Petition — AAA Liquors, Inc. v. Joseph E. Seagram & Sons, Inc.

Office-Supreme Court, £&

ii ze

No. 82-151 MAR 11 1963

IN THE

SUPREME COURT OF THE ~~~

UNITED STATES

A “9. STEVAS,

October Term, 1982

AAA LIQUORS, INC., a Colorado corporation; A-1 DIS-

COUNT LIQUORS, INC., a Colorado corporation; AL'S LI-

QUOR STORE, INC., a Colorado corporation; COLORADO

LIQUORS, INC., a Colorado corporation; CRAZY FARMER

LIQUOR, INC., a Colorado corporation; DAYTON LI-

QUORS, INC., a Colorado corporation; ARTHUR W.

STENCIL, d/b/a DICKERSON’S LIQUOR; ROBERT N.

SHACKLETT, d/b/a ELEVENTH AVENUE LIQUOR

HOUSE; LORENZ and RUTH FRIEND, d/b/a FRIEND

LIQUOR STORE; GLORIA DiMANNA, d/b/a GENO’S

LIQUORS; IRVIN RUBIN, d/b/a JR LIQUORS; JOHN

DeCICCO, d/b/a KIPLING LIQUORS; DEVON TALBERT,

d/b/a NORTHGLENN LIQUORS; ROBERT McINTYRE,

d/b/a OLD TOWN LIQUORS; HERMAN and DELORES

FLAX, d/b/a SKYLINE LIQUORS; SAM FIREMAN and

ARNO BRUCK, d/b/a TED’S LIQUORS; and THRONTON

CORK’N BOTTLE, INC., a Colorado corporation,

Petitioners,

VS.

JOSEPH E. SEAGRAM AND SONS, INC., d/b/a

CALVERT DISTILLERS COMPANY, BROWN VINTNERS

COMPANY, and SEAGRAM DISTILLING COMPANY,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

QUIAT, BUCHOLTZ, BULL & LAFF, PC.

1666 South University Boulevard

Denver, Colorado 80210

Telephone: (303) 778-8822

IRVING M. KENT

820 - 16th Street

Denver, Colorado 80202

Telephone: (303) 623-1355

ATTORNEYS FOR PETITIONERS,

AAA LIQUORS, INC., et al.

QUESTIONS PRESENTED FOR REVIEW

1. Whether ‘‘coercion”’ is an additional requirement of

proof in an action involving consensual vertical price fixing

where the Plaintiff is the retailer victim of the consensual

agreement, combination or conspiracy between the distiller and

wholesaler regarding the wholesaler’s prices?

2. Whether a contract, combination or conspiracy between

a distiller and its only wholesaler, in the relevant geographic

market, to discriminate in prices charged to competing retailers

is a form of price fixing which is a per se violation of Section

1 of the Sherman Act?

DESIGNATION OF PARTIES

The parties to this Petition are as designated in the caption.

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW... ..

DESIGNATION OF PARTIES.............-.

TABLE OF CONTENTS..............00005

REFERENCE TO OPINIONS BELOW........

STATEMENT OF JURISDICTIONAL GROUNDS

STATUTORY PROVISIONS. ... . ey eee:

STATEMENT OF THE CASE...............

ph eee re er eer eee

“ho

ae ig at oe

A. A RETAILER WHO IS VICTIMIZED BY A PRICE

FIXING CONTRACT, COMBINATION OR CON-

SPIRACY BETWEEN A DISTILLER AND THE

WHOLESALER, WHICH IS THE SOLE SOURCE OF

SUPPLY, FOR SUCH RETAILER OF THE

DISTILLER’S PRODUCTS, NEED NOT PROVE

THAT THE CONTRACT, COMBINATION OR CON-

SPIRACY BETWEEN THE DISTILLER AND THE

WHOLESALER WAS BROUGHT ABOUT BY COER-

CION EXERCISED BY EITHER OF THEM ON THE

OTHER IN ORDER TO ESTABLISH A VERTICAL

PRICE FIXING VIOLATION OF SECTION 1 OF THE

EDI TOES pb 8 oe Nod eas veh Als eo ceeen eas

B. A CONTRACT, COMBINATION OR CONSPIRACY

BETWEEN A DISTILLER AND ITS ONLY

WHOLESALER IN THE RELEVANT GEOGRAPHIC

MARKET TO DISCRIMINATE IN PRICE, AS BET-

WEEN COMPETING RETAILERS, IS A FORM OF

PRICE FIXING AND A PER SE VIOLATION OF

SECTION 1 OF THE SHERMAN ACT.........

oo rrr ery et Teer ER Eee

~I

12

14

ey re er 2 ee

Memorandum Opinion and Order of the United States

District Court for the District of Colorado, dated

December 22, 1980 (Unpublished)

GP er ee re er ee eee

Opinion of the United States Court of Appeals for the

Tenth Circuit, dated December 3, 1982, which has

not yet been published

oe ee ee era es er er oe wr ee

Order of the United States Court of Appeals for the

Tenth Circuit denying Petition for Rehearing, dated

February 10, 1983

TABLE OF AUTHORITIES

A. CASES

Admiral Theatre Crop. v. Paramount Film

Distributing Corp., 140 F.Supp. 686, 696-697 (D Neb

SEs» a Wale kiia pd 8 atc Re eee RAT em Rie & Fae oe

Ag-Chem Equipment Co., Inc. v. Hahn, Inc., 480 F2d

i | | ae

Banana Distributors, Inc. v. United Fruit Co., 162

F.Supp. 32, 35, 39 (SD NY 1958)...............

Blue Shield of Virginia v. McCready, 457 U.S, ___.,

102 S. Ct. 2540, 73 L.Ed. 2d 149, 50 U.S.L.W. 4723

SES Gi tik s-o hsb as o Hie DN ee aD he kad a okie

Canadian American Oil Co. v. Union Oil Co. of

California, 577 F2d 468, 471-472, (9th Cir. 1978).

Continental TV, Inc., v. GTE, Sylvania, Inc., 433 U.S.

Re Ce ED 2 po ng aia CE ph cee Aibeecdere 0.6 @ doe:

22

30

Page(s)

13

13

11

10

iv

Dart Drug Corp. v. Corning Glass Works, 480 F.Supp.

1091, 1099-1102 (D Md 1979)............0.00e.

Dr. Miles Medical Co. v, John D. Park & Sons Co,, 220

ES GET a rac att ava/ kia bse oad obo © 88

Harlem River Consumer Cooperative, Inc. v.

Associated Grocers of Harlem, Inc., 371 F.Supp. 701,

711 (SD NY 1974), affd. mem 493 F2d 1352 (2d Cir.

AR ane ere ae ere

Helix Milling Co. v. Terminal Flour Mills Co., 523

F2d 1317, 1322 (9th Cir. 1975). cert den, 423 U.S. 1053

K. S. Corp. v. Chemstrand Corp., 198 F.Supp. 310, 314

NE coin ciate Ry sl Glaxo RW a 8 Ah

Kiefer-Stewart Co. v. Joseph E. Seagram & Sons Co.,

340 U.S. 211, 213, 71 S.Ct. 259, 260, 95 L.ED. 219

aa Pg ain S54 is SRE TER OR LEE ae RK Re ea

Klor’s Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207

PG rit hey Stns as See GRE hiss 0.8 4

Laitham Corp. v. King Crab, 244 F.Supp. 9 (D Alaska

he iis cs, nie tad a-o die ss ae Dire e a aoe Xo esa

Lehmann Trading Corp. v. J & H Stolow, Inc., 184

EE ee eee

Peelers Co. v. Wendt, 260 F.Supp. 193, 195, 197 (SD

NSERC Grae br) Mgr ated i ate) gar

Reiter v. Sonotone Corp., 442 U.S. 330, 339, 99 S.Ct.

2326, 2331-2333, 60 L.Ed. 2d 931 (1979)........

Rutledge v. Electric Hose and Rubber Co., 372 F.Supp.

1267, 1272 (CD Calif. 1971), affd. 511 F2d 668 (1975)

Schnapps Shop, Inc. v. H. W. Wright & Co. Ltd., 377

F.Supp. 570, 581-582 (D.Md. 1973)..............

13

10

13

1]

13

10

12

13

13

11

11

Vv

Spray-Rite Service Corporation v. Monsanto Com-

pany, 634 F2d 1226, 1234 (7th Cir. 1982)........ 9

United States v. Bausch & Lomb Co., 321 U.S. 707,

721, 64 S.Ct. 805, 812, 88 L.Ed. 1024 (1944)..... 9

United States v. Colgate & Co., 250 U.S. 300, 307 (1919)

Te Bee ee al ee ee at ars Seek a oe ane 12

United States v. General Motors Corp., 334 U.S. 131,

se t,t rirere rear e ratnira 12

United States v. Paramount Pictures, Inc., 334 U.S.

SOE, GE BAR. GHG, CEO CIGED. osc vicccccciuweeen 12

United States v. Parke, Davis & Co., 362 U.S. 29, 43,

80 S.Ct. 503, 511, 4 L.ED. 2d 505 (1960)........... 9, 12

B. STATUTES

ES Rake wis 0.64 e 4a bese e eh eave beees sean 2,3

RIS, SN boos 4 ve keene were eee ee 3

AEs: SEEN. 00-25 o pede 6000s shee eb iene 2

C, TREATISES

Von Kalinowsky, Anti Trust Laws and Trade Regula-

tion Sec. 6B.02(3), p. 6B-32 - 6B-35............. 10

REFERENCE TO RECORD

Reference to Record below will be indicated by

‘Record Vol ’ or “Tr. p_____. (Transcript of

evidence.)

No.

IN THE

SUPREME COURT OF THE

UNITED STATES

October Term, 1982

AAA LIQUORS, INC., a Colorado corporation; A-1 DIS-

COUNT LIQUORS, INC., a Colorado corporation; AL'S LI-

QUOR STORE, INC., a Colorado corporation; COLORADO

LIQUORS, INC., a Colorado corporation; CRAZY FARMER

LIQUOR, INC., a Colorado corporation; DAYTON LI-

QUORS, INC., a Colorado corporation; ARTHUR W.

STENCIL, d/b/a DICKERSON’S LIQUOR; ROBERT N.

SHACKLETT, d/b/a ELEVENTH AVENUE LIQUOR

HOUSE; LORENZ and RUTH FRIEND, d/b/a FRIEND

LIQUOR STORE; GLORIA DiMANNA, d/b/a GENO'S

LIQUORS; IRVIN RUBIN, d/b/a JR LIQUORS; JOHN

DeCICCO, d/b/a KIPLING LIQUORS; DEVON TALBERT,

d/b/a NORTHGLENN LIQUORS; ROBERT McINTYRE,

d/b/a OLD TOWN LIQUORS; HERMAN and DELORES

FLAX, d/b/a SKYLINE LIQUORS; SAM FIREMAN and

ARNO BRUCK, d/b/a TED’S LIQUORS; and THORNTON

CORK’'N BOTTLE, INC., a Colorado corporation,

Petitioners,

vs.

JOSEPH E. SEAGRAM AND SONS, INC., d/b/a

CALVERT DISTILLERS COMPANY, BROWN VINTNERS

COMPANY, and SEAGRAM DISTILLING COMPANY,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Petitioners pray that a Writ of Certiorari issue to review

the judgment of the United States Court of Appeals for Tenth

Circuit entered on December 3, 1982 and the Order of that

Court denying rehearing entered on February 10, 1983.

2

REFERENCE TO OPINIONS

The Opinion of the United States Court of Appeals for the

Tenth Circuit was ordered published. Publication has not yet

occurred. It is reproduced in Appendix B.

The Memorandum Opinion of the United States District

Court for the District of Colorado was not published and is

reproduced in Appendix A.

STATEMENT OF JURISDICTIONAL GROUNDS

(i) This Petition is brought to review an Opinion of the

United States Court of Appeals for the Tenth Circuit, dated

December 3, 1982, which affirmed a decision of the United

States District Court for the District of Colorado, dated

December 22, 1980.

(ii) A Petition for Rehearing was filed on December 16, 1982

and was denied on February 10, 1983 (Appendix C).

(iii) The jurisdiction of this Court is invoked pursuant to

28 USC § 1254(1).

STATUTORY PROVISIONS

The Statute primarily involved in this case is:

§1. Restraint of trade; penalty.

Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or com-

merce among the several States, or with foreign na-

tions, is hereby declared to be illegal. Every person

who shall make any contract or engage in any com-

bination or conspiracy hereby declared to be illegal

shall be deemed guilty of a felony, and, on convic-

tion thereof, shall be punished by fine not exceeding

one million dollars if a corporation, or, if any other

person, one hundred thousand dollars, or by imprison-

ment not exceeding three years, or by both said

punishments, in the discretion of the court.

(As amended Dec. 12, 1975, P.L. 94-145, §2, 89 Stat.

801.)

3

STATEMENT OF THE CASE

A. Nature of the Proceedings

This case involved a trial to the Court on the issues of

whether the Defendants’ actions were in violation of Section

1 of the Sherman Act (15 U.S.C. 1), and/or in violation of Sec-

tion 2(a) of the Robinson-Patman Act (15 U.S.C. 13(a)).

The nineteen (19) Plaintiffs alleged a vertical price fixing

and price discrimination conspiracy, combination or contract

between the Defendants and their sole wholesaler in the Denver

Metropolitan Area with regafd to certain Seagram products,

especially Seagram 7 Crown and Seagram VO.

The fact and the amount of damages were stipulated

pretrial as well as many of the facts. Evidence was taken in,

a two-day period on January 8 and 9, 1979. On January 10,

1979, final arguments were heard. The District Court below

issued its Memorandum Opinion and Order on December 22,

1980 (Appendix A). Judgment entered for the Defendants on

December 23, 1980. Notice of Appeal was filed on January 14,

1981.

On December 3, 1982, the United States Court of Appeals

for the Tenth Circuit announced its decision affirming the judg-

ment of the District Court. On December 16, 1982, Plaintiffs

filed a Petition for Rehearing, which was denied on February

3, 1983.

B. Facts Material to a Consideration of the Questions Presented

Many essential facts were summarized and stipulated by

the parties prior to trial. The following is one such stipulation:

“The following generally described list of programs

and activities are those which are challenged by the

Plaintiffs. As set forth in Paragraph 5 (of this stipula-

tion) the parties have agreed that, if Seagram's sup-

port of any of the following programs and activities,

individually or taken collectively, together with the

surrounding facts and circumstances, is found by the

highest court which addresses the merits of this ac-

tion only, the fact of anti trust laws, for the purposes

of this action only, the fact of injury and amount of

4

damage to the Plaintiffs shall be presumed. The par-

ties are free to supplement each of the following

descriptions with evidence introduced at trial and to

adduce the facts and circumstances surrounding such

programs and activities:

(1) Seagram supported certain price reductions made

and discounts offered by Midwest to all retailers on

specified brands.

(2) Seagram supported certain progressive quantity dis-

counts offered by Midwest to all retailers on specified

brands.

(3) Seagram supported certain progressive quantity dis-

counts on specified brands offered by Midwest to all

retailers up to specified quantity brackets and Seagram

also supported higher discounts for larger quantity pur-

chases offered by Midwest only to certain large-volume

retailers.

(4) Seagram supported discounts on specified brands of-

fered by Midwest only to certain large-volume retailers

in the amount of $100 per case on all cases purchased

during a 6-month period if the retailer matched tne

number of cases he purchased in a “‘base’’ period con-

sisting of the same 6-month period during the preceding

year and an additional amount of $1.00 per case for each

case purchased during the 6-month period in excess

thereof. (Emphasis supplied.)

(5) Seagram supported discounts on specified brands

given by Midwest only to two large volume retailers in

the amount of $1.00 or $2.00 per case on all their pur-

chases of specified brands. (Emphasis supplied.)

(6) Seagram supported discounts on specified brands

given by Midwest when Midwest reduced its discounts

previously offered to all retailers on smaller container

sizes (fifths and smaller) and increased its discounts of-

fered on larger sizes (quarts and half-gallons).

(7) Seagram supported discounts on specified brands

given by Midwest when Midwest increased the difference

between the quantity discounts it offered to all retailers

5

on 25-case purchases and 100-case purchases. (Emphasis

supplied.)

(8) Beginning in October, 1975, Seagram entered into

an agreement with Midwest by which Seagram

guaranteed Midwest a 10.5% gross profit or margin on

7 Crown and VO. Such guaranty was effected by

crediting Midwest at the end of each 6-month period

an amount sufficient to reduce Midwest's cost on 7

Crown and VO to the extent necessary to make

Midwest's gross profit or margin equal to the agreed

upon percentage when compared to Midwest's actual

sales revenue realized during that period. The agree-

ment has continued to date with the percentage increas-

ed to 11% and subsequently to 11.5%.” (Stipulation and

Agreed Order, Record Vol. p. 22.)

(There was no dispute that these activities had been

initiated or continued during the four-year period prior

to the filing of the Complaint.)

To flesh out this bare bones outline, the parties introduced

evidence, both through witnesses and documents, during the

trial.

This included the deposition of a Seagram official, Mel

Elliott (hereafter “‘Depo.”’). Certain of the facts so developed

are important to this Court's consideration of whether the Writ

should be granted in this case:

Midwest was (and is) the sole source of supply of Seagram

products in the Denver Metropolitan area (the relevant

geographic market). (Tr., p. 143)

While Seagram did not always agree with Midwest's requests

for support for discount programs, Midwest put specific discount

programs into effect only after Seagram financial support had

been agreed upon. That support varied with the amount of the

discount offered by Midwest. These discounts were not based

upon cost savings to either Seagrom or Midwest (Depo. pp. 26,

32, 39, 41, Tr, p. 109-110, Exhiit 15).

Even after the initiation of the guaranteed profit program

fo: Midwest, Seagram additionally funded extra discounts of

6

$1.00 and $2.00 per case for payment by Midwest to the two

largest volume retailers in the Denver Area (Depo. pp. 47-48,

64-65, 91-92). This extra discount program was explained to

these two retailers by representatives of Seagram and Midwest

(Tr., p. 44-46, 50, 198-199)."

Prior to the guaranteed profit program, Seagram had agreed

to and did, fund similar additional discount programs for four

of the largest retailers in the Denver Area, These were over

and above those shown on the “deal sheets,’ and on which the

largest available discounts were for 100-case deals (Tr., p.

167-169, Ex. 78).

At a meeting in Los Angeles, California, between represen-

tatives of Midwest and top officials of Seagram, the guaranteed

profit program for Midwest was worked out for Midwest's sales

of 7 Crown and VO (the two largest volume products) on the

express agreement and understanding that Midwest would ad-

just its discounts to its customers to achieve a wholesale price

of $7.88 or $7.90 per one-half gallon bottle of 7 Crown which

was being offered to volume customers. The parties (Seagram

and Midwest) expected that this would result in a $7.99 retail

price to be offered by such retail customers (Depo. 42-45, 51,

68; Tr., p. 76, 99, 111, 206, 248, 34-346).

In October 1975, following implementation of the Los

Angeles agreement between Seagram and Midwest, the two

specially favored retailers (Harry Hoffman and Applejack) began

advertising 7 Crown half-gallons at $7.99 on the very same date

(Exhibit 102A). Since the best Midwest wholesale price to

retailers not receiving the extra discount of $1.00 or $2.00 per

case was a $7.88 net cost per bottle, such retailers would have

to accept a 1.4% gross margin of profit if the $7.99 price of-

fered by the favored retailers was met. This amount was far

exceeded by the normal operating expense of a retail store (Tr.,

p. 270). Hoffman's 7 Crown half-gallon margin, on the other

hand, was 5.8%, due to its extra discount, placing that large

volume retailer at considerable competitive advantage, vis-a-

vis other retailers.

The Trial Court found, ‘Seagrams provided Midwest financial assistant

which enabled the perpetuation of both programs.’ (Appendix A p. 17)

7

From October of 1975 until at least the filing of this case

in November, 1976, the largest size of 7 Crown was advertised

at $7.99 (Exhibit 102A). The retail price of VO was similarly

stabilized. The net bottle cost on the 100-case deal was varied

during the same time period between $7.88 to $8.42. Thus, at

times, consumers could purchase at retail, from Harry Hoff-

man and Applejack, Seagram's 7 Crown at a cheaper price than

the Plaintiffs could buy that product, on the best deal available

to them, at Midwest (Tr., p. 213, 215, 216).

On July 31, 1976, Seagram started funding extra quantity

discounts of 200, 300, 500 and over 500 case quantities. These

discounts offered one and two extra dollars ($1.00 and $2.00)

to about six “qualifying” retailers, including Harry Hoffman and

Applejack. Seagram paid for these programs as a separate item

from the “Guaranteed Profit Agreement.” (Tr., p. 113, 114, 114,

117, 120, 121, 122, 208, 209, 212).

Losses in profits and sales were incurred by the Plaintiffs.

Such losses were quantified by Stipulation of the Plaintiffs with

Seagram. Seagram stipulated to fact of injury.

There was no dispute that the conduct between Seagram

and its wholesaler was consensual. The wholesaler testified that

but for Seagram's agreement to fund these discriminatory pro-

grams, it could not afford to offer them. No issue of coercion

was raised by Defendants. Rather, at all times, Defendant stated

that it freely entered into the agreements and that the

agreements involved the wholesaler's price to its customers. It

is not disputed that the Defendant Seagrarn could have

unilaterally varied its price to Midwest. However: it varied its

price only upon the express understanding that Midwest would

also vary its price and/or transmit discriminatory discounts to

the customers of Midwest.

ARGUMENT

A. RETAILERS WHO MUST BUY FROM A VER-

TICAL PRICE FIXING SCHEME IN ORDER TO OB-

TAIN THE PRODUCT FROM THE ONLY LEGAL-

LY AVAILABLE SOURCE IN THE GEOGRAPHIC

MARKET, NEED NOT ALLEGE OR PROVE THAT

8

COERCION WAS USED TO CREATE OR MAIN-

TAIN THE CONTRACT, COMBINATION OR CON-

SPIRACY WHICH FIXED THE PRICES AT WHICH

HE COULD PURCHASE THE PRODUCT.

The Tenth Circuit announced in its decision that coer-

cion was the sine qua non of a vertical price fixing case,

regardless of the fact that the Plaintiffs were not part of

the contract, combination or conspiracy and regardless of

the fact that the price fixing was the result of consensual

conduct between the wholesaler and distiller:

The small retailers assert that the record

establishes as a matter of law an agreement, com-

bination or conspiracy affecting prices; they assert

that once such an agreement is found, the cases

holding vertical price maintenance agreements to

be per se violations of the Sherman Act, render-

ing unnecessary any further inquiry except with

regard to damages, which have been stipulated .

.. ‘While we agree that resale price maintenance

schemes are per se unlawful, all vertical ar-

rangements affecting price do not constitute price

maintenance agreements. The crux of any price

fixing agreement is the relinquishment by a trader

. . .Of the freedom to set prices in accordance with

his own judgement."’. . . Although a supplier may

suggest a resale price, .. . the supplier may not

coerce the seller's adherence to that suggested

price... . Here, no coercion was present. . . Re-

quiring Midwest to pass on the price break granted

by Seagram does not by itself constitute the coer-

cion or pressure to maintain resale prices condemn-

ed in decisions finding per se violations.

(Appendix B p. 26)

If indeed, coercion is the sine qua non of a vertical price

fixing case for those in the position of the Plaintiffs here,

then they must agree that the Writ should not be granted

on this issue.

The law, however, is to the contrary, creating a conflict

among the circuits:

9

An unlawful resale price maintenance scheme can

be effected in either of two ways: the manufac-

turer and its distributors may enter into an express

or implied agreement to maintain a fixed resale

price, United States v. Bausch & Lomb Co., 321

U.S. 707, 721, 64 S.Ct. 805, 812, 88 L.Ed. 1024

(1944), or the manufacturer may secure adherence

to its suggested resale price through coercion, in-

cluding threats to terminate distributors if they do

not follow the suggested price. United States v.

Parke, Davis & Co, , 362 U.S. 29, 43, 80 S.Ct. 503,

511, 4 L.Ed.2d 505 (1960).

Spray-Rite Service Corporation v. Monsanto Company, 684

F2d 1226, 1234 (7th Cir. 1982.)!

Thus, there is a clear conflict here between the views

of the Seventh and Tenth Circuit. That of the Seventh Cir-

cuit is supported by the great weight of authority, particular-

ly the decision of this Court in United States v. Bausch &

Lomb Co., cited above by the Seventh Circuit, and ignored

by the Tenth.

Counsel have been unable to find any decision of this

Court which suggests a retreat from the position it express-

ed in (Bausch and Lomb. The fact that a per se violation

may be found in a vertical price fixing arrangement by agree-

ment, rather than have coercion required as a necessary ele-

ment of proof has been expressed by a leading commentator

on the Anti Trust laws:

Conduct amounting to vertical price fixing or resale

price maintenance, whether of minimum or max-

imum prices, is unlawful per se under both Sec-

tion 1 of the Sherman Act and Section 5 of the

Federal Trade Commission Act . . . Thus, whether

based on understandings express or implied, or on

combinations inferred from the buyer's ac-

quiensence in a coercively enforced price policy,

'! Certiorari has been recently granted in Spray-Rite. No designated issue

in Spray-Rite appears to contest the Seventh Circuit ruling that ‘‘coer-

cion’’ is not required where a vertical consensual agreement, combina-

tion, or conspiracy is shown, (Cert. granted 2-28-83 Dkt. 82-914)

10

resale price maintenance, is regarded as a naked

restraint of trade with no purpose other than the

suppression of competition. . . . In the vertical con-

text, unlawful price maintenance arrangements

have been found where resale price control is pur-

sued through (1) express arrangements; (2) use of

affirmative conduct to enforce suggested prices;

and, (3) use of otherwise permissible pricing prac-

tices to obtain adherence to suggested prices.

Von Kalinowski, Anti Trust Laws and Trade Regulation,

Sec. 6B.02 (3), p.6B-32 - 6B-35.

This cvurt should grant the Writ on this issue since the

decision below represents an evisceration of the doctrine

that resale price maintenance is a per se violation of the Sher-

man Act. This Court has steadfastly upheld that doctrine

since its seminal decision in Dr. Miles Medical Co. v. John

D. Park & Sons, Co., 220 U.S. 373 (1911), and recently reaf-

firmed in Continental TV, Inc., v. GTE, Sylvania, Inc. , 433

U.S. 36, n 18 (1977).

As this Court said, in a case which involved this same

defendant, an agreement to fix resale prices was illegal, per

se, under Section 1 of the Sherman Act, Kiefer-Stewart Co.

V. Joseph E. Segram & Sons, 340 U.S. 211, 213, 71 S.Ct. 259,

260, 95 L.Ed. 219 (1951).

The Tenth Circuit decision below holds that, even though

conduct may be consensual, there must be a showing of coer-

cion as between the members of the contract, combination

or conspiracy, even for plaintiffs who are victims rather than

a part of the conspiracy.

While proof of coercion might have been required, if

Midwest (the wholesaler), rather than one of its customers,

had been the plaintiff (see Canandian American Oil Co. v.

Union Oil Co. of California, 577 F2d 468, 471-472, (9th Cir.

1978), where, as here, the plaintiff is a customer of the ver-

tical price fixing contract, combination or conspiracy,

proof of coercion between the members thereof upon each

other, is not an essential part of the plaintiff's cause of ac-

tion. This well established proposition was totally ignored

by the Court below and, if allowed to stand, would serious-

ly dilute, if not destroy, the impact of the recent decisions

of this Court in Blue Shield of Virginia v. McCready, 457

U.S. «102 S.Ct. 2540, 73 L.Ed. 2d 149, 50 U.S.L.W.

4723 (1982), and Reiter v. Sonotone Corp., 442 U.S. 330, 339,

99 S.Ct. 2326, 2331-2333, 60 L.Ed. 2d 931 (1979), by adding

proof of coercion to a requirement for standing on the part

of the plaintiffs, in those genre of cases.

The stipulated facts in the case below are alone suffi-

cient to establish the concert of activity aimed at the price

structure for specific products by Seagram.

Even if the object of the agreements between Seagram

and Midwest was merely to affect the prices at which cer-

tain products were to be advertised, this would be sufficient

to establish a violation. Schnapps Shop, Inc. v. H. W. Wright

& Co. Ltd., 377 F.Supp. 570, 581-582 (D.Md. 1973).

Concerted activity within the scope of Section 1 of the

Sherman Act occurs when one business entity takes action

at the request of a second business entity to do an act de-

nounced by the Act (see e.g. Helix Milling Co. v. Terminal

Flour Mills Co., 523 F2d 1317, 1322 (9th Cir, 1975), cert den.

423 U.S. 1053 (1976). This is what occured in the instant

matter according to the undisputed facts,

The plaintiffs suffered injury as a result of this tamper-

ing with the price structure. This has been stipulated as to

both fact and amount, It was clearly anti trust injury. They

were obviously injured in their business and property within

the parameters set by this court in Blue Shield of Virginia

v. McCready, supra, at 442 U.S. 337.

The Tenth Circuit's decision here under review would

engraft the artifical limitations which this Court has con-

sistently refused to impose by adding the requirement of

proof of coercion between the joint tort feasors to plaintiffs’

burden in vertical price fixing cases.

This must not receive even the limited imprimatur of

‘certiorari denied,’’ but must instead, be struck down as

aggregious blunder in anti trust law enforcement.

12

B. A CONTRACT, COMBINATION OR CON-

SPIRACY BETWEEN A DISTILLER AND ITS ONLY

WHOLESALER IN THE RELEVANT GEOGRAPHIC

MARKET TO DISCRIMINATE IN PRICE, AS BET-

WEEN COMPETING RETAILERS, IS A FORM OF

PRICE FIXING, A RESTRAINT OF TRADE, WHICH

IS A PER SE VIOLATION OF SECTION 1 OF THE

SHERMAN ACT.

A major vice of the decision below, and another reason

why it cannot be allowed to stand and have precedential

value, is that, it confuses a unilateral decision to discriminate

with descrimination, which is the result of a contract, com-

bination or conspiracy.

Just as one may unilaterally determine not to sell to a

particular customer, United States v. Colgate & Co., 250 U.S.

300, 307 (1919), one may not enter in agreement with others

to boycott such a customer without engaging in a per se viola-

tion of Section 1, Klor’s Inc. v. Broadway-Hale Stores, Inc.,

359 U.S. 207 (1959); United States v. Parke, Davis & Co.,

362 U.S. 29, 46 (1960) (1959). It matters not that the impetus

for the discriminatory action stemmed from a request from

others; the manufacturer remains liable for his participa-

tion in the scheme (see e.g. United States v. General Motors

Corp., 384 U.S. 127, 143 (1966). Indeed, in such cases *’. . .

we need not inquire into the economic motivation underly-

ing their conduct."’ (Id. at 384 U.S. 146).

It would have been thought that by now discriminatory

practices resulting from aggreement of competitors or from

agreement between independent merchants in a vertical

relation, rather than from unilateral decision (which, in some

instances, would fall afoul, of the Robinson-Patman Act),

would be universally recognized as ‘‘. . . included among the

restraints of trade which the Sherman Act condemns."’

United States v. Paramount Pictures, Inc., 334 U.S. 131, 68

S.Ct. 915, 930 (1947).

Indeed, this distinction between discrimination as the

result of a unilateral decision and discrimination as the result

of agreement appears to be well recognized outside the

Tenth Circuit (e.g. Rutledge v. Electric Hose and Rubber Co.,

13

372 F.Supp. 1267, 1272 (CD Calif. 1971), affd. 511 F2d 668

(1975); Ag-Chem Equipment Co., Inc. v. Hahn, Inc., 480 F2d

482, 492-493 (8th Cir. 1973).

The lower federal courts have recognized such

agreements to discriminate in price as between competing

customers to be a form of price fixing and a per se violation

of Section 1 of the Sherman Act (e.g. Banana Distributors,

Inc. v. United Fruit Co., 162 F.Supp. 32, 35, 39 (SD NY 1958);

Admiral Theatre Corp. v. Paramount Film Distributing

Corp., 140 F.Supp. 686, 696-697 (D Neb 1955); K.S. Corp.

wv. Chemstrand Corp., 198 F.Supp. 310, 314 (SD NY 1961);

Peelers Co, v. Wendt, 260 F.Supp. 193, 195, 197 (SD Wash

1966); Lehmann Trading Corp. v. J & H Stolow, Inc., 184

F.Supp. 21 (SD NY 1960); Laitham Corp. v. King Crab, 244

F.Supp. 9(D Alaska 1965). See also Dart Drug Corp. v. Cor-

ning Glass Works, 480 F.Supp. 1091, 1099-1102 (D Md 1979),

which applied Section 2 to price descrimination).

While harm to the Plaintiffs standing alone may be in-

sufficient, the rule is that Plaintiff must show, as they have

done here, that they are being harmed while their com-

petitors, who were served by the same supplier, are favored

in violation of the anti trust laws. Harlem River Consumer

Cooperative, Inc. v. Associated Grocers of Harlem, Inc., 371

F.Supp. 701, 711 (SD NY 1974), affd. mem 493 F2d 1352 (2d

cir. 1974).

The small retailers who could not buy from Midwest at

prices below, or in some cases even equal to, those offered

by the favored retailers to the general public, have met this

test.

Midwest, acting alone, would not have provided the ex-

tra discounts and rebates to the few favored retailers. They

acted only when they had the support and agreement of

Seagram, which knowingly provided additional discounts for

a few favored retailers to depress the retail market price

of certain of its products.

The contract, combination or conspiracy to discriminate

in price has been established, indeed, admitted by Seagram.

14

Seagram was free to start or support a price war against

its competitors, and could have legally done so even with

a differentiated discount structure based upon cost savings

and efficiencies granted to its wholesaler. Instead, here it

chose to maintain its market position, at the expense of the

small retailers, by agreeing with the wholesaler that the

wholesaler grant specified discounts to the wholesaler’s

favored and specified customers, which were greater than

those afforded the Plaintiffs.

This is a clear violation of the anti trust laws of the

United States, and the decision below upholding such an

agreement between two business entities to discriminate in

prices offered to various retailer competition must not be

allowed to stand.

CONCLUSION

The decision below attacks the fundamentals of anti

trust law enforcement in its most sensitive area, price.

The decision below is of such a nature as not merely to

justify the issuance of the Writ, but also deserves and should

receive summary reversal by this Court.

Respectfully submitted,

QUIAT, BUCHOLTZ, BULL & LAFF, P.C.

James C. Bull

1666 South University Boulevard

Denver, Colorado 80210

Telephone: (303) 778-8822

Irvin M. Kent

820 - 16th Street

Denver, Colorado 80202

Telephone: (303) 623-1355

ATTORNEYS FOR PETITIONERS

March 1983

15

APPENDIX A

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO

Civil Action No. 77-W-1030

AAA LIQUORS, INC., a Colorado

ccorporation; A-1 DISCOUNT LIQUORS,

INC., a Colorado corporation; AL’S

LIQUOR STORE, INC., a Colorado

corporation; COLORADO LIQUORS,

INC., a Colorado corporation; CRAZY

FARMER LIQUOR, INC., a Colorado

corporation; DAYTON LIQUORS, INC., a

Colorado corporation; ARTHUR W.

STENCIL, d/b/a DICKERSON’S LIQUOR

ROBERT N. SHACKLETT, d/b/a

ELEVENTH AVENUE LIQUOR HOUSE;

LORENZ and RUTH FRIEND, d/b/a

FRIEND LIQUOR STORE; GLORIA

DiMANNA, d/b/a GENO’S LIQUORS;

IRVIN RUBIN, d/b/a JR LIQUORS;

JOHN DeCICCO, d/b/a KIPLING

LIQUORS; DEVON TALBERT, d/b/a

NORTHGLENN LIQUORS; ROBERT

McINTYRE, d/b/a OLD TOWN

LIQUORS;

HERMAN and DELORES FLAX, d/b/a

SKYLINE LIQUORS; SAM FIREMAN

and ARNO BRUCK, d/b/a TED’S

LIQUORS; and THORNTON CORK’'N

BOTTLE, INC., a Colorado corporation,

Plaintiffs,

vs.

JOSEPH E. SEAGRAM AND SONS,

INC., d/b/a CALVERT DISTILLERS

COMPANY, BROWN VINTNERS

COMPANY, and SEAGRAM

DISTILLING COMPANY,

Respondents.

i i de de de ee ee ee ee ee ee ee

Name et a a ee ee ee Ne ee ee ee ee ee

MEMO-

RANDUM

OPINION

AND ORDER

16

On November 11, 1977, plaintiffs, retailers of spiritous

liquors duly licensed under the laws of the State of Colorado,

filed a complaint which was amended on April 6, 1978, alleg-

ing the named defendants violated the anti-trust laws of the

United States by contracting, combining or conspiring to

restrain trade and by discriminating in price between com-

petitors. At a pretrial conference on December |, 1978, the

court was informed that only one defendant, Joseph E.

Seagrams & Sons, Inc., (‘‘Seagrams’’) remained in the case.

The trial to the court January 8, 1979 through January 11,

1979 disclosed evidence relevant to the Sherman Act §1, as

amended, 15 U.S.C. §1 and the Robinson-Patman Act 2(a),

15 U.S.C. §13(a) accusations. Evaluation of the evidence,

based upon the reasons set forth below, warrants a finding

in favor of the defendant.

Seagrams a wholly-owned subsidiary of the Seagram

Company Limited, distills, manufactures, imports and sells

spiritous wines and liquors. Plaintiffs contend Seagrams'’

agreement and cooperation with Midwest Liquor and Wine

Company (‘‘Midwest’’), an independent wholesaler, to pro-

vide financial support for various discount programs advan-

cing Seagrams brands caused adverse effects and damage

constituting violations of the anti-trust laws. Further they

allege that Seagrams and Midwest agreed and conspired to

develop and operate promotional pricing schemes which

caused the advertised retail prices to be depressed and

stabilized. consequently, plaintiffs claim price competition

was virtually extinguished since only specific large retailers

had the advantage of Midwest’s discount programs, leav-

ing many retailers unable to sell Seagrams brands without

taking a loss. The quantum of damages and the fact of in-

jury was stipulated to pretrial.

The promotional programs in issue involve Midwest’s

progressive quantity discounts, guaranteed profit margins

and large quantity discounts with respect to Seagram's

brands, V.O. and 7 Crown. V.O. is a six year old Canadian

whiskey imported in the bottle at 86.8 proof. 7 Crown is an

American blended whiskey. From 1973 through July 1975

four large Denver retailers, Applejack, Harry Hoffman,

Argonaut and Payless were offered by Midwest a discount

of $1 per case of 7 Crown or V.O. sold if the retailer match-

17

ed its level of purchases for the prior corresponding period,

with $1 per case offered for any additional purchases.

Seagrams then granted Midwest price reductions in support

of this ‘‘escalator program.’’ From October 1975-July 1976,

Harry Hoffman and Applejack were targeted to encourage

advertisement of Seagrams’ brands whereby Hoffman

received $2 per case discount thereafter. A similar program

for V.O. was offered with a 200 case minimum. Seagrams

provided Midwest financial assistance which enabled the

perpetuation of both programs. A decline of Seagrams’ posi-

tion in the market elicited another attempt to boost its sales

whereby Seagrams guaranteed that Midwest would realize

al01/2 gross profit on its sales of the two products, giving

Midwest flexibility of pricing while keeping V.O. and 7

Crown prices at a competitive level. These promotional

’ plans, designed by Midwest in an attempt to achieve ‘‘total

distribution’’ are the cause of the vertical price fixing at-

tacks by plaintiffs.

Sherman Act Claim

A cause of action pursuant to §1 of the Sherman Act re-

quires that the plaintiff prove (1) that the defendants con-

tracted, combined, or conspired among each other; (2) that

the combination or conspiracy produced adverse, anti-

competitive effects within relevant product and geographic

markets; (3) that the object of and the conduct pursuant to

that contract or conspiracy were illegal; and (4) that the

plaintiff was injured as a proximate result of the conspiracy.

Martin Dodge Co. v. Chrysler Corporation, 570 F. 2d 72 (3rd

Cir. 1977). Such a showing is absent here.

A per se violation of Section 1 of the Sherman Act can

be found when vertical resale price maintenance agreements

are operating. Hanson v. Shell Oil, 541 F. 2d 1352 (9th Cir.)

cert. denied 429 U.S. 1074 (1972). ‘‘There are certain

agreements or practices which because of their pernicious

effect on competition and lack of any redeeming virtue are

conclusively presumed to be unreasonable and therefore il-

legal without elaborate inquiry as to the precise harm they

have caused or the business excuse for their use.’’ Northern

Pacific v. U.S., 356 U.S. 1 (1958).

18

Through §1 of the Sherman Act does not require direct

evidence of a conspiracy, even a collation of the cir-

cumstances here does not permit finding a violation. Delaney

v. Bonne Bell, 525 F. 2d 296 (10th Cir. 1975). The evidence

does not reveal a desire or effort by Seagram to fix prices

to be charged by the retailers. Midwest is the only liquor

distributor in Denver. It handles 80% of Seagram's sales in

this area which might give the deceitful impression of a con-

spiratorial relationship. However, interaction between

Seagram and Midwest did not amount to the concerted

action necessary to constitute a conspiracy.

Often an examination of price-fixing violations focuses

on whether a supplier's price dictation has been substituted

for the pricing judgment and freedom of a wholesaler or

retailer. A price fixing violation exists when the wholesaler

or retailer relinquishes this control. Albrecht v. Herald, 390

U.S. 145 (1968). The cases go further by explaining that ver-

tical price-fixing is not established as long as the wholesaler

remains free to determine his own prices, even when the

supplier has suggested or even urged a similar pricing ar-

rangement. Hansen v. Shell Oil, supra. Chisholm Brothers

v. International Harvester, 398 F 2d 1137 (9th Cir.) cert.

denied 419 U.S. 1023 (1974). More expansively, if

wholesaler’s discounts are a result of his own pricing

judgements there is no price-fixing violation even though

such discounts would not be feasible without support from

the suppliers. Sun Oil v. FTC, 294 F. 2d 465 (5th Cir.) rev'd

on other grounds, 371 U.S. 508 (1961).

In Sun Oil v. FTC, Supra, a vertical price fixing viola-

tion was not found where Sun granted an allowance to one

dealer to help him lower his retail prices with the goal of

meeting competition. The dealer received Sun's price sup-

port, as Midwest was assisted by Seagram's support, enabl-

ing them to charge the prices they deemed appropriate to

remain competitive. The promotional pricing schemes

developed and offered by Midwest to circulate Seagram's

products resulted from Midwest's unimpeded independent

research, analysis and motivation. Mr. Stutts, Colorado State

manager for Seagrams, testified, ‘‘They (Midwest) have 30

people, including several management and I have two peo-

ple. I rely on what they know.”’ Mr. Freis, Midwest's sales

19

manager and later president, testified confirming this laisez-

faire policy. Though Seagram financially assisted Midwest,

Midwest maintained complete control over the distribution

and decision making concerning Seagram's brands.

In the instant case, plaintiff has failed to demonstrate

per se illegal price-fixing pursuant to §1 of the Sherman Act.

there has been no showing that the alleged vertical restraints

have or are likely to have a ‘‘pernicious effect’’ on competi-

tion or that they lack any ‘‘redeeming value.’’ Northern

Pacific v. U.S. supra. Therefore, there must be an evalua-

tion as to whether the questionable acts endure rule-of-

reason scrutiny to complete the Sherman Act analysis. Stan-

dard Oil v. United States, 221 U.S. 1 (1911.)

Practices which are potentially less harmful to competi-

tion than those worthy of per se categorization are to be

judged by the rule-of-reason.

‘Under the rule-of-reason analysis the true test of

legality is whether the restraint imposed is such

as merely regulates and perhaps thereby promotes

competition or whether it is such as may suppress

or even destroy competition. To determine that

question the Court must ordinarily consider the

facts peculiar to the business to which the restraint

is applied; its condition before and after the

restraint was imposed; the nature of the restraint

and its effect, actual or probable, the history of

the restraint, the evil believed to exist, the reason

for adopting and particular remedy, the purpose

or end sought to be attained, are all relevant

facts.”’

Chicago Board v. U.S., 246 U.S. 231 (1918).

‘‘The ultimate test of legality, is whether the particular

restraint promotes or impairs competition. The intent or pur-

pose underlying the restraint is a crucial variable in aiding

the Court to assess the competitive effects of the restraint.”’

Glauser Dodge v. Chrysler, 570 F. 2d 72 (8rd Cir. 1977). As

fact-finder, I have weighed all of the circumstances in con-

sideration of the challenged activities’ impact on competitive

20

conditions. Upon institution of the promotional programs

by Midwest, the sale of Seagrams’ brands was stagnating,

and their prices were above the competitive level as depicted

in the testimony of Mr. Freis. (p. 248) Seagram's and

Midwest's reaction to this situation actually lowered retail

prices which increased the sales volume of many retailers,

including three of the four plaintiffs that had representatives

testify at trial. Seagrams’ support of Midwest's programs par-

ticularly the profit guarantee, gave Midwest more flexibili-

ty allowing it to raise and lower its list prices.

Though rule-of-reason addresses conduct that is not

manifestly anti-competitive, the fact that Seagrams merely

subsidized the wholesaler does not rise to the level of

detrimental impact necessary to constitute a §1 Sherman Act

violation.

Robinson-Patman Act Claim

The Robinson-Patman Act, Section 2(a), 15 U.S.C. §13(a)

does not warrant the imposition of liability upon Joseph E.

Seagram & Sons, Inc.

To maintain an action under §2(a) the plaintiff must

allege and prove (1) that the defendant is engaged in com-

merce, (2) in the course of such commerce the defendant

has discriminated in price between different purchases of

commodities of like grade and quality, (3) that either or any

of the purchases involved in such discrimination are in com-

merce, and (4) that there is likely to be a severe adverse ef-

fect on competition. Lehrman v. Gulf Oil, 464 F. 2d 26 (5th

Cir. 1973) cert. denied 409 U.S. 1077).

The plantiffs seek recovery pursuant to the Robinson-

Patman Act claiming Seagram and Sons is the seller of an

‘indirect purchaser.’’ ‘‘If the manufacturer deals with a

retailer through the intermediary of wholesalers, dealers or

jobbers, the retailer may nevertheless be a ‘purchaser’ or

the manufacturer.’’ American News v. F.T.C., 300 F 2d 104

(2d Cir.) cert. denied 371 U.S. 824 (1962). This contention

is based upon Seagram's alleged control over the terms and

conditions of sales to retailers by Midwest. This control

would impose responsibility upon Seagram for the

discrimination in sale price, if such discrimination exists. The

21

facts do not establish that Seagram directed Midwest's price

determinations, nor do they disclose that Seagram actually

participated in any sales te retailers. Rather Seagram and

Midwest are independent links in the distribution chain.

The present action does not fall within the provisions

of the Robinson-Patman Act since none of the sales alleged

to be discriminatory actually transpired in interstate com-

merce. Seagrams sales to Midwest f.0.b. the distillery or point

of importation into the United States. 7 Crown's f.o.b. point

is Lawrenceburg, Indiana, and V.O.'s point is Detroit,

Michigan. All retail purchases were totally consummated in

Colorado, all purchases from Midwest were accommodated

by its inventory situated here.

The Tenth Circuit has strictly applied the statutory re-

quirement that ‘‘either or any of the purchases involved in

such discrimination are in commerce.'’ McGoffin v. Sun Oil,

539 F. 2d 1245 (10th Cir. 1976). In the absence of any pur-

chases crossing state lines there is no substance to the

Robinson-Patman claim in the immediate case. Gulf Oil v.

Copp Paving, 419 U.S. 186 (1974).

Seagram's products have dominated the market for

years and its distributor clearly controls liquor distribution

in Denver, making Seagram's operation vulnerable to anti-

trust attacks. The record doesn’t reveal sufficient evidence

to show that the effect of Midwest's promotion programs

was substantially adverse to the competitive environment,

Midwest price determinations herely allowed Seagrams’

brands to be sold at competitive levels. Seagrams did not

act in furtherance of #»ti-competitive objectives, therfore,

are not in violation oi gof the Sherman Act or §2(a) of the

Robinson-?atman Act.

IT IS THERFORE ORDERED that judgement shall enter

in favor of the defendant and against the plaintiffs and the

defendant is awarded its costs.

Dated this 22nd day of December, 1980.

S/Fred M. Winner

United States District Judge

22

APPENDIX B

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

AAA LIQUORS, INC., a Colorado

ccorporation; A-1 DISCOUNT LIQUORS,

INC., a Colorado corporation; AL’S

LIQUOR STORE, INC., a Colorado

corporation; COLORADO LIQUORS,

INC., a Colorado corporation; CRAZY

FARMER LIQUOR, INC., a Colorado

corporation; DAYTON LIQUORS, INC.,a

Colorado corporation; ARTHUR W.

STENCIL, d/b/a DICKERSON’S LIQUOR

ROBERT N. SHACKLETT, d/b/a

ELEVENTH AVENUE LIQUOR HOUSE;

LORENZ and RUTH FRIEND, d/b/a

FRIEND LIQUOR STORE; GLORIA

DiMANNA, d/b/a GENO’S LIQUORS;

IRVIN RUBIN, d/b/a JR LIQUORS;

JOHN DeCICCO, d/b/a KIPLING

LIQUORS; DEVON TALBERT, d/b/a

NORTHGLENN LIQUORS; ROBERT

McINTYRE, d/b/a OLD TOWN

LIQUORS;

HERMAN and DELORES FLAX, d/b/a

SKYLINE LIQUORS; SAM FIREMAN

and ARNO BRUCK, d/b/a TED’S

LIQUORS; and THORNTON CORK'N

BOTTLE, INC., a Colorado corporation,

Plaintiffs-Appellants,

Re ee

No. 81-1061

vs.

JOSEPH E. SEAGRAM AND SONS,

INC., d/b/a CALVERT DISTILLERS

COMPANY, BROWN VINTNERS

COMPANY, and SEAGRAM

DISTILLING COMPANY,

Defendants-Appellees.

ame a a a et et et Ne et eet eet eet ee Se”

Appeal from the United States District Court

For the District of Colorado

(D. C. No. Civil 77-W-1030)

23

James C. Bull of Quiat, Bucholtz, Bull & Laff, (Irvin M. Kent

with him on the brief) Denver, Colorado, jor Plaintiffs-

Appellants.

Macdonald Flinn (Allan Gropper, also of White & Case, New

York, New York; and H. Thomas Coghill and David J.

Richman of Coghill & Goodspeed, Denver, Colorado, with

him on the brief) for Defendants-Appellees.

Before HOLLOWAY, MCKAY and LOGAN, Circuit Judges.

LOGAN, Circuit Judge.

Nineteen Denver liquor stores (‘‘small retailers’’) appeal

the trail court's holding that funding by Joseph E. Seagram

& Sons, Inc. (‘‘Seagram’') of price discounts its Denver

wholesaler, Midwest Liquor Co. (‘‘Midwest’'), offered only

to a few large volume Denver liquor stores was not a ‘‘con-

tract, combination, or conspiracy in restraint of trade’’ pro-

hibited by section one of the Sherman Act, 15 U.S.C, §1.

The small retailers contend that Seagram's funding con-

stituted a per se violation of the antitrust laws because it

amounted to vertical price fixing in that (1) Seagram knew

Midwest gave the discounts only to the large volume stores,

(2) as a condition to funding Midwest's discount program,

Seagram required Midwest to resell to the large volume

stores at a given price; and (3) Seagram had agreed to fund

Midwest's price discounts for the purpose of, and with the

result of, affecting retail prices charged by those large

volume stores.

The trial court found that Midwest had initiated the dis-

count program so that the large volume retailers would sell

Seagram's liquor at a price competitive with what they

charged for competing brands such as Jim Beam and An-

cient Age. The trial court held that Seagram had not violated

section one because the ‘‘interaction between Seagram and

Midwest did not amount to the concerted action necessary

to constitute a conspiracy.'’ It found that the discount pro-

gram ‘‘resulted from Midwest's unimpeded independent

research, analysis and motivation’’; further, that ‘‘Midwest

maintained complete control over the distribution and deci-

24

sionmaking concerning Seagrams’ brands.’’ On appeal the

small retailers argue that the trial court erred in not holding

that Seagram committed a per se violation of the antitrust

laws by engaging in vertical price fixing.

Many of the essential facts were stipulated and the

others were largely undisputed. In the Denver area

Seagram's most popular product is Seagram's 7 Crown, a

moderately-priced blended whiskey competing principally

with Jim Beam, Ancient Age, and Canadian Mist; Seagram's

next most popular product is Seagram's V.O., a premium-

priced Canadian blended whiskey competing principally with

Canadian Club. Midwest, an independent liquor wholesaler,

is the exclusive distributor for Seagram's products in the

Denver area. lidwest does not sell those competing brands.

Discounts and special sales promotions are common mer-

chandising techniques used by liquor wholesalers. The trial

court found that Midwest, not Seagram, developed the

challenged discounts and offered them to certain large

volume liquor stores with the goal of increasing the market

shares of 7 Crown and V.O. in Denver.' Midwest then ask-

ed Seagram to reimburse Midwest the costs of the discounts,

and Seagram agreed.”

At the time the discount programs went into effect, 7

Crown was selling in the large volume stores for over $9.00

per half gallon, and was losing ground to Jim Beam, Ancient

Age, and Canadian Mist, which usually were selling for $8.18

per half gallon. The large volume stores were rarely adver-

tising 7 Crown, but were heavily advertising the competing

brands, often featuring them as loss leaders. During the dis-

count program the large volume stores did advertise 7 Crown

for as little as $7.99 per half gallon and significantly increas-

ed the amount sold.

' Midwest routinely offered certain discounts and promotions to all

retailers. Midwest did not always ask Seagram to fund these programs;

even when asked, Seagram sometimes declined to fund a program or pro-

vided only partial funding.

* In general, Seagram directly reimbursed Midwest the cost of the dis-

counts. During one phase of the discount program, however, Seagram

simply ensured Midwest a 10-1/2% gross profit on sales of 7 Crown and

V.O., which exceeded Midwest's prior profit figures and allowed it to

offer substantial discounts.

25

The small retailers contend that Seagram's requirement

that Midwest pass the discount through only to the large

retailers, had the effect of fixing the prices Midwest charg-

ed to the large retailers, who received the discount, and to

the small retailers, who did not. Furthermore, they contend

that the large retailers’ prices also were fixed, to the detri-

ment of the small retailers. If Seagram fixed the prices the

wholesaler could charge all of the retailers, or if Seagram

entered into an agreement, combination, or conspiracy to

give a competitive edge to the large volume retailers, the

small volume retailers have standing to sue.”

On appeal we have to consider only whether the record

supports the trial judge's determination that section one of

the Sherman Act was not violated under the facts of the in-

stant case.’ The district court found that Seagram did not

attempt to fix prices charged by either Midwest or the

retailers, It found that although Seagram assisted Midwest

financially, the wholesaler maintained complete control over

the distribution and decisionmaking concerning Seagram's

products.

The small retailers assert that the record establishes as

a matter of law an agreement, combination, or conspiracy

affecting prices; they assert that once such an agreement

is found the cases holding vertical price maintenance

agreements to be per se violations of the Sherman Act render

unnecessary any further inquiry except with regard to

damages, which have been stipulated. See California Retaii

Liquor Dealers Association v, Midcal Aluminum, Inc., 445

U.S. 97, 102-03 (1980); Continental T.V., Inc. v. GTE

* The small retailers could have incurred damages of loss of profits or

competitive disadvantage because they did not receive prices as low as

the favored retailers, The parties stipulated to the amount of damages

for which Seagram would be liable ‘if Seagram's support of any of

[Midwest's discount programs] is found by the highest court which ad-

dresses the merits of the matter to violate the antitrust laws.

* The small retailers initially charged Seagram with violating the Robinson-

Patman Act, 15 U.S.C, § 13, asserting they were purchasers from Seagram

within the meaining of the Act. The trial court ruled against the claim,

finding that Seagram did not direct Midwest's price determinations or

participate in any sales to retailers, that none of the allegedly

discriminatory sales actually transpired ‘‘in interstate commerce,'' and

that the promotion programs were not substantially adverse to the com-

petitive environment. The small retailers did not appeal this holding; con-

sequently, we express no opinion on its soundness.

26

Sylvania Inc. , 433 U.S. 36, 51 n.18 (1977); Albrecht v. Herald

Co, 390 U.S. 145, 153 (1968); Dr. Miles Medical Co. v. John

D. Park & Sons Co., 220 U.S. 373, 405-09 (1911). While we

agree that resale price maintenance agreements are per se

unlawful, all vertical arrangements affecting price do not

constitute resale price maintenance agreements. ‘‘The crux

of any price fixing agreement is the relinquishment by a

trader . . . of the freedom to set prices in accordance

with his own judgement.’’ Chisholm Brothers Farm

Equipment Co. v. International Harvester Co,., 498 F.2d

1137, 1142 (9th Cir.), cert. denied, 419 U.S. 1023 (1974).

Although a supplier may suggest a resale price, see, e.g.,

United States v. Parke, Davis & Co., 362 U.S. 29, 43-45

(1950), the supplier may not coerce the seller's adherence

to that suggested price, see, e.g., Simpson v, Union Oil Co.,

377 U.S. 13, 17 (1954); Yentsch v. Texaco, Inc., 630 F.2d 46,

52-55 (2d Cir. 1980); Santa Clara Valley Distributing Co.

v. Pabst Brewing Co., 556 F.2d 942 945 (9th Cir. 1977); ef.

Times-Picayune Publishing Co. v. United States, 345 U.S.

594, 605 (1953) (tying arrangements condemned because

they ‘‘coerce{] ... abdication of buyers’ independent

judgment’).

Here, no coercion was present. The small retailers do

not contest the trial court's finding that Midwest initiated

the discount program and voluntarily sought Seagram's

financial support. They attack the court's finding that

Midwest retained independent pricing judgment by pointing

out that Seagram required the discounts given to Midwest

to be passed through to the retailers, the small retailers re-

ly upon Pearl Brewing Co. v. Anheuser-Busch, Inc., 339

F.Supp. 945 (S.D. Tex. 1972), a case quite similar to that

before us, which held that conditioning a price reduction

on an agreement by the recipient to reduce its price imposes

restrictions on the recipient a freedom of decision, and thus

constitutes unlawful price fixing. In Pearl Brewing, the

court declared that the testimony of the individual

wholesalers supported a conculsion that the brewer

predetermined the wholesaler's exact price to the retailer

and the retailer's exact price to the public, 339 F.Supp. at

957-58, a conclusion the trial judge did not make in the case

before us. Furthermore, we do not agree with the conclu-

sion in Pearl Brewing. A supplier who grants discounts to

a retailer to permit the retailer to charge competitive prices

27

has a legitimate interest in making sure the retailer receiv-

ing the discount ‘‘is not pocketing the price support instead

of passing it on to consumers.'’ Lehrman v, Gulf Oil Corp.,

464 F.2d 26, 40 (5th Cir.), cert. denied, 409 U.S. 1077 (1972);

cf. Sun Oil Co. v. FTC, 294 F.2d 465, 485-84 (5th Cir. 1961)

(suggesting that supplier may be in violation of price

discrimination proscriptions if it grants price support to a

retailer who does not lower its prices correspondingly), rev'd

on other grounds, 371 U.S. 404 (1963),

We see no meaningful distinction between the instant

situation and one in which during a gasoline price war a

wholesaler seeks support from its supplier, who gives such

support conditioned upon the wholesaler passing it on to the

retailer who is seeking to meet competition. Cf. Butera v.

Sun Oil Co., 496 F.2d 434 (1st Cir. 1974) (holding that dis-

counts suppliers give retail outlets to permit them to meet

local competition are not resale price maintenance

agreements, because the retailers are free to select the price

at which they sell); Sun Oil C. v. Vickers Refining Co., 414

F.2d 383 (8th Cir. 1969) (allowing a formula that geared the

supplier's price to competitive changes in the resale price

level:; Sun Oil Co, v. FTC, 294 F.2d 465; Swettlen v. Wagoner

Gas & Oil, Inc., 373 F.Supp. 1022 (W.D. Pa. 1974), aff'd

mem, 511 F.2d 1395 (3d Cir. 1975).

Requiring Midwest to pass on the price break granted

by Seagram does not by itself constitute the coercion or

pressure to maintain resale prices condemned in the deci-

sions finding per se violations. Such a requirement does not

prohibit the wholesaler from making greater reductions in

price than the discount provides. Nor does it force the

whoesaler to accept the price break at all. Seagram's

guarantee of the gross margin of the wholesaler at 10-1/28

did not amount to control of VM dwest's wholesale prices or

its distribution. Presumably Midwest is interested in max-

imizing profits, and would not offer a discounted price to

a retailer unless it expected an increase in volume sufficient

to offset the loss it would incur from lowering the price;

presumably Midwest would discontinue the discount if in-

creased volume were not realized. The record supports the

trial court's conclusion that Midwest retained control over

its prices and over the distribution of Seagram's brands.

While Seagram undoubtedly expected that reduction in

28

price by Midwest would allow large voume retailer; to adver-

tise a retail price sufficiently low to increase Seagram's

market penetration, the record supports the conclusion

Seagram did not fix retail prices. The retailers maintained

control over their own prices; even though they were of-

fered incentives to encourage price cutting, they were not

coerced into offering a particular price or punished if they

did not. Cf. Lehrman v. Gulf Oil Corp., 464 F.2d at 40 (sup-

plier may not bar recipient of price support from lowering

price beyond amount of support); Butera v. Sun Oil Co. , 496

F.2d at 437 (‘‘a meaningful event [must] depend upon com-

pliance or non-compliance with [supplier's] ‘suggested’ or

stated price’’).

The small retailers allege that even if the discount pro-

gram did not impermissibly restrain the prices Midwest and

the large volume retailers charged, the program was a per

se violation of the Sherman Act because it was ‘'a combina-

tion formed for the purpose and with the effect of raising,

depressing, fixing, pegging, or stabilizing the price of a com-

modity.'’ United States v. Socony- Vacuum Oil Co, , 310 U.S.

150 223 (1940). However, the Socony-Vacuum statement

arose in the context of a horizontal conspiracy; it should not

apply to vertical arrangements of the type involved in the

instant case. L. Sullivan, Handbook of the Law of Antitrust

§141 (1977). See, e.g., Butera v. Sun Oil Co., 496 F.2d 434

(ist Cir. 1974) (frequent price changes by supplier in

response to market conditions does not constitute resale

price maintenance even though retailers, who sell at low

profit margins, immediately adjust their prices according-

ly). Manufacturers’ price changes have the natural effect

of raising or depressing the retail price, and long term con-

tracts between manufacturers and wholesalers have the ef-

fect of stabilizing retail prices. They should not be deemed

unlawful price fixing arrangements.

Not only should we permit a supplier to lower its prices

to help a retailer meet competition, but we should permit

the supplier to start a price war. A retailer who believes its

prices are not competitive must be allowed to ask the

Wholesaler or manufacturer to lower its prices so that the

retailer can offer competitive prices. Cf. Lehrman v. Gulf

Oil Corp. , 464 F.2d 26, 40 (5th Cir.) (supplier may grant price

support to dealer who claims it needs support to match com-

29

petitors’ prices, as long as the supplier does not forbid

dealer's lowering prices beyond amount of price support),

cert, denied, 409 U.S. 1077 (1972). We do not think section

one of the Sherman Act requires the manufacuter to offer

the same price to all its customers or even to all in a par-

ticular geographic area.° If it were required to do so it would

be inhibited from either starting or responding to a local price

war. Such a holding would discourage competition rather

than encourage it, contrary to the policy of the Sherman Act.

The trial court properly tested the alledged restraints

under a rule-of-reason anlysis, which requires scrutiny of

the intent and effect of the restrictions. Seagram supported

a pricing program whereby its wholesaler discriminated in

pricing Seagram's liquors among different retailers in the

Denver market. But there is no evidence that this was aim-

ed at crippling the small retailers as competitors to the large

volume liquor stores who received the lower wholesale

prices. Rather, it is clear that the purpose of the discount

program was to increase sales of Seagram's products vis-a-

vis the major competing brands. While the parties stipulated

to the fact and amount of damages, it is unclear whether

those damages represent profits the small retailers could

have made had they received the lower prices given to the

favored retailers, or whether the damages represent a

decline in sales volume due to a diversion of customers to

the favored retailers, The court noted that three of the four

small retailers who testified increased sales volume during

the discount pricing period. The record establishes that the

discount program had the effect of lowering retail prices to

consumers and increasing interbrand competition. The

ultimate test of legality, under the rule-of-reason analysis,

is whether the particular restraint increases or impairs com-

petition. Martin B. Glauser Dodge Co. v. Chrysler Corp., 570

F.2d 72, 82 (3d Cir. 1977), cert. denied, 436 U.S. 913 (1978).

We agree with the trial court that Seagram's support of

Midwest's discount program was not manifestly anti-

competitive. The trial court’s holding that there was no sec-

tion one Sherman Act violation is AFFIRMPD.

'The Robinson-Patman Act may prohibit price discrimination among

customers if the Act's requirements are satisfied. But that Act also per-

mits the defenses of meeting competition, 15 U.S.C. §13(b), cost-

differential, and changing market, 15 U.S.C. §13(a). The existence of these

defenses shows that Congress considered price discrimination to be

reasonable in at least these circumstances.

APPENDIX C

JANUARY TERM - February 10, 1983

Before Honorable Oliver Seth, Honorable William J.

Holloway, Jr., Honorable Robert H. McWilliams, Honorable

James E. Barrett, Honorable Wiiiiam E. Doyle, Honorable

Monroe G. McKay, Honorable James K. Logan and Honorable

Stephanie K. Seymour, Circuit Judges

AAA®LIQUORS, INC., a Colorado

corporation, et al.,

Plaintiffs-Appellants,

Vv. No. 81-1061

SEAGRAM AND SONES, INC., d/b/a

CALVERT DISTILLING COMPANY,

BROWN VINTNERS COMPANY, and

SEAGRAMS DISTILLING COMPANY,

Defendants-Appellees

Nee ee ee ee ee ee ee ee”

This matter comes on for consideration of appellants’

petition for rehearing and suggestion for rehearing in banc

in the captioned cause.

Upon consideration whereof, the petition for rehearing

is denied by the panel that rendered the decision sought to

be reheard.

The petition for rehearing having been denied by the

panel to whom the case was argued and submitted, and no

member of the panel nor judge in regular active service on

the court having requested that the court be polled on

rehearing in banc, Rule 35, Federal Rules of Appellate Pro-

cedure, the suggestion for rehearing in banc is denied.

Howard K. Phillips

HOWARD K. PHILLIPS, CLERK