Appendix — Agency Holding Corp. v. Malley-Duff & Associates, Inc.
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84-349 | Free’ |
No. 84-
a ‘CLERK
Supreme Court of the United States
October Term, 1984
CROWN LIFE INSURANCE COMPANY, et al.,
Petitioners,
Vv
MALLEY-DUFF & ASSOCIATES, INC.,
Respondent.
APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
ALEXANDER BLACK
(Counsel of Record)
ROBERT L. FRANTZ
BUCHANAN INGERSOLL
Professional Corporation
57th Floor, 600 Grant Street
Pittsburgh, PA 15219
(412) 562-8800
Counsel for Petitioners Crown
Life Insurance Company and
Clarke Burton Lloyd
August 1984
HERBICK & H®™cD PRINTING COMPANY, PITTSBURGH, PA. 15233
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 83-5396, 83-5397,
83-5406, and 83-5427
MALLEY-DUFF & ASSOCIATES, INC., a
corporation
vs.
CROWN LIFE INSURANCE COMPANY, a
Corporation; AGENCY HOLDING CORPORATION,
an Illinois Corporation; AGENCY HOLDING
CORPORATION, an Ohio Corporation; CLARKE
BURTON LLOYD, an individual; KERRY
PATRICK CRAIG, an individual; and ELLIE
M. GOLDSTEIN, an individual
Kerry Patrick Craig,
Appellant in Nos. 83-5396
and 83-5406
MALLEY-DUFF & ASSOCIATES, INC., a
corporation
vs.
CROWN LIFE INSURANCE COMPANY, a
Corporation; AGENCY HOLDING CORPORATION,
an Illinois Corporation; AGENCY HOLDING
CORPORATION, an Ohio Corporation; CLARKE
BURTON LLOYD, an individual; KERRY
PATRICK CRAIG, an individual; and ELLIE
M. GOLDSTEIN, an individual
Crown Life Insurance Company and
Clarke Burton Lloyd,
Appellants in No. 83-5397
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MALLEY-DUFF & ASSOCIATES, INC., a
corporation
Appellant in No. 83-5427
vs.
CROWN LIFE INSURANCE COMPANY, a
Corporation; AGENCY HOLDING CORPORATION,
an Illinois Corporation; AGENCY HOLDING
CORPORATION, an Ohio Corporation: CLARKE
BURTON LLOYD, an individual; KERRY
PATRICK CRAIG, an individual; and ELLIE
M. GOLDSTEIN, an individual
Appeal from the United States
District Court for the Western
District of Pennsylvania -- Pittsburgh
(D.C. Civil No. 78-0373)
Argued
March 5, 1984
Before: ALDISERT and HIGGINBOTHAM, Circuit
Judges,
and LATCHUM, District Judge. *
(Filed May 7, 1984)
John H. Bingler, Jr., Esquire (ARGUED)
Glenn E. Bost, II, Esquire
Michael R. Bucci, Jr. Esquire
Thorp, Reed & Armstrong
One Riverfront Center
Pittsburgh, Pennsylvania 15222
” Honorable James L. Latchum. of the United States District
Court for the District of Delaware, sitting by designation.
|
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COUNSEL FOR APPELLANT, Kerry
Patrick Craig, in Nos. 83-5396 and
83-5406
Alexander Black, Esquire (ARGUED)
Ramona J. Rokoski, Esquire
Robert W. Brown, Esquire
Buchanan Ingersoll, P.C.
57th Floor, U.S. Steel Building
600 Grant Street
Pittsburgh, Pennsylvania 15219
COUNSEL FOR APPELLANTS, Crown Life
Insurance Company, and Clarke
Burton Lloyd, in No. 83-5397
H. Woodruff Turner, Esquire (ARGUED)
David A. Borkovic, Esquire (ARGUED)
Kirkpatrick, Lockhart, Johnson
& Hutchison
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
COUNSEL FOR APPELLANT, Malley-Duff
& Associates, Inc., in No. 83-5427
OPINION OF THE COURT
ALDISERT, Circuit Judge.
Two major questions are presented in these
cross-appeals from a judgment entered on a jury verdict
in favor of Malley-Duff & Associates, Inc. In the appeal
at No. 83-5427, we must decide whether the trial court
erred in directing an adverse verdict on Malley-Duffs
antitrust claim that alleged a collective refusal to deal
(boycott) in violation of § 1 of the Sherman Antitrust
Act, 15 U.S.C. § 1. In the appeals at Nos. 83-5396,
A4
83-5397, and 83-5406, our primary task is to
determine whether a new trial should be granted based
on an inconsistency in the jury's verdict on state
common law claims. Subsidiary issues involve several
questions lating to admissibility and sufficiency of
evidence and alleged errors in jury instructions.
Malley-Duff, a Pittsburgh-based general insurance
agency, charged that Crown Life Insurance Company, a
Canadian life insurance carrier; Clarke Lloyd, its
former vice president in charge of United States general
agencies; Kerry Craig, a former Crown employee; and
Agency Holding Corporation, a multi-state general
agency representing Crown Life in the United States,
all participated in a per se group boycott against it in
violation of § 1 of the Sherman Act. It also alleged that
the defendants were: liable under Pennsylvania
common law because they conspired to tortiously
interfere with Malley-Duffs Pittsburgh general agency
contract with Crown Life and tortiously interfered with
the contract. At the close of plaintiff's case, the district
court directed a verdict for the defendants on the
Sherman Act claim. After the close of all evidence, the
jury found the defendants liable under one of the
common law conspiracy charges and assessed damages
of $900,000.00. All parties have appealed. We conclude
that there was sufficient evidence on the antitrust
claim to preclude a directed verdict and that the verdict
form answers on the remaining state law claims were
inconsistent. We, therefore, reverse the judgment of
the district court and remand for a new trial.
I.
At trial, Malley-Duff presented a theory that Lloyd,
while in charge of United States general agencies for
Crown Life, masterminded a scheme to create the
Agency Holding Company in conjunction with Craig to
take over a number of Crown Life territories, and that,
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inter alia, they intended to freeze Malley-Duff out of the
Crown Life insurance business in Pittsburgh and
replace it with an agency controlled by their interests.
To evaluate the various contentions, it is necessary to
set forth in some detail the evidence presented at trial.
To the extent that the antitrust claim was terminated
by a directed verdict, we invoke the familiar rule that
we “consider the record as a whole and in the light
most favorable to the non-moving party, drawing all
reasonable inferences to support its contentions.” Tose
v. First Pennsylvania Bank, N.A., 648 F.2d 879, 883
(3d Cir.) (quoting Edward J. Sweeney & Sons, Inc. v.
Texaco, Inc., 637 F.2d 105, 115 (3d Cir. 1980), cert.
denied, 451 U.S. 911 (1981)), cert. denied, 454 U.S.
893 (1981).
Malley-Duff presented direct and circumstantial
evidence substantially as follows. In terms of insurance
in force, Crown Life, located in Toronto, ranks in the
top two percent of all life insurance companies
operating in North America. At the time of the relevant
events, Crown marketed its products in the United
States through independent general agents, with
agency contracts providing for commissions generally
exceeding those offered by other life insurance
companies.
The Malley-Duff agency was the oldest of seven
Crown Life general agencies in Pennsylvania and
represented Crown Life continuously and exclusively
until its termination for a period of 23 years. The
agency contract contained a 30-day termination
clause. Malley-Duff did not have an exclusive franchise
for Pittsburgh, Pennsylvania, but competed with the
Jules Ehrman Agency, a brokerage and personal
producing general agency, for the sale of Crown Life
products in the area. Malley-Duff sold insurance
through independent agents who, in turn, dealt with
consumers. The Ehrman Agency engaged in both
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personal production and _ brokcrage sales.
Notwithstanding this competition, Malley-Duff
produced over %58,400,000 in business for Crown Life
in the Pittsburgh area from 1967 to 1977.
Employed by Crown Life Insurance Company fur
over 30 years, Lloyd rose to the position of Senior
Agency Vice-President for the United States. From at
least 1976 until 1981, Crown Life vested Lloyd with
complete and unfettered power to appoint and
terminate general agents and to approve loans and
financing for them.
Kerry Craig began with Crown in 1969 when he
was only 2l-years-old. For three years, he operated
Xerox machines, but then was transferred to Lloyd's
Agency Department where he served two years as a
messenger until 1974. About a year later, Lloyd
promoted the former Xerox operator and messenger to
be a Supervisor of Agencies where he remained for two
years until he left Crown Life to serve as the head of
Agency Holding Corporation, which was formed in
1977 pursuant to Lloyd's instructions. Agency Holding
became Crown Life's general agent in Chicago. Plaintiff
contended that Lloyd and Craig controlled Agency
Holding and used it to own and control general
agencies in various parts of the United States,
including Pittsburgh.
The creation of Agency Holding followed an
interesting scenario. In October 1976, Crown Life's
general agent in Chicago died. Lloyd, responsible for
finding a replacement, revealed a plan to a friend,
Dennis Cunningham, whose aid he attempted to
enlist. Lloyd divulged that he was forming a “mega
general agency holding corporation.” App. at
1505a-06a. Beginning in Chicago, Cleveland,
Pittsburgh and Toledo, this mega general agency
holding corporation was designed to control Crown
Life's general agencies throughout the eastern United
AT
States. Plaintiff contended that the plan called for
Craig and Robert Oglevee to join Lloyd in the operation,
and Lloyd extended an invitation to Cunningham who
declined to join.
Lloyd engaged Bruce Pennamped, an attorney in
Indianapolis, Indiana, to incorporate Agency Holding
Corporation in Illinois. Plaintiff contended that
Pennamped was a nominee for Lloyd and Craig and
that he was to front for Agency Holding until Craig, a
Canadian national, received immigration permission
to be employed in the United States. An indemnity
agreement dated February 28, 1977, between the
attorney and Crown sets forth Pennamped's duties
more fully. Lloyd hired him to “assist in the
organization, management, operation and financing of
certain of [Crown Life's] general agencies located, or to
be located, in Chicago, Illinois; Cleveland, Ohio; and,
Pittsburg [sic], Pennsylvania... .” App. at 2616a:
Supp. App. at 635a-36a. Pursuant to Lloyd's
instructions, Pennamped made arrangements in
January 1977 for Agency Holding to be qualified to do
business in Ohio and Pennsylvania.
On February 11, 1977, Lloyd and Craig met with
Chicago insurance executive Ralph Wood and offered
Wood a position with Agency Holding. Lloyd explained
that Agency Holding would be the new Chicago general
agent and that it would control ten or tweive territories
throughout the east, including Cleveland and
Pittsburgh. Four or five vice-presidents were to be
appointed and were to split 20 percent of the Agency
Holding stock. Lloyd refused to divulge the identity of
the 80 percent shareholder, and Mr. Wood declined the
offer.
In March 1977, Crown Life, through Lloyd,
appointed Agency Holding as its Chicago general agent.
Pennamped continued to be the nominal head of
Agency Holding although he seidom visited Chicago.
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In early 1977, Lloyd terminated Crown Life's
general agent in Cleveland, and awarded a new general
agency for Cleveland to the newly formed Agency
Holding Corporation of Cleveland, Ohio. Oglevee was
the president of Agency Holding-Ohio, but Craig, still
employed by Crown Life, was the majority stockholder,
although there was evidence that he contributed no
capital for his majority interest. Ed Horning was
employed as manager and Lloyd promised him (but
never delivered) 40 percent of the stock, while 20
percent was to be held by “silent partners.” Supp. App.
at 709a-10a. Plaintiff produced testimony that neither
Craig nor Oglevee ever made a real business decision
affecting any agency without first consulting Lloyd.
On July 12, 1977, the Immigration and
Naturalization Service granted Craig permission to
work in this country. Three days later, Craig resigned
from Crown Life effective September 1, 1977 and
became the comipany’s general agent in Chicago and
Cleveland. He was just three years away from his
position as messenger and Xerox operator at Crown
Life.
Lloyd and Craig traveled to Pittsburgh in August
1977 and met with the principals of Malley-Duff. At
that meeting, Lloyd professed dissatisfaction with
Malley-Duff's production, which had exceeded
$5,000,000 in 1976. He delivered an ultimatum:
Malley-Duff would be terminated unless it met a
production quota; moreover, Crown Life was either
going to establish a new general agent in Pittsburgh or
to expand the Ehrman Agency.
The quota Lloyd imposed upon piaintiff in August
1977 required Malley-Duff to produce %7,500,000 of
business by December 31, 1977, the year then in
progress. Less than four months remained in the
appropriate business year when plaintiff learned that it
had to produce 50 percent more of its business than it
did the entire preceding year.
wm
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Evidence disclosed that Malley-Duff had never had
a quota before, that Crown Life had never imposed a
yearly quota upon any agency over nine months into
the year to which it applied, and that Crown Life had
never terminated a general agent producing more than
*5.000,000 in business. Crown Life's internal
documents disclose that 78 percent of Crown Life's
United States general agencies did not produce
*7,500,000 in 1977. Malley-Du‘fs 1977 production
had placed it in the top third of all of Crown Life's 1977
general agents in the United States. Moreover.
Malley-Duff was told that it had to produce 10 million
in 1978, $15 million in 1979, and $20 million in 1980.
an increase of 300 percent in four years.
Lloyd admitted that he did not expect Malley-Duff
to meet the quota. App. at 1661la. In August 1977,
Oglevee told another general agent that he and Craig
would take over Malley-Duff when it was terminated.
He and Craig also agreed that their Pittsburgh venture
would be more profitable if Malley-Duff were
eliminated. Lloyd, Craig and Oglevee met with Mr.
Ehrman in December 1977 to negotiate the acquisition
of the Ehrman Agency.
Although Malley-Duff's 1977 production exceeded
that of 1976, it fell short of the quota. On January 11,
1978, Crown Life mailed plaintiff a formal 30-day
termination notice and, on February 13, 1978,
Malley-Duff's business was transferred to the Ehrman
Agency. Craig and Oglevee signed the formal purchase
agreement for the Ehrman Agency and named the new
agency Ehrman, Ratini, Oglevee & Craig (EROC),
although Ehrman and Ratini were not owners. Craig
and Oglevee and, according to plaintiff, also Lloyd, then
had Crown Life's sole remaining franchise in
Pittsburgh.
Direct evidence as to the true ownership of Agency
Holding was not forthcoming at the trial, although
there were permissible inferences that could have been
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drawn by the jury. At the time Craig was appointed
general agent for Chicago, he admitted to one of Crown
Life's officers that he owned only “part” of the holding
company. He later admitted to another that he owned
20 percent of Agency Holding and refused to identify
the majority owner. Crown Life investigated the matter
but was not able to determine the real owner of Agency
Holding. Lloyd refused to disclose the information to
Crown Life's other senior officers, claiming the matter
was confidential.
The evidence showed that Lloyd had control over
the granting and withholding of loans and advances
from Crown Life to general agents in the United States.
As soon as Agency Holding obtained a Crown Life
franchise, Lloyd authorized large loans and advances
for that agency that were unlike any Crown financing
before or since. Crown Life funneled between
$5,000,000 to $8,000,000 to Agency Holding. Lloyd left
Crown Life in October 1981 and moved into Craig's
Chicago apartment and took over Craig's office at
Agency Holding. Lloyd then assumed control over and
management of Agency Holding.
The present litigation followed these events.
Malley-Duff charged that defendants conspired in
violation of § 1 of the Sherman Act, 15 U.S.C. § 1.' It
further charged that defendants were liable under
Pennsylvania law for tortious interference with the
Malley-Duff/Crown Life general agency contract and for
conspiring to tortiously interfere with that contract.
Directing a verdict on the antitrust claim at the close of
plaintiffs case, the district court allowed the
Pennsylvania common law claims to go to the jury. The
1. + Malley-Duff also alleged violations of § 2 of the Sherman
Act and §7 of the Clayton Act. Because Malley-Duff has not
appealed the adverse directed verdict as to these counts, we do not
address them here.
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jury returned a 900,000.00 verdict for Malley-Duff on
the conspiracy claim but concluded there was no
tortious interference. Malley-Duff appeals from the
adverse ruling on the antitrust claim and defendants
appeal, attacking, inter alia, the jury verdict.
II.
We turn first to Malley-Duffs contention that the
district court erred in adversely directing a verdict on
its antitrust claim. Section 1 of the Sherman Antitrust
Act prohibits “[e]lvery contract, combination . . . or
conspiracy, in restraint of trade or commerce among
the several States.”” 15 U.S.C. 81. Courts have
narrowed the apparent scope of 8 1 and have concluded
that it precludes only those contracts or combinations
that “unreasonably” restrain competition. Northern
Pacific Railway Co. v. United States, 356 U.S. 1, 5
(1958). Generally, a “rule of reason” analysis is
employed to determine whether § 1 has been violated.
Under this analysis, a plaintiff must show
anticompetitive effect in the relevant product and
geographic markets. Martin B. Glauser Dodge Co. uv.
Chrysler Corp., 570 F.2d 72, 81 (3d Cir. 1977), cert.
denied, 436 U.S. 913 (1978). The Supreme Court has
stated, however, that “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 illegal without elaborate inquiry as to the
precise harm they have caused or the business excuse
for their use.” Northern Pacific, 356 U.S. at 5. Activities
that have been treated as per se illegalities are price
fixing, resale price maintenance, group boycotts, tying
arrangements, and certain types of reciprocal dealing.
Cernuto, Inc. v. United Cabinet Corp., 595 F.2d 164,
166 (3d Cir. 1979) (citing cases).
Malley-Duff proceeded at trial under a group
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boycott theory. In directing the verdict, the district
court held that there was no evidence from which a jury
could conclude that defendants had violated Sherman
8 1 under either a “rule of reason” analysis or a per s°
violation theory. App. at 30a.
A.
The district court determined that no antitrust
offense could be established without proof that the
alleged anticompetitive conduct adversely affected
consumers. App. at 27a-30a. The court relied on
Products Liability Insurance Agency, Inc. v. Crum &
Forster Insurance Co., 682 F.2d 660 (7th Cir. 1982), »
and concluded that the claim had to fail because
antitrust laws are designed to protect consumers and
determined that “[tJhough Ehrman and Malley-Duff
may have competed with each other, it was not
competition which would affect the consumer.” App. at
30a. It is settled, however, that when a party is
proceeding on the basis of a per se violation, “it [is] not
for the courts to decide whether in an individual case
[public] injury had actually occurred.” Klor’s, Inc. v.
Broadway-Hale Stores, Inc., 359 U.S. 207, 211 (1959).
The district court clearly erred in focusing on impact
on consumers in determining there was no per se
violation. We have previously emphasized that a group
boycott, a per se violation, is made out where there is
concerted action with “a purpose either to exclude a
person or group from the market, or to accomplish
some other anti-competitive objective, or both.” De
Filippo v. Ford Motor Co., 516 F.2d 1313, 1318 (3d
Cir.), cert. denied, 423 U.S. 912 (1975).
We also note that to the extent the district court
further relied on Products Liability in making its
determination that a per se violation was not
established, its reliance was misplaced. Products
Liability involved a fact situation similar to the instant
ee
Al3
case. There, an insurance broker alleged that an
insurance company and agency conspired to exclude it
from the product liability insurance business. 682 F.2d
at 662. In determining whether a 8 1 violation had
been made out, the Seventh Circuit, speaking through
Judge Posner, noted that “[tlo prove that a conspiracy
or other form of agreement violates section 1 of the
Sherman Act, the plaintiff must show either that it falls
in one of the categories of ‘per se’ illegality or that it has
an actual or at least probable anticompetitive effect.”
Id. at 663 (emphasis added). We have no quarrel with
this. The court then noted that illegal per se
agreements are for the most part horizontal and that
vertical agreements are illegal per se only if their
purpose is price fixing. Id. It concluded that the alleged
agreement was vertical, and hence a per se violation
could not be shown because there were no allegations
of price fixing. It is at this step in the Seventh Circuit's
reasoning that we part company.
In Cernuto, this court, through Judge Adams,
observed that
if the action of a manufacturer or other supplier is
taken at the direction of its customer, the restraint
becomes primarily horizontal in nature in that one
customer is seeking to suppress its competition by
utilizing the power of a common supplier.
Therefore, although the termination in such a
Situation is, itself, a vertical restraint, the desired
impact is horizontal and on the dealer, not the
manufacturer, level.
595 F.2d 164, 168 (3d Cir. 1979). In the case before us.
Malley-Duff has alleged an agreement among insurance
sellers -- Lloyd, Craig, and Agency Holding, all
competitors of Malley-Duff in the insurance sales
business -- who conspired among themselves, and
indirectly assisted by Crown Life, to freeze their
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competitive seller out of the Crown Life insurance
market; an agreement that produced an impact on the
horizontal level. Plaintiffs theory seems congruent
with the observation in Cernuto. We conclude,
therefore, that in light of our own precedent, the
Products Liability characterization of such an
agreement as a vertical restraint is not binding and
does not foreclose inquiry as to whether defendants’
aileged agreement may have constituted a per se
violation where its principal impact was felt on the
horizontal level. Hence, Products Liability does not
defeat Malley-Duff's right to go to the jury on the theory
of group boycott, which has long been regarded as a per
se violation. See United States v. General Motors
Corp., 384 U.S. 127 (1966); Klor’s, Inc. v.
Broadway-Hale Stores, Inc., 359 U.S. 207 (1959).
Because Crown, Agency Holding, Lioyd and Craig
argue that other reasons may support the district
court’s conclusion that there was no per se violation,
we now turn to ruling case law on group boycotts to
evaluate the evidence in the light most favorable to
Malley-Duff.
B.
The Supreme Court has recently reminded us that
there is the basic distinction between
concerted and independent action -- a
distinction not always clearly drawn by parties
and courts. Section 1 of the Sherman Act
requires that there be a “contract,
combination . . . or conspiracy” between the
manufacturer and other distributors in order
to establish a violation. 15 U.S.C. 81.
Independent action is not proscribed. A
manufacturer of course generally has a right to
deal, or refuse to deal, with whomever it likes,
as long as it does so independently.
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Monsanto Co. v. Spray-Rite Service Corp.., U.S.
(52 U.S.L.W. 4341, 4343, March 20, 1984)
(citations omitted). In seeking affirmance of the
directed verdict, appellees argue that there was
insufficient evidence of concerted action here, that
Crown Life had a right to refuse to deal with
Malley-Duff, and that it terminated the agency as a
result of an independent marketing decision. They
argue that Crown Life had the power to change agents
in Pittsburgh without subjecting any of the appellees to
antitrust law violations. We understand this argument
completely. Previous decisions of this court have
carefully made the distinction, emphasized by the
Supreme Court in Monsanto, that a termination
decision prompted by concerted action is different than
one emanating from independent action. Ark Dental
Supply Co. v. Cavitron Corp., 461 F.2d 1093, 1094 (3d
Cir. 1972). We understand appellees’ argument that
there must be “something more” than simply a
unilateral termination before it is considered illegal.
More ingredients must be added to the factual mix
before the termination goes beyond the pale of legality
and becomes a prohibited act under antitrust law. We
therefore must examine these additional ingredients.
“(Where the refusal to deal is not unilateral but
rather is prompted by an understanding with other
parties, an antitrust violation may be found, either by
application of a per se rule or through a ‘rule of reason’
analysis.” Harold Friedman Inc. v. Thorofare Markets
Inc., 587 F.2d 127, 142 (3a Cir. 1978) (footnotes
omitted). Thus, it has been held where dealers induced
General Motors to pressure recalcitrant automobile
dealers not to deal with discounters, the Supreme
Court noted that the fact that the restraints were
induced by dealers seeking to choke off competitors at
their level was sufficient to constitute a per se
violation. United States v. General Motors Corp., 384
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U.S. 127 (1966). In comparison, this court found no
such violation in another automobile dealership case
that turned on different facts. In De Filippo v. Ford
Motor Co., 516 F.2d 1313 (3d Cir.), cert. denied, 423
U.S. 912 (1975), we concluded that plaintiffs “were not
deprived of the opportunity to become a Ford dealer or
to purchase products on the same basis as other
dealers. They were deprived simply of the benefits of a
contract offered to them at special terms. Such a
deprivation, even if the product of a concerted action,
does not violate § 1 of the Sherman Act.” 516 F.2d at
1320-21. As explained in Larry V. Muko, Inc. v.
Southwestern Pennsylvania Building and
Construction Trades Council, 670 F.2d 421, 430 (3d
Cir.), cert. denied, U.S. , 103 S. Ct. 229
(1982), this court “is among those that have attempted
to limit the application of the per se rule to the ‘classic’
boycott.” We repeat for the purpose of emphasis that a
boycott is made out where there is concerted action
with “a purpose either to exclude a person or group
from the market, or to accomplish some other
anti-competitive objective, or both.” De Filippo v. Ford
Motor Co., 516 F.2d 1313, 1318 (3d Cir. ), cert. denied,
423 U.S. 912 (1975). These cases teach, therefore, that
although a unilateral decision to refuse to deal is not in
and of itself a violation of the antitrust laws, if the
decision is not purely unilateral but is the product of
competitors working in concert with themselves or in
conjunction with the company to exclude a person or a
group from the market, the necessary elements of a
boycott in the classical sense may be present, and
hence a8 1 violation may be made out. As we see it, this
was the plaintiffs theory advanced at trial.
C.
We now must decide if adequate factual elements
were presented to the jury to support plaintiffs theory
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of a classic group boycott. We embark on this analysis
mindful of the Supreme Court's latest admonition that
[t]here must be evidence that tends to exclude the
possibility that the manufacturer and
nonterminated distributors were acting
independently. As Judge Aldisert has written, the
antitrust plaintiff should present direct or
circumstantial evidence that reasonably tends to
prove that the manufacturer and others “had a
conscious commitment to a common scheme
designed to achieve an unlawful objective.”
Edward J. Sweeney & Sons, (637 F.2d 105] at 111
[(3d Cir. 1980), cert. denied, 451 U.S. 911 (1981)];
accord H.L. Moore Drug Exchange v. Eli Lilly &
Co., 662 F.2d 935, 941 (CA2 1981) cert. denied,
459 U.S. 880 (1982); cf. American Tobacco Co. v.
United States, 328 U.S. 781, 810 (1946)
(Circumstances must reveal “a unity of purpose or
a common design and understanding, or a meeting
of minds in an unlawful arr: agement”).
Monsanto Company v. Spray-Rite Service Corp..
U.S. (52 U.S.L.W. 4341, 4344, March 20,
1984) (footnote omitted).
Applying this standard to the facts of this case, we
believe there was sufficient evidence for the jury to
believe that Agency Holding, Craig, and Lloyd were
competitors who were parties to concerted action
among themselves and with Crown Life to terminate
Malley-Duff. There was substantial direct evidence as
well as circumstantial evidence to sustain plaintiffs
theory.
We deem the following circumstances to be
important. At relevant times, Lloyd represented not
only himself, but Crown Life as well. Lloyd was the
senior agency vice-president for the United States with
complete power to appoint and terminate general
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agents and to approve loans and financing for them.
Many Crown Life decisions that directly related to
Malley-Duff were made by Lloyd on behalf of his
employer. This principal-agent relationship cannot be
seriously controverted. Thus, under certain
circumstances he acted for Crown Life; under others,
he acted for himself. By February 28, 1977, Lloyd hired
attorney Pennamped to organize Agency Holding
Company, a mega general agency, and that Pennemped
was to assist in organizing, managing, operating and
financing general agencies to be located at various
places in the United States, including Pittsburgh.
There was sufficient evidence to support the inference
that Lloyd had a financial interest in Agency Holding.
There was circumstantial evidence suggesting that
Craig, woefully inexperienced in the general agency
field, was but a figurehead for Lloyd. Plaintiffs
contended that Craig was not licensed to sell insurance
in any state. Brief for appellant at 12 n.5. There was
sufficient evidence for a jury to conclude that the
imposition of quotas on Malley-Duff by Lloyd and
Crown Life was a contrived device to terminate
Malley-Duff: requiring the agency to increase a year’s
production by 50 percent within the short space of four
months; imposing quotas of 10 million in 1978, #15
million in 1979, and %20 million in 1980 at a time
when 78 percent of Crown Life's United States general
agencies did not produce 7,500,000 in annual
business and also at a time when Malley-Duffs 1977
production had placed it in the top third of these
general agencies. There was testimony that before the
year ended Oglevee said that he and Craig would take
over Malley-Duff when it was terminated and that the
Agency Holding venture would be more profitable if
Malley-Duff were eliminated. Lloyd, Craig and Oglevee
all participated in negotiations to acquire the Ehrman
nb al A a Ne ad ASN hE OL a ps Og AI
A19
Agency and when this came to fruition, Ogievee and
Craig were named principals in the new agency.
Finally, in his capacity as a senior vice-president at
Crown Life, Lloyd caused from %5,000,000 to
#8,000,000 to be funneled as loans from Crown Life to
Agency Holding, the organization which he headed
publicly after being discharged by Crown Life.
This direct and circumstantial evidence was more
than sufficient to show “a conscious commitment to a
common scheme designed to achieve an unlawful
objective.” The direct and circumstantial evidence
support what this court has described as a classic
group boycott: concerted action by competitors to
exclude Malley-Duff from the market. This was not a
simple unilateral action by a company to terminate a
dealer as set forth inArk Dental Supply Co. v. Cavitron
Corp., 461 F.2d 1093, 1094 (3d Cir. 1972). Unlike
Edward J. Sweeney & Sons, Inc. v. Texaco, Inc., 637
F.2d 105 (3d Cir. 1980), cert. denied, 451 U.S. 911
(1981), where there was no evidence that Texaco
decided to terminate Sweeney because of complaints of
competitors and no evidence of concerted action, here
there was more than adequate evidence of an unlawful
conspiracy to freeze out Malley-Duff in favor of Agency
Holding. There was sufficient evidence for a jury to
conclude that Lloyd and Craig conspired (1) between
themselves, (2) with Agency Holding, and (3) given
Lloyd's role in Crown Life, with both Agency Holding
and Crown Life to the extent that Crown Life imposed
artificial quotas on Malley-Duff and funneled millions
of dollars into Agency Holding by way of loans. For
example, had Crown Life imposed artificial quotas on
Malley-Duff without more, this would have been a mere
unilateral act. But those quotas were imposed by
Crown Life through their senior vice-president Lloyd.
and there was direct and circumstantial evidence that
A20
they were imposed for Lloyd's ulterior cross-purpose to
implement Lloyd's scheme with Craig and Agency
Holding to freeze-out Malley-Duff from Crown Life.
Moreover, Crown Life's funneling millions of dollars to
Agency Holding cannot be evaluated in vacuo; it must
be considered in conjunction with the same scheme.
The result was a pincers movement: to mortally wound
Malley-Duff and at the same time to replenish the
coffers of Agency Holding, the mega-insurance agency
that directly or indirectly was to replace Malley-Duff.
The district court clearly erred in determining that
there was insufficient evidence to go to the jury on the
per se group boycott claim. ?
D.
Appellees Crown Life and Lloyd argue that, in any
event, they are immune from liability under § 1 of the
Sherman Act because of the “insurance” exemption
effected by the McCarran-Ferguson Act, 15 U.S.C.
88 1011-1015. There is no merit to this contention.
First, McCarran-Ferguson only exempts “the business
of insurance,” i.e., primarily the insurer-insured
relationship, from the antitrust laws and not all the
actions of insurers generally. Group Life & Health
Insurance Co. v. Royal Drug Co., 440 U.S. 205 (1979).
Second, the Act itself specifically excludes from the
exemption “any agreement to boycott, coerce, or
intimidate ... .” 15 U.S.C. 8 1013(b). Thus to the
extent that Malley-Duff argues that appellees’ conduct
constituted a group boycott, appellees may not use
McCarran-Ferguson as a shield.
2. In the view we take it is unnecessary to consider the
alternative rule of reason theory advanced by plaintiff at trial.
Moreover, from our treatment of the antitrust issue here, a
conclusion must necessarily follow that there was sufficient
evidence to go to the jury on the common law conspiracy issue, thus
rejecting contentions presented by Crown Life and Lloyd.
ae Aa A ig ill the aE
A21
III.
We now turn to the contentions presented by
Crown Life, Agency Holding, Lloyd, and Craig
(hereinafter appellee-cross appellants) in their
cross-appeals that a new trial should be granted
because of inconsistent answers in the verdict form
covering the claims brought under Pennsylvania
common law.* The reply of Malley-Duff is twofold. It
argues that appellee-cross appellants have waived any
inconsistent verdict objection. Alternatively,
Malley-Duff argues that there is no inconsistency in the
answers.
3. The verdict form, with the jury's responses noted by an
“X.” provides in relevant part:
1. As to plaintiff's claim that all of the defendants
other than Crown Life Insurance Company tortiously
interfered with its contractual relationship with Crown
Life Insurance Company, we, the jury, hereby find
(make a separate finding as to each defendant listed):
Agency Holding Corp. (of Mlinois)-
—— Hable; X not liable.
Agency Holding Corp. (of Ohio)-__liabie:
X not liable.
Clarke Burton Lioyd-__liable; X not liable.
Kerry Patrick Craig-__liable; X not liable.
2. (A) As to plaintiffs claim that all of the
defendants conspired to tortiously interfere with its
contractual relationship with Crown Life Insurance
Company, we, the jury. hereby find (make a separate
finding as to each defendant listed):
Crown Life Insurance Co.- X liable: __not liable.
Agency Holding Corp. (of Illinois)-_liable; X not
liable.
Agency Holding Corp. (of Ohio)-__liable: X not
liable.
A22
We do not accept Malley-Duffs contention that
appellee-cross appellants have waived the right to raise
the inconsistent verdict issue. Malley-Duff argues that,
based on the last sentence of Rule 49(b), F.R. Civ. P.,
the objection must be raised before the jury is
discharged:
Clarke Burton Lloyd- X liable; not liable.
Kerry Patrick Craig- X liable: not liable.
(B) As to plaintiffs claim that all of the
defendants conspired with the specific intent to inflict
injury upon the plaintiff. we, the jury, hereby find
(make a separate finding as to each defendant listed):
Crown Life Insurance Co.-__liable: X not liable.
Agency Holding Corp. (of Dlinois} _— lable; X not
liable.
Agency Holding Corp. (of Ohio)}-_liable; X not
liable.
Clarke Burton Lloyd-_liabile; X not liable.
Kerry Patrick Craig-_liabie: X not liable.
GO ON TO QUESTION NO. 3 ONLY IF YOU HAVE
FOUND ONE OR MORE OF THE DEFENDANTS
LIABLE. OTHERWISE, RETURN TO THE COURTROOM
WITH YOUR VERDICT. (YOU MAY ENTER DAMAGES
ONLY AGAINST THOSE DEFENDANTS WHOM YOU
HAVE FOUND LIABLE IN PARAGRAPH 1 OR
PARAGRAPH 2).
3. As to the claim(s) above for which we, the jury.
have found in favor of the plaintiff. we hereby award:
(a) compensatory damages:
O—O——
* 900,000.
App. at 638a-39a.
A23
When the answers are inconsistent with each other
and one or more is likewise inconsistent with the
general verdict, judgment shall not be entered, but
the court shall return the jury for further
consideration of its answers and verdict or shall
order a new trial.
But Rule 49(b) specifically applies to a “General Verdict
Accompanied by Answers to Interrogatories.” Here,
there was no general verdict. The “Verdict Form”
submitted to the jury, see supra note 3, more properly
is considered a verdict returned under Rule 49(a)
“Special Verdicts,” rather than under Rule 49(b)
“General Verdict Accompanied by Answers ‘to
Interrogatories.” Rule 49(a) contains no provision
similar to that contained in Rule 49(b) stating that the
“court shall return the jury for further consideration of
its answers and verdict . . . .” Although it obviously
would be preferable for counsel to cause an objection to
be recorded on the basis of inconsistent answers in the
Special Verdicts, no decision of this court has
precluded appellate review of inconsistencies under a
Rule 49(a) verdict in the absence of an objection before
the jury was discharged. To the contrary, in Halprin v.
Mora, 231 F.2d 197 (3d Cir. 1956), this court
considered the inconsistencies of answers to special
verdicts even though the court noted that “nowhere in
the record furnished us do we find evidence that the
plaintiff considered the answers confusing, or
inconsistent or irreconcilable.” 231 F.2d at 201.
We conclude that the answers to Questions 1, 2(A),
and 2(B) may be considered inconsistent and
accordingly agree with the appellee-cross appellants.
We will vacate the *900,000 verdict in the state law
claims and order a new trial. Because this issue may
recur, we will explain in some detail our perception of
A24
the inconsistencies and will offer suggesticns how the
problem may be avoided upon retrial.
A.
We begin by examining the anatomy of the
Pennsylvania civil conspiracy law. Judge Sloviter has
explained that the modern Pennsylvania tort of civil
conspiracy is a fusion of two lines of cases. The tort
may be made out upon proof of a “combination to do an
unlawful act.” This stems from an earlier conspiracy
tort “in which the gist of the conspiracy was the tort
itself.” Franklin Music Co. v. American Broadcasting
Co., 616 F.2d 528, 549 (3d Cir. 1979) (Sloviter, J.,
concurring in part). The tort may also be made out
upon proof of a “‘combination to do a lawful act by
unlawful means’, [a concept that] stems from the cases
holding that conspiring was itself an independent
tort.” Id. The gravamen of this second conspiracy
formulation is the combination to do acts with intent
to injure another. Id. at 551.
It was explained at oral argument that Question
2(A) was designed to cover the first formulation -- a
combination to do an illegal act.* Thus, the jury was
asked if the defendants “conspired to tortiously
interfere with [plaintiff's] contractual relationship with
Crown Life.” It was also explained that Question 2(B)
was designed to cover the second formulation -- a
combination to do a lawful act by unlawful means. *
Thus, the jury was asked if the defendants “conspired
with the specific intent to inflict injury upon the
plaintiff.”
By its determination that defendants did not
conspire “with the specific intent to inflict injury upon
the plaintiff,” it follows that the jury’s conclusion that
4. Oral argument transcript at 36.
Id.
A25
defendant conspired to tortiously interfere with
plaintiffs contract with Crown Life must have been
based on the first conspiracy formulation -- an
agreement to do an unlawful act. The jury, however,
also determined, in its response to Question 1, that
defendants had not “tortiously interfered with
[plaintiffs] contractual relationship with Crown Life
....” Because there was proof of only one unlawful act.
interference with a contractual relationship, see app.
at 2428a, the jury’s responses appear inconsistent. The
answers may not be reconciled under an abandonment
theory. There was no evidence adduced at trial that
defendants either abandoned plans or accomplished a
result different from that planned. Therefore, the jury's
answers on the verdict form are inconsistent and
irreconcilable. We turn to consider what may have
caused the inconsistencies.
We believe it was Questions 2(A) and 2(B), relating
to conspiracy, that led to jury confusion. Although the
jury was given an instruction in the abstract
explaining the difference under Pennsylvania law
between the two types of conspiracies, there was no
explanation of how these two esoteric concepts applied
to the evidence that was presented. As appellate judges,
we now know what was intended by Questions 2(A)
and 2(B), but it required questioning at oral argument
to clarify the matter. But unfortunately, at trial, the
closing arguments of counsel did not even address the
two different types of conspiracy and the jury
instructions treated this very complex subject in legal
terms somewhat lacking in perspicuity. °
6. For example, the court instructed the jury:
The other type of conspiracy is one involving the use
of unlawful means, which its found whenever there is
a combination of persons or entities to do acts with
the intent to injure another.
A26
We now know that counsel intended Question 2(B)
to cover a theory that the termination of the
Malley-Duff agency contract could have been a lawful
act, but that the allegedly illegal combination to
perform this act constituted the tort. This theory was
expressed by asking the jury in 2(B) whether the
“defendants conspired with the specific intent to inflict
injury upon the plaintiff.” But such a statement is
woefully ambiguous. The jury could well have
concluded that 2(B) was simply another way of
expressing 2(A): that the defendants “conspired to
tortiously interfere with [plaintiff's] contractual
relationship with Crown Life.” “Tortious interference”
covers a multitude of sins, but at least it covers a
situation where there is conduct “with the specific
intent to inflict injury.” We believe that it was not only
possible, but also probable, that the jury did not
understand the distinction between a conspiracy to
tortiously interfere with plaintiffs contract and a
conspiracy designed with a specific intent to inflict
injury upon the plaintiff. Indeed, we are not confident
that trained lawyers and judges who have studied the
historical development of Pennsylvania civil conspiracy
would have grasped the abstruse distinction without
more explanation than was furnished the jury by
counsel. The court charged that “[tlo prove a civil
conspiracy under Pennsylvania law, the plaintiff must
Thus, a conspiracy which charges use of
unlawful means does not require the use of illegal or
tortious methods.
What it does require is that the participants act
in concert with the intent to injure another.
In this case, the plaintiff claims that all of the
defendants conspired against it with the intent to
injure plaintiff.
App. at 2537a-38a.
A27
show . . . that two or more persons. . . combined or
agreed with intent to do an unlawful act or to do an
otherwise lawful act by unlawful means.” App. at
2537a. The court further charged:
With respect to the plaintiffs claim that all of the
defendants conspired to tortiously interfere with
the plaintiff's contractual relationship with Crown,
the plaintiff must prove, as to each defendant, that
that defendant had the specific intent to interfere
with plaintiffs contractual relationship.
With respect to plaintiffs claim that all of the
defendants conspired with the intent to injure it,
the plaintiff must prove, as to each defendant, that
that defendant had the specific intent to injure it.
Id. at 2541a. These instructions can be construed as
applying the intent requirement to both conspiracy
formulations. To the jury, the intent to do an unlawful
act was, in all likelihood, synonymous with the intent
to injure another. Devoid of a careful explanation, the
two questions were too rich for the lay jury's blood.
Based on plaintiff's direct and circumstantial evidence,
its tort theory seemed simple and straightforward: the
defendants conspired to inflict injury upon Malley-Duff
by tortiously interfering with its contract with Crown
Life.
Requested special interrogatories and requested
jury instructions should be simple and straight
forward. If the case proceeds or is defended on
alternative conspiracy theories, it will fall upon counsel
to explain carefully in language capable of lay
comprehension what is intended by the various
conspiracy theories. Once this is accomplished, there
will be more effective direction in fashioning both the
special verdict form and jury instructions. And this
should minimize the possibility of a jury again
returning inconsistent answers.
A28
IV.
We now turn to other contentions presented by the
appellant and appellee-cross appellants in their
cross-appeals.
A.
First, appellee-cross appellants argue that the trial
court erred by failing to instruct the jury on causation
on the civil conspiracy issue. In reviewing jury
instructions when error has been alleged, a new trial
will be required only if the instructions, taken as a
whole, give a misleading impression or inadequate
understanding of the law and the issues to be resolved.
Bass v. International Brotherhood of Boilermakers,
630 F.2d 1058, 1062 (5th Cir. 1980). Here, the court
gave a causation instruction when it charged the jury
on the tortious interference claim, app. at 2536a, and
again when it discussed the awarding of damages in
general, app. at 2543a. We conclude, therefore, that
because these causation instructions were properly
given, the need for a causal connection was made
sufficiently plain to the jury so as not to render the
overall instructions misleading or inadequate.
Next, we are satisfied with the court's exercise of
discretion in refusing to admit evidence on how
Herbert Sachs, now deceased, a former attorney of
Craig, caused a bizarre investigation of the district
judge originally assigned to this case. There is no
question that Sachs's efforts were irresponsible, totally
unjustified, and tantamount to sheer intimidation of a
federal judge. Malley-Duff sought to introduce this
evidence for punitive damages purposes and assigns
the court's refusal to admit it as error. We find no abuse
of discretion in refusing to admit this evidence on the
ground that it would introduce a collateral matter that
seems to implicate the attorney more than the litigant.
A related phase of this same problem involved
A29
evidence introduced that the Chicago office of Agency
Holding purchased a paper shredder after the
complaint was filed in this case. The trial judge
instructed the jury that if it found that evidence had
been intentionally destroyed, it could infer that the
evidence would have been favorable to plaintiff. In
explanation of the paper shredding, Craig
unsuccessfully sought to introduce statements made
by Sachs to Craig as to why he had embarked on his
ill-fated mission and assigns as error the court’s refusal
to admit it. We hold that the court did not abuse its
discretion in refusing to admit any evidence of the
Sachs escapade. Had Craig been successful in having a
partial account admitted, Malley-Duff would have been
entitled to introduce the entire sordid tale of Sachs’s
machinations, a tale collateral to the main litigation.
B.
All appellee-cross appellants argue that the
evidence did not support the damages awarded to
Malley-Duff. Specifically, the main thrust of their
argument is that the method of valuation and evidence
introduced by Malley-Duff was speculative and
incapable of sustaining a damage award.’ We disagree.
Generally, when the loss of business is alleged to be
caused by the wrongful acts of another, damages are
measured by one of two alternative methods: (1) the
going concern value; or (2) lost future profits. Arnott v.
American Oil Co.. 609 F.2d 873, 887 (8th Cir. 1979),
cert. denied. 446 U.S. 918 (1980): Lehrman v. Gulf Oil
Fa Appellee-cross appellants also argue that Maliey-Dulf
failed to establish the fact of damage. In view of our disposition of
this case, we do not reach this issue. We note, however, that to the
extent Malley-Duff shows, on remand. that loss of its business was
caused bv the uniawfu! acts of defendants. the fact of damage is
established.
BEST AVAILABLE COPY
RS TTT
a
A30
Corp., 500 F.2d 659, 663-64 (5th Cir. 1974), cert.
denied, 420 U.S. 929 (1975). In the instant case,
plaintiff opted to establish the going concern value.
That value is the price a willing buyer would pay and a
willing seller would accept in a free marketplace for the
business in question. Albrecht v. Herald Co., 452 F.2d
124, 131 (8th Cir. 1971); Rulon, Proof of Damages for
Terminated or Precluded Plaintiffs, 49 Antitrust L.J.
153, 154-55 (1980). Damages are measured as the
difference between that price before and after the
termination. Pitchford v. PEPI, Inc., 531 F.2d 92, 109
(3d Cir.), cert. denied, 426 U.S. 935 (1976).
To establish the going concern value, plaintiff
applied a multiplier to the “Linton value” of the agency.
The Linton value, an industry formula for determining
the present value of a life insurance agency by reference
to its vested renewal income, is capitalized through the
use of the multiplier. The result of the formula is
considered a reasonable approximation of what a
willing buyer would pay and a willing seller would
accept for the business.
Appellee-cross appellants challenge the use of the
Linton value formula, and contend that Malley and
Duff. partners in the Malley-Duff agency, were
incompetent to present the data necessaary to make
the calculation. We find no error. “[WJhile the damages
may not be determined by mere speculation or guess, it
will be enough if the evidence show(s] the extent of the
damages as a matter of just and reasonable inference,
although the result be only approximate.” Story
Parchment Co. v. Paterson Parchment Paper Co., 282
U.S. 555, 563 (1931): Ashcraft v. C. G. Hussey & Co..,
359 Pa. 129, 132-33, 58 A.2d 170, 172 (1948).
Moreover, the proof may be indirect and may include
estimates based upon assumptions. It is only necessary
that the assumptions rest on adequate data. Lehrman
A31
v. Gulf Oil Co., 500 F.2d 659, 668 (5th Cir. 1974), cert.
denied, 420 U.S. 929 (1975): see also William
Goldman Theatres, Inc. v. Loew's, Inc., 69 F. Supp.
103 (E.D. Pa. 1946), affd per curiam, 164 F.2d 1021
(3d Cir.), cert. denied, 334 U.S. 811 (1948). The “law
only requires that a reasonable quantity of information
must be supplied by plaintiff so that the jury may fairly
estimate the amount of damages from the evidence.”
Ashcraft v. C. G. Hussey & Co., 359 Pa. 129, 132-33,
58 A.2d 170, 172 (1948): see also Pugh v. Holmes, 486
Pa. 272, 297, 405 A.2d 897, 909-10 (1979).
We are satisfied that such was the case here. Malley
and Duffs estimates of the going concern value were
based upon the agency's Linton value during the period
in question, and the formula used as a multiplier was
shown to be an accepted industry practice. Cf.
Standard Oil Co. of California v. Moore, 251 F.2d 188.
221 (9th Cir. 1957), cert. denied, 356 U.S. 975 (1958).
Moreover, we have a neat sauce-for-the-goose scenario
here. Notwithstanding appellees’ objections to the use
of the Linton value here, there was evidence that Craig
and Lloyd used the same formula to establish price
when they purchased other general agencies, such as
Hartford (Linton x 2.5) and Newark (Linton x 3). App.
at 1497a-99a, 1668-72a. Evidence was introduced that
in the insurance industry, as in a number of
industries, there are accepted formulas or rules of
thumb that are employed as a means of valuing a
business. Under such an accepted rule of thumb, a
value is assigned by multiplying the annual earnings or
sales of the business unit by some factor in order to
determine its going concern value. See, e.g.. Rulon,
Proof of Damages for Terminated or Precluded
Plaintiffs. 49 Antitrust L.J. 153, 155 n.11 (1980). We
conclude that the appellees were free to challenge the
assumptions of the Linton value and multiplier and
A32
note that they did so for the jury. That they were
unsuccessful as a matter of fact does not mean that the
formula was incorrect as a matter of law.
C.
Finally, appellee-cross appellants complain that
the court improperly excluded evidence to show that
Malley-Duffs production was very low prior to its
termination, and that subsequent to its termination
the new general agent, EROC, achieved much higher
production levels. The purpose of this evidence was to
show that the termination of Malley-Duff was the result
of Crown Life’s independent action, rather than
concerted action by the several defendants. We find no
error in excluding this evidence. First, Crown Life did
not know at the time it terminated Malley-Duff what its
successor’s performance would be. Accordingly, such
evidence was irrelevant to the proposition that Crown's
actions were non-conspiratorial. Moreover, this
evidence could be considered misleading because
EROC was the sole surviving Crown Life agency in
Pittsburgh. The proffered EROC figures incorporated
the combined business of the old Ehrman office, the
old Malley-Duff office and the new firm. It was a case of
comparing EROC apples, as the single surviving
agency, with oranges, the production of one of two
previous agencies. EROC’s sales were therefore not
necessarily cemparabie to Malley-Duff sales taken
alone. Additionally, there was the distinct possibility
that such evidence would have opened the door to
many collateral issues, inter alia, the means by which
EROC obtained its new business, and what portion of
EROC'’s business lapsed from the books by its first
anniversary and actually constituted a loss to Crown
Life.
A33
V.
We have carefully considered all contentions
presented by the appellant and cross-appeliants. We
will reverse the judgment of the district court and
remand for a new trial consistent with the foregoing.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
APPENDIX B
IN THE UNITED STATES DISTRICT COURT
For THE WESTERN DISTRICT OF PENNSYLVANIA
MALLEY-DUFF & ASSOCIATES,
INC., a corporation, eas
Plaintiff, | Civil Action
Vv. ‘
CROWN LIFE INSURANCE No. 78-373
COMPANY, a corporation, et al.,
Defendants.
ORDER
AND NOW, this 3rd day of May, 1983, IT Is HEREBY
ORDERED that:
1. Plaintiff's Motion for a New Trial on its
Anitrust Claims and for Judgment Notwith-
standing the Verdict and, in the Alternative, for
a New Trial on Certain Law Claims filed in the
above captioned matter on April 25, 1983, is
DENIED;
2. the Motion of Defendants Crown Life Insurance
Company and Clarke Burton Lloyd for Judg-
ment Notwithstanding the Verdict and Alterna-
tively for a New Trial filed in the above cap-
tioned matter on April 25, 1983, is DENIED;
and
3. the Post Trial Motions of Defendant Kerry
Patrick Craig filed in the above captioned mat-
ter on April 25, 1983, are DENIED.
ALAN N. BLOCH
United States District
Judge
—
B2
cc: H. WoopRUFF TURNER, Esquire
1500 Oliver Building, Pittsburgh, PA 15222.
ALEXANDER BLACK, Esquire
57th Floor, U.S. Steel Building, Pittsburgh, PA
15219.
JOHN H. BINGLER, JR., Esquire
One Riverfront Center, Pittsburgh, PA 15222.
7 eee error eres
APPENDIX C
TRANSCRIPT OF DISTRICT
COURT’S GRANT OF PETITIONERS’
MOTION FOR DIRECTED VERDICT
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Corporation out of the Second Circuit. I think that’s
791 F.2d 563. Sullivan’s Treatise on antitrust at Sec-
tion 49; I believe it also sets that forth.
So, we are talking here about a conspiracy to
monopolize, and I think that we have sufficient evi-
dence in the record that shows a conspiracy and
sufficient evidence from which the jury may infer
specific intent to monopolize. And I believe there is
sufficient evidence in the record to show an overt act
in furtherance of that conspiracy.
The Court: Okay. That’s it?
Mr. Black: I should have added to my presenta-
tion, Your Honor, that as to the punitive damage
counts, I submit that as far as Crown and Lloyd are
concerned, there was no evidence offered that nec-
essarily shows a showing of malice or other wrongful
conduct to call for punitive damages.
Mr. Bingler: Your Honor, I might mention that
there are a couple of other arguments relating to the
use of the yardstick approach and to the speculative
nature of the evidence of damages that are in our
brief, and I just wanted to mention those.
I don’t think it is necessary to argue them.
The Court: In count one, the plaintiff charged
the defendants with a violation of Section 1 of the
Sherman Act. In order to recover under this section,
the plaintiff must prove that the defendants con-
spired with the purpose or effect of producing ad-
verse, anti-competitive effects within relevant prod-
C2
uct and geographic markets. See Martin v Glauser
Dodge Company v Chrysler Corporation, 570 F.2d 72,
at page 80, a Third Circuit case decided in 1977. No
evidence has been presented which would support
such a conclusion.
The plaintiff has consistently argued that the
alleged collusion between defendants Crown and/or
Lloyd and defendants Agency Holding and Craig to
replace general agents in the various cities
amounted to a boycott which would constitute a per
se violation. As this Court noted in its written opin-
ion on defendants’ motion for summary judgment,
the Third Circuit reviewed a similar business rela-
tionship in Cernuto, Inc. v United Cabinet Corpora-
tion, cited at 595 F.2d 164, a 1979 Third Circuit deci-
sion. Clearly, in Cernuto, the Third Circuit required
that there be a showing of anti-competitive purpose
or effect prior to determining that the alleged con-
duct constituted a per se violation of Section 1 of the
Sherman Act.
There is no evidence from which a jury could
conclude that Craig, Lioyd or the Agency Holding
defendants could, would or did increase the price of
an insurance policy sold to consumers. Though
Crown certainly had the power to increase prices,
there is no evidence from which a jury could con-
clude that Crown conspired with the other defend-
ants with the intention of increasing its rates.
This Court recognizes that an antitrust violation
could be found in conduct which stifles intrabrand
competition. However, since there was no evidence
of price competition between the Ehrman agency
and Malley-Duff prior to the alleged takeover of
C3
plaintiff’s agency, the only form of intrabrand compe-
tition which could have existed and benefited the
consumer might have been found either in the serv-
icing of the policies or in an enhancement of benefits
offered under a policy at the same price. No evidence
was presented from which a jury could conclude that
the quality of service or the quality of Crown life
insurance policies could be or was affected by the
takeover of the Malley-Duff agency.
The plaintiff has urged this Court to focus on the
effect of the defendants’ conduct on its competitor
rather than the effect on competition. Thus, accord-
ing to the plaintiff's theory, if a conspiracy were
formed to eliminate existing Crown Life agencies so
that the defendants could enter the market in a par-
ticular city without facing established competition,
the elimination of the agency would constitute an
antitrust violation in and of itself as an attempt to
stifle competition before entry into the market. In
essence, the plaintiff's position is that the intent to
destroy a competitor is synonymous with an anti-
competitive purpose. Though Klor’s, Inc. v
Broadway-Hale Stores, Incorporated, 359 U.S. 207, a
1959 case, has been cited for the proposition that
driving a competitor out of business constitutes a
violation of the Sherman Act in and of itself, the
United States Supreme Court specifically noted that
the Klor’s case was not a case of a single trader
refusing to deal with another, nor even of a manufac-
turer and dealer agreeing to an _ exclusive
distributorship.
The Seventh Circuit has recently decided a case
much more analogous to the instant one in Products
C4
Liability Insurance Agency, Inc. v Crum & Forster
Insurance Company, 682 F.2d 660, a 1982 Seventh
Circuit case. The Seventh Circuit distinguished
Klor’s first on the ground that the relationship be-
tween an insurance carrier and one of its agents was
more akin to that of a manufacturer and a dealer
and, second, on the ground that even in Klor’s the
Court’s ultimate concern was with the consumer.
Though Ehrman and Malley-Duff may have com-
peted with each other, it was not competition which
would affect the consumer.
In summary, there is no evidence from which a
jury could conclude that the defendants conspired
with the purpose or effect of producing adverse, anti-
competitive effects within relevant product and geo-
graphic markets; nor is there any evidence from
which the jury could conclude that the alleged boy-
cott constituted a per se violation of Section 1 of the
Sherman Antitrust Act. As Judge Seitz so aptly put
it in Sitkin Smelting and Refining Company v. FMC
Corporation, 575 F.2d 440, at pages 447 through 448,
a 1978 Third Circuit opinion:
“Plaintiffs have not maintained their burden to
show that the combination in any substantial
way either did or could affect interstate com-
merce by controlling market prices, imposing
undue limitations on competitive conditions, or
unreasonably restricting competitive opportu-
nity. These are the kinds of practices the
Sherman Act was enacted to prohibit. Conduct
not within the scope of the Act is not made into
an antitrust violation by accompanying conduct
which is reprehensible under some moral or eth-
C5
ical standard or even illegal under some other
law.”
I, therefore, direct a verdict for all the defend-
ants as to count one.
In count two, the plaintiff alleges that the de-
fendants’ conduct amounted to a violation of Section
2 of the Sherman Antitrust Act, in that the defend-
ants attempted to monopolize and combined and con-
spired to monopolize the sale of insurance policies
offered by Crown in commerce among the states in
the area extending at least from the eastern coast of
the United States to the western border of Illinois.
Section 2 of the Sherman Act provides that it is
a violation for any person to “monopolize, or attempt
to monopolize, or combine or conspire with any other
person or persons, to monopolize any part of the
trade or commerce among the several states, or with
foreign nations.”
The Act does not define the term “monopolize”,
but the United States Supreme Court has stated that
monopoly power consists of having “over ‘any part of
the trade or commerce among the several states,’ a
power of controlling prices or unreasonably restrict-
ing competition.” See United States v DuPont and
Company, 351 U.S. 377, at page 389, a 1956 case.
In a more abbreviated fashion, the United States
Supreme Court described monopoly power as the
power to control prices or exclude competition.
That’s at the same citation, U.S. v DuPont, at page
391.
As the United States Supreme Court stated in
the DuPont case, “Illegal power must be appraised in
terms of the competitive market for the product”.
C6
Here, there is no evidence of intrabrand compe-
tition which would affect the consumer, nor is there
evidence that a monopoly of Crown insurance prod-
ucts would create an unreasonable restraint of trade
in the market for insurance policies.
You should see also Columbia Metal Culvert
Company, Incorporated v Kaiser Aluminum and
Chemical Corporation, 579 F.2d 20, also at page 27 n.
11, that being a Third Circuit case decided in 1978, in
which the Third Circuit distinguished Section 1 and
Section 2 violations of the Sherman Act, noting that
while “stifling intrabrand competition may violate
Section 1, ‘monopoly’ over a given brand would
clearly not run afoul of Section 2.”
It is true that the United States Supreme Court
in the DuPont case focused on the relevant market in
the context of a monopolization charge and not an
attempted monopolization or conspiracy to monopo-
lize.
There is some authority that the exclusion of
competitors in and of itself, without reference to any
relevant market, suffices to prove a claim of at-
tempted monopolization or conspiracy to monopo-
lize.
In the instant case, though, there is no evidence
of the exclusion of competitors within the meaning
of the antitrust laws; the agencies excluded did not
compete in a manner which would benefit the con-
sumer or affect the relevant market. See Marrest v
American Academy of Orthopedic Surgeons, 692
F.2d 1083, at page 1093. That’s a 1982 Seventh Cir-
cuit case.
CT
In addition, it appears that in this Circuit a
showing of the relevant market is required to show
attempted monopolization or conspiracy to monopo-
lize. The Third Circuit affirmed the case of Venzie
Corporation v United States Municipal Products
Company, Incorporated, 382 F.Sup. 939, an Eastern
District of Pennsylvania case decided in 1974 and
affirmed at 521 F.2d 1309 by the Third Circuit in
1975, in which then District Judge Higginbotham
analyzed the relevant product market to determine
whether conspiracy to monopolize or attempt to mo-
nopolize had been established.
In short, there is no evidence from which a jury
could conclude that the defendants had the power to
monopolize the market for insurance products or
that the defendants attempted monopolization of
Crown life insurance products could have constituted
a violation of Section 2 of the Sherman Act.
I, therefore, direct a verdict for al! the defend-
ants on count two.
In count three, the plaintiff charges that the
conduct of the defendants amounted to a violation of
Section 7 of the Clayton Act, in that the defendants
acquired the whole or part of the assets of other
corporations which had the effect of substantially
lessening competition or tending to create a monop-
oly. In Brown Shoe Company vs the United States,
370 U.S. 294, a 1962 case, the United States Supreme
Court analyzed Section 7 of the Clayton Act. Prior to
delineating the elements of such a cause of action,
the Court noted that “The legislative history illumi-
nates congressional concern with the protection of
competition, not competitors.”
C8
Furthermore, the Supreme Court held that “De-
termination of the relevant market is a necessary
predicate to a finding of a violation of the Clayton
Act.” Given the two factors, the Court directs a ver-
dict on count three for the same reasons provided as
to counts one and two.
In count four, the plaintiff alleged that defend-
ants other than Crown Life Insurance Company in-
terfered with the piaintiff’s contractual relationship
with Crown Life Insurance Company.
The Court finds that there is sufficient evidence
on this count to submit it to the jury for considera-
tion. Therefore, the motion for a directed verdict as
to count four is denied.
In count five, plaintiff claims that defendants’
conduct constitutes a conspiracy and a concerted re-
fusal to deal. To prove a civil conspiracy under Penn-
sylvania law, the plaintiff must show that two or
more persons or entities combined or agreed with
‘intent to do an unlawful act or to do an otherwise
lawful act by unlawful means. See Thompson Coal
Company v Pike Coal Company, 412 Atlantic Second
466, a 1979-Pennsylvania case.
In Franklin Music v American Broadcasting
Company, at 616 F.2d 528, at pages 546 through 552,
the Third Circuit, in a 1979 case, with the opinion
written by Judge Sloviter, writing for the majority
on this particular issue, explained that the gravamen
of a conspiracy charging the use of illegal means is
“the combination to do acts with intent to injure
another. The rationale for such a tort is that the
combination itself provides the additional power to
oppress individuals ‘since there is a power in num-
C9
bers, when acting in concert, to inflict injury, which
does not reside in persons acting separately.’ ”
Thus, the Third Circuit concluded in the Frank-
lin case that the use of unlawful means “does not
require use of tortious methods but refers to the
element of intent;” that is, the intent to injure an-
other.
In the case before this Court, the plaintiff has
presented sufficient evidence as to each defendant
for a jury to conclude that a combination was formed
to injure the plaintff. Therefore, the motion for a
directed verdict as to count five is denied.
In count six, the plaintiff alleged that the de-
fendants deprived it of its right to property and its
use of possession of its business without plaintiff's
consent and without lawful justification. The Court
cannot conceive of any claim included in count six
which would not also be encompassed by either the
count four claim of tortious interference or the count
seven claim of breach of contract.
Plaintiff has not presented this Court with any
case authority for proceeding under count six as a
separate legal theory. Therefore, the motion for a
directed verdict in favor of defendants will be
granted as to count six.
In count seven, the plaintiff charged that plain-
tiffs termination as a general agent resulted in a
breach of contract—well, we have already ruled on
that one.
In count eight, the plaintiff seeks punitive dam-
ages. Such damages are recoverabie in a suit claim-
ing tortious interference with a contractual relation-
ship or civil conspiracy if the plaintiff can establish
C10
outrageous conduct on the part of the defendants.
There is sufficient evidence of outrageous conduct to
submit the question of punitive damages to the jury.
Therefore, the motion to direct a verdict as to count
eight is denied.
Where that leaves us is, we have directed
verdicts as to counts one, two, three, six and seven.
The remaining counts will go to the jury.
Mr. Bingler: Your Honor, would it be possible to
get a copy of what Your Honor was reading from for
our convenience, rather than asking Mr. Powers to
transcribe it?
The Court: Sure. Sure. We’ll make copies.
Okay. Are we ready to go?
Mr. Borkovic: Your Honor, I just have one obser-
vation in your ruling on count one. I would urge to
the Court to examine Judge Sloviter’s opinion in the
Franklin Music case, in which she defines anti-
competitive purpose as an intent directed against the
person in his status as a competitor, and that that
would show an anti-competitive purpose.
To be honest with you, that was a—I believe that
was her concurring opinion.
The Court: That’s right—well, no. As to a civil
conspiracy, she wrote the majority opinion. As to the
rest of her opinion, it was a concurring opinion.
Mr. Borkovic: And at least according to her opin-
ion in Franklin Music, actions directed against a
competitor in a—a status quo competitor, evidences
an anti-competitor purpose.
The Court: Okay. Good. We’re ready to go. We’ll
make copies of this.
Cll
(Thereupon, court recessed in chambers at 11:23
o’clock a.m.)
(Thereupon, court reconvened in open court at
11:35 o’clock a.m.)
The Court: Mr. Black. 7
Mr. Black: Mr. Dowsett, would you take the wit-
ness stand?
ROBERT C. DOWSETT, having been duly sworn, was
examined and testified as follows:
DIRECT EXAMINATION
APPENDIX D
UNITED STATES COURT OF APPEALS FOR THE
THIRD CIRCUIT
Nos. 83-5396, 83-5397, 83-5406 and 83-5427
Malley-Duff & Associates, Inc., etc.
v
Crown Life Insurance Co., etc.
Kerry Patrick Craig, Appellant,
Nos. 83-5396 & No. 83-5406
Crown Life Insurance Co. and Clarke Burton Lloyd,
Appeliants, No. 83-5397
Malley-Duff & Associates, Inc., etc., Appellant,
No. 83-5427
(W.D. Pa. Civ. No. 78-0373)
SUR PETITION FOR REHEARING
Present: Seirz, Chief Judge, ALDISERT, ADAMS,
GIBBONS, HUNTER, WEIS, HIGGINBOTHAM, SLOVITER and
BECKER, Circuit Judges,* and LatTcHum, District
Judge. **
The petition for rehearing filed by Crown Life Insur-
ance Company and Clarke Burton Lloyd in the above
entitled case having been submitted to the judges who
participated in the decision of this court and to all other
available circuit judges of the circuit in regular active
service, and no judge who concurred in the decision hav-
ing asked for rehearing, and a majority of the circuit
judges of the circuit in regular active service not having
voted for rehearing by the court in banc, the petition for
rehearing is denied.
BY THE COURT,
ALDISERT
Circuit Judge
D2
DATED: June 4, 1984
* Judge Garth did not participate in the consideration of
this matter.
** Honorable James L. Latchum, of the United States
District Court for the District of Delaware, sitting by
designation.
a i a dh
APPENDiX E
EXCERPTS FROM
TRANSCRIPT OF ORAL ARGUMENT
BEFORE
THIRD CIRCUIT COURT OF APPEALS
ON
El
Nos. 83-5396, 83-5397, 83-5406 & 83-5427
MALLEY-DUFF & ASSOCIATES, INC., ETC.
vs.
CROWN LIFE INSURANCE COMPANY, ETC.
yew d Patrick Craig, Appellant in Nos. 83-5396 &
83- Crown Life Insurance Co., et al, Aqperents in
Nos. 83-5397 omg tor & Associates, Inc., etc.
Appellant in No. 83-5427 Monday, March 5, 1984
- Counsel for Appellant Counsel for Appellees
H. WOODRUFF TURNER JOHN H.BINGLER, JR.
Davip A. BORKOVIC (Kerry Patrick Craig)
(Malley-Duff & Associates)
ALEXANDER BLACK
(Crown Life Insurance
Company, et al.)
HAROLD SCHULMAN ASSOCIATES
REGISTERED PROFESSIONAL REPORTERS
1518 WALNUT STREET, 15TH FLOOR
PHILADELPHIA, PENNSYLVANIA 19102
546-5237—563-5237
E2
significant things?
Mr. Borkovic: Your Honor, I’m sorry, Section Two?
The Court: Which would make it a Rule of Reason
vic ‘ation. What would be the three things which they did
to make this an antitrust violation.
Mr. Borkovic: First, your Honor, they conspired. Sec-
ond, the object of their conspiracy was to eliminate
Malley-Duff so that they could enter the Pittsburgh mar-
ket free of any competition with Malley and Duff. That is
what we are complaining of.
The antitrust laws normally suffer vertical restraints
because they tend to promote interbrand competition.
That is not the case here. There the agents who are
involved cannot compete on the basis of price. We cannot
vary the price of an insurance policy. It is regulated by
State law. I can’t charge less than Mr. Ehrman charges. I
can’t vary my price in response to what State Farm is
putting out. Similarly we cannot vary the quality of our
product. We’re selling a policy that is approved by the
State. There is no way that we can change the terms and
conditions of that policy in response to competitive de-
mands.
The way these people compete is by service
would have been impossible for the jury to come back. It
was impossible to send this to the jury on a per se viola-
tion under a group boycott. How do you respond to that?
E3
Mr. Turner: Our view is precisely the opposite, that
this is primarily brought to us as a per se claim.
The Court: How do you answer their argument that
this is simply an attempt by a company to change the
dealership?
Mr. Turner: Because this is, if we would look to
Cernuto type of formulation, there’s obviously a perni-
cious effect on competition, first of all.
The Court: What’s so obvious?
Mr. Turner: The question is what redeeming virtue is
it—what redeeming virtue is there in the elimination of
a competitor to make way for a favored new entrant into
the business? What virtue is there for the Crown Life? In
most of these restriction cases, we look to the benefit to
the manufacturer, Crown. So what benefit is there to
competition...
The Court: But you have to prove the anti-
competitive impact, don’t you?
Mr. Turner: I believe there has been
APPENDIX F
EXCERPTS FROM THE TRIAL TRANSCRIPT
IN THE
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF
PENNSYLVANIA
> ©
> ©
2 PoP eo
Yes.
What happened to the other 400 shares?
I don’t know whether this was actually issued on the
15th. I don’t know whether Mr. Pennamped actually
issued the 500 shares. All that I know is that when I
spoke to Mr. Pennamped I told him that I was going
to own a hundred percent of the corporation.
When was that, after the letter of 19 July?
I don’t remember exactly the date. But I remember
Mr. Pennamped was in Chicago for a meeting and he
still owned two percent of the shares. And I told him
that since he wasn’t going to be involved in the
agency anymore that I really didn’t see any point in
him owning any shares.
Well, how many shares do you now own?
One hundred.
What happened to the other 400?
A hundred percent of the shares in the corporation.
Well, Mr. Pennamped said he’s got 500 shares, right,
in his letter, Exhibit 1110?
Well, I can’t speak for Mr. Pennamped. I can just tell
you what stock I have in the corporation.
Well, Mr. Pennamped was the man that formed the
corporation, wasn’t he?
Correct.
And are you saying that there weren’t 500 shares
issued?
2 p>oPe
I don’t believe so.
Well, did you write to Mr. Pennamped and say, look,
on July 19, you are writing and saying you are going
to issue all this stock—hold the phone, you have
already issued me my hundred percent. Why issue
any more?
When I first moved to Chicago I was under the im-
pression that the stock was issued, Mr. Pennamped
had issued the stock in his name. He was going to
retain two percent of the stock or two shares. And as
I just explained to you before, I told him that the
stock was going to be issued to me at a hundred
percent.
Now, you say you don’t know whether this certificate
here was issued on July 15, 1977 or not, is that what
you say?
It may not have been. You know, attorneys often date
things, you know—
Well, who dated it?
That would be Mr. Pennamped.
What’s the date showing on the certificate?
July 15, 1977.
And what’s the date showing in the stub book that’s
pictured there?
This date here?
On the left-hand side.
July 15, ’77.
© -
?
F3
LLOYD—DIRECT
market and they were making great headway.
Did Ferguson or Wainwright indicate that the com-
pany had told him to resign?
Mr. Ferguson certainly did not. And I am not really
sure that Mr. Wainwright did, no, sir.
Was it uncertain, in your mind, the way you an-
swered, about what Mr. Wainwright told you?
It is uncertain, in my mind, as to what Mr. Wain-
wright said.
In response to your question, I don’t recall that
he said that the company told him to give them or
didn’t.
So that there is a considerable shrinkage here now of
what territory Agency Holding controls, right?
There is, yes, sir.
And have you heard that once this case is disposed
of, that the shrinkage will be total? Chicago will be
no longer part of Agency Holding?
I have not heard that, sir, and I would be extremely
disappointed if the company took that attitude.
Have you discussed with Mr. Craig, before you left
Agency Hoiding’s employ, or consultancy, the bank-
ruptcy of Agency Holding after this trial?
No, sir, I did not. I find that an incredible question.
Well, isn’t it true, sir, that you had an agreement
prepared by the attorney O’Brien in Chicago,
© >
F4
whereby you were going to acquire, in 1983, a con-
trolling interest in Agency Holding Corporation?
I did not, no sir.
What kind of an agreement was it that Mr. O’Brien
was preparing?
I don’t think Mr. O’Brien was preparing any agree-
ment; certainly not to m knowledge.
You don’t know of any agveement that was being
prepared between Craig and/or Agency Holding, on
the one hand, and Clarke Lloyd, on the other hand?
No, sir, I do not.
I had asked him to prepare an agreement where
Mr. Craig would repay the money that he owed C. L.
Trust. But, Mr. O’Brien never did anything about it.
Did you ever go to see Mr. O’Brien about that agree-
ment?
Did I ever go—which agreement is that, sir?
The agreement that you asked him to draw about the
money that you say is owed to C. L. Trust.
I went to see him. He wasn’t there. And I called him
on the telephone.
Yes. What did he sav?
He said that he was the attorney for Agency Hold-
ing, as well as C. L. Trust, and his interests were—he
had known Kerry longer than he had known me, and
he was going to work
LLOYD—CRross
I think so. You had to do what?
OPOoOr OPHP OP O
F5
We were caught. I had to—not “I’’. But, we had to,
the Crown Life Insurance Company, had to go and
see Jules Ehrman and ask him if he would temporar-
ily take over the agency for us.
The servicing of the business on the books?
Yes, sir. And would he service it and perform those
situations.
So, for a while, I suppose two or three months,
Jules Ehrman was the only agency that we had in the
Pittsburgh market, and that certainly wasn’t what
we had in mind to develop the Pittsburgh market.
Did you every have any interest in—any financial
interest in the Pittsburgh agency?
No, sir, I did not.
Did you ever have any promise of a financial inter-
est?
No, sir, I did not.
Any prospect of getting one?
No, sir, not—no sir.
What about Chicago, did you have a financial interest
in the Chicago agency?
No, sir, I did not.
It was granted to Agency Holding Corporation—
I’m sorry. I didn’t hear the question.
I was finishing my question.
F6
The Court: We'll put another—we’ll cover it
over. It can only have one number. We don’t want to
misidentify it on the record.
It’s C-15. That’s what it is.
By Mr. Black:
Q. That’s the same one that I showed you earlier, is it?
A. Yes, sir.
Q. And that you identified as the agreement between
Ehrman, Ratini, Oglevee and Craig, Incorporated,
and Pittsburgh Center Corporation?
A. Yes, sir.
Q. In which you signed—agreed to be bound by—
A. Yes, sir. )
Q. —on behalf of Crown Life Insurance Company, is .
that right? Sahai
A. That’s right, yes, sir.
©
Now, would you, Mr. Lloyd, look through that agree-
ment and, having in mind your knowledge of how
Mr. Ehrman operated prior to the execution of this
agreement, tell us any differences between that
method of operation and what this agreement calls
for?
Mr. Turner: Objection, Your Honor. How Mr.
Ehrman operated?
The Court: Well, I’m not sure I understand the
question. Do you understand the question?
The Witness: Yes, sir. I think so.
The Court: What do you understand it to be?
F7
The Witness: I understand the question to be
that Mr. Ehrman, prior to this time, Your Honor, was
limited only to two or three brokers. With this agree-
ment he could then develop his own brokers. And, in
other words, it gave him a bit of a widened market.
The Court: Is that what you are asking him—
Mr. Black: I am asking him—
The Court: —Mr. Ehrman’s, the differences as
far as Mr. Ehrman is personally concerned?
Mr. Black: Well, perhaps I wasn’t clear on that. I
meant his agency, which is known as the Pittsburgh
Center Corporation.
The Court: You want this witness to do what?
Mr. Black: I asked that he look through the
agreement and tell us about any particulars in which
this agreement altered the operations of Pittsburgh
Center Corporation, the way they existed prior to
entering into this agreement.
The Court: In other words, wnat the new agency
could do as compared to what the old agency could
do, is that what you mean?
Mr. Black: Well, what Pittsburgh Center Corpo-
ration.
The Court: Didn’t this create a new agency?
Mr. Black: No, I don’t think so, Your Honor. I
think this was an agreement between EROC and
Pittsburgh Center Corporation.
The Court: Not buying the agency, is that it?
Mr. Black: No.
The Court: I see.
Mr. Black: Well, I will have to—I was going to
ask the witness what the effect was—
F8
The Court: As far as—did Mr. Ehrman’s agency
continue to assist after this agreement went into
effect?
Mr. Black: Well, let me ask the witness.
The Witness: Mr. Ehrman’s agency became a
subpart of EROC. In other words, it was within the
other corporation, Your Honor. And I suppose, in fact
it disappeared into EROC.
The Court: Well, that’s what my understanding
was. So, that there was no separate operation of
Ehrman’s agency after this agreement took effect?
The Witness: Oh, yes, sir.
The Court: There was a separate agency still
operating?
The Witness: Yes, sir.
The Court: Mr. Ehrman’s agency?
The Witness: Yes, sir.
The Court: Okay. Well then, go ahead, answer
the question. How did Mr. Ehrman’s agency differ
from before this agreement and afterwards? Just his
agency.
The Witness: Yes, sir. His agency was part of the
larger agency.
He brought with him Mr. Ratini, who was his
former partner, his secretary, and he had a small
casualty business that was also part of the agency.
What actually took place is, that Mr. Ehrman
continued, along with Mr. Ratini, to develop their
own clients and work with their own clients.
The Court: So, that’s no different. You are being
asked to point out the differences.
© > o>
F9
The Witness: Yes, sir. The difference was that his
compensaton was changed from what he would earn
on his own to what his business in his agency would
earn, and that would be lumped in with EROC, and
he would earn whatever EROC’s rate of bonus was
concerned, less a dollar.
He also was permitted, in his own unit, to search
for independent agents and brokers, other than the
three or four that he was restricted to.
He was then paid $4 a thousand for any business
that his brokers produced through the—his unit.
He also had an agreement that should anything
happen to him prior to—should he retire or should
he die, either he or his wife, if that—would receive—
can I refer to the document?
* s * * = 2 m
even though he worked for Rogal?
There was one ex-partner, whose name I can’t recall
—Linton, or something like that—that he had, and
there might have been one other. I don’t recall.
Did that same restriction apply to Mr. Ratini? Did
Mr. Ratini have any brokers he could work for?
None at all, no sir.
Work with. Excuse me.
None at all, no, sir.
What action would you, as the senior vice-president
in charge of U.S. agencies, or would Crown, have
taken with respect to Mr. Ehrman if he had con-
tacted other brokers, other than the ones that the
© >
F10
three or four you have—the three or four you have
named?
I can only cite facts. When he did, we would transfer
the business and the broker to Malley-Duff.
What if it was a broker that had not worked for
either Malley-Duff or Ehrman before Mr. Ehrman
made that, essentially, new brokerage contract?
Our agreement with Malley-Duff when Mr. Malley—
I’m sorry—when Mr. Duff joined Mr. Malley was,
that they would be the brokerage general agency in
Pittsburgh. Any business that came as a result of
Jules’ encouragings in the brokerage market was
transferred to the Malley-Duff.
How did it happen that that agreement came about?
You said “our agreement”. I understood you to mean
your agreement with Malley and Duff?
Yes, sir.
How did that agreement come about when Malley-
Duff, Incorporated was formed?
Again, I don’t want to go back too far in history, but
there was Mr. Kekich, Mr. Malley and Mr. Ehrman—
Mr. Turner: Objection. Non-responsive, Your
Honor.
The Witness: I’m sorry.
The Court: The question is: How did that agree-
ment come into effect?
Mr. Bingler: Yes. As of the time Malley-Duff was
formed, it was Malley and Ehrman left in Pitts-
burgh?
A. Yes, sir.
“11
And then Crown encouraged Malley to get a
partner, as I understand your testimony. Mr.
Malley found Mr. Duff, and they formed Malley-
Duff and Associates, Incorporated.
Now, my question is, simply: How did the
agreement you mentioned that Mr. Ehrman
would not be permitted to pursue any additional
brokers than the few he had, how did that
agreemet come about in your discussions with
Mr. Malley and Mr. Duff?
. Mr. Duff had brokerage experience and he did
not want to come into a marketplace where he
would be specializing and developing brokerage
buiness and getting competition for his own
business with somebody else. And we agreed
that if Mr. Duff joined Mr. Malley and they
formed Malley-Duff and pursued brokerage busi-
ness, they would have the exclusive right to that
business in western Pennsylvania.
With the exception of the brokers Mr. Ehrman
already had?
. Yes. With the exception of agreed-upon brokers
that Mr. Ehrman already had.
So, Mr. Duff suggested that during the discus-
sions of—
. No, sir. I think that that was an agreement, both
Mr. Duff and Mr. Malley.
Mr. Malley knew Mr. Ehrman and knew the
brokerage business, and I would suggest that
both Mr. Malley and Mr. Duff insisted on that
agreement and—
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©
F12
Yes, sir. Enthusiasticlly.
Did the existence of Crown’s commitment to
keep Mr. Malley restricted to the few—
correction—Mr. Ehrman restricted to the few
brokers he already had have any bearing on Mr.
Duff’s willingness to join with Mr. Malley to
form Malley-Duff, Incorporated?
Q. I take it, Crown was willing to accommodate
that—
A. Yes, sir.
Q. —proposal?
A.
Q.
LLOYD—RE-DIRECT
No, sir. I did not.
Didn’t you just say this morning that you wanted a
hundred percent of the stock in escrow?
First of all, C. L. Trust would have the escrow, and as
long as the—as you well know, it is my understand-
ing that in escrow everything stays, all the dividends
and all the management remains with the person
who has them until they default.
So, I was not asking for anything except to avoid
default.
There was an earlier agreement between you and Mr.
Craig, wasn’t there?
Obviously not, sir.
There was an agreement back in 1976 and ’77, when
Craig first went down to Chicago, wasn’t there, a
written agreement that would give you an interest in
Agency Holding and these other subsidiaries?
A.
Q.
A.
F13
Absolutely not, sir.
And isn’t that exactly what was put in that shred-
ding machine?
No, sir. And if there was such an agreement, sir, I
would have had a copy, I being a party of the case.
And if you will remember, sir, I said that you
could look at anything I had. You could come into my
home, and I even wrote to the Department of Reve-
nue in Ottawa to see if
APPENDIX G
IN THE UNITED STATES DISTRICT COURT
For THE WESTERN DISTRICT OF PENNSYLVANIA
MALLEY-DUFF & ASSOCIATES, INC. |
a corporation,
Plaintiff
vs.
peta ade LIFE ahr ge
ANY, a corporation; a .
HOLDING ‘CORPORATION, an Llinois | Giv!! Action
corporation; AGENCY HOLDING :
corporation, an Ohio corporation;
CLARKE BURTON LLOYD, an
individual; and KERRY PATRICK
CRAIG, an individual.
Defendants |
Transcript of Hearing on various motions at Pitts-
burgh, Pennsylvania, commencing on Thursday, May 31,
1979.
Before: HUBERT I. TEITELBAUM, United States Dis-
trict Judge.
Appearances:
H. WoopruFrFr, TURNER, and Davip A. BORKOVIC,
Kirkpatrick, Lockhart, Johnson & Hutchison, 1500
Oliver Building, Pittsburgh, Pennsyivania 15222, appear-
ing in behalf of the Plaintiff.
ALEXANDER BLACK and JOSEPH J. BARNES,
Buchanan, Ingersoll, Rodewald, Kyle & Buerger, 57th
Floor, 600 Grant Street, Pittsburgh, Pennsylvania 15219,
appearing in behaif of Crown Life Insurance Company, a
G2
corporation, and Clarke Burton Lloyd, an individual, De-
fendants.
GERALD S. LESHER and KAREN M. BASKIN, Baskin &
Sears, 10th Floor, Frick Building, Pittsburgh, Pennsylva-
nia 15219, appearing in behalf of Agency Holding Corpo-
ration and Kerry Patrick Craig, Defendants.
ROBERT J. CINDRICH, United States Attorney, and J.
ALLEN JOHNSON, First Assistant United States Attorney,
6th Floor United States Post Office & Courthouse, Pitts-
burgh, Pennsylvania 15219, appearing in behalf of the
United States Department of Justice.
CRAIG—DIRECT
A. Within a period of time, I week; I’m not sure.
Mr. Turner: No further questions.
The Court: All right. Mr. Black, do you have any
cross-examination?
Mr. Black: I do, yes, Your Honor.
The Court: Proceed.
Since he is your client, Mr. Lesher, we will save
you for last.
Mr. Lesher: Thank you, Your Honor.
The Court: Because your examination will not
really be cross-examination.
CrOss-EXAMINATION
By Mr. Black:
Q. Mr. Craig, who is the general agent for Crown now in
the Pittsburgh area?
G3
A. Ehrman, Ratini, Oglevee & Craig, Inc.
Q. And are you interested in that corporation?
A. Yes, sir.
Q. Asa stockholder?
A. Yes, sir.
Q. Are there other stockholders?
A. Yes, sir.
Q. Is one of them Mr. Ehrman?
A. Yes, sir.
Q. Through questioning by Mr. Turner I believe you
testified, or acceded to his questions which indicated
that there had been two general agents in Pittsburgh
prior to the termination of Malley-Duff, and one of
them was Ehrman, and the other was Malley-Duff; is
that correct?
A. Yes, sir.
Q. Were they competing with each other?
A. No.
Mr. Turner: Objection, Your Honor. There is no
foundation for this.
By Mr. Black:
Q. Mr. Craig, if you don’t know the answer to my ques-
tion, I want you to say you don’t know. If you do
know the answer to may question, why that will
obviate Mr. Turner’s objection.
The Court: What you have to answer is whether
you know to your personal knowledge the answer to
that question.
G4
The Witness: All right.
By Mr. Black:
©
> OP OP
Now, what is the answer?
The answer was that there wasn’t competition be-
tween the agencies.
There was no competition?
No competition.
How was that accomplished?
Mr. Ehrman was not allowed to broker business in
Pittsburgh.
Was there a territorial limitation on him?
No, there was no brokerage business period.
With certain exceptions?
There may have been one or two, personal friends he
did business with, but in general he was not allowed
to promote, mail; he wasn’t entitled to an advertising
budget, promotional money, trips or anything.
All right. Now, you were also asked about a quota
having been imposed on Malley-Duff.
Yes, sir.
By Mr. Lloyd.
Yes, sir.
Do you know what quota was imposed?
I believe it was seven million. (A document is
marked for identification.)
G5
By Mr. Black:
Q.
cali a
© >
©
Mr. Craig, I show you this copy of a letter dated
August 19, 1977, from—is that Mr. Lloyd’s signa-
ture?
Yes, sir, it looks like it.
Tt is addressed to Messrs. Tom Malley and Jim Duff.
And I ask you to read that and then I am going to ask
you if that refreshes your recollection about the
amount of the quota?
Excuse me. The quota says seven-and-a-half million.
Seven-and-a-half million of what?
Ordinarily individual health, net paid score in De-
cember, 1978.
Now, at the time that this ietter dated August 19,
1977, was given to Messrs. Malley and Duff, had they
already obtained a portion of that quota?
I believe they had, something in the neighborhood of
either two-and-a-half or three million.
To the best of your knowledge and information?
Yes, sir.
Now, do you know, Mr. Craig, what the comparable
figure is for the first five months of this year of the
EROC Agency?
Mr. Turner: I object to this, Your Honor. It seems
wholly irrelevant to this case.
Mr. Black: I would have thought so too, Your
Honor. I hadn’t expected Mr. Turner would get into
this subject, but he did.
Mr. Turner: How?
G6
The Court: Overruled.
Mr. Black: He specifically—
The Court: I ruled for you. If you continue to
argue, I reserve the right to change the ruling.
Mr. Black: I am sorry. I didn’t hear you.
The Witness: Do you want my answer?
By Mr. Black:
Q.
A.
© >
ee
Yes.
I believe it exceeds, for the first five months of this
year, I believe it exceeds the seven-and-a-half mil-
lion.
In other words, your agency, a new agency, in the
first five months of this year had already exceeded
the quota that was imposed on August 19, 1977, on
Malley-Duff Agency, which had had a long history,
and which quota at that point they had already at-
tained one-third of; is that a fair statement of your
testimony?
Yes, sir.
Now, the other locations where you have an interest
in a general agency for Crown, is it also true there
that it is a corporation and not you an individual who
is the general agent?
With one exception.
Which one is that?
Peoria.
The Court: Are either of the two young ladies in
the courtroom prospective witnesses?
(Both ladies answer in the negative.)
G7
The Court: All right. Fine.
By Mr. Black:
Q. In Peoria are you individually the general agent?
A. Yes, sir.
Q. In all the other locations that you mentioned, it is a
corporation; is that right?
A. Yes, sir.
Q. And are you the sole stockholder in any of those
corporations?
A. In a number, yes.
Q. Which ones?
A. In Chicago I am; in Denver I am; in Minneapolis I
am. I believe that is it.
Q. Now, in the others, there are other stockholders, I
take it; is that right?
A. Yes, sir.
Q. In any of these locations, other than the Malley-Duff
situation, was it an unfriendiy change, so to speak?
A. No, I don’t believe so.
Q. In other words, the Malley-Duff situation is the only
one where it left the parties at odds?
A. In both Denver and in Minneapolis, the previous
general agents are housed in our offices in Minneapo-
lis. And he is a broker, the previous general agent in
Denver, is a broker of ours.
Q. I take it the answer to my question is: Yes, Malley-
Duff is the only situation that left the parties at
odds?
oO >
© Ppo>r
© >
Cre fe? >
G8
Yes, sir.
Now, did any—before you became general, or your
company, you or your company became general agent
in those locations, were any of them competing with
each other?
In Minneapolis and Denver.
Who were they competing with?
Minneapolis and Denver.
You mean they were competing with each other?
With other Crown agents.
Are they still?
Yes, we are.
So there is no change in the competition by reason of
your being—by your company becoming general
agent; that is the point of my question?
No, there was not.
It hasn’t changed at all?
No, it has not changed.
Now, in these locations where you do compete, you
both offer the same price, don’t you?
Yes, sir.
In other words, Crown policies are what you are
selling and what they are selling, and Crown—
Mr. Turner: Your Honor, excuse me. I object.
This is far beyond my examination. This is getting
into the substance.
The Court: I am going to sustain the objection. I
think we are going right to the merit of the case now
G9
and beyond the scope of the examination by Mr.
Turner. You can depose the man if you want to and
get this information.
Mr. Black: I am sorry. I apparently misunder-
stood the effect of the Court’s ruling when I objected
to Mr. Turner getting into this. May I put a brief
offer of proof on the record.
The Court: Certainly.
DNATA MEL TE DAN HAD HI? Nn op oo ee
APPENDIX H
CROWN
LIFE INSURANCE COMPANY
120 Bloor Street
Toronto, Canada M4W 183
TO: ALL GENERAL AGENTS IN THE
UNITED STATES AND PUERTO RICO
In 1977 the Crown Life obtained the highest per-
centage of market in Individual sales reaching a level of
3%.
This is, indeed, a strong commendation for our Gen-
eral Agency organization in the United States. It is an
enviable record for a Company whose major marketing
thrust began in the late 1950’s to have already developed
such a large segment of the U.S. market. The agencies
that have achieved over .5% of the market are to be
congratulated and are the benchmark for the future de-
velopment of all agencies.
The minimum target for each agency should be the
Company average of .5%. The chart also indicates the
market population and the percentage of the State each
market represents.
It is in everyone’s interest I believe to press for a fair
market share and it is one of the elements the company
is using in evaluating the success of each agency.
H2
For your interest, the County population surveys are
based on the 1970 United States Census.
Kind personal regards.
Sincerely,
Senior Agency Vice-President
For the United States
C.B.Lloyd:yj
June 21st, 1978
I./R.: 9937.00
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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.