Ford Motor Company v. Webster's Auto Sales, Inc., 6530.

• Decision Date: 13 June 1966
• Docket Number: No. 6530.,6530.
• Parties: FORD MOTOR COMPANY, Defendant, Appellant, v. WEBSTER'S AUTO SALES, INC., Plaintiff, Appellee.
• Court: U.S. Court of Appeals — First Circuit

361 F.2d 874 (1966)

FORD MOTOR COMPANY, Defendant, Appellant, v. WEBSTER'S AUTO SALES, INC., Plaintiff, Appellee.

No. 6530.

United States Court of Appeals First Circuit.

June 13, 1966.

COPYRIGHT MATERIAL OMITTED

Claude R. Branch and Will J. Bangs, Boston, Mass., with whom J. Michael Guenther, Dearborn, Mich., and Choate, Hall & Stewart, Boston, Mass., were on brief, for appellant.

Harold M. Willcox, Boston, Mass., with whom Robert E. Sullivan and Herrick, Smith, Donald, Farley & Ketchum, Boston, Mass., were on brief, for appellee.

Before ALDRICH, Chief Judge, J. WARREN MADDEN^*, Judge of the Court of Claims, and JULIAN, District Judge.

Substituted Opinion of the Court.

MADDEN, Judge.

The plaintiff, Webster's Auto Sales, Inc., is a corporation engaged primarily in the business of selling various makes of used automobiles. Its place of business is a used car lot in Indian Orchard, which is a part of Springfield, Massachusetts.

The Ford Motor Company has a Boston District Sales Office with jurisdiction over 290 dealers throughout a six-state New England area. "Company cars" or "factory Fords" are new Fords which have been used only by Ford employees. Factory Fords used in the Boston District are driven in the six-state area for company purposes in connection with the sale of new cars and are ultimately sold by the Boston office to its dealers as used cars. Some factory Fords may be brought in from other districts for sale in the Boston District.

Beginning in 1954 plaintiff purchased factory Fords from authorized Ford dealers for resale from its used car lot. In the calendar years 1959 and 1960 slightly over half of plaintiff's gross profit was derived from resale of factory Fords obtained from Ford dealers. Plaintiff testified that he also purchased "slight" numbers of other nearly new cars from other sources such as car-rental companies and the American Red Cross.

Plaintiff purchased most of its factory Fords from one dealer, Harr Motor Company of Worchester, Massachusetts. Plaintiff's practice was to inspect cars to be sold at the Ford factory lot in Natick, Massachusetts, and then give Harr Motor a figure that it would pay for selected cars. Harr Motor would then bid on the cars and, if successful, sell the cars to the plaintiff at $50 more than it had paid Ford for them.

In August, 1960, plaintiff bought forty factory Fords through Harr Motor Company. These cars appeared on plaintiff's lot in Springfield and led shortly to a complaint by Automobile Sales Company, an authorized Ford dealer in Springfield. The complaint was made in person by Mr. Joseph Kossick and his sons William and Daniel of Automobile Sales Company to defendant's Boston District Sales Manager, Mr. Boutelle, at defendant's District Sales Office. At the meeting Mr. Kossick related the presence of the factory Fords on plaintiff's lot and said that Automobile Sales was not happy about their presence there. He asked what defendant could do about seeing to it that no more factory Fords found their way to plaintiff's Springfield lot. Mr. Boutelle acknowledged that the situation was not good for Automobile Sales and directed the officer in charge of distribution of factory Fords, Mr. Saunders, to "correct the situation."

The distribution procedures used by the Boston District in 1960 were as follows. The defendant, from its Michigan headquarters, would notify the Boston District when to sell its company cars and replace them with new ones. The District Office would then compile a list of the cars to be sold and send the list, with a letter inviting bids, to certain Ford dealers in the District. The highest bidder would get the cars. In 1960 factory Fords were offered for sale about four times a year. The bidding was open only to defendant's authorized new car dealers.

About three weeks after Automobile Sales complained to defendant another group of factory Fords became available for sale, and bids were called for by a letter from defendant to all dealers at that time on the bidders' list used by the District Office. The plaintiff's case is based upon the claim that the concluding paragraph of this letter, first sent on September 22, 1960, and repeated verbatim in subsequent bid letters dated June 2, 1961, June 19, 1961, and December 5, 1961, resulted in an agreement in violation of section 1 of the Sherman Act, 26 Stat. 209, 15 U.S.C. § 1, between defendant and its dealers which prevented plaintiff from obtaining as many factory Fords as it otherwise would have obtained and thereby caused plaintiff to lose the profits which would have been realized by reselling them. The paragraph of the letter read as follows:

We ask that a dealer not bid on these units for the purpose of reselling them to a wholesaler. It has been brought to our attention that large quantities of units have been resold to used car dealers in towns other than that of the purchasing dealer. In the future, this situation cannot be tolerated.

Following the first mailing of this letter on September 22, 1960, Mr. Daniel Kossick discussed the letter with Mr. Saunders at the District Sales Office and stated that he was "in agreement" with its terms. Between the time of the first letter and the end of 1961, a number of dealers receiving bid letters sent back their bids on the original letter which had been sent by defendant without further comment on the language of the letter.

Shortly after sending the letter in September, 1960, Mr. Saunders had a conversation with Mr. Dow, General Manager of Harr Motor Company. Mr. Saunders explained that the last paragraph in the letter had been inserted because Harr's sales of factory Fords to an Indian Orchard used car dealer was disrupting the market in Springfield and a Springfield dealer had complained about the cars appearing on the Indian Orchard lot. Mr. Dow, however, indicated at that time that Harr Motor did not intend to stop selling to wholesalers such as plaintiff and that his company would continue to do whatever it pleased with any cars bought from defendant.

Several months after the first mailing of defendant's letter, plaintiff's purchases of factory Fords declined sharply. In support of its contention that this decline was caused by defendant's allegedly illegal conduct, plaintiff testified as to the verbal refusals or equivocal conduct of three Ford dealers from whom he attmpted to purchase factory Fords following defendant's letter; and he offered evidence to show that the refusal to deal or the equivocal conduct of these dealers was influenced by the letter.

Plaintiff sought to show the economic effect of defendant's letter upon his business through evidence indicating the sharp decline in purchases of factory Fords following defendant's letter, an equivalent decline in gross profits upon factory Fords, the resultant decline in total gross profits, and the effect upon net profit.

The first trial in this action resulted in a jury award of 5000 dollars to plaintiff. Defendant's motion for a directed verdict was subsequently denied, as was defendant's motion for judgment notwithstanding the verdict. Defendant's motion for a new trial, however, was granted as to the issue of damages only. The second trial, on the damage issue alone, resulted in an award to plaintiff of 4000 dollars. From this judgment and from the denial of defendant's motions for a directed verdict and judgment notwithstanding the verdict at the end of the second trial the defendant appeals. We affirm.

Section I of the Sherman Act proscribing every "contract, combination, or conspiracy" in restraint of trade is directed only at joint action. Fundamental, then to any section 1 violation is the finding of an agreement between two or more parties. Only those agreements which work unreasonable restraint upon interstate commerce are prohibited by the Act. Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911). At the same time certain kinds of agreements have been determined to be per se unreasonable and not susceptible of justification under rule of reason tests. Thus, agreements aimed at fixing prices, whether horizontal agreements between potential competitors or vertical agreements between primary suppliers and those who purchase for resale, are illegal per se. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129 (1940) (horizontal agreement); Dr. Miles Medical Co. v. John D. Park & Sons, 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911); United States v. Parke, Davis & Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960) (vertical agreements). Group boycotts and concerted refusals to deal have long been in the unreasonable-by-law category, Fashion Originators' Guild of America v. Federal Trade Commission, 312 U.S. 457, 61 S.Ct. 703, 85 L.Ed. 949 (1941); Klor's v. Broadway-Hale Stores, 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959), as have been horizontal agreements among competitors to divide markets territorially. Addyston Pipe & Steel Co. v. United States, 175 U.S. 211, 20 S.Ct. 96, 44 L.Ed. 136 (1899).

Plaintiff alleges that defendant here has agreed with others upon a course of conduct which constitutes both an unlawful refusal to deal, or group boycott, and an unlawful territorial division of markets. As conduct of either type would be unreasonable as a matter of law, plaintiff contends that no question as to the reasonableness of the restraint of trade resulting from defendant's conduct is presented and has offered no evidence to show that as a matter of fact defendant's actions have caused the public injury which is a necessary element of Sherman Act violations in non-per se cases. As plaintiff presents its case, then, we would have to find not only that the jury below could reasonably have found an agreement between defendant and its dealers, but that the agreement was of the kind subject to absolute prohibition under section 1.

Ford in its defense relies upon the...