William Inglis & Sons v. ITT Cont. Baking

• Citation: 461 F. Supp. 410
• Decision Date: 02 October 1978
• Docket Number: No. C-71-1906 SW.,C-71-1906 SW.
• Court: U.S. District Court — Northern District of California
• Parties: WILLIAM INGLIS & SONS BAKING CO. et al., Plaintiffs, v. ITT CONTINENTAL BAKING COMPANY, INC., et al., Defendants. AMERICAN BAKERIES COMPANY, a corporation, and Langendorf United Bakeries, Inc., a corporation, et al., Counterclaimants, v. WILLIAM INGLIS & SONS BAKING CO., a corporation, et al., Counterclaim Defendants.

461 F. Supp. 410

WILLIAM INGLIS & SONS BAKING CO. et al., Plaintiffs, v. ITT CONTINENTAL BAKING COMPANY, INC., et al., Defendants.

AMERICAN BAKERIES COMPANY, a corporation, and Langendorf United Bakeries, Inc., a corporation, et al., Counterclaimants, v. WILLIAM INGLIS & SONS BAKING CO., a corporation, et al., Counterclaim Defendants.

No. C-71-1906 SW.

United States District Court, N. D. California.

October 2, 1978.

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Broad, Khourie & Schulz, Michael N. Khourie, Royce H. Schulz, Eugene C. Crew, Raymond L. Ocampo, Jr., San Francisco, Cal., Harold Greenwald, New York City, for plaintiffs and counterclaim defendants.

Robert D. Raven, James J. Garrett, Barry E. Carter, Morrison & Foerster, San Francisco, Cal., John H. Schafer, III, Charles E. Buffon, John D. Taurman, Covington & Burling, Washington, D. C., for defendants, ITT Continental Baking Co., Inc. and Di Carlo's Baking Co.

Richard S. Haas, Michael B. Flesch, Brobeck, Phleger & Harrison, San Francisco, Cal., John T. Cusack, Thomas Campbell, John P. McGuinnis, Gardner, Carton & Douglas, Chicago, Ill., for defendants, American Bakeries Co. and Langendorf United Bakeries, Inc.; Mitchell J. Wiet, Chicago, Ill., of counsel.

Edward L. Foote, Terry M. Grimm, Winston & Strawn, Chicago, Ill., Gary Stephen Anderson, Farella, Braun & Martel, San Francisco, Cal., Ray Sandy Sutton, Kansas City, Mo., for defendant, Interstate Brands Corp.

MEMORANDUM AND ORDER

SPENCER WILLIAMS, District Judge.

Plaintiff William Inglis & Sons Baking Co. (hereinafter Inglis) was an independent wholesale baker in the San Joaquin Valley prior to going out of business in April 1976. It manufactured and distributed bread and bread-type rolls in the San Francisco Bay Area, the Sacramento Valley, the San Joaquin Valley, parts of the Mother Lode country and of Lake Tahoe.

In 1971, Inglis and several other bakers brought this action against competing independent wholesale bakers alleging antitrust violations in the Northern California, Southern California and the Northwest markets. In 1977, this court ordered separate trials for each market. Trial for the Northern California market commenced in March 1978. This trial involved plaintiff Inglis and defendants ITT Continental Baking Co. (hereinafter Continental) and American Bakeries Co. A third Northern California market defendant, Campbell-Taggart, entered into a settlement agreement with the plaintiff prior to trial.¹

After a five-week trial, the jury returned a verdict against defendant Continental in the amount of $4,416,474 on the claims brought pursuant to § 2 of the Sherman Act (15 U.S.C. § 2) and the Robinson-Patman Act (15 U.S.C. § 13) and of $631,526 on the claims brought pursuant to the California Unfair Practices Act (Cal.Bus. & Prof. Code § 17000 et seq.). The jury found no liability on the part of defendant American Bakeries Co. and also returned a verdict of no liability on the counterclaim brought by American against Inglis.

The case is presently before this court on motion of defendant Continental for a Judgment Notwithstanding the Verdict and for a New Trial. For the reasons set forth below, this court finds that a JNOV and, in the alternative, a new trial is appropriate as to the Federal Sherman Act and Robinson-Patman claims. A new trial only is granted with respect to the claim brought under the California Unfair Practices Act.

STANDARD OF REVIEW

In determining whether a JNOV is appropriate, the trial court must ascertain "whether, without the need for weighing the credibility of witnesses, the evidence and its inferences, considered as a whole and viewed in the light most favorable to the party against whom such motion is granted, can support only one reasonable conclusion." Davison v. Pacific Inland Navigations Co., 569 F.2d 507, 509 (9th Cir. 1978); Kay v. Cessna Aircraft Co., 548 F.2d 1370, 1372 (9th Cir. 1977).

In contrast to a JNOV, a new trial motion allows the trial judge to reweigh the evidence. Generally, a new trial may be granted where the verdict is against the weight of the evidence, where the damages are excessive, where the trial was unfair or where substantial errors were committed in the admission or rejection of evidence or in the jury instructions. 11 Wright and Miller, Federal Practice and Procedure, § 2805 (1973). The grant or denial of a new trial motion pursuant to Federal Rule of Civil Procedure 59 is committed to the sound discretion of the trial judge. Exercise of this discretion should be used to prevent the miscarriage of justice.

ATTEMPT TO MONOPOLIZE — SHERMAN ACT § 2

The basis of the § 2 attempt to monopolize claim is alleged predatory activity by Continental in the sale of bread — more particularly in the sale of its private label bread. The primary products involved in this case are the one pound and one and one-half pound white pan bread. White pan bread is sold by wholesale bakers under an advertised label, a secondary label and a private label. The advertised label is generally a national brand name available to all stores. Continental, for example, markets under the Wonder Bread label. Inglis utilized the Sunbeam label. Secondary label is similar bread marketed under a different name and at a lower price than advertised label.² Private label bread is a label individual to the purchasing store and available at a lower price than the advertised label product.

In the late 1960's and early 1970's, the emergence of captive bakeries — those constructed by large chain stores such as Safeway and Alpha Beta for the purpose of producing their own bread — created extensive surplus capacity in the independent bakeries in the Northern California market. This engendered fierce new competitive activity. Much of this activity was devoted to selling private label bread to the smaller grocery chains that had not acquired captive bakeries. The principal benefit derived from landing a private label account was the preferential shelf space for sale of the more profitable advertised brand bread which customarily followed.

The predatory conduct underlying the § 2 claim is Continental's alleged below-cost sales of its private label bread for the purpose and with the effect of injuring competition. More specifically, Inglis contends it was Continental's purpose to hold the line on pricing in order to drive the weaker wholesalers out of business. It is the plaintiff's theory that Continental intended to drive the weaker bakers out in order to subsequently raise the price of private label bread to bring it more in line with the price of Wonder Bread so that a high level of Wonder Bread sales could be maintained.³

In order to withstand the JNOV motion, the plaintiff must have introduced sufficient evidence at trial to establish a prima facie case under § 2. The prima facie case is composed of three elements: first, a specific intent to control prices or destroy competition with respect to a part of commerce; second, predatory conduct directed toward accomplishing the unlawful purpose; and, third, a dangerous probability of success.⁴Janich Bros., Inc. v. American Distilling Co., 570 F.2d 848, 853 (9th Cir. 1977), appeal pending, 46 U.S.L.W. 3754 (1978). The first and third elements may, in some instances, be inferred from proof of the second element. Id. However, the existence of predatory conduct must be established by direct proof. This the plaintiff has failed to do.

Decreases in the price of private label bread and a continuation of this low pricing on the part of Continental form the basis of Inglis' predatory pricing charge. However, price decreases and continued low pricing alone are insufficient to substantiate a § 2 claim. Legitimate price decreases will always affect competitors and cause losses for inefficient firms. The antitrust laws are designed to foster vigorous and healthy competition — not to protect the inefficient producer. Janich Bros., Inc. v. American Distilling Co., supra, 570 F.2d at 856 n.7; Hanson v. Shell Oil Co., 541 F.2d 1352, 1358-59 (9th Cir. 1976), cert. denied, 429 U.S. 1074, 97 S.Ct. 813, 50 L.Ed.2d 792 (1977). Instead, predatory and thus illegal pricing exists only where a firm foregoes "present profits in order to create a market position in which it could charge enough to obtain supranormal profits and recoup its present losses." Hanson v. Shell Oil Co., supra, 541 F.2d at 1358; Janich Bros., Inc. v. American Distilling Co., supra, 570 F.2d at 856; International Air Indus., Inc. v. American Excelsior Co., 517 F.2d 714, 723 (5th Cir. 1975), cert. denied, 424 U.S. 943, 96 S.Ct. 1411, 47 L.Ed.2d 349 (1976).

The problem lies in ascertaining a workable formula for determining at what pricing level this situation will occur. There is considerable debate as to what the appropriate standard is and how it should be applied. See, e. g., Areeda & Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv.L. Rev. 697 (1975); Scherer, Predatory Pricing and the Sherman Act: A comment, 89 Harv.L.Rev. 869 (1976); Areeda & Turner, Scherer on Predatory Pricing: A Reply, 89 Harv.L.Rev. 891 (1976); Scherer, Some Last Words on Predatory Pricing, 89 Harv.L. Rev. 901 (1976); Williamson, Predatory Pricing: A Strategic & Welfare Analysis, 87 Yale L.J. 284 (1977); Areeda & Turner, Williamson on Predatory Pricing, 87 Yale L.J. 1337 (1978). The Ninth Circuit has determined that the appropriate predatory pricing standard is whether a firm sets prices below its marginal cost.⁵ Janich Bros., Inc. v. American Distilling Co., supra 570 F.2d at 858. When prices are set below marginal cost, rivals will be forced from the market for reasons unrelated to efficiency and the seller will be producing goods at a cost greater than their social value. Id. at 857-58.

Marginal cost may be defined as "the increment to total cost that results from producing an additional increment of...