Opposition Brief — National Decorating Products Association v. Alvord-Polk, Inc. (No. 94-1363)

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TABLE OF CONTENTS

TABLE OF AUTHORITIES .....cccccsc0.

COUNTERSTATEMENT OF THE CASE .....

OCH OGRIIOND ow cece cece

Court of Appeals Decision ............

SUMMARY OF ARGUMENT ............

ARGUMENT.

REASONS WHY THE WRIT OF

CERTIORARI SHOULD NOT ISSUE

I. NDPA’S FIRST

QUESTION PRESENTED .........

A. There is No Conflict Among The

Circuits As To How Evidence of

Pretextual Behavior By A

Manufacturer Should Be Considered

In A Sherman Act Section 1 Case

B. The Court Below Correctly

Followed Monsanto .............

C. Petitioner’s Remaining

Arguments For Certiorari

3 ET eee ee

10

10

10

10

16

19

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PAGE

II. NDPA’S SECOND

QUESTION PRESENTED ......... 20

A. The Court Below Correctly

Applied the Hydrolevel Decision ..... 20

B. The Decision Below Properly Found

Concerted Action Under Section! .... 25

C. Petitioner’s Remaining Arguments

Favoring Certiorari Are Meritless .... 27

COMM AANMMN ccc cre rsasssesaeeeen 28

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TABLE OF AUTHORITIES

PAGE

Cases

American Society of Mechanical Engineers, Inc.

v. Hydrolevel Corp., 456 U.S. 556 (1982) . . passim

Boczar v. Manatee Hospitals & Health Systems,

Inc. , 993 F.2d 1514 (11th Cir. 1993) ..... 14,15

Bolt v. Halifax Hospital Medical Center,

891 F.2d 810 (11th Cir.), cert. denied,

495 U.S. 924 (IGS) . wwe ww ec ee eee 15

Bruce Drug, Inc. v. Hollister, Inc.,

688 F.2d 853 (Ist Cir. 1982) ..........- 12

Continental Ore Co. v. Union Carbide & Carbon

Corp., 370 U.S. 690 (1962) ........---- 8

DeLong Equipment v. Washington Mills Electro

Minerals Corp., 990 F.2d 1186 (11th Cir.),

cert. denied, 114 S. Ct. 604 (U.S. 1993) ... 15

Dimidowich vy. Bell & Howell,

803 F.2d 1473 (9th Cir. 1986), modified,

810 F.2d 1517 (9th Cir. 1987) ......... 15

Eastman Kodak Co. v. Image Technical

Services, Inc., 504 U.S. __,

es 18

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PAGE

Garment District, Inc. v. Belk Stores Services,

Inc., 799 F.2d 905 (4th Cir. 1986),

cert. denied, 486 U.S. 1005 (1988) ...... 13

H.L. Hayden Co. v. Siemens Medical Systems, Inc.,

879 F.2d 1005 (2d Cir. 1989) .......... 13

Lamb’s Patio Theatre, Inc. v. Universal Film

Exchanges, Inc., 582 F.2d 1068

a po Ae. | Ee aa a 12

Lovett v. General Motors Corp.,

998 F.2d 575 (8th Cir. 1993), cert. denied,

be ee a | re 13,14

Monsanto Co. v. Spray-Rite Serv. Corp.,

| ie 2 Er passim

sien

Wa

Respondents’ respectfully file this brief to set forth

reasons why the petition for a writ of certiorari should not

issue pursuant to Supreme Court Rule 10.

COUNTERSTATEMENT OF THE CASE

This antitrust action was brought by ten 800-number

wallpaper dealers (respondents herein) against petitioner, the

National Decorating Products Association, Inc. ("NDPA"),

a retailers’ trade association, and F. Schumacher & Co.

("FSC"), an influential wallpaper manufacturer.”

Respondents allege that these entities conspired to force the

800-number dealers out of business.’ At the close of fact

discovery, NDPA and FSC obtained summary judgment in

the district court. This grant of summary judgment was

initially affirmed by the Third Circuit Court of Appeals,

‘Pursuant to Supreme Court Rule 29.1, respondent corporations state

that they have no corporate parents or subsidiaries, with the exception of

respondent American Blind Factory, Inc., which is a subsidiary of Color

Tile Corporation.

? NDPA’s petition describes FSC as “nominally a respondent in this

Court." Petition at 3, n.1. However, FSC filed its own certiorari

petition in Case No. 94-1278, to which a separate response has been

filed. Thus, in this brief, the term "respondents" refers only to the

plaintiffs below.

*Count I of respondents’ amended complaint alleges that NDPA

conducted a systematic campaign to coerce wallcovering manufacturers to

refrain from dealing with 800-number dealers in violation of Section 1 of

the Sherman Act. CA App. 103-107. Count II alleges that FSC, in

response to NDPA coercion and in furtherance of NDPA’s objectives,

imposed restraints that had the purpose and effect of eliminating 800-

number dealers as competitors of NDPA showroom dealers. CA App.

108.

x

App., A67-A114, but was subsequently reversed by that

court on panel rehearing as to Counts I, II and the

corresponding portion of Count VI of respondents’ amended

complaint, App., Al-A40. FSC’s petition for rehearing in

banc was denied. App., A188-A189.

As set forth in more detail below, the petition commits

four main errors: (1) it sets forth only those facts that favor

NDPA and FSC, while completely ignoring the facts

favorable to respondents; (2) it attempts to manufacture a

non-existent conflict among circuit court decisions concerning

the inferences that may be drawn from circumstantial |

evidence of pretext regarding the existence of a conspiracy; |

(3) it incorrectly hypothesizes a conflict between the Third |

Circuit’s decision below and this Court’s analysis of Section |

1 in Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752 |

(1984); and (4) it incorrectly argues that the Third Circuit’s

decision below contravenes and improperly extends this |

Court’s decision in American Society of Mechanical

Engineers, Inc. v. Hydrolevel Corp., 456 U.S. 556 (1982).

Factual Background. NDPA’s statement of the facts

(petition at 4-8) omits critical facts demonstrating that

NDPA, a trade association acting as a combination of its

members, pressured FSC to eliminate 800-number dealers as

competitors of the retailers, and that FSC capitulated to such

pressure. The Court of Appeals’ opinion recites many of the

relevant facts concerning both NDPA and FSC. See App.,

A10-A21. The following brief outline of the facts highlights

key points that were omitted from NDPA’s petition.

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The NDPA consists of 3,300 wallcovering dealers who |

formed a trade association for the purpose, inter alia, of |

hiring professional managers to advance the common

a |

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economic interests of NDPA members. CA App. 283.

Robert E. Petit, NDPA’s Executive Vice-President and Chief

Executive Officer, is a professional manager who was a full

time employee of NDPA for 30 years. CA App. 1972,

2001-2002. John Rogers, the editor of Decorating Retailer

and other NDPA publications, was employed by NDPA for

15 years. CA App. 368. Each year, NDPA elects a

different president from its membership of wallcovering

retailers. The court below stated that "it is uncontested that

the NDPA is highly sophisticated and possesses significant

market power..." App., A31.

The NDPA has, for much of its history, worked to

eliminate the competitive threat posed to its membership by

800-number dealers, who generally sell wallcovering products

at substantially discounted prices. In the early 1980's,

Robert Petit frequently urged executives of the major

wallcovering manufacturers to take action against 800-number

dealers. CA App. 190-206. In addition, NDPA introduced

an “anti-piracy kit" for storefront retailers that was intended

to prevent retail customers from placing orders with 800-

number dealers. CA App. 271-273, 407. Petit also urged

each retailer "to send a letter indicating your desire for

unpriced books to major manufacturers and/or distributors

you currently deal with and send a copy of such

correspondence to me at NDPA.” CA App. 523.

These overtly anticompetitive acts on the part of NDPA

prompted the Federal Trade Commission ("FTC") to initiate

an investigation into the activities of NDPA. In May 1985,

the FTC issued a complaint against NDPA for the same

activity complained of here, i.e., attempting to drive 800-

number dealers out of the wallcovering business. App., A13-

14; CA App. 364, 410. In 1986, NDPA entered into a

=

consent order with the FTC whereby NDPA agreed that it

would not advocate, suggest, advise or recommend that any

of its members refuse to deal with any sellers to attempt to

affect prices, terms or conditions of sale or distribution

methods. CA App. 411-413. Despite the entry of the

consent order, NDPA continued to take action against 800-

number dealers that was in direct violation of that order.

In 1988, storefront retailers again began clamoring for

manufacturers to take action against 800-number dealers. CA

App. 200-201. In order to focus and channel these demands,

NDPA filled its publications with editorials (usually written

by Petit or Rogers), articles and letters that maligned 800-

number dealers, urged manufacturers to take steps to interfere

with the business of 800-number dealers, and urged retailers

to stop doing business with those manufacturers that failed to

do so. CA App. 468, 479, 485, 490-92, 495, 756-59, 784,

837-38. NDPA members, at the urging of the association,

also wrote to manufacturers and urged them to take action

against 800-number dealers. CA App. 517, 519, 523, 524,

526, 545, 546, 550, 554, 558. NDPA President John Wells,

described in an NDPA publication as a "Retailer

Spokesman," spoke at an NDPA convention and told retailers

to refrain from purchasing from manufacturers who did not

support the NDPA against 800-number dealers. CA App.

167, 440.

In addition, NDPA_ executive Petit spoke to

manufacturers and urged them to take steps to eliminate 800-

number dealers.* CA App. 185, 190-98, 201-07, 212-29,

“For instance, in 1989, Petit urged John Fitzgerald, president of

Kinney Wallcovering, to take action against 800-number dealers by

(continued...)

| a |

i.

407, 416-19, 693-99, 700. NDPA President Clyde Morgan

reported to the NDPA Board of Directors regarding a private

meeting that he had with a group of manufacturers who were

"leaders of the wallpaper industry" in which he urged them

to take action against 800-number dealers. CA App. 177-

184. His comments were recorded in NDPA’s official board

minutes. CA App. 1091.

FSC reacted to this type of pressure by adopting a seven

(7%) percent drop shipment surcharge designed to eliminate

respondents’ profits. CA App. 298-299. Indeed, a draft of

a press release prepared by FSC admitted that the surcharge

was adopted "/ijn direct response to [storefront] retailer

requests. . . ".to "protect them from sales piracy.” CA App.

298-299 (emphasis supplied). The final version of this press

release deleted this bit of candor, and stated instead that the

surcharge was intended to "insure that our consumers receive

the best possible service. . . .". CA App. 486. FSC’s

management committee minutes, however, confirm that the

true objective of the surcharge was “to make statement to

industry that we are trying to help them." CA App. 290.

Another purported reason for the drop shipment

surcharge was to reimburse FSC for its added costs in

making drop shipments. However, no calculation was ever

made to determine the amount, if any, of additional costs

incurred by FSC in handling drop shipments. CA App. 148-

‘(...continued)

relating to him the "anger felt by the retailers in lack of support from the

wallcovering industry” and “that the piracy issue seems to have

intensified." In response, Fitzgerald proposed that he start a new

company to handle product lines that would not be available to 800-

number dealers. CA App. 185.

a.

151, 685-686. Indeed, another manufacturer stated that drop

shipments do not result in any increase in handling costs.

CA. App. 622.

Even after the drop shipment charge was instituted,

NDPA pressure on FSC continued. FSC president Mike

Landau reported to FSC’s Management Committee that he

had been told at NDPA’s Western meeting that while the

"surcharge [was a] good first step . . . [it was] necessary to

take other measures." CA App. 304. Thereafter, following

additional retailer pressure,” FSC formulated a new strategy.

CA App. 309. On January 25, 1990, FSC adopted a so-

called “local trading area" policy, whereby 800-number

dealers were prohibited from selling FSC products outside

their local area. CA App. 627, 640, 693-699.

The NDPA quickly confirmed that FSC’s local trading

area restraint constituted an appropriate response to its

demands for action against 800-number dealers. CA App.

376-382, 479-482, 492. Robert Petit wrote to the NDPA

Board of Directors heralding FSC’s local trading area

restraint as "a major step forward in our battle against the

800 number operators." CA App. 693 (emphasis supplied).

He also wrote to FSC’s president, expressing "[o]n behalf of

the members of our decorating products associations . . . our

appreciation for your actions." CA App. 70.

It is clear from a recitation of all the relevant facts that

there is extensive evidence from which a reasonable jury

could infer that the NDPA, a trade association acting as a

*For instance, a letter from one storefront retailer stated clearly: "We

will continue to support those companies that support us . . ." CA App.

524.

x

combination of its members, demanded action, and that FSC

capitulated to these demands and agreed to eliminate the 800-

number dealers.

Court of Appeals Decision. With respect to Count I,

NDPA ignores the court’s complete recitation of the facts,

including facts that could easily lead a jury to infer that Petit,

Wells and Morgan were acting with apparent authority when

they urged retailers to boycott manufacturers who did not

take steps to eliminate 800-number dealers.

For instance, the court found that NDPA’s Decorating

Retailer, in reporting on anti 800-number speeches given by

Wells and Petit, specifically identified their official positions

with NDPA and made no reference to any disclaimer that the

views expressed in their speeches were their own and not

those of the NDPA. App., A20. Further, the court noted

that John Rogers, editor of Decorating Retailer, admitted that

the Perspective column, frequently used as a forum for

invective against 800-number dealers, has never contravened

NDPA’s policies. App., A20. This evidence could lead a

reasonable jury to conclude that the actions of Petit, Wells,

Morgan and Rogers were taken with the apparent authority of

NDPA because their actions were fully consistent with the

policies of NDPA as enunciated in NDPA’s official

publication.

NDPA argues that the Court of Appeals’ decision

eviscerates the requirement of concerted action in a Section

1 case because this case did not involve a conspiracy between

NDPA and “another person." Petition at 29. In fact, the

court below correctly stated that "a [trade] association, as a

combination of its members, can violate the antitrust laws

through such a conspiracy." App., A31. Indeed, "when

se

NDPA takes action it has engaged in concerted action so as

to trigger potential section 1 liability." App., A25.

NDPA mischaracterizes the Court of Appeals’ decision

as to Count II. According to NDPA, the court held that if

evidence of pretext exists, then a conspiracy will also,

necessarily, be found to exist. Petition at 12-13. The Court

of Appeals did not so hold.

Indeed, there was no reason for the court to make such

a holding because the evidence in the case provides

independent direct evidence of a conspiracy. Thus, it was

unnecessary for the court to rely solely on evidence of pretext

to infer the existence of a conspiracy. The evidence of

pretext merely serves, as the court stated, to “support an

inference that it acted as part of a conspiracy... ." App.,

A37 (emphasis supplied).

Judge Lewis’s opinion on rehearing in the court below,

with its lengthy recitation and analysis of the facts of the

case, App., Al0-A21, shows that the court undertook a

complete analysis of the evidence in determining that a jury

might well infer from all of the evidence that a conspiracy

existed between NDPA and FSC.°

In Count I, the majority opinion held that reasonable

jurors could find that NDPA threatened a retailers’ boycott

of manufacturers such as FSC. App., A34. Having made

this threshold determination, the court then analyzed

respondents’ evidence against FSC on Count II in the context

*This Court has ruled that a plaintiff's evidence of conspiracy should

be viewed as a whole and should not be compartmentalized. Continental

Ore Co. v. Union Carbide & Carbon Corp. , 370 U.S. 690, 699 (1962).

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of its previous finding that a jury could find that storefront

retailers, acting through NDPA, conspired to pressure

manufacturers to eliminate 800-number dealers from the

marketplace. App., A37-A40.

For instance, the court’s opinion points out that FSC’s

drop shipment surcharge was designed to be a "statement"

that FSC was trying to help storefront retailers and was

adopted "in direct response to [such] retailer requests."

App., A38 (emphasis supplied). The court also noted that

FSC adopted the surcharge without even attempting to

determine whether it would be sufficient to permit it to

recoup increased costs associated with drop shipments. App.,

A39. The court concluded that this evidence would permit

reasonable jurors to find that FSC had "agreed with others to

impose the surcharge whether it made economic sense or

not." App., A40 (emphasis supplied).’

In sum, the court carefully examined both pretext

evidence and non-pretext evidence in reaching its conclusion

that a reasonable jury could infer that a conspiracy existed

between NDPA and FSC.

"Judge Roth’s dissent to the initial Court of Appeals’ opinion, which

affirmed summary judgment in favor of FSC and NDPA (the "1993

Opinion"), also makes it clear that there is enough evidence of a

conspiracy between NDPA and FSC to go to the jury. Her decision was

based in part on her finding that there was sufficient evidence to go to the

jury regarding NDPA’s alleged anticompetitive activities (Count I) and

the effect that allegations of a hybrid horizontal/vertical conspiracy have

on the plaintiff's burden under Monsanto. See App., A128-A129.

Further, Judge Roth found evidence of coercion and of pretext. App.,

A130.

« *®.

SUMMARY OF ARGUMENT

NDPA’s petition for writ of certiorari should be denied.

The Third Circuit Court of Appeals’ decision (on panel

rehearing) is not in conflict with decisions in five other

circuits. The court below did not hold, contrary to FSC’s

assertion, that if a jury can find that pretext is present it can

also infer, based solely on that evidence, the existence of a

conspiracy. The court considered extensive evidence adduced

by plaintiffs that supports an inference that NDPA demanded

that action be taken against 800-number dealers and that FSC

capitulated to its demands, thus forming a conspiracy between

NDPA and FSC. Further, the Third Circuit’s decision is not

in conflict with this Court’s holding in Monsanto. Rather,

the Third Circuit correctly interpreted and applied Monsanto

to this case. Finally, the Third Circuit also correctly

interpreted and applied the Hydrolevel decision to this case.

ARGUMENT

REASONS WHY THE WRIT OF CERTIORARI

SHOULD NOT ISSUE

I. NDPA’S FIRST QUESTION PRESENTED

A. There Is No Conflict Among The Circuits

As To How Evidence Of Pretextual Behavior By

A Manufacturer Should Be Considered In A

Sherman Act Section 1 Case.

Contrary to NDPA’s petition, there is no conflict on this

issue among the circuits. In order to fashion a putative

conflict, NDPA improperly ignores record evidence and

distorts the holding of the court below. NDPA asserts that

ee

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the court below held that evidence of pretext alone is

sufficient to support a finding of conspiracy consistent with

Monsanto,* and that this supposed holding conflicts with

decisions of five other circuits. Petition at i, 15-18.

Underlying NDPA’s argument is a fallacious view of the

Third Circuit’s evaluation of the evidence both of pretext

and, more generally, of conspiracy. NDPA misstates the

matter, claiming that the court ruled that evidence of pretext

alone will support an inference of antitrust conspiracy. That

is incorrect. The Court of Appeals carefully analyzed the

evidence of concerted action, including extensive evidence of

the pressure NDPA exerted upon FSC, and FSC’s conduct

taken (by its own admission) in direct response to that

pressure. The fact that the court determined that a jury could

infer that FSC both advanced pretextual reasons for its

policies and acted in concert with NDPA, App., A40, does

not constitute a holding that evidence of pretext alone will

create an inference of antitrust conspiracy.

For example, the court’s summary of the evidence

adduced by respondents regarding FSC’s surcharge

specifically mentions both the instances of pretext and the

retailer pressure on FSC:

[Viewing this evidence in conjunction with the

press releases and the retailer pressure on FSC, it

is not an implausible conclusion that FSC may

have imposed the surcharge without first

undertaking mathematical calculations because it

*The Monsanto case instructs that "there must be evidence that tends

to exclude the possibility of independent action by the manufacturer and

distributor." 465 U.S. at 768 (emphasis supplied).

Fe

had agreed with others to impose the surcharge

whether it made economic sense or not.

App., A40 (emphasis supplied). This paragraph alone makes

it completely clear that the Court of Appeals was relying on

more than pretext evidence when it determined that the order

granting summary judgment in favor of NDPA and FSC on

Count II should be reversed. As the Court of Appeals found,

plaintiffs presented (1) admissible evidence of concerted

action; and (2) evidence that tended to exclude the possibility

of independent action by FSC.

NDPA nevertheless contends that the Third Circuit’s

holding, as NDPA mischaracterizes it, conflicts with

decisions by the First, Second, Fourth, Seventh and Eighth

Circuits. Petition at i. In fact, a review of the all of the

post-Monsanto circuit court decisions cited by NDPA makes

it clear that each of those circuits has determined that, while

evidence of pretext may be probative of a Section 1

conspiracy, it will not, standing alone, create an inference

that a conspiracy exists.”

*In footnote 5 of the petition, NDPA states that prior to Monsanto,

the First and Seventh Circuits held that evidence of pretext alone will not

support an inference of antitrust conspiracy. The two cases cited in the

footnote, however, are not inconsistent with the case at bar. Bruce Drug,

Inc. v. Hollister, Inc. , 688 F.2d 853, 857 (1st Cir. 1982), held that there

was no evidence of concerted action in the record, and that a supposed

business pretext (which the court of appeals did not find pretextual in any

event) did not, by itself, prove a conspiracy. That holding is consistent

with both Monsanto and the decision below. Lamb’s Patio Theatre, Inc.

v. Universal Film Exchanges, Inc. , 582 F.2d 1068, 1070 (7th Cir. 1978),

is to the same effect, holding that a pretextual reason is not, in and of

itself, proof of conspiracy.

«19>

The Second Circuit’s decision in H.L. Hayden Co. v.

Siemens Medical Systems, Inc., 879 F.2d 1005 (2d Cir.

1989), contained the following conclusion: "[T]he mere fact

that a business reason advanced by a defendant for its cut-off

of a customer is undermined does not, by itself, justify the

inference that the conduct was therefore the result of a

conspiracy.” 879 F.2d at 1014. Hayden does not hold that

such evidence may not be considered; it holds only that,

standing alone, such evidence cannot create an inference of

conspiracy.

In the Fourth Circuit case, Garment District, Inc. v.

Belk Stores Services, Inc., 799 F.2d 905 (4th Cir. 1986),

cert. denied, 486 U.S. 1005 (1988), the court determined,

we submit erroneously, that, whether or not the proffered

reasons for termination were true, the actual reasons for

termination of the plaintiff were legitimate. Because of this

determination, the court was not required to determine the

extent to which evidence of a false pretext gives rise to an

inference of conspiracy.

NDPA’s claim of a conflict among the circuits relies

most heavily on Lovett v. General Motors Corp., 998 F.2d

575 (8th Cir. 1993), cert. denied, 114 S. Ct. 1058 (1994).

In Lovett, however, the court did not discuss whether

evidence of pretext standing alone could support an inference

of conspiracy. Indeed, the word "pretext" does not appear

in the opinion. Instead, the court properly examined all of

the evidence and determined that it was insufficient to

support the alleged conspiracy.

Contrary to NDPA’s assertion, a “strong parallel

between the evidence of pretext" in this case and in Lovett

does not exist. In Lovett, the only evidence that could

*

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conceivably be viewed as pretextual is evidence that GM

gave the plaintiff "a less than honest" reason for deciding to

cut its allocation. Jd. at 580. The court considered such

evidence as well as all of the other evidence and determined

that GM was not acting as part of a conspiracy, but was

acting alone. /d. at 580-581. There was no evidence in

Lovett that the defendant, in deciding to cut back the

plaintiffs allocation of automobiles, had capitulated to

pressure from other automobile dealers. Indeed, there was

substantial evidence that GM refused to discuss the dealers’

complaints, id. at 579-80, and that the dealers were unaware

of GM’s decision once it was made. Jd. at 580. Further,

there was no evidence that the dealers threatened to terminate

their dealerships with GM to coerce GM’s actions. Jd. In

short, unlike this case, there was no evidence that GM acted

in response to dealer pressure. In contrast, FSC has admitted

in an internal document that it acted "in direct response to

retailer requests. . . ." CA App. 298-299.

Other decisions cited by NDPA in its effort to suggest

a “conflict” among the circuits do not hold that evidence of

pretext alone is sufficient to infer a conspiracy. For instance,

in Boczar v. Manatee Hospitals & Health Systems, Inc. , 993

F.2d 1514 (11th Cir. 1993), the Eleventh Circuit separately

analyzed evidence of an economic motive for the alleged

conspiracy, and evidence tending to exclude the possibility of

independent action. In Boczar, a physician brought suit

against 4 hospital and several staff physicians for conspiracy

to restrain trade in violation of Section 1 of the Sherman Act

after her staff privileges at the hospital had been suspended.

The court stated that, based on the evidence of both

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concerted action and pretext, "the jury may have properly

inferred an unlawful conspiracy." Id. at 1517-1519.'°

Similarly, in Dimidowich v. Bell & Howell, 803 F.2d

1473 (9th Cir. 1986), modified, 810 F.2d 1517 (9th Cir.

1987), a refusal to deal case that was decided under

California state law, the Court of Appeals examined evidence

of pretext and separate evidence tending to support the

inference of a conspiracy. The non-pretext evidence of

conspiracy included evidence that a proposal for a concerted

refusal to deal had been made, and evidence that the two

parties to the alleged conspiracy also agreed to "divide the

market," and not seek service work in each other’s territory.

The court clearly did not rely solely on one incident of

pretext in determining that the plaintiff had presented

evidence tending to support an inference of concerted action.

NDPA has completely misstated the holdings of these

Ninth and Eleventh Circuit cases to bolster its argument that

a split in the circuits exists on this issue. Clearly, none of

these courts, including the Third Circuit in this case, has held

that evidence of pretext, standing alone, will support an

inference of the existence of a conspiracy. In fact, a review

of the above-cited decisions makes it clear that each of the

“The Eleventh Circuit’s decisions in Bolt v. Halifax Hospital Medical

Center, 891 F.2d 810 (11th Cir.), cert. denied, 495 U.S. 924 (1990) and

DeLong Equipment v. Washington Mills Electro Minerals Corp., 990

F.2d 1186 (11th Cir.), cert. denied, 114 S. Ct. 604 (1993), also do not

hold that evidence of pretext alone will support an inference of a

conspiracy. For instance, in Bolt, the Court of Appeals specifically

determined that when relying on circumstantial evidence of a conspiracy,

a plaintiff must show both a nonlegitimate motive for entering into the

conspiracy and must adduce evidence tending to exclude the possibility

that the alleged co-conspirators acted independently. /d. at 819.

Se

circuits represented has determined that while evidence of

pretext may be probative of a Section 1 conspiracy, it will

not, standing alone, create an inference that a conspiracy

exists. A review of these cases also shows that in each case,

prior to making its determination, the circuit court carefully

reviewed all of the evidence that would tend to prove or

disprove the existence of a conspiracy.

It is clear that NDPA has mischaracterized the decision

and reasoning of the Court of Appeals in this case in an

attempt to generate a “conflict” with the above decisions

where none exists. For these reasons, NDPA’s first ground

for seeking a writ of certiorari must fail.

B. The Court Below Correctly Followed Monsanto.

NDPA is equally wrong in asserting that certiorari

should be granted because the decision of the Court of |

Appeals in this case is “at war" with the statutory

requirement of concerted action in Section 1 of the Sherman

Act, and is contrary to this Court’s interpretation of that

statute in Monsanto.

NDPA bases its argument on a mischaracterization of

the Third Circuit’s holding. The Third Circuit Court of

Appeals did not hold that evidence of pretext, standing alone,

will permit a jury to infer the existence of a conspiracy. |

That said, the Court of Appeals’ decision in this case is

completely consistent with this Court’s holding in Monsanto.

In Monsanto, this Court stated that there can be no

inference of concerted action on the basis of customer

complaints alone. Rather, there must be “something more"

than mere complaints. There must be evidence that excludes

a eneeeenemnee

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the possibility of independent action. 465 U.S. at 764. In

Monsanto, this Court held that the plaintiff adduced sufficient

evidence for the jury to have concluded that Monsanto and

some of its distributors were parties to a conspiracy. For

instance, there was evidence of an agreement to maintain

prices and circumstantial evidence that linked the termination

of the plaintiff to that agreement. !!

Monsanto’s requirement that a plaintiff adduce

"something more" than customer complaints, and that the

evidence should tend to prove that the manufacturer had a

commitment to a common scheme, is met in this case. As

noted in the Third Circuit’s opinion, respondents adduced

strong evidence of coercion by the NDPA, including

threatened boycotts. App., A28.

There is evidence that FSC acted in direct response to

this coercion by instituting the surcharge on drop shipments.

App., A32. There is evidence that FSC changed its previous

course of conduct in attempting to eliminate the 800-number

dealers after it had sold to them for years.'2 CA App. 624.

There is evidence that FSC acted contrary to its own

"' In Monsanto, this Court determined that the case properly went to

the jury despite strong evidence from the manufacturer that no conspiracy

existed: "[W]e cannot say that the courts below erred in finding that

[plaintiff] produced substantial evidence of the concerted action required

by §1 of the Sherman Act, and that -- despite the sharp conflict in

evidence -- the case properly was submitted to the jury." 465 U.S. at

468, n.14.

"In 1989, FSC’s corporate vice president told an audience of retailers

that sales to 800-number dealers made up 20% of the wallcovering

business's total sales. CA App. 624.

~ -

economic interests in instituting a seven percent surcharge

without conducting any economic analysis to determine the

amount of surcharge required to help it recoup the alleged

“additional costs" of drop shipments. App., A33. There

was additional evidence that NDPA pressure on FSC

continued even after the surcharge was implemented and, in

response, FSC adopted a so-called “local trading area"

policy, whereby 800-number dealers were prohibited from

selling FSC products outside their local area. App., A15-16.

Rather than confront the adverse affects of a boycott by

NDPA members, FSC joined forces with NDPA in a

common scheme to eliminate 800-number dealers as NDPA

competitors. Thus, a contract or common scheme existed

between NDPA and FSC.

The evidence that FSC capitulated to NDPA pressure,

and joined forces with NDPA to eliminate 800-number

dealers, is carefully documented in the minutes of FSC’s

management committee. CA App. 290, 304, 309. Thus, the

jury will be able to decide FSC’s complicity in the alleged

conspiracy through a well-documented record of FSC’s

internal deliberations. By contrast, there is absolutely no

contemporaneous documentary evidence that FSC’s decision

to eliminate 800-number dealers was motivated by any

concern other than capitulation to NDPA pressure.

NDPA’s analysis fails to note that, unlike Monsanto,

which was decided on a full trial record, this case was

decided on a motion for summary judgement. In that regard,

the recent teachings of this Court in Eastman Kodak Co. v.

Image Technical Services, Inc., 504 U.S. ___, 119 L. Ed. 2d

265 (1992), are significant. In Kodak, this Court stated that

antitrust claims should be resolved on a "case-by-case basis,

focusing on the "particular facts disclosed by the record.’”

.

504 U.S. at__, 119 L. Ed. 2d at 284 (citations omitted).

Further, this Court held that the nonmoving party’s

inferences need only be "reasonable" in order to reach the

jury. 504 U.S. at___, 119 L. Ed. 2d at 285. In this case,

it is clear that respondents’ inferences of a conspiracy

between FSC and NDPA are more than merely "reasonable,"

they are compelling.

Thus, the Third Circuit’s opinion in this case readily

conforms to the substantive and procedural framework set

down by this Court in Monsanto and Kodak.

C. Petitioner’s Remaining Arguments

For Certiorari Are Meritless.

NDPA argues that this case provides an ideal context for

this Court’s review because the case is devoid of factual

dispute on any dispositive issue and because the judgment

below turns on the legal standard employed by the Third

Circuit. Petition at 20-21.

That is hardly the case. The record is repiete with

evidence that NDPA pressured FSC and other manufacturers

to eliminate 800-number dealers, that FSC capitulated to that

pressure, and that FSC joined NDPA’s "battle against 800

number operators" by imposing its drop shipment surcharge

and local trading area policy. In the absence of an admission

by NDPA and FSC that their conduct constituted a

conspiracy in unreasonable restraint of trade, it remains a

disputed issue of fact to be resolved by the jury. Thus,

NDPA’s assertion that the record is devoid of factual disputes

is simply untrue.

*

NDPA argues that the purported split among the circuits

"has disruptive economic and jurisprudential ramifications."

Petition at 21-23. As was shown above, the “split” in the

circuits was fabricated by NDPA for the purposes of its

petition. If anything, a survey of circuit court decisions

reflects a remarkable uniformity among the circuits in their

interpretation and application of Monsanto and, in the context

of summary judgment motions, of Kodak. Thus, the decision

by the Court of Appeals in this case is not likely to

encourage forum shopping. Based on a thorough review of

all of the evidence of conspiracy in this case, respondents

believe that the Eighth Circuit (where the Lovett case was

brought) would have held as did the Third Circuit and

reversed the district court’s grant of summary judgment.

Thus, NDPA’s policy arguments also must fail.

Il. NDPA’S SECOND QUESTION PRESENTED

A. The Court Below Correctly

Applied the Hydrolevel Decision.

In American Society of Mechanical Engineers, Inc. v.

Hydrolevel Corp. , 456 U.S. 556 (1982), this Court held that

a trade association may be held liable under Section i for the

antitrust violations of its agents committed with apparent

authority. The Court emphasized the economic power that

trade associations such as ASME wield in the nation’s

economy. The Court noted that trade association officials,

who are also independent businessmen, have the opportunity,

through their role in the trade association, to harm their

competitors when they act in the name of the association. Id.

at 570-571. Thus, the Court determined that a trade

association can be a party to a Section 1 conspiracy.

. o

In order to hold a trade association liable, all that is

needed is the action of an agent of that trade association

acting with apparent authority. The Court held that "the

apparent authority theory is consistent with the congressional

intent to encourage competition.” Jd. at 570. The Court

emphasized that the theory of apparent authority has been

used to impose liability upon principals for the misdeeds of

agents in a wide variety of areas. Id. at 568. It also stated

that the apparent authority theory benefits both the trade

association and the public because "it is . . . for the ultimate

interest of persons employing agents, as well as for the

benefit of the public, that persons dealing with agents should

be able to rely upon apparently true statements by agents who

are purporting to act and are apparently acting in the interests

of the principal." Jd. at 567 (citing Restatement (Second) of

Agency §262 (1984), Comment a, p. 572).

NDPA argues that the Third Circuit in this case did not

properly apply Hydrolevel. However, a closer review of

their petition reveals that it is the Hydrolevel decision they

are criticizing. While not articulating it, NDPA is implicitly

asking this Court to overrule the Hydrolevel case for policy

reasons.'* Clearly, if this Court is unwilling to do so, the

holding of the case is still the law of the land and is properly

applied to the this case.

'? For instance, NDPA notes that the dissent in Hydrolevel pointed

out that the majority decision could be read as exposing all nonprofit

associations to "strict liability in treble damages." Petition at 27. NDPA

also argues that the “decision below may be expected to restrict

traditional trade association activities by focusing upon the conduct of a

trade association’s staff rather than its members.” Petition at 29. It is

not the decision below that creates such a result; it is this Court’s

decision in Hydrolevel.

x 2

Thus, the question presented to the court below was

whether the NDPA could be held liable under Section 1 for

the acts of its agents. The court answered that question in

the affirmative because it determined that NDPA agents,

whose actions violated Section 1, were acting with the

apparent authority of NDPA.

The court found that Petit went beyond merely voicing

retailers’ complaints to manufacturers and engaged in

"actually coercing (or attempting to coerce) them into

cooperating in eliminating 800-number dealers." App., A33.

Further, the court noted evidence that Petit emphasized to

manufacturers the anger felt by the retailers. Id. The court

stated that "[s]uch evidence, when viewed against the existing

backdrop of urgings from NDPA officers and editors that

retailers should support only those manufacturers who

support them, could imply a threat of a retailers’ boycott if

manufacturers did not take steps to help eliminate 800-

number dealers from the marketplace.” Id. (emphasis

added). This statement is the key to the court’s holding on

apparent authority.

NDPA asserts that the Court of Appeals pointed to no

conduct of NDPA that could have caused a reasonable third

party to believe that Petit was acting in the ordinary course

of business by threatening a retailers’ boycott of

manufacturers. Petition at 26. This assertion is completely

untrue. The Court of Appeals’ decision is replete wiih

references to record evidence that strongly supports the

inference that Petit was acting on behalf of NDPA and its

membership when he threatened a boycott and that NDPA

supported, acquiesced in and even ratified his conduct.

4.

For instance, the court began by stating that "in the late

1970’s and early 1980’s, conventional retailers in the NDPA

threatened to cease purchasing products from manufacturers

who continued to do business with the 800-number dealers,

whom they referred to as ’pirates.’"” App., Al2. Further,

"[t]he NDPA itself actively campaigned against 800-number

dealers by lobbying manufacturers. . . ." Id. (emphasis

supplied). The court then discussed the FTC action against

NDPA and the entry of a consent order between NDPA and

the FTC. App., Al3-Al4. The court stated clearly that ©

since the entry of the consent decree, NDPA "modified its

lobbying efforts to some extent, but it has not ceased them."

App., Al5 (emphasis added).

The court next noted that "the sentiment against 800-

number dealers continued to escalate even after the consent

decree was entered.” App., Al5. When manufacturers such

as FSC began to respond to NDPA’s pressure, the NDPA

noted in its official publication that “there are signs that

telling your troubles to suppliers eventually will be heard and

some remedy may result.” App., Al8. Further, Petit wrote

to the NDPA Board of Directors heralding FSC’s restraint as

"a major step forward in our battle against the 800 number

operators." CA App. 693 (emphasis added).'* Petit aiso

wrote to FSC’s president, expressing "/ojn behalf of the

members of our decorating products association . . . our

appreciation for your actions.” CA App. 70. These actions

The NDPA Board of Directors’ knowledge of, and acquiescence in,

the actions of its agents is also clear from the record in the official board

minutes of a meeting NDPA President Clyde Morgan had with

manufacturers in which he urged them to take action against 800-number

dealers. CA App. 177-184, 1091.

ate a -

- %-

are a Clear indication that NDPA ratified the actions taken by

its agents that produced the result NDPA sought.

Further, NDPA publications editor John Rogers wrote

an editorial in the Perspective column of NDPA’s Decorating

Retailer discussing retailer opposition to 800-number dealers

and stating that "ultimately, the answer for the individual

dealer is that given by [NDPA president] Wells: ’I will

support those who support me.’" App., A20. Rogers

subsequently testified, that to his knowledge, there has not

been an occasion when a comment published in the

Perspective column has contravened NDPA policy. App.,

A20.

Thus, there can be no question that NDPA was in the

business of trying to eliminate 800-number dealers. When

Robert Petit, the chief executive officer of NDPA, threatened

boycotts to achieve this very result, it was entirely reasonable

for third parties hearing such threats to believe that he was

acting in the regular course of NDPA’s business. Based on

"the existing backdrop of urgings from NDPA officers and

editors that retailers should support only those manufacturers

who supported them,” (App., A33), it is entirely reasonable

for a jury to find that Petit and other agents of NDPA were

acting with the apparent authority of NDPA.

NDPA argues that, after the FTC consent order was

entered, NDPA began to comply with the antitrust policies

set forth in that order. Petition at 6-7, 26-27. This

purported compliance directly conflicts with the evidence of

the actions NDPA was taking through its officers and agents,

the statements it was making in its official publications, and

the notations it was making in its Board of Director’s

minutes. This conflict creates an issue of material fact for

-25 -

the jury and cannot and should not be resolved by the district

court on a motion for summary judgment.

NDPA’s discussion of supposed differences between

NDPA and ASME, the trade association in Hydrolevel,

misses the point. In Hydrolevel, the activity that was found

to have violated Section 1 was the writing of a response to an

"inquiry" regarding an industry standard by members of a

subcommittee of ASME. The response was treated as an

"unofficial communication." 456 U.S. at 561. In this case,

by contrast, the activity alleged to violate Section 1 was

undertaken by the presidents and chief executive officer of

NDPA. The speeches made by these individuals and the

meetings they had with manufacturers and retailers were

recorded in official NDPA publications and in the minutes of

the Board of Directors. The activity was undertaken at the

highest levels of the organization, and not, as in Hydrolevel,

at the subcommittee level.

Further, unlike ASME, which is a neutral standard

setting entity, the sole purpose of NDPA is to advance the

economic goals of its membership. The primary goal of

NDPA’s membership, for years, has been to eliminate the

competitive threat posed by 800-number dealers. App., A12,

A117. Thus, the Hydrolevel decision is properly applied to

this case and indeed was properly applied by the court below.

B. The Decision Below Properly Found

Concerted Action Under Section 1.

NDPA next asserts that the decision of the Court of

Appeals evisceraies the requirement of concerted action in a

Section 1 case because "the decision below finds no such

i

5 2

concerted action by NDPA, and instead focuses on the

individual actions of NDPA’s alleged apparent agents.”

Petition at 28-29.

As the Court of Appeals noted, NDPA is an association

of competing wallpaper dealers. "As such, when NDPA

takes action it has engaged in concerted action so as to trigger

potential section 1 liability." App., A25. Indeed, NDPA

was aware of this fact and so informed its members. NDPA

informed its members that "NDPA, as a group of

competitors, was ’already considered to be an “agreement.”’”

App. Al4 (citing CA App. 430). Further, NDPA guidelines

for conducting meetings also acknowledge that "’a trade

association is, by definition, a combination of competitors.’”

Id. (citing CA App. 740).

The concerted action requirement of Section 1 is not

eviscerated in this case, it is merely met in a different way

than it was met in the Hydrolevel case. In Hydrolevel,

the requirement of concerted action was met on the basis of

a conspiracy between ASME and others. Here, it is met

because NDPA is a trade association, which, as a

combination of competitors, can violate the antitrust law

when it engages in anticompetitive conduct.’

'SIn her dissent to the 1993 Opinion, Judge Roth noted: "There is no

question that an association is a ‘combination’ within the meaning of

Section 1 of the Sherman Act. Although a conspiracy requires more than

one person, an association, by its very nature a group, satisfies the

requirement of joint action. Thus, any association activity which

restrains interstate commerce can be violative of Section 1 even if no one

acts in concert with the association." App., A120-121 (citing G.D.

Webster, the Law of Associations §9a.01[1], 9A3-4 (1991)).

-.

When Petit and the other NDPA officials and agents

acted, they did so, as was shown above, on behalf of NDPA

and all of its members. Thus, for antitrust purposes, there is

no difference between Petit urging manufacturers to eliminate

800-number dealers (and threatening a boycott if they did

not), and all 3,300 NDPA members doing the same thing in

unison. The concerted action requirement is Clearly met in

this case.

C. Petitioner’s Remaining Arguments For

Certiorari Are Meritless.

NDPA argues that the decision below will restrict

traditional trade association activities by focusing upon the

conduct of a trade association’s staff rather than its members,

and forcing the members to "police" the conduct of the staff.

Petition at 29. Such "policing" is exactly what this Court

had in mind when it stated in Hydrolevel that "ASME is in

the best position to take precautions that will prevent future

antitrust violations." 456 U.S. at 576. Here, NDPA,

through its membership, is in the best position to monitor and

regulate the actions of its staff, including chief executive

officer Robert Petit and publications editor John Rogers.

Permitting the issue of NDPA’s antitrust liability in this case

to go a jury will serve to impart to all trade associations the

lesson of Hydrolevel that trade associations cannot avoid

liability for anticompetitive conduct by claiming that their

representatives were never oficially authorized to engage in

unlawful activity.

> -

CONCLUSION

For all of these reasons, the petition for writ of

certiorari should be denied.

Respectfully submitted,

STEVEN A. ASHER

Counsel of Record

DEBORAH A. SOTTOSANTI

Kohn, Nast & Graf, P.C.

1101 Market Street

Suite 2400

Philadelphia, PA 19107

(215) 238-1700

Attorneys for Respondents

Dated: March 20, 1995

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