AUTHORITIES CITED iii

CASES Pages

Ford Wholesale Co., Ine. v. Fibreboard Paper Prod-

ucts Corp. (9th Cir. 1974) 493 F.2d 1204, cert. de-

MR, ED TFT, ere ED acer eccecenbotel os tats 30

F.T.C. v. Consolidated Foods Corporation, 380 U.S.

ey | ERNE LRR DON TRR Tek CO TH a Id). lini Le AEM, 23, 24

Fuchs Sugars & Syrups, Inc. v. Amstar Corp. (2d

Ci, SVE) GARE Fe TOR sesikisttie denies cdi 32

Gough v. Rossmoor Corp. (9th Cir. 1978) 585 F.2d 381,

cert. denied, 440 U.S. 936 (1979) 20... eeeeeeeeeeeeeeeeeeee 32

GTE Sylvania, Ine. v. Continental (9th Cir. 1976) 537

F.2d 960, Alt, 455 U5. OG (1077) cccccnccccicceeecces 31

Hallmark Industry v. Reynolds Metal Co. (9th Cir.

1973) 489 F.2d 8, cert. denied, 417 U.S. 932 (1974) ....29, 30

Harrison v. Prather (5th Cir. 1970) 435 F.2d 1168 ........ 28

Hawaiian Oke v. Seagram (9th Cir. 1969) 416 F.2d 71 28

Hayes v. Solomon (5th Cir. 1979) 597 F.2d 958 ............ 32

Herald Co. v. Albrecht (8th Cir. 1971) 452 F.2d 124... 29

Household Goods Carriers’ Bureau v. John Terrel, et

OE, (OGRa Cam, TO) SEG a GT sn sccnsnessececonesenecenotpevtvnanies 28

International Salt Co. v. United States, 332 U.S. 392,

BOE CAE) ccieliptcenesercranebisiaiainnemolaiaomees Ibid

John M. England v. Chrysler Corp. (9th Cir. 1974) 493

F.2d 269, cert. denied, 419 U.S. 869 (1974) —.00000.... 30

Kestenbaum v. Falstaff (5th Cir. 1975) 514 F.2d 690,

cert. denied, 424 U.S. 943 (1976) ooo... eeeeeeeeeeeee 30

Magnus Petroleum Co., Inc. v. Shelly Oil Co. (7th Cir.

Se Fe Be vaca idetaciniorccsineanstpnanepeonynteamniailiacines 32

Northern Pacific Ry. Co. v. United States, 356 U.S. 1,

BG BD Ca ccicassiidacscnsnnsnssennatlansignebnetianapnanaaies 16, 23, 25

lv TABLE OF AUTHORITIES CITED

CASES Pages

Oreck v. Whirlpool Corp. (2nd Cir. 1977) 563 F.2d 54,

cert. denied, 439 U.S. 946 (1978) .................-.-cecesecesosoee 31

Pitchford v. Pepi, Ine. (3rd Cir, 1976) 531 F.2d 92 ...... 31

REA vy. Ford Motor Co. (3rd Cir. 1974) 497 F.2d 577 30

Refrigerated Food Line, Ine. v. Republic Industries,

Inc, (8th Cir. 1979) 605 F.2d 412 ouuu.u.ui...sccsccsccccesccseoees 32

Scott Medical Supply Co. v. Bedsole Surgical Supplies,

Inc, (Sth Cir. 1974) 488 F:2d 934 .............eccccessecsscscesccsecee 30

Siegel v. Chicken Delight, Ine. (9th Cir. 1971) 448 F.2d

43, cert. denied, 405 U.S. 955 (1972) 2... tc eeceeeeee 29

Sitkin Smelting & Refining Co., Inc. v. FMC Corp. (3d

Cir. 1977) 575 F.2d 440, cert. denied, 489 U.S. 866

I ceca cticdiateratatesdactintintnseksiatgonansncntcescnsaiaanecapeudonitiinnves 31

Spectrofuge Corp. v. Beckman Instruments, Ine, (5th

Cir. 1978) 575 F.2d 256, cert. denied, 440 U.S. 939

DN cia tscsidiceiipncanetn rib Tess acicioesansachedinatiicerimemoitesposecesisioanns 31

Stuart M. Kaplan v. Burroughs Corp. (9th Cir. 1979)

I ala ta ad la caletetia aedeaa 32

Tennant v. Peoria & P.U. Ry., 321 U.S, 29 (1944) —...... 28

United States v. Loew’s, Inc., 371 U.S. 38 (1962) ........ 23

United States v. Empire Gas Corporation, 393 F.Supp.

BOE ae, RR, REID ceccetbtnccscahninibaiscensanmmectnnleatnuesoiessass 27

United States v. General Dynamics Corp., 258 F.Supp.

Be IGRI! GIT scvetsnuitenricansosbeencincesinsdslenateseupishamubeienanl 26, 27

Venzie Corp. v. U.S. Mineral Product Co., Ine. (3rd

he, STS SEE Fe BR sss ncncccieninmne 30

Weather Wise Company v. Aeroquip (5th Cir. 1972)

ie FR isch ciehenietsnctiileisondsinlslterinephastsiniahisinibionnstaittes 29

Wen Mar Enterprises, Inc. v. Alexander Motor Co., et

al. (9th Cir. 1969) 416 F.2d 15 ...ccccccssssssssssecceesessssseenseee 98

TABLE OF AUTHORITIES CITED Vv

CoNnsTITUTION Pages

United States Constitution, Seventh Amendment ........ +

STATUTES

15 U.S.C. section 1 (Sherman Act) 20.........20.....-sccseceeeeeeee 3, 4

15 U.S.C. section 15 (Clayton Act) 2.02.2... eee 4,6

et te rr ree er 2,3

Rutes or Court

Federal Rules of Civil Procedure

MI TE 2... as tuicaescad acacia di beasdataparsiuamdioeenistaaden eluaantieciehaentsia 4

In the

Supreme Court of the

United States

Octoser Tro, 1979

Daviv DeVoro and Cuaruzs F. Vouk,

Petitioners,

vs.

Paciric Fivetity Lire [Nsurance Co, and

Bankers Morreace Company Or Cauirorni,

Respondents.

Petition For a Writ Of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

Petitioners, Daviy DeVoto and Cartes F, Vouk, (here-

inafter “Petitioners”) pray that a Writ of Certiorari issue

to review the judgment of the United States Court of

Appeals for the Ninth Circuit which reversed the opinion

of the District Court granting judgment in favor of peti-

tioners on two claims.

OPINIONS OF THE COURTS BELOW

The opinion of the District Court granting summary

judgment of dismissal against Petitioners (Plaintiffs be-

low) is reported at 354 F.Supp. 874 (N.D. Cal., 1973) anda is

attached as Appendix “A” to the Petition.

2

The opinion of the Court of Appeals for the Ninth Circuit

reversing the District Court’s summary judgment of dis-

missal granted in favor of the defendants-respondents is

reported at 516 F.2d 1 (9th Cir., 1975) cert. denied, 423 U.S.

894 (1975), and is attached as Appendix “B” to this Peti-

tion.

The opinion of the District Court on remand, denying

defendants-respondents’ Motions for Judgment Notwith-

standing the Verdict and/or New Trial is attached as Ap-

pendix “C” to this Petition.

The opinion of the Court of Appeals for the Ninth Cir-

cuit reversing the District Court’s judgment in favor of the

petitioners is reported at 1980-1 Trade Cases J 63,280, and

is attached as Appendix “TD” to this Petition.

JURISDICTION

The judgment of the Court of Appeals for the Ninth Cir-

cuit was entered on April 9, 1980.

The jurisdiction of this Court is invoked under 28 U.S.C.

§ 1254.

QUESTIONS PRESENTED FOR REVIEW

Whether a conglomerate’s reciprocal business practice of

keeping business within its corporate subsidiaries despite

the proven existence of financially more advantageous alter-

natives outside the corporate group should be judged by a

per se analysis? Whether petitioners were denied their

right to trial by jury as guaranteed by the constitution of

the United States and the decisions of this Court?

STATUTES INVOLVED

Section 1 of the Sherman Act (15 U.S.C. $1) provides, in

pertinent part:

“Every contract, combination in the form of a trust

or otherwise, or conspiracy, in restraint of trade or

3

commerce among the several States, or with nations, is

declared to be illegal...”

Amencment VIT to the Constitution of the United States

(U.S. Const. Amend, VIT):

“Amendment VII—Civil Trials

“Tn suits at common law, where the value in contro-

versy shall exceed twenty dollars, the right of trial by

jury shall be preserved, and no fact tried by a jury,

shall be otherwise reexamined by any Court of the

United States, than according to the rules of the com-

mon law.”

STATEMENT OF THE CASE

A. Nature of the Case

This is a private antitrust suit brought by petitioners

pursuant to Section 4 of the Clayton Act (15 U.S.C, § 15)

alleging violation by defendants-respondents Bankers Mort-

gage Company of California and Pacifie Fidelity Life In-

surance Company of Section 1 of the Sherman Act (15

U.S.C. §1).

B. Course of the Proceedings Below

The complaint was filed by petitioners on July 15, 1970.

Respondents Bankers Mortgage and Pacific Fidelity filed a

motion to dismiss the complaint under Rule 12 F.R. Civ. P.

on September 1, 1970, alleging that (1) the complaint failed

to state a cause of action, and (2) petitioners lacked stand-

ing to sue. The District Court denied the motion from the

bench on December 4, 1970, and Bankers Mortgage and

Pacific Fidelity filed their answers denying the allegations

on December 14, 1970.

On April 4, 1972, Bankers Mortgage and Pacifie Fidelity,

less than one month before trial, filed amended answers

+

alleging that (1) their acts did not take place in nor did

they affect interstate commerce, and (2) their acts were

immunized under the McCarran-Ferguson Act. On April 18,

1972, Bankers Mortgage and Pacific Fidelity filed motions

under Rule 56 F.R. Civ. P. for summary judgment alleging

that: (1) no genuine issue of material fact existed as to

whether or not their acts (a) indicated an anticompetitive

motive, purpose or effect, or (b) were in or affected inter-

state commerce; (2) petitioners lacked standing to sue; and

(3) the conduct was immunized. On April 27, 1972, peti-

tioners filed their opposition and, in addition, moved under

Rule 56 F.R. Civ. P. for a partial summary judgment alleg-

ing that no genuine issue of fact existed on the issue of

liability.

On January 29, 1973, the District Court granted the

motion by Bankers Mortgage and Pacific Fidelity, and

denied petitioners’ motion for partial summary judgment.

Although the District Court found that petitioners had

standing to sue and that the acts of respondents were not

immunized, the District Court found as a matter of law

that there was no triable issue of fact with respect to

whether the acts of Bankers Mortgage and Pacific Fidelity:

(1) were done with an anticompetitive motive, purpose,

intent or had such an effect; and (2) were in or affected

interstate commerce. The District Court found that, as a

matter of law, the acts of Bankers Mortgage and Pacific

Fidelity were done “for business reasons” and “for reasons

of their own which are not relevant here.” Judgment was

entered on January 30, 1973, and petitioners filed their

notice of appeal on February 14, 1973.

On January 16, 1975, the Court of Appeals for the Ninth

Cireuit reversed the decision of the District Court and re-

manded the case to the District Court for further proceed-

ings.

5

On May 15, 1975, the Court of Appeals issued a revised

opinion and concurrently denied respondents’ petition for

rehearing en bax:, noting that “The full court has been

advised of the suggestion for en banc rehearing and no

judge of the court has requested a vote on the suggestion

for rehearing en bane,”

On August 13, 1975, the respondents filed a Petition for

Writ of Certiorari in this Court alleging that “The great

mischief of the Court of Appeals’ decision below results

from its facile use of quotations from this Court’s decisions”

and that the result of the decision by the Court of Appeals

“igs burdensome, irrational, and contrary to established

judicial interpretations.”

On October 14, 1975, respondents’ Petition for a Writ

of Certiorari was denied by this Court.

On March 15, 1976, the trial commenced before a jury, the

Honorable Spencer Williams, Judge, presiding. On March

30, 1976, the jury returned a verdict in favor of petitioners

in the amount of $109,375, the Court stating to the jury that

“T certainly cannot disagree one bit with the verdict you

brought in” and “according to the results I think vou are

right on the money.” On May 11, 1976, the Court denied the

respondents’ Motions for Judgment Notwithstanding the

Verdict and/or a New Trial, and awarded $85,000 as rea-

sonable attorney’s fees pursuant to Section 4 of the Clayton

Act (15 U.S.C. § 15).

On May 27, 1976, the respondents filed their Notice of

Appeal, On April 9, 1980, the Court of Appeals, after a

discussion of certain aspects of petitioners’ pendent state

claim for tortious interference with prospective business

advantage, which was “one of first impression under Cali-

fornia law,” found no liability on the part of Bankers Mort-

gage or Pacific Fidelity, and reversed the judgment entered

for petitioners.

C. Statement of the Facts

1. THE PARTIES:

Petitioner David DeVoto conducted business under the

firm name of Market Placement Agency located in Peta-

luma, California, Market Placement Agency was at all times

relevant herein engaged in the business of providing

specialty insurance programs throughout the Western

States. Petitioner Charles F. Volk was affiliated with Market

Placement Agency as a general agent and representative.

Respondents in this action are Pacific Fidelity Life In-

surance Company (“Pacific”) and Bankers Mortgage Com-

pany of California (“Bankers”), both of which were sub-

sidiaries of the Transamerica Corporation during the

relevant time period.

Respondent Bankers during the relevant time period was

engaged in the business of making real estate loans. In 1968

Bankers serviced a portfolio in excess of $787 million,

representing over 48,000 individual mortgage loans (RT

2454; PX 108) and a new loan production of $95 million (PX

108). During the relevant period Bankers was the tenth

largest mortgage banker in the United States, the third

largest in California, and the largest in Northern California.

(RT 166, 234-235).

Respondent Pacific Fidelity sells life, accident, and health

insurance throughout the United States. One aspect of

Pacific Fidelity’s business is the sale of mortgage protection

insurance which is insurance sold to a mortgagor to insure

the payment of his mortgage in the event he dies or is

disabled. Although Bankers does not sell mortgage protec-

tion insurance to its customers, it will assist an insurance

company by either supplying the insurance company with

the names of its customers and/or co-operating with it in

a direct mail solicitation of its mortgagors. In exchange for

7

these services, Bankers receives either commissions on

mortgage protection insurance sold to its customers or a

flat fee per name supplied.

During the relevant time period, respondents were wholly

owned subsidiaries of the Transamerica Corporation.

Transamerica’s various businesses include, among others,

insurance, leisure time service, customer finance, commercial

financing, real estate service, business service, mutual funds,

educational service, international financing and manu-

facturing.

2. STATEMENT OF MATERIAL FACTS:

Since 1964 when Bankers became affiliated with Trans-

america Company, until 1970 when Pacifie Fidelity was

sold to a non-Transamerica Company, Bankers has dealt ex-

clusively with Pacific Fidelity with respect to mortgage

protection insurance (PX 1).

In the fall of 1967, the Vice-President of Bankers, Harold

Granger, was contacted by Charles Volk with a new pro-

posal for the solicitation and sale of mortgage protection

insurance. This policy was one written by American Home

Assurance Company and involved the selling of accident

and health policies to Bankers’ mortgage accounts.

The American Home Program was superior to Pacifie’s

Mortgage Protection Insurance Policy in that among other

things, it provided a 25-year benefit term for the mortgage

customers to Pacifie’s 3-vear benefit term (RT 134). Granger

stated that Pacific had “nothing comparable to that” (RT

114). The American Home proposal also provided a unique

financial benefit to Bankers in that American Home offered

to pay Bankers $1.25 for each customer of Bankers who was

available for solicitation by American Home, thereby guar-

anteeing cash income to Bankers which had not been guar-

8

anteed under Pacific’s programs (RT 86-87, 90, 840-841).

The American Home proposal was a unique and promising

business opportunity for Bankers because it offered a prod-

uct financially more attractive than any proposal previously

submitted at any time by Pacific Fidelity (RT 66, 134).

This was the first time since Bankers became a Trans-

america subsidary that Bankers had considered a mortgage

protection insurance program from some one other than

Pacific (RT 86).

Pursuant to the agency agreement between the petitioners

and American Home, petitioners were to receive for their

services of bringing the two companies together a speci-

fied percentage of the revenues received by American Home.

On December 5, 1967, American Home sent the agreement

to Bankers Mortgage for their inspection (PX 5). As early

as December 5, Bankers was advised by Pacifie that Pacific

was displeased with the fact of negotiations between Bankers

and American Home (RT 95).

On December 6, Granger of Bankers attached the Ameri-

can Home agreement to a memorandum sent to Bankers’

officers. The memorandum reflects Granger’s concern, based

on his conversations with Pacifie’s representatives, that

the agreement with American Home may “result in some

conflict with our present associates.” The “associates”

were identified as the defendant, Pacific Fidelity (RT 98).

Six days later, on December 12, 1967, Mr. Granger of

Bankers at the request of Kent Colwell, the president of

Bankers, sent the policies and advertising material to both

Occidental Life Insurance Company (“Occidental”), another

Transamerica subsidiary (RT 99-100; PX 10 and 12), and

Pacifie (RT 107). This material was sent to Occidental be-

cause Colwell, in order to keep the business in the Trans-

america family, wanted to ascertain if either of the Trans-

america subsidiaries, Occidental or Pacific, could “match

or better” the American Home proposal (RT 1007-8).

§

On December 27, 1967, Occidental replied:

“Occidental cannot match Am. Home offer, especial-

ly in view of second solicitation, Bill Dandy cannot

see Am. Home penetration sufficient to match.”

(PX 10; RT 100-101).

At or about the same time, Robert Coan, Vice President

of Pacific Fidelity, informed Colwell, the President of

Bankers, that American Home’s proposal “appeared to

be a favorable policy for Bankers Mortgage Company,

but one which Pacific Fidelity was not prepared to offer.”

(RT 672-673, 1079-1080). Accordingly, Pacifie did not initi-

ally attempt to revise their program to counter or meet

American Home’s unique program (RT 298, 672, 934, 1082).

In fact Colwell testified that the clear superiority of the

American Home package was akin to “comparing apples

and oranges between American Home and Pacific Fidelity”

(RT 1085) and “at the time we entered in the American

Home agreement, we [Bankers] did not have a real choice

here.” (RT 1083, 1086).

On January 19, 1968, an interoffice memorandum of Paci-

fic admits that its program for Bankers had not changed

since 1964 when Bankers became a Transamerica subsid-

iary and that:

“We feel the time has come for a ‘fresh look’ for

this material. Even though it has ‘pulled’ fairly well

with new accounts, it could undoubtedly be improved.

And to use the same material on the old aecounts—

now for the fourth or fifth time on some of them—is,

probably, starting to get somewhat ‘tired’ and passe

to a lot of them.” (PX 86).

On March 27, 1968, Harold Granger on behalf of Bankers

executed American Home’s Mortgage Ageney agreement

(PX 21).

10

Colwell, President of Bankers, testified that when Bank-

ers signed this contract with American Home it was based

upon the “competitive merits” and American Home’s pro-

posal “was better than any other offer that [Bankers] had

received up to that time.” (RT 1090-1091).

Notwithstanding the fact that Bankers had signed a

binding contract with American Home, Pacific undertook

to prepare several studies designed first, to induce and then

to coerce Bankers into breaching its contract with American

Home. Such a course of conduct was pursued by Pacific even

though Pacific was repeatedly advised by Bankers that

Bankers had already entered into a contract with American

Home. (RT 140, 147). Pacific felt that the loss of Bankers,

an “important account” to an “outside” company, would put

Pacific at a competitive disadvantage with prospective

customers. (RT 265).

One such study prepared by Pacifie entitled “Yield Com-

parison—Pacifie Fidelity Life—American Home” listed

various considerations which were designed to favorably

influence Bankers into remaining with Pacific. (PX 23).

The first of these considerations states:

“1. All profits for both PFLI. and BMC., coming

out of our combined effort, stay within the Trans-

america family.”

The first consideration is in furtherance of the reciprocal

dealing principle of the Transamerica family that sub-

sidiaries should keep business within the Transamerica

Corporation. (RT 166, 700, 1087, 1113).

With respect to this first consideration, Laity testified

at trial as follows:

“Q. There would be no way then American Home

could compete against consideration number one, could

there?

11

“A. No.

“Q. Because they’re not a member of the Trans-

america family, ight?

“A. That’s correct.

“Q. So that this was a factor which you knew,

that American or anybody else who was not a family

of Transamerica, that this was factor you could use

and nobody else could, right?

“A. Yes.” (RT 303). (See also, RT 142-143).

The second consideration was:

“2. PEFLI has more than a pure business interest in

Bankers Mortgage Company.”

Laity of Pacific testified that this additional consider-

ation was the result of the affiliate relationship between

Bankers and Pacific and that “but for” the corporate affili-

ation between Bankers and Pacific, the second considera-

tion “would not have come into the picture whatsoever.”

(RT 305).

The third consideration states :

“3. A strong possibility of cancellation exists with

an outside company, if, two or three years ahead, an

unfavorable loss ratio should develop.”

This consideration had no support in fact as attested to

by the trial testimony of the defendants’ representatives.

(RT 143-144),

The Pacifie Fidelity “Yield Comparison” (PX 23) was

subsequently approved by Boddiger, the President of

Pacific and was then shown to Bankers in a meeting which

took place in April of 1968. (RT 862). Although Bankers

had entered into a contractual arrangement just three weeks

prior to this meeting, Granger attended the meeting be-

cause “Laity was a very persevering salesman and he was

constantly talking to me about the program” (RT 140) and

12

“Mr, Laity was pressuring me.” (RT 203). When pressed

at trial as to whether he sought to pressure Mr. Granger,

Mr. Laity was forced to admit that he did. (RT 342).

At the meeting held in April of 1968 between repre-

sentatives of Pacific and Bankers, Granger was not at that

time persuaded by Paeifie’s entreaties and studies, and

stated that Bankers intended to honor the existing con-

tract between Bankers and American Home. (RT 336, 862).

On May 21, 1968, in light of Pacifie’s persistent entreaties,

Granger wrote to Pacific and responded to each of Pacific’s

arguments which recommended that Bankers abrogate their

agreement with American Home. Mr. Granger testified that

the purpose of his letter was as follows:

“A. Well, the whole purpose of this letter was point

by point to answer all of Mr. Laity’s arguments to me

about not continuing with American Home.

“Tle was very persistent. I said I thought this would

collectively answer everything he could present to me

and, in essence stop pestering me on the subject.”

(RT 182).

The important reasons for staying with American’s com-

petitive program were the approximately $50,000 commis-

sion advance under the American Home program, and

Pacific Fidelity’s poor penetration which the letter states

is only 4.26% and “not impressive” as compared with ap-

proximate 20% sale of other mortgage banking company

insurance programs. Indeed, Bankers notes that if Amer-

ican can “produce the results they anticipate, it could serve

to sharpen our [Bankers] own competitive edge.” This was

so in spite of the fact that preferential and discriminatory

treatment is given to Transamerica or family members:

“While it is our goal, insofar as possible, to keep

business within the Transamerica family; there may,

13

nevertheless, be situations in which introducing an

outside factor can be beneficial.”

Therefore as of May 21, 1968, Bankers was of the view,

based upon its own competitive interest, that the existing

contract with American should be honored. (RT 162-163).

Pacific continued to pressure Bankers to yield to the

inherent coercion of “family connections” to exclude out-

side non-affiliated companies. On May 24, 1968, just three

days after Bankers’ detailed “explanation” to Pacifie why

American’s program was so superior and why Bankers

“should not attempt to abrogate” the American contract,

Pacific persuaded Bankers “in accordance with our tele-

phone conversation” to send copies of all of the solicitation

material supplied by American to Pacific Fidelity (PX 29).

The only reason proffered at trial by Mr. Laity for this

request was to continue to try “to get Bankers’ business.”

(RT 322).

Pacifie finally confronted the realization that their pres-

sure tactics up to this point had not been effective “and that

something else had to be done.” (RT 864). Laity sought and

received permission from Boddiger, the President of Pacific

“to go ahead and match the offer that American Home had

made to Bankers Mortgage Company.” (RT 339, 864).

Although Bankers initially refused to abrogate the con-

tract in spite of the expressed policy of keeping business

within the Transamerica family wherever possible, some-

time “in June of 1968” (RT 352, 944), representatives of

Bankers and Pacific met in Bankers’ office and orally agreed

to accept Pacifie’s alleged duplicative proposal. (RT 353,

847). This agreement was orally accepted in June of 1968,

but was not reduced to writing until September of 1968.

(PX 1; RT 848).

14

On July 18, Bankers memorialized the understanding be-

tween itself and Pacific Fidelity “based upon your matching

the agreement we have with the American Home Group,”

and the execution by Pacific of a Hold Harmless Agreement

in favor of Bankers.

Bankers Mortgage Company’s insistence that Pacific

Fidelity execute the Hold Harmless Agreement is of great

significance and definitively indicates that Bankers knew

that they were impairing the legal rights of both American

Home and Market Placement Agency when they conspired

to break their contract with American Home.

In obtaining the Hold Harmless Agreement, Pacific’s

Laity wrote Pacific’s chief executive officer George Bod-

diger, in an interoffice memorandum and cavalierly advised

that although it was clear the contract was abrogated and

suit could be brought:

“The maximum award they could get would be the

anticipated 2 year profits they expected.” (PX 67).

In the same memo, Laity writes to his superior that it was

Granger’s opinion that American, although upset,

“understood the situation, particularly since Pacific

Fidelity Life was a Company affiliated with Bankers

Mortgage and the Transamerica Corporation.”

Although the evidence conclusively shows that the de-

fendants unsuccessfully attempted to match American’s pro-

gram, the mere fact of “matching” a competing program

does not legitimatize illegal reciprocal dealings, The

Supreme Court has held and the jury below was so in-

structed that defendants’ anti-competitive practice of re-

ciprocity based on common ownership introduces an “irrele-

vant and alien factor” which gave Pacific a priority on

business at equal prices. International Salt Co. v. United

15

States, 332 U.S. 392, 396-97 (1947), Northern Pacific Ry

Co. v. United States, 356 U.S. 1, 3, 6, 12 (1958).

Witnesses for the respondents attempted to prove during

trial that the insurance program ultimately offered by

Pacific was superior and not simply identical to American's

proposal and that competitive merits and not corporate

affiliation were the basis of Bankers’ decision to utilize

Pacifie’s program. However, the testimony of respondents’

witnesses on the issue of whether the program offered by

Pacific was equal to or superior to American Home’s pro-

posal is typified by the testimony of Harold Granger as to

whom the trial Court made the following observation (out-

side of the jury’s presence) :

“Seeing Mr. Granger on the stand, IT wonder if he

would ever be final and firm on anything he ever did.

He seemed to equivoeate, change his position, change

his mind, reconsider, sweat over things, agonize.” (RT

1171).

An exhibit introduced at trial bearing notations of

Granger’s telephone conversations states :

“8/12/68. Don Laity - Volk & DeVoto sending contract

per Don - will match American Home deal - subject to

renegotiate deal.” (PX 26).

Exhibit 61 is an interoffice memorandum from Laity to

Boddiger, President of Pacific, by which Laity seeks permis-

sion to “match” American’s program.

The testimony of Granger and Laity established that the

program offered by Pacific at the time of the breach was not

“better” than American’s proposal.

Mr. Granger attested to this fact:

“Q. Can you think of any aspects of the agreement

with Pacific Fidelity which differed from the American

Home agreement?

16

“A. No, Tean’t think of any.

“(. It is your recollection then it was identical ?

“A. To my recollection, ves.” (RT 201),

When confronted with his deposition testimony at trial,

Mr. Granger flatly stated: “My answer was incorrect on the

deposition.” (RT 201),

Similarly, Laity testified:

“Q. Was there any other respect that vou recall that

your proposal differed from American Home?

“A. Not that I can recall at this moment.” (RT 866).

And Kent Colwell, the President of Bankers, testified :

“Q. Do you know if their package was modeled after

the American Home proposal?

“A. It would be difficult to say it was not modeled

after it, since it had most of the same provisions.”

(RT 702),

Notwithstanding the prior testimony and documentary

evidence which unequivocally and in plain and direct lan-

guage states that Pacific need only match American’s offer

and execute a Hold Harmless Agreement on behalf of

Bankers as conditions precedent to the breach of Ameri-

can’s contract, the defendants’ witnesses disregarded their

sworn testimony and the documentary evidence and simply

reconstructed their testimony.

Contrary to his earlier testimony, Granger, during trial

and for the first time, stated that an additional condition

imposed upon Pacific as a prerequisite to the breach “other

than simply matching American Home's offer” was that

Bankers be allowed to participate “in the profits of the pro-

gram.” (RT 192). This profit sharing program was referred

to as “Retro.” (RT 192). However, testimony and documents

introduced at trial exposed this self-serving contrivance.

17

Plaintiffs’ Exhibit 40, which is a letter dated August 21,

1968, from Mr. Laity to Granger, states :

“T (Mr. Laity) am very sorry if T have been the

cause of any misunderstanding regarding the Retro, If

vou recall, agreement had been reached to use Pacific

Fidelity Life instead of American Home before the

Retro was a subject of discussion.” (PX 40),

and

“When John Mutschler and I visited with vou, it was

after the change was agreed upon that T volunteered

to arrange some kind of profit sharing for Bankers

Mortgage.” (/bid.)

Mr. Granger was directly impeached on this subject by

his own prior testimony :

“Q. Were you relying on this profit sharing, Mr.

Granger, or this Retro when you cancelled American

Home’s contract?

“A. T was relying upon it, ves.

“Q. I direct your attention to page 86 of your de-

position beginning line 6,

“T ask you if vou gave this answer to this question :

‘Q. Were you relying on the facts that there

would be a profit sharing when you cancelled the

agreement?

‘A. Tean’t say to what degree it had any bearing

on the decision.’

“A, Which line number is that, Mr. Alioto?

“Q. I’m sorry, beginning line 7, page 86.

‘Q. Were you relying on the fact that there

would be profit sharing when you cancelled the

agreement?

‘A. T can’t say to what degree it had any bear-

ing on the decision.’

“A. That is an incorrect answer in my deposition.”

(RT 210).

18

Laity of Pacific confirmed at trial that the Retro arrange-

ment was not a condition precedent to the breach of the

American Home contract :

“Q. So that this profit sharing wasn’t even talked

about until after Mr. Granger had already agreed that

he was going to break the contract with American?

“A. It appears that way. However, after — could

have been immediately after that Bankers Mortgage

had agreed to continue with Pacifie Fidelity, possibly

the very same day, but as an afterthought.

“(Q. In other words, it was not part of your offer to

Bankers to go with you?

“A. Well, I can’t answer that accurately.

“Q. Well, taking a look at what you wrote on August

21, 1968, you said that it wasn’t even discussed until

after the agreement was reached, correct?

“A. That was the way that I recall it.

“Q. On August 21, 1968, correct?

“A. That’s correct.” (RT 359).

Mr. Mutsehler of Pacific confirmed that Retro was an

afterthought:

“(Q. So we get the facts straight, he (i.e., Granger)

had expressed his intention before this profit sharing

was even mentioned?

“A. That’s right.” (RT 1013).

The trial record is replete with evidence upon which the

jury could and did draw the justifiable inference that the

defendant Bankers breached the contract with American

based solely upon the “alien and irrelevant fact” of their

corporate relationship with Pacific and not upon a competi-

tive basis.

Kent Colwell stated that one of the duties and responsi-

bilities attendant to his position as President of Bankers

19

was to “help set poliey ... .” (RT 1071). In light of his

responsibility to formulate company policy, Colwell stated

at trial:

“Q. From time to time, have you ever counseled any-

one in trying to keep the various businesses of the dif-

ferent subsidiaries of Transamerica in the Transamer-

ica family?

“A. I believe IT was asked a similar question in this

deposition in 1971. I answered yes. I couldn’t recall

exactly what circumstances,

“The only circumstance [ can recall is in suggesting

to some of the people that work for me that when

they’re renting a car that they rent a Budget car

rather than Hertz or Avis. That is because it costs less

money for the company.”

However, further evidence adduced at trial demonstrates

other instances in which Colwell, the president and policy

maker of Bankers, admonished employees to utilize Trans-

america subsidiaries, George I. Mitchell, a former vice

president in charge of the Project Mortgage Department

for Bankers testified at trial:

“Q. In 1968 or 1969 when you did use this Trans-

america Title Insurance Company for your business at

Bankers Mortgage, were you advised to use it by any-

one at Bankers Mortgage?

“A. T was asked to attempt to utilize the services of

sister companies if possible, all things being equal.

“Q. And who so advised you?

“A. The president of the company, Mr. Kent Col-

well.” (RT 1161).

As to the competency of Transamerica Title Insurance

Company, Mr. Mitchell stated:

“Q. After you in fact used the Transamerica Com-

pany, Transamerica Title Company, did you stop using

them?

20

“A. Yes.

“Q. Why?

“A. They weren't sufficiently competent.”

(RT 1167).

* * * *

“Q. In the absence of his [Colwell’s] suggestion,

would you have used Transamerica in that situation?

“A. No.

“Q. Pardon me?

“A, IT wonld not, no.” (RT 1168).

With respect to this policy of keeping business within

the Transamerica family, Granger responded that “this

was frequently brought up by several of our directors”

(RT 700) and that he “shared it to some degree.” (RT 701).

George C. Boddiger, the President of Pacifie Fidelity,

testified :

“Q. Have you ever verbally expressed the idea that

Transamerica subsidiaries should do business within

the Transamerica family whenever possible?

“A. I don’t recall that I have.

“Q. Have you heard others express this idea?

“A. Yes, I think so.” (RT 1113),

The pervasiveness of the sentiment that business should

be kept within the Transamerica family was prophetically

conveyed to one of the plaintiffs by Richard Freeman, a

representative of the Transamerica subsidiary, Plaintiff

Volk had the following discussion with Mr. Freeman:

“Q. And did you at any time have any discussions

with Mr. Freeman about your attempts to get Amer-

ican Home and Bankers Mortgage together?

“A. Yes. The time period would be somewhere be-

tween September and October or November of 1967.

Mr. Freeman came into my oflice on a routine matter

which IT couldn’t tell you what it was; but, he came to

Petaluma to my office and he said, [ understand you're

21

trying to take the business away from or get Bankers

Mortgage’s business.

“And I said, yes, we have been making several pro-

posals to them. And, he laughed and said, you know,

you ean’t do that. And I said, why not.

“He said well, because we own them. And I said

what do you mean you own them. He said well, they're

part of the Transamerica Company.

“And I said well, indication so far has been good

and I think we have a good chance,

“And he laughed and he said it just can’t be done.”

(RT 457-458).

In a study prepared by Pacific to induce Bankers to breach

their contract with American, Pacific lists as “considera-

tions”:

1. All profits for both PFLI and BMC, coming out

of our combined effort, stay within the Trans-

america family.

2. PFLI has more than a pure business interest in

Bankers Mortgage Company. (PX 24).

In the May 21st correspondence from Granger to Laity

setting forth Bankers’ reasons for honoring (at that time)

the contract with American Home, Granger states:

Because of our family connection, we have endeav-

ored to review this as fairly as possible, exploring

all of the pros and cons, both within our own manage-

ment and with our Board of Directors. (PX 28).

When questioned during trial why he (George) felt con-

strained to include this reference to “our family connection”,

Granger replied:

“Q. Now, why did you put that in there, ‘because of

our family connection’?”

“A. Well, we had a close relationship. It’s natural,

I believe, to refer to all the members of an ownership

corporation as part of the family.

22

“Q. Yes; and, that’s what Mr. Laity was attempting

to use on you, is that not correct, in an attempt to get

vou to break the contract with American?

“A. Yes.” (RT 153) ; and

“(. Can you answer whether or not the reason that

you put it in there was to show Mr. Laity that vou

agreed in principle with what he was saying about

keeping business in the Transamerica family.

“A. Yes.” (RT 168).

The evidence outlined above and as interpreted by the

jury clearly demonstrates that but for the corporate affilia-

tion and the pressure exerted based upon this affiliation,

the original agreement would have been performed to the

benefit of Bankers, American Home, and plaintiffs. How-

ever, by virture of the affiliation, a substantial market was

forec!osed and Pacific maintained its exclusive status.

REASONS FOR GRANTING THE WRIT

A. Conflicts With the Decisions of This Court.

1. RECIPROCAL ARRANGEMENTS ARE ANALOGOUS TO TYING

AGREEMENTS AND SHOULD BE JUDGED BY A PER SE STANDARD.

The undisputed evidence shows that the sole purpose,

motive and effect of the combination between Bankers and

Pacific was to keep the business in the Transamerica

“family” and to fence out and foreclose outside, non-affili-

ated competitors. As a matter of law, “reciprocity” is an

anticompetitive practice and closely akin to the per se

offenses of tying arrangements. The Supreme Court has

repeatedly held that tying arrangements are per se unlaw-

ful. International Salt Co, v. United States, 332 U.S. 392

(1947); Northern Pac. R.R. v, United States, 356 U.S. 1

(1958); United States v. Loew's Inc., 371 U.S. 38 (1962).

In I’.7.C. v. Consolidated Foods Corporation, 380 U.S.

592, 594 (1965) the Supreme Court recognized the economic

evils of reciprocal dealings :

23

“We hold at the outset that the ‘reciprocity’ made

possible by such an acquisition is one of the congeries

of anticompetitive practices at which the antitrust

laws are aimed. The practice results in ‘an irrelevant

and alien factor’ intruding into the choice among com-

peting products, creating at the least ‘a priority on

the business at equal prices.’ International Salt Co.

v. United States, 332 U.S. 392, 396-397; Northern

Pacific Ry. Co. v. United States, 356, U.S. 1, 8, 6, 12.”

The facts show (1) that Pacifie Fidelity had an exclusive

with Bankers; (2) that Bankers acting out of its own self

interest entered into a minimum 2 year contract with

American Home; (8) that Bankers was initially able to

ward off Pacific Fidelity’s attempt to keep its exclusive with

Bankers; (4) that by reason of “pressure from above” and

“pressure from PF” to keep the business in the Trans-

Bankers abrogated the contract with

American Home; (5) that all Pacifie Fidelity was required

america “family”

to do in the face of the 2 vear minimum contract between

Bankers and American Home was to “match” American

Home’s contract and hold Bankers harmless against the

anticipated litigation by American Ilome and the peti-

tioners; and (6) that Pacifie Fidelity had successfully main-

tained its exclusive with Bankers solely because of its cor-

porate relationship with Bankers.

The Supreme Court has drawn an analogy between

reciprocity cases and tying cases. FTC v, Consolidated

Foods, supra. Both situations introduce a foreign factor

between otherwise free competition with the effect of fore-

closing a market,

The facts in this case are strikingly similar to the “pre-

ferential clauses” in Northern Pac, Ry. Co. v. United States,

356 U.S. 1 (1958), in which the Supreme Court affirmed a

summary judgment in favor of an antitrust plaintiff. In

24

Northern Pac. Ry, Co., the defendant had “preferential

routing clauses” which compelled the lessees of bordering

land owned by the defendant to use only the defendant’s

railroad “provided that its rates (and in some instances its

service) were equal to those of competing carriers.” 356

U.S. at 3. The defendant contended that its preferential

clauses had not been enforced, or at least, on the few oeea-

sions in which they might have been, they did not signifi-

eantly restrain competition. The defendant pointed out that

the clauses permitted the lessees to ship by competing

earrier if its rates were lower or its service better than the

defendant’s. The Supreme Court found the preferential

clauses to he per se unlawful. The Court noted that the

preferential clauses conferred no benefit on the lessees, and

that the defendant’s “purpose obviously was to fenee out

competitors, to stifle competition.” 356 U.S. at 8, Tn con-

eluding, the Court said:

“In International Salt the defendants similarly

argued that their tving arrangements were inoffensive

restraints hecause thev allowed lessees to buy salt

from other suppliers when they offered a lower price

than International. The Court’s answer there is equally

apt here.

“<'This exception] does, of course, afford a measure

of protection to the lessee, but it does not avoid the

stifling effect of the agreement on competition, The

appellant had at all times a priority on the business at

equal prices, A competitor would have to undereut ap-

pellant’s price to have any hope of eapturing the

market, while appellant could hold that market by

merely meeting competition. We do not think this con-

cession relieves the contract of being a restraint of

trade, albeit a less harsh one than would result in the

absence of such a provision.’ 352 U.S. at page 397, 68

S.Ct. at page 15.

25

“All of this is only aggravated, of course, here in the

regulated transportation industry where there is fre-

quently no real rate competition at all and such effec-

tive competition as actually thrives takes other forms.”

“Affirmed.” 356 U.S. at 12.

In this case, Pacific Fidelity was given a preference over

American Home solely because Pacific and Bankers were

both subsidiaries and part of the Transamerica “family.”

Like Northern, no benefit was conferred on Bankers for

being forced to abrogate the contract with American Home,

simply heeause Pacifie was a “family” member and “en-

titled” to maintain its exclusivity by being able to “hold that

market by merely meeting competition.” Like Northern, the

“was to fence out

obvious purpose of the combination

competitors, to stifle competition.”

In United States v. General Dynamics Corp., 258 F. Supp.

36 (S.D.N.Y. 1966), the Court said:

“This court finds that reciprocity, whether coercive

in nature or hased on mutual patronage, is an anti-

competitive practice.

* * *

“lReciprocity] distorts the foeus of the trader by

interposing between him and the traditional competi-

tive factors of price, quality, and service an irrelevant

and alien factor which is destructive of fair and free

competition on the basis of merit. The efficient producer

may thereby suffer loss because of circumstances

extrinsic to the worth of his products [or services].”

From the undisputed facts, it is patently clear that the only

and sole reason why Bankers did not proceed under the

contract with American Home was because American Home

was not a “family” member. This was, of course, bevond

American’s power to rectify.

26

It should also be noted that the Court in General Dyna-

mics, like the Supreme Court, equated reciprocity to tying-

in cases:

“Those who have had oceasion to consider the use

of reciprocity as an anticompetitive practice have in-

variably analogized it to ‘tving-in’ agreements. (Cites

omitted.) The Court finds, for reasons to be discussed

shortly, that the analogy is sound.”

Accord, Columbia Nitrogen Corporation v. Royster Com-

pany, 451 F.2d 3, 13 (4th Cir. 1971).

In United States v. Empire Gas Corporation, 393 F.Supp.

903 (W.D. Mo, 1975), the Court sets forth the requisite ele-

ments of a reciprocity agreement in violation of the Sher-

man Act:

“(1) that a quid pro quo was demanded or under-

stood to be an integral part of the reciprocal purchases

(citation omitted); and (2) that a “not insubstantial”

amount of trade in a use of commerce was restrained.

See e.g., International Salt Co. v. United States, 332

U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20 (1947): United States

v. General Dynamics Corporation, 258 F.Supp. 16

(S.D.N.Y. 1966).”

In the instant case the parties stipulated that the relevant

market for purposes of this case is the market for the sale

of mortgage protection insurance in California, which con-

sists of all residential mortgagors in the State of California

whose loans are serviced by mortgage bankers, savings and

loan associations or commercial banks; and that Bankers’

share of this market for this period averaged ahout 32,000

mortgagors with a remaining principal balance of slightly

in excess of $500 million (RT 1320-21).

This figure of $500 million is one hundred times larger

than the $500,000 figure initially designated by the Supreme

Court in International Salt Co. v. United States, 332 U.S.

27

392 (1947), as constituting a “not insubstantial amount” of

commerce, Supra at 396.

B. The Decision Below Is Contrary to the Letter and Spirit of

the Seventh Amendment to the Constitution.

C. The Decision Below Is Contrary to the Letter and Spirit of

This Court's Decisions in Beacon Theatres v. Westover, 359

U.S. 500 (1959) and Tennant v. Peoria & P.U. Ry., 321 U.S.

29 (1944).

In Beacon Theatres, supra, this Court explicitly stated

that the jury in antitrust cases was “an essential part of the

congressional plan for making competition rather than

monopoly the rule of trade.” Yet, over the past decade, so

many cases have vacated jury verdicts and either granted

judgment n.o.v. or new trials that no putative antitrust

violator could possibly believe that it would or could ever

be held accountable.

In Wen Mar Enterprises, Inc. v, Alexander Motor Co., et

al., (9th Cir. 1969) 416 F.2d 15, the jury found in favor of

plaintiff. The District Court granted judgment n.o.v. for

defendant. The Court of Appeals affirmed. In Hawaiian Oke

v. Seagram, (9th Cir. 1969) 416 F.2d 71, cert. denied 396

U.S. 1062 (1970), the jury found in favor of plaintiff, The

District Court affirmed. The Court of Appeals reversed the

lower court and dismissed the suit. In [ouschold Goods

Carriers’ Bureau v. John Terrell, et al., (5th Cir. 1969)

417 F.2d 47, the jury found in favor of plaintiff. The Dis-

trict Court granted judgment n.o.v. in favor of defendant.

The Court of Appeals affirmed. In Harrison v. Prather,

(5th Cir. 1970) 435 F.2d 1168, the jury found for plaintiff.

The District Court affirmed. The Court of Appeals affirmed

the verdict for plaintiff, but remanded on the issue of dam-

ages. In Belliston v. Texaco, (10th Cir, 1972) 455 F.2d 175,

28

cert, denied, 408 U.S. 928 (1972), the jury found in favor

of plaintiff. The District Court affirmed. The Court of

Appeals reversed. In Siegel v. Chicken Delight, Ine., (9th

Cir, 1971) 488 F.2d 438, cert. denied, 405 U.S. 955 (1972),

the jury found in favor of plaintiff. The Distriet Court

affirmed, The Court of Appeals remanded on the issue of

dainages. In Herald Co, v. Albrecht, (8th Cir. 1971) 452

F.2d 124, the jury found in favor of plaintiff. The District

Court reduced the amount of damages awarded by a sub-

stantial amount. The Court of Appeals affirmed that redue-

tion. In Elder-Beerman Stores Corp. v. Federated Dept.

Stores, (6th Cir. 1972) 459 F.2d 138, the jury found in favor

of plaintiff. The District Court affirmed. The Court of

Appeals reversed and remanded for further proceedings.

In FE. A. McQuade Tours, Ine. v. Consolidated Air Tour

Manual Committee, (5th Cir, 1972) 467 F.2d 178, cert.

denied, 409 U.S. 1109 (1978), the jury found in favor of

plaintiff. The District Court affirmed. The Court of Appeals

reversed and directed dismissal of the complaint. In

Weather Wise Company v. Aeroquip, (Sth Cir. 1972) 468

F.2d 716, the jury found in favor of plaintiff. The District

Court affirmed. The Court of Appeals reversed and found

in favor of defendant. In Ag-Chem Equipment Co., Ine. v.

Hahn, Inc., (8th Cir. 1973) 480 F.2d 482, the jury found

in favor of plaintiff. The District Court granted partial

judgment n.o.v., awarding some damages to plaintiff. The

Court of Appeals affirmed the n.o.v. judgment and vacated

the remaining judgment for plaintiff. In ludrey D. Hanson

d/b/a Hanson Paint & Glass v. Pittsburg Plate Glass In-

dustries, Inc., (Sth Cir. 19738) 482 F.2d 220, the jury found

in favor of plaintiff. The District Court affirmed. The Court

of Appeals reversed and found for defendant. In //allmark

29

Industry v. Reynolds Metal Co., (9th Cir. 1973) 489 F.2d

8, cert. denied, 417 U.S. 932 (1974), the jury found in favor

of plaintiff. The District Court granted judgment n.o.v.

for defendant. The Court of Appeals affirmed. In Scott

Medical Supply Co, v. Bedsole Surgical Supplies, Inc.,

(5th Cir, 1974) 488 F.2d 934, the jury found in favor of

plaintiff. The District Court affirmed, The Court of Appeals

reversed and remanded. In John M. England v. Chrysler

Corp., (9th Cir. 1974) 493 F.2d 269, cert. denied 419 U.S.

869 (1974), the jury found in favor of plaintiff. The Dis-

trict Court granted judgment n.o.v, in favor of defendant.

The Court of Appeals affirmed. In Ford Wholesale Co.,

Inc., v. Fibreboard Paper Products Corp., (9th Cir, 1974)

493 F.2d 1204, cert. denied, 419 U.S. 876 (1974), the jury

found in favor of plaintiff. The District Court granted

judgment n.o.v. in favor of defendant. The Court of Appeals

affirmed. In REA v, Ford Motor Co., (8rd Cir, 1974) 497

F.2d 577, the jury found in favor of plaintiff. The District

Court affirmed. The Court of Appeals remanded for a new

trial. In Champion Oil Service Co, v. Sinclair Refining Co.,

(6th Cir, 1974) 502 F.2d 709, cert. denied, 420 U.S. 930

(1974), the jury found in favor of plaintiff, The District

Court affirmed, The Court of Appeals reversed and directed

the District Court to enter judgment n.o.v. for defendant. In

Venzie Corp. v. US. Mineral Product Co.,, (8rd Cir, 1975)

521 F.2d 1309, the jury found in favor of plaintiff. The

District Court granted judgment n.o.v, in favor of defen-

dant. The Court of Appeals affirmed, In Aestenbaum v.

Falstaff, (5th Cir. 1975) 514 F.2d 690, cert. denied, 424

U.S. 943 (1976), the jury found in favor of plaintiff. The

District Court affirmed, The Court of Appeals reversed and

remanded for a new trial. In Defilippo v. Ford Motor Co.,

(3rd Cir. 1975) 516 F.2d 1313, cert. denied, 423 U.S, 912

30

(1975), the jury found in favor of plaintiff. The District

Court affirmed. The Court of Appeals reversed and found

in faver of defendant. In Davis v. Marathon Oil Co., (6th

Cir, 1975) 528 F.2d 395, the jury found in favor of plaintiff.

The District Court granted judgment n.o.v. for defendant.

The Court of Appeals affirmed, In Carlyle Michelman v.

Clark Schwebel Fiber Glass Corp., (2nd Cir, 1976) 534

F.2d 1036, cert. denied, 429 U.S. 885 (1976), the jury found

in favor of plaintiff. The District Court affirmed, The Court

of Appeals reversed, entering judgment for defendant.

In Pitchford v. Pepi, Ine., (8rd Cir, 1976) 531 F.2d 92, the

jury found in favor of plaintiff. The District Court affirmed.

The Court of Appeals reversed or vacated all but one of

the seven-part verdict. In Spectrofuge Corp, v, Beckman

Instruments, Inc., (Sth Cir, 1978) 575 F.2d 256, cert. denied,

440 U.S, 989 (1975), the jury found in favor of plaintiff.

The District Court affirmed, The Court of Appeals reversed

and remanded, In Sithin Smelting « Refining Co., Ine., v.

FMC Corp., (8rd Cir. 1977) 575 F.2d 440, cert. denied, 439

U.S, 866 (1978), the jury found in favor of plaintiff. The

District Court granted judgment n.o.v. for defendant. The

Court of Appeals affirmed, In G7TFE Sylvania, Ine. v. Con-

tinental, (9th Cir, 1976) 587 F.2d 980,’ Aff. 483 U.S. 36

(1977), the jury found for plaintiff. The District Court

affirmed, The Court of Appeals reversed and remanded for

further proceedings. In Oreck v. Whirlpool Corp., (2nd Cir.

1977) 568 F.2d 54, cert. dented, 489 U.S. 946 (1978), the jury

found in favor of plaintiff. The District Court affirmed, The

Court of Appeals reversed and granted judgment n.o.v, for

defendant. In Dougherty v. Continental Oil Co., (Sth Cir.

1978) 579 F.2d 954, the jury found in favor of plaintiff. The

District Court affirmed, The Court of Appeals reversed and

remanded, In Gough v. Rossmoor Corp,, (9th Cir. 1978)

31

585 F.2d 381, cert. denied, 440 U.S. 936 (1979), the jury

found in favor of plaintiff. The District Court affirmed,

denying a judgment n.o.v. for defendant. The Court of

Appeals reversed, granting the judgment n.o.v. In Hayes v.

Solomon, 5th Cir. 1979) 597 F.2d 958, the jury found in

favor of all three plaintiffs. The District Court affirmed.

The Court of Appeals reversed, dismissing two complaints

and remanding the third for further proceedings. In Stuart

M. Kaplan v. Burroughs Corp., (9th Cir. 1979) 611 F.2d

286, the jury found in favor of plaintiff. The District Court

granted judgment n.o.v. for defendant, The Court of Appeals

affirmed. In Engine Specialties v. Bombardier Limited,

(1st Cir. 1979) 605 F.2d 1, the jury found in favor of plain-

tiff. The District Court affirmed, The Court of Appeals

granted judgment n.o.v. against two plaintiffs, In Refrig-

erated Food Line, Inc. v. Republic Industries, Inc., (8th

Cir, 1979) 605 F.2d 412, the jury found in favor of plain-

tiff. The District Court granted judgment n.o.v. in favor

of defendant. The Court of Appeals affirmed. In Berkey

Photo, Inc. v. Eastman Kodak, (2nd Cir, 1979) 603 F.2d

263, the jury found in favor of plaintiff. The District Court

affirmed, The Court of Appeals reversed and remanded

for a new trial. In Fuchs Sugars « Syrups, Inc, v. Amstar

Corp., (2nd Cir, 1979) 602 F.2d 1025, the jury found in

favor of plaintiff. The District Court affirmed. The Court

of Appeals reversed and dismissed the action. In Magnus

Petroleum Co., Inc. v. Shelly Owl Co., (7th Cir. 1979) 599

F.2d 196, the jurv found in favor of plaintiff. The District

Court affirmed. The Court of Appeals reversed, directing

a judgment n.o.v. for defendant.

CONCLUSION

For the reasons stated, this writ should be granted and

32

the judgment of the Court of Appeals for the Ninth Circuit

reversed,

DATED: July 2, 1980

Respectfully submitted,

Auioro & ALIOTO

JoserpH M, Atioro

STEVEN J. CANNATA

Attorneys for Petitioners

[Appendices Follow]

Appendix A

ORIGINAL

FILED

JAN 29 1973

CLERK, U.S. DIST. COURT

SAN FRANCISCO

In the United States District Court

For the Northern District of California

Davin DeVoro and CuarusEs 8S. VoLK

J

Plaintiffs,

<n No.

Paciric Fivevrry Lire INsuraANcE CoMPANY C-70-1509

and Bankers Mortcace CoMPANY OF SW

CALIFORNIA,

Defendants.

MEMORANDUM AND JUDGMENT

Plaintiffs brought this private civil action under Section

4 of the Clayton Act (15 U.S.C. 15) alleging injury through

violations of Section 1 of the Sherman Act (15 U.S.C. 1).

The two defendants (Pacific Fidelity Life Insurance Com-

pany and Bankers Mortgage Company of California) have

moved for summary judgment on four separate grounds

pursuant to Rule 56 of the Federal Rules of Civil Procedure.

Plaintiffs have moved for summary judgment on the issue

of liability.

Defendant Bankers Mortgage | Bankers] is in the busi-

ness of making real estate loans secured by mortgages.

Defendant Pacifie Fidelity Life Insurance Company [Pa-

cific Fidelity] sells life, accident, and health insurance

2 Appendix

throughout the United States. Both defendants were sub-

sidiaries of Transamerica Corporation at all times relevant

to this actior

One aspec. of Pacific Fidelity’s business is the sale of

mortgage protection insurance. Basically, this is insurance

sold to a mortgagor to insure the payment of his mortgage

in the event he dies or is disabled. Bankers does not itself

sell mortgage protection insurance to its customers but will

assist an insurance company in either of two ways. It will

supply the insurance company with the names of its cus-

tomers and/or will cooperate with it in a direct mail solici-

tation of its mortgagors. In exchange for these services,

Bankers receives either commissions on mortgage protec-

tion insurance sold to its customers or a flat fee per name

supplied.

In 1967 and 1968, Defendant Pacifie Fidelity had an ex-

elusive agreement with Defendant Bankers relative to the

above described services, At this same time Plaintiff Devoto

was conducting business under the name of Market Place-

ment Agency. Market Placement was engaged in the busi-

ness of providing special insurance programs to businesses

throughout the western United States and Plaintiff Charles

Volk was employed by it as a general agent, Late in 1967,

Volk contacted Bankers and offered a new mortgage pro-

tection insurance solicitation plan on behalf of American

Home Assurance Company which, among other things, pro-

vided for the payment of one dollar and twenty-five cents

($1.25) for each customers’ name supplied by Bankers.

Bankers was impressed with the plan and elected to enter

into a contract with American Home and to cease dealing

exclusively with Pacific Fidelity. Bankers also agreed to

cooperate with American Home in a direct mail solicita-

tion of its mortgagors. The contract between Bankers and

American Home was signed in January 1968.

Appendix 3

Undaunted by this turn of events Pacifie Fidelity made

Bankers a new offer in April 1968 closely resembling the

American Home plan, in which they sought to replace Amer-

ican Home and inake the mass mail solicitation that Amer-

ican Home had planned with Bankers’ cooperation for the

fall of 1968.

In June 1968, Bankers informed American Home that

they had decided to accept Pacifie Fidelity’s offer and to

abrogate the agreement with American Home. The ensuing

“supplemental” agreement executed by Pacifie Fidelity and

Bankers provided Bankers a flat rate of $1.25 per name and

contains numerous other features similar to the abrogated

American Home agreement.

In considering this motion for summary judgment, the

court must look at the record in the light most favorable to

the non-moving party and determine whether genuine issues

as to material facts exist for determination by the trier of

fact. If there are no genuine issues of material faet in dis-

pute, the court may enter judgment as a matter of law.

The four separate bases for defendants’ Rule 56 motion

hereafter separately discussed are:

1) The MeCarran-Ferguson Act insurance business

exemption.

2) Plaintiffs’ lack of standing to sue.

3) Absence of any allegations showing acts in or hav-

ing any effect upon interstate commerce ; and

4) Absence of any allegations indicating acts having

anti-competitive effect or purpose.

MeCARRAN-FERGUSON ACT

The MeCarran-Ferguson Act [15 U.S.C. 1011 ef seq.)

provides that the “business of insurance” will be regulated

by state law and, in the absence of coercion, intimidation, or

4 Appendix

boycott, will not be subject to the federal antitrust laws.

Thus, defendants reason, since their actions took place

within “the business of insurance, it is beyond the reach of

these plaintiffs in this court. The defendants’ business ac-

tivity attacked in the complaint is merely peripheral to the

insurance business, In essence, Pacific Fidelity and Ameri-

can Home were competing for a list of Banker’s customers

and defendants cite no relevant authority for their position

that the MeCarran-Ferguson Act exempts this type of ac-

tivity from the Sherman and Clayton Acts.

The role of insurance in our complex commercial society

is pervasive. Insurance companies with their policies, their

agents, and their customers touch and concern all com-

mercial activity. The MeCarran-Ferguson Act did not pur-

port to make state legislation supreme in regulating all the

activities of insurance companies. It does allow the states

to regulate the business of insurance [Securities Exchange

Commission v. National Securities, Inc., 393 U.S. 453, 459

(1968) ]* but such business is not the subject of this litiga-

tion.

STANDING

Defendants’ assertion that plaintiffs lack of standing to

sue is without merit. Contrary to their argument, the Ninth

Cireuit recognized a private cause of action for persons

foreseeably, albeit incidentally, harmed by antitrust viola-

tions that cause direct injury to a third party. Miulvey v.

Samuel Goldwyn Productions, 433 F.2d 1073 (9th Cir. 1970),

cert, denied, 402 U.S. 923 (1971). Plaintiffs Volk and Devoto

1. S.E.C. v. National, supra, points out that the relationship

between insurer and insured, the type of poliey issued, its relia-

bility, interpretation and enforcement are the core of the “business

of insurance.” The focus of the statutory term was on the relation-

ship between the insurance company and the policy holder. 393

U.S. 458, 460 (1968).

Appendix 5

were substantially and foreseeably affected by Bankers’

abrogation of its agreement with American Home.

INTERSTATE COMMERCE

Defendants vigorously deny plaintiffs allegations that

their conduct was directly in or affected interstate com-

merce. The court agrees.

The complaint and affidavit accompanying this motion

show both plaintiffs to be residents of California. Defend-

ants Pacific Fidelity Bankers Home, and plaintiffs’ employer

Market Placement are all California businesses with their

principal places of business in California. Defendants un-

controverted affidavit states that all communications be-

tween the plaintiffs and all communications between Pacific

Fidelity and Bankers occurred in California. American

Home with general offices in New York City is admitted

to have had interstate communications with Bankers but,

as shown below, this fact does not provide Sherman Act

jurisdiction.

Two tests are used to determine whether business activity

involves interstate commerce: (1) whether the activity

complained of occurred within the flow of interstate com-

merce or (2) whether the acts complained of, while intra-

state, substantially affected interstate commerce. Las Vegas

Merchant Plumbers Association v. United States, 210 F.2d

732, 739-740 n.8 (9th Cir. 1954). In the Ninth Circuit, the

question is not whether the acts complained of affected a

business engaged in interstate commerce but whether the

acts affected the interstate commerce part of the business.

Sun Valley Disposal Co, v. Silver State Disposal Co., 420

F.2d 341, 343 (9th Cir. 1969). The court thus must consider

whether the acts of Defendants Pacifie Fidelity and/or

6 Appendix

Bankers, which are the subject matter of this action, were

in or substantially affected interstate commerce. The fact

that the business of mortgage protection insurance involves

and substantially affects interstate commerce is irrelevant

to this question.

The acts of the defendants were conducted primarily in

California. While it is true that notification of Banker’s

intent to breach its agreement with American Home was

interstate, this is not the substance of the plaintiffs’ action.

The other actions of the defendants were essentially intra-

state. Pacific Fidelity’s attempts to induce Bankers to

breach the agreement with American Ilome took place in

California, All agreements between Pacifie Fidelity and

Bankers originated and were consummated in California.

This activity therefore cannot be said to have been directly

in the flow of interstate commerce. Cartrade, Inc. v. Ford

Dealers Adv, Assn. of Southern California, 446 F.2d 289

(9th Cir. 1971).

Of course, liability is not contingent on the activity being

” interstate commerce; it is sufficient that the

directly “in

activity substantially affeet interstate commerce, Defend-

ants argue that the breach did not substantially affect

interstate commerce; indeed, it is their contention that the

breach had no effect on interstate commerce,

The complaint and the affidavits before this court indicate

that the intended consumers of the insurance programs,

Bankers’ mortgagors, were in California.2? Even if this

were not so, the insurance program eventually offered to

2. In his opposition to this motion and in oral argument, plain-

tiffs’ counsel represented to the court that some of Bankers’ eus-

tomers were in Nevada. However, this unsworn statement did not

indicate a percentage, was not supported by affidavits and cannot

be considered under Rule 56 of the F.R.Civ.P.

Appendix 7

customers by Pacifie Fidelity was essentially the same in-

surance that American Home had planned to offer. Plain-

tiffs have not indicated that the number of customers who

purchased the mortgage protection insurance under the new

Pacifie Fidelity program was a substantial increase or

decrease from the number who would have purchased the

same program from American Ilome. Accordingly, since

the court cannot assume that a change in insurance com-

panies offering the same policy would greatly effect the

number of policies eventually sold, there is no basis for

believing that the acts of the defendants have had any,

much less a substantial, effect on interstate commerce, The

Ninth Circuit rule set out in Cartrade, Inc. v. ord Dealers

Adv. Assn. of Southern California, supra, compels this

court to grant defendants’ motion for summary judgment.

ANTI-COMPETITIVE EFFECT OR PURPOSE

Even had this court found the necessary interstate ac-

tivity defendants’ motion for summary judgment must still

be granted. The alleged activity of Pacific Fidelity and

Bankers is, as a matter of law, beyond the purview of See-

tion 1 of the Sherman Act.

For the purposes of this action, Bankers was a mere

supplier of names. They sold their customer list. Pacifie

Fidelity had heen buying these lists since 1964, In 1968

American Home offered to buy the list from Bankers and

Bankers found their offer more attractive than the existing

arrangement with Pacific Fidelity. Pacifie Fidelity, realiz-

ing it had been outbid for the list, made another offer to

Bankers in an effort to save the contract. This second Pacific

offer was striking similar to the American Home package

and Bankers, for reasons of their own which are not relevant

here, decided to resunie its exclusive arrangement with

Pacifie Fidelity.

8 Appendix

Competition in the sale of mortgage protection insurance

and in the sale of the customer list was hardly restrained.

On the contrary, there was an offer and counter-offer proc-

ess that convinced Pacific Fidelity to revamp its mortgage

protection insurance program with Bankers and to rebid

for the customer list and Bankers’ cooperation. Unfortun-

ately for the plaintiffs and American Home, Pacific Fidelity

was successful and regained the contract. The court points

out that American Home was free to offer its mortgage

insurance plan to Bankers’ customers. Possession of the

customer list and cooperation from Bankers in a direct

mail solicitation would certainly have been helpful to Ameri-

can Home but the list merely facilitated the sale of insur-

ance and its loss cannot be said to have foreclosed the

possibility of their sale of insurance to Bankers’ mortga-

gors by American Home.

Plaintiffs cite Flinkote Co. v. Lysfjord, 246 F.2d 368 (9th

Cir. 1957) for the premise that an anticompetitive effect or

purpose resulting from the refusal to deal with American

Home is unlawful. Flinkote presented a clearly different

situation than the instant case; in that case, there was evi-

dence of a common scheme among plaintiff’s competitors

to drive him out of business by boycott. There has been no

suggestion that Pacific Fidelity, a competitor, and Bankers,

a non-competitor, entered into a scheme to drive American

Home out of the mortgage insurance business in California.

Neither does the record show that Bankers and Pacific

Fidelity were attempting to fix prices on the insurance

policies. No allegation has been made and no affidavits have

been offered to show that Bankers “tied” the sale of Pacifie

Fidelity’s insurance to the mortgage dealings with their

customers. Plaintiffs’ cited authority dealing with “tying”

arrangements must be disregarded,

Appendix 4)

This case is closely analogous to the “refusal to deal”

antitrust cases. The critical question is not whether there

was a refusal to deal (or an inducement, or combination,

to refuse to deal), but rather, whether the refusal to deal

is so anticompetitive in purpose or effect as to be an un-

reasonable restraint of trade, Alpha Distributing Co. of

Calif. v. Jack Daniel Distillery, 454 F.2d 442 (9th Cir. 1972),

citing Joseph Seagram & Sons, Inc, v. Hawaiian Oke &

Liquors, Ltd., 416 F.2d 71 (9th Cir, 1969) ; Walker Distrib-

uting Company v. Lucky Lager Brewing Co., 323 F.2d |

(9th Cir. 1963). The court finds that there are no genuine

issues of material fact concerning the transaction between

the parties. The record does not indicate that the anti-

competitive effect, if any, that might have resulted un-

reasonably restrained trade. Bankers’ motive for breaching

the agreement with American Home was based on business

reasons. Pacific Fidelity, spurred by American Home's

bidding, revamped its old mortgage insurance package and

matched American Ilome’s offer. The court does not find

either of these motives, nor the effect of the defendants’

acts, to constitute an unreasonable restraint of trade under

the rule of Alpha Distributing Co, and Hawaiian Oke, supra.

This court need not, and does not, express any opinions

on the merits of possible state causes of action in tort or

contract that might lie as a result of the defendants’ actions.

For the reasons stated above, defendants’ motion for

summary judgment is hereby granted and plaintiffs’ motion

for partial summary judgment on the issue of liability is

denied.

It is so ordered.

Dated: January 26, 1973.

Spencer Williams

UNITED STATES DISTRICT JUDGE

10 Appendix

Appendix B

ORIGINAL

FILED

JAN 16 1975

CLERK U.S. COURT OF

APPEALS

United States Court of Appeals

For the Ninth Circuit

Daviv DeVoto and Cuarues 8. Vouk,

Plaintiff s-Appellants,

. No.

VB. 73-1685

Paciric Fivevity Lire [Nsurance Co. and SW

Bankers Mortcace Co. or CaLirornta,

Defendants-Appellecs.

On Appeal from the United States District Court

for the Northern District of California

Before: CHOY and GOODWIN, Circuit Judges, and

BEEKS,* District Judge

OPINION

BEEKS, District Judge:

Appellants appeal from an order of the district court

granting summary judgment of dismissal, They allege a

violation of Section 1 of the Sherman Act.’ The court con-

*The Honorable William T. Beeks, Senior United States District

Judge for the Western District of Washington, sitting by designa-

tion.

1. 15 US.C. §1.

Appendix 11

cluded that the acts complained of did not affect interstate

commerce or manifest an anticompetitive purpose or effect.

Appellee Bankers Mortgage Company of California

(hereinafter “Bankers”) is in the business of making real

estate loans in California and Nevada.? Appellee Pacific

Fidelity Life Insurance Co, (hereinafter “Pacifie’) sells

life, health and accident insurance throughout the United

States, At all times relevant to this action both appellees

were subsidiaries of the Transamerica Corporation.

One aspect of Pacific’s business is the sale to mortgagors

of mortgage protection insurance that guarantees payment

of the mortgage in the event of the death or disability of

the mortgagor. Bankers does not sell mortgage protection

insurance, but in 1967 and 1968 it had an exclusive arrange-

ment with Pacifie whereby it supplied Pacific with a list of

its mortgagors and cooperated in their direct mail solicita-

tion. In exchange for these services, Bankers received com-

missions on mortgage protection policies sold by Pacific to

Bankers’ mortgagors.

During this period appellant DeVoto was conducting

business under the name of Market Placement Agency.

Market Placement provided special insurance programs to

businesses throughout the Western United States. Appel-

lant Volk was employed by it as a general agent. Late in

1967 Volk contacted Bankers and offered a new mortgage

protection solicitation plan on behalf of American Home

Assurance Company of New York (hereinafter “Ameri-

ean’’). The plan provided for the payment of $1.25 for each

mortgagor’s name supplied by Bankers, in addition to com-

missions on policies sold. Bankers accepted the plan and

elected to sign a two-year contract with American and to

29 In 1968 Bankers was the eighth largest mortgage banker in

the United States (R. 322).

12 Appendix

cease dealing on an exclusive basis with Pacific. Appellants

were to receive commissions on insurance policies sold by

American to Bankers’ mortgagors.

American has its principal place of business in New

York, and the contract contemplated that Bankers’ mortga-

gors in California and Nevada would be serviced by Ameri-

ean from its Kast Coast offices. Whereas Pacific offered life,

health and accident insurance in the mortgage protection

field, American offered only health and accident insurance.

Under the post-1968 arrangement, therefore, Bankers’ cus-

tomers would potentially be receiving solicitation from both

Pacific and American.

Disconcerted over the loss of its exclusive arrangement

with Bankers, Pacific sought to match the American package

and to persuade Bankers to reinstate the exclusive relation-

ship. It met American’s offer of $1.25 per name supplied,

but there is some question as to whether Bankers would

realize an equal amount in commissions with Pacifie since

the alleged facts suggest that, on the basis of past records,

American enjoyed considerably better market penetration

than did Pacific. That is, for a given number of names sup-

plied by Bankers, American could expect to sell more

insurance policies than could Pacific.

In any event, Pacific persuaded Bankers to abrogate its

contract with American, and to return to its exclusive

arrangement with Pacific. Pacifie agreed to hold Bankers

harmless against any liability arising out of Bankers’

abrogation of the agreement with American. Appellees

assert that the decision to abrogate the American contract

was reached on the basis of pure business considerations.

Appellants claim that the decision was made in considera-

tion of the corporate relationship between Bankers and

Pacific, and a desire to keep the business of mortgage pro-

tection insurance within the Transamerica “family.”

Appendix 13

Appellants brought this action under the jurisdictional

grant of Section 4 of the Clayton Act,’ alleging that the

action of Bankers and Pacific manifests a combination in

restraint of trade in violation of Section 1 of the Sherman

Act. Appellees subsequently moved for summary judgment

on the grounds that (1) the activities complained of oc-

eurred within the business of insurance, and thus are

exempted from the antitrust laws by virtue of the

MecCarran-Ferguson Act, (2) appellants lack standing to

sue, (3) the acts complained of were not in, nor did they

affect interstate commerce, nor did they (4) manifest an

anticompetitive purpose or effect.

The distriet court ruled in favor of appellants on the

first two issues, finding that the acts complained of were

peripheral to the “business of insurance” and thus without

the protective scope of MeCarran-Ferguson; and that ap-

pellants were within the target area of the alleged anti-

trust violation and thus have standing to sue. These rulings

are not before us on this appeal.

Summary judgment was granted on the basis of the two

remaining issues: the court ruled that the acts complained

of neither occurred in nor affected interstate commerce,

and that they did not manifest an anticompetitive purpose

or effect. We disagree.

if

Jurisdiction under Section 1 of the Sherman Act exists

only if the acts complained of occur within the flow of, or

substantially affect interstate commerce.’ Moreover, “the

3. 15 U.S.C. § 15.

4, 15 U.S.C. § 1011 et seq.

5. Las Vegas Merchant Plumbers Ass’n v. United States, 210

Fx2d 732 (9th Cir.), cert. denied, 348 U.S. 817 (1954).

14 Appendix

test of jurisdiction is not that the acts complained of affect

a business engaged in interstate commerce, but that the con-

duet complained of affects the interstate commerce of such

business.’

Appellees place much reliance on the fact that Bankers,

Pacifie and appellants are all residents of California, that

the communicatiof& leading to the alleged combination all

occurred within California, and that the mortgagors pur-

chasing insurance under the contracts at issue are all resi-

dents of California.’ Appellees argue that these substantial

intrastate connections preclude a finding that the alleged

combination occurred within the flow of or affected inter-

state commerce.

We do not reach the issue of whether the alleged viola-

tions occurred in interstate commerce. Our conclusion, set

forth below, that the acts complained of substantially affect

interstate commerce is sufficient to uphold jurisdiction under

the Sherman Act and require setting aside the contrary

ruling of the district court.

The court below found itself to he without jurisdiction

on the basis of its finding that the insurance solicitation

program ultimately submitted by Pacifie was essentially the

same as that offered by American, and that there was no

evidence that substitution of Pacifie for American would

have any impact on the number of policies sold to Bankers’

mortgagors. The court consequently found our holding in

6. Page v. Work, 290 F.2d 323, 330 (9th Cir.), cert. denied,

368 U.S. 875 (1961).

7. It appears, however, that appellees’ assertion that all of

Bankers’ mortgagors are located in California is not supported by

the reeord. The evidence suggests that 93.4% of Bankers’ mort-

gagors are located in California and that the remainder are located

in Nevada. Determination of this factual issue is not essential to our

decision on this appeal. On remand, however, the district court

should reconsider its finding that Bankers’ mortgagors are exclu-

sively Californians.

Appendix 15

Cartrade, Inc. v. Ford Dealers Adv, Ass’n of Southern Cali-

fornia,’ to require the conclusion that the alleged combina-

tion did not affect interstate commerce, The district court’s

reliance on Cartrade is misplaced.

The plaintiff in Cartrade was a company that arranged

trades of Ford automobiles among members of the Ford

Dealers Advertising Association of Southern California.

When a customer desired a inodel that a particular dealer

did not have in stock, the dealer would contact Cartrade

who, for a fee, would consult its computer listings of all cars

held in stock by nember dealers and would advise the inquir-

ing dealer of any other member dealers having in stock the

requested model. The dealers could then exchange auto-

mobiles to their mutual benefit. The procedure assisted

dealers to serve customers who desired a specific model and

did not wish to wait while such a car was ordered and

delivered from an out-of-state assembly plant. Cartrade

enjoyed an exclusive relationship with member Ford dealers

and was provided by Ford with the necessary computerized

inventory listings.

This relationship was terminated hy the Dealers Associa-

tion, and Ford thereafter declined to supply Cartrade with

the computer listings. Cartrade was thereby foreed out of

business, and it subsequently filed suit under Sections 1 and

2 of the Sherman Act.® This court upheld dismissal of the

suit because, infer alia, the alleged activities did not affect

interstate commerce. It was reasoned that the removal of

Cartrade and the substitution of its suecessor might better

serve the business interests of the dealers. Cartrade could

not show that the substitution would hurt Ford auto sales

or result in the importation of fewer Ford ears into Cali-

8. 446 F.2d 289 (9th Cir. 1971), cert. denied, 405 U.S. 997

(1972).

9. 15 U.S.C. §8 1,2.

16 Appendix

fornia. Cartrade’s business itself was purely local, and inter-

state commerce in Ford cars could not be shown to be

affected by the substitution of a successor car trader for

Cartrade.

Cartrade is thus distinguishable from the present case

in one critical respect: whereas in Cartrade the termination

of local business relations did not affect the flow of inter-

state commerce, in the instant case the combination between

Bankers and Pacific worked effectively to foreclose Ameri-

can from a significant segment of the California market for

mortgage protection insurance, It essentially terminated

the interstate flow of mortgagor lists, insurance policies,

premiums and information with respect to Bankers’ mort-

gagors.

Interstate insurance transactions fall within the defini-

tion of insurance commerce as that term is applied pursuant

‘to federal antitrust regulation,’® and “[i]f it is interstate

commerce that feels the pinch, it does not matter how local

the operation which applies the squeeze.”

II.

The district court held that the alleged acts of appellees

did not manifest an anticompetitive purpose or effect, and,

as a matter of law, were beyond the purview of Section 1

of the Sherman Act. The court found that Bankers abro-

gated its contract with American and resumed its exclusive

relationship with Pacific “for business reasons,” and “for

reasons of their own which are not relevant here.”

10. See, United States v. South-Eastern Underwriters Asso..,

322 U.S. 533 (1944). Certain exemptions not relevant here are

legislated in the MeCarran-Ferguson Act, supra note 3.

11. United States v. Women’s Sportswear Manufacturing Asso-

ciation, 336 U.S. 460, 464 (1949).

Appendix 17

Viewing the evidence as a whole and the inferences which

may be drawn therefrom in the light most favorable to

appellants, as we must,” the record clearly supports the

contentions that (1) the American package was equal if not

superior to that finally offered by Pacifie, and (2) that

Bankers based its decision to abrogate the American con-

tract and to resume its exclusive relationship with Pacific

upon its desire to keep the business of mortgage protection

insurance within the Transamerica corporate group. So

viewed, the record reveals anticompetitive conduct falling

within the proscriptive sweep of Section 1 of the Sherman

Act.

In FTC v, Consolidated Foods Corp.” the FTC invoked

Section 7 of the Clayton Act™ to challenge Consolidated’s

acquisition of Gentry, Inc. Consolidated was a large manu-

facturer of processed foods, and Gentry was a manufacturer

of dehydrated onion and garlic. Consolidated purchased

numerous food products from suppliers who were, in turn,

purchasers of dehydrated onion and garlic. The Supreme

Court upheld the fuiding of the Commission that the effect

of the acquisition “may he substantially to lessen ecompeti-

tion.”’* In practical terins, Consolidated would be able to

exert the considerable leverage manifest in its purchasing

power to coerce its suppliers to buy from Gentry, the Con-

solidated subsidiary. The Court observed that

“.. the ‘reciprocity’ made possible by such an aequisi-

tion is one of the congeries of anticompetitive practices

at which the antitrust laws are aimed. The practice

results in ‘an irrelevant and alien factor,’ ... intruding

—_—— —-

12. Consolidated Electric Co. v. United States, 355 F.2d 437

(9th Cir. 1966).

13. 380 U.S. 592 (1965).

14. 15 U.S.C. § 18.

15. 380 US. at 593.

18 Appendix

into the choice among competing products, creating at

the least ‘a priority on the business at equal prices.’ ’”*

Likewise, in International Salt Co. v. United States," a

reciprocal arrangement under which International leased

certain of its patented machines on the condition that the

lessees would use therein only International’s products, was

found to violate the Sherman Act even though International

agreed to meet the prices offered by competing suppliers.

Again, the Court noted the anticompetitive effect of an

agreement that gave the defendant a priority on the busi-

ness at equal prices.'§

If, as alleged, Pacific had only to match the package

offered by American to induce Bankers to abrogate the

American contract, then Pacific enjoved a priority on the

business at equal prices. This priority is attributed to its

corporate relationship with Bankers. This relationship is

a factor over which an outsider such as American has no

control, and with which it cannot hope to compete. It is a

factor unrelated to traditional competitive elements such as

product price, quality and marketability. It is an “irrelevant

and alien factor” that, when allowed to intrude into the

free marketplace, produces an anticompetitive effect such as

the antitrust laws were designed to combat.”

Appellees urge that our holding in Joseph FE. Seaqram &

Sons, Inc. v. Hawaiian Oke & Liquors, Ltd? is to the con-

trary. In that case a liquor distributor that enjoved an

exclusive contract to distribute the products of the defend-

16. 380 U.S. at 594.

17. 332 U.S. 392 (1947).

18. See also, Northern Pac. R. Co. v. United States, 356 U.S.

1 (1958).

19. FTC v. Consolidated Foods Corp., supra note 12.

20. 416 F.2d 7i (9th Cir. 1969), cert. denied, 396 U.S. 1062,

reh, denied, 397 U.S. 1003 (1970).

Appendix 19

ant distillers was terminated, and the distribution rights

were contracted to another. Several of the defendant dis-

tillers were members of the multicorporation “Seagram

group.” It was alleged by the plaintiff therein that defend-

ants conspired to take his business away from him in viola-

tion of Section 1 of the Sherman Act. This court disagreed,

holding that absent anticompetitive intent, termination of

a distributor is a proper business option. We held that the

alleged conspiracy, the negotiations between the several

distillers and the new distributor, was designed merely to

ascertain and insure that the proposed distribution svstem

would be viable. We concluded that there was no unreason-

able restraint of trade.

The Seagram case may, however, be distinguished from

the case before us. In Seagram there was no breach of

contract. An existing contract was simply allowed to expire.

This is relevant to our determination in Seagram that

traditional competitive factors led to the termination: there

was no evidence suggesting that any factors other than

traditional business considerations were weighed pursuant

to reaching the decision to change distributors. Neither

plaintiff therein nor the defendant distributor was a mem-

ber of the Seagram corporate family. There was thus no

suggestion that the termination was effected for the pur-

pose of keeping the distribution business within the Sea-

gram group. In Seagram we did not consider that issue,

The view of the evidence most favorable to appellants

here suggests that Pacific had achieved a priority on the

business at equal prices as a result of its corporate affilia-

tion with Bankers. Consequently, an issue of fact is pre-

sented as to whether the American contract was abrogated

in consideration of this anticompetitive element, or, alterna-

tively, in consideration of factors properly cognizable in

20 Appendix

the free market system. In light of the existence of this

factual issue, summary dismissal was improvidently

granted.

Reversed, and remanded for further proceedings in

accordance herewith.

Appendix 21

Appendix C

ORIGINAL

FILED

MAY 11 1976

CLERK, U.S. DIST. COURT

SAN FRANCISCO

In the United States District Court

For the Northern District oj California

Davip DeVoro and Cuartues FF. Vouk,

Plaintiffs,

VS. No.

17 ri

Pacrric Fipeuiry Liret [INsuRANCE COMPANY ( 40-1 o09

and Bankers Morrcace CoMPANY OF SW

CALIFORNIA,

Defendants.

ORDER DENYING MOTIONS FOR JUDGMENT

NOTWITHSTANDING THE VERDICT AND/OR

A NEW TRIAL

and

ORDER AWARDING A REASONABLE ATTORNEY’S

FEE

The defendants having moved this Court for judgment

notwithstanding the verdict and/or for new trial and the

plaintiffs having filed their application for a reasonable

attorney’s fee pursuant to Section 4 of the Clayton Act (15

U.S.C. 15), and the Court having read the briefs, heard

argument, and being fully advised in the premises, IT IS

HEREBY ORDERED, ADJUDGED AND DECREED:

Appendix

(1) That the defendants’ motions for judgment not-

withstanding the verdict and/or new trial are denied;

and

(2) That pursuant to Section 4 of the Clayton Act

(15 U.S.C. 15) and after having considered the usual

standards and criteria, the plaintiffs are awarded

$85,000 as a reasonable attorneys’ fee.

Dated: 5-11-76

SPENCER WILLIAMS

Spencer Williams

Judge, United States

District Court

Appendix 23

Appendix D

United States Court of Appeals

For the Ninth Circwit

FILLED

APR 9 1980

RICHARD H, DEANE

CLERK, U.S, COURT OF APPEALS

Davin DeVoro and Cuarues 8. VOLK,

Plaintiffs-A ppellees,

Vs.

No.

Pactric Fiveniry Lire [NsuRANCE COMPANY 76-2303

and Bankers Morraace CoMPANYy OF

CALir.,

Defendants-Appellants.

OPINION

Appeal from the United States District Court

For the Northern District of California

Before: TRASK and KENNEDY, Cireu. Judges, and

TURRENTINE,* District Judge.

KENNEDY, Cireuit Judge:

This is an appeal from a judgment for damages entered

against the defendants (appellants here) on two separate

claims, each presenting significant questions for our deci-

sion. The first claim was based on section 1 of the Sherman

Act. 15 U.S.C. $1 (1976). The second, arising out of the

same transaction, alleged a pendent state claim for tortious

*Honorable Howard B. Turrentine, United States Distriet Judge

for the Southern District of California, sitting by designation.

24 Appendix

interference with prospective business advantage. The ap-

peal as to that aspect of the case raises an interesting ques-

tion, apparently one of first impression under California

law, concerning essential elements in the definition of the

tort. We previously reversed a summary judgment of dis-

missal granted in favor of the defendants on the antitrust

claim. DeVoto v. Pacific Fidelity Life Ins. Co., 516 F.2d 1

(9th Cir.), cert. denied, 423 U.S. 894 (1975) (DeVoto I).

After a trial on remand the jury returned verdicts for the

plaintiffs on both claims with damages (before trebling on

the antitrust count) of $109,375. In this court the defend-

ants challenge the judgment on each claim. The facts are

set out in greater detail in DeVoto I. Briefly, the situation

is as follows: Pacific Fidelity Life Insurance Company

(Pacific) and American Home Assurance Company of New

York (American) are two companies which, among other

business activities, sell mortgage protection insurance to

mortgagors to effect payment of the mortgage in the event

of the death or disability of the mortgagor. Bankers Mort-

gage Company of California (Bankers) is in the business

of making real estate loans in California and Nevada.

Bankers and Pacific are both subsidiaries of the Trans-

america Corporation, but Bankers initially entered into

a contract with American. By the terms of the agreement,

Bankers provided American with a list of mortgagors’

names and received a fee for the names supplied, in addition

to a commission for each policy sold. Pacifie persuaded

Bankers to abrogate the contract with American and to

enter into an arrangement with Pacific instead. American

is not a party to this action; rather, the suit was brought

1. The jurv found damages in the amount of $125,000 but

reduced the figure by one-eighth beeause a party holding a one-

eighth interest in plaintiffs’ business had not sued.

Appendix 25

by two individuals, appellees here and plaintiffs below,

who were responsible for bringing Bankers and American

together and who expected agents’ commissions from any

income American earned from its contract with Bankers.

Plaintiffs contend that Bankers’ decision to abrogate the

American contract was based on the corporate relationship

between Bankers and Pacific, and resulted from pressure

to keep the business of mortgage protection insurance

within the Transamerica family.

Antitrust Claim

In DeVoto I, we determined that plaintiffs had standing

and that their allegations were sufficient to state a claim

for relief ;? we must now determine whether the evidence

adduced at trial was sufficient to carry plaintiffs’ burden

of proof. We conclude that it was not.

At the outset, it must be said that the defendants’ actions

are to be judged by the rule of reason, not by a per se

rule. Even assuming that the package offered by American

was more desirable than Pacifie’s and that Bankers can-

celled Pacifie’s contract solely for the purpose of keeping

the business in the Transamerica family, that does not

constitute a per se violation of the antitrust laws. We

think this point was established by our opinion in DeVoto

2. Our holding that Sherman Act liability was not established

makes it unnecessary to examine whether the DeVoto I holding—

that brokers may bring the antitrust claim—survives the interven-

ing decisions by the Supreme Court in Tllinois Brick Co. v. Tllinois,

431 U.S. 720 (1977), and Brunswick Co. v. Pueblo Bowl-O-Mat Ine.,

429 U.S. 477 (1977); see John Lenore & Co. v. Olympia Brewing

Co., 550 F.2d 495 (9th Cir. 1977). The cited, more recent eases are

consistent with our conelusion that brokers may not reeover on

the state law tort claim on these faets. Even if our analysis in

DeVoto IT were not consistent with our discussion of the California

law, issues of antitrust and tort standing are not necessarily so

isomorphous that each analysis may not stand on its own.

26 Appendix

I. The court noted there that the corporate relationship

between Bankers and Pacific “when allowed to intrude into

the free marketplace, may produce an anticompetitive effect

such as the antitrust laws were designed to combat.” 516

F.2d at 6 (footnote omitted) (emphasis added). The court

went on to hold that “[a]n issue of fact is presented as

to whether in breach of the American contract, the defend-

ants intended to, or did, wnreasonably restrain trade in

violation of § 1 of the Sherman Act.” Id. at 6-7 (emphasis

added).

Moreover, we do not believe a per se rule is appropriate

in this type of case. The court has warned that “additions

to the limited per se list are not to be made on an ad hoc

basis. At least they are not to be made without evidence

supporting a determination that the restraint is such as

to have a pernicious effect on competition.” Gough v. Ross-

moor Corp., 585 F.2d 381, 388 (9th Cir. 1978), cert. denied,

440 U.S. 936 (1979). See Continental T.V., Inc. v. GTE

Sylvania Inc., 483 U.S, 36 (1977). There are not sufficient

grounds to conclude that business decisions based on

favoring corporate affiliations automatically must be con-

demned. See White Motor Co. v. United States, 372 U.S.

253, 263 (1963). We believe that such decisions may not

be wholly without justification in some cases. Particularly

in long term relationships, there may be economies in deal-

ing with friends because there is a greater likelihood of

amicable resolution of disagreements. The Supreme Court

has noted, in the context of mergers, that a corporate sub-

sidiary will in all probability deal only with its affiliate

for goods the affiliate can furnish, but that fact alone does

not make an acquisition invalid. United States v. Columbia

Steel Co., 334 U.S. 495, 523 (1948). We are not prepared

to expand the very limited list of per se offenses to include

the conduct at issue in this case.

Appendix ; 27

Of course, if such arrangements are not always injurious

neither are they wholly commendable because, as DeVoto I

points out, they introduce an “irrelevant and alien factor”

into the free marketplace which may have anticompetitive

effects. Upon those grounds we remanded for a factual

inquiry into whether the practice was in this case un-

reasonable.

Turning now to a rule of reason analysis, we must de-

termine whether the plaintiffs below carried their burden

of proof. A crucial aspect of a plaintiff’s case under the

rule of reason is a demonstration that the alleged conduct

of the defendant had some market impact. See Times-

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

615 (1953); Associated Press v. United States, 326 U.S. 1,

27 (1945) (Frankfurter, J., concurring) ; American Motor

Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230, 1247 (3d

Cir. 1975). As this court recently stated, “Unless the alleged

anticompetitive conduct is per se unreasonable, the fact

that the conduct restrained trade in a relevant market is

an essential part of a plaintiff’s case ... and the burden

of establishing it lies on him.” Gough v. Rossmoor Corp.,

585 F.2d 381, 385 (9th Cir. 1978), cert. denied, 440 U.S. 936 ;

(1979). This court and others have repeatedly emphasized

that “(t]he antitrust laws ... were enacted for ‘the pro-

tection of competition, not competitors, ” Brunswick Corp.

v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (quoted

in Gough, supra, 585 F.2d at 386) (emphasis in original)

(citation omitted), and therefore the plaintiff must show

something more than simply an adverse effect on his own

business; he must show “an adverse impact on the com-

petitive conditions in general as they exist within the field

of commerce in which the plaintiff is engaged.” Gough supra,

585 F.2d at 386. Absent per se violation, competitive in-

28 Appendix

juries must be defined in terms of a discrete market. The

parties stipulated at trial that the relevant market for

purposes of this case is the market for the sale of mortgage

protection insurance in California, which consists of all

residential mortgagors in the State of California whose

loans are serviced by mortgage bankers, savings and loan

associations or commercial banks. Thus the question nar-

rows to the nature and extent of anti-competitive practices

in the market for the sale of mortgage protection insurance

in California and whether or not such practices, in that

market, were unreasonable.

The Supreme Court has stated that the appropriate focus

in determining reasonableness under section 1 focuses on

“the percentage of business controlled, the strength of the

remaining competition, [and] whether the action springs

from business requirements or purpose to monopolize.”

United States v. Columbia Steel Co., 334 U.S. 495, 527 (1948)

(quoted in Times-Picayune Publishing Co. v. United States,

345 U.S. 594, 615 (1953)). The parties stipulated that for

the years in question the number of such residential mort-

gagors averaged in excess of 2,750,000, with an average

outstanding principal balance of in excess of $50 billion and

that Bankers’ share of this market for this period averaged

about 32,000 mortgagors with a remaining principal balance

of slightly in excess of $500 million. This means that the

percentage of the relevant market affected by defendants’

actions was slightly more than 1%. We have not found any

eases in which an impact on this small a percentage of the

relevant market was held to be unreasonable nor have plain-

tiffs cited anv to us. See 16 J. Von Kalinowski, Business

Organizations § 6.02[4] at 6-141 (1969).

On the facts of this case, moreover, it is not even clear

that there has been an adverse effect on the 1% of the

Appendix 29

market in question. The only market effect about which there

was any evidence concerns the quality of the product offered

to consumers; plaintiffs allege that the insurance policy

which Pacific offered was less desirable than American’s.

ven assuming the allegation to be true, however, Bankers’

mortgagors were not required to buy Pacifie’s or any other

mortgage insurance, If American offered a better insurance

policy, consumers were free to buy it. The most that can be

said for the actions of defendants is that they reduced the

likelihood that consumers would learn of the allegedly better

poliey. See Gough, supra, 585 F.2d at 387 n.8.

Plaintiffs apparently contend that despite the very small

percentage impact on the relevant market, a violation of

the rule of reason can be demonstrated merely by reference

to the dollar volume of commerce affected by the alleged

restraint, Plaintiffs note that Bankers had about 32,000

individual mortgagors with outstanding principal balances

exceeding $500,000,000 in total. They contend that plaintiffs

intended to exclude American from this market and that

showing this exclusion is sufficient to carry the burden of

demonstrating injury. To the extent this argument is an

attempt to redefine the relevant market, it is precluded by

the parties’ stipulation. See American Motor Inns, Inc. v.

Holiday Inns, Inc., 521 ¥.2d 1230, 1244 (8d Cir. 1975).

Reliance on the absolute volume of commerce affected ap-

pears, moreover, to he misplaced.

The Supreme Court, in applying the rule of reason to

mergers, has held that “[i]n determining what constitutes

unreasonable restraint, we do not think the dollar volume is

in itself of compelling significance.” United States v. Colum-

bia Steel Co., 334 U.S. 495, 527 (1948). Plaintiffs nonethe-

less attempt to rely on the dollar volume of commerce

affected as dispositive by characterizing the actions at issue

30 Appendix

in this case as a form of reciprocal dealing. See FTC v.

Consolidated Foods Corp., 380 U.S, 592 (1965). One court

has suggested in dictum that a reciprocity agreement cover-

ing a substantial volume of commerce would be unlawful

without regard to the percentage of the market involved.

United States v. General Dynamics Corp., 258 F. Supp. 36,

66-67 (S.D.N.Y. 1966); see L, Sullivan, Handbook of the

Law of Antitrust § 171 at 494 (1977). Whatever the proper

line of analysis in reciprocity cases, it is not applicable to

the facts shown in this case.

Bankers is essentially selling a list of names of its mort-

gagors; Pacific and American both tried to buy the list and

Bankers ultimately sold to Pacific. The concern with respect

to reciprocity is that a firm with power in one market as a

seller will exercise that power to gain an advantage as a

buyer in a different market. This is very similar to the

concern with tying arrangements. See L. Sullivan, supra,

§ 170 at 491. In the case at hand there is absolutely no evi-

dence that the deal between Bankers and Pacific was made

with any expectation or intention that Bankers would gain

an advantage as a buyer of a product supplied by Pacific.

As Professor Sullivan notes, “the need is ‘not merely to

find agreement, but to find a purchase made with reciprocal

motive.” Id. § 171 at 494. There was a failure to prove that

the acts of defendants were part of a plan to encourage

reciprocal dealing that resulted in a competitive injury,

cf. FTC v. Consolidated Foods Corp., 380 U.S. 592 (1965),

or any analogous form of prohibited restraint.

Tn their attempt to demonstrate market impact plaintiffs

argue that DeVoto I is a conclusive decision that there was

a significant adverse market effect. They point to the con-

elusion in DeVoto I that plaintiffs had met the jurisdictional

requirement that the “acts complained of occur within the

Appendix 31

flow of, or substantially affect interstate commerce.” DeV oto

I, supra, 516 F.2d at 4. The jurisdictional issue is distinet,

however, from the substantive issue of whether a given

defendant’s conduct was an unreasonable restraint of trade

under the Sherman Act. Gough v. Rossmoor Corp., 487 F.2d

3738, 376 (9th Cir. 1973); Cartrade, Inc. v. Ford Dealers

Advertising Ass’n, 446 F.2d 289, 292 (9th Cir. 1971).

Plaintiffs failed to introduce any evidence to support a

finding that there was an adverse effect on the relevant

market. They have not shown that viewing the relevant

market as a whole there was any effect on the price, quality

or quantity of mortgage insurance, nor have they shown

that there have been any effects on the structure of the

market which might adversely affect the climate for com-

petition. See Continental T.V., Inc. v. GTE Sylvania Ine.,

433 U.S. 36, 53 n.21 (1977). This court’s observation in

Mutual Fund Investors, Inc. v. Putnam Management Co.,

Inc., 553 F.2d 620, 627 (9th Cir. 1977) is equally applicable

to the case at hand: “Appellants point to the alleged

injury to their businesses, but fail to provide any evidence

that the ‘effect upon competition in the marketplace is sub-

stantially adverse’ ” (citation omitted).

Plaintiffs suggest that if Bankers’ decision were based

solely on corporate affiliation that is the equivalent of an

intent to impose an unreasonable restraint on trade and

no more need be shown. Plaintiffs apparently rely on the

statement in United States v. Columbia Steel Co., 334 U.S.

495, 522 (1948), that “[a] restraint may be unreasonable .. .

[when] a restraint otherwise reasonable is accompanied

with a specific intent to accomplish a forbidden restraint.”

In this case, the only intent to which plaintiffs point is the

defendants’ intent to give preference to an affiliated com-

pany. There is no allegation or evidence that defendants’

32 Appendix

conduct was intended to fix prices, drive a competitor out

of business or otherwise affect the market in question. As

discussed earlier, giving preference to an affiliate some-

times causes a forbidden restraint and sometimes does not.

This is not a case where the defendant intended a result

beyond what was actually achieved; defendants intended

exactly the result which occurred, and we have held that

the result which occurred was not an unreasonable restraint

of trade. The resuit was not unreasonable, and it follows

that an intent to achieve that result, without more, is not

unreasonable. American Motor Inns, Inc, v. Holiday Inns,

Inc., 521 F.2d 1230, 1248 (3d Cir. 1975).

State Tort Claim

Independently of the antitrust claims, the plaintiffs below

sought relief upon a second theory, alleging tortious inter-

ference with their prospective business advantage.’ They

claimed commissions would have been paid to them as

brokers for negotiation of the Banker-American agreement

and that the commissions were a business advantage lost as

a result of Pacific’s inducing Bankers to repudiate the

contract.

Bankers and Pacific defend by saying the inducement of

the breach was done without any intent to cause injury to

3. The district court instructed the jury as follows:

There are no hard and fast rules governing whether or not

a person is privileged to interfere with the contractual or busi-

ness relations of another. In general, however, whether an

intentional interference is justifiable depends upon a balancing

of the importance, social and private, of the objective advanced

by the interference against the importance of the interest

interfered with, considering all circumstances including the

nature of defendants’ conduct and the relationship between

the parties. The burden of proof is on the defendants to

establish a justification that there be [sic].

Reporter’s Transcript at 1338.

Appendix 33

the brokers. The argument is not quite precise, for it should

be phrased in terms of motive or specific purpose, not

simply intent. When stated in this manner, we find the

contention has merit, and we rule that plaintiffs’ judgment

for tortious interference must be reversed because there

was no evidence of any motive or purpose to injure them.*

Tort law ordinarily imputes to an actor the intention to

cause the natural and probable consequences of his conduct.

See Restatement (Second) of Torts §8A (1965), If the

case turned on the issue of defendants’ intent in this sense

of the term, we would say the trier of fact could find that

the defendants had the necessary state of mind to harm

the brokers, for they were aware of the brokers’ business

relation and knew its disruption was substantially certain

to follow once the principal contract with American was

abrogated.

Tortious interference requires a state of mind and a pur-

pose more culpable than “intent” under the Restatement

definition, however. The fact of a general intent to interfere,

under a definition that includes imputed knowledge of con-

sequences, does not alone suffice to impose liability. Inquiry

into the motive or purpose of the actor is necessary. The

inducement of a breach, therefore, does not always vest

third or incidental persons with a tort action against the

one who interfered. Where the actor’s conduct is not

criminal or fraudulent, and absent some other aggravating

4. Most of appellants’ arguments on the pendent state claim

rely on assertion of privileges. These arguments are wholly without

merit: appellants cite no ease in which privileged competition in-

volved inducing a breach of contract (as here, the contract between

Bankers and American) or in which an affiliation such as that be-

tween Bankers and Pacific gave rise to a privilege. See generally

Buckaloo v. Johnson, 14 €C.3d 815, 828 (1975); Imperial Tee Co. v.

Rossier, 18 Cal. 2d 33, 36 (1941); Winn v. McCulloch Corp., 60

Cal. App. 3d 663, 673, 131 Cal. Rptr. 597 (1976); Culeal Styleo,

Ine. v. Vornado, Inc., 26 Cal. App. 3d 879, 882 (1972).

34 Appendix

circumstances, it is necessary to identify those whom the

actor had a specific motive or purpose to injure by his

interference and to limit liability accordingly. The extent

of liability, for this tort, is fixed in part by the motive or

purpose of the actor. See Restatement (Second) of Torts

§ 766 & Comment j and § 767 & Comment d (1979).

We note at the outset a scarcity of pertinent authority on

this issue. Although we do not find controlling precedent

in California case law, or closely similar cases in other

jurisdictions, we are confident the result we reach is con-

sistent with the law California courts would announce if

the issue were presented to them. Analysis of purpose and

motive in the tort of business interference is not well

developed in the case law, but a survey of the authorities

in California and other jurisdictions illustrates the specific

kinds of wrong the tort is intended to redress and clarifies

why the defendants’ actions in this case are not tortious

as to these plaintiffs.

The simplest case for allowing recovery is when there is

an intended wrongful economic appropriation, as when the

act of a defendant directly diminishes the value of the

plaintiff’s interest and simultaneously or subsequently

transfers that value to the defendant. Thus a competitor

may be liable for commission of the tort if he intentionally

interferes with a contract to which he is a stranger for the

otherwise legitimate purpose of improving his competitive

position at the expense of the plaintiffs. See Imperial Ice

Co. v. Rossier, 18 Cal. 2d 33, 112 P.2d 631 (1941). An ex-

ample of such tortious interference occurred in this case

when Pacific induced the breach of the principal contract

in order to transfer American’s competitive advantage to

itself, and we assume such conduct would be actionable in

a suit by American.

Appendix 35

The wrongful appropriation may be by means other than

interference with a formal contractual relation or a pro-

spective business advantage. An example of such tortious

interference, by a direct means of appropriation, is when

two parties in a transaction cut out an agent or middleman

and implicitly split between them the value of the lost

commission. See Buckaloo v. Johnson, 14 Cal. 3d 815, 537

P.2d 865 (1975); Herron v, State Farm Mutual Ins, Co.,

56 Cal. 2d 202, 14 Cal. Rptr. 294, 63 P.2d 310 (1961);

Siciliano v. Fireman’s Fund Ins. Co., 62 Cal. App. 3d 745,

133 Cal. Rptr. 745 (1976). In these cases defendant has a

motive to secure the business advantage which formerly

belonged to the plaintiffs, and that motive is an essential

part of the finding that the means of the appropriation is

unjust. By contrast, where a contract has been abrogated,

competitors may thereafter offer to deal with the party who

repudiated the contract without incurring liability in tort:

there is no act of inducement, and once the contract is

abrogated there is no advantage to appropriate. See Im-

perial Ice Co. v, Rossier, swpra, 18 Cal, 2d at 38-39, 112

P.2d at 634; Restatement (Second) of Torts § 766, Com-

ments h, n (1979).

There are also cases where tortious interference is ac-

complished by a more indirect means. For instance, where

the defendant acquired a business after depressing its

value by telling prospective purchasers the defendant’s con-

tract with the business would not be renewed, the state-

ments were held tortious in a suit brought by the company.

Lowell v. Mother’s Caki 1 Cookie Co., 79 Cal. App. 3d

13, 144 Cal. Rptr. 664 (1978). The court justified its finding

of improper interference in terms of the defendant’s motive

or purpose. “It is underscored that the cases involving inter-

ference with prospective business advantage have turned

36 Appendix

almost entirely upon defendant’s motive or purpose.” (em-

phasis in original) (citation omitted). Jd., 79 Cal. App. 3d

at 18. Motive and purpose are also central to the concept

that interference inspired by ill will or spite may be tortious.

See Restatement (Second) of Torts § 766, Comments r, s

(1979).

In all these instances of contractual or business inter-

ference, some identifiable benefit accrues to the defendant

which formerly belonged to the plaintiff, be it pecuniary or

competitive.° The defendant’s spiteful satisfaction of an

earlier grievance against the plaintiff would be a similar

injury. It is the intentional attainment of an unjust ad-

vantage which underlies the requirement that the inter-

ference be improper, Restatement (Second) of Torts § 767

(1979), and motive or purpose is usually an accurate meas-

ure of the advantage the actor sought and of its just or

unjust character.

In the instant case no purpose to injure the plaintiffs

was demonstrated. The business relation between the

brokers and American was of no concern to the defendants.

Commissions anticipated by the broker did not, in any de-

gree, motivate the defendants’ interference with the con-

tract between Bankers and American. The object of the

interference was the principal contract, not the brokers’

arrangement incidental to it. The brokers and their com-

missions were entirely unrelated to any motivation of the

defendants, and it was not the goal or design of the inter-

ference to acquire the value of the commission. Absent a

motive or purpose to injure the plaintiffs, or to appropriate

an economic advantage belonging to them, or some other

5. This idea may also be expressed in other terms: whether or

not the plaintiff has, as against defendant, a “property” right in

the invaded interest, see Note, Interference With Contractual Rela-

tions: A Property Limitation, 18 Stan. L. Rev. 1406 (1966).

Appendix 37

aggravating circumstances, the acts of Bankers or Pacific

_ were not tortious as to the plaintiffs. The plaintiffs failed

to establish these essential elements.

We have identified one class of cases in which recovery

appears to have been allowed even though there is no im-

proper purpose or advantage-taking by the defendant in

relation to an interest owned or protected by the plaintiff.

These involve a prospective purchaser who has asked a

broker to negotiate the sale of property to him on specified

terms, the broker’s commission to be paid by the vendor.

The purchaser in these circumstances has been held liable

for tortious interference with the contract or relation be-

tween the vendor and the broker when he decides at the

last minute not to buy the property, even whei. :. is contract

breach is based upon an understandable reason, such as

financial difficulty. The following cases comprise the evolu-

tion of this somewhate obscure line of authority: Buono

Sales, Inc, v. Chrysler Motors Corp., 363 F.2d 48, 49 (3d

Cir.) (en bane), cert. denied, 385 U.S. 971 (1966) ; Ellsworth

Dobbs, Ine. v. Johnson, 50 NJ. 528, 236 A.2d 848, 859-61

(1967); Tanner Associates, Inc. v. Ciraldo, 58 N.J. Super

398, 156 A.2d 289, 290 (1959), rev’d, 33 N.J. 51, 161 A.2d

725 (1960); MeK night v. McGuire, 117 Mise. Rep. 306, 191

N.Y.S. 323 (Sup. Ct. 1921) (Lehman, J.); James v. TIome

of the Sons and Daughters of Israel, 158 N.Y.S. 169 (Sup.

Ct. 1915); Livermore v. Crane, 26 Wash. 529, 67 P. 221

(1901.) In these instances, however, there has been a prior

relation between the defendant and the plaintiff leading the

former to rely upon the latter, and we think recovery is

explained as easily by contract as by tortious interference,

although conecedely it is the latter ground which is the

explicit rationale given in the opinions.® In the case before

6. This relianee exception is close to the facts of the J’Aire ease,

discussed below.

38 Appendix

us there was no subsisting economic or business relation

between the brokers on the one hand, and Bankers or Pa-

cific on the other, except to the extent that the brokers

became acquainted with Bankers through the negotiation, a

circumstance which does not suffice for the imposition of

liability.

Our opinion is not affected by the California Supreme

Court’s recent decision in J’Aire Corp. v. Gregory, 24 Cal.

3d 799, 157 Cal. Rptr. 407, 598 P.2d 60 (1979).? J’Aire con-

sidered the allegations necessary to state a cause of action

for negligent interference with prospective economic advan-

tage, rather than intentional interference, as here.’ Negli-

gent interference was not pleaded here, but our responsi-

bility to decide the instant case under California law re-

quires, we think, an inquiry whether the J’Aire decision

implies that the California Supreme Court would alter the

current definition of the intentional tort to permit recovery

for DeVoto and Volk. We conclude that it would not.

7. J’Aire impliedly disapproves the decision of this eourt in

Standard Oil Co. v. United States, 153 F.2d 958 (9th Cir. 1946),

aff'd, 332 U.S. 301 (1947).

8. The court in J’Aire explained its holding by listing six

criteria:

(1) the extent to which the transaction was intended to affect

the plaintiff, (2) the foreseeability of harm to the plaintiff,

(3) the degree of certainty that the plaintiff suffered injury,

(4) the closeness of the connection between the defendant’s

conduct and the injury suffered, (5) the moral blame attached

to the defendant’s conduct and (6) the policy of preventing

future harm.

24 Cal. 3d at 804, 598 P.2d at 63. Whether these criteria are

requisite elements of a cause of action, or merely consideratidéns to

be blended from ease to case, was not decided by the court, but we

assume the latter. Although the seope of the California court’s

expansion of the tort of negligent interference is as yet unclear, we

note that so far it has only been applied in a case that is roughly

similar to third party beneficiary cases. See also Heyer v. Flaig,

70 Cal. 2d 223, 74 Cal. Rptr. 225, 449 P.2d 161 (1969); Lueas vy.

Hamm, 56 Cal. 2d 583, 15 Cal. Rptr. 821, 364 P.2d 685 (1961);

Biakanja v. Irving, 49 Cal. 2d 647, 320 P.2d 16 (1958).

Appendix 39

Our conclusion rests on the difference between the pur-

pose of an intentional interference cause of action and the

purpose of the cause of action established by J’Aire. The

former cause of action tends to restrain impermissible be-

havior in the marketplace between competitors: it sets

forth the ground rules of competition to confine business

rivalry within acceptable bounds of conduct. Prosser, Law

of Torts 952-62 (4th ed. 1971).

Two different considerations animate the California Su-

preme Court’s J’Aire decision; both concerns are for the

purpose of preventing rigid categories of the injured

party’s status or the nature of his injury from obscuring

the more fundamental inquiry into the scope of an actor’s

legally foreseeable impact and thus liability. Specifically,

the California court’s opinion emphasizes that one may

assume obligations by a contract that is in turn motivated

in part by the promisee’s desire to benefit third parties and

in which contract third-parties are thereby interested, and

for the unsatisfactory performance of which they may re-

cover. The court also showed concern lest an injury due to

negligence go unredressed simply. because an intangible

economic interest rather than a tangible one was injured.

When the wrongful act is the same, the ability to recover

should not hang on the fortuity of whether the injury is to

the physical assets of a business rather than to its good

will.® The fundamental inquiry is of course different in the

ease of intentional torts. Foreseeability is not at issue be-

cause it is not a requisite to recovery. Since all conse-

quences, no matter how remote, harming a party with a

eause of action for an intentional tort give rise to defend-

9. This conforms with the broad language of California’s negli-

gence principle, see Cal. Civ. Code §1714(a) (West 1973); Row-

land v. Christian, 69 Cal. 2d 108, 70 Cal. Rptr. 97, 443 P.2d 561

(1968) ; 4 B. Witkin, Summary of California Law § 391A, pp. 98-

101 (Supp. 1978).

40 Appendix

ant’s liability, the inquiry focuses on the inherent and

relational quality of the wrongful act rather than on the

foreseeability of its conseyuences. See 4 B. Witkin, Sum-

mary of California Law § 9, p. 2309 (1974); Hpsteim, In-

tentional Harms, 4 J. Legal Stud. 391 (1975), Note, The

Tie That Binds: Liability of International Tort-Feasors for

Extended Consequences, 14 Stan, L. Rev. 362, 367 (1962)

(suggesting liability-limiting principles in intentional torts

deficient by comparison with negligent torts, where fore-

seeability provides limiting principle).

This brief discussion of two significantly different causes

of action suggests why different principles have come to

govern different kinds of wrongful acts even though these

acts may incidentally produce similar effects, For the fore-

going reasons we do not interpret the California Supreme

Court in J’Aire to have undone, by silent implication, the

established case law on intentional interference with eco-

nomic advantage by its decision in the separate area of

negligent interference.

Even if we were to assume that something like the six

eriteria of J’Aire would replace the definition of the inten-

tional tort as we have outlined it above, we do not think

that the brokers would be entitled to recover, The nature of

the brokers’ business risks and the speculative quality of

damages from lost commissions—to be calculated on the

basis of the volume of sales that never occurred are two

factors specifically enumerated by the California court as

precluding recovery. See J’Aire, supra, 24 Cal. 3d at 808,

598 P.2d at 65-66.

10. J.e., the plaintiffs here were more remotely related to the

principal transaction—between Bankers and American—than were

the plaintiffs in J’Aire, which relates to criteria (1) and (4), see

note 8 supra, and the moral and public policy considerations, as

well as the certainty of the damages suffered, are weaker here than

in J’Aire, which relates to criteria (3), (5), and (6). See note 8

supra.

Appendix 41

The facts of the case before us, examined in the light of

our analysis of the tort of interference with business advan-

tage, lead us to conclude that the defendants have no liability

to the plaintiffs and that the judgment entered for the

plaintiffs must be reversed.

The defendants have argued additional grounds for re-

versal of the judgment, matters which turn on the applica-

bility of the statute of limitations and on the trial court’s

evidentiary rulings admitting certain testimony on the issue

of damages. In our view the plaintiffs have not countered

these contentions with convincing reasons, but it is unneces-

sary for us to address them in view of our holding on the

primary issue of tortious liability.

Each party shall bear its own costs on this appeal.

REVERSED.