Hobart Brothers Co. v. Malcolm T. Gilliland, Inc.

• Decision Date: 26 February 1973
• Docket Number: No. 72-1064.,72-1064.
• Citation: 471 F.2d 894
• Parties: HOBART BROTHERS COMPANY, Plaintiff-Appellant, v. MALCOLM T. GILLILAND, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

471 F.2d 894 (1973)

HOBART BROTHERS COMPANY, Plaintiff-Appellant, v. MALCOLM T. GILLILAND, INC., Defendant-Appellee.

No. 72-1064.

United States Court of Appeals, Fifth Circuit.

January 9, 1973.

Rehearing Denied February 26, 1973.

COPYRIGHT MATERIAL OMITTED

John M. Sikes, Jr., Joseph Lefkoff, Atlanta, Ga., Francis D. Morrissey, Chicago, Ill., Lawrence W. Newman, Baker & McKenzie, New York City, for plaintiff-appellant.

Hamilton Lokey, Atlanta, Ga., Wright Gellerstedt, Decatur, Ga., for defendant-appellee.

Before COLEMAN, GOLDBERG and GODBOLD, Circuit Judges.

COLEMAN, Circuit Judge:

Hobart Brothers Company sued Malcolm Gilliland, Inc. for monies owed on open account in the sum of $21,184.44.

Gilliland admitted the alleged indebtedness, but filed a three-count counterclaim. The counterclaim alleged a breach of the distributorship agreement, the failure of Hobart to credit a return of defective goods, and the negligence of Hobart in filling a particular order.

Nine months after filing its original answer, Gilliland amended by adding anti-trust counterclaims that (1) enforcement of an illegal contract placed geographical restrictions on Hobart's distributors in violation of § 1 of the Sherman Act; (2) cancellation of Gilliland's distributorship because of Gilliland's breach of Hobart's territorial sales restrictions was in violation of § 1 of the Sherman Act; and (3) cancellation of Gilliland's distributorship becaues of Gilliland's breach of Hobart's resale price restrictions was in violation of § 1 of the Sherman Act.

Hobart was granted summary judgment on its original complaint.

The issues raised in this appeal involve Gilliland's anti-trust claims.

We affirm the judgment of the District Court.

The Facts

Hobart Brothers Company, located in Troy, Ohio, is a manufacturer of welding equipment and consumable welding supplies.

In February, 1960, Malcolm Gilliland signed a distribution agreement with Hobart whereby Gilliland became a distributor of Hobart equipment for Northern Georgia. Under this distribution agreement Gilliland was limited territorially as to where he could sell. The agreement stated:

"Territorial arrangements are covered by correspondence, approval of which is indicated by the distributor\'s acceptance of this General Policy Outline. The extent to which a distributor may be protected in a territory is established by correspondence . . .

"The Distributor shall not solicit orders outside his assigned territory."

In June, 1964, a new distribution agreement was substituted. It did not contain outright territorial restrictions but instead only gave the distributor primary responsibility for certain territories. The policy stated:

"All territories have previously been assigned to distributors, and those which Hobart shall assign hereafter, the geographical areas in which distributorships shall be primary responsible for the sale and distribution of Hobart products sic . . . Hobart shall refer inquiries from these areas to the appointed distributor, so long as the distributor adequately represents Hobart in the area designated as his primary responsibility and promotes the sale of all Hobart\'s products.

"Hobart cannot assume responsibility for sales made by independent distributors outside their assigned territories."

Gilliland bore a dual relationship to Hobart. First, Gilliland was a distributor of Hobart's products, and, second, Gilliland competed with Hobart in the manufacture and sale of continuous wire feeder mechanisms. Gilliland used a Hobart power source in his wire feeder. This dual relationship existed from the time Gilliland accepted the distributorship. Hobart knew from the beginning that Gilliland was constructing equipment that competed with Hobart's. Hobart, according to the testimony, was never concerned with this minor competition as long as Gilliland's actions were compatible with the sale of Hobart products. Moreover, Hobart sold its products directly from the home office in competition with its own distributors.

In April, 1964, Hobart became alarmed when Gilliland began selling products in Tennessee that competed directly with Hobart. Tennessee was outside Gilliland's assigned territory. Hobart received similar reports of Gilliland competing directly with Hobart in May and September, 1964. Hobart's Tennessee district representative in an intra-office memo suggested that Hobart "counter" by selling directly in Gilliland's territory. On May 11, 1964, Hobart became aware that Gilliland was making disparaging remarks to some of Hobart's direct customers and at the same time was promoting his own products.

In September, 1964, Hobart was notified that the General Electric plant in Rome, Georgia, (which was in Gilliland's territory) was having trouble with Hobart products that Gilliland supplied. A Hobart sales representative, Wendell Jones, went to this General Electric plant on September 23, 1964, at General Electric's request, to examine the Hobart products. Jones discovered in General Electric's stock that electrodes of other manufacturers were mixed with Hobart electrodes in Hobart boxes and that some Hobart flux was mislabeled. Jones told the management of General Electric of these facts. General Electric at this meeting asked Jones if Hobart would be interested in handling the General Electric account directly. Hobart began doing so.

Jones took samples of the electrodes to have them tested by a Hobart chemist. The chemist's report showed that sample batches of electrodes reported as "bad" by General Electric welders were good workable electrodes. A second sample of electrodes was taken by Hobart, but no Hobart official could recollect the outcome of this second test. Until pre-trial discovery Gilliland was never aware of the Hobart reports or of the meeting at General Electric relating to Gilliland's handling of the General Electric account.

Gilliland claims that Hobart twice disparaged Gilliland on another occasion. These two disparagements occurred at a meeting on October 28, 1964, at the General Electric plant at Rome, Georgia. A Hobart representative, W.R. Stevens, told the management of General Electric that Gilliland was supplying General Electric with Hobart 24A type electrodes contrary to the purchase orders which specified type 24 electrodes. Gilliland offered proof which showed that Hobart had recommended and developed the 24A type electrode at General Electric's request after General Electric had encountered problems with the 24 type electrode. According to his testimony W.R. Stevens was not aware of General Electric's request to Hobart. Stevens also told the management of General Electric that Gilliland was not supplying General Electric with the high grade MIG 18 welding wire which General Electric had ordered. Stevens told General Electric that Gilliland was substituting a less expensive grade MIG 25 type wire. A General Electric employee, Ben James, testified that he had ordered the change in wire type, but that he had not put through the necessary paper work to show that the change had been made.

Gilliland's sales to General Electric amounted to $63,410.97 in 1963. Gilliland's sales to General Electric in 1964, up to the time that General Electric cancelled its account, amounted to $36,843.81.

In September, 1966, Hobart cancelled its distributorship agreement with Gilliland.

Gilliland claims it was damaged on another occasion when the American Buildings Company of Eufaula, Alabama, in 1964, cancelled an order for a continuous wire feeder. Gilliland was told that the order was cancelled because Hobart told American Buildings Company that Gilliland had caused trouble at the General Electric plant at Rome, Georgia, by supplying defective materials.

Gilliland claims that the loss of the General Electric account was due to Hobart's trade disparagement. Gilliland further contends that Hobart's actions were in retaliation for Gilliland's breach of the territorial restrictions and for Gilliland's competition with Hobart in the sale of wire feeders, which both manufactured.

Gilliland alleges that it was damaged as follows: (1) as a result of Hobart's cancellation of Gilliland's distributorship Gilliland lost $25,000 in profits on resale of Hobart's products; (2) as a result of the loss of the General Electric account Gilliland was damaged in the sum of $255,000; and (3) as a result of a refusal of American Buildings Company to deal, Gilliland was damaged in the amount of $50,000.

The District Court submitted the issues by special interrogatories. The jury answered the following five interrogatories affirmatively:

"(1) Did Hobart in the period from and after January 29, 1964, take action or actions in violation of the anti-trust laws which were a material factor in damaging Gilliland\'s subsequent profits earned or sales?

"(2) Underlying such action or actions taken by Hobart Brothers Company to damage Malcolm T. Gilliland, Inc., was there an intent on the part of Hobart to restrain Gilliland in its competitive interstate sales activity carried on outside of the territorial boundaries assigned to Hobart?

"(3) Were such action or actions taken by Hobart the proximate cause of such damage or injury claimed by Malcolm T. Gilliland, Inc.?

"(4) Has Malcolm T. Gilliland, Inc., been injured in its business by reason of a loss of business?

"(5) If Malcolm T. Gilliland, Inc., was injured by reason of loss of business, which injury was proximately caused by an agreement to which Hobart Brothers Company was a party entered into existing on or after January 29, 1964, which had as its purpose the unreasonable restraint of trade, what was the loss of profits sustained by Malcolm T. Gilliland, Inc. on sales from January 29, 1964, to the present time?"

In answer to the last interrogatory the jury awarded Gilliland $67,000 in damages. This judgment was tripled as allowed under 15 U.S.C. § 15. In addition, Gilliland's attorneys were awarded $75,000 in...