Motion — United States v. General Motors Corp.

Supreme Court brief1966

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FEB 11 1965

Noe §=46

IN THE

Supreme Court of the United

OCTOBER TERM, 1964

UNITED STATES OF AMERICA, ~ ,

Appellant,

GENERAL Motors CorPoRATION; Losor

CHEVROLET DEALERS ASSOCIATION;

DEALERS’ SERVICE, INC.; AND

FOOTHILL CHEVROLET DEALERS ASSOCIATION,

Appellees.

On Appeal from the United States District Court for the

Southern District of California, Central Division.

MOTION OF APPELLEE

GENERAL MOTORS CORPORATION

TO AFFIRM

HoMER I. MITCHELL

WARREN M. CHRISTOPHER

433 South Spring Street

Los Angeles, California 90013

Marcus MATTSON

J. PHILLIP NEVINS

605 West Olympic Boulevard

Los Angeles, California 90015

ALoysius F. Power

ROBERT A. NITSCHKE

NicHoLAas J. ROsIELLO

3044 West Grand Boulevard

Detroit, Michigan 48202

Attorneys for Appellee

General Motors Corporation

O’MELVENY & MYERS

LAWLER, Fetix & HALL

Of Counsel

TOPICAL INDEX

pS nae

‘

4 2. Chevrolet dealers’ use of unauthorized outlets.......... 6

‘ (a) Prices of sales through discount houses............ 7

(b) Effect of sales through discount houses............ 10

3. Action taken by General Motors to stop dealers’ use

of discount houses as additional sales outlets............ 11

1. The Chevrolet franchise plan of marketing................ 2

2 1. The District Court found that General Motors acted

; " i iiricinsseiinttosasishcnicriasbuipantt cic ii sai 15

2. The supporting evidence is substantial ............... ....... 17

Ca} Tem Te i 17

(b) Adverse effects of additional outlets................ 20

3. The cases involving per se restraints are inapposite 23

ft in Se ate abe kris ce oe

BE ESA eI NS Biers ae BS FSS eee

Conclusion

Map showing locations of Chevrolet dealers throughout the

Los Angeles Metropolitan Area (GMX-A) Opposite p. 4

TABLES OF AUTHORITIES CITED

Cases Page

———

Boro Hall Corp. v. General Motors Corp., 124 F.2d 822

(2nd Cir. 1942); rehearing denied 130 F.2d 196 (2nd

Cit, 1942): cert. denied 317 U.S. 695...--.------me 18, 23

Chicago Board of Trade v. United States, 246 US. 231.......- 20

International Boxing Club v. United States, 358 U.S. 242...... 16

Interstate Circuit Inc. v. United States, 306 U.S. oc axcscunnes 24

United States v. General Motors Corporation, 216 F. Supp.

United States v. Parke, Davis & Co., 362 US. . Rees 23

United States v. Real Estate Boards, 399 U.S. 485.....-.------ 17

United States v. Twentieth Century-Fox, 137 F.Supp. 78

CST Ck, 1958) rn 24

United States v. White Motor Co., 272 U.S. 253......---------- 3

United States v. Yellow Cab, 338 U.S. 338......---.-------- 16, 23, 25

White Motor Co. v. United States, 372 U.S. | ea 18, 23

Statute

Sherman Act, section 1..........-----s-sssesereecseresses enter ee 2

Rules

Federal Rules of Civil Procedure, Rule 52(a).....------------------ 16

Revised Rules of the Supreme Court of the United States,

Rule 16, paragraph 1(C)....-------s-s--ssecsseersrtree tte

References

Lewis and Hancock, The Franchise System of Distribution

106) 6 rn 16

Turner, The Definition of Agreement Under the Sherman Act:

Conscious Parallelism and Refusals to Deal, 75 Harv. L.

Saw. O56 (1962) rrr 23

Te ERM eta ig er ee

IN THE

Supreme Court of the United States

OCTOBER TERM, 1964

No. 820

UNITED STATES OF AMERICA,

Appellant,

Vv.

GENERAL Motors CORPORATION; LOSOR

CHEVROLET DEALERS ASSOCIATION;

DEALERS’ SERVICE, INC.; AND

FooTHILL CHEVROLET DEALERS ASSOCIATION,

Appellees.

2 On Appeal from the United States District Court for the

13 Southern District of California, Central Division.

MOTION OF APPELLEE

GENERAL MOTORS CORPORATION

TO AFFIRM

b Pursuant to Rule 16, paragraph 1(c), of the Revised

Rules of this Court, General Motors Corporation moves

that the judgment of the District Court be affirmed.

STATEMENT

This is a direct appeal from the final judgment of the

District Court dated September 14, 1964, in a civil

antitrust case. The District Court held, after trial, that

appellees did not engage in the alleged combination to

suppress competition in the sale and distribution of

sii lp

Chevrolet automobiles in the Southern California area

in violation of Section 1 of the Sherman Act.*

A more complete Statement of the case than that con-

tained in the Jurisdictional Statement is necessary for

consideration of the Question Presented.

1. The Chevrolet franchise plan of marketing.

Chevrolet dealerships are locally owned and operated

by independent businessmen under franchise agreements

with Chevrolet.** Among the rights granted by these

franchise agreements, called “Dealer Selling Agree-

ments,” are the non-exclusive right to purchase new

Chevrolets at dealer prices and the right to re-sell them

in a manner which will promote sales and preserve the

good will of Chevrolet. The dealers’ rights and obliga-

tions are personal and not transferable. Chevrolet grants

such rights based upon its judgment as to the number

of dealer outlets which are necessary for the operation of

its franchise plan (Fdgs. 9, 11, 16, 25, 26; GX-1, Exhibits

2-7 thereto; Tr. pp. 423-425).

Under the Dealer Selling Agreements, the location of

each dealer must be specifically approved by Chevrolet

and the dealer is not permitted to establish an additional

location or a branch office or to transfer his sales

obligation to others without the prior written approval

*The identical issue was presented to a different judge of the

Southern District of California in an earlier trial upon an indict-

ment returned against appellees here and four Chevrolet

officials. After four months of trial, the Court granted a judg-

ment of acquittal at the conclusion of the Government's case.

216 F.Supp. 362 (1963) (opinion and judgment).

**General Motors Corporation manufactures and distributes

Chevrolets through its Chevrolet Motor Division (herein called

“Chevrolet” ).

TER eubeRgee spe ie siaheer me irene ine. . ” — . ”

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of Chevrolet. The location clause was adopted by

Chevrolet in 1940 and is uniformly included as a part

of all General Motors Dealer Selling Agreements. It

was not adopted at the instigation or inducement of the

dealers. On the coutrary, it was developed by General

Motors exclusively to serve its own interests, following

many years of market analysis and practical experience.

In adopting the clause, General Motors’ aim was to insure —

that its careful planning to achieve the optimum coverage

of the market and thus to further competition with other

makes would not “be defeated by the haphazard actions

of individual dealers” in establishing additional outlets

(App. B to Tr., p. 83; Tr. 255-256; 333-337; 556).

Chevrolet dealers have complete freedom to sell at

any price they choose and they do. General Motors

exercises no control whatsoever over the dealers’ pricing

of their cars (Fdg. 10; Tr. 343-344; 627). They have

complete freedom to sell to any customer wherever he

may be located and they do. No class of customers is

excluded. “Cross-selling” is not prohibited; there is no

geographical or territorial barrier — neither territorial

security nor territorial exclusivity.* The customer can

purchase his Chevrolet from any dealer anywhere at

any price he can negotiate. (Tr. 342-344; 624; App. C

to Tr. p. 61.)

Under the Chevrolet franchise plan, Chevrolet appoints

what its studies show are the right number of dealers lo-

cated in the right places to make sales and service facili-

ties and parts supplies conveniently available to con-

sumers (Tr. 423-425; 631-632; 337; App. B to Tr. p. 91).

* Unlike the contracts which were the subject of United States

v. White Motor Co., 272 U. S. 253.

= oe

Such strategic location of dealers is essential because

Chevrolets kept in proper working order at conveniently

located service facilities keep customers satisfied and

satisfied customers, as repeat buyers, constitute 70% of

the purchasers of new Chevrolets (Tr. 259-260). It is

also essential because it enables Chevrolet to achieve a

needed continuity of representation by providing for

each dealer a sales potential adequate to enable him to

continue in business if he competes vigorously and effec-

tively.

This continuity affords Chevrolet representation year

in and year out, in the peaks and valleys caused by busi-

ness cycles and model changes. It is important to Chev-

rolet not only because the dealer can thereby provide

conveniently located sales and service facilities and parts

supplies to consumers, but also because he can perform

ancillary functions such as conditioning cars for delivery,

remedying latent defects which occassionally occur in

mass production, performing warranty obligations, and

making the market estimates which close contacts with

consumers make possible and which are required for

orderly manufacturing schedules (Fdgs. 11-13; Tr. 308-

366; 423-425; App. B to Tr. pp. 68-86).

The locations of the 85 Chevrolet dealers throughout

the Los Angeles Metropolitan Area (which includes

most of Los Angeles and Orange counties and is the

area involved in this action) are graphically shown on

the map (GMX-A) reproduced as an insert between

this page and the next page. The blue dots are Chev-

rolet dealers; the red dots are discount houses and referral

services used by some of the Chevrolet dealers.

SRI ARE HE HELL MARA TR UENT Ata TY ee ; Pe caer Mon ; ;

iS POEM LEE TIM SE LE ION OR 9 RUMEN HINT IE STIN LO YG NE NE

Wicmeaviom Anwea

Los Angeles Metropolitan Area

FELES* ORANGE,

COUNTIES

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CALIFORNIA

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Under the Chevrolet franchise plan, each dealer has

the obligation to develop the sale of Chevrolets in his

“area of sales responsibility.” In the Los Angeles Metro-

politan Area, each dealer’s “area of sales responsibility”

is the entire metropolitan area (GX-1, Par. 17). This

means that the 85 Chevrolet dealers in the area must

compete for customers throughout the entire area. Under

the plan, each dealer’s location gives him an opportunity

of contact with customers in his neighborhood, but if

he does not meet or beat the prices and other competi-

tive efforts of the other 84 dealers, he will be unable to

capitalize on this opportunity (Fdg. 17). Thus, the plan

is based on the principle of vigorous competition be-

tween dealers under a marketing plan in which each

operates from an agreed location and may not transfer

his selling obligation to others.

As shown by the map, there is an average of five

other Chevrolet dealers within five miles of each of the

85 Chevrolet dealers in the Los Angeles Metropolitan

Area (GMX-J). In addition, within the five mile area

there is an average of 22 dealers in competing makes of

new cars, exclusive of competing General Motors makes

(GMX-B and J). There is intense intrabrand compe-

tition — primarily price and service competition —

among Chevrolet dealers, and there is intense interbrand

competition — as to price, service, style and performance

— between Chevrolet dealers and dealers for all other

makes of automobiles (Fdgs. 28-29).

Upon the basis of uncontradicted evidence, the trial

court found the facts to be:

‘ eS ee

—

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“The Chevrolet franchise system with its location

restrictions and its restrictions against transferring or

assigning to third parties sales and service obligations

promotes rather than impairs competition in the retail

sale of Chevrolet automobiles and benefits the purchas-

ing public. It enhances Chevrolet’s ability to compete

with other manufacturers, promotes the competition of

Chevrolet dealers with dealers selling rival makes and

promotes the competition of Chevrolet dealers with

each other.” (Fdg. 33)

2. Chevrolet dealers’ use of unauthorized outlets.

In the early summer of 1960, some Chevrolet dealers

in the Southern Caliiornia area were selling new Chev-

rolets pursuant to agreements under which unauthorized

outlets (discount houses* ) performed many of the mer-

chandising functions normally performed by Chevrolet

dealers. These discount houses, which operated at loca-

tions removed from the approved location of the Chev-

rolet dealer involved, maintained new car sales depart-

ments which advertised Chevrolets and distributed

Chevrolet promotional literature (Fdgs. 18-19).

In every case, the sale of the new Chevrolet to the

customer was made by the Chevrolet dealer through the

discount house with title passing directly from the dealer

to the customer. In no case did the dealer sell to the

discount house, and in no case did the discount house

make a vesale (Fdg. 19).

* As does appellant, we shall use the words “discount houses”

to cover both discount houses and referral services.

RN red REA OES GE COE

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(a) Prices of sales through discount houses.

The sale of Chevrolets through these unauthorized out-

lets did not enable the dealers who used them to sell at

lower prices than they sold directly to their ordinary

customers, and thus the additional outlets were not “dis-

count houses” in the usual connotation of that term as

an outlet which sells for less. The evidence is, and the

trial court found:

“As shown by an independent study made by Price

Waterhouse & Co., there was no appreciable difference

between the prices paid by customers who purchased

Chevrolet passenger cars from a dealer through a dis-

count house or referral service and the prices paid by

ordinary retail customers who purchased directly from

that dealer. (Fdg. 31)

The Price Waterhouse & Co. study, which took more

than 10,000 man hours to complete, concerned the 1960

sales of the seven dealers who sold almost all (96% ) of

the Chevrolets which were sold through discount houses.

The median price at which those dealers sold directly

to ordinary customers was $220 over dealer’s invoice

cost, while the median price at which they sold to cus-

tomers through discount houses was $235 over dealer’s

invoice cost (GMX-DB). Appellant asserts that Chev-

rolet dealers sold Chevrolets through discount houses

“often for only $165 more than dealer’s invoice cost”

(J.S. 3). The fact is that in 1960 the dealers studied by

Price Waterhouse ’& Co. sold 1461 (or 24.5% ) of their

total direct sales of 5970 cars to ordinary customers for

$165 or less over dealer’s invoice cost, whereas they

sold 143 (or 10.7%) of their total sales of 1336 cars

ees Gorn

through discount houses at $165 or less over dealer’s

invoice cost (GX-212).

Chevrolet dealers “almost always sold at a dis-

counted price from the manufacturer’s suggested list

price, which, as a matter of law, has to be stated and

affixed to each car” (Tr. 436). The uncontradicted evi-

dence is that if a customer is not satisfied with the prices

quoted by one dealer, he can go to another conveniently

located dealer. Since the Los Angeles Metropolitan Area

is interconnected by a web of high speed freeways, every

person in the entire area has easy access to many dealers,

including one or more of the seven dealers studied by

Price Waterhouse & Co. from whom customers, on the

average, could purchase Chevrolets at lower prices than

through discount houses (GMX-A). By the same token,

dealers solicit customers on an area-wide basis.

Statements as to isolated discount house prices in some

of the letters and telegrams of complaint by dealers

and salesmen were double hearsay and were not offered

or received in evidence as proof of prices at which

Chevrolets were sold through discount houses (Tr.

226-235). At the trial, counsel for appellant stated

that such letters and telegrams were not offered “to estab-

lish the fact that the discount houses were, in fact, selling

for less than the dealers” (Tr. 232). The Price Waterhouse

& Co. study is the only evidence in the record of the prices

of dealers’ direct sales to ordinary customers as compared

to their sales through discount houses, and, as stated

above, it shows that the customer did not receive a price

advantage in buying from dealers through discount

houses rather than directly from such dealers.

PAGING ILIA ELT ERG SER Rt SIE LUBE A CR :

aiid ERG ONE ER EER

The prices charged on sales through discount houses

had nothing to do with General Motors’ decision to urge

dealers not to use discount houses as additional sales

outlets (Fdg. 38). However, in view of the statements

made by appellant (J. S. 14-15), it is worth noting that,

rather than promoting price competition, arrangements

between dealers and discount houses in many instances

inhibited both interbrand and intrabrand competition.

At FEDCO, the largest discount house automobile oper-

ation in the area (Dealers Diversified Services, Inc.) had

a “one-price policy” (App. B to Tr., p. 30). Under the

uniform written agreement with the discount house

(which was also used for dealers in Ford, Plymouth,

Rambler and other competitive makes of cars), each

Chevrolet dealer doing business with FEDCO was obli-

gated to sell to customers referred by the discount house

at the same specified price over dealer’s invoice cost

(Fdg. 32; GMX-AP; App. B to Tr., pp. 23-30). The

adverse effect of these arrangements upon price com-

petition is shown by the fact that in 1960 there were only

four Chevrolets sold through FEDCO at $165 or less

over dealer’s invoice cost — not even 1% of the 594

sales through FEDCO — whereas 18.7% of the 1243

direct sales to ordinary customers made by the dealers

concerned were at $165 or less over dealer’s invoice cost

(App. B to Tr., 27; GX 145-152; 212: GMX-AP). Fleet

Sales Company (the second largest discount house auto-

mobile operation in the area) also had a “one-price”

arrangement with each of three Chevrolet dealers. These

dealers were obligated to quote the “prearranged prices”

on a “take it or leave it basis” and could not negotiate lower

prices with the referred customers even though the failure

i Ol aes

to do so might result in the loss of the sale (App. B to

Tr., pp. 9, 35-38). It is significant that 60% of all the

Chevrolets sold through what appellant calls a “new

form of merchandising in the automobile industry” (J.S.

10) were sold through these two discount houses oper-

ating under “one-price” plans (GX-212).

(b) Effect of sales through discount houses.

By 1960, there were 23 discount house outlets in the

Los Angeles Metropolitan Area through which Chev-

rolets were being sold.* These discount houses were

outlets or locations for the merchandising of Chevrolet

dealers’ new Chevrolets in addition to the outlets whose

number and location had been determined by Chevrolet

as optimum for the proper operation of its franchise plan.

They were a way of accomplishing that which was pro-

hibited by the provision of the Dealer Selling Agreements

requiring dealers to refrain from establishing additional

locations or branch sales offices without the written ap-

proval of Chevrolet (Fdgs. 20, 26; App. A to Tr. pp.

89-90). The use by Chevrolet dealers of discount house

outlets also defeated the purpose of the provisions of the

Dealer Selling Agreement that the agreement is a personal

service contract and that each dealer is prohibited from

transferring or assigning his sales obligations to third

parties (Fdgs. 26-27; GX-1, Exh. 2.1-2.3; App. A to

Tr. 89-90).

General Motors’ experience has been that adding dealer

points for the same sales potential results in dealer mor-

* As shown by GX-1, the 23 discount house locations were dis-

persed throughout the metropolitan area and only five were

located in Orange County (compare J.S. 4).

jens iin

talities. This prior experience indicated that Chevrolet

dealers’ use of discount houses as outlets for the sale

of new Chevrolets would cause the withdrawal from

business of a substantial number of Chevrolet dealers.

(App. A to Tr., pp. 87-90; App. B to Tr., pp. 76-77;

Tr., pp. 375, 379-382; 437; 632-634). As shown by a

study made by Price Waterhouse & Co., the first ones to

go would be the smaller dealers (App. C to Tr., pp. 5-6;

10-21; 116), leaving the larger dealers, haphazardly

located, with their discount house satellites (Tr. 380-

381).

Discount houses do not provide Chevrolet with the

kind of retail selling organization needed for Chevrolet’s

competition with its rivals. They do not promote Chevro-

let sales, and Chevrolet cannot depend upon them to

provide an active and aggressive sales effort year in and

year out through the peaks and valleys (App. B, Tr. p.

30; Tr. 380-382). They cannot provide convenient

service facilities or parts supplies to Chevrolet owners.

They cannot be relied upon to provide, directly or through

the dealers under which they operated, the expert and

detailed market information required for orderly manu-

facturing scheduling (Tr. pp. 416-423).

3. Action taken by General Motors to stop dealers’

use of discount houses as additional sales outlets.

The use of discount houses as sales outlets as a regular

practice by some Chevrolet dealers in the Southern

California area was first brought to the attention of the

General Motors executives in Detroit in November, 1960,

wine actin

when they received a large number of letters and tele-

grams from Southern California dealers and salesmen

(Tr. pp. 440-442). Many were Chevrolet dealers; others

were dealers in other makes of General Motors cars

(Tr. p. 444). They made various complaints and asked

General Motors and Chevrolet to bring the practice to

an end.

General Motors thereupon made its own investigation

and study of the use of discount houses as sales outlets

by dealers for all makes of General Motors cars in

Southern California and other areas. No dealers or

dealer organizations were consulted (Tr. pp. 444-445;

448; 605).

Upon the basis of this study, General Motors, acting

under the direction of its Vice President in charge of

distribution and with the approval of its President,

on December 14, 1960, formulated the corporation’s

position in a letter which was thereafter sent to all

Cadillac, Oldsmobile, Buick, Pontiac and Chevrolet

dealers in the United States numbering over 15,000. The

letter expressed the corporation’s opposition, in the light

of the dealer’s obligations under their Dealer Selling

Agreements, to arrangements by dealers with discount

houses for the sale of the dealers’ new cars through such

discount houses. It pointed out that such practices

could represent the establishment of a second and

unauthorized sales outlet or location contrary to

the provisions of the Dealer Selling Agreements. It ad-

vised that personnel of the several motor car divisions

were being instructed to meet with General Motors

dealers for the purpose of attempting to induce and per-

anny | eee

suade each such dealer to refrain from entering into

arrangements for the sale of new General Motors cars

through discount thouses in violation of his Dealer

Selling Agreement (App. A to Tr. pp. 76-77; GMX-AU

and AV; Tr. pp. 447-448; 451-452).

Thereafter, individuals representing the appellee dealer

associations, acting independently of General Motors,

shopped discount houses in the Los Angeles Metropolitan

Area, and by purchasing new Chevrolets from some

dealers through discount houses found that some dealers

were continuing to use discount houses as sales outlets.

They so informed the Los Angeles Zone Office of Chev-

rolet which brought each shopped car to the attention

of the dealer who sold it and asked him whether he

wished to repurchase the car. The Zone Office, reaiizing

that dealers employ many salesmen, recognized that “it

was quite possible for a car to get away from a dealer

without him knowing anything about it” and regarded

this as a “very effective means of bringing to the atten-

tion of the dealers” that this had happened (Tr. 745-746,

896). This was a way of showing the dealers that “there

was a possible violation of the selling agreement” and

of trying to “persuade them to Stop it” (Tr. 786).

The District Court heard the testimony of the Presi-

dent of General Motors and the Vice President in charge

of distribution who acted for the corporation in this

matter, as well as the Los Angeles Chevrolet Zone Man-

a_ ¢ who was in charge of carrying out the corporation’s

instructions. Having seen the witnesses and observed

their demeanor, the court expressly found that General

—14—

Motors had acted independently and without combina-

tion, conspiracy or concert of action with the Chevrolet

dealers or the appellee dealer associations (Fdgs. 37 and

45).

At the conclusion of the testimony and argument, the

District Court announced its opinion and decision in

favor of appellees and directed that the proposed findings

which had been lodged by appellees with the Court prior

to argument should be consolidated and modified to re-

flect the gist of his opinion (J.S., App. A, p. lla). There-

after, revised findings of fact were lodged by appellees,

and appellant filed objections on September 10, 1964.

The District Court made modifications of the findings in

response to the objections, added a paragraph to the con-

clusions and signed and filed the Findings of Fact and

Conclusions of Law on September 14, 1964. (J.S., App.

B).

ARGUMENT

Appellant's complaint alleged that General Motors was

engaged in a “combination and conspiracy to suppress

and eliminate competition in the sale and distribution of

Chevrolet automobiles in the Southern California area”

(Par. 16). The Jurisdictional Statement is built on the

assumption that there was such joint action between

General Motors and its franchised Chevrolet dealers,

and that such joint action was proved. This assumption

is reflected in the Question Presented which refers to “an

arrangement” between General Motors and the Chevrolet

dealers and is even more apparent in the appellant’s

repeated but unsupported references to the “joint efforts”

ant.

of General Motors and the Chevrolet dealers (J.S., 10,

11, 12).

The findings are flatly to the contrary. The District

Court found, with overwhelming support in the evidence,

that General Motors acted independently — not joint-

ly — to obtain compliance with a valid provision of its

Dealer Selling Agreements. Appellant has not challenged

these findings as “clearly erroneous” and accordingly they

are decisive of the allegation of combination and con-

spiracy which the Government made but failed to prove.

a The District Court found that General Motors

acted independently.

Every Chevrolet dealer has the unconditional freedom

to sell Chevrolets “to anyone, anywhere, at any price”

(GMX-AY, p. 3; Fdg. 10).* The location clause in the

Dealer Selling Agreements, which is of central import-

ance here, merely prevents the dealer from establishing

additional locations or branch offices without the prior

approval of Chevrolet (see Statement, supra, pp. 2-5).

General Motors sought to obtain compliance with this

clause when it acted in 1960 to persuade Chevrolet dealers

to refrain from using discount houses as additional out-

lets for the sale of the dealers’ Chevrolets (Fdg. 36).

count house selling that has been successfully employed for

most other consumer products” (J.S. 11).

Reflecting his oral opinion (J.S. App. A, pp. 9a-10a),

the District Judge specifically found such action by Gen-

eral Motors to be independent, not joint:

“ —_ Such action was taken independently and uni-

laterally by General Motors with respect to each Chev-

rolet dealer individually, to obtain compliance by each

dealer with the obligations he had undertaken in his

Dealer Selling Agreement and such action was not

taken by General Motors by combination, conspiracy

or concert of action with Chevrolet dealers or any of

them or with defendents Losor, Foothill or DSI or any

of them.” (Fdg. 45)

The District Court also found that the “sole motivation”

for General Motors action was the preservation of its

franchise system (Fdg. 37)*.

To establish the joint action which is the necessary

premise of its argument, the Government has the burden

of showing that these findings of independent action by

General Motors are “clearly erroneous.” Rule 52(a),

Federal Rules of Civil Procedure; International Boxing

Club v. United States, 358 U.S. 242. Such “findings as

to the design, motive and intent with which men act

depend peculiarly upon the credit given to witnesses by

those who see and hear them.” United States v. Yellow

Cab, 338 U.S. 338, 341. On review, they will not be

* A comprehensive study of the franchise system of distribution

made in 1963 by the University of Minnesota for the Small

Business Adininistration found that it results in a “broadening

of the economic base of the country by the encouragement of

small business”. Lewis and Hancock, The Franchise System of

Distribution (1963), 91.

GES EA, MEET ARH OLR NM AER ENTE

— 17 —

set aside even though the Supreme Court “might give

the facts another construction, resolve the ambiguities

differently, and find a more sinister cast to actions which

the District Court apparently deemed innocent.” United

States v. Real Estate Boards, 339 U.S. 485, 495.

2. The supporting evidence is substantial.

The finding of independent action is fully supported

by the testimony of the General Motors officials who were

responsible for the action taken.* The District Judge

listened to these witnesses, observed their demeanor,

and heard them cross-examined. In several instances,

he joined in the questioning on this very point (Tr. 608-

609, 786).

In addition to the direct testimony of the responsible

General Motors officials, there was an abundance of evi-

dence showing the basis for such independent action.

(a) The location clause.

Under the location clause of the Dealer Selling Agree-

ments, Chevrolet has the sole discretion to permit a

dealer to “establish a new or different location, branch

sales office, branch service station, or place of busi-

ness” (G.X.-1, Exh. 7.2). This location clause was

developed by General Motors commencing in 1940 to

serve exclusively its own interests. It was not adopted

at the instigation of the dealers, and they have no recipro-

cal right to prevent Chevrolet from approving the estab-

* John F. Gordon, President of General Motors (Tr. 599-608 );

James M. Roche, Vice President in charge of distribution (Tr.

440-458); Robert M. O'Connor, Los Angeles Chevrolet Zone

Manager (Tr. 709-787).

ok es

lishment of additional dealer outlets (App. B to Tr., p. 83;

Tr. 333-334, 556).

The complaint, which charges a combination and con-

spiracy between General Motors and Southern California

Chevrolet dealers and their dealer associations, does not

allege that the location clause or any other aspect of the

Dealer Selling Agreement is an unlawful vertical agree-

ment. The jurisdictional statement, however, now ad-

vances such an argument (J.S. 16-17). If the obliga-

tion of Chevrolet dealers to refrain from selling through

discount houses as additional outlets is considered a re-

straint of competition at all, it is so minimal and so

contributes to the long-term enhancement of competition

that there can be no substantial question of its reason-

ableness (Fdg. 33; Concl. of Law 1). ine one case

which has considered the location clause held it to

be reasonable and valid. Boro Hall Corp. v. General

Motors Corp., 124 F.2d 822 (2nd Cir. 1942); rehearing

denied 130 F.2d 196 (2nd Cir. 1942); cert. denied 317

USS. 695; cf. White Motor Co. v. United States, 372 US.

253, where much more restrictive contractual provisions

were held not illegal per se.

The minimal location restriction of the Chevrolet fran-

chise plan prevents the sale of Chevrolets in a metropoli-

tan area such as Los Angeles from becoming concentrated

in a relatively few large dealers using discount house

satellites (Tr. 380-385; App. C to Tr., pp. 5-6, 10-21,

116). The provision against unauthorized outlets, unlike

territorial exclusivity or territorial confinement, does not

interfere with free and unfettered competition carried

on from the locations to which the manufacturer and each

as ‘

hon

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dealer agree.* As the District Court indicated, they are

minimum restrictions necessary for the operation of the

franchise system (J.S. App. A, pp. 7a-8a).

Indeed, if the location clause is to be struck down as

unreasonable, it is difficult to conceive of any provision

of an automobile franchise contract that would not meet

a similar fate. The standard clauses requiring a dealer

to invest a minimum amount of capital, to have a show-

room of adequate size, to stock an inventory of paris

and accessories, to maintain adequate service facilities,

to honor claims under the manufacturer’s warranty, and

to furnish reports needed by the manufacturer to establish

production schedules — all impose some limitation on the

freedom of the dealer (GX-1, Exh. 3.2). That imposed

by the location clause is no less reasonable. Without these

minimum provisions, the modern franchise system —

with all it has done to combine the economic benefits

of large scale manufacture with the values of independent

businesses locally owned and operated — could not sur-

vive,

* Although appellant belatedly charges General Motors with

“stabilization of prices” (J.S. 15), the complaint made no such

allegation and, at the trial, appellant failed to produce any kind

of a price study on which to base such a charge. Far from

showing price stabilization by General Motors, the only evidence

in the record regarding comparative prices (the Price Waterhouse

& Co. study) shows that the sale of Chevrolets through discount

houses did not enable the dealers who used such outlets to sell at

lower prices than those at which they sold to their ordinary

customers. The discount house arrangements made by some

dealers did, however, tend to stabilize those dealers’ Prices (see

Statement, pp. 7-10).

The trading of grain in the Chicago grain market pre-

_ sented unique marketing problems and was properly

made the subject of a marketing plan with agreed reg-

ulations. Chicago Board of Trade v. United States, 246

U.S. 231, 238. Automobiles also present unique dis-

tribution problems which necessitate use of a plan of

marketing. The factors that have impelled all automobile

manufacturers to adopt franchise plans of marketing are

described in the Findings of Fact (Fdgs. 12 and 15).

Under the Gencral Motors franchise plan, all dealers

are left free to compete with one another for sales to any

person anywhere at any price. The ground rules are the

minimum ones necessary to promote such competition.

Reasonable ground rules in a marketing plan which

promotes and does not suppress competition are not

unlawful. Chicago Board of Trade, supra, at 238.

(b) Adverse effects of additional outlets.

General Motors had legitimate business reasons of its

own for taking action under the location clause to dis-

suade its dealers from establishing additional dealer out-

lets at discount houses—reasons having nothing to do with

the requests of the Southern California dealers. General

Motors makes extensive studies to determine the right

number of Chevrolet dealers located in the right places.

The number and places so selected enable the dealers

to perform the sales and service functions essential to

the marketing of Chevrolets and at the same time provide

each dealer a sales potential that enables him, operating

competitively, to give Chevrolet a continuity of repre-

sentation in the peaks and valleys of automobile merchan-

SRO OR RY

eet aes

dising, year in and year out* (see Statement, supra,

p. 2-6).

The trial court found that the failure to restrict the

use of discount houses as additional outlets would in time

cause the withdrawal from business of a substantial num-

ber of Chevrolet dealers, resulting in. the haphazard loca-

tion of the remaining large dealerships with their discount

house satellites (Fdg. 22-23). Appellant asserts that these

findings are nothing more than “speculative, unsupported

conclusions” (J.S., Pp. 19-21). However, the evidence

shows that General Motors’ judgment that additional out-

lets would impair its franchise system was based upon

forty years of study, market analysis, and experience. The

lesson of these forty years was that too many outlets in

an area in relation to the area’s sales potential resulted

in dealer mortalities, an inadequate distribution system,

poor service, and reduced sales (App. B to Tr., pp. 64-

68, 76-77; App. A to Tr., pp. 88-89; Tr. 632-634).

In General Motors’ view, the use of discount houses

as additional locations do not provide Chevrolet with the

kind of retail selling organization needed for Chevrolet’s

competition with its rivals for the reasons set forth in

Finding 24. Because General Motors had its own rea-

sons, it did not consult with any dealer or dealer associa-

tion in connection with Stating its position on sales through

sSieedialnibiaad sien

* Because automobile registration data in public records show

S of new car purchasers and makes of cars purchased,

strategically located dealers for the area (App. B to Tr., pp.

63-72).

ae, pe

discount houses (Tr. 444-449). Moreover, General

Motors dealt with the problem on a nationwide basis,

stating its position to all of its dealers in the United States

for al! of its automotive lines, not just to Chevrolet dealers

in Southern California as might have been expected if it

had engaged in the combination charged (Tr. 448).

Appellant has fallen far short of sustaining its burden

of showing that the Court’s finding of independent action

by General Motors is “clearly erroneous.” Indeed,

appellant does not address itself directly to this central

question but instead advances its own version of the

events involved, based upon selected facts not all of which

are supported by the record.* The District Court, how-

ever, heard all of the evidence and sustained General

Motors’ view of the facts (J.S., p. 5-7). In short, in

two successive trials on the Government's charge of joint

action between General Motors and the Chevrolet deal-

ers, “the Government’s evidence fell short of its allega-

tions — a not uncommon form of litigation casualty from

* An illustration is the following passage from the appellant’s

statement:

« | On December 15, 1960, the officers of the three

appellee dealer associations held a joint meeting at which they

appointed a committee to find methods of combating discount

house selling (G-X. 119). They informed the Los Angeles

Chevrolet Zone Office of this action (ibid.)

“As a result of this campaign, General Motors decided...”

(J.S., p. 6).

The record, however, is clear and uncontradicted that the Gen-

eral Motors decision was made on December 14, 1960, and thus

could not possibly have been influenced by the December 15

meeting (App. A to Tr. pp. 76-77).

Sr eisae Bate Me ee aL

seit WE sic

which the Government is no more immune than others.”

United States v. Yellow Cab, 338 USS. 338, 341.

3. The cases involving per se restraints are inapposite.

Appellant places great reliance on United States y.

Parke, Davis & Co., 362 US. 29, but that analogy is

“misleading” and “deceptive” here, just as it was in the

White Motor case, 372 U.S. 253, 266, 268 (concurring

opinion). The crucial difference is that the individual

vertical agreements spelled out by the Court in Parke,

Davis were illegal per se because they involved resale

price maintenance in the absence of the statutory excep-

tion (362 U.S. 45-47). Asa result, the “understandings”

between manufacturer, wholesalers, and retailers in

Parke, Davis were agreements to achieve an unlawful

purpose—the enforcement of the underlying illegal ver-

tical price-fixing agreements. See Turner, The Definition

of Agreement Under the Sherman Act: Conscious Paral-

lelism and Refusals to Deal, 75 Harv.L.Rev. 696-698

(1962).

In contrast to Parke, Davis and the other per se cases

relied upon by appellant (J.S. 13), the basic Provision of

the vertical agreement involved here is the location clause

which was upheld as reasonable in Boro Hall Corp. v.

General Motors Corp., supra, and which is a minimal re-

striction essential to the Operation of a franchise plan.

This clause was originated by General Motors for its own

business purposes almost a quarter of a century ago and

is uniformly included in all its Dealer Selling Agreements

(Tr. 333-324, 556). There is no valid parallel between

General Motors’ efforts to secure dealer compliance for

BE ERLE RMR IME I os nga

cee ii

its own purposes with this valid, long-standing restriction

and Parke, Davis’ role as the “organizer of a price mainte-

nance combination” through a series of individual agree-

ments, each one illegal per se.

In his oral opinion, the District Judge correctly held:

“Since General Motors was legally entitled to en-

force its contracts, the mere urging of some of its

dealers for assistance would not seem to change an

independent action by General Motors into a combina-

tion or conspiracy.” (J.S. App. A, P. 9a)

No case holds that a manufacturer is paralyzed and can-

not seek compliance with lawful marketing agreements

because a group of dealers may ask him to do something

about violations by other dealers of a provision contained

in each dealer’s agreement. There is no such doctrine of

“automatic” conspiracy. Cf. United States v. Twentieth

Century-Fox, 137 F.Supp. 78, 90-92 (S.D. Cal. 1955).

The distinctions between this case and /nterstate Cir-

cuit Inc. v. United States, 306 U.S. 208 (cited J.S., 13)

are illuminating. The action taken by the motion picture

distributors in that case was “a radical departure from

the previous business practices,” taken without “any per-

suasive explanation.” 306 U.S. at 222-223. Moreover,

the distributors failed to call as witnesses any of the

officials who were in a position to know of the existence

or non-existence of the alleged conspiracy. Id. at 221.

Here, the action taken by General Motors was entirely

consistent with its desire to preserve its franchise plan

which had been developed over a 40-year period.

NEL EELS ONE PIEP ENS CO AOL ITO

ek ee

The responsible General Motors officials all testified at

length to facts showing that the action was taken in-

dependently by General Motors for its own persuasive

reasons of business policy. This was not speculation; it

was what substantial and uncontradicted evidence

showed. The District Judge heard witnesses who are

probably as well informed as anyone in the automobile

industry testify on this precise point and he believed them.

In sum, what appellant asks here, as it did in Yellow

Cab, is that this Court “try the case de novo on the record,

reject nearly all the findings of the trial court, and sub-

stitute contrary findings” of its own. 338 U.S. at 340.

As the Court said in that case:

“It ought to be unnecessary to say that Rule 52 ap-

plies to appeals by the Government as well as to those

by other litigants. There is no exception which permits

it, even in an antitrust case, to come to this Court for

what virtually amounts to a trial de novo on the record

of such findings as intent, motive and design.” (338

U.S. at 341-342)

- =.

CONCLUSION

For the foregoing reasons, the motion to affirm

should be granted.

Respectfully submitted,

Homer I. MITCHELL

WarREN M. CHRISTOPHER