2660 Woodley Rd Joint Ven. v. Itt Sheraton

• Decision Date: 25 May 2004
• Docket Number: No. 02-1297.,No. 02-1418.,02-1297.,02-1418.
• Citation: 369 F.3d 732
• Parties: 2660 WOODLEY ROAD JOINT VENTURE; Woodley Road Associates, Inc.; John Hancock Mutual Life Insurance Company; Sumitomo Life Realty (N.Y.)<SMALL><SUP>*</SUP></SMALL> Inc. v. ITT SHERATON CORPORATION; Sheraton Operating Corporation; Washington Sheraton Corporation<SMALL><SUP>**</SUP></SMALL> ITT Sheraton Corporation, Sheraton Operating Corporation and Washington Sheraton Corporation,<SMALL><SUP>**</SUP></SMALL> Appellant 2660 Woodley Road Joint Venture; Woodley Road Associates, Inc.; John Hancock Mutual Life Insurance Company; Sumitomo Life Realty<SMALL><SUP>*</SUP></SMALL> (N.Y.) Inc. Appellants v. ITT Sheraton Corporation; Sheraton Operating Corporation; Washington Sheraton Corporation.<SMALL><SUP>**</SUP></SMALL>
• Court: U.S. Court of Appeals — Third Circuit

369 F.3d 732

2660 WOODLEY ROAD JOINT VENTURE; Woodley Road Associates, Inc.; John Hancock Mutual Life Insurance Company; Sumitomo Life Realty (N.Y.)^* Inc. v. ITT SHERATON CORPORATION; Sheraton Operating Corporation; Washington Sheraton Corporation^** ITT Sheraton Corporation, Sheraton Operating Corporation and Washington Sheraton Corporation,^** Appellant 2660 Woodley Road Joint Venture; Woodley Road Associates, Inc.; John Hancock Mutual Life Insurance Company; Sumitomo Life Realty^* (N.Y.) Inc. Appellants v. ITT Sheraton Corporation; Sheraton Operating Corporation; Washington Sheraton Corporation.^**

No. 02-1297.

No. 02-1418.

United States Court of Appeals, Third Circuit.

Argued February 13, 2003.

Filed May 25, 2004.

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Andrew L. Frey (Argued), Mayer, Brown, Rowe & Maw, New York, NY, Even M. Tager, Robert L. Bronston, Mayer, Brown, Rowe & Maw, Washington, D.C., for Appellants/Cross-Appellees ITT Sheraton Corporation and Sheraton Operating Corporation.

Thomas A. Arena (Argued), William E. Wallace, III, Timothy P. Wei, Milbank, Tweed, Hadley & McCloy LLP, New York, NY, for Appellees/Cross-Appellants 2660 Woodley Road Joint Venture; John Hancock Mutual Life Insurance Company; and Sumitomo Life Realty (N.Y.) Inc.

Before ALITO and McKEE, Circuit Judges, and SCHWARZER,^* Senior District Judge.

McKEE, Circuit Judge.

We are asked to review the propriety of damage awards, including an award for punitive damages, in an action for commercial bribery under § 2(c) of the Robinson-Patman Act, racketeering under the Racketeer Influenced Corrupt Organization Act ("RICO"), breach of contract and related state law claims. We hold that the plaintiff can not maintain an action under § 2(c) of the Robinson-Patman Act because it has not established antitrust standing. We also hold that the record does not support portions of other damage awards, including the award for punitive damages, as explained more fully below. Accordingly, we will affirm in part and reverse in part, and remand for further proceedings consistent with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

John Hancock Life Insurance Company, 2660 Woodley Road Joint Venture and Woodley Road Associates, Inc. (collectively referred to as "Hancock") together owned the Sheraton Washington Hotel (the "Hotel"). In September 1979, Hancock entered into a Management Agreement under which Sheraton agreed to act as Hancock's agent in managing the Hotel's operations. In return, Sheraton received a percentage of the Hotel's gross revenue and a share of its net cash flow.

The suit arises from an arrangement known as the "Sheraton Purchasing Resource" program (the "SPR") that was initiated pursuant to the terms of the Management Agreement. Pursuant to the terms of the SPR program, Sheraton negotiated large-volume discounts with vendors seeking to supply Sheraton-managed hotels. Sheraton then required the vendors to add a surcharge to the price billed to the individual hotels for each purchase. However, the surcharge was not itemized, or even disclosed, on any bills or invoices that vendors sent to individual hotels. Rather, the surcharge was remitted directly to Sheraton in the form of a "rebate." The Management Agreement provided that Sheraton was entitled to be reimbursed for the costs of providing these services. Sheraton claimed that these rebates reimbursed it for the centralized purchasing services it provided under the SPR program as well as associated overhead costs.

The Management Agreement between Sheraton and Hancock remained in effect until 1993, when differences between the parties led to its termination. Thereafter, Hancock filed this lawsuit. In its complaint, Hancock alleged: violations of § 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c); violations of RICO, 18 U.S.C. § 1961; and state law claims of breach of contract, breach of fiduciary duty, and breach of the implied duty of good faith and fair dealing; as well as fraud, and intentional or negligent misrepresentation. Hancock also claimed that Sheraton failed to properly act as its agent in operating its reservation system, failing to limit usable denials,¹ improperly profiting from providing Workers' Compensation insurance, permitting excessive numbers of complimentary rooms, and breaching other unspecified contractual duties.

Hancock's suit proceeded to trial where a jury found for Sheraton on Hancock's RICO claim, but found for Hancock on its Robinson-Patman Act claim. The jury also found for Hancock on several of its state law claims, including claims that Sheraton had breached the Management Agreement with regard to purchasing services, and providing Workers Compensation insurance. The jury further found in favor in Hancock on its breach of fiduciary duty claim. The jury concluded that Sheraton breached an implied duty of good faith and fair dealing, and that Sheraton was liable for its misrepresentations to Hancock. The jury awarded damages of $750,000 on the Robinson-Patman Act claim (subsequently trebled by the court), a total of $10,732,000 on the breach of contract claims, $1,100,000 on the tort claims, and $37,500,000 in punitive damages. The district court denied Sheraton's motion for judgment as a matter of law but granted a remittitur thereby reducing the punitive damages to $17,415,000. The district court then entered judgment in favor of Hancock in the total amount of $31,497,000, but denied Hancock's motion for attorneys' fees and taxation of costs without prejudice. Sheraton appealed from the judgment, and Hancock cross-appealed from the remittitur.² For the reasons that follow, we will affirm in part and reverse in part.

II. DISCUSSION

A. ROBINSON-PATMAN ACT CLAIM

Hancock's Antitrust Standing

Sheraton renews its argument that Hancock lacks antitrust standing to bring a claim under § 2(c) of the Robinson-Patman Act.³ We must address that issue before addressing the merits of the appeal or cross-appeal.

Section 2(c) of the Robinson-Patman Act provides:

It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.

15 U.S.C. § 13(c). "Congress enacted section 2(c), the Act's brokerage provision, primarily to curb one particular abuse by large chain store buyers, namely the use of `dummy' brokerage fees as a means of securing price rebates." Environmental Tectonics v. W.S. Kirkpatrick, Inc., 847 F.2d 1052, 1066 (3d Cir.1988) (citation omitted). This concern arose from large stores using their economic dominance to force sellers to pay a fee for doing business. "The large stores required the sellers to pay a `brokerage' to persons employed by the buyers. These persons had rendered no service, and would simply pay over the commissions to their employers." Seaboard Supply Co. v. Congoleum Corp., 770 F.2d 367, 371 (3d Cir.1985).

However, Hancock's § 2(c) claim is not a dummy brokerage claim. Rather, Hancock has fashioned its § 2(c) action as a commercial bribery claim.⁴ Surprisingly, the Supreme Court has never decided a § 2(c) commercial bribery case. However, in dicta in Federal Trade Commission v. Henry Broch & Co., 363 U.S. 166, 80 S.Ct. 1158, 4 L.Ed.2d 1124 (1960), the Court noted that § 2(c) does encompass commercial bribery. Id. at 169 n. 6, 80 S.Ct. 1158 ("And although not mentioned in the Committee Reports, the debates on the bill show clearly that § 2(c) was intended to proscribe other practices such as the `bribing' of a seller's broker by the buyer.") (citation omitted).⁵ Similarly, in dicta in California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 513, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972), the Court again noted that "bribery of a public purchasing agent may constitute a violation of § 2(c) of the Clayton Act, as amended by the Robinson-Patman Act." In addition, a number of courts of appeals have held that § 2(c) encompasses commercial bribery.⁶ Although we once expressed skepticism about "whether Congress intended to sweep commercial bribery within the ambit of § 2(c)," Seaboard Supply, 770 F.2d at 371, we have since agreed that "commercial bribery is actionable under 2(c)." Environmental Tectonics, 847 F.2d at 1066.

Nevertheless, although § 2(c) of the Robinson-Patman Act defines certain conduct as illegal, it does not create a private right of action to sue for damages resulting from violations of the Act. Rather, the private right of action for a § 2(c) Robinson-Patman Act claim, as for all private plaintiff antitrust rights of action, is provided by § 4 of the Clayton Act. Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 853 (2d Cir.1987). Section 4 of the Clayton Act provides:

Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee.

15 U.S.C. § 15(a). However, in order to recover treble damages under § 4(a) of the Clayton Act, a private plaintiff must do more than simply show "an injury causally linked to" a violation of the antitrust laws. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). A...