Petition — Edward J. Sweeney & Sons, Inc. v. Texaco, Inc.
Supreme Court brief1981
Ask Donna
What actually matters in this document.
Text
iN THE a
Supreme Court of the United States
TERM, 1981
No.
EDWARD J. SWEENEY & SONS, INC.,
MISSION GAS OIL COMPANY, INC.
AND
PETROLEUM PRODUCTS CO.,
Petitioners
VS.
TEXACO, INC.
Respondent
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
MITCHELL A. KRAMER
STEVEN KAPUSTIN
ALICE G. BURT
KRAMER AND SALUS
1520 Locust Street
Seventh Floor
Philadelphia, PA 19102
(215) 545-7700
Attorneys for Petitioners,
EDWARD J. SWEENEY & SONS, INC.
MIssION GAS OIL COMPANY, INC.
AND PETROLEUM PRODUCTS CoO.
The Winchell Company—Phila., Pa. 19107—(215) 568-1770
QUESTIONS PRESENTED
1. Do the lower courts’ requirements that to withstand a
motion for directed verdict, an antitrust plaintiff must show
direct evidence of the causal nexus between competitors’ com-
plaints to a supplier about a discounter’s marketing behavior
and the supplier’s actions in response thereto impose an improper
restriction on the quantum and character of the evidence
needed to bring an action within the scope of Section 1 of the
Sherman Act?
2. Was it proper for the Third Circuit to affirm the lower
court’s direction of the verdict when the ruling was the result of
the lower court’s weighing the evidence and determining the
credibility of witnesses?
3. When a seller charges different prices, based on an ad-
mitted phantom event, to competing purchasers who perform
identical marketing functions, is there evidence of price dis-
crimination violative of § 2(a) of the Robinson Patman Act
sufficient to withstand the denial, on the merits, of injunctive
relief? In reviewing this question was it unconstitutional for the
Third Circuit to apply a different standard to large purchasers
than to small purchasers?
4. Where there is proof of direct damage to a disfavored
purchaser who absorbed the increased costs as a result of price
discrimination violative of § 2(a) of the Robinson Patman Act,
should the case be submitted to the jury to determine the amount
of damages?
5. Does summary judgment against indirect purchasers
who purchase on a cost-plus basis contradict the recognized ex-
ception to the indirect purchaser doctrine in Illinois Brick?
TABLE OF CONTENTS
PAGE
CY x 66056 FO 4s 6H 08 o ONO RON EE EN 1
PE. Vives ate owes ew ems eW6e sae hea ReE EE 2
OEY PROCMIOMS TNVORVER 2... wis ccccesvcedeues 2
Ss Mie WO GD ok 6 kn bs ow 60 eccen tees wane eee 3
peenons for Granting the WIit .... ...cccccvenccsvees 7
I. Viewing all the evidence presented, the circum-
stantial evidence presented was sufficient to show
conspiracy in violation of § 1 of the Sherman Act
and to submit the case to the jury ............. 7
II. Denial of injunctive relief on a § 2(a) Robinson-
Patman Act claim was improper where a seller
charges different prices, based upon an admitted
phantom event, to competing purchasers who per-
Pee BROUGHT TOMCTIOME ous oc ete nes ce vacdours 18
III. Where there is proof of direct damage to a dis-
favored purchaser as a result of a § 2(a) Robinson-
Patman Act violation, the jury should be permitted
to determine the amount of damages .......... 22
IV. Summary judgment against indirect purchasers who
purchase on a cost-basis contradicts this Court’s de-
cision in Illinois Brick ......... 0... cece ee nee 27
Appendix A (Opinion and Judgment of the
CURE CE ABUOGE) once vec ci center a weseins 31
Appendix B (Opinion and Judgment of the
Federal District Court) ............ 0. eee eeee 78
Appendix C (Judgment of Court of of Appeals,
| Ter errr Tr ererreerrre re eer 161
Appendix D (Order of the Federal District Court,
Gated Fene 1, 19TS) once cncvccscccsccserenaws 162
Appendix E (Complete Text of Statutes Involved) ...... 163
ii
TABLE OF CITATIONS
Cases: PAGE
Alloy International Co. v. Hoover-NSK Bearing Co., 1980-
1 Trade Cases 4 63,148 (7th Cir. 1980) ....... 15, 16
American Tobacco Co. v. United States, 328 U.S. 781
Be eR ee eee Oe re ee Eee erie ee _ ee 9
Beech Cinema, Inc. v. Twentieth Century-Fox Film Corp.,
eee ee RL Be. Se |) i i6
Bruce's Juices, Inc. v. American Can Company, 330 U.S.
to ge ERR, a a ae oe 24
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 USS.
WET) COPE Vas SRA ER EEO SCR ee ae yn
Carbon Steel Products Corp. v. Alan Wood Steel, Co., 289
F.Supp. 364 (S.D.N.Y. 1968) ........00ccaes 10, 11
Carr Electronics Corp. v. Sony Corp. of America, 472
pam, SCPE COL. ISTP) cc ccc tvcccave 10, 13
Cernuto, Inc. v. United Cabinet Corp., 595 F.2d 164
Ce ae, UE os ean ate ¥Gas odd eRe bake 14-16
Chrysler Credit Corp. v. J. Truett Payne, Inc., 607 F.2d
1133 (Sth Cir. 1979), cert. granted, 101 S.Ct. 70
i) area ye ern ay ere eee a enaee 23
Continental Ore Co. v. Union Carbide & Carbon Corp.,
DE Wok We CPE oe eg Oo a es on a eee wns 8.9
Corn Products Refining Co. v. FTC, 324 U.S. 726 (1945) 19, 20
CUSCO v. Certain-teed Products Corp., 1981 Trade Cases
Der eW A Tee Gey BORED 6 cee kan wees nh exo Was 16
Dantzler v. Dictograph Products, Inc., 309 F.2d 326 (4th
Cir. 1962), cert. denied, 372 U.S. 970 (1963) .... 23
Eastern States Retail Lumber Dealers’ Association v. United
erated, £94 WU. GOO CUGIB) oiccik i vse cs ce wes 9,10
iii
TABLE OF CITATIONS —~(Continued)
Cases: PAGE
Elizabeth Arden Sales Corporation v. Gus Blass, Co., 150
ieee Oe Cee BUDE Svcs chores eb sys sees 23, 24
Enterprise Industries, Inc. v. Texas Co., 240 F.2d 457
(2d Cir.), cert. denied, 353 U.S. 965 (1957) ... 23, 24
FLM Collision Parts, Inc. v. Ford Motor Co., 543 F.2d
1019 (2d Cir. 1976), cert. denied, 429 U.S. 1097
PP nk Che nes Pr se ee rei ee Sar oN 19, 20
FTC vy. Beech-Nut Packing Co., 257 U.S. 441 (1922) ... 9
FTC v. Cement Institute, 333 U.S. 683 (1948) ........ 20
FTC v. Morton Salt Co., 334 U.S. 37 (1948) ....... 19-21
FTC v. Staley Mfg. Co., 324 U.S. 746 (1945) ......... 20
Freedman v. Philadelphia Terminals Auction Company,
197 F.Supp. 849 (E.D. Pa. 1961), aff'd, 301 F.2d
830 (3d Cir.), cert. denied, 371 U.S. 829 (1962) .. 23
Girardi v. Gates Rubber Co. Sales Div., Inc., 325 F.2d 196
De hee as a ae eo 12-13
Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392
ee ee. CE a ra hd bn he eee beeen eho 27, 28
Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) .... 27-29
Interstate Circuit, Inc. v. United States, 306 U.S. 208
2), Pee err ee re er errr Tere ee 9,10, 17
Klein v. American Luggage Works, Inc., 323 F.2d 787
| RR ee eee ee ee 10, 11
Loew’s, Inc. v. Cinema Amusements, 210 F.2d 86 (10th
= Le eee re eee re eer rare 13
Maple Flooring Mfrs.’ Ass'n. v. United States, 268 U.S. 563
ee Ac Cah se vies et eee ee a eae heat 13
Mid-West Paper Products Co. v. Continental Group, 596
ge Bye ea Bs a.) 5 ereenare crcoran (nena aa 27
TABLE OF CITATIONS—{Continued)
Cases: PAGE
Norfolk Monument Co. v. Woodlawn Memorial Gardens,
Bk. CRE Fee RD bs o'sinicase deatacouwnenes 14
Perkins v. Standard Oil Co., 395 U.S. 642 (1969) ..... 24
Poller v. Columbia Broadcasting System, Inc., 368 U.S.
De SER os aca eca beeen ee eeeeaas Uaeues 14
Tennant v. Peoria & P.U.Ry. Co., 321 U.S. 29, (1944) .. 4
Theatre Enterprises, Inc. v. Paramount Film Distributing
Car SO6 Cie Ser (ee eet A war sccueesuesee 17, 18
Trabert & Hoeffer, Inc. v. Piaget Watch Corp., 633 F.2d
Ore. Coe Ga SOee occ kaa dvsbsuewoacseans 10, 11
Trist v. First Federal S.&L. Ass’n of Chester, 466 F.Supp.
ee ee ee, | Se eres he 10
United States v. General Motors Corp., 384 U.S. 127
PED fb oni a cS UR nee se eee 9
United States v. Parke, Davis & Co., 362 U.S. 29 (1960) . 9
United States v. Socony-Vacuum Oil Co., 310 U.S. 150
CREE. 5 <eslecoe sec lene tat eee eee 12, 16
Venzie Corp. v. United States Mineral Products Co., 521
Pe Tee Cae Ge Wire) a is ds cs oneness cae 17
Westinghouse Electric Corp. v. CX Processing Laborato-
ries, 523 F.2d 668 (9th Cir. 1975) ........... 10, 12
STATUTORY AND CONSTITUTIONAL PROVISIONS
Se Sh ED 53s b-wd vee neces neces alee :
Se in, EOD . 6 ised ck een ete eee ,
SD ieee ERE: osc a ee ieee eek cena 2, 3, 27-28
BES all GSP ar seer rm ener epee nas At 2,3
Sak CN. OE, OF nc cn cn ickcbwccuckeubeaueneeuey 21
IN THE
Supreme Court of the United States
TERM, 1981
No.
EDWARD J. SWEENEY & SONS, INC.,
MISSION GAS OIL COMPANY, INC.
AND
PETROLEUM PRODUCTS CO.,
Petitioners
A
TEXACO, INC.
Respondent
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
The Petitioners, Edward J. Sweeney & Sons, Inc., Mission
Gas Oil Company, Inc. and Petroleum Products Co., respect-
fully pray that a Writ of Certiorari issue to review the judg-
ments and opinion of the United States Court of Appeals in the
proceeding on November 3, 1980.
In addition, Petitioners respectfully pray that a Writ of
Certiorari issue to review that final order of the United States
Court of Appeals, Third Circuit, on to-wit, November 28, 1980,
which denied Petitioners’ Petition for Rehearing.
OPINION BELOW
The opinion and judgment of the United States Court of
Appeals, Third Circuit, unofficially reported in 1980-81 Trade
Cases € 63,611, at 77,226 (3d Cir. 1980), appears as Appendix
A hereto. The opinion of the United States District Court for
l
2
the Eastern District of Pennsylvania, reported in 478 F. Supp.
243 (E.D. Pa. 1979), appears as Appendix B. The judgment of
the Court of Appeals for the Third Circuit denying Rehearing
appears as Exhibit C. The Order of the United States District
Court for the Eastern District of Pennsylvania, dated June 1,
1979, granting partial summary judgment against petitioners
Mission and Petroleum on their damage claims, appears as
Appendix D.
JURISDICTION
The judgment and opinion of the United States Court of
Appeals for the Third Circuit was entered on November 3, 1980.
Petitioners’ Petition for Rehearing was denied November 28,
1980. The jurisdiction of this Court is invoked under 28 U.S.C.
$ 1254(1). This Petition was filed within ninety days of the
Third Circuit’s Order denying a rehearing.
STATUTORY PROVISIONS INVOLVED
The following statutes involved are set forth in Appendix E:
Section 1 of the Sherman Act, 15 U.S.C. § 1;
Section 2(a) of the Robinson-Patman Act, 15 U.S.C.
$ 13(a);
Section 4 of the Clayton Act, 15 U.S.C. § 15;
Section 16 of the Clayton Act, 15 U.S.C. § 26.
3
STATEMENT OF THE CASE
This is an antitrust case brought by petitioners Edward J.
Sweeney & Sons, Inc. (“Sweeney”), Mission Gas Oil Company,
Inc. (“Mission”), and Petroleum Products Co. (“Petroleum”)
against respondent Texaco, Inc. (“Texaco”). Claims were made
for violations of Sections 1 and 2' of the Sherman Act (15
U.S.C. $$ 1, 2) and Section 2(a) of the Robinson-Patman Act,
(15 U.S.C. § 13(a)), seeking damages and injunctive relief
under § 4 and § 16 of the Clayton Act (15 U.S.C. §§ 15, 26).
In response to a motion by Texaco for partial summary judg-
ment, the claims of Mission and Petroleum’ for damages were
dismissed on June 1, 1979. Their claims for injunctive relief
were permitted to remain.
The case went to a jury trial in the Eastern District of Penn-
sylvania before the Honorable Edward N. Cahn on June 5,
1979. The evidence in the eight day jury trial showed as follows:
Sweeney has been a wholesaler and distributor of Texaco
gasoline in the Eastern Pennsylvania-Southern New Jersey area
since 1958, which also owns retail gasoline stations in the area.
Sweeney entered into a distributor agreement with Texaco, a re-
finer of gasoline, in 1963.
Sometime in 1965 or 1966, gasoline stations supplied by
Sweeney began selling at a discount. Although other discount
stations sold unbranded gasoline, the Sweeney stations sold Tex-
aco branded gasoline at a price of between one and three cents
per gallon less than the price of other branded gasoline sold in
the area. These Sweeney-supplied stations were able to charge
the lower price because they were primarily “gas and go” opera-
tions, as opposed to full service stations, and because Sweeney
was passing on cost savings generated from the “hauling allow-
ance” Texaco paid Sweeney for transporting gasoline.
1 Petitioners’ claim under Section 2 of the Sherman Act is not before
this Court in this Petition.
2 Petitioners Mission and Petroleum are distributors who purchased
gasoline from Sweeney on a cost-plus basis.
4
In the Southeastern Pennsylvania-Southern New Jersey
market, Sweeney became an active competitive force in two
levels of gasoline distribution. Its retail “gas and go” stations
competed with other Texaco branded stations, including Texaco
investment-retail stations.* Sweeney also competed with all other
Texaco distributors in the area, including Grace Oil Company
(Grace), Dan-D Oil Company (“Dan-D”), and Farm and
Home Oil Company (“Farm & Home”), who also received haul-
ing allowances. Texaco paid a different hauling allowance to
each distributor, because the amount was formulated by the dis-
tance between the Texaco distribution point and the location of
the distributor's bulk plant facility.
The hauling allowance was the only element of price to the
distributor which could be varied, since Texaco charged each
distributor the same tank wagon price prior to deducting the
hauling allowance discount. The hauling allowance was not
really related to any service, because all the distributors, with
Texaco’s knowledge, would routinely drop off gasoline to their
customers’ stations prior to reaching their respective bulk plants.
The allowance became an element of the price of gasoline to the
distributor, and nothing more.
By 1970, Sweeney’s market share in terms of volume and
its customer territory had increased enormously because of its
discount pricing strategy. Sweeney was able to increase its vol-
ume from 3.8 million gallons in 1967 to 17.7 million gallons in
1970.* During this time, Sweeney was picking up gasoline at
Texaco’s Westville, New Jersey distribution point, as were its
8’ Texaco received monthly revenue from these investment stations
based upon the volume of gasoline sold. These investment-retail stations
were directly supplied by Texaco and sold Texaco brand gasoline at
higher retail prices than the Sweeney stations located in close proximity
in the same area.
* Sweeney even won a contest sponsored by Texaco in 1968 when it
experienced the greatest increase in gallonage among wholesalers in the
area. Although the trial judge would not admit the document which
demonstrates this fact into evidence, the court cited the exhibit in its
opinion. (Appendix B, at p. 91).
ps
competitors, Grace, Farm & Home and Dan-D. Sweeney -sup-
plied many retail stations in the entire area, with many stations
located in close proximity to the Westville distribution terminal,
as did Grace, Farm & Home and Dan-D.
Sweeney’s prosperity and its discount pricing did not go un-
noticed by Texaco, the other distributors operating in the area
and the retail gasoline stations directly supplied by Texaco. The
distributor and retail competitors began to complain to Texaco
about Sweeney’s pricing practices and their adverse effect on the
complainants. In December 1970, Texaco informed Sweeney
that it was changing his supply point from Westville, New Jersey
to Macungie, Pennsylvania. This change would reduce Sweeney’s
hauling allowance by half, force Sweeney to pick up gasoline at
a point far distant from many of its stations, and place Sweeney
at a disadvantage as to the other distributors competing in the
market area who still had the Westville, New Jersey supply point.
Texaco maintained that there was a cost saving to Texaco, al-
though the only evidence it produced to support this assertion
was a Study prepared four years earlier, which showed that Tex-
aco would save only $2200 a year. When Sweeney objected to
this change in supply facility, Texaco attempted to cancel its
1963 distributor agreement. Sweeney’s efforts to obtain another
supplier of gasoline failed. After negotiations with Texaco,
Sweeney agreed to accept the reduced hauling allowance, based
upon pick-up at Texaco’s Macungie, Pennsylvania terminal, while
still picking up its product at the Westville, New Jersey terminal,
rather than be cut off entirely by Texaco.
Subsequently, in 1971, Sweeney-supplied stations continued
to underprice their Texaco competition. The distributors and
retailers competing with Sweeney in the market continued to
complain to Texaco about Sweeney’s pricing. The complaints
and Sweeney’s pricing were discussed among Texaco’s hierarchy
at its headquarters, and Texaco sent an employee from its head-
quarters to investigate the complaints. In addition, Texaco’s di-
rect retailers were losing volume which resulted in loss of revenue
to Texaco from those operations. In December 1971, Texaco
sent Sweeney a notice of caucellation of its distributor agree-
6
ment. Despite Sweeney’s requests, Texaco refused to give any
reason for its termination.°
Texaco asserted at trial that its actions against Sweeney
were not the result of a combination or conspiracy between Tex-
aco and Sweeney’s competitors, but instead were unilateral actions
based upon its business interests. Texaco offered evidence that
the reasons for termination consisted of, inter alia, Sweeney’s
aggressive price cutting, customer complaints concerning
Sweeney, and Sweeney’s commingling of Texaco gasoline with
that of another refiner. Sweeney rebutted the business justifica-
tion arguments with evidence that Texaco never had any con-
versation or communication with Sweeney concerning customer
complaints or brand integritv prior to the notice of termination.
Texaco had never conducted surveillance of any distributor in
the area despite its knowledge that other distributors had com-
mingled, its own use of the gasoline of other refiners, and de-
spite the fact that its general busin. ss relationship with Sweeney
prior to that time had been good, with Sweeney generally receiv-
ing the prompt payment discount on purchases from Texaco.°
After eight days of trial, the court granted a Motion for
Directed Verdict, which had been filed by Texaco at the con-
clusion of presentation of all evidence. Opinions and Orders
encompassing this ruling, and the court’s denial of injunctive
relief for petitioners and grant of injunctive relief for Texaco on
its counterclaims, were filed on August 31, 1979 and September
4, 1979 respectively. The basis of the district court’s opinion was
that there was insufficient evidence of a combination or con-
spiracy in violation of Section 1 of the Sherman Act to go to a
5 Texaco continued to supply Sweeney during the litigation in part, at
least, because of Department of Energy regulations which were adopted.
However, on December 11, 1979, Texaco notified the Department of
Energy that it desired to terminate Sweeney as a supplier. This is cur-
rently being litigated. Moreover, on February 20, 1981, Sweeney was
given handwritten notice that Texaco will terminate Sweeney's gasoline
supply 60 days from that date.
§In a Texaco Wholesale Market Study, which the court refused to
admit into evidence, Sweeney’s stations were deemed to ve of good qual-
ity, as opposed to their competitors’ stations which were deemed fair.
7
jury, and that even though a jury might find that there was price
discrimination in violation of Section 2(a) of the Robinson-
Patman Act, the standard of proof of “actual” damages had not
been met. In denying injunctive relief, the district court found
that the directed verdict foreclosed such relief on the Sherman
Act claims, and found as the trier-of-fact that there had been no
discrimination in violation of the Robinson-Patman Act.
Petitioners appealed all three orders (June 1, 1979, August
31, 1979 and September 4, 1979) to the Third Circuit Court of
Appeals (Third Circuit), which affirmed the district court’s de-
cisions on all issues by a vote of two to one, with a strong
dissent. Subsequently, petitioners filed a Petition for Rehearing
with the Third Circuit. On November 28, 1980, said Petition
was denied, with two judges voting for rehearing.
REASONS FOR GRANTING THE WRIT
I. Viewing All The Evidence Presented, The Circumstantial
Evidence Preserted Was Sufficient To Show Conspiracy In
Violation Of § 1 Of The Sherman Act And To Submit The
Case To The Jury.
The Third Circuit majority opinion held that evidence of
competitors’ complaints about a discounter to a supplier and the
supplier’s actions in response thereto is insufficient to show a
Sherman Act § 1 combination or conspiracy, and that, in this
case, petitioners had failed to show even a causal connection
between the competitors’ complaints and the supplier's actions.
These restrictive holdings concerning the quantum and character
of the evidence required for jury consideration of a Section |
Sherman Act case seriously undermine the decisions of this
Court and conflict with decisions of the Second, Seventh and
Ninth Circuits, and prior decisions of the Third Circuit, con-
cerning the essential role of circumstantial evidence in proving
an unlawful combination or conspiracy. The decision below
should be reviewed because it disregards the realities of market
8
behavior, abrogates the jury’s role as finder of fact, ignores the
virtual impossibility of producing direct evidence of unlawful
combination, and imposes an unwarranted standard of proof
upon antitrust plaintiffs.
The well settled standard for reviewing a motion for a
directed verdict is that the evidence must be viewed as a whole,
drawing all reasonable inferences in favor of the party opposing
the directed verdict, and that the credibility of witnesses and
evidence should not be weighed. Continental Ore Co. v. Union
Carbide and Carbon Corp., 370 U.S. 690, 696-699 (1962).
Both the district court and the Third Circuit panel majority de-
parted from this undisputed tenet in this case. The Third Circuit
opinion, echoing the district court, ignored a plethora of evi-
cence presented at trial by Sweeney,’ and then concluded that
the evidence was “meager” and “insufficiert”. On the other
hand, the dissent below, viewing the evidence as a whole, con-
cluded that a jury could have found a Sherman Act § 1 violation.
More importantly, both courts usurped the jury’s function
as a finder of fact by selectively and mistakenly examining the
evidence and by weighing the credibility of witnesses. The ma-
jority below’s selective analysis is exemplified in its treatment of
the testimony of Daniel A. Doherty, Texaco’s Regional Man-
ager for the Philadelphia Region. Doherty offered unilateral
business justifications for Texaco’s actions against Sweeney. The
majority opinion focuses on those segments of his testimony,
stresses statements which arguably were self-serving, and con-
ciudes that Sweeney’s price-cutting marketing strategy was not «
determinative factor in Texaco’s decisions and actions. (Ap-
pendix A, at pp. 41-43).
It has been well established by this Court that action which
appears to be unilateral behavior can be considered as part of a
7 The district court considered only two pieces of evidence: complaints
were made to Texaco and the testimony of one of petitioners’ witnesses
which was characterized as biased and speculative. The majority below
considered the testimony of two additional witnesses: the Texaco execu-
tive who terminated Sweeney, and a part of the testimony of another
Texaco employee, Glenn B. Murray, which the court below concluded
was entitled to little or no weight.
9
combination when viewed in light of the surrounding circum-
stances. See, e.g., United States v. Parke, Davis & Co., 362 USS.
29 (1960); American Tobacco Co. v. United States, 328 U.S.
781 (1946); Interstate Circuit, Inc. v. United States, 306 U.S.
208 (1939); Eastern States Retail Lumber Dealers’ Association
v. United States, 234 U.S. 600 (1914). In this case, Doherty,
who made the decision to terminate Sweeney’s distributor agree-
ment, testified that he was aware of the complaints to Texaco
from competing retailers and distributors about Sweeney’s pric-
ing tactics prior to his decision, and he was aware of Sweeney’s
price cutting strategy. Further, he admitted that “Sweeney’s
marketing strategy” and “the consequences of it” were among
the elements that entered into his decision to terminate Sweeney.
(Appendix A, at p. 41).
When different inferences might easily be drawn from the
evidence, it is the jury which “ ‘weighs the contradictory evidence
and inferences’ and draws ‘the ultimate conclusion as to the
facts’. Continental Ore v. Union Carbide, supra at 700-701,
quoting Tennant v. Peoria & P.U.Ry. Co., 321 U.S. 29, 35
(1944). The circumstances surrounding Texaco’s actions of
changing Sweeney’s hauling allowance and terminating its dis-
tributorship were not subject to only one interpretation. Whether
Texaco acted in response to the complaints to curtail the com-
petitive situation created by Sweeney’s price cutting practices
was a fact issue which should have been submitted to the jury.
The court below’s statement “that even if appellants had
demonstrated that Texaco’s actions were in response to these
complaints, such evidence alone would not show the necessary
concerted action” (Appendix A, at p. 38) is a novel and re-
strictive interpretation of antitrust law. This holding is also con-
trary to the long and unbroken series of decisions of this Court
which has established that direct evidence of a combination or
conspiracy is not necessary in a Sherman Act § 1 case, and that
it may be proved entirely by circumstantial evidence. United
States v. General Motors Corp., 384 U.S. 127, 142-143 (1966).
See also, United States v. Parke, Davis & Co., supra at 43; Inter-
state Circuit v. United States, supra at 221; FTC v. Beech-Nut
10
Packing Co., 257 U.S. 441, 455 (1922). This Court has recog-
nized that conspiracies or combinations, by their very nature,
are seldom susceptible to direct proof, and may be inferred from
circumstantial evidence such as the conduct of the alleged con-
spirators. Interstate Circuit v. United States, supra at 221;
Eastern States Retail Lumber Dealers’ Ass'n. v. Jnited States,
supra at 612. Therefore it is improper for a court in a § 1 Sher-
man Act case to require that “the relevant circumstances compel
an inference of conspiracy with the directness and ineluctability
of a logician’s proof.” Trist v. First Fed. S&L Assn. of Chester,
466 F.Supp. 578, 590 (E.D. Pa. 1979). This, however, is the
effect of the Third Circuit’s opinion in the instant case.
No authority is cited by the court below in support of its
proposition that complaints and responsive action cannot con-
stitute a combination necessary to bring an action within the
scope of Section 1 of the Sherman Act. The district court relied
on four cases to support its acceptance of this proposition:
Westinghouse Electric Corp. v. CX Processing Laboratories, 523
F.2d 668 (9th Cir. 1975); Klein v. American Luggage Works,
Inc., 323 F.2d 787 (3d Cir. 1963); Carr Electronics Corp. v.
Sony Corp. of America, 472 F. Supp. 9 (N.D. Cal. 1979);
Carbon Steel Products Corp. v. Alan Wood Steel Co., 289
F. Supp. 584 (S.D.N.Y. 1968). These cases are not dispositive
of the instant case; they are factually distinguishable and/or do
not support the proposition for which they were cited.
The Seventh Circuit, in the recent case of Trabert &
Hoeffer, Inc. v. Piaget Watch Corp., 633 F.2d 477 (7th Cir.
1980), explicitly rejected the defendants’ arguments that cir-
cumstantial evidence of competitors’ complaints and responsive
actions thereto was insufficient evidence to support an inference
of illegal conspiracy.* It found that the two cases relied upon by
the defendants (and the district court in Sweeney), Klein and
8Ir Trabert & Hoeffer, the Seventh Circuit affirmed the judgment of
the district court, sitting without a jury, that the circumstantial evidence
of complaints about plaintiff's excessive discounting by its competitors
and the supplier’s action and conduct in response to the complaints sup-
ported a reasonable inference of illegal conspiracy or combination in
violation of Section 1 of the Sherman Act. Supra at 480-481.
11
“Carbon Steel, were inapplicable. Id. at 482. Both cases are
similarly distinguishable from the instant case. In Klein, 323
F.2d at 789, 791, the court’s decision turned on the fact that
there was no evidence that the complaints were directed against
a particular retailer or that the manufacturer ever received the
complaints. There could be no combination with the manufac-
turer under that circumstance. In Sweeney, however, there was
ample evidence that the complaints were specifically directed at
Sweeney’s discount pricing and that Texaco’s corporate decision-
makers not only received the complaints, but also discussed
them and investigated Sweeney’s pricing practices in the market
prior to the termination. In Carbon Steel, 289 F.Supp. at 588,
the decision granting summary judgment for defendant was
based on the absence of any indication that the refusal to deal
was enacted jor the reasons cited in the two customer com-
plaints. There, defendant’s denial that the purported offensive
activity was a reason for its action was supported by uncontra-
dicted evidence of good business reasons for terminating
Carbon.”
The district court below also relied on the Ninth Circuit
case, Westinghouse Electric Corp. v. CX Processing Labora-
tories, Inc., 523 F.2d 668 (9th Cir. 1975). That case is in-
apposite because it does not even address the issue of whether
complaints and responsive action constitute a Sherman Act § l
combination. The Ninth Circuit affirmed judgment for defendant
because there was no evidence of any complaints to Westing-
house about CX’s marketing practices. The court expressly
noted that the telephone calls to Westinghouse by CX’s competi-
tors were requests for favorable price arrangements similar to
those which CX enjoyed, and were not complaints. Jd. at 674.
® Further it is respectfully submitted that Carbon Steel erroneously
interpreted Klein as holding that: “A combinatior violative of Section 1
of the Sherman Act cannot be implied from [the fact of competitors’
complaints], since it was the normal working of the marketplace for
them to do so.” Id. at 588. (emphasis added). In the contrary, the Third
Circuit in Klein did not state such a sweeping rule; nor has any other
Circuit adopted it.
12
Another Ninth Circuit decision, where the court con-
sidered a fact situation similar to that presented in Sweeney, was
not addressed by the court below and was disregarded by the
district court. In Girardi v. Gates Rubber Company Sales Divi-
sion, Inc., 325 F.2d 196 (9th Cir. 1963), the court reversed the
decision of the district court in granting a directed verdict for
defendant, finding that sufficient circumstantial evidence of a
combination was presented to warrant submission of the case to
a jury. In that case, as here, the basis of the conspiracy claim
was competitors’ complaints about a discounter to the manufac-
turer, and responsive action by the manufacturer in cutting off
the discounter’s source of supply. The Ninth Circuit, unlike the
courts below, took a realistic view of the difficulties in producing
direct evidence in such cases, noting that neither the complainants
nor the supplier’s officers are likely to testify to a conspiracy; but
that circumstantial evidence “is the only manner in which a case
of this kind could ordinarily be established.” Jd. at 200. The
court also held that it would be a fair inference that the com-
plaints were designed to elicit some action by the manufacturer.
As Judge Pope stated id.:
It seems to us to be clear that if the facts here, as claimed
by the appellant, are that Oranges as a competitor of
Girardi, the price cutter, induced and participated in action
which resulted in Girardi being cut off from a supply of
this merchandise, then the case would be precisely within
the rationale of United States v. Socony-Vacuum Oil Co.,
[310 U.S. 150 (1940)], for it is normally the competitor
who is being hurt by price cutting who is likely to seek
coercive action against the competitor who is hurting or
likely to hurt him. We think that a typical case of illegal
conspiracy to fix prices would arise from the desire of one
dealer to eliminate his price cutting competitor through
concerted action with the manufacturer. The simplicity of
the case claimed by appellant is no argument against him.
The district court’s disregard of Girardi in this case resulted
from its myopic and selective consideration of the evidence pre-
sented by Sweeney as well as its specious analysis of the cases it
13
relied on. Instead of making a paradigmatic comparison to the
particular facts in Girardi and Carr Electronics, supra,’® the
court should have decided the instant case based upon its own
particular facts. Maple Flooring Mfrs.’ Ass'n. v. United States,
268 U.S. 563, 579 (1925).
Here, neither the district court nor appellate majority con-
sidered all the evidence presented by Sweeney. Nor did either
lower court view the evidence to see whether the existence of a
conspiracy could be proved by a development and collation of
the circumstances, and inferred from the things said and done.
Loew’s, Inc. v. Cinema Amusements, 210 F.2d 86 (10th Cir.
1954). Instead, the district court explicitly found that Sweeney’s
evidence was insufficient because there was no direct evidence
that Texaco took its actions against Sweeney in response to the
competitors’ complaints. The court specifically stated thar
Sweeney’s evidence was deficient because “Sweeney had not
even introduced evidence of internal memoranda” of Texaco
which would indicate that Texaco responded to the complain-
ants, nor had Sweeney introduced evidence that Texaco “told
Sweeney that it would take any action in response thereto”
(Appendix B, at p. 106). Therefore, it is apparent that the effect
of the Third Circuit’s opinion is to require nothing less than
direct evidence of the causal relation between the complaints
and Texaco actions. The majority discounted the testimony of
two former Texaco employees with extensive experience at
Texaco and knowledge of how Texaco’s business decisions were
made because neither of them testified that he knew as a fact
that Texaco changed Sweeney’s hauling allowance and termi-
nated Sweeney in response to the competitors’ complaints. By
10 In Carr, plaintiff alleged that it was terminated because it failed to
follow Sony’s retail price suggestions. The record contained only evidence
of complaints by dealers and Sony’s action of terminating Carr. There
was no evidence that other dealers followed Sony’s suggested prices, and
there was evidence that other dealers priced below Carr. The court held
that there was no evidence of any reason for the termination, reasons that
would lend credence to Carr’s theory that Sony acted in response to
dealer complaints.
14
requiring such direct evidence of a combination, the Third Cir-
cuit’s opinion may insulate a sophisticated business concern, such
as Texaco, from antitrust liability. Potentially incriminating in-
ternal memoranda are rarely maintained and are easily de-
stroyed,"’ and corporate officers often are hostile witnesses. Pol-
ler v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473
(1962). Further, reading a requisite of prior warning into proof
of a Sherman Act § 1 combination is illogical and contravenes
the purposes of the antitrust laws because it places the fulfill-
ment of that requirement solely in the hands of the alleged
conspirators.
The Third Circuit’s opinion is also contradictory to a prior
opinion of this Circuit, Cernuto, Inc. v. United Cabinet Corp..,
595 F.2d 164 (3rd Cir. 1979). There the court considered the
plaintiff retail store’s allegation that the defendants, a supplier
(“United”) and its agent (“Lappin”), terminated him because
of the complaints of another retailer (“Famous”), and found
that the necessary elements of a conspiracy existed and that it
would be a per se violation of Section 1 of the Sherman Acct, if
proven at trial. Judge Adams” stated:
Cernuto’s pretrial narrative statement points to the cen-
trality of price in the combination of Famous, Lappin, and
United to cut off plaintiff. The thrust of Famous’ com-
munication to United, it is alleged, was ‘that (Cernuto)
was selling United products in Famous’ territory and that
(Cernuto) was a low price volume dealer.’ [footnote omit-
ted] Cernuto is a ‘discount house’, and, it must be pre-
sumed, was prepared to sell United cabinets at prices lower
than those offered by Famous. Famous’ concern, under-
standably, was that Cernuto’s low prices would force
11 This Court recognized this in Norfolk Monument Co. vy. Woodlawn
Memorial Gardens, 394 U.S. 700, 704 (1969) where it was held that the
existence of letters, agreements or any other testimonial to a conspiracy
is not necessary to prove an unlawful conspiracy.
12 It is pertinent that neither Judge Adams nor Judge Weis, the Third
Circuit judges in Cernuto, sat on the panel in Sweeney nor considered
the petition for rehearing.
15
Famous’ own prices down if it were to compete effectively
in selling United cabinets. By prevailing upon United and
Lappin to terminate their contract with Cernuto, Famous
effectively eliminated the threatened competition and was
able to maintain prices at its own preferred levels. It is just
this type of conduct that the antitrust laws are designed to
reach. [parentheses in original]
Id. at 169. The Third Circuit in Sweeney has narrowly inter-
preted Cernuto to hold only that the action alleged a per se
violation of the Sherman Act. (Appendix A, at p. 46). However,
the Seventh Circuit in two recent cases has expressly adopted
the reasoning in Cernuto pertaining to both sufficiency of evi-
dence of conspiracy and per se violation. In Alloy International
Co. v. Hoover-NSK Bearing Co., 1980-81 Trade Cases 463,148,
at 77,706 (7th Cir. 1980), Judge Tone relied primarily on
Cernuto, which was quoted at length and explicitly followed,
where a competitor complained about a price cutter to the sup-
plier and the price cutter was terminated. The court held that
the evidence “would have permitted the jury to find that the
defendant, manufacturer refused to sell to the plaintiff distribu-
tor as a result of an agreement with the latter's competitor
aimed at eliminating price competition between the distribu-
tors.” Jd. at 77,707. It is significant that in this case there was
no direct evidence of the causal connection between the com-
plaints and the termination. The Seventh Circuit did interpret
Cernuto as requiring that the manufacturer also must be price
motivated, but proof of that motivation was circumstantial evi-
dence that the manufacturer “recognized that its ability [to
raise its own prices] might well be influenced by the prices at
which the bearings were resold abroad.” Jd. at 77,707. Similarly
in Sweeney, evidence was presented that Texaco wanted to elim-
inate or reduce price competition for its gasoline including, inter
alia, that Sweeney’s price cutting adversely affected Texaco’s in-
vestment-retailers’ volume and price, and adversely affected
Texaco’s rental revenue from those investment stations which
was based upon their volume. In Alloy International, the Sev-
enth Circuit also held that when there was evidence of com-
16
petitors’ complaints about a discounter to the manufacturer and
response thereto, the question of whether there was a combina-
tion violative of Section 1 of the Sherman Act was for the jury
to decide. Jd. at 77,707.
The Seventh Circuit has recently reaffirmed the principles
and reasoning of Alloy International in CUSCO v. Certain-teed
Products Corp., 1981 Trade Cases € 63,714, at 77,802 (7th
Cir. 1981). The court explained that although manufacturers
have broad discretion in their dealings, “Alloy International and
Cernuto recognize that this discretion is overstepped when: (1)
a manufacturer terminates a dealer upon the request of another
dealer and, (2) that termination .s motivated by a desire to
reduce or eliminate price competition.” Jd. at 77,807.
A recent decision of the Second Circuit is directly contrary
to the Third Circuit’s holding that circumstantial evidence alone
is insufficient to prove a § 1 Sherman Act conspiracy between a
distributor and a supplier. In Beech Cinema, Inc. v. Twentieth
Century-Fox Film Corp., 622 F.2d 1106 (2d Cir. 1980), the
Second Circuit, affirming a treble-damage jury verdict, held that
the trial court had properly denied defendant’s motion for a
directed verdict where there was no direct evidence of a con-
spiracy. Jd. at 1110. While conceding that the indirect evidence
adduced was “less than overwhelming proof of a conspiracy,”
the Second Circuit correctly recognized that the circumstantial
evidence of a conspiracy and the evidence contradicting the
proffered business justification created issues of fact for jury
determination, and not for the reviewing court. /d. at 1110.
In Beach Cinema, supra, plaintiff theaters alleged that
defendant film supplier had conspired with a competing theater
chain to deprive plaintiffs of supplier’s film. Defendant Fox
13 This reasoning would also be applicable to the situation where a
supplier took action against a price cutter to raise its prices, by increasing
its costs, such as in the instant case, changing Sweeney’s hauling allow-
ance. As this Court stated in United States v. Socony-Vacuum Oil Co.,
310 U.S. 150, 221 (1940), any combination that tampers with price
structures by raising, fixing, depressing, pegging or stablizing prices is
engaged in unlawful activity which interferes with market forces.
17
asserted that it acted unilaterally in refusing to deal with plain-
tiffs, claiming a legitimate business reason of a $7500 debt owed
to Fox by plaintiffs. The Second Circuit agreed that this busi-
ness justification was controverted by evidence that there was
no demand for payment until after Fox began acting against
plaintiffs, that Fox informed plaintiffs of this “reason” after-the-
fact, and that other theaters owed defendant more money. Simi-
larly, in the instant case, Texaco’s purported business justifica-
tions were contested by evidence that Sweeney was never
informed of customer complaints nor warned against commin-
gling, which was done by other distributors, that the alleged
cost savings studies were created after-the-fact, and that Texaco
refused to give any reason for its action at the time it terminated
Sweeney’s distributor agreement.
The Third Circuit’s holding that something more than evi-
dence of competitors’ complaints and the supplier’s responsive
actions is required appears to be derived from the cases con-
cerning the issue of whether a combination may be inferred
from parallel behavior. Theatre Enterprises, Inc. v. Paramount
Film Distributing Corp., 346 U.S. 537 (1954); Interstate Cir-
cuit, Inc. v. United States, supra. The present case is clearly not
a “conscious parallelism” case because the conspiracy was not
between competitors, but between a supplier and its distributors,
and there was evidence of direct communication between the
alleged conspirators. Moreover, even if this case were analyzed
under a “conscious parallelism” framework, there still was suffi-
cient evidence of a conspiracy violative of § 1 of the Sherman
Act.
The Third Circuit, in Venzie Corp. v. United States Min-
eral Products Co., 521 F.2d 1309, 1314 (3d Cir. 1975), set
forth two additional criteria, “plus factors,” in conscious paral-
lelism cases: acts contrary to the actor’s self-interest; and moti-
vation. The lower courts’ finding of fact that the criteria were
not met was an usurpation of the function of a jury. The courts’
factual conclusion that Texaco did not act contrary to its eco-
nomic interest when it changed Sweeney’s hauling allowance was
based upon a Texaco cost saving study which the panel majority
18
below mischaracterized as an “undisputed fact” (Appendix A, at
p. 45). On the contrary, Sweeney vigorously challenged Tex-
aco’s self-interest claim and the relevance of this evidence.
Texaco introduced two cost studies, neither of which was
contemporaneous with its decision to change Sweeney’s delivery
point. The first study, showing savings of less than $2200 a
year, was made in 1966, four years prior to the change in
Sweeney’s hauling allowance. The second study, purporting to
show a savings of $58,000, was prepared on the eve of trial in
1979. From the non-production of a contemporaneous cost
study, the jury could have inferred that none existed and that
Texaco’s evidence was a camouflage for its real motivation.
This inference could have been supported by the fact that in
the year its distributorship agreement was terminated, Sweeney
was Texaco’s leading distributor in volume in the Southeastern
Pennsylvania-New Jersey area from which Texaco derived sub-
stantial profits.’
As shown above, since the restrictive interpretation of the
quantum and character of evidence required for jury considera-
tion of a § 1 Sherman Act case adopted by the Third Circuit in
this case is in serious conflict with the decisions of this Court
and of the Second, Third, Seventh and Ninth Circuits and im-
poses an untenable standard of proof on antitrust plaintiffs, the
Petition for Writ of Certiorari should be granted.
Ii. Denial Of Injunctive Relief On A § 2(a) Robinson-Patman
Act Claim Was Improper Where A Seller Charges Different
Prices, Based Upon An Admitted Phantom Event, To Com-
peting Purchasers Who Perform Identical Functions.
The Third Circuit affirmed both the district court’s order
denying injunctive relief under Section 2(a) of the Robinson-
%* The Third Circuit’s disregard of the fundamental role of a jury in
such a determination is clearly contrary to this Court’s decision in
Theatre Enterprises, supra at 542. There Justice Clark affirmed that
it is proper for the jury to decide the fact issue of what was in the
actor’s self-interest in determining the ultimate fact question of whether
there was a combination in violation of Section 1 of the Sherman Act.
19
Patman Act, and its order directing a verdict for Texaco on
Sweeney’s § 2(a) damage claim, based upon the district court's
conclusion as factfinder on the injunctive claim that Sweeney
proved no violation of the Act. The couri below thereby disre-
garded the district court’s finding that Sweeney had produced
sufficient evidence on its damage claim for a jury to find price
discrimination by Texaco violative of the Act, and evaded a
close review standard of proof regarding damages under the
Robinson-Patman Act. Because the damage issue was crucial
in granting the directed verdict, this will be discussed in Sec-
tion III, infra.
The Third Circuit’s decision that there was no discrimina-
tion in violation of § 2(a) of the Robinson-Patman Act as a
matter of law should be reviewed by this Court because it (1)
contradicts this Court’s decisions in FTC v. Morton Salt, 334
U.S. 37 (1948) and Corn Products Refining Co. v. FTC, 324
U.S. 726 (1945), (2) misinterprets the Second Circuit’s deci-
sion in FLM Collision Parts, Inc. v. Ford Motor Co., 543 F.2d
1019 (2d Cir. 1976), cert. denied, 429 U.S. 1097 (1977), and
(3) applies an unconstitutional standard in this case based on
the size of purchaser. This Petition for Writ of Certiorari should
also be granted because the decision below fails to apply the
governing principles of the Robinson-Patman Act to the facts
in this case and threatens the continued vitality of the Act in
the Third Circuit.
In holding that Texaco’s hauling allowance system did not
discriminate in price between Sweeney and its competing dis-
tributors, the Third Circuit relied explicitly on the Second Cir-
cuit’s decision in FLM Collision Parts, supra. That this was a
misapplication of the law to the facts in this case is clearly evi-
dent from that decision. In FLM Collision Parts, Ford dealers
received one price when functioning as a retailer, and a lower
price when functioning as a wholesaler by selling to independent
repair shops. The Second Circuit held that the Robinson-Pat-
man Act permits a seller to offer dual prices to its customers
when they perform different functions in the line of distribution
20
so long as they receive the identical allowance for each function.
543 F.2d at 1024, 1026. Further, the Second Circuit expressly
indicated that its holding in FLM Collision Parts was case-
specific:
We do not suggest or imply that, if a manufacturer grants
a price discount or allowance to its wholesalers . . . which
has the purpose or effect of defeating the objectives of the
Act, § 2(a)’s language may not be construed to defeat it.
Id. at 1027. In this case, the competing purchasers were all
distributors of gasoline who performed the identical function
for the seller, Texaco.
It has long been recognized that “basing point” systems
and “phantom freight” charges are illegal, violating § 2(a) of
the Robinson-Patman Act. FTC v. Cement Institute, 233 U.S.
683 (1948); Corn Products Refining Co. v. FTC, supra; FTC v.
Staley Mfg. Co., 324 U.S. 746 (1945). Based on those cases,
Texaco’s conduct in the present situation was illegal. In those
cases, the purchasers were charged with excess freight; in the
present situation, Sweeney was credited with insufficient hauling
allowances. In those cases, the point of origination was fictional;
in the present case, the point of destination is fictional. Never-
theless, the common factor in those cases and in this case is that
there was no relation between the price charged and the actual
cost of production and delivery.
In FTC v. Morton Salt, supra, this Court found price
discrimination because the lower prices were available to all
purchasers only in theory, and not in fact. 334 U.S. at 42. In
this case, Texaco’s hauling allowance gives equal treatment to
its distributors only in theory, and not in actuality, because the
allowance is based on an illusory event (hauling to the distribu-
tor’s bulk plant) which Texaco admits does not occur.
The Third Circuit supports its holding that there is no
discrimination in this case by the fact that “it was the distribn-
tors, not Texaco, who determine where to place their bulk
plants, and it is the distributors, not Texaco, who decides which
21
retail stations they will supply.” (Appendix A, at p. 57). If the
Third Circuit’s cursory reasoning were applied to the facts that
existed in FTC v. Morton Salt, supra., it would have found no
discrimination. In Morton Salt, the seller’s quantity discount
formula appeared non-discriminatory on its face. The seller had
no control over the size of the purchaser’s enterprise, nor the
quantity of salt each purchaser could buy and handle. Further,
the discount differed only a few cents. However, in Morton Salt
this Court did not examine the alleged discrimination in a
superficial, theoretical fashion; instead, the seller's formula was
scrutinized in terms of existent market reality, and found dis-
criminatory.
The Third Circuit completely ignores the historically-
evolved market realities in this case. Regardless of the location
of their bulk plants, Sweeney and its competing distributors pro-
vide the identical function in the same market; yet, because their
hauling allowances are based on a phantom event, the allow-
ance as it exists has the effect of discriminating in price against
competing purchasers.
Misinterpreting this Court’s holding in Morton Salt, supra,
the Third Circuit also concluded that the evidence in this case
was insufficient because “(t)he record fails to show that small
buyers, whom the act was primarily intended to protect, are dis-
advantaged by the formula.” (Appendix A, at pp. 57-58). The
court is reading a requirement of size into the Robinson-Patman
Act without any legal precedent. No court has ever weighed the
sizes of the favored and disfavored purchasers as a prerequisite
to finding discrimination under the Act. Nor is there anything
in the statute to support such an exclusionary interpretation,
since: the statute is not couched in terms of size of the pur-
chasers. This attempt to read a size criterion into the Act, would
violate the “equal protection” clause of the Fifth Amendment,
because it would apply a different standard to large purchasers
than to small purchasers.
Although the legislative history of the Act indicates that a
primary concern was to protect small businesses, the broader
22
purpose was to protect competition. Discrimination in price
against a large purchaser certainly may have anticompetitive
effects, particularly when that purchaser is a strong competitive
force in a market, as was Sweeney. Given this situation, Texaco
used the hauling allowance formula as an instrument to dis-
criminate against Sweeney. By reducing Sweeney’s hauling al-
lowance by half, and thereby increasing its costs, Sweeney was
forced by Texaco to pay more than its competing distributors
for the identical product in the identical market.
It is readily apparent that the Third Circuit’s opinion in
this case contravenes fundamental principles of the Robinson-
Patman Act, in the statute itself and as enunciated by this
Court. The Petition for Writ of Certiorari should be granted to
prevent the emasculation of the Act in the Third Circuit and
other circuits which may adopt this decision as precedent.
Ill. When There Is Proof Of Direct Damage To A Disfavored
Purchaser As A Result Of A § 2(a) Robinson-Patman Act
Violation, The Jury Should Be Permitted To Determine The
Amount of Damages.
There is a clear schism between the Courts of Appeals on
the standard of proof of damage required to be adduced in a
§ 2(a) Robinson-Patman Act case. A uniform rule is needed on
this matter of great importance because the standard of proof
adopted by many of the Circuits, including the Third Circuit,
presents an impractical and insurmountable burden of proof
on victims of discriminatory pricing practices. The decision
below should be reviewed because the standard applied by the
Third Circuit severely undermines private plaintiffs’ right to
redress injuries sustained by discrimination in price violative of
the Robinson-Patman Act.
The trial court below directed a verdict against Sweeney
solely on its finding that Sweeney had not produced evidence of
injury from which the jury could determine damages. If the trial
court had not relied upon the “consequential damage rule”
23
evolved from Enterprise Industries, Inc. v. Texaco Co., 240
F.2d 457 (2d Cir.), cert. denied, 353 U.S. 965 (1957),
Sweeney’s Robinson-Patman claim for damages would have
been submitted to tie jury.*®
The Enterprise rule, as adopted by several circuits’, is that
damages to a disfavored purchaser can be proved to the extent
that it was injured because the favored purchaser, by using the
discriminatory price difference, actually drew sales or profits
from the disfavored competitor. In this case, the district court
found that Sweeney did not meet this standard, since there was
“no evidence of how many customers Sweeney lost to competi-
tors as a result of the discrimination . . .” (Appendix B, at p.
142) (emphasis added). Instead, Sweeney introduced evidence
that it was directly injured by the price discrimination as a result
of the changed hauling allowances because Sweeney absorbed
the increased cost, thus reducing its profits, and relied on the
“direct damage rule” set forth in Elizabeth Arden Sales Corp. v.
Gus Blass Co., 150 F.2d 988 (8th Cir. 1945).
In Elizabeth Arden, supra, the Eighth Circuit held that
where the costs flowing from the discrimination were absorbed
by the disfavored purchaser, there was general or “direct” dam-
ages. The Court there reasoned that:
. .. the result of the discrimination in the present case was
to leave [Plaintiff] with a burden of expense in the han-
dling of [Defendant’s] products that [the competitor] was
not required to bear. This unequal expense-burden which
15 The trial court held that Sweeney had presented sufficient evidence
of the other requirements of proof under the Act for jury consideration:
discrimination in price occurring in interstate commerce, which had anti-
competitive effect. (See Appendix B, at p. 137).
16 See, e.g., Chrysler Credit Corp. v. J. Truett Payne, Inc., 607 F.2d
1133 (Sth Cir. 1979), cert. granted, 101 S.Ct. 70 (1980); Dantzler v.
Dictograph Products, Inc., 309 F.2d 326 (4th Cir. 1962), cert. denied, 372
U.S. 970 (1963); Freedman v. Philadelphia Terminals Auction Co., 197
F.Supp. 849 (E.D. Pa. 1961), aff'd, 301 F.2d 830 (3d Cir.), cert denied,
371 U.S. 829 (1962).
24
[Plaintiff] would not have had to bear if there had been
no discrimination was clearly a direct business-damage .. .
150 F.2d at 996. This situation of absorbing the amount of the
discriminatory overcharge was both the basis for the injury and
the basis for computing damages. The Eighth Circuit also rec-
ognized that situations were possible under the Robinson-Pat-
man Act where there would be no direct damages, and thus the
rule would not be applicable to a case in which the alleged
damages were only consequential. Jd. at 996.
This distinction between direct damages and consequential
damages was also acknowledged in Enterprise, supra. An analy-
sis of Judge Hand’s opinion indicates that the case did not hold
that direct damages (absorption of profits) could never be the
measure of damages in a Robinson-Patman case. In Enterprise,
Judge Hand found that in that case there was no evidence that
the plaintiff had absorbed the price difference, and he therefore
refused to allow the amount of discrimination to be the measure
of damages. 240 F.2d at 459. However, in his discussion of
Bruce’s Juices, Inc. v. American Can Co., 330 U.S. 743 (1947),
Judge Hand stated: “If that were true [absorption], the amount
of the discrimination might well be a proper measure of the
buyer’s damages.” Enterprise, supra at 459. This is in harmony
with the “direct damage rule” of Elizabeth Arden, supra, relied
on by Sweeney. Unfortunately, courts which have subsequently
adopted the Enterprise rule have overlooked this congruity, and
have instead interpreted the Enterprise rule to be the one and
only standard for proof of damages.
The interpretation that the Enterprise rule is the exclusive
standard of proof of damages under the Robinson-Patman Act
is not supported by decisions of this Court. In Perkins v. Stan-
dard Oil Co., 395 U.S. 642 (1969), this Court stated: “Before
an injured party can recover damages under the Act, he must,
of course, be able to show a causal connection between the price
discrimination in violation of the Act and the injury suffered.”
Id. at 648. Therefore, if a purchaser were the victim of a dis-
criminatory price, he could show that he absorbed some or all
a
25
of the price difference, thereby depleting his capital (direct
damages), or he could show that by passing on the price in-
crease to his customers, he lost sales (consequential damages).
Under the Perkins rule, one or the other must be proven.
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 US.
477 (1977) neither mandates nor affirms the Enterprise rule.
Brunswick was a merger case under the Sherman Act in which
this Court stated that the injury must flow from the violation
and the injury must be an “antitrust injury.” Jd. at 489. There
the plaintiffs claimed that defendant’s acquisition had increased
competition to plaintiffs’ detriment, and they sought damages
for the profits they would have received if competition had been
reduced. In Brunswick, competition clearly was not harmed,
only the competitor. As this Court stated, the purpose of the
antitrust laws is to protect competition and not competitors. Jd.
at 488. Unfortunately, lower courts have taken that famous
sentence out of context, and contorted it to mean that injury to
a single competitor cannot show injury to competition. Basic
economic reality refutes this shortsighted view. Clearly, price
discrimination against a competitor can have severe anticom-
petitive effect in a market, particularly where there are few
competitors, and where the injured competitor has been a
dynamically-competitive and expanding business in the market,
as was Sweeney.
The Enterprise rule, as interpreted by the Third Circuit, is
a harsh and inflexible standard which imposes an impractical
and insurmountable burden of proof of damage. It creates an
enormous loophole for those who engage in discriminatory
practices to escape liability and penalty for their wrongful acts.
As was demonstrated in this case, exclusive application of the
Enterprise rule results in a paradoxical situation where a party
has sufficient evidence to show that it was a victim of discrimina-
tory pricing practices and was damaged, but it has no legal re-
dress because of an inability to prove damages with the requisite
particularity. Sweeney has proof of loss from absorbing the
higher costs as well as evidence from which a jury could deter-
26
mine with reasonable exactitude the amount of damages.*’ How-
ever, Sweeney did not have proof of lost customers nor detailed
price movement studies of his competitors who were not dis-
criminated against by Texaco.
The Herculean nature of the burden the Enterprise rule
places on a victim of price discrimination is illustrated by the
district court’s statement:
As long as Enterprise is the law of this circuit a plaintiff
must show a specific, competitor by competitor breakdown
of the damages he incurred as a result of the alleged dis-
crimination before he can recover.
(Appendix B, at p. 145 n. 72). In effect, this was requiring
Sweeney to prove a negative, i.e. that he lost sales and the
amount of those lost sales. This burden is yet greater because
this negative would have to be proved by direct evidence ascer-
tainable only by obtaining and evaluating the complete finan-
cial, marketing and pricing records of his competitors. Perhaps
in some product markets, price changes may be shown with rela-
tive ease. But the gasoline industry is surely not the only one
where requirement of price comparisons of this magnitude
creates an onerous and impossible burden on a Robinson-Pat-
man Act plaintiff. The Enterprise rule, as interpreted and ap-
plied by the Third Circuit, provides no flexibility for adapting
to the reality of a particular market as shown in a particular
case.
In this case, it is apparent that the Third Circuit has
adopted an extremely stringent interpretation of the Enterprise
rule. In affirming the directed verdict below, the Third Circuit
stated that the “consequential damages rule” is that “the illegal
17 Also, Sweeney tried to admit into evidence two exhibits which com-
pared the hauling allowance of its competitors, and showed his profit for
gasoline on a per-gallon basis, the gallons sold and the loss incurred. The
court refused to admit these exhibits into evidence because they contained
the combined profit figures for all three petitioners, and the court had
granted summary judgment against petitioners Mission and Petroleum
on their damage claim. See Section IV, infra.
27
discrimination can only be used to quantify damages if the
plaintiff demonstrates that the favored purchasers lowered their
prices in an amount equivalent to the benefit they received.”
(Appendix A, at p. 53) (emphasis added).
This holding nullifies the “direct damages rule” and ignores
market reality. More importantly, it imposes a requirement that
the jury be able to calculate the amount of damages with math-
ematical certainty, which is contrary to this Court’s decision in
Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S.
481 (1968).
In this case, there was evidence of the amount of dis-
crimination, i.e. the different costs charged Sweeney and the
favored competing purchasers. There was competent evidence
that Sweeney absorbed the price difference and of the amount
absorbed. The “direct damage rule” should have been applied,
and the case submitted to the jury. For these reasons, the Peti-
tion for Writ of Certiorari should be granted.
IV. Summary Judgment Against Indirect Purchasers Who Pur-
chase On A Cost-Plus Basis Contradicts This Court’s De-
cision In Illinois Brick.
The Third Circuit affirmed the district court’s order grant-
ing summary judgment against petitioners Mission and Petro-
leum on their claims for damages under Section 1 of the
Sherman Act and Section 2(a) of the Robinson-Patman Act.
The Petition for Writ of Certiorari should be granted because
this decision is contrary to the recognized exception to the in-
direct purchaser doctrine expressed by this Court in TJllinois
Brick Co. v. Illinois, 431 U.S. 720 (1977), and adopted by the
Third Circuit in Mid-West Paper Products Corp. v. Continental
Group, 596 F.2d 573 (3d Cir. 1979).
In Illinois Brick, supra, this Court held that indirect pur-
chasers of a manufacturer were banned from suing in private
antitrust suits under Section 4 of the Clayton Act, 15 U.S.C.
28
§ 15. In deciding /llinois Brick, this Court noted that the ratio-
nale behind Hanover Shoe v. United Shoe Machinery Corp.
392 U.S. 481 (1968) was equally applicable to plaintiffs and
defendants. A major reason for the decision in Hanover Shoe,
this Court explained, was “an unwillingness to complicate
treble-damages actions with attempts to trace the effects of the
overcharge on the [indirect] purchaser’s prices, sales, costs, and
profits, and of showing that these variables would have behaved
differently without the overcharge.” 431 U.S. at 725. Therefore,
this Court held that offensive pass-on cannot be used except
where “[t]he effect of the overcharge is essentially determined
in advance, without reference to the interaction of supply and
demand that complicates the determination in the general case.”
Id. at 736. One exception that this Court explicitly recognized
in Illinois Brick is the situation where the indirect purchaser
buys under a pre-existing cost-plus contract. Jd. at 724 n.2,736.
In this case, petitioners Mission and Petroleum both bought
Texaco gasoline from Sweeney under a cost-plus arrangement.
Although neither Mission nor Petroleum had a written contract
with Sweeney, they did have a pre-existing, binding oral cost-plus
arrangement with Sweeney. Their cost-plus arrangement was
noted in depositions and was shown in two exhibits introduced
by Texaco during trial.’* The trial court itself stated in its
September 4, 1979 opinion: “Mission and Petroleum purchased
Texaco gasoline from Sweeney on a cost-plus basis”, citing
Texaco’s two exhibits.’* To limit this Court’s exception to the
indirect purchaser doctrine of Illinois Brick to a written cost-
plus contract would ignore the reasoning and purposes of that
doctrine enunciated by this Court.
The fact that the district court's June 1, 1979 Order
prohibited the use of the pass-on defense by Texaco in no way
corrects the error in granting summary judgment against Mis-
'SThe Third Circuit's cursory statement that neither Mission nor
Petroleum purchased gasoline from Texaco (Appendix A, at p. 61)
ignores this evidence.
19 See Appendix B, at p. 159.
29
sion and Petroleum. These two petitioners, which are different
entities than Sweeney, were precluded from participating in the
trial and from demonstrating the extent that they, and not
Sweeney, suffered damage. Review by this Court of this erro-
neous decision should be granted so that this Court’s decision
in Illinois Brick is not broadened beyond its purpose.
CONCLUSION
The issues presented are substantial and of great legal im-
portance. For the reasons set forth above, it is respectfully sub-
mitted that this Petition for Writ of Certiorari should be granted
to review the judgments and opinion of the Third Circuit Court
of Appeals.
Respectfully submitted,
MITCHELL A. KRAMER
STEVEN KAPUSTIN
ALICE G. BURT
KRAMER AND SALUS
1520 Locust Street
The Seventh Floor
Philadelphia, PA 19102
(215) 545-7700
Attorneys for Petitioners,
EDWARD J. SWEENEY & SONS, INC.
MIssION GAS OIL COMPANY, INC.
AND PETROLEUM PRODUCTs Co.
30
PROOF OF SERVICE
I, Mitchell A. Kramer, attorney for Petitioners herein, and
a member of the Bar of the Supreme Court of the United States,
do hereby certify that on the 26th day of February, 1981, I
served copies of the foregoing Petition for Writ of Certiorari to
the Supreme Court of the United States, together with appen-
dices thereto, by mailing and depositing same in the United
States Post Office or mail box, with first class postage prepaid,
in a duly addressed envelope, to Randall B. Robinson, Esquire,
Texaco, Inc., 2000 Westchester Ave., White Plains, N.Y.
10650, and to Ira Sacks, Esquire, Kaye Scholer, Fierman, Hays
and Handler, 425 Park Ave., N.Y., N.Y. 10022, attorneys for
Texaco, Inc., a corporation. Service by hand-delivery was made
on Jane D. Elliot, Esquire, Duane, Morris and Heckscher at One
Franklin Plaza, Philadelphia, PA. 19102.
It is further certified that all parties required to be served
have been served.
This the 26th day of February, 1981:
MITCHELL A. KRAMER
Attorney for
EDWARD J. SWEENEY & SONS, INC.
MISSION GAs OIL COMPANY, INC.
and PETROLEUM PRoDUCTs Co.
Petitioners
KRAMER AND SALUS
1520 Locust Street
7th Floor
Philadelphia, Pa. 19102
(215) 545-7700
31
APPENDIX A
UNITED STATES COURT OF APPEALS
FoR THE THIRD CIRCUIT
No. 79-2468
EDWARD J. SWEENEY & SONS, INC., and
MISSION GAS OIL COMPANY, INC. and
PETROLEUM PRODUCTS CoO.,
Appellants
Vv.
TEXACO, INC.
APPEAL FROM THE UNITED STATES DISTRICT COURT
For THE EASTERN DISTRICT OF PENNSYLVANIA
(D.C. Civil No. 74-3299)
Argued August 6, 1980
Before: ALDISERT and SLOVITER, Circuit Judges,
and RAMBO, District Judge.*
(Filed November 3, 1980)
Mitchell A. Kramer, Esq. (Argued)
Steven Kapustin, Esq.
Kramer and Salus
1520 Locust Street, 7th Floor
Philadelphia, Pennsylvania 19102
Counsel for Appellants
*Honorable Sylvia H. Rambo, of the United States District Court for
the Middle District of Pennsylvania, sitting by designation.
Of Counsel:
Milton J. Schubin
Randolph S. Sherman
Ira S. Sacks
Of Counsel:
Jane D. Elliott
32
Randall B. Robinson, Esq.
(Argued )
Texaco Inc.
2000 Westchester Avenue
White Plains, New York 10650
Kaye, Scholer, Fierman, Hays &
Handler
425 Park Avenue
New York, New York 10022
Duane, Morris & Heckscher
100 South Broad Street
Philadelphia, Pennsylvania 19110
Counsel for Appellee Texaco Inc.
Thomas A. Rothwell, Esq.
Mark J. Yeager, Esq.
1875 Connecticut Avenue, N.W.
Suite 1113
Washington, D.C. 20009
Counsel for Amicus Curiae
Small Business Legislative Council
OPINION OF THE COURT
ALDISERT, Circuit Judge.
The major question for decision in this appeal by unsuc-
cessful plaintiffs in an anti-trust action is whether they estab-
lished a prima facie case of a “contract, combination . . . or con-
spiracy in restraint of trade . . .” in violation of § 1 of the
Sherman Act, 15 U.S.C. § 1. Sweeney, a wholesale and retail,
33
distributor of Texaco fuels, and two of its wholesale customers
attempted to prove that Texaco unlawfully conspired with other
fuel distributors and retailers to fix the retail price of Texaco
motor fuel. Determining that appellants had failed to introduce
evidence from which a jury could infer the existence of a con-
spiracy, the district court directed a verdict in favor of Texaco.
The district court also directed a verdict against appellants
on their claims that Texaco violated § 2 of the Sherman Act, 15
U.S.C. § 2, and § 2(a) of the Clayton Act, as amended by the
Robinson-Patman Act, 15 U.S.C. § 13(a). In addition, the
district court dismissed damage claims against Texaco raised by
Mission Gas Oil Company and Petroleum Products Company.
The court granted Texaco’s prayer for injunctive and declara-
tory relief against Sweeney concerning Sweeney’s practice of
misrepresenting non-Texaco fuel as Texaco fuel. Sweeney, Mis-
sion, and Petroleum Products appeal these adverse rulings. We
conclude that the district court did not err and, therefore, we
affirm.
I,
We need recite only those facts essential to this appeal
because of the extensive elaboration already undertaken by
the district court. Edward J. Sweeney & Sons, Inc. v. Texaco,
Inc., 478 F. Supp. 243, 249-251 (E.D. Pa. 1979). Appellant
Edward J. Sweeney & Sons, Inc., is a wholesaler and distributor
of Texaco motor fuels in Eastern Pennsylvania and Southern
New Jersey. In addition to its wholesale business Sweeney owns
several retail gasoline stations. Mission Gas Company, Inc., and
Petroleum Products are distributors who purchase fuel from
Sweeney. The defendant Texaco, Inc., refines and sells gasoline
and other petroleum products.
After several years as a consignee and wholesaler for other
companies, Sweeney became a Texaco wholesaler and distributor
in 1958. In 1963 Sweeney and Texaco entered into the distribu-
tor agreement at the heart of this litigation. Part of the agreement
provided that Sweeney would haul its own fuel. When it sells
motor fuel to distributors, Texaco charges a price that includes
34
the cost of delivering the product to the distributor’s bulk plant.
If the distributor picks up fuel at Texaco’s plant, however, as
Sweeney did, it receives a discount or hauling advance. The dis-
count equals the lowest amount it would cost Texaco to deliver
the fuel from a designated distribution point to the purchaser’s
bulk plant by common carrier, contract carrier, or Texaco com-
pany truck. Texaco initially designated its terminal in Westville,
New Jersey as Sweeney’s pick-up point. Accordingly, Sweeney
received a hauling allowance equal to the common carrier rate
for trips between Westville and its bulk plant located in Potts-
town, Pennsylvania.
Sweeney used the hauling allowance to its advantage. Be-
tween 1965 and 1970 Sweeney acquired several retail gasoline
stations in addition to ones it already owned. The newly acquired
stations were located within a twenty mile radius of Texaco’s
Westville, New Jersey, terminal. Sweeney picked up fuel in West-
ville and transported it directly to these stations. This practice
enabled Sweeney to receive an allowance for hauling fuel from
Westville to Pottstown, roughly fifty miles, while hauling it less
than twenty miles. Receiving the greater allowance effectively
lowered Sweeney’s cost for gasoline which in turn allowed
Sweeney to lower its retail prices.
Use of the hauling allowance was just one part of Sweeney’s
retail marketing strategy. A second major part was “no-frills”
retailing. Prior to 1965, Sweeney’s retail stations offered com-
plete automobile repair and maintenance services in addition to
fuel. Sometime in 1965 or 1966, Sweeney’s stations began elimi-
nating these services, becoming “gas and go” outlets. The
lowered overhead at these stations allowed Sweeney to reduce
its retail prices further. Unlike other discount outlets which soid
gas under their own names, Sweeney’s stations sold fuel under
the Texaco name. Sweeney offered gasoline at a price between
one and three cents lower than the price at which other retailers
in the area offered major brand gasoline. After Sweeney adopted
this no frills retail sales practice, its retail sales and profits in-
creased steadily.
Sweeney’s prosperity did not augur well with competing
35
Texaco retailers. Beginning in 1966, some of these retailers com-
plained to Texaco that Sweeney’s discount pricing was hurting
their busineses. Sweeney contends that Texaco conspired with
these retailers to terminate Sweeney’s distributorship or to reduce
its hauling allowance and thereby force Sweeney to raise its
prices. Sweeney cites Texaco’s actions in 1970 and 1971 as evi-
dence of this alleged conspiracy.
The evidence disclosed that as early as 1966 Texaco had
reviewed the status of Sweeney’s hauling agreement. Texaco
found that it could save at least $2,158 annually by supplying
Sweeney from Macungie, Pennsylvania, rather than from West-
ville, New Jersey, due to Macungie’s proximity to the Sweeney
plant. When it learned of Texaco’s consideration of a change to
Macungie, Sweeney objected and Texaco postponed its decision
on the matter.
By 1970, the economics of supplying Sweeney out of West-
ville had changed drastically. Instead of $2,158, Texaco’s loss
attributable to supplying Sweeney from Westville had risen to
more than $58,000 annually. Texaco informed Sweeney in
December, 1970, that it was changing Sweeney’s supply point
from Westville to Macungie under a provision in the hauling
agreement permitting Texaco to terminate the agreement or to
change the pick-up point. Nevertheless, Sweeney refused to go
along with the change to Macungie. Texaco then notified
Sweeney that it was terminating Sweeney’s distributor and haul-
ing agreements in sixty days, effective February 28, 1971.
After it received the termination notice, Sweeney attempted
but failed to obtain an alternate source of supply. Sweeney then
negotiated with Texaco. As as result of the negotiations,
Sweeney’s distributor’s agreement was not terminated and the
parties agreed on a compromise hauling arrangement on March
1, 1971.
Under the new hauling agreement, Sweeney continued to
pick up at Westville until May 31, 1971, and received the allow-
ance it has been getting for the distance from Westville to Potts-
town. Thereafter, Sweeney picked up fuel at Macungie and
36
received a hauling allowance based on the Macungie to Potts-
town rate. Texaco also agreed that after May 31, 1971, Sweeney
could pick up fuel at either location, at Sweeney’s option, al-
though the hauling allowance for all purchases would be based
on the Macungie to Pottstown trip. This agreement mitigated
the effect of the change in the hauling allowance by permitting
Sweeney to continue supplying its southern New Jersey stations
from nearby Westville.
After this new hauling agreement became effective, Sweeney
began delivering non-Texaco fuel to Texaco brand stations in
trucks bearing the Texaco trademark. Texaco learned of
Sweeney’s commingling and conducted a thorough investigation
of Sweeney’s operations using Texaco security personnel. The
investigation confirmed Texaco’s suspicion of Sweeney’s per-
vasive trademark violations.
On December 17, 1971, Daniel A. Doherty, Texaco’s Man-
ager for the Philadelphia Region, told Texaco’s Vice President
of Sales, United States, of his decision to terminate Sweeney’s
distributor and hauling agreements. Doherty based his decision
primarily on Sweeney’s trademark violations and misrepresenta-
tions. In addition, Doherty explained that Sweeney’s stations
failed to maintain Texaco’s brand integrity, image, quality, and
prestige standards. Sweeney’s stations were the subject of an
inordinate number of consumer complaints about service. Credit
card users, a particularly valued segment of the market, com-
plained of credit card irregularities at Sweeney’s stations.
Coupled with Sweeney’s practice of representing non-Texaco
fuel as Texaco fuel, this evidence of Sweeney’s failure to meet
Texaco’s standards led Doherty to believe that Sweeney was
damaging Texaco’s valuable trademark and image.
Texaco notified Sweeney that effective February 29, 1972,
it would terminate both the 1963 distributor agreement and the
March 1, 1971, hauling agreement. Although Sweeney tried
again to obtain an alternate source of supply, it was again unsuc-
cessful. After various negotiations, Texaco agreed to supply
Sweeney until it gave ten days’ notice of its intention to discon-
tinue Sweeney’s supply. No termination notice has been given,
and Texaco continues to provide Sweeney with fuel.
37
The present litigation followed these events. Sweeney
charged that Texaco conspired in violation of §1 of the Sherman
Act, 15 U.S.C. §1 with the dealers who complained about
Sweeney’s competitive practices. It also alleged that Texaco
violated §2 of the Sherman Act, 15 U.S.C. §2, by attempting to
monopolize the sale of Texaco fuel. Finally, Sweeney averred
that Texaco discriminated against it in the price Texaco
charged for fuel and thereby violated §2(a) of the Clayton Act
as amended by the Robinson-Patman Act, 15 U.S.C. §13(a).
Mission Gas Oil Company and Petroleum Products Company,
two of Sweeney’s wholesale customers, joined in Sweeney’s
lawsuit. Plaintiffs sought damages and injunctive relief. Texaco
counterclaimed against Sweeney seeking injunctive and declara-
tory relief from Sweeney’s commingling practices, basing its
claims on various state, federal, and common law provisions.
The district court dismissed Mission’s and Petroleum’s damage
claims on the ground that they were improper plaintiffs because
they did not purchase fuel directly from Texaco. After the close
of the evidence the district court directed a verdict denying all
of appellants’ remaining claims and granting Texaco’s prayer for
injunctive and declaratory relief. Appellants challenge these
adverse rulings.
Il.
The only § 1 contention before us is appellants’ claim that
certain Texaco dealers conspired with Texaco to have Texaco
terminate Sweeney as a distributor or to reduce its hauling allow-
ance.* Appellants’ theory is that these retail dealers complained
' Although Sweeney initially asserted antitrust damages based on the
1971 termination, it withdrew this claim during trial. App. at 1826a-27a;
Transcript of Oral Argument at 12. Only the claim of damages based on
the change in hauling allowance was before the court on the motion for
directed verdict, and therefore only that claim is before us now. Never-
theless, we accept for purposes of argument that both the termination
and the change in hauling allowance were parts of a single alleged con-
spiracy. The 1971 termination was before the court on plaintiff's claim
for injunctive relief, with the court sitting as the trier of fact, and the
court's denial of that relief is discussed in section V, infra.
38
to Texaco about Sweeney’s practice of retailing gasoline between
one and three cents below their price, and that as a result of
their complaints Texaco reduced Sweeney’s hauling allowance to
the rate set in the March, 1971, agreement. Appellants contend
that the retailers’ acts of complaining and Texaco’s reaction to
the complaints constituted concerted action in restraint of trade.
The district court determined that appellants failed to offer suffi-
cient evidence to permit a reasonable inference that Texaco
terminated Sweeney’s distributor agreement or changed
Sweeney’s hauling allowance because of competitors’ complaints.
We find no error in this determination. Moreover, we note that
even if appellants had demonstrated that Texaco’s actions were
in response to these complaints, such evidence alone would not
show the necessary concerted action.
Unilateral action, no matter what its motivation, cannot
violate § 1. United States v. Colgate & Co., 250 U.S. 300, 307
(1919); Harold Friedman, Inc. v. Kroger Co., 581 F.2d 1068,
1072 (3d Cir. 1978); Tripoli Co. v. Wella Corp., 286 F. Supp.
264, 266 (E.D.Pa. 1968), aff'd, 425 F.2d 932 (3d Cir.), cert.
denied, 400 U.S. 831 (1970). By its terms, § 1 requires proof of
a “contract, combination . . . or conspiracy.” 15 U.S.C. § 1. We
have noted that the statuatory language presents a single concept
about common action, not three separate ones: “ ‘contract...
combination or conspiracy’ becomes an alliterative compound
noun, roughly translated to mean ‘concerted action.’ ” Bogosian
v. Gulf Oil Corp., 561 F.2d 434, 445-46 (3d Cir. 1977), cert.
denied, 434 U.S. 1086 (1978) (quoting L. Sullivan, Law of
Antitrust 312 (1977)).
To establish the existence of concerted action, appellants
had to submit evidence from which a jury could reasonably infer
that Texaco and others had a conscious commitment to a com-
mon scheme designed to achieve an unlawful objective. Klein v.
American Luggage Works, Inc., 323 F.2d 787, 791 (3d Cir.
1963); United States v. Standard Oil Co., 316 F.2d 884, 890
7th Cir. 1963). Direct proof of an express agreement is not re-
quired. On the contrary, the plaintiff may rely on an inference
—_
39
of a common understanding drawn from circumstantial evidence:
“The picture of conspiracy as a meeting by twilight of a trio of
sinister persons with pointed hats close together belongs to a
darker age.” William Goldman Theatres v. Loew’s, Inc., 150
F.2d 738, 743 n.15 (3d Cir. 1945). Nevertheless, appellants
had the burden of adducing sufficient evidence from which the
jury could find illegal concerted action on the basis of reasonable
inferences and not mere speculation. Venzie Corp. v. United
States Mineral Products Co., 521 F.2d 1309, 1312 (3d Cir.
1975).
The necessary first step toward appellants’ proof of a pro-
hibited § 1 conspiracy was proof of a casual relationship between
competitor complaints that Sweeney was selling Texaco gasoline
several cents below their own price, and the reduction of
Sweeney’s hauling allowance. Cernuto, Inc. v. United Cabinet
Corp., 595 F.2d 164, 168 (3d Cir. 1979). The mere reception
of complaints by Texaco would be insufficient to prove this
causal nexus. Nor would it suffice to prove only that some
Texaco employees who knew of the complaints were also the
ones who decided to terminate Sweeney’s distributor agreement
and change its hauling allowance.* The evidence must permit the
inference that the alleged conspirators “had a unity of purpose
or a common design and understanding, or a meeting of the
minds.” American Tobacco Co. v. United States, 328 U.S. 781,
810 (1946). See Klein v. American Luggage Works, Inc., 323
F.2d at 791.
Appellants claim that they submitted sufficient evidence to
* There are special reasons for applying this precept to a case in which a
manufacturer receives price cutting complaints from competitors of a partic-
ular customer. To permit the inference of concerted action on the basis
of receiving complaints alone and thus to expose the defendant to treble
damage liability would both inhibit management’s exercise of its inde-
pendent business judgment and emasculate the terms of the statute. As
Professor Areeda has explained, many cut off dealers in this situation will
be tempted to harass their former suppliers with treble damage suits.
Recognizing the potential for harassment, courts should hesitate to
scrutinize too closely the supplier’s ambiguous refusal to sell. P. Areeda.
Anti-Trust Analysis, 560 (2d ed. 1974).
40
allow an inference of illegal concerted action. They point to tes-
timony that beginning in 1966 or 1967 and continuing through
1979 some lessees of stations owned by Texaco complained to
the refiner that certain stations supplied by Sweeney were mar-
keting gasoline two or three cents per gallon lower than their
prices. To establish their point, appellants relied on the testi-
mony of several witnesses, but especially that of James P. Rod-
den, Daniel A. Doherty, and Glenn B. Murray.
A.
Rodden is a tormer Texaco sales representative who left
Texaco to become a partner of William D’Ippolito, a leading
stockholder and managing officer in Sweeney and other petro-
leum products businesses. He testified that as early as 1966 or
1967 some Texaco retailers complained about pricing by sta-
tions supplied by certain Texaco distributors. Rodden explained
that these complaints related both to stations supplied by
Sweeney and to stations supplied by other Texaco distributors.
App. at 927a-95a. He testified that he was not aware of any
discussions within Texaco about changing Sweeney’s hauling
allowance in March, 1971, and that he did not discover the
reduction until 1973. App. at 799a-801a.
Rodden testified that he “believed” Texaco changed
Sweeney’s hauling allowance because of the retailer com-
plaints about the loss of volume at Texaco’s retail stations.
Rodden admitted, however, that his “belief” was just un-
supported surmise, without factual basis. App. at 842a-46a.
The district court determined that the surmise of Rodden,
“cannot, as a matter of law, support a jury finding of a con-
tract, combination, or conspiracy between Texaco and other
Texaco dealers either in 1970 or 1971.” 478 F. Supp. at 255.
We agree. In our view, Rodden’s testimony goes no further
than merely identifying retailers complaints. We turn now to
other possible evidence of concerted action.
B.
Appellants argue that proof of concerted action was also
41
forthcoming from the testimony of Daniel A. Doherty, the
manager of Texaco’s Philadelphia region. Appellants assert that
Doherty made the actual decision to terminate Sweeney’s dis-
tributorship, “basing his decision partially on Sweeney’s mar-
keting strategy.” Appellants’ Brief at 18.
Doherty’s testimony provides no help to Sweeney’s theory.
On June 8, 1979, appellants introduced the following deposition
testimony of Doherty:
App.
Q. Were you aware that Sweeney was a price-cutter
in the area?
A. I was aware that Sweeney was engaging in a mar-
keting strategy where the principal attraction of those retail
outlets that he supplied was primarily, if not exclusively,
based upon posting a price generally lower than major
brand price in the areas.
at 1162a.
Q. What factors entered into your decision to ter-
minate Sweeney as the distributor?
A. Sweeney’s marketing strategy that I observed and
the consequences of it that I observed.
Q. Is that the marketing strategy referred to pre-
viously?
A. There [were] other elements of it.
A. As a consequence of the kinds of retail operations
that Sweeney apparently solicited and. acquired wherein
the .. . primary business builder of the locations was a low,
highly competitive retail price, the outlets to a concerning
if not alarming degree did not meet the standards of house-
keeping, service, or service capability. In addition to that,
we received continuing customer complaints from Texaco
customers and motorist customers and, more alarmingly,
the best class of customer that we had was being impacted
42
very heavily, and that was our credit card customers, be-
cause my memory is that his retail outlets were involved in
credit card irregularities and it was apparent that Sweeney’s
... Marketing strategy, relied entirely on having the lowest
or one of the lowest prices, which is entirely his prerogative,
the prerogative of those people he serviced. But, the trend
away from the prestige service that had been the hallmark
and the objectives of Texaco retail marketing, certainly
from my entire career, was clear, and was adversely im-
pacting, in our opinion, on the entire brand integrity of
Texaco in the area.
Id, at 1602a-03a.
On June 13, 1979, appearing in open court, Doherty stated
during cross examination by Sweeney’s counsel:
Q. Now, did you discuss the fact Mr. Sweeney was a
price cutter with Mr. Hicks, prior to Sweeney’s termination?
A. I made the point yesterday, Mr. Kramer, that I
never regarded Sweeney as a price cutter because I knew
nothing about Sweeney’s pricing. I don’t know what he sold
his retail for, so I couldn’t characterize him as a price
cutter. I never have.
Q. Now Mr. Doherty, isn’t it a fact that at the time
of your deposition you said that one of the factors among
many ... that entered into your consideration to terminate
Sweeney was the pricing practices of the Sweeney supplied
stations?
A. No, sir.
Q. So, your're still saying that pricing in your view
had no effect on your decision?
A. Yes, sir.
App. at 1593a, 1605a-606a.
Appellants suggest that this testimony provided the quan-
43
tum of evidence necessary to get their case to the jury. Appel-
lants’ best case is Doherty’s deposition statement that Sweeney’s
distributorship was terminated because of Sweeney’s marketing
strategy. That strategy, Sweeney maintains, was, in Doherty’s
words, “based upon posting a price generally lower than major
brand prices in the area.” But Doherty immediately explained
that he included other elements of the “marketing strategy and
the consequences of it.” He emphasized that Sweeney “relied
entirely on having the lowest or one of the lowest prices, which
is entirely his [Sweeney’s] prerogative, the prerogative of those
people he serviced.” Id. at 1162a (emphasis added).
Viewed in the light most favorable to the appellants, only
three reasonable and permissible inferences relevant to Sweeney’s
lawsuit flow from this testimony. First, Texaco did not object to
Sweeney’s low prices. Pricing was “entirely” Sweeney’s prerog-
ative. Second, Texaco’s concern ower Sweeney’s marketing
strategy grew out of Sweeney’s failure to meet housekeeping,
service, or service capability standards—practices contrary to
“the prestige service that had been the hallmark and objective of
Texaco retail marketing” — and resulting customer complaints.
Third, these concerns led Doherty to the decision to terminate
Sweeney’s distributorship.
Appellants maintain that the jury should have been per-
mitted to infer from his testimony that Doherty decided to
terminate Sweeney because Texaco received complaints from
Sweeney’s competitors that Sweeney was underselling them. This
inference is impermissible. In both his deposition and in court,
Doherty testified that although he was generally aware of
Sweeney’s pricing policies, he did not consider these policies
unacceptable except insofar as they adversely affected Sweeney’s
customer service. In his deposition he stated flatly that pricing
was Sweeney’s prerogative. Appellants would have the jury infer
that Doherty’s asserted explanation was mere pretense and that
Doherty actually terminated Sweeney’s agreement as part of an
illegal scheme. Absent some evidence supporting appellants’
theory, we will not assume Doherty lied about his reasons. The
district court correctly prevented the jury from speculating on
44
the existence of a conspiracy on the basis of such meager ev-
idence.
C.
Appellants also rely on Glenn B. Murray’s testimony,
arguing that Murray’s belief “that Texaco had terminated
Sweeney because of Sweeney’s competitive abilities as against
other Texaco retailers and wholesalers” supports their § 1 claim.
Appellants’s Brief at 17. An examination of portions of the
record relied on by appellants discloses no evidence in support
of this argument:
Q. I take it from your testimony that you have no
personal knowledge of why Texaco wanted to terminate
Sweeney?
A. [N]o direct personal knowledge, no.
Q. Tell us what, if any, knowledge you do have,
whether it is direct or indirect?
A. Well, it would be just the general feeling that
E. J. Sweeney and Sons had literally expanded their opera-
tion [to] the point where they were picking up product in
Westville and delivering it virtually next door in some
instances, well within ten miles, 15, 20 miles of the
terminal, and being granted hauling allowances for [the]
distance up to Pottstown. And, as a result, they were in a
much better competitive position than others would have
been.
App. at 1347a-48a.
We cannot conclude that Murray’s testimony, alone, or
in conjunction with that of others, made out a jury case of
concerted action. Murray’s testimony did not refer to complaints
of price cutting or of Texaco’s response to such complaints. His
testimony, admittedly not based on personal knowledge, was
entitled to little or no weight by the trial judge. The “general
feeling” he expressed concerning Sweeney’s competitive position
45
cannot support an inference of concerted action or buttress any
inferences of concerted action drawn from other testimony.
Putting aside the testimony of Rodden, Doherty, Murray
and the others on which appellants rely,* appellants have failed
to show that Texaco’s actions contradicted the refiner’s econom-
ic self-interest. Speaking through Chief Judge Seitz, our court
has isolated “two elements generally considered critical in estab-
lishing conspiracy from evidence of parallel business behavior:
(1) a showing of acts by defendants in contradiction of their
own economic interests ... and (2) satisfactory demonstration
of a motivation to enter an agreement.” Venzie Corp. v. United
States Mineral Products Co., 521 F.2d 1309, 1314 (3d Cir.
1975) (citations omitted). Venzie sets forth one means of estab-
lishing a conspiracy circumstantially. Clearly by lowering the
hauling allowance, Texaco acted in its self interest, and was not
proceeding contrary to its “own economic interests.” The change
saved it $58,000 per year on sales to Sweeney. This undisputed
fact negates an inference of concerted action that might exist if
both factors of Venzie were satisfied.
Moreover, the record indicates that the complaints began
in 1966, five years before the acts in question, and continued
until 1979, eight years after Texaco altered the agreements with
Sweeney. There is no evidence showing the frequency of the
complaints or whether the frequency changed at any time. These
facts militate strongly against a causal relation between the com-
plaints and Texaco’s actions. Furthermore, the change in
Sweeney’s hauling allowance was less than one cent per gallon.*
3In addition to Rodden, Doherty, and Murray, appellants also relied
on testimony of Paul B. Hicks, Texaco Vice President of Sales, United
States, and Edward C. Enstice, Texaco assistant regional wholesale man-
ager. Appellants’ Brief at 17-18. At best, this testimony merely repeats
other testimony showing Texaco knew of retailer complaints concerning
Sweeney’s pricing policies. Investigation followed the complaints, but the
conclusion was that the practices were not objectionable. App. at 1053a,
1078a-80a, 1114a-1120a.
4 Prior to June 1, 1971, Sweeney received an allowance of $.0146 per
gallon. After June 1, 1971, the allowance was $.0069 per gallon, or a
decrease of $.0077. App. at 309a, 497a.
i
46
It is difficult to accept appellants’ assertion that an action affect-
ing Sweeney’s cost by a fraction of a cent was taken in response
to complaints citing price differentials of several cents, even when
taking into account the millions of gallons sold.
Appellants urge that Cernuto, Inc. v. United Cabinet Corp.,
595 F.2d 164 (3d Cir. 1979), requires a different result. We
agree with the district court that it does not. Appeilants argue
that Cernuto stands for the proposition that when a manufac-
turer terminates a distributor’s supply because of complaints
from other distributors concerning price cutting, these actions
make out a § 1 claim without proof of concerted action. Appel-
lants’ Brief at 22-23. We reject this interpretation. Cernuto de-
cided simply that cut-off distributors in these circumstances need
not prove anti-competitive effects to prevail in a § 1 lawsuit.
Such action “per se” unreasonably restrains trade. 595 F.2d at
170.
The question that appellants contend Cernuto resolved was
not before the court. In Cernuto, the district court granted de-
fendant’s motion for summary judgment, concluding that the
plaintiffs could not prove defendant’s actions constituted an un-
reasonable restraint of trade. The district court, using Justice
Black’s formulation in Northern Pacific Railroad Corp. v. United
States, 356 U.S. 1 (1948), observed that while the action did
have a “pernicious effect” on competition, it was not devoid of
“redeeming virtue.” Cernuto v. United Cabinet Corp., 448
F.Supp. 1332, 1334-37 (W.D. Pa. 1978). The manufacturer’s
decision actually enhanced competition among different manu-
facturers. Thus, the district court noted, the plaintiffs could not
prove a necessary element of their case. Although this court re-
jected Cernuto’s need to prove anti-competitive effects, we did
not obviate a showing of “unity of purpose or common design
and understanding,” American Tobacco, 328 U.S. at 810. In
summarizing the decision we said:
If Cernuto can prove at trial that United, Lappin and
Famous conspired to protect Famous from price competi-
tion by Cernuto, and that United and Lappin terminated
Cernuto at Famous’ request and in pursuit of a price related
47
end, then it can prevail on a price-fixing theory notwith-
standing its failure to show any impact on competition in-
volving kitchen cabinet sales in Western Pennsylvania. Of
course, at trial the defendants may be able to demonstrate
that the evidence does not at all conform to what plaintiff
has alleged.
595 F.2d at 170 (emphasis added). Cf. Theatre Enterprizes,
Inc. v. Paramount Corp., 346 U.S. 537, 541 (1954) (“Circum-
stantial evidence of consciously parallel behavior may have made
heavy inroads into the traditional judicial attitude toward con-
spiracy; but ‘conscious parallelism’ has not yet read conspiracy
out of the act entirely.”).
We agree with the district court that aside from the evi-
dence of complaints made to Texaco by other retailers, Sweeney
introduced no evidence of a conspiracy between Texaco and its
retailers or wholesalers. In the absence of evidence that Texaco
decided to terminate Sweeney because of competitor complaints
and evidence of such a conspiracy, it would have been improper
for the court to allow the jury to speculate on the cause for
Texaco’s action.
D.
The teachings of the Supreme Court are clear on when a
matter may be submitted to the jury:
The matter is essentially one to be worked out in particular
situations and for particular types of cases. Whatever may
be the general formulation, the essential requirement is that
mere speculation not be allowed to do duty for probative
facts, after making due allowance for all reasonably possible
inferences favoring the party whose case is attacked.
Galloway v. United States, 319 U.S. 372, 395 (1943). A re-
viewing court applies the same standard to a decision by a trial
judge granting a motion for directed verdict. The appellate court
must consider the record as a whole and in the light most favor-
able to the non-moving party, drawing all reasonable inferences
to support its contentions. If no reasonable resolution of the con-
flicting evidence and inferences therefrom could result in a judg-
48
ment for the non-moving party, the appellate court must affirm
the lower court’s decision. See Columbia Metal Culvert Co., Inc.
v. Kaiser Aluminum and Chemical Corp., 579 F.2d 30 (3d
Cir.), cert. denied, 439 U.S. 876 (1979).
The jury’s role in our legal tradition probably represents
modern America’s unique characteristic in the trial of civil cases.
Its role cannot be minimized, nor its importance dissipated one
iota. Yet the limits of the jury’s role must always be recognized.
The jury translates as found fact a congeries of relevant evidence
on controverted factual issues. The jury does not engage in the
final stage of this process until the court makes the critical legal
decision that there is sufficient evidence to submit to the jury
for the purpose of resolving conflicts in the evidence or infer-
ences permissibly drawn from the evidence, or both. In removing
a case from the jury, the court undertakes the vital task of “pro-
tecting neutral principles of law from powerful forces outside the
scope of the law — compassion and prejudice.” Rutherford v.
Central Illinois R.R., 278 F.2d 310, 312 (Sth Cir.), cert.
denied, 364 U.S. 922 (1960).
The court’s role is especially crucial when, as here, the
plaintiff's case, and therefore the defendant's liability, is based
solely on circumstantial evidence. The illegal action must be
inferred from the facts shown at trial. Inferred factual conclu-
sions based on circumstantial evidence are permitted only when,
and to the extent that, human experience indicates a probability
that certain consequences can and do follow from the basic cir-
cumstantial facts. The inferences that the court permits the jury
to educe in a courtroom do not differ significantly from infer-
ences that rational beings reach daily in informally accepting a
probability or arriving at a conclusion when presented with some
hard, or basic evidence. A court permits the jury to draw infer-
ences because of this shared experience in human endeavors. See
generally, McCormick, Handbook of the Law of Evidence
289-96 (2d edition 1972). Perhaps the only distinction between
extracting factual conclusions from circumstantial evidence in
daily life and in the courtroom is that a jury’s act of drawing or
not drawing an inference is preceded by a judge’s instruction.
The instruction serves to guide the jury through some process of
49
ordered consideration. The court informs the jury that it must
weigh the narrative or historical evidence presented, making
credibility findings when appropriate, and then draw only those
inferences that are reasonable in reaching a verdict.
When a trial court grants a directed verdict in a circumstan-
tial evidence case, the court makes a legal determination that the
narrative or historical matters in evidence allow no permissible
inference of the ultimate fact urged by the opposing party. It
decides that no reasonable person could reach the suggested
conclusion on the basis of the hard evidence without resorting to
guesswork or conjecture. To permit a jury to draw an inference
of the ultimate fact under these circumstances is to substitute the
experience of logical probability for what the courts describe as
“mere speculation.” Galloway v. United States, 319 U.S. at 395;
Columbia Metal Culvert Co. v. Kaiser Aluminum & Chemical
Corp., 579 F.2d at 25.
Logicians describe one process of reaching an ultimate fact
from insufficient basic facts as the false cause or post hoc
fallacy. The fallacy consists of reasoning from sequence to con-
sequence, that is, assuming a causal connection between two
events merely because one follows the other. For this reason the
fallacy is often referred to as that of post hoc ergo propter hoc
(after this and therefore in consequence of this), an expression
which itself explains the nature of the error.
Here, the district court properly concluded that the basic
facts adduced at trial were insufficient to allow the jury to find for
appellants. The basic record facts were that some of Sweeney’s
competitors complained that Sweeney’s stations undersold them
by one to three cents per gallon, that Rodden did not know but
“guessed” Texaco acted to terminate Sweeney because of these
complaints, that Murray surmised Texaco was evaluating
Sweeney’s ability to get long hauling allowances for short de-
liveries, and that certain consequences of Sweeney’s marketing
strategy not directly related to Sweeney’s competitive position
figured into Doherty’s decision to terminate Sweeney. Faced with
this scanty record, the district court properly removed the issue
of concerted action from the jury. It determined that insufficient
50
narrative or historical evidence had been submitted to permit the
conclusion that Texaco’s decision was a reaction to the specific
complaints received. Moreover, the record was devoid of proof
of concerted action among Sweeney’s competitors. and Texaco.
The court concluded that the jury could not infer this ultimate
fact from the basic facts in evidence without engaging in pure
post hoc guesswork. We will not fault the court for these
determinations. )
Il.
The district court also directed a verdict for Texaco on
appellants’ claims that Texaco attempted or conspired to monop-
olize the Texaco gasoline market in violation of § 2 of the Sher-
man Act, 15 U.S.C. § 2. The court explained that “Sweeney has
failed to produce any evidence from which a jury could find that
Texaco gasoline constitutes a product market for § 2 purposes.”
478 F.Supp. at 267. We find appellants’ contentions on this issue
devoid of merit.
First, we hold an antitrust plaintiff in an appeal to the
theory advanced at trial. There, Sweeney represented, and prop-
erly so, that the focal point of any discussion of its § 2 damage
claims is the issue of relevant market. By letter dated May 24,
1979, Sweeney agreed that
if a court and/or jury in [Sweeney v. Texaco] does not de-
termine that a relevant product market or submarket is
limited to “Texaco gasoline,” then Texaco has not violated
Section 2 of the Sherman Act.
We will not permit appellants to repudiate that agreement. See
American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230,
1246 (3d Cir. 1975) (“AMI will be bound by its own analysis
in open court of the issues to be litigated.”).
Moreover, the theory of Ninth Circuit cases cited by
Sweeney to support its argument—Greyhound Computer Corp.
v. International Business Machines Corp., 559 F.2d 488 (9th
Cir. 1977), cert. denied, 434 U.S. 1040 (1978), and Lessig v.
Sl
Tidewater Oil Co., 327 F.2d 459 (9th Cir.), cert. denied, 377
U.S. 993 (1964)—was rejected by this court in Coleman Motor
Co. v. Chrysler Corp., 525 F.2d 1338 (3d Cir. 1975). Coleman
expressly held that definition of the relevant market was critical
in § 2 attempt cases, specifically repudiating the Ninth Circuit
view that it is possible to find an attempt to monopolize without
such proof. 7d. at 1348 n. 17.
To establish that Texaco gasoline alone constituted a
relevant market or submarket, appellants had to prove that
Texaco gasoline was not considered reasonably interchangeable
with other brands of gasoline and non-branded gasoline by a
significantly large number of consumers. Brown Shoe Co. v.
United States, 370 U.S. 294, 325 (1962); United States v. E. 1.
duPont de Nemours & Co., 351 U.S. 377, 393, 395, 399-400
(1956); Columbia Metal Culvert Co. v Kaiser Aluminum &
Chemical Corp., 579 F.2d at 26-27. There must be evidence,
for example, of “industry or public recognition of the submarket
as a separate economic entity, the product’s peculiar characteris-
tics and uses, unique production facilities, distinct customers,
distinct prices, sensitivity to price changes, and specialized ven-
dors.” Brown Shoe, 370 U.S. at 325; Columbia Metal, 579
F.2d at 27. Appellants offered no such evidence.
The evidence mandates the conclusion that the range of
commodities “reasonably interchangeable by consumers for the
same purposes” includes all brands of gasoline and that there
are no product submarkets. By Sweeney’s own assertion, gasoline
is a fungible commodity. Sweeney itself continually bought
gasoline from other refiners. Moreover, uncontradicted testi-
mony indicated that Sweeney’s gas stations competed not only
with Texaco stations, but also with other brand and non-brand
stations. Similarly, the record shows that Sweeney competed
with other wholesalers offering non-Texaco fuel. App. at 620a-
3la, 735a-37a, 760a, 855a-56a, 916a-18a, 957a-62a. Para-
phrasing the conclusion by Judge, now Justice, Stevens in Mullis
v. Arco Petroleum Corp. 502 F.2d 290, 296-97 (7th Cir. 1974)
(footnote omitted): “Under the kind of economic analysis em-
ployed by both the majority and the dissent in United States v.
32
E. 1. duPont de Nemours & Co., 351 U.S. 377, 76 S.Ct. 994,
100 L.Ed. 1264, plaintiff clearly failed to prove that sales of
[Texaco] petroleum products in [the area in question] constitute
a relevant market.”
Appellants contend that the value of the Texaco trademark
establishes Texaco gasoline as a separate relevant submarket.
They also contend that because Texaco stations can only sell
Texaco fuel a product submarket exists for them. Accepting
these arguments would lead to the conclusion that every manu-
facturer of a trademarked product has monopoly power over
that product. No legal precept stands for this proposition, as the
Supreme Court has emphatically held:
[O]ne can theorize that we have monopolistic competition
in every nonstandardized commodity with each manu-
facturer having power of the price and production of his
own product. However, this power that, let us say, auto-
mobile or soft-drink manufacturers have over their trade-
marked products is not the power that makes an illegal
monopoly. Illegal power must be appraised in terms of the
competitive market for the product.
United States v. duPont, 351 U.S. at 393 (footnote omitted).
See also, Columbia Metal, 529 F.2d at 27 n. 11.
If, on the other hand, the relevant market is all motor fuel
sold in the area of Sweeney’s stations, Texaco could not monop-
olize that market by driving Sweeney out of business. The retail
price of Texaco gasoline sold by Sweeney’s competitors and
wholesale prices of Texaco fuel were determined to a large
extent by market conditions of supply and demand involving
all brand and non-brand gasoline. Competition from other re-
finers and independent dealers would severely limit Texaco’s
ability to succeed. See Coleman, 525 F.2d at 1348-49.
Accordingly, we agree with the district court that appel-
lants produced no evidence demonstrating that Texaco gasoline
was not easily interchanged with other gasoline and constituted
a separate product market. Nor can it be inferred that Texaco
intended to monopolize the entire gasoline market in southern
33
New Jersey. The § 2 claim alleging conspiracy to monopolize
cannot prevail because of appellants’ failure to establish a
conspiracy, as discussed above.-Thus appellants’ § 2 claim was
properly removed from the jury’s consideration.
IV.
Sweeney alleged violations by Texaco of § 2(a) of the
Clayton Act, as amended by the Robinson-Patman Act, 15
U.S.C. § 13(a), and asked for both damages and injunctive
relief.° The district court directed a verdict against Sweeney on
the damage claim, concluding that Sweeney had failed to prove
damages. In its role as factfinder, the court found that Sweeney
had not established its case for injunctive relief. The Robinson-
Patman issue is therefore before us in two different contexts,
the damage aspect reviewable by this court on the standard of
review applicable to all directed verdicts, and the injunction
aspect reviewable by this court on the standard for reviewing
legal error. Because we agree with the district court’s construc-
tion of the Robinson-Patman Act in denying Sweeney’s in-
junction claim, and with its conclusion that Sweeney proved no
violation of the act, we do not reach the issue of damages.°
A plaintiff seeking either injunctive or damage relief under
the Robinson-Patman Act must demonstrate that the defendant
®° The Robinson-Patman Act claims asserted by Mission Gas Oil Com-
pany and Petroleum Products Company are discussed in section V, infra.
° The district court refused to submit Sweeney's claim for damages to
the jury on the ground that Sweeney failed to establish compensable
damages. It relied on Enterprise Indus., Inc. v. Texaco Co., 240 F.2d
457 (2d Cir.), cert. denied, 353 U.S. 965 (1957). We adopted the
analysis of Enterprise in Freedman v. Philadelphia Terminals Auction
Co., 301 F.2d 830, 833-34 (3d Cir.), cert. denied, 371 U.S. 829 (1962).
We agree with the district court that the amount of the illegal discrimina-
tion can only be used to quantify damages if the plaintiff demonstrates
that the favored purchasers lowered their prices in an amount equivalent
to the illegal benefit they received. See Enterprise, 240 F.2d at 459-60.
Sweeney failed to prove that its competitors lowered their prices, and
thus cannot rely on the amount of the alleged illegal discrimination to
establish damages.
54
has discriminated in price against the plaintiff and in favor of at
least one of the plaintiff's competitors. It also must prove that
the discrimination “may . . . substantially lessen competition.”
As we read the district court’s opinion, it employed these
grounds, operating together, in denying Sweeney’s claim for
injunctive relief. Although the district court sat as factfinder on
the injunction claim, its conclusion rested not on a factual de-
termination,’ but on a construction of the statute.
Although Sweeney has never clarified the theory under-
lying its Robinson-Patman Act claim, in essence it contends
that by changing the gasoline pickup point from Westville to
Macungie, Texaco effectively imposed a discriminatory price
on it. Sweeney alleges discrimination by comparing the price
charged it to two different prices: the effective price of gasoline
to it before the change of pickup points and the effective price
of gasoline to other distributors whose bulk storage facilities
were located farther from their pickup points. Sweeney’s claim
is more confusing because it has not explained whether the
attack is on the hauling allowance system as a per se violation
of the Robinson-Patman Act, or on the application of the sys-
tem to Sweeney. Neither of these alternative theories for re-
covery states a violation of the act.
Under the Robinson-Patman Act, price discrimination re-
quires “at least two completed sales by the same seller at
differential prices to different purchasers.” S. C. Oppenheim &
G. Weston, Unfair Trade Practices and Consumer Protection:
Cases and Comments 816 (1974); See Utah Pie Co. v Con-
‘ The court explicitly noted that it was not addressing, nor had Texaco
submitted, a cost justification defense. 478 F.Supp. at n.3. It relied on
facts on which the parties were in substantial agreement, i.e., that Texaco
chose the distribution point pursuant to a contractual provision allowing
use of the point most economical to Texaco, App. at 158a, and that
Texaco realized a cost savings by changing Sweeney’s point from West-
ville to Macungie. Other issues relating to the switch, such as conspiracy
with Sweeney’s competitors and predatory intent, are considered in rela-
tion to the Sherman Act claims, supra, and fail for lack of sufficient
evidence.
55
tinental Baking Co., 386 U.S. 685, 702 (1967). The proper
comparison for determining whether a price discrimination has
occurred is between the prices charged to two different cus-
tomers. We therefore reject Sweeney’s argument that it has
shown improper discrimination merely by showing that Texaco
charged it a different effective price at two distinct points in
time.
Sweeney argues that the formula for calculating the hauling
allowance, though available on equal terms to all distributors,
resulted in price discrimination because the effective price of
gasoline varied from purchaser to purchaser. The variations in
price arose because Texaco calculated the hauling allowance
based on the differing distances between each distributor’s bulk
plant and Texaco’s pickup point, using the lowest rate from
among common carrier, contract carrier, or Texaco delivery
truck. Complications arose because distributors frequently did
not travel the full distance, but instead delivered the gasoline
directly from Texaco’s pickup point to nearby retail stations.
This practice allowed distributors, including Sweeney, to travel
fewer miles than the hauling allowance compensated them for.
The most advantaged distributors, therefore, were the ones with
bulk plants far distant from the pickup point, but with retail
stations close to the pickup point.
Sweeney’s indictment of the hauling allowance system
apparently concentrates on two separate aspects. First, Sweeney
alleges that by changing its pickup point from Westville to
Macungie, Texaco eliminated his locational advantage and put
it at a disadvantage with respect to other distributors. Second,
Sweeney alleges that the hauling allowance as calculated was
inherently discriminatory, and should be replaced with a “ra-
tional” hauling allowance system or scrapped altogether in favor
of uniform prices at the pickup point. We reject both arguments.
A.
Under our analysis, the first argument merges into the
second. Sweeney does not allege, and introduced no evidence
56
to substantiate, that Texaco deviated from its hauling allowance
formula by switching his pickup point from Westville, far from
Sweeney’s storage facility, to Macungie, much closer to his stor-
age facility. We are faced, therefore, with a hauling allowance
formula, uniform in structure and application, that produces
differentials in the effective price of gasoline sold to Texaco
distributors. Sweeney’s first argument alleges no more than that
the formula produced a higher effective price to him than to
other distributors. The first argument cannot succeed unless we
are persuaded that uniform application of the formula violates
the act.
B.
The attack on the hauling allowance system assumes that
such a system discriminates merely because it results in a
different effective price to each distributor. Although tne Su-
preme Court has said that “a price discrimination within the
meaning of that provision is merely a price difference,” FTC v.
Anheuser-Busch, Inc., 363 U.S. 536, 549 (1960), the business
reality of distributing gasoline over a large geographic region
militates against elevating this isolated passage to an all-inclusive
definition.®
We are persuaded by the second circuit’s reasoning in
FLM Collision Parts, Inc. v Ford Motor Co., 543 F.2d 1019
(2d Cir. 1976), cert. denied, 429 U.S. 1097 (1977), which
supports Texaco’s position that a uniform pricing formula
8In Anheuser-Busch, the Court addressed a problem known as “pri-
mary-line price discrimination,” in which Anheuser-Busch, a beer manu-
facturer, sold its beer at a lower price in the St. Louis market than it sold
it in other places in the country. The FTC alleged price discrimination to
the detriment of other beer manufacturers selling in the St. Louis market,
and the Supreme Court agreed. The allegedly harmed parties in
Anheuser-Busch were competitors of Anheuser-Busch, who would be
affected regardless of whether Anheuser-Busch charged equal prices to all
its customers in St. Louis. In this case, equal treatment of customers is
the only issue because other gasoline refiners, competitors of Texaco, are
not before the court.
57
applicable to all customers is not a price discrimination under
the act. In FLM, Ford charged different prices to its parts
customers according to the function, such as retail, wholesale,
or repair, that each customer performed. In concluding that this
practice was not a price discrimination under the Robinson-
Patman Act, the court reasoned that the dual price was avail-
able, not only in theory but in fact, to all purchasers. It con-
cluded that
the Act . . . requires equality of treatment among
purchasers, but it does not require a seller to adopt a single
uniform price under all circumstances. . . . This principle
has been applied in cases which found no violation of
§ 2(a) in pricing plans which, though varying prices ac-
cording to different terms of sale, were administered equally
to all purchasers.
Id. at 1026 (citations omitted). We hold, therefore, that Sweeney
has failed to establish that the hauling allowance formula dis-
criminates in violation of the Robinson-Patman Act.
Our holding is not inconsistent with prior Supreme Court
decisions that have found pricing formulas violative of the act.
In FTC v. Morton Salt Co., 334 U.S. 37 (1948), the Court held
that Morton Salt’s quantity discount system violated the act be-
cause the largest discounts were actuaily unavailable to the great
majority of Morton’s customers. Id. at 42-43; see also Mueller
Co. v FTC, 323 F.2d 44, 46 (7th Cir. 1963), cert. denied, 377
U.S. 923 (1964). The Court emphasized that a major purpose
of the Robinson-Patman Act was to eliminate the competitive
advantage of a large buyer “over a small buyer solely because
of the large buyer’s quantity purchasing ability.” 334 U.S. at 43.
In the case before us, it is the distributors, not Texaco, who
determine where to place their bulk storage plants, and it is the
distributors, not Texaco, who decide which retail stations they
will supply. Texaco has no control over those decisions; it cal-
culates the hauling allowance solely on the bulk plant’s location
in relation to the nearest pickup point. On this record, we can-
not conclude that Texaco’s formula forecloses any distributor
from an advantageous hauling allowance. The record also fails
58
to show that small buyers, whom the act was primarily intended
to protect, are disadvantaged by the formula.
Nor does Corn Products Refining v. FTC, 324 U.S. 726
(1945), preclude the result we reach. Corn Products operated
a delivered price system for glucose sold to all its customers
throughout the midwest. The “base point” for its calculation of
the delivered price was its plant in Chicago, although Corn
Products actually delivered glucose from its Kansas City plant
to customers near that plant. The result was a built-in favoritism,
unjustified by the facts of delivery, for customers in the Chicago
area. Corn Products differs from this case in an important re-
spect. In that case, the manufacturer was utilizing two shipping
points, but calculating its freight charges as if it were using only
one. The result was that customers close to the Kansas City
plant were arbitrarily deprived of the locational advantage sim-
ilar to the one held by customers close to the Chicago plant.
Instead, they were placed at a great disadvantage in an industry
in which “differences of a fraction of a cent . . . [were] sufficient
to divert business from one manufacturer to another. .. .” 7d. at
742. In this case, all relevant allowances are calculated on mile-
age between the actual shipping point and the customer’s bulk
storage facility. The formula is therefore not discriminatory.
Sweeney responds with two arguments. First, it notes that
customers of Texaco get the benefit of the allowance based on
distance from their plant to Texaco’s plant, but in reality rarely
travel the full distance. Because Texaco is aware of the common
practice of delivering gasoline to retail stations directly from
Texaco’s plant rather than from the bulk storage facilities,
Sweeney argues, Texaco is in fact sanctioning discriminatory
prices. Sweeney asks this court to mandate f.o.b. shipping point
pricing to eliminate this abuse of the hauling allowance. In re-
jecting this argument, we rely on the teaching that the Robinson-
Patman Act should not be construed “in a manner which runs
counter to the broad goals which Congress intended to effectu-
ate.” FTC vy. Fred Meyer, Inc., 390 U.S. 341, 349 (1968).
Sweeney’s argument is apparently based on some perceived duty
of a manufacturer to assure that uniform discounts are not
59
abused by customers. Even if we were persuaded that closer
supervision of the hauling allowance would be better commer-
cial practice, we would decline to impose a particular pricing
strategy on a market as complex as the gasoline market merely
because the current system may be imperfect.® Indeed, the
record fails to support the proposition that competition in this
market, as distinguished from a particular competitor, would
benefit by our mandating the inflexible approach urged by
Sweeney.
Alternatively, Sweeney would have us require Texaco to
calculate, on a station by station basis, the actual mileage
travelled by the distributors in making their deliveries. This re-
quirement would impose a substantial administrative burden on
Texaco, requiring it to adjust the allowance on a sale by sale
basis. It would also eliminate Texaco’s ability to base the haulug
allowance on established rates since rates for the multiplicitous
points, corresponding to each retail station, may not be readily
available. Given the evenhanded application of the formula, we
do not think the Robinson-Patman Act requires us to impose this
burden on Texaco. Moreover, Sweeney has failed to demonstrate
that Texaco’s alleged failure to calculate its allowance in the
most precise manner may have the substantial effect on compe-
tition required by the act. See Janich Bros., Inc. v. American
Distilling Co., 570 F.2d 848, 855 n.6 (9th Cir. 1977), cert.
denied, 439 U.S. 829 (1978); International Air Industries, Inc.
v. American Excelsior Co., 517 F.2d 714, 721-22 (Sth Cir.
1975), cert. denied, 424 U.S. 943 (1976); M. C. Manufactur-
ing Co. v. Texas Foundries, Inc., 517 F.2d 1059, 1066 (Sth
Cir. 1975), cert. denied, 424 U.S. 968 (1976); Lloyd A. Fry
Roofing Co. v. FTC, 371 F.2d 277, 281 (7th Cir. 1966). In-
deed, the allegations of adverse competitive effect are related
only to the change in Sweeney’s pickup point from Westville to
Macungie. Sweeney failed to introduce evidence from which an
inference could be drawn that the allowance formula per se has
9 Congress rejected an amendment to the Robinson-Patman Act that
would have required f.o.b. shipping point pricing. See Corn Products
Refining Co. v. FTC, 324 U.S. 726, 737 (1945).
60
a substantially adverse effect on competition, rather than merely
an adverse effect on it, a competitor.
Sweeney’s second response is that Texaco has deviated
from uniform application of its formula. Only one instance is
cited in which Texaco allegedly deviated from the formula. We
need not address Sweeney’s argument that this deviation consti-
tuted a violation of the act because Sweeney has failed to prove
both that it was in any way affected by this deviation’ and, if it
were harmed, the extent of its damages directly related to this
allegation.'t We conclude, therefore, that Sweeney produced in-
sufficient evidence to create a jury question, or to justify an
injunction, on this issue.
Accordingly, the district court’s order directing a verdict
for Texaco on Sweeney’s Robinson-Patman Act damage claim
and the order denying its injunction claim will be affirmed.
V.
We have considered the other contentions presented by
Sweeney, Mission Gas Oil Company, and Petroleum Products
Company. We conclude there was no error in the choice, inter-
pretation or application of legal precepts'* by the district court
and do not regard as clearly erroneous the district court’s find-
ings of fact in denying the plaintiffs’ claim for injunctive relief.
The plaintiffs failed to demonstrate that Texaco violated §§ 1
1” Undisputed evidence at trial indicated that Texaco increased Farm
& Home Oil Company's hauling allowance after Sun Oil Company tried
to induce Farm & Home to cease distributing Texaco gasoline and instead
to distribute Sun gasoline. Even assuming a jury could reject Texaco’s
meeting competition defense under § 2(b) 15 U.S.C. § 13(b), with re-
spect to this transaction, Sweeney neither alleged nor proved that it was
harmed by this particular event.
11 See note 6, supra.
2 We specifically reject appellants’ assertion of error based on the
district court’s refusal to admit evidence of Temporary Voluntary Allow-
ances (TVA’s). Texaco gave its wholesalers these allowances in order to
assist Texaco retailers in meeting price competition from other retailers.
Prior to trial, Sweeney conceded TVA's had nothing to do with the case.
The district court correctly excluded TVA evidence.
61
and 2 of the Sherman Act. On this basis alone the plaintiffs’ re-
quests for injunctive relief were properly denied.
On June 1, 1979, the court granted, in part, Texaco’s mo-
tion for partial summary judgment and dismissed Mission’s and
Petroleum’s claims for damages. The district court’s decision was
correct. Neither of these companies purchased fuel from Texaco,
but were Sweeney’s customers. Consequently, under Illinois
Brick Co. v. Illinois, 431 U.S. 720 (1977), and Klein v. Lionel
Corp., 237 F.2d 13 (3d Cir. 1956), they cannot assert claims
for damages under §§ 1 and 2 of the Sherman Act or § 2(a) of
the Robinson-Patman Act.
The district court, sitting as trier of fact, concluded that
Texaco was entitled to injunctive and declaratory relief on its
counterclaims. Texaco alleged that Sweeney commingled Texaco
gasoline with non-Texaco gasoline, sold non-Texaco gasoline
and diesel fuel as Texaco products and used trucks carrying the
Texaco brand to deliver non-Texaco fuel. Texaco asserted that
it was entitled to relief on various grounds. Based on the evi-
dence presented the court concluded that Sweeney’s conduct
violated §§ 32(1) and 43(a) of the Lanham Act, 15 U.S.C.
§§ 1114(1) and 1125(a), § 1 of the New Jersey Fair Sales Act,
N.J.S.A. § 56:4-1, §2(g) of the New Jersey Unfair Motor
Fuels Practices Act, N.J.S.A. § 56:6-2(g), and the common law
of unfair competition, and breached its distributor agreement.
At trial Richard Sweeney repeatedly admitted commingling fuel,
and the other evidence of infringement, unfair competition, and
breach of contract is overwhelming and uncontroverted. The
statutes are clear on their face, and their plain meaning is sup-
ported by the case law. We affirm the district court essentially
for the reasons set forth in its opinion. 478 F.Supp. at 277-82.
Accordingly, we will affirm the judgment of the district
court in all respects.
SLOVITER, Circuit Judge, dissenting.
It is an undisputed tenet in the allocation of the judge/jury
functions that a trial court cannot pass upon the weight or credi-
62
bility of the evidence in ruling on a motion for a directed verdict.
Brady v. Southern Railway, 320 U.S. 476, 479-80 (1943);
Burchill v. Kearney-National Corp., 468 F.2d 384 (3d Cir.
_ 1972). A fortiori, the appellate court is bound by the same limi-
tation on review. Continental Ore Co. v. Union Carbide & Car-
bon Corp., 370 U.S. 690, 696-97 (1962). I dissent from the
majority’s affirmance of the directed verdict on plaintiffs’ Sher-
man Act § 1 count for two reasons. I believ2 that both the trial
court and the majority have arrogated to themselves the jury’s
function of determining which inferences can reasonably be
drawn from the evidence before it. But my disagreement with
the majority goes deeper than whether the trial court overstepped
the permissible boundary in this case, admittedly an ad hoc deter-
mination. More significantly, I also disagree with the majority
in its restrictive interpretation as to the quantum of evidence
needed to bring action within § 1 of the Sherman Act. I believe
the majority retreats from prior decisions of this court, disregards
the realities of market behavior, and ignores the virtual impossi-
bility of producing direct evidence of unlawful combinations. I
fear that the majority’s decision will unduly hamper plaintiffs in
their ability to conduct this type of antitrust litigation.
I.
A.
Sweeney was a distributor of gasoline to discount stations,
some of which he owned or operated, usually referred to in
market jargon as “price-cutters.” While price-cutters selling non-
branded products are not well-regarded by their competitors,
Sweeney’s reputation among its competitors was even lower be-
cause it and the stations to which it sold price-cut a branded
product, Texaco gasoline. Under the economic theory upon
which the antitrust laws are based, Sweeney’s competitors should
have sought to meet its competition in the marketplace. As a
practical matter, however, we know that displeased competitors
may attempt to thwart a discounter’s price competition by a much
more direct route. They may seek to thrust at the jugular of that
competition by complaints to their mutual supplier, in an attempt
63
to induce the supplier to take action to control or coerce the “of-
fensive” market behavior or to cut the discounter out of the mar-
ket altogether by terminating its source of supply.
The case law is replete with instances of such action by a
discounter’s competitors. For example, franchised General Mo-
tors dealers sought to avert the competition from discount outlets
of General Motors cars by resorting to the “ultimate power” of
the supplier, and enlisting General Motors’ aid. United States v.
General Motors Corp., 384 U.S. 127, 136 (1966). Another il-
lustration appears in Uniroyal, Inc. v. Jetco Auto Service, Inc.,
461 F. Supp. 350, 354-55 (S.D.N.Y. 1978), where complaints
from a franchised dealer of Uniroyal tires about price com-
petition from a competing franchised dealer led to Uniroyal’s de-
cision to terminate the price-cutter.
Most such cases have been decided on the issue whether the
circumstances warrant application of the per se approach, an is-
sue not before us on this appeal. However, until now, there has
not been any serious question in this circuit that the competitors’
complaints to the supplier about the discounter’s market behavior
and the supplier’s action in response thereto are sufficient to con-
stitute the “combination” necessary to bring the matter within
the scope of section 1 of the Sherman Act. In Cernuto v. United
Cabinet Corp., 595 F.2d 164 (3d Cir. 1979), we recognized
that when a manufacturer takes action at the behest of a cus-
tomer, such action can no longer be considered unilateral and is
therefore subject to the prohibitions of the antitrust laws. In
Mannington Mills, Inc. v. Congoleum Industries, Inc., 610 F.2d
1059, 1069-70 (3d Cir. 1979), we held that allegations that
Congoleum terminated plaintiff's foreign licenses “in response
to” complaints by Congoleum’s foreign licensees about plaintiff's
‘ The majority’s suggestion that “contract, combination or conspiracy”
under section 1 of the Sherman Act is one concept, instead of discrete
terms, typescript op. at 9, is simply wrong. It is refuted by the discussion
of the Supreme Court in United States v. Parke, Davis & Co., 362 U.S.
29, 43-47 (1960), where the distinction between agreements and combi-
nations was made.
64
excessive competition and to the foreign licensees’ threats to
terminate their own licenses stated a sufficient claim under the
antitrust laws. Both cases were decided on the premise that ac-
tion by the man _facturer in response to the customers’ com-
plaints would constitute the “combination” needed to meet the
jurisdictional predicate of Sherman Act § 1. If that postulate
had not been accepted, there would have been no point to our
judgments returning the cases to the district courts for further
proceedings.
Now, the majority, holding directly to the contrary, states
“that even if appellants had demonstrated that Texaco’s actions
were in response to these complaints, such evidence alone would
not show the necessary concerted action.” Typescript op. at 9.
It affirms the district court which held that “evidence of compe-
titors’ complaints standing alone cannot support a finding of
liability under § 1 of the Sherman Act.” 478 F. Supp. 243, 255.
The majority cites no authority to support the proposition
that complaints and responsive action cannot constitute a com-
bination or conspiracy under the antitrust laws. The district
court relied on four cases to support its acceptance of that
proposition. For our purposes, central among the cases cited is
this court’s decision in Klein v. American Luggage Works, Inc.,
323 F.2d 787 (3d Cir. 1963). In citing that case to support
the proposition that something more is needed to create a com-
bination than mere complaints and responsive action, the district
court overlooked the fact that the Klein decision turned on the
circumstance that there was no evidence that the manufacturer
ever received the competitor’s complaints, which were made to
its sales representative and not directly to it. Jd. at 791. Under
that circumstance there could be no combination with the manu-
facturer. Thus, the court in Carbon Steel Products Corp. v. Alan
Wood Steel Co., 289 F.Supp. 584 (S.D.N.Y. 1968), another of
the authorities cited by the district court in this case, erroneously
relied on the Klein decision in rejecting the inference of con-
spiracy from the fact of customer complaints and the manufac-
turer’s actions. /d. at 588. The other appellate court case relied
on by the district court here, Westinghouse Electric Corp. v. CX
65
Processing Laboratories, Inc., 523 F.2d 668 (9th Cir. 1975),
also contains no analysis of the principal issue which concerns
us here, whether evidence showing complaints and responsive
action constitutes a Sherman Act § 1 combination. In the West-
inghouse Electric case, there were no complaints from plaintiff's
competitors about its marketing practices. Instead, the court
expressly noted that the calls from competing distributors were
not complaints but were requests for a favorable price arrange-
ment similar to the one Westinghouse had bestowed upon the
plaintiff. Jd. at 674. Hence, that case cannot serve as very per-
suasive authority for the proposition for which it was cited by
the district court.
Instead, in the Ninth Circuit case where a fact situation
similar to that presented here was considered, the court took a
realistic view of the impact of complaints by competitors and
the reaction of the manufacturer/supplier. In Girardi v. Gates
Rubber Company Sales Division, Inc., 325 F.2d 196 (9th Cir.
1963), the court reversed the decision of the district court in
granting a directed verdict after the plaintiff's evidence was pre-
sented to the jury. In that case, as here, plaintiff based its claim
of conspiracy on the complaints of a competitor and the respon-
sive action of the manufacturer in cutting off the price-cutter’s
source of supply. The court stated:
It seems to us to be clear that if the facts here, as
claimed by the appellant, are that Oranges as a competitor
of Girardi, the price cutter, induced and participated in
action which resulted in Girardi being cut off from a sup-
ply of this merchandise, then the case would be precisely
within the rationale of United States v. Socony-Vacuum
Oil Co., supra, for it is normally the competitor who is
being hurt by price cutting who is likely to seek coercive
action against the competitor who is hurting or likely to
hurt him. We would think that a typical case of illegal con-
spiracy to fix prices would arise from the desire of one
dealer to eliminate his price cutting competitor through
concerted action with the manufacturer.
66
Id. at 200.
It is difficult to understand why the majority seriously con-
tends that if a manufacturer reacts to complaints by its cus-
tomers by cutting off the offending discounter or otherwise
hampering his competition, this is not sufficient to establish a
conspiracy or combination. A long and unbroken series of de-
cisions has established that action which on the surface appears
to be unilateral behavior can be considered to be part of a com-
bination when viewed in light of the surrounding circumstances.
See, e.g., Eastern States Retail Lumber Dealers’ Association v.
United States, 234 U.S. 600 (1914); Interstate Circuit, Inc. v.
United States, 306 U.S. 208 (1939); American Tobacco Co. v.
United States, 328 U.S. 781 (1946); United States v. Parke,
Davis & Co., 362 U.S. 29 (1960).
Given the undisputed evidence in this case of competitor
complaints, it would be a fair inference that such complaints
were designed to elicit some action on the part of Texaco. As
Judge Pope stated in Girardi. “The very act of complaining car-
ries the meaning: ‘I want you to do something about it.’ ” 325
I’.2d at 202. The district court here, however, refused to ac-
knowledge that such complaints might constitute the foundation
of a Sherman Act § 1 combination since “{i]t would be inequi-
table to hold that the mere receipt of a complaint creates an
inference of a combination between the recipient and the com-
pn’. ,ant.” 478 F.Supp. at 257. Plaintiffs, of course, do not sug-
gest that mere receipt of a complaint is enough to turn a passive
manufacturer into a conspirator. It is only when the manufac-
turer responds to such complaints by taking action that the sine
qua non of a combination has been created by the addition of
another party. Furthermore, the mere fact that the manufac-
turer/supplier took some action will not suffice to establish the
requisite combination unless such action were taken in response
to such complaints. However, if it were, then the components of
a combination have been proven. See United States v. Uniroyal,
Inc., 300 F.Supp. 84, 90 (S.D.N.Y. 1969).
67
B.
The district court found, and the majority agrees, that
plaintiffs failed to offer sufficient evidence to permit a reasonable
inference that Texaco changed Sweeney’s hauling allowance or
terminated its distributor agreement because of competitors’
complaints. Viewing plaintiffs’ testimony in the light most favor-
able to them, which we must on reviewing a grant of a directed
verdict, I believe a jury could have found that Sweeney’s com-
petitors complained about its pricing policies vigorously and in
great number, that these complaints were of concern to Texaco
management, and that Sweeney’s pricing policies and market be-
havior played a part in Texaco’s decision to change its hauling
allowance and ultimately to discontinue its distributor arrange-
ment.
In this case, unlike some of the others where a manufac-
turer/supplier has defended its actions on the ground of uni-
lateral action, the evidence is undisputed that there were
numerous complaints, that they were received by Texaco, and,
even more significantly, that they came to the attention of the
Texaco officials who made the decisions to take the actions
against Sweeney. The majority opinion fails to note the extent
or volume of such complaints. Such complaints were far from
isolated. Nor did they stem only from an individual dissatisfied
competitor, In fact, complaints about Sweeney’s pricing policies
by several statewide associations of service station dealers were
the subject of discussion among Texaco officials. Furthermore,
complaints about Sweeney were made directly to Texaco. Daniel
A. Doherty, who in 1971 was the Regional Manager of Texaco’s
Philadelphia region and who made the decision to terminate
Sweeney’s distributorship, was aware of complaints from retailers
and distributors concerning Sweeney’s price-cutting tactics well
before he made that decision. For example, he admitted receiv-
ing a copy of a memorandum written by Edward C. Enstice,
Assistant Regional Manager, wholesale, of Texaco, stating that
W. A. Fluhr of W. A. Fluhr, Inc., one of Sweeney’s distributor
competitors, had visited Enstice to complain that Sweeney’s low
prices were adversely affecting his business. Paul B. Hicks, Jr.,
68
Vice President of Sales, U.S., Texaco, who was consulted con-
cerning the Sweeney termination was also aware prior to the
attempted termination of complaints of other Texaco retailers
about Sweeney’s underselling. Carlos Leffler, Inc., a Texaco
wholesaler, had complained in writing directly to Hicks by letter
dated September 1971 about Sweeney’s underpricing.
James P. Rodden was a former retail supervisor and
marketing representative for Texaco in the South Jersey and
Eastern Pennsylvania region during the relevant period, and in
this capacity was in charge of 60 to 70 Texaco stations. He
testified that beginning in 1967, numerous retailers had com-
plained to Texaco about being undersold by nearby Texaco sta-
tions, which were supplied by Sweeney. Unlike cases where such
testimony is vague and inconclusive, Rodden was able to identify
seven such complainants. Moreover, he testified that in regular
meetings attended by Texaco’s district manager and the market-
ing staff, the marketing representatives proffered competition
from Sweeney stations as an explanation for lost volume at some
of Texaco’s investment stations. Finally, Enstice, the Texaco
official referred to above, also testified that in 1971, Texaco re-
ceived complaints regarding Sweeney’s pricing practices from
Texaco retailers, wholesalers, and distributors. Enstice trans-
mitted these complaints to R. W. Smithwick, Texaco’s general
manager of sales in its marketing headquarters. As a result,
Smithwick subsequently travelled to Philadelphia to examine
Sweeney’s marketing area first-hand.
The majority concludes that there was no credible evidence
from which a jury could permissibly infer that Texaco’s actions
were in response to these complaints. In drawing this conclusion,
the majority excerpts some of the testimony on which plaintiffs
rely and combs through it to see what weight or credibility can
be attached to it. The pertinent issue, of course, is not what the
majority deems to be the reasonable inferences that can be
drawn from the testimony but what the jury believes to be the
reasonable inferences that can be drawn from the testimony.
When viewed by the proper standard, I believe that a rea-
sonable jury could have drawn the inference of responsive action.
69
One of plaintiff's witnesses, Glenn Murray, who significantly had
no connection with either plaintiff or defendant (having left
Texaco in 1973), testified to his belief that Texaco had termi-
nated Sweeney because of Sweeney’s competitive abilities as
against other Texaco retailers and wholesalers. Murray, a Tex-
aco employee since 1953, was close to the “center of the action,”
having been employed as the district sales manager of the Phila-
delphia district in 1971 and as assistat district sales manager
prior to that time. Murray was responsible for “everything and
anything” in the Philadelphia district and was thoroughly famil-
iar with Sweeney’s business. Murray’s extensive experience at
Texaco and knowledge of the realities of the way in which its
business decisions are made lends credence to his conclusion
that Sweeney’s marketing strategy, and not customer complaints,
was responsible for Texaco’s actions. Certainly a similar infer-
ence by the jury was permissible, albeit not compelled. The
majority’s disregard of Murray’s testimony because he “did not
refer to complaints of price cutting,” typescript op. at 15-16, is
surprising in light of Murray’s testimony that Texaco sales repre-
sentatives complained to him that Sweeney’s stations had a
“pricing structure . . . lower than [Texaco’s] own retailers were
able to price... .”
Plaintiff also introduced the testimony of Doherty, the
Texaco official who made the decision to terminate Sweeney's
distributorship, who admitted that he was aware that Sweeney’s
attraction was “based upon posting a price generally lower than
major brand price in the areas,” that its outlets were locations
with “a low, highly competitive retail price”, that Sweeney’s
“marketing strategy” “relied entirely on having the lowest or one
of the lowest prices”, and that Sweeney’s “marketing strategy”
was among the elements which entered into his decision to
terminate it. The majority places great stress on Doherty’s
assertion that Sweeney’s pricing was his prerogative and that of
the people he serviced. But the jury was entitled to discount the
self-serving portion of Doherty’s testimony (particularly in light
of the fact that Doherty is still employed by Texaco) and to
draw the inference that Texaco had capitulated to the pressure
of Sweeney’s competitors.
70
The testimony of these witnesses and the surrounding cir-
cumstances would support a jury’s inference that Texaco acted
in response to the numerous complaints it had received. To be
sure, that was not the only inference permissible from the evi-
dence. Texaco attempted to show that the motivation for its
actions against Sweeney was the customer complaints it had
received, and that Sweeney commingled Texaco’s gasoline with
other refiners’ gasoline. But these are arguments directed to the
jury, and the jury, acting as the reasonable voice of the com-
munity, must decide which explanations are the more plausible.
I doubt that we would not be bound to sustain its decision,
however it ultimately came out
The majority’s statement that because the change in
Sweeney’s hauling allowance was less than one cent per gallon,
it “is difficult to accept” Sweeney’s claim that the change was
taken in response to complaints citing price differentials of sev-
eral cents, typescript op. at 17, is illogical. The amount of the
reduction of Sweeney’s allowance does not go to the issue of
whether it was responsive to the competitors’ complaints. Indeed,
Texaco may have believed that some reduction of Sweeney’s
allowance on its part would permit it to assuage the complaints
of the competitors while retaining the business of Sweeney. That
Texaco may have wanted the best of both worlds does not fore-
close the possibility that its action, in whatever form, was taken
in response to the complaints it received. The majority’s treat-
ment of this fact patently demonstrates that it is usurping the
jury’s legitimate function.
The majority discounts the testimony of Rodden, Doherty
and Murray which it cites in detail. Apparently it does so be-
cause none of them testified that they knew as a fact that Texaco
took its actions against Sweeney in response to the competitors’
complaints. I assume that the reference to “narrative or historical
matters” in the learned discourse in Part II D of the majority’s
opinion is to the objective fact of such a causal connection, and
that it is intended to contrast facts with inferences. But infer-
ences are all that one can reasonably expect in such cases.
71
Although the majority purports to take cognizance of the
difficulty of proving an antitrust conspiracy by direct evidence,
the effect of its decision will be to require nothing less than direct
evidence of a causal connection between Sweeney’s competitors’
complaints and Texaco’s actions. The district court was explicit
on this point, faulting plaintiff because “Sweeney never even
attempted to introduce any evidence that Texaco either re-
sponded to the complainants or told Sweeney that it would take
any action in response thereto.” 478 F.Supp. at 257. It cannot
be so naive as to expect that a sophisticated business concern
like Texaco will have maintained records which make such a
direct causal connection, or that its officers, well trained in the
technicalities of the antitrust laws, will testify to that effect. The
courts have recognized that “in complex antitrust litigation
where motive and intent play leading roles, the proof is largely
in the hands of the alleged conspirators, and hostile witnesses
thicken the plot.” Poller v. Columbia Broadcasting System, Inc.
368 U.S. 464, 473 (1962). See also Norfolk Monument Co. v.
Woodlawn Memorial Gardens, Inc., 394 U.S. 700, 704 (1969).
As Justice Black stated in a different but analogous context:
The existence or nonexistence of a conspiracy is essen-
tially a factual issue that the jury, not the trial judge,
should decide. In this case petitioner may have had to prove
her case by impeaching the store’s witnesses and appealing
to the jury to disbelieve all that they said was true in the
affidavits. The right to confront, cross-examine and im-
peach adverse witnesses is one of the most fundamental
rights sought to be preserved by the Seventh Amendment
provision for jury trials in civil cases.
Adickes v. §. H. Kress & Co., 398 U.S. 144, 176 (1970) (con-
curring).
The issue of whether a combination may be inferred has
been most directly presented in the cases where plaintiff has
produced evidence only of parallel action. In Interstate Circuit,
Inc. v. United States, 306 U.S. 208 (1939), the Court affirmed
a finding that parallel action by motion picture distributors in
72
responding to a demand by one of their leading motion picture
theatre chains with identical and complex counteroffers per-
mitted the inference of a conspiracy. On the other hand, in
Theatre Enterprises, Inc. v. Paramount Film Distributing Corp.,
346 U.S. 537 (1954), the Court affirmed a finding that parallel
action by motion picture producers and distributors in refusing
to grant a suburban theatre first-run features did not constitute
a conspiracy in violation of the antitrust laws. What is signifi-
cant about these seemingly inconsistent decisions for our pur-
poses is that both cases were given to their respective juries so
that the juries could determine the inferences to be drawn from
the parallel behavior. In fact, in Theatre Enterprises, the Court
specifically stated, “To be sure, business behavior is admissible
circumstantial evidence from which the fact finder may infer
agreement.” Id, at 540 (emphasis added).
II.
The majority’s decision appears to be based on the alterna-
tive holdings that something more than competitor’s complaints
and manufacturer/supplier action is needed to show a Sherman
Act § 1 combination or conspiracy, and that, in any event, the
plaintiff did not provide sufficient evidence that Texaco’s action
was responsive to the complaints. Part I of this dissent dealt with
the latter holding. Even if the majority and the district court are
correct that “something more” is needed, a fair reading of the
record discloses that there is sufficient evidence of “something
more” to permit that issue also to go to the jury.
The search for “something more” stems from the line of
cases where the plaintiffs have sought to have the trier of fact
infer the requisite combination or conspiracy from mere parallel
action, usually refusals to deal, when there is no direct evidence
of combined action. See L. Sullivan, Antitrust § 110 (1977).
This “plus factor”, as it is sometimes called, has been used in
the parallel action cases even in the absence of evidence of com-
munication between the alleged conspirators to permit the infer-
73
ence of a combination from external factors.? Of course, in this
case, there was direct evidence of communication, and therefore
the requirement of a “plus factor” for that purpose is super-
fluous.
In any event, a sufficient “plus factor” can be found by
evidence that the actions taken were in contradiction of the
actors’ own economic self-interest. See Venzie Corp. v. United
States Mineral Products Co., 521 F.2d 1309, 1314 (3d Cir.
1975). This is the key to reconciliation of the Court’s decisions
in Interstate Circuit and Theatre Enterprises. As previously
noted, in both of those cases the jury was permitted to decide the
subsi
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.